-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G3+8rCe4smwSQwiclR3vdlXOkYN5qYBTwvlkGH9NEg+OtnofAeYJn8niR4HFeLgY 6kwGYSHklk2XRcVEaAzl3g== 0001104659-09-006918.txt : 20090205 0001104659-09-006918.hdr.sgml : 20090205 20090205173106 ACCESSION NUMBER: 0001104659-09-006918 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20081227 FILED AS OF DATE: 20090205 DATE AS OF CHANGE: 20090205 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CANDELA CORP /DE/ CENTRAL INDEX KEY: 0000793279 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 042477008 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14742 FILM NUMBER: 09574091 BUSINESS ADDRESS: STREET 1: 530 BOSTON POST RD CITY: WAYLAND STATE: MA ZIP: 01778 BUSINESS PHONE: 5083587400 MAIL ADDRESS: STREET 1: 530 BOSTON POST ROAD CITY: WAYLAND STATE: MA ZIP: 01778 FORMER COMPANY: FORMER CONFORMED NAME: CANDELA LASER CORP DATE OF NAME CHANGE: 19920703 10-Q 1 a09-4575_110q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 27, 2008.

Commission file number 000-14742

CANDELA CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		04-2477008
(State or other jurisdiction		(I.R.S. Employer Identification No.)
of incorporation or organization)

530 Boston Post Road, Wayland, Massachusetts		01778
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: (508) 358-7400

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o

Accelerated Filer x

Non-Accelerated Filer o

Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act) Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at February 4, 2009
Common Stock, $.01 par value per share		22,887,829

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CANDELA CORPORATION
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			Page
Part I.	Financial Information:

	Item 1.	Unaudited Financial Statements

		Condensed Consolidated Balance Sheets as of December 27, 2008 and June 28, 2008	3

		Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six-month periods ended December 27, 2008 and December 29, 2007	4

		Condensed Consolidated Statements of Cash Flows for the six-month periods ended December 27, 2008 and December 29, 2007	5

		Notes to Condensed Consolidated Financial Statements (Unaudited)	6 - 19

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20 - 25

	Item 3.	Quantitative and Qualitative Disclosure about Market Risk	26

	Item 4.	Controls and Procedures	26

Part II.	Other Information:

	Item 1.	Legal proceedings	27 - 29

	Item 4.	Submission of Matters to a Vote of Security Holders	30

	Item 5.	Other Information	30

	Item 6.	Exhibits	31

	Signatures		32

	Index to Exhibits		33

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Part I. Financial Information

Item 1 - Financial Statements

CANDELA CORPORATION
Consolidated Balance Sheets
(in thousands, except per-share data)
(unaudited)

	December 27,			June 28,
	2008			2008
Assets
Current assets:
Cash and cash equivalents	$	23,998		$	21,030
Restricted cash	13			29
Marketable securities	2,678			12,131
Accounts receivable, net of allowance for doubtful accounts of $3,038 and $2,322 at December 27 and June 28, respectively	34,129			43,320
Notes receivable	877			728
Inventories, net	30,565			33,141
Other current assets	14,779			9,043
Total current assets	107,039			119,422
Property and equipment, net	3,803			4,027
Deferred tax assets	5,155			8,065
Goodwill	—			13,225
Acquired Intangible assets, net	174			6,916
Marketable securities, long-term	656			3,512
Other assets	1,787			2,928
Total assets	$	118,614		$	158,095

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	11,663		$	15,917
Accrued payroll and related expenses	4,203			4,680
Accrued warranty costs, current	4,917			5,373
Sales tax payable	964			919
Other accrued liabilities	8,725			9,257
Deferred revenue, current	11,629			13,614
Current liabilities of discontinued operations	1,564			1,200
Total current liabilities	43,665			50,960
Deferred tax liability, long-term	291			2,099
Accrued warranty costs, long-term	685			725
Deferred revenue, long-term	3,874			4,522
Total liabilities	48,515			58,306

Stockholders’ equity:
Common stock, $.01 par value, 60,000,000 shares authorized; 26,156,000 and 26,123,000 issued at December 27 and June 28, respectively	262			261
Treasury stock, 3,450,000 common shares at December 27 and June 28, respectively, at cost	(24,855		)	(24,855		)
Additional paid-in capital	75,021			73,174
Accumulated earnings	16,668			45,588
Accumulated other comprehensive income	3,003			5,621
Total stockholders’ equity	70,099			99,789
Total liabilities and stockholders’ equity	$	118,614		$	158,095

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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CANDELA CORPORATION
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per-share data)

	For the three months ended:						For the six months ended:
	December 27,			December 29,			December 27,			December 29,
	2008			2007			2008			2007
	(Unaudited)						(Unaudited)
Revenue
Lasers and other products	$	18,785		$	24,858		$	35,886		$	51,311
Product-related service	9,972			10,850			19,535			19,499
Total revenue	28,757			35,708			55,421			70,810
Cost of sales
Lasers and other products	10,910			11,916			19,528			24,073
Product-related service	7,687			7,289			15,263			13,174
Total cost of sales	18,597			19,205			34,791			37,247
Gross profit	10,160			16,503			20,630			33,563
Operating expenses:
Selling, general and administrative	15,698			17,678			30,373			32,316
Research and development	3,591			2,822			5,921			5,220
Total operating expenses	19,289			20,500			36,294			37,536
Loss from operations	(9,129		)	(3,997		)	(15,664		)	(3,973		)
Other income (expense):
Interest income	174			500			417			963
Other expense, net	(304		)	(2,518		)	(621		)	(1,777		)
Total other expense	(130		)	(2,018		)	(204		)	(814		)
Loss from continuing operations before income taxes	(9,259		)	(6,015		)	(15,868		)	(4,787		)
Benefit from income taxes	(2,707		)	(2,298		)	(5,794		)	(1,952		)
Loss from continuing operations	(6,552		)	(3,717		)	(10,074		)	(2,835		)
Loss from discontinued operations, net of income taxes	(18,393		)	(833		)	(18,881		)	(1,528		)
Net Loss	$	(24,945	)	$	(4,550	)	$	(28,955	)	$	(4,363	)

Net loss per share of common stock:
Basic and diluted
Loss from continuing operations	$	(0.29	)	$	(0.16	)	$	(0.44	)	$	(0.12	)
Loss from discontinued operations	(0.81		)	(0.04		)	(0.83		)	(0.07		)
Net loss	$	(1.10	)	$	(0.20	)	$	(1.27	)	$	(0.19	)

Weighted average shares outstanding:
Basic and diluted	22,707			22,652			22,702			22,778

Net loss	$	(24,945	)	$	(4,550	)	$	(28,955	)	$	(4,363	)
Other comprehensive income (loss):
Foreign currency translation adjustment	(1,360		)	797			(2,618		)	1,569
Unrealized gain on available-for-sales securities, net of tax	—			1,039			—			777
Comprehensive loss	$	(26,305	)	$	(2,714	)	$	(31,573	)	$	(2,017	)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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CANDELA CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

	For the six months ended:
	December 27,			December 29,
	2008			2007
Cash flows from operating activities:
Net loss	$	(28,955	)	$	(4,363	)
Adjustments to reconcile net loss to net cash (used by) provided by operating activities:
Non-cash items reported in discontinued operations	16,784			—
Gain on other-than-temporary impairment of investment	—			2,546
Share-based compensation expense	1,785			2,056
Depreciation and amortization	1,806			1,440
Provision for bad debts	3,378			1,486
Other non-cash items	81			(41		)
Changes in operating assets and liabilities
Accounts receivable	7,100			(435		)
Notes receivable	149			493
Inventories	819			(5,305		)
Other current assets	1,057			(2,078		)
Other assets	1,904			62
Accounts payable	(3,059		)	9,626
Accrued payroll and related expenses	(302		)	(927		)
Deferred revenue	(2,446		)	1,474
Accrued warranty costs	(487		)	(1,528		)
Income taxes payable and deferred	(6,133		)	(1,150		)
Other accrued liabilities	(561		)	(2,523		)
Restricted cash	16			19
Net cash (used by) provided by operating activities	(7,064		)	852

Cash flows from investing activities:
Purchases of property and equipment	(675		)	(1,648		)
Maturities of held-to-maturity marketable securities	11,194			8,168
Purchases of held-to-maturity marketable securities	—			(13,920		)
Acquisition of intangible assets	—			(75		)
Net cash provided by (used by) investing activities	10,519			(7,475		)

Cash flows from financing activities:
Proceeds from the issuance of common stock	55			97
Purchase of treasury stock	—			(2,400		)
Net cash provided by (used by) financing activities	55			(2,303		)

Effect of exchange rates on cash and cash equivalents	(542		)	1,561

Net increase (decrease) in cash and cash equivalents	2,968			(7,365		)
Cash and cash equivalents at beginning of period	21,030			27,152
Cash and cash equivalents at end of period	$	23,998		$	19,787

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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Candela Corporation

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Basis of Presentation and Consolidation

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. The year-end consolidated balance sheet is derived from our audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, considered necessary for a fair presentation of our financial position, results of operations and cash flows at the dates and for the periods indicated. Actual results may differ from these estimates.

The results for the three and six-month periods ended December 27, 2008 are not necessarily indicative of results to be expected for the remainder of the fiscal year. The information contained in the interim financial statements should be read in conjunction with Management’s Discussion and Analysis and the financial statements and notes thereto included in the Candela Corporation 2008 Form 10-K filed with the Securities and Exchange Commission (“SEC”).

Basis of Consolidation

The financial statements include the accounts of Candela Corporation and its subsidiaries. Inter-company transactions and balances have been eliminated. Investments in which we are not able to exercise significant influence over the investee are accounted for under the cost method.

Significant Accounting Policies

As required, the Company adopted SFAS No. 157 for its financial assets on June 29, 2008 (Note 2). Adoption does not have a material impact on the Company’s financial position or results of operations at this time.

There have been no other changes in our significant accounting policies during the six months ended December 27, 2008 as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended June 28, 2008.

2. Recent Accounting Pronouncements

In April 2008, the Financial Accounting Standards Board (“FASB”) finalized FASB Staff Position (“FSP”) No. 142-3, Determination of the Useful Life of Intangible Assets. The position amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement of Financial Accounting Standard (“SFAS”) No. 142, Goodwill and Other Intangible Assets. The position applies to intangible assets that are acquired individually or with a group of other assets and both intangible assets acquired in business combinations and asset acquisitions. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We do not believe that the adoption of FSP 142-3 will have a material effect on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133. SFAS No. 161 requires disclosures of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008, with early adoption permitted. We are currently evaluating the additional disclosure required by SFAS No. 161 on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised “R”), Business Combinations. This standard changes the accounting for business combinations by requiring that an acquiring entity measures and recognizes identifiable assets acquired and liabilities assumed at the acquisition date

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fair value with limited exceptions. The changes include the treatment of acquisition related transaction costs, the valuation of any non-controlling interest at acquisition date fair value, the recording of acquired contingent liabilities at acquisition date fair value and the subsequent re-measurement of such liabilities after acquisition date, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals subsequent to acquisition date, and the recognition of changes in the acquirer’s income tax valuation allowance. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. We will evaluate the impact of the pending adoption of SFAS No. 141(R) on our consolidated financial statements if and when the Company enters into a business combination.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of SFAS No. 115. SFAS No. 159 permits companies to choose to measure certain financial instruments and certain other items at fair value and requires unrealized gains and losses on items for which the fair value option has been elected to be reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Adoption does not have a material impact on the Company’s financial position or results of operations at this time.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 establishes a framework for measuring the fair value of assets and liabilities. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in some cases require, estimates of fair market value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FSP No. FAS 157-1, Application of SFAS No. 157 to SFAS No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under SFAS No. 13, and FSP No. FAS 157-2, Effective Date of SFAS No. 157. Collectively, the FSPs defer the effective date of SFAS No. 157 to fiscal years beginning after December 15, 2008, for non-financial assets and non-financial liabilities except for items that are recognized or disclosed at fair value on a recurring basis at least annually, and amends the scope of SFAS 157. As required, the Company adopted SFAS No. 157 for its financial assets on June 29, 2008. Adoption does not have a material impact on the Company’s financial position or results of operations at this time. The Company has not yet determined the impact on its financial statements of the June 28, 2009 adoption of SFAS No. 157 as it pertains to non-financial assets and liabilities.

SFAS No. 157 establishes a fair value hierarchy that requires the use of observable market data, when available, and prioritizes the inputs to valuation techniques used to measure fair value in the following categories:

· Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets. Level 1 instruments include securities traded on active exchange markets, such as the New York Stock Exchange.

· Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

· Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions market participants would use in pricing the asset or liability.

Our cash and cash equivalents consist of cash on deposit at various financial institutions at December 27, 2008 and include approximately $6.2 million invested in money market funds. Since the Company did not elect the fair-value option on these or any other instruments, we do not have any financial assets or liabilities that require recording of fair value at December 27, 2008.

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3. Discontinued Operations

Candela Skin Care Centers (“CSCC”)

On September 27, 2003 management initiated a plan to close its only remaining skin care center. The closure was accounted for as a discontinued operation in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets and SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. In determining the amount of the facilities closure accrual, we are required to estimate such factors as future vacancy rates. These estimates are reviewed quarterly and may result in revisions to established facility reserves.

Inolase (2002) Ltd.

In the fiscal quarter ended December 27, 2008, in connection with the Company’s plan to focus on its core products, management initiated a plan to close its Inolase (2002) Ltd. (“Inolase”) subsidiary. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company classified the operating results of this business as discontinued operations in the accompanying statements of operations. In addition, the assets and liabilities of the discontinued operations not disposed of as of December 27, 2008 have been reflected as assets held for disposal and liabilities held for disposal in the accompanying consolidated balance sheet as of December 27, 2008.

The Company determined that there was no future cash value inherent to its Inolase subsidiary and, accordingly, decided to shut down this reporting unit as its fair value was zero. As part of that process the Company recognized a 100% impairment loss associated with the goodwill, other intangible assets, inventory, and fixed assets. These components of the loss recognized during the three-month period ended December 27, 2008 are as follows:

	In thousands
Goodwill	$	10,596
Patents & developed technology	5,162
Inventory	1,681
Property and equipment, net	237
	$	17,676

In accordance with SFAS No. 146, the Company also recorded restructuring charges of approximately $0.4 million at December 27, 2008 associated with future occupancy costs, minimum termination benefits, and professional service fees.

A summary of the operating results of the discontinued operations are as follows:

	For the three months ended:						For the six months ended:
(in thousands)	December 27, 2008			December 29, 2007			December 27, 2008			December 29, 2007
Revenue	$	65		$	373		$	274		$	744
Loss from discontinued operations	(1,146		)	(991		)	(1,779		)	(1,763		)
Provision for (benefit from) Income tax from discontinued operations	463			(158		)	318			(235		)
Net loss on disposal of discontinued operations, net of tax benefit of $892	(16,784		)	—			(16,784		)	—
Loss from discontinued operations, net	$	(18,393	)	$	(833	)	$	(18,881	)	$	(1,528	)

As of December 27, 2008, the Company had assets held for disposal of approximately $0.1 million and liabilities held in connection with such assets of approximately $0.4 million. These amounts are comprised of the assets and liabilities of the Inolase reporting unit. The assets held for disposal primarily represent cash and accounts receivable, net. The liabilities associated with such assets primarily represent accounts payable and accrued expenses.

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Current liabilities of discontinued operations consist of the following:

(in thousands)	December 27, 2008		June 28, 2008
Facility closure and other costs - CSCC	$	342	$	361
Deferred revenue, gift certificates - CSCC	839		839
Facility closure and other costs - Inolase	383		—
	$	1,564	$	1,200

4. Stock-based Compensation

Effective July 3, 2005, the Company implemented the fair value recognition provisions of SFAS No. 123 revised (“SFAS No. 123R”) and Staff Accounting Bulletin 107 (“SAB 107”) for all share-based compensation that was not vested as of July 2, 2005. The Company adopted SFAS No. 123R using a modified prospective application, as permitted under SFAS No. 123R. Accordingly, prior period amounts were not restated. Under this application, the Company is required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Compensation cost is being recognized over the period that an employee provides service in exchange for the award.

The application of SFAS No. 123R and SAB 107 during the three-month periods ended December 27, 2008 and December 29, 2007 resulted in the recognition of share-based compensation expense of approximately $0.9 million and $1.2 million, respectively. For the six-month period ended December 27, 2008 and December 29, 2007, recognition of shared-based compensation expense was approximately $1.8 million and $2.1 million, respectively. These expenses were divided between cost of sales and operating expense cost centers based upon the functional responsibilities of the individuals holding the respective options.

As of December 27, 2008, there was approximately $2.7 million of total unrecognized compensation cost related to non-vested stock options and Stock Appreciation Rights (“SARs”) granted under the Company’s incentive plans. This cost is expected to be recognized over a weighted-average period of 1.1 years.

The amount of cash received from the exercise of stock options for the six-month periods ended December 27, 2008 and December 29, 2007 was approximately $18,000 and $0.1 million, respectively.

None of the options or SARs outstanding at December 27, 2008 had cash-settlement features.

Stock Compensation Plans

General Discussion

Stock options provide the holder with the right to purchase common stock. The exercise price per share of “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, granted under the 1998 Stock Plan may not be less than the fair market value per share of common stock on the date of grant. In the case of an incentive stock option granted to an employee possessing more than 10% of the total combined voting power of all classes of stock of the Company, the exercise price per share may not be less than 110% of the fair market value per share of common stock on the date of grant.

Stock Appreciation Rights (“SARs”) provide the holder the right to receive an amount, payable in stock, cash or in any combination of these, as specified by a Committee established by the Board of Directors, equal to the excess of the market value of our common shares on the date of exercise over the grant price at the time of the grant. The grant price of a SAR may not be less than the fair market value per share of common stock on the date of grant, provided that the grant price of SARs granted in tandem with stock options shall equal the exercise price of the related stock option.

1990 Candela Corporation Employee Stock Purchase Plan

The 1990 Employee Stock Purchase Plan (the “Purchase Plan”) provides for the sale of up to 1.5 million shares of common stock to eligible employees. The shares are issued at 85% of the average

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high/low market price on the last day of semi-annual periods rounded up to the nearest penny. Substantially all full-time employees are eligible to participate in the Purchase Plan. At December 27, 2008 there were approximately 622,000 shares available for sale. Compensation expense for the purchase plan is recognized over the vesting period.

1998 Candela Corporation Amended and Restated Stock Plan

Effective December 12, 2006, the Third Amended and Restated 1998 Stock Plan (“1998 Stock Plan”) was amended, by affirmative vote at the Company’s Annual Meeting of Shareholders held on the same date, to increase the number of shares for which options and rights could be granted by 2.5 million shares to a maximum of 7.8 million shares.

Options and rights granted under the 1998 Stock Plan become exercisable on the date of grant or in installments, as specified by a Committee established by the Board of Directors, and expire ten years from the date of the grant. Upon exercise of a SAR, only the net number of shares of common stock issued in connection with such exercise shall be deemed “issued” for this purpose. The Company may satisfy the awards upon exercise with either newly-issued or treasury shares.

There were approximately 0.6 million stock-based SARs granted during the six-month period ended December 27, 2008. The SARs granted to employees become exercisable ratably over one to four years, while the SARs granted to directors become exercisable over two years.

There were approximately 4.3 million outstanding options/SARs at December 27, 2008 with a weighted-average exercise price of $8.19 per share, an aggregate intrinsic value of zero, and a weighted-average remaining contractual term of 7.72 years.

Of the total 4.3 million outstanding options/SARs, there were approximately 1.8 million of exercisable options/SARs at December 27, 2008 with a weighted-aver age exercise price of $10.39 per share, an aggregate intrinsic value of zero, and a weighted-average remaining contractual term of 6.19 years.

The total intrinsic value of options exercised during the six-month period ended December 27, 2008 was approximately $18,000.

The 1998 Stock Plan expired pursuant to its terms on September 18, 2008. As such, there were no options/SARs available for grant under this plan at December 27, 2008.

2008 Candela Corporation Stock Plan

The Company’s 2008 Stock Plan was adopted by the Board of Directors on October 27, 2008 and approved by the stockholders on December 12, 2008. The 2008 Stock Plan permits the Company to make grants of incentive stock options, non-qualified stock options, stock appreciation rights (“SARs”), restricted stock awards and restricted stock units (“RSUs”), which are referred to hereafter individually as a “Stock Right” and collectively as “Stock Rights.”

The 2008 Stock Plan authorizes the issuance of up to 1,300,000 shares of the Company’s Common Stock. The shares of Common Stock subject to Stock Rights may be authorized but unissued shares of Common Stock or shares of Common Stock reacquired by the Company in any manner. Any shares of Common Stock subject to a Stock Right which for any reason expires or terminates unexercised or terminates without the delivery of shares of Common Stock may again be available for future grants under the 2008 Stock Plan. No employee may be granted options and/or SARs with respect to more than 700,000 shares of Common Stock in any one fiscal year. No employee may be granted restricted stock or RSUs having a fair market value in excess of $2,000,000 in any one fiscal year. The number of shares of Common Stock available under the 2008 Stock Plan, the award limits and a grantee’s rights with respect to Stock Rights granted, unless otherwise specifically provided in the written instrument relating to the grant of such Stock Right, shall be adjusted upon the occurrence of any of the following: stock dividends, stock splits, consolidation, mergers, recapitalizations, reorganizations, dissolution or liquidation.

As of December 27, 2008, no awards had been granted under the 2008 Stock Plan.

The Compensation Committee of the Board of Directors administers the 2008 Stock Plan. Subject to the provisions of the 2008 Stock Plan, the Compensation Committee has the authority to select the

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persons to whom Stock Rights are granted and determine the terms of each Stock Right. Subject to certain limitations set forth in the 2008 Stock Plan, the Board of Directors may appoint other committees to administer the 2008 Stock Plan and also may delegate to any officer of the Company certain authority under the 2008 Stock Plan, including the authority to grant Stock Rights.

Incentive stock options may be granted to employees of the Company. Non-Qualified options, SARs, restricted stock and RSUs may be granted to any employee, officer, Director or consultant of the Company.

The Compensation Committee may grant incentive stock options, nonqualified stock options and SARs in tandem with an option or on a free standing basis. Each option or SAR expires on the date specified by the Compensation Committee, but not more than (i) ten years from the date of grant in the case of options and SARs generally and (ii) five years from the date of grant in the case of incentive stock options granted to an employee possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company. Options and SARs are subject to early termination in certain circumstances. The exercise price per share of Common Stock of an option may not be less than “fair market value” (as defined in the 2008 Stock Plan) per share of Common Stock on the date of grant. In the case of an incentive stock option to be granted to an employee possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, the exercise price per share of Common Stock may not be less than one hundred ten percent (110%) of the fair market value per share of Common Stock on the date of grant. The aggregate fair market value (determined on the date of grant) of the shares of Common Stock subject to incentive stock options granted to an employee and which first become exercisable during any calendar year cannot exceed $100,000. The grant price of SARs may not be less than the fair market value per share of Common Stock on the date of grant, provided that the grant price of SARs granted in tandem with an option shall equal the exercise price of the related option. Options and SARs may either be fully exercisable at the time of the grant or may become exercisable in such installments as the Compensation Committee may specify. The Compensation Committee has the right to accelerate the date of exercise of any installment of any option or SAR.

The Compensation Committee may grant restricted stock and RSUs. The instrument relating to the grant of restricted stock and RSUs will specify the restrictions that the Compensation Committee may impose, the number of shares of restricted Common Stock to be granted, and such other provisions as the Compensation Committee may determine. The restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, upon the satisfaction of performance goals or otherwise, as the Compensation Committee determines at the time of the grant of the restricted stock or RSUs. Except as otherwise provided in the applicable instrument relating to the grant of the restricted stock or RSUs, a grantee shall have all of the rights of a stockholder with respect to the restricted stock, and such grantee shall have none of the rights of a stockholder with respect to RSUs until such time as shares of Common Stock are paid in settlement of the RSUs.

The Compensation Committee may take any action as may be necessary to ensure that Stock Rights granted under the 2008 Stock Plan qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code. Any Stock Right granted under the 2008 Stock Plan which is intended to qualify as “performance-based compensation” may be conditioned on the attainment of one or more of the following performance goals: earnings, earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization, earnings per share, economic value created, market share, net income (before or after taxes), operating income, adjusted net income after capital charge, return on assets, return on capital (based on earnings or cash flow), return on equity, return on investment, revenue, cash flow, operating margin, share price, total stockholder return, total market value, and strategic business criteria, consisting of one or more objectives based on meeting specified market penetration goals, productivity measures, geographic business expansion goals, cost targets, customer satisfaction or employee satisfaction goals, goals relating to merger synergies, management of employment practices and employee benefits, or supervision of litigation or information technology, and goals relating to acquisitions or divestitures of subsidiaries, affiliates or joint ventures.

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Incentive stock options are not transferable by the optionee or grantee except by will or by the laws of descent and distribution. Non-Qualified options, SARs, restricted stock and RSUs are transferable to the extent determined by the Compensation Committee and as set forth in the instrument relating to the grant of any such non-qualified options, SARs, restricted stock and RSUs.

Unless otherwise specified in the instrument relating to the grant of an incentive stock options, if an incentive stock option optionee ceases to be employed other than reason of death or disability, all unvested incentive stock options shall terminate and the vested incentive stock options shall terminate on the earlier of three months after the date of termination of employment or the specified expiration date. If an incentive stock option optionee ceases to be employed by reason of death or disability, all unvested incentive stock options shall terminate and the vested incentive stock options shall terminate on the earlier of one hundred and eighty days after the date of termination of employment or the specified expiration date. The Compensation Committee shall specify in the instrument relating to the grant of nonqualified options, SARs, restricted stock and RSUs the treatment of such Stock Rights upon a grantee’s termination of employment.

In the event of a merger, sale or consolidation of the Company, or a similar “acquisition,” the administrator, or the board of directors of any successor, in its discretion, may either (i) provide for appropriate substitutions or assumptions of outstanding awards, (ii) provide that all option and stock appreciation rights must be exercised, to the extent exercisable, within a specified period following notice at the end of which period all outstanding options or stock appreciation rights will terminate, (iii) provide for the termination of all options and stock appreciation rights in exchange for a cash payment equal to the excess of the fair market value of the shares subject to such award over the exercise price of such award or (iv) terminate all awards, other than options and stock appreciation rights, on such terms and conditions as the administrator or the board of directors of any successor deems appropriate. The 2008 Stock Plan shall automatically expire on October 27, 2018, except as to options outstanding on that date.

The Board of Directors may adopt amendments to the 2008 Stock Plan, subject, in certain cases, to stockholder approval, and may terminate the 2008 Stock Plan at any time (although such action shall not affect Stock Rights previously granted). No Stock Rights may be granted under the 2008 Stock Plan after October 26, 2018.

5. Earnings or loss per Share

Basic earnings or loss per share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding for the period. If there are dilutive securities, diluted earnings per share is computed by including common stock equivalents outstanding for the period in the denominator. Common stock equivalents include shares issuable upon the exercise of stock options or warrants, net of shares assumed to have been purchased with the proceeds, using the treasury stock method.

	For the three months ended:		For the six months ended:
(in thousands, except per share data)	December 27, 2008	December 29, 2007	December 27, 2008	December 29, 2007
Shares used in the calculation of Basic earnings per share	22,707	22,652	22,702	22,778
Effect of dilutive securities:
Stock options/SAR’s	—	—	—	—
Diluted shares used in the calculation of earnings per share	22,707	22,652	22,702	22,778

During the three and six-month periods ended December 27, 2008 and December 29, 2007, respectively, potential common shares consisting of all shares issuable upon exercise of stock options/SARs have been excluded from the computation of diluted loss per share as their effect would have been anti-dilutive.

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6. Marketable Securities

The Company accounts for marketable securities in accordance with SFAS 115, Accounting for Certain Investments in Debt and Equity Securities. SFAS 115 establishes the accounting and reporting requirements for all debt securities and for investments in equity securities that have readily determinable fair values. All marketable securities must be classified as one of the following: held-to-maturity, available-for-sale, or trading.

The Company classifies its marketable debt securities as held-to-maturity when the Company has the intent and ability to hold them to maturity. Held-to-maturity debt securities are reported at amortized cost which approximates fair value. Current marketable securities include debt investments with original maturities that are expected to mature in more than three months and less than or equal to twelve months and equity investments. Long-term marketable securities include debt securities that have remaining maturities of one to three years. Unrealized losses related to the held-to-maturity securities are not considered a permanent decline in the market value of such securities.

Marketable securities consist of the following:

	December 27, 2008						June 28, 2008
(in thousands)	Net Carrying Amount		Fair Value		Unrealized loss		Net Carrying Amount		Fair Value		Unrealized loss
Short-term (Held-to-maturity):
Government-backed securities	$	1,000	$	1,004	$	4	$	9,000	$	9,055	$	55
Certificates of deposit	1,678		1,686		8		3,131		3,134		3
Total marketable securities, short-term	$	2,678	$	2,690	$	12	$	12,131	$	12,189	$	58

Long-term (Held-to-maturity):
Government-backed securities	$	—	$	—	$	—	$	2,000	$	2,014	$	14
Certificates of deposit	656		657		1		1,512		1,502		(10		)
Total marketable securities, long-term	$	656	$	657	$	1	$	3,512	$	3,516	$	4

Held-to-maturity investments at December 27, 2008 mature as follows:

	Fiscal Year Ended
(in thousands)	2009		2010		Total
Government-backed securities	$	1,000	$	—	$	1,000
Certificates of deposit	822		1,512		2,334
	$	1,822	$	1,512	$	3,334

7. Inventories

Inventories consist of the following:

(in thousands)	December 27, 2008		June 28, 2008
Raw materials	$	13,223	$	13,720
Work in process	1,233		1,635
Finished goods	16,109		17,786
	$	30,565	$	33,141

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8. Property and Equipment

Property and equipment consists of the following:

	December 27,			June 28,
(in thousands)	2008			2008
Leasehold improvements	$	388		$	1,014
Office furniture	332			718
Computers, software, and other equipment	7,817			11,845
	$	8,537		$	13,577
Less: accumulated depreciation	(4,734		)	(9,550		)
Property and equipment, net	$	3,803		$	4,027

Depreciation expense was approximately $0.3 million for each of the three-month periods ended December 27, 2008 and December 29, 2007, respectively.

Depreciation expense was approximately $0.6 million for each of the six-month periods ended December 27, 2008 and December 29, 2007, respectively.

The decreases in the various components of property and equipment, as well as in accumulated depreciation, are directly related to the impairment charges recorded in connection with the discontinued operation more fully explained in Note 3.

9. Goodwill and Acquired Intangible Assets

Goodwill and acquired intangible assets consist of the following:

(in thousands)	December 27, 2008		June 28, 2008
Goodwill	$	—	$	13,225
Intangible assets with finite lives:
Patents	$	174	$	3,128
Developed technology	—		6,009
	174		9,137
Accumulated amortization:
Patents	—		(886		)
Developed technology	—		(1,335		)
	—		(2,221		)
Intangible assets with finite lives, net	$	174	$	6,916

The changes in the carrying amount of goodwill for the six-month period ended December 27, 2008 are as follows:

	(in thousands)
Balance at June 28, 2008	$	13,225
Effect of foreign currency adjustments	(2,629		)
Impairment Charge	(10,596		)
Balance at December 27, 2008	$	—

Amortization expense was approximately $0.4 for each of the three-month periods ended December 27, 2008 and December 29, 2007, respectively.

Amortization expense was approximately $0.8 for each of the six-month periods ended December 27, 2008 and December 29, 2007, respectively.

10. Derivative Instruments and Hedging Activity

The Company enters into financial instruments to reduce its exposure to fluctuations in foreign exchange rates by creating offsetting positions through the use of foreign currency forward contracts. Changes to the fair value of derivative contracts that do not qualify for hedge accounting are reported in other income (expense) in the period of the change. For derivatives that qualify for hedge

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accounting, the Company recognizes the instruments as either assets or liabilities in the statement of financial position and measures those instruments at fair value. Changes in the fair value of the derivatives are recorded in shareholders’ equity as a component of other comprehensive income along with an offsetting adjustment against the basis of the derivative instrument itself.

The Company had three foreign currency forward contracts outstanding at December 27, 2008 in the notional amount of approximately 1.4 million Euros or approximately $2.0 million. These derivative contracts serve to mitigate the foreign currency risk of a substantial portion of our Euro-denominated inter-company balances at December 27, 2008. None of the aforementioned derivatives qualified for hedge accounting at December 27, 2008.

11. Warranty Reserve

The Company’s products generally carry a standard warranty. The Company maintains a reserve based on anticipated warranty claims at the time product revenue is recognized. Factors that affect the Company’s product warranty liability include the number of installed units, the anticipated cost of warranty repairs and historical and anticipated rates of warranty claims.

The following table reflects changes in the Company’s accrued warranty account during the three and six-month periods ended December 27, 2008 and December 29, 2007, respectively:

	For the three months ended:						For the six months ended:
	December 27,			December 29,			December 27,			December 29,
(in thousands)	2008			2007			2008			2007
Beginning balance	$	6,413		$	6,755		$	6,098		$	7,613
Incremental accruals on current sales	1,450			1,365			2,986			2,537
Amortization of prior-period accruals	(2,261		)	(2,035		)	(3,482		)	(4,065		)
Ending balance	$	5,602		$	6,085		$	5,602		$	6,085

12. Deferred Revenue

The Company offers extended service contracts that may be purchased for periods from one to five years. The Company recognizes service contract revenue ratably over the life of the contract. Actual service contract expenses incurred and charged to service costs of sales during an interim period may be more or less than the amount of amortized service contract revenue recognized in that period.

Revenues are recognized when a signed non-cancelable purchase order exists, the product is shipped, title and risk have passed to the customer, the fee is fixed or determinable, and collection is considered probable. Circumstances which generally preclude the immediate recognition of revenue include shipping terms of FOB destination or the existence of a customer acceptance clause in a contract based upon customer inspection of the product. In these instances, revenue is deferred until adequate documentation is obtained to ensure that these criteria have been fulfilled.

The following table reflects changes in the Company’s deferred revenue account during the three and six-month periods ended December 27, 2008 and December 29, 2007, respectively:

	For the three months ended:						For the six months ended:
	December 27,			December 29,			December 27,			December 29,
(in thousands)	2008			2007			2008			2007
Beginning balance	$	15,165		$	14,731		$	18,136		$	13,751
Deferral of new sales	3,862			4,246			8,244			9,435
Recognition of previously deferred revenue	(3,524		)	(3,752		)	(10,877		)	(7,961		)
Ending balance	$	15,503		$	15,225		$	15,503		$	15,225

13. Common Stock Buyback

325,000 shares of common stock were purchased for approximately $2.4 million during the six-month period ended December 29, 2007.

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14. Commitments and Contingencies

The Company has an agreement with the Regents of the University of California (“Regents”) for exclusive license rights to the Dynamic Cooling Device (“DCD”), subject to certain limited license rights of Cool Touch, Inc. (“Cool Touch”), in the following fields of use: procedures that involve skin resurfacing and rejuvenation, vascular skin lesions, and laser hair removal. Cool Touch, a subsidiary of New Star Technology, Inc., obtained a license to the DCD on a co-exclusive basis with the Company, in certain narrower fields of use.

The Company’s agreement with the Regents called for an annual license fee of $0.3 million and a minimum annual royalty obligation of $1 million or 3%, whichever is greater. The multi-year annual fee of $0.3 million was paid to the Regents in a lump sum of $3.0 million and is being amortized over the remaining life of the patent agreement, which as of December 27, 2008 was less than seven years. The royalty and the amortization of the annual license fee payment are reflected in the Company’s consolidated statement of income. The unamortized portion of the license fee payment is reflected in other current assets and in other assets at December 27, 2008 and June 28, 2008, respectively.

15. Income Taxes

The Company adopted the provisions of FIN 48 effective July 1, 2007. FIN 48 addresses the accounting for and disclosure of uncertainty in income tax positions by prescribing a minimum recognition threshold that a tax position is required to satisfy before being recognized in the financial statements. FIN 48 also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The cumulative effect of adopting FIN 48 was a decrease in tax reserves of approximately $0.1 million, resulting in an offsetting increase to the July 1, 2007 Retained Earnings balance.

The Company files income tax returns in the United States (“U.S.”) on a federal basis and in many U.S. state and foreign jurisdictions. The three most significant tax jurisdictions are the U.S., Spain, and Japan. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. The 2006 and 2007 fiscal tax years remain subject to examination by the IRS for U.S. federal tax purposes, our 2004 through 2007 fiscal tax years remain subject to examination by the appropriate governmental agencies for Spanish and Japanese tax purposes.

16. Legal Proceedings

The Company is currently involved in two litigation matters with Palomar Medical Technologies, Inc. (“Palomar”).

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legal proceeding. In a Markman hearing, the Court interprets the definition of the disputed claim term of a patent. On October 31, 2008, the Company requested a stay of the case with the Court, which was granted on November 17, 2008. The Company did so based upon a third party’s re-examination request that was granted by the United States Patent and Trademark Office on August 29, 2008. The re-examination is with respect to both the ‘568 and ‘844 Patents, including many of the Claims at issue in this case. On December 9, 2008, Candela filed requests for re-examination of the ‘568 and ‘844 Patents with the United States Patent & Trademark Office asserting that all claims currently in dispute with Palomar be held invalid. On January 7, 2009, the United States Patent and Trademark Office granted the Company’s re-examination request of the ‘844 Patent and the ‘568 Patent. The United States Patent and Trademark Office stated that there are substantial new questions of patentability for all claims asserted against the Company by Palomar.

· On August 10, 2006, the Company filed suit against Palomar in the United States District Court for the District of Massachusetts, asserting willful infringement by Palomar of U.S. Patent Nos. 6,659,999, 5,312,395 (the “395 Patent”), and 6,743,222 (the “‘222 Patent”). The Company seeks compensatory and treble damages for the patent infringement, as well as attorneys’ fees and an injunction against Palomar to prevent Palomar’s continuing infringement. The Company served its complaint on Palomar in August 2006. In October 2006, the Company amended the Company’s suit against Palomar by removing from the suit allegations that Palomar infringes Patent 6,659,999. In October 2006, Palomar answered the Company’s amended complaint by denying the Company’s allegations and asserting an affirmative defense of inequitable conduct with respect to the ‘395 Patent. In addition, Palomar filed a demand for a declaratory judgment seeking a judicial determination that Palomar products either do not infringe the ‘395 Patent and ‘222 Patent or that such patents are invalid. In November 2006, the Company answered the counterclaim by denying Palomar’s allegations. In February 2008, Palomar filed a request for re-examination of the Company’s ‘222 Patent with the United States Patent and Trademark Office (“PTO”). In March 2008, the PTO granted re-examination. In June 2008, the Court stayed the case until the PTO rules on the re-examination.

While the Company intends to vigorously contest Palomar’s allegations, and to pursue its own claims against Palomar, each lawsuit is inherently uncertain and unpredictable as to its ultimate outcome. An adverse outcome in Palomar’s suit against the Company would materially hurt the Company’s business, financial condition, results of operations and cash flows.

· In December 2006, the Company filed suit against Palomar in the United States District Court for the Eastern District of Texas, Lufkin Division, asserting that Palomar infringes one or more claims of United States patents Nos: 5,810,801, 6,659,999 and 6,120,497. The Company sought compensatory and treble damages for past infringement, as well as attorneys’ fees and an injunction against Palomar from future infringement. In January 2007, Palomar answered the complaint by denying the Company’s allegations and filing a declaratory judgment motion seeking a court ruling that it did not infringe such patents and/or that such patents were invalid. In addition, Palomar filed a motion to transfer the case to the United States District Court for the District of Massachusetts. In February 2007, the Company added Massachusetts General Hospital as a party to its action. The Court denied Palomar’s motion to transfer the case to Massachusetts. The parties had a six day trial, beginning on September 29, 2008. At trial, the Company alleged that Claims 11-14 of the 5,810,801 Patent was infringed by Palomar’s Lux 1540, Lux1540Z, LuxIR and Lux DeepIR. On October 7, 2008, the jury returned a verdict in favor of Palomar. The jury found that none of the alleged Palomar products infringe on Claims 11-14 of the Company’s 5,810,801 patent and that all such Claims are invalid. The Company filed a Judgment as a Matter of Law motion with the Court in an attempt to reverse the invalidity ruling. On December 30, 2008, the Court entered final judgment in favor of Palomar.

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lead plaintiff and lead counsel. On August 25, 2008, lead plaintiff filed a consolidated amended complaint purporting to be brought on behalf of all open-market purchasers of Candela common stock from November 1, 2005 through August 21, 2006, and alleging that Candela made certain false and misleading statements to investors expressing optimism regarding its financial condition and failed to disclose (i) the possibility that Palomar, one of Candela’s leading competitors, would initiate patent enforcement litigation against Candela and (ii) that Candela was purportedly losing market share to its competitors.

· On April 16, 2008, a shareholder derivative action entitled Forlenzo v. Puorro, et al., Civ. No. 08-1532, was filed in Massachusetts Superior Court for Middlesex County against the individual members of Candela’s board of directors and certain of its current and former officers, purporting to assert claims for breach of fiduciary duty and related claims arising out of allegations similar to those asserted in the class action litigation discussed above (the “Derivative Action”). The complaint sought on behalf of Candela, among other things, damages, restitution, and injunctive relief.

On January 16, 2009, the parties to the Consolidated Class Action and the Derivative Action filed stipulations of settlement, together with supporting documents, in the United States District Court for the District of Massachusetts and Massachusetts Superior Court for Middlesex County, respectively. Under the terms of the proposed Consolidated Class Action settlement, Candela will pay $3.85 million into a settlement fund for the benefit of the class members. Under the terms of the proposed Derivative Action settlement, Candela will pay for attorneys’ fees and has agreed to adopt certain corporate governance changes. Candela’s insurer will fund all payments contemplated by the proposed settlements. Neither the Company nor any of the individual defendants admit any wrongdoing under either of the proposed settlements, which are being entered into in return for the release of all claims. The proposed settlements are subject to preliminary and final approval by the respective courts.

· On February 19, 2008, Cardiofocus, Inc. (“Cardiofocus”) filed suit against the Company and eight other companies in the United States District Court for the District of Massachusetts, asserting willful infringement by the Company of U.S. Patents 6,457, 780, 6,159,203 and 5,843,073. Cardiofocus seeks compensatory and treble damages, as well as attorneys’ fees and injunctive relief. On April 21, 2008, the Company answered Cardiofocus’ complaint and asserted a variety of counterclaims against Cardiofocus. The Company intends to vigorously defend against the lawsuit. Based upon Candela’s request, on July 23, 2008, the United States Patent & Trademark Office (“PTO”) agreed to re-examine the validity of the Cardiofocus patents. On October 14, 2008, the Court agreed to stay this matter for a minimum of one year, up to a maximum of two years, but no later than the PTO’s decision with respect to the re-examination proceedings.

From time to time, the Company is party to various legal proceedings incidental to its business. The Company believes that none of the legal proceedings, other than the lawsuit initiated by Palomar, that are presently pending, if adversely decided against us, will have a material adverse effect upon the Company’s financial position, results of operations, or liquidity.

17. Other Income

In August 2007 the Company recognized a $0.6 million gain on the receipt of additional cash consideration related to the acquisition of Solx, Inc., a privately held company, by OccuLogix, Inc., a publicly traded company (NasdaqGM: OCCX). Candela Corporation originally held 19.99% of the outstanding common stock of Solx, Inc., on an as-converted basis, prior to Solx’s acquisition by OccuLogix in August 2006.

As a result of this transaction, Candela received approximately $1.0 million in cash at the time of closing, future cash consideration of approximately $2.5 million, and approximately 1.3 million shares of common stock in OccuLogix, Inc.

The Company classified the common shares of OccuLogix as available-for-sale securities recorded at fair value based upon quoted market prices. The temporary differences between cost and fair value were presented in the consolidated financial statements in accumulated other comprehensive

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income within stockholders’ equity, net of any related tax effect. At December 29, 2007, in the opinion of management, the value of the investment in the common shares of OccuLogix sustained an other-than-temporary impairment in value and the Company recognized an associated $2.5 million loss of which approximately $2.4 million was reclassified from accumulated other comprehensive income.

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Candela Corporation

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We research, develop, manufacture, market, sell, distribute, and service lasers and light-based products used to perform aesthetic and cosmetic procedures. We sell our lasers to physicians and personal care practitioners. We market our products directly and through a network of distributors to end-users. Our traditional customer base includes plastic and cosmetic surgeons and dermatologists. More recently, we have expanded our sales to a broader group of practitioners consisting of general practitioners and certain specialists including obstetricians, gynecologists and general and vascular surgeons. We derive our revenue from the sales of lasers, light-based devices, and other products, as well as product-related services.

Critical Accounting Policies

This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates and judgments on an on-going basis, including those related to revenue recognition, allowance for doubtful accounts, inventory reserves, warranty reserves, contingencies, valuation of long-lived assets, stock-based compensation, restructurings and income taxes. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and judgments under different assumptions or conditions.

A discussion of our critical accounting policies and the related estimates and judgments affecting the preparation of our consolidated financial statements is included in our Annual Report on Form 10-K for fiscal year 2008. Information with respect to changes in our Critical Accounting Policies during the six-month period ended December 27, 2008 may be found in Note 1 of the Notes to Condensed Consolidated Financial Statements (unaudited) in this Form 10-Q, which information is incorporated herein by reference.

Critical Accounting Estimates

There have been no significant changes in our critical accounting estimates during the six months ended December 27, 2008 as compared to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended June 28, 2008.

Recent Accounting Pronouncements

Information with respect to Recent Accounting Pronouncements may be found in Note 2 of Notes to Condensed Consolidated Financial Statements (unaudited) in this Form 10-Q, which information is incorporated herein by reference.

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Results of Operations

Revenue

Revenue source by geographic region is reflected in the following table:

	For the three months ended:
(in thousands)	December 27, 2008				December 29, 2007				Increase (Decrease)
U.S.	$	8,637	30	%	$	13,680	38	%	$	(5,043	)	-37	%
All other countries	20,120		70	%	22,028		62	%	(1,908		)	-9	%
Total worldwide revenue	$	28,757	100	%	$	35,708	100	%	$	(6,951	)	-19	%

	For the six months ended:
(in thousands)	December 27, 2008				December 29, 2007				Increase (Decrease)
U.S.	$	17,503	32	%	$	30,199	43	%	$	(12,696	)	-42	%
All other countries	37,918		68	%	40,611		57	%	(2,693		)	-7	%
Total worldwide revenue	$	55,421	100	%	$	70,810	100	%	$	(15,389	)	-22	%

Consolidated revenue was $28.8 million for the three-month period ended December 27, 2008, as compared to $35.7 million for the same period ended December 29, 2007. The overall decrease in quarterly revenue of approximately $7.0 million was comprised primarily of revenue declines of $5.0 million in the U.S. and $3.0 million in Europe, offset slightly by a $0.9 million increase in Japan. The decrease in U.S. and European revenues was directly related to the slowing economy combined with the tightening credit markets.

Consolidated revenue was $55.4 million for the six-month period ended December 27, 2008, as compared to $70.8 million for the same period ended December 29, 2007. The overall decrease of $15.4 million was driven by decreases in the U.S. and Europe. The decrease in revenues was directly related to the slowing economy combined with the tightening credit markets.

Revenue source by type is reflected in the following table:

	For the three months ended:
(in thousands)	December 27, 2008				December 29, 2007				Increase (Decrease)
Lasers and other products	$	18,784	65	%	$	24,896	70	%	$	(6,112	)	-25	%
Product-related services	9,973		35	%	10,812		30	%	(839		)	-8	%
Total revenue	$	28,757	100	%	$	35,708	100	%	$	(6,951	)	-19	%

	For the six months ended:
(in thousands)	December 27, 2008				December 29, 2007				Increase (Decrease)
Lasers and other products	$	35,886	65	%	$	51,394	73	%	$	(15,508	)	-30	%
Product-related services	19,535		35	%	19,416		27	%	119			1	%
Total revenue	$	55,421	100	%	$	70,810	100	%	$	(15,389	)	-22	%

The decrease in revenue from lasers and other products for the three-month period ended December 27, 2008, compared to the same period ended December 29, 2007, was directly related to the general reduction in sales in the U.S. and European markets due to the slowing economy combined with the tightening credit markets.

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The decrease in revenue from lasers and other products for the six-month period ended December 27, 2008, compared to the same period ended December 29, 2007, was directly related to the general reduction in sales in the U.S. and European markets due to the slowing economy combined with the tightening credit markets.

Product-related services decreased approximately $0.8 million or 8% in the three-month period ended December 27, 2008 as compared to the same period ended December 29, 2007. The decrease is primarily related to fluctuating consumable sales.

Product-related services increased approximately $100,000 or 1% in the six-month period ended December 27, 2008 as compared to the same period ended December 29, 2007. The slight increase is primarily related to the increase in the number of service-related contracts sold.

Gross Profit. Gross profit was approximately $10.2 million or 35.3% for the three-month period ended December 27, 2008 as compared to $16.5 million or 46.2% for the same period ended December 29, 2007. The decrease in gross profit for the three-month period ended December 27, 2008 as compared to the same period in the previous fiscal year is primarily due to changes in product mix, changes in regional mix, and a greater proportion of revenues being derived from the sale of product-related services in the current period which carry a lower margin than sales of lasers. It was also affected by an increase in our inventory reserve of approximately $1.2 which was determined to be necessary due to the current economic conditions.

Gross profit was approximately $20.6 million or 37.2% for the six-month period ended December 27, 2008 as compared to $33.6 million or 47.4% for the same period ended December 29, 2007. The decrease in gross profit for the six-month period ended December 27, 2008 as compared to the same period in the previous fiscal year is due to changes in product mix and a greater proportion of revenues being derived from the sale of product-related services in the current period. It was also affected by an increase in our inventory reserve of approximately $1.2 which was determined to be necessary due to the current economic conditions.

Selling, General and Administrative Expense. Selling, general and administrative (SG&A) expenses were approximately $15.7 million for the three-month period ended December 27, 2008 compared to $17.7 million for the three-month period ending December 29, 2007. As a percentage of revenue, SG&A expenses increased to 54.6% from 49.5% of revenues in the comparative prior-year period. The $2.0 million decrease was primarily comprised of a $0.9 million reduction in sales-related costs, a $1.2 million in decreased legal and audit fees, and decreases in labor and labor related costs of $0.8 million, offset by an increase in accounts receivable and sales reserves of approximately $0.9 million.

For the six-month period ended December 27, 2008, S,G&A expenses decreased to approximately $30.4 million from approximately $32.3 million for the same period ended December 29, 2007. As a percentage of revenue, S,G&A expenses increased to 54.8% from 45.6% of revenues in the comparative prior year period. The $2.0 million decrease was primarily comprised of a $1.4 million reduction in sales-related costs, a $0.6 million in decreased legal and audit fees, and decreases in labor and labor related costs of $1.0 million, offset by an increase in accounts receivable and sales reserves of approximately $1.0 million.

Research and Development Expense. Research and development (R&D) spending increased to approximately $3.6 million for the three-month period ended December 27, 2008, from approximately $2.8 million for the comparative prior-year period. The increase was primarily driven by the write-off of certain intellectual property. The Company had acquired certain patents and rights in an attempt to commercialize a light-based product. Based on current economic and market conditions, management decided to indefinitely suspend all future development efforts relative to this technology and its underlying product potential.

For the six-month period ended December 27, 2008, Research and development (R&D) expenses increased to approximately $5.9 million from approximately $5.2 million for the same period ended December 29, 2007. Again, the increase was primarily driven by the write-off of certain intellectual property. The Company had acquired certain patents and rights in an attempt to commercialize a light-based product. Based on current economic and market conditions, management decided to indefinitely suspend all future development efforts relative to this technology and its underlying product potential.

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Other Income/Expense. Other expense was approximately $0.1 million for the three-months ended December 27, 2008, as compared to approximately $2.0 million for the same period ended December 29, 2007. The year-over-year decrease of approximately $1.9 million from the prior-year comparable period is due to the recognition of a $2.5 million loss on the other-than-temporary impairment of our holdings of common shares of OccuLogix, Inc. (Note 17) in the comparable fiscal period, combined with a $0.3 million decrease in interest income earned and a $0.3 million increase in foreign currency expense during the current fiscal quarter.

Other expense was approximately $0.2 million for the six-months ended December 27, 2008, as compared to approximately $0.8 million for the same period ended December 29, 2007. The year-over-year decrease is primarily due to the Company having recognized the above-referenced $2.5 million loss offset by higher interest income in the six-month period ended December 29, 2007 as compared to decreased interest income offset by losses on certain foreign currency positions experienced during the six-month period ended December 27, 2008.

The decrease in interest income earned during the six-month period ended December 27, 2008, as compared to the same period in the prior fiscal year, is primarily related to a decrease in cash and cash equivalents and in investments during the trailing twelve-month period ended December 27, 2008 combined with decreasing market interest rates.

Income Taxes. The (benefit) provision for income taxes results from a combination of activities of the Company and its domestic and foreign subsidiaries. We recorded effective tax rates of approximately 36% and 30% for each of the six-month periods ended December 27, 2008 and December 29, 2007, respectively. The effective tax rate for the period ended December 27, 2008 differs from the statutory rate primarily due to differences in foreign tax rates, R&D credits and other permanent items. The effective rate for the period ended December 29, 2007 differs from the statutory rate primarily due to differences in foreign tax rates and other permanent items. The foreign rate difference is due to income reported in a high tax rate jurisdiction combined with losses benefited in a jurisdiction with a lower tax rate.

The Company also recorded a discrete tax benefit during the six months ended December 27, 2008 for the effect of the reinstatement of the R&D credit in the US. During the six month period ended December 29, 2007 the Company reported a discrete expense item of $0.1 million resulting from a change in the statutory tax rate in Germany. The effect of the change in the German statutory rate on current earnings is fully reflected in our effective tax rate indicated above.

Liquidity and Capital Resources

Our cash and cash equivalents and our investment in short and long-term marketable securities at December 27, 2008 totaled approximately $27.3 million compared with approximately $46.1 million at December 29, 2007. Principal components of the decrease include growth in our inventory over the trailing twelve months, the use of cash for our stock repurchase program, and the general funding of operations. We continue to have no long-term debt. We believe that the combination of existing cash and cash equivalents, and marketable securities on hand, along with cash to be generated by future operations and amounts available under our line of credit, will be sufficient to meet our ongoing operating and capital expenditure requirements for the foreseeable future. However, we cannot be sure that we will not require additional capital beyond the amounts currently forecasted by us, or that any such required additional capital will be available on reasonable terms, if at all, as it becomes required.

Cash used by operating activities amounted to approximately $7.1 million for the six-month period ended December 27, 2008 as compared to cash provided by operating activities of approximately $0.9 million for the same period in the prior year. The increase in cash used by operating activities is primarily attributable to our year-to-date net loss combined with an overall decrease in current liabilities in the normal course of business.

Off-Balance Sheet Arrangements

Our only off-balance sheet arrangements consist of non-cancelable operating leases entered into in the ordinary course of business and the license agreement with the Regents. The table below in the next section titled “Contractual Obligations” shows the amounts of our operating lease commitments and purchase commitments payable by year.

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Contractual Obligations

Outstanding contractual obligations of the Company are reflected in the following table:

(in thousands)	Total		Less than 1 year		1 - 3 years		3 - 5 years		After 5 years
Royalty commitments	$	3,250	$	1,000	$	1,250	$	500	$	500
Operating leases	2,806		1,363		1,150		187		106
Total contractual obligations	$	6,056	$	2,363	$	2,400	$	687	$	606

Cautionary Statements

Certain statements contained herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“Reform Act”). We may also make forward-looking statements in other reports filed with the Securities and Exchange Commission, in materials delivered to stockholders and in press releases. In addition, our representatives may from time to time make oral forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Words such as “anticipates,” “believes,” “expects,” “estimates,” “intends,” “plans,” “projects,” and similar expressions, may identify such forward-looking statements. Such forward-looking statements include but are not limited to: that we have the necessary infrastructure in place to capitalize on expansion; the affordability of our products will allow for expansion; that we can lower production costs; or that the market will expand beyond baby boomers. We assume no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. The risks and uncertainties that may affect forward-looking statements and/or our business include, among others, those discussed in “Cautionary Statements” in our Annual Report filed on Form 10-K for the fiscal year ended June 28, 2008, as well as other risks and uncertainties referenced in this Quarterly Report on Form 10-Q, and the following:

· On August 9, 2006, one of our competitors, Palomar Medical Technologies, Inc. (“Palomar”), alleged that the manufacture, use and sale of our products for laser hair removal willfully infringe certain United States patents. Public announcements concerning this and related litigation between the two parties that are unfavorable to us may result in significant declines in our stock price. An adverse ruling or judgment in this matter is likely to cause our stock price to decline significantly. Litigation with Palomar is expensive and is likely to be protracted, and our intellectual property position as well as our cash position may be weakened as a result of an adverse ruling or judgment. Whether or not we are successful in the pending lawsuit, litigation may consume substantial amounts of our financial resources and divert management’s attention away from our core business. Please see Part II, Item 1 (Legal Proceedings) for a further discussion of the Palomar litigation.

· Claims by others that our products infringe their patents or other intellectual property rights, or that the patents which we own or have licensed rights to are invalid, could prevent us from manufacturing and selling some of our products or could require us to incur substantial costs from litigation, licenses or the development of non-infringing technology.

· Our receipt of final approval from the respective courts in the Western Pa, Caballero and Forlenzo lawsuits. Please see Part II, Item 1 (Legal Proceedings) for a further discussion of the Western Pa, Caballero and Forlenzo litigation.

· Our principal source of liquidity is our current cash and equivalents and marketable investments. Our ability to generate cash from operations is dependant upon our ability to generate revenue from selling our lasers and other products and providing product-related services. A decrease in demand for our products and related services or increases in operating costs would likely have an adverse effect on our liquidity.

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· Disappointing quarterly revenue or operating results could cause the price of our common stock to fall.

· Because we typically derive more than half of our revenue from international sales, we are susceptible to currency fluctuations, negative economic changes taking place in foreign marketplaces, and other risks associated with conducting business overseas.

· The failure to obtain alexandrite rods for certain laser systems from our sole supplier would impair our ability to manufacture and sell these laser systems, which has accounted for a substantial portion of our revenue in certain recent periods.

· Our failure to respond to rapid changes in technology and intense competition in the laser industry could make our lasers obsolete.

· Like other companies in our industry, we are subject to a regulatory review process and our failure to receive necessary government clearances or approvals could affect our ability to sell our products and remain competitive.

· We have modified some of our products without FDA clearance. The FDA could retroactively decide the modifications were improper and require us to cease marketing and/or recall the modified products.

· Achieving complete compliance with FDA regulations is difficult, and if we fail to comply, we could be subject to FDA enforcement action.

· We could incur substantial costs as a result of product liability claims, including but not limited to costs as a result of product failures for which we are responsible under warranty obligations and as a result of our customer’s potential unavailability of liability insurance coverage.

· We may be unable to attract and retain management and other personnel we need to succeed.

· Our failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, operating results, and stock price.

· Our failure to manage acquisitions and joint ventures effectively may divert management attention from our core business and cause us to incur debt, liabilities or costs.

· Our business could also be negatively impacted if our customers or suppliers experience disruptions resulting from tighter capital and credit markets, or a slowdown in the general economy. As a result, customers may modify, delay or cancel plans to purchase our products or services, and suppliers may increase their prices, reduce their output or change their terms of sale. Additionally, if customers’ or suppliers’ operating and financial performance deteriorates, or if they are unable to make scheduled payments or obtain credit, customers may not be able to pay, or may delay payment of, accounts receivable owed to us and suppliers may restrict credit or impose different payment terms. Any inability of customers to pay us for our products and services, or any demands by suppliers for different payment terms, may adversely affect the Company’s earnings and cash flow.

We caution readers not to place undue reliance upon any forward-looking statements, which speak only as of the date made. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based.

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Item 3 - Quantitative and Qualitative Disclosures about Market Risk

We have cash equivalents and marketable securities that consist of money market mutual funds, certificates of deposit, US government securities, fixed income corporate securities and equity investments. The majority of these investments have maturities within one to three years. We believe that our exposure to interest rate risk is minimal due to the term and type of our investments and those fluctuations in interest rates would not have a material adverse effect on our results of operations.

We have international subsidiaries that transact business in foreign currencies and, therefore, we are exposed to foreign currency exchange risk resulting from fluctuations in foreign currencies. This risk could adversely impact our results and financial condition. For the six-month period ended December 27, 2008, approximately 41% and 24% of the Company’s costs and expenses, respectively, were denominated in foreign currencies. In addition, approximately 33% and 29% of the Company’s consolidated assets were subject to foreign currency exchange fluctuations as of December 27, 2008 and June 28, 2008, respectively, while approximately 49% and 48% of its consolidated liabilities were exposed to foreign currency exchange fluctuations as of December 27, 2008 and June 28, 2008, respectively. From time to time, we may enter into foreign currency exchange contracts to reduce our expos ure to foreign currency exchange risk and variability in operating results due to fluctuation in exchange rates underlying the value of current transactions and anticipated transactions denominated in foreign currencies. These contracts obligate us to exchange predetermined amounts of specified foreign currencies at specified exchange rates on specified dates. These contracts are denominated in the same currency in which the underlying transactions are denominated and bear a contract value and maturity date that approximate the value and expected settlement date, respectively, of the underlying transactions. The principal foreign currencies applicable to our business are the Euro and the Yen.

Changes to the fair value of derivative contracts that do not qualify for hedge accounting are r eported in other income (expense) in the period of the change. For derivatives that qualify for hedge accounting, the Company recognizes the instruments as either assets or liabilities in the statement of financial position and measures those instruments at fair value. Changes in the fair value of the derivatives are recorded in shareholders’ equity as a component of other comprehensive income along with an offsetting adjustment against the basis of the derivative instrument itself.

Item 4 - Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Acting Chief Financial Officer (our principal executive officer and principal financial officer, respectively) have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of December 27, 2008, the end of the period covered by this quarterly report on Form 10-Q. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation, our Chief Executive Officer and Acting Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosur e controls and procedures were effective in gathering, analyzing and disclosing information needed to satisfy our disclosure obligations under the Securities Exchange Act of 1934, as amended.

Changes in Internal Controls over Financial Reporting

There have been no changes in the Company’s internal controls over financial reporting that occurred during the quarter ended December 27, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Candela Corporation

Part II. Other Information

Item 1 - Legal Proceedings

The Company is currently involved in two litigation matters with Palomar Medical Technologies, Inc. (“Palomar”).

· Palomar asserts that it is the exclusive licensee from The General Hospital Corporation (“Mass. General”) of U.S. Patent No. 5,735,844 (the “‘844 Patent”) and U.S. Patent No. 5,595,568, which is related to the ‘844 Patent (the “‘568 Patent”). On August 9, 2006, Palomar filed suit against the Company in the United States District Court for the District of Massachusetts, asserting willful infringement by the Company of the ‘844 Patent. Palomar seeks compensatory and treble damages, as well as attorneys’ fees and injunctive relief. In November 2006, the Company answered the complaint by denying Palomar’s allegations and asserting a variety of affirmative defenses and counterclaims against Palomar. This response included a counterclaim by the Company against Palomar seeking a declaratory judgment that the ‘568 Patent is either invalid, or products manufactured by the Company do not infringe the ‘568 Patent, or both. In November 2006, Palomar filed an answer denying the Company’s counterclaim. In February 2007, Palomar moved to amend its Complaint to add The General Hospital Corporation as a party, to add a claim for infringement by Candela of the ‘568 Patent, and to allege that additional Candela products infringe the ‘568 Patent. Palomar’s motion to amend its Complaint was granted in August 2007. In February 2007, Candela moved to amend its Answer and Counterclaims to add allegations of inequitable conduct, double-patenting and violation of Mass. Gen. Laws Ch. 93A by Palomar. The Company’s motion to amend its Answer and Counterclaims was granted in March 2007. Palomar filed a general denial response to Candela’s Amended Answer and Counterclaim in March 2007. In August 2007, the parties had a Markman hearing before the U.S. District Court Judge presiding over the above-described legal proceeding. In a Markman hearing, the Court interprets the definition of the disputed claim term of a patent. On October 31, 2008, the Company requested a stay of the case with the Court, which was granted on November 17, 2008. The Company did so based upon a third party’s re-examination request that was granted by the United States Patent and Trademark Office on August 29, 2008. The re-examination is with respect to both the ‘568 and ‘844 Patents, including many of the Claims at issue in this case. On December 9, 2008, Candela filed requests for re-examination of the ‘568 and ‘844 Patents with the United States Patent & Trademark Office asserting that all claims currently in dispute with Palomar be held invalid. On January 7, 2009, the United States Patent and Trademark Office granted the Company’s re-examination request of the ‘844 Patent and the ‘568 Patent. The United States Patent and Trademark Office stated that there are substantial new questions of patentability for all claims asserted against the Company by Palomar.

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· On April 2 and April 22, 2008, respectively, two substantially similar putative class action lawsuits, entitled Western Pa. Elec. Employees Pension Fund, et al., 1:08-cv-10551-DPW (“Western Pa.”) and Caballero v. Candela Corp., et al., Civ. No. 1:08-cv-10673-DPW (“Caballero”), were filed against Candela and two of its officers in the United States District Court for the District of Massachusetts purporting to assert claims for violations of §§10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeking, among other things, compensatory damages and reasonable costs and expenses. On July 10, 2008, the court consolidated the cases (the “Consolidated Class Action”) and appointed lead plaintiff and lead counsel. On August 25, 2008, lead plaintiff filed a consolidated amended complaint purporting to be brought on behalf of all open-market purchasers of Candela common stock from November 1, 2005 through August 21, 2006, and alleging that Candela made certain false and misleading statements to investors expressing optimism regarding its financial condition and failed to disclose (i) the possibility that Palomar, one of Candela’s leading competitors, would initiate patent enforcement litigation against Candela and (ii) that Candela was purportedly losing market share to its competitors.

· On February 19, 2008, Cardiofocus, Inc. (“Cardiofocus”) filed suit against the Company and eight other companies in the United States District Court for the District of Massachusetts,

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asserting willful infringement by the Company of U.S. Patents 6,457, 780, 6,159,203 and 5,843,073. Cardiofocus seeks compensatory and treble damages, as well as attorneys’ fees and injunctive relief. On April 21, 2008, the Company answered Cardiofocus’ complaint and asserted a variety of counterclaims against Cardiofocus. The Company intends to vigorously defend against the lawsuit. Based upon Candela’s request, on July 23, 2008, the United States Patent & Trademark Office (“PTO”) agreed to re-examine the validity of the Cardiofocus patents. On October 14, 2008, the Court agreed to stay this matter for a minimum of one year, up to a maximum of two years, but no later than the PTO’s decision with respect to the re-examination proceedings.

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Item 4 — Submission of Matters to a Vote of Security Holders

On December 12, 2008, the Company held its annual meeting of shareholders and voted on four proposals.

1) At the Meeting, six (6) directors were elected to hold office until the Company’s next annual meeting. The vote was as follows:

	FOR	WITHHOLD
George A. Abe	16,820,713	3,901,866
Ben Bailey, III	17,279,996	3,442,583
Nancy E. Nager	16,816,100	3,906,479
Gerard E. Puorro	17,004,497	3,718,082
Kenneth D. Roberts	16,892,819	3,829,760
Douglas W. Scott	16,596,684	4,125,895

2) At the meeting, the proposal to adopt the Company’s 2008 Stock Plan, and the reserve of 1,300,000 shares of the Company’s Common Stock for issuance under the 2008 Stock Plan, was approved as follows:

FOR		AGAINST		ABSTAIN
10,350,539		4,389,918		76,670

3) At the meeting, the proposal to adopt an amendment to the amended and restated Certificate of Incorporation to create a class of Preferred Stock and authorize an issuance of up to 5,000,000 shares of Preferred Stock was not approved as approval by more than 50% of the shares outstanding was required. The vote was as follows:

FOR		AGAINST		ABSTAIN
11,040,915		3,705,926		70,286

4) At the Meeting, the vote on a proposal to ratify the selection of BDO Seidman, LLP to serve as the Company’s independent registered public accounting firm for the fiscal year ending June 27, 2009, was approved as follows:

FOR		AGAINST		ABSTAIN
19,839,353		642,280		240,945

Item 5 — Other Information

None.

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Item 6 - Exhibits

(a) Exhibits

Exhibit 10.2.8		Amendment Number One to the Candela Corporation Employee Stock Purchase Plan

Exhibit 10.19		Candela Corporation 2008 Stock Plan

Exhibit 10.20		Form of Candela Corporation 2008 Stock Plan Notice of Stock Appreciation Right Grant

Exhibit 3(i)		Amended and Restated Certificate of Incorporation of Candela Corporation

Exhibit 31.1		Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer

Exhibit 31.2		Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer

Exhibit 32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2		Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		CANDELA CORPORATION


Date:	February 5, 2009	/s/ Robert E. Quinn
		Robert E. Quinn
		Vice President, Finance, Treasurer, and
		Corporate Controller (Principal Financial Officer)

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Candela Corporation

INDEX TO EXHIBITS

Exhibit No.		Description

Exhibit 10.2.8		Amendment Number One to the Candela Corporation Employee Stock Purchase Plan

Exhibit 10.19		Candela Corporation 2008 Stock Plan

Exhibit 10.20		Form of Candela Corporation 2008 Stock Plan Notice of Stock Appreciation Right Grant

Exhibit 31.1		Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer

Exhibit 31.2		Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer

Exhibit 32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2		Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-10.2.8 2 a09-4575_1ex10d2d8.htm EX-10.2.8

Exhibit 10.2.8

AMENDMENT NUMBER ONE

TO THE

CANDELA CORPORATION

1990 EMPLOYEE STOCK PURCHASE PLAN

The Board of Directors of Candela Corporation has amended the Candela Corporation 1990 Employee Stock Purchase Plan (the “Plan”) as follows:

1. Effective January 19, 2009, Article 5 of the Plan is hereby amended by adding the following to the end of the second paragraph:

For Payment Periods beginning on or after January 1, 2009, the Option Price for each Payment Period shall be 85% of the average market price of the Company’s Common Stock on the last business day of the Payment Period, rounded up to the nearest penny.

All provisions of the Plan not specifically mentioned in this Amendment shall be considered modified to the extent necessary to be consistent with the changes made in this Amendment.

EX-10.19 3 a09-4575_1ex10d19.htm EX-10.19

Exhibit 10.19

CANDELA CORPORATION

2008 STOCK PLAN

October 27, 2008

1. Purpose. The purpose of this Candela Corporation 2008 Stock Plan (the “Plan”) is to encourage employees of Candela Corporation (the “Company”) and employees of any present or future subsidiary of the Company (collectively, “Related Corporations”) and other individuals who render services to the Company or any Related Corporation, by providing opportunities to participate in the ownership of the Company’s common stock, $.01 par value per share (the “Common Stock”), and its future growth through (a) the grant of options which qualify as “incentive stock options” (“ISOs”) under Section 422(b) of the Internal Revenue Code of 1986, as amended (the “Code”); (b) the grant of options that do not qualify as ISOs (“Non-Qualified Options”); (c) the grant of stock appreciation rights (“SARs”); (d) the grant of restricted stock (“Restricted Stock”); and (e) the grant of restricted stock unit awards (“RSUs”). Both ISOs and Non-Qualified Options are referred to hereafter individually as an “Option” and collectively as “Options.” Options, SARs, Restricted Stock and RSUs are referred to hereafter collectively as “Stock Rights.” As used herein, the term “subsidiary” means a “subsidiary corporation,” as that term is defined in Section 424 of the Code.

2. Administration of the Plan.

A. Board or Committee Administration. The Plan shall be administered by the Board of Directors of the Company (the “Board”) or, if so designated by the Board, by the Compensation Committee of the Board, or such other committee or committees as may be appointed by the Board from time to time (the “Committee”). Hereinafter, all references in this Plan to the “Committee” shall mean the Board if no Committee has been appointed. To the extent allowed by applicable state law, the Board by resolution may authorize an officer or officers to grant Stock Rights within parameters prescribed by the Board to other officers and employees of the Company. Subject to ratification of the grant or authorization of each Stock Right by the Board (if so required by applicable state law), and subject to the terms of the Plan, the Committee shall have the authority to (i) determine to whom (from among the class of employees eligible under paragraph 3 to receive ISOs) ISOs shall be granted, and to whom (from among the class of individuals eligible under paragraph 3 to receive Non-Qualified Options, SARs, Restricted Stock, and RSUs) Non-Qualified Options, SARs, Restricted Stock, and RSUs may be granted; (ii) determine the time or times at which Stock Rights shall be granted; (iii) determine the purchase price of shares subject to each Option; (iv) determine the grant price of SARs as specified in subparagraph 6(d); (v) determine whether each Option granted shall be an ISO or a Non-Qualified Option; (vi) determine (subject to paragraph 6) the time or times when each Option or SAR shall become exercisable and the duration of the exercise period; (vii) determine the terms and conditions of any Stock Right granted under the Plan, (viii) prescribe the forms of any instruments applicable to the grant of any Stock Right, which need not be identical, (ix) interpret the Plan and prescribe and rescind rules and regulations relating to it, and (x) make all other decisions and determinations that may be required under the Plan or as the Committee deems necessary or advisable to administer the Plan. If the Committee determines to issue a Non-Qualified Option, it shall take whatever actions it deems necessary, under Section 422 of the Code and the regulations promulgated thereunder, to ensure that such Option is not treated as an ISO. The interpretation and construction by the Committee of any provisions of the Plan or of any Stock Right granted under it shall be final unless otherwise determined by the Board. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem advisable. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Stock Right granted under it.

B. Committee Actions. The Committee may select one of its members as its chairman, and shall hold meetings at such time and places as it may determine. A majority of the Committee shall constitute a quorum and acts of a majority of the members of the Committee at a meeting at which a quorum is present, or acts reduced to or approved in writing by all the members of the Committee (if consistent with applicable state law), shall be the valid acts of the Committee. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without

cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan.

C. Grant of Stock Rights to Members of the Board. Stock Rights (other than ISOs) may be granted to members of the Board. All grants of Stock Rights to members of the Board shall in all respects be made in accordance with the provisions of this Plan applicable to other eligible persons. Members of the Board who either (i) are eligible to receive grants of Stock Rights pursuant to the Plan or (ii) have been granted Stock Rights may vote on any matters affecting the administration of the Plan or the grant of any Stock Rights pursuant to the Plan.

D. Performance-Based Compensation.

(i) The Committee may take such action as may be necessary to ensure that Stock Rights granted under the Plan qualify as qualified “performance-based compensation” within the meaning of Section 162(m) of the Code and applicable regulations promulgated thereunder (“Performance-Based Compensation”). Such action may include, in the Committee’s discretion, some or all of the following:

(a) requiring that the Plan be administered by a Committee consisting solely of two or more “outside directors” (as defined in applicable regulations promulgated under Section 162(m) of the Code); and

(b) specifying one or more of the Performance Measures (as defined below) set forth in this subparagraph 2(D) and determining the degree of granting, vesting and/or payout with respect to the Stock Rights.

(ii) The performance goals, if any, to be used for Stock Rights shall be chosen from among the following performance measures (the “Performance Measures”): earnings, earnings before interest and taxes, earnings before interest, taxes, depreciation and amortization, earnings per share, economic value created, market share, net income (before or after taxes), operating income, adjusted net income after capital charge, return on assets, return on capital (based on earnings or cash flow), return on equity, return on investment, revenue, cash flow, operating margin, share price, total stockholder return, total market value, and strategic business criteria, consisting of one or more objectives based on meeting specified market penetration goals, productivity measures, geographic business expansion goals, cost targets, customer satisfaction or employee satisfaction goals, goals relating to merger synergies, management of employment practices and employee benefits, or supervision of litigation or information technology, and goals relating to acquisitions or divestitures of subsidiaries, affiliates or joint ventures. Performance Measures may be established at the Company, subsidiary or business unit levels. The targeted level or levels of performance with respect to any Performance Measures may be established at such levels and on such terms as the Committee may determine, in its discretion, including, without limitation, in absolute terms, as a goal relative to performance in prior periods, or as a goal compared to the performance of one or more comparable companies or an index covering multiple companies. Unless otherwise determined by the Committee, measurement of performance goals with respect to the Performance Measures above shall exclude the impact of charges for restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring items, as well as the cumulative effects of tax or accounting changes, each as determined in accordance with generally accepted accounting principles or identified in the Company’s financial statements, notes to the financial statements, management’s discussion and analysis or other public filings.

3. Eligible Employees and Others. ISOs may be granted only to employees of the Company or any Related Corporation. Non-Qualified Options, SARs, Restricted Stock, and RSUs may be granted to any employee, officer or director (whether or not also an employee) or consultant of the Company or any Related Corporation. The Committee may take into consideration a recipient’s individual circumstances in determining whether to grant a Stock Right. The granting of any Stock Right to any individual or entity shall neither entitle that individual or entity to, nor disqualify such individual or entity from, participation in any other grant of Stock Rights.

4. Stock.

A. The shares of Common Stock subject to Stock Rights shall be authorized but unissued shares of Common Stock or shares of Common Stock reacquired by the Company in any manner. The aggregate number of shares that may be issued pursuant to the Plan is one million three

hundred thousand (1,300,000), subject to adjustment as provided in paragraph 8. The number of shares of Common Stock available for issuance of ISOs under the Plan is one million three hundred thousand (1,300,000), subject to adjustment as provided in paragraph 8. If any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part or shall be repurchased by the Company, the unpurchased shares of Common Stock subject to such Option shall again be available for grants of Stock Rights under the Plan. Where payment upon exercise of a SAR is made in shares of Common Stock, only the net number of shares of Common Stock issued in connection with such exercise shall be deemed “issued” for purposes of this paragraph 4. If any Stock Right, other than an Option, granted under the Plan shall expire or terminate for any reason without delivery of Common Stock such shares of Common Stock subject to the Stock Right shall again be available for grants of Stock Rights under the Plan.

B. No employee of the Company or any Related Corporation may be granted Options and/or SARs with respect to more than seven hundred thousand (700,000) shares of Common Stock, in the aggregate, under the Plan during any fiscal year of the Company, subject to adjustment as provided in paragraph 8. No employee of the Company or any Related Corporation may be granted Restricted Stock or RSUs having a fair market value in excess of two million dollars ($2,000,000) under the Plan during any fiscal year of the Company.

5. Granting of Stock Rights. Stock Rights may be granted under the Plan at any time on or after October 27, 2008 and prior to October 26, 2018.

6. Terms and Conditions of Options and SARs.

A. Grant of Options or SARs. Subject to subparagraph 2(A), Options and SARs shall be evidenced by instruments (which need not be identical) in such forms as the Committee may from time to time approve. Such instruments shall conform to the terms and conditions set forth in this paragraph 6 and may contain such other provisions as the Committee deems advisable which are not inconsistent with the Plan, including restrictions applicable to shares of Common Stock issuable upon exercise of Options or SARs and the treatment of Options or SARs upon a termination of employment as specified in subparagraph 6(H). The Committee may specify that any Non-Qualified Option or SARs shall be subject to the restrictions set forth herein with respect to ISOs, or to such other termination and cancellation provisions as the Committee may determine. SARs may be granted in tandem with an Option (“Tandem SARs”), or may be granted on a freestanding basis, not related to any Option (“Freestanding SARs”), or any combination of these forms of SARs. The Committee may from time to time confer authority and responsibility on one or more of its own members and/or one or more officers of the Company to execute and deliver such instruments. The proper officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of such instruments.

B. Price for Options and SARs.

(i) Price for Non-Qualified Options. The exercise price per share specified in the instrument relating to each Non-Qualified Option granted under the Plan shall not be less than the fair market value, as determined in accordance with subparagraph 6(D), per share of the Common Stock of the Company on the date of grant.

(ii) Price for ISOs. The exercise price per share specified in the instrument relating to each ISO granted under the Plan shall not be less than the fair market value, as determined in accordance with subparagraph 6(D), per share of the Common Stock on the date of grant. In the case of an ISO to be granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Corporation, the exercise price per share specified in the instrument relating to such ISO shall not be less than one hundred ten percent (110%) of the fair market value, as determined in accordance with subparagraph 6(D), per share of the Common Stock on the date of grant. For purposes of determining stock ownership under this paragraph, the rules of Section 424(d) of the Code shall apply.

(iii) Price of SARs. The grant price per share specified in the instrument relating to each Freestanding SAR granted under the Plan shall not be less than the fair market value, as determined in accordance with subparagraph 6(D), per share of the Common Stock on the date of grant. The grant price per share specified in the instrument relating to each Tandem SAR granted under the Plan shall equal the exercise price of the related Option.

C. $100,000 Annual Limitation on ISO Vesting. Each eligible employee may be granted Options treated as ISOs only to the extent that, in the aggregate under this Plan and all incentive stock option plans of the Company, ISOs do not become exercisable for the first time by such employee during any calendar year with respect to stock having a fair market value (determined at the time the ISOs were granted) in excess of $100,000. The Company intends to designate any Options granted in excess of such limitation as Non-Qualified Options, and the Company shall issue separate instruments to the optionee with respect to Options that are Non-Qualified Options and Options that are ISOs.

D. Determination of Fair Market Value. Under the terms of the Plan, “fair market value” shall be determined as of the date of grant or, if the prices or quotes discussed in this paragraph are unavailable for such date, the last business day for which such prices or quotes are available prior to the date of grant and shall mean (i) the closing selling price per share of the Common Stock, if the Common Stock is traded on any established stock exchange or traded on a national market system; or (ii) the closing bid price last quoted by an established quotation service for over-the-counter securities, if the Common Stock is not traded on any established stock exchange or traded on a national market system. If the Common Stock is not publicly traded at the time an Option or SAR is granted under the Plan, “fair market value” shall mean the fair market value of a share of Common Stock as determined by the Committee in accordance with a valuation methodology approved in good faith by the Committee and in compliance with Section 409A of the Code and the regulations issued thereunder.

E. Option and SAR Duration. Subject to earlier expiration as provided in subparagraph 6(H) or in the instrument relating to such Option or SAR, each Option and SAR shall expire on the date specified by the Committee, but not more than (i) ten years from the date of grant in the case of Options and SARs generally and (ii) five years from the date of grant in the case of ISOs granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Corporation, as determined under subparagraph 6(B). Subject to earlier expiration as provided in subparagraph 6(H), the term of each ISO shall be the term set forth in the original instrument granting such ISO, except with respect to any part of such ISO that is converted into a Non-Qualified Option pursuant to subparagraph 6(K).

F. Exercise of Options and SARs. Subject to the provisions of this paragraph 6, each Option or SAR granted under the Plan shall be exercisable as follows:

(i) Vesting. The Option or SAR shall be fully exercisable on the date of grant or shall become exercisable thereafter in such installments as the Committee may specify.

(ii) Full Vesting of Installments. Once an installment becomes exercisable, it shall remain exercisable until expiration or termination of the Option or SAR, unless otherwise specified by the Committee.

(iv) Partial Exercise. Each Option or, subject to subparagraph 6(G)(ii), each SAR or installment thereof, may be exercised at any time or from time to time, in whole or in part, for up to the total number of shares with respect to which it is then exercisable

(v) Acceleration of Vesting. The Committee shall have the right to accelerate the date that any installment of any Option or SAR becomes exercisable; provided that the Committee shall not, without the consent of an optionee, accelerate the permitted exercise date of any installment of any Option granted pursuant to subparagraph 6(K) if such acceleration would violate the annual vesting limitation contained in Section 422(d) of the Code, as described in subparagraph 6(C).

G. Means of Exercising Options and SARs.

(i) Options. An Option (or any part or installment thereof) shall be exercised by giving written notice to the Company at its principal office address, or to such transfer agent as the Company shall designate. Such notice shall identify the Option being exercised and specify the number of shares as to which such Option is being exercised, accompanied by full payment of the purchase price therefor either (a) in United States dollars in cash or by check, (b) at the discretion of the Committee, through delivery of shares of Common Stock having a fair market value equal as of the date of the exercise to the cash exercise price of the Option, (c) at the discretion of the Committee and consistent

with applicable law, through the delivery of an assignment to the Company of a sufficient amount of the proceeds from the sale of the Common Stock acquired upon exercise of the Option and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be at the optionee’s direction at the time of exercise, or (d) at the discretion of the Committee, by any combination of (a), (b) and (c) above. If the Committee exercises its discretion to permit payment of the exercise price of an ISO by means of the methods set forth in clauses (b), (c), or (d) of the preceding sentence, such discretion shall be exercised in writing at the time of the grant of the ISO in question. The holder of an Option shall not have the rights of a shareholder with respect to the shares covered by such Option until the date of issuance of a stock certificate to such holder for such shares. Except as expressly provided in paragraph 8 with respect to changes in capitalization and stock dividends, no adjustment shall be made for dividends or similar rights for which the record date is before the date such stock certificate is issued.

(ii) SARs. Tandem SARs may be exercised for all or part of the shares of Common Stock subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the shares of Common Stock for which its related Option is then exercisable. Notwithstanding any other provision of the Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (a) the Tandem SAR will expire no later than the expiration of the underlying ISO; (b) the value of the payout with respect to the Tandem SAR may be for no more than one hundred percent (100%) of the difference between the exercise price of the underlying ISO and the fair market value of the shares of Common Stock subject to the underlying ISO at the time the Tandem SAR is exercised; and (c) the Tandem SAR may be exercised only when the fair market value of the shares of Common Stock subject to the ISO exceeds the exercise price of the ISO. Freestanding SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon them and sets forth in the applicable instrument relating to the grant of such Freestanding SARs. Upon exercise of a SAR, a grantee shall be entitled to receive payment from the Company in an amount determined by multiplying: (1) the difference between the fair market value of a share of Common Stock on the date of exercise over the grant price; by (2) the number of shares of Common Stock with respect to which the SAR is exercised. At the discretion of the Committee, the payment upon SAR exercise may be in cash, in shares of Common Stock of equivalent value, or in some combination thereof.

H. Termination of Employment.

(i) ISOs.

(a) Termination Other than for Death or Disability. Unless otherwise specified in the instrument relating to an ISO, if an ISO optionee ceases to be employed by the Company and all Related Corporations other than by reason of death or disability as defined below, no further installments of his or her ISOs shall become exercisable, and his or her ISOs shall terminate on the earlier of (1) three months after the date of termination of his or her employment, or (2) their specified expiration dates, except to the extent that such ISOs (or unexercised installments thereof) have been converted into Non-Qualified Options pursuant to subparagraph 6(K). For purposes of this subparagraph 6(H), employment shall be considered as continuing uninterrupted during any bona fide leave of absence (such as those attributable to illness, military obligations or governmental service) provided that the period of such leave does not exceed 90 days or, if longer, any period during which such optionee’s right to re-employment is guaranteed by statute or by contract. A bona fide leave of absence with the written approval of the Committee shall not be considered an interruption of employment under this subparagraph 6(H), provided that such written approval contractually obligates the Company or any Related Corporation to continue the employment of the optionee after the approved period of absence. ISOs granted under the Plan shall not be affected by any change of employment within or among the Company and Related Corporations, so long as the optionee continues to be an employee of the Company or any Related Corporation. Nothing in the Plan shall be deemed to give any grantee of any Option the right to be retained in employment or other service by the Company or any Related Corporation for any period of time.

(b) Death. If an ISO optionee ceases to be employed by the Company by reason of his or her death, any ISO owned by such optionee may be exercised, to the extent otherwise exercisable on the date of death, by the estate, personal representative or beneficiary who has acquired the ISO by will or by the laws of descent and distribution, until the earlier of (1) the specified expiration date of the ISO or (2) 180 days from the date of the optionee’s death.

(c) Disability. If an ISO optionee ceases to be employed by the Company by reason of his or her disability, such optionee shall have the right to exercise any ISO held by him or her on the date of termination of employment, for the number of shares for which he or she could have exercised it on that date, until the earlier of (1) the specified expiration date of the ISO or (2) 180 days from the date of the termination of the optionee’s employment. For the purposes of the Plan, the term “disability” shall mean “permanent and total disability” as defined in Section 22(e)(3) of the Code or any successor statute.

(ii) Non-Qualified Options and SARs. Each instrument relating to the grant of a Non-Qualified Option or SAR shall set forth the treatment of such Non-Qualified Option or SAR following termination of the optionee’s or grantee’s employment or, if the grant is made to a director or consultant, service with the Company or any Related Corporation. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all grants and may reflect distinctions based on the reasons for termination or employment or service. Nothing in the Plan shall be deemed to give any optionee or grantee the right to be retained in employment or other service by the Company or any Related Corporation for any period of time.

I. Transferability of Options and SARs. Except as otherwise provided in this subparagraph 6(I), an Option or SAR may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution and may be exercised, during the lifetime of the optionee or grantee, only by the optionee or grantee. Notwithstanding the foregoing, with the consent of the Board or the Committee thereof, in either case in its sole discretion, an optionee or grantee may transfer all or a portion of his or her vested Non-Qualified Options or SARs to a trust for the exclusive benefit of the optionee or grantee and/or one or more Immediate Family Members or spouses of Immediate Family Members. For the purposes of this subparagraph 6(I), “Immediate Family Members” shall mean the optionee’s or grantee’s spouse, former spouse, children or grandchildren, whether natural or adopted. As a condition to any transfer pursuant to this subparagraph 6(I) each such transferee shall agree in writing (in a form satisfactory to the Committee) to be bound by the terms and conditions of the Option or SAR instrument evidencing such transferred Option or SAR, as well as any additional restrictions or conditions as the Committee may require. Following the transfer of an Option or SAR in accordance with this subparagraph 6(I), the term “optionee” and “grantee” shall refer to the original transferee, except that, with respect to any requirements of continued service or employment or provision of the Company’s tax withholding obligations, such terms shall refer to the optionee or grantee. The Committee shall have no obligation to notify any transferee of any termination of the transferred Option or SAR, including an early termination resulting from the termination of employment or service of the original optionee or grantee. No transferee shall make a subsequent transfer of a transferred Option or SAR except to the original optionee or grantee or as otherwise provided in this subparagraph 6(I).

J. Notice to Company of a Disqualifying Disposition. By accepting an ISO granted under the Plan, each optionee agrees to notify the Company in writing immediately after such optionee makes a Disqualifying Disposition (as described in Sections 421, 422 and 424 of the Code and regulations thereunder) of any stock acquired pursuant to the exercise of ISOs granted under the Plan. A Disqualifying Disposition is generally any disposition occurring on or before the later of (a) the date two years following the date the ISO was granted, or (b) the date one year following the date the ISO was exercised.

K. Modifications of ISOs; Conversion of ISOs into Non-Qualified Options. Subject to subparagraph 8(D), without the prior written consent of the holder of an ISO, the Committee shall not alter the terms of such ISO (including the means of exercising such ISO) if such alteration would constitute a modification (within the meaning of Section 424(h)(3) of the Code). The Committee, at the written request or with the written consent of any optionee, may in its discretion take such actions as may be necessary to convert such optionee’s ISOs (or any installments or portions of installments thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the optionee is an employee of the Company or a Related Corporation at the time of such conversion. At the time of such conversion, the Committee (with the consent of the optionee) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Committee in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give any optionee the right to have such optionee’s ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Committee takes

appropriate action. Upon the taking of such action, the Company shall issue separate instruments to the optionee with respect to Options that are Non-Qualified Options and Options that are ISOs.

7. Terms and Conditions of Restricted Stock and RSUs.

A. Grant of Restricted Stock and RSUs. Subject to subparagraph 2(A), Restricted Stock and RSUs shall be evidenced by instruments (which need not be identical) in such forms as the Committee may from time to time approve. Such instruments shall conform to the terms and conditions set forth in this paragraph 7 and may contain such other provisions as the Committee deems advisable which are not inconsistent with the Plan.

B. Restrictions. Restricted Stock or RSUs shall be subject to such restrictions on transferability and other restrictions as the Committee may impose. These restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, upon the satisfaction of performance goals or otherwise, as the Committee determines at the time of the grant of the Restricted Stock or RSUs. Except as otherwise provided in the applicable instrument relating to the grant of the Restricted Stock or RSUs, a grantee shall have all of the rights of a shareholder with respect to the Restricted Stock, and such grantee shall have none of the rights of a stockholder with respect to RSUs until such time as shares of Common Stock are paid in settlement of the RSUs.

C. Termination of Employment. Each instrument relating to the grant of the Restricted Stock or RSUs shall set forth the treatment of Restricted Stock or RSUs following termination of the grantee’s employment or, if the grant is made to a director or consultant, service with the Company or any Related Corporation. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all grants and may reflect distinctions based on the reasons for termination of employment or service. Nothing in the Plan shall be deemed to give any grantee of any Restricted Stock or RSUs the right to be retained in employment or other service by the Company or any Related Corporation for any period of time.

D. Nontransferability of Restricted Stock and RSUs. Except as otherwise determined by the Committee, during the applicable period of restriction, a grantee’s Restricted Stock, RSUs and rights relating thereto shall be available during the grantee’s lifetime only to such grantee, and such Restricted Stock or RSUs and related rights may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution.

8. Adjustments. Upon the occurrence of any of the following events, an optionee’s or grantee’s rights with respect to Stock Rights granted to such optionee or grantee hereunder shall be adjusted as hereinafter provided, unless otherwise specifically provided in the written instrument applicable to such Stock Right between the optionee or grantee and the Company:

A. Stock Dividends and Stock Splits. If the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of Options or SARs and the number of Shares subject to any Restricted Stock or RSUs shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share of Options or SARs to reflect such subdivision, combination or stock dividend.

B. Consolidations or Mergers. If the Company is to be consolidated with or acquired by another entity in a merger or other reorganization in which the holders of the outstanding voting stock of the Company immediately preceding the consummation of such event, shall, immediately following such event, hold, as a group, less than a majority of the voting securities of the surviving or successor entity, or in the event of a sale of all or substantially all of the Company’s assets or otherwise (each, an “Acquisition”), the Committee or the board of directors of any entity assuming the obligations of the Company hereunder (the “Successor Board”), shall, as to outstanding Stock Rights, either (i) make appropriate provision for the continuation of such Stock Rights by substituting on an equitable basis for the shares then subject to such Stock Rights either (a) the consideration payable with respect to the outstanding shares of Common Stock in connection with the Acquisition, (b) shares of stock of the surviving or successor corporation, or (c) such other securities as the Successor Board deems appropriate; or (ii) upon written notice to the optionees and grantees, provide that all Options and SARs must be exercised, to the extent then exercisable or to be exercisable as a result of the Acquisition, within

a specified number of days of the date of such notice, at the end of which period the Options and SARs shall terminate; (iii) terminate all Options and SARs in exchange for a cash payment equal to the excess of the fair market value of the shares subject to such Options or SARs (to the extent then exercisable or to be exercisable as a result of the Acquisition) over the exercise price thereof, or (iv) terminate all Stock Rights, other than Options and SARs, on such terms and conditions as the Committee deems appropriate, including providing for the cancellation of such Stock Rights for a cash payment to the grantee.

C. Recapitalization or Reorganization. In the event of a recapitalization or reorganization of the Company (other than a transaction described in subparagraph 8(B) above) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, an optionee or grantee upon exercising an Option or SAR shall be entitled to receive for the purchase price paid upon such exercise the securities he or she would have received if he or she had exercised such Option or SAR prior to such recapitalization or reorganization.

D. Modification of ISOs. Notwithstanding the foregoing, any adjustments made pursuant to subparagraphs 8(A), (B) or (C) with respect to ISOs shall be made only after the Committee, after consulting with counsel for the Company, determines whether such adjustments would constitute a “modification” of such ISOs (as that term is defined in Section 424 of the Code) or would cause any adverse tax consequences for the holders of such ISOs. If the Committee determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs or would cause adverse tax consequences to the holders, it may refrain from making such adjustments.

E. Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, each Stock Right will terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as shall be determined by the Committee.

F. Issuances of Securities. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Common Stock subject to a Stock Right or price of shares of Common Stock subject to Options and SARs. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company.

G. Fractional Shares. No fractional shares shall be issued under the Plan and the optionee and grantee shall receive from the Company cash in lieu of such fractional shares.

H. Actions of the Committee or Board. Upon the happening of any of the events described in subparagraphs 8(A), (B) or (C) above, (i) the class and aggregate number of shares set forth in paragraph 4(A) hereof that are subject to Stock Rights which previously have been or subsequently may be granted under the Plan shall also be appropriately adjusted to reflect the events described in such subparagraphs, (ii) the class and aggregate number of shares set forth in paragraph 4(A) hereof that are subject to ISOs which previously have been or subsequently may be granted under the Plan shall also be appropriately adjusted to reflect the events described in such subparagraphs and (iii) the class and aggregate number of shares set forth in paragraph 4(B) hereof that are subject to Options and SARs which previously have been or subsequently may be granted under the Plan shall also be appropriately adjusted to reflect the events described in such subparagraphs. The Committee or the Successor Board shall determine the specific adjustments to be made under this paragraph 8 and, subject to paragraph 2, its determination shall be conclusive. Notwithstanding the foregoing, as may be determined by the Committee, any such adjustment shall not (i) cause a Stock Right which is exempt from Section 409A of the Code to become subject to Section 409A of the Code or (ii) cause an Stock Right subject to Section 409A of the Code not to comply with the requirements of Section 409A of the Code.

9. Term and Amendment of Plan. This Plan was adopted by the Board on October 27, 2008, subject to approval of the Plan by the stockholders of the Company. The Plan shall expire 10 years from the date of Board approval (except as to Options outstanding on that date). The Board may terminate or amend the Plan in any respect at any time, except that, no amendment which requires stockholder approval in order for the Plan to continue to comply with any rule promulgated by the Securities and Exchange Commission or any securities exchange on which shares of Common Stock are listed or any applicable laws shall be effective unless such amendment is approved by the requisite vote of the stockholders of the Company entitled to vote thereon within the time period required under such applicable listing standard or rule, including, without limitation, an amendment relating to the following: (a) the total number of shares

that may be issued under the Plan may not be increased (except by adjustment pursuant to paragraph 8); (b) the provisions of paragraph 3 regarding eligibility for grants of ISOs may not be modified; (c) the provisions of paragraph 6(B) regarding the exercise price at which shares may be offered pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph 8); and (d) the expiration date of the Plan may not be extended. Except as otherwise provided herein, in no event may action of the Board or stockholders alter or impair the rights of a grantee or optionee, without such grantee’s or optionee’s consent, under any Stock Right previously granted to such grantee or optionee.

10. Application of Funds. The proceeds received by the Company from the sale of shares pursuant to Options granted under the Plan shall be used for general corporate purposes.

11. Withholding of Additional Income Taxes. Upon the exercise of a Non-Qualified Option, the exercise of a SAR, the making of a Disqualifying Disposition (as defined in subparagraph 6(J)), the vesting or transfer of Restricted Stock or RSUs or securities acquired on the exercise of an Option or SAR hereunder, or the making of a distribution or other payment with respect to such stock or securities, the Company may withhold taxes in respect of amounts that constitute compensation includible in gross income. The Committee in its discretion may condition (A) the exercise of an Option, (B) the transfer of a Non-Qualified Option, (C) the exercise of a SAR, or (D) the vesting or transferability of Restricted Stock or RSUs or securities acquired by exercising an Option or SAR, on the optionee’s or grantee’s making satisfactory arrangements for such withholding. Such arrangements may include payment by the optionee or grantee in cash or by check of the amount of the withholding taxes or, at the discretion of the Committee, by the optionee’s or grantee’s delivery of previously held shares of Common Stock or the withholding from the shares of Common Stock otherwise deliverable upon exercise of a Option or SAR shares having an aggregate fair market value equal to the amount of such withholding taxes.

12. Governmental Regulation. The Company’s obligation to sell and deliver shares of the Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. Government regulations may impose reporting or other obligations on the Company with respect to the Plan. For example, the Company may be required to send tax information statements to employees and former employees that exercise ISOs under the Plan, and the Company may be required to file tax information returns reporting the income received by optionees in connection with the Plan.

13. Governing Law. The validity and construction of the Plan and the instruments evidencing Stock Rights shall be governed by the laws of Delaware, or the laws of any jurisdiction in which the Company or its successors in interest may be organized.

14. Code Section 409A. To the extent applicable, it is intended that this Plan and any Stock Rights granted hereunder comply with, and should be interpreted consistent with, the requirements of Section 409A of the Code and any related regulations or other guidance promulgated thereunder by the U.S. Department of the Treasury or the Internal Revenue Service.

EX-10.20 4 a09-4575_1ex10d20.htm EX-10.20

Exhibit 10.20

CANDELA CORPORATION
2008 STOCK PLAN
NOTICE OF STOCK APPRECIATION RIGHT GRANT

You (the “Grantee”) have been granted the following stock appreciation right (“SAR”) relating to shares of common stock, $0.01 par value per share (the “Common Stock”), of Candela Corporation, a Delaware corporation (the “Company”), pursuant to the Company’s 2008 Stock Plan (the “Plan”):

Name of Grantee:
Total number of shares of Common Stock to which SAR relates:
Grant Price per share of Common Stock:		$
Date of Grant:
Expiration Date:		The SAR may expire earlier as described in the attached Stock Appreciation Right Agreement.

Vesting Schedule

Date		Number of Vested SARs On Such Date
On or after , but before		[ % of the] [ ] shares of Common Stock subject to this SAR
On or after , but before		[ % of the] [ ] shares of Common Stock subject to this SAR
On or after , but before		an additional [ % of the] [ ] shares of Common Stock subject to this SAR
On or after , but before		an additional [ % of the] [ ] shares of Common Stock subject to this SAR
On or after		100% of the shares of Common Stock subject to this SAR

By your signature and the signature of the Company’s representative below, you and the Company agree that this SAR is granted under and governed by the terms and conditions of the Plan and the Stock Appreciation Right Agreement, both of which are attached to and made a part of this document.

GRANTEE			CANDELA CORPORATION

By:			By:
Date:			Title:
Address:			Date:

CANDELA CORPORATION

STOCK APPRECIATION RIGHT AGREEMENT

1. Grant of Stock Appreciation Right.

(a) Stock Appreciation Right. Subject to the terms and conditions set forth in the Notice of Stock Appreciation Right Grant and this Stock Appreciation Right Agreement (the “Agreement”), the Company grants to the Grantee on the Date of Grant a SAR that entitles the Grantee to receive upon exercise of the SAR a number of shares of Common Stock having a fair market value equal to the number of shares of Common Stock with respect to which the SAR is being exercised multiplied by the difference between the fair market value of a share of Common Stock on the date of exercise of the SAR and the Grant Price per share of Common Stock.

(b) Plan and Defined Terms. The SAR is granted pursuant to the Plan, a copy of which the Grantee acknowledges having received. All terms, provisions, and conditions applicable to the SAR set forth in the Plan and not set forth herein are hereby incorporated by reference herein. To the extent any provision hereof is inconsistent with a provision of the Plan, the provisions of the Plan will govern. All capitalized terms that are used in this Agreement and not otherwise defined herein shall have the meanings ascribed to them in the Notice of Stock Appreciation Right Grant or, if not defined therein, the Plan.

2. Right to Exercise. The SAR may be exercised, in whole or in part, prior to the Expiration Date to the extent it is exercisable. If the Grantee has continuously served the Company or any Related Corporation in the capacity of an employee, officer, director or consultant (such service is described herein as maintaining or being involved in a “Business Relationship” with the Company), from the Date of Grant through a date listed under the heading “Vesting Schedule” on the Notice of Stock Appreciation Right Grant, this SAR shall become exercisable by the Grantee with respect to the number of additional shares of Common Stock set forth opposite such date. Notwithstanding the foregoing, the Board may, in its discretion, accelerate the date that any installment of this SAR becomes exercisable. The SAR may be exercised by providing a written notice of exercise to the Company in such form as the Committee may prescribe.

3. Term and Expiration.

(a) Basic Term. Subject to earlier termination pursuant to the terms hereof, the SAR shall expire on the Expiration Date set forth in the Notice of Stock Appreciation Right Grant, which date is 10 years after the Date of Grant.

(b) Termination of Business Relationship with the Company. If the Grantee ceases to maintain a Business Relationship with the Company, other than by reason of death or Disability, no further installments of this SAR shall become exercisable, and this SAR shall terminate after the passage of ninety (90) days from the date the Business Relationship ceases, but in no event later than the scheduled Expiration Date. In such a case, the Grantee’s only rights hereunder shall be those that are properly exercised before the termination of this SAR.

4. Death; Disability; Dissolution. If the Grantee dies while involved in a Business Relationship with the Company, this SAR may be exercised, to the extent of the number of shares of Common Stock with respect to which the Grantee could have exercised it on the date of the Grantee’s death, by the Grantee’s estate, personal representative or beneficiary to whom this SAR has been assigned pursuant to Section 8(c), at any time within 180 days after the date of death, but no later than the scheduled Expiration Date. If the Grantee’s Business Relationship with the Company is terminated by reason of the Grantee’s Disability, this SAR may be exercised, to the extent of the number of shares of Common Stock with respect to which the Grantee could have exercised it on the date the Business Relationship was terminated, at any time within 180 days after the date of such termination, but not later than the scheduled Expiration Date. At the expiration of such 180-day period or the scheduled Expiration Date, whichever is earlier, this SAR shall terminate and the only rights hereunder shall be those as to which the SAR was properly exercised before such termination.

5. Acceleration and Vesting of SARs for Business Combinations. If the Company is the subject of an Acquisition, then this SAR shall, immediately prior to the consummation of such Acquisition, become fully vested and immediately exercisable by the Grantee.

6. No Obligation to Maintain Business Relationship. The Company and any Related Corporation are not by the Plan or this SAR obligated to continue to maintain a Business Relationship with the Grantee.

7. Capital Changes and Business Successions. The Plan contains provisions covering the treatment of SARs in a number of contingencies such as stock splits and mergers. Provisions in the Plan for adjustment with respect to stock subject to SARs and the related provisions with respect to successors to the business of the Company including, without limitation, provisions regarding Acquisitions are hereby made applicable hereunder and are incorporated herein in their entirety by reference. Without affecting the generality of the foregoing, it is understood that for the purposes of Sections 3 and 4 hereof, a Business Relationship with the Company includes a Business Relationship with a Related Corporation.

8. Miscellaneous Provisions.

(a) Tax Withholding. The Company may make such provisions as are necessary for the withholding of all applicable taxes on the SAR, in accordance with paragraph 11 of the Plan. With respect to the minimum statutory tax withholding required, the Grantee may elect to satisfy such tax withholding requirement by having the Company withhold shares of Common Stock from the SAR upon exercise.

(b) Rights as a Stockholder. Neither the Grantee nor the Grantee’s representative shall have any rights as a stockholder with respect to any shares of Common Stock to which the SAR relates unless the SAR has been exercised and share certificates have been issued to the Grantee or representative, as the case may be. Except as expressly provided in the Plan with respect to certain changes in the capitalization of the Company, no adjustment shall be made for dividends or similar rights for which the record date is prior to the date such share certificates are issued.

(c) Nonassignability of SARs. The SAR is not assignable or transferable by the Grantee except by will or by the laws of descent and distribution and as otherwise consistent with the terms of the Plan and this Agreement. During the lifetime of the Grantee, only the Grantee shall be entitled to exercise the SAR.

(d) Ratification of Actions. By accepting the SAR, the Grantee and each person claiming under or through the Grantee shall be conclusively deemed to have indicated the Grantee’s acceptance and ratification of, and consent to, any action taken under the Plan or this Agreement and the Notice of Stock Appreciation Right Grant by the Company, the Board, or the Committee.

(e) Notice. Any notice required by the terms of this Agreement shall be given in writing and shall be deemed effective upon personal delivery or upon deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid. Notice shall be addressed to the Company at its principal executive office and to the Grantee at the address that was most recently provided by the Grantee in writing to the Company. The Grantee shall notify the Company upon any change in the Grantee’s address.

(f) Modification or Amendment. This Agreement may only be modified or amended by written agreement executed by the parties hereto, except as otherwise provided in paragraph 8 of the Plan regarding the treatment of SARs upon certain events such as stock splits and mergers.

(g) Entire Agreement. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter.

(h) Choice of Law. This Agreement and the Notice of Stock Appreciation Right Grant shall be governed by, and construed in accordance with, the laws of Delaware, as such laws are applied to contracts entered into and performed in such state.

(i) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(j) Severability. In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of this Agreement, and this Agreement shall be construed and enforced as if such illegal or invalid provision had not been included.

EX-31.1 5 a09-4575_1ex31d1.htm EX-31.1

Exhibit 31.1

CERTIFICATION

I, Gerard E. Puorro, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Candela Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	February 5, 2009	/s/ Gerard E. Puorro
		Gerard E. Puorro
		President and Chief Executive Officer

EX-31.2 6 a09-4575_1ex31d2.htm EX-31.2

Exhibit 31.2

CERTIFICATION

I, Robert E. Quinn, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Candela Corporation;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	February 5, 2009	/s/ Robert E. Quinn
		Robert E. Quinn
		Vice President, Finance, Treasurer, and
		Corporate Controller (Principal Financial Officer)

EX-32.1 7 a09-4575_1ex32d1.htm EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Candela Corporation (the “Company”) on Form 10-Q for the period ended December 27, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gerard E. Puorro, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	February 5, 2009	/s/ Gerard E. Puorro
		Gerard E. Puorro
		President and Chief Executive Officer

EX-32.2 8 a09-4575_1ex32d2.htm EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Candela Corporation (the “Company”) on Form 10-Q for the period ended December 27, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert E. Quinn, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	February 5, 2009	/s/ Robert E. Quinn
		Robert E. Quinn
		Vice President, Finance, Treasurer, and
		Corporate Controller (Principal Financial Officer)

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