<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1995
REGISTRATION NO. 33-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
FSI INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
MINNESOTA 41-1223238
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
322 LAKE HAZELTINE DRIVE, CHASKA, MINNESOTA 55318
(612) 448-5440
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
JOEL A. ELFTMANN
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
FSI INTERNATIONAL, INC.
322 LAKE HAZELTINE DRIVE
CHASKA, MINNESOTA 55318
(612) 448-5440
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
IT IS REQUESTED THAT COPIES OF NOTICES AND COMMUNICATIONS FROM THE SECURITIES
AND EXCHANGE COMMISSION BE SENT TO:
DOUGLAS P. LONG, ESQ. DAVID J. LUBBEN, ESQ.
FAEGRE & BENSON DORSEY & WHITNEY P.L.L.P.
PROFESSIONAL LIMITED LIABILITY PILLSBURY CENTER SOUTH
PARTNERSHIP 220 SOUTH SIXTH STREET
2200 NORWEST CENTER MINNEAPOLIS, MINNESOTA 55402
90 SOUTH SEVENTH STREET (612) 340-2600
MINNEAPOLIS, MINNESOTA 55402
(612) 336-3000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
----------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING PRICE REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) (1)(2) FEE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock (without 3,162,500
par value)............. Shares $25.8125 $81,632,032 $28,150
- -----------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Reflects a two-for-one stock split of the Common Stock to be distributed
on or about June 19, 1995 to shareholders of record on June 13, 1995 (the
"Stock Split"). Includes 412,500 shares of Common Stock which may be
purchased by the Underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) and based on the average of the high and low sale
prices (as adjusted for the Stock Split) of the registrant's Common Stock
on June 9, 1995 as reported on the Nasdaq National Market.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 16, 1995
PROSPECTUS
2,750,000 SHARES
[LOGO OF
FSI INTERNATIONAL, FSI INTERNATIONAL, INC.
INC. APPEARS HERE]
COMMON STOCK
-------------
Of the 2,750,000 shares of Common Stock offered hereby, 2,500,000 shares are
being sold by FSI International, Inc. ("FSI" or the "Company") and 250,000
shares are being sold by the Selling Shareholders. See "Principal and Selling
Shareholders." The Company will not receive any proceeds from the sale of
shares by the Selling Shareholders.
On June 14, 1995 the last reported sale price on the Nasdaq National Market
for the Common Stock was $25.875 per share, after giving effect to the stock
split described below. See "Price Range of Common Stock and Dividend Policy."
The Common Stock is quoted on the Nasdaq National Market under the symbol
"FSII."
The Company's Board of Directors recently declared a two-for-one stock split
of its Common Stock to be distributed on or about June 19, 1995 to shareholders
of record on June 13, 1995 (the "Stock Split"). The shares of Common Stock
offered hereby reflect the Stock Split.
-------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 6.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
============================================================================================
<CAPTION>
Underwriting
Discounts and Proceeds to
Price Commissions Proceeds to Selling
to Public (1) Company (2) Shareholders
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
- --------------------------------------------------------------------------------------------
Total (3)........................ $ $ $ $
============================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting estimated expenses payable by the Company of $275,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
412,500 additional shares of Common Stock, on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be $ , $ , and
$ , respectively. See "Underwriting."
-------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation, or
modification of the offer without notice, to delivery to and acceptance by the
Underwriters and to certain further conditions. It is expected that delivery of
the shares will be made at the offices of Lehman Brothers Inc., New York, New
York on or about July , 1995.
-------------
NEEDHAM & COMPANY, INC.
LEHMAN BROTHERS
MONTGOMERY SECURITIES
July , 1995
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements, and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at certain of the Commission's regional
offices located as follows: 7 World Trade Center, Suite 1300, New York, New
York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can also be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
The Company has filed with the Commission a Registration Statement on Form S-
3 (herein referred to, together with all amendments thereto, as the
"Registration Statement") under the Securities Act with respect to the offering
of the shares made hereby. This Prospectus does not contain all of the
information contained in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other document are summaries which are not necessarily complete and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement herein being
qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended August 27,
1994, as amended on February 16, 1995 (which incorporates by reference certain
portions of the Company's 1994 Annual Report to Shareholders and certain
portions of the Company's definitive Proxy Statement for the Company's 1995
Annual Meeting of Shareholders), the Company's Quarterly Reports on Form 10-Q
for the quarters ended November 26, 1994, February 25, 1995, and May 27, 1995,
the Company's Current Reports on Form 8-K dated January 5, 1995, as amended on
February 16, 1995, and March 22, 1995, and the description of the Company's
Common Stock as set forth in the Company's Form 8-A Registration Statement
dated October 31, 1988 are incorporated into this Prospectus by reference. All
documents filed by the Company pursuant to Sections 13(a), 13(c), 14, or 15(d)
of the Exchange Act after the date of this Prospectus and prior to the
termination of this offering shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus. The Company will provide without charge to each person to
whom this Prospectus is delivered, upon written or oral request of such person,
a copy (without certain exhibits) of any or all documents incorporated by
reference in this Prospectus. Requests for such copies should be directed to
the Executive Vice President and Chief Financial Officer, FSI International,
Inc., 322 Lake Hazeltine Drive, Chaska, Minnesota 55318; telephone number (612)
448-8936.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-
6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
----------------
FSI(R), Polaris(R), Mercury(R), Excalibur(R), ChemFill(R), ChemBlend(TM),
Stabilized Distribution(TM), Orion(TM), VP4500(TM), P2000(TM), and P2200M(TM)
are trademarks of the Company. All other brand names or trademarks appearing in
this Prospectus are the property of their respective holders.
2
<PAGE>
THE ROLE OF FSI'S PRODUCTS IN INTEGRATED
FSI products are used during several critical phases in the fabrication of
semiconductor devices. These operations are repeated numerous times, depending
upon the type and complexity of the semiconductor device and the overall process
employed by the device manufacturer.
[PHOTO OF CHEMFILL 5000 APPEARS HERE]
CHEMICAL MANAGEMENT
ChemFill(R) Systems automatically deliver chemicals needed to the point of use
in the fab, minimizing the amount of handling needed and helping to ensure
purity.
[PHOTO OF MERCURY AND EXCALIBUR SYSTEMS APPEARS HERE]
[PHOTO APPEARS HERE]
WAFER CARRIER ----------- CLEANING
|
|
-----------
ETCH BACK
-----------
|
|
[PHOTO APPEARS HERE]
ASSEMBLY TEST ------------ STRIPPING
[PHOTO OF MERCURY SYSTEM APPEARS HERE]
<PAGE>
CIRCUIT FABRICATION
[PHOTO OF POLARIS CLUSTER
APPEARS HERE]
FSI's MERCURY(R) and POLARIS(R) Clusters
EXCALIBUR(R) Systems consist of one or two
prepare the wafer by cleanroom qualified robots
removing contaminants surrounded by various process
using a sequenced modules which bake and develop
application of chemicals photoresist on the wafer
by spray or vapor surface. Photoresist is
technology. These systems light-sensitive material used to
provide an alternative to project circuit patterns onto
traditional immersion silicon wafers. Polaris represents
technology, principally a processing alternative to
wet bench processing conventional photoresist track
of wafers. or linear systems, which permit
processing of the wafer only
according to a preestablished
arrangement of the equipment.
------------
LAYERING
------- OR ------- PHOTOLITHOGRAPHY
DEPOSITION
------------ / |
/ |
/ \ EXPOSURE |
/ \ (STEPPER) |
|
DIFFUSION CVD |
(FURNACE) |
|
|
|
ION PLASMA |
DIFFUSION IMPLANT ETCH |
\ / \ |
\ / \ |
\ / \|
------------ ---------
- --- DOPING ------- CLEANING ------- ETCHING
------------ ---------
[PHOTO OF EXCALIBUR SYSTEM
APPEARS HERE]
The MERCURY(R) System is Etching leaves an
used to strip photoresist undesirable residue on
from the surface of the the wafer's surface. The
wafer. Photoresist EXCALIBUR(R) Vapor Phase
stripping is required Processor is utilized to
after most etching and remove the residue.
doping steps.
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) included or
incorporated by reference in this Prospectus. Unless otherwise indicated, all
information in this Prospectus has been adjusted to give effect to the two-for-
one Stock Split and to reflect the acquisition, effective March 8, 1995, of
Applied Chemical Solutions, which acquisition was accounted for using the
pooling-of-interests method of accounting, and assumes no exercise of the
Underwriters' over-allotment option. See "Underwriting." The Company's fiscal
year ends on the last Saturday in August and comprises 52 or 53 weeks. The
Company's fiscal quarters are generally 13 weeks, ending on a Saturday. Unless
the context otherwise indicates, reference to the Company or FSI refers to FSI
International, Inc. and its subsidiaries.
THE COMPANY
FSI International, Inc. designs, manufactures, markets, and supports
microlithography, surface conditioning, and chemical management equipment used
in the fabrication of integrated circuits. The Company's microlithography
product, the Polaris cluster, processes photoresist (light sensitive material
used for patterning) on the surface of silicon wafers as part of the
photolithography phase of the integrated circuit fabrication process. The
Company's surface conditioning products, including the Mercury spray processing
systems and the Excalibur vapor processing systems, remove contaminants and
excess photoresist from wafers during the fabrication process and selectively
remove oxide from the wafer surface. The process steps performed by the
Company's microlithography and surface conditioning products are used
repeatedly throughout the fabrication cycle and constitute an integral part of
the manufacturing process for virtually every integrated circuit produced
today. The Company's chemical management products perform the critical
functions of generating, blending, delivering, and controlling the flow,
concentration, and purity of chemicals used by various types of processing
equipment within a fabrication facility.
Advances in electronics technology in recent years have resulted in
increasingly sophisticated integrated circuits which require submicron
geometries and complex manufacturing processes. To meet the demand for these
more complex, high performance devices, integrated circuit manufacturers
require process technologies that are timely, reliable, and readily integrated
into high volume manufacturing environments. Competitive pressures are at the
same time forcing integrated circuit manufacturers to reduce the costs of
producing integrated circuits. FSI believes it responds to these demands by
providing leading technology products that increase yields, integrate with
other suppliers' equipment, and provide significant overall cost advantages.
The Company's strategy is to remain focused as a technological leader in its
three core markets, emphasizing close customer relationships that enhance the
Company's responsiveness to the needs and cost constraints of its markets. FSI
intends to enhance its product offerings in its three core markets by
continuing the Company's commitment to engineering and development and by
making strategic acquisitions of complementary technologies or products.
Effective March 8, 1995, the Company acquired Applied Chemical Solutions, which
designs, markets, and services chemical blending and delivery systems, point of
use chemical generation systems, and slurry mixing and delivery systems used in
conjunction with chemical mechanical planarization, commonly referred to as
CMP. See "Risk Factors--Acquisitions" and "Recent Developments--Acquisition of
Applied Chemical Solutions." As part of its strategy and to serve its customers
better, the Company continues to expand and enhance its demonstration and
process development facilities, has begun construction of a new 100,000 square
foot manufacturing facility, and is in the process of establishing
manufacturing capability for its chemical management systems in Europe through
the acquisition in January 1995 of a 50% interest in FSI Metron Europe, Ltd.
(formerly Vinylglass Limited), a United Kingdom company.
The Company sells products from one or more of its product lines to most
major integrated circuit manufacturers, including AMD, Ericsson, Fujitsu, LG
Semicon, Hyundai, Intel, IBM, Motorola, SGS
3
<PAGE>
Thomson, and Texas Instruments. The Company markets its products directly in
North America and primarily through a network of affiliated distributors in
Europe, the Far East, and Japan. Through these affiliated international
distributors the Company can provide timely and efficient worldwide customer
service and support. Effective April 3, 1995, certain of these affiliated
distributors entered into a reorganization agreement with Transpacific
Technology Corporation which contemplates that the affiliated distributors and
Transpacific would be consolidated into a global distribution company.
Transpacific markets or distributes products of certain semiconductor equipment
and consumables manufacturers in portions of the United States and Europe. See
"Risk Factors--Reliance on Affiliated International Distributors" and "Recent
Developments--Metron Activities."
The principal executive offices of the Company, a Minnesota corporation, are
located at 322 Lake Hazeltine Drive, Chaska, Minnesota 55318 and its telephone
number is (612) 448-5440.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company........ 2,500,000 shares
Common Stock offered by the Selling
Shareholders.............................. 250,000 shares
Common Stock to be outstanding after the
Offering.................................. 19,635,782 shares (1)
Use of proceeds by the Company............. For working capital and general corporate
purposes.
Nasdaq National Market Symbol.............. FSII
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
-------------------------------- ----------------
AUGUST 29, AUGUST 28, AUGUST 27, MAY 28, MAY 27,
1992 1993 1994 1994 1995
---------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
(2):
Sales........................ $46,879 $78,432 $96,437 $68,210 $126,415
Gross profit................. 18,770 28,968 40,649 28,413 54,255
Operating income (loss)...... (2,183) 2,712 5,354 3,938 12,787
Income (loss) before income
taxes....................... (2,593) 2,041 5,100 3,650 13,818
Equity in earnings (loss) of
affiliates.................. (373) 1,277 1,800 1,160 2,128
Net income (loss)............ (3,358) 2,958 5,646 3,963 12,146
Net income (loss) per common
share (3)................... $ (.36) $ .28 $ .43 $ .31 $ .76
Weighted average common
shares and common
share equivalents (3)....... 9,275 10,558 13,222 12,968 15,916
</TABLE>
<TABLE>
<CAPTION>
MAY 27, 1995
AUGUST 27, -----------------------
1994 ACTUAL AS ADJUSTED(4)
---------- -------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA (2):
Working capital.............................. $27,778 $ 84,378 $145,556
Total assets................................. 68,995 145,930 207,108
Short-term debt.............................. 149 45 45
Long-term debt, less current maturities...... 33 2 2
Stockholders' equity......................... 42,006 106,422 167,600
</TABLE>
4
<PAGE>
- --------
(1) Based upon the number of shares outstanding on May 27, 1995, as adjusted to
reflect the Stock Split. Such number does not include 1,709,424 shares
issuable upon exercise of outstanding options granted by the Company,
198,930 shares reserved for future issuance under the Company's stock
plans, 100,000 shares issuable upon the exercise of outstanding Common
Stock purchase warrants, and 35,000 shares reserved for issuance in
connection with the purchase in June 1994 of certain technology and other
assets, each as adjusted to reflect the Stock Split.
(2) All amounts have been adjusted to reflect the acquisition, effective March
8, 1995, of Applied Chemical Solutions, which acquisition was accounted for
using the pooling-of-interests method of accounting. See "Recent
Developments--Acquisition of Applied Chemical Solutions" and Note 2 of
Notes to Consolidated Financial Statements of FSI.
(3) Share information and per share information have been adjusted to reflect
the Stock Split.
(4) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered
hereby by the Company at an assumed initial public offering price of
$25.875 per share, and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be carefully considered in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby.
CYCLICALITY OF THE SEMICONDUCTOR DEVICE INDUSTRY
The Company's business depends in large part on the capital equipment
expenditures of semiconductor device manufacturers, which in turn depend on the
current and anticipated demand for integrated circuits and products utilizing
integrated circuits. The semiconductor device industry is cyclical and has
historically experienced periodic downturns, which often have had an adverse
effect on capital equipment expenditures by semiconductor device manufacturers.
These downturns generally have adversely affected the sales, gross profits, and
operating results of semiconductor equipment suppliers, including the Company.
Over the past two to three years, the semiconductor device industry has been
experiencing significant growth, particularly in the United States and Korea.
There can be no assurance that such growth will continue or that the Company's
sales, gross profits, and operating results will not be adversely affected by
future downturns in the semiconductor device industry. In addition, the
Company's construction of a new manufacturing facility, its expansion and
enhancement of its laboratory facilities, and the upgrading of its computer
systems as well as the need for continued investment by the Company in research
and development, marketing, and customer service and support capabilities will
limit the Company's ability to reduce expenses during future downturns in the
semiconductor device industry. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's results for a particular quarter can vary due to a number of
factors and, consequently, the Company may experience significant fluctuations
in its quarterly sales, gross profits, operating results, and net income.
Factors which may influence the Company's operating results in a given quarter
include specific economic conditions in the semiconductor device industry, the
financial results of the Company's affiliates, the timing of the receipt of
orders from major customers, the mix of products sold by the Company,
competitive pricing pressures, the proportion of international sales, product
modifications requested by customers and available production capacity. During
a specific quarter, a significant portion of the Company's revenue may be
derived from the sale of a relatively small number of systems. Accordingly, a
small change in the number of such systems sold in a quarter may cause
significant changes in operating results. Moreover, customers may cancel or
reschedule shipments, and production difficulties could delay shipments. These
factors also could significantly affect annual results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations."
MANAGEMENT OF GROWTH
The Company is undergoing a period of rapid growth. In addition, with the
acquisition of a 50% interest in FSI Metron Europe, Ltd. ("FME" and formerly
Vinylglass Limited), a company based in the United Kingdom, and the acquisition
of Applied Chemical Solutions ("ACS"), a company based in Hollister,
California, the Company expects additional growth in the number of employees,
the scope of its operations, and the geographic area of the Company's
operations. This growth has resulted in, and is expected to continue to create,
the need for additional capacity (including facilities and skilled employees),
new and increased responsibilities for management personnel, and added
pressures on the Company's operating and financial systems. The Company's
ability to manage future growth effectively and accomplish its overall goals
will depend on its ability to hire additional management and technical
personnel. Competition for highly skilled technical, managerial and marketing
personnel in the Company's industry is high. Industry growth and the low
unemployment rate in the Minneapolis, Minnesota area, which includes the
Company's principal facility in Chaska, has increased the competition for such
personnel. The Company must also integrate its new employees into its overall
operations, and continue to improve its operational, financial, and management
6
<PAGE>
systems and controls. The Company has commenced a number of programs in
response to its growth, including the construction of a new manufacturing
facility, the expansion and enhancement of its Surface Conditioning Division
Demonstration and Development Laboratory, and the upgrading of its computer
systems. If the Company is unable to manage growth effectively or hire or
retain qualified personnel, the Company's business and results of operations
could be materially and adversely affected. See "Acquisitions" above, "Recent
Developments," and "Business--Employees" and "--Properties."
The need to manage the Company's growth successfully is particularly
important in this period of industry-wide expansion. As the Company's customers
attempt to meet the growing demand for semiconductor devices by increasing
their production capacity, they are setting aggressive delivery requirements
for their suppliers, including the Company. Failure to meet customer
expectations, whether because of capacity constraints or otherwise, could
jeopardize relations with such customers and materially adversely affect the
operations and earnings of the Company.
In light of the significant recent growth in revenues and capacity
constraints that will exist even with the planned expansion of its
manufacturing facilities, the Company does not believe that the recent rate of
revenue growth, on a comparable quarter basis, is sustainable.
DEPENDENCE ON NEW PRODUCTS AND PROCESSES
Semiconductor device manufacturing equipment and processes are subject to
rapid technological change and new product introductions as well as evolving
industry standards. The development of more complex integrated circuits and the
increased overall demand for products utilizing integrated circuits has driven
the need for new facilities, equipment, and processes to produce such devices
at an acceptable cost. As a result of these factors, the Company believes
semiconductor device manufacturers are increasingly relying on equipment
manufacturers to design and develop more efficient equipment, to design and
implement improved processes for the benefit of semiconductor device
manufacturers, and to integrate their equipment with that of other equipment
manufacturers. Therefore, the Company believes that its future success will
depend in part upon its ability to continue to enhance its existing products
and their process capabilities, and to design and develop new technologies,
processes, and systems which compete effectively on the basis of price and
performance and which adequately address customer requirements. In addition,
the Company must continue to develop, manufacture, and market new products
which conform to emerging industry standards. As a result, the Company expects
to continue to make significant investments in research and development and to
continue to consider from time to time the strategic acquisition of businesses,
products, or technologies complementary to the Company's business. The success
of the Company in developing, introducing, and selling new and enhanced
equipment depends upon a variety of factors including product selection, timely
and efficient completion of product design and development, timely and
efficient implementation of manufacturing and assembly processes, product
performance in the field, and effective sales and marketing. The Company also
must manage product transitions successfully, as introductions of new products
could adversely affect sales of existing products. If new products have
reliability or quality problems, reduced orders, higher manufacturing costs,
delays in collecting accounts receivable, and additional service and warranty
expense may result. There can be no assurance that the Company will be able to
develop and introduce new products or enhancements to its existing products and
processes in a manner which satisfies customer needs or achieves market
acceptance. The failure to do so could materially and adversely affect the
Company's business and results of operations. See "Business--Industry
Background," "--Company Strategy," and "--Research and Development."
RELIANCE ON AFFILIATED INTERNATIONAL DISTRIBUTORS
The majority of the Company's international sales are made through its
affiliated distributors, Metron Semiconductors Europa B.V. (together with its
subsidiaries, "Metron Europa") in Europe; Metron Semiconductors (Hong Kong)
Limited, Metron Semiconductors Far East Limited, and Metron Semiconductors Asia
Limited and its subsidiary in the Far East (collectively, the "Metron Asia
Group" and, together with Metron Europa, the "Metron Group"); and m.FSI Ltd. in
Japan ("m.FSI"). See Note 6 of Notes to Consolidated Financial Statements of
FSI. These affiliated distributors also provide service and support to many of
the Company's international customers. Thus, a reduction in the sales efforts
or financial
7
<PAGE>
viability of such distributors, or a termination of the Company's investment in
or relationship with such entities, could adversely affect the Company's
international sales, its financial results, and its ability to support its
international customers. Sales to the Company's affiliated distributors
accounted for approximately 26% and 28% of the Company's total sales in fiscal
1994 and the nine months ended May 27, 1995, respectively, and the earnings
received from the Company's equity ownership interest in such affiliated
distributors accounted for approximately 32% and 18% of the Company's net
income in fiscal 1994 and the nine months ended May 27, 1995, respectively. The
earnings or losses of the Company's affiliated distributors can significantly
affect the financial results of the Company. The affiliated distributors
distribute not only the Company's products but also those of other companies
serving the semiconductor device industry. Over the past several years, a
majority of the revenues of the affiliated distributors, in the aggregate, have
been attributable to sales of products of other semiconductor manufacturing
equipment and consumables suppliers. Thus, the financial results of the
affiliated distributors and their impact on the Company's financial results are
dependent not only upon the ability of these distributors to successfully
market FSI's products, but also their ability to maintain relationships with
and market the products of other semiconductor manufacturing equipment and
consumables suppliers. Moreover, while sales of the Company's products by the
Metron Group (and of certain other manufacturers for whom they distribute) are
generally in United States dollars, the expenses of the Metron Group are
generally denominated in foreign currencies and, accordingly, the Metron
Group's operating results may be affected by fluctuations in interest and
currency exchange rates. In addition, sales by m.FSI are denominated in yen
and, accordingly, FSI's equity interest in the earnings of m.FSI are affected
by fluctuations in dollar/yen exchange rates. FSI's affiliated distributors
generally do not engage in hedging transactions in an effort to lessen the
potentially negative effect of foreign currency devaluation in relation to the
United States dollar. However, in those limited instances (totaling less than
20% of the aggregate annual sales of the Metron Group and m.FSI) where a sale
by an affiliated distributor has been both in a foreign currency (usually at
the request of a foreign-domiciled customer) and of a size significant to
justify the costs of engaging in hedging activity, FSI's affiliated
distributors have hedged such transactions by buying forward United States
dollars and selling forward the applicable local currency. If the order that is
the subject of a hedging transaction is subsequently cancelled by the customer,
the affiliated distributor may be required to satisfy its hedging obligations
by buying and/or selling the applicable currencies at market prices that could,
because of changes in the applicable exchange rates, result in losses to the
affiliated distributor. To date, the Company has not experienced any material
adverse effect as a result of the hedging activities of its affiliated
distributors. There can be no assurance that the Metron Group and m.FSI will
continue to distribute, or to distribute successfully, the Company's products
or the products of other semiconductor manufacturing equipment and consumables
suppliers, and in such an event the Company's results of operations and
earnings could be adversely affected. FSI is not aware of any financial
difficulties being experienced by any of its affiliated distributors which
could materially adversely affect FSI's financial condition or results of
operations.
Effective April 3, 1995, Metron Europa entered into an Agreement and Plan of
Reorganization (the "Reorganization Agreement") with Transpacific Technology
Corporation ("Transpacific"), a California corporation, providing for the
merger of Transpacific with and into Metron Technology, Inc., a newly formed
California corporation and wholly owned subsidiary of Metron Europa, and the
acquisition by Metron Europa of all of the outstanding share capital of the
companies comprising the Metron Asia Group (the "Reorganization"). Transpacific
markets or distributes the products of certain semiconductor equipment and
consumables manufacturers in portions of the United States and Europe. FSI's
day-to-day involvement in the management of the Metron Group will be reduced
following the Reorganization, and the future success of Metron Europa will
depend on the successful integration of the senior management of Transpacific
and the Metron Group, none of whom has prior experience in managing a
semiconductor equipment business of the size and geographic scope that the
combined entities will have. Upon conclusion of the Reorganization, the equity
interest of FSI in the newly combined Metron Europa will be approximately 38%,
compared to its current 40% and 50% equity interests in Metron Europa and the
Metron Asia Group, respectively. Consummation of the Reorganization is subject
to various conditions, including approval by Transpacific's shareholders;
receipt of all required regulatory approvals; and the absence of any material
adverse change in
8
<PAGE>
the business, properties, results of operations or financial condition of
Metron Europa, the Metron Asia Group or Transpacific. There can be no assurance
that Metron Europa will be able to successfully complete the Reorganization or
successfully integrate the acquired businesses, product lines and principals of
Transpacific and the Metron Asia Group. There also can be no assurance that the
business strategy of the Metron Group and Transpacific to develop a global
distribution, sales and service entity will be well received by either
customers, principals, or employees.
No assurance can be given that the existing relationships of Transpacific or
the Metron Group with the semiconductor manufacturing equipment and consumables
manufacturers whose products they market or distribute (their respective
"principals") will not be impaired following the Reorganization. Certain
product lines of principals represented by Metron Europa, the Metron Asia
Group, and Transpacific prior to the Reorganization are competitive. As a
consequence, certain principals of Transpacific have terminated Transpacific as
a distributor or representative or have advised Transpacific of their intention
to terminate it as a distributor or representative, and Transpacific, Metron
Europa and/or the Metron Asia Group also have modified their existing
distribution arrangements with certain principals to restrict the ability of
the combined entity following the Reorganization to represent competing product
lines in the same territory. It is possible that certain principals of
Transpacific, Metron Europa, or the Metron Asia Group will become dissatisfied
because of potential conflicts notwithstanding the Metron Group's or
Transpacific's agreement to such geographic limitations, and such principals
may nevertheless decide to terminate their relationships with one or more
entities within the combined company. The loss of any such principals, without
the creation of new distributor relationships to take their place, could have
an adverse effect on FSI's financial condition and results of operations. See
"Recent Developments--Metron Activities" and "Business--Marketing, Sales, and
Support" and "--Customers."
INTERNATIONAL BUSINESS
Approximately 33% and 30% of the Company's sales for fiscal 1994 and the
first nine months of fiscal 1995, respectively, were attributable to sales
outside the United States, including sales through the Company's affiliated
international distributors which accounted for 78% and 95%, respectively, of
such sales. See "Reliance on Affiliated International Distributors" above and
Note 16 of the Notes to Consolidated Financial Statements of FSI. The Company
expects that international sales will continue to represent a significant
portion of its total sales. Sales to customers outside the United States are
subject to risks, including the imposition of governmental controls, the need
to comply with a wide variety of foreign and United States export laws,
political and economic instability, trade restrictions, changes in tariffs and
taxes, longer payment cycles typically associated with international sales, and
the greater difficulty of administering business overseas as well as general
economic conditions. Although substantially all of the Company's direct
international sales are denominated in United States dollars, both direct sales
by the Company and sales through its affiliated international distributors may
be affected by changes in demand resulting from fluctuations in interest and
currency exchange rates. Moreover, while sales by the Metron Group are also
generally denominated in United States dollars, their expenses are denominated
in foreign currencies and, consequently, their operating results may be
affected by changes in exchange rates. Sales by m.FSI are denominated in yen
and, accordingly, FSI's equity interest in the earnings of m.FSI are affected
by fluctuation in dollar/yen exchange rates. Furthermore, although the Company
endeavors to meet technical standards established by foreign regulatory bodies,
there can be no assurance that the Company will be able to comply with changes
in foreign standards in the future. The inability of the Company to design
products to comply with foreign standards could have a material adverse effect
on the Company. In addition, the laws of certain foreign countries may not
protect the Company's intellectual property to the same extent as do the laws
of the United States. A growing portion of the Company's international sales
have been to semiconductor device manufacturers located in Korea. The Korean
market is extremely competitive and the semiconductor device manufacturers
located there have been very aggressive in seeking price concessions from
suppliers. See "Business--Marketing, Sales, and Support" and "--Competition."
9
<PAGE>
ACQUISITIONS
The Company from time to time may acquire complementary businesses, products,
or technologies. On January 31, 1995, the Company and its European affiliated
distributor, Metron Europa, each acquired 50% of FME, which is located in
Newhaven, East Sussex, England, and manufactures, markets, and services
chemical delivery systems and certain other products. In addition, effective
March 8, 1995, the Company acquired ACS, which is located in Hollister,
California, and designs, markets, and services chemical blending and delivery
systems, point of use chemical generation systems, and slurry mixing and
delivery systems used in conjunction with chemical mechanical planarization,
commonly referred to as CMP. There can be no assurance that the Company will be
able to successfully complete other acquisitions or successfully integrate the
acquired businesses, products, or technologies of FME, ACS or others. See
"Recent Developments."
JAPANESE COMPETITION
Since 1992, Japanese semiconductor device manufacturers have substantially
reduced their levels of capital spending on new fabrication facilities and
equipment in Japan and elsewhere. This has resulted in reduced sales and
increasing competitive pressures in the Japanese market segment (comprised of
semiconductor device fabrication facilities located in Japan and those located
outside of Japan which are controlled by Japanese companies). As a result,
pricing pressures in both the Japanese market and elsewhere may continue into
the foreseeable future due to Japanese semiconductor equipment manufacturers
offering substantial discounts on their products.
The Company believes that the Japanese companies with which it competes have
a competitive advantage because of their dominance of the Japanese market
segment. Furthermore, Japanese semiconductor device manufacturers have extended
their influence outside Japan by licensing products and process technologies to
non-Japanese semiconductor device manufacturers. Such licenses can result in a
recommendation to use semiconductor equipment manufactured by Japanese
companies. Therefore, the Company may be at a competitive disadvantage with
respect to the Japanese semiconductor equipment suppliers, who have been
engaged for some time in collaborative efforts with Japanese semiconductor
device manufacturers. Certain Japanese semiconductor equipment manufacturers
have announced plans to begin manufacturing operations in the United States,
which will enable them to compete more effectively in the United States market.
The Japanese market segment is important as it represents a substantial
percentage of the world-wide semiconductor device market. To date, the Company
has not yet established itself as a significant participant in the Japanese
market segment with respect to its microlithography cluster or chemical
management system product lines. As part of the strategy to establish its
Japanese presence, the Company formed a joint venture, m.FSI, in August 1991
with Mitsui & Co., Ltd. and its wholly-owned subsidiary, Chlorine Engineers
Corp., Ltd. (collectively, "Mitsui") and granted m.FSI certain product and
technology licenses and product distribution rights in Japan. There can be no
assurance that the Company will be able to maintain or
increase its sales to the Japanese market segment. See "Business--Marketing,
Sales, and Support" and "--Competition." FSI does not believe that there are
any existing government trade restrictions that would materially limit FSI's
ability to compete in the Japanese or Korean markets. There can be no
assurance, however, that imposition of such restrictions in the future will not
adversely affect FSI's ability to compete in these markets.
COMPETITION
The semiconductor equipment industry is highly competitive. In each of the
markets it serves, the Company faces intense competition from established
competitors, some of which have substantially greater financial, engineering,
research, development, manufacturing, marketing, service, and support
resources, greater name recognition than the Company, and long-standing
customer relationships. In order to remain competitive, the Company must
maintain a high level of investment in research and development, marketing, and
customer service and support as well as control operating expenses. There can
be no assurance that the Company will have sufficient resources to continue to
make such investments or that the Company's products will continue to be viewed
as competitive as a result of technological advances by competitors or changes
in
10
<PAGE>
semiconductor processing technology. The Company's competitors may also
increase their efforts to gain and retain market share through competitive
pricing. Such competitive pressures may necessitate significant price
reductions by the Company or result in lost orders which could adversely affect
the Company's results of operations. See "Business--Marketing, Sales, and
Support" and "--Competition."
DEPENDENCE ON KEY CUSTOMERS
Although the composition of the Company's largest customers has changed from
year to year, direct sales to the Company's top five customers in each of
fiscal 1992, 1993, and 1994 have accounted for approximately 45%, 50%, and 46%,
respectively, of the Company's total sales. Direct sales to the Company's top
two customers in each of fiscal 1992, 1993, and 1994 accounted for
approximately 34%, 32%, and 30%, respectively, of the Company's total sales.
FSI's top two customers in fiscal 1994 were Texas Instruments, Inc. ("TI") and
Motorola, Inc. ("Motorola"). In addition, approximately 37% of the Company's
backlog at fiscal 1994 year-end was comprised of orders from three customers.
Sales to the Company's affiliated distributors in fiscal 1992, 1993, and 1994,
which may include sales of products subsequently resold to the Company's top
five customers, accounted for approximately 33%, 25%, and 26%, respectively, of
the Company's total sales. The Company currently has no long-term purchase
commitments with any of its customers and sales are generally made pursuant to
purchase orders. A reduction, delay, or cancellation of orders from one or more
of its significant customers, or the loss of one or more of such customers,
could have a material adverse effect on the Company's operating results. See
"Business--Customers."
ACCEPTANCE OF POLARIS MICROLITHOGRAPHY CLUSTER
The Company introduced the original Polaris microlithography cluster in 1991.
In July 1994, the Company introduced the Polaris 2000 product, an advanced
microlithography cluster with enhanced processing capabilities and increased
throughput. Use of the Polaris cluster represents an alternative to the
conventional track approach employed by semiconductor device manufacturers to
process photoresist. To date, a significant majority of the sales of Polaris
clusters has been to three customers, International Business Machines
Corporation ("IBM"), TI, and LG Semicon Co., Ltd. ("LG Semicon", which
purchases the Company's products through its United States affiliate, LG
International (America), Ltd.). Future growth in sales by the Company's
microlithography division will depend upon the acceptance of the Company's
microlithography cluster technology by a broader group of customers, including
additional international customers. Because of the large capital commitment
involved in the construction and operation of a semiconductor device
manufacturing facility, the decision by a semiconductor device manufacturer to
undertake a large-scale deployment of the Polaris cluster involves a
significant technological and financial commitment to what is currently an
alternative approach. While the Company is actively promoting the acceptance of
this technology, there can be no assurance that the Company will be successful
in obtaining broader acceptance of the Polaris cluster technology. Failure to
achieve broader acceptance could have an adverse effect on the Company's
results of operations and earnings. The Company designs and manufactures the
Polaris cluster under a license from TI which includes an exclusive license to
sell such systems. The loss or material limitation of this license could have
an adverse effect on the Company's results of operations and earnings. See
"Business--Products--Microlithography Clusters" and "--Polaris License
Agreement; Other Intellectual Property."
CHANGES IN INDUSTRY PURCHASING PRACTICES; LENGTHENING SALES CYCLE
Sales of the Company's systems depend, in significant part, upon the decision
of a prospective customer to increase manufacturing capacity by constructing
and equipping new semiconductor device manufacturing facilities or upgrading
current facilities, both of which typically involve significant capital
commitments. The Company believes that semiconductor device manufacturers are
increasingly relying on equipment suppliers to help them meet the technological
challenges and cost constraints inherent in constructing or expanding
semiconductor device fabrication facilities. Due to these and other factors,
the Company's systems typically have lengthy sales cycles during which the
Company may expend substantial funds and management effort. The Company
believes that the length of the sales cycle will increase as certain of its
current and potential customers centralize purchasing decisions into one
decision-making entity, which is expected to intensify the evaluation process
and require additional sales and marketing expenditures by the Company. The
Company
11
<PAGE>
believes that, as a result, certain semiconductor device manufacturers are
developing strategic relationships with suppliers and are focusing on a limited
number of suppliers for each item of process equipment in a fabrication
facility. Once a semiconductor device manufacturer has selected a particular
vendor's capital equipment, the Company believes that the manufacturer
generally relies upon that equipment for the specific production line
application at that facility, and in some cases future facilities. Such
manufacturers in some cases will attempt to consolidate their other capital
equipment requirements with the same vendor. Accordingly, the Company's ability
to receive orders from potential customers may depend upon such customers
undertaking an evaluation for new equipment. For many potential customers, such
an evaluation may occur infrequently. There can be no assurance that the
Company will prevail in such evaluations or that it will not lose potential
orders to larger semiconductor equipment suppliers with broader product lines.
See "Business--Company Strategy."
DEPENDENCE ON KEY SUPPLIERS
Certain of the components and sub-assemblies included in the Company's
products are obtained from a single supplier or a limited group of suppliers.
Although the Company seeks to reduce dependence on sole and limited source
suppliers, disruption or termination of these sources could have an adverse
effect on the Company's operations. The Company believes that alternative
sources could be obtained and qualified to supply these components, if
necessary. Nevertheless, prolonged inability to obtain certain components could
have an adverse effect on the Company's operating results and could result in
damage to customer relationships. FSI is not aware of any financial
difficulties being experienced by any of FSI's key suppliers that could
materially adversely affect FSI's financial condition or results of operations.
See "Business--Manufacturing and Suppliers."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon certain senior
management and technical personnel. The loss of the services of one or more of
these key persons could have a material adverse effect on the Company. The
Company's future success will depend in large part upon its ability to attract
and retain highly skilled technical, managerial, and marketing personnel.
Competition for such personnel in the Company's industry is high. The Company's
two primary facilities are located in Chaska, Minnesota, near Minneapolis, and
Dallas, Texas. The current unemployment rate in the Minneapolis area is
extremely low and industry growth has increased competition for highly skilled
technical personnel in both Chaska and Dallas. There can be no assurance that
the Company will continue to be successful in attracting and retaining the
personnel it requires to successfully develop new and enhanced products and to
continue to grow and operate profitably. See "Business--Employees" and
"Management."
PATENTS AND OTHER INTELLECTUAL PROPERTY
The Company's success depends in significant part on its intellectual
property. While the Company attempts to protect its intellectual property
through patents, copyrights, trade secrets, and non-disclosure agreements, it
believes that its success will depend to a greater degree upon innovation,
technological expertise, and the ability to quickly adapt to and deliver new
technology. The Company currently holds numerous United States patents and
additional foreign patents in Japan and several European countries and has
several United States patent applications and foreign patent applications
pending. There can be no assurance that the Company will be able to protect its
technology or that competitors will not be able to develop similar technology
independently. No assurance can be given that the claims allowed on any patents
held or acquired by the Company will be sufficiently broad to protect the
Company's technology. In addition, no assurance can be given that any existing
or future patents issued to the Company will not be challenged, invalidated, or
circumvented or that the rights granted thereunder will provide competitive
advantages to the Company. In that event, the Company's results of operations
could be adversely affected. Moreover, the Company may be forced to incur
significant costs to defend its patent rights. In addition, although the
Company believes that its products do not infringe any valid existing
proprietary rights of others, there can be no assurance that third parties will
not assert infringement claims in the future. There also may be pending
12
<PAGE>
patent applications or issued patents of which the Company is not aware that
the Company may need to license or challenge at significant expense. There can
be no assurance that any such license would be available on acceptable terms,
if at all, or that the Company would prevail in any such challenge. See
"Business--Polaris License Agreement; Other Intellectual Property."
VOLATILITY OF STOCK PRICE
The Company's Common Stock has experienced in the past, and could experience
in the future, substantial price volatility as a result of a number of factors,
including quarter to quarter variations in the actual or anticipated financial
results of the Company, announcements by the Company, its competitors or its
customers, government regulations, and developments in the industry. In
addition, the stock market has experienced extreme price and volume
fluctuations which have affected the market price of many technology companies
in particular and which have at times been unrelated to the operating
performance of the specific companies whose stock is traded. Broad market
fluctuations, as well as economic conditions generally and in the semiconductor
device industry specifically, may adversely affect the market price of the
Company's Common Stock. See "Price Range of Common Stock and Dividend Policy."
RECENT DEVELOPMENTS
ACQUISITION OF APPLIED CHEMICAL SOLUTIONS
On March 8, 1995, the Company acquired all the outstanding capital stock of
Applied Chemical Solutions (the "ACS Acquisition") and ACS became a wholly
owned subsidiary of the Company. Principal ACS products include chemical
blending and delivery systems, point of use chemical generation systems, and
slurry mixing and delivery systems used in conjunction with chemical mechanical
planarization, commonly referred to as CMP. ACS' delivery system products
utilize vacuum pressure technology, whereas FSI's products utilize primarily
pump and pressure technology. See "Business--Products--Chemical Management
Systems." Currently, ACS products are manufactured by a third party contractor
located near ACS's operations in Hollister, California. By acquiring ACS, the
Company believes that it has obtained an additional dispense technology along
with expertise in mixing and dispensing slurry, which will enable the Company
to provide customers with a more complete range of chemical management product
offerings, including products addressing the CMP market.
In connection with the ACS Acquisition, the Company issued 1,061,472 shares
of its Common Stock to the former holders of ACS common stock and issued
options to purchase up to 214,758 shares of its Common Stock in substitution of
previously outstanding options to acquire shares of ACS common stock. The ACS
Acquisition was accounted for using the pooling-of-interests method of
accounting. Accordingly, the Company's financial statements have been restated
for all periods prior to the acquisition to include ACS. See Note 2 of Notes to
Consolidated Financial Statements of FSI. Additional information concerning ACS
is included in certain Company documents incorporated herein by reference,
including the Current Report on Form 8-K dated March 22, 1995.
CONSTRUCTION OF NEW MANUFACTURING FACILITY
FSI has commenced construction of a new 100,000 square foot manufacturing
facility in Chaska, Minnesota near its current headquarters. This new facility
will add Class 1000 clean room manufacturing, facilities for training and
manufacturing engineering, and space for a new process development and
demonstration laboratory for the Company's Surface Conditioning Division. The
facility is designed to manufacture all three of FSI's product lines with a
more efficient material flow in a Class 1000 clean room environment. The cost
of purchasing the land for and of constructing and equipping the new facility
is expected to total $11.5 million. The planned November 1995 move to the new
facility will allow expansion of the current facility in the areas of
engineering, administration, customer support, and development laboratories.
FSI believes that its existing facilities will be sufficient to meet projected
production levels through November 1995, when its new facility is expected to
become operational. See "Business--Properties."
13
<PAGE>
METRON ACTIVITIES
FSI Metron Europe, Ltd. On January 31, 1995, FSI and Metron Europa each
acquired 50% of the outstanding share capital of FME for an aggregate purchase
price of approximately $2.4 million. FME manufactures, markets, and services
chemical distribution systems, manual wet benches, and portable clean rooms
primarily for use by semiconductor device manufacturers. For the fiscal year
ended July 31, 1994, FME's sales were approximately $3.5 million. FME and FSI
are in the process of finalizing an agreement that would permit FSI to
manufacture FME's products and permit FME to manufacture certain of FSI's
chemical management and delivery products. In addition, it is expected that
Metron Europa will distribute in its sales territory those FSI chemical
management products FME manufactures or purchases from FSI as well as FME's
products. While the Company does not believe that the FME acquisition will
significantly affect either FSI's or Metron Europa's financial results in the
near future, the acquisition does provide FSI with a European base for
manufacturing chemical management systems.
Metron Group Consolidation. In an effort to create an integrated, world-wide
distribution organization, Metron Europa has entered into agreements with the
Metron Asia Group and Transpacific Technology Corporation providing for the
consolidation of such companies (the "Reorganization"). Transpacific markets or
distributes the products of certain semiconductor equipment and consumable
manufacturers in portions of the United States and Europe. In connection with
and as a result of the Reorganization, the Metron Asia Group companies and
Transpacific will become wholly owned subsidiaries of Metron Europa, the
president and chief executive officer of Transpacific will become the chief
executive officer of Metron Europa, and FSI's 40% and 50% ownership interest in
Metron Europa and the Metron Asia Group, respectively, will be reduced to 38%
of the combined entity. The ownership of Metron Europa following the
Reorganization will be as follows:
<TABLE>
<CAPTION>
PERCENTAGE
SHAREHOLDER OWNERSHIP
----------- ----------
<S> <C>
FSI International, Inc......................................... 38.2%
Fluoroware, Inc................................................ 38.2%
Current Metron Europa Management............................... 14.6%
Transpacific Shareholders...................................... 9.0%
</TABLE>
As part of the Reorganization and in addition to the receipt of shares of
Metron Europa, Transpacific shareholders will receive cash totalling $500,000
and promissory notes totalling $1.3 million, payable in semiannual installments
through December 31, 1997. FSI and Fluoroware each will guarantee one-half of
any amount which becomes due under the notes and for which Metron Europa has
failed to satisfy.
Under the Reorganization Agreement, Metron Europa has agreed to establish a
stock option plan for its directors and key employees. Approximately 18% of the
total number of Metron shares outstanding immediately following the
Reorganization would be reserved for issuance under the plan. The new chief
executive officer of Metron Europa will obtain the right to acquire options for
the purchase of approximately one-third of the total number of such reserved
Metron shares, at a per share price equal to the book value, with adjustments,
of a Metron share on the date of grant.
In addition, the holders of substantially all of the shares of Metron Europa
following the Merger will enter into certain shareholder agreements with
respect to their Metron shares. Such agreements would, among other things,
provide for rights of first refusal in favor of Metron Europa, FSI, and
Fluoroware, and grant the parties certain registration, preemptive, and co-sale
rights. These agreements also will grant the former Transpacific shareholders
the right to put their Metron shares to Metron Europa under certain
circumstances, including termination of employment, death and Metron Europa's
failure to obtain certain prescribed financing objectives within five years
following the closing of the Reorganization. In each case, the price to be paid
for the purchased shares will be based upon a formula based on adjusted book
value or a multiple of book value.
14
<PAGE>
Consummation of the Reorganization is subject to various conditions. No
assurance can be given as to whether or not such conditions will be satisfied
or waived by the party or parties permitted to do so. If the conditions to the
Reorganization remain unsatisfied and the Reorganization has not been
consummated on or before June 30, 1995, the Reorganization Agreement may be
terminated by either Transpacific or Metron Europa. The obligations of
Transpacific and Metron Europa to consummate the Reorganization are subject to,
among other things: approval by the Transpacific shareholders; receipt of all
required regulatory approvals; and the absence of any material adverse change
in the business, properties, results of operations or financial condition of
either party.
If the Reorganization is completed, FSI's day to day involvement in the
management and supervision of the Metron Group would be reduced and the future
success of the combined entity would depend on the successful integration of
the senior management of Transpacific and the Metron Group as well as
acceptance and support of the new combined operations by customers and
suppliers. See "Risk Factors--Reliance on Affiliated International
Distributors" and "Business--Marketing, Sales, and Support."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be approximately $61,178,000 ($71,318,000 if the
Underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $25.875 per share and after deducting underwriting
discounts and estimated offering expenses payable by the Company. The Company
will not receive any proceeds from the sale of shares by the Selling
Shareholders. See "Principal and Selling Shareholders."
The net proceeds will be used for working capital and general corporate
purposes. The Company is undertaking the offering in part because it believes
that the availability of adequate financial resources is a substantial
competitive factor in its industry. The Company may use a portion of the net
proceeds to acquire equipment for its demonstration and product development
laboratories and for future facilities expansion. In addition, a portion of the
net proceeds may also be used for strategic acquisitions of businesses,
products, or technologies complementary to the Company's business. The Company
does not have any signed contracts, letters of intent, or agreements in
principle to make any such material acquisition. Pending such uses, the net
proceeds of the offering will be invested in short-term, interest-bearing
investment grade securities.
PRICE RANGE OF COMMON STOCK
AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "FSII." The following table sets forth, for the periods indicated, the
high and low sale prices for the Common Stock as reported on the Nasdaq
National Market (after giving effect to the Stock Split).
<TABLE>
<CAPTION>
HIGH LOW
------ --------
<S> <C> <C>
FISCAL 1993
First Quarter............................................. 3 7/8 2 1/4
Second Quarter............................................ 4 1/2 3 7/16
Third Quarter............................................. 4 1/4 2 7/8
Fourth Quarter............................................ 5 1/2 3 15/16
FISCAL 1994
First Quarter............................................. 6 1/2 4 5/8
Second Quarter............................................ 6 7/8 4 7/8
Third Quarter............................................. 7 7/8 5 1/4
Fourth Quarter............................................ 9 5 3/8
FISCAL 1995
First Quarter............................................. 14 1/4 8 5/8
Second Quarter............................................ 18 1/8 12 1/8
Third Quarter............................................. 26 5/8 17 3/8
Fourth Quarter (through June 14, 1995).................... 26 3/4 22 3/4
</TABLE>
15
<PAGE>
On June 14, 1995, the last reported sale price for the Common Stock as
reported by the Nasdaq National Market was $25.875 per share. As of June 14,
1995, there were approximately 350 record holders of the Common Stock and an
estimated additional 3,300 shareholders who held beneficial interests in shares
of Common Stock registered in nominee names of banks and brokerage houses.
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain all earnings for use in its business
and does not anticipate paying any cash dividends in the foreseeable future.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of May
27, 1995 (reflecting the Stock Split) and as adjusted to reflect the sale of
Common Stock offered hereby (after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company) and the
anticipated application of the net proceeds therefrom:
<TABLE>
<CAPTION>
MAY 27, 1995
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Long-term debt, less current maturities............. $ 2 $ 2
-------- --------
Stockholders' equity:
Preferred Stock, no par value; 10,000,000 shares
authorized; none issued and outstanding.......... -- --
Common Stock, no par value; 50,000,000 shares
authorized; 17,135,782 shares issued and
outstanding; 19,635,782 shares as adjusted(1).... 80,990 142,168
Retained earnings................................. 25,432 25,432
-------- --------
Total stockholders' equity...................... 106,422 167,600
-------- --------
Total capitalization.......................... $106,424 $167,602
======== ========
</TABLE>
- --------
(1) Shares issued and outstanding and as adjusted do not include 1,709,424
shares issuable upon exercise of outstanding options granted by the
Company, 198,930 shares reserved for future issuance under the Company's
stock plans, 100,000 shares issuable upon the exercise of outstanding
Common Stock purchase warrants, and 35,000 shares reserved for issuance in
connection with the purchase in June 1994 of certain technology and other
assets.
16
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The selected consolidated financial data presented below for and as of the
five fiscal years ended August 27, 1994 are derived from the Consolidated
Financial Statements of the Company and its subsidiaries, which have been
audited by KPMG Peat Marwick LLP, independent certified public accountants.
Data as of and for the nine months ended May 28, 1994 and May 27, 1995 have
been derived from unaudited consolidated financial statements of the Company
and, in the opinion of the Company's management, includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the results of operations for the periods then ended and the financial position
of the Company as of such dates. Interim operating results are not necessarily
indicative of the results that may be achieved for the entire year. The
following selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the separate Consolidated Financial Statements of the
Company incorporated by reference or included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
------------------------------------------------------ -----------------
AUGUST 25, AUGUST 31, AUGUST 29, AUGUST 28, AUGUST 27, MAY 28, MAY 27,
1990 1991 1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Sales................... $54,306 $44,957 $46,879 $78,432 $96,437 $68,210 $126,415
Cost of goods sold...... 34,865 27,788 28,109 49,464 55,788 39,797 72,160
Gross profit............ 19,441 17,169 18,770 28,968 40,649 28,413 54,255
Selling, general, and
administrative
expenses............... 13,376 12,299 11,170 14,496 19,552 13,476 24,090
Research and development
expenses............... 9,010 8,376 9,783 11,760 15,743 10,999 17,378
Operating income (loss). (2,945) (3,506) (2,183) 2,712 5,354 3,938 12,787
Other income (expense),
net.................... (242) (414) (410) (671) (254) (288) 1,031
Income (loss) before
income taxes........... (3,187) (3,920) (2,593) 2,041 5,100 3,650 13,818
Income tax expense
(benefit).............. (1,246) (616) 392 360 1,254 847 3,800
Income (loss) before
equity in earnings
(loss) of affiliates... (1,941) (3,304) (2,985) 1,681 3,846 2,803 10,018
Equity in earnings
(loss) of affiliates... 192 40 (373) 1,277 1,800 1,160 2,128
Net income (loss)....... $(1,749) $(3,264) $(3,358) $ 2,958 $ 5,646 $ 3,963 $ 12,146
Net income (loss) per
common share(2)........ $ (.22) $ (.37) $ (.36) $ .28 $ .43 $ .31 $ .76
Weighted average common
shares and common share
equivalents(2)......... 8,024 8,715 9,275 10,558 13,222 12,968 15,916
BALANCE SHEET DATA(1):
Working capital......... $16,501 $13,335 $10,934 $13,421 $27,778 $28,696 $ 84,378
Total assets............ 34,293 27,288 36,443 40,970 68,995 60,597 145,930
Short-term debt......... 3,034 199 4,976 2,753 149 211 45
Long-term debt, less
current maturities..... 367 304 866 343 33 47 2
Stockholders' equity.... 22,615 19,787 17,245 21,190 42,006 40,000 106,422
Dividends............... -- -- -- -- -- -- --
</TABLE>
- --------
(1) All amounts have been adjusted to reflect the acquisition, effective March
8, 1995, of Applied Chemical Solutions, which acquisition was accounted for
using the pooling-of-interests method of accounting. See "'Recent
Developments--Acquisition of Applied Chemical Solutions" and Note 2 of
Notes to Consolidated Financial Statements of FSI.
(2) Share information and per share information have been adjusted to reflect
the Stock Split.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
FSI designs, manufactures, markets, and supports equipment used by
semiconductor device manufacturers to produce integrated circuits. The
Company's business is dependent in large part on the capital expenditures of
semiconductor device manufacturers. The semiconductor device industry has
historically been cyclical. Since the end of the downturn which occurred
worldwide from 1990 through 1992, the industry has been experiencing rapid
growth, particularly in the United States and Korea.
The Company implemented certain actions during the 1990-1992 downturn in an
effort to mitigate the effects of the cyclicality of the industry, including
focusing on its three core product lines, consolidating operations, and
expanding into the Japanese market by establishing a joint venture distributor.
Also, during this period the Company began manufacturing and marketing the
Polaris microlithography cluster, under license from TI, for the processing of
photoresist, after terminating its relationship as a manufacturer and
distributor of a conventional track system of a third party. Sales of the
Polaris cluster have grown to $32.7 million, or approximately 34% of sales, in
fiscal 1994 and $38.7 million, or approximately 31% of sales, in the first nine
months of fiscal 1995. The Company's three core product lines generate
substantially different gross profit margins; therefore, results in any period
will be affected by the mix of product sales that occur in such period.
Due to the international nature of the semiconductor device industry, it is
important for the Company to provide sales, service, and support worldwide. The
Company provides these services primarily through affiliated distributors
located in Europe, the Far East, and Japan. These distributors also sell and
support the products of other companies serving the semiconductor device
manufacturing industry. Because of the Company's equity ownership interest in
these distributors, their financial results can have a significant impact on
the Company's financial results. In fiscal 1994 and for the first nine months
of fiscal 1995, equity in earnings of affiliates of $1.8 million and $2.1
million represented approximately 32% and 18% of net income, respectively. See
"Risk Factors--Relationship with Affiliated Distributors," "Recent
Developments--Metron Activities," and Note 6 of Notes to Consolidated Financial
Statements of FSI.
The semiconductor device industry is subject to rapid technological changes.
The Company's future results will depend to a considerable extent on its
ability to continue to develop and deliver new products and product
enhancements to its customers. Therefore, the Company maintains an active
research and development program and may consider from time to time strategic
acquisitions of complementary businesses, products, or technologies.
On March 8, 1995, the Company acquired Applied Chemical Solutions. The ACS
Acquisition was accounted for using the pooling-of-interests method of
accounting. The Company's purpose in acquiring ACS was to obtain products and
technology that would complement FSI's existing chemical management technology
and thereby enable it to provide customers with a more complete range of
chemical management product offerings. In addition, the ACS Acquisition
expanded FSI's geographic presence into the California market, which is the
location of several large semiconductor device manufacturers. The Company
believes that through the ACS Acquisition it has acquired technology at a price
which compares favorably with the cost of independently developing comparable
technology. Although the Company expects to realize the benefits of certain
efficiencies from the combination of FSI and ACS operations, the realization of
such benefits, if any, were not a primary purpose of the ACS Acquisition and
any such effects, whether beneficial or detrimental, are not expected to be
material. See "Recent Developments--Acquisition of Applied Chemical Solutions."
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of sales represented by certain
consolidated statements of income data for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
-------------------------------- -------------------
AUGUST 29, AUGUST 28, AUGUST 27, MAY 28, MAY 27,
1992 1993 1994 1994 1995
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...... 60.0 63.1 57.9 58.3 57.1
----- ----- ----- -------- --------
Gross profit............ 40.0 36.9 42.1 41.7 42.9
Operating expenses:
Selling, general, and
administrative......... 23.8 18.5 20.3 19.8 19.1
Research and
development............ 20.9 15.0 16.3 16.1 13.7
----- ----- ----- -------- --------
Total operating
expenses............... 44.7 33.5 36.6 35.9 32.8
----- ----- ----- -------- --------
Operating income (loss). (4.7) 3.4 5.5 5.8 10.1
Other income (expense),
net.................... (0.9) (0.8) (0.2) (0.4) 0.8
----- ----- ----- -------- --------
Income (loss) before
income taxes........... (5.6) 2.6 5.3 5.4 10.9
Income tax expense...... 0.8 0.5 1.3 1.3 3.0
----- ----- ----- -------- --------
Income (loss) before
equity in earnings
(loss) of affiliates... (6.4) 2.1 4.0 4.1 7.9
Equity in earnings
(loss) of affiliates... (0.8) 1.7 1.9 1.7 1.7
----- ----- ----- -------- --------
Net income (loss)....... (7.2)% 3.8% 5.9% 5.8% 9.6%
----- ----- ----- -------- --------
</TABLE>
FISCAL NINE MONTHS ENDED MAY 28, 1994 AND MAY 27, 1995
Sales. Sales increased from the nine months ended May 28, 1994 by $58.2
million, or approximately 85%, to $126.4 million for the nine months ended May
27, 1995. The increase in sales occurred in all product lines and was generally
attributable to increased unit sales and to a lesser extent to increases in the
average selling price of FSI's products resulting from additional features
added.
Gross profit. Gross profit as a percentage of sales for the nine months ended
May 28, 1994 was 41.7% as compared to approximately 42.9% for the nine months
ended May 27, 1995. The increase in gross profit as a percentage of sales for
this period was primarily due to increased margins in the microlithography and
surface conditioning product lines offset in part by decreased margins in the
chemical management product lines. The Company's gross profit margin may
fluctuate as a result of a number of factors, including the mix of products
sold, the proportion of international sales, and competitive pricing pressures.
Selling, General, and Administrative. Selling, general, and administrative
expenses were 19.8% of sales for the nine months ended May 28, 1994, as
compared to 19.1% of sales for the nine months ended May 27, 1995. The increase
of approximately $10.6 million is due primarily to increased costs related to
expanded customer support of approximately $2.0 million, increase in management
incentive bonuses and employee profit sharing of $1.4 million, increased
commissions related to higher sales volume of approximately $1.5 million, fees
and expenses associated with the ACS Acquisition of $800,000, increased
allowance for bad debts, and costs associated with the computer systems
upgrade. The Company expects the amount of selling, general, and administrative
expenses to increase during the remainder of fiscal 1995.
Research and Development. Research and development expenses for the first
nine months of fiscal 1994 were approximately 16.1% of sales, or $11.0 million,
as compared to 13.7% of sales, or $17.4 million, for the first nine months of
fiscal 1995. The increase of approximately $6.4 million resulted primarily from
the Company's continued development efforts on new and existing products,
including the Polaris 2000 cluster,
19
<PAGE>
the Excalibur MVP system, the Orion vacuum-based gas phase (dry) cleaning
system, and certain chemical management systems. Certain of the Company's
research and development projects are partially funded through arrangements
with third parties. For the first nine months of fiscal 1994 and 1995, the
Company recognized approximately $925,000 and $546,000, respectively, from
third parties as a reduction in research and development expenses. The Company
expects the amount of research and development expenses to increase, and does
not expect any funding for research and development from third parties, during
the remainder of fiscal 1995.
Other Income (Expense), Net. Other income (expense) was an expense of
$288,000 for the first nine months of fiscal 1994 as compared to income of $1.0
million for the first nine months of fiscal 1995, which was primarily due to an
increase in interest earned by the Company on short-term investments. Interest
earned for the first nine months of fiscal 1994 approximated $216,000 as
compared to $994,000 for the first nine months of fiscal 1995.
Income Tax Expense. For the first nine months of fiscal 1994, the Company
recorded an income tax expense of $847,000, or 23.2% of pretax profit, as
compared to $3.8 million, or 27.5%, for the first nine months of fiscal 1995.
Income tax expense for the first nine months of fiscal 1995 was approximately
$1.2 million lower than what would be expected using a 36% "statutory"
effective tax rate, reflecting the Company's ability to utilize current and
prior year tax credits associated with its research and development expenses
and its foreign sales corporation as well as its ability under FAS 109 to
reinstate a portion of its deferred taxes, which were previously limited by FAS
109.
Equity in Earnings of Affiliates. For the first nine months of fiscal 1994,
equity in earnings of affiliates was approximately $1.2 million, as compared to
$2.1 million for the first nine months of fiscal 1995. The increase in earnings
for the first nine months of fiscal 1995 is attributed to increased earnings of
the Metron Group, which resulted from recent expansions by several
semiconductor device manufacturers located in Europe and continued growth
taking place in the Asia-Pacific market.
FISCAL YEARS ENDED AUGUST 1992, 1993, AND 1994
Sales. Sales grew 67.3% to $78.4 million in fiscal 1993, and 23.0% to $96.4
million in fiscal 1994. The increase in sales from fiscal 1992 to fiscal 1993
was attributable to significantly increased unit sales in each of the Company's
three product categories and to a lesser extent to increases in the average
selling price of FSI's products resulting from additional features offered.
Sales of spare parts and service averaged approximately $14.8 million during
these periods. The increase in sales from fiscal 1993 to fiscal 1994 was
attributable to significant growth in the Company's microlithography cluster
business and increased spare parts and service sales. Sales for the Polaris
cluster grew from $20.3 million in fiscal 1993 to $32.7 million in fiscal 1994,
or approximately 61%, and spare parts and service sales grew from $13.3 million
to $18.2 million, or approximately 37%. See "Business--Products."
The Company's international sales were $16.0 million, $26.6 million, and
$31.5 million, during fiscal 1992, 1993, and 1994, respectively, and
represented approximately 34%, 34%, and 33% of sales during such periods. Sales
of the Company's products in each of Europe, the Far East, and Japan increased
from 1993 to 1994. See "Business--Marketing, Sales, and Support."
Gross Profit. The Company's gross profit as a percentage of sales decreased
from 40.0% in fiscal 1992 to 36.9% in fiscal 1993 and increased to 42.1% in
fiscal 1994. The decrease in gross profit percentage between fiscal 1992 and
fiscal 1993 was attributable to an increase in the percentage of total sales
from chemical management systems, the Company's lowest margin product line.
Also, during fiscal 1993, the Company recorded a loss of approximately $800,000
on $5.3 million of sales recognized on a chemical management system project,
due to cost overruns. The increase in gross profit percentage between fiscal
1993 and 1994
20
<PAGE>
was attributable primarily to the project cost overrun that occurred in fiscal
1993 and an increase in the percentage of total sales from the Company's higher
margin products, and to a lesser extent to a decrease in the percentage of
foreign sales as a percentage of total sales.
Selling, General, and Administrative. Selling, general, and administrative
expenses were $11.2 million, $14.5 million and $19.6 million, or 23.8%, 18.5%
and 20.3%, of sales during fiscal 1992, 1993, and 1994, respectively. While
selling, general, and administrative expenses increased approximately 30% in
1993 over 1992, these expenses decreased from 23.8% to 18.5%, as a percentage
of sales, due to the economies of scale realized as sales grew over 67%. The
increase in selling, general, and administrative expenses from 1993 to 1994 was
chiefly due to expanded customer support and marketing (approximately $2.4
million of such increase) and management incentive bonuses and employee profit
sharing (approximately $625,000 of such increase).
Research and Development. Research and development expenses were $9.8
million, $11.8 million, and $15.7 million, or 20.9%, 15.0%, and 16.3%, of sales
during fiscal 1992, 1993, and 1994, respectively. The increase from fiscal 1992
to fiscal 1993 was primarily due to the addition in fiscal 1993 of the
Microlithography Division Demonstration and Process Development Laboratory in
Dallas, Texas. In addition, the Company brought to market enhanced versions of
its Excalibur and ChemFill products. The increase from fiscal 1993 to fiscal
1994 was primarily due to realizing a full year of expenses for the
Microlithography Division Demonstration and Process Development Laboratory, and
continued development costs for its Orion dry-gas cleaning system. In addition,
the Company introduced the new Polaris 2000 cluster, the Excalibur MVP (Multi-
Vapor Processing) system, chemical blending systems, and the ChemFill Models
5000 and 500 chemical delivery systems. During fiscal years 1993 and 1994, the
Company recognized approximately $1.2 million and $1.3 million, respectively,
of third party funding as reductions in research and development expenses.
Other Income (Expense), Net. The net balance in other income (expense), net
the past few years has been primarily a result of interest expense related to
the Company's borrowings. In fiscal 1994, the Company recognized approximately
$140,000 of expenses associated with early termination of its revolving credit
facility.
Income Tax Expense. The Company's income tax expense was $392,000, $360,000,
and $1.3 million in fiscal 1992, 1993, and 1994, respectively. This equated to
an effective tax rate of 15.1%, 17.6%, and 24.6% in fiscal 1992, 1993, and
1994, respectively. The Company's effective tax rate differs from the expected
tax rate of 34% due to the required reduction in deferred tax assets that could
be recorded under FAS 96 "Accounting for Income Taxes" in fiscal 1992 and the
reinstatement of deferred tax assets resulting from the generation of taxable
income in fiscal 1993 and 1994.
Equity in Earnings (Loss) of Affiliates. The equity in earnings (loss) of
affiliates reflects a loss of approximately $373,000 in fiscal 1992, and
earnings of approximately $1.3 million and $1.8 million in fiscal 1993 and
fiscal 1994, respectively. The loss in fiscal 1992 resulted primarily from the
start-up costs associated with the Company's Japanese joint venture and to a
lesser extent from the general downturn in the worldwide semiconductor device
industry. The increases in fiscal 1993 and fiscal 1994 are attributed to
increased earnings of the Metron Group, the Company's European and Far East
affiliated distributors.
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited consolidated quarterly
financial information for each quarter in fiscal 1994 and the first three
quarters of fiscal 1995. In the opinion of the Company's management, this
information has been prepared on the same basis as the audited consolidated
financial statements incorporated by reference or appearing elsewhere in this
Prospectus and includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the unaudited quarterly results set
forth
21
<PAGE>
herein. The Company's quarterly results have in the past been subject to
fluctuations and, thus, the operating results for any quarters are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
FISCAL 1994 FISCAL 1995
--------------------------------------------- ---------------------------------
NOVEMBER 27, FEBRUARY 26, MAY 28, AUGUST 27, NOVEMBER 26, FEBRUARY 25, MAY 27,
1993 1994 1994 1994 1994 1995 1995
------------ ------------ ------- ---------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................... $21,415 $20,707 $26,087 $28,228 $30,184 $42,728 $53,503
Cost of goods sold...... 12,665 11,463 15,668 15,992 16,263 24,370 31,527
------- ------- ------- ------- ------- ------- -------
Gross profit............ 8,750 9,244 10,419 12,236 13,921 18,358 21,976
Operating expenses:
Selling, general, and
administrative....... 4,284 4,341 4,851 6,076 6,329 7,470 10,291
Research and
development.......... 3,396 3,743 3,860 4,744 4,873 6,040 6,465
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 7,680 8,084 8,711 10,820 11,202 13,510 16,756
------- ------- ------- ------- ------- ------- -------
Operating income........ 1,070 1,160 1,708 1,416 2,719 4,848 5,220
Other income (expense),
net.................... (198) (10) (80) 34 121 173 737
------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 872 1,150 1,628 1,450 2,840 5,021 5,957
Income tax expense...... 185 300 362 407 790 1,254 1,756
------- ------- ------- ------- ------- ------- -------
Income before equity in
earnings of affiliates. 687 850 1,266 1,043 2,050 3,767 4,201
Equity in earnings of
affiliates............. 414 368 378 640 1,000 323 805
------- ------- ------- ------- ------- ------- -------
Net income.............. $ 1,101 $ 1,218 $ 1,644 $ 1,683 $ 3,050 $ 4,090 $ 5,006
======= ======= ======= ======= ======= ======= =======
</TABLE>
The table below sets forth the percentage relationship of certain items to
net sales with regard to the Company's results of operations for each of the
quarters in fiscal 1994 and the first three quarters of fiscal 1995.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
FISCAL 1994 FISCAL 1995
-------------------------------------------- ---------------------------------
NOVEMBER 27, FEBRUARY 26, MAY 28, AUGUST 27, NOVEMBER 26, FEBRUARY 25, MAY 27,
1993 1994 1994 1994 1994 1995 1995
------------ ------------ ------- ---------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...... 59.1 55.4 60.1 56.7 53.9 57.0 58.9
----- ----- ----- ----- ----- ----- -----
Gross profit............ 40.9 44.6 39.9 43.3 46.1 43.0 41.1
Operating expenses:
Selling, general, and
administrative....... 20.0 21.0 18.6 21.5 21.0 17.5 19.2
Research and
development.......... 15.9 18.0 14.8 16.8 16.1 14.1 12.1
----- ----- ----- ----- ----- ----- -----
Total operating
expenses............... 35.9 39.0 33.4 38.3 37.1 31.6 31.3
----- ----- ----- ----- ----- ----- -----
Operating income........ 5.0 5.6 6.5 5.0 9.0 11.4 9.8
Other income (expense),
net.................... (.9) (.1) (.3) .1 .4 .4 1.3
----- ----- ----- ----- ----- ----- -----
Income before income
taxes.................. 4.1 5.5 6.2 5.1 9.4 11.8 11.1
Income tax expense...... .9 1.4 1.4 1.4 2.6 3.0 3.3
----- ----- ----- ----- ----- ----- -----
Income before equity in
earnings of affiliates. 3.2 4.1 4.8 3.7 6.8 8.8 7.8
Equity in earnings of
affiliates............. 1.9 1.8 1.5 2.3 3.3 .8 1.5
----- ----- ----- ----- ----- ----- -----
Net income.............. 5.1% 5.9% 6.3% 6.0% 10.1% 9.6% 9.3%
===== ===== ===== ===== ===== ===== =====
</TABLE>
The Company expects it will continue to experience fluctuations in its
quarterly operating results. In the past, these fluctuations have been caused
by a variety of factors including timing and shipment of orders, the sales mix
of higher margin and lower margin products, fluctuations in the percentage of
international sales,
22
<PAGE>
available production capacity, and equity in earnings (loss) of affiliates.
There can be no assurance as to the level of sales or profits, if any, in any
future period. See "Risk Factors--Cyclicality of the Semiconductor Device
Industry" and "--Fluctuations in Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were approximately $39.0 million as
of May 27, 1995, an increase of $28.2 million from the end of fiscal 1994. The
increase in cash and cash equivalents reflects the net proceeds of
approximately $50.0 million from a secondary stock offering completed by the
Company during February 1995.
The Company's accounts receivable as of May 27, 1995 increased by
approximately 136.3%, or $29.5 million, from the end of fiscal 1994. This
increase is due to increased sales levels in all product lines. The Company's
inventory increased approximately $8.5 million from the end of fiscal 1994 to
May 27, 1995. The majority of the increase was due to increased levels of raw
materials and finished goods relating to the increased sales and order
activity. As of May 27, 1995, the Company's ratio of current assets to current
liabilities was 3.1 to 1.0 and working capital was $84.4 million.
The Company had acquisitions of buildings, leasehold improvements, and
equipment of $7.2 million for the first nine months of fiscal 1995 as compared
to $1.6 million for the first nine months of fiscal 1994. The increase reflects
investments in computer equipment and the facilities expansion. The Company
expects to increase its investment in its manufacturing facilities, Surface
Conditioning Division Demonstration and Development Laboratory, and computer
systems in fiscal 1995 and 1996. FSI recently commenced construction of a
100,000 square foot manufacturing facility in Chaska, Minnesota. The costs of
purchasing the land for and of constructing and equipping the new facility is
expected to total $11.5 million and the cost of upgrading the computer systems
is expected to total $7.0 million over fiscal years 1995 and 1996.
On January 31, 1995, the Company purchased for approximately $1.2 million a
50% equity interest in FME. On March 8, 1995, the Company completed the
acquisition of ACS, which was accounted for as a pooling of interests. In
connection with the ACS Acquisition, the Company issued 1,061,472 shares of its
Common Stock to the former holders of ACS common stock and issued options to
purchase up to 214,758 shares of its Common Stock in substitution of previously
outstanding options to acquire shares of ACS common stock. These acquisitions
are intended to enhance and broaden the Company's chemical management product
offerings and establish a manufacturing capability for the Company's chemical
management systems in Europe.
The Company does not currently have a credit facility. However, the Company
has negotiated the terms of a new credit facility, which it expects to enter
into by the end of fiscal 1995. The Company believes that the proceeds from the
sale of the Common Stock offered hereby by the Company, together with existing
cash, cash equivalents, and internally generated funds will be sufficient to
meet the Company's currently projected working capital and other cash
requirements both for the short-term and through at least the end of fiscal
1996.
The Company believes that success in its industry requires substantial
capital in order to maintain the flexibility to take advantage of opportunities
as they may arise. The Company may, from time to time, as market and business
conditions warrant, invest in or acquire complementary businesses, products, or
technologies. The Company may effect additional equity or debt financings to
fund such activities. The sale of additional equity or debt securities could
result in additional dilution to the Company's shareholders.
BUSINESS
GENERAL
FSI designs, manufactures, markets, and supports microlithography, surface
conditioning, and chemical management equipment used in the fabrication of
integrated circuits. The Company's microlithography product, the Polaris
cluster, processes photoresist (light sensitive material used for patterning)
on the surface
23
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of silicon wafers as part of the photolithography phase of the integrated
circuit fabrication process. The Company's surface conditioning products,
including the Mercury spray processing systems and the Excalibur vapor
processing systems, remove contaminants and excess photoresist from wafers
during the fabrication process and selectively remove oxide from the wafer
surface. The process steps performed by the Company's microlithography and
surface conditioning products, which are used repeatedly throughout the
fabrication cycle, are an integral part of the manufacturing process for
virtually every integrated circuit produced today. The Company's chemical
management products perform the critical functions of blending, delivering and
controlling the flow, concentration, and purity of chemicals used by various
types of processing equipment within a fabrication facility.
INDUSTRY BACKGROUND
The fabrication of integrated circuits is a complex process involving several
distinct phases repeated numerous times during the fabrication process. Each
production phase requires different processing technology and equipment, and no
one semiconductor equipment supplier currently produces an entire state-of-the-
art fabrication system. Rather, semiconductor device manufacturers typically
construct fabrication facilities by combining manufacturing equipment produced
by several different suppliers, each of which performs specific functions in
the manufacturing process.
Demand for semiconductor device manufacturing equipment is driven principally
by the need for new processes and systems capable of manufacturing increasingly
complex integrated circuits and by the overall demand for products utilizing
integrated circuits. Industries that utilize integrated circuits are demanding
higher performance products from semiconductor device manufacturers. Over the
last decade, technological advances have allowed integrated circuit
manufacturers to reduce the size and substantially increase the number of
transistors on each integrated circuit device. Today, 16 megabit dynamic random
access memory ("DRAM") integrated circuits are manufactured using more than 200
process steps on six or eight inch diameter wafers and incorporating geometries
of 0.5 micron. With high density logic devices and 64 megabit DRAMs that
require geometries of less than 0.5 micron now under development, integrated
circuit manufacturers require process technology advances that are timely,
highly reliable, and readily implemented into high volume manufacturing
environments.
Concurrent with these technological advances, competitive pressures are
forcing semiconductor device manufacturers to reduce integrated circuit
manufacturing costs. Because the capital cost of a large semiconductor
fabrication facility is high, in some cases exceeding $1 billion, manufacturers
have increased their focus on the various cost components of a semiconductor
device manufacturing facility. This greater emphasis on total device processing
cost has led manufacturers increasingly to analyze the costs associated with
owning and operating each piece of process equipment in the manufacturing line
(referred to as the "overall cost of ownership"), including capital cost,
throughput, yield, reliability, consumables, start-up time, and other equipment
related costs for each process step. In addition, the Company believes that in
an effort to reduce total manufacturing costs and to reduce potential
contaminant exposure as the wafer is transferred from one process step to
another, manufacturers are increasingly seeking process equipment capable of
being integrated with the process equipment of other suppliers to create a
highly automated and integrated processing system. Semiconductor device
manufacturers also must continue to address the environmental costs, primarily
those related to the control and disposal of chemical waste and emissions,
associated with operating a fabrication facility.
The Company believes that semiconductor device manufacturers are asking
equipment suppliers to take an increasingly active role in meeting the
manufacturers' technology requirements and cost constraints by developing and
supporting the products and processes required to fabricate advanced
semiconductor device designs. Certain semiconductor device manufacturers are
seeking strategic relationships with equipment suppliers for specific process
steps on existing and new integrated circuit designs. As a result,
semiconductor equipment companies are being asked to provide advanced process
expertise, superior product performance, reduced overall cost of ownership, and
worldwide customer support to better meet the needs of integrated circuit
manufacturers, as well as meet international quality standards, such as ISO
9001 certification.
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COMPANY STRATEGY
FSI seeks to be a leading provider of advanced integrated circuit processing
solutions throughout the world, offering products that increase yields,
integrate with the equipment of other suppliers, and reduce customers overall
cost of ownership. Key elements of the FSI strategy include the following:
Focus on Core Markets. FSI expects to continue to focus on the
microlithography, surface conditioning, and chemical management markets.
The Company believes it has established itself as a technological leader in
these markets and currently provides integrated circuit manufacturers with
high-quality products that have significant overall cost of ownership
advantages. The Company's Polaris cluster and Excalibur vapor and Mercury
spray processing systems were each among the 20 products chosen as winners
of Semiconductor International Magazine's Best Product Awards for 1994. The
Company believes that its technological capabilities, when combined with
the strength of its international distribution and support system, provide
the Company with the opportunity to increase its worldwide market share in
each of its three core markets.
Enhance and Broaden Product Offerings. The Company intends to continue to
enhance and broaden its product offerings in each of the core markets it
serves through internally developed products and from time to time through
strategic alliances and acquisitions. The Company recently acquired ACS and
FME, enabling FSI to augment its chemical management product offerings. In
fiscal 1994, FSI introduced new products in each of its principal product
lines, including the Polaris 2000 cluster, and also has a number of new
products and enhancements to existing products currently under development.
The Company anticipates that it will continue to make significant
investments in engineering, research, and development.
Provide Process Solutions for Customers. FSI believes that continued
leadership in its core markets will require products that contribute to
providing process solutions for its customers. To accomplish this goal, the
Company seeks to foster close customer relationships, which enhance the
Company's understanding of, and facilitate its responsiveness to, the
complex processing needs and cost constraints of integrated circuit
manufacturers. Through its knowledgeable and responsive sales and technical
support staff, the Company works closely with its customers to provide
advanced processing solutions that integrate into the customers' specific
manufacturing environments. The Company is working on joint development
programs with a number of its customers, including the joint exploration of
further enhancements to the Company's spray processing and vapor phase
processing systems. To better serve and understand the needs of its
customers, the Company also continues to expand and upgrade its own
demonstration and process development facilities.
Emphasize Worldwide Service and Support. The Company believes that
integrated circuit manufacturers are seeking equipment suppliers like FSI
which provide service and support worldwide. FSI and its affiliates
continue to add to their technical and service capabilities. FSI has added
53 engineers and 44 additional support personnel over the last 9 months.
The Company believes that with its internal resources and those of its
affiliated distributors in Europe, the Far East, and Japan the Company will
continue to provide timely and efficient customer service and support
worldwide.
Improve Quality and Operational Efficiencies. FSI believes that its
ability to continue to improve quality and obtain operational efficiencies
provides it with a number of benefits, including reduced product costs,
improved product quality and reliability, and decreased manufacturing time.
The Company is implementing a number of programs to further increase the
quality and efficiency of its operations, including achieving ISO 9001
certification in October 1994, developing a new Class 1000 manufacturing
facility, investing in upgraded computer systems designed to improve the
quality of information available to Company management and to allow
integration of the Company's design and manufacturing systems, and
providing advanced training opportunities to its employees.
25
<PAGE>
INTEGRATED CIRCUIT FABRICATION
The basic component in the manufacture of integrated circuits is a thin,
circular crystalline wafer, typically three to eight inches in diameter and
composed of silicon. During the fabrication process, several layers of
conductive or dielectric materials are sequentially grown or deposited on the
wafer surface through a series of thermal and/or chemical processes. These
processes are conducted in a controlled environment, typically a "clean room"
which is a manufacturing facility separated from the outside environment and
employing specialized filters designed to reduce the number of particulates in
the air within the facility. Each layer undergoes a series of processes to etch
a portion of the layer or change the electrical characteristics of the layer,
leaving the desired integrated circuit pattern. The wafers are ultimately
separated into individual integrated circuits or discrete components which are
then packaged, assembled, and tested. The typical integrated circuit
fabrication process takes between eight and twelve weeks. The primary stages of
this process are discussed below.
Cleaning. The wafer surface must be cleaned and conditioned at the
beginning of the fabrication process and at numerous other times throughout
the process. Cleaning is generally performed by exposing the wafer to
various chemicals in a liquid state, through spraying or immersion, or in a
vapor state. As integrated circuit geometries become smaller and more
complex, the reduction of organic, metal, and particle contamination on the
wafer becomes an increasingly critical factor in improving the yields of
wafer processing. In addition to contamination from particles left over
from the various steps in the fabrication process, such as etching or
stripping, contaminants may also be introduced from the equipment and
chemicals utilized in the manufacturing process. FSI's surface conditioning
products, including the Mercury spray processing and the Excalibur vapor
processing systems, are designed to perform these cleaning functions
throughout the integrated circuit fabrication process.
Layering. Following cleaning and wafer surface conditioning, a thin film
of either conductive or dielectric material is grown or deposited on the
wafer surface. Depending upon its particular electrical properties, each
layer functions as an insulator, semiconductor, or conductor.
Planarization. Recently, a new process step called chemical mechanical
planarization, commonly referred to as CMP, has become important in
semiconductor device manufacturing, particularly for advanced devices. The
CMP process uses a chemical and mechanical polishing procedure with a
slurry and pad to smooth the surface of a wafer after each layering step in
the metal interconnect process. This smoothing, or planarization, is
necessary to prevent extremes of topography which can reduce yield and
reliability of semiconductor devices. The Company's Mercury spray
processing systems are used to remove the polishing grit from the surface
of the wafer after CMP processing.
Photolithography. After the film layer is deposited on the wafer, the
film is primed to promote the adhesion of a light sensitive material called
photoresist. After the photoresist is applied, the wafer is heated in order
to remove solvents from the photoresist. Integrated circuit patterns are
then projected onto the photoresist by exposing it to a light source
through a mask. Chemical changes occur in the portion of the photoresist
exposed to the light source, resulting in a transfer of the image of the
desired circuit into the photoresist on the wafer. After a circuit pattern
has been imprinted, the image on the film is developed, which creates
protected and unprotected areas. The developed photoresist is then baked at
a high temperature to remove residual moisture and remaining solvents,
harden the photoresist for subsequent etching, and improve adhesion to the
wafer surface. Polaris clusters perform all photolithography functions
except exposure.
Etching or Doping. Upon completion of the photolithography process, the
wafer is either etched or doped. During etching the unprotected areas of
the patterned film are removed with chemicals to leave the desired circuit
pattern. Etching can be accomplished with either a wet chemistry process,
using liquid chemicals, or a dry chemistry (typically plasma) process,
using chemical gases or vapors. With advanced devices, most pattern etching
is performed using a dry process. The Company's Excalibur vapor processing
system is used to remove residual silicon dioxide to improve electrical
performance and to remove the residue left by plasma or reactive ion
etching. The Company's spray processing systems have
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<PAGE>
been used to perform blanket etching in limited wet chemistry applications.
During doping, specific ions are implanted on the wafer to control and
change the electrical properties of the wafer surface. Doping produces the
semiconductor activity on the wafer.
Stripping. After etching or doping, the wafer is stripped of photoresist
through either a wet chemistry or a dry chemistry process. The Company's
spray processing systems are used to perform this function with wet
chemistry applications or as a final clean-up after dry chemistry
applications.
These operations are repeated numerous times during the fabrication process
depending upon the type and complexity of the semiconductor device and the
overall process employed, and the precise order of the steps utilized varies by
manufacturer. A finished integrated circuit consists of a number of film layers
which together form thousands of extremely small electronic components that
combine to perform the desired electrical functions. Each step in the
fabrication process requires precision and must be rigorously controlled to
attain commercially acceptable yields and cost performance.
Chemical management systems enable semiconductor device manufacturers to
store acids and solvents in bulk tanks outside the device fabrication clean
room and to deliver programmed amounts of chemicals to various types of
equipment in the clean room. The Company's chemical management products perform
the critical functions of blending, delivering and controlling the flow,
concentration and purity of chemicals used by various types of processing
equipment utilized throughout the semiconductor device manufacturing process.
PRODUCTS
The mix of products sold by the Company may vary significantly from year to
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The following table sets forth, for the periods
indicated, the amount of sales and approximate percentages of the Company's
total sales contributed by the Company's principal products:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------------- -----------------------------
AUGUST 29, AUGUST 28, AUGUST 27,
1992 1993 1994 MAY 28, 1994 MAY 27, 1995
------------- ------------- ------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Microlithography
clusters............... $12,044 25.7% $20,317 25.9% $32,723 33.9% $22,870 33.5% $ 38,689 30.6%
Surface conditioning
products............... 18,752 40.0 26,194 33.4 27,915 29.0 19,459 28.5 42,785 33.9
Chemical management
systems................ 3,145 6.7 18,629 23.8 17,573 18.2 12,862 18.9 28,731 22.7
Spare parts and service. 12,938 27.6 13,292 16.9 18,226 18.9 13,019 19.1 16,210 12.8
------- ----- ------- ----- ------- ----- ------- ----- -------- -----
$46,879 100.0% $78,432 100.0% $96,437 100.0% $68,210 100.0% $126,415 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======== =====
</TABLE>
MICROLITHOGRAPHY CLUSTERS. The Company's Polaris microlithography cluster
performs all of the photolithography processing steps except exposure. Polaris
consists of one or two clean room qualified robots surrounded by various
process modules. Each module is totally independent and requires no mechanical
interface. The cluster is enclosed by transparent safety walls, creating a
self-contained process environment, and is configured to match the throughput
capabilities of the integrated exposure equipment. The enclosure can be
modified to provide a Class 10 or Class 1 clean room environment, providing
independent control of temperature, humidity, and organics from the rest of the
fabrication area. Operations within the cluster are initiated from a computer
console and a touchscreen on each cluster's console provides the primary
operator interface. During operation, cassettes of wafers are loaded in the
cluster's input/output module from which the robot transports wafers through
the various process modules in a sequence programmed by the operator allowing
the desired treatment of the wafer surface.
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<PAGE>
[PASTE UP ART OF POLARIS 2000]
POLARIS(R) 2000 CLUSTER
The Polaris cluster represents a processing alternative to conventional
photoresist track or linear systems, which permit processing of the wafer only
according to a preestablished arrangement of the equipment. Wafer routing and
throughput in a Polaris cluster are not dependent upon module configuration.
The programmable capability of the robot allows random wafer routing,
permitting continuous processing of wafers and eliminating the need for the
queuing of partially processed wafers required by traditional track systems. In
addition, by controlling system variables within tight tolerance levels, the
Polaris cluster is able to better ensure the repeatability of the various
process steps. As a result, the Polaris cluster provides system flexibility and
performance advantages over competing track systems. It also provides
significant reliability and serviceability advantages. The highly integrated
and automated approach of the Polaris cluster eliminates the need for a number
of complex mechanisms which can impact system reliability, such as exposure
system interface modules and wafer transport mechanisms generally associated
with track systems. Polaris process modules can be serviced from outside the
cluster without disrupting other cluster process operations. In addition,
should technology change in any particular process module, that individual
module can be replaced with an upgrade without rendering the entire system
obsolete.
In July 1994, the Company introduced the Polaris 2000 cluster. This new
generation Polaris cluster contains several process enhancements including an
advanced bake/chill plate technology and a fluid temperature control system. It
also achieves a higher throughput of wafers. Simultaneous multiple process flow
capabilities allow the system to operate in tandem with another process tool
which is physically linked to the Polaris system and also to simultaneously
support other process equipment which are not linked to the system. The Company
began shipping the Polaris 2000 cluster in January 1995.
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Purchasers of the Polaris cluster include Ericsson Components AB
("Ericsson"), IBM, LG Semicon, Motorola, National Semiconductor, Inc. ("NSC"),
TI, and Tower Semiconductor Ltd. ("Tower"). The Company has an installed base
of approximately 100 Polaris clusters, including approximately 25 Polaris 2000
clusters. The price of a typical Polaris cluster ranges from approximately
$800,000 to $1,600,000, depending on wafer size, number of modules, and number
of robots required.
The Polaris cluster technology is licensed by the Company from TI. See
"Polaris License Agreement; Other Intellectual Property" below.
SURFACE CONDITIONING PRODUCTS. The Company's surface conditioning products
perform cleaning and stripping functions necessary for the processing of
integrated circuits.
Spray Processing Systems. The Company's spray processing systems, which
include the Mercury system, are sophisticated wet chemistry systems used to
clean and strip wafers at various stages in the integrated circuit fabrication
process. These systems use centrifugal spray technology to process wafers by
exposing them to a programmed, sequenced spray of fresh chemicals inside a
closed, nitrogen filled chamber. Cassettes filled with wafers are loaded into a
turntable in the process chamber and the processing chemicals, de-ionized
water, and nitrogen are sequentially dispensed into the chamber through a spray
post mounted in the chamber. As the turntable rotates, nozzles apply a chemical
spray to the wafer surface. After chemical application, de-ionized water is
sprayed on the wafer surface and all surfaces of the process chamber to remove
chemical residues. The wafers and chamber are then dried by centrifugal
spinning combined with a flow of nitrogen into the chamber. The Company's spray
processing systems also can perform certain blanket etch functions in limited
wet chemistry applications. FSI's spray processing systems include a
microprocessor-based controller to program, control, and monitor the operating
functions of the system in order to ensure precise control and repeatability of
the process.
The Company's spray processing systems provide an alternative to traditional
immersion technology, principally wet-bench processing of wafers. A chemical
wet-bench consists of an exhaust hood laboratory bench with open chemical tanks
in which the wafers are either manually or automatically transferred from one
chemical bath to another. The Company believes that its spray processing
systems provide many cost of ownership and other benefits over wet-bench
chemical processing including protection of the process operator from hazardous
chemicals or fumes, improved cleaning capability, reduced chemical usage, lower
space utilization in the clean room, and greater process flexibility, including
the capability to easily change chemical sequences.
Spray processing system customers include Advanced Micro Devices, Inc.
("AMD"), Atmel Corporation ("Atmel"), Cypress Semiconductor Corporation
("Cypress"), Digital Equipment Corporation ("DEC"), Fujitsu Microelectronics,
Inc. ("Fujitsu"), IBM, International Rectifier Corporation ("IRC"), Motorola,
NSC, SGS Thomson Microelectronics, Inc. ("SGS Thomson"), Siemens A.G.
("Siemens"), TI, Tower, United Microelectronics Corporation ("UMC"), and
Winbond Electronics Corp. ("Winbond"). The Company has an installed base of
over 2,125 spray processing systems. The Company offers four types of spray
processing systems, which range in price from $300,000 to $600,000. The Company
also markets certain equipment complementary to its spray processors, including
water heaters, chemical heaters, and booster pumps.
Vapor Processing Systems. The Company's Excalibur vapor processing systems
use anhydrous hydrofluoric ("HF") gas in conjunction with water vapor to
perform cleaning steps normally done with liquid chemicals. The Excalibur
systems are highly automated, with a microprocessor-based controller and user-
friendly software for sequencing and control of the reactants. Wafers are
processed on an individual basis and loaded from the wafer carrier into the
process chamber by a handler that minimizes particle contamination. Single-
wafer processing permits Excalibur systems to be more easily integrated with
equipment of other suppliers and provides greater control over process
uniformity. Up to four process chambers can be operated with a single
electronic controller through the utilization of multi-tasking software.
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The advantages of vapor phase processing over wet processing include
increased chemical purity (due in part to its ability to mix chemical gases
with water vapor at the point of use), reduced chemical and waste disposal
costs, increased processing capabilities and improved integration with cluster
tools. An integrated system of this type provides the necessary environmental
and surface control of the wafer between cleaning and various other process
steps, resulting in reduced contamination and improved yield.
Since introduction in 1987, the Company's Excalibur systems have gone through
multiple enhancements, including the development from a single gas to a
multigas system. These continual enhancements led to the introduction of the
latest version of the system, the Excalibur MVP (Multi-Vapor Processing), in
July 1993. In addition to HF gas, the Excalibur MVP system uses hydrochloric
acid gas for improved metal removal and ozone gas for organic removal, and has
the processing capability to clean the backside of the wafer along with the
front. The Excalibur MVP can be used for the critical cleaning steps in the
integrated circuit production process. Programs are under development to
integrate the Excalibur MVP system with other layering process equipment. The
process development of the Excalibur MVP was funded in part by SEMATECH, an
industry and government consortium.
The Company's Excalibur customers include AT&T Corp. ("AT&T"), Fujitsu,
Hyundai Electronics Industries Co., Ltd. ("Hyundai"), Intel Corporation
("Intel"), Siemens, and TI. The Company has installed approximately 150 vapor
processing systems, many of which contain multiple modules. Systems vary in
price from approximately $150,000 to $800,000 depending on the model, wafer
size, number of process chambers, and related electronic control requirements.
CHEMICAL MANAGEMENT SYSTEMS. The Company's chemical management systems enable
semiconductor device manufacturers to generate certain acids from gases, blend
acids and solvents to desired concentrations, store the acids and solvents in
bulk tanks outside the device fabrication clean room, and deliver programmed
amounts of the acids and solvents to various types of equipment in the clean
room.
Chemical Delivery Systems. The Company offers chemical delivery systems
utilizing pump, pump and pressure, and vacuum pressure designs. The Company's
chemical delivery systems provide semiconductor device manufacturers with
enhanced chemical purity, inventory control, safety, dispensing accuracy, and
bulk chemical purchasing opportunities.
Typically, a chemical delivery system installation involves the delivery,
flow, and purity control of 5 to 10 distinct chemicals. Each chemical requires
its own station operated by a dedicated microprocessor-based controller. These
dedicated controllers are in turn integrated by a host industrial computer to
monitor and control the entire system. Normally, one chemical delivery module
is required for each chemical. However, one module can be used to supply a
chemical to multiple use points within the clean room. Each system installation
requires a degree of customization based on the delivery requirements and
physical layout of the customer's facility. FSI's project management expertise
allows it to perform multiple installations simultaneously, which is a
significant advantage during periods of growth in the number of fabrication
facilities being constructed, upgraded, or expanded. In addition, at the
request of a customer, FSI will over-see and coordinate not only the
installation of the chemical delivery system, but also the entire chemical
distribution system of the fabrication facility, including point-of-use
interface and primary and secondary containment piping.
The Company offers four primary models of chemical delivery systems,
including the ChemFill 500, which provides all the features of a centralized
delivery system in a compact, economical unit. This model can be used as a
cost-effective solution for small volume chemical users or as a local source of
chemicals in large fabrication facilities. The ChemFill 1000 PLC (for
"programmable logic control") offers increased automation to its users,
providing enhanced control, flexibility, and functionality. The VP4500 utilizes
the proprietary ACS vacuum pressure technology to draw chemicals from their
storage and transportation containers into the system and pressure to transfer
the chemicals back to the container, in a recirculation mode, or to points of
use in a dispense mode. The ChemFill 5000, which is also programmable logic
controlled, features redundant flow systems that help increase uptime.
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<PAGE>
Chemical Blending and Mixing Systems. The Company's ChemBlend chemical
blending and mixing systems allow semiconductor device manufacturers to reduce
chemical costs by enabling them to blend a process chemical from concentrate on
site to create the various chemical concentrations required at different points
of use in the clean room.
Chemical Generation Systems. The ChemGen chemical generation systems allow
semiconductor device manufacturers to reduce chemical costs by generating bulk
quantities of certain chemicals by mixing gases with deionized water located at
the facility. These chemicals are then delivered to the various use points in
the semiconductor device manufacturing facility.
Slurry Mixing and Delivery Systems. The Company's slurry mixing and delivery
systems, which utilize proprietary vacuum pressure technology, mix and deliver
slurry which is used in conjunction with chemical mechanical planarization, or
CMP, technology. The Company's P2000 series systems mix and deliver silicon
dioxide slurry, while the P2200M mixes and delivers tungsten slurry.
Chemical management systems customers include AMD, Cypress, DEC, Fujitsu,
Hyundai, Intel, Motorola, NSC, Philips, SGS Thomson, and Tech Semiconductor
Singapore PTE.LTD. The Company has installed chemical management systems in
over 35 fabrication plants worldwide. Typical installations vary in price from
$250,000 to $2,500,000, and certain installations can cost in excess of
$6,000,000.
SPARE PARTS AND SERVICE. The Company sells spare part kits for a number of
its products and individual spare part components for its equipment, primarily
spray processing and to a lesser extent chemical management systems. The
Company often packages product improvements to enable customers to update
previously purchased equipment.
The Company employs customer service and process engineers to assist and
train the Company's customers in performing preventive maintenance and service
on FSI equipment and developing process applications for the equipment. The
Company generally provides a one to two years parts and labor warranty
depending upon the product. The Company also provides in-house service and
maintenance training and process application training for its customers'
personnel on a fee basis. In addition, the Company offers a variety of process,
service, and maintenance programs that may be purchased for a fee. A number of
customers have purchased maintenance contracts whereby the Company's service
employees work full-time at the customer's facility and provide process service
and maintenance support for FSI equipment.
RESEARCH AND DEVELOPMENT
The Company believes that its future success will depend in large part on its
ability to enhance, in collaboration with its customers, its existing product
lines to meet the changing needs of semiconductor device manufacturers. The
Company believes that the trends in the industry, such as utilization of
smaller integrated circuit geometries, increased use of eight inch and larger
wafers, and manufacturers' increased desire for integratable processing
equipment, will make highly automated and integratable systems, including
single wafer processing systems, more important in the manufacturing of
integrated circuits. To assist the Company in its development efforts, the
Company maintains a Technical Advisory Board consisting of industry
professionals. This board meets periodically with FSI management to identify
and review semiconductor device industry trends in advanced technology and
FSI's development activities toward meeting the industry's technology needs. In
addition, individual members of the Technical Advisory Board provide the
Company with on-going technical consultation and support.
The Company's current research and development programs are primarily focused
on the need for cleaner wafer surfaces due to smaller geometries, increased
process control and flexibility through monitoring and software management
systems, robotics automation in the clean room, and integration of the
Company's product offerings with the processing equipment of other suppliers.
Each of these programs involves customer collaboration to ensure proper machine
configuration and process development to meet the industry's requirements.
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<PAGE>
The Company is actively engaged in a number of development and process
enhancement programs regarding the Polaris cluster. Such programs include
testing Polaris clusters with new types of photoresist and new processes
utilizing such resist. The Company also is exploring, with customer
collaboration, further process refinements to its spray processing systems and
conducting basic research on its Orion vacuum-based gas phase (dry) cleaning
systems which may provide increased cleaning capabilities and improved process
integration. The Company's dry cleaning project was funded in part by a $2.0
million research grant from the National Institute of Standards and Technology
over a two-year period that ended February 28, 1995.
The Company maintains an extensive demonstration and process development
laboratory at its headquarters in Minnesota, occupying over 2,500 square feet,
and a 2,000 square foot Class 1 microlithography demonstration and process
development laboratory in Dallas, Texas. The Company's laboratory personnel
work directly with customers in solving process problems, developing new
processes, evaluating new pieces of equipment, and designing new equipment.
Expenditures for research and development, which are expensed as incurred,
during fiscal 1992, 1993, and 1994 and the first nine months of fiscal 1995
were approximately $9,783,000, $11,760,000, $15,743,000, and $17,378,000,
respectively, and represented 20.9%, 15.0%, 16.3%, and 13.7% of sales,
respectively. The Company attempts to supplement its research and development
efforts with third party funding from industry consortiums, government sources,
and customers. During fiscal 1993 and 1994, the Company received commitments
from third parties to fund approximately $1.2 million and $1.3 million,
respectively, of research and development. There was no third party funding
received in fiscal 1992. FSI does not have any product royalty obligations or
other financial commitments to any of the third parties that have provided
grant money to FSI as a result of FSI developing new products or technologies
with the aid of such grant money. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
MARKETING, SALES, AND SUPPORT
The Company markets its products to integrated circuit manufacturers
throughout the world. In North America, the Company markets its products
through direct sales personnel located in five regional sales offices and
through two independent sales representatives. The Company also has several
product and technical specialists devoted to each of the Company's product
lines. These product and technical specialists and the Company's process
engineers work with customers to understand the customer's precise processing
requirements and to configure the appropriate FSI equipment to meet such
requirements. In addition, the sales effort is supported by 188 employees
engaged in sales, service, and marketing support.
International sales, primarily in Europe, Japan, and the Far East, accounted
for approximately 34%, 34%, 33%, and 30% of total sales for fiscal years 1992,
1993, and 1994, and the first nine months of fiscal 1995, respectively. For a
breakdown of total international sales by geographic area, see Note 16 of the
Notes to Consolidated Financial Statements of FSI. The Company owns an
approximately 40% equity interest in Metron Europa, a distributor of the
Company's products which has an extensive distribution organization with
offices in Germany, the United Kingdom, the Netherlands, France, Sweden, Italy,
Israel, and India. The Company owns a 50% equity interest in the three
companies comprising the Metron Asia Group, distributors of the Company's
products in Taiwan, Korea, China, Singapore, and Hong Kong. Fluoroware, Inc., a
manufacturer of plastic injection moldings for the semiconductor device
industry, also owns an approximately 40% and 50% equity interest in Metron
Europa and the Metron Asia Group, respectively. In addition to the Company's
products, the Metron Group also sells products and equipment on behalf of
several other semiconductor equipment and consumables manufacturers, including
Fluoroware, Inc. The significant majority of the Company's international sales
are made to its affiliated distributors for resale to the end users of the
Company's products. However, in some cases the Company may also sell directly
to an international customer, in which case the Company will pay a commission
to one of its affiliated distributors in connection with the sale. When
commissions are taken into account, international sales to the Company's
affiliates are on terms no less favorable to the Company than international
sales by the Company directly to non-affiliates.
32
<PAGE>
See Note 6 of Notes to Consolidated Financial Statements of FSI. Metron Europa
and the Metron Asia Group have entered into an agreement to consolidate with
Transpacific, which markets or distributes the products of certain
semiconductor equipment and consumables manufacturers in portions of the United
States and Europe. If the consolidation occurs, the Company's equity ownership
interest in Metron Europa will be approximately 38%. If consummated, no
assurance can be given that the existing relationships of Transpacific or the
Metron Group with the semiconductor manufacturing equipment and consumables
manufacturers whose products they market or distribute will not be impaired by
the consolidation. Transpacific has received notice that certain of these
existing relationships will be terminated due to the marketing or distribution
by both Transpacific and the Metron Group of similar products manufactured by
competing companies. See "Risk Factors--Reliance on Affiliated International
Distributors" and "Recent Developments--Metron Activities."
The Company owns a 49% equity interest in m.FSI, a Japanese joint venture
company formed in August 1991 with Mitsui, which owns the remaining 51% equity
interest. In connection with its formation, the Company and Mitsui granted
m.FSI certain product and technology licenses and product distribution rights.
m.FSI distributes certain m.FSI and Mitsui products in Japan.
CUSTOMERS
The Company sells products from one or more of its product lines to most
major integrated circuit manufacturers and has over 100 active customers
worldwide. The following table lists the top twenty current customers of the
Company (based upon sales during the last three fiscal years) and the Company's
product lines from which each such customer has made purchases:
<TABLE>
<CAPTION>
MICROLITHOGRAPHY SURFACE CHEMICAL
CLUSTERS CONDITIONING MANAGEMENT
---------------- ------------ ----------
<S> <C> <C> <C>
AMD.............................. X X
AT&T............................. X X
Atmel............................ X
Cypress.......................... X X
DEC.............................. X X
Ericsson......................... X X
Fujitsu.......................... X X
LG Semicon....................... X X
Hyundai.......................... X
Intel............................ X X
IBM.............................. X X
IRC.............................. X
Motorola......................... X X X
NSC.............................. X X X
SGS Thomson...................... X X
Siemens.......................... X
TI............................... X X X
Tower............................ X X
UMC.............................. X
Winbond.......................... X
</TABLE>
Although the composition of the Company's largest customers has changed from
year to year, direct sales to the Company's top five customers in each of
fiscal 1992, 1993, and 1994 have accounted for approximately 45%, 50%, and 46%,
respectively, of the Company's total sales. Direct sales to the Company's top
two customers in each of fiscal 1992, 1993, and 1994 accounted for
approximately 34%, 32%, and 30%, respectively, of the Company's total sales. In
addition, approximately 29% of the Company's backlog at fiscal 1994 year-end
was comprised of orders from two customers. Sales to the Company's affiliated
international distributors in fiscal 1992, 1993, and 1994, which may include
sales of products subsequently resold to the Company's direct customers,
accounted for approximately 33%, 25%, and 26%, respectively, of the Company's
sales. TI accounted for approximately 21% of the Company's sales in fiscal
1994. IBM accounted for approximately 28% and 23% of the Company's sales in
fiscal 1992 and 1993, respectively.
33
<PAGE>
The Company has experienced and expects to continue to experience
fluctuations in its customer mix. The timing of an order for the Company's
equipment is primarily dependent upon the customers expansion program,
replacement needs, or requirements to improve integrated circuit fabrication
productivity and yields. Consequently, a customer who places significant orders
in one year will not necessarily place significant orders in subsequent years.
Certain of the Company's present products require an export license from the
United States Department of Commerce prior to their sale outside the United
States, while other FSI products can be freely exported under a general export
license.
BACKLOG
The Company's backlog at the end of fiscal 1994 and the end of the third
quarter of fiscal 1995 was approximately $77,000,000 and $98,000,000,
respectively. Backlog consists of orders for which a customer purchase order
has been received or a customer purchase order number has been communicated to
the Company and for which shipment dates within the next twelve months have
been assigned. Orders are subject to cancellation by the customer, generally
with a cancellation charge. In fiscal 1993 and 1994, purchase orders
aggregating approximately $1,617,000 and $708,000, constituting 2.1%, and 0.7%
of sales during such fiscal years, respectively, were canceled and not
rescheduled. Because of the timing and relative size of certain orders received
by the Company and possible changes in delivery schedules and cancellations of
orders, the Company's backlog can vary from time to time and at any particular
date is not necessarily indicative of actual sales for any succeeding period.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
MANUFACTURING AND SUPPLIERS
Except with respect to ACS products, the Company typically assembles its
products and systems from components and prefabricated parts manufactured and
supplied by others, such as process controllers, robots, integrated circuits,
power supplies, stainless steel pressure vessels, chamber bowls, valves, and
relays. Certain of the items manufactured by others are made to the Company's
specifications. All final assembly and systems tests are performed within the
Company's manufacturing facilities. Quality control is maintained through
incoming inspection of components, in-process inspection during equipment
assembly, and final inspection and operation of all manufactured equipment
prior to shipment. Currently, ACS products are manufactured for the Company by
contract manufacturers. Company manufacturing engineers routinely monitor
production progress and perform source inspections prior to delivery of
finished ACS products to customers. FSI has a company-wide quality program in
place and received ISO 9001 certification in October 1994 (such certification,
however, does not cover the operations of ACS).
Certain of the components and sub-assemblies included in the Company's
products are obtained from a single supplier or a limited group of suppliers.
Although the Company seeks to reduce dependence on sole and limited source
suppliers, disruption or termination of these sources could have an adverse
effect on the Company's operations. The Company believes that alternative
sources could be obtained and qualified to supply these components, if
necessary. However, a prolonged inability to obtain certain components could
have an adverse effect on the Company's operating results and could result in
damage to customer relationships.
COMPETITION
The semiconductor equipment industry is highly competitive. In each of the
markets it serves, the Company faces intense competition from established
competitors, some of which have substantially greater financial, engineering,
research, development, manufacturing, marketing, service, and support
resources, greater name recognition than the Company, and long-standing
customer relationships. In order to remain competitive, the Company must
maintain a high level of investment in research and development, marketing,
34
<PAGE>
and customer service and support as well as control operating expenses. There
can be no assurance that the Company will have sufficient resources to continue
to make such investments or that the Company's products will continue to be
viewed as competitive as a result of technological advances by competitors or
changes in semiconductor processing technology. The Company's competitors may
also increase their efforts to gain and retain market share through competitive
pricing. Such competitive pressures may necessitate significant price
reductions by the Company or result in lost orders which could adversely affect
the Company's results of operations.
Since 1992, Japanese semiconductor device manufacturers have substantially
reduced their levels of capital spending on new fabrication facilities and
equipment in Japan and elsewhere. This has resulted in reduced sales and
increasing competitive pressures in the Japanese market segment (comprised of
semiconductor device fabrication facilities located in Japan and those located
outside of Japan which are controlled by Japanese companies). As a result,
pricing pressures in both the Japanese market and elsewhere may continue into
the foreseeable future due to Japanese semiconductor equipment manufacturers
offering substantial discounts on their products.
The Company believes that the Japanese companies with which it competes have
a competitive advantage because of their dominance of the Japanese market
segment. Furthermore, Japanese semiconductor device manufacturers have extended
their influence outside Japan by licensing products and process technologies to
non-Japanese semiconductor device manufacturers. Such licenses can result in a
recommendation to use semiconductor device equipment manufactured by Japanese
companies. Therefore, the Company may be at a competitive disadvantage with
respect to the Japanese semiconductor equipment suppliers, who have been
engaged for some time in collaborative efforts with Japanese semiconductor
device manufacturers. Certain Japanese semiconductor equipment manufacturers
have announced plans to begin manufacturing operations in the United States,
which will enable them to compete more effectively in the United States market.
The Japanese market segment is important as it represents a substantial
percentage of the world-wide semiconductor device market. To date, the Company
has not yet established itself as a significant participant in the Japanese
market segment with respect to its Polaris cluster or chemical management
system product lines. As part of the strategy to establish its Japanese
presence, the Company formed a joint venture, m.FSI, in August 1991 with Mitsui
and granted m.FSI certain product and technology licenses and product
distribution rights in Japan. There can be no assurance that the Company will
be able to maintain or increase its sales to the Japanese market segment. A
growing portion of the Company's international sales have been to semiconductor
device manufacturers located in Korea. The Korean market is extremely
competitive and the semiconductor device manufacturers located there have been
very aggressive in seeking price concessions from suppliers. FSI does not
believe that there are any existing government trade restrictions that would
materially limit FSI's ability to compete in the Japanese or Korean markets.
There can be no assurance, however, that imposition of such restrictions in the
future will not adversely affect FSI's ability to compete in these markets.
Significant competitive factors in the semiconductor equipment market include
quality, process repeatability, capability and flexibility, ability to
integrate with other products, and overall cost of ownership, including
reliability, automation, throughput, customer support, and system price. The
Company has experienced significant price competition from certain of its
competitors, primarily those in the microlithography and chemical management
systems markets. Although the Company believes that it has certain
technological and other advantages over its competitors, realizing and
maintaining such advantages will require a continued high level of investment
by the Company in research and development and marketing and customer service
and support as well as controlling operating expenses. There can be no
assurance that the Company will continue to compete successfully in the future.
The Company's competitors differ across its three product lines. The
Company's microlithography clusters compete with products offered by Dainippon
Screen Manufacturing Co. Ltd. ("DNS"), Tokyo
35
<PAGE>
Electron Ltd. ("TEL"), and Silicon Valley Group. The Company competes with DNS,
TEL and also Semitool Inc., Submicron Systems Inc. ("Submicron"), and Santa
Clara Plastics in the area of surface conditioning products. The Company's
chemical management systems compete with products from Systems Chemistry
Incorporated, a subsidiary of Submicron, and a number of chemical supply
companies that also offer chemical management systems.
POLARIS LICENSE AGREEMENT; OTHER INTELLECTUAL PROPERTY
The Polaris cluster is offered by the Company under a license from TI. Under
the license agreement, FSI has the exclusive right to sell and the non-
exclusive right to manufacture the Polaris cluster, except that TI may
manufacture and distribute such system within TI. FSI also has the non-
exclusive right to manufacture and sell related TI modules. TI may modify FSI's
exclusive sales rights to a non-exclusive license if FSI fails to use
reasonable efforts in marketing the Polaris cluster. The license agreement
requires a royalty payment to TI on the equipment manufactured and sold by the
Company pursuant to the license. The royalty to be paid is based on the "net
sales price" of the licensed equipment, as reflected in the final invoice
amount charged by the Company to the customer for such equipment, excluding
amounts for packaging, insurance, freight, service, maintenance, and value-
added tax. When certain aggregate sales amounts are achieved under the license
agreement, FSI has the option of reducing the royalty amount or converting the
license to a fully-paid, non-exclusive license. Based upon current backlog and
expectations regarding future sales, the Company expects such aggregate sales
amounts under the license agreement to be reached in fiscal 1996.
The license agreement continues until terminated. It may be terminated by
either party upon a breach by the other party, and the failure to cure, of
certain terms of the agreement, including payment of royalties when due,
refusal to sell products, and failure to meet quality standards.
The Company holds numerous United States patents and additional patents in
Japan and several European countries and has several United States patent
applications and foreign patent applications pending. However, the Company
believes that patents and trademarks are of less significance in its industry
than such factors as innovative skills, technical expertise, and the ability to
quickly adapt to and deliver new technology to the marketplace. The Company
attempts to protect its proprietary information through non-disclosure
agreements with its key employees. See "Risk Factors--Patents and Other
Intellectual Property."
EMPLOYEES
As of May 27, 1995, the Company had 726 employees, of whom 231 were engaged
in manufacturing, 127 were engaged in customer service, 235 were engaged in
research and development, 61 were engaged in sales and marketing, and 72 held
general and administrative positions. As of such date, the Company also had
over 100 independent contractors working throughout the Company in various
capacities, principally in the areas of manufacturing and engineering. The
Company expects to add approximately 75 new employees and independent
contractors in total by the end of fiscal 1995, primarily in the areas of
manufacturing, engineering, and service.
The Company is not subject to any collective bargaining agreement, has never
been subject to a work stoppage and believes its relations with employees are
good.
REGULATORY PROCEEDINGS
The Company generates minor amounts of liquid and solid hazardous waste and
uses licensed haulers and disposal facilities to ship and dispose of such
waste. The Company has received notice from state or federal enforcement
agencies that it is a potentially responsible party ("PRP") in connection with
the investigation of four hazardous waste disposal sites owned and operated by
third parties where waste generated by FSI has been located. In each matter,
the Company believes that it is at most a "de minimis" PRP. A risk of being
named a PRP is that if any of the other PRPs are unable to contribute their
36
<PAGE>
proportionate share of the liability, if any, associated with the site, those
PRPs that are able could be held financially responsible for the shortfall.
While the ultimate outcome of these matters cannot presently be determined, the
Company does not believe such investigations, either individually or in the
aggregate, will have a material adverse effect on its business, operating
results, or financial condition.
PROPERTIES
The Company's corporate offices, process research laboratory, and
manufacturing facilities are located in Chaska, a suburb of Minneapolis,
Minnesota, in three buildings aggregating approximately 161,600 square feet at
a total rental cost of $1,301,000 in fiscal 1995. The Company also leases
engineering and research and development facilities and sales and service
offices in various locations within the United States, including a 30,000
square foot microlithography research and development facility located in
Dallas, Texas and a 8,500 square foot chemical management facility located in
Hollister, California (the corporate headquarters for ACS).
FSI recently commenced construction of a new 100,000 square foot
manufacturing facility in Chaska. The new facilities will allow expansion of
the current facility in the areas of engineering, administration, and
development. The Company is currently seeking to lease approximately 30,000 to
50,000 square feet of administrative and warehouse space in Chaska, which will
allow the Company to maintain efficient operations until the new facility is
completed. See "Recent Developments--Construction of New Manufacturing
Facility."
The construction of the facility will be subject to risks generally
associated with real estate development, including potential delays caused by,
among other things, the timing of the receipt of required permits,
unavailability and shortages of required materials, and weather-related delays
and unforeseen construction costs. There can be no assurance that the facility
will be completed as currently scheduled or that costs will not be in excess of
those currently expected.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Joel A. Elftmann 55 Chairman of the Board, President, and Chief Executive Officer
Peter A. Pope 44 Executive Vice President, Marketing and Account Management
Benno G. Sand 41 Executive Vice President, Chief Financial Officer, and Secretary
Benjamin J. Sloan 55 Executive Vice President, Microlithography Division
Robert E. Cavins 59 Senior Vice President, Chemical Management Division
Dale A. Courtney 57 Senior Vice President, Surface Conditioning Division
J. Wayne Stewart 44 Vice President, Operations
Timothy D. Krieg 39 Vice President, Quality and Human Resources, and Assistant Secretary
James A. Bernards 48 Director
Neil R. Bonke 53 Director
Terrence W. Glarner 52 Director
Robert E. Lorenzini 58 Director
William M. Marcy 53 Director
Charles R. Wofford 62 Director
</TABLE>
Directors of the Company are elected at the annual shareholder's meeting for
staggered three-year terms and serve until their successors are duly elected
and qualified. See "Description of Capital Stock--Amended and Restated Articles
of Incorporation." Executive officers of the Company are elected annually by
the Board of Directors and serve until their successors are duly elected and
qualified.
Mr. Elftmann is a co-founder of the Company and has served as a Director of
the Company since 1973 and as Chairman of the Board since August 1983. From
August 1983 to August 1989, and from May 1991 until the present, Mr. Elftmann
has also served as Chief Executive Officer of the Company. From 1977 to August
1983, and from May 1991 until the present, Mr. Elftmann has served as President
of the Company. Prior to 1977, Mr. Elftmann was Vice President and General
Manager of the Company. Mr. Elftmann is also Chairman of the Board of Metron
Semiconductors Europa B.V. and is a director of m.FSI Ltd. He has also been a
director of Veeco Instruments, Inc. since May 1994.
Mr. Pope was elected Executive Vice President, Marketing and Account
Management of the Company in January 1992. Mr. Pope served as Senior Vice
President and General Manager, Process Equipment of the Company from November
1989 until January 1992. Mr. Pope served as Vice President, Sales and Service
of the Company from May 1985 to November 1989. From September 1982 to May 1985,
Mr. Pope served as Executive Sales Manager of the Company. Prior thereto, he
was Managing Director of Metron Semiconductors Europa B.V. Mr. Pope also serves
as a director of m.FSI Ltd. and the corporations that comprise the Metron Asia
Group.
Mr. Sand has served as Executive Vice President and Chief Financial Officer
of the Company since January 1992. Mr. Sand served as Vice President, Finance
and Chief Financial Officer of the Company from October 1990 until January
1992. He served as Vice President, Finance of the Company from October 1987
until October 1990. From August 1983 to October 1987, Mr. Sand served as
Corporate Controller of the Company and from November 1982 to August 1983 as
its Financial Accounting Manager. Prior thereto he was employed by the
accounting firm of KMG Main Hurdman as an auditor and consultant. Mr. Sand was
elected Assistant Secretary of the Company in November 1989 and Secretary in
November 1990. Mr. Sand also serves as a director of Metron Semiconductors
Europa B.V.
Dr. Sloan has served as Executive Vice President, Microlithography Division
of the Company since January 1992. Prior thereto, Dr. Sloan was employed by TI
in Dallas, Texas where he served over 24 years in various research and
development capacities, most recently as Vice President of TI's Semiconductor
Group and Manager of the Wafer Fabrication Systems Division of TI's Process
Automation Center. Dr. Sloan is Chairman of the Company's Technical Advisory
Board.
38
<PAGE>
Dr. Cavins has served as Senior Vice President, Chemical Management Division
of the Company since March 1994. He served as Vice President, Chemical
Management Division from January 1993 until March 1994. From 1988 to March
1992, Dr. Cavins served as Senior Vice President of Operations for E.F. Johnson
Company. From March 1992 to July 1992, Dr. Cavins was employed by Itron
Corporation in the capacity of Vice President and General Manager for Enscan
Operations, the energy management division of Itron Corporation. Prior to
joining E.F. Johnson Company, Dr. Cavins served in management positions in
various electronics and engineering capacities at Honeywell Inc. and Control
Data Corporation (now Ceridian Corporation). Dr. Cavins also serves as a
director of FME.
Mr. Courtney has served as Senior Vice President, Surface Conditioning
Division of the Company since March 1994. He served as Vice President, Surface
Conditioning Division of the Company from November 1992 to March 1994. Mr.
Courtney served as Vice President, Engineering of the Company from August 1991
to November 1992. Mr. Courtney served as Director of Engineering of the Company
from September 1990 to August 1991 and as manager of Engineering Software
Development and Automation of the Company from September 1987 to September
1990. Prior to joining the Company, Mr. Courtney was President of D A Courtney
& Associates, Dallas, Texas, specializing in the development of software for
automation and real time process control systems. Mr. Courtney is a director of
m.FSI Ltd.
Mr. Stewart has served as Vice President, Operations since February 1994.
Prior thereto, he was employed by TI in Dallas, Texas where he served over 20
years in various manufacturing and operations management positions, most
recently as Corporate Computer Integrated Manufacturing Director, responsible
for worldwide manufacturing and materials systems. Mr. Stewart was also the
Manufacturing Manager of TI's award winning HARM (High Speed Anti-Radar
Missile) program. Mr. Stewart also serves as a director of FME.
Mr. Krieg has served as Vice President, Quality and Human Resources of the
Company since March 1994 and also served in that capacity from January 1992
until March 1993. Mr. Krieg served as Vice President, Human Resources from
March 1993 until March 1994 and also from October 1987 until January 1992. From
September 1979 to October 1987, he served as Human Resources Manager of the
Company. Mr. Krieg was elected Assistant Secretary of the Company in November
1990.
Mr. Bernards has served as a Director of the Company since July 1981. Since
June 1993, Mr. Bernards has been President of Facilitation Inc., which provides
business and financial consulting services. Mr. Bernards was President of the
accounting firm of Stirtz, Bernards & Company from May 1981 to June 1993. Since
1986, Mr. Bernards has been President of Brightstone Capital, Ltd., a venture
capital fund manager. He is also a director of Health Fitness Physical Therapy
Corporation and Visionics Corporation.
Mr. Bonke has served as a Director of the Company since June 1994. Mr. Bonke
has been Chairman of the Board and Chief Executive Officer of Electroglas,
Inc., a manufacturer of automatic wafer probing equipment for semiconductor
device manufacturers, since April 1993. He was a Group Vice President of
General Signal Corporation and President of General Signal Corporation's
Semiconductor Equipment Operations from September 1991 to July 1993. From 1990
to 1991, he was Chief Operating Officer of Cognex Corporation, a manufacturer
of machine vision systems for the semiconductor and electronics industries, and
from 1987 to 1990 he was President of General Signal Corporation's Xynetics
division, a group of semiconductor equipment manufacturing companies which
included Electroglas, Inc. Mr. Bonke currently serves on the Board of Directors
of SEMI/SEMATECH, the equipment arm of the semiconductor device industry
consortium.
Mr. Glarner has served as a Director of the Company since October 1988. Since
February 1993, Mr. Glarner has been President of West Concord Ventures, Inc., a
venture capital company. From 1982 to February 1993, Mr. Glarner was President
of North Star Ventures, Inc. and North Star Ventures II, Inc. Mr. Glarner is
also a director of Aetrium Incorporated, Cima Labs, Inc., and Datakey, Inc.
Mr. Lorenzini has served as a Director of the Company since November 1986.
Since January 1993, Mr. Lorenzini has been Chairman of SunPower Corporation, a
manufacturer of opto-electronic devices. Since July 1993, he also served as a
Principal in Dalton Partners, a business management company. From October 1988
to January 1993, he served as President and Chief Executive Officer of SunPower
Corporation. From December 1986 to October 1989, Mr. Lorenzini was active in a
number of venture capital investments focused
39
<PAGE>
on high technology companies. Mr. Lorenzini is a founder of Siltec Corporation,
a manufacturer of silicon wafers and processing equipment for the semiconductor
device industry. Mr. Lorenzini was Chairman of the Board and President of
Siltec Corporation from 1969 to December 1986. Mr. Lorenzini is also a director
of KLA Instruments Corporation.
Dr. Marcy has served as a Director of the Company since August 1984 and since
August 1986 has served as a consultant to the Company in the area of software
engineering. Dr. Marcy has served as Associate Dean of Engineering for Research
and Administration at Texas Tech University since March 1995. From September
1987 to March 1995, Dr. Marcy served as Professor of Computer Science and the
Director of Computer Science Programs at Texas Tech University. From June 1983
to August 1987, Dr. Marcy was Professor of Industrial Engineering and the
Director of the Center for Automation and Robotics at Texas Tech University.
Prior to June 1983, Dr. Marcy was Chief Operating Officer of Information
Planning Corporation, a software development and sales company.
Mr. Wofford has served as a Director of the Company since November 1992.
Since April 1994, Mr. Wofford has been a business and management consultant.
From April 1992 to April 1994, he was Chairman of the Board, Chief Executive
Officer, and President of the FARR Company, a manufacturer of clean room
filtration systems and equipment. Mr. Wofford was President and Chief Executive
Officer of the FARR Company from September 1991 to March 1992, and from July
1991 to August 1991 he was President and Chief Operating Officer. From 1958 to
1991, Mr. Wofford held a variety of positions with respect to TI's
semiconductor operations in the United States, Europe, Asia, and Latin America,
including Senior Vice President, Semiconductor Group.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth as of June 1, 1995 (reflecting the Stock
Split) and as adjusted to reflect the sale of shares offered hereby, certain
information regarding beneficial ownership of the Company's Common Stock by:
(i) each person known by the Company to own beneficially 5% or more of the
Company's outstanding shares of Common Stock; (ii) each director of the
Company; (iii) all directors and executive officers of the Company as a group;
and (iv) Mr. Elftmann and the other Selling Shareholders listed below.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) NUMBER OF OFFERING(1)(2)
----------------- SHARES -----------------
DIRECTORS NUMBER PERCENT OFFERED NUMBER PERCENT
- --------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Joel A. Elftmann................ 1,205,706 7.0% 175,000 1,030,706 5.2%
322 Lake Hazeltine Drive
Chaska, Minnesota 55318
James A. Bernards............... 19,334 * -- 19,334 *
Neil R. Bonke................... 10,000 * -- 10,000 *
Terrence W. Glarner............. 12,990 * -- 12,990 *
Robert E. Lorenzini............. 21,334 * -- 21,334 *
William M. Marcy................ 11,334 * -- 11,334 *
Charles R. Wofford.............. 11,334 * -- 11,334 *
<CAPTION>
OTHER SELLING SHAREHOLDERS
- --------------------------
<S> <C> <C> <C> <C> <C>
Benno G. Sand................... 108,628 * 40,000 68,628 *
Robert E. Cavins................ 48,242 * 20,000 28,242 *
Timothy D. Krieg................ 72,340 * 15,000 57,340 *
All directors and executive
officers as a group
(14 persons)................... 1,839,708 10.4 250,000 1,589,708 7.9
</TABLE>
- --------
* Represents beneficial ownership of less than one percent of the outstanding
Common Stock.
(1) Except as otherwise indicated in the footnotes to this table, the listed
beneficial owner has sole voting and investment power with respect to such
shares. Includes shares purchasable within 60 days after June 1, 1995
pursuant to the exercise of options covering 44,000 shares for Mr.
Elftmann, 11,332 shares for each of Messrs. Bernards, Glarner, Lorenzini,
Marcy, and Wofford, 10,000 shares for Mr. Bonke, 96,666 shares for Mr.
Sand, 46,666 shares for Dr. Cavins, 65,666 shares for Mr. Krieg, and
617,664 shares for all directors and executive officers as a group.
(2) Assumes the Underwriters do not exercise their option to purchase up to
412,500 additional shares of Common Stock from the Company to cover over-
allotments.
40
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon effectiveness of the Stock Split, the Amended and Restated Articles of
Incorporation of the Company will authorize the issuance by the Company through
its Board of Directors of 50,000,000 shares of Common Stock, no designated par
value, of which 17,135,782 shares were issued and outstanding as of May 27,
1995 (also reflecting the Stock Split), and 10,000,000 shares of Preferred
Stock, no designated par value, none of which have been issued.
COMMON STOCK
All outstanding shares of the Company's Common Stock are, and the shares of
the Company's Common Stock offered hereby upon completion of this offering will
be, fully paid and nonassessable. Upon any liquidation or dissolution of the
Company, the holders of Common Stock share ratably, in proportion to the number
of shares held, in the assets available for distribution after payment of all
prior claims, including all prior claims of the holders of any Preferred Stock
then outstanding.
Holders of Common Stock have no preemptive rights and are entitled to one
vote for each share held on each matter submitted to a vote of shareholders.
Cumulative voting for the election of directors is not permitted. Subject to
any prior rights of any Preferred Stock then outstanding, holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors of the Company out of funds legally available therefor.
PREFERRED STOCK
The Board of Directors has the authority, in most instances without further
shareholder action, to issue from time to time all or any part of the
authorized Preferred Stock, in one or more series. The Board of Directors is
authorized to determine the designation of and number of shares in each series
and to fix the dividend, redemption, liquidation, retirement, conversion, and
voting rights, if any, of such series, and any other rights and preferences
thereof. Any shares of Preferred Stock which may be issued may have
disproportionately high voting rights or class voting rights, may be
convertible into shares of Common Stock and may rank prior to shares of Common
Stock as to payment of dividends and upon liquidation. The Board of Directors
could authorize the issuance of one or more series of the Preferred Stock with
voting rights or other rights and preferences which would impede the success of
any proposed merger, tender offer, proxy contest, or other attempt to gain
control of the Company not approved by the Board of Directors. Although the
issuance of Preferred Stock may have an adverse effect on the rights of holders
of Common Stock, the consent of the holders of Common Stock would not be
required for any such issuance of Preferred Stock.
AMENDED AND RESTATED ARTICLES OF INCORPORATION
Article IX of the Amended and Restated Articles of Incorporation of the
Company provides for a classified board of not less than five nor more than
eleven directors serving staggered three-year terms. The number of directors
may be increased by the shareholders or the Board of Directors or decreased by
the shareholders; provided, however, that any change in the number of directors
must be approved by the affirmative vote of not less than 75% of the votes
entitled to be cast by the holders of all then outstanding shares of capital
stock of the Company, voting as a single class, unless the change has been
approved by a majority of the entire Board of Directors. A decrease in the
number of directors may not shorten the term of an incumbent director. Removal
of a director from office, with or without cause, requires the affirmative vote
of not less than 75% of the votes entitled to be cast by the holders of all
then outstanding shares of capital stock of the Company, voting as a single
class. Any vacancy on the Board of Directors that results from an increase in
the number of directors may be filled by a majority of the Board of Directors
then in office, and any other vacancy occurring in the Board of Directors may
be filled by a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. Notwithstanding the foregoing,
whenever the holders of any one or more classes of Preferred Stock issued by
the Company has the right, voting
41
<PAGE>
separately by class or series, to elect directors at an annual or special
meeting of shareholders, the election, term of office, filling of vacancies,
and other features of such directorships are governed by or pursuant to the
applicable terms of the rights and preferences of such Preferred Stock
established by the Board of Directors and made a part of the Amended and
Restated Articles of Incorporation, and such directors will not be divided into
classes unless expressly provided by such terms. No person (other than a person
nominated by or on behalf of the Board of Directors) will be eligible for
election as a director at any annual or special meeting of shareholders unless
a written request that his or her name be placed in nomination is received from
a shareholder of record by the Secretary of the Company not less than 60 days
prior to the date fixed for the meeting, together with the written consent of
such person to serve as a director.
Article X of the Amended and Restated Articles of Incorporation of the
Company provides that certain transactions ("business combinations") with
certain beneficial owners of 10% or more of the voting capital stock of the
Company ("interested shareholders") require, in addition to any affirmative
vote required by law, the affirmative vote of not less than 75% of the votes
entitled to be cast by the holders of all then outstanding shares of voting
capital stock of the Company, voting as a single class. Business combinations
include, without limitation, any merger, consolidation, or statutory exchange
of shares of the Company with an interested shareholder; any sale, lease,
pledge, or other disposition to or from an interested shareholder or the
Company of any assets of the Company or the interested shareholder,
respectively, with a value equal to or greater than 10% of the book value of
the consolidated assets of the Company; the adoption of any plan for the
liquidation or dissolution of the Company proposed by or on behalf of an
interested shareholder; and any transaction that has the effect of increasing
the proportionate share of capital stock of the Company beneficially owned by
an interested shareholder. An affirmative vote by the shareholders is not
required to approve a business combination under Article X if the business
combination has been approved by a majority of those directors who were members
of the Board of Directors prior to the time that the interested shareholder
involved in the business combination became an interested shareholder or whose
election or nomination was approved by a majority of such directors
("continuing directors"). An affirmative vote is also not required if the
business combination meets certain conditions specified in Article X,
including, without limitation, that certain minimum consideration be received
in the business combination by holders of capital stock of the Company, that
the interested shareholder not acquire any additional shares of capital stock
of the Company after becoming an interested shareholder (except as approved by
the continuing directors), and that a proxy or information statement describing
the proposed business combination be mailed to all holders of capital stock of
the Company at least 30 days prior to the consummation of the business
combination.
The affirmative vote of the holders of not less than 75% of the votes
entitled to be cast by the holders of all then outstanding shares of capital
stock, voting as a single class, is required to amend or repeal, or adopt any
provisions inconsistent with, Articles IX or X of the Amended and Restated
Articles of Incorporation.
These provisions of the Amended and Restated Articles of Incorporation could
have the effect in certain circumstances of delaying or preventing a change in
control of the Company.
MINNESOTA BUSINESS CORPORATION ACT
Section 302A.673 of the Minnesota Business Corporation Act restricts certain
transactions between the Company and certain shareholders who become the
beneficial holders of 10% or more of the Company's outstanding voting stock
("statutory interested shareholders") unless a majority of the disinterested
directors of the Company has approved, prior to the date on which the statutory
interested shareholders acquire a 10% interest, either the business combination
transaction suggested by such shareholders or the acquisition of shares that
made such shareholders statutory interested shareholders. If such prior
approval is not obtained, the statute imposes a four-year prohibition from the
statutory interested shareholders' share acquisition date on mergers, sales of
substantial assets, loans, substantial issuances of stock, and various other
transactions involving the Company and the statutory interested shareholder or
its affiliates.
42
<PAGE>
In the event of certain tender offers for stock of the Company, Section
302A.675 of the Minnesota Business Corporation Act precludes the tender offeror
from acquiring additional shares of stock (including acquisitions pursuant to
mergers, consolidations or statutory share exchanges) within two years
following the completion of such an offer unless the selling shareholders are
given the opportunity to sell the shares on terms that are substantially
equivalent to those contained in the earlier tender offer. Section 302A.675
does not apply if a committee of the Board of Directors consisting of all of
its disinterested directors (excluding present and former officers of the
corporation) approves the subsequent acquisition before shares are acquired
pursuant to the earlier tender offer.
These statutory provisions could also have the effect in certain
circumstances of delaying or preventing a change in the control of the Company.
TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank acts as the Transfer Agent and Registrar for
the Common Stock of the Company.
43
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, Needham & Company, Inc., Lehman Brothers Inc., and
Montgomery Securities (the "Underwriters"), have severally agreed to purchase
from the Company and the Selling Shareholders, and the Company and the Selling
Shareholders have agreed to sell to each Underwriter, the aggregate number of
shares of Common Stock set forth opposite their respective names in the table
below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Needham & Company, Inc..........................................
Lehman Brothers Inc.............................................
Montgomery Securities...........................................
---------
Total....................................................... 2,750,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the shares of Common Stock are subject to
certain conditions precedent, and that the Underwriters are committed to
purchase and pay for all shares if any shares are purchased.
The Company and the Selling Shareholders have been advised that the
Underwriters propose initially to offer the shares of Common Stock to the
public at the offering price set forth on the cover page of this Prospectus and
to certain dealers (who may include the Underwriters) at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession to certain other dealers (who may
include the Underwriters) not in excess of $ per share. After the initial
offering to the public, the offering price and other selling terms may be
changed by the Underwriters.
The Company has granted an option to the Underwriters, exercisable during the
30-day period after the date of this Prospectus, to purchase up to a maximum of
412,500 shares of Common Stock at the public offering price per share, less the
underwriting discounts and commissions, set forth on the cover page of this
Prospectus. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of the Common Stock offered hereby.
To the extent the Underwriters exercise such option, each of the Underwriters
will be committed, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number of shares of Common
Stock to be purchased by such Underwriter as shown in the above table bears to
the total shown.
In the Underwriting Agreement, the Company and the Selling Shareholders have
agreed to indemnify the Underwriters against certain liabilities that may be
incurred in connection with this offering, including liabilities under the
Securities Act, or to contribute payments that the Underwriters may be required
to make in respect thereof.
The Company, the Selling Shareholders, and the other directors and executive
officers of the Company have agreed that, without the prior consent of Lehman
Brothers Inc., they will not directly or indirectly offer to sell, sell, or
otherwise dispose of shares of Common Stock or any securities convertible or
exchangeable therefor, for a period of 90 days following the date of this
Prospectus, subject to certain limited exceptions. Consent to earlier sale of
such shares may be granted by Lehman Brothers Inc. at its discretion.
From time to time, Needham & Company, Inc. has provided, and may continue to
provide, investment banking services to the Company. Needham & Company, Inc.
acted as financial adviser to the Company in connection with FSI's acquisition
of ACS and received a fee of approximately $125,000. The Underwriters also
served as the underwriters for the Company's public offering in February 1995.
In connection with this offering, certain Underwriters and selling group
members (if any) who are qualifying registered market makers on the Nasdaq
National Market may engage in passive market making
44
<PAGE>
transactions in the Common Stock of the Company on the Nasdaq National Market
in accordance with Rule 10b-6A under the Exchange Act, during the two business
day period before commencement of offers or sales of the Common Stock. The
passive market making transactions must comply with applicable volume and price
limits and be identified as such. In general, a passive market maker may
display its bid at a price not in excess of the highest independent bid for the
security; if all independent bids are lowered below the passive market makers'
bid, however, such bid must then be lowered when certain purchase limits are
exceeded.
LEGAL MATTERS
The validity of the shares of Common Stock offered by this Prospectus is
being passed upon for the Company by Faegre & Benson Professional Limited
Liability Partnership ("Faegre & Benson"), Minneapolis, Minnesota and certain
legal matters are being passed upon for the Underwriters by Dorsey & Whitney
P.L.L.P, Minneapolis, Minnesota. A member of Faegre & Benson owns 6,000 shares
of Common Stock of the Company.
EXPERTS
The consolidated financial statements of the Company as of August 28, 1993
and August 27, 1994 and for each of the fiscal years in the three-year period
ended August 27, 1994 included in the Registration Statement of which this
Prospectus is a part have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, as indicated in their report accompanying such
consolidated financial statements, and are included herein in reliance upon
such report given upon the authority of said firm as experts in accounting and
auditing.
The financial statements of Applied Chemical Solutions as of July 31, 1993
and 1994 and for each of the fiscal years in the two-year period ended July 31,
1994 incorporated by reference in the Registration Statement of which this
Prospectus is a part have been audited by KPMG Peat Marwick LLP, independent
public accountants, as indicated in their report accompanying such financial
statements, and are incorporated by reference herein in reliance upon such
report given upon the authority of said firm as experts in accounting and
auditing. The Report of KPMG Peat Marwick LLP for Applied Chemical Solutions
covering the July 31, 1993 and 1994 financial statements contains an
explanatory paragraph that states that the Company's recurring losses from
operations and net capital deficiency raise substantial doubt about the
entity's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of that
uncertainty.
The consolidated financial statements of Metron Semiconductors Europa B.V. as
of May 31, 1993 and 1994 and for each of the fiscal years in the three year
period ended May 31, 1994 incorporated by reference in the Registration
Statement of which this Prospectus is a part have been audited by KPMG
Accountants N.V., independent public accountants, as indicated in their report
accompanying such consolidated financial statements, and are incorporated
herein in reliance upon such report given upon the authority of said firm as
experts in accounting and auditing.
45
<PAGE>
FSI INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF FSI INTERNATIONAL, INC. AND
SUBSIDIARIES
Independent Auditors' Report............................................. F-2
Consolidated Statements of Operations for the fiscal years ended August
29, 1992, August 28, 1993 and August 27, 1994 and for the nine months
ended May 28, 1994 and May 27, 1995 (unaudited)......................... F-3
Consolidated Balance Sheets as of August 28, 1993 and August 27, 1994 and
May 27, 1995 (unaudited)................................................ F-4
Consolidated Statements of Cash Flows for the fiscal years ended August
29, 1992, August 28, 1993 and August 27, 1994 and for the nine months
ended May 28, 1994 and May 27, 1995 (unaudited)......................... F-5
Consolidated Statements of Stockholders' Equity for the fiscal years
ended August 29, 1992, August 28, 1993 and August 27, 1994 and for the
nine months ended May 27, 1995 (unaudited).............................. F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
FSI International, Inc.:
We have audited the accompanying consolidated balance sheets of FSI
International, Inc. and subsidiaries as of August 28, 1993 and August 27, 1994,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the fiscal years in the three-year period ended August
27, 1994. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FSI
International, Inc. and subsidiaries at August 28, 1993 and August 27, 1994,
and the results of their operations and their cash flows for each of the fiscal
years in the three-year period ended August 27, 1994, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 17, 1994, except as to
the pooling of interests with
ACS (Note 2) and the common
stock split (Note 20), which
are as of June 15, 1995
F-2
<PAGE>
FSI INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS
------------------------------------- -------------------------
AUGUST 29, AUGUST 28, AUGUST 27, MAY 28, MAY 27,
1992 1993 1994 1994 1995
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales (including sales
to affiliates of
$15,264,000,
$19,603,000,
$24,699,000,
$17,701,000 and
$35,638,000,
respectively).......... $46,878,835 $78,432,284 $96,437,653 $68,209,757 $126,414,960
Cost of goods sold...... 28,108,592 49,464,226 55,788,375 39,796,743 72,159,943
----------- ----------- ----------- ----------- ------------
Gross profit.......... 18,770,243 28,968,058 40,649,278 28,413,014 54,255,017
Selling, general and
administrative
expenses............... 11,170,164 14,496,165 19,552,376 13,476,242 24,089,985
Research and development
expenses............... 9,782,979 11,760,306 15,742,894 10,998,898 17,378,245
----------- ----------- ----------- ----------- ------------
Operating income
(loss)............... (2,182,900) 2,711,587 5,354,008 3,937,874 12,786,787
Interest expense........ (464,589) (556,984) (417,521) (402,828) (21,895)
Other income (expense),
net.................... 54,139 (113,909) 163,897 115,492 1,053,197
----------- ----------- ----------- ----------- ------------
Income (loss) before
income taxes......... (2,593,350) 2,040,694 5,100,384 3,650,538 13,818,089
Income tax expense...... 392,000 360,000 1,254,000 847,000 3,799,847
----------- ----------- ----------- ----------- ------------
Income (loss) before
equity in earnings
(loss) of affiliates. (2,985,350) 1,680,694 3,846,384 2,803,538 10,018,242
Equity in earnings
(loss) of affiliates... (372,779) 1,277,261 1,799,750 1,159,900 2,127,402
----------- ----------- ----------- ----------- ------------
Net income (loss)..... $(3,358,129) $ 2,957,955 $ 5,646,134 $ 3,963,438 $ 12,145,644
=========== =========== =========== =========== ============
Net income (loss) per
common share......... $ (.36) $ .28 $ .43 $ .31 $ .76
=========== =========== =========== =========== ============
Weighted average common
shares and common share
equivalents............ 9,274,750 10,557,646 13,222,408 12,968,498 15,916,174
=========== =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
FSI INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 28, AUGUST 27, MAY 27,
1993 1994 1995
----------- ----------- ------------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............... $ 781,661 $10,724,729 $ 38,951,747
Restricted cash......................... 1,370,891 -- --
Trade accounts receivable, less
allowance for doubtful accounts of
$350,000, $525,000 and $1,025,000,
respectively........................... 10,465,012 16,234,940 43,518,142
Trade accounts receivable from
affiliates............................. 3,849,928 5,378,164 7,555,529
Inventories............................. 13,120,190 16,452,665 24,986,505
Deferred income tax benefit............. 1,264,000 1,832,000 2,070,222
Prepaid expenses and other current
assets................................. 1,877,914 4,112,238 6,802,219
----------- ----------- ------------
Total current assets.................. 32,729,596 54,734,736 123,884,364
----------- ----------- ------------
Leasehold improvements and equipment, net. 4,386,190 5,143,244 10,509,680
Investment in affiliates.................. 2,694,949 4,494,699 6,622,101
Deposits and other assets................. 1,159,052 4,622,798 4,914,047
----------- ----------- ------------
$40,969,787 $68,995,477 145,930,192
=========== =========== ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Notes payable to bank................... $ 1,989,497 $ -- --
Current maturities of long-term debt.... 763,365 148,834 45,273
Trade accounts payable.................. 7,683,291 10,968,855 15,604,723
Accrued expenses........................ 6,472,893 8,948,086 13,759,646
Customer deposits....................... 784,147 3,685,948 3,936,387
Deferred revenue........................ 1,615,521 3,204,892 6,160,688
----------- ----------- ------------
Total current liabilities............. 19,308,714 26,956,615 39,506,717
----------- ----------- ------------
Long-term debt, less current maturities... 343,062 33,228 1,933
Deferred income taxes..................... 128,000 -- --
Stockholders' equity:
Preferred stock, no par value;
10,000,000 shares authorized; none
issued and outstanding................. -- -- --
Common stock, no par value; 50,000,000
shares authorized; issued and
outstanding, 9,686,172, 13,166,073, and
17,135,782 shares, respectively........ 13,549,929 28,719,418 80,989,682
Retained earnings....................... 7,640,082 13,286,216 25,431,860
----------- ----------- ------------
Total stockholders' equity............ 21,190,011 42,005,634 106,421,542
Commitments (notes 3 and 18)..............
----------- ----------- ------------
$40,969,787 $68,995,477 $145,930,192
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
FSI INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS
------------------------------------- ------------------------
AUGUST 29, AUGUST 28, AUGUST 27, MAY 28, MAY 27,
1992 1993 1994 1994 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income (loss)..... $(3,358,129) $ 2,957,955 $ 5,646,134 $ 3,963,438 $12,145,644
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization........ 1,934,946 2,783,157 2,647,441 2,019,553 2,106,263
Stock issued for
services............ -- -- 141,376 105,418 65,643
Provision for
deferred income
taxes............... 268,000 (1,136,000) (696,000) -- (238,222)
Equity in (earnings)
loss of affiliates.. 372,779 (1,277,261) (1,799,750) (1,159,900) (2,127,402)
Gain on sale of
equipment........... -- -- (19,254) (19,254) (8,000)
Changes in operating
assets and
liabilities:
Accounts
receivable........ (4,338,926) (880,363) (7,298,164) (7,777,934) (29,460,567)
Inventories........ (5,640,935) 265,257 (3,332,475) (3,587,631) (8,533,840)
Prepaid expenses
and other current
assets............ 803,893 321,460 (2,234,324) (676,799) (2,689,981)
Trade accounts
payable........... 3,550,088 999,624 3,285,564 1,728,063 4,635,868
Accrued expenses... 486,626 2,667,696 2,840,603 635,093 5,545,437
Customer deposits.. 1,500,575 (799,627) 2,901,801 940,238 250,439
Deferred revenue... 866,781 488,763 1,589,371 717,030 2,955,796
Other current
liabilities....... (45,718) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities.......... (3,600,020) 6,390,661 3,672,323 (3,112,685) (15,352,922)
----------- ----------- ----------- ----------- -----------
Investing Activities
Acquisition of
leasehold
improvements and
equipment............ (1,064,877) (2,455,266) (2,716,891) (1,646,592) (7,165,688)
Increase in deposits
and other assets..... (1,259,631) 3,717 (4,151,350) (2,452,077) (598,260)
Proceeds from sale of
equipment............ -- -- 19,254 19,254 8,000
Investment in
affiliates........... (50,000) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used in
investing
activities.......... (2,374,508) (2,451,549) (6,848,987) (4,079,415) (7,755,948)
----------- ----------- ----------- ----------- -----------
Financing Activities
Restricted cash....... (831,596) (539,295) 1,370,891 1,370,891 --
Cash overdraft........ 652,714 (652,714) -- -- --
Principal payments on
long-term debt....... (307,004) (594,051) (924,365) (848,018) (134,856)
Notes payable to bank,
net.................. 4,258,646 (2,269,149) (1,989,497) (1,989,497) --
Net proceeds from
issuance of common
stock................ 816,077 830,514 14,662,703 14,375,562 51,470,744
Additions to long-term
debt obligations..... 1,012,000 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities.......... 5,600,837 (3,224,695) 13,119,732 12,908,938 51,335,888
----------- ----------- ----------- ----------- -----------
Increase (decrease) in
cash and cash
equivalents............ (373,691) 714,417 9,943,068 5,716,838 28,227,018
Cash and cash
equivalents at
beginning of period.... 440,935 67,244 781,661 781,661 10,724,729
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
period................. $ 67,244 $ 781,661 $10,724,729 $ 6,498,499 $38,951,747
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
FSI INTERNATIONAL, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED AUGUST 29, 1992, AUGUST 28, 1993 AND AUGUST 27, 1994
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
NUMBER OF RETAINED
SHARES AMOUNT EARNINGS TOTAL
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balance, August 31, 1991... 8,740,222 $11,746,627 $ 8,040,256 $ 19,786,883
Stock issuance............. 793,380 816,077 -- 816,077
Net loss................... -- -- (3,358,129) (3,358,129)
---------- ----------- ----------- ------------
Balance, August 29, 1992... 9,533,602 12,562,704 4,682,127 17,244,831
Stock issuance............. 504,793 830,685 -- 830,685
Rescission of shares....... (352,223) (171) -- (171)
Tax benefit from stock
options exercised......... -- 156,711 -- 156,711
Net income................. -- -- 2,957,955 2,957,955
---------- ----------- ----------- ------------
Balance, August 28, 1993... 9,686,172 13,549,929 7,640,082 21,190,011
Stock issuance............. 3,479,901 14,804,079 -- 14,804,079
Tax benefit from stock
options exercised......... -- 365,410 -- 365,410
Net income................. -- -- 5,646,134 5,646,134
---------- ----------- ----------- ------------
Balance, August 27, 1994... 13,166,073 28,719,418 13,286,216 42,005,634
Stock issuance (unaudited). 3,969,709 51,536,387 -- 51,536,387
Tax benefit from stock
options exercised......... -- 733,877 -- 733,877
Net income (unaudited)..... -- -- 12,145,644 12,145,644
---------- ----------- ----------- ------------
Balance, May 27, 1995
(unaudited)............... 17,135,782 $80,989,682 $25,431,860 $106,421,542
========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
FSI INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED AUGUST 29, 1992,
AUGUST 28, 1993, AND AUGUST 27, 1994
(INFORMATION AS OF MAY 27, 1995 AND FOR THE
NINE-MONTHS ENDED MAY 28, 1994 AND MAY 27, 1995 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
FSI International, Inc. and its wholly owned subsidiaries, FSI International,
Ltd., a foreign sales corporation (FSC) and Applied Chemical Solutions, Inc.
(collectively, the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation.
Interim Financial Statements (unaudited)
The consolidated condensed financial statements at May 27, 1995 and for the
nine months ended May 28, 1994 and May 27, 1995 are unaudited. In the opinion
of management of the Company, such unaudited financial statements include all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the information set forth therein.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Results for the interim periods are not
necessarily indicative of the results for an entire year.
Revenue Recognition
Revenue related to the majority of the Company's products is recognized upon
shipment, except for newly introduced products and for initial customer
installations, which are recognized upon the successful completion of an
evaluation period. Revenue on chemical management systems for which the Company
has the responsibility of engineering and design work, as well as installation,
is recognized upon successful completion of the projects' phases and
milestones. Losses on such projects are recognized in the period in which it is
determined that it is probable that a loss might be incurred.
Cash and Cash Equivalents
All highly liquid investments purchased with an original maturity of three
months of less are considered to be cash equivalents and are stated at the
lower of cost or market.
Inventories
Inventories are valued at the lower of cost, determined by the first-in,
first-out method, or net realizable value.
Leasehold Improvements and Equipment
Leasehold improvements are carried at cost and amortized over a 3 to 15 year
period or the term of the underlying lease, whichever is shorter. Equipment is
carried at cost and depreciated on a straight-line or declining-balance method
over their estimated economic lives. Principal economic lives for equipment are
1 to 7 years. When assets are retired or disposed of, the cost and accumulated
depreciation thereon is removed from the accounts and gains or losses are
included in other income (expense). Maintenance and repairs are expensed as
incurred; significant renewals and betterments are capitalized.
F-7
<PAGE>
FSI INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Patents and License Fees
Patents and license fees are capitalized and amortized over their estimated
economic or legal lives, whichever is shorter, ranging up to 5 years.
Investment in Affiliates
The Company's investment in affiliated companies consists of a 40% interest
in Metron Semiconductors Europa B.V., a 50% interest in Metron Semiconductors
(Hong Kong) Limited, Metron Semiconductors Far East Limited and Metron
Semiconductors Asia Limited (collectively, Metron Asia Group), and a 49%
interest in m.FSI Ltd. Each investment is accounted for by the equity method.
Summary financial information for Metron Semiconductors Europa B.V., Metron
Asia Group and m.FSI Ltd. are included in note 6.
Capitalized Software Costs
The Company capitalizes computer software production costs once technological
feasibility has been established for the product. The capitalized costs are
amortized generally over periods of two to four years. The Company had
unamortized capitalized software costs of approximately $450,000 and $225,000
at August 28, 1993 and August 27, 1994, respectively. The Company amortized
approximately $40,000, $432,000, and $225,000 in fiscal years 1992, 1993 and
1994, respectively.
Income Taxes
Deferred income taxes are provided in amounts sufficient to give effect to
temporary differences between financial and tax reporting. The Company accounts
for tax credits as reductions of income tax expense in the year in which such
credits are allowable for tax purposes.
Effective August 30, 1992, the Company adopted the asset and liability method
for computing its deferred taxes as specified by FAS 109 "Accounting for Income
Taxes." Under the asset and liability method, deferred taxes are based on the
difference between the financial statement and tax basis of assets and
liabilities and the enacted tax rates that will be in effect when these
differences reverse. There was no material impact on the consolidated financial
statements resulting from the adoption of FAS 109. See note 11 for additional
information related to the Company's implementation of FAS 109.
Product Warranty
The Company, in general, warrants new equipment manufactured by the Company
to the original purchaser to be free from defects in material and workmanship
for up to two years, depending upon the product. Provision is made for the
estimated cost of maintaining product warranties at the time the product is
sold.
Foreign Currency Transactions
The Company enters into forward exchange contracts to reduce the impact of
foreign currency fluctuations on certain sales transactions. Gains and losses
from forward exchange contracts are included in the determination of net income
(loss) in the period in which the revenue from the sale is recognized.
Net Income (Loss) Per Common Share
Net income (loss) per common share is computed based on the weighted average
number of common shares and common share equivalents outstanding during the
year. For purposes of fiscal 1993 and 1994 and
F-8
<PAGE>
FSI INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
for the nine months ended May 28, 1994 and May 27, 1995, all stock options and
stock warrants are reflected in the computation of common share equivalents.
For purposes of fiscal 1992, this computation does not include stock options
and stock warrants as the effect would be antidilutive. For all periods
presented, fully diluted and primary net income (loss) per common share are the
same.
Reclassifications
Certain 1992 and 1993 amounts have been reclassified to conform to the 1994
presentation.
(2) ACQUISITION OF APPLIED CHEMICAL SOLUTIONS
On March 8, 1995, the Company completed its merger with Applied Chemical
Solutions ("ACS"). The Company issued 1,061,472 shares of common stock in
connection with the merger. This transaction was accounted for as a pooling of
interests; therefore, all financial statements have been restated to reflect
the merger. ACS prepared its financial statements using a July 31 fiscal year
end. ACS's fiscal year end has been changed to the last Saturday in August to
conform to the Company's year end. The Company's restated financial statements
for fiscal years 1992, 1993 and 1994 and its interim financial statements
include ACS amounts as of and for the fiscal years ended August 29, 1992,
August 28, 1993 and August 27, 1994, respectively, and as of May 27, 1995 and
for the nine months ended May 28, 1994 and May 27, 1995, respectively.
Sales and net income (loss) included in the Company's consolidated statements
of operations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------------- -------------------------
AUGUST 29, AUGUST 28, AUGUST 27, MAY 28,
1992 1993 1994 1994 MAY 27, 1995
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales
ACS................... $ 0 $ 1,480,245 $ 2,390,082 $ 786,064 $ 6,371,686
FSI................... 46,878,835 76,952,039 94,047,571 67,423,693 120,043,274
----------- ----------- ----------- ----------- ------------
$46,878,835 $78,432,284 $96,437,653 $68,209,757 $126,414,960
=========== =========== =========== =========== ============
Net income (loss):
ACS................... $(2,962,167) $ (231,281) $ (869,617) $ (584,052) $ 151,552
FSI................... (395,962) 3,189,236 6,515,751 4,547,490 11,994,092
----------- ----------- ----------- ----------- ------------
$(3,358,129) $ 2,957,955 $ 5,646,134 $ 3,963,438 $ 12,145,644
=========== =========== =========== =========== ============
</TABLE>
In connection with the merger, approximately $800,000 of merger costs and
expenses were incurred and have been charged to selling, general and
administrative expenses in the Company's third quarter of 1995. The charge
includes professional fees and other direct transaction costs associated with
the merger.
(3) RELATED PARTY TRANSACTIONS AND OTHER LEASE COMMITMENTS
The Company is obligated under operating lease agreements for equipment and
manufacturing and office facilities. Certain of the lease agreements are with
partnerships of which a partner is an officer, director and a major shareholder
of the Company.
The lease for the Company's manufacturing facilities is a lease with such a
partnership (Lake Hazeltine Properties). The agreement provides for base
monthly rentals of $100,917, plus payment of executory costs such as property
taxes, maintenance and insurance.
F-9
<PAGE>
FSI INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In addition, the agreement provides for an annual adjustment of the monthly
rental based upon the percentage increase in the Consumer Price Index (CPI) for
all urban customers; however, such increase shall not exceed 5% per year and is
adjusted every five years to the fair market rental. The Company has guaranteed
$1,000,000 of the underlying obligations of the partnership for these
facilities which total approximately $2,362,000, maturing in monthly
installments of $76,457 through October 1995, at which time the balance of
$1,604,245 is due.
Future minimum lease payments for all leases with noncancellable lease terms
in excess of one year at August 27, 1994 are as follows:
<TABLE>
<CAPTION>
RELATED
PARTY OTHER
LEASE LEASES
---------- ----------
<S> <C> <C>
Fiscal Year Ending August:
1995............................................. $1,301,000 $ 654,795
1996............................................. 291,833 483,239
1997............................................. 90,000 224,502
1998............................................. -- 65,082
1999............................................. -- 15,054
---------- ----------
Total minimum lease payments................... $1,682,833 $1,442,672
========== ==========
</TABLE>
Rental expense for all operating leases consisted of the following:
<TABLE>
<CAPTION>
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
Rent expense for related party leases... $1,219,700 $1,261,300 $1,289,800
Rent expense for other operating leases. 771,200 889,800 763,600
---------- ---------- ----------
$1,990,900 $2,151,100 $2,053,400
========== ========== ==========
</TABLE>
On June 1, 1991, the Company received a Demand Note Payable from Metron
Semiconductors Asia Ltd. At August 28, 1993 and August 27, 1994, there was
$500,000 outstanding against the note. The note bears interest at a rate
approximately 0.75% over prime.
(4) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 28, AUGUST 27, MAY 27,
1993 1994 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Finished products..................... $ 1,572,445 $ 1,675,041 $ 4,213,258
Work in process....................... 3,873,906 5,965,322 6,433,900
Subassemblies......................... 2,288,322 2,195,364 2,767,924
Raw materials and purchased parts..... 5,385,517 6,616,938 11,571,423
----------- ----------- -----------
$13,120,190 $16,452,665 $24,986,505
=========== =========== ===========
</TABLE>
F-10
<PAGE>
FSI INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) LEASEHOLD IMPROVEMENTS AND EQUIPMENT
The components of leasehold improvements and equipment are as follows:
<TABLE>
<CAPTION>
1993 1994
---------- ----------
<S> <C> <C>
Leasehold improvements.............................. $1,999,570 $2,195,030
Office furniture and equipment...................... 5,492,776 7,027,347
Manufacturing equipment............................. 3,252,291 2,903,051
Lab equipment....................................... 5,043,670 4,955,367
Tooling............................................. 475,769 535,277
---------- ----------
16,264,076 17,616,072
Less accumulated depreciation and amortization...... 11,877,886 12,472,828
---------- ----------
$4,386,190 $5,143,244
========== ==========
</TABLE>
Included in equipment are assets under capital leases with a net book value
of $517,000 and $360,000 in 1993 and 1994, respectively.
(6) INVESTMENTS IN AFFILIATES
A summary of assets, liabilities and results of operations for Metron
Semiconductors Europa B.V., the Metron Asia Group and m.FSI Ltd. accounted for
on the equity method is as follows (dollars in thousands):
Metron Semiconductors Europa B.V.:
<TABLE>
<CAPTION>
MAY 31,
-----------------------
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Current assets................................... $17,917 $23,932 $31,637
Noncurrent assets, net........................... 2,894 3,029 2,952
Current liabilities.............................. 15,811 19,521 23,799
Noncurrent liabilities........................... 390 762 539
Minority interest................................ 456 621 1,020
Total stockholders' equity....................... 4,154 6,057 9,231
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY
31,
-------------------------
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Sales.......................................... $45,119 $63,226 $84,097
Net income before minority interest............ 69 2,430 3,947
Minority interest.............................. (17) (266) (413)
Net income..................................... 52 2,164 3,534
</TABLE>
Metron Asia Group:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Current assets................................. $ 3,235 $ 4,760 $ 7,360
Noncurrent assets, net......................... 117 290 197
Current liabilities............................ 4,200 5,631 7,214
Noncurrent liabilities......................... 4 -- --
Total stockholders' (deficit) equity........... (852) (581) 343
<CAPTION>
FISCAL YEARS ENDED JUNE
30,
-------------------------
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Sales.......................................... $10,566 $14,262 $17,964
Net income (loss).............................. (50) 616 913
</TABLE>
F-11
<PAGE>
FSI INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
m.FSI Ltd.:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1992 1993 1994
------ ------ -------
<S> <C> <C> <C>
Current assets................................... $2,106 $4,494 $ 5,748
Noncurrent assets, net........................... 2,246 2,046 1,646
Current liabilities.............................. 2,735 5,669 4,613
Noncurrent liabilities........................... -- 9 19
Total stockholders' equity....................... 1,617 862 2,762
<CAPTION>
FISCAL YEARS ENDED
JUNE 30,
-----------------------
1992 1993 1994
------ ------ -------
<S> <C> <C> <C>
Sales............................................ $1,894 $4,487 $10,027
Net income (loss)................................ (1,883) (928) 1,737
</TABLE>
The Company sold approximately $15,264,000, $19,603,000 and $24,699,000 of
its products to Metron Semiconductors Europa B.V., Metron Asia Group, and m.FSI
Ltd. in fiscal 1992, 1993, and 1994, respectively. In addition, in fiscal years
1993 and 1994, the Company paid the Metron Asia Group a commission for direct
sales to Asian customers of $432,000 and $458,900, respectively. At August 28,
1993 and August 27, 1994, trade accounts receivable from affiliates was
approximately $3,850,000 and $5,378,000, respectively.
(7) DEPOSITS AND OTHER ASSETS
Included in deposits and other assets are net investments in sales type
leases and equipment under operating leases. The components of net investment
in sales type leases are as follows:
<TABLE>
<CAPTION>
1993 1994
---- ----------
<S> <C> <C>
Minimum lease payments receivable........................ $-- $1,488,000
Less:
Unearned revenue....................................... -- 135,016
---- ----------
Total net investments
in sales type leases................................ $-- $1,352,984
==== ==========
</TABLE>
Future minimum lease payments to be received are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ----------
<S> <C>
1995........................................................... $ 595,200
1996........................................................... 595,200
1997........................................................... 297,600
----------
Total future minimum lease payments to be received........... $1,488,000
==========
</TABLE>
Components of investments in equipment under operating leases are as follows:
<TABLE>
<CAPTION>
1993 1994
---- ----------
<S> <C> <C>
Equipment under operating leases......................... $-- $1,997,312
Less accumulated depreciation............................ -- 142,665
---- ----------
Equipment under operating leases, net.................. $-- $1,854,647
==== ==========
</TABLE>
F-12
<PAGE>
FSI INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a schedule of future minimum lease payments under operating
leases:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ----------
<S> <C>
1995........................................................... $ 839,000
1996........................................................... 839,000
1997........................................................... 839,000
1998........................................................... 211,100
----------
$2,728,100
==========
</TABLE>
(8) NOTES PAYABLE TO BANK
Notes payable to bank are summarized as follows:
<TABLE>
<CAPTION>
1993 1994
---------- ----
<S> <C> <C>
Demand note payable....................................... $1,989,497 $--
========== ====
</TABLE>
On March 16, 1994, the Company repaid all outstanding loans under a $7.0
million Accounts Financing Agreement entered into on February 28, 1992 with
Congress Financial Corporation ("Congress") thus satisfying all obligations
owing to Congress and terminated the credit facility. In addition, the Company
had a $3.0 million credit agreement with First Bank National Association
("First Bank") entered into on December 22, 1992. The First Bank credit
facility terminated on December 22, 1993. At December 22, 1993, the Company had
no borrowings outstanding under this credit agreement. The Company elected not
to renew this credit agreement with First Bank.
(9) ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
1993 1994
---------- ----------
<S> <C> <C>
Commissions........................................ $ 403,552 $1,113,865
Income taxes....................................... 668,291 501,781
Salaries........................................... 1,692,738 2,989,010
Pension and profit sharing......................... 493,147 449,600
Estimated product warranty......................... 2,135,297 2,742,671
Product sales incentive commission................. 109,159 64,334
Other.............................................. 970,709 1,086,825
---------- ----------
$6,472,893 $8,948,086
========== ==========
</TABLE>
F-13
<PAGE>
FSI INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1993 1994
--------- --------
<S> <C> <C>
Installment loan due in monthly installments of $27,000 in
principal and interest at prime plus 3% through March 1995
secured by fixed assets................................... $ 485,000 $ --
Installment loan due in monthly installments of $8,604 in
principal and interest at 10% through October 1994--
secured by stock.......................................... 105,595 8,533
Installment loan due in monthly installments of $2,295 in
principal and interest at 10% through February 1995--
secured by stock.......................................... 39,020 11,476
Installment loans on capital leases; interest rates ranging
from 9% to 14.25% through August 1996--secured by
underlying equipment...................................... 346,812 162,053
Other...................................................... 130,000 --
--------- --------
1,106,427 182,062
Less current maturities.................................... 763,365 148,834
--------- --------
$343,062 $ 33,228
========= ========
</TABLE>
Maturities of long-term debt in fiscal 1995 is $148,834 and in fiscal 1996 is
$33,228.
(11) TECHNOLOGY PURCHASE
During fiscal 1994, the Company purchased technology and related assets from
a third party. The total purchase price consisted of $90,000 cash and 35,000
shares of the Company's common stock with a fair value of approximately
$205,600. As of fiscal year-end, the 35,000 shares of common stock were
reserved for issuance on June 16, 1996.
(12) INCOME TAXES
As discussed in note 1, the Company adopted FAS 109 "Accounting for Income
Taxes" effective August 30, 1992. There was no effect on previously stated net
income due to the adoption of FAS 109.
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
1992 1993 1994
-------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal............................... $(41,600) $1,416,000 $1,627,000
State................................. 8,600 80,000 323,000
-------- ---------- ----------
(33,000) 1,496,000 1,950,000
-------- ---------- ----------
Deferred:
Federal............................... 425,000 (1,136,000) (696,000)
State................................. -- -- --
-------- ---------- ----------
425,000 (1,136,000) (696,000)
-------- ---------- ----------
$392,000 $ 360,000 $1,254,000
======== ========== ==========
</TABLE>
In fiscal 1993 and 1994, there was a tax benefit of $156,711 and $365,410,
respectively, credited to stockholders' equity associated with the exercise of
stock options.
F-14
<PAGE>
FSI INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at August 28,
1993 and August 27, 1994 are as follows:
<TABLE>
<CAPTION>
1993 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Estimated product warranty cost................. $ 763,000 $ 976,000
Product obsolescence............................ 562,000 844,000
Inventory capitalization........................ 370,000 341,000
Deferred service contract revenue............... 347,000 179,000
Allowance for doubtful accounts................. 129,000 185,000
Patent and license amortization................. 178,000 265,000
R&D credit carryover............................ 479,000 359,000
AMT credit carryover............................ 154,000 91,000
Foreign tax credit carryover.................... 57,000 --
Other, net...................................... 274,000 470,000
---------- ----------
Total gross deferred tax assets............... 3,313,000 3,710,000
Valuation allowance........................... (1,722,000) (1,460,000)
---------- ----------
Net deferred tax assets..................... 1,591,000 2,250,000
---------- ----------
Deferred tax liabilities:
Accelerated depreciation........................ $ 89,000 (29,000)
Software development............................ 166,000 83,000
Undistributed subsidiary income................. 150,000 150,000
Other, net...................................... 50,000 214,000
---------- ----------
Total gross deferred tax liabilities.......... 455,000 418,000
---------- ----------
Net deferred tax assets..................... $1,136,000 $1,832,000
========== ==========
</TABLE>
The effective tax rate differs from the statutory federal income tax rate as
follows:
<TABLE>
<CAPTION>
1992 1993 1994
----- ----- ----
<S> <C> <C> <C>
Expected federal income tax expense (benefit)........ (34.0)% 34.0% 34.0%
State income taxes, net of federal benefit........... 0.3 (7.2) 2.3
Research activities credit........................... (6.1) (13.2) (8.4)
Loss benefit limitation.............................. 49.2 -- --
Foreign taxes paid................................... 4.2 -- --
Valuation allowance.................................. (2.7) (3.3) (.8)
Undistributed earnings of subsidiary................. -- 5.1 --
Other items, net..................................... 4.2 2.2 (2.5)
----- ----- ----
15.1% 17.6% 24.6%
===== ===== ====
</TABLE>
At August 27, 1994, the Company has federal income tax credit carryforwards
for the alternative minimum tax of $91,000. The Company also has state credit
carryovers of $359,000.
(13) PENSION AND PROFIT SHARING PLANS
The Company has a defined contribution pension plan covering substantially
all employees. Total pension cost for fiscal 1992, 1993 and 1994 was $257,816,
$500,243, $630,657, respectively. There is no past service liability.
F-15
<PAGE>
FSI INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company also has an Employee 401(k) Retirement Plan, which allows for a
discretionary profit sharing contribution, covering eligible employees.
Contributions under the plan are determined by means of a formula or at the
discretion of the Board of Directors. There was no contribution accrued in
fiscal 1992. Contributions accrued for in fiscal years 1993 and 1994 were
$150,000 and $200,000, respectively.
(14) STOCK OPTIONS AND WARRANTS
The Company's Stock Option Plans (the "Option Plans") authorize grants of
options to purchase shares of the Company's common stock to officers, directors
and employees. Under the Option Plans, options become exercisable at a date
determined by the Option Committee. The option prices are fixed by the Option
Committee, and may not be less than the fair market value of the stock at the
time the option is granted. Options expire 10 years after the date granted or
on a prior date as fixed by the Option Committee.
The Company adopted a 1994 Omnibus Stock Plan (the Plan) during fiscal year
1994. The Plan, which was approved by the Company's shareholders, authorizes
stock based awards ("Awards") to purchase up to 1,000,000 shares of the
Company's common stock. Under the Plan, the Plan Committee has the power to
make Awards, to determine when and to whom Awards will be granted, the form of
each Award, the amount of each Award, and any other terms or conditions of each
Award consistent with the Plan.
The Company's Directors Nonstatutory Stock Option Plan (the "Directors Plan")
allows for the granting of options to nonemployee directors. The option price
and terms of the options are determined by the Directors Plan, and the exercise
price of the option may not be less than the fair market value of the stock at
the time the option is granted.
The activity under all plans is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------------
AVAILABLE
ACTIVITY DESCRIPTION FOR GRANT OUTSTANDING PRICE RANGE
-------------------- --------- ----------- --------------
<S> <C> <C> <C>
August 31, 1991.......................... 872,938 1,398,672 $ .94 -$ 3.63
Granted................................ (822,000) 822,000 2.00 - 2.75
Exercised.............................. -- (182,200) .94 - 1.86
Cancelled.............................. 219,060 (395,646) .94 - 3.63
--------- ---------
August 29, 1992.......................... 269,998 1,642,826 .94 - 3.03
Granted................................ (257,558) 257,558 1.87 - 6.21
Exercised.............................. -- (326,564) .94 - 2.75
Cancelled.............................. 44,330 (44,330) .94 - 2.75
--------- ---------
August 28, 1993.......................... 56,770 1,529,490 .94 - 6.21
Additional shares authorized........... 1,000,000 -- --
Granted................................ (354,164) 354,164 6.00 - 7.13
Exercised.............................. -- (216,864) .94 - 3.03
Cancelled.............................. (195,828) (51,162) 1.75 - 7.13
--------- ---------
August 27, 1994........................ 506,778 1,615,628 .94 - 7.13
========= =========
Number of shares exercisable at August
27, 1994................................ 972,076 $ .94 -$ 4.44
=========
</TABLE>
In fiscal 1993, the Company issued a warrant to purchase 100,000 shares of
common stock at an exercise price of $3.75 per share to an unrelated company
providing consulting services. The warrant expires on February 28, 2003.
F-16
<PAGE>
FSI INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(15) EMPLOYEE STOCK PURCHASE PLAN
The Company adopted an employee stock purchase plan (the "Plan") effective
January 1, 1989. The Plan enables employees to contribute up to 6 percent of
their wages toward the purchase of the Company's common stock at 85 percent of
the lower of market value at the beginning of the calendar year or the end of
the calendar year. At August 27, 1994, 461,860 shares are reserved for future
employee purchases of stock under the Plan. On December 31, 1991, 1992 and
1993, 141,232 shares were issued at $1.01 per share, 171,222 shares were issued
at $1.70 per share and 153,436 shares were issued at $3.16 per share,
respectively, under the Plan.
(16) ADDITIONAL SALES INFORMATION
International sales for the years ended 1992, 1993 and 1994 were
approximately 34%, 34% and 33%, respectively, of total sales. (Included in
these percentages and the table below are sales to affiliates. See note 5.)
International sales by geographic area, consisting principally of export sales,
are summarized as follows:
<TABLE>
<CAPTION>
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Asia.................................. $ 8,104,000 $15,021,000 $16,015,000
Europe................................ 7,454,000 11,457,000 14,854,000
Other................................. 431,000 113,000 626,000
----------- ----------- -----------
$15,989,000 $26,591,000 $31,495,000
=========== =========== ===========
</TABLE>
The following summarizes significant customers comprising 10% or more of the
Company's direct customer sales:
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Customer A................................................ 28% 23% --
Customer B................................................ -- -- 21%
</TABLE>
(17) RESEARCH AND DEVELOPMENT AGREEMENTS
The Company has received research and development funding commitments from
third party organizations. Such funds are not anticipated to cover all costs of
the research and development projects involved. The funds received are recorded
as reductions to research and development expenses. There was no third party
funding received in fiscal year 1992. The Company recognized approximately
$1,202,700 and $1,342,100 of third party funding in fiscal year 1993 and 1994,
respectively.
(18) LICENSE AGREEMENT
A product is offered by the Company under a license agreement. Under the
license agreement, the Company has the exclusive right to sell and the non-
exclusive right to manufacture the product, except that the licensor may
manufacture and distribute the product for its own use. The Company also has
the non-exclusive right to manufacture and sell related modules. The licensor
may modify the Company's exclusive sales rights to a non-exclusive license if
the Company fails to use reasonable efforts in marketing the product. The
license agreement requires a royalty payment to the licensor on the equipment
manufactured and sold by the Company pursuant to the license. When certain
aggregate sales amounts are achieved under the license agreement, the Company
has the option of reducing the royalty amount or converting the license to a
fully-paid, non-exclusive license. The license agreement continues until
terminated. It may be terminated by either party upon a breach by the other
party, and the failure to cure, of certain terms of the agreement, including
payment of royalties when due, refusal to sell products, and failure to meet
quality standards.
F-17
<PAGE>
FSI INTERNATIONAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(19) SUPPLEMENTARY CASH FLOW INFORMATION
The Company's non-cash investing and financing activities in fiscal 1992,
1993, and 1994 included $374,493, $117,195 and $0, respectively, for the
purchase of equipment under capital leases. The Company paid interest in fiscal
1992, 1993, and 1994 of $451,878, $586,827, and $442,688, respectively. Income
taxes, net of refunds received were $778,892 in fiscal year 1992, and income
taxes paid in fiscal years 1993 and 1994 were $595,691 and $1,751,000,
respectively. In addition, the Company realized, in fiscal years 1993 and 1994,
a tax benefit from the exercise of stock options in the amount of $156,711 and
$365,410, respectively.
(20) COMMON STOCK
On June 1, 1995, the Board of Directors declared a 2-for-1 Common Stock split
to stockholders of record as of June 13, 1995. All share information and per
share information have been restated to reflect this stock split.
F-18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the offer made in this Prospectus. If given or made, such
information or representation must not be relied upon as having been authorized
by the Company, the Selling Shareholder or any Underwriter. This Prospectus
does not constitute an offer of any securities other than the registered
securities to which it relates or an offer to sell, or a solicitation of an
offer to buy, to any person in any jurisdiction where such offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
the information contained herein is correct as of any time subsequent to the
date hereof.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain
Documents by Reference................................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Recent Developments....................................................... 13
Use of Proceeds........................................................... 15
Price Range of Common Stock and
Dividend Policy.......................................................... 15
Capitalization............................................................ 16
Selected Financial Data................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 23
Management................................................................ 38
Principal and Selling Shareholders........................................ 40
Description of Capital Stock.............................................. 41
Underwriting.............................................................. 44
Legal Matters............................................................. 45
Experts................................................................... 45
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,750,000 SHARES
[LOGO OF
FSI INTERNATIONAL, FSI INTERNATIONAL, INC.
INC. APPEARS HERE]
COMMON STOCK
-----------------
PROSPECTUS
July , 1995
-----------------
NEEDHAM & COMPANY, INC.
LEHMAN BROTHERS
MONTGOMERY SECURITIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14--OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses payable by the Company in connection with the issuance and
distribution of the securities being registered (other than underwriting
expenses and commissions) are as follows:
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 28,150
NASD Filing Fee................................................. 8,663
Nasdaq Listing Fee.............................................. 17,500
Blue Sky Fees and Expenses...................................... 15,000
*Printing Expenses.............................................. 100,000
*Legal Fees and Expenses........................................ 50,000
*Accounting Fees and Expenses................................... 50,000
*Transfer Agent Fees and Expenses............................... 1,500
*Miscellaneous.................................................. 4,187
--------
Total....................................................... $275,000
========
</TABLE>
- --------
* Estimated for purposes of this filing.
ITEM 15--INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 4.01 of the Company's Restated By-Laws provides that the Company
shall indemnify its directors and officers to the full extent required or
permitted by Minnesota Statutes or by other provisions of law. Section 302A.521
of the Minnesota Business Corporation Act provides in substance that, unless
prohibited or limited by its articles of incorporation or bylaws, a corporation
must indemnify an officer or director who is made or threatened to be made a
party to a proceeding by reason of his official capacity against judgments,
penalties, fines, settlements, and reasonable expenses, including attorneys'
fees and disbursements, incurred by such person in connection with the
proceeding, if certain criteria are met. These criteria, all of which must be
met by the person seeking indemnification, are (a) that such person has not
been indemnified by another organization for the same judgments, penalties,
fines, settlements, and expenses; (b) that such person acted in good faith; (c)
that no improper personal benefit was obtained by such person and certain
statutory conflicts of interest provisions have been satisfied, if applicable;
(d) that, in the case of a criminal proceeding, such person had no reasonable
cause to believe that the conduct was unlawful; and (e) that such person acted
in a manner he reasonably believed was in the best interests of the corporation
or, in certain limited circumstances, not opposed to the best interests of the
corporation. The determination as to eligibility for indemnification is made by
the members of the corporation's board of directors or a committee of the board
who are at the time not parties to the proceeding under consideration, by
special legal counsel, by the shareholders who are not parties to the
proceeding, or by a court.
Article VIII of the Company's Amended and Restated Articles of Incorporation
provides that no such director shall be personally liable to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except (i) for any breach of the director's duty of loyalty to the Company or
its shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for dividends,
stock repurchases, and other distributions made in violation of Minnesota law
or for violations of the Minnesota securities laws, (iv) for any transaction
from which the director derived an improper personal benefit, or (v) for any
act or omission occurring prior to the effective date of the provision limiting
such liability in the Company's Articles of Incorporation. This Article does
not affect the availability of equitable remedies, such as an action to enjoin
or rescind a transaction involving a breach of fiduciary duty, although as a
practical matter, equitable relief may not be available. This Article also does
not limit liability of the directors for violations of, or relieve them from
the necessity of complying with, the federal securities laws.
II-1
<PAGE>
Under paragraph 10 of the Underwriting Agreement filed as Exhibit 1.1 hereto,
the Underwriters agree to indemnify, under certain conditions, the Company, its
directors, certain of its officers, and persons who control the Company within
the meaning of the Securities Act of 1933, as amended, against certain
liabilities.
ITEM 16--EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Agreement and Plan of Reorganization dated December 23, 1994 by
and among the Company, ACS Acquisition Corp., Applied Chemical
Solutions, and certain significant shareholders of Applied
Chemical Solutions (1)
3.2 Share Purchase Agreement dated December 14, 1994 by and among
the Company, Metron Semiconductors Europa B.V., Christopher
Springall, Anthony Springall, Roger Springall, David Springall
and Michael Springall(2)
4.1 FSI Corporation Stock Purchase Agreement dated March 20, 1981(3)
4.2 Stock Purchase Agreement dated September 15, 1982(3)
4.3 Common Stock and Common Stock Purchase Warrants Agreement dated
October 15, 1985(4)
4.4 Second Amendment, dated as of January 9, 1989, to Common Stock
and Common Stock Warrant Purchase Agreement dated as of October
15, 1985(4)
4.5 Registration and Preemptive Rights Agreement dated October 15,
1985(4)
5.1 Opinion of Faegre & Benson Professional Limited Liability
Partnership
23.1 Consent of Faegre & Benson Professional Limited Liability
Partnership (included in the opinion filed as Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP--FSI International, Inc.
23.3 Consent of KPMG Peat Marwick LLP--Applied Chemical Solutions
23.4 Consent of KPMG Accountants N.V.--Metron Semiconductors Europa
B.V.
24.1 Powers of Attorney (included as part of the signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
(1) Incorporated by reference to Exhibits to the Report on Form 8-K of the
Company dated January 5, 1995, File No. 0-17276.
(2) Incorporated by reference to Exhibits to the Registration Statement on Form
S-3 of the Company, File No. 33-88250.
(3) Incorporated by reference to Exhibits to the Registration Statement on Form
S-1 of the Company, File No. 33-25035.
(4) Incorporated by reference to Exhibits to the Report on Form 10-K for the
fiscal year ended August 26, 1989, File No. 0-17276.
ITEM 17--UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers, and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person
II-2
<PAGE>
of the Company in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer, or controlling person in connection with
the securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota, on June 15, 1995.
FSI International, Inc.
/s/ Joel A. Elftmann
By___________________________________
Joel A. Elftmann
Chairman, President and
Chief Executive Officer
Each of the undersigned officers and directors of FSI International, Inc.
hereby appoints Joel A. Elftmann, Benno G. Sand and J. Wayne Stewart, and each
of them (with full power to act alone), as attorneys and agents for the
undersigned, with full power of substitution, for and in the name, place, and
stead of the undersigned, to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933 any and all amendments (including
post-effective amendments) and exhibits to this Registration Statement and any
and all applications, instruments, or documents to be filed with the Securities
and Exchange Commission pertaining to the registration of the securities
covered hereby, with full power and authority to do and perform any and all
acts and things whatsoever requisite and necessary or desirable.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Joel A. Elftmann Chairman, President, Chief June 15, 1995
____________________________________ Executive Officer, and
Joel A. Elftmann Director (Principal
Executive Officer)
/s/ Benno G. Sand Executive Vice President, June 15, 1995
____________________________________ Chief Financial Officer,
Benno G. Sand and Secretary (Principal
Financial and Accounting
Officer)
/s/ James A. Bernards Director June 15, 1995
____________________________________
James A. Bernards
/s/ Neil R. Bonke Director June 15, 1995
____________________________________
Neil R. Bonke
/s/ Terrence W. Glarner Director June 15, 1995
____________________________________
Terrence W. Glarner
/s/ Robert E. Lorenzini Director June 15, 1995
____________________________________
Robert E. Lorenzini
/s/ William M. Marcy Director June 15, 1995
____________________________________
William M. Marcy
/s/ Charles R. Wofford Director June 15, 1995
____________________________________
Charles R. Wofford
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
-------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement................................
3.1 Agreement and Plan of Reorganization dated December 23, 1994
by and among the Company, ACS Acquisition Corp., Applied
Chemical Solutions, and certain significant shareholders of
Applied Chemical Solutions (1)
3.2 Share Purchase Agreement dated December 14, 1994 by and among
the Company, Metron Semiconductors Europa B.V., Christopher
Springall, Anthony Springall, Roger Springall, David Springall
and Michael Springall (2)
4.1 FSI Corporation Stock Purchase Agreement dated March 20, 1981
(3)
4.2 Stock Purchase Agreement dated September 15, 1982 (3)
4.3 Common Stock and Common Stock Purchase Warrants Agreement
dated October 15, 1985 (3)
4.4 Second Amendment, dated as of January 9, 1989, to Common Stock
and Common Stock Warrant Purchase Agreement dated as of
October 15, 1985 (4)
4.5 Registration and Preemptive Rights Agreement dated October 15,
1985 (4)
5.1 Opinion of Faegre & Benson Professional Limited Liability
Partnership...................................................
23.1 Consent of Faegre & Benson Professional Limited Liability
Partnership (included in the opinion filed as Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP--FSI International, Inc......
23.3 Consent of KPMG Peat Marwick LLP--Applied Chemical Solutions..
23.4 Consent of KPMG Accountants N.V.--Metron Semiconductors Europa
B.V. .........................................................
24.1 Powers of Attorney (included as part of the signature page)
27.1 Financial Data Schedule.......................................
</TABLE>
- --------
(1) Incorporated by reference to Exhibits to the Report on Form 8-K of the
Company dated January 5, 1995, File No. 0-17276.
(2) Incorporated by reference to Exhibits to the Registration Statement on Form
S-3 of the Company, File No. 33-88250.
(3) Incorporated by reference to Exhibits to the Registration Statement on Form
S-1 of the Company, File No. 33-25035
(4) Incorporated by reference to Exhibits to the Report on Form 10-K for the
fiscal year ended August 26, 1989, File No. 0-17276
<PAGE>
Exhibit 1.1
2,750,000 Shares*
FSI INTERNATIONAL, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
________, 1995
NEEDHAM & COMPANY, INC.
LEHMAN BROTHERS INC.
MONTGOMERY SECURITIES
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
FSI International, Inc., a Minnesota corporation (the "Company"), and
the shareholders of the Company named in Schedule 2 hereto (the "Selling
Shareholders"), propose to sell an aggregate of 2,750,000 shares (the "Firm
Stock") of the Company's Common Stock, of no designated par value (the "Common
Stock"). Of the 2,750,000 shares of the Firm Stock, 2,500,000 are being sold by
the Company and 250,000 by the Selling Shareholders. In addition, the Company
proposes to grant to the Underwriters named in Schedule 1 hereto (the
"Underwriters") an option to purchase up to an additional 412,500 shares of the
Common Stock on the terms and for the purposes set forth in Section 3 (the
"Option Stock"). The Firm Stock and the Option Stock, if purchased, are
hereinafter collectively called the "Stock." This is to confirm the agreement
concerning the purchase of the Stock from the Company and the Selling
Shareholders by the Underwriters.
1. Representations, Warranties and Agreements of the Company. The
Company represents, warrants and agrees that:
(a) A registration statement on Form S-3, and such amendments thereto
as may have been required to the date of this Agreement, with respect to
the Stock has (i) been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), and the rules and regulations (the "Rule and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder, (ii) been
filed with the Commission under the Securities Act and (iii) either become
effective under the Securities Act or, if not effective, a further
amendment to such registration statement, including a form of final
prospectus, necessary to permit such registration statement to become
effective will be filed promptly by the Company with the Commission.
Copies of such registration statement and all amendments thereto have been
delivered by the Company to the Underwriters. As used in this Agreement,
"Effective Time" means the date and the time as of which such registration
statement, or the most recent post-effective amendment thereto, if any, was
declared effective by the Commission; "Effective Date" means the date of
the Effective Time; "Preliminary
__________________________
* Plus an option to purchase up to an additional 412,500 shares to cover
over-allotments.
<PAGE>
Prospectus" means each prospectus included in such registration statement,
or amendments thereof, before it became effective under the Securities Act
and any prospectus filed with the Commission by the Company with the
consent of the Underwriters pursuant to Rule 424(a) of the Rules and
Regulations; "Registration Statement" means such registration statement, as
amended at the Effective Time, including any documents incorporated by
reference therein (other than any statements contained in such incorporated
documents which have been modified or superseded in accordance with the
Rules and Regulations) at such time and all information contained in the
final prospectus filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations in accordance with Section 6 hereof and deemed to be
a part of the registration statement as of the Effective Time pursuant to
paragraph (b) of Rule 430A of the Rules and Regulations; and "Prospectus"
means such final prospectus, as first filed with the Commission pursuant to
paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations or, if no
filing is required under Rule 424(b), the form of final prospectus included
in the Registration Statement at the Effective Time. Reference made herein
to any Preliminary Prospectus or to the Prospectus shall be deemed to refer
to and include any documents incorporated by reference therein pursuant to
Item 12 of Form S-3 under the Securities Act (other than any statements
contained in such incorporated documents which have been modified or
superseded in accordance with the Rules and Regulations), as of the date of
such Preliminary Prospectus or the Prospectus, as the case may be, and any
reference to any amendment or supplement to any Preliminary Prospectus or
the Prospectus shall be deemed to refer to and include any document filed
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
after the date of such Preliminary Prospectus or the Prospectus, as the
case may be, and incorporated by reference in such Preliminary Prospectus
or the Prospectus, as the case may be; and any reference to any amendment
to the Registration Statement shall be deemed to include any annual report
of the Company filed with the Commission pursuant to Section 13(a) or 15(d)
of the Exchange Act after the Effective Time that is incorporated by
reference in the Registration Statement. The Commission has not issued any
order preventing or suspending the use of any Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all material respects to the
requirements of the Securities Act and the Rules and Regulations and do not
and will not, as of the applicable effective date (as to the Registration
Statement and any amendment thereto) and as of the applicable filing date
(as to the Prospectus and any amendment or supplement thereto) contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter specifically
for inclusion therein.
(c) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the
Securities Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and any further documents so filed and
incorporated by reference in the Prospectus, when such documents become
effective or are filed with Commission, as the case may be, will conform in
all material respects to the requirements of the Securities Act or the
Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
-2-
<PAGE>
(d) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation. The Company's only majority-owned subsidiaries (as defined
in Section 17) are FSI International, Ltd. and Applied Chemical Solutions
("ACS" and, together with FSI International, Ltd., the "subsidiaries"), and
each subsidiary has been duly incorporated and is validly existing and in
good standing under the laws of its jurisdiction of incorporation. Each of
the Company and its subsidiaries is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which its
ownership or lease of property or the conduct of its business requires such
qualification and in which the failure to so qualify would have a material
adverse effect upon its consolidated financial position, stockholders'
equity, results of operations or business, and has all power and authority
necessary to own or hold its properties and to conduct the businesses in
which it is engaged and as described in the Registration Statement and
Prospectus.
(e) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and non-
assessable, and the holders thereof are not subject to personal liability
by reason of being such holders (except insofar as Section 302A.557 of the
Minnesota Business Corporation Act may apply to distributions made
subsequent to the date hereof), and such capital stock conforms to the
description thereof contained in the Prospectus; and all of the issued
shares of capital stock of the subsidiaries, and all of the shares of
capital stock of Metron Semiconductors Europa B.V. ("Metron Europe"), FSI
Metron Europe, Ltd. ("FME"), Metron Semiconductors (Hong Kong) Limited,
Metron Semiconductors Far East Limited, Metron Semiconductors Asia Limited
(collectively, the "Metron Companies") and m.FSI Ltd. ("m.FSI") issued to
the Company, have been duly and validly authorized and issued and are fully
paid and non-assessable and (except for directors' qualifying shares) are
owned beneficially and of record by the Company, free and clear of all
liens, encumbrances, equities or claims. Except as described in the
Registration Statement and the Prospectus, there are no options, warrants,
agreements, contracts or other rights in existence to purchase or acquire
from the Company or the subsidiaries any shares of the capital stock of the
Company, its subsidiaries, any Metron Company or m.FSI.
(f) The unissued shares of the Stock to be issued and sold by the
Company to the Underwriters hereunder have been duly and validly authorized
and, when issued and delivered against payment therefor as provided herein,
will be duly and validly issued, fully paid and non-assessable, and the
holders thereof will not be subject to personal liability by reason of
being such holders (except insofar as Section 302A.557 of the Minnesota
Business Corporation Act may apply to distributions made subsequent to the
Delivery Date); and the Stock will conform to the description thereof
contained in the Prospectus.
(g) This Agreement has been duly authorized, executed and delivered by
the Company, and the Company has full power and authority to enter into
this Agreement and to authorize, issue and sell the Stock as contemplated
by this Agreement.
(h) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby will
not conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the
Company or its subsidiaries is a party or by which the Company or its
subsidiaries is bound or to which any of the property or assets of the
Company or its subsidiaries is subject, nor will such actions result in any
violation of the provisions of the charter or bylaws of the Company or its
subsidiaries or any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or its
subsidiaries or any of their
-3-
<PAGE>
properties or assets; and except for the registration of the Stock under
the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Exchange Act
and applicable state or Canadian securities laws in connection with the
purchase and distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or registration with, any
such court or governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby.
(i) As of the Delivery Date there will be no preemptive rights or
other rights to subscribe for or to purchase, or any restriction upon the
voting or transfer of, any shares of Common Stock pursuant to the Company's
charter, bylaws or any agreement or other instrument to which the Company
is a party or by which the Company is bound, or other than agreements
between the Company and certain shareholders of ACS which restrict the
transfer of shares of Common Stock received by such shareholders pursuant
to the Agreement and Plan of Reorganization dated December 23, 1994 (the
"ACS Agreement") among the Company, ACS and certain other parties, copies
of which have been delivered to the Underwriters. There are no contracts,
agreements or understandings between the Company and any person granting
such person the right (other than rights which have been waived or
satisfied) to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement
filed by the Company under the Securities Act.
(j) Except for the issuance and sale to the public of 1,732,500 shares
of Common stock in February 1995 and as otherwise described in the
Prospectus, the Company has not sold or issued any shares of Common Stock
during the six-month period preceding the date of the Prospectus, including
any sales pursuant to Rule 144A under, or Regulations D or S of, the
Securities Act, other than shares issued pursuant to employee benefit
plans, stock options plans or other employee compensation plans or pursuant
to outstanding options, rights or warrants.
(k) Neither the Company nor its subsidiaries has sustained, since the
date of the latest audited financial statements included or incorporated by
reference in the Prospectus, any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in the
Prospectus; and, since such date, there has not been any change in the
capital stock (other than a change in the number of outstanding shares of
Common Stock due to the issuance of shares upon the exercise of outstanding
options or warrants) or short-term or long-term debt of the Company or its
subsidiaries or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs,
management, property, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, taken as a whole,
otherwise than as set forth or contemplated in the Prospectus. None of the
Metron Companies has sustained, since the date of the latest audited
financial statements of the Company included or incorporated by reference
in the Prospectus, any material loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree that might have a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations or business
of the Company and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus; and, since such date, to the best of the
Company's knowledge, there has not been any change in the capital stock or
short-term or long-term debt, or any issuance of securities (including,
without limitation, options, warrants, convertible securities or other
rights to purchase the capital stock) of any Metron Company, or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs, management,
property, financial position, stockholders' equity or results of operations
of the Metron Companies, taken as a whole, that
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<PAGE>
might have a material adverse effect on the consolidated financial
position, stockholders' equity, results of operations or business of the
Company and its subsidiaries, otherwise than as set forth or contemplated
in the Prospectus.
(l) The financial statements of each of the Company, ACS and Metron
Europe (including the related notes and supporting schedules) filed as part
of the Registration Statement or included or incorporated by reference in
the Prospectus comply in all material respects with the requirements of the
Securities Act and present fairly the financial condition and results of
operations of the entities purported to be shown thereby, at the dates and
for the periods indicated, and have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved.
(m) KPMG Peat Marwick LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and who
have delivered the initial letter referred to in Section 9(g) hereof, are
independent public accountants as required by the Securities Act and the
Rules and Regulations.
(n) Except where the failure to comply, lack of possession or
invalidity would not have a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations or business
of the Company and its subsidiaries, (i) each of the Company and its
subsidiaries holds, and is operating in compliance in all respects with,
all franchises, grants, authorizations, licenses, permits, easements,
consents, certificates and orders of any governmental or self-regulatory
body required for the conduct of its business and all such franchises,
grants, authorizations, licenses, permits, easements, consents,
certifications and orders are valid and in full force and effect; and (ii)
each of the Company and its subsidiaries is in compliance in all respects
with all laws, regulations, orders and decrees applicable to it. Except
where the failure to comply, lack of possession or invalidity would not
have a material adverse effect on the consolidated financial position,
stockholders' equity, results of operations or business of the Company and
its subsidiaries, (i) to the best of the Company's knowledge, each Metron
Company holds, and is operating in compliance in all respects with, all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates and orders of any governmental or self-regulatory body
required for the conduct of its business and all such franchises, grants,
authorizations, licenses, permits, easements, consents, certifications and
orders are valid and in full force and effect; and (ii) to the best of the
Company's knowledge, each Metron Company is in compliance in all respects
with all laws, regulations, orders and decrees applicable to it.
(o) The Company and its subsidiaries have good and marketable title to
all property described in the Prospectus and Registration Statement as
being owned by them, in each case free and clear of all liens, claims,
security interests or other encumbrances except such as are described in
the Registration Statement and the Prospectus or which do not materially
affect the value of such property and do not interfere in any material
respect with the use of the property or the conduct of the business of the
Company and its subsidiaries, taken as a whole; and the property held under
lease by the Company and its subsidiaries is held by them under valid,
subsisting and enforceable leases with only such exceptions with respect to
any particular lease as do not interfere in any material respect with the
conduct of the business of the Company or its subsidiaries, taken as a
whole.
(p) The Company together with its subsidiaries owns or possesses all
right, title and interest to, or has duly licensed from third parties, all
patents, patent applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets and rights necessary for the conduct of the
business of the Company and its subsidiaries as currently carried on and as
described in the Registration Statement and Prospectus; except as stated in
the Registration Statement and Prospectus, no
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<PAGE>
name which the Company or its subsidiaries uses and no other aspect of the
business of the Company or its subsidiaries will involve or give rise to
any infringement of, or license or similar fees for, any patents, patent
applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets or other similar rights of others, which
infringement or requirement for the payment of fees would have a material
adverse effect on the consolidated financial position, stockholders'
equity, results of operations or business of the Company and its
subsidiaries, and neither the Company nor its subsidiaries has received any
notice alleging any such infringement or fee which has not been resolved or
disposed of.
(q) The Company and its subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the
conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar businesses
in similar industries.
(r) Except as described in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or its subsidiaries
is a party or of which any property or assets of the Company or its
subsidiaries is the subject which, if determined adversely to the Company
or its subsidiaries, might have a material adverse effect on the
consolidated financial position, stockholders' equity, results of
operations or business of the Company and its subsidiaries; and to the best
of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others. Except
as described in the Prospectus, there are no legal or governmental
proceedings pending to which any Metron Company is a party or of which any
property or assets of any Metron Company is the subject which, if
determined adversely to any Metron Company, might have a material adverse
effect on the consolidated financial position, stockholders' equity,
results of operations or business of the Company and its subsidiaries; and
to the best of the Company's knowledge, no such proceedings are threatened
or contemplated by governmental authorities or threatened by others.
(s) The conditions for use of Form S-3, as set forth in the General
Instructions thereto, have been satisfied.
(t) There are no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have
not been described in the Prospectus or filed as exhibits to the
Registration Statement or incorporated therein by reference as permitted by
the Rules and Regulations.
(u) The Company and its subsidiaries have filed all federal, state,
local and foreign income and franchise tax returns required to be filed
through the date hereof and have paid all taxes due thereon (other than any
which are being contested in good faith), and no tax deficiency has been
determined adversely to the Company or its subsidiaries which has had (nor
does the Company have any knowledge of any tax deficiency which, if
determined adversely to the Company or its subsidiary, might have) a
material adverse effect on the consolidated financial position,
stockholders' equity, results of operations or business of the Company and
its subsidiaries. Except where the failure by a Metron Company to file or
make payment or the determination of a tax deficiency would not have a
material adverse effect on the consolidated financial position,
stockholders' equity, results of operations or business of the Company and
its subsidiaries, to the best of the Company's knowledge, each Metron
Company has filed all federal, state, local and foreign income and
franchise tax returns required to be filed through the date hereof and has
paid all taxes due thereon (other than any which are being contested in
good faith), and no tax deficiency has been determined adversely to any
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Metron Company which has had (nor does the Company have any knowledge of
any tax deficiency).
(v) Since the date as of which information is given in the Prospectus
through the date hereof, and except as may otherwise be disclosed in the
Prospectus, neither the Company nor its subsidiaries has (i) issued or
granted any securities (including, without limitation, any options,
warrants, convertible securities or other rights to purchase capital stock)
other than upon exercise of options granted under the Company's stock
option plans, grants of options to acquire Common Stock made under such
plans in the ordinary course and shares of Common Stock issued under the
Company's employee stock purchase plan in the ordinary course, (ii)
incurred any material liability or obligation, direct or contingent, other
than liabilities and obligations which were incurred in the ordinary course
of business, (iii) entered into any material transaction not in the
ordinary course of business or (iv) declared or paid any dividend on its
capital stock. Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, to the best of the Company's knowledge, none
of the Metron Companies has (i) issued or granted any securities
(including, without limitation, any options, warrants, convertible
securities or other rights to purchase capital stock), (ii) incurred any
material liability or obligation, direct or contingent, other than
liabilities and obligations which were incurred in the ordinary course of
business, (iii) entered into any material transaction not in the ordinary
course of business or (iv) declared or paid any dividend on its capital
stock, in each case that might have a material adverse effect on the
consolidated financial position, stockholders' equity, results of
operations or business of the Company and its subsidiaries.
(w) Neither the Company nor its subsidiaries (i) is in violation of
its charter or bylaws or (ii) is in default in any material respect, and no
event has occurred which, with notice or lapse of time or both, would
constitute such a default, in the due performance or observance of any
term, covenant or condition contained in any material indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which it
is a party or by which it is bound or to which any of its properties or
assets is subject. To the best of the Company's knowledge, no Metron
Company (i) is in violation of its charter or bylaws or (ii) is in default
in any material respect, and no event has occurred which, with notice or
lapse of time or both, would constitute such a default, in the due
performance or observance of any term, covenant or condition contained in
any material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which it is a party or by which it is bound or
to which any of its properties or assets is subject, in each case where
such violation or default might have a material adverse effect on the
consolidated financial position, stockholders' equity, results of
operations or business of the Company and its subsidiaries.
(x) Neither the Company nor its subsidiaries, nor any director,
officer, agent, employee or other person associated with or acting on
behalf of the Company or its subsidiaries, has used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expense
relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(y) There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the Company or its
subsidiaries at, upon or from any of the property now or previously owned
or leased by the Company or its subsidiaries in violation of any applicable
law, ordinance, rule, regulation, order, judgment, decree or permit or
which would require remedial action under any applicable law, ordinance,
rule, regulation, order, judgment, decree or permit, except for any
violation or remedial action which would not have, or could not
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<PAGE>
be reasonably likely to have, singularly or in the aggregate with all such
violations and remedial actions, a material adverse effect on the general
affairs, management, property, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries; there has been
no material spill, discharge, leak, emission, injection, escape, dumping or
release of any kind onto such property or into the environment surrounding
such property of any toxic wastes, medical wastes, solid wastes, hazardous
wastes or hazardous substances due to or caused by the Company or its
subsidiaries or with respect to which the Company or its subsidiary have
knowledge, except for any such spill, discharge, leak, emission, injection,
escape, dumping or release which would not have or would not be reasonably
likely to have, singularly or in the aggregate with all such spills,
discharges, leaks, emissions, injections, escapes, dumpings and releases, a
material adverse effect on the general affairs, management, property,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries; and the terms "hazardous wastes", "toxic
wastes", "hazardous substances" and "medical wastes" shall have the
meanings specified in any applicable local, state, federal and foreign laws
or regulations with respect to environmental protection.
(z) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and
sale of the Stock other than any preliminary prospectus or the Prospectus
or other materials permitted by the Securities Act to be distributed by the
Company.
(aa) Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action designed,
or which might reasonably be expected, to cause or result, under the
Securities Act or otherwise, in, or which has constituted, stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Stock.
(ab) The Company has filed a notification form with the Nasdaq
National Market for the listing of additional shares, and has received
notification that the listing has been approved.
(ac) The Company has complied and will comply with all provisions of
Florida Statutes Section 517.075 (Chapter 92-198, Laws of Florida).
Neither the Company, nor any affiliate thereof, does business with the
government of Cuba or with any person or affiliate located in Cuba.
(ad) Neither the Company nor its subsidiaries is an "investment
company" or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company" within the meaning of such terms
under the Investment Company Act of 1940, as amended, and the rules and
regulations of the Commission thereunder.
2. Representations, Warranties and Agreements of the Selling
Shareholders. Each Selling Shareholder severally represents, warrants and agrees
that:
(a) Such Selling Shareholder has, and immediately prior to the First
Delivery Date (as defined in Section 5 hereof) such Selling Shareholder
will have, good and valid title to the shares of Stock to be sold by such
Selling Shareholder hereunder on such date, free and clear of all liens,
encumbrances, equities or claims; and upon delivery of such shares and
payment therefor pursuant hereto, good and valid title to such shares, free
and clear of all liens, encumbrances, equities or claims, will pass to the
several Underwriters.
(b) Such Selling Shareholder has duly and irrevocably executed and
delivered a power of attorney (the "Power of Attorney" and, together with
all other similar agreements executed by the other Selling Shareholders,
the "Powers of Attorney") appointing Joel A.
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Elftmann, Benno G. Sand and Patricia Hollister and each of them, as
attorney-in-fact (the "Attorneys-in-Fact"), with full power of
substitution, and with full authority (exercisable by any one or more of
them) to execute and deliver this Agreement and to take such other action
as may be necessary or desirable to carry out the provisions hereof on
behalf of such Selling Shareholder.
(c) Such Selling Shareholder has full right, power and authority to
enter into this Agreement and the Power of Attorney, the execution,
delivery and performance of this Agreement and the Power of Attorney by
such Selling Shareholder and the consummation by such Selling Shareholder
of the transactions contemplated hereby will not conflict with or result in
a breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which such Selling Shareholder is a party
or by which such Selling Shareholder is bound or to which any of the
property or assets of such Selling Shareholder is subject, nor will such
actions result in any violation of any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over such Selling Shareholder or the property or assets of such Selling
Shareholder; and, except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations, registrations
or qualifications as may be required under the Exchange Act and applicable
state and Canadian securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any such court
or governmental agency or body is required for the execution, delivery and
performance of this Agreement and the Power of Attorney by such Selling
Shareholder and the consummation by such Selling Shareholder of the
transactions contemplated hereby.
(d) Such Selling Shareholder has no reason to believe that the
representations and warranties of the Company contained in Section 1 hereof
are not materially true and correct, is familiar with the Registration
Statement and the Prospectus (as amended or supplemented) and has no
knowledge of any material fact, condition or information not disclosed in
the Registration Statement, as of the effective date, or the Prospectus (or
any amendment or supplement thereto), as of the applicable filing date,
which has adversely affected or may adversely affect the business of the
Company and is not prompted to sell shares of Common Stock by any
information concerning the Company which is not set forth in the
Registration Statement and the Prospectus.
(e) Such Selling Shareholder has not taken and will not take, directly
or indirectly, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in the stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the shares of the Stock.
3. Purchase of the Stock by the Underwriters. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 2,500,000 shares of
the Firm Stock and each Selling Shareholder hereby agrees to sell the number of
shares of the Firm Stock set opposite such Selling Shareholder's name in
Schedule 2 hereto, severally and not jointly, to the several Underwriters and
each of the Underwriters, severally and not jointly, agrees to purchase the
number of shares of the Firm Stock set opposite that Underwriter's name in
Schedule 1 hereto. Each Underwriter shall be obligated to purchase from the
Company, and from each Selling Shareholder, that number of shares of the Firm
Stock which represents the same proportion of the number of shares of the Firm
Stock to be sold by the Company, and by each Selling Shareholder, as the number
of shares of the Firm Stock set forth opposite the name of such Underwriter in
Schedule 1 represents of the total number of shares of the Firm Stock to be
purchased by all of the Underwriters pursuant to this Agreement. The respective
purchase obligations of the Underwriters with respect to the Firm Stock shall be
rounded among the Underwriters to avoid fractional shares, as the Underwriters
may determine.
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In addition, the Company grants to the Underwriters an option to
purchase up to 412,500 shares of Option Stock. Such option is granted solely
for the purpose of covering over-allotments in the sale of Firm Stock and is
exercisable as provided in Section 5 hereof. Shares of Option Stock shall be
purchased severally for the account of the Underwriters in proportion to the
number of shares of Firm Stock set opposite the name of such Underwriters in
Schedule 1 hereto. The respective purchase obligations of each Underwriter with
respect to the Option Stock shall be adjusted by the Underwriters so that no
Underwriter shall be obligated to purchase Option Stock other than in 100 share
amounts. The price of both the Firm Stock and any Option Stock shall be
$________ per share.
The Company and the Selling Shareholders shall not be obligated to
deliver any of the Stock to be delivered on the First Delivery Date or the
Second Delivery Date (as hereinafter defined), as the case may be, except upon
payment for all the Stock to be purchased on such Delivery Date as provided
herein.
4. Offering of Stock by the Underwriters. Upon authorization by the
Underwriters of the release of the Firm Stock, the several Underwriters propose
to offer the Firm Stock for sale upon the terms and conditions set forth in the
Prospectus.
5. Delivery of and Payment for the Stock. Delivery of and payment
for the Firm Stock shall be made at the offices of Faegre & Benson Professional
Limited Liability Partnership, 2200 Norwest Center, 90 South Seventh Street,
Minneapolis, Minnesota 55402, at 9:00 A.M., Minneapolis time, on the third full
business day following the date of this Agreement if the price of the Firm Stock
hereunder is determined prior to 4:30 P.M. New York City time or on the fourth
full business day following the date of this Agreement if the price of the Firm
Stock hereunder is determined after 4:30 P.M. New York City time, or at such
other date or place as shall be determined by agreement between the Underwriters
and the Company. This date and time are sometimes referred to as the "First
Delivery Date." On the First Delivery Date, the Company and the Selling
Shareholder shall deliver or cause to be delivered certificates representing the
Firm Stock to the Underwriters for the account of each Underwriter against
payment to or upon the order of the Company and the Selling Shareholders of the
purchase price by certified or official bank check or checks payable in New York
Clearing House (next-day) funds. Time shall be of the essence, and delivery at
the time and place specified pursuant to this Agreement is a further condition
of the obligation of each Underwriter hereunder. Upon delivery, the Firm Stock
shall be registered in such names and in such denominations as the Underwriters
shall request in writing not less than two full business days prior to the First
Delivery Date. For the purpose of expediting the checking and packaging of the
certificates for the Firm Stock, the Company and the Selling Shareholders shall
make the certificates representing the Firm Stock available for inspection by
the Underwriters in New York, New York, not later than 2:00 P.M., New York City
time, on the business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of this
Agreement the option granted in Section 3 may be exercised by written notice
being given to the Company by the Underwriters. Such notice shall set forth the
aggregate number of shares of Option Stock as to which the option is being
exercised, the names in which the shares of Option Stock are to be registered,
the denominations in which the shares of Option Stock are to be issued and the
date and time, as determined by the Underwriters, when the shares of Option
Stock are to be delivered; provided, however, that this date and time shall not
be earlier than the First Delivery Date nor earlier than the second business day
after the date on which the option shall have been exercised nor later than the
third business day after the date on which the option shall have been exercised
if such option is exercised prior to 4:30 P.M. New York City time or on the
fourth full business day following the date on which such option shall have been
exercised if such option is exercised after 4:30 P.M. New York City time. The
date and time the shares of Option Stock are delivered are sometimes referred to
as the "Second Delivery Date" and the First Delivery Date and the Second
Delivery Date are sometimes each referred to as a "Delivery Date").
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Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this Section 5
(or at such other place as shall be determined by agreement between the
Underwriters and the Company) at 9:00 A.M., Minneapolis time, on the Second
Delivery Date. On the Second Delivery Date, the Company shall deliver or cause
to be delivered the certificates representing the Option Stock to the
Underwriters for the account of each Underwriter against payment to or upon the
order of the Company of the purchase price by certified or official bank check
or checks payable in New York Clearing House (next-day) funds. Time shall be of
the essence, and delivery at the time and place specified pursuant to this
Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Option Stock shall be registered in such names
and in such denominations as the Underwriters shall request in the aforesaid
written notice. For the purpose of expediting the checking and packaging of the
certificates for the Option Stock, the Company shall make the certificates
representing the Option Stock available for inspection by the Underwriters in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the Second Delivery Date.
6. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the Underwriters
and to file such Prospectus pursuant to Rule 424(b) under the Securities
Act not later than Commission's close of business on the second business
day following the execution and delivery of this Agreement or, if
applicable, such earlier time as may be required by Rule 430A(a)(3) under
the Securities Act; to make no further amendment or any supplement to the
Registration Statement or to the Prospectus prior to the last Delivery Date
except as permitted herein; to advise the Underwriters, promptly after it
receives notice thereof, of the time when any amendment to the Registration
Statement has been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish the
Underwriters with copies thereof; to file promptly all reports and any
definitive proxy or information statements required to be filed by the
Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of the Prospectus and for so
long as the delivery of a prospectus is required in connection with the
offering or sale of the Stock; to advise the Underwriters, promptly after
it receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus, of the suspension of the qualification of the
Stock for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request by
the Commission for the amending or supplementing of the Registration
Statement or the Prospectus or for additional information; and, in the
event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or
suspending any such qualification, to use promptly its best efforts to
obtain its withdrawal;
(b) To furnish promptly to each of the Underwriters and to counsel for
the Underwriters a signed copy of the Registration Statement as originally
filed with the Commission, and each amendment thereto filed with the
Commission, including all consents and exhibits filed therewith;
(c) To deliver promptly to the Underwriters such number of the
following documents as the Underwriters shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with the
Commission and each amendment thereto (in each case excluding exhibits
other than this Agreement and the computation of per share earnings), (ii)
each Preliminary Prospectus, the Prospectus and any amended or supplemented
Prospectus and (iii) any document incorporated by reference in the
Prospectus (excluding exhibits thereto); and, if the delivery of a
prospectus is required at any time after the Effective Time in connection
with the offering or sale of the Stock or any other securities relating
thereto and if at such time any events shall have occurred as a result of
which the Prospectus as then
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amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any
other reason it shall be necessary to amend or supplement the Prospectus or
to file under the Exchange Act any document incorporated by reference in
the Prospectus in order to comply with the Securities Act or the Exchange
Act, to notify the Underwriters and, upon their request, to file such
document and to prepare and furnish without charge to each Underwriter and
to any dealer in securities as many copies as the Underwriters may from
time to time reasonably request of an amended or supplemented Prospectus
which will correct such statement or omission or effect such compliance.
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the Underwriters, be
required by the Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus, any document
incorporated by reference in the Prospectus or any Prospectus pursuant to
Rule 424 of the Rules and Regulations, to furnish a copy thereof to the
Underwriters and counsel for the Underwriters and obtain the consent of the
Underwriters to the filing;
(f) As soon as practicable after the Effective Date, but in any event
not later than 45 days after the end of the first fiscal quarter ending one
year following the Effective Time, to make generally available to the
Company's security holders and to deliver to the Underwriters an earnings
statement of the Company and its subsidiaries (which need not be audited)
complying with Section 11(a) of the Securities Act and the Rules and
Regulations (including, at the option of the Company, Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Underwriters copies of all materials furnished by the
Company to its shareholders and all public reports and all reports and
financial statements furnished by the Company to the principal national
securities exchange upon which the Common Stock may be listed pursuant to
requirements of or agreements with such exchange or to the Commission
pursuant to the Exchange Act or any rule or regulation of the Commission
thereunder;
(h) Promptly from time to time to take such action as the Underwriters
may reasonably request to qualify the Stock for offering and sale under the
securities laws of such jurisdictions as the Underwriters may request and
to comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary to
complete the distribution of the Stock; provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction;
(i) For a period of 90 days from the date of the Prospectus, not to
offer for sale, sell or otherwise dispose of (or enter into any transaction
which is designed to, or could be expected to, result in the disposition by
any person of), directly or indirectly, any shares of Common Stock (other
than the Stock and shares issued pursuant to employee benefit plans, stock
option plans or other employee compensation plans existing on the date
hereof or pursuant to currently outstanding options, warrants or rights),
or sell or grant options, rights or warrants with respect to any shares of
Common Stock (other than the grant of options pursuant to option plans and
other employee benefit plans existing on the date hereof), without the
prior written consent of Lehman Brothers Inc.; and to cause each executive
officer and director of the Company (other than the Selling Shareholders)
to furnish to the Underwriters, prior to the First Delivery
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Date, a letter or letters, in form and substance satisfactory to counsel
for the Underwriters, pursuant to which each such person shall agree not to
offer for sale, sell or otherwise dispose of (or enter into any transaction
which is designed to, or could be expected to, result in the disposition by
any person of), directly or indirectly, any shares of Common Stock for a
period of 90 days from the date of the Prospectus, without the prior
written consent of Lehman Brothers Inc., except for the sale of up to
20,000 shares of Common Stock by each such executive officer and director
in a transaction effected through Lehman Brothers Inc.;
(j) Prior to the Effective Date, to apply for the listing of the Stock
on the Nasdaq National Market and to use its best efforts to complete that
listing, subject only to official notice of issuance, prior to the First
Delivery Date; and
(k) To apply the net proceeds from the sale of the Stock being sold by
the Company as set forth in the Prospectus.
7. Further Agreements of the Selling Shareholders. Each Selling
Shareholder severally agrees:
(a) For a period of 90 days from the date of the Prospectus, not to
offer for sale, sell or otherwise dispose of (or enter into any transaction
which is designed to, or could be expected to, result in the disposition by
any person of), directly or indirectly, any shares of Common Stock (other
than the Stock), without the prior written consent of Lehman Brothers Inc.,
except for the sale of up to 20,000 shares of Common Stock by such Selling
Shareholder in a transaction effected through Lehman Brothers Inc.
(b) That the Stock to be sold by such Selling Shareholder hereunder is
subject to the interests of the Underwriters hereunder, that the
appointment by such Selling Shareholder of the Attorneys-in-Fact by the
Power of Attorney, are to that extent irrevocable, and that the obligations
of such Selling Shareholder hereunder shall not be terminated by operation
of law, whether by the death or incapacity of any such Selling Shareholder,
or by the occurrence of any other event. If such Selling Shareholder
should die or become incapacitated, or if any other such event should occur
before the delivery of the shares of Stock hereunder, certificates
representing the shares of Stock shall be delivered by or on behalf of such
Selling Shareholder in accordance with the terms and conditions of this
Agreement, and actions taken by the Attorneys-in-Fact pursuant to the
Powers of Attorney shall be as valid as if such death, incapacity or other
event had not occurred, regardless of whether or not any of the Attorneys-
in-Fact shall have received notice of such death, incapacity or other
event.
(c) To deliver to the Underwriters prior to the First Delivery Date a
properly completed and executed United States Treasury Department Form W-9.
8. Expenses. The Company agrees to pay (a) the costs incident to
the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation, printing
and filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus or
any document incorporated by reference therein, all as provided in this
Agreement; (d) the costs of producing and distributing this Agreement and any
other related documents in connection with the offering, purchase, sale and
delivery of the stock; (e) the filing fees incident to securing any required
review by the National Association of Securities Dealers, Inc. of the terms of
sale of the Stock; (f) any applicable listing or other fees; (g) the fees and
expenses of qualifying the Stock under the securities laws of the several
jurisdictions as provided in Section 6(h) and of preparing, printing and
distributing a Blue Sky Memorandum (including related fees and expenses of
counsel to the
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Underwriters); and (h) all other costs and expenses incident to the performance
of the obligations of the Company and the Selling Shareholders under this
Agreement; provided that, except as provided in this Section 8 and in Section 13
the Underwriters shall pay their own costs and expenses, including the costs and
expenses of their counsel, any transfer taxes on the Stock which they may sell
and the expenses of advertising any offering of the Stock made by the
Underwriters, and the Selling Shareholders shall pay the fees and expenses of
their counsel and any transfer taxes payable in connection with their respective
sales of Stock to the Underwriters and reimburse the Company for their pro rata
share of the fees and expenses paid by the Company in connection with the
offering of the Stock.
9. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
and the Selling Shareholders contained herein, to the performance by the Company
and the Selling Shareholders of their respective obligations hereunder, and to
each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission in
accordance with Section 6(a); no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued and
no proceeding for that purpose shall have been initiated or threatened by
the Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement or the Prospectus or
otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the Company
on or prior to such Delivery Date that the Registration Statement or the
Prospectus or any amendment or supplement thereto contains an untrue
statement of a fact which, in the opinion of Dorsey & Whitney P.L.L.P.,
counsel for the Underwriters, is material or omits to state a fact which,
in the opinion of such counsel, is material and is required to be stated
therein or is necessary to make the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Stock, the
Registration Statement and the Prospectus, and all other legal matters
regarding the Company and relating to this Agreement and the transactions
contemplated hereby shall be reasonably satisfactory in all material
respects to counsel for the Underwriters, and the Company and the Selling
Shareholders shall have furnished to such counsel all documents and
information that they may reasonably request to enable them to pass upon
such matters.
(d) Faegre & Benson Professional Limited Liability Partnership shall
have furnished to the Underwriters its written opinion, as counsel to the
Company, addressed to the Underwriters and dated such Delivery Date, in
form and substance reasonably satisfactory to the Underwriters, to the
effect that:
(i) Each of the Company and ACS has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
state of incorporation. Each of the Company and ACS has full corporate
power and authority to own its properties and conduct its business as
currently being carried on and as described in the Registration Statement
and Prospectus, and is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which it owns
or leases real property or in which the conduct of its business makes such
qualification necessary and in which the failure to so qualify would have a
material adverse effect upon the consolidated financial position,
stockholders' equity, results of operations or business of the Company and
its subsidiaries.
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(ii) The capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus under the
caption "Description of Capital Stock." All of the issued and outstanding
shares of the Common Stock have been duly authorized and validly issued and
are fully paid and nonassessable, and the holders thereof are not subject
to personal liability by reason of being such holders (except insofar as
Section 302A.557 of the Minnesota Business Corporation Act may apply to
distributions made subsequent to the date hereof). The Stock to be issued
and sold by the Company hereunder has been duly authorized and, when
issued, delivered and paid for in accordance with the terms of this
Agreement, will have been validly issued and will be fully paid and
nonassessable, and the holders thereof will not be subject to personal
liability by reason of being such holders (except insofar as Section
302A.557 of the Minnesota Business Corporation Act may apply to
distributions made subsequent to the date hereof). Except as otherwise
stated in the Registration Statement and Prospectus, there are no
preemptive rights or other rights to subscribe for or to purchase, or any
restriction upon the voting or, except for agreements between the Company
and certain shareholders of ACS as described in Section 1(i) hereof,
transfer of, any shares of Common Stock pursuant to the Company's charter,
bylaws or any agreement or other instrument known to such counsel to which
the Company is a party or by which the Company is bound. To the best of
such counsel's knowledge, neither the filing of the Registration Statement
nor the offering or sale of the Stock contemplated by this Agreement gives
rise to any rights, other than those which have been waived or satisfied,
for or relating to the registration of any shares of Common Stock or other
securities of the Company.
(iii) To the best of such counsel's knowledge, except as
otherwise described in the Registration Statement and Prospectus and except
for directors' qualifying shares, the Company owns of record and
beneficially, free and clear of any security interests, claims, liens,
proxies, equities or other encumbrances, all of the issued and outstanding
shares of capital stock of the subsidiaries. To the best of such counsel's
knowledge, except as described in the Registration Statement and Prospectus
and except for options exercisable for Common Stock granted under the
Company's stock options plans since the date as of which information is
presented therein, there are no options, warrants, agreements, contracts or
other rights in existence to purchase or acquire from the Company any
shares of the capital stock of the Company or its subsidiaries.
(iv) The Registration Statement has become effective under the
Securities Act, the Prospectus has been filed with the Commission pursuant
to the subparagraph of Rule 424(b) of the Rules and Regulations specified
in such opinion and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued
and no proceeding for that purpose has been instituted or, to the knowledge
of such counsel, threatened by the Commission.
(v) The Registration Statement and the Prospectus, and any
amendment thereof or supplement thereto (except for the financial
statements and schedules included therein as to which such counsel need
express no opinion), comply as to form in all material respects with the
requirements of the Securities Act, the Exchange Act, as applicable, and
the applicable rules and regulations of the Commission thereunder; the
documents incorporated by reference in the Registration Statement and
Prospectus, and any amendment thereof and supplement thereto (except for
the financial statements and schedules included therein as to which such
counsel need express no opinion), when they became effective or were filed
with the Commission, as the case may be, complied as to form in all
material respects with the requirements of the Securities Act, the Exchange
Act, as applicable, and the applicable rules and regulations of the
Commission thereunder.
(vi) The descriptions in the Registration Statement and
Prospectus of statutes, legal and governmental proceedings, contracts and
other documents are accurate and
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fairly present the information required to be shown; and such counsel does
not know of any statutes or legal or governmental proceedings required to
be described in the Prospectus that are not described as required, or of
any contracts or documents of a character required to be described in the
Prospectus or filed as an exhibit to the Registration Statement that are
not described or filed as required or incorporated therein by reference as
permitted by the Rules and Regulations.
(vii) The Company has full corporate power and authority to
enter into this Agreement, and this Agreement has been duly authorized,
executed and delivered by the Company; the execution, delivery and
performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any material indenture, mortgage, deed of trust, loan
agreement or other material agreement or instrument filed as an exhibit to
the Registration Statement to which the Company is a party or by which the
Company is bound or to which any of the property or assets of the Company
is subject, nor will such actions result in any violation of the provisions
of the charter or bylaws of the Company or any statute or any order, rule
or regulation, known to such counsel to be applicable to the Company, of
any court or governmental agency or body having jurisdiction over the
Company or any of its properties or assets.
(viii) To the best of such counsel's knowledge, the Company is
not in violation of its charter or bylaws.
(ix) Except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations, registrations
or qualifications as may be required under the Exchange Act and applicable
state and Canadian securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any such court
or governmental agency or body is required for the execution, delivery and
performance of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby.
In rendering such opinion, such counsel may state that its opinion is
limited to matters governed by the Federal laws of the United States of
America and the laws of the State of Minnesota and, in respect of matters
of fact, upon certificates of officers of the Company or its subsidiaries,
provided that such counsel shall furnish copies thereof to the Underwriters
and state that it believes that both the Underwriters and it are justified
in relying upon such certificates. Such counsel shall also have furnished
to the Underwriters a written statement, addressed to the Underwriters and
dated such Delivery Date, in form and substance satisfactory to the
Underwriters, to the effect that (x) such counsel has acted as counsel to
the Company in connection with the preparation of the Registration
Statement and in connection with other matters from time to time, and (y)
based on the foregoing and on the basis of conferences with officers of the
Company, and examination of documents referred to in the Registration
Statement and Prospectus, no facts have come to the attention of such
counsel which lead it to believe that the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto and document
incorporated by reference therein (other than any statement contained in
such incorporated documents which have been modified or superseded in
accordance with the Rules and Regulations), at the time the Registration
Statement became effective and as of such Delivery Date, (I) in the case of
documents filed under the Securities Act with the Commission, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading or (II) in the case of documents filed under the Exchange
Act with the Commission, an untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading;
it being understood that such counsel need express no opinion as to the
financial
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statements or other financial data included in any of the documents
mentioned in this clause. The foregoing opinion and statement may be
qualified by a statement to the effect that such counsel does not assume
any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus except
for the statements made in the Prospectus under the caption "Description of
Capital Stock," insofar as such statements relate to the Stock and concern
legal matters.
(e) Faegre & Benson Professional Limited Liability Partnership shall
have furnished to the Underwriters its written opinion, as counsel to the
Selling Shareholders, addressed to the Underwriters and dated the First
Delivery Date, in form and substance reasonably satisfactory to the
Underwriters, to the effect that:
(i) Each Selling Shareholder has full right, power and authority
to enter into this Agreement and the Power of Attorney; the execution,
delivery and performance of this Agreement by each Selling Shareholders and
the consummation by each Selling Shareholder of the transactions
contemplated hereby will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any statute, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument known to such counsel to which any Selling
Shareholder is a party or by which any Selling Shareholder is bound or to
which any of the property or assets of any Selling Shareholder is subject,
nor will such actions result in any violation of any statute or any order,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over any Selling Shareholder or the
property or assets of any Selling Shareholder; and, except for the
registration of the Stock under the Securities Act and such consents,
approvals, authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state securities laws in
connection with the purchase and distribution of the Stock by the
Underwriters, no consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement by
each Selling Shareholder and the consummation by each Selling Shareholder
of the transactions contemplated hereby;
(ii) This Agreement has been duly executed and delivered by or on
behalf of each Selling Shareholder; and
(iii) Each Selling Shareholder is the sole registered owner of
the Stock to be sold by such Selling Shareholder hereunder. Assuming that
the Underwriters have purchased such Stock in good faith and without notice
of any adverse claim, upon delivery to the Underwriters of such Stock
endorsed to the Underwriters or in blank, the Underwriters will acquire all
of each Selling Shareholder's rights in such Stock, free of any adverse
claims.
In rendering such opinion, such counsel may state that its
opinion is limited to matters governed by the Federal laws of the United
States of America and the laws of the State of Minnesota.
(f) The Underwriters shall have received from Dorsey & Whitney
P.L.L.P., counsel for the Underwriters, such opinion or opinions, dated
such Delivery Date, with respect to the issuance and sale of the Stock, the
Registration Statement, the Prospectus and other related matters as the
Underwriters may reasonably require, and the Company shall have furnished
to such counsel such documents as they reasonably request for the purpose
of enabling them to pass upon such matters.
(g) At the time of execution of this Agreement, the Underwriters shall
have received from KPMG Peat Marwick LLP a letter, in form and substance
satisfactory to the Underwriters, addressed to the Underwriters and dated
the date hereof (i) confirming that
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they are independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01 of Regulation
S-X of the Commission, (ii) stating, as of the date hereof (or, with
respect to matters involving changes or developments since the respective
dates as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior to the date hereof),
the conclusions and findings of such firm with respect to the financial
information and other matters ordinarily covered by accountants' "comfort
letters" to underwriters in connection with registered public offerings.
(h) With respect to the letter of KPMG Peat Marwick LLP referred to in
the preceding paragraph and delivered to the Underwriters concurrently with
the execution of this Agreement (the "initial letter"), the Company shall
have furnished to the Underwriters a letter (the "bring-down letter") of
such accountants, addressed to the Underwriters and dated such Delivery
Date (i) confirming that they are independent public accountants within the
meaning of the Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants under Rule 2-01
of Regulation S-X of the Commission, (ii) stating, as of the date of the
bring-down letter (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more than five
days prior to the date of the bring-down letter), the conclusions and
findings of such firm with respect to the financial information and other
matters covered by the initial letter and (iii) confirming in all material
respects the conclusions and findings set forth in the initial letter.
(i) The Company shall have furnished to the Underwriters a
certificate, dated such Delivery Date, of its Chairman of the Board, its
President or a Vice President and its chief financial officer stating that:
(i) The representations, warranties and agreements of the Company
in Section 1 are true and correct as of such Delivery Date; the Company has
complied with all its agreements contained herein; and the conditions set
forth in Sections 9(a) and 9(l) have been fulfilled; and
(ii) They have carefully examined the Registration Statement and
the Prospectus, and any amendments thereof or supplements thereto and
documents incorporated by reference therein, and in their opinion (A) as of
the Effective Date such documents contained all statements and information
required to be included therein, and neither the Registration Statement nor
the Prospectus, nor any amendment thereof or supplement thereto or document
incorporated by reference therein (other than any statement contained in
such incorporated documents which have been modified or superseded in
accordance with the Rules and Regulations), contained any untrue statement
of a material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not misleading,
(B) since the Effective Date no event has occurred which should have been
set forth in a supplement or amendment to the Registration Statement or the
Prospectus, and (C) except as stated in the Registration Statement and the
Prospectus, there is not pending, or, to the knowledge of the Company,
threatened or contemplated, any action, suit, or proceeding to which the
Company or its subsidiary is a party before or by any court or governmental
agency, authority or body, or any arbitrator which might result in any
material adverse change in the general affairs, management, property,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries, taken as a whole.
(j) Each Selling Shareholder (or one or more Attorneys-in-Fact on
behalf of such Selling Shareholder) shall have furnished to the
Underwriters on the First Delivery Date a certificate, dated the First
Delivery Date, signed by, or on behalf of, such Selling Shareholder (or one
or more Attorneys-in-Fact on behalf of such Selling Shareholder) stating
that the
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representations, warranties and agreements of such Selling Shareholder
contained herein are true and correct as of the First Delivery Date and
that such Selling Shareholder has complied with all agreements contained
herein to be performed by such Selling Shareholder at or prior to the First
Delivery Date.
(k) The Company shall have furnished to the Underwriters such
certificates of officers and opinions of counsel of FSI International,
Ltd., Metron Semiconductors Europa B.V., FSI Metron Europe, Ltd., Metron
Semiconductors (Hong Kong) Limited, Metron Semiconductors Far East
Limited, Metron Semiconductors Asia Limited and m.FSI Ltd. covering such
matters as you shall have reasonably requested.
(l) (i) Neither the Company nor its subsidiaries shall have sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with
its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in the
Prospectus or (ii) since such date there shall not have been any change in
the capital stock (other than a change in the number of outstanding shares
of Common Stock due to the issuance of shares upon the exercise of
outstanding options or warrants) or short-term or long-term debt of the
Company or its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management,
property, financial position, stockholders' equity or results of operations
of the Company and its subsidiaries, taken as a whole, otherwise than as
set forth or contemplated in the Prospectus, the effect of which, in any
such case described in clause (i) or (ii), is, in the judgment of the
Underwriters, so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Stock being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(m) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or
in the over-the-counter market, or trading in any securities of the Company
on any exchange or in the over-the-counter market, shall have been
suspended or minimum prices shall have been established on any such
exchange or such market by the Commission, by such exchange or by any other
regulatory body or governmental authority having jurisdiction, (ii) a
banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have occurred
such a material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment
of a majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the Stock
being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(n) The Nasdaq National Market shall have approved the Stock for
listing, subject only to official notice of issuance.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
10. Indemnification and Contribution.
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(a) The Company shall indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of the
Securities Act, from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof (including, but not
limited to, any loss, claim, damage, liability or action relating to
purchases and sales of Stock), to which that Underwriter or controlling
person may become subject, under the Securities Act or otherwise, insofar
as such loss, claim, damage, liability or action arises out of, or is based
upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus or in any amendment or supplement thereto or (ii) the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading and shall reimburse each Underwriter and each such controlling
person promptly upon demand for any legal or other expenses reasonably
incurred by that Underwriter or controlling person in connection with
investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out
of, or is based upon, any untrue statement or alleged untrue statement or
omission or alleged omission made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any such amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter specifically
for inclusion therein; and provided, further, that the Company shall not be
liable with respect to any Preliminary Prospectus to the extent that any
such loss, claim, damage or liability of such Underwriter results from the
fact that such Underwriter sold Stock to a person to whom there was not
sent or given a copy of the Prospectus (excluding documents incorporated by
reference therein) within the time required by the Securities Act if the
Company had previously furnished a sufficient number of copies thereof to
such Underwriter in accordance with Section 6(c) hereof and the loss,
claim, damage or liability of such Underwriter results from an untrue
statement or omission of a material fact contained in the Preliminary
Prospectus which was corrected in the Prospectus. The foregoing indemnity
agreement is in addition to any liability which the Company may otherwise
have to any Underwriter or to any controlling person of that Underwriter.
(b) Each Selling Shareholder shall severally indemnify and hold
harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any action in
respect thereof (including, but not limited to, any loss, claim, damage,
liability or action relating to purchases and sales of Stock), to which
that Underwriter or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability
or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any
amendment or supplement thereto or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and shall reimburse each
Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by that Underwriter or controlling person in
connection with investigating or defending or preparing to defend against
any such loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that such Selling Shareholder shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement
or alleged untrue statement or omission or alleged omission made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or in
any such amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by or on behalf of any
Underwriter specifically for inclusion therein; provided, further, that in
no event shall such Selling Shareholder be liable under this Section 10 for
an amount in excess of the net proceeds received by such Selling
Shareholder from the sale of the Stock sold by such Selling Shareholder
hereunder; and provided, further, that such Selling
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Shareholder shall not be liable with respect to any Preliminary Prospectus
to the extent that any such loss, claim, damage or liability of such
Underwriter results from the fact that such Underwriter sold Stock to a
person to whom there was not sent or given a copy of the Prospectus
(excluding documents incorporated by reference therein) within the time
required by the Securities Act if the Company had previously furnished a
sufficient number of copies thereof to such Underwriter in accordance with
Section 6(c) hereof and the loss, claim, damage or liability of such
Underwriter results from an untrue statement or omission of a material fact
contained in the Preliminary Prospectus which was corrected in the
Prospectus. The foregoing indemnity agreement is in addition to any
liability which such Selling Shareholder may otherwise have to any
Underwriter or any controlling person of that Underwriter.
(c) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, each person, if any, who controls the
Company within the meaning of the Securities Act and each Selling
Shareholder, from and against any loss, claim, damage or liability, joint
or several, or any action in respect thereof, to which the Company, any
such director, officer or controlling person or the Selling Shareholder may
become subject, under the Securities Act or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto or (ii) the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but in
each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of that Underwriter specifically for inclusion therein, and shall
reimburse the Company, any such director, officer or controlling person and
each Selling Shareholder for any legal or other expenses reasonably
incurred by the Company, any such director, officer or controlling person
or any such Selling Shareholder in connection with investigating or
defending or preparing to defend against any such loss, claim, damage,
liability or action as such expenses are incurred. The foregoing indemnity
agreement is in addition to any liability which any Underwriter may
otherwise have to the Company, any such director, officer or controlling
person or any Selling Shareholder.
(d) Promptly after receipt by an indemnified party under this Section
10 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under this Section 10, notify the
indemnifying party in writing of the claim or the commencement of that
action; provided, however, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have under this
Section 10 except to the extent it has been materially prejudiced by such
failure and, provided further, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have to an
indemnified party otherwise than under this Section 10. If any such claim
or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly
with any other similarly notified indemnifying party, to assume the defense
thereof with counsel reasonably satisfactory to the indemnified party.
After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying
party shall not be liable to the indemnified party under this Section 10
for any legal or other expenses subsequently incurred by the indemnified
party in connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party,
or the indemnified and indemnifying parties may
-21-
<PAGE>
have conflicting interests which would make it inappropriate for the same
counsel to represent both of them, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defense and
otherwise to participate in the defense of such action on behalf of such
indemnified party or parties, and in that event the fees and expenses of
such separate counsel shall be paid by the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties (which consent shall not be unreasonably withheld),
settle or compromise or consent to the entry of any judgment with respect
to any pending or threatened claim, action, suit or proceeding in respect
of which indemnification or contribution may be sought hereunder (whether
or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising
out of such claim, action, suit or proceeding. An indemnified party will
not, without the prior written consent of the indemnifying party (which
consent shall not be unreasonably withheld), settle or compromise any such
action, but if settled with the consent of the indemnifying party or if
there be a final judgment of the plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless any indemnified
party from and against any loss or liability by reason of such settlement
or judgment.
(e) If the indemnification provided for in this Section 10 shall for
any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 10(a), 10(b) or 10(c) in respect of any
loss, claim, damage or liability, or any action in respect thereof,
referred to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim, damage
or liability, or action in respect thereof, (i) in such proportion as shall
be appropriate to reflect the relative benefits received by the Company and
the Selling Shareholders on the one hand and the Underwriters on the other
from the offering of the Stock or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company and the Selling
Shareholders on the one hand and the Underwriters on the other with respect
to the statements or omissions which resulted in such loss, claim, damage
or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company
and the Selling Shareholders on the one hand and the Underwriters on the
other with respect to such offering shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Stock
purchased under this Agreement (before deducting expenses) received by the
Company and the Selling Shareholders on the one hand, and the total
underwriting discounts and commissions received by the Underwriters with
respect to the shares of the Stock purchased under this Agreement on the
other hand, bear to the total gross proceeds from the offering of the
shares of the Stock under this Agreement, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Shareholders or
the Underwriters, the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The Company, the Selling Shareholders and the Underwriters
agree that it would not be just and equitable if contributions pursuant to
this Section 10(e) were to be determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an
indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section shall be
deemed to include, for purposes of this Section 10(e), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 10(e), (i) no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which
-22-
<PAGE>
the Stock underwritten by it and distributed to the public was offered to
the public exceeds the amount of any damages which such Underwriter has
otherwise paid or become liable to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission and (ii) no Selling
Shareholder shall be required to contribute any amount in excess of the
amount by which the net proceeds received by such Selling Shareholder from
the sale of the Stock sold by such Selling Shareholder hereunder exceeds
the amount of any damages which such Selling Shareholder has otherwise paid
or become liable to pay under this Section 10. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute as provided in this Section 11(e) are several in
proportion to their respective underwriting obligations and not joint.
(f) The Underwriters severally confirm that the statements with
respect to the public offering of the Stock set forth on the cover page of,
and under the caption "Underwriting" in, the Prospectus are correct and
constitute the only information furnished in writing to the Company by or
on behalf of the Underwriters specifically for inclusion in the
Registration Statement and the Prospectus.
11. Defaulting Underwriters.
If, on either Delivery Date, any Underwriter defaults in the
performance of its obligations under this Agreement, the remaining non-
defaulting Underwriters shall be obligated to purchase the Stock which the
defaulting Underwriter agreed but failed to purchase on such Delivery Date in
the respective proportions which the number of shares of the Firm Stock set
opposite the name of each remaining non-defaulting Underwriter in Schedule 1
hereto bears to the total number of shares of the Firm Stock set opposite the
names of all the remaining non-defaulting Underwriters in Schedule 1 hereto;
provided, however, that the remaining non-defaulting Underwriters shall not be
obligated to purchase any of the Stock on such Delivery Date if the total number
of shares of the Stock which the defaulting Underwriter or Underwriters agreed
but failed to purchase on such date exceeds 9.09% of the total number of shares
of the Stock to be purchased on such Delivery Date, and any remaining non-
defaulting Underwriter shall not be obligated to purchase more than 110% of the
number of shares of the Stock which it agreed to purchase on such Delivery Date
pursuant to the terms of Section 3. If the foregoing maximums are exceeded, the
remaining non-defaulting Underwriters, or those other underwriters satisfactory
to the remaining non-defaulting Underwriters who so agree, shall have the right,
but shall not be obligated, to purchase, in such proportion as may be agreed
upon among them, all the Stock to be purchased on such Delivery Date. If the
remaining Underwriters or other underwriters satisfactory to the remaining non-
defaulting Underwriters do not elect to purchase the shares which the defaulting
Underwriter or Underwriters agreed but failed to purchase on such Delivery Date,
this Agreement (or, with respect to the Second Delivery Date, the obligation of
the Underwriters to purchase, and of the Company to sell, the Option Stock)
shall terminate without liability on the part of any non-defaulting Underwriter
or the Company or the Selling Shareholders, except that the Company will
continue to be liable for the payment of expenses to the extent set forth in
Section 8. As used in this Agreement, the term "Underwriter" includes, for all
purposes of this Agreement unless the context requires otherwise, any party not
listed in Schedule 1 hereto who, pursuant to this Section 11, purchases Firm
Stock which a defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company and the Selling Shareholders for damages
caused by its default. If other underwriters are obligated or agree to purchase
the Stock of a defaulting or withdrawing Underwriter, either the remaining non-
defaulting Underwriters or the Company may postpone the Delivery Date for up to
seven full business days in order to effect any changes that in the opinion of
counsel for the Company or counsel for the Underwriters may be necessary in the
Registration Statement, the Prospectus or in any other document or arrangement.
-23-
<PAGE>
12. Termination. The obligations of the Underwriters hereunder may
be terminated by them by notice given to and received by the Company and the
Selling Shareholders prior to delivery of and payment for the Firm Stock if,
prior to that time, any of the events described in Sections 9(l) or 9(m), shall
have occurred or if the Underwriters shall decline to purchase the Stock for any
reason permitted under this Agreement.
13. Reimbursement of Underwriters' Expenses. If (a) the Company or
any Selling Shareholder shall fail to tender the Stock for delivery to the
Underwriters for any reason not permitted under this Agreement or (b) the
Underwriters shall decline to purchase the Stock due to (i) a breach of, or
failure to perform, any provision of this Agreement by the Company or any
Selling Shareholder, (ii) the failure to be satisfied of any condition set forth
in Sections 9(a) through 9(l), inclusive, or Section 9(n) or (iii) trading in
any securities of the Company on any exchange or in the over-the-counter market
having been suspended or minimum prices having been established for such
securities on any such exchange or such market by the Commission, by such
exchange or by any other regulatory body or governmental authority having
jurisdiction, then the Company and the Selling Shareholders shall reimburse the
Underwriters for the reasonable fees and expenses of their counsel and for such
other out-of-pocket expenses as shall have been incurred by them in connection
with this Agreement and the proposed purchase of the Stock, and upon demand the
Company and the Selling Shareholders shall pay the full amount thereof to the
Underwriters.
14. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex
or facsimile transmission to Lehman Brothers Inc., Three World Financial
Center, New York, New York 10285, Attention: Syndicate Department (Fax:
212-528-8822), with a copy to David J. Lubben, Esq., Dorsey & Whitney
P.L.L.P., 220 South Sixth Street, Minneapolis, Minnesota 55402 (Fax: 612-
340-8738), and with a copy, in the case of any notice pursuant to Section
10(d), to the Director of Litigation, Office of the General Counsel, Lehman
Brothers Inc., 2 World Trade Center, 15th Floor, New York, NY 10048;
(b) if to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Benno G. Sand, Executive Vice President
and Chief Financial Officer, (Fax: (612) 448-1300), with a copy to Douglas
P. Long, Esq., Faegre & Benson Professional Limited Liability Partnership,
2200 Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota 55402
(Fax: 612-336-3026);
(c) if to a Selling Shareholder, shall be delivered or sent by mail,
telex or facsimile transmission to such Selling Shareholder, c/o FSI
International, Inc., 322 Lake Hazeltine Drive, Chaska, Minnesota 55318
(Fax: 612-448-1300).
Any such statements, requests, notices or agreements shall take effect at the
time of receipt thereof. The Company, and the Selling Shareholders shall be
entitled to act and rely upon any request, consent, notice or agreement given or
made on behalf of the Underwriters by Lehman Brothers Inc. on behalf of the
Underwriters.
15. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Company, the
Selling Shareholders and their respective personal Underwriters and successors.
This Agreement and the terms and provisions hereof are for the sole benefit of
only those persons, except that (A) the representations, warranties, indemnities
and agreements of the Company and the Selling Shareholders contained in this
Agreement shall also be deemed to be for the benefit of the person or persons,
if any, who control any Underwriter within the meaning of Section 15 of the
Securities Act and (B) the indemnity agreement of the
-24-
<PAGE>
Underwriters contained in Section 10(c) of this Agreement shall be deemed to be
for the benefit of directors of the Company, officers of the Company who have
signed the Registration Statement and any person controlling the Company within
the meaning of Section 15 of the Securities Act. Nothing in this Agreement is
intended or shall be construed to give any person, other than the persons
referred to in this Section 15, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
16. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Selling Shareholders and the
Underwriters contained in this Agreement or made by or on behalf on them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Stock and shall remain in full force and effect, regardless of
any investigation made by or on behalf of any of them or any person controlling
any of them.
17. Definition of the Terms "Business Day" and "Subsidiary". For
purposes of this Agreement, (a) "business day" means any day on which the New
York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
18. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of New York.
19. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
* * * * *
-25-
<PAGE>
If the foregoing correctly sets forth the agreement among the Company,
the Selling Shareholder and the Underwriters, please indicate your acceptance in
the space provided for that purpose below.
Very truly yours,
FSI INTERNATIONAL, INC.
By
----------------------------------
Executive Vice President and Chief
Financial Officer
SELLING SHAREHOLDERS LISTED ON
SCHEDULE 2
By
---------------------------------
Attorney-in-Fact
Accepted:
NEEDHAM & COMPANY, INC.
LEHMAN BROTHERS INC.
MONTGOMERY SECURITIES
By LEHMAN BROTHERS INC.
By
-----------------------------
Authorized Representative
-26-
<PAGE>
SCHEDULE 1
----------
Number of
Underwriters Shares
------------ ---------
Needham & Company, Inc. ................................
Lehman Brothers Inc. ...................................
Montgomery Securities ..................................
Total ................................... 2,750,000
=========
<PAGE>
SCHEDULE 2
----------
Selling Number of
Shareholder Shares
----------- ---------
Joel A. Elftmann ............................................ 175,000
Benno G. Sand ............................................... 40,000
Robert E. Cavins ............................................ 20,000
Timothy D. Krieg ............................................ 15,000
-------
Total ............................................ 250,000
=======
<PAGE>
Exhibit 5.1
June 15, 1995
FSI International, Inc.
322 Lake Hazeltine Drive
Chaska, Minnesota 55318
Ladies and Gentlemen
In connection with the proposed registration under the Securities Act of
1933, as amended, of 3,162,500 shares of Common Stock, no designated par value,
of FSI International, Inc., a Minnesota corporation (the "Company") (such number
of shares reflects the two-for-one stock split to be distributed to holders of
record as of June 13, 1995), we have examined such corporate records and other
documents, including the Registration Statement on Form S-3 relating to such
shares (the "Registration Statement"), and have reviewed such matters of law as
we have deemed necessary for this opinion, and we advise you that in our
opinion:
1. The Company is a corporation duly organized and existing under the laws
of the State of Minnesota.
2. When the Board of Directors of the Company (or a Stock Committee
appointed by the Board) determines the price and terms of the shares of
Common Stock to be sold by the Company, all necessary corporate action on the
part of the Company will have been taken to authorize the issuance and sale
of such shares of Common Stock by the Company, and, when issued and sold as
contemplated in the Registration Statement, such shares will be legally and
validly issued and fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the heading "Legal Matters" in the
Prospectus constituting a part of the Registration Statement and to the
reference to our firm wherever appearing therein.
Very truly yours,
/s/FAEGRE & BENSON
Professional Limited Liability Partnership
FAEGRE & BENSON
Professional Limited Liability Partnership
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors of
FSI International, Inc.:
We consent to the use of our report included herein and to the references to
our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
June 15, 1995
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors of
Applied Chemical Solutions:
We consent to the use of our report incorporated by reference herein and to
the reference to our firm under the heading "Experts" in the prospectus.
Our report dated December 9, 1994, except as to Note 15, which is as of
December 23, 1994, contains an explanatory paragraph that states that the
Company has suffered recurring losses from operations and has a net capital
deficiency, which raise substantial doubt about its ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of that uncertainty.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
June 15, 1995
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors of
Metron Semiconductors Europa B.V.:
We consent to the use of our report incorporated herein and to the reference
to our firm under the heading "Experts" in the prospectus.
KPMG Accountants N.V.
Amstelveen, The Netherlands
June 15, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information extracted
for FSI International, Inc.'s quarterly report on Form 10-Q for the quarterly
period ended February 25, 1995 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<RESTATED> <F1>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> AUG-26-1995 AUG-27-1994
<PERIOD-START> AUG-28-1994 AUG-29-1993
<PERIOD-END> FEB-25-1995 FEB-26-1994
<CASH> 57,525,802 13,822,356
<SECURITIES> 0 0
<RECEIVABLES> 33,285,235 14,271,215
<ALLOWANCES> 825,000 380,000
<INVENTORY> 20,758,614 14,822,650
<CURRENT-ASSETS> 117,670,256 45,980,751
<PP&E> 21,440,977 17,065,750
<DEPRECIATION> 13,388,544 12,515,935
<TOTAL-ASSETS> 136,782,523 57,174,779
<CURRENT-LIABILITIES> 35,897,334 18,791,134
<BONDS> 0 0
<COMMON> 80,304,883 28,233,416
0 0
0 0
<OTHER-SE> 20,568,941 9,959,020
<TOTAL-LIABILITY-AND-EQUITY> 136,782,523 38,192,436
<SALES> 72,911,798 42,122,414
<TOTAL-REVENUES> 72,911,798 42,122,414
<CGS> 40,632,943 24,128,146
<TOTAL-COSTS> 40,632,943 24,128,146
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 13,333 316,039
<INCOME-PRETAX> 7,860,425 2,022,338
<INCOME-TAX> 2,044,600 485,000
<INCOME-CONTINUING> 7,138,725 2,318,938
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,138,725 2,318,938
<EPS-PRIMARY> .49 .19
<EPS-DILUTED> .49 .19
<FN>
All financial statements are restated to reflect the merger with ACS which was
accounted for as a pooling of interests. All share and per share amounts are
restated to reflect a 2-for-1 stock split to holders of record on June 13, 1995.
</FN>
</TABLE>
