NOVANTA INC (Form: 10-Q, Received: 11/02/2016 17:07:07)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 September 30, 2016

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-35083

Novanta Inc.

(Exact name of registrant as specified in its charter)

New Brunswick, Canada		98-0110412
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

125 Middlesex Turnpike Bedford, Massachusetts, USA		01730
(Address of principal executive offices)		(Zip Code)

(781) 266-5700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 28, 2016, there were 34,443,526 of the Registrant’s common shares, no par value, issued and outstanding.

NOVANTA INC.

TABLE OF CONTENTS

Item No.		Page No.

PART I — FINANCIAL INFORMATION		1

ITEM 1.	FINANCIAL STATEMENTS	1

	CONSOLIDATED BALANCE SHEETS (unaudited)	1

	CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)	2

	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)	3

	CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)	4

	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)	5

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	35

ITEM 4.	CONTROLS AND PROCEDURES	35

PART II — OTHER INFORMATION		36

ITEM 1.	LEGAL PROCEEDINGS	36

ITEM 1A.	RISK FACTORS	36

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	36

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	37

ITEM 4.	MINE SAFETY DISCLOSURES	37

ITEM 5.	OTHER INFORMATION	37

ITEM 6.	EXHIBITS	38

SIGNATURES		39

EXHIBIT INDEX		40

P ART I—FINANCIAL INFORMATION

Item 1. Financial Statements

NOVANTA INC.

CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars or shares)

(Unaudited)

	September 30,			December 31,
	2016			2015
ASSETS
Current Assets
Cash and cash equivalents	$	64,739		$	59,959
Accounts receivable, net of allowance of $536 and $500, respectively		61,787			57,188
Inventories		59,614			59,566
Income taxes receivable		4,505			2,510
Prepaid expenses and other current assets		5,621			5,989
Total current assets		196,266			185,212
Property, plant and equipment, net		34,911			40,550
Deferred tax assets		5,886			7,885
Other assets		10,466			12,673
Intangible assets, net		60,871			66,269
Goodwill		108,337			103,456
Total assets	$	416,737		$	416,045
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt	$	7,365		$	7,385
Accounts payable		28,179			24,401
Income taxes payable		1,274			3,985
Accrued expenses and other current liabilities		30,074			21,182
Total current liabilities		66,892			56,953
Long-term debt		72,267			88,426
Deferred tax liabilities		42			449
Income taxes payable		5,855			6,071
Other liabilities		14,481			19,445
Total liabilities		159,537			171,344
Commitments and Contingencies (Note 13)
Stockholders’ Equity:
Common shares, no par value; Authorized shares: unlimited; Issued and outstanding: 34,439 and 34,345, respectively		423,856			423,856
Additional paid-in capital		29,257			29,225
Accumulated deficit		(175,303	)		(189,550	)
Accumulated other comprehensive loss		(20,610	)		(18,830	)
Total stockholders’ equity		257,200			244,701
Total liabilities and stockholders’ equity	$	416,737		$	416,045

The accompanying notes are an integral part of these consolidated financial statements.

NOVANTA INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars or shares, except per share amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,			October 2,			September 30,			October 2,
	2016			2015			2016			2015
Revenue	$	97,829		$	92,271		$	285,879		$	283,379
Cost of revenue		56,617			52,361			166,279			162,118
Gross profit		41,212			39,910			119,600			121,261
Operating expenses:
Research and development and engineering		7,961			7,693			24,029			23,748
Selling, general and administrative		20,972			19,979			62,357			62,969
Amortization of purchased intangible assets		2,066			1,852			6,153			5,593
Restructuring, acquisition and divestiture related costs (gain)		(835	)		1,379			5,828			4,232
Total operating expenses		30,164			30,903			98,367			96,542
Operating income from continuing operations		11,048			9,007			21,233			24,719
Interest income (expense), net		(1,081	)		(1,248	)		(3,471	)		(4,020	)
Foreign exchange transaction gains (losses), net		188			383			978			(2,253	)
Other income (expense), net		686			878			1,699			21,641
Income from continuing operations before income taxes		10,841			9,020			20,439			40,087
Income tax provision		3,371			2,452			6,192			10,562
Income from continuing operations		7,470			6,568			14,247			29,525
Loss from discontinued operations, net of tax		—			—			—			(13	)
Consolidated net income	$	7,470		$	6,568		$	14,247		$	29,512

Earnings per common share from continuing operations:
Basic	$	0.22		$	0.19		$	0.41		$	0.85
Diluted	$	0.21		$	0.19		$	0.41		$	0.84
Loss per common share from discontinued operations:
Basic	$	—		$	—		$	—		$	(0.00	)
Diluted	$	—		$	—		$	—		$	(0.00	)
Earnings per common share:
Basic	$	0.22		$	0.19		$	0.41		$	0.85
Diluted	$	0.21		$	0.19		$	0.41		$	0.84

Weighted average common shares outstanding—basic		34,677			34,599			34,689			34,578
Weighted average common shares outstanding—diluted		34,928			35,055			34,889			35,027

The accompanying notes are an integral part of these consolidated financial statements.

NOVANTA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands of U.S. dollars)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,			October 2,			September 30,			October 2,
	2016			2015			2016			2015
Consolidated net income	$	7,470		$	6,568		$	14,247		$	29,512
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax (1)		(563	)		(1,624	)		(3,413	)		(2,172	)
Pension liability adjustments, net of tax (2)		338			517			1,633			937
Total other comprehensive income (loss)		(225	)		(1,107	)		(1,780	)		(1,235	)
Total consolidated comprehensive income (loss)	$	7,245		$	5,461		$	12,467		$	28,277

⁽¹⁾	The tax effect on this component of comprehensive income was nominal for the three and nine months ended September 30, 2016 and $0.2 million for the three and nine months ended October 2, 2015.

⁽²⁾	The tax effect on this component of comprehensive income was not material for all periods presented. See Note 4 for the total amount of pension liability adjustments reclassified out of accumulated other comprehensive income (loss).

The accompanying notes are an integral part of these consolidated financial statements.

NOVANTA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(Unaudited)

	Nine Months Ended
	September 30,			October 2,
	2016			2015
Cash flows from operating activities:
Consolidated net income	$	14,247		$	29,512
Less: Loss from discontinued operations, net of tax		—			13
Income from continuing operations		14,247			29,525
Adjustments to reconcile income from continuing operations to net cash provided by operating activities of continuing operations:
Depreciation and amortization		15,317			14,088
Provision for inventory excess and obsolescence		2,387			1,303
Share-based compensation		3,385			3,494
Deferred income taxes		162			3,782
Earnings from equity-method investment		(1,698	)		(2,007	)
Gain on disposal of business		—			(19,633	)
Gain on sale of fixed assets		(1,736	)		(24	)
Dividend from equity-method investment		2,341			—
Non-cash restructuring and acquisition related charges		616			511
Earn-out adjustments		1,427			—
Other		974			921
Changes in assets and liabilities which (used)/provided cash, excluding effects from businesses purchased or classified as discontinued operations:
Accounts receivable		(3,683	)		(6,996	)
Inventories		(1,470	)		(5,352	)
Income taxes receivable, prepaid expenses and other current assets		(3,594	)		1,244
Accounts payable, income taxes payable, accrued expenses and other current liabilities		6,110			6,602
Other non-current assets and liabilities		(78	)		(1,982	)
Cash provided by operating activities of continuing operations		34,707			25,476
Cash used in operating activities of discontinued operations		—			(13	)
Cash provided by operating activities		34,707			25,463
Cash flows from investing activities:
Purchases of property, plant and equipment		(7,005	)		(4,111	)
Acquisition of businesses, net of cash acquired and working capital adjustments		(8,952	)		(13,048	)
Proceeds from the sale of property, plant and equipment		7,037			123
Proceeds from the sale of business, net of transaction costs		—			29,570
Cash provided by (used in) investing activities of continuing operations		(8,920	)		12,534
Cash provided by investing activities of discontinued operations		1,498			—
Cash provided by (used in) investing activities		(7,422	)		12,534
Cash flows from financing activities:
Borrowings under revolving credit facility		—			13,000
Repayments of long-term debt and revolving credit facility		(14,375	)		(18,625	)
Payments for debt issuance costs		(2,496	)		—
Payments of withholding taxes from stock-based compensation awards		(1,719	)		(1,431	)
Repurchase of common stock		(1,634	)		(997	)
Capital lease payments		(905	)		(414	)
Other financing activities		(1	)		23
Cash used in financing activities of continuing operations		(21,130	)		(8,444	)
Cash used in financing activities of discontinued operations		—			—
Cash used in financing activities		(21,130	)		(8,444	)
Effect of exchange rates on cash and cash equivalents		(1,375	)		(610	)
Increase in cash and cash equivalents		4,780			28,943
Cash and cash equivalents, beginning of period		59,959			51,146
Cash and cash equivalents, end of period	$	64,739		$	80,089
Supplemental disclosure of cash flow information:
Cash paid for interest	$	2,167		$	2,939
Cash paid for income taxes	$	10,870		$	6,071
Income tax refunds received	$	359		$	63

The accompanying notes are an integral part of these consolidated financial statements.

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2016

(Unaudited)

1. Basis of Presentation

Novanta Inc. and its subsidiaries (collectively referred to as the “Company”, “we”, “us”, “our”) design, develop, manufacture and sell precision photonic and motion control components and subsystems to Original Equipment Manufacturers (“OEMs”) in the medical and advanced industrial markets. We combine deep expertise at the intersection of photonics and motion to solve complex technical challenges. This enables us to engineer core components and subsystems that deliver extreme precision and performance, tailored to our customers’ demanding applications. We deliver highly engineered photonics, vision and precision motion solutions to customers around the world.

The accompanying unaudited interim consolidated financial statements have been prepared in U.S. dollars and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”), the instructions to Form 10-Q and the provisions of Regulation S-X pertaining to interim financial statements. Accordingly, certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The interim consolidated financial statements and notes included in this report should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. In the opinion of management, these interim consolidated financial statements include all adjustments and accruals of a normal and recurring nature necessary to fairly state the results of the interim periods presented. The results for interim periods are not necessarily indicative of results to be expected for the full year or for any future periods.

The Company has a 41% ownership interest in Laser Quantum Ltd. (“Laser Quantum”), a privately held company located in the United Kingdom. The Company records the results of this entity under the equity method as it does not have a controlling interest in the entity.

The Company’s unaudited interim financial statements are prepared for each quarterly period ending on the Friday closest to the end of the calendar quarter, with the exception of the fourth quarter which always ends on December 31.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company evaluates its estimates based on historical experience, current conditions and various other assumptions that it believes are reasonable under the circumstances. Estimates and assumptions are reviewed on an on-going basis and the effects of revisions are reflected in the period in which they are deemed to be necessary. Actual results could differ significantly from those estimates.

Recent Accounting Pronouncements

Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which provides further clarification on eight cash flow classification issues. The standard further clarifies the classification of the following: (i) debt prepayment or debt extinguishment costs; (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (iii) contingent consideration payments made after a business combination; (iv) proceeds from the settlement of insurance claims; (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (vi) distributions received from equity method investees; (vii) beneficial interests in securitization transactions; and (viii) separately identifiable cash flows and application of the predominance principle. ASU 2016-15 will become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. ASU 2016-15 should be applied using a retrospective transition method for each period presented. The Company is currently evaluating the impact of the new standard on our consolidated financial statements.

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF SEPTEMBER 30, 2016

(Unaudited)

Share-Based Compensation

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which amends the accounting for employee share-based payment transactions to require recognition of the income tax effects resulting from the settlement of stock-based awards as income tax provision or benefit in the income statement in the reporting period in which they occur. In addition, ASU 2016-09 requires that all tax-related cash flows resulting from share-based payments, including the excess tax benefits related to the settlement of stock-based awards, be classified as cash flows from operating activities in the statement of cash flows. ASU 2016-09 also requires that cash paid through directly withholding shares for tax-withholding purposes be classified as a financing activity in the statement of cash flows. In addition, ASU 2016-09 allows companies to make an accounting policy election to either estimate the number of awards that are expected to vest, consistent with existing U.S. GAAP, or account for forfeitures when they occur. The new standard is effective for annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company adopted ASU 2016-09 during the second quarter of 2016, which required no retrospective adjustments to the consolidated financial statements. The adoption of ASU 2016-09 had an impact of less than $0.1 million on income from continuing operation on the Company’s consolidated statements of operations for the three months ended July 1, 2016. The adoption of ASU 2016-09 had no impact on the prior year consolidated financial statements.

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which provides comprehensive lease accounting guidance. The standard requires entities to recognize lease assets and liabilities on the balance sheet and to disclose key information about leasing arrangements. ASU 2016-02 will become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of the new standard on our consolidated financial statements.

Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40),” which requires management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. ASU 2014-15 will be effective for annual reporting periods ending after December 15, 2016. Early application is permitted. The Company does not expect the adoption of ASU 2014-15 to have an impact on our consolidated financial statements.

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which provides guidance for revenue recognition. ASU 2014-09 supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition,” and requires entities to recognize revenue in a way that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for annual and interim reporting periods beginning after December 15, 2016. Early adoption is not permitted. Upon adoption, an entity may apply the new guidance either retrospectively to each prior reporting period presented or retrospectively only to customer contracts not yet completed as of the date of adoption with the cumulative effect of initially applying the standard recognized in beginning retained earnings at the date of the initial application. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers – Deferral of the Effective Date,” which defers the effective date of ASU 2014-09 by one year, with the option of early adoption as of the original effective date. The amendment in ASU 2015-14 will result in ASU 2014-09 being effective for annual and interim reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of the new standard on our consolidated financial statements and plans to adopt the standard beginning in the first quarter of 2018.

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF SEPTEMBER 30, 2016

(Unaudited)

2. Business Combinations

On May 24, 2016, the Company acquired 100% of the outstanding stock of Reach Technology Inc. (“Reach”), a Fremont, California-based provider of embedded touch screen technology solutions for OEMs in the medical and advanced industrial markets, for a total purchase price of $9.4 million, subject to customary working capital adjustments. The Company expects that the addition of Reach will enable the Company to enhance its value proposition with medical OEM customers by adding Reach’s high-performance touch screen solutions to its product offerings. The Company recognized acquisition costs of $0.2 million during the nine months ended September 30, 2016. Acquisition-related costs are included in restructuring, acquisition and divestiture related costs in the consolidated statements of operations.

The acquisition of Reach has been accounted for as a business combination. The allocation of the purchase price is based upon a valuation of assets and liabilities acquired. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of Reach and the Company. The process for estimating the fair values of identifiable intangible assets requires the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The Company’s estimates and assumptions in determining the estimated fair values of certain assets and liabilities are subject to change within the measurement period (up to one year from the acquisition date) as a result of additional information obtained with regards to facts and circumstances that existed as of the acquisition date. The purchase price allocation is preliminary. The primary areas of the purchase price allocation that are not yet finalized relate to the final settlement of working capital and the amount of the residual goodwill.

Based upon a preliminary valuation, the total purchase price was allocated as follows (in thousands):

	Purchase Price
	Allocation
Cash	$	238
Accounts receivable		991
Inventories		1,611
Prepaid expenses and other current assets		12
Intangible assets		3,953
Goodwill		4,924
Total assets acquired		11,729

Accounts payable		280
Other liabilities		148
Deferred tax liabilities		1,504
Total liabilities assumed		1,932
Total assets acquired, net of liabilities assumed		9,797
Less: cash acquired		238
Plus: working capital adjustments		(185	)
Total purchase price, net of cash acquired	$	9,374

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF SEPTEMBER 30, 2016

(Unaudited)

As of September 30, 2016, the working capital adjustments had not been finalized and were estimated to be an additional cash payment of $0.2 million which has been included in accrued expenses and other current liabilities in the consolidated balance sheet.

The fair value of intangible assets is comprised of the following (dollar amounts in thousands):

			Weighted Average
	Estimated Fair		Amortization
	Value		Period
Customer relationships	$	2,770	15 years
Developed technology		500	7 years
Trademarks and trade names		258	10 years
Backlog		425	1 year
Total	$	3,953

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF SEPTEMBER 30, 2016

(Unaudited)

The purchase price allocation resulted in $ 4 . 9 million of goodwill and $4.0 million of identifiable intangible assets, none of which is expected to be deductible for tax purposes. Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefits from such assets are expected to be realized. The goodwill recorded represents the anticipated incremental value of future cash flow potential attributable to: (i) Reach’s ability to grow their busine ss with existing and new customers, including leveraging the Company’s customer base, and (ii) cost improvements due to scale and more efficient operations.

The operating results of Reach were included in the Company’s results of operations beginning on May 24, 2016. Reach contributed revenues of $3.2 million and a loss from continuing operations before income taxes of $0.4 million for the nine months ended September 30, 2016. Operating loss from continuing operations before income taxes for the nine months ended September 30, 2016 included transition costs of $0.6 million recognized under earn-out agreements. The pro forma financial information reflecting the operating results of Reach, as if it had been acquired as of January 1, 2015, would not differ materially from the operating results of the Company as reported for the year ended December 31, 2015. Reach is included in the Company’s Vision reportable segment.

On November 9, 2015, the Company acquired certain assets and liabilities of Lincoln Laser Company (“Lincoln Laser”), a Phoenix, Arizona-based provider of ultrafast precision polygon scanners and other optical scanning solutions for the medical, food processing, and advanced industrial markets, for a total purchase price of $12.1 million, net of working capital adjustments. During the first quarter of 2016, the Company finalized the working capital adjustments with the sellers of Lincoln Laser and received a payment of $0.4 million.

3. Discontinued Operations and Divestitures

In April 2015, the Company completed the sale of certain assets and liabilities of its JK Lasers business, previously included in the Photonics (formerly known as “Laser Products”) reportable segment, for approximately $29.6 million in cash, net of final working capital adjustments and transaction costs. The Company recognized a pre-tax gain on sale of $19.6 million in the consolidated statement of operations for the nine months ended October 2, 2015 under the caption “other income (expense), net.” The JK Lasers business divestiture did not qualify for discontinued operations accounting treatment.

In July 2014, the Company completed the sale of certain assets and liabilities of its Scientific Lasers business for approximately $6.5 million in cash, net of working capital adjustments. In accordance with the purchase and sale agreement, $1.5 million of the sales proceeds was held in escrow until January 2016. The Company reported the $1.5 million escrow in other current assets on the balance sheet as of December 31, 2015. In January 2016, the $1.5 million escrow was released to the Company in full and is reported as cash flow from investing activities of discontinued operations.

4. Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) were as follows (in thousands):

	Total accumulated
	other			Foreign currency
	comprehensive			translation			Pension
	income (loss)			adjustments			liability
Balance at December 31, 2015	$	(18,830	)	$	(9,698	)	$	(9,132	)
Other comprehensive income (loss)		(2,352	)		(3,413	)		1,061
Amounts reclassified from other comprehensive income (loss) ⁽¹⁾		572			—			572
Balance at September 30, 2016	$	(20,610	)	$	(13,111	)	$	(7,499	)

(1)

The amounts reclassified from other comprehensive income (loss) were included in selling, general and administrative expenses in the consolidated statements of operations.

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF SEPTEMBER 30, 2016

(Unaudited)

5. Earnings per Share

Basic earnings per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. For diluted earnings per common share, the denominator also includes the dilutive effect of outstanding restricted stock units and stock options determined using the treasury stock method. Dilutive effects of contingently issuable shares are included in the weighted average dilutive share calculation when the contingencies have been resolved. For periods in which net losses are generated, the dilutive potential common shares are excluded from the calculation of diluted earnings per share as the effect would be anti-dilutive.

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):

	Three Months Ended				Nine Months Ended
	September 30,		October 2,		September 30,		October 2,
	2016		2015		2016		2015
Numerators:
Income from continuing operations	$	7,470	$	6,568	$	14,247	$	29,525
Loss from discontinued operations		—		—		—		(13	)
Consolidated net income	$	7,470	$	6,568	$	14,247	$	29,512

Denominators:
Weighted average common shares outstanding— basic		34,677		34,599		34,689		34,578
Dilutive potential common shares		251		456		200		449
Weighted average common shares outstanding— diluted		34,928		35,055		34,889		35,027
Antidilutive common shares excluded from above		144		—		112		—

Basic Earnings (Loss) per Common Share:
From continuing operations	$	0.22	$	0.19	$	0.41	$	0.85
From discontinued operations	$	—	$	—	$	—	$	(0.00	)
Basic earnings per share	$	0.22	$	0.19	$	0.41	$	0.85

Diluted Earnings (Loss) per Common Share:
From continuing operations	$	0.21	$	0.19	$	0.41	$	0.84
From discontinued operations	$	—	$	—	$	—	$	(0.00	)
Diluted earnings per share	$	0.21	$	0.19	$	0.41	$	0.84

Common Stock Repurchases

In October 2013, the Company’s Board of Directors authorized a share repurchase plan under which the Company may repurchase outstanding shares of the Company’s common stock up to an aggregate amount of $10.0 million. The shares may be repurchased from time to time, at the Company’s discretion, based on ongoing assessment of the capital needs of the business, the market price of the Company’s common stock, and general market conditions. Shares may also be repurchased through an accelerated stock purchase agreement, on the open market or in privately negotiated transactions in accordance with applicable federal securities laws. Repurchases may be made under certain SEC regulations, which would permit common stock to be purchased when the Company would otherwise be prohibited from doing so under insider trading laws. The share repurchase plan does not obligate the Company to acquire any particular amount of common stock. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time. As of December 31, 2015, the Company had repurchased an aggregate of 172 thousand shares for an aggregate purchase price of $2.2 million at an average price of $12.48 per share. During the nine months ended September 30, 2016, the Company repurchased 109 thousand shares in the open market for an aggregate purchase price of $1.6 million at an average price of $14.93 per share.

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF SEPTEMBER 30, 2016

(Unaudited)

6. Fair Value Measurements

ASC 820, “Fair Value Measurements,” establishes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the third is considered unobservable:

•

Level 1: Quoted prices for identical assets or liabilities in active markets which the Company can access.

•

Level 2: Observable inputs other than those described in Level 1.

•

Level 3: Unobservable inputs.

The Company’s cash equivalents are investments in money market accounts, which represent the only asset the Company measures at fair value on a recurring basis. The Company determines the fair value of our cash equivalents using a market approach based on quoted prices in active markets. The fair values of cash, accounts receivable, income taxes receivable, accounts payable, income taxes payable and accrued expenses and other current liabilities (excluding contingent considerations) approximate their carrying values because of their short-term nature.

Contingent consideration

On December 18, 2015, the Company acquired all assets and certain liabilities of Skyetek Inc. (“Skyetek”). Under the purchase and sale agreement for the Skyetek acquisition, the owners of Skyetek are eligible to receive contingent consideration based on the achievement of certain sales order commitment targets from October 2015 through June 2017. The undiscounted range of possible contingent consideration is zero to $0.3 million. If such targets are achieved, the contingent consideration will be payable in 2017. The Company recognized an estimated fair value of $0.2 million as part of the purchase price as of the acquisition date. The estimated fair value of the contingent consideration is reported as an other current liability and a long-term liability in the consolidated balance sheet as of September 30, 2016 and December 31, 2015, respectively.

Under the purchase and sale agreement for the Lincoln Laser acquisition, the shareholders of Lincoln Laser are eligible to receive contingent consideration based on the achievement of certain revenue targets for fiscal year 2016. The undiscounted range of contingent consideration is zero to $6.0 million. If such targets are achieved, the contingent consideration will be payable in cash in 2017. The estimated fair value of $2.3 million was determined based on the Monte Carlo valuation method and was recorded as part of the purchase price as of the acquisition date. In June 2016, a $0.3 million increase in the estimated fair value was recorded in the consolidated statement of operations in restructuring, acquisition and divestiture related costs. The estimated fair value of $2.6 million for the contingent consideration was reported as an other current liability in the consolidated balance sheet as of September 30, 2016. The estimated fair value of $2.3 million for the contingent consideration was reported as a long-term liability in the consolidated balance sheet as of December 31, 2015.

On February 19, 2015, the Company acquired Applimotion Inc. (“Applimotion”). The former shareholders of Applimotion are eligible to receive contingent consideration based on the achievement of certain revenue targets for fiscal years 2015 to 2017. The undiscounted range of contingent considerations is zero to $4.0 million. If such targets are achieved, the contingent consideration will be payable in cash in two installments in 2017 and 2018, respectively. The estimated fair value of $1.0 million was determined based on the Monte Carlo valuation method and was recorded as part of the purchase price as of the acquisition date. In December 2015 and June 2016, respectively, the Company recorded a $0.4 million and $1.1 million increase in the estimated fair value in the consolidated statement of operations. These adjustments are included in restructuring, acquisition and divestiture related costs. The estimated fair value of $2.5 million for the contingent consideration was reported as an other current liability and a long-term liability in the consolidated balance sheet as of September 30, 2016 in accordance with the timing of the estimated payments. The estimated fair value of $1.4 million for the contingent consideration was reported as a long-term liability in the consolidated balance sheet as of December 31, 2015.

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF SEPTEMBER 30, 2016

(Unaudited)

The following table summarizes the fair values of our financial assets and liabilities as of September 30 , 2016 (in thousands):

			Quoted Prices in				Significant Other
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets
Cash equivalents	$	3,450	$	3,450	$	—	$	—
Liabilities
Contingent consideration	$	5,316	$	—	$	—	$	5,316

The following table summarizes the fair values of our financial assets and liabilities as of December 31, 2015 (in thousands):

			Quoted Prices in				Significant Other
			Active Markets for		Significant Other		Unobservable
			Identical Assets		Observable Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets
Cash equivalents	$	4,657	$	4,657	$	—	$	—
Liabilities
Contingent consideration	$	3,889	$	—	$	—	$	3,889

Changes in the fair value of Level 3 contingent consideration during the nine months ended September 30, 2016 were as follows (in thousands):

	Contingent Consideration
Balance at December 31, 2015	$	3,889
Fair value adjustments (1)		1,427
Balance at September 30, 2016	$	5,316

(1)

In the nine months ended September 30, 2016, the fair value of the contingent considerations in connection with the acquisitions of Lincoln Laser and Applimotion were increased by $0.3 million and $1.1 million, respectively, primarily due to increased actual and projected revenue performance.

See Note 9 to Consolidated Financial Statements for a discussion of the estimated fair value of the Company’s outstanding debt.

7. Goodwill and Intangible Assets

Goodwill

Goodwill is recorded when the consideration for a business combination exceeds the fair value of net tangible and identifiable intangible assets acquired. The Company tests its goodwill balances annually for impairment as of the beginning of the second quarter or more frequently if indicators are present or changes in circumstances suggest that impairment may exist. The Company performed its annual goodwill impairment test at the beginning of the second quarter of 2016 and noted no impairment of goodwill. The implied fair value of all the reporting units exceeded their carrying values by at least 20%.

The following table summarizes changes in goodwill during the nine months ended September 30, 2016 (in thousands):

Balance at beginning of the period	$	103,456
Net working capital adjustment of Lincoln Laser acquisition		(43	)
Goodwill acquired from Reach acquisition		4,924
Balance at end of the period	$	108,337

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF SEPTEMBER 30, 2016

(Unaudited)

Goodwill by reportable segment as of September 30, 2016 was as follows (in thousands):

	Reportable Segment
	Photonics			Vision			Precision Motion			Total
Goodwill	$	136,278		$	89,325		$	33,963		$	259,566
Accumulated impairment of goodwill		(102,461	)		(31,722	)		(17,046	)		(151,229	)
Total	$	33,817		$	57,603		$	16,917		$	108,337

Goodwill by reportable segment as of December 31, 2015 was as follows (in thousands):

	Reportable Segment
	Photonics			Vision			Precision Motion			Total
Goodwill	$	136,321		$	84,401		$	33,963		$	254,685
Accumulated impairment of goodwill		(102,461	)		(31,722	)		(17,046	)		(151,229	)
Total	$	33,860		$	52,679		$	16,917		$	103,456

Intangible Assets

Intangible assets as of September 30, 2016 and December 31, 2015, respectively, are summarized as follows (in thousands):

	September 30, 2016							December 31, 2015
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable intangible assets:
Patents and acquired technologies	$	80,981	$	(67,120	)	$	13,861	$	82,821	$	(66,297	)	$	16,524
Customer relationships		69,651		(41,400	)		28,251		67,168		(36,914	)		30,254
Customer backlog		622		(379	)		243		2,644		(2,589	)		55
Non-compete covenant		2,514		(1,284	)		1,230		2,514		(882	)		1,632
Trademarks and trade names		10,774		(6,515	)		4,259		10,711		(5,934	)		4,777
Amortizable intangible assets		164,542		(116,698	)		47,844		165,858		(112,616	)		53,242
Non-amortizable intangible assets:
Trade names		13,027		—			13,027		13,027		—			13,027
Totals	$	177,569	$	(116,698	)	$	60,871	$	178,885	$	(112,616	)	$	66,269

All definite-lived intangible assets are amortized either on a straight-line basis or an economic benefit basis over their remaining useful life. Amortization expense for customer relationships and definite-lived trademarks, trade names and other intangibles is included in operating expenses in the accompanying consolidated statements of operations. Amortization expense for patents and acquired technologies is included in cost of revenue in the accompanying consolidated statements of operations. Amortization expense is as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30, 2016		October 2, 2015		September 30, 2016		October 2, 2015
Amortization expense – cost of revenue	$	994	$	1,175	$	3,163	$	3,468
Amortization expense – operating expenses		2,066		1,852		6,153		5,593
Total amortization expense	$	3,060	$	3,027	$	9,316	$	9,061

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF SEPTEMBER 30, 2016

(Unaudited)

Estimated amortization expense for each of the five succeeding years and thereafter as of September 30 , 2016 wa s as follows (in thousands):

Year Ending December 31,	Cost of Revenue		Operating Expenses		Total
2016 (remainder of year)	$	1,000	$	2,098	$	3,098
2017		3,640		7,389		11,029
2018		2,126		6,717		8,843
2019		1,819		4,691		6,510
2020		1,552		2,718		4,270
Thereafter		3,724		10,370		14,094
Total	$	13,861	$	33,983	$	47,844

8. Supplementary Balance Sheet Information

The following tables provide the details of selected balance sheet items as of the periods indicated (in thousands):

Inventories

	September 30, 2016		December 31, 2015
Raw materials	$	35,201	$	38,511
Work-in-process		11,573		10,138
Finished goods		10,346		9,266
Demo and consigned inventories		2,494		1,651
Total inventories	$	59,614	$	59,566

Accrued Expenses and Other Current Liabilities

	September 30, 2016		December 31, 2015
Accrued compensation and benefits	$	10,781	$	7,357
Accrued warranty		3,300		3,335
Accrued restructuring		1,852		1,652
Accrued contingent considerations		3,821		—
Accrued professional services fees and other		10,320		8,838
Total	$	30,074	$	21,182

Accrued Warranty

	Nine Months Ended
	September 30, 2016			October 2, 2015
Balance at beginning of the period	$	3,335		$	3,044
Provision charged to cost of revenue		1,050			1,878
Acquisition related warranty accrual		—			94
Use of provision		(1,060	)		(1,084	)
Divestiture of JK Lasers		—			(392	)
Foreign currency exchange rate changes		(25	)		(11	)
Balance at end of period	$	3,300		$	3,529

Other Long Term Liabilities

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF SEPTEMBER 30, 2016

(Unaudited)

	September 30, 2016		December 31, 2015
Capital lease obligations	$	8,396	$	9,173
Accrued pension liabilities		2,332		3,693
Accrued contingent considerations		1,495		3,889
Other		2,258		2,690
Total	$	14,481	$	19,445

9. Debt

Debt consisted of the following (in thousands):

	September 30, 2016			December 31, 2015
Senior Credit Facilities – term loan	$	7,500		$	7,500
Less: unamortized debt issuance costs		(135	)		(115	)
Total current portion of long-term debt	$	7,365		$	7,385

Senior Credit Facilities – term loan	$	65,625		$	20,000
Senior Credit Facilities – revolving credit facility		10,000			70,000
Less: unamortized debt issuance costs		(3,358	)		(1,574	)
Total long-term debt	$	72,267		$	88,426

Total Senior Credit Facilities	$	79,632		$	95,811

Senior Credit Facilities

On May 19, 2016, the Company entered into the second amended and restated credit agreement (the “Second Amended and Restated Credit Agreement”) with new and existing lenders for an aggregate credit facility of $300.0 million, consisting of a $75.0 million, 5-year term loan facility due in quarterly installments of $1.9 million beginning in July 2016 and a $225.0 million, 5-year revolving credit facility (collectively, the “Senior Credit Facilities”). The Senior Credit Facilities mature in May 2021. The Second Amended and Restated Credit Agreement amends and restates the amended and restated credit agreement dated December 27, 2012. Quarterly installments due in the next twelve months under the term loan amount to $7.5 million and are classified as a current liability on the consolidated balance sheet.

The Company incurred $2.5 million in financing costs related to the Second Amended and Restated Credit Agreement. These costs are presented as a reduction to debt and will be amortized over the term of the Senior Credit Facilities.

The Company is required to satisfy certain financial and non-financial covenants under the Second Amended and Restated Credit Agreement. The Company was in compliance with these covenants as of September 30, 2016.

Liens

The Company’s obligations under the Senior Credit Facilities are secured on a senior basis by a lien on substantially all of the assets of the Company and its material United States (“U.S.”) and United Kingdom (“U.K.”) subsidiaries and guaranteed by the Company and its material U.S. and U.K. subsidiaries. The Amended and Restated Credit Agreement also contains customary events of default.

Fair Value of Debt

As of September 30, 2016 and December 31, 2015, the outstanding balance of the Company’s debt approximated its fair value based on current rates available to the Company for debt of the same maturity.

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF SEPTEMBER 30, 2016

(Unaudited)

10. Share-Based Compensation

The table below summarizes share-based compensation expense recorded in income from continuing operations in the consolidated statements of operations (in thousands):

	Three Months Ended				Nine Months Ended
	September 30, 2016		October 2, 2015		September 30, 2016		October 2, 2015
Selling, general and administrative	$	914	$	849	$	3,112	$	3,165
Research and development and engineering		18		42		82		122
Cost of revenue		56		70		191		207
Restructuring, acquisition and divestiture related costs		—		—		—		(321	)
Total share-based compensation expense	$	988	$	961	$	3,385	$	3,173

The expense recorded during each of the nine-month periods ended September 30, 2016 and October 2, 2015, respectively, included $0.5 million related to deferred stock units granted to the members of the Company’s Board of Directors.

Restricted Stock Units and Deferred Stock Units

The Company’s restricted stock units (“RSUs”) have generally been issued with a three-year or five-year vesting period and vest based solely on service conditions. Accordingly, the Company recognizes compensation expense on a straight-line basis over the requisite service period. The Company reduces the compensation expense by an estimated forfeiture rate which is based on anticipated forfeitures and actual experience.

Deferred stock units (“DSUs”) are granted to the members of the Company’s Board of Directors. The compensation expense associated with the DSUs is recognized in full on the respective date of grant, as DSUs are fully vested and non-forfeitable upon grant.

The table below summarizes activities relating to RSUs and DSUs issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the nine months ended September 30, 2016:

	Shares (In thousands)			Weighted Average Grant Date Fair Value
Unvested at December 31, 2015		619		$	12.32
Granted		520		$	14.17
Vested		(362	)	$	12.02
Forfeited		(142	)	$	13.11
Unvested at September 30, 2016		635		$	13.83
Expected to vest as of September 30, 2016		573

The total fair value of RSUs and DSUs that vested during the nine months ended September 30, 2016 was $4.9 million based on the market price of the underlying stock on the date of vesting.

Performance Stock Units

On March 30, 2016, the Company granted 46 thousand performance stock units (“PSUs”) to certain members of the executive management team. The performance objective is measured using cumulative Non-GAAP EPS over a three-year performance cycle. The Company recognizes compensation expense for PSUs on a straight-line basis. Compensation expense is determined based on the number of shares that are deemed probable of vesting at the end of the three-year performance cycle. This probability assessment is performed each quarter. The cumulative effect of the changes in the estimated compensation expense will be recognized in the consolidated statement of operations in the period in which such determination is made.

The table below summarizes activities relating to PSUs issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the nine months ended September 30, 2016:

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF SEPTEMBER 30, 2016

(Unaudited)

	Shares (In thousands)			Weighted Average Grant Date Fair Value
Unvested at December 31, 2015		—		$	—
Granted		46		$	14.13
Vested		—		$	—
Forfeited		(17	)	$	14.13
Unvested at September 30, 2016		29		$	14.13
Expected to vest as of September 30, 2016		29

Stock Options

On March 30, 2016, the Company granted 193 thousand stock options to certain members of the executive management team to purchase common shares of the Company at a price equal to the closing market price of the Company’s common shares on the date of grant. The stock options vest ratably over a three-year period beginning on the anniversary date of the date of grant and expire on the tenth anniversary of the date of grant. We estimate the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the expected option term, the expected volatility of our common stock over the expected term of the options, the risk-free interest rate, and our expected dividend yield. The Company recognizes the compensation expense of stock options on a straight-line basis in the consolidated statement of operations over the vesting period.

The table below summarizes activities relating to stock options issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the nine months ended September 30, 2016:

	Shares (In thousands)			Weighted Average Exercise Price
Outstanding as of December 31, 2015		—		$	—
Granted		193		$	14.13
Exercised		—		$	—
Forfeited or expired		(77	)	$	14.13
Outstanding as of September 30, 2016		116		$	14.13
Exercisable as of September 30, 2016		13		$	14.13
Expected to vest as of September 30, 2016		103

The fair value of stock options granted during the nine months ended September 30, 2016 was estimated as of the grant date using the Black-Scholes valuation model with the following assumptions:

	Nine Months Ended September 30, 2016
Expected option term in years (1)		6.0
Expected volatility (2)		33.8	%
Risk-free interest rate (3)		1.6	%
Expected annual dividend yield (4)		—

(1)

The expected option term was calculated using the simplified method provided by Codification of Staff Accounting Bulletin Topic 14: “Share-Based Payment”.

(2)

The expected volatility was determined based on the historical volatility of the Company’s common stock over the expected option term.

(3)

Risk-free interest rate was based upon treasury instrument whose term was one year longer than the expected option term.

(4)

The expected annual dividend yield is zero, as the Company does not have plans to issue dividends.

The aggregate Black-Scholes fair value of the stock options granted during the nine months ended September 30, 2016 was $1.0 million.

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF SEPTEMBER 30, 2016

(Unaudited)

11. Income Taxes

The Company determines its estimated annual effective tax rate at the end of each interim period based on full-year forecasted income from continuing operations before income taxes and facts known at that time. The estimated annual effective tax rate is applied to the year-to-date income from continuing operations before income taxes at the end of each interim period. The tax effect of significant unusual items is reflected in the period in which they occur. Since the Company is incorporated in Canada, it is required to use Canada’s statutory tax rate of 28.5% in the determination of the estimated annual effective tax rate. Effective April 1, 2016, the Canadian statutory tax rate increased from 27.0% to 29.0%, yielding a blended statutory rate of 28.5% for the full year.

The Company’s effective tax rate on income from continuing operations of 31.1% for the three months ended September 30, 2016 differs from the Canadian statutory rate of 28.5% primarily due to the mix of income earned in jurisdictions with varying tax rates and losses in jurisdictions with a full valuation allowance.

The Company’s effective tax rate on income from continuing operations of 30.3% for the nine months ended September 30, 2016 differs from the Canadian statutory rate of 28.5% primarily due to the mix of income earned in jurisdictions with varying tax rates, losses in jurisdictions with a full valuation allowance, the Laser Quantum dividend distribution and the impact of other discrete items for the period. The Company received a tax free cash dividend of $2.3 million from Laser Quantum in March 2016, which had a 1.9% favorable impact on our effective tax rate for the nine months ended September 30, 2016.

The Company’s effective tax rates on income from continuing operations of 27.2% and 26.3%, respectively, for the three and nine month periods ended October 2, 2015 differ from the Canadian statutory rate of 27.0% due to the gain from JK Lasers divestiture, the audit settlement with the U.S. Internal Revenue Service (the “IRS”), mix of income earned in jurisdictions with varying tax rates, losses in jurisdictions with a full valuation allowance, and the impact of discrete items for the periods.

The Company maintains a valuation allowance on some of its deferred tax assets in certain jurisdictions. A valuation allowance is required when, based upon an assessment of various factors, including recent operating loss history, anticipated future earnings, and prudent and reasonable tax planning strategies, it is more likely than not that some portion of the deferred tax assets will not be realized.

12. Restructuring, Acquisition and Divestiture Related Costs

The following table summarizes restructuring, acquisition and divestiture related costs in the accompanying consolidated statements of operations (in thousands):

	Three Months Ended					Nine Months Ended
	September 30, 2016			October 2, 2015		September 30, 2016		October 2, 2015
2016 restructuring	$	(1,621	)	$	751	$	2,955	$	751
2015 restructuring		—			—		—		1,484
2011 restructuring		—			300		108		953
Total restructuring charges		(1,621	)		1,051		3,063		3,188
Acquisition and related charges		786			282		2,765		(66	)
Divestiture related charges		—			46		—		1,110
Total acquisition and divestiture related charges		786			328		2,765		1,044
Total restructuring, acquisition and divestiture related costs (gain)	$	(835	)	$	1,379	$	5,828	$	4,232

2016 Restructuring

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF SEPTEMBER 30, 2016

(Unaudited)

Chatsworth, California for a net cash consideration of $3.4 million and recognized a gain on sale of $1.6 million as part of restructuring, acquisition and divestiture related costs. As of September 30, 2016, the Company incurred cumulative costs related to this restructuring plan totaling $ 6.1 million , net of the gain on sale of the Chatsworth, California facility . The Company expects to incu r additional restructuring charges of $0.3 million to $0.4 million related to the 2016 restructuring plan.

The following table summarizes restructuring costs for each segment and unallocated corporate and shared services related to the 2016 restructuring plan (in thousands):

	Three Months Ended					Nine Months Ended
	September 30, 2016			October 2, 2015		September 30, 2016		October 2, 2015
Photonics	$	45		$	30	$	813	$	30
Vision		(1,728	)		361		1,730		361
Precision Motion		—			125		106		125
Unallocated Corporate and Shared Services		62			235		306		235
Total	$	(1,621	)	$	751	$	2,955	$	751

2015 Restructuring

During the first quarter of 2015, the Company initiated a program to eliminate redundant costs, as a result of acquisition and divestiture activities, to better align our operations to our strategic growth plans, to further integrate our business lines, and as a consequence of our productivity initiatives. During the nine months ended October 2, 2015, the Company incurred restructuring costs of $1.5 million related to the 2015 restructuring plan. Restructuring costs incurred during the nine months ended October 2, 2015 were $0.6 million, $0.5 million, $0.1 million and $0.3 million related to the Photonics, Vision, Precision Motion, and Unallocated Corporate and Shared Services reportable segments, respectively.

2011 Restructuring

In November 2011, the Company announced a strategic initiative (“2011 restructuring”), which aimed to consolidate operations to reduce the Company’s cost structure and improve operational efficiency. As part of this initiative, the Company eliminated facilities through the consolidation of certain manufacturing, sales and distribution facilities and the exit of Semiconductor and Laser Systems businesses. The Company substantially completed the 2011 restructuring program by the end of 2013. In March 2016, the Company sold our previously exited facility located in Orlando, Florida for cash at the net carrying value of $3.5 million. Restructuring costs for the three and nine months ended September 30, 2016 included facility costs related to the Orlando, Florida facility. These costs were recorded in the Unallocated Corporate and Shared Services reportable segment.

Rollforward of Accrued Expenses Related to Restructuring

The following table summarizes the accrual activities, by component, related to the Company’s restructuring plans recorded in the accompanying consolidated balance sheets (in thousands):

	Total			Severance			Facility			Depreciation			Other
Balance at December 31, 2015	$	1,882		$	1,358		$	406		$	—		$	118
Restructuring charges (a)		4,700			2,372			949			616			763
Cash payments		(3,646	)		(2,635	)		(154	)		—			(857	)
Non-cash write-offs and other adjustments		(632	)		(45	)		24			(616	)		5
Balance at September 30, 2016	$	2,304		$	1,050		$	1,225		$	—		$	29

(a)

Excludes $1.6 million of gain on sale of the Chatsworth, California facility.

Acquisition and Related Charges

Acquisition related costs incurred to effect a business combination, including finders’ fees, legal, valuation and other professional or consulting fees, totaled $0.3 million and $0.8 million for the three and nine months ended September 30, 2016, respectively. Acquisition related costs recognized under earn-out agreements in connection with acquisitions totaled $0.5 million and $2.0 million during the three and nine months ended September 30, 2016, respectively.

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF SEPTEMBER 30, 2016

(Unaudited)

13. Commitments and Contingencies

Leases

The Company leases certain equipment and facilities under operating and capital lease agreements. There have been no material changes to the Company’s leases through September 30, 2016 from those discussed in Note 15 to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Purchase Commitments

There have been no material changes to the Company’s purchase commitments since December 31, 2015.

Legal Contingencies

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. The Company does not believe that the outcome of these claims will have a material adverse effect upon its consolidated financial statements but there can be no assurance that any such claims, or any similar claims, would not have a material adverse effect upon its consolidated financial statements.

Guarantees and Indemnifications

In the normal course of its operations, the Company executes agreements that provide for indemnification and guarantees to counterparties in transactions such as business dispositions, sale of assets, sale of products and operating leases. Additionally, the by-laws of the Company require it to indemnify certain current or former directors, officers, and employees of the Company against expenses incurred by them in connection with each proceeding in which he or she is involved as a result of serving or having served in certain capacities. Indemnification is not available with respect to a proceeding as to which it has been adjudicated that the person did not act in good faith in the reasonable belief that the action was in the best interests of the Company. Certain of our officers and directors are also a party to indemnification agreements with the Company. These indemnification agreements provide, among other things, that the director and officer shall be indemnified to the fullest extent permitted by applicable law against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by such officer or director in connection with any proceeding by reason of his or her relationship with the Company. In addition, the indemnification agreements provide for the advancement of expenses incurred by such director or officer in connection with any proceeding covered by the indemnification agreement, subject to the conditions set forth therein and to the extent such advancement is not prohibited by law. The indemnification agreements also set out the procedures for determining entitlement to indemnification, the requirements relating to notice and defense of claims for which indemnification is sought, the procedures for enforcement of indemnification rights, the limitations on and exclusions from indemnification, and the minimum levels of directors’ and officers’ liability insurance to be maintained by the Company.

14. Segment Information

The Company evaluates the performance of, and allocates resources to, its segments based on revenue, gross profit and operating profit. The Company’s reportable segments have been identified based on commonality and adjacency of technologies, applications and customers amongst the Company’s individual product lines.

We operate in three reportable segments: Photonics (formerly known as Laser Products), Vision (formerly known as Vision Technologies), and Precision Motion. The reportable segments and their principal activities consist of the following:

Photonics

The Photonics segment designs, manufactures and markets photonics-based solutions, including CO2 laser sources, laser scanning and beam delivery products, to customers worldwide. The segment serves highly demanding photonics-based applications such as industrial material processing, metrology, medical and life science imaging, and medical laser procedures. The vast majority of the segment’s product offerings are sold to OEM customers. The segment sells these products both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF SEPTEMBER 30, 2016

(Unaudited)

Vision

The Vision segment designs, manufactures and markets a range of medical grade technologies, including visualization solutions, imaging informatics products, optical data collection and machine vision technologies, RFID technologies, thermal printers, light and color measurement instrumentation, and embedded touch screen solutions, to customers worldwide. The vast majority of the segment’s product offerings are sold to OEM customers. The segment sells these products both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.

Precision Motion

The Precision Motion segment designs, manufactures and markets optical encoders, precision motor and motion control technology, air bearing spindles and precision machined components to customers worldwide. The vast majority of the segment’s product offerings are sold to OEM customers. The segment sells these products both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.

Reportable Segment Financial Information

Revenue, gross profit, gross profit margin, operating income (loss) from continuing operations, and depreciation and amortization by reportable segments are as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30, 2016		October 2, 2015		September 30, 2016		October 2, 2015
Revenue
Photonics	$	43,425	$	41,330	$	129,907	$	128,475
Vision		31,601		30,992		88,768		93,319
Precision Motion		22,803		19,949		67,204		61,585
Total	$	97,829	$	92,271	$	285,879	$	283,379

	Three Months Ended						Nine Months Ended
	September 30, 2016			October 2, 2015			September 30, 2016			October 2, 2015
Gross Profit
Photonics	$	18,603		$	18,851		$	57,461		$	57,176
Vision		12,343			12,152			32,446			36,823
Precision Motion		10,592			9,233			30,757			28,309
Unallocated Corporate and Shared Services		(326	)		(326	)		(1,064	)		(1,047	)
Total	$	41,212		$	39,910		$	119,600		$	121,261

	Three Months Ended						Nine Months Ended
	September 30, 2016			October 2, 2015			September 30, 2016			October 2, 2015
Gross Profit Margin
Photonics		42.8	%		45.6	%		44.2	%		44.5	%
Vision		39.1	%		39.2	%		36.6	%		39.5	%
Precision Motion		46.5	%		46.3	%		45.8	%		46.0	%
Total		42.1	%		43.3	%		41.8	%		42.8	%

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF SEPTEMBER 30, 2016

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30, 2016			October 2, 2015			September 30, 2016			October 2, 2015
Operating Income (Loss) from Continuing Operations
Photonics	$	8,185		$	10,145		$	24,704		$	28,586
Vision		2,307			(388	)		(4,164	)		(1,056	)
Precision Motion		6,195			4,417			16,608			14,357
Unallocated Corporate and Shared Services		(5,639	)		(5,167	)		(15,915	)		(17,168	)
Total	$	11,048		$	9,007		$	21,233		$	24,719

	Three Months Ended				Nine Months Ended
	September 30, 2016		October 2, 2015		September 30, 2016		October 2, 2015
Depreciation and Amortization
Photonics	$	1,820	$	1,394	$	5,123	$	4,373
Vision		2,460		2,109		7,861		6,449
Precision Motion		603		680		1,845		1,842
Unallocated Corporate and Shared Services		281		520		1,104		1,424
Total	$	5,164	$	4,703	$	15,933	$	14,088

I tem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and Notes included in Item 1 of this Quarterly Report on Form 10-Q. The MD&A contains certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. These forward-looking statements include, but are not limited to, expected benefits of our belief that the Purchasing Managers Index (PMI) may provide an indication of the impact of general economic conditions on our sales into the advanced industrial end market; expectations regarding the 2016 restructuring program, including our reinvestment plans; anticipated financial performance; expected liquidity and capitalization; drivers of revenue growth; management’s plans and objectives for future operations, expenditures and product development and investments in research and development; business prospects; potential of future product releases; anticipated revenue performance; changes in accounting principles and changes in actual or assumed tax liabilities; and expectations regarding tax exposure. These forward-looking statements are neither promises nor guarantees, but involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including, but not limited to, the following: the PMI may not provide an indication of the impact of general economic conditions on our sales into the advanced industrial end market in any particular period or at all; economic and political conditions and the effects of these conditions on our customers’ businesses and level of business activity; our significant dependence upon our customers’ capital expenditures, which are subject to cyclical market fluctuations; our dependence upon our ability to respond to fluctuations in product demand; our ability to continually innovate and successfully commercialize our innovations; failure to introduce new products in a timely manner; customer order timing and other similar factors beyond our control; disruptions or breaches in security of our information technology systems; changes in interest rates, credit ratings or foreign currency exchange rates; risk associated with our operations in foreign countries; our increased use of outsourcing in foreign countries; our failure to comply with local import and export regulations in the jurisdictions in which we operate; violations of our intellectual property rights and our ability to protect our intellectual property against infringement by third parties; risk of losing our competitive advantage; our failure to successfully integrate recent and future acquisitions into our businesses or grow acquired businesses; our ability to make divestitures that provide business benefits; our ability to attract and retain key personnel; our restructuring and realignment activities and disruptions to our operations as a result of consolidation of our operations; product defects or problems integrating our products with other vendors’ products; disruptions in the supply of certain key components and other goods from our suppliers; production difficulties and product delivery delays or disruptions; our compliance, or our failure to comply, with various federal, state and foreign regulations; changes in governmental regulation of our business or products; effects of compliance with conflict minerals regulations; our compliance, or failure to comply, with environmental regulations; our failure to implement new information technology systems and software successfully; our failure to realize the full value of our intangible assets; our exposure to the credit risk of some of our customers and in weakened markets; our reliance on third party distribution channels; changes in tax laws, and fluctuations in our effective tax rates; being subject to U.S. federal income taxation even though we are a non-U.S. corporation; any need for additional capital to adequately respond to business challenges or opportunities and repay or refinance our existing indebtedness, which may not be available on acceptable terms or at all; volatility in the market price for our common shares; our ability to access cash and other assets of our subsidiaries; the influence of certain significant shareholders over our business; provisions of our articles of incorporation may delay or prevent a change in control; our significant existing indebtedness may limit our ability to engage in certain activities; and our failure to maintain appropriate internal controls in the future. Other important risk factors that could affect the outcome of the events set forth in these statements and that could affect the Company’s operating results and financial condition are discussed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and in Item 1A of this quarterly report on Form 10-Q for the quarterly period ended September 30, 2016 under the heading “Risk Factors.” In this Quarterly Report on Form 10-Q, the words “anticipates,” “believes,” “expects,” “intends,” “future,” “could,” “estimates,” “plans,” “would,” “should,” “potential,” “continues,” and similar words or expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward-looking statements. Readers should not place undue reliance on any such forward-looking statements, which speak only as of the date they are made. Management and the Company disclaim any obligation to publicly update or revise any such statement to reflect any change in its expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements, except as required under applicable law.

Accounting Period

The interim financial statements of Novanta Inc. and its subsidiaries (collectively referred to as the “Company”, “we”, “us”, “our”) are prepared for each quarterly period ending on the Friday closest to the end of the calendar quarter, with the exception of the fourth quarter which always ends on December 31.

Business Overview

We design, develop, manufacture and sell precision photonics and motion control components and subsystems to Original Equipment Manufacturers (“OEM’s”) in the medical and advanced industrial markets. We combine deep expertise at the intersection of photonics and motion to solve complex technical challenges. This enables us to engineer core components and sub-systems that deliver extreme precision and performance, tailored to our customers' demanding applications. We deliver highly engineered photonics, vision and precision motion solutions to customers around the world.

Reportable Segments

Photonics

Our Photonics segment designs, manufactures and markets photonics-based solutions, including CO2 laser sources, laser scanning and beam delivery products, to customers worldwide. The segment serves highly demanding photonics-based applications such as industrial material processing, metrology, medical and life science imaging, and medical laser procedures. The vast majority of the segment’s product offerings are sold to OEM customers. The segment sells these products both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.

Vision

Our Vision segment designs, manufactures and markets a range of medical grade technologies, including visualization solutions, imaging informatics products, optical data collection and machine vision technologies, radio frequency identification (“RFID”) technologies, thermal printers, light and color measurement instrumentation, and embedded touch screen solutions, to customers worldwide. The vast majority of the segment’s product offerings are sold to OEM customers. The segment sells these products both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.

Precision Motion

Our Precision Motion segment designs, manufactures and markets optical encoders, precision motor and motion control technology, air bearing spindles and precision machined components to customers worldwide. The vast majority of the segment’s product offerings are sold to OEM customers. The segment sells these products both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.

End Markets

We primarily operate in two end markets: the advanced industrial market and the medical market.

Advanced Industrial Market

As of September 30, 2016, the advanced industrial market accounted for approximately 60% of the Company’s revenue. Revenue from our products sold to the advanced industrial market is affected by a number of factors, including changing technology requirements and preferences of our customers, productivity or quality investments in a manufacturing environment, the financial condition of our customers, changes in regulatory requirements and laws, and general economic conditions. We believe that the Purchasing Managers Index (PMI) on manufacturing activities specific to different regions around the world may provide an indication of the impact of general economic conditions on our sales into the advanced industrial market.

Medical Market

As of September 30, 2016, the medical market accounted for approximately 40% of the Company’s revenue. Our revenue from products sold to the medical market is generally affected by hospital and other health care provider capital spending, changes in regulatory requirements and laws, aggregation of purchasing by healthcare networks, trends in surgical procedures, changes in technology requirements, changes in customers or patient preferences, and general demographic trends.

Strategy

Our strategy is to drive sustainable, profitable growth through short-term and long-term initiatives, including:

•

improving our business mix to increase medical sales as a percentage of total revenue by:

introducing new products aimed at attractive medical applications, such as minimally invasive and robotic surgery, ophthalmology, patient monitoring, drug delivery, diagnostic testing and life science research;

cross selling our entire product offerings to the leading medical equipment manufacturers; and

pursuing complementary medical technology acquisitions;

•

increasing our penetration of high growth advanced industrial applications, such as laser materials processing, robotics, automation, metrology, and micromachining, by working closely with OEM customers to launch application specific products that closely match the requirements of each application;

•

broadening our portfolio of enabling technologies and capabilities through increased new product development investment, expanded sales and marketing channels to reach target customers and, investments in application development to further penetrate existing customers, while expanding the applicability of our solutions to new markets;

•

broadening our product and service offerings through the acquisition of innovative and complementary technologies and solutions in medical and advanced industrial applications, including increasing our recurring revenue streams such as services, spare parts and consumables;

•

improving our existing operations to expand profit margins and improve customer satisfaction by implementing lean manufacturing principles and strategic sourcing across our major production sites; and

•

attracting, retaining, and developing world-class talented and motivated employees.

Fiscal Year 2016 Significant Events and Updates

Acquisition of Reach Technology Inc.

On May 24, 2016, we acquired 100% of the outstanding stock of Reach Technology Inc. (“Reach”), a Fremont, California-based provider of embedded touch screen technology solutions for OEMs in the medical and advanced industrial markets, for a total purchase price of $9.4 million, subject to customary working capital adjustments. Reach specializes in technologies that deliver high-performance touch screen solutions for OEMs with a focus on medical applications. The acquisition expands the range of human interface solutions to enhance our value proposition with medical OEM customers. Reach is included in our Vision reportable segment.

Second Amended and R estated Senior Credit Facility

On May 19, 2016, we entered into the Second Amended and Restated Credit Agreement, which matures on May 19, 2021 and provides for an aggregated credit facility of $300.0 million, comprised of a $75.0 million, 5-year term loan facility and a $225.0 million, 5-year revolving credit facility (collectively, the “Senior Credit Facilities”). The Second Amended and Restated Credit Agreement amended and restated our previous senior credit facility that had a maturity date of December 27, 2017 and provided for aggregated credit facility of $225.0 million, comprised of a $50.0 million, 5-year term loan facility and a $175.0 million, 5-year revolving credit facility.

2016 Restructuring Program

During the third quarter of 2015, the Company initiated the 2016 restructuring program, which includes consolidating certain of our manufacturing operations to optimize our facility footprint and better utilize resources, costs associated with discontinuing our radiology product line and reducing redundant costs due to productivity cost savings and business volume reductions. We substantially completed the 2016 restructuring program during the second quarter of 2016. During the three and nine months ended September 30, 2016, the Company had a gain of $1.6 million, net of expenses, and costs of $3.0 million, respectively, related to the 2016 restructuring plan. We recognized a gain of $1.6 million during the three months ended September 30, 2016 related to the sale of our facility in Chatsworth, California. The Company expects to incur additional restructuring charges of $0.3 million to $0.4 million related to the 2016 restructuring plan in the next twelve months.

Results of Operations for the Three and Nine Months Ended September 30, 2016 Compared with the Three and Nine Months Ended October 2, 2015

The following table sets forth our unaudited results of operations as a percentage of revenue for the periods indicated:

	Three Months Ended						Nine Months Ended
	September 30, 2016			October 2, 2015			September 30, 2016			October 2, 2015
Revenue		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenue		57.9			56.7			58.2			57.2
Gross profit		42.1			43.3			41.8			42.8
Operating expenses:
Research and development and engineering		8.1			8.3			8.4			8.4
Selling, general and administrative		21.4			21.7			21.8			22.2
Amortization of purchased intangible assets		2.1			2.0			2.2			2.0
Restructuring, acquisition and divestiture related costs (gain)		(0.9	)		1.5			2.0			1.5
Total operating expenses		30.8			33.5			34.4			34.1
Operating income from continuing operations		11.3			9.8			7.4			8.7
Interest income (expense), net		(1.1	)		(1.4	)		(1.2	)		(1.4	)
Foreign exchange transaction gains (losses), net		0.2			0.4			0.3			(0.8	)
Other income (expense), net		0.7			1.0			0.6			7.6
Income from continuing operations before income taxes		11.1			9.8			7.1			14.1
Income tax provision		3.4			2.7			2.2			3.7
Income from continuing operations		7.6			7.1			5.0			10.4
Loss from discontinued operations, net of tax		—			—			—			—
Consolidated net income		7.6	%		7.1	%		5.0	%		10.4	%

Overview of Financial Results

Total revenue for the three and nine months ended September 30, 2016 increased 6.0% and 0.9%, respectively, compared to the prior year. The net effect of our acquisition and divestiture activities resulted in an increase in revenue of 2.2% during the three months ended September 30, 2016 and a decrease in revenue of 0.1% during the nine months ended September 30, 2016. In addition, foreign currency exchange rates adversely impacted our revenue by 0.6% and 0.3% during the three and nine months ended September 30, 2016, respectively.

Operating income from continuing operations in creased $ 2.0 million, or 22.7% , from $ 9 . 0 million for the three months ended October 2 , 201 5 to $ 11.0 million for the three months ended September 30 , 201 6 . This in crease was primarily attributable to an increase in gross profit of $1. 3 million as a result of higher revenue and a decrease in restructuring, acquisition and divestiture related costs of $2.2 million primarily due to a $1.6 million gain from the sale of our Chatsworth, California facility , partially offset by a n in crease in selling, general and administrative (“SG&A”) expenses of $1.0 million primarily due to CEO transition costs.

Operating income from continuing operations decreased $3.5 million, or 14.1%, from $24.7 million for the nine months ended October 2, 2015 to $21.2 million for the nine months ended September 30, 2016. This decrease was primarily attributed to a decrease in gross profit of $1.7 million as a result of the write-down of inventories related to the discontinuation of our radiology products and an increase in restructuring, acquisition and divestiture related costs of $1.6 million related to our current year restructuring programs and changes in the fair value of contingent considerations from prior year acquisitions, partially offset by a decrease in SG&A expenses of $0.6 million.

Diluted earnings per share (“Diluted EPS”) from continuing operations of $0.21 for the three months ended September 30, 2016 increased $0.02 from the prior year. This increase was primarily attributable to higher operating income from continuing operations.

Diluted EPS from continuing operations of $0.41 for the nine months ended September 30, 2016 decreased $0.43 from the prior year. This decrease was primarily attributable to lower operating income from continuing operations and lower other income as a result of the $19.6 million gain recognized from the JK Lasers divestiture in the prior year, partially offset by foreign currency gains in the current year versus foreign currency losses in the prior year.

Revenue

The following table sets forth external revenue by reportable segment for the periods noted (dollars in thousands):

	Three Months Ended
	September 30, 2016		October 2, 2015		Increase (Decrease)		Percentage Change
Photonics	$	43,425	$	41,330	$	2,095		5.1	%
Vision		31,601		30,992		609		2.0	%
Precision Motion		22,803		19,949		2,854		14.3	%
Total	$	97,829	$	92,271	$	5,558		6.0	%

	Nine Months Ended
	September 30, 2016		October 2, 2015		Increase (Decrease)			Percentage Change
Photonics	$	129,907	$	128,475	$	1,432			1.1	%
Vision		88,768		93,319		(4,551	)		(4.9	)%
Precision Motion		67,204		61,585		5,619			9.1	%
Total	$	285,879	$	283,379	$	2,500			0.9	%

Photonics

Photonics segment revenue for the three months ended September 30, 2016 increased by $2.1 million, or 5.1%, versus the prior year. The increase was primarily driven by an increase in revenue of our laser beam delivery products of $2.0 million as a result of the Lincoln Laser acquisition in November 2015.

Photonics segment revenue for the nine months ended September 30, 2016 increased by $1.4 million, or 1.1%, versus the prior year. The increase was primarily driven by an increase in revenue of our laser beam delivery products of $8.3 million as a result of the Lincoln Laser acquisition and increased customer volumes in the advanced industrial and medical markets, partially offset by a decrease of $5.7 million in JK Lasers products as a result of the JK Lasers divestiture in April 2015 and a decrease in revenue of our CO2 lasers products as a result of capital spending weakness in the industrial manufacturing sector.

Vision

Vision segment revenue for the three months ended September 30, 2016 increased by $0.6 million, or 2.0%, versus the prior year. Revenue increased $3.9 million due to higher volumes from our optical data collection products in medical markets and the acquisition of Reach, partially offset by a decline of $3.3 million in our visualization solutions revenue as a result of our decision to discontinue our radiology products and lower demand for our surgical products.

Vision segment revenue for the nine months ended September 30 , 2016 decreased by $ 4.6 million, or 4.9% , versus the prior year. Revenue decreased $10.7 million due to a decline in our visualization solutions revenue as a result of our decision to discontinue our radiology products and lower demand for our surgical products . This was partially offset by increases in revenue of $6.1 million from higher volumes from our optical data collection products in medical markets and the acquisition of Reach .

Precision Motion

Precision Motion segment revenue for the three months ended September 30, 2016 increased by $2.9 million, or 14.3%, versus the prior year. The increase was driven by an increase in revenue of our encoders, motor components and air bearing spindles products as a result of increased demand in the advanced industrial and medical markets.

Precision Motion segment revenue for the nine months ended September 30, 2016 increased by $5.6 million, or 9.1%, versus the prior year. The increase was principally driven by an increase in our encoders products and our motor components products as a result of increased demand in the advanced industrial and medical markets.

Gross Profit and Gross Profit Margin

The following table sets forth the gross profit and gross profit margin for each of our reportable segments for the periods noted (dollars in thousands):

	Three Months Ended						Nine Months Ended
	September 30, 2016			October 2, 2015			September 30, 2016			October 2, 2015
Gross profit:
Photonics	$	18,603		$	18,851		$	57,461		$	57,176
Vision		12,343			12,152			32,446			36,823
Precision Motion		10,592			9,233			30,757			28,309
Unallocated Corporate and Shared Services		(326	)		(326	)		(1,064	)		(1,047	)
Total	$	41,212		$	39,910		$	119,600		$	121,261
Gross profit margin:
Photonics		42.8	%		45.6	%		44.2	%		44.5	%
Vision		39.1	%		39.2	%		36.6	%		39.5	%
Precision Motion		46.5	%		46.3	%		45.8	%		46.0	%

Total		42.1	%		43.3	%		41.8	%		42.8	%

Gross profit and gross profit margin can be influenced by a number of factors, including product mix, pricing, volume, manufacturing efficiencies and utilization, costs for raw materials and outsourced manufacturing, headcount, inventory obsolescence and warranty expenses.

Photonics

Photonics segment gross profit for the three months ended September 30, 2016 decreased $0.2 million, or 1.3%, versus the prior year. Photonics segment gross profit margin was 42.8% for the three months ended September 30, 2016, versus a gross profit margin of 45.6% for the prior year. The decrease in gross profit and gross profit margin was primarily attributable to product mix and temporary manufacturing inefficiencies as a result of an enterprise resource planning (“ERP”) system implementation of our laser beam delivery products.

Photonics segment gross profit for the nine months ended September 30, 2016 increased $0.3 million, or 0.5%, versus the prior year, primarily attributable to an increase in revenue. Photonics segment gross profit margin was 44.2% for the nine months ended September 30, 2016, versus a gross profit margin of 44.5% for the prior year.

Vision

Vision segment gross profit for the three months ended September 30, 2016 increased $0.2 million, or 1.6%, versus the prior year. The increase was primarily attributable to an increase in revenue. Vision segment gross profit margin was 39.1% for the three months ended September 30, 2016, versus a gross profit margin of 39.2% for the prior year.

Vision segment gross profit for the nine months ended September 30, 2016 decreased $4.4 million, or 11.9%, versus the prior year. The decrease was primarily attributable to a decline in revenue and a $1.6 million charge related to the discontinuation of our radiology products. Vision segment gross profit margin was 36.6% for the nine months ended September 30, 2016, versus a gross

profit margin of 39. 5 % for the prior year. The decrease in gross profit marg in was primarily attributable to costs associated with discontinuing our radiology products , which accounted for 1 . 8 percentage points of the decrease.

Precision Motion

Precision Motion segment gross profit for the three months ended September 30, 2016 increased $1.4 million, or 14.7%, versus the prior year. The increase was primarily attributable to an increase in revenue. Precision Motion segment gross profit margin was 46.5% for the three months ended September 30, 2016, versus a gross profit margin of 46.3% for the prior year.

Precision Motion segment gross profit for the nine months ended September 30, 2016 increased $2.4 million, or 8.6%, versus the prior year. The increase was primarily attributable to an increase in revenue. Precision Motion segment gross profit margin was 45.8% for the nine months ended September 30, 2016, versus a gross profit margin of 46.0% for the prior year.

Operating Expenses

The following table sets forth operating expenses for the periods noted (in thousands):

	Three Months Ended					Nine Months Ended
	September 30, 2016			October 2, 2015		September 30, 2016		October 2, 2015
Research and development and engineering	$	7,961		$	7,693	$	24,029	$	23,748
Selling, general and administrative		20,972			19,979		62,357		62,969
Amortization of purchased intangible assets		2,066			1,852		6,153		5,593
Restructuring, acquisition and divestiture related costs (gain)		(835	)		1,379		5,828		4,232
Total	$	30,164		$	30,903	$	98,367	$	96,542

Research and Development and Engineering Expenses

Research and development and engineering (“R&D”) expenses are primarily comprised of employee compensation related expenses and cost of materials for R&D projects. R&D expenses were $8.0 million, or 8.1% of revenue, during the three months ended September 30, 2016, versus $7.7 million, or 8.3% of revenue, during the prior year. R&D expenses increased in terms of total dollars primarily due to increased R&D expenses from acquisitions.

R&D expenses were $24.0 million, or 8.4% of revenue, during the nine months ended September 30, 2016, versus $23.7 million, or 8.4% of revenue, during the prior year. R&D expenses increased in terms of total dollars primarily due to increased R&D expenses from acquisitions, partially offset by decreased costs as a result of the JK Lasers divestiture.

Selling, General and Administrative Expenses

SG&A expenses include costs for sales and marketing, sales administration, finance, human resources, legal, information systems, and executive management functions. SG&A expenses were $21.0 million, or 21.4% of revenue, during the three months ended September 30, 2016, versus $20.0 million, or 21.7% of revenue, during the prior year. SG&A expenses increased in terms of total dollars primarily due to CEO transition costs of $1.3 million.

SG&A expenses were $62.4 million, or 21.8% of revenue, during the nine months ended September 30, 2016, versus $63.0 million, or 22.2% of revenue, during the prior year. SG&A expenses decreased in terms of total dollars and as a percentage of revenue, primarily due to the JK Lasers divestiture which accounted for a $1.1 million decrease in SG&A expenses and from lower headcount as a result of restructuring initiatives, partially offset by increased SG&A expenses from acquisitions and CEO transition costs of $1.3 million.

Amortization of Purchased Intangible Assets

Amortization of purchased intangible assets, excluding the amortization of developed technologies included in cost of revenue, was $2.1 million, or 2.1% of revenue, during the three months ended September 30, 2016, and $6.2 million, or 2.2% of revenue, during the nine months ended September 30, 2016, versus $1.9 million, or 2.0% of revenue, and $5.6 million, or 2.0% of revenue, during the prior year comparable periods. The increase, in terms of total dollars and as a percentage of revenue, was related to the increase in amortization of acquired intangible assets from acquisitions.

Restructuring , Acquisition and Divestiture Related Costs (Gain)

Restructuring, acquisition and divestiture related costs (gain) were $0.8 million of income and $1.4 million of expense, respectively, during the three months ended September 30, 2016 and October 2, 2015. The income reported in restructuring, acquisition and divestiture related costs related to a gain of $1.6 million from the sale of our facility in Chatsworth, California in August 2016, partially offset by an increase in acquisition related charges of $0.5 million related to earn-out expenses and professional services fees.

Restructuring, acquisition and divestiture related costs were $5.8 million and $4.2 million, respectively, during the nine months ended September 30, 2016 and October 2, 2015. The increase in restructuring, acquisition and divestiture related costs versus the prior year was due to an increase in acquisition related charges of $2.8 million, partially offset by a decrease in restructuring related charges of $0.1 million and divestiture related costs of $1.1 million as a result of the JK Lasers divestiture in the prior year. Restructuring related charges for the nine months ended September 30, 2016 were primarily related to the 2016 restructuring program, offset by the $1.6 million gain on the sale of our Chatsworth, California facility. Acquisition related costs for the nine months ended September 30, 2016 were primarily related to current year acquisitions and a $1.4 million increase in the fair value of contingent considerations related to prior year acquisitions.

Operating Income from Continuing Operations

The following table sets forth operating income from continuing operations by segment for the periods noted (in thousands):

	Three Months Ended						Nine Months Ended
	September 30, 2016			October 2, 2015			September 30, 2016			October 2, 2015
Operating Income (Loss) from Continuing Operations:
Photonics	$	8,185		$	10,145		$	24,704		$	28,586
Vision		2,307			(388	)		(4,164	)		(1,056	)
Precision Motion		6,195			4,417			16,608			14,357
Unallocated Corporate and Shared Services		(5,639	)		(5,167	)		(15,915	)		(17,168	)
Total	$	11,048		$	9,007		$	21,233		$	24,719

Photonics

Photonics segment operating income from continuing operations for the three months ended September 30, 2016 decreased by $2.0 million, or 19.3%, versus the prior year. The decrease in operating income from continuing operations was primarily due to an increase in operating expenses of $1.7 million as a result of the Lincoln Laser acquisition and investments in R&D and sales and marketing resources, and a decrease in gross profit.

Photonics segment operating income from continuing operations for the nine months ended September 30, 2016 decreased by $ 3.9 million, or 13.6%, versus the prior year. The decrease in operating income from continuing operations was primarily due to an increase in R&D and SG&A expenses of $4.7 million as a result of the Lincoln Laser acquisition and investments in R&D, sales and marketing resources, partially offset by a decrease in restructuring, acquisition and divestiture related costs primarily due to the JK Lasers divestiture in the prior year and an increase in gross profit.

Vision

Vision segment operating income from continuing operations for the three months ended September 30, 2016 increased by $2.7 million from an operating loss of ($0.4) million in the prior year. The increase was primarily attributable to a $1.6 million gain from the sale of our facility in Chatsworth, California and a decrease in SG&A expenses of $1.0 million primarily as a result of cost savings from our 2016 restructuring program.

Vision segment operating loss from continuing operations for the nine months ended September 30, 2016 increased by $3.1 million versus the prior year. The increase was primarily attributable to a decrease in gross profit of $4.4 million, an increase in amortization of intangibles of $0.7 million as a result of prior year and current year acquisitions, and an increase in restructuring, acquisition and divestiture related costs of $3.5 million, partially offset by a decrease in R&D and SG&A expenses of $3.9 million attributable to cost savings from our restructuring programs and a $1.6 million gain from the sale of our facility in Chatsworth, California.

Precision Motion

Precision Motion segment operating income from continuing operations for the three months ended September 30, 2016 increased by $1.8 million, or 40.3%, versus the prior year. The increase was primarily due to an increase in gross profit of $1.4 million and a decrease in operating expenses of $0.4 million as a result of cost savings from our 2016 restructuring program.

Precision Motion segment operating income from continuing operations for the nine months ended September 30, 2016 increased by $2.3 million, or 15.7%, versus the prior year. The increase was primarily due to an increase in gross profit of $2.4 million and a decrease in compensation expense as a result of prior year restructuring initiatives, partially offset by an increase in acquisition related costs of $1.1 million primarily related to increases in the fair value of contingent considerations related to the Applimotion acquisition.

Unallocated Corporate and Shared Services

Unallocated corporate and shared services costs primarily represent costs of corporate and shared services functions that are not allocated to the operating segments, including certain restructuring and most acquisition related costs. These costs for the three months ended September 30, 2016 increased by $0.5 million, or 9.1%, versus the prior year primarily due to an increase in SG&A expenses as a result of CEO transition costs, partially offset by a decrease in restructuring and acquisition related costs. Unallocated corporate and shared services costs for the nine months ended September 30, 2016 decreased by $1.3 million, or 7.3%, versus the prior year primarily due to a decrease in operating expenses as a result of cost savings from prior year restructuring initiatives and lower current year restructuring costs, partially offset by CEO transition costs.

Other Income and Expense Items

The following table sets forth other income and expense items for the periods noted (dollars in thousands):

	Three Months Ended						Nine Months Ended
	September 30, 2016			October 2, 2015			September 30, 2016			October 2, 2015
Interest income (expense), net	$	(1,081	)	$	(1,248	)	$	(3,471	)	$	(4,020	)
Foreign exchange transaction gains (losses), net		188			383			978			(2,253	)
Other income (expense), net		686			878			1,699			21,641

Interest Income (Expense), Net

Net interest expense was $1.1 million for the three months ended September 30, 2016, versus $1.2 million in the prior year. The $0.1 million decrease in net interest expense from the prior year was primarily due to a decrease in average debt levels, partially offset by an increase in the weighted average interest rate on our Senior Credit Facilities. The weighted average interest rate on our Senior Credit Facilities was 3.52% during the three months ended September 30, 2016, versus 3.15% for the prior year. The increase in weighted average interest rate was primarily due to higher commitment fees for unused revolving credit facilities.

Net interest expense was $3.5 million for the nine months ended September 30, 2016, versus $4.0 million in the prior year. The $0.5 million decrease in net interest expense from the prior year was primarily due to a decrease in average debt levels, partially offset by an increase in the weighted average interest rate on our Senior Credit Facilities. The weighted average interest rate on our Senior Credit Facilities was 3.49% during the nine months ended September 30, 2016, versus 3.30% for the prior year.

Foreign Exchange Transaction Gains (Losses), Net

Foreign exchange transaction gains (losses), net, were $0.2 million net gains for the three months ended September 30, 2016, versus $0.4 million net gains for the prior year due to changes in the U.S. Dollar against the Euro, British Pound and Japanese Yen.

Foreign exchange transaction gains (losses), net, were $1.0 million net gains for the nine months ended September 30, 2016, versus $2.3 million net losses for the prior year due to changes in the U.S. Dollar against the Euro, British Pound and Japanese Yen and an unrealized foreign currency loss in the prior year related to the cash proceeds in U.S. dollars from the JK Lasers divestiture being held for a period of time by our UK subsidiary.

Other Income (Expense), Net

Other income was $0.7 million and $1.7 million during the three and nine months ended September 30, 2016, respectively, versus $0.9 million and $21.6 million during the three and nine months ended October 2, 2015, respectively. The decrease in other

income during the nine months ended September 30, 2016 compared to the prior year was primarily due to a gain of $19.6 million recognized in the prior year as a result of the JK Lasers divestiture in April 2015 .

Income Taxes

The effective tax rate for the three months ended September 30, 2016 was 31.1%, versus 27.2% for the prior year. The Company’s effective tax rate on income from continuing operations of 31.1% for the three months ended September 30, 2016 differs from the Canadian statutory rate of 28.5% primarily due to the mix of income earned in jurisdictions with varying tax rates and losses in jurisdictions with a full valuation allowance.

The effective tax rate for the nine months ended September 30, 2016 was 30.3%, versus 26.3% for the prior year. The Company’s effective tax rate on income from continuing operations of 30.3% for the nine months ended September 30, 2016 differs from the Canadian statutory rate of 28.5% primarily due to the mix of income earned in jurisdictions with varying tax rates, losses in jurisdictions with a full valuation allowance, the Laser Quantum dividend distribution and the impact of other discrete items for the period. The Company received a tax free cash dividend of $2.3 million from Laser Quantum in March 2016, which had a 1.9% favorable impact on our effective tax rate for the nine months ended September 30, 2016.

Discontinued Operations

Loss from discontinued operations, net of tax, was zero for both the three and the nine months ended September 30, 2016, compared to loss from discontinued operations, net of tax, of zero and less than $0.1 million, respectively, during the three and nine months ended October 2, 2015. The small loss from discontinued operations, net of tax, was due to losses related to the Scientific Lasers business that was divested in July 2014.

Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities. Our primary ongoing cash requirements are funding operations, capital expenditures, investments in businesses, and repayment of our debt and related interest payments. Our primary sources of liquidity are cash flows from operations and borrowings under our revolving credit facility. We believe our future operating cash flows will be sufficient to meet our future operating and capital expenditure cash needs for the foreseeable future, including at least the next 12 months. The availability of borrowings under our revolving credit facility provides an additional potential source of liquidity for acquisitions. In addition, we may seek to raise additional capital, which could be in the form of bonds, convertible debt or equity, to fund major business development activities or other future investing cash requirements, subject to approval by the lenders in the Second Amended and Restated Credit Agreement.

Significant factors affecting the management of our ongoing cash requirements are the adequacy of available bank lines of credit and our ability to attract long term capital with satisfactory terms. The sources of our liquidity are subject to all of the risks of our business and could be adversely affected by, among other factors, a decrease in demand for our products, our ability to integrate current and future acquisitions, deterioration in certain financial ratios, and market changes in general. See “Risks Relating to Our Common Shares and Our Capital Structure” included in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Our ability to make payments on our indebtedness and to fund our operations may be dependent upon the earnings and the distribution of funds from our subsidiaries. Local laws and regulations and/or the terms of our indebtedness restrict certain of our subsidiaries from paying dividends and transferring assets to us. We cannot assure you that applicable laws and regulations and/or the terms of our indebtedness will permit our subsidiaries to provide us with sufficient dividends, distributions or loans when necessary.

In October 2013, the Company’s Board of Directors authorized a share repurchase plan under which the Company may repurchase outstanding shares of the Company’s common stock up to an aggregate amount of $10.0 million. The shares may be repurchased from time to time, at the Company’s discretion, based on ongoing assessment of the capital needs of the business, the market price of the Company’s common stock, and general market conditions. Shares may also be repurchased through an accelerated stock purchase agreement, on the open market or in privately negotiated transactions in accordance with applicable federal securities laws. Repurchases may be made under certain SEC regulations, which would permit common stock to be purchased when the Company would otherwise be prohibited from doing so under insider trading laws. The share repurchase plan does not obligate the Company to acquire any particular amount of common stock. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time. The Company expects to fund share repurchases through cash on hand and future cash flows from operations. As of December 31, 2015, the Company has cumulatively repurchased an aggregate of 172 thousand shares of its common stock for an aggregate purchase price of $2.2 million at an average price of $12.48

per share . During the nine months ended September 30 , 2016 , the Company repurchased 109 thousand shares in the open market for an aggregate purchase price of $1.6 million at an average price of $ 14.93 per share.

As of September 30, 2016, $33.9 million of our $64.7 million cash and cash equivalents was held by our subsidiaries outside of Canada and the United States. Generally, our intent is to use cash held in these foreign subsidiaries to fund our local operations or acquisitions by those local subsidiaries. However, in certain instances, we have identified excess cash for which we may repatriate and we have established deferred tax liabilities for the expected tax cost. Additionally, we may use intercompany loans to address short-term cash flow needs for various subsidiaries.

Second Amended and Restated Credit Agreement

In May 2016, we entered into the second amended and restated senior secured credit agreement (the “Second Amended and Restated Credit Agreement”), consisting of a $75.0 million, 5-year term loan facility and a $225.0 million, 5-year revolving credit facility (collectively, the “Senior Credit Facilities”). The Senior Credit Facilities mature in May 2021. As of September 30, 2016, we had term loans of $73.1 million and revolving loans of $10.0 million outstanding under the Senior Credit Facilities.

The Second Amended and Restated Credit Agreement contains various covenants that we believe are usual and customary for this type of agreement, including a maximum allowed leverage ratio, and a minimum required fixed charge coverage ratio (as defined in the Amended and Restated Credit Agreement). The following table summarizes these financial covenant requirements and our compliance as of September 30, 2016:

	Requirement		Actual
Maximum consolidated leverage ratio		3.00		1.27
Minimum consolidated fixed charge coverage ratio		1.50		3.65

Cash Flows for the Nine Months Ended September 30, 2016 and October 2, 2015

The following table summarizes our cash flows from continuing operations, cash and cash equivalent balances and unused and available funds under our revolving credit facility for the periods indicated (dollars in thousands):

	Nine Months Ended
	September 30, 2016			October 2, 2015
Net cash provided by operating activities of continuing operations	$	34,707		$	25,476
Net cash provided by (used in) investing activities of continuing operations	$	(8,920	)	$	12,534
Net cash used in financing activities of continuing operations	$	(21,130	)	$	(8,444	)

September 30,

2016

December 31,

2015

Cash and cash equivalents

64,739

59,959

Unused and available funds under revolving credit facility

215,000

105,000

Operating Cash Flows

Cash provided by operating activities of continuing operations was $34.7 million for the nine months ended September 30, 2016, versus $25.5 million for the prior year. Cash provided by operating activities of continuing operations for the nine months ended September 30, 2016 increased from the prior year primarily due to the increase in income from continuing operations adjusted for depreciation and amortization, share-based compensation, gain on disposal of business, gain on sale of fixed assets, acquisition related costs recognized under earn-out agreements in connection with acquisitions and, the dividend from equity method investment.

Cash provided by operating activities of continuing operations was positively impacted by an increase in our days payables outstanding which increased from 41 days at December 31, 2015 to 45 days at September 30, 2016 and by a decrease in inventories, excluding inventories from the Reach acquisition, as our inventory turnover ratio increased from 3.6 at December 31, 2015 to 3.8 at September 30, 2016. Cash provided by operating activities of continuing operations was negatively impacted by the higher amount of sales occurring later in the three months ended September 30, 2016 versus the three months ended December 31, 2015.

Cash provided by operating activities of continuing operations for the nine months ended October 2, 2015 was positively impacted by an increase in our days payables outstanding from 46 days at December 31, 2014 to 48 days at October 2, 2015. Cash provided by operating activities of continuing operations was negatively impacted by an increase in our days sales outstanding from 51 days at December 31, 2014 to 55 days at October 2, 2015 and an increase in inventories, excluding inventories sold as part of the

JK Lasers divestiture and inventories from the Applimotion acquisition. In addition, cash provided by operating activities of continu ing operations was negatively impacted by the higher amount of sales occurring later in the thr ee months ended October 2, 2015 versus the three months ended December 31, 2014 .

Investing Cash Flows

Cash used in investing activities of our continuing operations was $8.9 million during the nine months ended September 30, 2016, compared to cash provided of $12.5 million during the nine months ended October 2, 2015. Cash used in investing activities for the nine months ended September 30, 2016 was primarily related to $9.4 million cash consideration paid for the Reach acquisition in May 2016 and $7.0 million in capital expenditures, partially offset by $3.6 million in net cash consideration received from the sale of our Orlando, Florida facility in March 2016, $3.4 million in net cash consideration received from the sale of our Chatsworth, California facility in August 2016, and $0.4 million received from the finalization of the Lincoln Laser acquisition working capital adjustments. Cash provided by investing activities for the nine months ended October 2, 2015 was primarily due to cash proceeds of 29.6 million received from the sale of the JK Lasers business in April 2015, partially offset by cash consideration of $13.0 million paid for the Applimotion acquisition in February 2015 and $4.1 million in capital expenditures.

Cash provided by investing activities of discontinued operations for the nine months ended September 30, 2016 was primarily related to a $1.5 million release of escrow related to our July 2014 Scientific Lasers divestiture.

We expect capital expenditures to be approximately $8 million for the full year 2016.

Financing Cash Flows

Cash used in financing activities of continuing operations was $21.1 million during the nine months ended September 30, 2016, consisting of $5.6 million of contractual term loan payments, $8.8 million of optional repayments of borrowings under our revolving credit facility, $1.7 million of payroll withholding tax payments on stock-based compensation awards, $1.6 million of repurchases of the Company’s common stock, and $0.9 million of capital lease payments. We also paid $2.5 million for debt issuance costs as a result of the Second Amended and Restated Credit Agreement signed in May 2016.

Cash used in financing activities of continuing operations was $8.4 million during the nine months ended October 2, 2015, consisting of $5.6 million of contractual term loan payments, $13.0 million of optional repayments of borrowings under our revolving credit facility and $1.0 million of repurchases of the Company’s common stock, partially offset by $13.0 million of borrowings under our revolving credit facility to fund the Applimotion acquisition. The Company also made $1.4 million of payroll withholding tax payments on stock-based compensation awards and $0.4 million of capital lease payments.

Off-Balance Sheet Arrangements, Contractual Obligations

Contractual Obligations

Our contractual obligations primarily consist of the principal and interest associated with our debt, operating and capital leases, purchase commitments and pension obligations. Such contractual obligations are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to Consolidated Financial Statements, each included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. In May 2016, we entered into the Second Amended and Restated Credit Agreement which provides an aggregate credit facility of $300.0 million, consisting of a $75.0 million 5-year term loan facility and a $225.0 million 5-year revolving credit facility. The following table summarizes contractual obligations at September 30, 2016 related to the Second Amended and Restated Credit Agreement (in thousands):

Contractual Obligations	Total		2016 (remainder of year)		2017-2018		2019-2020		Thereafter
Senior Credit Facilities (1)	$	83,125		1,875		15,000		15,000		51,250
Interest on Senior Credit Facilities (2)		7,910		540		3,871		3,067		432
Total	$	91,035	$	2,415	$	18,871	$	18,067	$	51,682

(1)

As of September 30 , 2016, a total of $73.1 million of term loan debt and $1 0 .0 million of revolving credit facility borrowings were outstanding under the Senior Credit Facilities. The term loan is payable in 19 quarterly installments of $1.9 million with the remaining amount due upon maturity in May 2021. The revolving credit facility is du e upon maturity in May 2021.

(2)	For the purpose of this calculation, the effective interest rates as of September 30, 2016 have been applied to all future periods.

Off-Balance Sheet Arrangements

The Company has an equity method investment in Laser Quantum Ltd. (“Laser Quantum”), a privately held company located in the United Kingdom. The Company has an ownership interest of approximately 41% in the Laser Quantum business. We continue to recognize our share of the earnings of this entity under the equity method.

Through September 30, 2016, we have not entered into any other off-balance sheet arrangements or material transactions with any unconsolidated entities or other persons.

Critical Accounting Policies and Estimates

The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our consolidated financial statements presented in this periodic report on Form 10-Q are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to Consolidated Financial Statements, each included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. There have been no material changes to our critical accounting policies through September 30, 2016 from those discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Recent Accounting Pronouncements

See Note 1 to Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our primary market risk exposures are foreign currency exchange rate fluctuations and interest rate sensitivity. During the three months ended September 30, 2016, there have been no material changes to the information included under Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Securities and Exchange Act of 1934 (the “Exchange Act”), our management carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of September 30, 2016, the end of the period covered by this report. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2016.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting other than the migration of our Photonics segment’s laser beam delivery product line to the Company’s primary ERP system.

P ART II—OTHER INFORMATION

Item 1. Legal Proceedings

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. The Company does not believe that the outcome of these claims will have a material adverse effect upon its financial condition or results of operations but there can be no assurance that any such claims, or any similar claims, would not have a material adverse effect upon its financial condition or results of operations.

Item 1A. Risk Factors

The Company’s risk factors are described in Part I, Item 1A, “Risk Factors”, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Other than the risk mentioned below, there have been no other material changes in the risks affecting the Company since the filing of such Annual Report on Form 10-K.

The results of the United Kingdom’s referendum on withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business, which could reduce the price of common shares.

We are a multinational company with worldwide operations, including business operations and investments in the United Kingdom and Europe. In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum. The referendum was advisory, and the terms of any withdrawal are subject to a negotiation period that could last at least two years after the government of the United Kingdom formally initiates a withdrawal process. Nevertheless, the referendum has created significant uncertainty about the future relationship between the United Kingdom and the European Union, and has given rise to calls for the governments of other European Union member states to consider withdrawal.

These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency exchange rates and credit ratings may be especially subject to increased market volatility. Lack of clarity about future United Kingdom laws and regulations as the United Kingdom determines which European Union laws to replace or replicate in the event of a withdrawal could depress economic activity and restrict our access to capital. If the United Kingdom and the European Union are unable to negotiate acceptable withdrawal terms or if other European Union member states pursue withdrawal, barrier-free access between the United Kingdom and other European Union member states or among the European economic area overall could be diminished or eliminated. Any of these factors could have a material adverse effect on our business, financial condition and results of operations and reduce the price of our common shares.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth certain information with respect to repurchases of the Company’s common stock during the three months ended September 30, 2016.

ISSUER PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾⁽²⁾		Approximate Dollar Value that May Yet Be Purchased under the Plans or Programs ⁽¹⁾
July 1 - July 29, 2016		18,670	$	15.16		18,670	$	6,215,062
July 30 - August 26, 2016		100	$	15.53		100	$	6,213,509
August 27 - September 30, 2016		—	$	—		—	$	6,213,509
Total		18,770	$	15.16		18,770
(1)In October 2013, the Company's Board of Directors authorized a share repurchase plan for the repurchase of up to an aggregate of $10.0 million of the Company's common stock, which was announced in the quarterly report for the period ended September 27, 2013 filed on November 5, 2013. The shares may be repurchased from time to time, at the Company's discretion, based on ongoing assessment of the capital needs of the business, the market price of the Company's common stock, and general market conditions. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time.
(2)The Company has repurchased 281,893 shares of its common stock pursuant to the share repurchase program since its adoption.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

I tem 6. Exhibits

List of Exhibits

See the Company’s SEC filings on Edgar at: http://www.sec.gov/ for all Exhibits.

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Filed/

Furnished
Herewith

3.1

Certificate and Articles of Continuance of the Registrant, dated March 22, 1999.

S-3

333-180098

3.1

03/14/12

3.2

By-Laws of the Registrant, as amended

10-Q

000-25705

3.2

04/13/10

3.3

Articles of Reorganization of the Registrant, dated July 23, 2010.

8-K

000-25705

3.1

07/23/10

3.4

Articles of Amendment of the Registrant, dated December 29, 2010.

8-K

000-25705

3.1

12/29/10

3.5

Articles of Amendment of the Registrant, dated May 11, 2016.

8-K

001-35083

10.1

05/12/16

10.1

Employment Agreement, dated July 27, 2016, between Novanta Inc. and Matthijs Glastra.

10.2

Letter Agreement, dated July 27, 2016, between Novanta Inc. and John Roush.

10.3

Amendment to Employment Agreement, dated July 27, 2016, between Novanta Inc. and Robert Buckley.

31.1

Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

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

32.2

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

101.INS

XBRL Instance Document.

101.SCH

XBRL Schema Document

101.CAL

XBRL Calculation Linkbase Document.

101.DEF

XBRL Definition Linkbase Document.

101.LAB

XBRL Labels Linkbase Document.

101.PRE

XBRL Presentation Linkbase Document.

* Filed herewith

** Furnished herewith

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2016 and December 31, 2015, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and October 2, 2015, (iii) Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2016 and October 2, 2015, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and October 2, 2015, and (v) Notes to Consolidated Financial Statements.

S IGNATURES

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.

Novanta Inc. (Registrant)

Name	Title	Date

/s/ Matthijs Glastra	Director, Chief Executive Officer	November 2, 2016
Matthijs Glastra

/s/ Robert J. Buckley	Chief Financial Officer	November 2, 2016
Robert J. Buckley

E XHIBIT INDEX

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Filed/

Furnished
Herewith

3.1

Certificate and Articles of Continuance of the Registrant, dated March 22, 1999.

S-3

333-180098

3.1

03/14/12

3.2

By-Laws of the Registrant, as amended

10-Q

000-25705

3.2

04/13/10

3.3

Articles of Reorganization of the Registrant, dated July 23, 2010.

8-K

000-25705

3.1

07/23/10

3.4

Articles of Amendment of the Registrant, dated December 29, 2010.

8-K

000-25705

3.1

12/29/10

3.5

Articles of Amendment of the Registrant, dated May 11, 2016.

8-K

001-35083

10.1

05/12/16

10.1

Employment Agreement, dated July 27, 2016, between Novanta Inc. and Matthijs Glastra.

10.2

Letter Agreement, dated July 27, 2016, between Novanta Inc. and John Roush.

10.3

Amendment to Employment Agreement, dated July 27, 2016, between Novanta Inc. and Robert Buckley.

31.1

Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

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

32.2

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

101.INS

XBRL Instance Document.

101.SCH

XBRL Schema Document

101.CAL

XBRL Calculation Linkbase Document.

101.DEF

XBRL Definition Linkbase Document.

101.LAB

XBRL Labels Linkbase Document.

101.PRE

XBRL Presentation Linkbase Document.

* Filed herewith

** Furnished herewith

Exhibit 10.1

Employment Agreement

This Employment Agreement (the “ Agreement ”), entered into on July 27, 2016 (the “ Effective Date ”), is made by and between Matthijs Glastra (the “ Executive ”) and Novanta Inc., a company organized under the laws of the Province of New Brunswick, Canada (“ Novanta ” and, together with any of its subsidiaries and Affiliates as may employ the Executive from time to time, and any successor(s) thereto, the “ Company ”).

RECITALS

A. The Company desires to assure itself of the services of the Executive by engaging the Executive to perform services under the terms hereof.

B. The Executive desires to provide services to the Company on the terms herein provided.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, including the respective covenants and agreements set forth below, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Certain Definitions

(a) “ Affiliate ” shall mean, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person where “control” shall have the meaning given such term under Rule 405 of the Securities Act of 1933, as amended from time to time.

(b) “ Agreement ” shall have the meaning set forth in the preamble hereto.

(d) “ Annual Bonus ” shall have the meaning set forth in Section 3(c).

(e) “ Board ” shall mean the Board of Directors of Novanta.

(f) The Company shall have “ Cause ” to terminate the Executive’s employment hereunder upon: (i) the Executive’s willful failure to substantially perform the duties set forth in this Agreement (other than any such failure resulting from the Executive’s Disability or any inability to engage in any substantial gainful activity that could reasonably be expected to result in Disability) which is not remedied within 30 days after receipt of written notice from the Company specifying such failure; (ii) the Executive’s willful failure to carry out, or comply with, in any material respect any lawful and reasonable directive of the Board not inconsistent with the terms of this Agreement, which is not remedied within 30 days after receipt of written notice from the Company specifying such failure; (iii) the Executive’s commission at any time of any act or omission that results in, or may reasonably be expected to result in, a

conviction, plea of no contest, plea of nolo contendere , or imposition of unadjudicated probation for any felony or crime involving moral turpitude; or (iv ) the Executive’s unlawful use (including being under the influence) or possession of illegal drugs on the Company’s premises or while performing the Executive’s dutie s and responsibilities under this Agreement .

(g) “ Change in Control ” shall mean and includes any of the following which occurs on or following the Effective Date:

(i) A transaction or series of transactions whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (other than Novanta, any of its subsidiaries, an employee benefit plan maintained by Novanta or any of its subsidiaries, a “person” or “group” who as of the Effective Date beneficially owns 5% or more of the total combined voting power of Novanta’s securities outstanding, or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, Novanta) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of Novanta possessing either (A) more than 40% of the total combined voting power of Novanta’s securities outstanding immediately after such acquisition and, in connection with, and within the twelve-month period immediately following, such acquisition, new directors who constitute at least 40% of the Board (x) are nominated or designated by the acquiring “person” or related “group” of acquiring “persons” and (y) are elected by the Board or Novanta’s shareholders (disregarding, for purposes of this determination, any new directors whose election or nomination is consented to by the Executive) or (B) more than 50% of the total combined voting power of Novanta’s securities outstanding immediately following such acquisition; or

(ii) During any twelve-month period beginning on or following the Effective Date, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with Novanta to effect a transaction described in Section 1(g)(i) or Section 1(g)(iii)) whose election by the Board or nomination for election by Novanta’s stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the twelve-month period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

(iii) The consummation by Novanta (whether directly involving Novanta or indirectly involving Novanta through one or more intermediaries) of (A) a merger, consolidation, reorganization, or business combination or (B) a sale or other disposition of all or substantially all of Novanta’s assets in any single transaction or series of related transactions or (C) the acquisition of assets or stock of another entity, in each case other than a transaction which results in Novanta’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of Novanta or the person that, as a result of the transaction, controls, directly or indirectly, Novanta or owns, directly or indirectly, all or substantially all of Novanta’s assets or otherwise succeeds to the business of Novanta (Novanta or such person, the “ Successor Entity ”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction; or

(iv) Novanta’s stockholders approve a liquidation or dissolution of Novanta.

(h) “ Code ” shall mean the Internal Revenue Code of 1986, as amended.

(i) “ Committee ” shall mean the Compensation Committee of the Board, or if no such committee exists, the Board.

(j) “ Company ” shall, except as otherwise provided in Section 6(j), have the meaning set forth in the preamble hereto.

(k) “ Date of Termination ” shall mean (i) if the Executive’s employment is terminated due to the Executive’s death, the date of the Executive’s death; (ii) if the Executive’s employment is terminated due to the Executive’s Disability, the date determined pursuant to Section 4(a)(ii); or (iii) if the Executive’s employment is terminated pursuant to Section 4(a)(iii)-(vi) either the date indicated in the Notice of Termination or the date specified by the Company pursuant to Section 4(b), whichever is earlier.

(l) “ Disability ” shall mean the Executive’s inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that can be expected to last for (i) a continuous period of not less than ninety days or (ii) at least 180 total calendar days in any 12-month period, in each case as determined by a physician selected by the Company or its insurers and reasonably acceptable to Executive. The Company will inform the Executive of the selection of the physician so that the Executive may consent to such selection (and the Executive’s consent shall not be unreasonably withheld). The Executive shall be deemed to have consented to the selection of the physician if the Executive does not provide the Company with written notice objecting to such selection within five business days of the Executive being informed of the physician's selection. If the Executive objects to such selection (and the Company determines in good faith that such withholding is not unreasonable), then the Company shall select another physician pursuant to the process described in this Section 1(l).

(m) “ Effective Date ” shall have the meaning set forth in the preamble hereto.

(n) “ Executive ” shall have the meaning set forth in the preamble hereto.

(o) “ Extension Term ” shall have the meaning set forth in Section 2(b).

(p) The Executive shall have “ Good Reason ” to terminate the Executive’s employment hereunder within one (1) year after the occurrence of one or more of the following conditions without the Executive’s consent: (i) a material diminution in the nature or scope of the Executive’s responsibilities, duties or authority, or a material diminution in the Executive’s title; (ii) failure of the Company to make any material payment or provide any material benefit under this Agreement; (iii) the Company’s material breach of this Agreement; or (iv) a material change in the geographic location at which the Executive must perform the Executive’s material services hereunder (which shall in no event include the relocation of the Executive’s principal place of business to the Bedford, Massachusetts metropolitan area following the Effective Date

or a relocation of the Executive’s principal place of business less than 50 miles from the Bedford, Massachusetts metropolitan area thereafter) ; provided , however , that notwithstanding the foregoing the Executive may not resign his emplo yment for Good Reason unless: (A ) the Executive prov ides the Company with at least 3 0 days prior written notice of his intent to resign for Good Reason (which notice is provided not later than the 9 0 ^th day following the Executive’s knowledge of the occurrence of the event c onstituting Good Reason); and (B ) the Company does not remedy the alleged violation(s) within such 30-day period ; provided , further , that, for the avoidance of doubt, the failure of the shareholders to elect the Executive to the Board following proposal for re-election by the Board as described in Section 2(c) shall not constitute “Good Reason.”

(q) “ Initial Term ” shall have the meaning set forth in Section 2(b).

(r) “ Notice of Termination ” shall have the meaning set forth in Section 4(b).

(s) “ Person ” shall mean any individual, natural person, corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any company limited by shares, limited liability company or joint stock company), incorporated or unincorporated association, governmental authority, firm, society or other enterprise, organization or other entity of any nature.

(t) “ Proprietary Information ” shall have the meaning set forth in Section 6(d).

(u) “ Release ” shall have the meaning set forth in Section 5(b).

(v) “ Release Expiration Date ” shall have the meaning set forth in Section 23(c).

(w) “ Restricted Period ” shall mean the period from the Effective Date through the eighteen (18)-month anniversary of the Date of Termination.

(x) “ Section 409A ” shall mean Section 409A of the Code and the Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Effective Date.

(y) “ Term ” shall have the meaning set forth in Section 2(b).

(z) “ Transition Date ” shall mean September 1, 2016.

(aa) “ Transition Period ” shall mean the period beginning on the Effective Date and ending on the Transition Date.

2. Employment

(a) In General . The Company shall employ the Executive and the Executive shall enter the employ of the Company, for the period set forth in Section 2(b), in the position set forth in Section 2(c), and upon the other terms and conditions herein provided.

(b) Term of Employment . The initial term of employment under this Agreement (the “ Initial Term ”) shall be for the period beginning on the Effective Date and ending on the third anniversary thereof, unless earlier terminated as provided in Section 4. The Initial Term shall automatically be extended for successive one year periods (each, an “ Extension Term ” and, collectively with the Initial Term, the “ Term ”), unless either party hereto gives notice of non-extension to the other no later than 90 days prior to the expiration of the then-applicable Term. The Executive shall relocate his primary residence to the Bedford, Massachusetts metropolitan area within ninety (90) days following the Effective Date. During the Term, the Executive’s principal place of business shall be the Company’s headquarters, currently located in Bedford, Massachusetts.

(c) Position and Duties . During the Term, the Executive: (i) shall serve as (A) during the Transition Period, Chief Operating Officer of the Company, with responsibilities, duties and authority customary for such position, subject to direction by the Board and (B) during the portion of the Term other than the Transition Period, Chief Executive Officer of the Company, with responsibilities, duties and authority customary for such position, subject to direction by the Board; (ii) shall report directly to the Board; (iii) shall devote substantially all the Executive’s working time and efforts to the business and affairs of the Company and its subsidiaries; and (iv) agrees to observe and comply with the Company’s rules and policies as adopted by the Company from time to time. In addition, as of the Transition Date, the Company shall cause the Executive to be appointed to the Board and, during the portion of the Term following the Transition Date, the Board shall propose the Executive for re-election to the Board. The parties acknowledge and agree that Executive’s duties, responsibilities and authority may include services for one or more subsidiaries or Affiliates of the Company. Notwithstanding anything herein to the contrary, the Executive may (x) serve as a director, trustee or officer or otherwise participate in not-for-profit educational, welfare, social, religious and civic organizations; and (y) with the advanced consent of the Board, serve on the board of directors of other companies, to the extent that such other activities, either individually or in the aggregate, do not inhibit or interfere with the performance of the Executive's duties under this Agreement.

3. Compensation and Related Matters

(a) Annual Base Salary . During the Term, the Executive shall receive a base salary at a rate of $500,000 per annum, which shall be paid in accordance with the customary payroll practices of the Company, subject to review and upward adjustment by the Board in its sole discretion (the “ Annual Base Salary ”).

(b) Promotion Equity Award . On August 2, 2016, Novanta shall grant the Executive 80,000 restricted stock units pursuant to the 2010 Incentive Award Plan (“ Promotion RSUs ”). The terms and conditions of the Promotion RSUs shall be set forth in a written award agreement between Novanta and the Executive, which shall provide that, subject to Executive’s

continued employment with the Company, (i) the Promotion RSUs shall vest on August 2, 2021, and (ii) notwithstanding the foregoing Section 3(b)(i), the Promotion RSUs shall become fully vested immediately prior to a Change in Control , and shall contain other customary terms and conditions . Prior to vesting, the Promotion RSUs shall not be transferable and, except as otherwise provided in this Agreement, shall be subject to forfeiture upon the Executive’s termination of employment with the Company.

(c) Annual Bonuses . With respect to each Company fiscal year that ends during the Term, commencing with fiscal year 2017, the Executive shall be eligible to receive an annual performance-based cash bonus (the “ Annual Bonus ”) which shall be payable based upon the attainment of individual and Company performance goals established by the Board in consultation with the Executive. The terms of the Annual Bonus with respect to each fiscal year shall provide that if the Company and/or Executive attains target performance levels for an applicable fiscal year, the Executive’s Annual Bonus shall be payable in an amount equal to 100% of Annual Base Salary (the “ Target Bonus ”), and may, at the discretion of the Board, provide for a higher amount if performance targets are exceeded. Each such Annual Bonus shall be payable on, or at such date as is determined by the Board within 90 days following the last day of the fiscal year with respect to which it relates. Except as provided in Section 5, notwithstanding any other provision of this Section 3(c), no bonus shall be payable with respect to any fiscal year unless the Executive remains continuously employed with the Company during the period beginning on the Effective Date and ending on the first day of the fiscal year following the end of the fiscal year to which the Annual Bonus relates (for each Annual Bonus, the “ Bonus Vesting Date ”).

(d) Annual Equity Award . Commencing in fiscal year 2017, the Executive shall be granted an annual equity compensation award with a grant date fair value (calculated under FASB ASC 718) equal to 200% of his Annual Base Salary in each applicable year of the Term (each such award, an “ Annual Equity Award ”). The form of each Annual Equity Award (i.e., options, restricted stock units, performance stock units or other equity-based compensation awards), and the terms and conditions of each Annual Equity Award shall be determined by the Committee or the Board in its discretion and shall be set forth in one or more written award agreements between Novanta and the Executive; provided that each Annual Equity Award shall be granted at the same time as, and, except as set forth in this Agreement, shall be subject to the same vesting schedule (including performance vesting) and other general terms and conditions as, annual equity awards made to other senior executives of the Company. Notwithstanding the foregoing and anything to the contrary in the 2010 Incentive Award Plan, the Committee (as defined in the 2010 Incentive Award Plan) shall not reduce or eliminate the value of any performance-based portion of an Annual Equity Award to the Executive pursuant to the last sentence of Section 5.4 of the 2010 Incentive Award Plan if the applicable performance vesting targets are attained.

(e) Benefits . During the Term, the Executive shall be eligible to participate in employee benefit plans, programs and arrangements of the Company in accordance with their terms, as in effect from time to time, and as are generally provided by the Company to its senior executive officers but in any event on a no less favorable basis than is provided to any other executive officer of the Company.

(f) Vacation; Holidays . During the Term, the Executive shall be entitled to four weeks paid vacation each full calendar year. Any vacation shall be taken at the reasonable and mutual convenience of the Company and the Executive. Holidays shall be provided in accordance with Company policy, as in effect from time to time.

(g) Business Expenses . During the Term, the Company shall reimburse the Executive for all reasonable, documented, out-of-pocket travel and other business expenses incurred by the Executive in the performance of the Executive’s duties to the Company in accordance with the Company’s applicable expense reimbursement policies and procedures.

(h) Relocation . The Company shall reimburse the Executive for all reasonable, documented, out-of-pocket expenses incurred by the Executive in connection with the Executive’s relocation to the Bedford, Massachusetts metropolitan area in accordance with the Company’s applicable relocation policies, up to an aggregate amount of $200,000 (the aggregate amount actually reimbursed, the “ Relocation Reimbursement ”); provided that, in the event of the termination of your employment by the Company for Cause pursuant to Section 4(a)(iii) or by you without Good Reason pursuant to Section 4(a)(vi), in either case, prior to June 1, 2018, you will, within 10 business days following the Date of Termination, pay the Company an amount equal to a prorated portion of the Relocation Reimbursement based on the ratio of the number of days of during the period commencing on the Date of Termination and ending on June 1, 2018 to the total number of days of the period commencing on the Effective Date and ending on June 1, 2018.

4. Termination

. During the Term, the Executive’s employment hereunder may be terminated by the Company or the Executive, as applicable, without any breach of this Agreement only under the following circumstances:

(a) Circumstances

(i) Death . The Executive’s employment hereunder shall terminate upon the Executive’s death.

(ii) Disability . If the Executive incurs a Disability, the Company may give the Executive written notice of its intention to terminate the Executive’s employment. In that event, the Executive’s employment with the Company shall terminate, effective on the later of the thirtieth (30 ^th ) day after receipt of such notice by the Executive or the date specified in such notice; provided that, within the thirty (30) day period following receipt of such notice, the Executive shall not have returned to full-time performance of the Executive’s duties hereunder.

(iii) Termination for Cause . The Company may terminate the Executive’s employment for Cause.

(iv) Termination without Cause . The Company may terminate the Executive’s employment without Cause.

(v) Resignation for Good Reason . The Executive may resign from the Executive’s employment for Good Reason.

(vi) Resignation without Good Reason . The Executive may resign from the Executive’s employment without Good Reason.

(b) Notice of Termination . Any termination of the Executive’s employment by the Company or by the Executive under this Section 4 (other than a termination pursuant to Section 4(a)(i) above) shall be communicated by a written notice to the other party hereto (a “ Notice of Termination ”): (i) indicating the specific termination provision in this Agreement relied upon, (ii) except with respect to a termination pursuant to Sections 4(a)(iv) or (vi), setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (iii) specifying a Date of Termination which, if submitted by the Executive, shall be at least thirty (30) days following the date of such notice; provided , however , that a Notice of Termination delivered by the Company pursuant to Section 4(a)(ii) shall not be required to specify a Date of Termination, in which case the Date of Termination shall be determined pursuant to Section 4(a)(ii); and provided , further , that in the event that the Executive delivers a Notice of Termination to the Company, the Company may, in its sole discretion, accelerate the Date of Termination to any date that occurs following the date of Company’s receipt of such Notice of Termination (even if such date is prior to the date specified in such Notice of Termination). A Notice of Termination submitted by the Company (other than a Notice of Termination under Section 4(a)(ii) above) may provide for a Date of Termination on the date the Executive receives the Notice of Termination, or any date thereafter elected by the Company in its sole discretion. The failure by the Company or the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause or Good Reason shall not waive any right of the Company or the Executive hereunder or preclude the Company or the Executive from asserting such fact or circumstance in enforcing the Company’s or the Executive’s rights hereunder. Notwithstanding the foregoing, a termination pursuant to Section 4(a)(iii) shall be deemed to occur if following Executive’s termination of employment for any reason the Company determines that circumstances existing prior to such termination would have entitled to the Company to terminate Executive’s employment pursuant to Section 4(a)(iii).

5. Company Obligations Upon Termination of Employment

(a) In General . Upon a termination of the Executive’s employment for any reason, (i) the Executive (or the Executive’s estate) shall be entitled to receive: (A) any portion of the Executive’s Annual Base Salary through the Date of Termination not theretofore paid, (B) any expenses owed to the Executive under Section 3(g), (C) any accrued but unused vacation pay owed to the Executive pursuant to Section 3(f), and (D) any amount arising from the Executive’s participation in, or benefits under, any employee benefit plans, programs or arrangements under Section 3(e), which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements, and (ii) unless otherwise determined by the Board, the Executive shall, effective as of the Date of Termination, resign from all positions held at the Company or any of its subsidiaries (including, without limitation, any positions as an officer or director). Except as otherwise set forth in Section 5(b) or (c) below, the payments and

benefits described in this Section 5(a) shall be the only payments and benefits payable in the event of the Executive’s termination of employment for any reason.

(b) Termination without Cause or for Good Reason . In the event of the Executive’s termination of employment by the Company without Cause pursuant to Section 4(a)(iv) or by the Executive for Good Reason pursuant to Section 4(a)(v), in addition to the payments and benefits described in Section 5(a) above, the Company shall, subject to Section 23 and Section 5(d) and subject to Executive’s execution and non-revocation of a waiver and release of claims agreement in substantially in the form attached hereto as Exhibit A in accordance with Section 23(c) (a “ Release ”):

(i) Continue to pay to the Executive Annual Base Salary during the period beginning on the Date of Termination and ending on the eighteen (18)-month anniversary of the Date of Termination in accordance with the Company’s regular payroll practice as of the Date of Termination; provided that, notwithstanding anything to the contrary in this Section 5(b)(i), if such termination of employment occurs within the twelve (12)-month period immediately following a Change in Control (and such Change in Control constitutes a “change in control event” as defined in Treasury Regulations Section 1.409A-3(i)(5)), then, in lieu of the foregoing payments set forth in this Section 5(b)(i), the Company shall pay to the Executive an aggregate amount equal to 200% of his Annual Base Salary during the period beginning on the Date of Termination and ending on the twenty-four (24)-month anniversary of the Date of Termination in installments in accordance with the Company’s regular payroll practice as of the Date of Termination;

(ii) Pay to the Executive an amount equal to the product of (A) the amount of the Annual Bonus that would have been payable to the Executive pursuant to Section 3(c) if the Executive was still employed as of the applicable Bonus Vesting Date in respect of the fiscal year in which the Date of Termination occurs based on actual individual and Company performance goals in such year and (B) the ratio of (x) the number of days elapsed during the fiscal year during which such termination of employment occurs on or prior to the Date of Termination, to (y) 365. Any amount payable pursuant to this Section 5(b)(ii) shall, subject to Section 23 and Section 5(d), be paid to Executive in accordance with Section 3(c) as if the Executive was still employed on the applicable Bonus Vesting Date, but in no event later than the 15th day of the third month of the fiscal year immediately following the fiscal year in which the Date of Termination occurs; and

(iii) Notwithstanding any provision to the contrary in any equity plan or award agreement with respect to equity awards, cause (A) with respect to the Promotion RSUs which are not vested as of the Date of Termination and all Annual Equity Awards subject to service-based vesting, each such award to become vested with respect to a prorated portion thereof based on the ratio of the number of days of employment of the Executive during the applicable service-based vesting period to the total number of days of such service-based vesting period, and (B) with respect to all Annual Equity Awards subject to performance-based vesting, each such award to shall continue to be eligible to become vested in accordance with its terms based on actual performance with respect to a prorated portion of such award based on the ratio of the number of days of employment of the Executive during the applicable performance period to the total number of days of such performance period; provided that, notwithstanding anything

to the contrary in this Section 5(b)(iii), (x) if such termination of employment occurs during any period when the Executive is unable to engage in substantial gainful activity that may reasonably be expected to result in Disability, the Company shall, on the Date of Termination, cause (I) the Promotion RSUs and all Annual Equity Awards subject to service-based vesting, to become fully vested and (II) all Annual Equity Awards subject to performance-based vesting to continue to be eligible to become vested in accordance with their terms based on actual performance, and (y) if such termination of employment occurs within the twelve (12)-month period immediately following a Change in Control, the Company shall, on the Date of Termination, cause all equity awards held by the Executive (including, without limitation, the Annual Equity Awards) which are not vested as of the Date of Termination to become vested for the purposes of the 2010 Incentive Award Plan or any other applicable equity plan, and any applicable award agreement(s), deeming, for purposes of awards subject to performance-based vesting, that the Company will attain “target” performance levels.

(c) Termination due to Death or Disability . In the event of the Executive’s termination of employment due to death pursuant to Section 4(a)(i) or by the Company due to Disability pursuant to Section 4(a)(ii), in addition to the payments and benefits described in Section 5(a) above, the Company shall, subject to Section 23 and Section 5(d) and subject (except in the case of death or a Disability so severe as to make such execution impossible) to the Executive’s execution and non-revocation of a Release in accordance with Section 23(c):

(i) Pay to the Executive an amount equal to the product of (A) the amount of the Annual Bonus that would have been payable to the Executive pursuant to Section 3(c) if the Executive was still employed as of the applicable Bonus Vesting Date in respect of the fiscal year in which the Date of Termination occurs based on actual individual and Company performance goals in such year and (B) the ratio of (x) the number of days elapsed during the fiscal year during which such termination of employment occurs on or prior to the Date of Termination, to (y) 365. Any amount payable pursuant to this Section 5(c)(i) shall, subject to Section 23 and Section 5(d), be paid to the Executive in accordance with Section 3(c) as if the Executive was still employed on the applicable Bonus Vesting Date in respect of the fiscal year in which the Date of Termination occurs, but in no event later than the 15th day of the third month of the fiscal year immediately following the fiscal year in which the Date of Termination occurs; and

(ii) Notwithstanding any provision to the contrary in any equity plan or award agreement with respect to equity awards, cause (A) with respect to the Promotion RSUs and all Annual Equity Awards subject to service-based vesting, each such award to become fully vested, and (B) with respect to all Annual Equity Awards subject to performance-based vesting, each such award to shall continue to be eligible to become vested in accordance with its terms based on actual performance.

(d) Notwithstanding any other provision of this Agreement, no payment shall be made, and no acceleration in vesting shall occur, pursuant to Section 5(b) or Section 5(c) following the date the Executive first violates Section 6(a), (b), (d), or (e) if the Executive does not cure such violation within 30 days of written notice thereof.

(e) The provisions of this Section 5 shall supersede in their entirety any severance payment provisions in any severance plan, policy, program or other arrangement maintained by the Company (including, without limitation, that certain Severance Agreement by and between the Company and the Executive, dated November 6, 2012 and effective as of October 15, 2012 (the “Existing Severance Agreement”)).

6. Restrictive Covenants

(a) The Executive hereby agrees that the Executive shall not, at any time during the Restricted Period, directly or indirectly engage in, have any interest in (including, without limitation, through the investment of capital or lending of money or property), or manage, operate or otherwise render any services to, any Person (whether on his own or in association with others, as a principal, director, officer, employee, agent, representative, partner, member, security holder, consultant, advisor, independent contractor, owner, investor, participant or in any other capacity) that engages in (either directly or through any subsidiary or Affiliate thereof) the business of marketing or selling any products which directly compete with the products sold by the Company but only if the Executive directly or indirectly engages in, has any interest in (including, without limitation, through the investment of capital or lending of money or property), or manages, operates or otherwise renders any services in connection with, such business (whether on his own or in association with others, as a principal, director, officer, employee, agent, representative, partner, member, security holder, consultant, advisor, independent contractor, owner, investor, participant or in any other capacity) . Notwithstanding the foregoing, the Executive shall be permitted to acquire a passive stock or equity interest in such a Person; provided that such stock or other equity interest acquired is less than five percent (5%) of the outstanding interest in such Person.

(b) The Executive hereby agrees that the Executive shall not, at any time during the Restricted Period, directly or indirectly, either for himself or on behalf of any other Person, (i) recruit or otherwise solicit or induce any employee, customer or supplier of the Company to terminate its employment or arrangement with the Company, or otherwise change its relationship with the Company, or (ii) hire, or cause to be hired, any person who both (A) was employed by the Company at any time during the 180-day period before the Date of Termination and (B) was employed by the Company at the time of recruitment, solicitation, inducement or hire, or (x) with respect to any former employee of the Company who following his termination of employment at the Company becomes employed on a full-time basis with another employer prior to any recruitment, solicitation or inducement by the Executive (and who at the time of commencement of such other employment had no intention of becoming employed by the Executive or any Person affiliated with the Executive), at any time during the 90-day period immediately prior to recruitment, solicitation, inducement or hire thereof, or (y) with respect to any other former employee of the Company, at any time during the 180-day period immediately prior to recruitment, solicitation, inducement or hire thereof; provided , however , that any advertising or solicitation not specifically directed at the Company or any of its employees, clients or customers shall not constitute a breach of this Section 6(b) nor shall the hiring of any person pursuant to such advertising or solicitation whose annual compensation is less than $60,000 per annum.

(c) The provisions contained in Section s 6(a) and (b) may be altered and/or waived to be made less restrictive on the Executive with the prior written consent of the Board or the Committee .

(d) Except as the Executive reasonably and in good faith determines to be desirable in the faithful performance of the Executive’s duties hereunder or required in accordance with Section 6(f), the Executive shall, during the Term and after the Date of Termination, maintain in confidence and shall not directly or indirectly, use, disseminate, disclose or publish, for the Executive’s benefit or the benefit of any other Person, any confidential or proprietary information or trade secrets of or relating to the Company, including, without limitation, information with respect to the Company’s operations, processes, protocols, products, inventions, business practices, finances, principals, vendors, suppliers, customers, potential customers, marketing methods, costs, prices, contractual relationships, regulatory status, compensation paid to employees or other terms of employment (“ Proprietary Information ”), or deliver to any Person, any document, record, notebook, computer program or similar repository of or containing any such Proprietary Information. The Executive’s obligation to maintain and not use, disseminate, disclose or publish, or use for the Executive’s benefit or the benefit of any other Person, any Proprietary Information after the Date of Termination will continue so long as such Proprietary Information is not, or has not by legitimate means become, generally known and in the public domain (other than by means of the Executive’s direct or indirect disclosure of such Proprietary Information) and continues to be maintained as Proprietary Information by the Company. The parties hereby stipulate and agree that as between them, the Proprietary Information identified herein is important, material and affects the successful conduct of the businesses of the Company (and any successor or assignee of the Company).

(e) Upon termination of the Executive’s employment with the Company for any reason, the Executive will promptly deliver to the Company (i) all correspondence, drawings, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents, and any other documents that are Proprietary Information, including all physical and digital copies thereof (the “ Materials ”), and (ii) all other Company property (including, without limitation, any personal computer or wireless device and related accessories, keys, credit cards and other similar items) which is in his possession, custody or control.

(f) The Executive may respond to a lawful and valid subpoena or other legal process but shall give the Company prompt notice thereof, and shall use reasonable best efforts, as much in advance of the return date as possible, to make available to the Company and its counsel the documents and other information sought, and shall assist (at the Company’s expense) such counsel in resisting or otherwise responding to such process.

(g) Except as required in connection with any legal dispute between the parties or as required by applicable law or legal process, during the Term and thereafter: (i) Novanta shall instruct its then-current Board members, executive officers and authorized Novanta representatives speaking on behalf of Novanta to not willfully make (or direct anyone else to make) any Disparaging remarks, comments or statements about the Executive to any other person or entity; and (ii) the Executive shall not willfully make (or direct anyone else to make) any Disparaging remarks, comments or statements about the Company (including, without

limitation, its directors, officers, agents, representatives, partners, members, equity holders or Affiliates ) to any other person or entity. For purposes hereof, “Disparaging” written or oral remarks, comments or statements are those that impugn the character, honesty, integrity or morality or business acumen or abilities in connection with any aspect of the operation of business of the individual or entity being disparaged. Notwithstanding the foregoing, the Executive may make truthful statements about any Company employee to any member of the Board or his legal representatives and each Board member may make truthful statements about the Executive to other Board members or the Company’s legal representatives.

(h) Prior to accepting other employment or any other service relationship during the Restricted Period, the Executive shall provide a copy of this Section 6 to any recruiter who assists the Executive in obtaining other employment or any other service relationship and to any employer or other Person with which the Executive obtains future employment or any other service relationship prior to the commencement of such future employment or other service relationship.

(i) In the event the terms of this Section 6 shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it will be interpreted to extend only over the maximum period of time for which it may be enforceable, over the maximum geographical area as to which it may be enforceable, or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action. Any breach or violation by the Executive of the provisions of this Section 6 shall toll the running of any time periods set forth in this Section 6 for the duration of any such breach or violation.

(j) As used in this Section 6, the term “Company” shall include Novanta and any direct or indirect subsidiary entity thereof.

7. Injunctive Relief

. The Executive recognizes and acknowledges that a breach of the covenants contained in Section 6 will cause irreparable damage to the Company and its goodwill, the exact amount of which will be difficult or impossible to ascertain, and that the remedies at law for any such breach will be inadequate. Accordingly, the Executive agrees that in the event of a breach of any of the covenants contained in Section 6, in addition to any other remedy which may be available at law or in equity, the Company will be entitled to specific performance and injunctive relief (without any requirement to post a bond or other security).

8. Parachute Payments

penalties with respect to such excise tax (collectively, such excise tax, together with any such interest or penalties, the “ Excise Tax ”) and (ii) the amount of all the Payments that Executive would retain after all federal, state and local income taxes, Executive’s share of employment taxes, and the Ex cise T ax on the Payments would be less than the amount Executive would retain after all such taxes if the total amount of the Payments were reduced to an amount equal to one dollar less than the minimum amount which would result in the Payments becoming subject to the Excise Tax (such reduced amount, the “ Safe Harbor Amount ”) , then the total amount of the Payments that shall be payable to Executive shall be reduced to an amount equal to the Safe Harbor Amount . The Payments shall be reduced by the Company in its reasonable discretion in the following order: (A) reduction of any cash severance payments otherwise payable to the Executive that are exempt from Section 409A, (B) reduction of any other cash payments or benefits otherwise payable to the Executive that are exempt from Section 409A, but excluding any payment attributable to the acceleration of vesting or payment with respect to any equity award that is exempt from Section 409A, (C) reduction of any other payments or benefits otherwise payable to the Executive on a pro-rata basis or such other manner that complies with Section 409A, but excluding any payment attributable to the acceleration of vesting and payment with respect to any equity award that is exempt from Section 409A, and (D) reduction of any payments attributable to the acceleration of vesting or payment with respect to any equity award that is exempt from Section 409A, in each case beginning with payments that would otherwise be made last in time.

(b) All determinations required to be made under this Section 8 shall be made in writing by an accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G of the Code and the Excise Tax (the “ Tax Advisor ”) and such determinations shall be final and binding on the Company and the Executive and detailed supporting calculations shall be provided to the Company and the Executive. The Tax Advisor shall be selected by the Company in its good faith discretion, following consultation with its independent auditors and the Executive. Any fees incurred as a result of work performed by the Tax Advisor pursuant to this Section 8 shall be paid by the Company.

(c) For purposes of any analysis required by this Section 8, (i) the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the determination is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive’s residence on the date of the determination is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes, (ii) no portion of the Payments shall be taken into account which, in the opinion of the Tax Advisor, does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including, without limitation, by reason of Section 280G(b)(4)(A) of the Code), (iii) in calculating the Excise Tax, no portion of the Payments shall be taken into account which, in the opinion of Tax Advisor, constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the “base amount” (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation, and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Payments shall be determined by the Tax Advisor in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

9. Assignment and Successors

. The Company may (a) assign its rights and obligations under this Agreement to any entity, including any successor to all or substantially all the assets of the Company, by merger or otherwise, and (b) may assign or encumber this Agreement and its rights hereunder as security for indebtedness of the Company and its Affiliates; provided , however , that no assignment or encumbrance pursuant to Section 9(b) shall relieve the Company of any of its obligations hereunder. The Executive may not assign the Executive’s rights or obligations under this Agreement to any individual or entity. This Agreement shall be binding upon and inure to the benefit of the Company, the Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable.

10. Governing Law

. This Agreement shall be governed, construed, interpreted and enforced in accordance with the substantive laws of the Commonwealth of Massachusetts, without giving effect to any principles of conflicts of law, whether of the Commonwealth of Massachusetts or any other jurisdiction, and where applicable, the laws of the United States, that would result in the application of the laws of any other jurisdiction.

11. Validity

. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

12. Notices

. Any notice, request, claim, demand, document and other communication hereunder to any party hereto shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by telex, telecopy, or certified or registered mail, postage prepaid, to the following address (or at any other address as any party hereto shall have specified by notice in writing to the other party hereto):

(a) If to the Company:

Novanta Inc.

125 Middlesex Turnpike

Bedford, MA 01730-1409

Attn: Vice President, Human Resources

Facsimile: (781) 266-5114

(b)	If to the Executive, at the Executive’s address set forth in the Company’s then-current records.

13. Counterparts

. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement.

14. Entire Agreement

. The terms of this Agreement (together with any other agreements and instruments contemplated hereby or referred to herein) is intended by the parties hereto to be the final expression of their agreement with respect to the employment of the Executive by the Company and supersedes and may not be contradicted by evidence of any prior or contemporaneous agreement (including, without limitation, that certain offer letter by and between the Company and the Executive, dated as of August 24, 2012 and the Existing Severance Agreement). The parties hereto further intend that this Agreement shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement.

15. Amendments; Waivers

. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by the Executive and a duly authorized officer of Novanta and approved by the Board, which expressly identifies the amended provision of this Agreement. By an instrument in writing similarly executed and approved by the Board, the Executive or a duly authorized officer of Novanta may waive compliance by the other party or parties hereto with any provision of this Agreement that such other party was or is obligated to comply with or perform; provided , however , that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure to comply or perform. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.

16. No Inconsistent Actions

. The parties hereto shall not voluntarily undertake or fail to undertake any action or course of action inconsistent with the provisions or essential intent of this Agreement. Furthermore, it is the intent of the parties hereto to act in a fair and reasonable manner with respect to the interpretation and application of the provisions of this Agreement.

17. Construction

. This Agreement shall be deemed drafted equally by both of the parties hereto. Its language shall be construed as a whole and according to its fair meaning. Any presumption or principle that the language is to be construed against any party hereto shall not apply. The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation. Any references to paragraphs, subparagraphs, sections or subsections are to those parts of this Agreement, unless the context clearly indicates to the contrary. Also, unless the context clearly indicates to the contrary, (a) the plural includes the singular and the singular includes the plural; (b) “and” and “or” are each used both conjunctively and disjunctively; (c) “any,” “all,” “each,” or “every” means “any and all,” and “each and every”; (d) “includes” and “including” are each “without limitation”; (e) “herein,” “hereof,” “hereunder” and other similar

compounds of the word “here” refer to the entire Agreement and not to any particular paragraph, subparagraph, section or subsection; and (f) all pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the entities or persons referred to may require.

18. Dispute Resolution

(a) With respect to disputes and claims hereunder, each of the parties irrevocably submits to the exclusive jurisdiction of any court of competent jurisdiction sitting in Middlesex County, Massachusetts, for the purposes of any suit, action or other proceeding arising out of this Agreement, any related agreement or any transaction contemplated hereby or thereby. Each of the parties hereto further agrees that service of any process, summons, notice or document by U.S. registered mail to such party’s respective address set forth or described in Section 12 shall be effective service of process for any action, suit or proceeding in any court of competent jurisdiction sitting in Middlesex County, Massachusetts with respect to any matters to which it has submitted to jurisdiction in this Section 18. Each of the parties hereto irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement, any related document or the transactions contemplated hereby and thereby in any court of competent jurisdiction sitting in Middlesex County, Massachusetts, and hereby and thereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

(b) As a specifically bargained for inducement for each of the parties hereto to enter into this Agreement (after having the opportunity to consult with counsel), each party hereto expressly waives the right to trial by jury in any lawsuit or proceeding relating to or arising in any way from this Agreement or the matters contemplated hereby.

19. Enforcement

. Subject to Section 6(i), if any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, without limiting Section 6(i), in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.

20. Withholding

. The Company shall be entitled to withhold from any amounts payable under this Agreement, any federal, state, local or foreign withholding or other taxes or charges which the Company is required to withhold. The Company shall be entitled to rely on an opinion of counsel if any questions as to the amount or requirement of withholding shall arise.

21. Absence of Conflicts; Executive Acknowledgement; Confidentiality

. The Executive hereby represents that from and after the Effective Date the performance of the Executive’s duties hereunder will not breach any other agreement to which the Executive is a party. The Executive acknowledges that the Executive has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representations or promises made by the Company other than those contained in writing herein, and has entered into this Agreement freely based on the Executive’s own judgment.

22. Survival

. The expiration or termination of the Term shall not impair the rights or obligations of any party hereto which shall have accrued prior to such expiration or termination (including, without limitation, pursuant to the provisions of Section 6 hereof).

23. Section 409A

(a) General . The parties hereto acknowledge and agree that, to the extent applicable, this Agreement shall be interpreted in accordance with, and incorporate the terms and conditions required by, Section 409A. Notwithstanding any provision of this Agreement to the contrary, in the event that the Company determines that any amounts payable hereunder will be immediately taxable to the Executive under Section 409A, the Company reserves the right (without any obligation to do so or to indemnify the Executive for failure to do so) to (i) adopt such amendments to this Agreement and appropriate policies and procedures, including amendments and policies with retroactive effect, that the Company determines to be necessary or appropriate to preserve the intended tax treatment of the benefits provided by this Agreement, to preserve the economic benefits of this Agreement and to avoid less favorable accounting or tax consequences for the Company and/or (ii) take such other actions as the Company determines to be necessary or appropriate to exempt the amounts payable hereunder from Section 409A or to comply with the requirements of Section 409A and thereby avoid the application of penalty taxes thereunder. No provision of this Agreement shall be interpreted or construed to transfer any liability for failure to comply with the requirements of Section 409A from the Executive or any other individual to the Company or any of its Affiliates, employees or agents.

(b) Separation from Service under Section 409A . Notwithstanding any provision to the contrary in this Agreement: (i) no amount that constitutes “nonqualified deferred compensation” under Section 409A shall be payable pursuant to Section 5(b) or 5(c) unless the termination of the Executive’s employment constitutes a “separation from service” within the meaning of Section 1.409A-1(h) of the Department of Treasury Regulations; (ii) for purposes of Section 409A, the Executive’s right to receive installment payments pursuant to Section 5(b) or 5(c) shall be treated as a right to receive a series of separate and distinct payments; and (iii) to the extent that any reimbursement of expenses or in-kind benefits constitutes “deferred compensation” under Section 409A, such reimbursement or benefit shall be provided no later than December 31 of the year following the year in which the expense was incurred. The amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year. The amount of any in-kind benefits provided in one year shall not affect the amount of in-kind benefits provided in any other year. Notwithstanding any

provision to the contrary in this Agreement , if the Executive is deemed at the time of his separation from service to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, to the extent delayed commencement of any portion of the termination benefits to which the Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of the Executive’s termination benefits shall not be provided to the Executive prior to the earlier of ( A ) the expiration of the six-month period measured from the date of the Executive’s “separation from service” with the Company (as such term is defined in the Treasury Regulations issued under Section 409A of the Code) or ( B ) the date of the Execut ive’s death; u pon the earlier of such dates, all payments deferred pursuant to this sentence shall be paid in a lump sum to the Executive, and any remaining payments due under the Agreement shall be paid as otherwise provided herein.

(c) Release . Notwithstanding anything to the contrary in this Agreement, to the extent that any payments of “nonqualified deferred compensation” (within the meaning of Section 409A) due under this Agreement as a result of the Executive’s termination of employment are subject to the Executive’s execution and delivery of a Release, (i) the Company shall deliver the Release to the Executive within seven (7) days following the Date of Termination, and (ii) if the Executive fails to execute the Release on or prior to the Release Expiration Date (as defined below) or timely revokes his acceptance of the Release thereafter, the Executive shall not be entitled to any payments or benefits otherwise conditioned on the Release. For purposes of this Section 23(c), “ Release Expiration Date ” shall mean the date that is twenty-one (21) days following the date upon which the Company timely delivers the Release to the Executive, or, in the event that the Executive’s termination of employment is “in connection with an exit incentive or other employment termination program” (as such phrase is defined in the Age Discrimination in Employment Act of 1967), the date that is forty-five (45) days following such delivery date. To the extent that any payments of nonqualified deferred compensation (within the meaning of Section 409A) due under this Agreement as a result of the Executive’s termination of employment are delayed pursuant to this Section 23(c), such amounts shall be paid in a lump sum on the first payroll date to occur on or after the 60 ^th day following the date of Executive’s termination of employment, provided that Executive executes and does not revoke the Release prior to such 60 ^th day (and any applicable revocation period has expired).

24. Compensation Recovery Policy . The Executive acknowledges and agrees that, to the extent the Company adopts any clawback or similar policy in connection with or otherwise as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and any rules and regulations promulgated thereunder (including, without limitation, any listing rules or standards resulting therefrom), he shall, during the Term and thereafter, take all action necessary or appropriate to comply with such policy, as may be amended from time to time in the Company’s sole discretion (including, without limitation, entering into any further agreements, amendments or policies necessary or appropriate to implement and/or enforce such policy). The Executive’s obligations under this Section 24 shall survive the termination of this Agreement. For the avoidance of doubt, other than as provided in this Agreement (including, this Section 24), or as otherwise required by applicable law or by the rules of any securities exchange or automated quotation system on which shares of the Company’s capital stock are listed, quoted or traded, no vested equity award described in this Agreement shall be subject to any payment,

termination or forfeiture ob ligation described in Section 12 .5(a) of the 2010 Incentive Award Plan and the Executive shall not be required, and no award under such plan shall be conditioned on requiring Executive, to enter into any other agreement to the contrary.

25. Full Settlement . The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment.

26. Conflicts . To the extent this Agreement describes equity awards that shall be issued pursuant to the 2010 Incentive Award Plan, such equity awards shall be subject to the 2010 Incentive Award Plan; provided that, in the event of a conflict between any term or provision contained herein and a term or provision of the 2010 Incentive Award Plan, the applicable term or provision of this Agreement will govern and prevail.

[ Signature pages follow ]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date and year first above written.

COMPANY

By: /s/ Robert Buckley _________________

Name: Robert Buckley

Title: Chief Financial Officer

Signature Page to the
Employment Agreement for Matthijs Glastra

EXECUTIVE

By: /s/ Matthijs Glastra __________________

Matthijs Glastra

Signature Page to the
Employment Agreement for Matthijs Glastra

Exhibit A

RELEASE OF CLAIMS

1. General Release.

(a) I acknowledge that my employment with Novanta Inc. (f/k/a GSI Group Inc.) (the “Company”) and all subsidiaries and affiliates thereof terminated on [_____]. I further acknowledge that the Company delivered this Release of Claims (the “Release”) to me on [_____].

(b) In exchange for the payments and benefits described in that certain Employment Agreement by and between the Company and me (the “Employment Agreement”), which I agree I am not otherwise entitled to receive absent execution and non-revocation of the Release, I and my representatives, agents, estate, heirs, successors and assigns (“Releasors”) voluntarily agree to release and discharge the Company and its parents, affiliates, subsidiaries, predecessors, successors, assigns, plan sponsors and plan fiduciaries (and the current and former trustees, officers, directors, employees, and agents of each of the foregoing, all both individually, in their capacity acting on the Company’s behalf and in their official capacities) (collectively “Releasees”) generally from all claims, demands, actions, suits, damages, debts, judgments and liabilities of every name and nature, whether existing or contingent, known or unknown, suspected or unsuspected, in law or in equity in connection with my employment by or termination of employment with the Company, or any of my dealings, transactions or events involving the Releasees, arising on or before the date of this Release. This Release is intended by me to be all encompassing and to act as a full and total release of any claims that the Releasors may have or have had against the Releasees from the beginning of time to the date of this Release, including but not limited to all claims in contract (whether written or oral, express or implied), tort, equity and common law; any claims for wrongful discharge, breach of contract, or breach of the obligation of good faith and fair dealing; and/or any claims under any local, state or federal constitution, statute, law, ordinance, bylaw, or regulation dealing with either employment, employment discrimination, retaliation, mass layoffs, plant closings, and/or employment benefits and/or those laws, statutes or regulations concerning discrimination on the basis of race, color, creed, religion, age, sex, sexual harassment, sexual orientation, national origin, ancestry, handicap or disability, veteran status or any military service or application for military service or any other category protected by law (including, without limitation, claims under the Massachusetts Fair Employment Practices Act (Mass. Gen. Laws ch. 151B, §§1-10) and the Massachusetts Wage Act (Mass. Gen. Laws ch. 149, §§ 148-150)); and any federal, state or local law or regulation concerning securities, stock, stock options or restricted or performance stock units. This Release is for any relief, no matter how denominated, including but not limited to wages, back pay, front pay, benefits, compensatory damages, liquidated damages, punitive damages or attorney’s fees. I also agree not to commence or cooperate in the prosecution or investigation of any lawsuit, administrative action or other claim or complaint against the Releasees, except as required by law.

(c) By this Release, I not only release and discharge the Releasees from any and all claims as stated above that the Releasors could make on my own behalf or on the behalf of others, but also those claims that might be made by any other person or organization on my behalf and I specifically waive any right to recover any damage awards as a member of any class in a case in which any claims against the Releasees are made involving any matters arising out of my employment by or termination of employment with the Company , or any of my dealings, transactions or events involving the Releasees

(d) I agree that, except for any payments or benefits set forth in Section 5 of the Employment Agreement that have not yet been paid, as applicable, the payments and benefits the Company previously provided to me are complete payment, settlement, accord and satisfaction with respect to all obligations and liabilities of the Releasees to the Releasors, and with respect to all claims, causes of action and damages that could be asserted by the Releasors against the Releasees regarding my employment or termination of employment with the Company, or any of my dealings, transactions or events involving the Releasees, including, without limitation, all claims for wages, salary, commissions, draws, car allowances, incentive pay, bonuses, business expenses, vacation, stock, stock options, restricted or performance stock units, severance pay, attorneys’ fees, compensatory damages, exemplary damages, or other compensation, benefits, costs or sums. Notwithstanding anything in this Release to the contrary, this Release shall not affect and I do not waive: (i) rights to indemnification I may have under: (A) applicable law, (B) any charter document or bylaws, (C) any agreement between me and the Company or any other Releasee, (D) as an insured under any directors’ and officers’ liability insurance policy now or previously in force, (ii) any right I may have to obtain contribution in the event of the entry of judgment against me as a result of any act or failure act for which both I and any Releasee are jointly responsible; and (iii) my rights to vested benefits and payments under any stock options, restricted or performance stock units or other incentive plans or any agreements relating thereto (all of which are set forth in Section 5 of the Employment Agreement) or under any retirement plan, welfare benefit plan or other benefit or deferred compensation plan, all of which shall remain in effect in accordance with the terms and provisions thereof, or my rights as a stockholder or equity holder of the Company.

(e) I understand and agree that this Release will be binding on me and my heirs, administrators and assigns. I acknowledge that I have not assigned any claims or filed or initiated any legal proceedings against any of the Releasees.

(f) I acknowledge and agree that if any provision of this Release is found, held or deemed by a court of competent jurisdiction to be void, unlawful or unenforceable under any applicable statute or controlling law, the remainder of this Release shall continue in full force and effect.

(g) This Release is deemed made and entered into in the Commonwealth of Massachusetts, and in all respects shall be interpreted, enforced and governed under the internal laws of the Commonwealth of Massachusetts, to the extent not preempted by federal law.

(h) Notwithstanding the comprehensive release of claims set forth in the preceding paragraphs of this Section 1 , n othing in this Release shall bar or prohibit me from contacting, seeking assistance from or participating in any proceeding before any federal or state administrative agency to the extent permitted by applicable federal, state and/or local law. However, I nevertheless will be prohibited to the fullest extent authorized by law from obtaining monetary damages in any agency proceeding in which I do so participate.

2. Waiver of Rights and Claims Under the Age Discrimination in Employment Act of 1967 . Since I am 40 years of age or older, I acknowledge and agree that I have been informed that I have or may have specific rights and/or claims under the Age Discrimination in Employment Act of 1967 (the “ADEA”) and I agree that:

(a) in consideration for the payments and benefits described in the Employment Agreement, which I am not otherwise entitled to receive absent execution and non-revocation of the Release, I specifically and voluntarily waive such rights and/or claims under the ADEA that I have or might have against the Releasees to the extent such rights and/or claims arose prior to the date I executed this Release;

(b) I understand that I am not waiving rights or claims under the ADEA which may arise after the date that I execute this Release;

(c) I have been advised to consult with or seek advice from an attorney of my choice or any other person of my choosing before executing this Release;

(d) I have been advised that I have twenty-one (21) days from the date I receive this Release (the “Consideration Period”) to review this Release and consider its terms before signing it, and I acknowledge and agree that such Consideration Period will not be affected or extended by any changes, whether material or immaterial, that might be made to this Release;

(e) in entering into this Release I am not relying on any representation, promise or inducement made by the Company or its attorneys with the exception of those promises described in this Release; and

(f) I may revoke this Release for a period of seven (7) days after I sign it and all rights and obligations of both parties under this Release shall not become effective or enforceable until the date upon which the seven (7) day revocation period has expired. For such a revocation to be effective, the Company must receive it on or before the expiration of the seven (7) day revocation period.

* * * * *

I acknowledge and agree that this Release is a legally binding document and my signature will commit me to its terms. I acknowledge and agree that I have carefully read and fully understand all of the provisions of this Release and that I voluntarily enter into this Release by signing below. Upon execution, I agree to deliver a signed copy of this Release to [______], [_____] of the Company .

____________________________

Matthijs Glastra

Exhibit 10.2

Novanta Inc.

125 Middlesex Turnpike

Bedford, MA 01730

July 27, 2016

Mr. John Roush

c/o Novanta Inc.

125 Middlesex Turnpike

Bedford, MA 01730

Re: Transition and Release of Claims Agreement

Dear John:

This letter agreement (this “ Letter Agreement ”), entered into on the date first set forth above (the “ Effective Date ”), sets forth the understanding by and between you and Novanta Inc. (f/k/a GSI Group Inc.) (collectively with its direct and indirect subsidiaries, and any successor(s) thereto, the “ Company ”), regarding the cessation of your employment with the Company and the transition of your role as Chief Executive Officer of the Company to your successor.

1.	Separation Date and Transition Services .

a. Your active employment with the Company will terminate on September 1, 2016 (the “ Separation Date ”) and, as of the Separation Date, you will cease to be an employee, officer and director of the Company and its direct and indirect subsidiaries. Until the Separation Date, that certain Employment Agreement by and between the Company and you, dated as of November 16, 2010 (the “ Employment Agreement ”) will continue to control with respect to your salary, benefits and other matters with respect to your employment with the Company; provided that you agree that during the period beginning on the Effective Date and ending on the Separation Date you will (i) continue to perform your duties as Chief Executive Officer of the Company, consistent with past practices, unless otherwise requested by the Board of Directors of Novanta Inc. (the “ Board ”), (ii) use your reasonable best efforts to advance the interests of the Company and facilitate the successful transition of your responsibilities to the individual who succeeds you as Chief Executive Officer in whatever reasonable capacity may be requested by the Board, consistent with your current position as Chief Executive Officer, and (iii) communicate a message consistent with the Board’s direction to key employees, customers and suppliers. You acknowledge and agree that, effective at 12:01 a.m., Eastern time, on the Separation Date, you hereby (A) resign as Chief Executive Officer and as an employee of the Company and from all offices and positions you may hold at the Company’s direct and indirect subsidiaries and (B) resign as a member of the Board of Directors of the Company, and as a member of the boards of directors and any equivalent bodies of the Company’s direct and indirect subsidiaries.

b. During the period commencing on the Separation Date and ending on December 31, 2016 (or such earlier date on which you commence employment for a third party) (the “ Consulting Period ”), you will continue to serve the Company in such capacities and perform such duties as may be specified from time to time by the Board. In particular, you agree that you shall continue to facilitate the successful transition of your responsibilities to the individual who

succeeds you as Chief Executive Officer and, if requested, provide the Company with strategic advice with respect to its ongoing business operations. In connection with your services during the Consulting Period, you shall make yourself reasonably available ( in person, by telephone or otherwise) to consult with the Board and the Company’s executive officers . In addition, you shall make yourself available to travel in connection with your services if reasonably requested by the Board and any reasonable travel expenses associated therewith shall be reim bursed in accordance with the Company’s applicable policies. You shall report to the Board during the Consulting Period. Except as set forth in Section 2, you shall not be entitled to any fees or other compensation in exchange for your services during the Consulting Period. The parties hereto acknowledge and agree that the Company intends to require you to, and you intend to, perform services during the Consulting Period at a level equal to or less than 20% of your average level of service previously performed for the Company during the 36-month period immediately preceding the Separation Date.

Your services described in Sections 1(a) and (b) are herein referred to, collectively, as the “ Transition Services .”

Severance Benefits . In addition to any payments and benefits due to you pursuant to Section 5(a) of the Employment Agreement, you will, subject to (and in consideration for) your provision of the Transition Services through the end of the Consulting Period, your execution and non-revocation of the Waiver and Release of Claims Agreement attached hereto as Exhibit A (the “ Release ”) and your continued compliance with the restrictive covenants (as described in Section 3 below), be entitled to receive payments and benefits set forth in Section 5(b) of the Employment Agreement as if your employment was terminated by the Company without Cause (as defined in the Employment Agreement) (collectively, the “ Severance Benefits ”). The Severance Benefits shall be subject to the terms of the Employment Agreement (including, without limitation, Section 24 of the Employment Agreement) and, for the avoidance of doubt, will consist of (a) continued base salary for 18 months following the Separation Date, which equals an aggregate amount of $912,426, (b) a prorated 2016 Annual Bonus (as defined in the Employment Agreement) based on actual individual and Company performance goals, and (c) prorated vesting of certain equity awards, which will result in you holding, after taking into account the vesting described in this Section 2(c), 36,590 vested restricted share units under the restricted stock unit awards granted to you on March 3, 2014, February 26, 2015 and March 30, 2016, a vested option to purchase 12,797 common shares of the Company under the option granted to you on March 30, 2016, and 4,796 performance share units under the performance stock unit award granted to you on March 30, 2016. Other than the equity awards described in the immediately preceding sentence, all Company equity-based compensation awards held by you will be forfeited.

Restrictive Covenants . You acknowledge that the Company is providing you with the Severance Benefits in material part in consideration for your reaffirmation of your prior agreement to comply with the restrictive covenants set forth in Section 6 of the Employment Agreement and that, in accordance with Section 5(d) of the Employment Agreement, no payment will be made, and no acceleration of vesting shall occur, pursuant to Section 5(b) of the Employment Agreement following the date that you first violate any of Section 6(a), (b), (d) or (e) of the Employment Agreement.

Release . The Severance Benefits are contingent upon and subject to your execution and non-revocation of the Release following the Separation Date in accordance with Sections 5(b) and 24(c) of the Employment Agreement , and you agree to sign and be bound by the Release which will be considered an integral part of this Letter Agreement.

Entire Agreement . This Letter Agreement sets forth the entire agreement between you and the Company with respect to the subject matter set forth herein and supersedes and replaces any and all prior oral or written agreements or understandings between you and the Company with respect to the subject matter hereof; provided , that, for the avoidance of doubt, (a) you will retain your rights under the terms of the Employment Agreement, except to the extent such terms result in duplication of compensation or benefits to you, and (b) the provisions of the Employment Agreement which by their terms survive termination of employment (including, without limitation, the indemnity obligations and the restrictive covenants set forth in Sections 3(j) and 6 of the Employment Agreement, respectively) will remain in full force and effect in accordance with their terms (as may be amended by this Letter Agreement). This Letter Agreement may be amended only by a subsequent writing signed by both parties. You represent that you have signed this Letter Agreement knowingly and voluntarily.

[signature page follows]

Please indicate your acceptance of the terms and provisions of this Letter Agreement by signing both copies of this Letter Agreement and returning one copy to me. The other copy is for your files. By signing below, you acknowledge and agree that you have carefully read this Letter Agreement and Exhibit A thereto in their entirety; fully understand and agree to their terms and provisions; will comply with the r estrictive c ovenants set forth in Section 6 of the Employment Agreement ; and intend and agree that this Letter Agreement is final and legally binding on you and the Company. All payments described in this Letter Agreement will be subject to the withholding of any amounts required b y federal, state or local law. This Letter Agreement will be governed and construed under the internal laws of the Commonwealth of Massachusetts and may be executed in several counterparts.

Very truly yours,

/s/ Robert Buckley

Robert Buckley, Chief Financial Officer

On behalf of Novanta Inc.

Signature Page to Transition and Release of Claims Agreement

Agreed, Acknowledged and Accepted as of the first date set forth above :

/s/ John Roush

John Roush

Signature Page to Transition and Release of Claims Agreement

EXHIBIT A

RELEASE OF CLAIMS

1. General Release .

(a) I acknowledge that my employment with the Company and all subsidiaries and affiliates thereof terminated on September 1, 2016. I further acknowledge that the Company delivered this release of claims (the “Release”) to me on September 1, 2016.

(b) In exchange for the payments and benefits described in that certain Transition and Release of Claims Agreement by and between Novanta Inc. (f/k/a GSI Group Inc.) (the “Company”) and me (the “Transition and Release Agreement”), which I agree I am not otherwise entitled to receive absent execution and non-revocation of the Release, I and my representatives, agents, estate, heirs, successors and assigns (“Releasors”) voluntarily agree to release and discharge the Company and its parents, affiliates, subsidiaries, predecessors, successors, assigns, plan sponsors and plan fiduciaries (and the current and former trustees, officers, directors, employees, and agents of each of the foregoing, all both individually, in their capacity acting on the Company’s behalf and in their official capacities) (collectively “Releasees”) generally from all claims, demands, actions, suits, damages, debts, judgments and liabilities of every name and nature, whether existing or contingent, known or unknown, suspected or unsuspected, in law or in equity in connection with my employment by or termination of employment with the Company, or any of my dealings, transactions or events involving the Releasees, arising on or before the date of this Release. This Release is intended by me to be all encompassing and to act as a full and total release of any claims that the Releasors may have or have had against the Releasees from the beginning of time to the date of this Release, including but not limited to all claims in contract (whether written or oral, express or implied), tort, equity and common law; any claims for wrongful discharge, breach of contract, or breach of the obligation of good faith and fair dealing; and/or any claims under any local, state or federal constitution, statute, law, ordinance, bylaw, or regulation dealing with either employment, employment discrimination, retaliation, mass layoffs, plant closings, and/or employment benefits and/or those laws, statutes or regulations concerning discrimination on the basis of race, color, creed, religion, age, sex, sexual harassment, sexual orientation, national origin, ancestry, handicap or disability, veteran status or any military service or application for military service or any other category protected by law (including, without limitation, claims under the Massachusetts Fair Employment Practices Act (Mass. Gen. Laws ch. 151B, §§1-10) and the Massachusetts Wage Act (Mass. Gen. Laws ch. 149, §§ 148-150)); and any federal, state or local law or regulation concerning securities, stock, stock options or restricted or performance stock units. This Release is for any relief, no matter how denominated, including but not limited to wages, back pay, front pay, benefits, compensatory damages, liquidated damages, punitive damages or attorney’s fees. I also agree not to commence or cooperate in the prosecution or investigation of any lawsuit, administrative action or other claim or complaint against the Releasees, except as required by law.

(d) I agree that, except for any payments or benefits set forth in Section 2 of the Transition and Release Agreement that have not yet been paid, as applicable, the payments and benefits the Company previously provided to me are complete payment, settlement, accord and satisfaction with respect to all obligations and liabilities of the Releasees to the Releasors, and with respect to all claims, causes of action and damages that could be asserted by the Releasors against the Releasees regarding my employment or termination of employment with the Company, or any of my dealings, transactions or events involving the Releasees, including, without limitation, all claims for wages, salary, commissions, draws, car allowances, incentive pay, bonuses, business expenses, vacation, stock, stock options, restricted or performance stock units, severance pay, attorneys’ fees, compensatory damages, exemplary damages, or other compensation, benefits, costs or sums. Notwithstanding anything in this Release to the contrary, this Release shall not affect and I do not waive: (i) rights to indemnification I may have under: (A) applicable law, (B) any charter document or bylaws, (C) any agreement between me and the Company or any other Releasee, (D) as an insured under any directors’ and officers’ liability insurance policy now or previously in force, (ii) any right I may have to obtain contribution in the event of the entry of judgment against me as a result of any act or failure act for which both I and any Releasee are jointly responsible; and (iii) my rights to vested benefits and payments under any stock options, restricted or performance stock units or other incentive plans or any agreements relating thereto (all of which are set forth in Section 2 of the Transition and Release Agreement) or under any retirement plan, welfare benefit plan or other benefit or deferred compensation plan, all of which shall remain in effect in accordance with the terms and provisions thereof, or my rights as a stockholder or equity holder of the Company.

(a) in consideration for the payments and benefits described in the Transition and Release Agreement, which I am not otherwise entitled to receive absent execution and non-revocation of the Release, I specifically and voluntarily waive such rights and/or claims under the ADEA that I have or might have against the Releasees to the extent such rights and/or claims arose prior to the date I executed this Release;

(b) I understand that I am not waiving rights or claims under the ADEA which may arise after the date that I execute this Release;

(c) I have been advised to consult with or seek advice from an attorney of my choice or any other person of my choosing before executing this Release;

* * * * *

/s/ John Roush _________________________

John Roush

Date: July 27, 2016

Signature Page to Release of Claims

Exhibit 10.3

AMENDMENT TO THE

EMPLOYMENT AGREEMENT

This AMENDMENT TO THE EMPLOYMENT AGREEMENT (this “ Amendment ”) is entered into and effective as of July 27, 2016 (the “ Amendment Date ”) by and between Robert Buckley (the “ Executive ”) and Novanta Inc. (f/k/a GSI Group Inc.), a company organized under the laws of the Province of New Brunswick, Canada (“ Novanta ” and, together with any of its subsidiaries and Affiliates as may employ the Executive from time to time, and any successor(s) thereto, the “ Company ”).

RECITALS:

A.	Novanta and the Executive are parties to that certain Employment Agreement, dated as of February 10, 2011 (the “ Employment Agreement ”).

B.	Novanta and the Executive desire to amend the Employment Agreement pursuant to the terms of this Amendment.

NOW THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Employment Agreement shall be modified and amended as follows, effective as of the Amendment Date:

1.	The following shall be added as Section 3(i) of the Employment Agreement:

“ Retention Equity Award . On August 2, 2016, Novanta shall grant the Executive 80,000 restricted stock units pursuant to the 2010 Incentive Award Plan (“ Retention RSUs ”). The terms and conditions of the Retention RSUs shall be set forth in a written award agreement between Novanta and the Executive, which shall provide that, subject to Executive’s continued employment with the Company, (i) the Retention RSUs shall vest on August 2, 2021, and (ii) notwithstanding the foregoing Section 3(i)(i), the Retention RSUs shall become fully vested immediately prior to a Change in Control, and shall contain other customary terms and conditions. Prior to vesting, the Retention RSUs shall not be transferable and, except as otherwise provided in this Agreement, shall be subject to forfeiture upon the Executive’s termination of employment with the Company.”

2.	Section 5(a) of the Employment Agreement is hereby removed and replaced in its entirety with the following:

“ In General . Upon a termination of the Executive’s employment for any reason, (i) the Executive (or the Executive’s estate) shall be entitled to receive: (A) any portion of the Executive’s Annual Base Salary through the Date of Termination not theretofore paid, (B) any expenses owed to the Executive under Section 3(g), (C) any accrued but unused vacation pay owed to the Executive pursuant to Section 3(f), and (D) any amount arising from the Executive’s participation in, or benefits under, any employee benefit plans, programs or arrangements under Section 3(e), which amounts shall be payable in accordance with the terms and conditions of such

employee benefit plans, programs or arrangements , and (ii) unless otherwise determined by the Board, the Executive shall, effective as of the Date of Termination, resign from all positions held at the Company or any of its subsidiaries (including, without limitation, any positions as an officer or director). Except as otherwise set forth in Section 5(b) or (c) below, the payments and benefits described in this Section 5(a) shall be the only payments and benefits payable in the event of the Executive’s termination of employment for any reason. ”

3.	For purposes of Sections 5(b)(iii) and 5(c)(ii) of the Employment Agreement, each reference to “2011 RSUs” shall be removed and replaced in its entirety with “Retention RSUs”.

4.	Section 8 of the Employment Agreement is hereby removed and replaced in its entirety with the following:

“ 8. Parachute Payments

(a) In the event it shall be determined that (i) any payment or distribution to or for the benefit of the Executive under this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control or other change in control or any person affiliated with the Company or such person (the “ Payment ” and collectively, the “ Payments ”) would be subject to the excise tax imposed by Section 4999 of the Code (or any similar federal, state or local tax that may hereafter be imposed) or any interest or penalties with respect to such excise tax (collectively, such excise tax, together with any such interest or penalties, the “ Excise Tax ”) and (ii) the amount of all the Payments that Executive would retain after all federal, state and local income taxes, Executive’s share of employment taxes, and the Excise Tax on the Payments would be less than the amount Executive would retain after all such taxes if the total amount of the Payments were reduced to an amount equal to one dollar less than the minimum amount which would result in the Payments becoming subject to the Excise Tax (such reduced amount, the “ Safe Harbor Amount ”), then the total amount of the Payments that shall be payable to Executive shall be reduced to an amount equal to the Safe Harbor Amount. The Payments shall be reduced by the Company in its reasonable discretion in the following order: (A) reduction of any cash severance payments otherwise payable to the Executive that are exempt from Section 409A, (B) reduction of any other cash payments or benefits otherwise payable to the Executive that are exempt from Section 409A, but excluding any payment attributable to the acceleration of vesting or payment with respect to any equity award that is exempt from Section 409A, (C) reduction of any other payments or benefits otherwise payable to the Executive on a pro-rata basis or such other manner that complies with Section 409A, but excluding any payment attributable to the acceleration of vesting and payment with respect to any equity award that is exempt from Section 409A, and (D) reduction of any payments attributable to the acceleration of vesting or payment with respect to any equity award that is exempt from Section 409A, in each case beginning with payments that would otherwise be made last in time.

(b) All determinations required to be made under this Section 8 shall be made in writing by a n accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G of the Code and the Excise Tax (the “ Tax Advisor ”) and such d eterminations shall be final and binding on the Company and the Executive and detailed supporting calculations shall be provided to the Company and the Executive . The Tax Advisor shall be selected by the Company in its good faith discretion, following consultation with its independent auditors and the Executive. Any fees incurred as a result of work performed by the Tax Advisor pursuant to this Section 8 shall be paid by the Company.

5.	Section 25 of the Employment Agreement is hereby removed and replaced in its entirety with the following:

“ 25. Compensation Recovery Policy . The Executive acknowledges and agrees that, to the extent the Company adopts any clawback or similar policy pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, and any rules and regulations promulgated thereunder (including, without limitation, any listing rules or standards resulting therefrom), he shall take all action necessary or appropriate to comply with such policy (including, without limitation, entering into any further agreements, amendments or policies necessary or appropriate to implement and/or enforce such policy). For the avoidance of doubt, other than as provided in this Agreement (including, this Section 25), or as otherwise required by applicable law or by the rules of any securities exchange or automated quotation system on which shares of the Company’s capital stock are listed, quoted or traded, no vested equity award described in this Agreement shall be subject to any payment, termination or forfeiture obligation described in Section 12.5(a) of the 2010 Incentive Award Plan and the Executive shall not be required, and no award under such plan

shall be conditioned on requiring Executive, to enter into any other agreement to the contrary. ”

6.	Except as expressly set forth in this Amendment, the Employment Agreement shall remain unchanged and shall continue in full force and effect according to its terms.

This Amendment shall be governed, construed, interpreted and enforced in accordance with the substantive laws of the Commonwealth of Massachusetts, without giving effect to any principles of conflicts of law, whether of the Commonwealth of Massachusetts or any other jurisdiction, and where applicable, the laws of the United States, that would result in the application of the laws of any other jurisdiction.

8.	This Amendment may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same agreement.

[ signature page follows ]

IN WITNESS WHEREOF, the parties have executed this Amendment to the Employment Agreement as of the date and year first above written.

COMPANY

By: /s/ Matthijs Glastra

Name: Matthijs Glastra

Title: Chief Operating Officer

Signature Page to the Amendment to the
Employment Agreement for Robert Buckley

EXECUTIVE

By: /s/ Robert Buckley

Robert Buckley

Signature Page to the Amendment to the
Employment Agreement for Robert Buckley

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Matthijs Glastra, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Novanta Inc.;

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

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

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

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;

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;

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

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):

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

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.

November 2, 2016

/s/ Matthijs Glastra

Matthijs Glastra

Chief Executive Officer

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Robert J. Buckley, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Novanta Inc.;

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

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

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):

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.

November 2, 2016

/s/ Robert J. Buckley

Robert J. Buckley

Chief Financial Officer

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 Novanta Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthijs Glastra, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

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

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

/s/ Matthijs Glastra

Matthijs Glastra

Chief Executive Officer

November 2, 2016

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 Novanta Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert J. Buckley, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

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

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

/s/ Robert J. Buckley

Robert J. Buckley

Chief Financial Officer

November 2, 2016