SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 0-22780
FEI COMPANY
(Exact name of registrant as specified in its charter)
Oregon 93-0621989
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
7451 NW Evergreen Parkway
Hillsboro, Oregon 97124-5830
(Address of principal executive offices) (Zip Code)
(503) 640-7500
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 17,765,833 shares of Common
Stock were outstanding at August 12, 1997.
<PAGE>
INDEX TO FORM 10-Q
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - June 29, 1997 (unaudited) and
December 31, 1996...................................................... 1
Consolidated Statements of Operations - Thirteen Weeks Ended
June 30, 1996 and June 29, 1997 (unaudited) and Twenty Six Weeks
Ended June 30, 1996 and June 29, 1997 (unaudited)...................... 2
Condensed Combined Consolidated Statements of Cash Flows - Twenty Six
Weeks Ended June 30, 1996 and June 29, 1997 (unaudited)................ 3
Notes to Consolidated Financial Statements (unaudited)................. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 9
Part II - Other Information
Item 2. Changes in Securities............................................. 13
Item 4. Submission of Matters to a Vote of Security Holders.............. 13
Item 6. Exhibits and Reports on Form 8-K.................................. 15
Signatures.................................................................. 17
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
FEI Company and Subsidiaries
Consolidated Balance Sheets December 31, 1996 and June 29, 1997 (Unaudited) (In
thousands, except share data)
December 31, June 29,
1996 1997
(PEO (Combined
Operations) Company)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 17,156
Receivables 25,349 45,792
Inventories (Note 3) 30,213 44,261
Current accounts with Philips (Note 4) 1,639 --
Other receivables and prepaid expenses 1,426 1,749
Deferred income taxes -- 619
--------- ---------
Total current assets 58,627 109,577
EQUIPMENT 5,658 16,983
LEASE AND NOTE RECEIVABLES -- 1,691
OTHER ASSETS (Note 5) 7,539 45,582
--------- ---------
TOTAL $ 71,824 $ 173,833
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit and notes payable $ -- $ 12,988
Accounts payable 7,585 12,251
Accrued payroll liabilities 1,648 2,401
Current accounts with Philips (Note 4) -- 17,183
Prepayments received 2,145 --
Accrued expenses/deferred income 13,277 14,087
Other current liabilities 2,897 6,456
--------- ---------
Total current liabilities 27,552 65,366
LONG-TERM PROVISIONS 1,202 570
DEFERRED INCOME TAXES -- 7,207
SHAREHOLDERS' EQUITY:
Preferred stock - 500,000 shares authorized; none -- --
issued and outstanding
Common stock - 30,000,000 shares authorized; -- 147,164
17,705,233 shares issued and outstanding at June 29, 1997
Retained earnings -- (42,000)
Division equity (Note 8) 43,070 --
Cumulative foreign currency translation adjustment -- (4,474)
--------- ---------
SHAREHOLDERS' EQUITY 43,070 100,690
TOTAL $ 71,824 $ 173,833
========= =========
See notes to consolidated financial statements.
1
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<TABLE>
<CAPTION>
FEI Company and Subsidiaries
Consolidated Statements of Operations
(In thousands except per share data)
(Unaudited)
Thirteen Weeks Ended Twenty Six Weeks Ended
-------------------- ----------------------
June 30, June 29, June 30, June 29,
1996 1997 1996 1997
---- ---- ---- ----
(PEO (Combined (PEO (Combined
Operations) Company) Operations) Company)
<S> <C> <C> <C> <C>
Net sales $ 26,159 $ 43,958 $ 43,752 $ 76,025
Cost of sales 17,621 25,909 28,775 50,866
--------- --------- --------- ---------
Gross profit 8,538 18,049 14,977 25,159
Research and development costs 2,564 4,260 4,975 6,845
Selling, general and administrative costs 5,105 9,300 9,822 18,383
Amortization of intangibles (Note 6) - 681 - 937
Purchased in-process research and development
(Note 6) - - - 38,046
Restructuring and reorganization costs (Note 7) - - - 2,478
--------- --------- --------- ---------
Income (loss) from operations 869 3,808 180 (41,530)
Other expense - (83) - (280)
--------- --------- --------- ---------
Income (loss) before income taxes 869 3,725 180 (41,810)
Income tax expense 181 1,490 37 190
--------- --------- --------- ---------
Net income (loss) $ 688 $ 2,235 $ 143 $ (42,000)
========= ========= ========= =========
Pro forma income (loss) per share (Note 2) $ 0.07 $ 0.13 $ 0.01 $ (2.72)
========= ========= ========= =========
Pro forma weighted average common and
common equivalent shares outstanding (Note 2) 9,729 17,810 9,729 15,427
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
FEI Company and Subsidiaries
Condensed Consolidated Statements of Cash Flow
(In thousands)
(Unaudited)
Twenty Six Weeks Ended
----------------------
June 30, June 29,
1996 1997
------ -----
(PEO (Combined
Operations) Company)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 143 $(42,000)
Other items impacting operating cash flows (3,826) 57,361
-------- --------
Net cash provided by operating activities (3,683) 15,361
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (1,859) (4,411)
Purchase of businesses (2,703)
Investment in software development -- (893)
Net change in leases receivable -- (350)
-------- --------
Net cash used in investing activities (4,562) (5,654)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit -- 3,852
Proceeds from exercise of stock options -- 71
Net cash received from Philips 8,245 8,000
-------- --------
Net cash provided by financing activities 8,245 11,923
FOREIGN CURRENCY TRANSLATION ADJUSTMENT -- (4,474)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 0 17,156
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD
PERIOD -- --
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 0 $ 17,156
======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION
Cash paid during the period for interest $ -- $ 167
NONCASH INVESTING AND FINANCING ACTIVITIES
Amounts due to PIE for excess working capital contributed $ -- $ 2,866
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF BUSINESS
FEI Company and its wholly owned subsidiaries (the "Company") design,
manufacture and market focused ion beam ("FIB") workstations, transmission
electron microscopes ("TEMs"), scanning electron microscopes ("SEMs") and
components of these products. The Company has manufacturing operations in
Hillsboro, Oregon; Eindhoven, The Netherlands; and Brno, Czech Republic. Sales
and service operations are conducted in eight countries and the U.S.,
constituting a majority of the worldwide market for the Company's products. In
addition, the Company's products are sold through distribution agreements with
affiliates of Philips Electronics N.V. ("Philips") located in approximately 20
additional countries.
The Company's products are sold to manufacturers of semiconductors and life
science and materials science customers. The Company's FIB workstations are sold
primarily to semiconductor manufacturers. The Company's electron microscope
products are sold primarily to life science and materials science research
institutes, universities and industrial customers, as well as to a limited
number of semiconductor manufacturers.
The Company is an indirect subsidiary of Philips which owns, through one of its
subsidiaries, 55% of the outstanding stock of the Company.
2. BASIS OF PRESENTATION
On February 21, 1997, FEI Company completed a combination transaction (the
"Combination") with the electron optics business ("PEO Operations") of Philips
Industrial Electronics International B.V. ("PIE"), a wholly owned subsidiary of
Philips. Pursuant to the Combination, FEI Company acquired shares of two
Philips' subsidiaries owning substantially all of the assets and liabilities of
PEO Operations' business, and issued to PIE a number of shares of FEI Common
Stock equal, after issuance, to 55% of the outstanding shares of Common Stock of
FEI Company. The transaction was accounted for as a "reverse acquisition" for
accounting and financial reporting purposes, whereby PIE was treated as the
accounting acquiror because PIE acquired control of the Company by acquiring 55%
of the outstanding voting securities of the Company in the transaction. As a
result, the historical financial statements of the Company are the historical
financial statements of the PEO Operations for all periods prior to the date of
the Combination.
Pro forma earnings per share have been calculated assuming the shares of the
Company issued to PIE in the Combination were outstanding for the PEO Operations
and the combined company for all periods presented and assuming the shares of
the Company outstanding prior to the Combination were issued as of the closing
date of the Combination.
4
<PAGE>
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and Article 2 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for fair presentation have been included. In addition to the adjustments for
normal recurring accruals, the Company recorded charges in the first quarter of
1997 of approximately $38.0 million associated with the purchase of in-process
research and development, as a result of the Company's combination with PEO
Operations. The Company also recorded a $2.5 million restructuring and
reorganization charge primarily associated with the relocation of the Company's
Wilmington, Massachusetts manufacturing operations.
Before the Combination, the PEO Operations were operated as a business unit of
PIE. Management of Philips allocated certain costs in preparation of the
historical financial statements of the PEO Operations. No assurance is given
that these cost allocations reflect the actual costs that would have been
incurred by the PEO Operations if it had been operated as a stand-alone
business. Moreover, the preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reported
period. Actual results could differ from estimates.
The accompanying consolidated financial statements should be read in conjunction
with the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1996 as
well as the financial statements and footnotes of PEO Operations for the year
ended December 31, 1996 included in the Company's report on Form 8-K/A dated May
7, 1997.
3. INVENTORIES
Inventories consist of the following (in thousands):
December 31, June 29,
1996 1997
--------------- ---------
Raw materials and assembled parts $ 13,018 $ 24,984
Work in process 9,610 13,614
Finished goods 9,909 8,036
--------------- ---------
32,537 46,634
Inventory reserves (2,324) (2,373)
-------------- --------
Total inventories, net $ 30,213 $ 44,261
=============== =========
5
<PAGE>
4. CURRENT ACCOUNTS WITH PHILIPS
Current accounts with Philips represent net accounts receivable and accounts
payable between the Company and other subsidiaries of Philips. Most of the
current account transactions relate to deliveries of goods.
Current accounts with Philips consist of the following (in thousands):
December 31, June 29,
1996 1997
------------ ----------
Current accounts receivable $ 2,471 $ 20,338
Current accounts payable (832) (33,521)
------------- ----------
Total current accounts with Philips $ 1,639 $ (17,183)
============= ==========
5. OTHER ASSETS
Other assets consist of the following (in thousands)
December 31, June 29,
1996 1997
----------- ---------
Goodwill, net (Note 6) $ 1,525 $ 16,759
Existing technology, net (Note 6) - 16,032
Noncurrent service inventories, net of
valuation reserves of $2,661 and $3,935
respectively 6,014 8,008
Investment in Norsam Technologies, Inc.,
at cost - 3,267
Capitalized software, net - 893
Deposits and other - 623
----------- ----------
$ 7,539 $ 45,582
=========== ==========
6. THE COMBINATION
On February 21, 1997, FEI Company ("Pre-Combination FEI") acquired substantially
all of the assets and liabilities of the PEO Operations. The PEO Operations were
acquired in exchange for 9,728,807 newly issued shares of the Company's Common
Stock, which constituted, when issued to PIE, 55% of the shares of Common Stock
then outstanding. Because PIE acquired control of the Company by acquiring 55%
of the outstanding voting securities of the Pre-Combination FEI, the Combination
was treated as a "reverse acquisition" for accounting and financial reporting
purposes whereby purchase accounting was applied to the financial statements of
Pre-Combination FEI. The results of operations of Pre-Combination FEI are
included subsequent to February 21, 1997.
The Company obtained an appraisal of the fair market value of the intangible
assets acquired to serve as a basis for allocation of the purchase price to the
various classes of assets. The Company allocated the total purchase price of
$122.9 million to the assets acquired as follows (in thousands):
6
<PAGE>
Current assets $ 43,893
Equipment 8,321
Leases receivable 1,341
Other assets 4,744
Existing technology intangible 16,490
In-process research and product development 38,046
Goodwill and other intangibles 17,122
Deferred income taxes (7,085)
$ 122,872
To determine the value of each of Pre-Combination FEI's product lines, projected
revenue net of provision for operating expenses, income taxes and returns on
requisite assets were discounted to a present value. This approach was applied
to existing technology as well as to research and development projects which
have not been proven technologically feasible and which had not generated
revenue at the date of the Combination. As a result of this valuation, the fair
value of existing technology and in-process technology were determined to be
$16,490,000 and $38,046,000, respectively.
The amortization periods for existing technology and goodwill have been
established at 12 years and 15 years, respectively. The existing focused ion
beam technology, which is now in its third year of commercialization, is
estimated to have a 15-year life. Management will evaluate these amortization
periods from time to time. It is possible that estimates of anticipated future
gross revenues, the remaining estimated economic life of products or
technologies, or both may be reduced due to competitive pressures or other
factors.
In accordance with the applicable accounting pronouncements, a one-time charge
of $38,046,000 associated with the writeoff of acquired in-process research and
product development was recorded immediately subsequent to the closing of the
Combination. Generally, it is the Company's policy to expense research and
development costs.
Unaudited pro forma combined statement of operations data, presented as if the
Combination had occurred on January 1, 1996, are as follows:
Twenty Six Weeks Ended
----------------------
June 30, June 29,
1996 1997
------ -----
Net sales $ 59,677 $ 78,969
======== ========
Net income (loss) $ (2,020) $ (7,193)
======== ========
Pro forma earnings (loss) per share $ (0.01) $ (0.47)
======== ========
7. RESTRUCTURING AND REORGANIZATION
In March 1997, the Company approved a plan to restructure its ElectroScan
operations by relocating the majority of its ElectroScan manufacturing
activities from Wilmington, Massachusetts to the Company's Netherlands
manufacturing facility. In conjunction with this plan, the Company announced its
intent to layoff 11 ElectroScan employees in manufacturing, sales and
administration and cease the majority of its manufacturing operations at the
7
<PAGE>
Wilmington, Massachusetts facility. To date in 1997, seven employees have been
terminated in connection with this restructuring and two additional employees
will be terminated on December 31, 1997. The total cost of the restructuring is
estimated to be approximately $2.1 million, recorded in the period ended March
30, 1997, including the remaining goodwill of $1.7 million attributable to the
acquisition of the assets of ElectroScan Corporation and approximately $400,000
of severance and other costs.
In addition, the Company recorded a charge of approximately $400,000 associated
with costs relating to integrating the businesses of Pre-Combination FEI and the
PEO Operations.
8. SHAREHOLDERS' EQUITY
Effective as of the closing of the Combination, division equity of the PEO
Operations was reclassified to paid-in capital of the Company.
9. NEW ACCOUNTING PRINCIPLE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings per Share,"
which requires companies to present two new measures of earnings per share,
basic and diluted. If SFAS No. 128 had been adopted for all periods presented,
basic and diluted earnings per share would not have materially differed from
reported earnings per share.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The following table sets forth consolidated statement of operations data as a
percentage of sales for the PEO Operations (only) for the thirteen weeks and
twenty six weeks ended June 30, 1996 and for the combined Company for the
thirteen weeks and twenty six weeks ended June 29, 1997. Operating results for
the twenty six weeks ended June 29, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997. The following
table should be read in conjunction with the Combined Financial Statements of
the PEO Operations and the footnotes thereto included in the Company's Form
8-K/A dated May 7, 1997 and the financial statements and footnotes of the
Pre-Combination FEI included in the Company's quarterly report on Form 10Q for
the quarter ended June 30, 1996 and its annual report on Form 10-K for the year
ended December 31, 1996.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty Six Weeks Ended
------------------------ ------------------------
June 30, June 29, June 30, June 29,
1996 1997 1996 1997
---- ---- ---- ----
(PEO (Combined (PEO (Combined
Operations) Company) Operations) Company)
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 67.4% 58.9% 65.8% 66.9%
---------------------- -----------------------
Gross profit 32.6% 41.1% 34.2% 33.1%
Research and development costs 9.8% 9.7% 11.4% 9.0%
Selling, general and administrative
costs 19.5% 21.2% 22.4% 24.2%
Amortization of intangibles (Note 6) -- 1.5% -- 1.2%
Purchased in-process research
and development (Note 6) -- -- -- 50.0%
Restructuring and reorganization
costs (Note 7) -- -- -- 3.3%
---------------------- -----------------------
Income (loss) from operations 3.3% 8.7% 0.4% (54.6)%
Other expense -- (0.2)% -- (0.4)%
---------------------- -----------------------
Income (loss) before income taxes 3.3% 8.5% 0.4% (55.0)%
Income tax expense 0.7% 3.4% 0.1% 0.2%
---------------------- -----------------------
Net income (loss) 2.6% 5.1% 0.3% (55.2)%
====================== =======================
</TABLE>
Net Sales. Net sales for the thirteen weeks ended June 29, 1997 increased $17.8
million (68%) and for the twenty six weeks ended June 29, 1997 increased $32.3
million (74%) compared to the corresponding periods in 1996. The increases in
sales are primarily attributable to the fact that the 1997 period includes net
sales of the combined company, and
9
<PAGE>
the 1996 period includes net sales of the PEO Operations only. Pre-Combination
FEI contributed approximately $16.7 million in revenue for the thirteen weeks
ended June 29, 1997 and approximately $25.3 million in revenue for the period
from the closing of the Combination on February 21, 1997 ("Closing") to June 29,
1997. In addition, sales of electron microscopes and related services increased
$1.1 million and $7.0 million for the thirteen weeks and twenty six weeks ended
June 29, 1997, respectively, due to a general strengthening of core markets for
these products and increased sales into the semiconductor industry. Revenue from
sales of FIB workstations also increased due to a higher number of sales into
the semiconductor industry and sales of higher priced products to customers in
this market.
Sales outside the U.S. for the combined company accounted for 62% of sales for
the twenty six weeks ended June 29, 1997 and 76% for the PEO Operations for the
twenty six weeks ended June 30, 1996. The Company expects that sales outside the
U.S. will continue to represent a significant percentage of its net sales.
Gross Profit. Gross profit for the thirteen weeks ended June 29, 1997 increased
$9.5 million (111%) and for the twenty six weeks ended June 29, 1997 increased
$10.2 million (68%) compared to the corresponding periods in 1996. Gross profit
as a percentage of sales for the thirteen weeks ended June 29, 1997 increased to
41% from 33% for the corresponding period in 1996, due to the following factors:
(i) higher sales into the semiconductor market and European markets, where gross
margins are typically higher; (ii) a beneficial change in currency exchange
rates and (iii) manufacturing efficiencies associated with higher sales levels.
Gross profit as a percentage of sales for the twenty six weeks ended June 29,
1997 decreased to 33% from 34% for the corresponding period in 1996.
Research and Development. For the thirteen weeks ended June 29, 1997, research
and development expense increased $1.7 million (66%) and for the twenty six
weeks ended June 29, 1997 increased $1.9 million (38%), compared to the
corresponding periods in 1996. These increases primarily reflect the fact that
the 1996 period research and development costs were those of the PEO Operations
only, and the 1997 period costs are those of the combined Company. Subsequent to
closing of the Combination, research and development costs of Pre-Combination
FEI were $1.6 million for the thirteen weeks ended June 29, 1997 and $2.1
million for the twenty six weeks ended June 29, 1997.
As a percentage of sales, research and development expense was 10% for both the
thirteen weeks ended June 29, 1997 and June 30, 1996, and was 9% for the twenty
six weeks ended June 29, 1997 compared to 11% for the same period in 1996. This
comparative decrease as a percentage of sales during the 1997 twenty six week
period was the result of increased sales volume, an increase in capitalized
software development which reduced research and development expense, and the
averaging effect which resulted from combining the historically lower percentage
research and development expense of Pre-Combination FEI and the historically
higher percentage research and development expense of the PEO Operations.
Capitalized software development costs were $477,000 and zero for the thirteen
weeks ended June 29, 1997 and June 30, 1997, respectively, and $893,000 and zero
for the twenty six
10
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weeks ended June 29, 1997 and June 30, 1996, respectively. Historically, the PEO
Operations did not capitalize software development costs and its practice was
conformed to U.S. generally accepted accounting practices as of February 21,
1997. While the PEO Operations did not previously capitalize software
development costs under its accounting policies, management of the Company does
not believe that capitalization of software costs in accordance with U.S.
generally accepted accounting principles would have materially affected the net
income of the PEO Operations in prior periods. The Company is continuing to
invest in internal development of software incorporated in electron microscopes
and focused ion and electron beam products.
Selling, General and Administrative. Selling, general and administrative
expenses for the thirteen weeks ended June 29, 1997 increased $4.2 million (82%)
and for the twenty six weeks ended June 29, 1997 increased $8.6 million (88%)
compared to the same periods in 1996. This increase is primarily the result of
selling, general and administrative costs incurred by Pre-Combination FEI
subsequent to closing, which were $3.0 million for the thirteen weeks ended June
29, 1997 and $4.2 million for the period from closing through June 29, 1997.
Selling, general and administrative expenses as a percentage of sales were 21%
and 20% for the thirteen weeks ended June 29, 1997 and June 30, 1996,
respectively, and were 24% and 22% for the twenty six weeks ended June 29, 1997
and June 30, 1996, respectively.
Income Tax Expense . The effective income tax rate was 40% and 21% for the
thirteen weeks ended June 29, 1997 and June 30, 1996, respectively, and 0% and
21% for the twenty six weeks ended June 29, 1997 and June 30, 1996,
respectively. The Company recorded no tax benefit for the twenty six weeks ended
June 29, 1997, primarily because a significant amount of expenses recorded
during the period were nondeductible. These rates vary from the Company's U.S.
federal statutory tax rate of 34% primarily due to state and foreign taxes, the
write-off of purchased research and development and the amortization of
intangible assets.
Risks of International Operations. Certain risks are inherent in international
operations, including changes in demand resulting from fluctuations in interest
and exchange rates, the risk of government financed competition, changes in
trade policies, tariff regulations and difficulties in obtaining export
licenses. Changes in relevant foreign currency exchange rates between time of
sale and time of payment can also have a material effect on reported financial
results.
LIQUIDITY AND CAPITAL RESOURCES
At June 29, 1997, the Company had total cash and cash equivalents of $17.2
million compared to zero at December 31, 1996 for the PEO Operations.
Historically, net cash of the PEO Operations was included in Current Accounts
with Philips and, as such, recorded in Division Equity of Philips Industrial
Electronics. Cash provided by operating activities for the twenty six weeks
ended June 29, 1997 was $15.4 million compared to cash used of $3.7 million for
the twenty six weeks ended June 30, 1996. The primary reasons for the increase
in cash from operating activities during the 1997 twenty six week period
compared
11
<PAGE>
to the 1996 period were (i) an increase in sales and related
collection of accounts receivable and a comparatively lower increase in
inventory purchases, and (ii) an increase in the Company's trade payable
accounts with Philips affiliates.
Investing activities used $5.7 million during the twenty six weeks ended June
29, 1997, and $4.6 million during the twenty six weeks ended June 30, 1996,
primarily due to continued capital expenditures to provide the basis for growth.
The Company expects to continue to invest in plant and equipment needed for
future business requirements, including manufacturing capacity.
Financing activities provided $12.0 million for the twenty six weeks ended June
29, 1997. These cash sources were primarily additional borrowings under the
Company's $25 million bank line of credit and $8.0 million cash of the PEO
Operations as of the Closing of the Combination. Uses of cash in 1997 and the
first part of 1998 include approximately $2.9 million the Company is obligated
to pay to Philips Industrial Electronics pursuant to provisions of the
Combination Agreement. These provisions require the Company to repay a portion
of Net Operating Capital of the PEO Operations, calculated as of Closing, that
exceeded the projected working capital level of NLG 78.1 million. The repayment
will be in the form of two promissory notes due February 21, 1998, with interest
at 7 3/8% and 4% per annum, respectively, payable from February 21, 1997.
The Company expects to continue to use cash to fund the growth of its
operations. The Company believes its cash and cash equivalents and borrowings
available under its increased $25 million line of credit will be sufficient to
fund operations during the near term.
BACKLOG
The Company's backlog consists of purchase orders it has received for products
it expects to ship within the next 12 months. The Company's backlog at August 1,
1997 was approximately $49.8 million. A substantial portion of the Company's
backlog relates to orders for a relatively small number of products. As a
result, the timing of the receipt of an order from a single customer could have
a significant impact on the Company's backlog at any date. For this and other
reasons, the amount of backlog at any date is not necessarily determinative of
revenue in future periods.
12
<PAGE>
Part II - Other Information
Item 2. Changes in Securities
On February 21, 1997 (the "Combination Closing"), the Company combined with
the electron optics business of Philips Electronics N.V. pursuant to a
Combination Agreement dated November 15, 1996. At the Combination Closing, the
Company issued 9,728,807 shares of its Common Stock to Philips Industrial
Electronics International B.V., a Netherlands corporation ("PIE") as
consideration for all of the outstanding shares of Philips Electron Optics
International B.V., a Netherlands corporation, and Philips Electron Optics,
Inc., a Delaware corporation, both wholly owned subsidiaries of PIE immediately
prior to the Combination Closing.
The Combination Agreement provides in relevant part that at the time of issuance
by the Company of any shares of Common Stock upon the exercise of a stock option
outstanding on the date of the Combination Closing, the Company is required to
issue to PIE a number of additional shares of Common Stock such that the shares
of Common Stock issued to PIE at Closing continue to represent 55% of the
Outstanding Common Stock of the Company, as defined in the Combination
Agreement. During the thirteen weeks ended June 29, 1997 the Company issued
19,169 shares of its Common Stock to PIE pursuant to this provision of the
Combination Agreement.
The shares issued were not registered under the Securities Act of 1933, and the
issuance was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving a public offering. The consideration received by the
Company for the shares issued, together with the shares issued to PIE at the
Combination Closing, was the outstanding shares of Philips Electron Optics
International B.V. and Philips Electron Optics, Inc.
Item 4. Submission of Matters to a Vote of Security Holders
On May 15, 1997 at the Company's Annual Meeting of shareholders, the
holders of the Company's outstanding Common Stock took the actions described
below. As of the record date for the Annual Meeting, 17,689,549 shares of Common
Stock were issued and outstanding.
1. The shareholders elected each of Alfred B. Bok, William E. Curran,
William G. Langley, Theo J.H.J. Sonnemans, Lynwood W. Swanson, Lloyd R. Swenson,
Karel D. van der Mast, Donald R. VanLuvanee and William A. Whitward by the votes
indicated below, to serve on the Company's Board of Directors for the ensuing
year:
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Alfred B. Bok
17,028,338 shares in favor
12,720 shares against or withheld
0 abstentions
0 broker nonvotes
William E. Curran
17,028,338 shares in favor
12,720 shares against or withheld
0 abstentions
0 broker nonvotes
William G. Langley
17,031,338 shares in favor
9,720 shares against or withheld
0 abstentions
0 broker nonvotes
Theo J.H.J.Sonnemans
17,028,338 shares in favor
12,720 shares against or withheld
0 abstentions
0 broker nonvotes
Dr. Lynwood W. Swanson
17,031,338 shares in favor
9,720 shares against or withheld
0 abstentions
0 broker nonvotes
Lloyd R. Swenson
17,031,838 shares in favor
9,220 shares against or withheld
0 abstentions
0 broker nonvotes
Karel D. van der Mast
17,031,838 shares in favor
9,220 shares against or withheld
0 abstentions
0 broker nonvotes
Donald R. VanLuvanee
17,031,738 shares in favor
9,320 shares against or withheld
0 abstentions
0 broker nonvotes
William A. Whitward
17,027,838 shares in favor
13,220 shares against or withheld
0 abstentions
0 broker nonvotes
14
<PAGE>
2. The shareholders voted to amend the Company's 1995 Stock Incentive Plan
to increase the total number of shares of Common Stock of the Company reserved
for issuance under the Plan from 800,000 to 1,300,000, and to make certain other
amendments to the Plan, by the votes indicated below:
16,869,926 shares in favor
120,357 shares against or withheld
24,425 abstentions
26,350 broker nonvotes
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1(1) Combination Agreement, dated as of November 15, 1996,
between FEI Company and Philips Industrial Electronics
International B.V.
2.2(2) Letter Agreement, dated November 22, 1996, between FEI
Company and Philips Industrial Electronics International
B.V.
2.3(3) Letter Agreement, dated February 21, 1997, between FEI
Company and Philips Industrial Electronics International
B.V.
2.4(4) List of omitted schedules to Combination Agreement
3.1(5) Second Amended and Restated Articles of Incorporation, as amended
3.2(6) Amended Bylaws
- --------
(1) Incorporated by reference to Exhibit 2.1 to Company's Current Report on
Form 8-K dated November 22, 1996.
(2) Incorporated by reference to Exhibit 2.2 to Company's Current Report on
Form 8-K dated November 22, 1996.
(3) Incorporated by reference to Exhibit 2.3 to Company's Current Report on
Form 8-K dated March 5, 1997.
(4) Incorporated by reference to Exhibit 2.3 to Company's Current Report on
Form 8-K dated November 22, 1996.
(5) Incorporated by reference to Exhibit 3.1 to Company's Annual Report on
Form 10-K dated March 28, 1997.
(6) Incorporated by reference to Exhibit 3.2 to Company's Annual Report on
Form 10-K dated March 28, 1997.
15
<PAGE>
10.1a 1995 Stock Incentive Plan, as amended
10.16(7)Amendment, dated January 9, 1997, to Loan Agreement between the
Company and Key Bank of Oregon
11.0 Statement regarding computation of per share earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed by the Company on March 5, 1997
reporting Items 1, 2 and 5. Financial statements and pro forma
financial information pursuant to Item 7 were filed on May 7, 1997.
- --------
(7) Incorporated by reference to Exhibit 10.16 to Company's Annual Report
on Form 10-K dated March 28, 1997.
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FEI COMPANY
WILLIAM G. LANGLEY
Dated: August 12, 1997 ---------------------------------------
William G. Langley
Chief Financial Officer
and Authorized Officer
17
<PAGE>
Exhibit Index
Exhibit
No. Description
- ------- -----------
2.1(8) Combination Agreement, dated as of November 15, 1996, between FEI
Company and Philips Industrial Electronics International B.V.
2.2(9) Letter Agreement, dated November 22, 1996, between FEI Company and
Philips Industrial Electronics International B.V.
2.3(10) Letter Agreement, dated February 21, 1997, between FEI Company and
Philips Industrial Electronics International B.V.
2.4(11) List of omitted schedules to Combination Agreement
3.1(12) Second Amended and Restated Articles of Incorporation, as amended
3.2(13) Amended Bylaws
10.1a 1995 Stock Incentive Plan, as amended
10.16(14) Amendment, dated January 9, 1997, to Loan Agreement between the
Company and Key Bank of Oregon
- --------
(8) Incorporated by reference to Exhibit 2.1 to Company's Current Report on
Form 8-K dated November 22, 1996.
(9) Incorporated by reference to Exhibit 2.2 to Company's Current Report on
Form 8-K dated November 22, 1996.
(10) Incorporated by reference to Exhibit 2.3 to Company's Current Report
on Form 8-K dated March 5, 1997.
(11) Incorporated by reference to Exhibit 2.3 to Company's Current Report
on Form 8-K dated November 22, 1996.
(12) Incorporated by reference to Exhibit 3.1 to Company's Annual Report on
Form 10-K dated March 28, 1997.
(13) Incorporated by reference to Exhibit 3.2 to Company's Annual Report on
Form 10-K dated March 28, 1997.
(14) Incorporated by reference to Exhibit 10.16 to Company's Annual Report
on Form 10-K dated March 28, 1997.
<PAGE>
11.0 Statement regarding computation of per share earnings
27.1 Financial Data Schedule
FEI COMPANY
1995 STOCK INCENTIVE PLAN
As amended May 15, 1997
1. Purpose. The purpose of this Stock Incentive Plan (the "Plan") is to
enable FEI Company (the "Company") to attract and retain the services of (1)
selected employees, officers and directors of the Company or of any subsidiary
of the Company and (2) selected nonemployee agents, consultants, advisors,
persons involved in the sale or distribution of the Company's products and
independent contractors of the Company or any subsidiary.
2. Shares Subject to the Plan. Subject to adjustment as provided below and
in paragraph 13, the shares to be offered under the Plan shall consist of Common
Stock of the Company, and the total number of shares of Common Stock that may be
issued under the Plan shall not exceed 800,000 shares. The shares issued under
the Plan may be authorized and unissued shares or reacquired shares. If an
option, stock appreciation right or performance unit granted under the Plan
expires, terminates or is canceled, the unissued shares subject to such option,
stock appreciation right or performance unit shall again be available under the
Plan. If shares sold or awarded as a bonus under the Plan are forfeited to the
Company or repurchased by the Company, the number of shares forfeited or
repurchased shall again be available under the Plan.
3. Effective Date and Duration of Plan.
(a) Effective Date. The Plan shall become effective as of April 21,
1995. No option, stock appreciation right or performance unit granted under the
Plan shall become exercisable, however, until the Plan is approved by the
affirmative vote of the holders of a majority of the shares of Common Stock
represented at a shareholders meeting at which a quorum is present and any such
awards under the Plan prior to such approval shall be conditioned on and subject
to such approval. Subject to this limitation, options, stock appreciation rights
and performance units may be granted and shares may be awarded as bonuses or
sold under the Plan at any time after the effective date and before termination
of the Plan.
(b) Duration. The Plan shall continue in effect until all shares
available for issuance under the Plan have been issued and all restrictions on
such shares have lapsed. The Board of Directors may suspend or terminate the
Plan at any time except with respect to options, performance units and shares
subject to restrictions then outstanding under the Plan. Termination shall not
affect any outstanding options, any right of the Company to repurchase shares or
the forfeitability of shares issued under the Plan.
<PAGE>
4. Administration.
(a) Board of Directors. The Plan shall be administered by the Board of
Directors of the Company, which shall determine and designate from time to time
the individuals to whom awards shall be made, the amount of the awards and the
other terms and conditions of the awards. Subject to the provisions of the Plan,
the Board of Directors may from time to time adopt and amend rules and
regulations relating to administration of the Plan, advance the lapse of any
waiting period, accelerate any exercise date, waive or modify any restriction
applicable to shares (except those restrictions imposed by law) and make all
other determinations in the judgment of the Board of Directors necessary or
desirable for the administration of the Plan. The interpretation and
construction of the provisions of the Plan and related agreements by the Board
of Directors shall be final and conclusive. The Board of Directors may correct
any defect or supply any omission or reconcile any inconsistency in the Plan or
in any related agreement in the manner and to the extent it shall deem expedient
to carry the Plan into effect, and it shall be the sole and final judge of such
expediency.
(b) Committee. The Board of Directors may delegate to a committee of
the Board of Directors or specified officers of the Company, or both (the
"Committee") any or all authority for administration of the Plan. If authority
is delegated to a Committee, all references to the Board of Directors in the
Plan shall mean and relate to the Committee except (i) as otherwise provided by
the Board of Directors, (ii) that only the Board of Directors may amend or
terminate the Plan as provided in paragraphs 3 and 15 and (iii) that a Committee
including officers of the Company shall not be permitted to grant options to
persons who are officers of the Company.
5. Types of Awards; Eligibility. The Board of Directors may, from time to
time, take the following action, separately or in combination, under the Plan:
(i) grant Incentive Stock Options, as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), as provided in paragraphs 6(a)
and 6(b); (ii) grant options other than Incentive Stock Options ("Non-Statutory
Stock Options") as provided in paragraphs 6(a) and 6(c); (iii) award stock
bonuses as provided in paragraph 7; (iv) sell shares subject to restrictions as
provided in paragraph 8; (v) grant stock appreciation rights as provided in
paragraph 9; (vi) grant cash bonus rights as provided in paragraph 10; (vii)
grant performance units as provided in paragraph 11 and (viii) grant foreign
qualified awards as provided in paragraph 12. Any such awards may be made to
employees, including employees who are officers or directors, and to other
individuals described in paragraph 1 who the Board of Directors believes have
made or will make an important contribution to the Company or any subsidiary of
the Company; provided, however, that only employees of the Company shall be
eligible to receive Incentive Stock Options under the Plan. The Board of
Directors shall select the individuals to whom awards shall be made and shall
specify the action taken with respect to each individual to whom an award is
made. At the discretion of the Board of Directors, an individual may be given an
election to surrender an award in
2
<PAGE>
exchange for the grant of a new award. No employee may be granted options or
stock appreciation rights under the Plan for more than an aggregate of 200,000
shares of Common Stock in connection with the hiring of the employee or 50,000
shares of Common Stock in any calendar year otherwise.
6. Option Grants.
(a) General Rules Relating to Options.
(i) Terms of Grant. The Board of Directors may grant options
under the Plan. With respect to each option grant, the Board of Directors
shall determine the number of shares subject to the option, the option
price, the period of the option, the time or times at which the option may
be exercised and whether the option is an Incentive Stock Option or a
Non-Statutory Stock Option. At the time of the grant of an option or at any
time thereafter, the Board of Directors may provide that an optionee who
exercised an option with Common Stock of the Company shall automatically
receive a new option to purchase additional shares equal to the number of
shares surrendered and may specify the terms and conditions of such new
options.
(ii) Exercise of Options. Except as provided in paragraph
6(a)(iv) or as determined by the Board of Directors, no option granted
under the Plan may be exercised unless at the time of such exercise the
optionee is employed by or in the service of the Company or any subsidiary
of the Company and shall have been so employed or provided such service
continuously since the date such option was granted. Absence on leave or on
account of illness or disability under rules established by the Board of
Directors shall not, however, be deemed an interruption of employment or
service for this purpose. Unless otherwise determined by the Board of
Directors, vesting of options shall not continue during an absence on leave
(including an extended illness) or on account of disability. Except as
provided in paragraphs 6(a)(iv) and 13, options granted under the Plan may
be exercised from time to time over the period stated in each option in
such amounts and at such times as shall be prescribed by the Board of
Directors, provided that options shall not be exercised for fractional
shares. Unless otherwise determined by the Board of Directors, if the
optionee does not exercise an option in any one year with respect to the
full number of shares to which the optionee is entitled in that year, the
optionee's rights shall be cumulative and the optionee may purchase those
shares in any subsequent year during the term of the option.
(iii) Nontransferability. Each Incentive Stock Option and, unless
otherwise determined by the Board of Directors, each other option granted
under the Plan by its terms shall be nonassignable and nontransferable by
the optionee, either voluntarily or by operation of law, except by will or
by the laws of descent and distribution of the state or country of the
optionee's domicile at the time of death.
3
<PAGE>
(iv) Termination of Employment or Service.
(A) General Rule. Unless otherwise determined by the Board
of Directors, in the event the employment or service of the optionee
with the Company or a subsidiary terminates for any reason other than
because of physical disability or death as provided in subparagraphs
6(a)(iv)(B) and (C), the option may be exercised at any time prior to
the expiration date of the option or the expiration of 30 days after
the date of such termination, whichever is the shorter period, but
only if and to the extent the optionee was entitled to exercise the
option at the date of such termination.
(B) Termination Because of Total Disability. Unless
otherwise determined by the Board of Directors, in the event of the
termination of employment or service because of total disability, the
option may be exercised at any time prior to the expiration date of
the option or the expiration of 12 months after the date of such
termination, whichever is the shorter period, but only if and to the
extent the optionee was entitled to exercise the option at the date of
such termination. The term "total disability" means a medically
determinable mental or physical impairment which is expected to result
in death or which has lasted or is expected to last for a continuous
period of 12 months or more and which causes the optionee to be
unable, in the opinion of the Company and two independent physicians,
to perform his or her duties as an employee, director, officer or
consultant of the Company and to be engaged in any substantial gainful
activity. Total disability shall be deemed to have occurred on the
first day after the Company and the two independent physicians have
furnished their opinion of total disability to the Company.
(C) Termination Because of Death. Unless otherwise
determined by the Board of Directors, in the event of the death of an
optionee while employed by or providing service to the Company or a
subsidiary, the option may be exercised at any time prior to the
expiration date of the option or the expiration of 12 months after the
date of death, whichever is the shorter period, but only if and to the
extent the optionee was entitled to exercise the option at the date of
death and only by the person or persons to whom such optionee's rights
under the option shall pass by the optionee's will or by the laws of
descent and distribution of the state or country of domicile at the
time of death.
(D) Amendment of Exercise Period Applicable to Termination.
The Board of Directors, at the time of grant or, with respect to an
option that is not an Incentive Stock Option, at any time thereafter,
may extend the 30-day and 12-month exercise periods any length of time
not
4
<PAGE>
longer than the original expiration date of the option, and may
increase the portion of an option that is exercisable, subject to such
terms and conditions as the Board of Directors may determine.
(E) Failure to Exercise Option. To the extent that the
option of any deceased optionee or of any optionee whose employment or
service terminates is not exercised within the applicable period, all
further rights to purchase shares pursuant to such option shall cease
and terminate.
(v) Purchase of Shares. Unless the Board of Directors determines
otherwise, shares may be acquired pursuant to an option granted under the
Plan only upon receipt by the Company of notice in writing from the
optionee of the optionee's intention to exercise, specifying the number of
shares as to which the optionee desires to exercise the option and the date
on which the optionee desires to complete the transaction, and if required
in order to comply with the Securities Act of 1933, as amended, containing
a representation that it is the optionee's present intention to acquire the
shares for investment and not with a view to distribution. Unless the Board
of Directors determines otherwise, on or before the date specified for
completion of the purchase of shares pursuant to an option, the optionee
must have paid the Company the full purchase price of such shares in cash
(including, with the consent of the Board of Directors, cash that may be
the proceeds of a loan from the Company (provided that, with respect to an
Incentive Stock Option, such loan is approved at the time of option grant))
or, with the consent of the Board of Directors, in whole or in part, in
Common Stock of the Company valued at fair market value, restricted stock,
performance units or other contingent awards denominated in either stock or
cash, promissory notes and other forms of consideration. The fair market
value of Common Stock provided in payment of the purchase price shall be
determined by the Board of Directors. If the Common Stock of the Company is
not publicly traded on the date the option is exercised, the Board of
Directors may consider any valuation methods it deems appropriate and may,
but is not required to, obtain one or more independent appraisals of the
Company. If the Common Stock of the Company is publicly traded on the date
the option is exercised, the fair market value of Common Stock provided in
payment of the purchase price shall be the closing price of the Common
Stock as reported in The Wall Street Journal on the last trading day
preceding the date the option is exercised, or such other reported value of
the Common Stock as shall be specified by the Board of Directors. No shares
shall be issued until full payment for the shares has been made. With the
consent of the Board of Directors (which, in the case of an Incentive Stock
Option, shall be given only at the time of option grant), an optionee may
request the Company to apply automatically the shares to be received upon
the exercise of a portion of a stock option (even though stock certificates
have not yet been issued) to satisfy the purchase price for additional
portions of the option. Each optionee who has exercised an option shall
immediately upon notification of the amount due, if any, pay to the Company
in cash amounts necessary to satisfy any applicable federal,
5
<PAGE>
state and local tax withholding requirements. If additional withholding is
or becomes required beyond any amount deposited before delivery of the
certificates, the optionee shall pay such amount to the Company on demand.
If the optionee fails to pay the amount demanded, the Company may withhold
that amount from other amounts payable by the Company to the optionee,
including salary, subject to applicable law. With the consent of the Board
of Directors an optionee may satisfy this obligation, in whole or in part,
by having the Company withhold from the shares to be issued upon the
exercise that number of shares that would satisfy the withholding amount
due or by delivering to the Company Common Stock to satisfy the withholding
amount. Upon the exercise of an option, the number of shares reserved for
issuance under the Plan shall be reduced by the number of shares issued
upon exercise of the option.
(b) Incentive Stock Options. Incentive Stock Options shall be subject
to the following additional terms and conditions:
(i) Limitation on Amount of Grants. No employee may be granted
Incentive Stock Options under the Plan if the aggregate fair market value,
on the date of grant, of the Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by that employee during
any calendar year under the Plan and under all incentive stock option plans
(within the meaning of Section 422 of the Code) of the Company or any
parent or subsidiary of the Company exceeds $100,000.
(ii) Limitations on Grants to 10 Percent Shareholders. An
Incentive Stock Option may be granted under the Plan to an employee
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or of any parent or subsidiary of the
Company only if the option price is at least 110 percent of the fair market
value, as described in paragraph 6(b)(iv), of the Common Stock subject to
the option on the date it is granted and the option by its terms is not
exercisable after the expiration of five years from the date it is granted.
(iii) Duration of Options. Subject to paragraphs 6(a)(ii) and
6(b)(ii), Incentive Stock Options granted under the Plan shall continue in
effect for the period fixed by the Board of Directors, except that no
Incentive Stock Option shall be exercisable after the expiration of 10
years from the date it is granted.
(iv) Option Price. The option price per share shall be determined
by the Board of Directors at the time of grant. Except as provided in
paragraph 6(b)(ii), the option price shall not be less than 100 percent of
the fair market value of the Common Stock covered by the Incentive Stock
Option at the date the option is granted. The fair market value shall be
determined by the Board of Directors. If the Common Stock of the Company is
not publicly traded on the date the option is granted, the Board of
Directors may consider any valuation methods it
6
<PAGE>
deems appropriate and may, but is not required to, obtain one or more
independent appraisals of the Company. If the Common Stock of the Company
is publicly traded on the date the option is exercised, the fair market
value shall be deemed to be the closing price of the Common Stock as
reported in The Wall Street Journal on the day preceding the date the
option is granted, or, if there has been no sale on that date, on the last
preceding date on which a sale occurred or such other value of the Common
Stock as shall be specified by the Board of Directors.
(v) Limitation on Time of Grant. No Incentive Stock Option shall
be granted on or after the tenth anniversary of the effective date of the
Plan.
(vi) Conversion of Incentive Stock Options. The Board of
Directors may at any time without the consent of the optionee convert an
Incentive Stock Option to a Non-Statutory Stock Option.
(c) Non-Statutory Stock Options. Non-Statutory Stock Options shall be
subject to the following terms and conditions in addition to those set forth in
Section 6(a) above:
(i) Option Price. The option price for Non-Statutory Stock
Options shall be determined by the Board of Directors at the time of grant
and may be any amount determined by the Board of Directors.
(ii) Duration of Options. Non-Statutory Stock Options granted
under the Plan shall continue in effect for the period fixed by the Board
of Directors.
7. Stock Bonuses. The Board of Directors may award shares under the Plan as
stock bonuses. Shares awarded as a bonus shall be subject to the terms,
conditions, and restrictions determined by the Board of Directors. The
restrictions may include restrictions concerning transferability and forfeiture
of the shares awarded, together with such other restrictions as may be
determined by the Board of Directors. If shares are subject to forfeiture, all
dividends or other distributions paid by the Company with respect to the shares
shall be retained by the Company until the shares are no longer subject to
forfeiture, at which time all accumulated amounts shall be paid to the
recipient. The Board of Directors may require the recipient to sign an agreement
as a condition of the award, but may not require the recipient to pay any
monetary consideration other than amounts necessary to satisfy tax withholding
requirements. The agreement may contain any terms, conditions, restrictions,
representations and warranties required by the Board of Directors. The
certificates representing the shares awarded shall bear any legends required by
the Board of Directors. The Company may require any recipient of a stock bonus
to pay to the Company in cash upon demand amounts necessary to satisfy any
applicable federal, state or local tax withholding requirements. If the
recipient fails to pay the amount demanded, the Company may withhold that amount
from other amounts payable by the Company to the recipient, including salary or
fees for services, subject to applicable law. With the consent
7
<PAGE>
of the Board of Directors, a recipient may deliver Common Stock to the Company
to satisfy this withholding obligation. Upon the issuance of a stock bonus, the
number of shares reserved for issuance under the Plan shall be reduced by the
number of shares issued.
8. Restricted Stock. The Board of Directors may issue shares under the Plan
for such consideration (including promissory notes and services) as determined
by the Board of Directors. Shares issued under the Plan shall be subject to the
terms, conditions and restrictions determined by the Board of Directors. The
restrictions may include restrictions concerning transferability, repurchase by
the Company and forfeiture of the shares issued, together with such other
restrictions as may be determined by the Board of Directors. If shares are
subject to forfeiture or repurchase by the Company, all dividends or other
distributions paid by the Company with respect to the shares shall be retained
by the Company until the shares are no longer subject to forfeiture or
repurchase, at which time all accumulated amounts shall be paid to the
recipient. All Common Stock issued pursuant to this paragraph 8 shall be subject
to a purchase agreement, which shall be executed by the Company and the
prospective recipient of the shares prior to the delivery of certificates
representing such shares to the recipient. The purchase agreement may contain
any terms, conditions, restrictions, representations and warranties required by
the Board of Directors. The certificates representing the shares shall bear any
legends required by the Board of Directors. The Company may require any
purchaser of restricted stock to pay to the Company in cash upon demand amounts
necessary to satisfy any applicable federal, state or local tax withholding
requirements. If the purchaser fails to pay the amount demanded, the Company may
withhold that amount from other amounts payable by the Company to the purchaser,
including salary, subject to applicable law. With the consent of the Board of
Directors, a purchaser may deliver Common Stock to the Company to satisfy this
withholding obligation. Upon the issuance of restricted stock, the number of
shares reserved for issuance under the Plan shall be reduced by the number of
shares issued.
9. Stock Appreciation Rights.
(a) Grant. Stock appreciation rights may be granted under the Plan by
the Board of Directors, subject to such rules, terms, and conditions as the
Board of Directors prescribes.
(b) Exercise.
(i) Each stock appreciation right shall entitle the holder, upon
exercise, to receive from the Company in exchange therefor an amount equal
in value to the excess of the fair market value on the date of exercise of
one share of Common Stock of the Company over its fair market value on the
date of grant (or, in the case of a stock appreciation right granted in
connection with an option, the excess of the fair market value of one share
of Common Stock of the Company over the option price per share under the
option to which the stock appreciation right relates), multiplied by the
number of shares covered by the stock appreciation right
8
<PAGE>
or the option, or portion thereof, that is surrendered. No stock
appreciation right shall be exercisable at a time that the amount
determined under this subparagraph is negative. Payment by the Company upon
exercise of a stock appreciation right may be made in Common Stock valued
at fair market value, in cash, or partly in Common Stock and partly in
cash, all as determined by the Board of Directors.
(ii) A stock appreciation right shall be exercisable only at the
time or times established by the Board of Directors. If a stock
appreciation right is granted in connection with an option, the following
rules shall apply: (1) the stock appreciation right shall be exercisable
only to the extent and on the same conditions that the related option could
be exercised; (2) the stock appreciation rights shall be exercisable only
when the fair market value of the stock exceeds the option price of the
related option; (3) the stock appreciation right shall be for no more than
100 percent of the excess of the fair market value of the stock at the time
of exercise over the option price; (4) upon exercise of the stock
appreciation right, the option or portion thereof to which the stock
appreciation right relates terminates; and (5) upon exercise of the option,
the related stock appreciation right or portion thereof terminates.
(iii) The Board of Directors may withdraw any stock appreciation
right granted under the Plan at any time and may impose any conditions upon
the exercise of a stock appreciation right or adopt rules and regulations
from time to time affecting the rights of holders of stock appreciation
rights. Such rules and regulations may govern the right to exercise stock
appreciation rights granted prior to adoption or amendment of such rules
and regulations as well as stock appreciation rights granted thereafter.
(iv) For purposes of this paragraph 9, the fair market value of
the Common Stock shall be determined as of the date the stock appreciation
right is exercised, under the methods set forth in paragraph 6(b)(iv).
(v) No fractional shares shall be issued upon exercise of a stock
appreciation right. In lieu thereof, cash may be paid in an amount equal to
the value of the fraction or, if the Board of Directors shall determine,
the number of shares may be rounded downward to the next whole share.
(vi) Each stock appreciation right granted in connection with an
Incentive Stock Option, and unless otherwise determined by the Board of
Directors, each other stock appreciation right granted under the Plan by
its terms shall be nonassignable and nontransferable by the holder, either
voluntarily or by operation of law, except by will or by the laws of
descent and distribution of the state or country of the holder's domicile
at the time of death, and each stock appreciation right by its terms shall
be exercisable during the holder's lifetime only by the holder.
9
<PAGE>
(vii) Each participant who has exercised a stock appreciation
right shall, upon notification of the amount due, pay to the Company in
cash amounts necessary to satisfy any applicable federal, state and local
tax withholding requirements. If the participant fails to pay the amount
demanded, the Company may withhold that amount from other amounts payable
by the Company to the participant including salary, subject to applicable
law. With the consent of the Board of Directors a participant may satisfy
this obligation, in whole or in part, by having the Company withhold from
any shares to be issued upon the exercise that number of shares that would
satisfy the withholding amount due or by delivering Common Stock to the
Company to satisfy the withholding amount.
(viii) Upon the exercise of a stock appreciation right for
shares, the number of shares reserved for issuance under the Plan shall be
reduced by the number of shares issued. Cash payments of stock appreciation
rights shall not reduce the number of shares of Common Stock reserved for
issuance under the Plan.
10. Cash Bonus Rights.
(a) Grant. The Board of Directors may grant cash bonus rights under
the Plan in connection with (i) options granted or previously granted, (ii)
stock appreciation rights granted or previously granted, (iii) stock bonuses
awarded or previously awarded and (iv) shares sold or previously sold under the
Plan. Cash bonus rights will be subject to rules, terms and conditions as the
Board of Directors may prescribe. Unless otherwise determined by the Board of
Directors, each cash bonus right granted under the Plan by its terms shall be
nonassignable and nontransferable by the holder, either voluntarily or by
operation of law, except by will or by the laws of descent and distribution of
the state or country of the holder's domicile at the time of death. The payment
of a cash bonus shall not reduce the number of shares of Common Stock reserved
for issuance under the Plan.
(b) Cash Bonus Rights in Connection With Options. A cash bonus right
granted in connection with an option will entitle an optionee to a cash bonus
when the related option is exercised (or terminates in connection with the
exercise of a stock appreciation right related to the option) in whole or in
part if, in the sole discretion of the Board of Directors, the bonus right will
result in a tax deduction that the Company has sufficient taxable income to use.
If an optionee purchases shares upon exercise of an option and does not exercise
a related stock appreciation right, the amount of the bonus, if any, shall be
determined by multiplying the excess of the total fair market value of the
shares to be acquired upon the exercise over the total option price for the
shares by the applicable bonus percentage. If the optionee exercises a related
stock appreciation right in connection with the termination of an option, the
amount of the bonus, if any, shall be determined by multiplying the total fair
market value of the shares and cash received pursuant to the exercise of the
stock appreciation right by the applicable bonus percentage. The bonus
percentage applicable to a bonus right, including a previously granted bonus
right, may be
10
<PAGE>
changed from time to time at the sole discretion of the Board of Directors but
shall in no event exceed 75 percent.
(c) Cash Bonus Rights in Connection With Stock Bonus. A cash bonus
right granted in connection with a stock bonus will entitle the recipient to a
cash bonus payable when the stock bonus is awarded or restrictions, if any, to
which the stock is subject lapse. If bonus stock awarded is subject to
restrictions and is repurchased by the Company or forfeited by the holder, the
cash bonus right granted in connection with the stock bonus shall terminate and
may not be exercised. The amount and timing of payment of a cash bonus shall be
determined by the Board of Directors.
(d) Cash Bonus Rights in Connection With Stock Purchases. A cash bonus
right granted in connection with the purchase of stock pursuant to paragraph 8
will entitle the recipient to a cash bonus when the shares are purchased or
restrictions, if any, to which the stock is subject lapse. Any cash bonus right
granted in connection with shares purchased pursuant to paragraph 8 shall
terminate and may not be exercised in the event the shares are repurchased by
the Company or forfeited by the holder pursuant to applicable restrictions. The
amount of any cash bonus to be awarded and timing of payment of a cash bonus
shall be determined by the Board of Directors.
(e) Taxes. The Company shall withhold from any cash bonus paid
pursuant to paragraph 10 the amount necessary to satisfy any applicable federal,
state and local withholding requirements.
11. Performance Units. The Board of Directors may grant performance units
consisting of monetary units which may be earned in whole or in part if the
Company achieves certain goals established by the Board of Directors over a
designated period of time, but not in any event more than 10 years. The goals
established by the Board of Directors may include earnings per share, return on
shareholders' equity, return on invested capital, and such other goals as may be
established by the Board of Directors. In the event that the minimum performance
goal established by the Board of Directors is not achieved at the conclusion of
a period, no payment shall be made to the participants. In the event the maximum
corporate goal is achieved, 100 percent of the monetary value of the performance
units shall be paid to or vested in the participants. Partial achievement of the
maximum goal may result in a payment or vesting corresponding to the degree of
achievement as determined by the Board of Directors. Payment of an award earned
may be in cash or in Common Stock or in a combination of both, and may be made
when earned, or vested and deferred, as the Board of Directors determines.
Deferred awards shall earn interest on the terms and at a rate determined by the
Board of Directors. Unless otherwise determined by the Board of Directors, each
performance unit granted under the Plan by its terms shall be nonassignable and
nontransferable by the holder, either voluntarily or by operation of law, except
by will or by the laws of descent and distribution of the state or country of
the holder's domicile at the time of death. Each participant who has been
awarded a performance unit shall, upon notification of the amount due, pay to
the Company in cash
11
<PAGE>
amounts necessary to satisfy any applicable federal, state and local tax
withholding requirements. If the participant fails to pay the amount demanded,
the Company may withhold that amount from other amounts payable by the Company
to the participant, including salary or fees for services, subject to applicable
law. With the consent of the Board of Directors a participant may satisfy this
obligation, in whole or in part, by having the Company withhold from any shares
to be issued that number of shares that would satisfy the withholding amount due
or by delivering Common Stock to the Company to satisfy the withholding amount.
The payment of a performance unit in cash shall not reduce the number of shares
of Common Stock reserved for issuance under the Plan. The number of shares
reserved for issuance under the Plan shall be reduced by the number of shares
issued upon payment of an award.
12. Foreign Qualified Grants. Awards under the Plan may be granted to such
officers and employees of the Company and its subsidiaries and such other
persons described in paragraph 1 residing in foreign jurisdictions as the Board
of Directors may determine from time to time. The Board of Directors may adopt
such supplements to the Plan as may be necessary to comply with the applicable
laws of such foreign jurisdictions and to afford participants favorable
treatment under such laws; provided, however, that no award shall be granted
under any such supplement with terms which are more beneficial to the
participants than the terms permitted by the Plan.
13. Changes in Capital Structure.
(a) Stock Splits; Stock Dividends. If the outstanding Common Stock of
the Company is hereafter increased or decreased or changed into or exchanged for
a different number or kind of shares or other securities of the Company by
reason of any stock split, combination of shares or dividend payable in shares,
recapitalization or reclassification appropriate adjustment shall be made by the
Board of Directors in the number and kind of shares available for grants under
the Plan. In addition, the Board of Directors shall make appropriate adjustment
in the number and kind of shares as to which outstanding options, or portions
thereof then unexercised, shall be exercisable, so that the optionee's
proportionate interest before and after the occurrence of the event is
maintained. Notwithstanding the foregoing, the Board of Directors shall have no
obligation to effect any adjustment that would or might result in the issuance
of fractional shares, and any fractional shares resulting from any adjustment
may be disregarded or provided for in any manner determined by the Board of
Directors. Any such adjustments made by the Board of Directors shall be
conclusive.
(b) Mergers, Reorganizations, Etc. In the event of a merger,
consolidation, plan of exchange, acquisition of property or stock, separation,
reorganization or liquidation to which the Company or a subsidiary is a party or
a sale of all or substantially all of the Company's assets (each, a
"Transaction"), the Board of Directors shall, in its sole discretion and to the
extent possible under the structure of the Transaction, select one of the
following alternatives for treating outstanding options under the Plan:
12
<PAGE>
(i) Outstanding options shall remain in effect in accordance with
their terms.
(ii) Outstanding options shall be converted into options to
purchase stock in the corporation that is the surviving or acquiring
corporation in the Transaction. The amount, type of securities subject
thereto and exercise price of the converted options shall be determined by
the Board of Directors of the Company, taking into account the relative
values of the companies involved in the Transaction and the exchange rate,
if any, used in determining shares of the surviving corporation to be
issued to holders of shares of the Company. Unless otherwise determined by
the Board of Directors, the converted options shall be vested only to the
extent that the vesting requirements relating to options granted hereunder
have been satisfied.
(iii) The Board of Directors shall provide a 30-day period prior
to the consummation of the Transaction during which outstanding options may
be exercised to the extent then exercisable, and upon the expiration of
such 30-day period, all unexercised options shall immediately terminate.
The Board of Directors may, in its sole discretion, accelerate the
exercisability of options so that they are exercisable in full during such
30-day period.
(c) Dissolution of the Company. In the event of the dissolution of the
Company, options shall be treated in accordance with paragraph 13(b)(iii).
(d) Rights Issued by Another Corporation. The Board of Directors may
also grant options, stock appreciation rights, performance units, stock bonuses
and cash bonuses and issue restricted stock under the Plan having terms,
conditions and provisions that vary from those specified in this Plan provided
that any such awards are granted in substitution for, or in connection with the
assumption of, existing options, stock appreciation rights, stock bonuses, cash
bonuses, restricted stock and performance units granted, awarded or issued by
another corporation and assumed or otherwise agreed to be provided for by the
Company pursuant to or by reason of a Transaction.
14. Amendment of Plan. The Board of Directors may at any time, and from
time to time, modify or amend the Plan in such respects as it shall deem
advisable because of changes in the law while the Plan is in effect or for any
other reason. Except as provided in paragraphs 6(a)(iv), 9, 10 and 13, however,
no change in an award already granted shall be made without the written consent
of the holder of such award.
15. Approvals. The obligations of the Company under the Plan are subject to
the approval of state and federal authorities or agencies with jurisdiction in
the matter. The Company will use its best efforts to take steps required by
state or federal law or applicable regulations, including rules and regulations
of the Securities and Exchange Commission and any stock exchange on which the
Company's shares may then be listed, in connection with
13
<PAGE>
the grants under the Plan. The foregoing notwithstanding, the Company shall not
be obligated to issue or deliver Common Stock under the Plan if such issuance or
delivery would violate applicable state or federal securities laws.
16. Employment and Service Rights. Nothing in the Plan or any award
pursuant to the Plan shall (i) confer upon any employee any right to be
continued in the employment of the Company or any subsidiary or interfere in any
way with the right of the Company or any subsidiary by whom such employee is
employed to terminate such employee's employment at any time, for any reason,
with or without cause, or to decrease such employee's compensation or benefits,
or (ii) confer upon any person engaged by the Company any right to be retained
or employed by the Company or to the continuation, extension, renewal, or
modification of any compensation, contract, or arrangement with or by the
Company.
17. Rights as a Shareholder. The recipient of any award under the Plan
shall have no rights as a shareholder with respect to any Common Stock until the
date of issue to the recipient of a stock certificate for such shares. Except as
otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date occurs prior to the date
such stock certificate is issued.
18. Option Grants to Independent Directors.
(a) Initial Board Grants. Each person who is an Independent Director
when the Plan is adopted or who becomes an Independent Director thereafter shall
be automatically granted an option to purchase 5,000 shares of Common Stock on
the date the Plan is approved by the shareholders of the Company or when he or
she becomes an Independent Director. An "Independent Director" is a director who
is not an officer or employee of the Company or any of its subsidiaries and who
does not have a relationship which, in the opinion of the Board of Directors of
the Company, would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director.
(b) Additional Grants. Each Independent Director shall be
automatically granted an option to purchase additional shares of Common Stock in
each calendar year subsequent to the year in which such Independent Director was
granted an option pursuant to paragraph 18(a), such option to be granted as of
the date of the Company's annual meeting of shareholders held in such calendar
year, provided that the Independent Director continues to serve in such capacity
as of such date. The number of shares subject to each additional grant shall be
1,000 shares for each Independent Director.
(c) Exercise Price. The exercise price of options for 5,000 shares
granted pursuant to paragraph 18(a) as of the date the Plan is approved by the
Shareholders of the Company shall be equal to the price per share to the public
in the Company's initial public offering, unless otherwise determined by the
Board. The exercise price of all other
14
<PAGE>
options granted pursuant to this paragraph 19 shall be equal to 100 percent of
the fair market value of the Common Stock determined pursuant to paragraph
6(b)(iv).
(d) Term of Option. The term of each option granted pursuant to this
paragraph 18 shall be 10 years from the date of grant.
(e) Exercisability. Until an option expires or is terminated and
except as provided in paragraphs 18(f) and 13, an option granted under this
paragraph 19 shall be exercisable according to the following schedule: 2.78% for
each complete month of continuous service after the date of grant, rounded up to
the next full share, until fully vested.
For purposes of this paragraph 18(e), a complete month shall be deemed
to be the period which starts on the day of grant and ends on the same day of
the following calendar month, so that each successive "complete month" ends on
the same day of each successive calendar month (or, in respect of any calendar
month which does not include such a day, that "complete month" shall end on the
first day of the next following calendar month).
(f) Termination As a Director. If an optionee ceases to be a director
of the Company for any reason, including death, the option may be exercised at
any time prior to the expiration date of the option or the expiration of 30 days
(or 12 months in the event of death) after the last day the optionee served as a
director, whichever is the shorter period, but only if and to the extent the
optionee was entitled to exercise the option as of the last day the optionee
served as a director.
(g) Nontransferability. Each option by its terms shall be
nonassignable and nontransferable by the optionee, either voluntarily or by
operation of law, except by will or by the laws of descent and distribution of
the state or country of the optionee's domicile at the time of death, and each
option by its terms shall be exercisable during the optionee's lifetime only by
the optionee.
(h) Exercise of Options. Options may be exercised upon payment of cash
or shares of Common Stock of the Company in accordance with paragraph 6(a)(v).
Adopted: April 21, 1995
Amended: May 5, 1995
May 15, 1996
May 15, 1997
15
FEI COMPANY AND SUBSIDIARIES
WEIGHTED AVERAGE NUMBERS OF SHARES
The weighted average number of shares of common stock and common stock
equivalents was determined as follows:
Outstanding options for common stock and options have been included in the
calculation of common and common equivalent shares using the treasury stock
method based on an average market price of $8.28 per share for the thirteen
weeks and $9.82 per share for the twenty six weeks ended June 29, 1997. Pro
forma earnings per share have been calculated assuming the shares of the Company
issued to PIE in the Combination were outstanding for the PEO Operations and the
combined company for all periods presented and assuming the shares of the
Company outstanding prior to the Combination were issued as of the closing date
of the Combination.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty Six Weeks Ended
----------------------------------- --------------------------------
June 30, June 29, June 30, June 29,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common stock:
Shares outstanding, beginning of period 9,728,807 17,689,549 9,728,807 9,728,807
Shares issued on exercise of options(1) -- 6,668 -- 5,638,344
SEC SAB 83 shares(2) -- 17,148 -- 8,574
------------- -------------- ------------ ------------
9,728,807 17,713,365 9,728,807 15,375,725
------------- -------------- ------------ ------------
Common stock equivalents:
Options(3) -- 96,275 -- 50,768
------------- -------------- ------------ ------------
-- 96,275 -- 50,768
------------- -------------- ------------ ------------
Weighted average number of shares 9,728,807 17,809,640 9,728,807 15,426,493
============= ============== ============ ============
Net income (loss) $ 688 $ 2,235 $ 143 $ (42,000)
============= ============== ============ ============
Net income (loss) per share $ 0.07 $ 0.13 $ 0.01 $ (2.72)
============= ============== ============ ============
<FN>
- -------------------------------
(1) Under 1984 Stock Incentive Plan; weighted average shares from exercise
date of option.
(2) Employee options issued January 1, 1994.
-- 104,547 -- 56,095
Less shares reacquired under treasury stock
method
Net SAB No. 83 shares -- 87,399 -- 47,521
-- 17,148 -- 8,574
(3) Options granted on annual basis under plan, less shares reacquired under
treasury stock method.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-29-1997
<CASH> 17,156
<SECURITIES> 0
<RECEIVABLES> 46,839
<ALLOWANCES> (1,047)
<INVENTORY> 44,261
<CURRENT-ASSETS> 109,577
<PP&E> 24,605
<DEPRECIATION> (7,622)
<TOTAL-ASSETS> 173,833
<CURRENT-LIABILITIES> 65,366
<BONDS> 0
0
0
<COMMON> 147,164
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 173,833
<SALES> 76,025
<TOTAL-REVENUES> 76,025
<CGS> 50,866
<TOTAL-COSTS> 50,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 280
<INCOME-PRETAX> (41,810)
<INCOME-TAX> 190
<INCOME-CONTINUING> (42,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,000)
<EPS-PRIMARY> (2.72)
<EPS-DILUTED> (2.72)
</TABLE>
