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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
0-22780
Commission file number
FEI COMPANY
(Exact name of registrant as specified in its charter)
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OREGON 93-0621989
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7451 NW EVERGREEN PARKWAY 97124
HILLSBORO, OREGON (Zip Code)
(Address of principal executive offices)
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(503) 640-7500
Registrant's telephone number, including area code:
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock
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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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Aggregate market value of Common Stock held by nonaffiliates of the
Registrant at March 20, 1997: $60,015,777. For purposes of this calculation,
executive officers and directors are considered affiliates.
Number of shares of Common Stock outstanding at March 20, 1997: 17,689,104.
DOCUMENTS INCORPORATED BY REFERENCE
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PART OF FORM 10-K INTO
DOCUMENT WHICH INCORPORATED
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Proxy Statement for 1996 Annual Meeting of
Shareholders Part III
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TABLE OF CONTENTS
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ITEM OF FORM 10-K PAGE
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PART I
Item 1 Business................................................................................ 1
Item 2 Properties.............................................................................. 10
Item 3 Legal Proceedings....................................................................... 10
Item 4 Submission of Matters to a Vote of Security Holders..................................... 11
Item 4(a) Executive Officers of the Registrant.................................................... 11
PART II
Item 5 Market for the Registrant's Common Equity and Related Shareholder Matters............... 13
Item 6 Selected Financial Data................................................................. 14
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations... 15
Item 8 Financial Statements and Supplementary Data............................................. 20
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.... 20
PART III
Item 10 Directors and Executive Officers of the Registrant...................................... 20
Item 11 Executive Compensation.................................................................. 20
Item 12 Security Ownership of Certain Beneficial Owners and Management.......................... 20
Item 13 Certain Relationships and Related Transactions.......................................... 20
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................ 21
SIGNATURES................................................................................................. 23
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PART I
ITEM 1. BUSINESS
INTRODUCTION
FEI Company is a leader in the design, manufacture and sale of products
based on charged particle beam technology. On February 21, 1997 FEI Company
completed a combination transaction (the "Combination") with the electron optics
business of Philips Industrial Electronics International B.V. ("PIE"), a wholly
owned subsidiary of Philips Electronics N.V. ("Philips"). Pursuant to the
Combination, FEI Company acquired shares of two Philips' subsidiaries owning
substantially all of the assets and liabilities of Philips' electron optics
business, and issued to PIE a number of shares of FEI Common Stock equal, after
issuance, to 55 percent of the outstanding shares of Common Stock of FEI
Company.
For periods after February 21, 1997, references in this Annual Report to
"FEI" or "the Company" include the acquired Philips' electron optics business.
The Company's products include 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, through a combination of existing FEI subsidiaries and new electron
optics subsidiaries. In addition, electron optics products are sold through
distribution agreements with affiliates of Philips located in approximately 20
additional countries.
The Company's products are sold to manufacturers of integrated circuits
("ICs") and life science and materials science customers. The Company's FIB
workstations are sold primarily to IC 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 IC manufacturers.
From time to time the Company may issue forward-looking statements that are
subject to a number of risks and uncertainties. The statements in this report
concerning increased investment in the Company's service and support activities
for its electron microscope business, the portions of the Company's sales
consisting of international sales and sales of certain products, expected
product shipments and capital requirements constitute forward-looking statements
that are subject to risks and uncertainties. Factors that could affect the level
of the Company's investment in its service and support activities for its
electron microscope business include, but are not limited to, downturns in the
IC manufacturing market, higher or lower than expected customer orders for
electron microscopes for use in IC manufacturing, and changes in product sales
mix. Factors that could materially reduce the portion of the Company's sales
consisting of international sales include, but are not limited to, competitive
factors, including increased international competition, new product offerings by
competitiors and price pressures, exchange rate fluctuations and business
conditions and growth in the electronics industry and general economies, both
domestic and international. Factors that could materially reduce the portion of
the Company's sales consisting of FIB workstations and electron microscopes
include, but are not limited to, the competitive factors mentioned above and
changes in product sales mix. Factors that could adversely affect expected
product shipments include, but are not limited to, technological difficulties
and resource constraints in developing new products, the availability of parts
and supplies at reasonable prices and product shipment interruptions due to
manufacturing difficulties. Factors that could materially increase the Company's
capital requirements include, but are not limited to, receipt of a significant
portion of customer orders and product shipments near the end of a quarter,
delays in product shipment, delays in receipt of payment from customers, higher
research and development or inventory costs and the other factors listed above.
Additional factors that may cause actual results to vary materially from those
set forth in such forward-looking statements are described in Item 1--Business
under the captions "Sales and Marketing" and "Competition," in Item 3--
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Legal Proceedings and in Item 7--Management's Discussion and Analysis of
Financial Condition and Results of Operations under the caption "Quarterly
Results of Operations."
PRODUCTS
FIB WORKSTATIONS
The Company is a world leader in the design, manufacture and sale of FIB
workstations. The Company's line of FIB workstations includes the moderately
priced two-inch stage model 200, the eight-inch stage model 800 and the DualBeam
models 620 and 820, which place field emission ion and scanning electron beam
columns on a single vacuum chamber. Prior to the Combination, sales of FIB
workstations accounted for approximately 58%, 74% and 67% of the Company's net
sales in 1994, 1995 and 1996, respectively.
The Company's FIB workstations enable IC manufacturers and other users
quickly and efficiently to view, mill, cut, trim, analyze and modify structures
and samples within submicron tolerances. The unique combination of capabilities
of FIB workstations allows users to perform analysis and modification using one
system, with accuracy, precision and speed that previously were not possible.
The Company believes its FIB workstations significantly speed and improve the
functions of design edit, failure analysis and process monitoring performed by
IC manufacturers, thereby shortening time to market for new generations of ICs
and decreasing the downtime of fabrication lines. The Company also believes its
FIB workstations can be used in other micromachining applications.
The following table summarizes key features of the Company's line of FIB
workstations.
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MODEL STAGE SIZE FIRST SHIPPED FEATURES
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200 2 inches September 1993 Provides fully digital control with a smaller sample stage, making FIB
capabilities available to a wider group of users
800 8 inches September 1993 Supports the semiconductor industry use of eight-inch wafers; fully
digital control, superior stage accuracy, with integrated vacuum loadlock
620 6 inches July 1993 DualBeam model incorporating fully digitally controlled ion and electron
beams on a single vacuum chamber for integrated FIB and SEM capability
820 8 inches December 1994 Provides the DualBeam capability of the model 620 with the eight-inch
wafer handling capability of the model 800; supports advanced
semiconductor industry process technology
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ELECTRON MICROSCOPES
The Company is a world leader in the design, manufacture and sale of
electron microscopes. The Company's electron microscope products consist of
TEMs, SEMs and system platforms, consisting of a sample stage, vacuum chamber
and associated electronics.
In the use of a TEM, the specimen is irradiated by a static electron beam
which is focused onto and then passes through the specimen. The resulting image
of the internal structure of the specimen is then magnified by a series of
magnetic lens fields and projected on a fluorescent screen or an imaging camera.
The specimen, in order to be transparent to 100KV to 300KV electrons, must be no
thicker than several atoms to several microns. The required sample preparation
is usually an involved and lengthy process; however, in many cases, TEMs are one
of the few tools available to reveal submicron structures in their original
environment. TEMs developed, manufactured and sold by the Company are used by a
broad range of hospitals, pharmaceutical laboratories, university and government
biological research centers, materials
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science laboratories and semiconductor research laboratories. A market for TEM
use by the IC industry has begun to develop.
Unlike the TEM, which produces images by passing electrons through a very
thin specimen, an SEM provides topographic information about a solid specimen
from the signals generated by scanning the electron beam over the surface of the
specimen. In general, an SEM requires less complicated sample preparation and
provides greater ease of operation than a TEM. The Company believes its SEMs
provide high level stage quality, with high definition, low vibration and image
accuracy due to fine mechanics. In particular, most SEMs manufactured by the
Company have eucentric stages, which means that the image is maintained as the
specimen is tilted and rotated. In addition to the original secondary electron
signals, other signals are used to gather additional specimen information, for
example, elemental x-ray analysis.
The Company's XL-series of SEMs, introduced in 1990, has a user-friendly
Windows interface. The Company believes the XL-series was the first SEM to
implement this technology fully and its introduction allowed Philips' electron
optics business to strengthen its position in the SEM market. The XL-series has
been further improved through advancements in specimen handling capabilities and
improved image resolution to satisfy a greater range of applications.
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MODEL FIRST SHIPPED FEATURES
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CM100 1993 100 kV TEM, designed for life science applications, provides high contrast images,
with flexible recording media, complete computerized documentation and specimen
protection
CM120 1993 120 kV TEM combines ergonomic user interface for simple, secure operations,
optimal optical performance and specimen protection
CM120- 1995 CM120 with dedicated microscope for high contrast imaging of life science
Biotwin specimens at liquid nitrogen temperatures
CM200 1993 200 kV TEM/STEM system, designed for materials science applications provides
ultra-high resolution to permit visualization and characterization of crystal
structures, microstructures, composition, defects and interfaces at atomic level
CM200 FEG 1993 CM200 with field emission source provides ultra-high resolution in TEM/ STEM
imaging, diffracting microanalysis and scanning
CM300 1994 300 kV TEM with greater penetration and resolution capacity than CM200
CM300 FEG 1994 CM300 with field emission source provides resolution to 1 angstrom level
XL20 1990 20x20 millimeter stage SEM used primarily in life science and small specimen
applications
XL30 1990 General purpose 50x50 millimeter stage SEM
XL30 FEG 1993 XL30 with field emission source
XL30 CP 1996 XL30 with controlled pressure, permitting specimen vacuum up to 3 torr
XL40 1991 General purpose 6 inch wafer SEM
XL40 FEG 1993 XL40 with field emission source
XL50 1996 8 inch wafer SEM, used for defect review/process monitoring
ESEM3030 1996 Environmental field emission SEM, based on XL30 FEG, permitting specimen vacuum up
to 2 torr in a water vapor environment, which reduces charge effects and prevents
desiccation of wet specimens
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EMITTERS
The Company is a world leader in ion and electron emitter research and
manufacturing. The Company manufactures both ion and electron emitters with a
variety of shapes and mountings to meet the needs of its customers. Prior to the
Combination, sales of emitters accounted for approximately 13%, 9% and 9% of the
Company's net sales in 1994, 1995 and 1996, respectively. The Company believes
its emitters are characterized by a relatively long useful life and provide a
mechanically stable, high brightness beam. The useful life of an emitter is
limited by the natural loss of emitter material during the emission process and
varies, depending on the type of emitter and customer use. The Company's most
recently developed ion emitter has a guaranteed source life of 1,500 hours,
approximately three times the guaranteed life of the version it replaced.
The Company sells its electron emitters primarily to manufacturers of
electron beam equipment and to scientific research facilities. The Company sells
its ion emitters primarily to research and scientific facilities and
incorporates them in its ion focusing columns and FIB workstations. The prices
of the Company's emitters generally range from $500 to $2,000. The Company also
manufactures single crystal electron source rods and wire, which it sells to
researchers and to emitter manufacturers for use in electron emitter fabrication
and other research applications.
FOCUSING COLUMNS
The Company believes it is a world leader in focusing column technology. The
Company manufactures a variety of focusing columns, including single-lens
electron columns and two-lens electron and ion columns that incorporate an
electronically variable aperture. Prior to the Combination, sales of focusing
columns accounted for approximately 21%, 11% and 14% of the Company's net sales
in 1994, 1995 and 1996, respectively. The Company recently introduced a prelens
ion focusing column, which provides resolution within less than 0.007 microns (7
nanometers), a resolution accuracy among the highest in the industry.
The Company sells electron beam columns primarily to SEM manufacturers and
sells ion beam columns primarily to manufacturers of surface analysis systems
and other ion beam systems, as well as to research and scientific facilities.
For specialty uses, the Company manufactures customized focusing columns to
purchaser specifications. Columns manufactured for sale as stand-alone products
are packaged as compact units on standard flanges. These columns can be adapted
to existing microscopy, lithography and other systems to supplement the
capabilities of those systems.
RESEARCH AND DEVELOPMENT
The Company's research and development staff at December 31, 1996 consisted
of 38 employees, including scientists, engineers, designer draftsmen and
technicians. As a result of the Combination, the Company now employs
approximately 100 additional employees in electron microscope development and
approximately 20 additional employees in electron microscope product
applications and demonstrations. The Company is now also able to contract with
Philips Research Laboratories for basic research applicable to the Company's
electron optics product line.
The Company believes its knowledge of field emission technology and products
incorporating focused ion and electron beams is critical to its past and future
performance in the focused charged particle beam business. In developing new
field-emission based products, the Company has been able to combine its own
experience since formation in 1971 with academic resources in Oregon, one of the
few locations for concentrated research in field emission science. Drawing on
these resources, the Company has developed a number of product innovations,
including the enhanced etch process to speed material removal during ion milling
and to heighten surface contrast for electron imaging, SIMSmap for visual
display of chemical and elemental analysis, a rigid stacked disk focusing column
for greater beam control, a process for deposition
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of insulating layers in IC modification and enhanced processes for wafer mapping
and coordination between FIB tools and CAD navigational software.
From time to time the Company engages in joint research and development
projects with certain of its customers and other parties. The most important of
these projects has been with the Philips electron optics business, for the
development of components and related software and electronics used in the
Company's FIB workstations, and with Intel, for the development of the Company's
SIMSmap product. See "Manufacturing and Suppliers." The Company also maintains
informal collaborative relationships with universities and other research
institutions.
Philips' electron optics business has also participated in programs for
research and development funded by the Dutch Government and by the European
Union. In 1995, it received $1.4 million in public funding under such programs.
The Philips' electron optics business was also a participant in the JESSI
program, which is now concluded, in connection with development of a SEM for
semiconductor defect review, a high resolution electron focusing column and the
software incorporated in the XL-series. This program had as its principal aim
the advancement of basic semiconductor technology within Europe. A successor
program, Micro-Electronics Development for European Applications, or MEDEA, was
established to succeed the JESSI program in 1996. The MEDEA program has
different aims, however, and participation by the Company is not assured. From
time to time Philips electron optics business has also conducted joint research
and development in the field of particle optics with outside parties, such as
Delft Technical University in The Netherlands.
The semiconductor manufacturing market and other markets into which the
Company sells its principal products are subject to rapid technological
development, product innovation and competitive pressures. Consequently, the
Company has expended substantial amounts on research and development, and it
generally intends to continue its present level of research and development
expenditures. Prior to the Combination, in 1994, 1995 and 1996, research and
development expenses were $3.1 million, $2.6 million and $3.9 million,
respectively, and represented 14%, 6% and 9% of net sales, respectively, for
those periods. Research and development expenditures by Philips' electron optics
business in 1995 and 1996 were $9.1 million and $10.9 million, respectively.
Since August 1991 the Company had been engaged with Philips in joint
research and development of electronics and software integrated into the
subassemblies supplied by the Philips' electron optics business and incorporated
into FEI's FIB workstations. The Company had an agreement with Philips providing
for the joint ownership of this software developed by the Company and Philips
and pursuant to which the Company purchased FIB workstation platforms and, for
its DualBeam workstations, the major components of the electron microscope.
These software development and workstation platform manufacturing and sales
activities of the Phillips' electron optics business have been acquired by the
Company.
MANUFACTURING
The Company has manufacturing operations in Hillsboro, Oregon; Eindhoven,
The Netherlands; and Brno, Czech Republic. The Company's FIB workstation
manufacturing operations consist of fabricating components, testing components
and subassemblies purchased from suppliers and assembling finished products. The
Company's electron microscope manufacturing operations consist primarily of the
assembly of electronic and mechanical modules and final assembly and testing of
systems to meet customer specifications. Orders are executed using an integrated
logistics automation system which controls the flow of goods. The Company also
fabricates electron and ion source materials and manufactures electron and ion
emitters and columns at its facilities in Oregon.
The Company's production schedule for its systems products is generally
based on a combination of sales forecasts and the receipt of specific customer
orders. All components, subassemblies and finished products are inspected for
compliance with Company and customer specifications. Following assembly, all
products are shipped in custom protective packaging to minimize damage during
shipment.
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Although many of the electronic components and subassemblies included in the
Company's system products are standard products, a significant part of the
mechanical parts and subassemblies are custom made by one or two suppliers,
including Philips Machinefabrieken B.V. (Philips Machine Shop), located in
Eindhoven. The Company believes some of the components supplied to it are
available to the suppliers only from single sources. Those parts subject to
single or limited source supply are monitored by the Company to ensure that
adequate sources are available to maintain manufacturing schedules. Although the
Company believes it would be able to develop alternate sources for any of the
components used in its products, significant delays or interruptions in the
delivery of components from suppliers or difficulties or delays in shifting
manufacturing capacity to new suppliers could have a material adverse effect on
the Company.
SALES AND MARKETING
The Company's sales and marketing staff at December 31, 1996 consisted of 39
people, including direct sales people, applications specialists and technical
writers. As result of the Combination, the Company now employs an additional 95
employees in sales and marketing. Applications specialists identify and develop
new applications for the Company's products, which the Company believes will
further expand its share of the FIB workstation and electron microscope markets.
The Company markets its FIB workstations and components in Europe and Asia
through offices or subsidiaries located in Cambridge, U.K., Munich, Germany,
Eindhoven, The Netherlands and Seoul, Korea and through a network of independent
sales representatives or distributors in Asia and other non-European foreign
markets.
TEMs and SEMs manufactured by the Company are sold in Canada, France,
Germany, Italy, Japan, The Netherlands, the United Kingdom and the U.S. through
newly organized, wholly owned sales and service subsidiaries of the Company, and
elsewhere in the world through Philips' affiliates located in approximately 20
countries pursuant to distribution agreements.
The Company's FIB workstations and columns are sold generally with a 12
month limited warranty, and warranty periods have typically been shorter for
used workstations. Prior to the Combination, the Company employed 28 FIB
workstation service engineers in the U.S. and six in Europe and three in
Southeast Asia. The Company also contracts with independent service
representatives for FIB workstation service in Japan, Israel, Korea, Taiwan and
Singapore, and the Company expects to add additional service engineers in other
locations as needed.
Most of the equipment which has been sold by Philips' electron optics
business has a 12-month standard warranty and is covered by an add-on service
contract at the end of the warranty period. Service contracts are specific to
customer requirements, but typically cover parts, materials and labor and
include one routine maintenance per year. Due to a shift in sales towards the IC
manufacturing market, which generally has higher demands for responsiveness and
24 hour support, the Company anticipates further increasing investment in
service and support activities for its electron microscope business.
In 1991 the Company began using installment sales and operating leases to
enhance the affordability of its FIB workstations. As of December 31, 1996, the
Company had eight installment sales contracts for FIB workstations, with an
aggregate outstanding balance of approximately $2.9 million, and three FIB
workstation operating leases.
Prior to the Combination, international sales accounted for 30%, 41% and 64%
of the Company's net sales in 1994 and 1995 and 1996, respectively. Pro forma to
reflect the Combination, sales outside of the U.S. accounted for 67.0% and 68.3%
of the net sales of the combined business of FEI and Philips' electron optics in
1994 and 1995, respectively. International sales will continue to represent a
significant percentage of net sales for the Company.
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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. In addition, a substantial
portion of international sales are denominated in currencies other than U.S.
dollars. Consequently, a decrease in the value of a relevant foreign currency in
relation to the U.S. dollar occurring after agreement on price and before
receipt of payment would have an adverse impact on results of operations. The
impact of future exchange rate fluctuations on the results of operations of the
Company cannot be accurately predicted. The Company is establishing a hedging
program for foreign currency exposure, but there is no assurance that any
hedging techniques will eliminate the effects of currency fluctuations.
BACKLOG
The Company's backlog (exclusive of the Philips' electron optics business)
consists of purchase orders it has received for products it expects to ship
within the next nine months. The Company's backlog at December 31, 1996 was
approximately $11.5 million, compared with a backlog of approximately $8.3
million at December 31, 1995. Backlog for the Philips' electron optics business
at December 31, 1996 was approximately $36 million. The Company expects to ship
all products representing this backlog in 1997, although there is no assurance
the Company will be able to do so.
For sales of FIB workstations, advance or progress payments typically have
not been received from customers unless the system ordered includes custom
features. A portion of the Company's backlog relates to orders for high average
selling price products. As a result, the timing of the receipt of an order from
a single customer could have a material impact on the Company's backlog at any
date. For this and other reasons, the amount of backlog at any date is not
necessarily indicative of revenue in future periods.
COMPETITION
Although only a small number of companies manufacture FIB workstations and
electron microscopes, the industry is highly competitive.
The Company's principal competitors for the sale of FIB workstations are
Micrion Corporation, Seiko Instruments Inc. and Schlumberger Technologies (ATE
Division). The Company is also encountering sales competition for FIB
workstations from JEOL USA, Inc., primarily in Asia. The Company's principal
competitors for the sale of electron microscopes are JEOL, Ltd., Hitachi, Ltd.,
Amray Inc. and LEO Electron Microscopy, Inc. Some of the Company's competitors
and potential competitors may have greater financial, marketing and production
resources than the Company.
The Company believes the key competitive factors in the FIB workstation
market are performance, range of features, reliability and price. The Company
believes it is competitive with respect to each of these factors. The Company
has experienced price competition in the sale of its FIB workstations and
believes price may continue to be an important factor in the sale of most
models. Intense price competition in the sale of FIB workstations to strategic
customers has in the past adversely affected the Company's profit margins.
The principal elements of competition in the electron microscope market are
the performance characteristics of the system and the cost of ownership of the
system, based on purchase price and maintenance costs. In both the TEM and SEM
markets, the ability of the Company to remain competitive will depend in part
upon its success in developing new and enhanced systems and introducing these
systems at competitive prices on a timely basis.
The Company has two principal competitors in the emitter market. The Company
believes the key competitive factors in this market are emitter life,
brightness, stability, ease of use and price. The Company believes it competes
favorably with respect to each of these factors. Although the Company has
relatively few competitors in the manufacture and sale of specialized electron
beam and ion beam focusing columns,
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many of the Company's customers, including certain manufacturers of electron
microscopes, have the technical and other resources to manufacture focusing
columns. The Company believes other key competitive factors in the focusing
column business are beam performance, packaging and reliability. The Company
believes it competes favorably with respect to each of these factors in the
focusing column market.
PATENTS AND INTELLECTUAL PROPERTY
The Company relies on a combination of trade secret protection,
nondisclosure agreements and patents to establish and protect its proprietary
rights. There is no assurance that any of these patents will have commercial
value or will be sufficiently broad to protect the aspect of the Company's
technology to which the patents relate or that competitors will not design
around the patents. The Company has ten U.S. patents and one U.S. patent
application pending relating to its FIB workstation business. All of the patents
used by the Company relating to its electron microscope products are owned by
Philips and its affiliates. The Company has the right to use the technology
relating to these patents through license arrangements with Philips and these
affiliates. In addition, as a majority-owned subsidiary of Philips, the Company
has access to certain technology through cross-licenses between Philips
affiliates and a large number of manufacturers in the electronics industry
worldwide.
As part of its FIB workstations, the Company sells the software used for
control of its ion and electron focusing columns and does not retain ownership
rights to the software. CAD software incorporated into FIB workstations is
provided to the Company on an OEM basis. Policing unauthorized use of the
Company's technology is difficult, and there is no assurance that measures taken
by the Company to protect this technology will be successful. Although the
Company's competitive position may be affected by its ability to protect its
proprietary information, the Company believes that other factors, such as the
Company's 20 years of experience in the development of charged particle emission
technology, its technical expertise, its name recognition and its continuing
product support and enhancement, may be more significant in maintaining the
Company's competitive position.
Several of the Company's competitors hold patents covering a variety of
focused ion beam products and applications and methods of use of focused ion and
electron beam products. Some of the Company's customers may use the Company's
FIB workstations for applications that are similar to those covered by these
patents. From time to time the Company and its customers have received
correspondence from competitors of the Company claiming that certain of the
Company's products, as used by its customers, may be infringing one or more of
these patents. Other than as described below under Item 3--Legal Proceedings,
none of these allegations has resulted in litigation. The Company believes it
has credible arguments that these patents are either invalid, not infringed or
would not be enforced by a court.
The Company is aware of a patent held by Micrion Corporation ("Micrion")
which, if valid, could be infringed by the sale of the Company's ion focusing
columns, whether sold separately or as part of the Company's FIB workstations.
The patent relates to the use of certain materials in the construction of parts
of an ion focusing column. The Company believes, however, that if infringement
were alleged, the patent would either be construed narrowly so as not to cover
products sold by the Company or their use or would, if construed to cover any of
these products or their use, be invalid based upon prior art references which
the Company believes anticipate or render obvious those claims and based upon
sales by the Company of focusing columns that incorporated the patented
technology more than one year prior to the patent application date. The Company
has not received any allegation of infringement or any other formal
communication from Micrion with respect to this patent. The Company believes the
ion focusing columns manufactured by all of its other competitors also use
technology that could infringe the patent if valid. To the Company's knowledge,
no other focusing column manufacturer has received any allegation of
infringement with respect to this patent.
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There is no assurance, however, that competitors or others will not assert
infringement claims against the Company or its customers in the future with
respect to current or future products or uses or that any such assertion may not
result in costly litigation or require the Company to obtain a license to
intellectual property rights of others. There is no assurance that such licenses
will be available on satisfactory terms or at all. If claims of infringement are
asserted against customers of the Company, those customers may seek
indemnification from the Company for damages or expenses they incur. As the
number and sophistication of focused ion and electron beam products in the
industry increases through the continued introduction of new products by the
Company and others, and the functionality of these products further overlaps,
manufacturers and users of ion and electron beam products may become
increasingly subject to infringement claims.
EMPLOYEES
At December 31, 1996, prior to the Combination, the Company had 226
full-time employees, including 78 in manufacturing, 41 in research and
development, 41 in marketing and sales, 39 in customer service, 15 in finance,
accounting and information services and 12 in administration. As of December 31,
1996 the Philips' electron optics business had approximately 700 employees, many
of whom participate in collective labor agreements outside the U.S. None of the
Company's U.S. employees are represented by a labor union, and the Company has
never experienced a work stoppage, slowdown or strike. The Company believes it
maintains good employee relations.
9
<PAGE>
ITEM 2. PROPERTIES
The Company's corporate headquarters and one of its manufacturing and
research and development facilities are located in three adjacent buildings
located in Hillsboro, Oregon. The first consists of approximately 43,950 square
feet of leased space. The initial term of the lease expires January 31, 2004,
with an option to renew for two successive five-year periods. Lease payments are
approximately $28,500 per month until January 1999 and $33,000 per month for the
remaining period of the initial term of the lease, plus, for each period, an
additional amount comprised primarily of the Company's proportionate share of
certain building operating expenses.
The second facility consists of a 34,700 square feet building used for the
Company's components business. Lease payments on this facility, which the
Company has occupied since June 1996, are approximately $27,000 per month for
the first five years of the lease and $30,700 per month thereafter until March
31, 2003, when the lease expires, plus certain building operating expenses. The
third facility consists of 28,750 square feet of leased space and is used for
manufacturing FIB systems. Lease payments on this facility are $23,288 for the
first five years and $26,306 thereafter until March 31, 2003, when the lease
expires, plus certain building operating expenses.
As a result of the Combination, the Company now operates ten sales and
service offices located in leased facilities in Canada, France, Germany, Italy,
Japan, South Korea, The Netherlands, the United Kingdom and the U.S.
The headquarters and primary manufacturing facility of the Company's
electron microscope operations is located in Eindhoven, The Netherlands and
consists of approximately 17,000 square meters of space leased by the Company
for a ten-year term commencing February 1997. The lease payment for the first
year will be $850,000, and rent in subsequent years will be at a market rate
established in accordance with the terms of the Combination Agreement. The
Company also has manufacturing facilities in Brno, Czech Republic and in
Wilmington, Massachusetts, both of which occupy leased space.
The Company expects that its facilities will be adequate to meet its needs
for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
In May 1995 Micrion Corporation ("Micrion"), a principal competitor of the
Company, filed a lawsuit against the Company in the U.S. District Court for the
District of Massachusetts (the "Court") alleging infringement of a patent issued
to Micrion relating to the use of an electron beam to neutralize a positive
charge that can develop with the use of an ion beam in a FIB workstation. The
complaint also alleges that the Company used information confidential to Micrion
to develop devices to effect charge neutralization, to incorporate such devices
into the Company's FIB workstations, to manufacture certain ion emitters, and to
persuade prospective purchasers of FIB workstations to purchase workstations
from the Company rather than from Micrion. Micrion sought an injunction against
infringement of the Micrion patent, damages of at least $1 million for misuse of
confidential information, treble damages for infringement of the Micrion patent,
attorneys' fees and other damages. The Company believes it has valid defenses to
Micrion's claims.
The Company initiated a proceeding with the American Arbitration Association
seeking to arbitrate Micrion's non-patent claims. In response to motions filed
by the Company in the Court and the U.S. District Court for the District of
Oregon, Micrion was ordered to arbitrate these matters in Oregon, and the Court
action has been stayed with respect to these matters. The Company filed an
answer and counterclaim in the Court, asserting that the patent is not infringed
and is invalid.
In May 1996, the parties agreed to dismiss the Court action and the
arbitration, both without prejudice. Either Micrion or the Company may
re-initiate either the Court action or the arbitration. Although the Company
believes it has valid defenses to Micrion's claims, a determination that the
Micrion patent is valid and infringed or that the Company has misused
confidential information could result in an
10
<PAGE>
award of damages to Micrion or an injunction against sale of certain of the
Company's products, which could have a material adverse effect on the Company.
Regardless of its outcome, the litigation could result in substantial costs and
diversion of management and other resources.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers of the Company as of March 28, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- -----------------------------------------------------------------------------
<S> <C> <C>
Dr. Lynwood W. Swanson....... 62 Chairman of the Board of Directors and Chief Scientist
William A. Whitward.......... 58 President and Chief Executive Officer and Director
William G. Langley........... 47 Executive Vice President, Chief Financial Officer, Secretary and Director
Karel D. van der Mast........ 51 Executive Vice President Marketing, Technical Officer and Director
Robert H.J. Fastenau......... 44 Senior Vice President Research and Development
Charles F. Lake.............. 48 Senior Vice President Manufacturing
Joseph C. Robinson........... 44 Senior Vice President Sales (Semiconductor)
Bernd W.M. Volbert........... 43 Senior Vice President Sales (Analytical)
Charles T. Riddle............ 50 Senior Vice President Strategic Planning
Frederick A.M. Gordon........ 46 Controller and Assistant Treasurer
Jan Vinkesteijn.............. 53 Treasurer and Assistant Secretary
</TABLE>
DR. LYNWOOD W. SWANSON co-founded the Company in 1971 and has served as a
director since that time. He served as President of the Company until October
1994, at which time he was elected Chairman of the Board. Dr. Swanson was
appointed Chief Scientist in May 1990 and served as Chief Executive Officer of
the Company from May 1988 to February 1997. Dr. Swanson has been a member of the
board of trustees of the Murdock Charitable Trust since 1987 and is an Adjunct
Professor of Applied Physics at the Oregon Graduate Institute. Dr. Swanson holds
B.S. degrees in physics and chemistry from University of the Pacific and a Ph.D.
degree in physical chemistry from University of California at Davis.
WILLIAM A. WHITWARD joined the Company as President, Chief Executive Officer
and director in February 1997. Mr. Whitward served as a General Manager of
Philips from June 1993 to February 1997. He joined Philips after 14 years as
manager of a former affiliate of Philips, its Test & Measurement unit, which
produced oscilloscopes, voltmeters and similar equipment. Mr. Whitward holds a
bachelor's degree in engineering from Natal University, South Africa.
WILLIAM G. LANGLEY joined the Company as Vice President, Chief Financial
Officer and in-house legal counsel in September 1992, served as President and
Chief Operating Officer from October 1994 to February 1997 and as Assistant
Secretary and Assistant Treasurer from July 1993 to February 1997, and was
appointed Executive Vice President and Secretary in February 1997. In October
1994 he was elected a director of the Company. From April 1990 to September
1992, Mr. Langley served as a Vice President with the Chariot Group, Inc., an
investment company specializing in the acquisition, finance and operation of
mid-size businesses. Mr. Langley holds a B.A. degree from Albertson College, a
J.D. degree from Northwestern School of Law of Lewis and Clark College and an
LL.M. degree from New York University. Mr. Langley is an attorney and certified
public accountant.
KAREL D. VAN DER MAST joined the Company as Executive Vice President
Marketing, Technical Officer and director in February 1997. Dr. van der Mast
served as Business Manager and Strategic Marketing Manager of Philips Electron
Optics B.V. from October 1995 to February 1997. In 1988 he joined Philips
11
<PAGE>
Electron Optics B.V. as Research and Development Manager. From 1983 to 1988, Dr.
van der Mast was Professor of Physics at the Technical University of Delft,
leading research in fast electron beam lithography systems. He first joined
Philips in 1978 as TEM Development Manager. Dr. van der Mast holds an Engineers
degree and a Ph.D. degree in Physics from the Technical University of Delft and
has published articles in the field of physics and electron microscopy.
ROBERT H.J. FASTENAU joined the Company as Senior Vice President Research
and Development in February 1997. Dr. Fastenau joined Philips Electron Optics
B.V. in October 1995 as Research and Development Manager. He was department head
of a research group in materials science and devices of Philips Research from
1989 to 1995 after a one year research assignment with Signetics Co. and after
serving as the department head of the microfabrication group of Philips
Research. Dr. Fastenau holds an Engineers degree and a Ph.D degree in physics
from the Technical University of Delft.
CHARLES F. LAKE joined the Company as Manufacturing Manager in January 1990,
served as Vice President of Manufacturing from July 1991 to February 1997 and
was appointed Senior Vice President Manufacturing in February 1997. Mr. Lake
holds a B.S. degree in chemical engineering from University of Colorado and an
M.B.A. degree from San Diego State University.
JOSEPH C. ROBINSON joined the Company as Executive Vice President of Sales
and Marketing in December 1995 and was appointed Senior Vice President Sales
(Semiconductor) in February 1997. From March 1993 to December 1995 Mr. Robinson
was Director of Sales and Marketing for Kevex Inc. (a division of Fisons
Instruments), a manufacturer of dispersive x-ray and image analyzers. From
October 1989 to March 1993 Mr. Robinson was Semiconductor Product Marketing
Manager for AMRAY, Inc., specializing in scanning electron microscopes. Mr.
Robinson has a B.A. degree from Colgate University, is a member of Beta Beta
Beta Biological Society and has completed supplemental studies in Strategic
Marketing at Duke University.
BERND W.M. VOLBERT joined the Company as Senior Vice President Sales
(Analytical) in February 1997. Dr. Volbert has also served as International
Sales and Service Manager of Philips Electron Optics B.V. since 1992, and as
Marketing Manager of Philips Electron Optics B.V. from 1990 to 1992. Dr. Volbert
is also a director of Philips Electron Optics Nederland B.V. Dr. Volbert holds a
Ph.D. degree in Physics from Muenster University.
CHARLES T. RIDDLE joined the Company as Vice President, Marketing in January
1985, served as Executive Vice President--Operations and Marketing from January
1986 to July 1995 and as Executive Vice President, Strategic Planning from July
1995 to February 1997, and was appointed Senior Vice President Strategic
Planning and TQM in February 1997. Mr. Riddle also served as a director of the
Company from August 1986 to February 1997. Mr. Riddle is a director of Cascade
Employer's Association, a nonprofit corporation that provides personnel
administration and industrial relations services and sponsors the Pacific
Northwest Employers Pension Plan. Mr. Riddle holds a B.S. degree in chemistry
from University of California at Davis and an M.B.A. degree from Stanford
University Graduate School of Business.
FREDERICK A.M. GORDON joined the Company as Controller in May 1987 and has
served as Chief Accounting Officer since October 1994. Mr. Gordon was appointed
Assistant Treasurer in February 1997. Mr. Gordon holds a B.S. degree in
mathematics from the University of Wisconsin--Madison and an M.B.A. degree from
the University of Oregon.
JAN VINKESTEIJN joined the Company as Treasurer and Assistant Secretary in
February 1997. Mr. Vinkesteijn has also served as Financial Controller of
Philips Electron Optics B.V. since December 1992, and was appointed a director
of Philips Electron Optics B.V. in May 1993. Mr. Vinkesteijn joined Philips in
1974 and served from July 1987 to December 1992 as Business Group Controller of
Philips Lighting.
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the Nasdaq National Market
since the Company's initial public offering on June 1, 1995 under the symbol
"FEIC."
The following table sets forth, for the periods indicated, the highest and
lowest closing sales price for the Common Stock, as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995
Second Quarter (from June 1, 1995)................................................................... $14 1/2 $10
Third Quarter........................................................................................ 14 1/4 12
Fourth Quarter....................................................................................... 13 1/4 8 3/4
1996
First Quarter........................................................................................ 13 5/8 10 1/2
Second Quarter....................................................................................... 19 11 1/2
Third Quarter........................................................................................ 13 1/4 8
Fourth Quarter....................................................................................... 12 3/4 10 1/8
</TABLE>
As of March 20, 1997 there were approximately 103 holders of record of the
Company's Common Stock. The Company believes the number of beneficial owners is
substantially greater than the number of record holders because a large portion
of the Company's outstanding Common Stock is held of record in broker "street
names" for the benefit of individual investors.
The Company has never declared or paid a dividend and does not anticipate
doing so in the foreseeable future. The Company expects to retain earnings to
finance the expansion and development of its business. The payment of dividends
is within the discretion of the Company's Board of Directors and will depend on
the earnings, capital requirements and operating and financial condition of the
Company, among other factors.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below for each of the
years in the three-year period ended December 31, 1996 and as of December 31,
1995 and 1996 have been derived from the audited consolidated financial
statements of the Company included elsewhere in this report. The selected
consolidated financial data for each of the years ended December 31, 1992 and
1993 and as of December 31, 1992, 1993 and 1994 have been derived from the
audited financial statements of the Company not included herein. The selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and notes thereto included elsewhere in
this Report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................ $ 12,919 $ 17,198 $ 22,281 $ 41,691 $ 45,615
Cost of Sales............................................ 7,083 8,662 14,150 26,017 30,749
--------- --------- --------- --------- ---------
Gross profit............................................. 5,836 8,536 8,131 15,674 14,866
Total operating expenses................................. 5,009 6,511 8,491 9,763 14,006
--------- --------- --------- --------- ---------
Income (loss) from operations............................ 827 2,025 (360) 5,911 860
Other income (expense)................................... (266) (204) (128) (120) 435
--------- --------- --------- --------- ---------
Income (loss) before taxes............................... 561 1,821 (488) 5,791 1,295
Tax expense (benefit)(1)................................. 150 391 (263) 2,050 453
--------- --------- --------- --------- ---------
Net income (loss)........................................ $ 411 $ 1,430 $ (225) $ 3,741 $ 842
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share (1)(2)....................... $ 0.08 $ 0.28 $ (0.04) $ 0.57 $ 0.10
Shares used in per share calculation(2).................. 5,068 5,089 5,101 6,603 8,040
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 421 $ 343 $ 192 $ 2,700 $ 646
Working capital.......................................... 3,763 4,301 3,387 26,406 23,023
Equipment................................................ 3,173 4,298 5,033 4,604 9,030
Total assets............................................. 11,181 16,682 24,414 44,642 60,754
Short-term borrowings.................................... 568 1,655 6,386 -- 8,436
Long-term debt, less current portion..................... -- 1,999 3,445 3,500 --
Shareholders' equity..................................... 7,739 9,231 9,047 34,422 39,664
</TABLE>
- ------------------------
(1) Income tax benefit (expense) for the year ended December 31, 1993 includes
the cumulative effect of an accounting change benefit of $206,000 ($0.04 per
share).
(2) See Notes 1 and 12 of Notes to Consolidated Financial Statements for
information about common stock and common stock equivalents outstanding.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's revenues historically have been derived primarily from sales
of FIB workstations and, to a lesser extent, from the sale of emitters, focusing
columns and services. FIB workstations may be purchased with various options,
including gas injectors, a secondary ion mass spectrometry ("SIMS") analytical
function, x-ray analysis equipment and computer-aided design ("CAD")
navigational software.
On February 21, 1997 the Company completed a combination transaction (the
"Combination") with the electron optics business of Philips Industrial
Electronics International B.V. ("PIE"), a wholly owned subsidiary of Philips
Electronics N.V. ("Philips"). Pursuant to the Combination, the Company acquired
shares of two Philips' subsidiaries owning substantially all of the assets and
liabilities of Philips' electron optics business, and the Company issued to PIE
a number of shares of its Common Stock equal, after issuance, to 55 percent of
the outstanding shares of Common Stock of the Company.
The Company's FIB workstations are sold primarily to manufacturers of
integrated circuits ("ICs") and are used in the design, manufacture and testing
of ICs. The Company's electron microscope products consist of transmission
electron microscopes, scanning electron microscopes, and system platforms,
consisting of a sample stage, vacuum chamber and associated electronics. These
products are sold primarily to life science and materials science research
institutes, universities and industrial customers, as well as a limited number
of sales to date to IC manufacturers.
RESULTS OF OPERATIONS
The following table sets forth certain unaudited financial data for the
periods indicated as a percentage of net sales.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Net sales
FIB workstations....................................................................... 58.0% 74.1% 66.7%
Focusing columns....................................................................... 20.7 10.7 14.2
Emitters............................................................................... 13.0 9.1 9.5
Other.................................................................................. 8.3 6.1 9.6
--------- --------- ---------
Total net sales.................................................................... 100.0 100.0 100.0
Cost of sales............................................................................ 63.5 62.4 67.4
--------- --------- ---------
Gross profit............................................................................. 36.5 37.6 32.6
Operating expenses
Research and development............................................................... 13.9 6.2 8.7
Selling and marketing.................................................................. 12.6 11.0 12.7
General and administrative............................................................. 9.6 6.3 9.3
Postponed stock offering and duplicate rent............................................ 2.0 -- --
--------- --------- ---------
Total operating expenses........................................................... 38.1 23.4 30.7
--------- --------- ---------
Operating income (loss).................................................................. (1.6) 14.2 1.9
Other income (expense)
Interest income........................................................................ 1.8 2.2 1.3
Interest expense....................................................................... (2.7) (1.6) (0.4)
Miscellaneous.......................................................................... 0.3 (0.9) --
--------- --------- ---------
Income (loss) before taxes............................................................... (2.2) 13.9 2.8
Tax expense (benefit).................................................................... (1.2) 4.9 1.0
--------- --------- ---------
Net income (loss)........................................................................ (1.0)% 9.0% 1.8%
--------- --------- ---------
--------- --------- ---------
</TABLE>
15
<PAGE>
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NET SALES. Net sales increased $3.9 million (9.4%) to $45.6 million for
1996 from $41.7 million for 1995 and increased $19.4 million (87%) for 1995 from
$22.3 million for 1994. The increase in net sales in 1996 from 1995 was
primarily the result of increased sales of components, which rose by $3.2
million. In 1996, the Company sold three FIB workstations to Norsam
Technologies, Inc. ("Norsam") for use in a new commercial application of FIB
technology providing long-term archival and very high density data storage. The
$3.3 million sales price of the three FIB workstations was paid in the form of
500,000 shares of Norsam Series A Preferred Stock convertible into shares of
Norsam common stock at a conversion rate of $5.00 per share. The increase in net
sales in 1995 from 1994 was primarily due to a 77% increase in the number of FIB
workstations sold.
International sales accounted for 64%, 41% and 30% of net sales for 1996,
1995 and 1994, respectively. The Company expects international sales to continue
to represent a significant percentage of its net sales.
GROSS PROFIT. Gross profit decreased $808,000 (5.2%) to $14.9 million in
1996 from $15.7 million for 1995 and increased $7.5 million (93%) for 1995 from
$8.1 million for 1994. Gross profit as a percentage of net sales was 33%, 38%
and 36% for 1996, 1995 and 1994, respectively. The decrease in gross profit from
1995 to 1996, in dollar amount and as a percentage of net sales, was primarily
the result of increased customer service costs, which increased $1.2 million to
$3.5 million for 1996 compared to $2.3 million for 1995. A third factor causing
the decrease in gross profit from 1995 to 1996 was an increase in sales into
selected strategic Asian markets, where selling prices are lower due to greater
price competition. The increase in dollar amount from 1994 to 1995 was primarily
due to higher revenues, while the increase in gross profit as a percentage of
net sales from 1994 to 1995 was primarily due to absorption of fixed
manufacturing costs over higher sales volume and volume purchase price
discounts. This increase was partially offset by an increase in sales of third
party add on options with relatively low gross margins. The Company purchases a
substantial number of components for its FIB workstations from Philips, the
purchase prices for which are denominated in Dutch guilders. The prices of those
components are agreed to by the Company and Philips annually. An increase in the
value of the Dutch guilder in relation to the U.S. dollar would effectively
increase the cost to the Company of those components and adversely affect the
Company's cost of sales.
RESEARCH AND DEVELOPMENT. Research and development expense increased $1.4
million (54%) to $3.9 million for 1996 from $2.6 million for 1995 and decreased
$541,000 (17%) for 1995 from $3.1 million for 1994. As a percentage of net
sales, research and development expense was 9%, 6% and 14% in 1996, 1995 and
1994, respectively. The increase in research and development expense from 1995
to 1996, in dollar amount and as a percentage of net sales, was primarily the
result of increased engineer staffing levels, consultant costs and use of
operating supplies. The latter two factors are principally related to FIB
workstation automation and clean room development projects. Labor and related
expenses increased $972,000 for 1996 over 1995, while operating supplies
increased $314,000. The Company is continuing to invest in internal development
of focused ion and electron beam technology. The decrease in research and
development expense from 1994 to 1995, in dollar amount and as a percentage of
net sales, was primarily attributable to higher costs in 1994 associated with
the development of the Company's latest generation of FIB workstations. Research
and development costs also decreased as a percentage of net sales due to
increased sales volume. Capitalized software development costs were $784,000,
$346,000 and $156,000 for 1996, 1995 and 1994, respectively.
SELLING AND MARKETING. Selling and marketing expense increased $1.2 million
(27%) to $5.8 million for 1996 from $4.6 million in 1995 and increased $1.8
million (63%) for 1995 from $2.8 million for 1994. As a percentage of net sales,
selling and marketing expense was 13%, 11% and 13% in 1996, 1995 and 1994,
respectively. The increase in selling and marketing expense from 1995 to 1996,
in dollar amount and as a percentage of net sales, reflect the greater amount of
sales commissions paid in connection with increased
16
<PAGE>
sales volume. Sales commissions increased $53,000 for 1996 compared to 1995.
Increased sales, technical marketing and support staffing levels, plus increased
travel costs were also significant factors in the increase of selling and
marketing expenses. Labor and related expenses increased $767,000 for 1996
compared to 1995, advertising expenses increased $167,000 for 1996 compared to
1995 and travel costs increased $161,000 for 1996 compared to 1995. The increase
in selling and marketing expense in dollar amount from 1994 to 1995 reflects the
greater amount of sales commissions paid in 1995 in connection with increased
sales in Asia, increased support staffing levels and increased facilities costs
associated with the opening of the Company's Munich, Germany office. In
addition, the year-to-year increases in selling and marketing expense in dollar
amounts resulted from the addition over these periods of applications
scientists, direct sales engineers and other marketing personnel and related
costs, operating FIB workstations at domestic and international trade shows and
additional expenditures for product literature and promotional material.
GENERAL AND ADMINISTRATIVE. General and administrative expense increased
$1.7 million (63%) to $4.3 million for 1996 from $2.6 million in 1995 and
increased $468,000 (22%) for 1995 from $2.1 million for 1994. As a percentage of
net sales, general and administrative expense was 9%, 6% and 10% in 1996, 1995
and 1994, respectively. The increase in general and administrative expense from
1995 to 1996, in dollar amount and as a percentage of net sales, was primarily
due to increased labor expense, which accounted for an increase of $873,000 for
1996 compared to 1995. In addition, because of increased sales volume, the
provision for bad debt for 1996 increased by $175,000. The increase in general
and administrative expense in dollar amounts from 1994 to 1995 was attributable
to additional administrative staff and increased professional fees, and the
decrease as a percentage of net sales from 1994 to 1995 resulted from
efficiencies achieved through higher net sales.
POSTPONED STOCK OFFERING AND DUPLICATE RENT. In the first quarter of 1994,
the Company incurred a one-time expense relating to its postponed initial public
offering of Common Stock. The Company moved to its new headquarters facility in
January 1994 and in the first three quarters of 1994 the Company paid rent on
both its former headquarters facility and its new facility.
Other Income (Expense). Other income (expense) was $435,000, $(120,000) and
$(128,000) for 1996, 1995 and 1994, respectively. Included in other income
(expense) for these respective periods were (1) interest expense of $(184,000),
$(663,000) and $(591,000), (2) interest income of $602,000, $935,000 and
$405,000, (3) foreign currency exchange rate gain (loss) of $59,000, $(208,000)
and $93,000 and (4) miscellaneous expense of $(42,000), $(184,000) and
$(35,000). The increase in foreign currency exchange rate gain from 1995 to 1996
was attributable to relatively constant exchange rates for 1996 compared with
the fluctuation and the value of the U.S. dollar against the Netherlands guilder
in 1995. Interest income decreased from 1995 to 1996 primarily as a result of
the liquidation of short-term investments that had been earning interest.
Interest expense decreased from 1995 to 1996 primarily due to the repayment of
debt with proceeds from the Company's initial public offering.
TAX EXPENSE (BENEFIT). The Company's effective income tax rates for 1996,
1995 and 1994 were 35.0%, 35.4% and (53.9)%, respectively. The Company recorded
tax provisions of $453,000 in 1996 and $2.1 million in 1995, and a tax benefit
of $(263,000) in 1994.The Company's effective income tax rates vary form the
Company's federal statutory tax rate of 34% primarily due to the addition of
state, foreign and foreign sales corporation taxes and the reduction of foreign
sales corporation dividends, and various treatments of international
transactions and related taxes.
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 U.S. export licenses. Changes in relevant foreign
currency exchange rates between time of sale and time of payment may also have
an adverse impact on profit levels.
17
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited financial data for each of
the eight quarters in 1995 and 1996. In the opinion of management of the
Company, this information has been prepared on the same basis as the audited
consolidated financial information appearing elsewhere in this Report and
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations for these periods. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
1995 1996
-------------------------------------------- -----------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
----------- --------- --------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales.............................. $ 8,920 $ 9,201 $ 11,010 $ 12,560 $ 11,607 $ 12,075 $ 9,894
Cost of sales.......................... 5,277 5,695 6,874 8,171 7,234 7,875 6,496
----------- --------- --------- --------- ----------- --------- -----------
Gross profit........................... 3,643 3,506 4,136 4,389 4,373 4,200 3,398
Total operating expenses............... 2,206 2,309 2,462 2,786 3,310 3,282 3,581
----------- --------- --------- --------- ----------- --------- -----------
Operating income (loss)................ 1,437 1,197 1,674 1,603 1,063 918 (183)
Other income (expense)................. (553) 4 112 317 106 210 77
----------- --------- --------- --------- ----------- --------- -----------
Income (loss) before taxes............. 884 1,201 1,786 1,920 1,169 1,128 (106)
Tax expense (benefit).................. 359 456 592 643 424 419 29
----------- --------- --------- --------- ----------- --------- -----------
Net income (loss)...................... $ 525 $ 745 $ 1,194 $ 1,277 $ 745 $ 709 $ (135)
----------- --------- --------- --------- ----------- --------- -----------
----------- --------- --------- --------- ----------- --------- -----------
Net income loss per share.............. $ 0.10 $ 0.13 $ 0.16 $ 0.16 $ 0.10 $ 0.09 $ (0.02)
----------- --------- --------- --------- ----------- --------- -----------
----------- --------- --------- --------- ----------- --------- -----------
Shares used in per share calculation... 5,101 5,867 7,701 7,741 7,831 8,244 7,938
<CAPTION>
DEC. 31
---------
<S> <C>
Net sales.............................. $ 12,039
Cost of sales.......................... 9,144
---------
Gross profit........................... 2,895
Total operating expenses............... 3,833
---------
Operating income (loss)................ (938)
Other income (expense)................. 42
---------
Income (loss) before taxes............. (896)
Tax expense (benefit).................. (419)
---------
Net income (loss)...................... $ (477)
---------
---------
Net income loss per share.............. $ (0.06)
---------
---------
Shares used in per share calculation... 7,971
</TABLE>
The Company's operating results have fluctuated in the past and may
fluctuate significantly in the future. Fluctuations in operating results may be
caused by a variety of factors, including the relatively high unit cost of the
Company's FIB workstations and electron microscopes, competitive pricing
pressure, conditions in the semiconductor industry, the timing of orders from
major customers and new product introductions, customer cancellation or delay of
shipments, long sales cycles, changes in the mix of products sold and the
proportion of domestic and international sales, specific feature requests by
customers, product delays and currency exchange rate fluctuations. The Company
will continue to derive a substantial portion of its revenues from the sale of a
relatively small number of FIB workstations and electron microscopes. As a
result, the timing of revenue recognition from a single order could have a
significant impact on the Company's net sales and operating results for a
period.
A substantial portion of the Company's net sales have generally been
realized near the end of each quarter and sales of electron microscopes by
Philips' electron optics business to government-funded customers have generally
been made in the fourth quarter. Accordingly, delays in shipments near the end
of a quarter could have a substantial negative effect on operating results for
that quarter. Announcements by the Company or its competitors of new products
and technologies could cause customers to defer purchases of the Company's
existing systems, which could also have a material adverse effect on the
Company's business, financial condition and results of operations. The impact of
these and other factors on the Company's sales and operating results in any
future period cannot be forecast with certainty.
INFLATION. The impact of inflation and changing prices on the Company's
operating results has not been significant.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company's cash flows for each
of 1994, 1995 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by (used in) operating activities.............................. $ (2,943) $ (1,771) $ (12,007)
Net cash provided by (used in) investing activities.............................. (3,635) (10,524) 579
Net cash provided by financing activities........................................ 6,431 14,807 9,385
Foreign currency translation adjustment.......................................... (4) (4) (11)
--------- --------- ----------
Net increase (decrease) in cash and cash equivalents............................. $ (151) $ 2,508 $ (2,054)
--------- --------- ----------
--------- --------- ----------
</TABLE>
A December 31, 1996, the Company had total cash and cash equivalents of
$646,000, compared to $2.7 million at December 31, 1995. Cash used in operating
activities for 1996 was $12.0 million, compared to $1.7 million for 1995. The
primary components causing this increase in cash used in operating activities
for 1996 were increases in inventory and accounts receivable of $8.9 million and
$9.4 million, respectively, offset by an increase in accounts payable of $4.2
million, and the noncash sale of three FIB workstations to Norsam. The increase
in inventory resulted from lower than expected sales of FIB workstations and
strategic stocking of certain FIB workstation platforms.
Investing activities for 1996 provided net cash of $579,000, compared with a
net use of cash of $10.5 million for 1995. In 1996 the Company received $7.4
million in cash from net sales of marketable securities and used cash of $6.2
million for the acquisition of equipment. In 1995, the Company's principal
investing activities consisted of the purchase of marketable securities for $9.4
million and the purchase of equipment for $2.8 million. Capital expenditures
increased in 1996 from 1995 primarily because of the purchase of research and
development and training equipment. The Company expects to continue to invest in
property, plant and equipment needed for future business requirements, including
manufacturing capacity.
Financing activities provided net cash of $9.4 million for 1996 and $14.8
million for 1995. In 1995, the Company completed its initial public offering,
which provided net proceeds to the Company of $21.2 million. From these
proceeds, the Company paid off its bank line of credit and a portion of its
outstanding long-term debt. At December 31, 1996, approximately $8.4 million was
outstanding under the Company's $10 million bank operating line of credit and
approximately $1.6 million was available to be borrowed under the line of
credit. On January 8, 1997 the loan agreement between the Company and the bank
was amended to increase the line of credit to $12 million. This line of credit
is secured by accounts receivable and inventory, bears interest at an annual
rate equal (at the Company's option) to (i) the bank's basic commercial lending
rate (8.25% at December 31, 1996) or (ii) LIBOR plus 2.0%, and is subject to
review by the bank on June 1, 1997. The Company may borrow up to the lesser of
(i) $12 million and (ii) an amount equal to the sum of 80% of eligible accounts
receivable and 30% of eligible inventory (excluding work in process). Under the
terms of the line of credit, the Company must maintain a current ratio of not
less than 2.0, a minimum tangible net worth of not less than $30 million and a
senior debt to tangible net worth ratio of not more than 1.0, each measured at
the end of each calendar quarter.
Noncash investing and financing activities for 1996 included the conversion
of $3.5 million of long-term debt into 466,667 shares of Common Stock and the
noncash sale of three FIB workstations to Norsam in exchange for 500,000 shares
of Norsam Series A Preferred Stock.
The Company believes its cash equivalents, investments and borrowings
available under its line of credit will be sufficient to fund operations during
the near term. The Company expects, however, to continue to use cash to fund
operations. The Company will be required to seek credit arrangements with
commercial banks and other institutional lenders, other than the existing line
of credit now maintained by
19
<PAGE>
the Company, or from other sources of equity or debt financing. There is no
assurance that any such financing will be available on terms that are favorable
to the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item are
included on pages F-1 to F-19 and S-1 to S-3 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors of the Company will be included under
"Election of Directors" in the Company's definitive proxy statement for its 1997
annual meeting of shareholders to be filed not later than 120 days after the end
of the fiscal year covered by this Report and is incorporated herein by
reference. Information with respect to executive officers of the Company is
included under Item 4(a) of Part I of this Report. Information with respect to
compliance with Section 16(a) of the Securities Exchange Act is included under
"Compliance with Section 16(a) of the Exchange Act" in the Company's definitive
proxy statement for its 1997 Annual Meeting of Shareholders filed or to be filed
no later than 120 days after the end of the fiscal year covered by this Report
and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation will be included under
"Executive Compensation" in the Company's definitive proxy statement for its
1997 annual meeting of shareholders to be filed not later than 120 days after
the end of the fiscal year covered by this Report and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners
and management will be included under "Security Ownership of Certain Beneficial
Owners and Management" in the Company's definitive proxy statement for its 1997
annual meeting of shareholders filed or to be filed not later than 120 days
after the end of the fiscal year covered by this Report and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions
with management will be included under "Certain Transactions" in the Company's
definitive proxy statement for its 1997 annual meeting of shareholders to be
filed not later than 120 days after the end of the fiscal year covered by this
Report and is incorporated herein by reference.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE IN THIS REPORT
---------------------
<C> <S> <C>
(A)(1) FINANCIAL STATEMENTS
Independent Auditors' Report..................................................... F-1
Consolidated Balance Sheets at December 31, 1995 and 1996........................ F-2
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995
and 1996......................................................................... F-3
Consolidated Statements of Shareholders' Equity for the Years Ended December 31,
1994, 1995 and 1996.............................................................. F-4
Consolidated Statement of Cash Flows for the Years Ended December 31, 1994, 1995
and 1996......................................................................... F-5
Notes to Consolidated Financial Statements....................................... F-6
(A)(2) FINANCIAL STATEMENT SCHEDULES
Schedule of Valuation and Qualifying Accounts and Reserve........................ S-1
Schedule of Computation of Earnings Per Share.................................... S-2
(A)(3) EXHIBITS
****2.1 Combination Agreement, dated November 15, 1996, as amended, between the
Registrant and Philips Industrial Electronics International B.V.
3.1 Second Amended and Restated Articles of Incorporation, as amended
3.2 Restated Bylaws
4.1 See Articles III and IV of Exhibit 3.1 and Articles I and VI of Exhibit 3.2
+*10.1 1984 Stock Incentive Plan
+10.2 1995 Stock Incentive Plan, as amended
+**10.3 1995 Supplemental Stock Incentive Plan
+*10.4 Form of Incentive Stock Option Agreement
+*10.5 Form of Nonstatutory Stock Option Agreement
*10.6 Warrant and Subordinated Promissory Note, dated October 3, 1988, and schedule of
parties to whom substantially identical warrants and notes were issued
*10.7 Lease, dated as of November 20, 1992, between the Registrant and Capital
Consultants, Inc. as agent for United Association Union Local 290, Plumber,
Steamfitter and Shipfitter Industry Pension Fund
10.8 Lease, dated January 11, 1996, between the Registrant and Pacific Realty
Associates, L.P.
10.9 Lease, dated June 6, 1996, between the Registrant and Pacific Realty Associates,
L.P.
*10.10 Master Note and Security Agreement, each dated May 13, 1993, between the
Registrant and Key Bank of Oregon
*10.11 Note Purchase Agreement, Convertible Promissory Note and Registration Rights
Agreement, each dated as of August 26, 1993, between the Registrant and Capital
Consultants, Inc. as agent for United Association Union Local 290, Plumber,
Steamfitter and Shipfitter Industry Pension Trust
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
PAGE IN THIS REPORT
---------------------
<C> <S> <C>
*10.12 First Amendment to Loan Documents and First Amended and Restated Convertible
Promissory Note, each dated as of October 3, 1994, between the Registrant and
Capital Consultants, Inc. as agent for United Association Union Local 290,
Plumber, Steamfitter and Shipfitter Industry Pension Trust
*10.13 Loan Agreement, Master Note, Security Agreement and Cross-Default and
Cross-Collateralization Agreement, each dated as of December 17, 1993, between
the Registrant and Key Bank of Oregon
*10.14 Amendments, dated April 26, 1994, June 1, 1994, August 1, 1994 and December 21,
1994, to Loan Agreement between the Registrant and Key Bank of Oregon
***10.15 Amendment, dated August 6, 1996, to Loan Agreement between the Registrant and Key
Bank of Oregon
10.16 Amendment, dated January 9, 1997, to Loan Agreement between the Registrant and
Key Bank of Oregon
*10.17 Master Note, Security Agreement and Cross-Default and Cross-Collateralization
Agreement, each dated as of June 1, 1994, between the Registrant and Key Bank of
Oregon
#*10.18 Agreement, dated February 9, 1994, between the Registrant and Philips Electron
Optics B.V.
11.1 Computation of earnings per share (included on page S-2)
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1, as amended, effective May 31, 1995 (Commission
Registration No. 33-71146).
** Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995.
*** Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996.
****Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report
on Form 8-K, dated November 22, 1996.
+ This exhibit constitutes a management contract or compensatory plan or
arrangement.
# Confidential treatment has been granted by the Commission for certain
portions of this agreement.
(B) REPORTS ON FORM 8-K.
A report on Form 8-K was filed by the Company on November 22, 1996 reporting
item 5. No financial statements were filed with the report.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FEI COMPANY
By: /s/ WILLIAM A. WHITWARD
-----------------------------------------
William A. Whitward
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the following capacities on March 28, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
President and Chief
/s/ WILLIAM A. WHITWARD Executive Officer
- ------------------------------ (Principal Executive
William A. Whitward Officer)
Executive Vice President,
/s/ WILLIAM G. LANGLEY Chief Financial Officer
- ------------------------------ and Secretary (Principal
William G. Langley Financial Officer)
/s/ FREDERICK A.M. GORDON Controller and Assistant
- ------------------------------ Treasurer (Principal
Frederick A.M. Gordon Accounting Officer)
/s/ LYNWOOD W. SWANSON Chairman of the Board
- ------------------------------
Lynwood W. Swanson
/s/ KAREL D. VAN DER MAST Executive Vice President
- ------------------------------ Marketing, Technical
Karel D. Van Der Mast Officer and Director
/s/ ALFRED B. BOK Director
- ------------------------------
Alfred B. Bok
/s/ WILLIAM CURRAN Director
- ------------------------------
William Curran
23
<PAGE>
SIGNATURE TITLE
- ------------------------------ ---------------------------
/s/ THEO J.H.J. SONNEMANS Director
- ------------------------------
Theo J.H.J. Sonnemans
/s/ LLOYD R. SWENSON Director
- ------------------------------
Lloyd R. Swenson
/s/ DONALD R. VANLUVANEE Director
- ------------------------------
Donald R. Vanluvanee
24
<PAGE>
FEI COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INDEPENDENT AUDITORS' REPORT.............................................................................. F-1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets at December 31, 1995 and 1996............................................... F-2
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995, and 1996............. F-3
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1994, 1995, and 1996... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995, and 1996............. F-5
Notes to Consolidated Financial Statements.............................................................. F-6
SUPPLEMENTAL SCHEDULES:
Schedule of Valuation and Qualifying Accounts and Reserves for the Three Years Ended December 31,
1996.................................................................................................. S-1
Schedule of Computation of Earnings Per Share for the Three Years Ended December 31, 1996............... S-2
</TABLE>
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
FEI Company
Hillsboro, Oregon
We have audited the accompanying consolidated balance sheets of FEI Company and
Subsidiaries as of December 31, 1995 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. Our audits also included the
supplemental schedules listed in the Table of Contents. The consolidated
financial statements and supplemental schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and supplemental schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of FEI Company and Subsidiaries as of
December 31, 1995 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles. Also, in our opinion,
such supplemental schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Portland, Oregon
January 31, 1997
F-1
<PAGE>
FEI COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................................. $ 2,700 $ 646
Investments (Note 2)...................................................................... 4,961 --
Receivables (Note 3)...................................................................... 13,769 19,874
Inventories (Note 4)...................................................................... 10,425 19,971
Deferred income taxes (Note 11)........................................................... 626 1,248
Other..................................................................................... 195 1,623
--------- ---------
Total current assets.................................................................. 32,676 43,362
INVESTMENTS (Note 2)........................................................................ 2,540 --
EQUIPMENT (Note 5).......................................................................... 4,604 9,030
LEASE RECEIVABLES (Note 6).................................................................. 2,663 2,055
OTHER ASSETS (Note 7)....................................................................... 2,159 6,307
--------- ---------
TOTAL....................................................................................... $ 44,642 $ 60,754
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit (Note 8)................................................................... $ -- $ 8,436
Accounts payable.......................................................................... 2,597 6,758
Accrued payroll liabilities............................................................... 606 751
Accrued warranty reserves................................................................. 892 1,797
Deferred revenue.......................................................................... 434 868
Income taxes payable...................................................................... 870 59
Other current liabilities................................................................. 871 1,670
--------- ---------
Total current liabilities............................................................. 6,270 20,339
LONG-TERM DEBT (Note 10).................................................................... 3,500 --
DEFERRED INCOME TAXES (Note 11)............................................................. 450 751
COMMITMENTS AND CONTINGENCIES (Notes 9 and 17)
SHAREHOLDERS' EQUITY (Note 12):
Preferred stock--500,000 shares authorized;
none issued and outstanding............................................................. -- --
Common stock--15,000,000 shares authorized; 7,222,394 and 7,956,963 shares issued and
outstanding............................................................................. 27,150 31,658
Warrants--200,001 and zero issued and outstanding......................................... 59 --
Retained earnings......................................................................... 7,099 7,941
Other..................................................................................... 114 65
--------- ---------
Total shareholders' equity............................................................ 34,422 39,664
--------- ---------
TOTAL....................................................................................... $ 44,642 $ 60,754
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
FEI COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
NET SALES........................................................................ $ 22,281 $ 41,691 $ 45,615
COST OF SALES.................................................................... 14,150 26,017 30,749
--------- --------- ---------
Gross profit............................................................... 8,131 15,674 14,866
--------- --------- ---------
OPERATING EXPENSES:..............................................................
Research and development....................................................... 3,107 2,566 3,945
Selling and marketing.......................................................... 2,802 4,580 5,797
General and administrative..................................................... 2,149 2,617 4,264
Postponed stock offering and duplicate rent (Notes 9 and 12)................... 433 -- --
--------- --------- ---------
Total operating expenses................................................... 8,491 9,763 14,006
--------- --------- ---------
OPERATING INCOME (LOSS).......................................................... (360) 5,911 860
--------- --------- ---------
OTHER INCOME (EXPENSE):
Foreign currency gain (loss)................................................... 93 (208) 59
Interest income................................................................ 405 935 602
Interest expense............................................................... (591) (663) (184)
Other.......................................................................... (35) (184) (42)
--------- --------- ---------
Total other income (expense)............................................... (128) (120) 435
--------- --------- ---------
INCOME (LOSS) BEFORE TAXES....................................................... (488) 5,791 1,295
TAX EXPENSE (BENEFIT) (Note 11).................................................. (263) 2,050 453
--------- --------- ---------
NET INCOME (LOSS)................................................................ $ (225) $ 3,741 $ 842
--------- --------- ---------
--------- --------- ---------
PER SHARE DATA:..................................................................
Net income (loss) per share.................................................... $ (0.04) $ 0.57 $ 0.10
--------- --------- ---------
--------- --------- ---------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (Note 12)....... 5,101 6,603 8,040
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
FEI COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
--------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS OTHER
---------- --------- ---------- ----------- ----------- -----------
BALANCE, DECEMBER 1, 1994........................ 4,344,972 $ 5,504 400,001 $ 119 $ 3,583 $ 25
Net loss......................................... -- -- -- -- (225) --
Proceeds from exercise of options for 18,733
shares of common stock (Note 12)............... 18,733 37 -- -- -- --
Stock options granted below market value......... -- 8 -- -- -- --
Other............................................ -- -- -- -- -- (4)
---------- --------- ---------- ----- ----------- -----
BALANCE, DECEMBER 31, 1994....................... 4,363,705 5,549 400,001 119 3,358 21
Net income....................................... -- -- -- -- 3,741 --
Proceeds from exercise of options for 210,539
shares of common stock (Note 12)............... 210,539 393 -- -- -- --
Proceeds from sale of 2,500,000 shares of common
stock, less $2,602 costs of issuance........... 2,500,000 21,148 -- -- -- --
Exercise of 200,000 warrants into 148,150 shares
of common stock (Note 10)...................... 148,150 60 (200,000) (60) -- --
Other............................................ -- -- -- -- -- 93
---------- --------- ---------- ----- ----------- -----
BALANCE, DECEMBER 31, 1995....................... 7,222,394 27,150 200,001 59 7,099 114
Net income....................................... -- -- -- -- 842 --
Proceeds from exercise of options for 108,020
shares of common stock (Note 12)............... 108,020 949 -- -- -- --
Exercise of convertible debt for 466,667 shares
of common stock (Note 10)...................... 466,667 3,500 -- -- -- --
Exercise of 200,001 warrants into 159,882 shares
of common stock (Note 10)...................... 159,882 59 (200,001) (59) -- --
Other............................................ -- -- -- -- -- (49)
---------- --------- ---------- ----- ----------- -----
BALANCE, DECEMBER 31, 1996....................... 7,956,963 $ 31,658 -- $ -- $ 7,941 $ 65
---------- --------- ---------- ----- ----------- -----
---------- --------- ---------- ----- ----------- -----
<CAPTION>
<S> <C>
TOTAL
---------
BALANCE, DECEMBER 1, 1994........................ $ 9,231
Net loss......................................... (225)
Proceeds from exercise of options for 18,733
shares of common stock (Note 12)............... 37
Stock options granted below market value......... 8
Other............................................ (4)
---------
BALANCE, DECEMBER 31, 1994....................... 9,047
Net income....................................... 3,741
Proceeds from exercise of options for 210,539
shares of common stock (Note 12)............... 393
Proceeds from sale of 2,500,000 shares of common
stock, less $2,602 costs of issuance........... 21,148
Exercise of 200,000 warrants into 148,150 shares
of common stock (Note 10)...................... --
Other............................................ 93
---------
BALANCE, DECEMBER 31, 1995....................... 34,422
Net income....................................... 842
Proceeds from exercise of options for 108,020
shares of common stock (Note 12)............... 949
Exercise of convertible debt for 466,667 shares
of common stock (Note 10)...................... 3,500
Exercise of 200,001 warrants into 159,882 shares
of common stock (Note 10)...................... --
Other............................................ (49)
---------
BALANCE, DECEMBER 31, 1996....................... $ 39,664
---------
---------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
FEI COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................................................... $ (225) $ 3,741 $ 842
Adjustments to reconcile net income (loss) to net cash used in operating
activities:.........................................................................
Depreciation and amortization..................................................... 1,409 1,564 1,687
Deferred taxes on income.......................................................... (347) 268 (321)
Stock options granted below market value.......................................... 8 -- --
Decrease (increase) in assets:
Receivables..................................................................... (4,115) (5,873) (9,355)
Inventories..................................................................... (1,548) (2,796) (8,881)
Other assets.................................................................... 222 188 (1,670)
Increase (decrease) in liabilities:...............................................
Accounts payable................................................................ 1,250 (956) 4,161
Accrued payroll liabilities..................................................... (39) 212 145
Accrued warranty reserves....................................................... 217 351 905
Deferred revenue................................................................ 58 205 434
Income taxes payable............................................................ (13) 840 (753)
Other current liabilities....................................................... 180 485 799
--------- --------- ---------
Net cash used in operating activities....................................... (2,943) (1,771) (12,007)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment.............................................................. (3,144) (2,789) (6,223)
Investment in software development.................................................... (156) (345) (784)
Purchases of marketable securities.................................................... -- (9,405) (1,052)
Sales of marketable securities........................................................ -- 2,000 8,443
Net investment in lease receivables................................................... (336) (96) 161
Net proceeds from disposal of equipment............................................... 1 111 34
--------- --------- ---------
Net cash provided by (used in) investing activities......................... (3,635) (10,524) 579
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from initial public offering of common stock............................. -- 21,148 --
Net proceeds from (payments on) line of credit and notes payable...................... 4,731 (6,386) 8,436
Proceeds from exercise of stock options and warrants.................................. 37 393 949
Proceeds from issuances of long-term debt............................................. 1,941 1,000 --
Payments on long-term debt............................................................ (278) (1,348) --
--------- --------- ---------
Net cash provided by financing activities................................... 6,431 14,807 9,385
--------- --------- ---------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT................................................. (4) (4) (11)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................... (151) 2,508 (2,054)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......................................... 343 192 2,700
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................................ $ 192 $ 2,700 $ 646
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of long-term debt.......................................................... $ -- $ -- $ (3,500)
Investment in Norsam (Note 7)......................................................... -- -- (3,250)
Repossession of leased FIB............................................................ -- -- 447
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION--Cash paid during the period for:
Interest.............................................................................. $ 584 $ 682 $ 142
Income taxes paid, net of refunds received............................................ (38) 836 1,471
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS--FEI Company and its wholly owned subsidiaries (the
"Company") design, manufacture, and market focused ion beam ("FIB") workstations
and components based on field emission technology. The Company sells its FIB
workstations principally to integrated circuit manufacturers and sells
components to manufacturers of electron microscopes and other devices
incorporating field emission technology. The Company's customers are located
primarily in the United States, Europe, and Asia.
NEED FOR NEW PRODUCT DEVELOPMENT--The market for tools to analyze and modify
materials with submicron precision is highly competitive and subject to rapid
change. The Company devotes a portion of its revenue to continued research and
development in an effort to lead that change through the development of new and
better uses of field electron and ion emission technology. There is, however,
the possibility that alternative technologies or developments in the
semiconductor industry will render the Company's products unsuitable for the
needs of that industry. Such changes could significantly impact the Company's
ability to recognize its investments in inventory and developed software.
CUSTOMER CONCENTRATION--Sales of FIB workstations, which represent the
majority of product sales, are highly dependent upon capital expenditures by
semiconductor manufacturers and semiconductor testing laboratories. While that
industry is currently expanding, there is no assurance that the growth can be
sustained.
DEPENDENCE ON SUPPLIERS--Because of the highly specialized nature of the
Company's products, certain of the components and subassemblies included in the
Company's products are made to the Company's specifications and obtained from a
single or a limited number of suppliers. A substantial portion of the
subassemblies included in the Company's FIB workstations are purchased from
Philips Electron Optics B.V. ("PEO"), whose operations the Company acquired
subsequent to year end.
USE OF ESTIMATES IN FINANCIAL REPORTING--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 and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from
estimates.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of the Company and its subsidiaries, FEI Europe Limited, FEI Europe
GmbH, FEI Asia Corporation, and FEI Company FSC Ltd., a foreign sales
corporation. All significant intercompany accounts and transactions have been
eliminated.
FOREIGN CURRENCY TRANSLATION--Assets and liabilities denominated in a
foreign currency are translated to U.S. dollars at the exchange rate on the
balance sheet date. Translation adjustments are shown separately in
shareholders' equity. Revenues, costs and expenses are translated using an
average rate. Realized and unrealized foreign currency transaction gains and
losses are included in the consolidated statement of operations.
INVESTMENTS--As required under Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities, the
Company classifies securities into one of three categories: held to maturity,
available for sale, or trading. At December 31, 1995, all such investments were
classified as available for sale and, as such, are reported at market value. The
difference between the amortized cost of such securities and their market value
is reported as a separate component of
F-6
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
shareholders' equity. Cost of securities sold is determined on a
weighted-average cost basis. There were no such investments at December 31,
1996.
REVENUE RECOGNITION--Product sales are recorded at the time of shipment.
Maintenance service revenues are billed in advance and recorded as deferred
revenue. Where a service contract exists, service revenues are recognized
ratably over the contract period; otherwise, revenues are recognized as services
are provided. A substantial portion of the Company's sales are made to a limited
number of customers (see Note 15). The Company makes periodic evaluations of the
credit-worthiness of its customers and generally does not require collateral.
The Company's products are constantly updated. In certain situations,
customers have the opportunity to trade in a workstation as part of the purchase
price of a new workstation. The Company believes there is a market for used
workstations, which may be resold or leased to customers requiring less advanced
product technology and applications.
INVENTORIES are stated at lower of cost or market with cost determined by
standard cost methods which approximate the first-in, first-out method.
Inventory costs include material, labor and manufacturing overhead. Service
inventories which are in excess of the current requirements based on recent
sales levels are reported as noncurrent assets, and management has established
an inventory reserve based on their best estimate of such amount.
EQUIPMENT, including leased FIB systems, is stated at cost and depreciated
over the estimated useful life of approximately three to seven years using the
straight-line method. Leasehold improvements are amortized over the shorter of
their economic lives or the lease term. Maintenance and repairs are expensed as
incurred.
LEASE RECEIVABLE--For the sales-type lease, the amount recorded as revenue
is the present value of the minimum lease payments computed at the interest rate
implicit in the lease. The cost of equipment is considered as cost of sales in
the period in which the lease is executed, and the excess of the aggregate
rentals over the recorded revenue amount is accounted for as finance income over
the term of the lease.
OTHER ASSETS--Goodwill, which represents the excess of cost over fair value
of net assets acquired, is amortized on a straight-line basis over eight years.
Certain computer software development costs have been capitalized. These costs
are being amortized over three to five years, the estimated economic life of the
software, using the straight-line method. Changes in technology could impact the
Company's estimate of the useful life of such assets.
RESEARCH AND DEVELOPMENT costs are expensed as incurred. The Company
periodically participates in joint ventures for research and development
projects and records its proportionate expense as it is incurred over the life
of the project. Timing of the expenditures coincides with the terms of the
agreements.
PRODUCT WARRANTY--Warranties based on usage from the date of sale are
provided for certain emitter products. Other products generally have a one-year
warranty. A reserve is established to cover estimated warranty costs and certain
commitments for product upgrades. The Company's estimate of warranty cost is
based on its history of warranty repairs. While most new products are extensions
of existing technology, the estimate could change if new products require a
significantly different level of repair than similar products have required in
the past.
F-7
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TAXES AND TAX CREDITS--The Company uses an asset and liability approach for
financial accounting and reporting for income taxes. Deferred taxes are provided
for temporary differences between the amounts of assets and liabilities for
financial and tax reporting purposes.
STOCK-BASED COMPENSATION--The Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, effective January 1, 1996. The Company will continue
to measure compensation expense for its stock-based employee compensation plans
using the method prescribed by APB Opinion No. 25, Accounting for Stock Issued
to Employees, but will provide pro forma disclosures of net income and earnings
per share as if the method prescribed by SFAS No. 123 had been applied in
measuring compensation expense.
NET INCOME (LOSS) PER SHARE is computed on the basis of the weighted average
number of common and common equivalent shares outstanding. Outstanding options
for common stock have been included in the calculation of common and common
equivalent shares outstanding using the treasury stock method. Also, in
accordance with the accounting rules of the Securities and Exchange Commission,
shares issued or options granted within one year prior to the filing date of the
Company's initial public offering have been included in the calculation of
common and common equivalent shares as if they were outstanding for all periods
presented using the treasury stock method.
CASH AND CASH EQUIVALENTS--Money market funds and other highly-liquid
instruments with original maturities of less than three months are considered to
be cash equivalents.
RECLASSIFICATION--Certain amounts from prior years have been reclassified to
conform with the 1996 financial statement presentation.
2. INVESTMENTS
Investments, classified as available for sale, consist of the following at
December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED FAIR
COST GAINS VALUE
----------- ------------- ---------
<S> <C> <C> <C>
Debt securities issued by the United States Treasury and other U.S. government
corporations and agencies..................................................... $ 1,908 $ 24 $ 1,932
Debt securities issued by states of the United States and political subdivisions
thereof....................................................................... 3,508 56 3,564
Corporate obligations........................................................... 989 1 990
Preferred stock................................................................. 1,000 15 1,015
----------- --- ---------
Total..................................................................... $ 7,405 $ 96 $ 7,501
----------- --- ---------
----------- --- ---------
These investments have been reported at December 31, 1995 as follows:
Current assets--investments..................................................... $ 4,961
Noncurrent assets--investments.................................................. 2,540
---------
---------
Total..................................................................... $ 7,501
---------
---------
</TABLE>
F-8
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RECEIVABLES
Receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Trade................................................................... $ 12,000 $ 18,998
Other................................................................... 587 304
Current portion of lease receivable (see Note 6)........................ 1,277 812
--------- ---------
13,864 20,114
Allowance for doubtful accounts......................................... (95) (240)
--------- ---------
Total receivables................................................. $ 13,769 $ 19,874
--------- ---------
--------- ---------
</TABLE>
4. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Raw materials and assembled parts....................................... $ 6,933 $ 12,003
Work in process......................................................... 1,866 4,284
Finished goods.......................................................... 1,626 3,684
--------- ---------
Total inventories................................................. $ 10,425 $ 19,971
--------- ---------
--------- ---------
</TABLE>
Included in raw materials and assembled parts are $1,004,000 and $2,229,000
of current requirement service inventories at December 31, 1995 and 1996.
5. EQUIPMENT
Equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Equipment and office furniture............................................................... $ 7,413 $ 10,194
Computer equipment........................................................................... 1,106 2,062
Leased FIB systems........................................................................... 412 1,282
Leasehold improvements....................................................................... 162 1,204
--------- ---------
9,093 14,742
Accumulated depreciation..................................................................... (4,489) (5,712)
--------- ---------
Total equipment........................................................................ $ 4,604 $ 9,030
--------- ---------
--------- ---------
</TABLE>
Leased FIB systems consist of equipment leased under principally
month-to-month operating leases.
F-9
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LEASE RECEIVABLES
Lease receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Minimum lease receipts..................................................... $ 4,937 $ 3,570
Unearned finance charges................................................... (997) (703)
--------- ---------
3,940 2,867
Less current portion included in current receivables (Note 3).............. (1,277) (812)
--------- ---------
Total lease receivables.............................................. $ 2,663 $ 2,055
--------- ---------
--------- ---------
</TABLE>
Finance income (reported as a component of interest income in the
consolidated statements of operations) earned during the years ended December
31, 1994, 1995, and 1996 was $395,000, $489,000, and $382,000, respectively.
Minimum receipts on the lease receivable are due as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1997................................................................................. $ 1,071
1998................................................................................. 871
1999................................................................................. 627
2000................................................................................. 554
2001................................................................................. 418
Thereafter........................................................................... 29
---------
Total.......................................................................... $ 3,570
---------
---------
</TABLE>
7. OTHER ASSETS
Other assets consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Service inventories, noncurrent, net of reserves of $375 and $951, respectively................ $ 1,500 $ 1,500
Capitalized software development costs, net of amortization of $545 and $665, respectively..... 499 1,163
Goodwill, net of amortization of $83 and $105, respectively.................................... 73 51
Cash surrender value of life insurance......................................................... 77 97
Investment in Norsam........................................................................... -- 3,267
Deposits and other............................................................................. 10 229
--------- ---------
Total other assets....................................................................... $ 2,159 $ 6,307
--------- ---------
--------- ---------
</TABLE>
Software development costs capitalized during the years ended December 31,
1994, 1995 and 1996 were $156,000, $345,000 and $784,000, respectively.
Amortization of software development costs was $158,000, $194,000, and $120,000
for the years ended 1994, 1995, and 1996, respectively.
F-10
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. OTHER ASSETS (CONTINUED)
During 1996, the Company sold three FIB workstations to Norsam Technologies,
Inc. ("Norsam") for use in a new commercial application of FIB technology
providing long-term archival and very high density data storage. In addition,
the Company has entered into an exclusive vendor relationship with Norsam for
the purchase of up to an additional 20 workstations. The consideration paid by
Norsam to FEI for the three workstations was 500,000 shares of Norsam Series A
Preferred Stock. Each share of Series A Preferred Stock is convertible into
shares of Norsam common stock at a conversion rate of $5 per share. The recorded
value of this transaction was $3,267,000, including $17,000 of transaction
costs. The Company's investment is being carried at its cost since the Norsam
stock is not readily marketable.
8. LINE OF CREDIT
A $12 million operating line of credit is available at the bank's variable
basic rate (8.25% at December 31, 1996). A $3.5 million foreign exchange line of
credit is also available at the same rate. A total of $8.4 million was
outstanding under the operating line of credit and no amount was outstanding
under the foreign exchange line of credit at December 31, 1996. The Company has
the option to fix the rate of interest on up to $9 million of the operating line
of credit at the London Interbank Offering Rate plus 2% (9.55% at December 31,
1996) for up to six months. The credit lines will be subject to review on June
1, 1997. Borrowings under the lines of credit are secured by eligible
receivables, inventories, and equipment. The credit lines contain certain
financial covenants, the most restrictive of which establishes a minimum ratio
of current assets to current liabilities. The Company was in compliance with
such covenants at December 31, 1996.
9. LEASE OBLIGATION
Operations are conducted in manufacturing and administrative facilities
under operating leases that extend through March 2003. Rent expense is
recognized on a straight-line basis over the term of the lease. Rent expense for
the years ended December 31, 1994, 1995, and 1996 was approximately $746,000,
$601,000, and $895,000, respectively. Included in the year ended December 31,
1994 was duplicate rent for the former headquarters facility of $203,000.
Also included in a building lease is a provision for a $500,000 buildout
loan, the full amount of which was borrowed during 1994. Amounts borrowed bear
interest at 9% and are payable ratably over the initial lease term.
The approximate future minimum rental payments due under these agreements as
of December 31, 1996 are $1,109,000, $1,153,000, $1,153,000, $1,153,000, and
$1,184,000 for the years ending December 31, 1997 through 2001, respectively.
10. LONG-TERM DEBT
Long-term debt at December 31, 1995 totaled $3.5 million and consisted of
the Company's note to a nonbank lender for whom a director of the Company acts
as an agent. Such borrowings, which bore interest at prime plus 2%, were
convertible into common shares at $7.50 per share. On August 18, 1995, the
Company notified the lender of its intent to prepay the borrowing and the lender
elected to convert the debt into 466,667 shares of common stock on March 1,
1996. If the conversion right had been exercised on January 1, 1996, the impact
on net income for the year ended December 31, 1996 would not have been material.
F-11
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
In connection with previous loan agreements with a state agency and certain
shareholders, the Company issued warrants to purchase 400,001 shares of common
stock for $3.00 per share. The warrants were valued by calculating the
difference between the market rate of interest offered to the Company by a major
commercial bank and the interest rate on the debt. On June 5, 1995, 70,347
warrants were converted into 48,132 shares of common stock; on September 5,
1995, 129,653 warrants were converted into 100,018 shares of common stock; on
June 5, 1996, 150,000 warrants were converted into 122,050 shares of common
stock; and on September 13, 1996, the remaining 50,001 warrants were converted
into 37,832 shares of common stock. Each warrant was converted into a number of
shares of common stock equal to the total number of shares for which the warrant
was exercisable, less a number of shares representing the aggregate exercise
price of the warrant shares purchased, valued at the market price on the date of
exercise. No warrants remained outstanding at December 31, 1996.
11. TAXES
The tax expense (benefit) consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Current:
Federal............................................................................... $ (47) $ 1,268 $ 516
State................................................................................. 49 335 95
Foreign............................................................................... 82 179 163
--------- --------- ---------
Subtotal.......................................................................... 84 1,782 774
Deferred................................................................................ (347) 268 (321)
--------- --------- ---------
Total tax expense (benefit)....................................................... $ (263) $ 2,050 $ 453
--------- --------- ---------
--------- --------- ---------
</TABLE>
The effective income tax rate varies from the statutory rate due to the
following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Expected tax expense (benefit) at statutory rates....................................... $ (166) $ 1,969 $ 440
Increase (reduction) in income taxes resulting from:
Foreign sales corporation............................................................. -- (115) (27)
Foreign taxes......................................................................... 4 (11) 33
State income taxes, net of federal income tax benefit................................. (31) 232 44
Research and development tax credits.................................................. (58) -- --
Other................................................................................. (12) (25) (37)
--------- --------- ---------
Total tax expense (benefit)....................................................... $ (263) $ 2,050 $ 453
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-12
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Deferred tax assets:
Reserves and accruals...................................................... $ 548 $ 1,173
Other assets............................................................... 78 76
Deferred tax liability:
Accumulated depreciation................................................... (294) (378)
Other liabilities.......................................................... (156) (374)
--------- ---------
Net deferred tax asset................................................. $ 176 $ 497
--------- ---------
--------- ---------
Deferred tax:
Current asset.............................................................. $ 626 $ 1,248
Long-term liability........................................................ (450) (751)
--------- ---------
Net deferred tax asset................................................. $ 176 $ 497
--------- ---------
--------- ---------
</TABLE>
12. SHAREHOLDERS' EQUITY
STOCK SPLIT--Effective May 15, 1995, the Board of Directors approved a
two-for-three reverse stock split. All share data has been restated accordingly.
CAPITAL STOCK--Reserved shares of common stock as of December 31, 1994,
1995, and 1996 were 1,552,531, 1,889,375, and 1,414,687, respectively. These
shares were reserved for stock incentive plans, the warrants issued in
connection with previous loan agreements and shares issuable upon conversion of
a loan.
PUBLIC OFFERING--On June 1, 1995, the Company completed its initial public
offering by issuing 2,500,000 shares of common stock at $9.50 per share.
Proceeds, net of underwriters' commissions and other offering costs, aggregated
$21.1 million. Approximately $6.2 million of the proceeds were used to pay off
the Company's line of credit and lease finance line.
STOCK INCENTIVE PLANS--The Company maintains stock incentive plans for
selected directors, officers, employees, and certain other parties which allows
the Board of Directors to grant options (incentive and nonqualified), stock and
cash bonuses, stock appreciation rights, and the sale of restricted stock.
The 1995 Stock Incentive Plan ("1995 Plan") allows for issuance of a maximum
of 500,000 shares. The Board of Directors' ability to grant options under the
1995 Plan will terminate when all shares reserved for issuance have been issued
and all restrictions on such shares have lapsed or earlier, at the option of the
Board of Directors.
The 1995 Supplemental Stock Incentive Plan ("1995 Supplemental Plan") allows
for issuance of a maximum of 500,000 shares. The Board of Directors' ability to
grant options under the 1995 Supplemental Plan will terminate when all shares
reserved for issuance have been issued and all restrictions on such shares have
lapsed or earlier, at the option of the directors.
F-13
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SHAREHOLDERS' EQUITY (CONTINUED)
The 1984 Stock Incentive Plan ("1984 Plan") allows for issuance of a maximum
of 1,200,000 shares. The Board of Directors' ability to grant options under the
1984 Plan terminated in January 1995. During the year ended December 31, 1994,
options were granted for less than $9.50 per share. Such options were considered
compensatory and $8,000 was recorded as an expense.
Options are granted under various vesting arrangements, up to a maximum of
five years. Options expire after a maximum of ten years. Options outstanding are
summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
AVAILABLE OUTSTANDING EXERCISE
FOR GRANT OPTIONS PRICE
---------- ----------- -----------
<S> <C> <C> <C>
Balance, January 1, 1994.................................................. 96,068 441,863 $ 4.58
Options granted........................................................... (17,000) 17,000 7.50
Options exercised......................................................... -- (18,733) 1.98
Options expired........................................................... 5,250 (5,250) 7.50
---------- ----------- -----------
Balance, December 31, 1994................................................ 84,318 434,880 $ 4.77
Options available under the 1995 Plan and the 1995 Supplemental Plan...... 1,000,000 -- --
Options granted........................................................... (967,872) 967,872 11.97
Options exercised......................................................... -- (210,539) 1.87
Options expired........................................................... 8,354 (8,354) 11.19
Plan expiration........................................................... (85,952) -- --
---------- ----------- -----------
Balance, December 31, 1995................................................ 38,848 1,183,859 $ 10.82
Options available under the 1995 Plan and the 1995 Supplemental Plan...... 300,000 -- --
Options granted........................................................... (221,850) 221,850 12.61
Options exercised......................................................... -- (108,020) 8.79
Options expired........................................................... 4,532 (4,532) 11.90
---------- ----------- -----------
Balance, December 31, 1996................................................ 121,530 1,293,157 $ 11.58
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The weighted average fair value of options granted in each of the years
ended December 31, 1995 and 1996 was $6.91 and $7.48, respectively. At December
31, 1994, 1995 and 1996, 357,501, 374,433 and 591,982 options were exercisable,
respectively.
At December 31, 1996, options are exercisable at prices ranging from $7.50
to $18.25 per share.
F-14
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
and exercisable under the 1995 Plan and the 1995 Supplemental Plan at December
31, 1996:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------------------------ ----------------------------
<S> <C> <C> <C> <C> <C>
RANGE OF NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE OF REMAINING EXERCISE OF EXERCISE
PRICES OPTIONS CONTRACTUAL LIFE (YRS.) PRICE OPTIONS PRICE
- -------------- ---------- ----------------------- ----------------- --------- -----------------
7.50 - 10.63 579,457 3.15 8.96 304,402 8.71
11.88 - 15.00 768,700 3.66 13.30 282,580 13.30
18.25 5,000 9.38 18.25 5,000 18.25
---------- --- ----- --------- -----
1,293,157 3.48 11.58 591,982 10.98
---------- --- ----- --------- -----
---------- --- ----- --------- -----
</TABLE>
As discussed in Note 1, the Company has adopted the disclosure-only
provisions of SFAS No. 123. Accordingly, no compensation cost has been
recognized for stock options granted at the fair value on the date of grant. Had
compensation cost for the Company's stock option plans been determined based on
the estimated fair value of the options at the date of grant, the Company's net
income and income per share would have been reduced to the pro forma amounts
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Net income (loss) (in thousands):
As reported.............................................................. $ 3,741 $ 842
Pro forma................................................................ 2,987 (249)
Net income (loss) per share:
As reported.............................................................. $ 0.57 $ 0.10
Pro forma................................................................ 0.45 (0.03)
</TABLE>
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants in 1995 and 1996:
<TABLE>
<CAPTION>
<S> <C>
Dividend yield.................................................................... 0%
Expected volatility (based on historical volatility).............................. 70%
Weighted average risk-free interest rate.......................................... 6.3%
Weighted average expected term.................................................... 4.0 years
</TABLE>
In accordance with the transition provisions of SFAS No. 123, compensation
expense associated with stock options granted prior to January 1, 1995 has not
been calculated. Because the Company's options vest over a period of years, the
pro forma net income (loss) and the pro forma net income (loss) per share
reported above do not include compensation expense associated with options
granted prior to January 1, 1995.
POSTPONED STOCK OFFERING--During the year ended December 31, 1994, the
Company wrote off $230,000 associated with a postponed stock offering.
F-15
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EMPLOYEE BENEFIT PLANS
The Company's employee profit share incentive plan is based on growth of
operating income on a year-to-year basis. During the years ended 1994 and 1996,
the Company did not contribute to the plan. During the year ended 1995, the
Company contributed $278,000 to the plan.
The Company has a Profit Sharing (401(k)) Plan which covers substantially
all employees. Employees may defer a portion of their compensation and the
Company may contribute an amount approved by the Board of Directors. Effective
September 1, 1995, the Board of Directors approved a 100% match of employee
contributions to the 401(k), up to 3% of each employee's salary. For the years
ended December 31, 1995 and 1996, the Company contributed $50,000 and $211,000
to the 401(k) plan, respectively.
14. RELATED-PARTY TRANSACTIONS
LEASING AGREEMENTS--From January 1, 1991 to August 1994, a shareholder,
owning approximately 12% of the outstanding shares of common stock of the
Company at December 31, 1996, owned the operating facilities leased by the
Company. The Company moved into new facilities during 1994 and ceased paying
rent on the former facility in August 1994. The Company leases certain of its
manufacturing and administrative facilities from a company for whom a director
of the Company acts as an agent.
15. SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION
The Company operates in one industry segment. Export sales, primarily to
customers in Europe and Asia, were approximately 30%, 41%, and 64% of net sales
during the years ended December 31, 1994, 1995, and 1996, respectively.
F-16
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION (CONTINUED)
The following table sets forth certain information for FEI Europe Limited
and FEI Europe GmbH (collectively "FEI Europe") and FEI Asia Corporation ("FEI
Asia"), wholly owned subsidiaries of the parent.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Net sales:
Sales to customers............................................................. $ 15,579 $ 24,530 $ 16,595
Export sales to customers...................................................... 2,281 5,109 9,433
Sales to affiliates............................................................ 3,644 9,450 15,494
--------- --------- ---------
Total parent sales......................................................... 21,504 39,089 41,522
FEI Europe sales................................................................. 4,421 8,531 9,527
FEI Asia sales................................................................... -- 3,521 10,060
Eliminations..................................................................... (3,644) (9,450) (15,494)
--------- --------- ---------
Net sales.................................................................. $ 22,281 $ 41,691 $ 45,615
--------- --------- ---------
--------- --------- ---------
Income (loss) before taxes:
Parent......................................................................... $ (729) $ 5,707 $ 1,150
FEI Europe..................................................................... 229 56 4
FEI Asia sales................................................................. -- 80 126
Eliminations................................................................... 12 (52) 15
--------- --------- ---------
Income (loss) before taxes................................................. $ (488) $ 5,791 $ 1,295
--------- --------- ---------
--------- --------- ---------
Total assets:
Parent......................................................................... $ 24,177 $ 42,112 $ 52,645
FEI Europe..................................................................... 1,270 2,686 2,610
FEI Asia sales................................................................. -- 1,953 6,988
Eliminations................................................................... (1,033) (2,109) (1,489)
--------- --------- ---------
Total assets............................................................... $ 24,414 $ 44,642 $ 60,754
--------- --------- ---------
--------- --------- ---------
</TABLE>
Sales by the parent to FEI Europe are recorded at arms-length prices.
Intercompany profits are eliminated in consolidation.
During the year ended December 31, 1994, two customers accounted for 19% of
net sales, and approximately 15% of year-end trade receivables related to one
such customer. During the year ended December 31, 1995, one customer accounted
for 13% of net sales, and approximately 15% of year-end trade receivables
related to such customer. In addition, one other customer accounted for 12% of
accounts receivable at December 31, 1995. During the year ended December 31,
1996, approximately 15% of year-end trade receivables related to one customer.
F-17
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments and the
methods and assumptions used to estimate such fair values are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------
<S> <C> <C>
CARRYING ESTIMATED
VALUE FAIR VALUE
----------- -----------
Investments............................................................. $ 7,501 $ 7,501
Long-term convertible debt.............................................. 3,500 5,017
</TABLE>
Management believes the carrying amounts of cash and cash equivalents,
receivables, line of credit, notes payable, accounts payable, accrued payroll
liabilities, and other current liabilities are a reasonable approximation of the
fair value of those financial instruments.
The fair value of investments is determined by quoted market prices or
dealer quotes, if available. If a quoted price is not available, fair value is
estimated using quoted market prices for similar securities. The fair value of
convertible debt is estimated as the market value of the Company's stock at
December 31, 1995 multiplied by the shares obtainable upon conversion. The fair
value of the Company's investments in Norsam is not readily determinable as
Norsam's securities are not actively traded. However, based on the last known
trade, management estimates that the carrying value of the Norsam investment
approximates its fair value.
17. LITIGATION
On May 12, 1995, Micrion Corporation ("Micrion"), a principal competitor of
the Company, filed suit against the Company alleging infringement of a patent
issued to Micrion relating to the use of an electron gun to neutralize the
positive charge that can develop with the use of an ion beam in FIB
workstations. Micrion seeks an injunction against the alleged infringement of
the Micrion patent, damages of at least $1 million, treble damages for
infringement of the Micrion patent, attorney's fees and other damages. In May
1996, the parties agreed to dismiss the court action without prejudice.
The Company is a party to litigation arising in the ordinary course of
business. In the opinion of management, these actions will not have a material
adverse effect, if any, on the Company's financial position, results of
operations, or liquidity.
18. SUBSEQUENT EVENT (UNAUDITED)
On February 20, 1997, the Company's shareholders approved an agreement (the
"Combination Agreement") between Philips Industrial Electronics International
B.V. ("PIE"), a wholly owned subsidiary of Philips Electronics N.V. of The
Netherlands ("Philips"), wherein FEI acquired on February 21, 1997 all of the
stock of each of a Dutch holding company and a U.S. holding company, which will
conduct substantially all of the electron options activities of Philips, in
exchange for 55% of the common stock of the Company. The Philips electron optics
businesses acquired include manufacturing, sales, and service operations in nine
countries including the United States ("PEO Operations"). The transaction is
being accounted for as a "reverse acquisition" for accounting and financial
reporting purposes, whereby PIE will be 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, subsequent to
February 21, 1997, the historical financial statements of the Company will be
the historical financial statements of the PEO Operations for all periods prior
to such date.
F-18
<PAGE>
FEI COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUBSEQUENT EVENT (UNAUDITED) (CONTINUED)
Summarized financial information for PEO Operations as of and for the years
ended December 31, 1995 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
ASSETS:
Current assets.......................................................... $ 50,699 $ 68,082
Noncurrent assets....................................................... 10,043 13,467
--------- ---------
Total assets...................................................... $ 60,742 $ 81,549
--------- ---------
--------- ---------
LIABILITIES AND EQUITY:
Current liabilities..................................................... $ 26,855 $ 26,823
Noncurrent liabilities.................................................. 1,336 1,202
Equity.................................................................. 32,551 53,524
--------- ---------
Total liabilities and equity...................................... $ 60,742 $ 81,549
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
<S> <C> <C>
1995 1996
---------- ----------
Sales................................................................. $ 109,117 $ 112,384
Cost of sales......................................................... 57,301 60,711
---------- ----------
Gross profit.................................................... 51,816 51,673
Operating and other expenses.......................................... 42,571 50,996
---------- ----------
Income before tax..................................................... 9,245 677
Income taxes.......................................................... 3,317 722
---------- ----------
Net income (loss)............................................... $ 5,928 $ (45)
---------- ----------
---------- ----------
</TABLE>
F-19
<PAGE>
FEI COMPANY AND SUBSIDIARIES
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING OF COSTS AND AT END
PERIOD EXPENSES WRITTEN OFF OF PERIOD
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
December 31, 1994.................................................. $ 62 $ 52 $ (13) $ 101
December 31, 1995.................................................. 101 13 (19) 95
December 31, 1996.................................................. 95 175 (30) 240
Inventory reserves:
December 31, 1994.................................................. 128 256 (104) 280
December 31, 1995.................................................. 280 336 (163) 453
December 31, 1996.................................................. 453 768 (174) 1,047
Warranty reserves:
December 31, 1994.................................................. 324 455 (238) 541
December 31, 1995.................................................. 541 945 (594) 892
December 31, 1996.................................................. 892 1,887 (982) 1,797
</TABLE>
S-1
<PAGE>
FEI COMPANY AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
WEIGHTED AVERAGE NUMBER OF SHARES
The weighted average number of shares of common stock and common stock
equivalents, after adjusting for the two-for-three reverse split, was determined
as follows:
Outstanding options for common stock and convertible warrants and options
have been included in the calculation of common and common equivalent shares
outstanding using the treasury stock method based on an initial public offering
price of $9.50 per share as the market price for all periods except the year
ended December 31, 1996 which uses an average market price of $12.06 per share.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1994 1995 1996
------------ ------------ ------------
Common stock:
Shares outstanding, beginning of period............................... 4,344,972 4,363,705 7,222,394
Shares issued on exercise of options(1)............................... 10,265 70,059 72,202
Shares issued on exercise of warrants(2).............................. -- 59,178 80,613
Shares issued on conversion of debt(3)................................ -- -- 388,462
Shares issued on completion of initial public offering(4)............. -- 1,421,703 --
SEC SAB 83 shares(5).................................................. 270,246 270,246 67,738
------------ ------------ ------------
4,625,483 6,184,891 7,831,409
------------ ------------ ------------
Common stock equivalents:
Warrants(6)........................................................... 266,667 232,696 75,936
Options(7)............................................................ 209,187 185,575 132,596
------------ ------------ ------------
475,854 418,271 208,532
------------ ------------ ------------
Weighted average number of shares....................................... 5,101,337 6,603,162 8,039,941
------------ ------------ ------------
------------ ------------ ------------
Net income (loss)....................................................... $ (225) $ 3,741 $ 842
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) per share............................................. $ (0.04) $ 0.57 $ 0.10
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- ------------------------
(1) Under 1984 Stock Incentive Plan, the 1995 Stock Incentive Plan, and the 1995
Supplemental Stock Incentive Plan; weighted average shares from exercise
date of option.
(2) Weighted average shares from date of warrant conversion.
(3) On March 1, 1996, $3,500,000 of debt was converted into 466,667 shares of
common stock; weighted average shares from conversion date.
(4) Initial public offering of June 1, 1995; weighted average shares from date
of sale.
S-2
<PAGE>
FEI COMPANY AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(5) Initial SAB No. 83 shares composed of:
<TABLE>
<S> <C>
Employee options issued January 1, 1994 to April 21, 1995................ 129,063
Less shares required under treasury stock method......................... 125,483
---------
3,580
Convertible options--debt agreement(8)..................................... 266,666
---------
Net SAB No. 83 shares...................................................... 270,246
---------
---------
Balance of SAB No. 83 shares at December 31, 1996 represents initial shares less
shares issued on exercise of options or conversion of debt.
</TABLE>
(6) Warrant issued 9/1/88 and 10/3/88 for 200,000 shares each, less shares
reacquired under treasury stock method.
(7) Options granted on annual basis under plan, less options exercised and
shares reacquired under treasury stock method.
(8) Convertible options--debt agreements issued prior to January 1, 1994 are
excluded from SAB No. 83 shares. Further, such options are anti-dilutive
and, therefore, presentation of fully diluted earnings per share is not
required. Conversion privilege was exercised on March 1, 1996.
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
****2.1 Combination Agreement, dated November 15, 1996, as amended, between the Registrant and
Philips Industrial Electronics International B.V.
3.1 Second Amended and Restated Articles of Incorporation, as amended
3.2 Restated Bylaws
4.1 See Articles III and IV of Exhibit 3.1 and Articles I and VI of Exhibit 3.2
+*10.1 1984 Stock Incentive Plan
+10.2 1995 Stock Incentive Plan, as amended
+**10.3 1995 Supplemental Stock Incentive Plan
+*10.4 Form of Incentive Stock Option Agreement
+*10.5 Form of Nonstatutory Stock Option Agreement
*10.6 Warrant and Subordinated Promissory Note, dated October 3, 1988, and schedule of parties
to whom substantially identical warrants and notes were issued
*10.7 Lease, dated as of November 20, 1992, between the Registrant and Capital Consultants,
Inc. as agent for United Association Union Local 290, Plumber, Steamfitter and Shipfitter
Industry Pension Fund
10.8 Lease, dated January 11, 1996, between the Registrant and Pacific Realty Associates, L.P.
10.9 Lease, dated June 6, 1996, between the Registrant and Pacific Realty Associates, L.P.
*10.10 Master Note and Security Agreement, each dated May 13, 1993, between the Registrant and
Key Bank of Oregon
*10.11 Note Purchase Agreement, Convertible Promissory Note and Registration Rights Agreement,
each dated as of August 26, 1993, between the Registrant and Capital Consultants, Inc. as
agent for United Association Union Local 290, Plumber, Steamfitter and Shipfitter
Industry Pension Trust
*10.12 First Amendment to Loan Documents and First Amended and Restated Convertible Promissory
Note, each dated as of October 3, 1994, between the Registrant and Capital Consultants,
Inc. as agent for United Association Union Local 290, Plumber, Steamfitter and Shipfitter
Industry Pension Trust
*10.13 Loan Agreement, Master Note, Security Agreement and Cross-Default and
Cross-Collateralization Agreement, each dated as of December 17, 1993, between the
Registrant and Key Bank of Oregon
*10.14 Amendments, dated April 26, 1994, June 1, 1994, August 1, 1994 and December 21, 1994, to
Loan Agreement between the Registrant and Key Bank of Oregon
***10.15 Amendment, dated August 6, 1996, to Loan Agreement between the Registrant and Key Bank of
Oregon
10.16 Amendment, dated January 8, 1997, to Loan Agreement between the Registrant and Key Bank
of Oregon
*10.17 Master Note, Security Agreement and Cross-Default and Cross-Collateralization Agreement,
each dated as of June 1, 1994, between the Registrant and Key Bank of Oregon
#*10.18 Agreement, dated February 9, 1994, between the Registrant and Philips Electron Optics
B.V.
11.1 Computation of earnings per share (included on page S-2)
*21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1, as amended, effective May 31, 1995 (Commission
Registration No. 33-71146).
** Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995.
*** Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996.
****Incorporated by reference to Exhibit 2.1 to the Registrant's Current Report
on Form 8-K, dated November 22, 1996.
+ This exhibit constitutes a management contract or compensatory plan or
arrangement.
# Confidential treatment has been granted by the Commission for certain
portions of this agreement.
<PAGE>
Exhibit 3.1
ARTICLES OF AMENDMENT
TO THE
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
FEI COMPANY
Pursuant to the provisions of ORS 60.447, the undersigned
corporation executes the following Articles of Amendment to its Second
Amended and Restated Articles of Incorporation and all amendments thereto:
1. The name of the corporation is FEI Company.
2. The first paragraph of Article D.A. of the corporation's Second
Amended and Restated Articles of Incorporation is amended to read in its
entirety as follows:
"The aggregate number of shares which the Corporation
shall have authority to issue is 30,000,000 shares of common
("Common Stock") and 500,000 shares of preferred stock
("Preferred Stock")."
3. The above amendment was adopted by the shareholders of the
corporation on February 20, 1997.
4. Shareholder action was required to adopt the above amendment,
7,956,933 shares of voting Common Stock were outstanding and entitled to vote
on the amendment.
5. 5,505,978 shares of voting Common Stock were voted in favor the
amendment set out in paragraph 2 above and 58,048 shares of voting Common
Stock were voted against the amendment set out in paragraph 2 above.
Dated: February 20, 1997
FEI Company
By: /s/ William G. Langley
----------------------
William G. Langley,
President, Chief Financial Officer and
Chief Operating Officer
<PAGE>
CERTIFICATE ACCOMPANYING
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
FEI COMPANY
1. The name of the corporation is FEI Company (the "Corporation").
2. The Second Amended and Restated Articles of Incorporation attached
hereto as Exhibit A contain amendments to the Restated Articles of
Incorporation requiring shareholder approval.
3. The Second Amended and Restated Articles of Incorporation were
adopted by the shareholders of the Corporation on May 5, 1995.
4. The shareholder vote for the adoption of the Second Amended and
Restated Articles of Incorporation was as follows:
Class Number of Number of Number of Number of
or Series Shares Votes Entitled Votes Cast Votes Cast
of Shares Outstanding To Be Cast For Against
- --------- ----------- -------------- ---------- -----------
Common
Stock 6,563,006 6,563,006 5,333,813 0
Dated: May 15, 1995
FEI COMPANY
By: /s/ William G. Langley
----------------------
William G. Langley
President
5. The person to contact about this filing is John R. Thomas at (503)
294-9448.
<PAGE>
SECOND AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FEI COMPANY
These Second Amended and Restated Articles of Incorporation shall
supersede the previously existing Articles of Incorporation and all amendments
thereto and restatements thereof.
ARTICLE I
The name of this Corporation is FEI Company.
ARTICLE II
A. The aggregate number of shares which the Corporation shall have
authority to issue is 15,000,000 shares of common stock ("Common Stock") and
500,000 shares of preferred stock ("Preferred Stock").
When these Second Amended and Restated Articles of Incorporation became
effective, each of the shares of Common Stock issued and outstanding
immediately prior to the time these Second Amended and Restated Articles of
Incorporation become effective shall be reclassified and changed into and
constitute two-thirds of one share of fully paid Common Stock of the
Corporation without further action of any kind. No fractional shares shall be
issued on reclassification of the Common Stock and the number of shares of
Common Stock for which the Common Stock is reclassified shall be rounded up
to the nearest whole share.
B. Holders of Common Stock are entitled to one vote per share on any
matter submitted to the shareholders. On dissolution of the Corporation,
after any preferential amount with respect to Preferred Stock has been paid
or set aside, the holders of Common Stock and the holders of any series of
Preferred Stock entitled to participate in the distribution of assets are
entitled to receive the net assets of the Corporation.
C. The Board of Directors is authorized, subject to limitations
prescribed by the Oregon Business Corporation Act as amended from time to
time (the "Act"), and by the provisions of this Article II, to provide for
the issuance of the shares of Preferred Stock in series, to establish from
time to time the number of shares to be included in each series and to
determine the designation, relative rights, preferences and limitations of
the shares of each series. The authority of the Board of Directors with
respect to each series shall include determination of the following:
<PAGE>
(1) The number of shares in and the distinguishing designation of
that series;
(2) Whether shares of that series shall have full, special
conditional, limited or no voting rights; except to the extent otherwise
provided by the Act;
(3) Whether shares of that series shall be convertible and the terms
and conditions of the conversion, including provision for adjustment of
the conversion rate in circumstances determined by the Board of Directors;
(4) Whether shares of that series shall be redeemable and the terms
and conditions of redemption, including the date or dates upon or after
which they shall be redeemable and the amount per share payable in case of
redemption, which amount may vary under different conditions or at
different redemption dates;
(5) The dividend rate, if any, on shares of that series, the manner
of calculating any dividends and the preferences of any dividends;
(6) The rights of shares of that series in the event of voluntary or
involuntary dissolution of the Corporation and the rights of priority of
that series relative to the Common Stock and any other series of
Preferred Stock on the distribution of assets on dissolution; and
(7) Any other relative rights, preferences and limitations of the
series that are permitted by law to vary.
ARTICLE III
The Corporation shall indemnify to the fullest extent not prohibited by
law any current or former officer or director who is made, or threatened to
be made, a party to an action, suit or proceeding, whether civil, criminal
administrative, investigative or otherwise (including an action, suit or
proceeding by or in the right of the Corporation) by reason of the fact that
the person is or was acting as a director, officer or agent of the
Corporation or as a fiduciary within the meaning of the Employee Retirement
Income Security Act of 1974 with respect to any employee benefit plan of the
Corporation, or serves or served at the request of the Corporation as a
director or officer, or as a fiduciary of an employee benefit plan, of
another corporation, partnership, joint venture, trust or other enterprise.
The indemnification specifically provided hereby shall not be deemed
exclusive of any other rights to which such person may be entitled under any
bylaw, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in the official capacity of the person
indemnified and as to action in another capacity while holding such office.
2
<PAGE>
ARTICLE IV
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for conduct as a
director; provided that this Article IV shall not eliminate the liability of
a director for any act or omission for which such elimination of liability is
not permitted under the Act. No amendment to the Act that further limits the
acts or omissions for which elimination of liability is permitted shall
affect the liability of a director for any act or omission which occurs prior
to the effective date of such amendment.
3
<PAGE>
Exhibit 3.2
Restated Bylaws
RESTATED BYLAWS
of
FEI COMPANY
ARTICLE I
SHAREHOLDERS
1.1 Annual Meeting. The annual meeting of the shareholders shall be held
on the third Wednesday in May of each year at the hour of 10:00 a.m., unless
a different date and time are fixed by the Board of Directors and stated in
the notice of the meeting. If the day fixed for the annual meeting is a legal
holiday, the meeting shall be held on the next succeeding business day. The
failure to hold an annual meeting at the time stated herein shall not affect
the validity of any corporate action.
1.2 Special Meetings. Special meetings of the shareholders may be called
by the President or by the Board of Directors and shall be called by the
President (or in the event of absence, incapacity or refusal of the
President, by the Secretary or any other officer) at the request of the
holders of not less than one-tenth of all the outstanding shares of the
corporation entitled to vote at the meeting. The requesting shareholders
shall sign, date and deliver to the Secretary a written demand describing the
purpose or purposes for holding the special meeting.
1.3 Place of Meetings. Meetings of the shareholders shall be held at the
principal business office of the corporation or at such other places within
or without the State of Oregon, as may be determined by the Board of
Directors.
1.4 Notice of Meetings. Written notices stating the date, time and place
of the meeting and, in the case of a special meeting, the purpose or purposes
for which the meeting is called shall be mailed to each shareholder entitled
to vote at the meeting at the shareholder's address shown in the
corporation's current record of shareholders, with postage thereon pre-paid,
not less than 10 nor more than 60 days before the date of the meeting.
1.5 Waiver of Notice. A shareholder may at any time waive any notice
required by law, the Articles of Incorporation or these Bylaws. The waiver
must be in writing, be signed by the shareholder entitled to the notice and
be delivered to the corporation for inclusion in the minutes for filing with
the corporate records. A shareholder's attendance at a meeting waives
objection to lack of notice or defective notice of the meeting, unless the
shareholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting. The shareholder's attendance also waives
objection to consideration of a particular matter at
<PAGE>
the meeting that is not within the purpose or purposes described in the
meeting notice, unless the shareholder objects to considering the matter when
it is presented.
1.6 Record Date.
(a) For the purpose of determining shareholders entitled to notice
of a shareholders' meeting, to demand a special meeting or to vote or to
take any other action, the Board of Directors of the corporation may fix
a future date as the record date for any such determination of
shareholders, such date in any case to be not more than 70 days nor less
than ten days before the meeting or action requiring a determination of
shareholders. The record date shall be the same for all voting groups.
(b) A determination of shareholders entitled to notice of or to
vote at a shareholders' meeting is effective for any adjournment of the
meeting unless the Board of Directors fixes a new record date, which it
must do if the meeting is adjourned to a date more than 120 days after
the date fixed for the original meeting.
(c) If a court orders a meeting adjourned to a date more than 120
days after the date fixed for the original meeting, it may provide that
the original record date continue in effect or it may fix a new record
date.
1.7 Shareholders' List for Meeting. After a record date for a meeting is
fixed, the corporation shall prepare an alphabetical list of the names of all
its shareholders entitled to notice of a shareholders' meeting. The list must
be arranged by voting group and within each voting group by class or series
of shares and show the address of and number of shares held by each
shareholder. The shareholders' list must be available for inspection by any
shareholder, beginning two business days after notice of the meeting is given
for which the list was prepared and continuing through the meeting, at the
corporation's principal office or at a place identified in the meeting notice
in the city where the meeting will be held. The corporation shall make the
shareholders' list available at the meeting, and any shareholder or the
shareholder's agent or attorney is entitled to inspect the list at any time
during the meeting or any adjournment. Refusal or failure to prepare or make
available the shareholder's list does not affect the validity of action taken
at the meeting.
1.8. Quorum: Adjournment. Shares entitled to vote may take action on a
matter at a meeting only if a quorum of those shares exists with respect to
that matter. A majority of the votes entitled to be cast on the matter
constitutes a quorum for action on that matter. A majority of shares
represented at the meeting, although less than a quorum, may adjourn the
meeting from time to time to a different time and place without further
notice to any shareholder of any adjournment except that notice is required
if a new record date is or most be set for the new meeting. At such
adjourned meeting at which a quorum is present, any business may be
transacted that might have been transacted at the meeting originally held.
Once a share is represented for any purpose at a meeting, it shall be deemed
present for
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quorum purposes for the remainder of the meeting and for any adjournment of
that meeting unless a new record date is set for the adjourned meeting.
1.9 Voting Requirements: Action Without Meeting. If a quorum exists,
action on a matter, other than the election of directors, is approved if the
votes cast by the shares entitled to vote favoring the action exceed the
votes cast opposing the act on, unless a greater number of affirmative votes
is required by law or the Articles of Incorporation. Directors are elected by
a plurality of votes cast by the shares entitled to vote in an election at a
meeting at which a quorum is present. Action required or permitted by law to
be taken at a shareholders' meeting may be taken without a meeting if the
action is taken by all the shareholders entitled to vote on the action. The
action must be evidenced by one or more written consents describing the
action taken, signed by all the shareholders entitled to vote on the action
and delivered to the corporation for inclusion in the minutes or filing with
the corporate records. Action taken under this section is effective when the
last shareholder signs the consent, unless the consent specifies an earlier
or later effective date. If the law requires that notice of proposed action
be given to nonvoting shareholders and the action is to be taken by unanimous
consent of the voting shareholders, the corporation must give its nonvoting
shareholders written notice of the proposed action at least 10 days before
the action is taken. The notice must contain or be accompanied by the same
material that, under the Oregon Business Corporations Act, would have been
required to be sent to nonvoting shareholders in a notice of meeting at which
the proposed action would have been submitted to the shareholders for action.
1.10 Proxies.
(a) A shareholder may vote shares in person or by proxy by signing
an appointment, either personally or by the shareholder's attorney-in-
fact. An appointment of a proxy shall be effective when received by the
Secretary or other officer of the corporation authorized to tabulate
votes. An appointment is valid for 11 months unless a longer period is
provided in the appointment form. An appointment is revocable by the
shareholder unless the appointment form conspicuously states that it is
irrevocable and the appointment is coupled with an interest that has not
been extinguished.
(b) The death or incapacity of the shareholder appointing a proxy
shall not affect the right of the corporation to accept the proxy's
authority unless notice of the death or incapacity is received by the
Secretary or other officer authorized to tabulate votes before the proxy
exercises the proxy's authority under the appointment.
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ARTICLE II
BOARD OF DIRECTORS
2.1 Duties of Board of Directors. All corporate powers shall be
exercised by or under the authority of and the business and affairs of the
corporation shall be managed by its Board of Directors.
2.2 Number, Election and Qualification. The number of directors of the
corporation shall be at least six and no more than eleven. The shareholders
or Board of Directors may periodically change the number of directors. If the
Articles of Incorporation establish the number of directors (other than the
initial directors), then, after shares are issued, only the shareholders may
change the number of directors. The directors shall hold office until the
next annual meeting of shareholders, unless the terms are staggered in
accordance with the Articles of Incorporation, and until their successors
shall have been elected and qualified, until earlier death, resignation or
removal or until there is decrease in the number of directors. Directors need
not be residents of the State of Oregon or shareholders of the corporation.
The number of directors may be increased or decreased from time to time by
amendment to the Bylaws, but no decrease shall have the effect of shortening
the term of any incumbent director.
2.3 Regular Meetings. A regular meeting of the Board of Directors shall
be held without other notice than this Bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The Board of Directors may
provide, by resolution, the time and place, either within or without the
State of Oregon, for the holding of additional regular meetings without other
notice than the resolution.
2.4 Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the President or by a majority of the
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix any place, either within or without the State of
Oregon, as the place for holding any special meeting of the Board of
Directors called by them.
2.5 Notice. Notice of the date, time and place of any special meetings
of the Board of Directors shall be given in a manner reasonably likely to be
received at least three days prior to the meeting by any means provided by
law. Neither the business to be transacted at, not the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
2.6 Waiver of Notice. A director may at any time waive any notice
required by law, the Articles of Incorporation or these Bylaws. A director's
attendance at or participation in a meeting waives any required notice to the
director of the meeting unless the director at the
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beginning of the meeting, or promptly upon the director's arrival, objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
2.7 Quorum, Majority Vote. A majority of the number of directors fixed
in accordance with Section 2.2 of this Article II shall constitute a quorum
for the transaction of business at any meeting of the Board of Directors. The
act of the majority of the directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors, unless a different
number is provided by law, the Articles of Incorporation or these Bylaws.
2.8 Meeting by Telephone Conference: Action Without Meeting.
(a) Members of the Board of Directors may hold a board meeting by
conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in such a meeting shall constitute presence in person at
the meeting.
(b) Any action that is required or permitted to be taken by the
directors at a meeting may be taken without a meeting if a consent in
writing setting forth the action so taken shall be signed by all of the
directors entitled to vote on the matter. The action shall be effective
on the date when the last signature is placed on the consent or at such
earlier or later time as is set forth therein. Such consent, which shall
have the same effect as a unanimous vote of the directors, shall be filed
with the minutes of the corporation.
2.9 Vacancies. Any vacancy, including a vacancy resulting from an
increase in a number of directors, occurring on the Board of Directors may be
filled by the shareholders, the Board of Directors or the affirmative vote of
a majority of the remaining directors if less than a quorum of the Board of
Directors or by a sole remaining director. If the vacant office is filled by
the shareholders and was held by a director elected by a voting group of
shareholders, then only the holders of shares of that voting group are
entitled to vote to fill the vacancy. Any directorship not so filed by the
directors may be filled by election at an annual meeting or at a special
meeting of shareholders called for that purpose. A director elected to fill a
vacancy shall be elected to serve until the next annual meeting of
shareholders and until a successor shall be elected and qualified. A vacancy
that will occur at a specific later date, by reason of a resignation or
otherwise, may be filled before the vacancy occurs, and the new director
shall take office when the vacancy occurs.
2.10 Compensation. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, of attendance at each meeting
of the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
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2.11 Presumption of Assent. A director of the corporation who is present
at a meeting of the Board of Directors or a committee of the Board of
Directors shall be presumed to have assented to the action taken (a) unless
the director's dissent to the action is entered in the minutes of the
meeting, (b) unless a written dissent to the action is filed with the person
acting as the secretary of the meeting before the adjournment thereof or
forwarded by certified or registered mail to the Secretary of the corporation
immediately after the adjournment of the meeting or (c) unless the director
objects at the meeting to the holding of the meeting or transacting business
at the meeting. The right to dissent shall not apply to a director who voted
in favor of the action.
2.12 Director Conflict of Interest.
(a) A transaction in which a director of the corporation has a direct
or indirect interest shall be valid notwithstanding the director's
interest in the transaction if the material facts of the transaction and
the director's interest are disclosed or known to the Board of Directors
or a committee thereof and it authorizes, approves or ratifies the
transaction; or the material facts of the transaction and the director's
interest are disclosed or known to shareholders entitled to vote and they
authorize, approve or ratify the transaction on by a majority vote; or the
transaction is fair to the corporation.
(b) A conflict of interest transaction may be authorized, approved
or ratified if it receives the affirmative vote of a majority of
directors who have no direct or indirect interest in the transaction.
If such a majority of directors vote to authorize, approve or ratify the
transaction, a quorum is present for the purpose of taking action.
(c) A conflict of interest transaction may be authorized, approved
or ratified by a majority vote of shareholders entitled to vote thereon.
Shares owned by or voted under the control of a director, or an entity
controlled by a director, who has a direct or indirect interest in the
transaction may be counted in a vote of shareholders to determine whether
to authorize, approve or ratify a conflict of interest transaction.
(d) A director has an indirect interest in a transaction if another
entity in which the director has a material financial interest or in
which the director is a general partner is a party to the transaction or
another entity of which the director is a director, officer or trustee
is a party to the transaction and the transaction is or should be
considered by the Board of Directors of the corporation.
2.13 Removal. The shareholders may remove one or more directors with or
without cause at a meeting called expressly for that purpose, unless the
Articles of Incorporation provide for removal for cause only. A director may
be removed only if the number of votes cast to remove a director exceed the
number cast not to remove the director. If a director is
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elected by a voting group of shareholders, only those shareholders may
participate in the vote to remove the director.
2.14 Resignation. Any director may resign by delivering written notice
to the Board of Directors, its chairperson or the corporation. Such
resignation shall be effective (a) on receipt, (b) five days after its
deposit in the United States mails, if mailed postpaid and correctly
addressed, or (c) on the date shown on the return receipt, if sent by
registered or certified mail, return receipt requested, and the receipt is
signed by addressee, unless the notice specifies a later effective date. Once
delivered, a notice of resignation is irrevocable unless revocation is
permitted by the Board of Directors.
ARTICLE III
COMMITTEES OF THE BOARD
3.1 Appointment. Unless the Articles of Incorporation provide otherwise,
the Board of Directors may create one or more committees and appoint members
of the Board of Directors to serve on them. Each committee shall have two or
more members, who serve at the pleasure of the Board of Directors. A majority
of all directors in office must approve the creation of a committee and the
appointment of its members. The creation of a committee, the delegation of
authority to it or action by a committee shall not alone constitute
compliance by a director with standards of conduct prescribed by law. No
member of any committee shall continue to be a member thereof after ceasing
to be a director of the corporation. The Board of Directors shall have the
power at any time to increase or decrease the number of members of any
committee, to fill vacancies thereon, to change any member thereof and to
change the functions or terminate the existence thereof.
3.2 Limitation on Powers of a Committee. A committee shall not have the
authority of the Board of Directors in reference to authorizing dividends,
approving or proposing to shareholders actions that the law requires to be
approved by shareholders; filling vacancies on the Board of Directors or on
any of its committees; amending the Articles of Incorporation; adopting,
amending or repealing the Bylaws; approving a plan of merger not requiring
shareholder approval; authorizing or approving reacquisition of shares,
except according to a formula or method prescribed by the Board of Directors,
or authorizing or approving the issuance or sale or contract for sale of
shares, or determining the designation and relative rights, preferences and
limitations of a class or series of shares, except where the Board of
Directors has authorized a committee or a senior executive officer of the
corporation to do so within limits specifically prescribed by the Board of
Directors.
3.3 Conduct of Meetings. Each committee shall conduct its meetings in
accordance with the applicable provisions of these Bylaws relating to
meetings and action without meetings of the Board of Directors. Each
committee shall adopt any further rules regarding its
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conduct, keep minutes and other records and appoint subcommittees and
assistants as it deems appropriate.
3.4 Compensation. By resolution of the Board of Directors, committee
members may be paid reasonable compensation for services on committees and
their expenses of attending committee meetings.
ARTICLE IV
OFFICERS
4.1 Number. The Board of Directors at its first meeting following its
election each year shall appoint a President and a Secretary. At this
meeting, or at any other time, the Board of Directors may appoint one of its
members as Chairman of the Board. Other officers and assistant officers as
may be deemed necessary or desirable may be appointed by the Board of
Directors and shall have such powers and duties prescribed by the Board of
Directors or the officer authorized by the Board of Directors to prescribe
the duties of other officers. A duly appointed officer may appoint one or
more officers or assistant officers if such appointment is authorized by the
Board of Directors. Any two or more offices may be held by the same person.
4.2 Appointment and Term of Office. The officers of the corporation
shall be appointed annually by the Board of Directors at the first meeting of
the Board of Directors held after the annual meeting of the shareholders. If
the appointment of officers shall not be held at the meeting, it shall be
held as soon thereafter as is convenient. Each officer shall hold office
until a successor shall have been duly appointed and shall have qualified or
until the officer's death, resignation or removal in the manner hereinafter
provided.
4.3 Qualification. No officer need be a director, shareholder or Oregon
resident.
4.4 Resignation and Removal. An officer may resign at any time by
delivering notice to the corporation. A resignation is effective on receipt
unless the notice specifies a later effective date. If the corporation
accepts a specified later effective date, the Board of Directors may fill the
pending vacancy before the effective date but the successor may not take
office until the effective date. Once delivered, a notice of resignation is
irrevocable unless revocation is permitted by the Board of Directors. Any
officer appointed by the Board of Directors may be removed from the officer
position at any time with or without cause. Appointment of an officer shall
not of itself create contract rights. Removal or resignation of an officer
shall not affect the contract rights, if any, of the corporation or the
officer.
4.5 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise may be filled by the Board of
Directors for the unexpired portion of the term.
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4.6 Chairman of the Board. The Chairman of the Board of Directors shall
preside at all meetings of the Board of Directors and shall perform such
other duties as may be prescribed from time to time by the Board of Directors.
4.7 President. Unless otherwise determined by the Board of Directors,
the President shall be the chief executive officer of the corporation and
shall be in general charge of its business and affairs, subject to the
control of the Board of Directors. The President shall preside at all
meetings of shareholders and, in the absence of a Chairman of the Board, at
all meetings of directors. The President shall from time to time report to
the Board of Directors all matters within the President's knowledge affecting
the corporation that should be brought to the attention of the board. The
President shall have authority to vote all shares of stock in other
corporations owned by the corporation and to execute proxies, waivers of
notice, consents and other instruments in the name of the corporation with
respect to such stock and has authority to delegate this authority to any
other officer. The President shall perform such other duties as may be
prescribed by the Board of Directors. The President has authority to sign
stock certificates representing the shares of the corporation.
4.8 Secretary. The Secretary shall keep the minutes of all meetings of
the directors and shareholders and shall have custody of the minute books and
other records pertaining to the corporate business. The Secretary shall
countersign all stock certificates and other instruments requiring the seal
of the corporation and shall perform such other duties assigned by the Board
of Directors.
4.9 Vice President. Each Vice president shall perform duties and
responsibilities prescribed by the Board of Directors or the President. The
Board of Directors or the president may confer a special title upon a Vice
President.
4.10 Treasurer. The Treasurer shall keep correct and complete records of
accounts showing the financial condition of the corporation. The Treasurer
shall be legal custodian of all moneys, notes, securities and other valuables
that may come into the possession of the corporation. The Treasurer shall
deposit all funds of the corporation that come into the Treasurer's hands in
depositories that the Board of Directors may designate. The Treasurer shall
pay the funds out only on the check of the corporation signed in the manner
authorized by the Board of Directors. The Treasurer shall perform such other
duties as assigned by the Board of Directors may require.
ARTICLE V
INDEMNIFICATION
5.1 Directors and Officers. The corporation shall indemnify to the
fullest extent not prohibited by law any current or former officer or
director who is made, or threatened to be
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made, a party to an action, suit or
proceeding, whether civil, criminal, administrative, investigative or
otherwise (including an action, suit or proceeding by or in the right of the
corporation) by reason of the fact that the person is or was acting as a
director, officer or agent of the corporation or as a fiduciary within the
meaning of the Employee Retirement Income Security Act of 1974 with respect
to any employee benefit plan of the corporation, or serves or served at the
request of the corporation as a director or officer, or as a fiduciary of an
employee benefit plan, of another corporation, partnership, joint venture,
trust or other enterprise. The indemnification specifically provided hereby
shall not be deemed exclusive of any other rights to which such person may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in the official capacity of the
person indemnified and as to action in another capacity while holding such
office.
5.2 Employees and Other Agents. The corporation shall have power to
indemnify its employees and other agents as set forth in the Act.
5.3. No Presumption of Bad Faith. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or
its equivalent shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to
be in or not opposed to the best interests of the corporation, and, with
respect to any criminal proceeding, that the person had reasonable cause to
believe that the conduct was unlawful.
5.4 Advances of Expenses. The expenses incurred by a director or officer
in any proceeding shall be paid by the corporation in advance at the written
request of the director or officer, if the director or officer:
(a) furnishes the corporation a written affirmation of such
person's good faith belief that such person is entitled to be indemnified
by the corporation; and
(b) furnishes the corporation a written undertaking to repay such
advance to the extent that it is ultimately determined by a court that
such person is not entitled to be indemnified by the corporation. Such
advances shall be made without regard to the person's ability to repay
such expenses and without regard to the person's ability to repay such
expenses and without regard to the person's ultimate entitled to
indemnification under this Bylaw or otherwise.
5.5 Enforcement. Without the necessity of entering into an express
contract, all rights to indemnification and advances under this Bylaw shall
be deemed to be contractual rights and to be effective to the same extent and
as if provided for in a contract between the corporation and the director or
officer who serves in such capacity at any time while this Bylaw and relevant
provisions of the Act and other applicable law, if any, are in effect. Any
right to indemnification or advances granted by this Bylaw to a director or
officer shall be enforceable by or on behalf of the person holding such right
in any court of competent jurisdiction if (a) the claim for indemnification
or advances is denied, in whole or in part, or
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(b) no disposition of such claim is made within ninety (90) days of request
therefor. The claimant in such enforcement action, if successful in whole or
in part, shall be entitled to be paid also the expense of prosecuting a
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in connection with any proceeding in
advance of its final disposition when the required affirmation and
undertaking have been tendered to the corporation) that the claimant has not
met the standards of conduct which make it permissible under the Act for the
corporation to indemnify the claimant for the amount claimed, but the burden
of providing such defense shall be on the corporation. Neither the failure of
the corporation (including its Board of Directors, independent legal counsel
or its shareholders) to have made a determination prior to a commencement of
such action that indemnification of the claimant is proper in the
circumstances because the claimant has met the applicable standard of
conduct set forth in the Act, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
shareholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
5.6 Non-Exclusivity of Rights. The right conferred on any person by this
Bylaw shall not be exclusive of any other right which such person may have or
hereafter acquire under any statute, provision of the Articles of
Incorporation, bylaws, agreement, vote of shareholders or disinterested
Directors or otherwise, both as to action in the person's official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent permitted by the law.
5.7 Survival of Rights. The right conferred on any person by this Bylaw
shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
5.8 Insurance. To the fullest extent permitted by the Act, the
corporation, upon approval by the Board of Directors, may purchase insurance
on behalf of any person required or permitted to be indemnified pursuant to
this Bylaw.
5.9 Amendments. Any repeal of this Bylaw shall only be prospective and
no repeal or modification hereof shall adversely affect the rights under this
Bylaw in effect at the time of the alleged occurrence of any action or
omission to act that is the cause of any proceeding against any agent of the
corporation.
5.10 Savings Clause. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, the
corporation shall indemnify each director, officer or other agent to the
fullest extent permitted by any applicable portion of this Bylaw that shall
not have been invalidated, or by any other applicable law.
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5.11 Certain Definitions. For the purposes of this Bylaw, the following
definitions shall apply:
(a) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement and appeal of any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative.
(b) The term "expenses" shall be broadly construed and shall include
without limitation, expense of investigations, judicial or
administrative proceedings or appeals, attorneys' fees and disbursements
and any expenses of establishing a right to indemnification under
Section 5.5 of this Bylaw, but shall not include amounts paid in
settlement by the indemnified party or the amount of judgments or fines
against the indemnified party.
(c) The term "corporation" shall include, in addition to the
resulting or surviving corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or agents, so
that any person who is or was a director, officer, employee or agent of
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of
this Bylaw with respect to the resulting or surviving corporation as the
person would have with respect to such constituent corporation if its
separate existence had continued.
(d) References to a "director," "officer," "employee," or "agent"
of the corporation shall include, without limitation, situations where
such person is serving at the request of the corporation as a director,
officer, employee, trustee or agent of another corporation, partnership,
joint venture, trust or other enterprise.
(e) References to "other enterprises' shall include employee benefit
plans; references to "fines" in the Act shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include
any service as a director, officer, employee or agent of the corporation
which imposes duties on, or involved services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and
in a manner the person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Bylaw.
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ARTICLE VI
ISSUANCE OF SHARES
6.1. Certificate for Shares
(a) Certificates representing shares of the corporation shall be in
such form as shall be determined by the Board of Directors. Such
certificates shall be signed, either manually or in facsimile, by two
officers of the corporation, at least one of whom shall be the President
or a Vice President and by the Secretary or an Assistant Secretary and
may be sealed with the seal of the corporation or a facsimile thereof.
All certificates or shares shall be consecutively numbered or otherwise
identified.
(b) Every certificate for shares of stock that are subject to any
restriction on transfer pursuant to the Articles of Incorporation, the
Bylaws, applicable securities laws, agreements among or between
shareholders or any agreement to which the corporation is a party shall
have conspicuously noted on the face or back of the certificate either
the full text of the restriction or a statement of the existence of such
restriction and that the corporation retains a copy of the restriction.
Every certificate issued when the corporation is authorized to issue more
than one class or series of stock shall set forth on its face or back
either the full text of the designations, relative rights, preferences
limitations of the shares of each class and series authorized to be
issued and the authority of the Board of Directors to determine
variations for future series or a statement of the existence of such
designations, relative rights, preferences and limitations and a
statement that the corporation will furnish a copy thereof to the holder
of such certificate upon written request and without charge.
(c) The name and mailing address of the person to whom the shares
represented thereby are issued with the number of shares and date of
issue, shall be entered on the stock transfer books of the corporation.
Each shareholder shall have the duty to notify the corporation of his or
her mailing address. All certificates surrendered to the corporation for
transfer shall be canceled, and no new certificates shall be issued until
a former certificate for a like number of shares shall have been
surrendered and canceled, except that in case of a lost, destroyed or
mutilated certificate a new one may be issued therefor upon such terms
and indemnity to the corporation as the Board of Directors prescribes.
6.2 Transfer of Shares. Transfer of shares of the corporation shall be
made only on the stock transfer books of the corporation by the holder of
record thereof or by the holder's legal representative, who shall furnish
proper evidence of authority to transfer, or by the holder's attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary of the corporation. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
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6.3 Transfer Agent and Registrar. The Board of Directors may from time
to time appoint one or more Transfer Agents and one or more Registrars for
the shares of the corporation, with such powers and duties as the Board of
Directors determines by resolution. The signature of officers upon a
certificate may be facsimiles if the certificate is manually signed on behalf
of a Transfer Agent or by a Registrar other than the corporation itself or an
employee of the corporation.
6.4 Officer Ceasing to Act. If the person who signed a share
certificate, either manually or in facsimile, no longer holds office when the
certificate is issued, the certificate is nevertheless valid.
6.5 Fractional Shares. The corporation shall not issue certificates for
fractional shares.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND OTHER INSTRUMENTS
7.1 Contracts. The Board of Directors may authorize any officer or
officers and agent or agents to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
7.2 Loans. No loans shall be contracted on behalf of the corporation and
no evidence of indebtedness shall be issued in its name less authorized by a
resolution of the Board of Directors. Such authority may be general or
confined to specific instances.
7.3 Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money and notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers and agent
or agents of the corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Seal. If the Board of Directors adopts a corporate seal, the seal of
the corporation shall be circular in form and shall have inscribed thereon
the name of the corporation and the state of incorporation and the words
"Corporate Seal."
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8.2 Severability. Any determination that any provision of these Bylaws
is for any reason inapplicable, invalid, illegal or otherwise ineffective
shall not affect of invalidate any other provision of these Bylaws.
ARTICLE IX
AMENDMENTS
These Bylaws may be amended or repealed and new Bylaws may be adopted by
the Board of Directors or the shareholders of the corporation.
Adopted: February 24, 1997
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FEI COMPANY
1995 STOCK INCENTIVE PLAN
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 cancelled, 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 to an officer who is subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended (an "Officer") or a director, and
no incentive stock option, 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.
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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. If
awards are to be made under the Plan to Officers or directors, authority for
selection of Officers and directors for participation and decisions
concerning the timing, pricing and amount of a grant or award, if not
determined under a formula meeting the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, shall be delegated to a
committee consisting of two or more disinterested directors.
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;
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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 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. Unless
otherwise determined by the Board of Directors, if an Officer exercises an
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option within six months of the grant of the option, the shares acquired
upon exercise of the option may not be sold until six months after the date
of grant of the option.
(iii) Nontransferability. Each Incentive Stock Option and,
unless otherwise determined by the Board of Directors with respect to an
option granted to a person who is neither an Officer nor a director of the
Company, 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.
(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
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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 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
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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, 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
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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 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.
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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. Unless otherwise
determined by the Board of Directors, shares awarded as a stock bonus to an
Officer may not be sold until six months after the date of the award. 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 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. Unless otherwise determined by the Board of Directors,
shares issued under this paragraph 8 to an Officer may not be sold until six
months after the shares are issued. The Company may require any purchaser of
restricted stock to pay to the Company in cash upon demand amounts necessary
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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 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. Unless
otherwise determined by the Board of Directors, no stock appreciation right
granted to an Officer or director may be exercised during the first
six months following the date it is granted.
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(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 with respect to a stock appreciation right granted to a person
who is neither an Officer nor a director of the Company, 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.
(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.
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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 with respect to a cash bonus right
granted to a person who is neither an Officer nor a director of the Company,
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 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
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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 with respect to a performance unit granted to a person who is
neither an Officer nor a director of the Company, 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 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
12
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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:
(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.
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(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
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.
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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 Non-Employee Directors.
(a) Initial Board Grants. Each person who is a Non-Employee
Director when the Plan is adopted or who becomes a Non-Employee 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 a Non-Employee Director. A "Non-Employee
Director" is a director who is not an employee of the Company or any of its
subsidiaries.
(b) Additional Grants. Each Non-Employee 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 Non-Employee
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 Non-Employee 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 Non-Employee 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 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
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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
Amended: May 15, 1996
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Exhibit 10.8
LEASE
DATED: January 11, 1996
BETWEEN: PACIFIC REALTY ASSOCIATES, L.P.,
a Delaware limited partnership
LANDLORD
AND: FEI COMPANY,
an Oregon corporation TENANT
Tenant wishes to lease from Landlord the following described
property, hereinafter referred to as "the Premises":
Approximately 34,656 square feet of warehouse and office space
located in Building A, Evergreen Business Park, 7425 N.E. Evergreen Parkway,
Hillsboro, Oregon 97124 and as further described on the attached Exhibits A, B
and C.
The building housing the Premises is hereinafter referred to as
"the Building."
Landlord leases the Premises to Tenant for a term of 82 months
commencing on the substantial completion date as determined by Paragraph 3.1
of the attached Exhibit C (with rent commencement to be at the time described
in Exhibit C, Sections 3 and 4) and continuing through March 31, 2003. Base
rent shall be according to the following schedule:
BASE RENT
PERIOD PER MONTH
------ -------------
Months 1 - 60 $27,032.00
Months 61 through March 31, 2003 $30,670.00
If rent commences on a day other than the first of a month, then the partial
month shall not be counted as one of the first 60 months. Rent for the first
month of the lease term shall be paid upon execution of this lease. All rent,
including base rent together with the charges, taxes and expenses to be paid
to Landlord specified in paragraphs 3 and 4 of this lease, is payable in
advance on the first day of such calendar month. If Landlord consents, Tenant
may occupy the Premises prior to such commencement date on a rent-free basis
and upon compliance with all terms of this lease.
Delivery of possession shall occur when the Premises are occupied
by Tenant or are ready to be occupied by Tenant with all work to be performed
substantially completed as described in Exhibit C.
This lease is subject to the following additional terms in which
the parties agree:
1. USE OF THE PREMISES.
(a) Tenant shall use the Premises only for the purpose of
conducting the following business:
Light manufacturing, assembly, distribution, warehouse and
general office related thereto.
If such use is prevented by any law or governmental regulation, Tenant may use
the Premises for other reasonable uses.
Page 1 of 11
<PAGE>
(b) In connection with its use, Tenant shall, at its expense,
comply with all applicable laws, ordinances, and regulations of any public
authority, including those requiring alteration of the Premises because of
Tenant's specific use; shall create no nuisance nor allow any objectionable
liquid, odor, or noise to be emitted from the Premises; shall store no
gasoline or other highly combustible materials on the Premises which would
violate any applicable fire code or regulation nor conduct any operation that
will increase Landlord's fire insurance rates for the Premises; and shall not
overload the floors or electrical circuits of the Premises. Landlord shall
have the right to approve the installation of any power-driven machinery by
Tenant and may select a qualified electrician whose opinion will control
regarding electrical circuits and a qualified engineer or architect whose
opinion will control regarding floor loads. Allowable ground floor load shall
be 300 pounds per square foot. This provision assumes that Landlord builds
the Premises in accordance with Exhibit C.
(c) Tenant may erect a sign stating its name, business, and
product after first securing Landlord's written approval of the site, color,
design, wording, and location, and all necessary governmental approvals. No
signs shall be painted on the Building or exceed the height of the Building.
All signs installed by Tenant shall be removed upon termination of this lease
with the sign location restored to its former state.
(d) Tenant shall make no alterations, additions, or improvements
to the Premises or change the color of the exterior without Landlord's prior
written consent and without a valid building permit issued by the appropriate
governmental agency. Upon termination of this lease, any such alterations,
additions, or improvements (including without limitation all electrical,
lighting, plumbing, heating and air-conditioning equipment, doors, windows,
partitions, drapery, carpeting, shelving, counters, and physical attached
fixtures) shall at once become part of the realty and belong to Landlord
unless the terms of the applicable consent provide for removal by Tenant. In
such case, Tenant shall at its sole cost and expense promptly remove the
specified additions, alterations, or improvements and repair and restore the
Premises to its original condition.
2. SECURITY DEPOSIT.
Upon occupancy of the Premises, Tenant shall deposit with Landlord
the sum of $30,670.00, hereinafter referred to as "the Security Deposit," to
secure the faithful performance by Tenant of each term, covenant, and
condition of this lease. If Tenant shall at any time fail to make any payment
or fail to keep or perform any term, covenant, and condition on its part to be
made or performed or kept under this lease, Landlord may, but shall not be
obligated to and without waiving or releasing Tenant from any obligation under
this lease, use, apply or retain the whole or any part of the Security Deposit
(i) to the extent of any sum due to Landlord; or (ii) to make any required
payment on Tenant's behalf; or (iii) to compensate Landlord for any loss,
damage, attorneys' fees, or expense sustained by Landlord due to Tenant's
default. In such event, Tenant shall, within 5 days of written demand by
Landlord, remit to Landlord sufficient funds to restore the Security Deposit
to its original sum: Tenant's failure to do so shall be a material breach of
this lease. Landlord shall not be required to keep the Security Deposit
separate from its general funds, and Tenant shall not be entitled to interest
on such deposit. Should Tenant comply with all of the terms, covenants, and
conditions of this lease and at the end of the term of this lease leave the
Premises in the condition required by this lease, then the Security Deposit,
less any sums owing to Landlord, shall be returned to Tenant (or, at
Landlord's option, to the last assignee of Tenant's interests hereunder)
within 30 days after the termination of this lease and vacancy of the Premises
by Tenant. If Landlord has not made any claim on the Security Deposit within
three (3) years after the Commencement Date, the deposit shall be returned to
Tenant by crediting it against the rent and payable under this lease.
3. UTILITY CHARGES; MAINTENANCE.
(a) Tenant shall pay when due all charges for electricity,
natural gas, water, garbage collection, janitorial service, sewer, and all
other utilities of any kind furnished to the Premises during the lease term.
If charges are not separately metered or stated, Landlord shall apportion the
utility charges on an equitable basis. Landlord shall have no liability
resulting from any interruption of utility services caused by fire or other
casualty, strike, riot, vandalism, the making of necessary repairs or
improvements, or any other cause beyond Landlord's reasonable control. Tenant
shall control the temperature in the Premises to prevent freezing of any
sprinkler system.
Page 2 of 11
<PAGE>
(b) Landlord shall repair and maintain the roof, gutters,
downspouts, exterior walls, building structure, floor slab, foundation,
exterior paved areas, and curbs of the Premises in good condition. Except for
such obligations of Landlord, Tenant shall keep the Premises neatly maintained
and in good order and repair. Tenant's responsibility shall include
maintenance and repair of the electrical system, plumbing, drainpipes to
sewers, air-conditioning and heating systems, overhead and personnel doors,
and the replacement of all broken or cracked glass with glass of the same
quality. Tenant shall refrain from any discharge that will damage the septic
tank or sewers serving the Premises. Landlord shall correct any defective
construction or warrantied mechanical or electrical matters.
(c) Landlord shall keep the sidewalks abutting the Premises or
the separate entrance free and clear of snow, ice, debris, and obstructions of
every kind and the cost shall be an operating expense under Paragraph 4(d) of
this lease.
4. TAXES, ASSESSMENTS, AND OPERATING EXPENSES.
(a) In conjunction with monthly rent payments, Tenant shall each
month pay a sum representing Tenant's proportionate share of real property
taxes and operating expenses for the Premises. Such amount shall annually be
estimated by Landlord in good faith to reflect actual or anticipated costs.
Upon termination of this lease or at periodic intervals during the term
hereof, Landlord shall compute its actual costs for such expenses during such
period. Any overpayment by Tenant shall be credited to Tenant, and any
deficiency shall be paid by Tenant within 15 days after receipt of Landlord's
statement. Landlord's records of expenses for taxes and operating expenses
may be inspected by Tenant at reasonable times and intervals.
(b) Tenant's proportionate share of real property taxes shall
mean that percentage of the total assessment affecting the Premises which is
the same as the percentage which the rentable area of the Premises bears to
the total ratable area of all buildings covered by the tax statement.
Tenant's proportionate share of operating expenses for the Building shall be
computed by dividing the rentable area of the Premises by the total rentable
area of the Building. If in Landlord's reasonable judgment either of these
methods of allocation results in an inappropriate allocation to Tenant,
Landlord shall select some other reasonable method of determining Tenant's
proportionate share.
(c) Real property taxes charged to Tenant hereunder shall
include all general real property taxes assessed against the Premises or
payable during the lease terms, installment payments on Bankrolled special
assessments, and any rent tax on Landlord's interest under this lease, or any
tax in lieu of the foregoing, whether or not any such tax is now in effect.
Tenant shall not, however, be obligated to pay any tax based upon Landlord's
net income.
(d) Operating expenses charged to Tenant hereunder shall include
all usual and necessary costs of operating and maintaining the Premises, and
any surrounding common areas including, but not limited to, the cost of all
utilities or services not paid directly by Tenant, property insurance,
property management, maintenance and repair of landscaping, parking areas, and
any other common facilities. Operating expenses shall not include roof
replacement or correction of structural deficiencies of the Building or
defective construction.
5. PARKING AND STORAGE AREAS.
(a) Tenant, its employees, and customers shall have the
exclusive right to use 124 private parking spaces in the parking area serving
the Premises (see attached Exhibit B). Such number includes all visitor
spaces serving the Building. Tenant shall control the use of such parking
spaces so that there will be no unreasonable interference with the normal
traffic flow, and shall permit no parking on any landscaped or unpaved
surface. Under no circumstances shall trucks serving the Premises be
permitted to block streets.
(b) Tenant shall not store any materials, supplies, or equipment
in any unapproved or unscreened area except for a tank for industrial gases,
generator and compressor. Such tank shall not exceed the height of the
Building. If Tenant erects any visual barriers for storage areas, Landlord
shall have the right to approve the design and location. Tenant shall be
responsible for all security screening, which must be approved by Landlord.
Trash and garbage receptacles shall be kept covered at all times.
Page 3 of 11
<PAGE>
6. TENANT'S INDEMNIFICATION; LIABILITY INSURANCE.
(a) Tenant shall not allow any liens to attach to the Premises
as a result of its activities. Tenant shall indemnify and defend Landlord
from any claim, liability, damage, or loss arising out of any activity on the
Premises by Tenant, its agents, or invitees or resulting from Tenant's failure
to comply with any term of this lease.
(b) Tenant shall carry general liability insurance on any
occurrence basis with combined single limits of not less than $1,000,000.
Such insurance shall be provided by an insurance carrier reasonably acceptable
to Landlord and shall be evidence by a certificate delivered to Landlord
stating the coverage will not be canceled or materially altered without 10
days' advance written notice to Landlord. Landlord shall be named as an
additional insured on such policy.
7. PROPERTY DAMAGE; SUBROGATION WAIVER.
(a) If fire or other casualty damage to the Building or the
Premises in an amount exceeding 30 percent of the full
construction-replacement cost of the Building or Premises, respectively,
Landlord may elect to terminate this lease as of the date of the damage by
notice in writing to Tenant within 30 days after such date. Otherwise,
Landlord shall promptly repair the damage and remove the Premises to their
former condition as soon as practicable. Rent shall be reduced during the
period to the extent the Premises are not reasonably usable for the use
permitted by this lease because of such damage and required repairs.
(b) Landlord shall be responsible or issuing the Building, and
Tenant shall be responsible for insuring its personal property and trade
fixtures located on the Premises.
(c) Neither party shall be liable to the other for any loss or
damage caused by water damage, sprinkler leakage, or any of the risks covered
by a standard fire insurance policy with extended coverage and sprinkler
leakage endorsements, and there shall be no subrogated claim by one party's
insurance carrier against the other party arising out of any such loss.
8. CONDEMNATION.
If a condemning authority takes the entire Premises or a portion
sufficient to render the remainder unsuitable for Tenant's use, then either
party may elect to terminate this lease effective on the date that title
passes to the condemning authority. Otherwise, Landlord shall proceed as soon
as practicable to restore the remaining Premises to a condition comparable to
that existing at the time of the taking. Rent shall be abated during the
period of restoration to the extent the Premises are not reasonably usable by
Tenant, and rent shall be reduced for the remainder of the term in an amount
equal to the reduction in rental value of the Premises caused by the taking.
All condemnation proceeds shall belong to Landlord, except that Tenant shall
be permitted to recover the unamortized portion of Tenant Improvement Costs
paid by it, computed on a straight line basis.
9. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign its interest under this lease nor
sublet the Premises without first obtaining Landlord's consent in writing,
which shall not be unreasonably withheld, conditioned or delayed, except as
provided for in Paragraph 21(f). This provision shall apply to all transfers
by operating of law or through mergers and changes in control of Tenant. No
assignment shall relieve Tenant of its obligation to pay rent or perform other
obligations required by this lease and no one assignment or subletting shall
be a consent to any further assignment or subletting.
(b) Subject to the above limitations on transfer of Tenant's
interest, this lease shall bind and inure to the benefit of the parties, their
respective heirs, successors, and assigns.
Page 4 of 11
<PAGE>
10. DEFAULT.
Any of the following shall constitute a default by Tenant under
this lease:
(a) Tenant's failure to pay rent or any other charge under this
lease within 10 days after written notice that it is due, or failure to comply
with any other term or condition within 20 days following written notice from
landlord specifying the noncompliance. If such noncompliance cannot be cured
within the 20-day period, this provision shall be satisfied if Tenant
commences correction within such period and thereafter proceeds in good faith
and with reasonable diligence to effect compliance as soon as possible.
(b) Tenant's insolvency; assignment for the benefit of the
creditors: Tenant's voluntary petition in bankruptcy or adjudication as
bankrupt, or the appointment of a receiver for Tenant's properties.
11. REMEDIES FOR DEFAULT.
In case of default as described in paragraph 10 above, Landlord
shall have the right to the following remedies which are intended to be
cumulative and in addition to any other remedies provided under applicable
law:
(a) Terminate this lease without relieving Tenant from its
obligation to pay damages.
(b) Retake possession of the Premises by summary proceedings or
otherwise, in which case Tenant's liability to Landlord for damages shall
survive the tenancy. Landlord may, after such retaking of possession, relet
the Premises upon any reasonable terms. No such reletting shall be construed
as an acceptance of a surrender of Tenant's leasehold interest.
(c) Recover damages caused by Tenant's default which shall
include reasonable attorneys' fees at trial and on any appeal therefrom.
Landlord may sue periodically to recover damages as they occur throughout the
lease term, and no action for accrued damages shall bar a later action for
damages subsequently accruing. Landlord may elect in any one action to
recover accrued damages plus damages attributable to the remaining term of the
lease equal to the difference between the rent under this lease and the
reasonable rental value of the Premises for the remainder of the term,
discounted to the time of judgment at the rate of 6 percent per annum.
(d) Make any payment or perform any obligation required of
Tenant so as to cure Tenant's default, in which case Landlord shall be
entitled all amounts so expended from Tenant, plus interest at the rate of 10
percent per annum from the date of the expenditure.
12. SURRENDER ON TERMINATION.
(a) On expiration or early termination of this lease, Tenant
shall deliver all keys to Landlord, have final utility readings made on the
date of move out, and surrender the Premises clean and free of debris inside
and out, with all mechanical, electrical and plumbing systems in good
operating condition, all signing removed and defacement corrected, and all
repairs called for under this lease completed. The Premises shall be
delivered in the same condition as at the commencement of the term, subject
only to depreciation and wear from ordinary use. Tenant shall remove all of
its furnishings and trade fixtures that remain its property and restore all
damage resulting from such removal. Failure to remove said property shall be
an abandonment of same, and Landlord may dispose of it in any manner without
liability.
(b) If Tenant fails to vacate the Premises when required,
including failure to remove all its personal property, Landlord may elect
either: (i) to treat Tenant as a tenant from month to month, subject to all
provisions of this lease except the provision for term and at a base rental of
120 percent of that specified in this lease; or(ii) to eject Tenant from the
Premises and recover damages caused by wrongful holdover.
Page 5 of 11
<PAGE>
13. LANDLORD'S LIABILITY.
(a) Landlord warrants that so long as Tenant complies with all
terms of this lease it shall be entitled to peacable, quiet and undisturbed
possession of the Premises free from any eviction or disturbance by Landlord
or persons claiming through Landlord.
(b) All persons dealing with Pacific Realty Associates, L.P.
("Partnership") must look solely to the property and assets of Partnership for
the payment of any claim against Partnership or for the performance of any
obligation of Partnership as neither the general partner, limited partners,
employees, nor agents of Partnership assume any personal liability for
obligations entered into on behalf of Partnership (or its predecessors in
interest) and their respective properties shall not be subject to the claims
of any person in respect of any such liability or obligation. As used herein,
the words "property and assets of partnership" exclude any rights of
Partnership for the payment of capital contributions or other obligations to
it by the general partner or any limited partner in such capacity.
14. MORTGAGE OR SALE BY LANDLORD; ESTOPPEL CERTIFICATES.
(a) This lease is and shall be prior to any mortgage or deed of
trust ("Encumbrance") recorded after the date of this lease and affecting the
Building and the land upon which the Building is located. However, if any
lender holding an Encumbrance secured by the Building and the land underlying
the Building requires that this lease be subordinate to the Encumbrance, then
Tenant agrees that this lease shall be subordinate to the Encumbrance if the
holder thereof agrees in writing with Tenant that so long as Tenant performs
its obligations under this lease no foreclosure, deed given in lieu of the
foreclosure, or sale pursuant to the terms of the Encumbrance, or other steps
or procedures taken under the Encumbrance shall affect Tenant's rights under
this lease. If the foregoing condition is met, Tenant shall execute the
written agreement and any other documents required by the holder of the
Encumbrance to accomplish the purposes of this paragraph.
(b) If the Building is sold as a result of foreclosure of any
Encumbrance thereon or otherwise transferred by Landlord or any successor,
Tenant shall attorn to the purchaser or transferee, and the transferor shall
have no further liability hereunder.
(c) Either party shall within 20 days after notice from the
other execute and deliver to the other party a certificate stating whether or
not this lease has been modified and is in full force and effect and
specifying any modifications or alleged breaches by e other party. The
certificate shall also state the amount of monthly base rent, the dates to
which rent has been paid in advance, and the amount of any security deposit or
prepaid rent. Failure to deliver the certificate within the specified time
shall be conclusive upon the party of whom the certificate was requested that
the lease is in full force and effect and has not been modified as may be
represented by the party requesting the certificate.
(d) If the Premises are encumbered by a mortgage or trust deed
as of the date of this lease, Landlord shall obtain an agreement from the
lender not to disturb Tenant so long as Tenant is not in default.
15. DISPUTES - ATTORNEYS' FEES.
In the event of any litigation arising out of this lease, the
prevailing party shall be entitled to recover from the other party, in
addition to all other relief provided by law or judgment, its reasonable costs
and attorneys' fees incurred both at and in preparation for trial and any
appeal or review, such amount to be as determined by the court(s) before which
the matter is heard. Disputes between the parties which are to be litigated
shall be tried before a judge without a jury.
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16. SEVERABILITY.
If any provision of this lease is held to be invalid,
unenforceable or illegal the remaining provisions shall not be affected and
shall be enforced to the fullest extent permitted by law.
17. INTEREST AND LATE CHARGES.
Rent not paid within 10 days of when due shall bear interest from
the date due until paid at the rate of 10 percent per annum. Landlord may at
its option impose a later charge of $.05 for each $1.00 of rent for rent
payments made more than 10 days late in addition to interest and other
remedies available for default.
18. GENERAL PROVISIONS.
(a) Waiver by either party of strict performance of any
provision of this lease shall not be a waiver of nor prejudice the parties'
right otherwise to require performance of the same provision or any other
provision.
(b) Subject to the limitations on transfer of Tenant's interest,
this lease shall bind and inure to the benefit of the parties, their
respective heirs, successors, and assigns.
(c) Landlord shall have the right to enter upon the Premises at
any time following reasonable advance notice except in case of emergency to
determine Tenant's compliance with this lease, to make necessary repairs to
the Building or the Premises, or to show the Premises to any prospective
tenant or purchasers. During the last two months of the term, Landlord may
place and maintain upon the Premises notices for leasing or sale of the
Premises.
(d) If this lease commences or terminates at a time other than
the beginning or end of one of the specified rental periods, then the rent
(including Tenant's share of real property taxes, if any) shall be prorated as
of such date, and in the event of termination for reasons other than default
all prepaid rent shall be refunded to Tenant or paid on its account.
(e) Notices between the parties relating to this lease shall be
in writing, effective when delivered, or if mailed, effective on the second
day following mailing, postage prepaid, to the address for the party stated in
this lease or to such other address as either party may specify by notice to
the other. Rent shall be payable to Landlord at the same address and in the
same manner.
(f) Whenever Landlord's consent is required by this lease, it
shall not be withheld, delayed or conditioned unreasonably.
19. FIRST RIGHT OF NOTICE SPACE.
Tenant shall have the First Right of Notice to expand into the
approximately 27,610 square feet of space located within Building H at
Evergreen Business Park (the "First Right of Notice Space"). Landlord shall
not market or lease the First Right of Notice Space to third parties until
Tenant has had the time described herein. On May 31, 1996, Landlord shall
notify Tenant of the earliest availability date of the First Right of Notice
Space and the offered lease terms. Tenant shall have ten (10) business days
after such notification to decide whether or not it wishes to lease the First
Right of Notice Space on the offered terms. If Tenant does not so exercise,
Landlord shall have the right to lease the First Right of Notice Space to
others. The terms upon which the First Right of Notice Space shall be
offered to Tenant shall include rent computed on a similar basis and using
the same return factor as the rent under this lease, shall have a termination
date the same as this lease and renewal option rights and Tenant Improvement
allowance consistent with this lease and other terms and conditions shall be
similar to these contained in this lease.
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20. RENEWAL OPTION.
20.1 If not then in default, Tenant shall have the option to
renew this lease for two additional five-year terms by giving Landlord written
notice of its intent to extend at least 180 days prior to expiration of the
preceding term. All provisions of this lease shall apply during the extended
term, except that rent for the renewal period shall be the fair rental value
of the Premises as agreed upon by parties at least 90 days prior to
commencement of the renewal period, but in no case less than that of the
preceding term. If Tenant elects not to exercise the first five-year renewal
period, then the second five-year renewal period shall be null and void. If
the parties fail to agree on the fair rental value for the renewal term, it
shall be determined by arbitration pursuant to the provisions of the following
subparagraphs 20.2 through 20.6.
20.2 If a dispute arises under this lease as to market rent for
purposes of this renewal option, either party may request arbitration and
appoint as arbitrator one licensed real estate appraiser having experience
with respect to the matter in dispute. The other party shall choose an
arbitrator with such qualifications, and the two arbitrators shall within five
(5) days choose a third with such qualifications. If the choice of the second
or third arbitrator is not made within ten (10) days after choice of the prior
arbitrator, then either party may apply to the presiding judge of the
Washington County Circuit Court to choose the required arbitrator.
20.3 At any time within twenty (20) days after appointment of the
third arbitrator, either party may submit the dispute for settlement by the
arbitrators.
20.4 The arbitrators to whom the dispute is submitted shall
conduct such investigations as they shall consider necessary, and the written
decision of the majority shall be submitted to both parties within thirty (30)
days after the referral unless the arbitrators determine that further time is
reasonably required to make a proper investigation of the relevant facts.
20.5 The parties shall be bound by the decision of a majority of
the arbitrators.
20.6 The cost of arbitration shall be allocated between the
parties by the arbitrators on the basis of the extent to which the position of
one or the other party is adopted in the arbitrators' decision.
21. ENVIRONMENTAL.
(a) DEFINITIONS. The term "Environmental Law" shall mean any
federal, state or local statute, regulation or ordinance or any judicial or
other government order pertaining to the protection of health, safety or the
environment. The term "Hazardous Substance" shall mean any hazardous, toxic,
infectious or radioactive substance, waste and material as defined or listed
by any Environmental Law and shall include, without limitation, petroleum oil
and its fractions.
(b) USE OF HAZARDOUS SUBSTANCES. Tenant shall not cause or
permit any Hazardous Substance to be spilled, leaked, disposed of or otherwise
released on or under the Premises. Tenant may use and sell on the Premises
only those Hazardous Substances typically used and sold in the prudent and
sole operation of the business permitted by Section 1 of this lease. Tenant
may store such Hazardous Substances on the Premises, but only in quantities
necessary to satisfy Tenant's reasonably anticipated needs. Tenant shall
comply with all Environmental Laws and exercise the highest degree of care in
the use, handling and storage of Hazardous Substances and shall take all
practicable measures to maintain the quantity and toxicity of Hazardous
Substances used, handled or stored on the Premises.
(c) NOTICES. Tenant shall immediately notify Landlord upon
becoming aware of the following: (a) any spill, leak, disposal or other
release of a Hazardous Substance on, under or adjacent to the Premises; (b)
any notice or communication from a governmental agency or any other person
relating to any Hazardous Substance on, under or adjacent to the Premises; or
(c) any violation of any Environmental Law with respect to the Premises or
Tenant's activities on or in connection with the Premises.
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(d) SPILLS AND RELEASES. In the event of a spill, leak,
disposal or other release of a Hazardous Substance on or under the Premises
caused by Tenant or any of its contractors, agents or employees or invitees,
or the suspicion or threat of the same, Tenant shall (i) immediately
undertake all investigatory, remedial, removal and other response action
necessary or appropriate to ensure that any Hazardous Substances contamination
is eliminated to Landlord's reasonable satisfaction, and (ii) provide Landlord
copies of all correspondence with any governmental agency regarding the
release (or threatened or suspected release) or the response action, a
detailed report documenting all such response action, and a certification that
any contamination has been eliminated. All such response action shall be
performed, all such reports shall be prepared and all such certifications
shall be made by an environmental consultant reasonably acceptable to
Landlord.
(e) CONDITION UPON TERMINATION. Upon expiration of this lease
or sooner termination of this lease for any reason, Tenant shall remove all
Hazardous Substances and facilities used for the storage or handling of
Hazardous Substances from the Premises and restor the affected areas by
repairing any damage caused by the installation or removal of the facilities.
Following such removal, Tenant shall certify in writing to Landlord that all
such removal is complete.
(f) ASSIGNMENT AND SUBLETTING. Notwithstanding the provisions
of paragraph 9 of this lease, it shall not be unreasonable for Landlord to
withhold its consent to any assignment, sublease or other transfer of the
Tenant's interest in this lease if a proposed transferee's anticipated use of
the Premises involves the generation, storage, use, sale, treatment, release
or disposal of any Hazardous Substance.
(g) INDEMNITY.
(i) BY TENANT. Tenant shall indemnify, defend and hold
harmless Landlord, its employees and agents, any persons holding a security
interest in the Premises, and the respective successors and assigns of each of
them from and against any and all claims, demands, liabilities, damages,
fines, losses, costs (including without limitation the cost of any
investigation, remedial, removal or other response action required by
Environmental Law) and expenses including without limitation attorneys' fees
and expert fees in connection with any trial, appeal, petition for review or
administrative proceeding) arising out of or in any way relating to the use,
treatment, storage, generation, transport, release, leak, spill, disposal or
other handling of Hazardous Substances on the Premises by Tenant or any of its
contractors, agents or employees or invitees. Tenant's obligations under this
section shall survive the expiration or termination of this lease for any
reason. Landlord's rights under this section are in addition to and not in
lieu of any other rights or remedies to which Landlord may be entitled under
this agreement or otherwise.
(ii) BY LANDLORD. Landlord shall indemnify, defend and
hold harmless Tenant and its employees and agents and their respective
successors and assigns of each of them from and against any and all claims,
demands, liabilities, damages, fines, losses, costs (including without
limitation the cost of any investigation, remedial, removal or other response
action required by Environmental Law) and expenses (including without
limitation attorneys' fees and agents fees in connection with any trial,
appeal, petition for review or administrative proceeding) arising out of or in
any way relating to the actual or alleged use, treatment, storage, generation,
transport, release, leak, spill, disposal or other handling of Hazardous
Substances on the Premises by Landlord, or any of its contractors, agents or
employees or by Landlord's previous tenants of the Premises. Landlord's
obligations under this section shall survive the expiration or termination of
this lease for any reason. Tenant's rights under this section are in addition
to and not in lieu of any other rights or remedies to which Tenant may be
entitled under this Agreement or otherwise.
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22. TENANT IMPROVEMENTS.
Landlord shall provide Tenant with a tenant improvement allowance
of $25.00 per square foot. Said improvements shall be constructed in
accordance with a mutually acceptable space plan and are subject to applicable
building codes as interpreted by the City of Hillsboro as specified in Exhibit
C attached hereto.
(a) The Building shall include the following components which
shall be provided at Landlord's cost and expense:
1. The exterior and roof of the Building shall be
complete with all exterior doors, walls (excluding interior side wallboard),
roof, storefront, window frames and glazing as well as parking paving and
striping in place and usable.
2. The floor shall be a concrete slate ready to receive
floor preparation and floor covering.
3. The main building electrical service shall be
installed, ready for installation of Tenant electrical meter, breakers, and
subpanels. Conduits shall be installed to permit the installation of a 2500
amp service within the Premises.
4. Four-inch sanitary sewer is in place under slab
parallel to and approximately 7 feet west of Grid D, then intersecting a line
from that point extending west between grid lines 7 and 8 to its connection
with the site sanitary sewer five feet beyond the Building "drip line".
Domestic water shall be stubbed into the Building near grid location B-6.
5. The fire protection sprinkler system shall be
installed and functioning in the Building. The completed overhead
distribution piping for the fire protection system, ready for installation of
sprinkler drops, will be in place within tenant areas.
(b) The tenant improvement allowance shall be applied to costs
related to all tenant construction, including the following:
1. Tenant improvement specific architectural and
engineering fees.
2. Permits, fees, bonds, systems development charges,
traffic impact fees, sewer connection fees.
3. General Conditions.
4. Contractor overhead and profit.
5. Miscellaneous concrete and concrete curbing.
6. Interior walls and framing (including interior of
exterior concrete walls).
7. Ceiling system and ceiling insulation.
8. Wall insulation (interior and exterior).
9. Interior doors, frames, and hardware.
10. Interior plumbing.
11. Interior heating, ventilating, and air conditioning.
12. Fire sprinklers, drops from overhead system.
13. Interior electrical (from building service) and all
interior lighting systems.
14. Restroom accessories and partitions.
15. Millwork: wood and plastic laminate work, including
all cabinetry.
16. All flooring materials and installation.
17. Floor/wall base.
18. Interior paint and wallcovering.
19. Window covering.
20. Clean up.
21. Cost of increasing building electrical service from
1200 amps to 2500 amps.
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23. EXHIBITS.
The following exhibits are attached to this lease and incorporated
herein by reference.
Exhibit A - Location of Premises
Exhibit B - The Building
Exhibit C - Design and Construction of Tenant Improvements
IN WITNESS WHEREOF, the duly authorized representatives of the
parties have executed this lease as of the day and year first written above.
PACIFIC REALTY ASSOCIATES, L.P., FEI COMPANY,
a Delaware limited partnership an Oregon corporation
By PacTrust Realty, Inc., a Delaware
corporation, its General Partners
By /s/ David G. Hicks By /s/ William G. Langley
----------------------- -----------------------
David G. Hicks Name William G. Langley
Vice President Title President
By__________________________
Name________________________
Title_______________________
Address for Legal
Address for Notices/Rent Payments to Landlord: Notices to Tenant:
15350 S.W. Sequoia Parkway, Suite 300 FEI Company
Portland, Oregon 97224 7451 N.E. Evergreen Parkway
Hillsboro, OR 92124
Address for Invoices to
Tenant:
FEI Company
7451 N.E. Evergreen Parkway
Hillsboro, OR 92124
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Exhibit 10.9
LEASE
DATED: June 6, 1996
BETWEEN: PACIFIC REALTY ASSOCIATES, L.P.,
a Delaware limited partnership LANDLORD
AND: FEI COMPANY,
an Oregon corporation TENANT
Tenant wishes to lease from Landlord the following described
property, hereinafter referred to as "the Premises":
Approximately 28,750 square feet of warehouse and office space
located in Building H, Evergreen Business Park, 7395 N.W. Evergreen Parkway,
Suite 100, Hillsboro, Oregon 97124 and as further described on the attached
Exhibits A, B and C.
The building housing the Premises is hereinafter referred to as
"the Building."
Landlord leases the Premises to Tenant for a term of 77 months
commencing on the substantial completion date as determined by Paragraph 3.1
of the attached Exhibit C (with rent commencement to be at the time described
in Exhibit C, Paragraphs 3 and 4) and continuing through March 31, 2003. Base
rent shall be according to the following schedule:
BASE RENT
PERIOD PER MONTH
------ ---------
Months 1 - 60 $23,288.00
Months 61 through March 31, 2003 $26,306.00
If rent commences on a day other than the first of a month, then the partial
month shall not be counted as one of the first 60 months. Rent for the first
month of the lease term shall be paid upon execution of this lease. All rent,
including base rent together with the charges, taxes and expenses to be paid
to Landlord specified in paragraphs 3 and 4 of this lease, is payable in
advance on the first day of such calendar month. If Landlord consents, Tenant
may occupy the Premises prior to such commencement date on a rent-free basis
and upon compliance with all terms of this lease.
Delivery of possession shall occur when the Premises are occupied
by Tenant or are ready to be occupied by Tenant with all work to be performed
by Landlord substantially completed as described in Exhibit C.
This lease is subject to the following additional terms in which
the parties agree:
1. USE OF THE PREMISES.
(a) Tenant shall use the Premises only for the purpose of
conducting the following business:
Light manufacturing, assembly, distribution, warehouse and
general office related thereto.
If such use is prevented by any law or governmental regulation, Tenant may use
the Premises for other reasonable uses.
(b) In connection with its use, Tenant shall, at its expense,
comply with all applicable laws, ordinances, and regulations of any public
authority, including those requiring alteration of the Premises because of
Tenant's specific use; shall create no nuisance nor allow any objectionable
liquid, odor, or noise to be emitted from the Premises; shall store no
gasoline or other highly combustible materials on the Premises which would
violate any applicable fire code or regulation nor conduct any operation that
will increase Landlord's fire
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insurance rates for the Premises; and shall not overload the floors or
electrical circuits of the Premises. Landlord shall have the right to approve
the installation of any power-driven machinery by Tenant and may select a
qualified electrician whose opinion will control regarding electrical circuits
and a qualified engineer or architect whose opinion will control regarding
floor loads. Allowable ground floor load shall be 300 pounds per square foot.
This provision assumes that Landlord builds the Premises in accordance with
Exhibit C.
(c) Tenant may erect a sign stating its name, business, and
product after first securing Landlord's written approval of the site, color,
design, wording, and location, and all necessary governmental approvals. No
signs shall be painted on the Building or exceed the height of the Building.
All signs installed by Tenant shall be removed upon termination of this lease
with the sign location restored to its former state.
(d) Tenant shall make no alterations, additions, or improvements
to the Premises or change the color of the exterior without Landlord's prior
written consent and without a valid building permit issued by the appropriate
governmental agency. Upon termination of this lease, any such alterations,
additions, or improvements (including without limitation all electrical,
lighting, plumbing, heating and air-conditioning equipment, doors, windows,
partitions, drapery, carpeting, shelving, counters, and physical attached
fixtures) shall at once become part of the realty and belong to Landlord
unless the terms of the applicable consent provide for removal by Tenant. In
such case, Tenant shall at its sole cost and expense promptly remove the
specified additions, alterations, or improvements and repair and restore the
Premises to its original condition.
2. SECURITY DEPOSIT.
Upon occupancy of the Premises, Tenant shall deposit with Landlord
the sum of $26,306.00, hereinafter referred to as "the Security Deposit," to
secure the faithful performance by Tenant of each term, covenant, and
condition of this lease. If Tenant shall at any time fail to make any payment
or fail to keep or perform any term, covenant, and condition on its part to be
made or performed or kept under this lease, Landlord may, but shall not be
obligated to and without waiving or releasing Tenant from any obligation under
this lease, use, apply or retain the whole or any part of the Security Deposit
(i) to the extent of any sum due to Landlord; or (ii) to make any required
payment on Tenant's behalf; or (iii) to compensate Landlord for any loss,
damage, attorneys' fees, or expense sustained by Landlord due to Tenant's
default. In such event, Tenant shall, within 5 days of written demand by
Landlord, remit to Landlord sufficient funds to restore the Security Deposit
to its original sum: Tenant's failure to do so shall be a material breach of
this lease. Landlord shall not be required to keep the Security Deposit
separate from its general funds, and Tenant shall not be entitled to interest
on such deposit. Should Tenant comply with all of the terms, covenants, and
conditions of this lease and at the end of the term of this lease leave the
Premises in the condition required by this lease, then the Security Deposit,
less any sums owing to Landlord, shall be returned to Tenant (or, at
Landlord's option, to the last assignee of Tenant's interests hereunder)
within 30 days after the termination of this lease and vacancy of the Premises
by Tenant. If Landlord has not made any claim on the Security Deposit within
three (3) years after the Commencement Date, the deposit shall be returned to
Tenant by crediting it against the rent and payable under this lease.
3. UTILITY CHARGES; MAINTENANCE.
(a) Tenant shall pay when due all charges for electricity,
natural gas, water, garbage collection, janitorial service, sewer, and all
other utilities of any kind furnished to the Premises during the lease term.
If charges are not separately metered or stated, Landlord shall apportion the
utility charges on an equitable basis. Landlord shall have no liability
resulting from any interruption of utility services caused by fire or other
casualty, strike, riot, vandalism, the making of necessary repairs or
improvements, or any other cause beyond Landlord's reasonable control. Tenant
shall control the temperature in the Premises to prevent freezing of any
sprinkler system.
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(b) Landlord shall repair and maintain the roof, gutters,
downspouts, exterior walls, building structure, floor slab, foundation,
exterior paved areas, and curbs of the Premises in good condition. Except for
such obligations of Landlord, Tenant shall keep the Premises neatly maintained
and in good order and repair. Tenant's responsibility shall include
maintenance and repair of the electrical system, plumbing, drainpipes to
sewers, air-conditioning and heating systems, overhead and personnel doors,
and the replacement of all broken or cracked glass with glass of the same
quality. Tenant shall refrain from any discharge that will damage the septic
tank or sewers serving the Premises. Landlord shall correct any defective
construction or warrantied mechanical or electrical matters.
(c) Landlord shall keep the sidewalks abutting the Premises or
the separate entrance free and clear of snow, ice, debris, and obstructions of
every kind and the cost shall be an operating expense under Paragraph 4(d) of
this lease.
4. TAXES, ASSESSMENTS, AND OPERATING EXPENSES.
(a) In conjunction with monthly rent payments, Tenant shall each
month pay a sum representing Tenant's proportionate share of real property
taxes and operating expenses for the Premises. Such amount shall annually be
estimated by Landlord in good faith to reflect actual or anticipated costs.
Upon termination of this lease or at periodic intervals during the term
hereof, Landlord shall compute its actual costs for such expenses during such
period. Any overpayment by Tenant shall be credited to Tenant, and any
deficiency shall be paid by Tenant within 15 days after receipt of Landlord's
statement. Landlord's records of expenses for taxes and operating expenses
may be inspected by Tenant at reasonable times and intervals.
(b) Tenant's proportionate share of real property taxes shall
mean that percentage of the total assessment affecting the Premises which is
the same as the percentage which the rentable area of the Premises bears to
the total ratable area of all buildings covered by the tax statement.
Tenant's proportionate share of operating expenses for the Building shall be
computed by dividing the rentable area of the Premises by the total rentable
area of the Building. If in Landlord's reasonable judgment either of these
methods of allocation results in an inappropriate allocation to Tenant,
Landlord shall select some other reasonable method of determining Tenant's
proportionate share.
(c) Real property taxes charged to Tenant hereunder shall
include all general real property taxes assessed against the Premises or
payable during the lease terms, installment payments on Bankrolled special
assessments, and any rent tax on Landlord's interest under this lease, or any
tax in lieu of the foregoing, whether or not any such tax is now in effect.
Tenant shall not, however, be obligated to pay any tax based upon Landlord's
net income.
(d) Operating expenses charged to Tenant hereunder shall include
all usual and necessary costs of operating and maintaining the Premises, and
any surrounding common areas including, but not limited to, the cost of all
utilities or services not paid directly by Tenant, property insurance,
property management, maintenance and repair of landscaping, parking areas, and
any other common facilities. Operating expenses shall not include roof
replacement or correction of structural deficiencies of the Building or
defective construction.
5. PARKING AND STORAGE AREAS.
(a) Tenant, its employees, and customers shall have the
exclusive right to use 124 private parking spaces in the parking area serving
the Premises (see attached Exhibit B). Such number includes all visitor
spaces serving the Building. Tenant shall control the use of such parking
spaces so that there will be no unreasonable interference with the normal
traffic flow, and shall permit no parking on any landscaped or unpaved
surface. Under no circumstances shall trucks serving the Premises be
permitted to block streets.
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(b) Tenant shall not store any materials, supplies, or equipment
in any unapproved or unscreened area except for a tank for industrial gases,
generator and compressor. Such tank shall not exceed the height of the
Building. If Tenant erects any visual barriers for storage areas, Landlord
shall have the right to approve the design and location. Tenant shall be
responsible for all security screening, which must be approved by Landlord.
Trash and garbage receptacles shall be kept covered at all times.
6. TENANT'S INDEMNIFICATION; LIABILITY INSURANCE.
(a) Tenant shall not allow any liens to attach to the Premises
as a result of its activities. Tenant shall indemnify and defend Landlord
from any claim, liability, damage, or loss arising out of any activity on the
Premises by Tenant, its agents, or invitees or resulting from Tenant's failure
to comply with any term of this lease.
(b) Tenant shall carry general liability insurance on any
occurrence basis with combined single limits of not less than $1,000,000.
Such insurance shall be provided by an insurance carrier reasonably acceptable
to Landlord and shall be evidence by a certificate delivered to Landlord
stating the coverage will not be canceled or materially altered without 10
days' advance written notice to Landlord. Landlord shall be named as an
additional insured on such policy.
7. PROPERTY DAMAGE; SUBROGATION WAIVER.
(a) If fire or other casualty damage to the Building or the
Premises in an amount exceeding 30 percent of the full
construction-replacement cost of the Building or Premises, respectively,
Landlord may elect to terminate this lease as of the date of the damage by
notice in writing to Tenant within 30 days after such date. Otherwise,
Landlord shall promptly repair the damage and remove the Premises to their
former condition as soon as practicable. Rent shall be reduced during the
period to the extent the Premises are not reasonably usable for the use
permitted by this lease because of such damage and required repairs.
(b) Landlord shall be responsible or issuing the Building, and
Tenant shall be responsible for insuring its personal property and trade
fixtures located on the Premises.
(c) Neither party shall be liable to the other for any loss or
damage caused by water damage, sprinkler leakage, or any of the risks covered
by a standard fire insurance policy with extended coverage and sprinkler
leakage endorsements, and there shall be no subrogated claim by one party's
insurance carrier against the other party arising out of any such loss.
8. CONDEMNATION.
If a condemning authority takes the entire Premises or a portion
sufficient to render the remainder unsuitable for Tenant's use, then either
party may elect to terminate this lease effective on the date that title
passes to the condemning authority. Otherwise, Landlord shall proceed as soon
as practicable to restore the remaining Premises to a condition comparable to
that existing at the time of the taking. Rent shall be abated during the
period of restoration to the extent the Premises are not reasonably usable by
Tenant, and rent shall be reduced for the remainder of the term in an amount
equal to the reduction in rental value of the Premises caused by the taking.
All condemnation proceeds shall belong to Landlord, except that Tenant shall
be permitted to recover the unamortized portion of Tenant Improvement Costs
paid by it, computed on a straight line basis.
9. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign its interest under this lease nor
sublet the Premises without first obtaining Landlord's consent in writing,
which shall not be unreasonably withheld, conditioned or delayed, except as
provided for in Paragraph 21(f). This provision
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shall apply to all transfers by operating of law or through mergers and
changes in control of Tenant. No assignment shall relieve Tenant of its
obligation to pay rent or perform other obligations required by this lease and
no one assignment or subletting shall be a consent to any further assignment
or subletting.
(b) Subject to the above limitations on transfer of Tenant's
interest, this lease shall bind and inure to the benefit of the parties, their
respective heirs, successors, and assigns.
10. DEFAULT.
Any of the following shall constitute a default by Tenant under
this lease:
(a) Tenant's failure to pay rent or any other charge under this
lease within 10 days after written notice that it is due, or failure to comply
with any other term or condition within 20 days following written notice from
landlord specifying the noncompliance. If such noncompliance cannot be cured
within the 20-day period, this provision shall be satisfied if Tenant
commences correction within such period and thereafter proceeds in good faith
and with reasonable diligence to effect compliance as soon as possible.
(b) Tenant's insolvency; assignment for the benefit of the
creditors: Tenant's voluntary petition in bankruptcy or adjudication as
bankrupt, or the appointment of a receiver for Tenant's properties.
11. REMEDIES FOR DEFAULT.
In case of default as described in paragraph 10 above, Landlord
shall have the right to the following remedies which are intended to be
cumulative and in addition to any other remedies provided under applicable
law:
(a) Terminate this lease without relieving Tenant from its
obligation to pay damages.
(b) Retake possession of the Premises by summary proceedings or
otherwise, in which case Tenant's liability to Landlord for damages shall
survive the tenancy. Landlord may, after such retaking of possession, relet
the Premises upon any reasonable terms. No such reletting shall be construed
as an acceptance of a surrender of Tenant's leasehold interest.
(c) Recover damages caused by Tenant's default which shall
include reasonable attorneys' fees at trial and on any appeal therefrom.
Landlord may sue periodically to recover damages as they occur throughout the
lease term, and no action for accrued damages shall bar a later action for
damages subsequently accruing. Landlord may elect in any one action to
recover accrued damages plus damages attributable to the remaining term of the
lease equal to the difference between the rent under this lease and the
reasonable rental value of the Premises for the remainder of the term,
discounted to the time of judgment at the rate of 6 percent per annum.
(d) Make any payment or perform any obligation required of
Tenant so as to cure Tenant's default, in which case Landlord shall be
entitled all amounts so expended from Tenant, plus interest at the rate of 10
percent per annum from the date of the expenditure.
12. SURRENDER ON TERMINATION.
(a) On expiration or early termination of this lease, Tenant
shall deliver all keys to Landlord, have final utility readings made on the
date of move out, and surrender the Premises clean and free of debris inside
and out, with all mechanical, electrical and plumbing systems in good
operating condition, all signing removed and defacement corrected, and all
repairs called for under this lease completed. The Premises shall be
delivered in the same
Page 5 of 11
<PAGE>
condition as at the commencement of the term, subject only to depreciation and
wear from ordinary use. Tenant shall remove all of its furnishings and trade
fixtures that remain its property and restore all damage resulting from such
removal. Failure to remove said property shall be an abandonment of same, and
Landlord may dispose of it in any manner without liability.
(b) If Tenant fails to vacate the Premises when required,
including failure to remove all its personal property, Landlord may elect
either: (i) to treat Tenant as a tenant from month to month, subject to all
provisions of this lease except the provision for term and at a base rental of
120 percent of that specified in this lease; or(ii) to eject Tenant from the
Premises and recover damages caused by wrongful holdover.
13. LANDLORD'S LIABILITY.
(a) Landlord warrants that so long as Tenant complies with all
terms of this lease it shall be entitled to peacable, quiet and undisturbed
possession of the Premises free from any eviction or disturbance by Landlord
or persons claiming through Landlord.
(b) All persons dealing with Pacific Realty Associates, L.P.
("Partnership") must look solely to the property and assets of Partnership for
the payment of any claim against Partnership or for the performance of any
obligation of Partnership as neither the general partner, limited partners,
employees, nor agents of Partnership assume any personal liability for
obligations entered into on behalf of Partnership (or its predecessors in
interest) and their respective properties shall not be subject to the claims
of any person in respect of any such liability or obligation. As used herein,
the words "property and assets of partnership" exclude any rights of
Partnership for the payment of capital contributions or other obligations to
it by the general partner or any limited partner in such capacity.
14. MORTGAGE OR SALE BY LANDLORD; ESTOPPEL CERTIFICATES.
(a) This lease is and shall be prior to any mortgage or deed of
trust ("Encumbrance") recorded after the date of this lease and affecting the
Building and the land upon which the Building is located. However, if any
lender holding an Encumbrance secured by the Building and the land underlying
the Building requires that this lease be subordinate to the Encumbrance, then
Tenant agrees that this lease shall be subordinate to the Encumbrance if the
holder thereof agrees in writing with Tenant that so long as Tenant performs
its obligations under this lease no foreclosure, deed given in lieu of the
foreclosure, or sale pursuant to the terms of the Encumbrance, or other steps
or procedures taken under the Encumbrance shall affect Tenant's rights under
this lease. If the foregoing condition is met, Tenant shall execute the
written agreement and any other documents required by the holder of the
Encumbrance to accomplish the purposes of this paragraph.
(b) If the Building is sold as a result of foreclosure of any
Encumbrance thereon or otherwise transferred by Landlord or any successor,
Tenant shall attorn to the purchaser or transferee, and the transferor shall
have no further liability hereunder.
(c) Either party shall within 20 days after notice from the
other execute and deliver to the other party a certificate stating whether or
not this lease has been modified and is in full force and effect and
specifying any modifications or alleged breaches by e other party. The
certificate shall also state the amount of monthly base rent, the dates to
which rent has been paid in advance, and the amount of any security deposit or
prepaid rent. Failure to deliver the certificate within the specified time
shall be conclusive upon the party of whom the certificate was requested that
the lease is in full force and effect and has not been modified as may be
represented by the party requesting the certificate.
(d) If the Premises are encumbered by a mortgage or trust deed
as of the date of this lease, Landlord shall obtain an agreement from the
lender not to disturb Tenant so long as Tenant is not in default.
Page 6 of 11
<PAGE>
15. DISPUTES - ATTORNEYS' FEES.
In the event of any litigation arising out of this lease, the
prevailing party shall be entitled to recover from the other party, in
addition to all other relief provided by law or judgment, its reasonable costs
and attorneys' fees incurred both at and in preparation for trial and any
appeal or review, such amount to be as determined by the court(s) before which
the matter is heard. Disputes between the parties which are to be litigated
shall be tried before a judge without a jury.
16. SEVERABILITY.
If any provision of this lease is held to be invalid,
unenforceable or illegal the remaining provisions shall not be affected and
shall be enforced to the fullest extent permitted by law.
17. INTEREST AND LATE CHARGES.
Rent not paid within 10 days of when due shall bear interest from
the date due until paid at the rate of 10 percent per annum. Landlord may at
its option impose a later charge of $.05 for each $1.00 of rent for rent
payments made more than 10 days late in addition to interest and other
remedies available for default.
18. GENERAL PROVISIONS.
(a) Waiver by either party of strict performance of any
provision of this lease shall not be a waiver of nor prejudice the parties'
right otherwise to require performance of the same provision or any other
provision.
(b) Subject to the limitations on transfer of Tenant's interest,
this lease shall bind and inure to the benefit of the parties, their
respective heirs, successors, and assigns.
(c) Landlord shall have the right to enter upon the Premises at
any time following reasonable advance notice except in case of emergency to
determine Tenant's compliance with this lease, to make necessary repairs to
the Building or the Premises, or to show the Premises to any prospective
tenant or purchasers. During the last two months of the term, Landlord may
place and maintain upon the Premises notices for leasing or sale of the
Premises.
(d) If this lease commences or terminates at a time other than
the beginning or end of one of the specified rental periods, then the rent
(including Tenant's share of real property taxes, if any) shall be prorated as
of such date, and in the event of termination for reasons other than default
all prepaid rent shall be refunded to Tenant or paid on its account.
(e) Notices between the parties relating to this lease shall be
in writing, effective when delivered, or if mailed, effective on the second
day following mailing, postage prepaid, to the address for the party stated in
this lease or to such other address as either party may specify by notice to
the other. Rent shall be payable to Landlord at the same address and in the
same manner.
(f) Whenever Landlord's consent is required by this lease, it
shall not be withheld, delayed or conditioned unreasonably.
19. FIRST RIGHT OF NOTICE SPACE.
Tenant shall have the First Right of Notice to expand into a portion of
portions of Building G at Evergreen Business Park (the "First Right of Notice
Space"). Tenant shall have ten (10) business days after such notification to
decide whether or not it wishes to lease the First Right of Notice Space. If
Tenant does not so exercise, Landlord shall have the right to lease the First
Right of Notice Space to others.
Page 7 of 11
<PAGE>
20. RENEWAL OPTION.
20.1 If not then in default, Tenant shall have the option to
renew this lease for two additional five-year terms by giving Landlord written
notice of its intent to extend at least 180 days prior to expiration of the
preceding term. All provisions of this lease shall apply during the extended
term, except that rent for the renewal period shall be the fair rental value
of the Premises as agreed upon by parties at least 90 days prior to
commencement of the renewal period, but in no case less than that of the
preceding term. If Tenant elects not to exercise the first five-year renewal
period, then the second five-year renewal period shall be null and void. If
the parties fail to agree on the fair rental value for the renewal term, it
shall be determined by arbitration pursuant to the provisions of the following
subparagraphs 20.2 through 20.6.
20.2 If a dispute arises under this lease as to market rent for
purposes of this renewal option, either party may request arbitration and
appoint as arbitrator one licensed real estate appraiser having experience
with respect to the matter in dispute. The other party shall choose an
arbitrator with such qualifications, and the two arbitrators shall within five
(5) days choose a third with such qualifications. If the choice of the second
or third arbitrator is not made within ten (10) days after choice of the prior
arbitrator, then either party may apply to the presiding judge of the
Washington County Circuit Court to choose the required arbitrator.
20.3 At any time within twenty (20) days after appointment of the
third arbitrator, either party may submit the dispute for settlement by the
arbitrators.
20.4 The arbitrators to whom the dispute is submitted shall
conduct such investigations as they shall consider necessary, and the written
decision of the majority shall be submitted to both parties within thirty (30)
days after the referral unless the arbitrators determine that further time is
reasonably required to make a proper investigation of the relevant facts.
20.5 The parties shall be bound by the decision of a majority of
the arbitrators.
20.6 The cost of arbitration shall be allocated between the
parties by the arbitrators on the basis of the extent to which the position of
one or the other party is adopted in the arbitrators' decision.
21. ENVIRONMENTAL.
(a) DEFINITIONS. The term "Environmental Law" shall mean any
federal, state or local statute, regulation or ordinance or any judicial or
other government order pertaining to the protection of health, safety or the
environment. The term "Hazardous Substance" shall mean any hazardous, toxic,
infectious or radioactive substance, waste and material as defined or listed
by any Environmental Law and shall include, without limitation, petroleum oil
and its fractions.
(b) USE OF HAZARDOUS SUBSTANCES. Tenant shall not cause or
permit any Hazardous Substance to be spilled, leaked, disposed of or otherwise
released on or under the Premises. Tenant may use and sell on the Premises
only those Hazardous Substances typically used and sold in the prudent and
sole operation of the business permitted by Section 1 of this lease. Tenant
may store such Hazardous Substances on the Premises, but only in quantities
necessary to satisfy Tenant's reasonably anticipated needs. Tenant shall
comply with all Environmental Laws and exercise the highest degree of care in
the use, handling and storage of Hazardous Substances and shall take all
practicable measures to maintain the quantity and toxicity of Hazardous
Substances used, handled or stored on the Premises.
(c) NOTICES. Tenant shall immediately notify Landlord upon
becoming aware of the following: (a) any spill, leak, disposal or other
release of a Hazardous Substance on, under or adjacent to the Premises; (b)
any notice or communication from a governmental agency or any other person
relating to any Hazardous Substance on, under or adjacent to the Premises; or
(c) any violation of any Environmental Law with respect to the Premises or
Tenant's activities on or in connection with the Premises.
Page 8 of 11
<PAGE>
(d) SPILLS AND RELEASES. In the event of a spill, leak,
disposal or other release of a Hazardous Substance on or under the Premises
caused by Tenant or any of its contractors, agents or employees or invitees,
or the suspicion or threat of the same, Tenant shall (i) immediately
undertake all investigatory, remedial, removal and other response action
necessary or appropriate to ensure that any Hazardous Substances contamination
is eliminated to Landlord's reasonable satisfaction, and (ii) provide Landlord
copies of all correspondence with any governmental agency regarding the
release (or threatened or suspected release) or the response action, a
detailed report documenting all such response action, and a certification that
any contamination has been eliminated. All such response action shall be
performed, all such reports shall be prepared and all such certifications
shall be made by an environmental consultant reasonably acceptable to
Landlord.
(e) CONDITION UPON TERMINATION. Upon expiration of this lease
or sooner termination of this lease for any reason, Tenant shall remove all
Hazardous Substances and facilities used for the storage or handling of
Hazardous Substances from the Premises and restor the affected areas by
repairing any damage caused by the installation or removal of the facilities.
Following such removal, Tenant shall certify in writing to Landlord that all
such removal is complete.
(f) ASSIGNMENT AND SUBLETTING. Notwithstanding the provisions
of Paragraph 9 of this lease, it shall not be unreasonable for Landlord to
withhold its consent to any assignment, sublease or other transfer of the
Tenant's interest in this lease if a proposed transferee's anticipated use of
the Premises involves the generation, storage, use, sale, treatment, release
or disposal of any Hazardous Substance.
(g) INDEMNITY.
(i) BY TENANT. Tenant shall indemnify, defend and hold
harmless Landlord, its employees and agents, any persons holding a security
interest in the Premises, and the respective successors and assigns of each of
them from and against any and all claims, demands, liabilities, damages,
fines, losses, costs (including without limitation the cost of any
investigation, remedial, removal or other response action required by
Environmental Law) and expenses including without limitation attorneys' fees
and expert fees in connection with any trial, appeal, petition for review or
administrative proceeding) arising out of or in any way relating to the use,
treatment, storage, generation, transport, release, leak, spill, disposal or
other handling of Hazardous Substances on the Premises by Tenant or any of its
contractors, agents or employees or invitees. Tenant's obligations under this
section shall survive the expiration or termination of this lease for any
reason. Landlord's rights under this section are in addition to and not in
lieu of any other rights or remedies to which Landlord may be entitled under
this agreement or otherwise.
(ii) BY LANDLORD. Landlord shall indemnify, defend and
hold harmless Tenant and its employees and agents and their respective
successors and assigns of each of them from and against any and all claims,
demands, liabilities, damages, fines, losses, costs (including without
limitation the cost of any investigation, remedial, removal or other response
action required by Environmental Law) and expenses (including without
limitation attorneys' fees and agents fees in connection with any trial,
appeal, petition for review or administrative proceeding) arising out of or in
any way relating to the actual or alleged use, treatment, storage, generation,
transport, release, leak, spill, disposal or other handling of Hazardous
Substances on the Premises by Landlord, or any of its contractors, agents or
employees or by Landlord's previous tenants of the Premises. Landlord's
obligations under this section shall survive the expiration or termination of
this lease for any reason. Tenant's rights under this section are in addition
to and not in lieu of any other rights or remedies to which Tenant may be
entitled under this Agreement or otherwise.
22. TENANT IMPROVEMENTS.
Landlord shall provide Tenant with a tenant improvement allowance
of $25.00 per square foot. Said improvements shall be constructed in
accordance with a mutually acceptable space plan and are subject to applicable
building codes as interpreted by the City of Hillsboro as specified in Exhibit
C attached hereto.
Page 9 of 11
<PAGE>
(a) The Building shell includes the following components which
shall be provided at Landlord's cost and expense:
1. The exterior and roof of the Building shall be
complete with all exterior doors, walls (excluding interior side wallboard),
roof, storefront, window frames and glazing as well as parking paving and
striping in place and usable.
2. The floor shall be a concrete slab ready to receive floor
preparation and floor covering.
3. The main building electrical service shall be
installed, ready for installation of Tenant electrical meter, breakers, and
subpanels.
4. Six-inch sanitary sewer is in place under slab
parallel to and approximately 4 feet west of Grid D, to its connection with
the site sanitary sewer five feet beyond the Building "drip line". Domestic
water shall be stubbed into the Building near grid location C-11.
5. The fire protection sprinkler system shall be
installed and functioning in the Building. The completed overhead
distribution piping for the fire protection system, ready for installation of
sprinkler drops, will be in place within tenant areas.
(b) The tenant improvement allowance shall be applied to costs
related to all tenant construction, including the following:
1. Tenant improvement specific architectural and
engineering fees.
2. Permits, fees, bonds, systems development charges,
traffic impact fees, sewer connection fees.
3. General Conditions.
4. Contractor overhead and profit.
5. Miscellaneous concrete and concrete curbing.
6. Interior walls and framing (including interior of
exterior concrete walls).
7. Ceiling system and ceiling insulation.
8. Wall insulation (interior and exterior).
9. Interior doors, frames, and hardware.
10. Interior plumbing.
11. Interior heating, ventilating, and air conditioning.
12. Fire sprinklers, drops from overhead system.
13. Interior electrical (from building service) and all
interior lighting systems.
14. Restroom accessories and partitions.
15. Millwork: wood and plastic laminate work, including
all cabinetry.
16. All flooring materials and installation.
17. Floor/wall base.
18. Interior paint and wallcovering.
19. Window covering.
20. Clean up.
21. Cost of increasing building electrical service from
1200 amps to size required by Tenant.
23. EXHIBITS.
The following exhibits are attached to this lease and incorporated
herein by reference.
Exhibit A - Location of Premises
Exhibit B - The Building
Exhibit C - Design and Construction of Tenant Improvements
Page 10 of 11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agerement on the respective dates set opposite their signatures belwo, but
this Agreement on behalf of such party shall be deemed to ahve been dated as
of the date first above written.
LANDLORD:
PACIFIC REALTY ASSOCIATES, L.P.,
a Delaware limited partnership
By PacTrust Realty, Inc.
a Delaware corporation,
its General Partner
Date: July 8, 1996 By: /s/ Sam K. Briggs
-------------------------------
Sam K. Briggs
Marketing Director
Address for Notices/Rent Payments to Landlord:
15350 S. W. Sequoia Parkway, #300-WMPC
Portland, OR 97224
TENANT:
FEI COMPANY,
an Oregon corporation
Date: July 2, 1996 By: /s/ William G. Langley
-------------------------------
Name: William G. Langley
Title: President
Date:___________, 1996 By:____________________________
Name:__________________________
Title:_________________________
Address for Legal Notices to Tenants:
---------------------------------
---------------------------------
---------------------------------
Address for Invoices to Tenant:
---------------------------------
---------------------------------
---------------------------------
Tenant Employer Identification Number:
----------------------------------
Page 11 of 11
<PAGE>
KEY BANK LOGO
AMENDMENT TO NOTE AND LOAN AGREEMENT
THIS AMENDMENT is made and entered into as of January 9, 1997, between FEI
COMPANY ("Borrower") and KEY BANK OF OREGON ("Bank"), with reference to
the following facts:
Bank has extended to Borrower a revolving line of credit, which is
evidenced by a Revolving Note in the original principal amount of Ten Million
Dollars dated as of November 1, 1996 (the "Note"), by a Loan Agreement
(Revolving Line) dated as of December 17, 1993, as thereafter amended (the
"Loan Agreement"). The Loan is also evidenced by certain other instruments
and agreements (collectively, the "Loan Documents"). Bank and Borrower wish
to modify the Note and the Loan Agreement to increase the maximum principal
amount that may be borrowed thereunder, and hereby agrees as follows:
1. Amendment. Effective as of the date of this Modification Agreement,
the Note and the Loan Agreement are each hereby amended to increase the
principal amount that may be borrowed thereunder to Twelve Million Dollars
($12,000,000.00).
2. No Other Changes. Except as modified hereby, all terms and
conditions of the Note, the Loan Agreement and the Loan Documents (including
without limitation, the Maturity Date and the Sublimit on LIBOR borrowings
set forth in the Note) shall remain unmodified and in full force and effect.
3. Reaffirmation of Warranties. Borrower reaffirms to Bank each of the
representations, warranties, covenants and agreements of Borrower set forth
in the Loan Documents with the same force and effect as if separately stated
herein and made as of the date hereof. Borrower specifically affirms and
represents that the Loan Documents, as modified hereby, represent the valid,
enforceable and collectible obligations of Borrower, and warrants that there
are no existing claims, defenses (personal or otherwise), or rights of offset
whatsoever relating to any of the Loan Documents and further warrants that no
event has occurred, and no condition exists that would constitute a default
under the Loan Documents or this Agreement, either with or without notice
and/or lapse of time. Borrower acknowledges that:
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE
BY A BANK AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT
EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES
OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING,
EXPRESS CONSIDERATION AND BE SIGNED BY THAT BANK TO BE ENFORCEABLE.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first set forth above.
KEY BANK OF OREGON ("Bank") FEI COMPANY ("Borrower")
By: /s/JOHN H. BROCK By: /s/FREDERICK A.M. GORDON
----------------------------- --------------------------------
Name: John H. Brock Name: Frederick A.M. Gordon
Title: Senior Vice President Title: Controller
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES
Jurisdiction of
Name Incorporation
- ----- ---------------
FEI Asia Corporation Oregon
FEI Company FSC Ltd. Barbados
FEI Europe GmbH Germany
FEI Europe Limited United Kingdom
Philips Electron Optics International B.V. Netherlands
Philips Electron Optics B.V. Netherlands
Philips Electron Optics Nederland B.V. Netherlands
Philips Electron Optics Japan, Ltd. Japan
Philips Electron Optics U.K. Limited United Kingdom
Philips Electron Optics Czech Republic SRO Czech Republic
Philips Optique Electronique S.A.S. France
Philips Electron Optics S.R.L. Italy
Philips Electron Optics GmbH Germany
Philips Electron Optics Inc. Delaware
Philips Electron Optics Canada Ltd. Canada
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-08863 of FEI Company on Form S-8 of our reports dated January 31, 1997,
appearing in the Annual Report on Form 10-K of FEI Company for the year ended
December 31, 1966 and to the reference to us under the heading "Experts" in
the Prospectus, which is part of such Registration Statement.
DELOITTE & TOUCHE LLP
Portland, Oregon
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 646
<SECURITIES> 0
<RECEIVABLES> 20,114
<ALLOWANCES> 240
<INVENTORY> 19,971
<CURRENT-ASSETS> 43,352
<PP&E> 14,742
<DEPRECIATION> 5,712
<TOTAL-ASSETS> 60,754
<CURRENT-LIABILITIES> 20,339
<BONDS> 0
0
0
<COMMON> 31,858
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 60,754
<SALES> 45,615
<TOTAL-REVENUES> 45,615
<CGS> 30,749
<TOTAL-COSTS> 30,749
<OTHER-EXPENSES> 14,006
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184
<INCOME-PRETAX> 1,295
<INCOME-TAX> 453
<INCOME-CONTINUING> 842
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 842
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
