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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended August 26, 1995
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from__________________________to__________________
FSI INTERNATIONAL, INC.
(Exact Name of Registrant as specified in its charter)
MINNESOTA 41-1223238
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
322 LAKE HAZELTINE DRIVE, CHASKA, MINNESOTA 55318
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (612) 448-5440
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE SECURITIES EXCHANGE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE SECURITIES EXCHANGE ACT:
COMMON STOCK, NO PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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The aggregate market value of the common stock, no par value held by
non-affiliates of the Registrant, based on the closing price of the Common Stock
on November 10, 1995, as reported on the Nasdaq-National Market, was
approximately $350,458,020. Shares of common stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been
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excluded from this computation in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for any other purpose.
As of November 10, 1995, the registrant had issued and outstanding
20,315,645 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on January 24, 1996, (the "Proxy Statement")
and to be filed within 120 days after the Registrant's fiscal year ended August
26, 1995, are incorporated by reference into Part III of this Form 10-K Report.
Portions of the Annual Report to Shareholders for the fiscal year ended
August 26, 1995 (the "Annual Report") are incorporated by reference into Parts
II and IV of this Form 10-K Report.
There are 163 pages to this Report. The Index to Exhibits begins on page 47.
PART I
ITEM 1. BUSINESS
THE COMPANY
FSI International, Inc., a Minnesota corporation organized in 1973 ("FSI"
or the "Company"), designs, manufactures, markets and supports
microlithography, surface conditioning and chemical management equipment used
in the fabrication of integrated circuits, which is the only industry segment
in which the Company is presently engaged. The Company's microlithography
product, the POLARIS(R) 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(R) spray
processing systems and the EXCALIBUR(R) 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, including its
CHEMFILL(R), CHEMBLEND/tm/ and CHEMGEN/tm/ systems, 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.
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
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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.
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.
During fiscal 1995, the Company completed two transactions which expanded
its chemical management capabilities. In January of this year, FSI and its
affiliated distributor Metron Technology B.V. (f/k/a Metron Semiconductors
Europa B.V.) each acquired a 50% interest in FSI Metron Europe, Limited
("FME") located in Newhaven, England. FME manufactures, markets, and services
chemical distribution systems, wet benches and portable clean rooms primarily
for use by semiconductor device manufacturers.
On March 8, 1995, the Company acquired all of the outstanding capital
stock of Applied Chemical Solutions ("ACS") 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's operations are
headquartered in Hollister, California.
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 new semiconductor production equipment is driven principally
by the need for new processes and systems capable of manufacturing
increasingly complex integrated circuits. Industries that utilize integrated
circuits are demanding higher performance devices from semiconductor
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 manufacturers to reduce integrated circuit manufacturing
costs. Because the capital cost of a large semiconductor fabrication facility
is high, in some cases exceeding $1.0 billion, manufacturers have increased
their focus on the various cost components of a semiconductor
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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 "cost of ownership"), including capital cost, throughput,
yield, up-time, 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.
The Company believes that semiconductor manufacturers are asking
equipment suppliers to take an increasingly active role in meeting the
manufacturer's technology requirements and cost constraints by developing and
supporting the products and processes required to fabricate advanced
semiconductor designs. Certain semiconductor 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.
INTEGRATED CIRCUIT FABRICATION
The basic component in the manufacture of integrated circuits is a thin,
circular crystalline silicon wafer, typically three to eight inches in
diameter. 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 with separately
controlled temperature and humidity 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 immersion or
spraying, 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
processors and the EXCALIBUR vapor processing systems, are designed to
perform these cleaning functions throughout the integrated circuit
fabrication process.
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Layering. Following cleaning and 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. Certain of the Company's chemical management systems are used
to mix and deliver the slurry used in this process. 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 remaining
solvents, improve adhesion to the wafer surface and harden the
photoresist for subsequent processing. 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 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
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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,
including its CHEMFILL, CHEMBLEND and CHEMGEN systems, perform the critical
functions of generating, blending, delivering and controlling the flow,
concentration and purity of chemicals used by various types of processing
equipment throughout the fabrication process.
PRODUCTS
The mix of products sold by the Company may vary significantly from year
to year. 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:
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FISCAL YEAR ENDED
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AUGUST 26, 1995 AUGUST 27, 1994 AUGUST 28, 1993
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(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Microlithography clusters $ 61,246 32.2% $32,723 33.9% $20,317 25.9%
Surface conditioning products 59,898 31.5 27,915 29.0 26,194 33.4
Chemical management systems 45,223 23.7 17,573 18.2 18,629 23.8
Spare parts and service 24,036 12.6 18,226 18.9 13,292 16.9
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$190,403 100.0% $96,437 100.0% $78,432 100.0%
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MICROLITHOGRAPHY CLUSTERS. The Company's POLARIS microlithography
cluster performs all of the photolithography processing steps except exposure.
The POLARIS cluster consists of a clean-room qualified robot 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 1 clean room environment, providing
independent control of temperature, humidity and organics from the rest of the
fabrication area. Operations within the cluster are primarily controlled by a
computer console and a touch screen on each cluster's console. 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.
The POLARIS cluster represents a processing alternative to conventional
photoresist track or linear systems, which permit processing of the wafer only
according to a pre-established arrangement of the equipment. Wafer routing and
throughput in a POLARIS cluster are not dependent upon module configuration.
The programmable capability allows random wafer routing and continuous
processing of wafers eliminating the need for the queuing of partially
processed
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wafers sometimes 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 cluster 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 system contains several process enhancements
including an advanced bake/chill plate technology and a fluid temperature
control system and new robot for higher throughput of wafers. Simultaneous
multiple process flow capabilities allows the system to operate in tandem with
another process tool which is physically linked to the POLARIS system and to
simultaneously support other process equipment which is not linked to the
system. The Company began shipping the POLARIS 2000 cluster in January 1995.
Purchasers of the POLARIS cluster include Ericsson Components AB
("Ericsson"); ITT Corporation; International Business Machines Corporation
("IBM"), LG Semicon Co., Ltd. ("LG Semicon"); Motorola, Inc. ("Motorola");
National Semiconductor, Corp. ("NSC"); Texas Instruments, Incorporated
("TI"); and Tower Semiconductor Ltd. ("TSL"). The Company has an installed
base of approximately 120 POLARIS clusters, including approximately 45 POLARIS
2000 clusters. The price of the 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
"Patents, Trademarks and 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 wafers' 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.
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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"); Amtel Corporation ("Amtel"); Cypress Semiconductor Corporation
("Cypress"); Digital Equipment Corporation ("DEC"); Fujitsu Microelectronics,
Inc. ("Fujitsu"); IBM; International Rectifier Corporation ("IRC"); Motorola;
NCS; Phillips Semiconductors ("Phillips"); SGS Thompson Microelectronics, Inc.
("SGS Thompson"); Siemens A.G. ("Siemens"); TI; TSL; and Winbond Electronics
Corp. ("Winbond"). The Company has an installed base of over 2,170 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.
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, EXCALIBUR systems have gone through multiple
enhancements, including the development from a single gas to a multi-gas
system. These continual enhancements led to the introduction of the latest
version of the system, the EXCALIBUR MVP (Multi-Vapor Processor) system 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 system 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 process equipment. The
process development of the EXCALIBUR MVP system 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
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Company has installed approximately 160 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.
In August of 1995, the Company announced a License Agreement with IBM
which will allow FSI to manufacture, market, and service products using IBM's
cyrogenic aerosol cleaning technology. This IBM developed technology uses
frozen ice particles formed by inert gases to dislodge contaminants or residue
particles from a silicon wafer's surface. FSI anticipates having a production
tool commercially available during the latter part 1996.
Over the past several years, based in part upon funding received from the
National Institute of Standards and Technology, the Company has developed the
Orion/tm/ system, in which "dry" chemicals in a gaseous environment are
charged by an energy source to remove contaminants from a silicon's wafer
surface. The Company expects to ship a prototype to a customer for evaluation
in the latter part of 1996.
CHEMICAL MANAGEMENT SYSTEMS. The Company's chemical management systems
enable semiconductor 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 to deliver programmed
amounts of chemicals 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 manufacturers with enhanced
chemical purity, inventory control, safety, dispensing accuracy and bulk
purchasing opportunities.
Typically, a chemical delivery system installation involves the delivery,
flow and purity control of five to ten distinct chemicals. Each chemical
requires its own station operated by a dedicated programmable logic
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 that 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, upon the request of a customer, FSI will oversee and coordinate
not only the installation of a chemical delivery system but also the entire
chemical distribution system of the fabrication facility, including point of
use interfaces 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 proprietary ACS vacuum pressure technology to draw chemicals from
their storage and transportation containers into the system and
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pressure to transfer the chemical 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.
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 CMP technology. The
Company's P2000 series systems mix and deliver silicon dioxide slurry, while
the P2200M mixes and delivers tungsten slurry.
Chemical management system customers include AMD, Cypress, DEC, Fujitsu,
Intel, Motorola, NSC, Phillips, SGS Thompson, and Tech Semicondcutor
Singapore PTE. LTD. ("Tech Semiconductor"). The Company has installed chemical
management systems in over 75 fabrication plants worldwide. Typical
installations vary in price from $250,000 to $2,500,000. However, a project
involving turn-key installation with multiple chemicals and points of use 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 year 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.
BACKLOG AND SEASONALITY
The Company's backlog at the end of fiscal 1995 and 1994 was
approximately $115 million and $77 million, respectively. A substantial
portion of the backlog at August 26, 1995 is scheduled to be shipped in fiscal
1996. 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. Orders are subject to cancellation by the customer, generally with a
cancellation charge. In fiscal 1995 and 1994, purchase orders aggregating
approximately $1,524,000 and $708,000, constituting
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.8% and .7% of sales during fiscal 1995 and 1994, 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 Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The business of the Company is
not seasonal to any significant extent.
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 integral
processing equipment will make highly automated and integral systems,
including single wafer processing systems, more important in the manufacture
of integrated circuits. To assist the Company in its development efforts, the
Company maintains relationships with a number of industry professionals some
of whom serve on the Company's Technical Advisory Board ("TAB"). 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, the industry
professionals 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.
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 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 a 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 1995, 1994, and 1993 were approximately $24,865,000,
15,743,000 and $11,760,000, respectively, and represented 13.1%, 16.3% and
15.0% 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 1995, 1994 and 1993, the
Company
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<PAGE>
recognized third party funding of approximately $546,000, $1.3 million and
$1.2 million, respectively, as a reduction in research and development
expenses.
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 four 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, as of fiscal year end the sales effort was
supported by approximately 205 employees engaged in service and marketing
support.
International sales, primarily in Europe, the Far East and Japan,
accounted for approximately 37%, 33% and 34% of total sales for fiscal years
1995, 1994 and 1993 respectively. The Company owns a 38.2% equity interest in
Metron Technology B.V. ("Metron"), a distributor of the Company's products
which has an extensive distribution organization located in Europe, including
Germany, the United Kingdom, the Netherlands, France, Sweden, Italy, and
Israel, in India, and in the Far East, including, Taiwan, Korea, China,
Singapore, and Hong Kong. Fluoroware, Inc., a manufacturer of plastic
injection moldings for the semiconductor device industry, also owns a 38.2%
equity interest in Metron. In addition to the Company's products, Metron also
sells products and equipments 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 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, the international sales to the Company's affiliates are on
terms generally no less favorable to the Company than international sales by
the Company directly to non-affiliates.
The Company owns a 49% equity interest in m/./FSI, Ltd. ("m/./FSI"), a
Japanese joint venture company formed in August 1991 with Mitsui & Co., Ltd.
and its wholly-owned subsidiary, Chlorine Engineers Corp., Ltd. (collectively,
"Mitsui"). Mitsui owns a 51% equity interest in m/./FSI. 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 FSI and Mitsui products in Japan.
MANUFACTURING AND SUPPLIERS
Except with respect to ACS products and certain POLARIS cluster modules,
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
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<PAGE>
products are manufactured for the Company by contract manufacturers. The
Company's 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 or FME.
In fiscal 1995, the Company through its fifty (50%) percent interest in
FME, established a manufacturing capability in Europe for its chemical
management systems division. In addition, FME also provides program
management, including the capability to manage the installation of large
chemical generation and dispense systems throughout a semiconductor device
manufacturing facility.
Certain of the components and subassemblies included in the Company's
products are obtained from a single supplier or a limited group of suppliers
in order to ensure overall quality and timeliness of delivery. Although the
Company seeks to reduce dependence on sole and limited source suppliers,
disruption or termination of certain of these sources could have a temporary
adverse effect on the Company's operations. The Company believes that
alternative sources could be obtained and qualified to supply these products,
if necessary. Nevertheless, 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,
and greater name recognition than the Company, and long standing customer
relationships. In order to remain competitive, the Company will be required to
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 semiconductor processing technology. The Company's
competitors also may 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 manufacturers 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.
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<PAGE>
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.
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.
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"), Silicon Valley Group, Inc. and Tokyo
Electron Ltd. ("TEC"),. The Company competes with DNS, TEL, Semitool, Inc.,
Submicron Systems, Inc. ("Submicron"), and Santa Clara Plastics in the area of
surface conditioning products. The Company's Chemical Management System
competes with products from Systems Chemistry, Inc., a subsidiary of
Submicron, and a number of chemical supply companies that also offer chemical
management systems.
CUSTOMERS
The Company sells products from one or more of its product lines to most
major integrated circuit manufacturers, including AMD, Cypress Semiconductor,
DEC, International Rectifier, Ericsson, Fujitsu, Hyundai, IBM, Intel, LG
Semicon, Motorola, NSC, Phillips, SGS Thompson, Siemens and TI, and has over
100 active customers worldwide.
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<PAGE>
Although the composition of the Company's customers has changed from year
to year, direct sales to the Company's top five customers in each of fiscal
1995, 1994 and 1993 have accounted for approximately 54%, 46% and 50%,
respectively, of the Company's total sales. Direct sales to the Company's top
two customers in each of fiscal 1995, 1994 and 1993 accounted for
approximately 28%, 30% and 32% respectively, of the Company's total sales. In
addition, approximately 38% of the Company's backlog at fiscal 1995 year-end
was comprised of orders from two customers. IBM accounted for approximately
16% and 6% of the Company's sales in fiscal 1995 and 1994, respectively.
Motorola accounted for approximately 12% and 8% of the Company's sales for
fiscal 1995 and 1994, respectively. LG Semicon accounted for approximately
11% and 5% of the Company's sales for fiscal 1995 and 1994, respectively.
Sales to the Company's affiliated international distributors in fiscal
1995, 1994 and 1993, which may include sales of products subsequently resold
to the Company's direct customers, accounted for approximately 22%, 26%, and
25%, respectively, of the Company's total sales. In addition, the earnings
received from the Company's equity ownership interest in such affiliated
distributors accounted for approximately 18%, 32%, and 43% of the Company's
net income in fiscal 1995, 1994 and 1993, respectively. The earnings or
losses of the Company's affiliated distributors can affect significantly the
financial results of the Company. There can be no assurance that the
affiliated distributors will continue to distribute the Company's products or
do so successfully, and in such event the Company's results of operations and
earnings could be adversely affected.
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 customer's 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.
PATENTS, TRADEMARKS AND 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 the 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.
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.
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<PAGE>
The Company holds numerous United States patents and additional patents
in Japan and several European countries, and has several United States 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.
EMPLOYEES
As of August 26, 1995, FSI and its wholly-owned subsidiary ACS had 808
employees, of whom 259 were engaged in manufacturing, 138 were engaged in
customer service, 256 were engaged in research and development, 66 were
engaged in sales and marketing, and 89 held general and administrative
positions. As of such date, the Company also had over 125 independent
contractors working throughout the Company in various capacities, principally
in the areas of manufacturing and engineering. FME employs approximately 35
employees, the majority of whom are involved in manufacturing and/or system
installation.
The Company is not subject to any collective bargaining agreement, has
never been subject to a work stoppage and believes its relations with its
employees is good.
ENVIRONMENTAL MATTERS
The Company believes that compliance with federal, state and local
provisions which have been enacted or adopted regulating discharges of
materials into the environment, or otherwise relating to the protection of the
environment will not have a material effect upon the capital expenditures,
earnings and competitive position of the Company. See also Item 3 - "Legal
Proceedings."
INTERNATIONAL SALES
The Company's international sales for each of the last three fiscal years
is disclosed in the financial statements incorporated by reference and
referred to in Item 8 on pages 21-22 of this Report.
ITEM 2. PROPERTIES
The Company's corporate offices are located in Chaska, a suburb of
Minneapolis, Minnesota. In fiscal 1995, the Company leased approximately
176,000 square feet, in five buildings, at a total rental cost of
approximately $1.4 million. Effective December 1, 1995, the rental cost for
these facilities will be reduced to approximately $790,000 as part of a new
five year lease on its headquarters facility, which facility also contains a
process research laboratory, and manufacturing for chemical management system
products.
In November 1995, the Company opened a new 100,000 square foot
manufacturing facility which cost approximately $11.5 million to construct.
The facility contains 45,000 square feet of Class 1000 manufacturing clean
room space, which can be upgraded to class 100 as required. The new facility
also contains a manufacturing support operations and customer training center,
and shell space for a new process research laboratory for the Surface
Conditioning Division.
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<PAGE>
The Company also leases facilities in England and in various locations
within the United States including:
/./ a 37,000 square foot process research laboratory, engineering
and administrative facilities for the Microlithography Division
located in Dallas, Texas.
/./ a 17,180 square foot engineering and administrative facility for
the Chemical Management Division located in Hollister,
California (ACS Headquarters).
/./ a 11,767 square foot engineering, manufacturing, and
administrative facilities for the Chemical Management Division
located in Europe (FME Headquarters).
In addition, in August 1995, the Company entered into a five-year lease
for approximately 125,800 square feet of engineering, administrative and
warehouse space near its Chaska headquarters. Approximately 45,000 square
feet is being used and the remaining warehouse space is available for
sublease.
ITEM 3. LEGAL 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. In each matter, the Company believes that it is at most a "de
minimis" PRP. The Company recently elected to participate in a settlement
offer made to all de minimis parties with respect to one such site.
The risk of being named a PRP is that if any of the other PRP's are
unable to contribute their proportionate share of the liability, if any,
associated with the site, those PRP 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 that any of these
investigations, either individually or in the aggregate, will have a material
adverse effect on its business, operating results, or financial condition.
In October, 1995, Purusar Corporation ("Purusar") brought suit against
the Company in United States District Court, Northern District of California,
seeking monetary damages and injunctive relief based upon the Company's
alleged infringement of a patent held by Purusar. The lawsuit is in the very
initial stages. The Company has asserted various defenses as well as
noninfringement of such patent by the Company's products. While litigation is
subject to inherent uncertainties and no assurance can be given that the
Company will prevail in such litigation or will obtain a license under such
patent on commercially reasonable terms or at all if such patent is found to
be valid and it is determined the Company infringes such patent, the Company
believes that the Purusar lawsuit will not have a material adverse affect on
the Company's consolidated financial statements.
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<PAGE>
There has been substantial litigation regarding patent and other
intellectual property rights in semiconductor related industries recently and
further commercialization of the Company's products could provoke claims of
infringement of third-parties. Except for the allegations made by Purusar,
the Company is not aware of any infringement by its products of any patents or
proprietary rights of others. In the future, litigation may be necessary to
enforce patents issued to the Company, to protect trade secrets or know-how
owned by the Company or to defend the Company against claimed infringement of
the rights of others and determine the scope and validity of its proprietary
rights. Any such litigation could result in substantial costs and diversion
of effort by the Company, which by itself could have a material adverse affect
on the Company's financial condition and operating results. Further, adverse
determinations in such litigation could result in the Company's loss of
proprietary rights, subject the Company to significant liabilities to third
parties, require the Company to seek licenses from third-parties or prevent
the Company from manufacturing or selling its products, any of which could
have a material adverse effect on the Company's financial condition and
results of operations.
Other than the litigation described above or routine litigation
incidental to the Company's business, there is no material litigation to which
the Company is a party or of which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
There were no matters submitted to a vote of shareholders during the
fourth quarter ended August 26, 1995.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The executive officers are elected by the board of directors, generally
for a term of one year, and serve until their successor is elected and
qualified. The following table and discussion contains information regarding
the current executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Joel A. Elftmann 55 Chairman of the Board, President, and Chief
Executive Officer
Peter A. Pope 45 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 60 Senior Vice President, Chemical Management Division
Dale A. Courtney 58 Senior Vice President, Surface Conditioning
Division
J. Wayne Stewart 45 Vice President, Operations
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Timothy D. Krieg 40 Vice President, Quality and Human Resources
</TABLE>
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
Supervisory Board of Metron and is a director of m/./FSI Ltd. He has 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. Mr. Pope also serves as a
director of m/./FSI Ltd.
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.
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.
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
Managing Director of FME.
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<PAGE>
Mr. Courtney has served as Senior Vice President, Surface Conditioning
Division since March 1994. Mr. Courtney served as Vice President, Surface
Conditioning Division of the Company from November 1992 until 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, Mr. Stewart 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. He also was
the Manufacturing Manager of TI's award winning HARM (High Speed Anti-Radar
Missile) program. Mr. Stewart serves as a Managing 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 was Vice President, Human Resources from
March 1993 until March 1994 and also served in that same capacity 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.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock, no par value, is traded on the Nasdaq
National Market ("Nasdaq-NNM") under the symbol "FSII." The information
concerning the quarterly stock prices and dividends for the fiscal years ended
August 26, 1995 and August 27, 1994 and the number of shareholders of record
is contained in the Company's 1995 Annual Report to Shareholders ("Annual
Report"), at page 34 under the captions "Quarterly Data" and "Common Stock
Prices", which information is incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
The summary of selected financial data for each of the last five fiscal
years set forth in the Annual Report in the table on page 13 under the caption
"Five-Year Selected Financial Data" is incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing in the
Company's Annual Report on pages 14 to 17 is incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements and supplementary data of
the Company and its subsidiaries for the periods indicated and the Independent
Auditors' Report listed below which are included in the Annual Report at the
pages indicated, are incorporated by reference.
<TABLE>
<CAPTION>
PAGE NUMBER IN
CONSOLIDATED FINANCIAL STATEMENTS: ANNUAL REPORT
-------------
<S> <C>
Consolidated Statements of Operations - Fiscal Years Ended 18
August 26, 1995, August 27, 1994 and August 28, 1993.
Consolidated Balance Sheets - August 26, 1995 and 19
August 27, 1994.
Consolidated Statements of Stockholders' Equity - 20
Fiscal Years Ended August 26, 1995, August 27, 1994
and August 28, 1993.
Consolidated Statements of Cash Flows - Fiscal Years Ended 21
August 26, 1995, August 27, 1994 and August 28, 1993.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Notes to Consolidated Financial Statements. 22-31
Independent Auditors' Report 32
Supplementary Data: Quarterly Operating Results 34
and Market Data
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is incorporated by reference to
the Company's Definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on January 24, 1996 (the "Proxy Statement") and which
will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after August 26, 1995.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item
is included in the Proxy Statement and is incorporated by reference. For
information concerning executive officers, see Item 4A of this Form 10-K
Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item, which is included in the Proxy
Statement, is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item, which is included in the Proxy
Statement, is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item, which is included in the Proxy
Statement, is incorporated by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The following financial statements and documents and the report
of the independent auditors are included in the Annual Report (an
Exhibit to this Report) and are incorporated by reference in Item 8 of
this Report:
<TABLE>
<CAPTION>
PAGE NUMBER IN
ANNUAL REPORT
--------------
<S> <C>
Selected Financial Data for the five years ended August 26, 1995 13
Management's Discussion and Analysis of Financial Condition 14-17
and Results of Operations
Consolidated Statements of Operations - Fiscal Years ended 18
August 26, 1995, August 27, 1994, and August 28, 1993
Consolidated Balance Sheets - August 26, 1995 and August 27, 1994 19
Consolidated Statements of Stockholders' Equity - Fiscal Years Ended 20
August 26, 1995, August 27, 1994, and August 28, 1993
Consolidated Statements of Cash Flows - Fiscal Years 21
ended August 26, 1995, August 27, 1994, and August 28, 1993
Notes to Consolidated Financial Statements 22-31
Independent Auditors' Report 32
PAGE NUMBER
IN THIS REPORT
--------------
(a) (2) Financial Statement Schedules
The following Report and financial statement schedule are
included in this Part IV and are found in this Report at the pages
indicated.
Independent Auditors' Report on Schedule 29
Schedule II - Valuation and Qualifying Accounts 30
All other schedules are omitted because they are not applicable
or the required information is shown in the consolidated
financial statements or notes thereto.
Metron Semiconductors Europa B.V. 31 May 1995 and 31-46
31 May 1994 Consolidated Financial Statements
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
(a)(3) Exhibits
<C> <S>
*An asterisk next to a listed Exhibit indicates it is
an executive compensation plan or arrangement.
2.1 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)
2.2 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)
3.1 Restated Articles of Incorporation of
the Company. (3)
3.2 Restated By-Laws. (4)
3.3 Amendment to Restated By-Laws. (5)
4.1 FSI Corporation Stock Purchase
Agreement dated March 20, 1981. (4)
4.2 Stock Purchase Agreement dated
September 15, 1982. (4)
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 Warrants Purchase Agreement dated
as of October 15, 1985. (5)
4.5 Registration and Preemptive Rights
Agreement dated October 15, 1985. (4)
*10.1 1983 Incentive Stock Option Plan. (4)
*10.2 1982 Nonqualified Stock Option Plan. (4)
*10.3 Split Dollar Insurance Agreement and
Collateral Assignment Agreement dated
December 28, 1989, between the Company
and Joel A. Elftmann. (Similar
agreements between the Company and each
of Robert E. Cavins, Benjamin J. Sloan,
Dale A. Courtney, Peter A. Pope, Benno
G. Sand and Timothy D. Krieg have been
omitted, but will be filed upon the
request of the Commission). (4)
10.4 Lease dated June 27, 1985, between the
Company and Lake Hazeltine Properties.
(7)
10.5 Lease dated September 1, 1985, between
the Company and Elftmann, Wyers,
Blackwood Partnership. (7)
10.6 Lease dated September 1, 1985, between
the Company and Elftmann, Wyers
Partnership. (7)
*10.7 1989 Stock Option Plan. (5)
*10.8 Amended and Restated Employees Stock
Purchase Plan. (3)
*10.9 Directors Nonstatutory Stock Option
Plan. (3)
10.10 Shareholders Agreement among FSI
International, Inc. and Mitsui & Co.,
Ltd. and Chlorine Engineers Corp. Ltd.
dated as of August 14, 1991. (8)
10.11 FSI Exclusive Distributorship Agreement
dated as of August 14, 1991 between FSI
International, Inc. and m.FSI, Ltd. (8)
10.12 FSI Licensing Agreement dated as of
August 14, 1991, between FSI
International, Inc. and m.FSI, Ltd. (8)
10.13 License Agreement, dated October 15,
1991, between the Company and Texas
Instruments Incorporated. (9)
10.14 Amendment No. 1, dated April 10, 1992,
to the License Agreement, dated October
15, 1991, between the Company and Texas
Instruments Incorporated. (9)
10.15 Amendment effective October 1, 1993 to
the License Agreement, dated October
15, 1991 between the Company and Texas
Instruments Incorporated. (10)
*10.16 Amended and Restated Directors'
Nonstatutory Stock Option Plan. (11)
</TABLE>
-24-
<PAGE>
*10.17 Management Agreement between FSI
International, Inc. and Robert E.
Cavins, effective as of March 28, 1994.
(11)
*10.18 Management Agreement between FSI
International, Inc. and Dale A.
Courtney, effective as of March 28,
1994. (11)
*10.19 Management Agreement between FSI
International, Inc. and Joel A.
Elftmann, effective as of March 28,
1994. (11)
*10.20 Management Agreement between FSI
International, Inc. and Timothy D.
Krieg, effective as of March 28, 1994.
(11)
*10.21 Management Agreement between FSI
International, Inc. and Peter A. Pope,
effective as of March 28, 1994. (11)
*10.22 Management Agreement between FSI
International, Inc. and Benno G. Sand,
effective as of March 31, 1994. (11)
*10.23 Management Agreement between FSI
International, Inc. and Benjamin J.
Sloan, effective as of March 28, 1994.
(11)
*10.24 Management Agreement between FSI
International, Inc. and J. Wayne
Stewart, effective as of March 28,
1994. (11)
*10.25 FSI International, Inc. 1994 Omnibus
Stock Plan. (12)
*10.26 FSI International, Inc. 1995 Incentive
Plan
*10.27 FSI International, Inc. 1996 Incentive
Plan
10.28 First Amendment to Lease made and
entered into October 31, 1995 by and
between Lake Hazeltine Properties and
FSI International, Inc.
10.29 Distribution Agreement made and entered
into as of July 6, 1995 by and between
FSI International, Inc. and Metron
Semiconductors Europa B.V. (Exhibits to
Agreement omitted)
10.30 Lease dated August 9, 1995 between
Skyline Builders, Inc. and FSI
International, Inc.
10.31 Lease Rider dated August 9, 1995
between Skyline Builders, Inc. and FSI
International, Inc.
10.32 Lease Amendment dated November 15, 1995
between Roland A. Stinski and FSI
International, Inc. (Exhibits to
Amendment omitted)
11.1 Computation of Per Share Earnings of
FSI International, Inc.
13.0 1995 Annual Report to Shareholders
21.0 Subsidiaries of the Company
23.0 Consent of KPMG Peat Marwick LLP.
23.1 Consent of KPMG Accountants N.V.
24.0 Powers of Attorney from the Directors
of FSI International, Inc.
27.0 Financial Data Schedule
-------------
(1) Filed as an Exhibit to the Company's
Report on Form 8-K dated January 5,
1995, as amended, File No. 0-17276, and
incorporated by reference.
(2) Filed as an Exhibit to the Company's
Registration Statement on Form S-3
dated January 5, 1995, SEC File No.
33-88250 and incorporated by reference.
(3) Filed as an Exhibit to the Company's
Report on Form 10-Q for the quarter
ended
-25-
<PAGE>
February 24, 1990, SEC File No. 0-17276,
and incorporated by reference.
(4) Filed as an Exhibit to the Company's
Registration Statement on Form S-1, SEC
File No. 33-25035, and incorporated by
reference.
(5) Filed as an Exhibit to the Company's
Report on Form 10-K for the fiscal
year ended August 26, 1989, SEC File
No. 0-17276, and incorporated by
reference.
(6) Filed as an Exhibit to the Company's
Report on Form 10-K for the fiscal year
ended August 25, 1990, as amended by
Form 8 dated December 20, 1990, and by
Form 8 dated February 5, 1991, SEC File
No. 0-17276, and incorporated by
reference. Similar agreements between
the Company and each of Robert E.
Cavins, J. Wayne Stewart, Benjamin J.
Sloan, Dale A. Courtney, Peter A. Pope,
Benno G. Sand and Timothy D. Krieg have
been omitted, but will be filed upon
the request of the Commission.
(7) Filed as an Exhibit to the Company's
Registration Statement on Form S-1, SEC
File No. 33-25035, and incorporated by
reference.
(8) Filed as an Exhibit to the Company's
Report on Form 10-K for the fiscal year
ended August 31, 1991, as amended by
Form 8 dated January 7, 1992, SEC File
No. 0-17276, and incorporated by
reference.
(9) Filed as an Exhibit to the Company's
Report on Form 10-Q for the fiscal
quarter ended February 29, 1992, File
No. 0-17276, and incorporated by
reference.
(10) Filed as an Exhibit to the Company's
Report on Form 10-K for the fiscal year
ended August 27, 1993, SEC File No.
0-17276, and incorporated by reference.
(11) Filed as an Exhibit to the Company's
Report on Form 10-Q for the fiscal
quarter ended May 28, 1994, SEC File
No. 0-17276, and incorporated by
reference.
(12) Filed as an Exhibit to the Company's
Report on Form 10-K for the fiscal year
ended August 27, 1994, SEC File No.
0-17276, and incorporated by reference.
-26-
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter
ending August 26, 1995.
PROXY STATEMENT
Except for those portions specifically incorporated in
this Report by reference to the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on January
24, 1996, no other portions of the Proxy Statement are
deemed to be filed as part of this Report on Form 10-K. The
Proxy Statement is furnished solely for the information of
the Securities and Exchange Commission.
-27-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FSI INTERNATIONAL, INC.
By: /s/Joel A. Elftmann
--------------------
Joel A. Elftmann, Chairman, President
and Chief Executive Officer (Principal
Executive Officer)
Dated: November 21, 1995
By: /s/Benno Sand
--------------
Benno Sand, Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons, constituting
a majority of the Board of Directors, on behalf of the Registrant and in
the capacities and on the dates indicated.
Joel A. Elftmann, Director )
James A. Bernards, Director )
Neil R. Bonke, Director )
Terrence W. Glarner, Director )
Robert E. Lorenzini, Director ) By: /s/Benno Sand
William M. Marcy, Director ) --------------
Charles R. Wofford, Director ) Benno Sand, Executive Vice
President and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
Dated: November 21, 1995
-28-
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
----------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
FSI International, Inc.
Under the date of October 13, 1995, we reported on the consolidated
balance sheets of FSI International, Inc. and subsidiaries as of August
26, 1995 and August 27, 1994, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended August 26, 1995, as contained in
the 1995 annual report to stockholders. These consolidated financial
statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1995. In connection with our
audits of the aforementioned consolidated financial statements, we also
have audited the related financial statement schedule as listed in the
accompanying index. The financial statement schedule is the
responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set
forth therein.
Minneapolis, Minnesota
October 13, 1995
-29-
<PAGE>
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED AUGUST 26, 1995, AUGUST 27, 1994 AND AUGUST 28, 1993
<TABLE>
<CAPTION>
Balance at
Beginning Balance at
of Year Additions Deletions End of Year
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Fiscal Year Ended August 26, 1995
Allowance for doubtful
accounts (Deducted from
accounts receivable) $525,000 $700,000 $ -0- $1,225,000
======== ======== ======= ==========
Fiscal Year Ended August 27, 1994
Allowance for doubtful
accounts (Deducted from
accounts receivable) $350,000 $175,000 $ -0- $ 525,000
======== ======== ======= ==========
Fiscal Year Ended August 28, 1993
Allowance for doubtful
accounts (Deducted from
accounts receivable) $300,000 $ 52,400 $(2,400) $ 350,000
======== ======== ======= ==========
</TABLE>
-30-
<PAGE>
METRON SEMICONDUCTORS EUROPA B.V., ALMERE
Financial Statements
for the years ended
31 May 1995, 1994 and 1993
-31-
<PAGE>
TABLE OF CONTENTS
page
Consolidated Statements of Operations 2
Consolidated Balance Sheets 3
Consolidated Statements of Cash Flows 4
Consolidated Statements of Shareholders' Equity 5
Notes to the Consolidated Financial Statements 6
page 1
-32-
<PAGE>
METRON SEMICONDUCTORS EUROPA B.V., ALMERE
Consolidated Statements of Operations
for the years ended 31 May 1995, 1994 and 1993
<TABLE>
<CAPTION>
=============================================================================================
(in Dutch Guilders) Notes 1994/5 1993/4 1992/3
- ---------------------------------------- ----- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Sales 2 173,097,282 160,479,094 111,877,931
Cost of Sales (123,205,862) (115,196,670) (77,335,028)
-------------- -------------- -------------
Gross Profit 49,891,420 45,282,424 34,542,903
Selling, General and Administrative
Expenses (35,445,230) (33,345,370) (27,671,913)
-------------- -------------- -------------
Operating Profit 14,446,190 11,937,054 6,870,990
Interest Expense (411,672) (673,861) (858,951)
Foreign Currency Exchange Differences (1,736,876) 5,076 47,761
Other Income, net 404,798 358,213 211,022
-------------- -------------- -------------
Income before Income Taxes 12,702,440 11,626,482 6,270,822
Income Tax Expense 3 (5,286,363) (4,137,323) (2,011,228)
-------------- -------------- -------------
Income after Income Taxes 7,416,077 7,489,159 4,259,594
Equity in Earnings of Associated Company 164,600 - -
Minority Interests in Net Earnings (195,973) (783,847) (466,055)
-------------- -------------- -------------
Net Income 7,384,704 6,705,312 3,793,539
============== ============== =============
Net Income per Share NLG3.70 NLG3.44 NLG1.93
-------------- -------------- -------------
Weighted Average Shares 1,994,655 1,948,000 1,962,000
-------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 2
-33-
<PAGE>
METRON SEMICONDUCTORS EUROPA B.V., ALMERE
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
============================================================================
(in Dutch Guilders) Notes 31 May 1995 31 May 1994
- -------------------------------------- ----- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents 4 13,258,686 8,805,082
Trade Accounts Receivable, less
Allowance for Doubtful Accounts
of NLG 1,687,009 in 1994 and
NLG 869,401 in 1993 33,291,994 36,978,551
Accounts Receivable from Associated
Company 400,600 -
Inventories 1 8,411,874 10,049,421
Income Taxes Receivable 740,962 -
Prepaid Expenses and Other Current
Assets 3,084,519 2,874,892
----------- -----------
Total Current Assets 59,188,635 58,707,946
----------- -----------
Property, Plant and Equipment 5 5,586,248 5,418,786
Investment in Associated Company 6 2,177,239 -
---------- ----------
66,952,122 64,126,732
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank Overdrafts 4 4,483,020 2,255,820
Current Maturities of Long-Term Debt 7 348,604 669,161
Accounts Payable 14,563,651 16,455,999
Accounts Payable to Related Companies 8 8,791,471 11,439,365
Income Taxes Payable 3,010,036 3,155,824
Accrued Liabilities 9 6,624,709 6,825,864
Other Current Liabilities 3,556,911 3,914,185
---------- ----------
Total Current Liabilities 41,378,402 44,716,218
---------- ----------
Long-Term Debt, less Current Maturities 7 115,966 450,999
Deferred Taxation 8,659 19,839
Shareholders' Equity:
Shares of NLG 0.10 par value;
10,000,000 Shares
authorised, issued and outstanding,
2,127,171 Shares of NLG 0.10 par value
at 31 May 1995 and 950 Shares NLG
25.00 par value at 31 May 1994 10 212,717 23,750
Additional Paid in Capital 1,411,613 -
Shares held in Treasury
12,500 Shares at 31 May 1994 - (623,660)
Translation Adjustment (2,237,252) (1,188,822)
Retained Earnings 26,062,017 18,843,563
---------- ----------
Total Shareholders' Equity 25,449,095 17,054,831
---------- ----------
Minority Interests in Subsidiaries - 1,884,845
Commitments and Contingencies 12 & 13
--------- ----------
66,952,122 64,126,732
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 3
-34-
<PAGE>
METRON SEMICONDUCTORS EUROPA B.V., ALMERE
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended 31 May 1995, 1994 and 1993
<TABLE>
<CAPTION>
=================================================================================
(in Dutch Guilders) 1994/5 1993/4 1992/3
- ---------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Operating Activities
Net Income 7,384,704 6,705,312 3,793,539
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation 892,708 960,864 891,811
Minority Interests in Net Earnings 195,973 783,847 281,840
Equity in Earnings of Associated Company (164,600) - -
Changes in Operating Assets and
Liabilities:
Accounts Receivable 3,686,557 (7,395,901) (6,747,468)
Accounts Receivable from Associated
Company (400,600) - -
Inventories 1,637,547 (4,093,519) (281,249)
Refundable Income Tax Benefit (740,962) - 460,348
Prepaid Expenses and Other Current
Assets (209,627) 135,453 (1,147,879)
Accounts Payable (1,892,348) 4,627,059 308,640
Accounts Payable to Related Companies (2,647,894) 3,921,800 1,741,004
Income Taxes Payable (145,788) 1,007,183 1,606,254
Accrued Liabilities (201,155) 2,034,233 1,582,324
Other Current Liabilities (357,274) 1,412,414 1,314,679
Deferred Taxation (11,180) 19,839 -
---------- ---------- ----------
Net cash provided by operations 7,026,061 10,118,584 3,803,843
---------- ---------- ----------
Investing Activities
Acquisition of Equipment (1,292,203) (1,376,423) (1,150,250)
Proceeds from Sale of Equipment 63,316 221,127 104,245
Investment in Associated Company (2,084,347) - -
Acquisition of Minority Interests in
Subsidiaries (2,057,990) - -
---------- ---------- ----------
Net cash used in investing activities (5,371,224) (1,155,296) (1,046,005)
---------- ---------- ----------
Financing Activities
Principal payments on Long-Term Debt (655,590) (715,873) (573,121)
Additions to Long-Term Debt - 169,206 960,688
Issue of new Shares and Shares held in
Treasury 2,057,990 - -
Purchase of Shares held in Treasury - (378,310) (49,227)
Net increase (decrease) in Bank
Overdrafts 2,227,200 (3,736,612) 46,234
--------- --------- ----------
Net cash provided by (used in)
financing activities 3,629,600 (4,661,589) 384,574
--------- --------- ----------
Effect of exchange rate changes on Cash (830,833) (87,306) (294,265)
--------- --------- ---------
Net increase (decrease) in Cash 4,453,604 4,214,393 2,848,147
Cash and Cash Equivalents at beginning
of the year 8,805,082 4,590,689 1,742,542
--------- --------- ----------
Cash and Cash Equivalents at end of year 13,258,686 8,805,082 4,590,689
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 4
-35-
<PAGE>
METRON SEMICONDUCTORS EUROPA B.V., ALMERE
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended 31 May 1995, 1994 and 1993
<TABLE>
<CAPTION>
==========================================================================================================================
Shares Addl. Paid Held in Translation Retained
---------------------
(in Dutch Guilders) Number Amount in capital Treasury Adjustment Earnings Total
- ------------------- ----------- ------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance 31 May 1992 983 24,575 (196,948) (633,330) 8,344,712 7,539,009
Net Income - - - - 3,793,539 3,793,539
Translation Difference - - - (464,562) - (464,562)
Shares Repurchased (4) (100) (49,127) - - (49,227)
----------- ------- -------- ---------- ---------- ----------
Balance 31 May 1993 979 24,475 (246,075) (1,097,892) 12,138,251 10,818,759
Net Income - - - - 6,705,312 6,705,312
Translation Difference - - - (90,930) - (90,930)
Shares Repurchased (29) (725) (377,585) - - (378,310)
----------- ------- -------- ---------- ---------- ----------
Balance 31 May 1994 950 23,750 (623,660) (1,188,822) 18,843,563 17,054,831
Shares issued as a result of the
change in nominal value 236,550 - - - - -
Shares issued as a result of the
capitalisation of reserves 1,662,500 166,250 - - (166,250) -
Shares issued in exchange for
minority interests in subsidiaries 227,171 22,717 1,411,613 623,660 - - 2,057,990
Net Income - - - - 7,384,704 7,384,704
Translation Difference - - - (1,048,430) - (1,048,430)
----------- ------- --------- -------- ---------- ---------- ----------
Balance 31 May 1995 2,127,171 212,717 1,411,613 - (2,237,252) 26,062,017 25,449,095
=========== ======= ========= ======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 5
-36-
<PAGE>
METRON SEMICONDUCTORS EUROPA B.V., ALMERE
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the years ended 31 May 1995, 1994 and 1993
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the financial statements of all
subsidiaries. All significant intercompany balances and transactions have been
eliminated.
The balance sheets of the subsidiaries are translated into Dutch Guilders (NLG)
at the rates of exchange ruling at the balance sheet date, whereas the profit
and loss accounts are translated at average rates. The resulting translation
adjustment is charged or credited to Shareholders' Equity in the accompanying
balance sheet.
The 50% investment in an associated company is accounted for using the equity
method.
Revenue Recognition
Revenue is recognised on delivery of goods or the provision of services to the
customers.
Inventories
Inventories consist primarily of purchased products and are stated at the lower
of cost (first-in, first-out basis) or net realisable value. Suitable allowance
has been made for slow moving and obsolete items.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less depreciation. Depreciation
is primarily determined by the straight-line method based on the estimated
useful lives as follows:
<TABLE>
<CAPTION>
<S> <C>
- - buildings and improvements: 10 to 50 years;
- - machinery and equipment: 3 to 17 years;
- - motor vehicles: 3 to 7 years.
</TABLE>
Land is not depreciated. When assets are retired or disposed of, the cost and
accumulated depreciation thereon is removed from the accounts and any gains or
losses included in the income statement. Repair and maintenance expenses are
capitalised only if they extend the useful life of the related asset.
Income Taxes
Deferred income taxes are provided to reflect the tax effect of temporary
differences between financial reporting and taxable income, where applicable.
Deferred income taxes have not been provided for undistributed earnings of
subsidiaries, as it is the intention of management to finance the development of
the companies through retention of earnings.
Product Warranty
Generally, the company warrants products sold to customers to be free from
defects in material and workmanship for up to one year. Provision is made for
the estimated cost of fulfilling these warranties at the time of sale.
Page 6
-37-
<PAGE>
METRON SEMICONDUCTORS EUROPA B.V., ALMERE
Foreign Currency Transactions
Assets and liabilities denominated in foreign currencies are translated at
exchange rates ruling at the balance sheet date. Transactions in foreign
currencies are translated at exchange rates approximating those at the
transaction date. The resulting gains and losses are included in the profit and
loss account.
Exposure to exchange movement risks is minimised by matching the maturities of
foreign currency assets and liabilities, mainly accounts receivable and accounts
payable. Periodically, hedging transactions are entered into by the Company or
its subsidiaries to hedge differences existing between foreign currency assets
and liabilities.
Net Income Per Share
Net income per share is computed based on the weighted average number of shares
outstanding during the year. Comparative amounts have been adjusted to reflect
the reduction in nominal value and the issue of new shares through the
conversion of reserves. There are no dilutive share equivalents.
2 ADDITIONAL SALES INFORMATION AND CONCENTRATION OF CREDIT RISK
The Company operates in the semiconductor manufacturing sector. Approximately
13% in 1994/5, 26% in 1993/4 and 23% in 1992/3 of net sales for the years then
ended were made to one, two and two customers, respectively, which individually
represented more than 10% of net sales.
Sales by geographic area are summarised as follows:
<TABLE>
<CAPTION>
=======================================================
(in Dutch Guilders '000) 1994/5 1993/4 1992/3
- ------------------------------------- -------- --------
<S> <C> <C> <C>
Europe 166,700 154,170 109,856
Africa and the Middle East 6,397 6,309 2,022
------- ------- -------
173,097 160,479 111,878
======= ======= =======
</TABLE>
It is impractical to determine net income and identifiable assets by region, as
the sales are made by companies in Europe.
A large portion of the Company's sales are made to a number of major publicly
owned corporations. There is a concentration of credit risk in accounts
receivable from these customers. The credit risk associated with non-payment
from these customers is affected by conditions or occurrences within their
industries. However, accounts receivable from these customers were substantially
current at 31 May 1995. The Company believes that there is no significant credit
risk with respect to these receivables.
Page 7
-38-
<PAGE>
METRON SEMICONDUCTORS EUROPA B.V., ALMERE
3. INCOME TAXES
Income before income taxes is as follows:
===========================================================================
(in Dutch Guilders) 1994/5 1993/4 1992/3
- --------------------------------------------------- ---------- ---------
The Netherlands 1,401,313 1,338,411 484,970
Foreign 11,301,127 10,288,071 5,785,852
---------- ---------- ---------
12,702,440 11,626,482 6,270,822
========== ========== =========
Income tax expense is as follows:
===========================================================================
(in Dutch Guilders) 1994/5 1993/4 1992/3
- ---------------------------------------------------------------------------
Current
The Netherlands 457,278 347,541 -
Foreign 4,838,888 3,769,581 2,011,228
Deferred
Foreign (9,803) 20,201 -
--------- --------- ---------
5,286,363 4,137,323 2,011,228
========= ========= =========
The expected tax rate is dependent on the amount of the profit in each of the
individual companies and the rates of tax in the countries in which the
companies operate. The rate will vary from year to year. The effective tax rate
differs from the expected tax rate as follows:
==================================================================
1994/5 1993/4 1992/3
- ------------------------------------------------------------------
Expected income tax rate based on 40.6 % 42.8 % 40.9 %
statutory tax rates
Use of prior year tax losses brought
forward - (1.3)% (2.9)%
Tax credit arising from dividends from (0.9)% (7.2)% (9.6)%
a subsidiary
Loss benefit limitation on tax losses 0.4 % - % 1.7 %
carried forward
Other, mainly permanent differences 1.2 % 0.8 % 2.0 %
------ ------ ------
Effective income tax rate 41.3 % 35.1 % 32.1 %
====== ====== ======
Tax losses carried forward amounted to NLG 1,409,000 (31 May 1994: NLG
1,380,000), with no expiry date. A full valuation allowance has been provided
against the related deferred tax asset, as there does not appear to be a chance
of realisation in the near future. The deferred tax liability relates to
differences between depreciation rates used for the financial statements and
those for tax purposes.
Page 8
-39-
<PAGE>
METRON SEMICONDUCTORS EUROPA B.V., ALMERE
4 CASH AND BANK OVERDRAFTS
Cash and cash equivalents represents cash on hand and at banks and time deposits
maturing within three months of the end of the year.
The Company and its subsidiaries have overdraft facilities in various currencies
with a number of banks. Interest is charged at current market rates for amounts
used under these facilities. The facilities are secured by charges over most of
the assets of the Company and its subsidiaries. The amount of the facilities and
their usage are as follows:
========================================================
(in Dutch Guilders) 31 May 1995 31 May 1994
- ------------------------------------------- -----------
Total facilities available 13,337,114 10,452,070
Usage 4,483,020 2,255,820
5 PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are shown as follows:
==================================================================
(in Dutch Guilders) 31 May 1995 31 May 1994
- ----------------------------------------------------- -----------
Land 1,166,445 1,168,449
Buildings and Leasehold Improvements 4,279,289 4,033,382
Machinery, Equipment and Motor Vehicles 6,336,463 5,900,703
---------- ----------
11,782,197 11,102,534
Less: Accumulated Depreciation 6,195,949 5,683,748
---------- ----------
5,586,248 5,418,786
========== ==========
Included in Machinery, Equipment and Motor Vehicles are assets under capital
leases with a net book value of NLG 334,693 (1994: NLG 487,541).
6 INVESTMENT IN ASSOCIATE
On 31 January, the Company acquired 50% of FSI Metron Europe Ltd. (formerly
Vinylglass Ltd.), England, a manufacturer of chemical distribution systems and
wet benches, to increase its presence in the European chemical distribution
market. FSI International, Inc., a related party, acquired the other 50% at the
same time. FSI Metron Europe Ltd. is accounted for using the equity method. Its
financial year end was altered to 31 May. Its assets, liabilities and results of
operations are summarised as follows:
Page 9
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<PAGE>
METRON SEMICONDUCTORS EUROPA B.V., ALMERE
<TABLE>
<CAPTION>
=============================================================
(in thousands of Dutch Guilders) 31 May 1995 31 July 1994
- ----------------------------------------------- ------------
<S> <C> <C>
Current Assets 4,129 2,129
Non-current assets 775 833
Current Liabilities 2,716 1,661
Non-current Liabilities 72 132
Shareholders' Equity 2,116 1,169
1994/5 1993/4
----------- ------------
10 Months
Sales 7,849 6,214
Net Income 1,110 74
</TABLE>
The cost of the investment was NLG 2,084,347, including goodwill of NLG
1,204,285. The goodwill element is being written off over a period of 5 years,
being the Company's assessment of the useful life of the goodwill.
In the period 1 February to 31 May 1995, the Group sold approximately NLG
1,087,000 of its products to its associate and purchased approximately NLG
174,000 products from its associate.
7 LONG-TERM DEBT
Long-term debt is summarised as follows:
<TABLE>
<CAPTION>
==================================================================
(in Dutch Guilders) 31 May 1995 31 May 1994
- ----------------------------------------------------- -----------
<S> <C> <C>
DEM loan repayable in six-monthly
instalments of DEM 131,250 up to March
1995; interest 6.75% p.a.; secured by
a mortgage on the land and buildings
in Germany; - 294,394
Instalment loans: interest at various
rates between 9.75% and 16%; repayable
by May 1996; secured by charges on
certain assets. 201,778 426,756
GBP instalment loans on capital leases;
interest at various rates between
10.2% and 17.6%; repayable by April
1998 207,166 305,731
NIS loan and instalment loans on
capital lease; interest rates between
17% and 21%; repayable by September
1998. 55,626 93,279
----------- -----------
464,570 1,120,160
Less: current maturities 348,604 669,161
----------- -----------
115,966 450,999
=========== ===========
</TABLE>
The debt is repayable as follows: 1995/6 NLG 348,604; 1996/7 NLG 70,591; 1997/8
NLG 45,259; 1998/9 NLG 116
Page 10
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<PAGE>
METRON SEMICONDUCTORS EUROPA B.V., ALMERE
8 Related Parties
Two of the company's shareholders each own between 20% and 50% of the
outstanding shares. The Company purchases goods from these shareholders and
their subsidiaries for resale in the normal course of business. The terms and
conditions of these purchases are similar to those with non-related vendors.
9 Accrued Liabilities
Included in accrued liabilities is NLG 2,690,000 (1993/4: NLG 3,110,000) for
amounts due under various profit sharing schemes.
10 Share Capital
During the year, the following changes occurred in the share capital:
i The authorised capital of the company was increased from 1,000 shares of
NLG 25.00 to 10,000,000 shares of NLG 0.10.
ii The issued share capital was changed from 1,000 shares of NLG 25.00 to
250,000 shares of NLG 0.10.
iii 1,662,500 new shares of NLG 0.10 were issued to existing shareholders
through capitalising reserves.
iv 214,671 new shares plus the 12,500 shares held in treasury were issued in
exchange for the minority shareholdings in two subsidiary companies.
Also, the company and entered into an agreement with its two minority
shareholders that under certain circumstances (e.g. termination of employment,
death) they or their estates may require the company to purchase their share
holdings at a price to be calculated based on asset value and with restrictions
as to the number of shares that can be purchased and the amount that may be paid
for all such purchases in any one year.
Circumstances which could lead to the Company being required to acquire its own
shares under this agreement did not occur during the year. Subsequent to the
year-end, this agreement was terminated as part of the agreement to acquire the
Asian and American companies (see Note 15).
Page 11
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<PAGE>
METRON SEMICONDUCTORS EUROPA B.V., ALMERE
11 PENSION PLANS
Most employees are covered by defined contribution plans, which are funded with
insurance companies. Annual costs for such plans amounted to NLG 548,686 in
1994/5 NLG 446,844 in 1993/4 and NLG 300,281 in 1992/3.
There are defined benefit plans for a small number of employees. The components
of the cost of these plans were:
<TABLE>
<CAPTION>
=============================================================================
(in Dutch Guilders) 1994/5 1993/4 1992/3
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Service Cost 59,622 37,009 87,273
Interest Cost 58,508 38,529 30,926
Amortisation 11,684 11,701 11,730
------- ------- -------
Pension Cost 129,814 87,239 129,929
======= ======= =======
The funding status of the plans was
=============================================================================
(in Dutch Guilders) 31 May 1995 31 May 1994
- --------------------------------------------------------------- -----------
Accumulated benefit obligation
Actuarial present value of vested benefits 719,403 612,052
Additional benefits based on projected future
salary increases 223,693 224,300
------- -------
Projected benefit obligation 943,096 836,352
======= =======
Plan assets less than projected benefit obligation 943,096 836,352
======= =======
Accrued liability at year end 836,121 707,794
Unrecognised transition amount, net of 116,647 128,558
amortisation
Unrecognised net gain (9,672) -
------- -------
943,096 836,352
======= =======
The assumptions used in determining the
above amounts were:
=============================================================================
1994/5 1993/4 1992/3
- ------------------------------------------------- --------- ---------
Discount rate 7.0% 6.0% 6.0%
Compensation increase 3.5% 3.5% 3.5%
</TABLE>
Page 12
-43-
<PAGE>
METRON SEMICONDUCTORS EUROPA B.V., ALMERE
12 COMMITMENTS
The Company and its subsidiaries have commitments arising from lease and rental
contracts amounting to annual expenses of:
<TABLE>
<CAPTION>
============================================================
(in Dutch Guilders) Capital Operating
- ------------------------------------------------- ---------
<S> <C> <C>
Year ending 31 May 1996 128,394 1,439,308
1997 28,327 1,025,677
1998 10,649 574,293
1999 - 377,203
2000 - 304,722
Thereafter - 2,400,074
--------- ---------
167,370 6,121,277
========= =========
</TABLE>
The Company and its subsidiaries have given guarantees mainly to banks with a
maximum commitment of NLG 1,758,688.
Rental expense for all operating leases was NLG 1,596,693 in 1994/5, NLG
1,335,620 in 1993/4 and NLG 1,339,891 in 1992/3.
The amount of the capital lease commitment excluding the interest element and
including the buy back price is NLG 251,754.
13 CONTINGENCIES
The Company and its subsidiaries are involved in various disputes arising from
the normal course of business. These disputes are for minor amounts and are not
material to the consolidated financial statements, either individually or in
total.
14 SUPPLEMENTARY CASH FLOW INFORMATION
The Company paid interest in 1994/5, 1993/4 and 1992/3 of NLG 418,474, NLG
684,127 and NLG 796,000, respectively. Net income taxes paid in 1994/5 and
1993/4 were NLG 5,112,062 and NLG 2,930,060, respectively, and net income taxes
received in 1992/3 were NLG 78,000. The non-cash investing and financing
activities in 1994/5, 1993/4 and 1992/3 included NLG 31,000, NLG 95,000 and NLG
375,000, respectively, for the purchase of cars under capital leases and NLG
2,057,990 in 1994/5 for the acquisition of the minority interests in subsidiary
companies.
15 DISCLOSURE CONCERNING FINANCIAL INSTRUMENTS
The Company has no significant off-balance sheet financial instruments at 31 May
1995 and 1994.
The carrying-value of accounts receivable and accounts payable approximate fair
values due to their short-term maturities. The carrying value of long-term debt
does not significantly differ from its estimated fair value.
Page 13
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<PAGE>
METRON SEMICONDUCTORS EUROPA B.V., ALMERE
16 Subsequent Events
Following a strategic review of the effects of the globalisation of the business
of our customers on the Group, the Company and its major shareholders decided to
position the Group as the leading world-wide distributor of products to the
semiconductor manufacturing industry outside Japan. Subsequent to the year under
review, the following significant transactions were completed to reach this
objective:
i In June, the Company acquired the entire share capital of three companies
trading in Asia (the Metron Asia Group), excluding Japan, from its two major
shareholders in exchange for 531,792 new shares in the Company.
ii In July, the Company acquired the entire share capital of Transpacific
Technology Corporation, a leading American distribution and sales
representation group with subsidiary companies in Europe, in exchange for
262,974 new shares in the Company, $500,000 cash and $1,300,000 promissory
notes.
17 New Accounting Standards
In March 1995, the US Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (FAS) No. 121, Accounting for the Impairment of
Long-Lived Assets to be Disposed Of. This statement establishes accounting
standards relating to the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used and for
long-lived assets and certain intangibles to be disposed of. The Company is
first required to comply with the requirements of FAS No. 121 in its
Consolidated Financial Statements for fiscal 1997. However, the company does not
believe that implementation of FAS No. 121 will have a material impact on its
financial statements.
Page 14
-45-
<PAGE>
[KPMG LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Metron Semiconductors Europa B.V.
Almere, The Netherlands
We have audited the accompanying consolidated balance sheets of Metron
Semiconductors Europa B.V. and its subsidiaries as of 31 May 1995 and 1994 and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the years ended 31 May 1995, 1994 and 1993 . The 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatements. 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 Metron
Semiconductors Europa B.V. and its subsidiaries as of 31 May 1995 and 1994 and
the results of their operations and their cash flows for each of the years ended
31 May 1995, 1994 and 1993 in conformity with accounting principles generally
accepted in the United States of America.
Amstelveen, The Netherlands, 20 July 1995.
/s/ KPMG Accountants
Signature for identification purposes: X
---
Ref.: drs. H.C.M. van Damme / C.J. Swaan
[KPMG LETTERHEAD]
-46-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE(S)
-------
<C> <S> <C>
10.26 FSI International, Inc. 1995 Incentive Plan 48-54
10.27 FSI International, Inc. 1996 Incentive Plan 55-62
10.28 First Amendment to Lease made and entered into 63-75
October 31, 1995 by and between Lake Hazeltine
Properties and FSI International, Inc.
10.29 Distribution Agreement made and entered into as 76-88
of July 6, 1995 by and between FSI International,
Inc. and Metron Semiconductors Europa B.V.
(Exhibits to Agreement omitted)
10.30 Lease dated August 9, 1995 between Skyline 89-106
Builders, Inc. and FSI International, Inc.
10.31 Lease Rider dated August 9, 1995 between Skyline 107-112
Builders, Inc. and FSI International, Inc.
10.32 Lease Amendment dated November 15, 1995 between 113-114
Roland A. Stinski and FSI International, Inc.
(Exhibits to Amendment omitted)
11.1 Computation of Per Share Earnings of FSI 115
International, Inc.
13.0 1995 Annual Report to Shareholders (not deemed 116-153
"filed" as part of this Form 10-K except for those
portions that are expressly incorporated by reference)
21.0 Subsidiaries of the Company 154
23.0 Consent of KPMG Peat Marwick LLP 155
23.1 Consent of KPMG Accountants N.V. 156
24.0 Powers of Attorney from the Directors of FSI
International, Inc. 157-163
</TABLE>
-47-
<PAGE>
EXHIBIT 10.26
FSI
1995 INCENTIVE PLAN
1. PURPOSE
The purposes of the FSI 1995 Incentive Plan are to attract, motivate and
retain high caliber employees who play significant roles in the attainment
of annual corporate and divisional performance objectives.
2. DESCRIPTION
The Plan provides for cash awards if the Company or its operating divisions
have met or exceeded preestablished Performance Targets.
3. DEFINITIONS
When used in the Plan these words and phrases shall have these meanings:
"Annual Base Earnings": a Participant's base salary or wages during
the Company's 1995 fiscal year, exclusive of profit-sharing contributions,
incentive or discretionary bonuses, sales commissions or any other form of
cash compensation and without regard to any deductions for taxes, or pre-
tax deductions under the Company's benefit plans. The determination of
Annual Base Earnings rests solely with the Company and its determination
shall be final, binding and conclusive.
"Award": a cash award granted under the Plan.
"Board": the Board of Directors of the Company.
"Committee": a committee consisting of the Company's Chief Executive
Officer, Executive Vice President and Chief Financial Officer, and Vice
President, Quality and Human Resources.
"Company": FSI International, Inc., its successors or assigns.
"Division": one or more of the Company's operating divisions,
Chemical Management, Microlithography and Surface Conditioning.
"Goal": the level of financial performance established by the
Committee for the Company or a Division that meets the respective Company
or Division's financial objectives for the 1995 fiscal year.
-48-
<PAGE>
"Eligible Employee": a person who during the 1995 fiscal year was a
regular full-time salaried employee of the Company or a Subsidiary and who,
in the opinion of the Committee, is a key employee whose performance
contributed to the successful performance of the Company or a Subsidiary.
"Maximum": the level of financial performance established by the
Committee for the Company or a Division that yields the maximum possible
Award under the Plan for that Company or Division and is 120% of the Goal
for the Company or the respective Division.
"Participant": an Eligible Employee to whom an Award has been made
under the Plan.
"Performance Targets": the Threshold, Goal and Maximum financial
performance targets established by the Committee for the Company and each
Division.
"Plan": this 1995 Incentive Plan.
"Subsidiary": a corporation, domestic or foreign, the majority of the
voting stock of which is owned directly by the Company.
"Threshold": the level of financial performance established by the
Committee for the Company or a Division necessary to result in an Award
under the Plan and which is 85% of Goal for the Company or the respective
Division.
4. PLAN ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall have
all necessary powers to administer and interpret the Plan, such powers to
include the authority to select Eligible Employees to whom awards may be
granted under the Plan and to determine the amount of any Award to be
granted to any Eligible Employee, except that the aggregate amount of
Awards to be granted by the Committee to all Eligible Employees shall be
approved by the Board or the Board's Compensation Committee. The Committee
shall have full power and authority to adopt such rules and regulations for
the administration of the Plan and for the conduct of its business as the
Committee deems necessary or advisable. The Committee's interpretations of
the Plan, the determination of any Awards, and all actions taken and
determinations made by the Committee pursuant to the powers vested in it,
shall be final, conclusive and binding on all parties.
5. PLAN YEAR
The plan year will be the Company's 1995 fiscal year.
-2-
-49-
<PAGE>
6. EFFECTIVE DATE
The effective date of the Plan will be the first day of the 1995 fiscal
year.
7. PARTICIPATION AND NOTIFICATION
Eligible Employees in the Plan shall be selected by the Committee from
among the Company's and its Subsidiaries' employees based upon such
criteria as the Committee may from time to time determine including an
employee's grade level and position with the Company or a Subsidiary.
After the beginning of the fiscal year, Eligible Employees will be notified
of their eligibility for participation in the Plan. Eligibility in any one
year does not automatically qualify a participant for future years' Plans.
Employees hired during the Plan Year are eligible for participation in the
Plan and, if selected by the Committee, will be so notified.
Eligible Employees in this Plan shall not be eligible to participate in any
other FSI incentive or sales commission plan unless authorized in writing
by the Committee and the Compensation Committee of the Board.
In order to be eligible for an Award under the Plan, an Eligible Employee
must be actively employed on the last day of the Plan Year and as of such
date have been rated above 70 on his or her most recent performance review
or have had no such performance evaluation within the twelve months
preceding the end of the Plan Year.
8. GRANTING OF AWARDS
(A) Near the beginning of the Plan Year, the Committee established in
writing the Performance Targets for the Company and the Divisions. In each
case, there is a Threshold, Goal and Maximum financial objective
established for the Company and each of the Divisions. The Performance
Targets are comprised of specified annual levels of one or more performance
criteria that the Committee may deem appropriate, including, but not
limited to, such matters as: earnings per share, net earnings, operating
earnings, net sales, return on assets, return on capital or the like. In
determining whether such Performance Targets have been achieved, the
Committee may disregard or offset the effect of any special charges or
gains or the cumulative effect of a change in accounting in determining the
attainment of one or more Performance Targets.
(B) Prior to or soon after the beginning of the Plan Year, the
Committee, in consultation with the appropriate members of the Company's
management, shall determine the percentage of Annual Base Earnings that
each Eligible Employee shall
-3-
-50-
<PAGE>
be entitled to receive if Threshold, Goal or Maximum Performance Targets
are achieved and if certain levels between Goal and Maximum, i.e., 105%,
110% and 115% of Goal are achieved. Eligible Employees shall be classified
in one of several tiers for determination of what is the appropriate
percentage of Annual Base Earnings upon which their total potential Award
is to be based. Each Eligible Employee will be notified as to the
percentage applicable to such employee and the master list will be kept by
the Committee or its designee. Eligible Employees who perform services
primarily on behalf of a Division are eligible for Awards based upon the
achievement of Performance Targets by the Company and by their Division. In
such cases, the Company's Performance Target is weighted 40% and the
Division's Performance Target is weighted 60%.
(C) After the completion of the Plan Year, the Committee shall
determine, in consultation with the Board, the level of achievement of the
pre-established Performance Targets. If Threshold for the Company or the
applicable Division has not been achieved, there shall be no Awards
pursuant to the Plan to the Eligible Employees covered thereby with respect
to those Performance Targets. Financial performance in excess of Maximum
will not result in any additional payments pursuant to the terms of the
Plan. Awards shall be authorized only after consultation with the Board.
(D) The Committee (and the Board in the case of Performance Targets)
shall have complete discretion with respect to the determination of the
attainment of the Performance Targets, the Eligible Employees to whom
Awards shall be granted and the determination of eligibility.
9. PAYMENT OF AWARDS
Awards under the Plan shall be paid in cash generally within 90 days
following the end of the Plan Year. The Plan shall at all times be entirely
unfunded. No provision shall at any time be made with respect to
segregating assets of the Company for payment of any distributions
hereunder. No Participant or any other person shall have any interest in
any particular assets of the Company by reason of the right to receive an
Award.
10. TERMINATION OF EMPLOYMENT
All potential awards under this Plan are forfeited if an employee's
employment with FSI is terminated either voluntarily or involuntarily prior
to the end of the Plan year except due to death, disability or retirement.
11. DEATH, DISABILITY OR RETIREMENT OF A PARTICIPANT
In the event that a Participant dies, becomes permanently disabled or
retires during the Plan Year, a pro-rated Award may be made. The pro-rated
Award, if any, will be made
-4-
-51-
<PAGE>
based on the number of months actively employed during the Plan Year and
such other criteria as the Committee shall determine.
12. EMPLOYMENT
Participation in this Plan does not confer or infer that an Eligible
Employee has any right to continued employment with the Company or a
Subsidiary. There is no employment agreement or right associated with
participation in this Plan, nor does participation in this Plan restrict
FSI's ability to terminate the employment of an Eligible Employee at any
time for any reason.
13. GOVERNMENT AND OTHER REGULATIONS
The obligation of the Company to make payments or distributions under the
Plan shall be subject to all applicable laws, rules and regulations, and to
such approvals by governmental agencies as may be required.
14. TAX WITHHOLDING
The Company shall have the right to deduct from all Awards any federal,
state, local or foreign taxes as required by law to be withheld with
respect to such cash payments. Tax withholding from the Award will be based
on the Participant's normal withholding rates, unless the Participant
submits a written request to have withholding at a different rate and such
is permitted by law. All tax liabilities will remain the responsibility of
the Participant.
15. BENEFICIARIES
Any payment due to a deceased Participant shall be made to the
Participant's surviving spouse. If a Participant does not have a surviving
spouse, payment shall be made to the Participant's legal representative.
16. NON-TRANSFERABILITY
No Award payable under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance
or charge prior to actual receipt thereof by the payee; and any attempt to
so anticipate, alienate, sell, transfer, assign, pledge, encumber or charge
prior to such receipt shall be void except, in the event of an Employee's
death, to the Employee's surviving spouse or in the absence of a surviving
spouse by will or the laws of descent and distribution. The Company shall
not be liable in any manner for or subject to the debts, contracts,
liabilities, engagements or torts of any person entitled to any
distribution under the Plan.
-5-
-52-
<PAGE>
17. INDEMNIFICATION
The members of the Board, its Compensation Committee and the Plan's
Committee shall be defended, indemnified and held harmless by the Company
against and from any loss, cost, liability or expense that may be imposed
upon or reasonably incurred by them in connection with or resulting from
any claim, action, suit or proceeding to which they may be a party or in
which they may be involved by reason of any action or failure to act under
the Plan and against and from any and all amounts paid by them in
satisfaction of judgment in any such action, suit or proceeding against
them. They shall give the Company an opportunity, at its own expense, to
handle and defend the same before they undertake to handle and defend it on
their own behalf. The foregoing right of indemnification and defense shall
not be exclusive of any other rights of indemnification to which they may
be entitled under the Company's Articles of Incorporation or Bylaws, as a
matter of law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.
18. RELIANCE ON REPORTS
The Board, its Compensation Committee and the Plan's Committee shall be
fully justified in relying or acting in good faith upon any report made by
the independent public accountants of the Company and upon any other
information furnished in connection with the Plan by any person or persons
other than themselves. In no event shall they be liable for any
determination made or other action taken or any omission to act in reliance
upon any such report or information or for any action taken, including the
furnishing of information, or failure to act, if in good faith.
19. RELATIONSHIP TO OTHER BENEFITS
No payment under the Plan shall be taken into account in determining any
benefits under any pension, retirement, profit sharing, group insurance or
other benefit plan of the Company or a Subsidiary unless specifically so
provided under such plan.
20. EXPENSES
The expenses of administering the Plan shall be borne by the Company.
21. TITLES AND HEADINGS
The titles and headings of the section in the Plan are for convenience of
reference only and in the event of any conflict, the text of the Plan,
rather than such titles or headings, shall control.
-6-
-53-
<PAGE>
22. AMENDMENTS AND TERMINATION
The Board may at any time terminate the Plan, and the Board or the Plan's
Committee may, at any time, or from time to time, amend or suspend and, if
suspended, reinstate, the Plan in whole or in part.
-7-
-54-
<PAGE>
EXHIBIT 10.27
-------------
FSI
1996 INCENTIVE PLAN
1. PURPOSE
The purposes of the FSI 1996 Incentive Plan are to attract, motivate and
retain high caliber employees who play significant roles in the attainment
of annual corporate and divisional performance targets.
2. DESCRIPTION
The Plan provides for cash awards if FSI and/or its operating divisions
have met or exceeded preestablished Performance Targets.
3. DEFINITIONS
When used in the Plan these words and phrases shall have these meanings:
"Annual Base Earnings": a Participant's base salary or wages during
the Company's 1996 fiscal year, exclusive of incentive, sales or
discretionary bonuses, sales commissions or any other form of cash
compensation and without regard to any deductions for taxes, or pre-tax
deductions under the Company's benefit plans. The determination of Annual
Base Earnings rests solely with the Company and its determination shall be
final, binding and conclusive.
"Award": a cash award granted under the Plan.
"Board": the Board of Directors of FSI.
"Committee": a committee consisting of FSI's Chief Executive Officer,
Executive Vice President and Chief Financial Officer, and Vice President,
Quality and Human Resources.
"Company": FSI International, Inc., its subsidiaries and their
successors or assigns.
"Covered Position": a position with the Company which is within one
of the salary bands to which the Plan applies.
-55-
<PAGE>
"Division": one or more of FSI's operating divisions, including
Chemical Management (which includes Applied Chemical Solutions),
Microlithography and Surface Conditioning.
"FSI": FSI International, Inc. and its successors or assigns.
"Goal": the level of financial performance established by the
Committee for the Company or a Division that meets the respective Company
or Division's financial objectives for the 1996 fiscal year.
"Eligible Employee": a person who during the 1996 fiscal year was a
regular full-time salaried employee of the Company and who, in the opinion
of the Committee, is a key employee whose performance contributed to the
successful performance of the Company and is in a salary band to which the
Plan applies.
"Maximum": the level of financial performance established by the
Committee for the Company or a Division that yields the maximum possible
Award under the Plan for that Company or Division and is 120% of the Goal
for the Company or the respective Division.
"Participant": an Eligible Employee to whom an Award has been made
under the Plan.
"Performance Targets": the Threshold, Goal and Maximum financial
performance targets established by the Committee for the Company and each
Division.
"Plan": this 1996 Incentive Plan.
"Threshold": the level of financial performance established by the
Committee for the Company or a Division necessary to result in an Award
under the Plan and which is 85% of Goal for the Company or the respective
Division.
4. PLAN ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall have
all necessary powers to administer and interpret the Plan, such powers to
include the authority to select Eligible Employees to whom awards may be
granted under the Plan and to determine the eligibility for and the amount
of any Award to be granted to any Eligible Employee, except that the
aggregate amount of Awards to be granted by the Committee to all Eligible
Employees shall be approved by the Board or the Board's Compensation
Committee. The Committee shall have full power and authority to adopt such
rules and regulations for the administration of the Plan and for the
conduct of its business as the Committee deems necessary or advisable. The
Committee's interpretations of the Plan, the determination of any Awards,
and all actions taken and
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determinations made by the Committee pursuant to the powers vested in it,
shall be final, conclusive and binding on all parties.
5. PLAN YEAR
The Plan Year is the Company's 1996 fiscal year.
6. EFFECTIVE DATE
The effective date of the Plan will be the first day of the 1996 fiscal
year.
7. PARTICIPATION AND NOTIFICATION
Eligible Employees in the Plan shall be selected by the Committee from
among the Company's employees based upon such criteria as the Committee may
from time to time determine including an employee's salary band level and
position with the Company. Except for Participants who are subject to a
non-compete pursuant to a Management Agreement with the Company,
participation in the Plan is conditioned upon the employee's entering into
a new form of non-compete and invention assignment and non-disclosure
agreement or an invention assignment and non-disclosure agreement with the
Company which may in some cases replace an existing agreement between the
employee and the Company.
Near the beginning of the Plan Year, Eligible Employees will be notified of
their eligibility for participation in the Plan. Eligibility in any one
year does not automatically qualify a Participant for future years' Plans.
Employees first hired or promoted into a Covered Position during the Plan
Year are eligible for participation in the Plan on a pro-rata basis and, if
selected by the Committee will be so notified. An individual who transfers
from one Division to another, from a Division to a Core Competency Center
("CCC") or vice versa or from one Covered Position to another within the
same Division or CCC shall be entitled to a pro-rated Award based upon the
Covered Positions held during the Plan Year. As to each such Covered
Position, the pro-ration shall be based upon the Award the individual would
have received had he or she been in that Covered Position the entire year
times a fraction the numerator of which is the number of days during the
Plan Year the individual served in such position and the denominator of
which is 365.
Eligible Employees in this Plan shall not be eligible to participate in any
other Company incentive or sales commission plan unless authorized in
writing by the Committee and the Compensation Committee of the Board.
In order to be eligible for an Award under the Plan, an Eligible Employee
must be actively employed in a Covered Position on the last day of the Plan
Year.
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If as of the end of the Plan Year an Eligible Employee is on a Performance
Improvement Plan ("PIP") due to job performance issues (e.g. a performance
review rating of less than 70), then such individual shall not receive an
Award or Awards to which he or she would otherwise be entitled to under the
Plan, unless each of the following criteria are met:
. The Company determines the individual has satisfactorily completed the
PIP written 90 days following the commencement of the PIP; and
. The Employee is employed in a Covered Position as of the date the PIP
is satisfactorily completed.
8. GRANTING OF AWARDS
(A) Near the beginning of the Plan Year, the Committee established in
writing the Performance Targets for the Company and the Divisions. In each
case, there is a Threshold, Goal and Maximum financial objective
established for the Company and each of the Divisions. The Performance
Targets are comprised of specified annual levels of one or more performance
criteria that the Committee may deem appropriate, including, but not
limited to, such matters as: earnings per share, net income, operating
income, operating income as a percent of net sales, return on assets,
return on investment or the like. In determining whether such Performance
Targets have been achieved, the Committee may disregard or offset the
effect of any special charges or gains or the cumulative effect of a change
in accounting in determining the attainment of one or more Performance
Targets.
(B) Prior to or soon after the beginning of the Plan Year, the
Committee, in consultation with the appropriate members of the Company's
management, shall determine the percentage of Annual Base Earnings that
each Eligible Employee shall be entitled to receive if Threshold, Goal or
Maximum Performance Targets are achieved and if certain levels between Goal
and Maximum, i.e., 105%, 110% and 115% of Goal are achieved. Eligible
Employees shall be classified in one of several tiers for determination of
what is the appropriate percentage of Annual Base Earnings upon which their
total potential Award is to be based. Each Eligible Employee will be
notified as to the percentage applicable to such employee and the master
list will be kept by the Committee or its designee. Eligible Employees who
perform services primarily on behalf of a Division are eligible for Awards
based upon the achievement of Performance Targets by the Company and by
their Division. In such cases, the Company's Performance Target is
weighted 40% and the Division's Performance Target is weighted 60%.
(C) After the completion of the Plan Year, the Committee shall
determine the level of achievement as compared to the pre-established
Performance Targets. If
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Threshold for the Company or the applicable Division has not been achieved,
there shall be no Awards pursuant to the Plan to the Eligible Employees
covered thereby with respect to those Performance Targets. Financial
performance in excess of Maximum will not result in any additional payments
pursuant to the terms of the Plan.
(D) The Committee shall have complete discretion with respect to the
determination of the attainment of the Performance Targets, the Eligible
Employees to whom Awards shall be granted and the determination of
eligibility.
9. PAYMENT OF AWARDS
Awards shall be authorized only after consultation with the Board or its
Compensation Committee. Awards under the Plan shall be paid in cash
generally within 90 days following the end of the Plan Year. The Plan
shall at all times be entirely unfunded. No provision shall at any time be
made with respect to segregating assets of the Company for payment of any
distributions hereunder. No Participant or any other person shall have any
interest in any particular assets of the Company by reason of the right to
receive an Award.
10. TERMINATION OF EMPLOYMENT
All potential awards under this Plan are forfeited if an employee's
employment with the Company is terminated either voluntarily or
involuntarily prior to the end of the Plan Year except due to death,
disability or retirement.
11. FORFEITURES.
If an Eligible Employee received an Award, FSI, by action of the Committee,
will have the right and option (the "Repayment Right') to require the
Employee or his or her legal representative to repay the Award if the
Eligible Employee (i) has engaged in competition with the Company during
the Plan Year or within six months thereafter (the "Applicable Period")
that the Committee concludes is detrimental to the Company, (ii) has made
an unauthorized disclosure of material non-public or confidential
information of the Company during the Applicable Period, (iii) has
committed a material violation of any applicable business plans, policies
or practices of the Company during the Applicable Period, or (iv) has
engaged in conduct reflecting dishonesty or disloyalty to the Company
during the Applicable Period.
In addition, the Committee, may terminate the Eligible Employee's
participation in the Plan if it determines that the Eligible Employee has
engaged or intends to engage in the activities described in (i)-(iv) above.
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The decision to exercise the Repayment Right will be based solely on the
judgment of the Committee, in its sole and complete discretion, given the
facts and circumstances of each particular case.
Such Repayment Right may be exercised by the Committee within 90 days after
the Committee's discovery of an occurrence that entitles it to exercise its
Repayment Right (but in no event later than 270 days after the end of the
Plan Year). Such Repayment Right will be deemed to be exercised upon the
Company's mailing written notice of such exercise, postage prepaid,
addressed to the Eligible Employee at the Eligible Employee's most recent
home address as shown on the personnel records of the Company.
Receipt of an Award by an Eligible Employee constitutes an agreement on the
Eligible Employee's behalf and on behalf of the Eligible Employee's legal
representative or permitted assigns, as the case may be, to deliver to the
Company, on the date specified in such notice, which date will not be less
than 10 nor more than 30 days after such notice, a certified or cashier's
check for the amount of the Award for which the Repayment Right has been
exercised.
12. DEATH, DISABILITY OR RETIREMENT OF A PARTICIPANT
In the event that a Participant dies, becomes permanently disabled or
retires during the Plan Year, a pro-rated Award may be made. The pro-rated
Award, if any, will be made based on the number of months actively employed
during the Plan Year and such other criteria as the Committee shall
determine.
13. EMPLOYMENT
Participation in this Plan does not confer or infer that an Eligible
Employee has any right to continued employment with the Company. There is
no employment agreement or right associated with participation in this
Plan, nor does participation in this Plan restrict the Company's ability to
terminate the employment of an Eligible Employee at any time for any
reason.
14. GOVERNMENT AND OTHER REGULATIONS
The obligation of the Company to make payments or distributions under the
Plan shall be subject to all applicable laws, rules and regulations, and to
such approvals by governmental agencies as may be required.
15. TAX WITHHOLDING
The Company shall have the right to deduct from all Awards any federal,
state, local or foreign taxes as required by law to be withheld with
respect to such cash payments. Tax withholding from the Award will be
based on applicable withholding rates, unless the Participant submits a
written request to have withholding at a different rate and such is
permitted by law. All tax liabilities will remain the responsibility of
the Participant.
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16. BENEFICIARIES
Any payment due to a deceased Participant shall be made to the
Participant's surviving spouse. If a Participant does not have a surviving
spouse, payment shall be made to the Participant's legal representative.
17. NON-TRANSFERABILITY
No Award payable under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance
or charge prior to actual receipt thereof by the payee; and any attempt to
so anticipate, alienate, sell, transfer, assign, pledge, encumber or charge
prior to such receipt shall be void except, in the event of an Employee's
death, to the Employee's surviving spouse or in the absence of a surviving
spouse by will or the laws of descent and distribution. The Company shall
not be liable in any manner for or subject to the debts, contracts,
liabilities, engagements or torts of any person entitled to any
distribution under the Plan.
18. INDEMNIFICATION
The members of the Board, its Compensation Committee and the Committee
shall be defended, indemnified and held harmless by FSI against and from
any loss, cost, liability or expense that may be imposed upon or reasonably
incurred by them in connection with or resulting from any claim, action,
suit or proceeding to which they may be a party or in which they may be
involved by reason of any action or failure to act under the Plan and
against and from any and all amounts paid by them in satisfaction of
judgment in any such action, suit or proceeding against them. They shall
give FSI an opportunity, at its own expense, to handle and defend the same
before they undertake to handle and defend it on their own behalf. The
foregoing right of indemnification and defense shall not be exclusive of
any other rights of indemnification to which they may be entitled under
FSI's Articles of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the FSI may have to indemnify them or hold
them harmless.
19. RELIANCE ON REPORTS
The Board, its Compensation Committee and the Committee shall be fully
justified in relying or acting in good faith upon any report made by the
independent public accountants of the Company and upon any other
information furnished in connection with the Plan by any person or persons
other than themselves. In no event shall they be liable for any
determination made or other action taken or any omission to act in reliance
upon any such report or information or for any action taken, including the
furnishing of information, or failure to act, if in good faith.
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20. RELATIONSHIP TO OTHER BENEFITS
No payment under the Plan shall be taken into account in determining any
benefits under any pension, retirement, profit sharing, group insurance or
other benefit plan of the Company unless specifically so provided under
such plan.
21. EXPENSES
The expenses of administering the Plan shall be borne by the Company.
22. TITLES AND HEADINGS
The titles and headings of the section in the Plan are for convenience of
reference only and in the event of any conflict, the text of the Plan,
rather than such titles or headings, shall control.
23. GENDER AND NUMBER
Except when otherwise indicated by the context, reference to the masculine
gender, shall include, when used, the feminine gender and any term used in
the singular shall also include the plural.
24. AMENDMENTS AND TERMINATION
The Board may at any time terminate the Plan, and the Board or the Plan's
Committee may, at any time, or from time to time, amend or suspend and, if
suspended, reinstate, the Plan in whole or in part.
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EXHIBIT 10.28
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FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE is made and entered into as of this 31st day
of October, 1995, by and between Lake Hazeltine Properties, a Minnesota general
partnership ("Landlord"), and FSI International, Inc., a Minnesota corporation
("Tenant").
RECITALS
A. Landlord, as landlord, and Tenant, as tenant, entered into that certain
Lease dated June 27, 1985 (the "Lease"), covering land improvements at 322 Lake
Hazeltine Drive, located in City of Chaska, Carver County, Minnesota, and
legally described in Section 1.3 of the Lease.
B. Landlord and Tenant now desire to amend the Lease in certain respects
as more specifically provided in this Amendment.
Accordingly, Landlord and Tenant agree as follows:
1. Adjustment Date. The definition of "Adjustment Date" in Section 1.3 is
hereby amended and restated in its entirety as follows:
The first day of each extension period of the Term pursuant to Section 2.2,
commencing November 1, 2000.
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2. Extension of Term. Section 2.2 of the Lease is hereby amended and
restated in its entirety as follows:
2.2 Tenant is hereby granted and shall have the options to extend the
term of this Lease for one five-year period commencing on November 1, 1995
and ending on October 31, 2000, and thereafter for five consecutive periods
of three years each, the first of which shall commence November 1, 2000 and
end on October 31, 2003, and the successive periods to commence at the
expiration of the preceding term, to be exercised in each case by giving
written notice thereof to Landlord not less than 180, nor more than 270,
days prior to the expiration of the original Term or the end of the
extension period, as the case may be. Concurrent herewith the option to
extend the Term through October 31, 2000 is deemed exercised without any
right of rescission. It is the express intention of the parties hereto that
any such extension as herein provided shall operate not as a renewal of
this Lease but as an extension of the Term hereof, so that this Lease and
each and every covenant, agreement and provision thereof shall be and
remain in full force and effect during the Term hereof as extended and with
the same force and effect as if the Term of this Lease were originally for
such extended period.
3. Right to Rescind Extension. Section 2.4 of the Lease is hereby amended
and restated in its entirety as follows:
2.4 It is acknowledged that Tenant must exercise its options to
extend the term of this Lease pursuant to Section 2.2 prior to the date
that the Fair Rental Value of the Property will be determined pursuant to
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subsection 3.3 for the Adjustment Dates occurring on the first day of
November of 2000, 2003, 2006, 2009 and 2012. Accordingly, Landlord and
Tenant agree that if Tenant exercises any such extension option then
Tenant, at its election, may terminate this Lease by giving, within thirty
(30) days after the Basic Rent for the Adjustment Date in question has been
determined pursuant to Section 3.3, not less than one hundred eighty (180)
days' prior written notice thereof to Landlord. In the event Tenant
terminates the Lease pursuant to this Section 2.4, Tenant shall pay to
Landlord all costs and expenses incurred by Landlord in connection with the
determination of the Fair Rental Value of the Property for the Adjustment
Date to which the extension option then exercised so relates, including the
appraisal fees and expenses and attorney fees.
4. Basic Rental. Section 3.2 of the Lease is hereby amended to add the
following subsections:
3.2.3 For the period commencing on November 1, 1995 and ending on
November 30, 1995, at the per annum rate of $1,015,500.00.
3.2.4 For the period commencing on December 1, 1995 and ending on
October 31, 2000, at the per annum rate of $700,000.00.
5. Basic Rent During Renewal Terms. Landlord and Tenant agree that Basic
Rent for each of the three-year extended terms shall be equal to the Fair Rental
Value of the Property. Therefore, Section 3.3 of the Lease (including the
subsections
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3.3.1, 3.3.2 and 3.3.3) is hereby deleted and replaced in its entirety as
follows:
3.3 On each of the Adjustment Dates the amount of the Basic Rent
shall be adjusted and shall be at a per annum rate equal to the Fair Rental
Value of the Property as of the Adjustment Date in question, determined as
follows:
Subsections 3.3.3.1 and 3.3.3.2 are hereby renumbered as 3.3.1 and 3.3.2,
respectively, and any references in the Lease to such subsections 3.3.3.1 and
3.3.3.2 shall refer instead to such subsections as so renumbered. The
parenthetical provision contained in Section 3.4 is hereby deleted.
6. Alterations. Notwithstanding anything to the contrary in this
Amendment or in the Lease, (a) the cost of alterations to which the consent,
notice and security provisions of Article 9 of the Lease (subsection 9.2.3 and
Sections 9.3, 9.4 and 9.5) applies is $100,000 rather than $25,000, (b) security
shall only be required under Section 9.5 if Landlord reasonably deems itself
insecure with respect to payment by Tenant, and (c) under Section 9.4 plans and
specification shall only be required in the case of structural Alterations.
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7. Use and Operation of Property. Under Section 11.1 of the Lease Tenant
may also use the Property for laboratory purposes and other uses related to its
business operations.
8. Existing Mortgage/Corporate Guaranty. On or before October 31,
1995, Landlord shall (a) pay and discharge the First Mortgage existing at the
date of the Lease, and (b) cause the First Mortgage to release the obligations
of the Tenant under the Corporate Guaranty dated June 27, 1985, made by Tenant
in connection with the First Mortgage. Thereupon, and in any event as of
November 1, 1995, Landlord and Tenant agree and confirm that (a) pursuant to the
last paragraph of Section 17.1 (following subsection 17.1.8) of the Lease (i)
the provisions of subsections 17.1.3, 17.1.4, 17.1.7 and 17.1.8 shall no longer
be effective or constitute an Event of Default under the Lease, and (ii) the
provisions of subsection 17.1.5 shall apply only to Tenant and not to any
Subsidiary, and (b) Articles 32 (Tenant's Affirmative Covenants) and 33
(Tenant's Negative Covenants) shall not have any force or effect.
9. Withholding of Consent. Article 23 of the Lease is hereby deleted and
replaced in its entirety as follows:
Article 23. WITHHOLDING OF CONSENT
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In any case in which Landlord or Tenant are required to give consent
or approval to an action of the other pursuant to any provision of the
Lease, each party agrees not to unreasonably withhold or delay such consent
or approval.
10. Option to Purchase. Tenant shall have the option to purchase the
Property. Accordingly, the following is added as Article 35 of the Lease:
Article 35. PURCHASE OPTIONS
35.1 Tenant shall have and is hereby granted the option to purchase
the Property as of October 31, 1999, or annually as of each succeeding
October 31 thereafter during the Term, for a price determined pursuant to
Section 35.2 and on the other terms and conditions hereinafter set forth in
this Article 35. Tenant may exercise any such option by giving written
notice thereof to Landlord at any time on or before May 1 of the same year
as the October 31 option date in question occurs.
35.2 The purchase price for the Property shall be an amount equal to
the greater of Four Million Dollars ($4,000,000.00) or ninety percent (90%)
of the Fair Market Value of the Property as of the date of exercise of such
option. If Landlord and Tenant have not agreed to the appointment of a
single appraiser as contemplated by subsection 3.3.1 within thirty (30)
days after exercise of the option, then the appraisers shall be appointed
as provided in subsection 3.3.2, with each party obligated to appoint an
appraiser and give notice thereof within fifteen (15) days after expiration
of such thirty (30) day period. If the purchase
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price exceeds Four Million Dollars ($4,000,000.00), then at any time within
twenty (20) days after such determination is communicated to Tenant, Tenant
may terminate the agreement formed by exercise of the purchase option by
giving notice thereof to Landlord without thereby otherwise affecting or
impairing this Lease. If Tenant so terminates such agreement, Tenant shall
pay all costs and expenses incurred by Landlord in connection with such
determination of the Fair Market Value of the Property, including the
appraisal fees and expenses and attorney fees.
35.3 After exercise of the option pursuant to this Article, Landlord
shall furnish to Tenant an abstract of title or registered property
abstract certified to date to include all proper searches and a title
insurance commitment (ALTA form 1970-B) with all standard exceptions
deleted and agreeing to insure, subject only to the matters listed on
Schedule A to this First Amendment to Lease (the "Permitted Encumbrances"),
this Lease and any encumbrances created on or after the date hereof by
Tenant or those claiming by, through or under Tenant and with such
affirmative insurance as Tenant (or its lender) may reasonably require.
Tenant shall pay the premium for any policy issued to Tenant pursuant
thereto, provided that Tenant shall not be required to pay any charges for
special endorsements or special coverages attributable to encumbrances
other than those permitted under this Section 35.3. If Tenant gives
Landlord notice prior to closing that the title insurance commitment does
not comply with the foregoing requirements, Landlord shall at its expense
within sixty (60) days following such notice cause all encumbrances not
permitted as provided above
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to be removed. If Landlord fails to do so within said sixty (60) day
period, time being of the essence, Tenant may at its option: (a) attempt to
cause such encumbrances to be removed, (b) proceed to close without waiving
any rights to damages hereunder, or (c) terminate the agreement formed by
exercise of the option, this Lease, or both, by giving written notice
thereof to Landlord, without such termination releasing Landlord from
liability for damages hereunder. If Tenant elects alternative (a) above,
the closing shall be postponed until the encumbrances in question are
removed and, if Tenant is unable within a further period of sixty (60) days
to cause such encumbrances to be removed, Tenant may then elect either
alternative (b) or (c) above. No such postponement shall alter the purchase
price. All costs and expenses incurred by Tenant in causing or attempting
to cause such encumbrances to be removed, including reasonable attorneys'
fees, shall be payable by Landlord. Notwithstanding the foregoing, Landlord
shall be permitted to pay and discharge of record at closing any mortgage
or other lien, including out of the purchase price payable by Tenant.
35.4 Subject to postponement pursuant to Section 35.3, the deed to
the Property shall be delivered at 11:00 o'clock a.m. on November 1 of the
year in which Tenant gave notice as provided in Section 35.1, or on the
next business day if such date is not a business day, at the place in
Minnesota designated in Tenant's notice or, if not so designated, at
Tenant's main offices in Chaska, Minnesota. The deed shall be in the usual,
proper full warranty form for recording and registration, subject only to
Permitted Encumbrances. Landlord shall pay any state deed tax or revenue
stamps. The purchase price shall be payable by wire
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transfer, certified or bank cashier's check or other readily available
funds. This Lease and all of the terms and provisions hereof shall remain
in full force and effect until the purchase has closed.
35.5 The options to purchase contained in this Article and the First
Refusal Rights contained in Article 36 are each intended to and shall
remain effective during the full Term of this Lease and neither shall be
affected in any way by the right, whether or not exercised, to exercise, or
the existence of, the other.
11. Right of First Refusal. Tenant shall have a first refusal right to
purchase the Property. Accordingly, the following is added as Article 36 of the
Lease:
Article 36. RIGHT OF FIRST REFUSAL
36.1 Landlord shall not sell, transfer, assign or otherwise dispose
of all or any part of its interest in the Property or any part thereof,
until at least forty-five (45) days after it has given Tenant written
notice as herein provided of its intention to dispose of said interest or
portion thereof. Such notice shall describe in reasonable detail the
interest proposed to be disposed and state accurately the names and
addresses of each party to whom Landlord proposes to dispose of said
interest (and, if known, the shareholders, partners or members thereof, if
such party is not a public company or individual), the selling price and
other terms of such proposed disposition; if available, an executed
duplicate original or copy of the purchase or other agreement shall
accompany the notice. After such notice is received, Tenant shall have and
is hereby
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granted the exclusive right and option ("First Refusal Right") to purchase
such interest in the manner, at the price and on the terms provided in such
notice.
36.2 The First Refusal Right granted by Section 36.1 may be exercised
by Tenant by giving notice to Landlord at any time within thirty (30) days
after actual receipt of the notice given to Tenant pursuant to Section
36.1.
36.3 After exercising its First Refusal Right pursuant to this
Article, Tenant may at its option and expense attempt to obtain a title
insurance commitment to the Property agreeing to insure the interest which
it is acquiring subject only to the Permitted Encumbrances. If the title
company to which application is made will not issue such a commitment,
within thirty (30) days after the date on which Tenant exercises its
option, Tenant may by notice to Landlord terminate the agreement formed by
exercise of the First Refusal Right, in which event this Lease shall remain
in effect as though the First Refusal Right had not been exercised.
36.4 Unless otherwise specified in this notice and purchase or other
agreement given pursuant to Section 36.1, the closing shall be at 11:00
o'clock a.m. on the day sixty (60) days after Tenant has exercised its
First Refusal Right (or, if not a business day, the first day thereafter
which is a business day), at Landlord's office in Minnesota; the deed shall
be in the usual, proper full warranty form for recording and registration
(excluding any part thereof which may have been taken by condemnation or
eminent domain); Landlord shall pay all revenue stamps or state deed or
transfer taxes, sales and other taxes due in
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connection therewith, and Tenant shall pay all recording and filing fees;
there shall be no adjustments under this Lease upon the delivery of the
deed except for Basic Rent payable hereunder, except that Landlord shall
pay to Tenant any amounts then held by Landlord for the account of Tenant
or which are otherwise payable to Tenant under this Lease.
36.5 Upon exercise of the First Refusal Right, any agreement between
Landlord and the party to which Landlord proposed to dispose the Property
shall automatically terminate and neither Landlord nor Tenant, nor the
Property, shall be bound or in any way affected by any such agreement and
such party shall not have any interest in the agreement between Landlord
and Tenant formed by exercise of the First Refusal Right. Without limiting
the generality of the foregoing, Landlord or Tenant may freely modify the
terms and conditions on which the disposition from Landlord to Tenant may
be made.
36.6 Except as hereinafter provided, Landlord may dispose of the
particular interest subject to Tenant's First Refusal Right if Tenant has
not exercised its First Refusal Right within the thirty (30) day period
provided therefor. Any sale, transfer, assignment or other disposition by
Landlord shall be null and void, if said interest is not disposed of by
Landlord within one hundred twenty (120) days after Tenant's First Refusal
Right expires, or if it is disposed of to a different party or on any
different terms from those stated in the notice given by Landlord pursuant
to Section 36.1.
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36.7 The First Refusal Right herein granted to Tenant is a continuing
right of first refusal and shall apply as often as any then holder of any
part of the Landlord's interest hereunder (including but not limited to any
such holder who or which shall have acquired its interest in a disposition
to which the First Refusal Right applied but was nor exercised) shall make
or propose to make a sale, transfer, conveyance or other disposition of
all or any part of the Property or any interest therein during the Term of
this Lease. Further, the Right of First Refusal and the options to purchase
contained in Article 35 are each independent of the other, are each
intended to and shall remain effective during the full Term of this Lease
and neither shall be affected in any way by the right, whether or not
exercised, to exercise, or the existence of, the other.
36.8 Landlord agrees that any proposed disposition of the Property
shall be for a consideration expressed and payable solely in United States
dollars.
36.9 The First Refusal Right shall not apply to a mortgage of the
Property given by Landlord or to any foreclosure sale of such mortgage, but
the First Refusal Right shall apply to any interest in the Property
or any part thereof then or thereafter acquired by any holder of such
mortgage or any other purchaser at such foreclosure sale.
12. Miscellaneous. Except as specifically amended herein, the terms and
conditions of the Lease remain unchanged and in full force and effect. This
First Amendment shall be
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binding on and inure to the benefit of the parties hereto and their respective
successors and assigns.
The parties have executed this First Amendment to Lease as of the date and
year first above written.
LANDLORD:
LAKE HAZELTINE PROPERTIES
By /s/ J. A. Elftmann
------------------------------
A General Partner
By /s/ Joseph C. Wyers
------------------------------
A General Partner
By /s/ Robert S. Blackwood
------------------------------
A General Partner
TENANT:
FSI INTERNATIONAL, INC.
By /s/ J. Wayne Stewart
------------------------------
Its Vice President, Operations
By /s/ Benno G. Sand
------------------------------
Its Executive Vice President,
Chief Financial Officer
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EXHIBIT 10.29
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into on this 6th day of July, 1995, by
and between FSI International, Inc., a corporation organized and existing under
the laws of Minnesota, U.S.A., with its principal place of business at Chaska,
Minnesota (U.S.A.) (hereafter "Supplier") and Metron Semiconductors Europa B.V.,
a limited liability company organized and existing under the laws of The
Netherlands, with its principal place of business at Almere, The Netherlands
(hereafter "Distributor").
WHEREAS, Supplier designs, manufactures and sells products for use in the
semiconductor industry, which Products are more particularly described in
Exhibit A attached hereto (the "Products"), and wishes to expand its market for
the Products in the geographical areas set forth in Exhibit B attached hereto
(the "Territories");
WHEREAS, Distributor has served as Supplier's distributor under various
distribution agreements dating back to 1975.
WHEREAS, Distributor wishes to assign this Agreement to those of its
subsidiaries and affiliates in the respective Territories as more particularly
described in Exhibit B;
WHEREAS, Supplier wishes to appoint Distributor and Distributor wishes to
accept such appointment, as the independent, exclusive distributor of the
Products in the Territories on the terms and conditions set forth herein; and
NOW, THEREFORE, Supplier and Distributor agree as follows:
1. Appointment of Distributor, Terms of Product Sales.
___________________________________________________
1.1 Subject to all of the terms and conditions of this Agreement,
Supplier hereby appoints Distributor, and Distributor hereby accepts
such appointment, as the exclusive, independent distributor of the
Products in the Territories. Supplier may, however, sell Products to
third parties for use in the Territories on a representative basis,
provided that Supplier shall pay Distributor a commission with
respect to such Products determined by Supplier and based on services
performed by Distributor with respect to such Products. In certain
representative sales of Products, Supplier may allocate the
commission between Distributor and a third party, such allocation
determined by Supplier and based on an equitable basis and consistent
with past practice between Supplier and Distributor. Moreover,
Supplier shall not be prohibited from establishing a technical or
support offices or organizations in the Territories, provided that
such offices or organizations should not engage in sales of the
Products.
1.2 With the exception of Products sold to specific customers determined
on either a customer-by-customer or project-by-project basis, and as
agreed to by Supplier and Distributor, Supplier shall sell the
Products to Distributor at Supplier's current U.S. domestic sales
list prices, less Distributor's discount, as provided in Exhibit A.
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Supplier may change its sales list prices upon sixty (60) days'
advance written notice to Distributor.
1.3 Distributor shall have the right of first refusal to act as
distributor in the Territories and under the terms of this Agreement
for any modified, revised, up-dated or replacement products sold by
Supplier and related to the Products. Supplier shall notify
Distributor immediately of any such products.
1.4 Sales to the Distributor will be invoiced on an open account basis.
Sales invoices will be due for payment sixty (60) days after shipment
of the Products. A reasonable late payment penalty may be applied to
late payments for Products accepted by Distributor or Distributor's
customers, without prior written approval by Supplier. Such penalty
shall be equal to the lesser of the following interest rates in
effect on the date the payment was due: (i) two points plus the prime
interest rate as announced by Harris Trust and Savings Bank, and (ii)
three points plus the statutory default late payment interest rate
under the laws of the Netherlands applicable to distribution
agreements.
1.5 Supplier shall retain title to the Products and bear the risk of loss
until delivery to the carrier, F.O.B. Supplier's factory or
distribution center, at which time title shall pass and the risk of
loss shall be borne by Distributor (or Distributor's customers).
Provided, however, that beginning September 1, 1996, Supplier and
Distributor shall implement procedures to provide for Supplier to
retain title to the Products and bear the risk of loss until delivery
F.O.B. at Distributor's warehouse (or the place of acceptance by
Distributor's customer). In any event, Distributor (or Distributor's
customers) shall, directly or indirectly, bear the cost of any
customs duties, taxes, shipping and handling costs, and insurance
with respect to the shipment of the Products.
1.6 Notwithstanding the general rule provided in Section 1.5 above,
Supplier and Distributor may negotiate and arrange for certain sales
of Products pursuant to terms under which either: (i) Supplier shall
retain title to the Products and bear the risk of loss until
delivery, F.O.B. Distributor's warehouse (or the place of acceptance
by Distributor's customer), or (ii) Supplier shall retain title to
the Products and bear the risk of loss until delivery to the carrier,
F.O.B. Supplier's factory or distribution center.
2. Obligations and Covenants of Supplier.
______________________________________
2.1 Supplier will use its best efforts to comply with Distributor's
request for the means of shipping the Products as specified in
Distributor's orders and shall use its best efforts to notify
Distributor in the event that Supplier is unable to comply with such
2
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request. Supplier shall not send partial shipments of Distributor's
orders unless Distributor agrees in advance.
2.2 Absent extraordinary circumstances and subject to written agreement
by Supplier and Distributor (such agreement which shall not be
reasonably withheld), Supplier shall not sell the Products directly
to customers in the Territories and shall refer to Distributor in a
timely manner all orders and inquiries relating to the Products
originating from within or outside the Territories to the extent such
orders or inquiries relate to Products destined for use within the
Territories.
2.3 In negotiation or renegotiation of any agreement with any of its
other distributors, agents or employees subsequent to the date of
this Agreement, Supplier will insist upon a covenant that such other
distributor, agent or employee will not seek customers or establish a
branch or maintain any distribution outlet in the Territories.
2.4 Supplier will, from time to time, supply Distributor, at Supplier's
cost, with a reasonable quantity of promotional materials in the
English language, such as literature, catalogs and other advertising
materials relating to the Products. Such promotional materials shall
also be translated in the native language of the country to which the
Products are shipped if required by applicable law.
2.5 [Section 2.5 is left blank intentionally.]
2.6 Supplier will conduct technical seminars and provide training for
sales or services related to the Products for the benefit of
Distributor's employees. Each party shall be responsible for the
expenses (including the cost of transportation, meals and lodging)
incurred by its own employees attending such seminars or training.
2.7 Supplier will, from time to time, and at its own cost (including the
cost of salaries and lodging for Supplier's employees) participate in
international trade shows for promoting the Products in the
Territories pursuant to agreement by Supplier and Distributor.
2.8 Supplier will use its best efforts to assist Distributor to
facilitate any import processing by providing Distributor with all
required documents and information.
2.9 Supplier agrees to comply with all applicable export control laws and
regulations relating to the Products. Supplier will also use its
best efforts to provide information necessary for Distributor to
comply with all applicable export control laws and regulations
relating to the Products.
3
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<PAGE>
2.10 Supplier's current, general warranty with respect to the Products is
set forth in Supplier's International System Warranty which is
attached hereto as Exhibit C and incorporated herein by reference.
Such warranty may be amended, supplemented or replaced by Supplier,
provided that Supplier provides Distributor with sixty (60) days'
prior written notice of such amended, supplemented or replacement
warranty.
2.11 Without Distributor's prior written consent, Supplier will not use,
reproduce, disclose or otherwise make available to any person, other
than Supplier's employees or agents who have a need to know such
information, any and all information, written or oral, which is
disclosed by Distributor to Supplier, identified as confidential
information and not generally available to the public. The term
"confidential information" shall not include information provided by
Distributor to Supplier exclusively for the purpose of soliciting
potential and actual sales of the Products. In addition, the term
"confidential information" shall not include any information that is
or becomes known to the public through no fault of Supplier.
2.12 Supplier shall accept for credit Distributor's inventory of spares or
equipment pursuant to the terms of Supplier's Inventory Return
Policy, a current copy of which is attached hereto as Exhibit D.
2.13 During the term of any warranty made by Supplier with respect to any
Product sold by Distributor, Supplier shall maintain an adequate
inventory of spare parts for such Product.
2.14 Upon delivery of each Product by Supplier to Distributor, Supplier
shall supply Distributor with adequate documentation to Distributor
for purposes of servicing and trouble-shooting such Product. Such
documentation shall comply with any applicable law. The cost of any
such manuals and documentation shall be included in the price of the
Product under Section 1.2 of this Agreement.
3. Obligations and Covenants of Distributor.
_________________________________________
3.1 Distributor will use its best efforts to market and sell the Products
in the Territories.
3.2 Except as otherwise required by law, Distributor will market and sell
the Products without removing or altering any labels, trade names,
trademarks, notices, labels, serial numbers or other identifying
marks, symbols or legends affixed to any of the Products or their
containers or packages.
3.3 Supplier shall not be liable under any warranty made by Distributor
with respect to any of the Products which exceed the warranties made
by Supplier which warranties are more particularly described in
Exhibit C attached hereto. Supplier may modify
4
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any warranties upon reasonable notice to Distributor, provided,
however, that such amended Warranties will not apply to Products sold
or Products which Distributor has entered into a contract to sell but
has not yet delivered.
3.4 Without Supplier's prior written consent, Distributor shall not use,
produce or disclose or otherwise make available to any person, other
than Distributor's employees or agents who have a need to know such
information for the performance of its obligations hereunder, any and
all information written or oral, which is disclosed by Supplier to
Distributor, identified as confidential information and not generally
available to the public. The term "confidential information" shall
not include information provided by Supplier to Distributor
exclusively for the purpose of soliciting potential and actual sales
of the Products. In addition, the term "confidential information"
shall not include any information that is or becomes known to the
public through no fault of Distributor.
3.5 Distributor shall furnish to Supplier, upon Supplier's reasonable
requests from time to time, reports including, but not limited to,
actual and forecast sales, market conditions and competitive
activity.
3.6 Distributor will, from time to time, and at its own cost (including
the cost of salaries and lodging for Distributor's employees),
participate in international trade shows for promoting the Products
in the Territories, pursuant to agreement by Supplier and
Distributor.
3.7 Distributor shall use its best efforts to service any Products during
any applicable warranty period. Distributor may contract with other
individuals or business entities to assist Distributor in installing
and servicing the Products, provided that such individuals or
business entities: (i) have adequate training to install and service
the Products, and (ii) agree in writing that they will not compete
with Supplier by selling any products or equipment in the Territories
during the term of this Agreement, to the extent that such products
or equipment are similar in function to any Products sold by
Supplier.
4. Term and Termination.
_____________________
4.1 Unless and until sooner terminated as provided for herein, this
Agreement shall continue for a term of three (3) years commencing on
July 1, 1995 and will be deemed automatically renewed thereafter for
one or more additional terms of two (2) years and on the same
conditions.
4.2 This Agreement may be terminated by either party upon providing the
other party with written notice of termination more than twelve (12)
months prior to expiration
5
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of the applicable term, i.e., more than twelve (12) months prior to
expiration of the initial three-year term or more than twelve (12)
months prior to expiration of an ensuing two-year extension.
4.3 In the event of a breach of any material provision of this Agreement,
this Agreement may be terminated upon ninety (90) days' written
notice given by the non-breaching party to the other party, which
notice shall specify the breach on which the termination is based,
provided, however, that in such event this Agreement shall continue
in full force and effect without regard to such notice if the other
party cures the breach specified in the notice within the said 90-day
period.
4.4 This Agreement will terminate immediately upon the occurrence of any
of the following events:
(a) All or any substantial part of the property of either party
shall be condemned, seized or otherwise appropriated, or the
custody or control of such property shall be assumed by any
person or agency acting or purporting to act under authority of
any government (de jure or de facto) or either party shall have
been prevented from exercising normal managerial control over
all or any substantial part of its property by any such person
or agency; or
(b) Either party shall (i) apply for or consent to the appointment
of a receiver, trustee or liquidator for its business or of all
or any substantial part of its assets, or (ii) be unable, or
admit in writing its inability, to pay its debts as they mature,
(iii) make a general assignment for the benefit of creditors,
(iv) be adjudicated a bankrupt or insolvent, or (v) file a
voluntary petition in bankruptcy or a petition or an answer
seeking reorganization or an arrangement with creditors or
seeking to take advantage of any insolvency law, or file an
answer admitting the material allegations of a petition filed
against either party in any bankruptcy, reorganization or
insolvency proceeding, or take corporate action for the purpose
of effecting any of the foregoing; or
(c) An order, judgment or decree shall be entered without the
application, approval or consent of the subject party by any
court of competent jurisdiction, approving a petition seeking
reorganization of the party or appointing a receiver, trustee or
liquidator of its business or of all or any substantial part of
its assets; or
(d) An order or notice shall be published by any government or
inter-government authority requiring the cessation of trading
activities with
6
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the subject party as a result of the violation of export
controls, safety or other regulatory laws.
4.5 Upon termination of this Agreement, Distributor shall no longer have
the right to serve as a distributor of the Products in the
Territories and shall not be entitled to any additional consideration
as a result of such termination. However, Distributor shall have the
right to continue selling in the Territories the Products which are
in Distributor's inventory at the time of termination of this
Agreement; such right, however, shall terminate six (6) months after
termination of this Agreement. Supplier shall accept all Products
returned by Distributor for full refund if Distributor so requests in
writing within twelve (12) months after termination of this
Agreement, such refund to be made at the prices for which the
Products were originally purchased by Distributor from Supplier,
provided that the returned Products are in good condition as approved
by Supplier, such approval by Supplier shall not be unreasonably
withheld or delayed.
4.6 Upon termination of this Agreement, Distributor shall cease to
represent itself as being a distributor of Supplier. Within sixty
(60) days after termination, Distributor will return to Supplier all
promotional materials for and samples and demonstration models of the
Products.
4.7 Notwithstanding termination of this Agreement upon notice as provided
in Section 4.2 of this Agreement, Supplier shall continue to provide
Products in conformity with and pursuant to the terms of this
Agreement during the remaining term of this Agreement. Further, in
the event of a termination notice, Distributor shall notify Supplier
by the termination date, of a list of all prospective customers
interested in the Products. If, within six (6) months after the
termination date, Supplier receives a purchase order from any of the
identified prospects, Supplier (i) shall promptly notify Distributor
of such purchase order and (ii) shall pay to Distributor a commission
equal to the Distributor's discount with respect to the Products
under such purchase order.
4.8 Notwithstanding termination of this Agreement, Distributor shall
continue to perform all warranty service during the term of any
applicable warranty period, whether such warranty expires before or
after the termination of this Agreement, with respect to any Products
sold by, on behalf of, or in cooperation with Distributor.
4.9 Upon the termination, expiration or non-renewal of this Agreement,
Supplier shall not be liable to Distributor for any compensation,
reimbursement or damages on account of the loss of prospective
profits from anticipated sales, or on account of any expenditures,
investments, losses or commitments in connection with the
7
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business or goodwill of Supplier, Distributor, or otherwise, provided that
Supplier has not breached any material provision of this Agreement, except as
expressly provided in Section 4.7 of this Agreement.
5. Indemnification.
________________
5.1 Distributor hereby agrees to indemnify and hold Supplier harmless
from and against any and all damages, liabilities, fines or
expenses incurred by Supplier as a result of Distributor's breach
of any provision hereof.
5.2 Supplier hereby agrees to indemnify and hold Distributor harmless
from and against any and all damages, liabilities, fines or
expenses incurred by Distributor as a result of Supplier's breach
of any provision hereof.
5.3 Supplier agrees to defend and hold Distributor harmless from and
against any and all damages, liabilities, fines or expenses
incurred by Distributor in connection with any claim or lawsuit
arising out of the design, manufacture, use, Supplier's warranty,
or defect ("gebrek") of any of the Products, provided that
Distributor has complied with its obligations hereunder and has
given prompt notice of the claim or lawsuit to Supplier together
with all information and documents relating to such a claim or
lawsuit. Distributor hereby agrees to assist Supplier in defending
such claim or lawsuit.
5.4 Supplier agrees to defend and hold Distributor harmless from and
against any and all damages, liabilities, fines or expenses
incurred by Distributor in connection with any claim or lawsuit
arising out of any infringement or alleged infringement of any
patent or other intellectual property rights of any person, firm or
company in the Territories, provided that Distributor has given
prompt notice of the claim or lawsuit to Supplier together with all
information and documents relating to such a claim or lawsuit.
Distributor hereby agrees to assist Supplier in defending such
claim or lawsuit.
5.5 The indemnification agreements as provided in this Section 5 shall
continue in full force and effect despite the expiration, recision,
or termination of this Agreement.
6. Relationship of the Parties.
____________________________
6.1 The relationship between Supplier and Distributor is that of seller
and buyer. Neither Distributor, nor any employee of Distributor,
shall be considered an employee or agent of Supplier for any
purpose. Unless otherwise expressly authorized in writing by the
other party hereto, neither party shall have the right or authority
to assume or create any responsibility, express or implied, on
behalf of or
8
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in the name of the other party hereto, or to bind the other party
in any manner whatsoever, or to accept payment from any person on
behalf of the other party.
6.2 Supplier hereby grants a license to Distributor permitting
Distributor to use Supplier's trademarks and trade names in
connection with the sale of Products. Distributor agrees to use
Supplier's trademarks and trade names only in connection with the
sale of any Products. This license shall terminate upon the
termination of this Agreement, at which time Distributor shall
cease to and shall not thereafter use, and shall not permit any of
its agents, employees or subsidiaries thereafter to use, for any
purpose whatsoever, any of Supplier's trademarks or trade names
other than for the purpose of selling Products in Distributor's
inventory as specifically provided in Section 4.5 of this
Agreement, or pursuant to any other written agreement between the
parties. Nothing in this Agreement shall be deemed to transfer to
or confer upon Distributor any right, title or interest in any
trademark or trade name owned by or used by Supplier.
6.3 During the term of this Agreement and for a period of six (6)
months after termination of this Agreement, (i) Supplier shall not,
without Distributor's prior written consent, solicit employees of
Distributor or any of its subsidiaries for employment with Supplier
or otherwise interfere with Distributor's relationship with its
employees, and (ii) Distributor shall not, without Supplier's prior
written consent, solicit employees of Supplier or any of its
subsidiaries for employment with Distributor or otherwise interfere
with Supplier's relationship with its employees. This Section shall
not restrict or prohibit (i) Supplier from hiring an employee of
Distributor or any of its subsidiaries, if such employee applies
for employment with Supplier by responding to an announcement of an
available employment position, and (ii) Distributor from hiring an
employee of Supplier or any of its subsidiaries, if such employee
applies for employment with Distributor by responding to an
announcement of an available employment position.
7. Assignment.
___________
7.1 Neither this Agreement nor any right, title, interest or obligation
hereunder may be assigned or otherwise transferred by either party
or their assignees, transferees or successors in interest without
the prior written consent of the other party. This Agreement shall
inure to the benefit of such assignees, transferees and other
successors in interest of the parties in the event of an assignment
or other transfer made consistent with the provisions of this
Agreement.
7.2 By its signature to the Agreement, Supplier consents to the
assignment of this Agreement to Distributor's affiliated companies
in the respective geographical areas set forth in Exhibit B
attached hereto.
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8. Force Majeure.
______________
Neither party shall be liable for any breach of this Agreement occasioned
by an act of God, labor disputes, unavailability of transportation, goods
or services, governmental restrictions or actions, change in the law, war
(declared or undeclared) or other hostilities, or by any other event, the
condition or cause of which is beyond the control of such party. In the
event of nonperformance or delay attributable to any such causes, the
period for performance of the applicable obligation hereunder will be
extended for a period equal to the period of delay. However, the party so
delayed shall use its best efforts, without obligation to expend
substantial amounts not otherwise required under this Agreement, to
circumvent or overcome the cause of the delay. In the event that any such
delay exceeds sixty (60) days, either party may at its option terminate
this Agreement effective immediately by giving written notice thereof to
the other party.
9. Notices
_______
Any notice required to be given hereunder shall be deemed to have been
effectively given only when delivered personally to an officer of the
applicable party, or when first sent by telefax and confirmed by registered
mail, addressed to the applicable party at its address set forth below, or
at such other address as such party my hereafter designate as the
appropriate address for the receipt of such notice:
To Supplier at: FSI International, Inc.
Attention: Benno Sand
322 Lake Hazeltine Drive
Chaska, Minnesota 55318
U.S.A.
To Distributor at: Metron Semiconductors Europa B.V.
c/o Metron Technology Corporation
Attention: Edward Segal
770 Lucerne Drive
Sunnyvale, California 94086-3844
U.S.A.
With a copy to: Metron Semiconductors Europa B.V.
Attention: Udo Jaensch
SaturnstraBe 48
D-85609 Aschheim
Germany
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10. Waiver.
_______
No waiver by either party of strict compliance with all terms and
conditions of this Agreement shall constitute a waiver of any subsequent
failure of the other party to comply strictly with each and every term and
condition hereof.
11. Complete Agreement.
___________________
This Agreement constitutes the entire agreement between the parties
relating to the subject matter contained herein and it supersedes and
terminates any and all prior agreements between them, including the
Distribution Agreements between Supplier and Distributor dated July 8 and
October 9, 1987, and the Distribution Agreement between Supplier and Metron
Semiconductors (Hong Kong) Ltd. dated July 1, 1987. If any provision, or
application hereof, of this Agreement is held unlawful or unenforceable in
any respect, such illegality or unenforceability shall not affect other
provisions or applications that can be given effect and this Agreement
shall be construed as if the unlawful or unenforceable provision or
application had not been contained herein. This Agreement may be amended or
otherwise modified only by a written document signed by authorized
representatives of the parties.
12. Counterparts.
_____________
This Agreement may be executed in two counterparts, each of which shall
be deemed an original, but both of which shall constitute but one
instrument.
13. Arbitration and Applicable Law.
_______________________________
13.1 Any dispute between the parties arising out of or in connection
with this Agreement that cannot be settled amicably between the
parties shall be finally resolved by arbitration. Arbitration
proceedings shall be conducted in Minneapolis, Minnesota pursuant
to the International Arbitration Rules of the American Arbitration
Association. In the event that either party makes a demand for
arbitration, the arbitrator shall be selected by mutual agreement
between the parties, or if the parties are unable to agree on an
arbitrator within twenty (20) days after a demand for arbitration
is made, the arbitrator shall be selected by the American
Arbitration Association. Disputes subject to arbitration hereunder
for claims in the aggregate amount of One Million (U.S.) Dollars
($1,000,000.00) shall be resolved by a panel of three independent
impartial arbitrators, one arbitrator selected by Supplier, one by
Distributor and the third by the other two arbitrators. Failure to
select an arbitrator within twenty (20) days of a demand for
arbitration shall be deemed a waiver of a right to select an
arbitrator and one will be selected by the American Arbitration
Association. All arbitrators shall be persons with skill and
experience in the
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industry. The costs of arbitration, but not the costs and
expenses of the parties, shall be shared equally by Supplier and
Distributor.
13.2 Either party shall have the right to review, prior to the
submission of its case to the arbitration panel, any and all
documents in the possession of the other party which relate to such
other party's performance under, or the conduct of its activities
in connection with, this Agreement.
13.3 The governing language of this Agreement shall be English. This
Agreement shall be interpreted and enforced in accordance with the
laws of the United States and the State of Minnesota, without
giving effect to choice of law principles. The United Nations
Convention on Contracts for the International Sale of Goods shall
not apply to this Agreement.
13.4 The agreement to arbitrate as provided in this Section 13 shall
continue in full force and effect despite the expiration, recision,
or termination of this Agreement. The parties knowingly and
voluntarily waive their rights to have their dispute tried and
adjudicated by a judge or jury.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
DISTRIBUTOR SUPPLIER
METRON SEMICONDUCTORS EUROPA B.V. FSI INTERNATIONAL, INC.
/s/ Udo Jaensch /s/ J. A. Elftmann
By____________________________ By____________________________
Udo Jaensch J. A. Elftmann
Its Executive Vice President Its Chief Executive Officer
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EXHIBIT 10.30
LEASE
Skyline Builder's, Inc. ("Landlord"), a Minnesota corporation, hereby
leases to FSI International, Inc. ("Tenant"), a Minnesota corporation, and
FSI International, Inc. hereby leases from Skyline Builders, Inc., that certain
portion, as outlined in the drawing attached as Exhibit A, and containing
approximately 125,800 square feet (the "Premises"), of that certain building
(the "Building") known as 312 Lake Hazeltine Drive, Chaska, Minnesota, located
on the legal parcel (the "Parcel") described as Tract C, Registered Land Survey
No. 51, Files of Registrar of Titles, Carver County, Minnesota, on the terms and
conditions set forth below.
1. Arrangements For Fixing Commencement Date. Landlord will immediately
__________________________________________
notify Tenant telephonically once Landlord acquires fee title to the Parcel. The
date of such notice is hereinafter referred to as the "Commencement Date."
Tenant will thereupon have the right to enter the Premises for the purpose of
designing and constructing Alterations (as hereafter defined) and the right to
use the Premises in any manner permitted by this Lease. Landlord will cooperate
with Tenant to give Tenant as much advance notice as is reasonably practical of
any closing in which Landlord expects to acquire fee title to the Parcel.
2. Cancellation Rights. Tenant and Landlord shall each have the right to
____________________
cancel this Lease, without further obligation to the other (except that Landlord
will refund any security deposit or prepaid Rent) if, for whatever reason,
Landlord has not acquired fee title to the Parcel by September 1, 1995.
3. Square Footage. Preliminary measurements indicate that the Premises
_______________
contains 125,800 square feet. Prior to the Commencement Date, Landlord may (and,
if requested by Tenant, Landlord will) have an architect, engineer, or surveyor
remeasure the Premises, at Landlord's expense, from the outside edges of the
perimeter walls to the middle of any demising walls. Landlord will promptly
notify Tenant of the results. As used in this Lease, "Square Footage" means
125,800 square feet; provided, however, that if such an architect, engineer, or
surveyor remeasures the Premises pursuant to the previous sentence, "Square
Footage" will mean the square footage of the Premises, as thus measured, without
deduction for any columns, stairwells, elevators, or other unusable space within
the boundary walls of the Premises.
4. Term. The Term of this Lease is a period (the "Initial Term") starting
_____
on the Commencement Date and ending at 11:59 p.m. on the last day of the
calendar month in which the fifth year anniversary of the "Rent Start Date" (as
hereinafter defined) occurs. Provided, however, that Landlord hereby grants
Tenant the option, to be exercised, if at all, only by giving Landlord written
notice at least 180 days prior to the expiration of the
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Initial Term (with time being of the essence), to extend the Term for an
additional five year period (the "Renewal Term") commencing on the day following
the last day of the Initial Term. Provided further, however, that Tenant may
exercise this option only while it is not in Default and only prior to the time,
if any, in which it is dispossessed because of a Default. The word "Term," as
used herein, shall mean the Initial Term or, after Tenant timely and effectively
exercises its renewal option, the Initial Term plus the Renewal Term.
5. Premises Condition. Landlord warrants that all electrical, mechanical,
___________________
structural, and plumbing systems, serving the Premises within the Building as of
the date of this Lease, will be in good working condition on the Commencement
Date. At its own expense, Landlord will install one passenger elevator serving
the mezzanine portion of the Premises, will enclose and finish the two existing
stairwells serving the area of the mezzanine portion of the Premises above the
present site of the office-finished space on the ground floor, and will
construct demising walls separating the Premises from adjacent space in the
Building. Landlord will make these improvements as soon as reasonably possible
after the Commencement Date. The specifications for these improvements shall be
left to Landlord's discretion, provided, however, that these specifications
shall conform to all applicable building code requirements, and provided further
that these improvements will be done in a good and workmanlike manner. Except as
expressly provided in this Article, Tenant is leasing the Premises "as is,"
without any warranty whatsoever as to the physical condition or suitability of
the Premises, Building, or Parcel. Tenant acknowledges that it has inspected the
Premises prior to signing this Lease and that it is in no way relying on any
representation or warranty by Landlord or any agent of Landlord, other than
those expressly contained in this Lease, as to the physical condition of the
Premises or its suitability, legal, structural, functional, or otherwise, for
Tenant's intended purposes.
6. Base Rent. Base Rent will be due and owing from Tenant to Landlord, in
__________
advance, in the following amounts and at the following times:
A. On the Rent Start Date: the sum of $36,692 (i.e., 125,800 x $3.50/12)
multiplied by a fraction whose numerator is the number of days (starting with
the Rent Start Date) remaining in the calendar month in which the Rent Start
Date occurs, and whose denominator is the total number of days in that calendar
month.
B. On the first day of the next calendar month and each successive month
thereafter during the Initial Term: the sum of $36,692.
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C. On the first day of the next calendar month and each successive month
thereafter during the first three years of the Renewal Term: the sum of $42,248
(i.e., 125,800 x $4.03/12).
D. On the first day of the next calendar month and each successive month
thereafter during the remainder of the Renewal Term: the sum of $45,183 (i.e.,
125,800 V. $4.31/12).
E. Notwithstanding the foregoing, Base Rent amounts will be subject to a
multiplier in case of any holdover as provided in Article 19.
F. All of the foregoing sums assume the Square Footage will be 125,800. If
and when the Square Footage changes from 125,800, the foregoing sums and the sum
described in paragraph H, below, will automatically be adjusted proportionately.
G. The term "Rent Start Date" means the earliest of (a) the 60th day
after each party has signed and delivered to the other party or its agent, a
copy of the Lease, (b) the day on which Tenant first stores any inventory (other
than materials and equipment to be used to construct the Alterations, as defined
hereinafter) in the Premises, (c) the day on which any of Tenant's employees or
agents first use any of the Premises as office space, or (d) October 1, 1995.
H. On signing this Lease, Tenant will deposit $36,696 with Landlord. This
money is in addition to the Security Deposit required elsewhere in this Lease
and the prepayment of Additional Rent likewise required elsewhere in this Lease.
Landlord will apply this sum to the payment of Base Rent due on the Rent Start
Date, and will apply the balance, if any, as a credit against the Base Rent
first due under paragraph B.
7. Additional Rent.
________________
A. On the first day of each successive month during each calendar year or
partial calendar year of the Term, Tenant will pay, as Additional Rent, 1/12th
of Tenant's Proportionate Share of the total amount, as estimated by Landlord,
of Operating Expenses and Real Estate Taxes. Landlord will use its best efforts
to give Tenant written notice of this estimated amount for the upcoming year by
December 15 or as soon thereafter as is practical. On 30 days written notice,
Landlord may revise the estimate and adjust the Additional Rent payable by
Tenant accordingly.
B. Special Provisions for Calendar Year 1995. Landlord estimates Operating
__________________________________________
Expenses and Real Estate Taxes for 1995 (determined by annualizing the Operating
Expenses and Real Estate Taxes allocable to the remainder of 1995 following the
Commencement Date) at $1.60 per square foot. On signing this Lease, Tenant will
deposit $16,773.33 (i.e., 125,800 x $1.60/12) with Landlord. Landlord will apply
this sum to the payment of
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Additional Rent accruing from the Rent Start Date through the last day of the
month in which the Rent Start Date occurs, and will apply the balance, if any,
as a credit against the Additional Rent due under the next sentence. On the
first day of the following month and each successive month thereafter through
December 1995, Tenant will pay, as Additional Rent, the sum equal to the Square
Footage multiplied by $1.60/12. With respect to the period from the Commencement
Date to the day prior to the Rent Start Date, Tenant will be liable for
utilities used by Tenant or its agents and the management fee, but will not be
liable for the other components of Operating Expenses and Real Estate Taxes.
C. After the end of each calendar year, Landlord will determine the actual
amount of Operating Expenses and Real Estate Taxes for that calendar year and
give Tenant a written certification of that amount. Any overpayment or
underpayment will be due from Landlord or Tenant, as the case may be, within
thirty (30) days after Tenant receives the certification. This will be true even
if the Term has ended, it being the parties' express intent that the obligation
of the previous sentence survive termination or expiration of the Term.
D. "Real Estate Taxes" for any given calendar year means all real estate
taxes and all installments of special assessments levied against the Parcel and
first due and payable in that year.
E. "Operating Expenses" means generally all expenses incurred by Landlord
in the operation of the Building and the maintenance and repair of the Parcel
grounds of a type normally incurred in the operation of similar buildings
(excepting only those costs declared by Article 11 to be Landlord's sole
responsibility and not subject to reimbursement, and Landlord's debt service on
any loan incurred to finance the Property). This term includes a management fee
equal to 4.0 per cent of the all rent, Base and Additional, payable by Tenant.
F. Notwithstanding anything herein to the contrary, if the Carver County
assessor increases the estimated market value of the Building because of
improvements made to the Premises by Tenant or at Tenant's request, Landlord
shall have the right to allocate Real Estate Taxes into three categories--(1)
those resulting from these improvements, (2) those resulting from the
improvements made to the Building by or at the request of other tenants, and
(3) the remainder, i.e., Real Estate Taxes not resulting from improvements
described in the previous two categories--and to require Tenant to pay, as
Additional Rent, 100% of category (1) and the Tenant's Proportionate Share of
category (3) rather than the Tenant's Proportionate Share of Real Estate Taxes.
The amount so allocated to category one and category two will be the portion of
the overall estimated market value for property tax purposes which is
attributable to the improvements within each category, according to the Carver
County assessor; provided, however, that if the assessor fails to inform
Landlord, on request, of the portion of EMV attributable to the
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categories, then Landlord will allocate Real Estate Taxes to each of the various
improvements within categories one and two, in accordance with the following
formula, A x B/C, where A is the principal amount of the cost of the
improvement, as shown on the building permit(s) obtained to construct the
improvement, B is the per square foot estimated market value (for purposes of
determining property taxes for the calendar year at issue) for the "land only"
within the Parcel, and C is the per square foot estimated market value for the
land only within the Parcel as of January 2 of the year following the year in
which the improvement was completed.
G. Notwithstanding anything herein to the contrary, Landlord shall have
the right to allocate to Tenant 100% rather than Tenant's Proportionate Share of
any particular expense, otherwise qualifying as an Operating Expense, which
benefits Tenant but no other tenant of the Building or which arises solely
because of Tenant's activities or defaults, and may similarly allocate 100% of
the portion of any general expense arising from activities by Tenant creating
such expense disproportionately).
H. The term "Tenant's Proportionate Share" means the Square Footage
divided by the square footage within the Building (excluding, unless, until, and
then to the extent actually leased, the penthouse and spur track area), measured
in the same way as this Lease calls for the Square Footage to be measured,
without deduction for stairwells, columns, and other unusable space within a
leased area.
I. Tenant shall have the right to review and audit, at its own expense,
Landlord's records concerning Operating Expenses.
8. Permitted Uses; Certain Restrictions. Tenant may use the Premises only
______________________________________
for office purposes, one or more laboratories, and general warehouse purposes,
and uses incidental thereto. Without limitation, manufacturing, without
Landlord's prior written consent, not to be unreasonably withheld, is
prohibited. Notwithstanding anything herein to the contrary, Tenant will comply
with all local, state, and federal laws regulating the use of the Building; will
not conduct unlawful activities in the Premises; will not do anything to create
any unusual nuisance, noise, odor, or otherwise interfere with or disturb any
other tenant of the Building in its normal business operations or Landlord in
its management of the Building; and will not bring onto the Parcel, without
Landlord's prior written consent, any Hazardous Substance (as defined below)
other than gasoline or fuel oil or a substance deemed a Hazardous Substance only
when present in quantities greater than the quantity maintained by Tenant on the
Parcel.
9. Environmental Indemnity. Tenant shall defend, indemnify, and hold
_________________________
Landlord harmless from and against any and all actions, claims, proceedings,
causes of action, damages, losses, and expenses (including, without limitation,
attorneys' fees and
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environmental engineering fees), arising from any use, handling, or release of a
Hazardous Substance by Tenant (or anyone for whom it is legally liable) on the
Parcel or in connection with Tenant's use of the Premises. Landlord represents
that, to the best of its actual knowledge, no leak, spill, release, discharge,
emission, treating, generating, or disposal of any Hazardous Substance has
occurred on the Parcel as of July 25, 1995, that no Hazardous Substance is being
stored on the Parcel as of that date, and that the soil, groundwater, and soil
vapor on or under the Parcel is free of any Hazardous Substance as of that date.
Landlord will defend, indemnify, and hold Tenant harmless from and against any
and all actions, claims, proceedings, causes of action, damages, losses, and
expenses (including, without limitation, attorneys' fees and environmental
engineering fees), arising from any breach of this representation. "Hazardous
Substance" means any pollutant or other toxic or hazardous waste, or other
substance regulated by any applicable law relating to environmental matters and
any materials containing friable asbestos, urea formaldehyde or polychlorinated
biphenyls. No waiver of Liability provision set forth in the Article of this
Lease addressing insurance shall apply to this indemnity. This Indemnity shall
survive expiration or termination of the Lease.
10. Parking Regulations. "Common Area" means the portion, if any, of the
_____________________
Parcel designated by Landlord for the use of all tenants of the Building. At
present, the only "Common Area" is the parking lots and Landlord does not
contemplate making any portion of the Building into a Common Area.
Tenant will comply with such reasonable rules and regulations as Landlord
may prescribe, on written notice to Tenant, for the safety, care, cleanliness,
or orderly management of the Building (including, without limitation, rules
designed to preclude trespassers from entering the Building) or the Common Area.
No more than 125 parking spaces are to be occupied at any one time by Tenant and
its agents, employees, and other invitees; provided, however, that if, when, and
so long as the Premises contains more than 25,000 square feet of office space,
the number of spaces available for the use of Tenant and its invitees will be
125 plus the number of parking stalls required, per city ordinance, for the
office space in excess of 25,000 (it being understood, however, that Landlord
may require Tenant to pay for the construction of additional parking stalls
within the Parcel in accordance with Article 12). Overnight storage of vehicles
and the storage at any time of any other property in the parking lots is
prohibited.
Landlord may regulate parking and allocate parking spaces within the Parcel
to Tenant and/or to the Building's other lessees, if the need arises. Landlord
has the right, in the event of such an allocation, to designate specific space
numbers for Tenant's exclusive use and Tenant shall use those spaces only;
provided, however, that Landlord shall, in making such a designation, consult
with Tenant and use its best efforts to
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designate spaces in locations acceptable to Tenant. Notwithstanding anything
herein to the contrary, however, Landlord will always allocate to Tenant no less
than 125 parking stalls in the parking lots existing on the Parcel as of the
Commencement Date.
11. Maintenance and Repairs. Tenant will keep the Premises continuously in
_________________________
a neat, clean, and sanitary condition, and in as good condition as when turned
over to it, reasonable wear and tear excepted. This maintenance and repair
obligation extends to all interior walls, doors, windows, plumbing, and
electrical fixtures within the Premises, except as these obligations may be
covered by manufacturer or contractor warranties, and includes the obligation to
replace any objects serving the Premises exclusively when replacement, as
opposed to repair, becomes appropriate.
Excepting matters that are Tenant's obligation under this Article, Landlord
will maintain and manage the Building and the Parcel by providing such services
as is customary for like buildings in this area. Except as provided elsewhere in
this Lease concerning damage caused by Tenant not subject to a waiver of claims,
Landlord shall, at its sole expense, maintain, repair, and replace the
Building's roof and load bearing walls, floors, and columns.
Notwithstanding anything herein to the contrary, Landlord shall have the
right to perform, as a reimbursable Operative Expense, all other maintenance and
repairs, otherwise Tenant's obligation under this Article, if of a nature as to
affect other tenants in the Building. E.g., repairs to a part of the HVAC system
affecting more than one Tenant.
If Tenant fails to maintain or repair the Premises as required in this
Lease after written notice shall have been given Tenant, and after Tenant has
had a reasonable time to make the repairs, Landlord may make such repairs, at
Tenant's expense, without liability to Tenant for any ensuing loss or damage.
12. Alterations. Subject to the conditions set forth in this Article,
Tenant has the right to remodel the Premises, at its own expense, so as to make
it more suitable for Tenant's needs as office, warehouse, and laboratory space.
The term "Alterations" means the changes to the Premises resulting from this
remodeling. Tenant must carry out all such Alterations in a good, workmanlike
manner and in accordance with all applicable building codes and the American
Disabilities Act. Tenant must provide Landlord with copies of all plans and
specifications for Alterations costing more than $5,000, in final, as-built form
or as close to final, as-built form as Tenant possesses. Tenant must provide
Landlord with copies of all construction contracts, warranties, and guaranties
related to the Alterations. Tenant may not alter the walls, floor, roof, or
structural columns without Landlord's prior written consent, not to be
unreasonably
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withheld. Tenant will not permit any mechanic's, materialmen's, or other liens
to arise as a result of any Tenant alteration, will immediately notify Landlord
of any such lien and shall cause the lien to be discharged within 10 days of its
filing or make other arrangements, satisfactory to Landlord, to protect
Landlord's interest from the lien.
Additional condition: If Tenant carries out any Alteration that increases
the Premises' office space, as classified for purposes of laws regulating the
number of parking stalls that must be available for Tenant's use, beyond 25,000
square feet, Tenant will be obligated to pay Landlord an amount, as reasonably
estimated by Landlord, sufficient (at the time the new stalls are to be
constructed) to pay for the creation of new striped and blacktopped parking
stalls (with curbs and gutters, together with any other feature required by city
ordinance) on the Parcel equal in number to the number of stalls required by
city ordinance for office space in the amount being added. For example, if
Tenant adds 10,000 square feet of office, and city ordinance specifies 4 stalls
per 1,000 square feet of office-finished space, Tenant is obligated to pay for
the creation of 40 new stalls. Notwithstanding the foregoing, however, (a)
Tenant need not pay this amount unless and until Landlord is ready to start
construction on the new stalls, (b) Tenant need not pay this amount unless and
until the number of stalls, as existing on the Parcel as of July 1, 1995, is
less than either (i) the number city ordinance requires Landlord to make
available to the persons or entities then actually leasing portions of the
Building, given their respective uses, or (ii) the number that Landlord has
agreed to make available to the persons or entities then actually leasing
portions of the Building (even if that number is higher than that required by
city ordinance, it being understood that Landlord shall have the right at all
times to commit to other tenants any and all parking stalls existing on the
Parcel as of July 1, 1995, other than the 125 stalls which Landlord will make
available to Tenant, and any and all new stalls constructed by Landlord
thereafter without payment or reimbursement by Tenant under this Article), and
(c) Tenant need not pay for any stalls first constructed after termination or
expiration of the Lease. Landlord will use its best efforts to cooperate with
Tenant to ensure that the additional, new stalls are completed in a timely
manner and by the time Tenant will need additional stalls because of the new
office space. Upon completion of the new stalls, Landlord will increase the
number of stalls available to Tenant by the number of new stalls and will use
its best efforts to satisfy any reasonable requests of Tenant as to the
additional stalls to be assigned to Tenant. For example, if Tenant starts with
125 stalls and Landlord builds 40 new stalls, at Tenant's expense per this
provision, Tenant will be entitled to use 165 parking stalls. Landlord need not,
however, assign to Tenant the particular new stalls constructed at Tenant's
expense, i.e., Landlord may assign to Tenant other, existing stalls, hitherto
unavailable for Tenant's use.
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Any Alteration meeting the legal definition of a fixture shall become
Landlord's property immediately. Notwithstanding the foregoing, (a) Tenant shall
maintain all such Alterations in good repair and condition during the Term and
(b) Landlord may require Tenant to remove, at Tenant's expense, at the
expiration or termination of the Term, any Alteration whereby Tenant converted
warehouse space to office space so as to increase the office space in the
Premises beyond 25,000 square feet, to repair any damage to the Building or
Premises caused by the installation or removal of any such Alteration, and to
restore the Premises to its condition as of the Commencement Date, normal wear
and tear excepted. If a particular Alteration increases the office square
footage from less than 25,000 square feet to more than that amount, Landlord may
require Tenant to remove the Alteration only as to an amount of square footage
equal to the number of office square footage minus 25,000, and shall have the
right to reasonably specify the particular square footage to be restored
(provided, however, that the square footage thus specified for restoration shall
in no event include the approximately 12,500 square feet of space finished as
office space as of the Commencement Date. Landlord will not require Tenant to
remove any Alterations to warehouse space which do not alter its character as
warehouse space.
13. Signs. Tenant may erect and maintain signs on the Parcel grounds, but
______
only with Landlord's prior written consent, not to be withheld unreasonably, as
to all particulars about any such sign, including, without limitation, number,
placement, size, color, and material. Tenant shall be responsible for ensuring
that all such signs comply with zoning and all other applicable laws. Tenant
will pay all costs incurred in erecting, maintaining, and removing any such sign
upon termination or expiration of the Term.
14. Utilities. Tenant will pay for all water, gas, heat, light, power,
__________
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. Tenant will pay such charges for any utility metered so
as to measure use by Tenant and no other tenant of the Building directly to the
utility provider. Landlord will bill any utilities not so metered to Tenant as
an Operating Expense. Tenant shall have no right to require Landlord to install
any utility meters at Landlord's expense. Tenant shall have the right to have
separate utility meters installed at Tenant's own expense.
15. Insurance.
__________
A. Landlord shall at all times during the term of this Lease insure the
Building for full replacement value against loss or damage by fire, explosion,
or other insurable hazards commonly covered by an "all-risk" or "extended
coverage" policy (including one years' worth of rent interruption coverage),
provided that Landlord shall not be obligated to insure against loss or damage
to any trade fixtures or personal property belonging to or leased
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by Tenant or against any loss or damage arising from Tenant's use of any
Hazardous Substance. At Landlord's option, Landlord shall not be required to
insure against loss or damage to any Alteration that Tenant has the right to
remove upon expiration or termination of this Lease or that Tenant must
remove, if Landlord so requests, upon the same. Tenant shall not be responsible
for payment of any deductible or co-insurance portions of Landlord's fire and
extended coverage insurance. Landlord shall also at all times during the term
of the Lease maintain public liability insurance in the amounts specified in
paragraph 15D in the case of insurance required of Tenant. Landlord will cause
Tenant to be named as an additional insured in the policies maintained by
Landlord, and Tenant will do the same for Landlord in the policies maintained by
Tenant.
B. Each insurance policy required by this Lease will provide that the
insured party has relinquished all rights to recover against the other party to
the Lease for loss or damage resulting from perils insured against by the
policy. Each party waives any claim against the other based on loss or damage
which is covered by insurance or coverable under the insurance policies required
by this Lease, whether those policies are maintained or not. Landlord and Tenant
will promptly notify their respective insurance carriers of this waiver of
claims and subrogation rights.
C. In the event that the use of the Premises by Tenant increases the
premium rate for insurance carried by Landlord on the Property or any Building
included within the Premises, Tenant shall pay Landlord, upon demand, the amount
of such premium increase. If Tenant installs or uses any electrical equipment
that overloads the power lines to the Building or its wiring, Tenant shall, at
its own expense, make whatever changes are necessary to comply with the
requirements of the insurance underwriter, insurance rating bureau, and
governmental authorities having jurisdiction.
D. Tenant shall keep in full force and effect, at its expense, a policy or
policies of public liability insurance with respect to the Premises and the
business of Tenant, under limits of liability not less than: $2,000,000 combined
coverage for injury or death to any one person; $2,000,000 for injury or death
to more than one person; and $100,000 with respect to damage to property. Such
policy or policies shall provide that ten (10) days written notice must be
given to Landlord prior to cancellation thereof. Tenant shall furnish evidence
satisfactory to Landlord at the time this Lease is executed and thereafter, on
request, that such coverage is in full force and effect. Tenant's providing
insurance as prescribed herein does not release Tenant from liability to
Landlord under applicable law, or otherwise limit that liability, except as to
those claims expressly deemed waived under other provisions of this Lease.
Tenant will indemnify, defend, and hold Landlord harmless from and against any
and all claims of personal injury or property
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damage asserted by Tenant's employees, agents, or any other person, or any other
business entity, arising from Tenant's operations on the Premises.
16. Non-Liability. Unless caused by Landlord's gross negligence or willful
_____________
misconduct, under no circumstances will Landlord be liable to Tenant or persons
claiming through Tenant for: any loss or damage to any property of Tenant or of
others by theft or destruction; any injury or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water,
rain or snow or leaks from any part of the Premises or from the pipes,
appliances, or plumbing works or from the roof, street or subsurface or from any
other place or by dampness or by any other cause of whatsoever nature. Under no
circumstances will Landlord be liable to Tenant or persons claiming through
Tenant for any such damage caused by any other tenant, other occupant, or
invitee of the Property, or the public, or caused by operations in construction
of any private, public or quasi-public work, or caused by the absence or
interruption of utilities; any loss or damage resulting from acts of God or any
cause beyond Landlord's reasonable control; any loss or damage caused by
Landlord's failure to make the Premises available for occupancy by any
particular date; or any consequential damages no matter what the cause.
17. Eminent Domain.
_______________
A. If the entirety of the Building and Common Area is condemned (this term
includes sales in lieu of condemnation and quick takes), then the Lease will
terminate as of the date possession shall be taken by the condemning authority
and rent shall be paid to the date of such termination. If otherwise, the Lease
will remain in effect but with an equitable abatement of the Base Rent and
Additional Rent based on the portion of the Premises rendered unsuitable and the
extent of that unsuitability.
Absent termination, Landlord has the option of reducing or eliminating such
unsuitability resulting from a condemnation by restoring or remodeling the
Premises or by making available substitute areas of the Building which are
acceptable to Tenant.
B. Landlord is entitled to all condemnation proceeds, no matter what the
bases, provided, however, that Tenant shall have the right to claim and recover
from the condemning authority, but not from Landlord, such compensation as may
be separately awarded or recoverable by Tenant in Tenant's own right on account
of any relocation costs of any resulting damage to Tenant's business.
18. Damage or Destruction.
______________________
A. Landlord has the option of terminating this Lease at any time if the
Building or Premises, as the case may be, are damaged by fire or any other cause
to such extent that the restoration
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cost, as reasonably estimated by Landlord, will equal or exceed thirty percent
(30%) of the replacement value of the Building or Premises, as the case may be,
exclusive of foundation, just prior to the occurrence of the damage. The option
is exercisable only by the giving of written notice within 90 days of the damage
and the termination is effective 30 days after the giving of the notice.
B. Except where the aforementioned option is exercised, Landlord will
promptly restore the Building or Premises, if damaged, subject to delays beyond
Landlord's control and delays in the making of insurance adjustments by
Landlord; and Tenant shall have no right to terminate this Lease as to any part
of the Premises.
C. While the Lease is in effect with respect to any portion of the Premises
that has been damaged by fire or other causes so as to be substantially
unsuitable for Tenant's purposes, then Base Rent and Additional Rent shall be
abated equitably effective as of the date of such damage, except that, if Tenant
caused the damage, Tenant will receive no rent abatement if Landlord's insurance
rent-interruption coverage bars Landlord from offering such an abatement.
19. Termination of Lease. Upon termination or expiration of this Lease,
_____________________
Tenant agrees to do the following on or before the expiration or termination
date: (a) remove all signs, personal property, and trade fixtures belonging to
or leased by Tenant; (b) perform Tenant's obligations under the last sentence of
Article 12; (c) promptly surrender all keys to Landlord at the place then fixed
for payment of rent and inform Landlord of the combinations of any locks and
safes that will remain behind; and (d) surrender possession of the Premises or
subparts being vacated, broom-clean and in as good condition and repair as the
same were in at the commencement of this Lease except for (i) reasonable wear
and tear, (ii) Alterations which Tenant is not obligated to remove under the
last sentence of Article 12, and (iii) damage or destruction caused by perils
customarily covered under fire and extended coverage insurance, acts of God, or
by any other cause beyond the reasonable control of Tenant.
Tenant agrees that Landlord shall have the option, with respect to all or
any part of any personal property left behind in violation of this Article, to
store it at Tenant's expense or declare it and treat it as having been abandoned
by Tenant.
20. Holding Over. Any holding over without Landlord's written consent after
_____________
termination or expiration of the Lease is a breach of the Lease entitling
Landlord to institute legal actions to dispossess Tenant and to sue Tenant for
any damages resulting from the holding over. Any holding over with Landlord's
consent will be considered a month-to-month extension of the Lease, with rent
payable as provided in the next sentence. In all cases, except insofar as
Landlord may hereafter agree in writing, so
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long as Tenant remains in possession after the termination of the Lease, Tenant
agrees to pay Base Rent at one and one-half the rate in effect immediately prior
to the termination or expiration of the Lease and to otherwise abide by all the
other terms and obligations imposed on Tenant under the Lease.
21. Default of Tenant.
__________________
A. It is a Default for Tenant to: (a) not pay any Base or Additional Rent
or other sum when due under the Lease (provided, however, that Tenant shall not
be deemed in default until it fails to cure any such delinquency within 3 days
after receiving Landlord's written notice of the delinquency); (b) not cure any
Lease violation not described by the other clauses of this paragraph within 10
days after Landlord gives notice of the violation (provided Landlord will extend
this period so long as cure is possible and Tenant has begun and is diligently
pursuing a cure); (c) knowingly violate the Lease on 3 separate occasions during
any 12 month period; (d) knowingly misrepresent any material fact in any writing
provided to Landlord or pursuant to this Lease; and (f) become insolvent or the
subject of a bankruptcy petition or an assignment for the benefit of creditors.
B. A Default entitles Landlord to exercise all remedies available under
law, including the right to re-enter, at its option, the Premises and remove all
persons and property from the Premises. Without limitation, Landlord may, at its
option, instead of exercising any other rights or remedies available to it under
this Lease or otherwise, enter the Premises (if necessary) and perform such acts
or spend such sums of money as may be reasonably necessary to cure any Default
by Tenant, and the cost incurred, including reasonable attorney's fees, in
curing the Default shall be paid by Tenant, as additional rent, within 10 days
after receipt of Landlord's invoice.
C. Should Landlord elect to re-enter the Premises, as herein provided, or
should it take possession of the Premises pursuant to legal proceedings or
pursuant to any notice provided for by law, it may either terminate this Lease
or it may from time to time, without terminating this Lease, make such
alterations and repairs as may be necessary in order to relet the Premises, and
relet the Premises or any part thereof for such term or terms (which may be for
a term extending beyond the term of this Lease) and at such rental or rentals
and upon such other terms and conditions as Landlord in its sole discretion may
deem advisable. Upon each such reletting all rentals received by the Landlord
from such reletting shall be applied first to the payment of any indebtedness
other than rent due hereunder from Tenant to Landlord; second, to the payment of
any costs and expenses of such reletting, including brokerage fees and
attorney's fees and of costs of such alterations and repairs; third, to all rent
accrued and due hereunder from Tenant; and fourth, to a fund to be held by
Landlord and applied in payment
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of future rent as the same may become due and payable from Tenant hereunder. Any
surplus remaining upon termination of this Lease shall belong to Landlord. If
such rentals received from such reletting during any month be less than that to
be paid during that month by Tenant hereunder, Tenant, upon demand, shall pay
any such deficiency to Landlord. No such re-entry or taking possession of the
Premises by Landlord, or reletting, or any other act or omission, shall be
construed as an election on its part to terminate this Lease unless a written
notice of such intention be given to Tenant. Notwithstanding any such reletting
without termination, Landlord may at any time after such re-entry elect to
terminate this Lease for such previous breach.
D. In addition to its other remedies available because of Tenant's
Default, Landlord may elect, by giving written notice, to accelerate unaccrued
Base and Additional Rent and hold Tenant immediately liable for the present
value (using a 6% per annum time-value of money component) of the sum of all
Base and Additional Rent payable during the remainder of the Term. For purposes
of this provision, accelerated Additional Rent shall be deemed fixed for each
month of the remainder of the Term in the same estimated amount as had been due
monthly at the time Landlord gives notice of the acceleration. If Landlord
exercises its rights under this paragraph D., Landlord will not thereafter
terminate the Lease but rather will credit against Tenant's obligation under
this paragraph any rentals, net of the expenses of reletting, it collects from
re-letting the Premises with respect to the remainder of the Term; provided,
however, that Landlord may terminate the Lease after accelerating the rent if it
also waives any right to claim rent on an accelerated basis and limits its
remedies to those available under the other paragraphs of this Article.
Notwithstanding anything in this Article to the contrary, Landlord waives any
legal right to dispossess Tenant by reason of a Default under clauses (a) or (b)
of paragraph A., above, if Tenant cures the Default prior to the issuance of an
order for a writ of restitution or similar order by a court of competent
jurisdiction.
E. Should Landlord at any time terminate this Lease for any such Default,
in addition to any other remedies it may have, it may recover from Tenant all
damages it may incur by reason of such breach, including the worth at the time
of such termination of the excess, if any, of the amount of rent and changes
equivalent to rent (discounted to present value using a 6% value of money
discount factor) reserved in this Lease for the remainder of the stated term
over the then reasonable rental value of the Premises for the remainder of the
stated term, all of which amounts shall be immediately due and payable from
Tenant to Landlord.
F. All expenses, including, without limitation, attorneys' fees, broker's
fees, and retro-fit expense, incurred by Landlord by reason of Tenant's breach,
whether or not the breach results in the commencement of legal proceedings or
involves termination
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of the Lease, shall be chargeable to Tenant as Additional Rent and payable
within 30 days after Landlord invoices Tenant therefor.
G. No remedy of Landlord's shall be deemed exclusive except insofar as it
may be such by operation of law. To the extent the law allows, Landlord's
remedies shall be cumulative and exercisable from time to time and as often as
Landlord desires.
22. Rent Due Absolutely. Tenant's obligations to pay Base and Additional
____________________
Rent are independent of any other provision of this Lease and such Rent shall
be due irrespective of any claim of setoff. All Rent due under this Lease from
Tenant to Landlord shall be due at the times specified herein, provided,
however, that if Additional Rent payable hereunder is increased, the amount of
the increase shall be due on the 30th day following receipt of mailed notice of
the increase or when the increase would otherwise be payable, whichever is
later. Any monies due under this Lease other than Rent shall be due on the 30th
day following receipt of a written invoice for the same. All such Rent or other
monies, unless otherwise specified, if not paid when due, shall bear interest at
the rate of 18% per annum or the maximum rate permitted by law, whichever is
less. Any monies, Rent or otherwise, not paid within 10 days of when first due
shall be subject to a $50.00 late fee to cover Landlord's costs of monitoring
the delinquency.
23. Right of Entry. Landlord and Landlord's agents and employees have the
_______________
right to enter the Premises at all reasonable times with reasonable prior notice
to show premises to parties wishing to purchase, lease, or lend against the
Building; to make repairs, alterations, and improvements; to inspect the
Premises to assess Tenant's compliance with the Lease; to post notices of
non-responsibility under Minnesota law with respect to any work on the Premises
subject to the Minnesota mechanic's lien statute; and for any other reasonable
purpose. Notwithstanding the foregoing, Landlord may enter the Premises at any
time in cases of emergency. Any entry for the purpose of showing the Premises to
prospective tenants shall be confined to the last six months of the Term.
24. Assignment and Subletting. Tenant may assign, sublet, or otherwise
__________________________
transfer any of its rights under this Lease only with Landlord's prior written
consent, which consent will not be unreasonably withheld, except that Tenant may
assign its rights, without Landlord's consent, to any entity in which Tenant or
any wholly owned subsidiary owns more than 50% of the outstanding ownership
interests. Once Landlord receives Tenant's written notice, requesting such
consent in the case of a bona fide prospective transferee, Landlord shall have
30 days to notify Tenant in writing of Landlord's refusal to give consent and
the reasons for that refusal; Landlord's failure to give such notice within
those 30 days shall be deemed Landlord's consent to the proposed transfer.
Tenant agrees that it shall be deemed
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reasonable for Landlord to refuse to consent to any transfer to a tenant whose
net worth or creditworthiness does not satisfy Landlord's standards for leasing
to new tenants of the Building, or to refuse consent so long as Tenant is in
default or delinquent in respect to any obligation under this Lease. Tenant
further agrees that there may be other reasons why consent should be denied in
given instances. Absent an express release signed by Landlord, no assignment,
subleasing, or transfer, even if made with Landlord's consent, shall be
construed to relieve Tenant from any of its accrued or unaccrued obligations
under the Lease. Landlord's right to assign the Lease is unqualified, it being
understood, however, that Landlord's right to assign the Lease is not a right to
terminate it at will.
25. Subordination, Attornment, Novation. Tenant agrees to subordinate this
____________________________________
Lease to any mortgage now or hereafter placed of record, to attorn to any
successor in interest of Landlord (including the mortgagee under any such
mortgage upon foreclosure or a transfer in lieu of foreclosure of any such
mortgage), and to consent to a novation in the event Landlord conveys the Parcel
to a third party, provided, however, that the mortgagee, successor, or third
party agrees that, upon obtaining or succeeding to Landlord's interest, it will
keep this Lease in effect and abide by its terms until such time as it may be
terminated in accordance with its provisions. Tenant shall, within ten (10)
business days after receiving Landlord's request, execute and deliver to
Landlord an "estoppel certificate," in reasonable form, certifying that this
Lease is in full force and effect, and that there are no offsets against rent
nor defenses to Tenant's performance under this Lease, or setting forth any such
offsets or defenses claimed by Tenant, as the case may be, and certifying such
other information as may be reasonably requested.
26. Notices. Any notice required or permitted under this Lease shall be
________
deemed sufficiently given if sent by registered or certified return receipt
mail, postage prepaid, to Tenant at FSI International, Inc., 322 Lake Hazeltine
Drive, Chaska, Minnesota 55318-1096, and to Landlord at Skyline Builders, Inc.,
3647 McKinley St. N.E., Minneapolis 55418, attn: Roland Stinski. Either party
may by like written notice at any time designate a different address to which
notices shall subsequently be sent or rent be paid. Notices so mailed will be
deemed given as of the postmarked receipt date. Notices sent by any other means
will be deemed given only upon actual receipt. Rent will be paid to Landlord at
the address then applicable for notices and will be deemed tendered at the time
of actual receipt unless directed to Landlord as provided above for mailed
notices, in which case the postmarked receipt date will be deemed the date of
such tender.
27. Representations. Tenant acknowledges that, except as expressly set
________________
forth in this Lease, Landlord has made no representations, promises, or
warranties regarding the Premises, Building, Parcel, or this Lease.
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28. Security Deposit. Upon signing this Lease, Tenant will deposit
_________________
$36,696 with Landlord as a Security Deposit. In the event Landlord resorts to
the Security Deposit, Tenant will replenish it on demand. The principal amount
of the Security Deposit shall bear interest, payable at the time this Lease
expires or terminates and Landlord will then be obligated to return the unused
portion of the Security Deposit, together with interest accruing at the rate of
4% per annum on the principal balance from time to time. The Security Deposit
may be commingled with Landlord's other funds. The Security Deposit will remain
constant, at this amount, throughout the Initial Term and Renewal.
29. Non-Waiver. Acceptance of Rent following a Default by Tenant, known
___________
or unknown to Landlord, monetary or non-monetary, shall in all cases be deemed a
matter of mitigating damages and not a waiver of such Default. Forbearance for
any length of time shall not be deemed a waiver by Landlord. Landlord's rights
can be waived only by a written express waiver. No other act, statement, or
omission of any kind by Landlord shall be deemed to be a waiver of Landlord's
rights.
30. Savings Clause. Whenever this Lease grants a party a right to do
_______________
something, that party has the option but not the obligation to exercise that
right. The unenforceability of any provision in this Lease shall not render the
Lease unenforceable as a whole. Any indemnity provisions (which term includes
defense and hold harmless agreements) and any provisions addressing the parties'
obligations upon expiration or termination of the Term shall survive the
expiration or termination of the Term.
31. Subdivision. Landlord may subdivide the Parcel at any time. If
____________
Landlord subdivides the Parcel, then from and after the effective date of the
subdivision, the term "Parcel" shall automatically mean just the legal parcel or
those legal parcels, created by the subdivision, containing the Building and any
parking lot used by Tenant or available for use by any other tenant of the
Building.
32. Brokerage Commission. Tobin Real Estate Company has represented
_____________________
Tenant in connection with this Lease. Landlord will pay a brokerage commission
to Tobin Real Estate Company, on the Commencement Date if this Lease has not
been cancelled pursuant to Article 2, equal to one-half the commission
calculated based on the standard 7-6-5-4-3 percent formula. Tenant will
indemnify Landlord against any claim by Tobin Real Estate Company in excess of
the obligation assumed by Landlord in the previous sentence.
33. Miscellaneous. This Lease contains all agreements of the parties
______________
pertaining to the Premises or the leasehold contemplated herein. Each party
shall be deemed to have drafted
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this Lease ad the Lease shall not be construed against one party or the other
on the premise that one or the other is responsible or more responsible for
the drafting.
34. Successors and Assigns. This Lease shall apply to, inure to the
_______________________
benefit of, and be binding upon the Landlord and Tenant and upon their
respective successors in interest and assigns.
35. Rider. This Lease is subject to a single rider, attached hereto and
______
incorporated by reference into this Lease.
IN TESTIMONY WHEREOF, the parties hereto have signed this Lease the day and
year first written below.
LANDLORD: TENANT:
SKYLINE BUILDERS, INC. FSI INTERNATIONAL, INC.
By: /s/ R. A. Stinski By: /s/ J.W. Stewart
-------------------- -----------------------------
Its: President Its: Vice President, Operations
------------------- ----------------------------
Dated: 8/9/95 Dated: 8/9/95
----------------- --------------------------
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EXHIBIT 10.31
LEASE RIDER
Skyline Builders, as Landlord, and FSI International, Inc., as Tenant,
hereby agree that, notwithstanding anything to the contrary in their Lease
pertaining to 312 Lake Hazeltine Drive, Chaska, Minnesota, the following
provisions shall apply to the Lease and shall be deemed to control and override
any conflicting provision in the Lease. The numbering of the various provisions
below corresponds to the Article or paragraph that provision supplements or
amends.
4. If Tenant exercises its option, the Lease will continue in effect during
the Renewal Term, subject to the same terms and conditions as set forth herein
(provided, however, that Tenant will have no further option to renew and will
pay Base Rent in the amount prescribed in the Lease with respect to the Renewal
Term, not the Initial Term).
5.1 Landlord further warrants that (i) the Parcel, the Building and the
Premises on the Commencement Date will comply with all laws, ordinances and
other legal requirements for use as office and warehouse space, and (ii) as of
the date of this Lease, there are no restrictions, covenants or exclusive rights
which would prohibit Tenant from using the Premises as an office, a laboratory,
or a warehouse and in accordance with this Lease, and Landlord covenants not to
enter into any such restrictions, covenants or agreements during the Term.
Notwithstanding the foregoing, Landlord warrants that the Common Areas complies
with the American Disabilities Act as of the Commencement Date, but makes no
warranty that the Premises complies with the American Disabilities Act ("ADA"),
and, except as may be expressly provided for in this Lease, makes no agreement
to improve the Premises to bring about such compliance. Rather, Tenant will be
responsible for improving the Premises (other than the Common Areas), at
Tenant's expense, to comply with the ADA. Landlord will provide Tenant with a
copy of the plans and specifications for the passenger elevator once Landlord
obtains them.
7D (continued from main lease). To the extent any taxes and/or assessments
may be payable over a period of time, Landlord shall pay such taxes and/or
assessments in equal installments over the longest time permitted by appropriate
taxing authorities. Notwithstanding anything to the contrary herein, taxes and
assessments payable by Tenant under this Lease shall not include (a) taxes,
assessments and the like not accruing during the Term; (b) federal, state, or
local income (except as expressly permitted below) taxes, (c) franchise (except
as expressly permitted below), gift, transfer, excise, capital stock, estate,
succession, or inheritance taxes, (d) penalties or interest on late payment of
taxes. For purposes of this Lease, ad valorem taxes first due and payable in a
particular calendar year will be deemed to accrue on a prorated daily basis,
i.e., 1/365th or 1/366th per day, over the course of that year. For
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purposes of this Lease, notwithstanding anything herein to the contrary, Real
Estate Taxes will not include ad valorem taxes on the assessed value of any
structure comprising more than 5,000 square feet of finished interior space,
hereafter erected on the Parcel, except structures constituting common area or
structures used primarily to service the Building.
7J. Notwithstanding anything contained in the Lease, the following shall be
excluded from amounts payable by Tenant under this Lease, including without
limitation, Operating Expenses:
(i) Attorney's fees, costs and disbursements and other expenses incurred in
connection with negotiations or disputes with tenants, other occupants, or
prospective tenants or occupants of the Building;
(ii) Costs relating to the breach of any warranty, representation or
covenant of Landlord under this Lease;
(iii) Interest on debt or payments on any mortgage, and rental under any
ground or underlying leases;
(iv) Depreciation and amortization, except as allowed in Paragraph 7K;
(v) The cost of leasing air conditioning systems, elevators or other
equipment, installed within the Parcel, ordinarily considered capital in nature,
except to the extent, in any given calendar year, equal to or less than the cost
Landlord could charge back for that year if Landlord had purchased the item in
lieu of renting or leasing it.
(vi) Costs of Landlord's general corporate and/or partnership overhead and
general administrative expenses (including but not limited to costs paid to
third parties to collect rents, prepare tax returns and accounting reports and
obtain financing), which would not be chargeable to operating costs of the
Building in accordance with generally accepted accounting principles,
consistently applied (provided, however, that Landlord shall have the right to
charge the fixed rate management fee described in the Lease);
(vii) Costs incurred in leasing, advertising for the Building or other
marketing or promotional activity specifically and primarily designed for
marketing space in the Building but excluding amenities for the common benefit
of existing tenants of the Building; and
(viii) any bad debt expense or bad debt reserve.
7I. (continued from main lease) Tenant shall have the right to examine
books and records relating to items referred to in this Article 7 and may
recover the cost (up to a maximum of $5,000) of an audit of Landlord's year end
account of the actual
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total of Real Estate Taxes and Operating Expenses with respect to any given
calendar year, should such audit establish to the satisfaction of Landlord (or,
in case of dispute, any court of competent jurisdiction) that the actual total
of Real Estate Taxes and Operating Expenses was less than 97% of the total
reported by Landlord. In any event, Landlord shall refund to Tenant any excess
amounts of Real Estate Taxes or Operating Expenses paid by tenant.
7K. Notwithstanding anything herein to the contrary, Landlord may treat an
expenditure, capitalized for purposes of income taxes, as an Operating Expense,
but in doing so will charge back the expenditure by amortizing it over 10 years,
using a 10% cost of funds rate.
9. To the extent Landlord actually maintains environmental hazards
insurance permitting a waiver of subrogation claims, and actually receives the
proceeds of any insurance policy on account of any use, handling, or release of
a Hazardous Substance by Tenant or anyone for whom it is legally liable,
Landlord is waiving the right to hold Tenant accountable under the other
provisions of Article 9. Landlord makes no warranty that it will maintain any
such insurance.
11.1 Without limiting the foregoing, Landlord shall repair and maintain all
Building systems not exclusively serving the Premises, Building structural
systems, roof, structural walls, subfloors, foundations, elevator, HVAC,
Building electrical, Building plumbing and exterior walls and glass so as to
keep the same in good condition and repair and in compliance with all legal
requirements. Landlord shall maintain the Common Area in a sightly, safe
condition and in a good state of repair, including, but not limited to,
maintaining the parking lot and snow and debris removal. To the extent Landlord
breaches its warranty set forth in the first sentence of Section 5, Landlord,
not Tenant, shall be solely responsible for making and paying for any repairs
necessary to cure the breach, and Landlord shall not charge back these repair
costs as Operating Expenses.
15F. Landlord shall at all times during the Term maintain comprehensive
general public liability insurance against claims for death, bodily injury and
property damage arising on or about the Parcel, naming Tenant as an additional
insured, under limits of liability not less than $2,000,000 combined coverage
for injury or death to any one person; $2,000,000 for injury or death to more
than one person; and $100,000 with respect to damage to property. Landlord shall
defend, indemnify and hold Tenant harmless from any and all claims arising from
Landlord's business on the Parcel or the conduct of its business or from any
activity, work, or thing done, permitted or suffered by Landlord on or about the
Parcel, regardless of fault or negligence which is imputed to Tenant as the
tenant of the Premises but which involves a condition of the Parcel within the
control of Landlord, its employees, agents, or contractors.
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17C. The Landlord shall make all repairs to the Premises and the Building
necessary to render and restore the same to an architectural unit as nearly
like its condition prior to such taking as shall be practicable. In the event
that Landlord is unable to restore the Premises to a condition suitable for the
conduct of Tenant's business, Tenant shall have the right to terminate this
Lease.
18A. "Thirty" percent is changed to "Fifty" percent in the fifth line.
18B. Tenant shall have the right to terminate the Lease, on 30 days prior
written notice, if by the 180th day following the casualty, Landlord has neither
(a) restored the Premises so as to make the Premises substantially usable by
Tenant in the same way Tenant was using the Premises immediately prior to the
casualty, or (b) made available to Tenant other substantially usable space
within the Building.
21C. If Landlord re-enters the Premises, Landlord will make reasonable
efforts to relet them.
21F. Tenant shall be liable only for reasonable attorneys' fees.
24.1. Without Landlord's consent, Tenant may assign or sublease the
Premises to any affiliate, subsidiary or parent of Tenant, or to the surviving
corporation or partnership in a statutory merger or reorganization of Tenant, or
to any corporation or partnership which purchases substantially all of the stock
or assets of Tenant, or to any corporation or partnership, the majority voting
stock or interest of which shall be owned by stockholders of Tenant holding a
controlling percentage or more of the voting stock of Tenant.
25. Tenant shall have the same right, provided herein to Landlord, to
require Landlord to execute and deliver an estoppel certificate for the benefit
of any actual or prospective lender or assignee of Tenant.
31. If Landlord constructs another structure on the Parcel, capable of
being occupied and leased independent of the Building, and Landlord does not
subdivide the Parcel, then, starting in the year in which the ad valorem taxes
reflect the fully assessed value of the new structure, Tenant will have to pay
its Proportionate Share of Real Estate Taxes multiplied by a fraction, the
numerator of which is the same number of leaseable square feet in the Building
used to calculate Proportionate Share, and the denominator of which is the sum
of that number plus the number of leasable square feet in the newly constructed
structure.
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32. Landlord will indemnify and hold Tenant harmless against any claim for
a commission based on the claimant's representation of Landlord in connection
with this Lease.
33.1 At the request of either Landlord or Tenant, the other party shall
promptly execute, acknowledge, deliver and provide in recordable form a
memorandum of this Lease containing such information as may be reasonably
requested by such party. Landlord covenants that Tenant shall quietly have and
enjoy the Premises and appurtenant rights during the Term without disturbance,
hindrance or molestation. Notwithstanding any provision to the contrary herein,
Tenant shall not be liable for consequential damages or costs incurred by
Landlord in bad faith, and Landlord shall not be liable for Tenant's
consequential damages. If either party hereto fails or refuses to perform or
observe any provision of this Lease on its part to be performed or observed, the
other party may perform or observe such provision and the party so failing or
refusing shall immediately pay to the other party an amount equal to the cost of
such performance or observance; provided, however, that Tenant shall have this
right only after affording Landlord the same notice and opportunity to cure as
is provided in this Lease in the case of non-monetary defaults by the Tenant. In
the event of dispute between Landlord and Tenant, the non-prevailing party shall
pay reasonable attorneys' fees and disbursements to the prevailing party.
36. Landlord agrees to promptly modify the Building, such that Tenant has
free and clear access to the freight elevator, existing as of August 9, 1995,
and Landlord and Tenant agree to negotiate the size, placement, and other
particulars of an access area connecting the Premises, as defined in the main
Lease, and the freight elevator, and a reasonable rate of rent for the space
occupied by the elevator and (to the extent not Common Area) the access area to
this elevator. This rate will be based on the following factors: the rental rate
for the remainder of the Premises; any construction costs Landlord will incur in
providing such access; and any impact by the access on the leaseability of the
Building's space other than the Premises. The square footage of the elevator and
access space (except to the extent Common Area) will be added to and be treated
as a part of the Premises and the Square Footage, it being understood that
Exhibit A to the main Lease depicts only the Premises as the Premises exists
exclusive of this access area and elevator.
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IN TESTIMONY WHEREOF, the parties hereto have signed this Lease the day and
year first written below.
LANDLORD: TENANT:
SKYLINE BUILDERS, INC. FSI INTERNATIONAL, INC.
By: /s/ R. A. Stinski By: /s/ J.W. Stewart
---------------------- ----------------------------
Its: President Its: Vice President, Operations
--------------------- ---------------------------
Dated: 8/9/95 Dated: 8/9/95
------------------- -------------------------
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Exhibit 10.32
LEASE AMENDMENT
The Undersigned amend their Lease pertaining to 312 Lake Hazeltine Drive,
Chaska, Minnesota, as follows:
1. The definition of Premises is hereby amended to include the space on
the first floor of the Building, marked by parallel diagonal lines or
crosshatching on attached Exhibits A and B. Exhibit A is a floor plan of part of
the Building, showing the freight elevator and surrounding areas. Exhibit B is a
floor plan of another part of the Building, showing a stairwell leading from the
first floor to the north end of the mezzanine. Tenant shall have the exclusive
use of the area marked by parallel diagonal lines on Exhibit A (subject,
however, to Landlord's right to use and access this space for mechanical room
purposes, consistent with the terms of the Lease), the non-exclusive use of the
area marked by crosshatching on Exhibit A, and the exclusive use of the area
marked by parallel diagonal lines on Exhibit B.
2. For purposes of calculating Base Rent and Additional Rent, Tenant shall
be deemed to be leasing 50% of the square footage marked by cross hatching.
Tenant will pay Base Rent and Additional Rent on the Premises as expanded herein
at the same time and based on the same rates as apply to the 125,800 Premises as
initially defined in the Main Lease (subject to the qualification that Tenant is
deemed, for rent purposes, to be Leasing only 50% of the square footage marked
by crosshatching). For example, Base Rent accrues during the Initial Term at the
annual rate of $3.50/s.f.
3. For such rent purposes, the Premises, as amended, shall be deemed to
contain 126,008 square feet, this being the sum of the square footage for the
mezzanine space above the existing office space (13,570), the main floor office
and warehouse space (64,478), the portion of Exhibit A marked by parallel
diagonal lines (1,874.5), the portion of Exhibit A marked by crosshatching
(503.5, being 50% of the total square footage of such portion), the middle
mezzanine space (45,100), and the space marked by parallel diagonal lines on
Exhibit B (482). The foregoing square footage figures are those the parties
agreed on after having an architect measure, at Landlord's expense, the
aforementioned component spaces comprising the Premises as expanded herein.
4. This Agreement, as it pertains to Exhibit A, memorializes the agreement
contemplated in Section 36 of the Rider to the Lease, but does not alter
Landlord's obligation under that section to modify the Building, except that it
expands that obligation to include modifications to the additional stairwell
described in Exhibit B.
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5. Section 6G of the Main Lease is deleted in its entirety and replaced
with the following: "The term "Rent Start Date" means the earlier of (a) October
25, 1995 or (b) the date on which any of Tenant's employees or agents first use
any of the Premises as office space."
6. Tenant and Landlord waive any right to cancel the Lease arising from the
Commencement Date not occurring on or before September 1, 1995.
7. This Agreement may be executed in counterparts and all counterparts
shall be deemed part of a single instrument.
ROLAND A. STINSKI (AS ASSIGNEE OF FSI INTERNATIONAL, INC.
SKYLINE BUILDERS, INC.) (TENANT)
(LANDLORD)
By: /s/ R. A. Stinski By: /s/ J. Wayne Stewart
-------------------------- -----------------------------
Its: Its: Vice President, Operations
------------------------- -----------------------------
Dated: 11/14/95 Dated: 11/15/95
----------------------- ---------------------------
-2-
-114-
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11.1
------------------
FSI INTERNATIONAL, INC.
COMPUTATION OF INCOME PER COMMON SHARE
FISCAL YEAR ENDED:
----------------------------------------------------------
AUGUST 26, 1995 AUGUST 27, 1994 AUGUST 28, 1993
----------------------------------------------------------
<S> <C> <C> <C>
PRIMARY:
AVERAGE SHARES OUTSTANDING 15,682,934 12,284,184 9,900,564
NET EFFECT OF DILUTIVE STOCK
OPTIONS AND WARRANTS -- BASED ON
THE TREASURY STOCK METHOD 1,288,266 938,224 657,082
------------------ ---------------- ---------------
TOTAL 16,971,200 13,222,408 10,557,646
================== =============== ===============
NET INCOME $19,285,684 $5,646,134 $2,957,955
================== =============== ===============
PRIMARY PER SHARE AMOUNTS $1.14 $0.43 $0.28
================== =============== ===============
FULLY DILUTED:
AVERAGE SHARES OUTSTANDING 15,682,934 12,284,184 9,900,564
NET EFFECT OF DILUTIVE STOCK
OPTIONS AND WARRANTS -- BASED ON
THE TREASURY STOCK METHOD 1,387,614 1,001,106 760,332
------------------ ---------------- ---------------
TOTAL 17,070,548 13,285,290 10,660,896
================== =============== ===============
NET INCOME $19,285,684 $5,646,134 $2,957,955
================== =============== ===============
FULLY DILUTED PER SHARE AMOUNTS $1.13 $0.43 $0.28
================== =============== ===============
</TABLE>
-115-
<PAGE>
Exhibit 13.0
FSI International
1995 Annual Report
[PHOTO]
-116-
<PAGE>
HIGHLIGHTS
Sales increased 97 percent to $190.4 million, while net income
more than tripled to $19.3 million in fiscal 1995.
Two secondary stock offerings provided more than $100 mil-
lion in funds for investments in future growth.
The Company declared a two-for-one common stock split
in June.
FSI acquired Applied Chemical Solutions and established a
European manufacturing capability with an investment in FSI
Metron Europe, Limited, which is intended to increase market
share and product offerings.
A new cleanroom manufacturing facility, built to provide the
capacity required to meet customer demand, was opened in
November 1995.
FSI had three products chosen in the same year for Semicon-
ductor International's 1994 Editors' Choice Best Product Award.
Texas Instruments presented its Supplier Excellence Award to
FSI. This is the fifth time FSI has received this recognition.
ISO 9001 Certification was achieved, a tangible outcome of FSI's
commitment to quality.
Company Description
FSI International, Inc. (Nasdaq: FSII) is a worldwide leader in producing
automated equipment used by semiconductor manufacturers for processing silicon
wafers. The Company is focused on three key technologies:
Microlithography Clusters--a modular, self-contained cluster, with a central
robotic handler, that applies and develops photosensitive materials on a silicon
wafer's surface.
Surface Conditioning Products--systems used for preparing silicon wafers for
the production of integrated circuits. During processing, the systems are used
to perform cleaning, etching and photoresist stripping applications.
Chemical Management Systems--products for controlled blending, mixing and safe
distribution of chemicals throughout a semiconductor manufacturing facility.
Many of the world's largest semiconductor manufacturers rely on FSI's technology
and expertise to help them improve their manufacturing processes and lower their
costs. The Company works directly with its customers to develop long-term,
strategic technology and quality road maps with the goal of achieving 100
percent customer satisfaction.
-117-
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Fiscal years ended August
----------------------------------
(in thousands, except per share data)/1/,/2/ 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $190,403 $96,437 $78,432
Net income 19,286 5,646 2,958
Net income per common share 1.13 .43 .28
Research and development expenses 24,865 15,743 11,760
Cash, cash equivalents and marketable securities 111,203 10,725 782
Working capital 146,130 27,778 13,421
Total assets 233,841 69,357 41,369
Stockholders' equity 178,210 42,367 21,589
Book value per share 8.80 3.22 2.23
Number of shares outstanding 20,261 13,166 9,686
- -----------------------------------------------------------------------------------------------
/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 Note 2 of Notes to Consolidated Financial Statements.
/2/ Share information and per share information have been adjusted for a two-for-one common stock
split. See Note 19 of Notes to Consolidated Financial Statements.
</TABLE>
[BAR GRAPH]
Backlog
(in millions)
- --------------
$24 $77 $115
- --------------
93 94 95
- --------------
[BAR GRAPH]
Working Capital
(in millions)
- --------------
$13 $28 $146
- --------------
93 94 95
- --------------
[BAR GRAPH]
Book Value
Per Share
- -------------------
$2.23 $3.22 $8.80
- -------------------
93 94 95
- -------------------
FSI INTERNATIONAL | 1
-118-
<PAGE>
TO OUR SHAREHOLDERS AND EMPLOYEES
Fiscal 1995 was a highly rewarding year for FSI and our investors. Past
investments and our focus on the customer were rewarded with a 97 percent
increase in sales, while net income more than tripled.
Sales for the year ended August 26, 1995, totaled $190.4 million, compared
with $96.4 million in fiscal 1994, thanks to strong growth and market share
gains in all three of our divisions, coupled with an acquisition and a joint
venture. Net income rose to $19.3 million from $5.6 million. Net income per
share for fiscal 1995 was $1.13 versus $.43 in fiscal 1994. The per share
amounts reflect several events during 1995 that resulted in an increase in the
number of shares outstanding: the secondary stock offerings completed in
February and July, a two-for-one stock split in June and the acquisition of
Applied Chemical solutions (ACS) in March. We ended the year in very good
standing with our largest order backlog ever, which increased from $77 million
at the end of fiscal 1994 to $115 million.
FSI continued to receive recognition from customers and the industry for
our product and service excellence, evidenced by several awards from long-time
customers and a key industry publication. This recognition is the result of our
employees' dedication to FSI and our customers.
FSI's strong financial position, together with explosive growth in our
industry, puts us in an advantageous position. Our challenge now is to
strategically grow the Company while carefully managing human resources, new
product development programs, our manufacturing capacity ramp-up and operating
systems upgrades as we become a larger company.
GAINING MARKET SHARE
Industry analysts predict that the semiconductor device industry will grow from
an estimated $150 billion in 1995 to $300 billion by the year 2000. For this to
happen, our customers must add manufacturing capacity to meet the increasing
demand for semiconductor devices used in computers, telecommunications,
automobiles and other consumer electronics.
[BAR GRAPH]
Integrated Circuit Demand (in billions of dollars)
- ---------------------------------------------------------------------
65.2 85.5 110.6 122.8 149.8 135.0 182.9 150.4 210.4 171.0 238.6 275.7
- ---------------------------------------------------------------------
92A 93A 94A 95E 96E 97E 98E 99E
- ---------------------------------------------------------------------
_Dataquest October 1994 Forecast _Dataquest September 1995 Forecast
- ---------------------------------------------------------------------
Accelerating demand has caused Dataquest to revise its growth projections
upward for semiconductor manufacturing equipment demand.
To meet our customers' needs, FSI must add both manufacturing capacity and
product development capability to satisfy the demand for our products that play
vital roles in semiconductor manufacturing.
It is our goal to continue to capture market share as the industry expands
at a very rapid pace. We intend to accomplish this by investing in our
technology infrastructure and in skilled people and by expanding our worldwide
distribution and support capabilities.
To advance our technological edge, FSI continues to invest in engineering,
research and development at an aggressive rate relative to the industry. This
allows us to continually build upon our existing technology by enhancing our
current product lines with applications that deliver greater value to customers.
Further, to broaden our process solutions, a portion of the proceeds from the
two stock offerings in fiscal 1995 is targeted for strategic acquisitions of
businesses, products or technologies that complement our existing offerings. In
fiscal 1995, we made such investments in the Chemical Management division, via
an acquisition and a joint venture, and in the Surface Conditioning business,
through the licensing of new technology.
During the year, we also invested heavily in our people, concentrating on
the areas that add the greatest value for ensur-
2 | FSI INTERNATIONAL
-119-
<PAGE>
[photo]
Joel Elftmann conducts a semiconductor
industry overview for new FSI employees.
ing customer satisfaction. In addition to hiring approximately 300 new
employees, we increased our investment in training to keep our people current in
their skills and on topics important to our success, including the semiconductor
industry, improved or enhanced manufacturing processes and Total Quality
Management. We continue to add personnel throughout the world with the technical
skills to deliver on our goal of 100 percent customer satisfaction.
EXPANDING OUR GLOBAL PRESENCE
[graph]
------------------------
International Sales
(percent of total sales)
------------------------
34% 33% 37%
------------------------
93 94 95
------------------------
Because we envisioned significant opportunities in Europe and Asia, FSI took
steps in fiscal 1995 to expand our presence in these markets. International
sales increased to 37 percent of revenues during the year. Our goal is to have
international sales represent approximately 50 percent of total sales.
Europe has enjoyed a resurgence of growth in recent years and industry
forecasts show continued strength through the end of the decade. Our focus will
be on maintaining momentum in that region by strengthening our support of our
newly consolidated 38-percent-owned affiliate, Metron Technology B.V.
During fiscal 1995, the Surface Conditioning division experienced strong
order growth in Japan, a difficult market for U.S. manufacturers to penetrate.
We recently received orders for more than 20 MERCURY MP(R) Spray Processing
Systems from m.FSI Ltd., our joint venture in Japan. We are enjoying similar
success in other emerging semiconductor markets in the Far East, including South
Korea, Singapore and Taiwan.
LOOKING AHEAD
As I said in the beginning of this letter, fiscal 1995 was a highly rewarding
year. It will be a challenge to repeat this growth in fiscal 1996. However, we
can expect another strong year if we remain focused on each of the following:
. Keeping customer satisfaction as the ultimate goal;
. Strategically managing the Company's growth;
. Aggressively taking advantage of opportunities to gain market share;
. Continuing our conservative approach to cost control;
. Building upon our technical leadership; and
. Effectively bringing our new manufacturing facility on-line.
I look forward to these challenges and thank you for your on-going support.
Sincerely,
/s/ J A Elftmann
Joel A. Elftmann
Chairman, President and Chief Executive Officer
November 13, 1995
FSI INTERNATIONAL | 3
-120-
<PAGE>
Product Overview
<TABLE>
<CAPTION>
Division Description Major Product(s)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SURFACE CONDITIONING Surface conditioning products are MERCURY MP Processors
- -------------------------------- utilized to prepare the surface of the MERCURY OC Spray Processors
integrated circuit for subsequent pro- EXCALIBUR ISR Vapor
[PHOTO] cessing. Products include MERCURY(R) Phase Processors
spray processors that use a sequenced EXCALIBUR MVP Vapor
spray of chemicals to perform submi- Phase Processors
cron cleaning, etching and photore- EXCALIBUR EOS Vapor
sist stripping applications, and Phase Processors
EXCALIBUR(R) vapor phase processors
used for critical cleaning and
specialty etching applications.
(pictured: EXCALIBUR MVP)
- -------------------------------------------------------------------------------------------------------------------------------
MICROLITHOGRAPHY Microlithography clusters apply and POLARIS 2000 Cluster
- -------------------------------- develop photosensitive materials
on the silicon wafer surface. The
[PHOTO] POLARIS(R) modular, self-contained
cluster uses a reliable central robotic
handler to move silicon wafers from
station to station where prime, coat,
bake and develop processes are
performed. (pictured: POLARIS 2000)
- -------------------------------------------------------------------------------------------------------------------------------
CHEMICAL MANAGEMENT Chemical management systems, ChemFill 500, 1000, 5000
- -------------------------------- marketed under the names ChemFill(R) ChemBlend 100
and ChemBlend(TM) products are used for Developer Blending Systems (DBS)
[PHOTO] generation, controlled conditioning, 500, 1500, 3000
blending and distribution of chemicals Applied Chemical Solutions (ACS)
throughout a semiconductor manufac- products P2200, P4400, VP1000,
turing facility. (pictured: ChemFill VP4500
1000 PC)
</TABLE>
-121-
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF SALES* Technology Highlights 1995 Business Highlights
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
31% ICE/TM/--FSI Licensed IBM's Another year of solid financial
cryogenic aerosol cleaning performance, with revenue
technology. increasing from $28 million
ORION/TM/--FSI demonstrated to $60 million.
[CHART] key gas-phase applications in EXCALIBUR ISR Vapor Processing
a successful research program System and MERCURY MP Spray
funded by NIST (National Institute Processing System were among
of Standards and Technology). three FSI products winning
Semiconductor International's
prestigious Best Product Award.
- -------------------------------------------------------------------------------------------------------------------------------
32% .Robotics--A new high capacity Increased revenues by 87 percent,
feature adds a wider range of from $33 million to $61 million.
motion allowing greater flexibility Received several multi-system,
and increased productivity. multi-million dollar orders.
Ramped up manufacturing
[CHART] capability.
Expanded customer base worldwide.
The POLARIS 2000 also won
Semiconductor International's
Best Product Award.
- -------------------------------------------------------------------------------------------------------------------------------
24% Slurry--The proprietary technology Revenues up 157 percent
from ACS is ideally suited to to $45 million.
deliver slurry for the rapidly Applied Chemical Solutions
expanding chemical-mechanical acquisition dramatically
[CHART] planarization (CMP) application broadened the product line.
market. Entered FSI Metron Europe,
Limited, joint venture to provide
European manufacturing capability
and program management.
* Approximately 13 percent of
sales consists of spare parts See Glossary of Industry Terms on page 33.
and services
</TABLE>
-122-
<PAGE>
REVIEW OF OPERATIONS
Three words characterize fiscal 1995 for FSI: growth, technology and support.
Our past successes allowed FSI to make strategic investments in these areas in
order to maintain a leadership position in our industry.
LAYING THE GROUNDWORK
During a highly successful year like fiscal 1995, filling customer orders and
maintaining customer satisfaction is a challenge. The accelerated pace of our
growth made it all the more important that we keep sight of our long-term goals.
Our customers assume that we have a long-term perspective of their future.
They expect us to take a leadership role in helping them succeed. During the
year, FSI took steps toward putting in place the necessary infrastructure for us
to grow in anticipation of our customers' needs.
To increase our production capacity, the Company constructed a new
100,000-square-foot manufacturing facility near our headquarters in Chaska,
Minnesota. The facility, which started production in November 1995, adds
approximately 45,000 square feet of Class 1000 cleanroom manufacturing space.
With an eye on the future, this facility is designed to Class 100 upon customer
request, which is the next level of purity that will be required for future
product generations.
Closely tied to manufacturing capacity is our computer systems capability.
FSI initiated a company-wide overhaul of our information technology systems in
fiscal 1994, called "Project Enterprise." Fiscal 1995 was a major investment
year for that effort. This long-term effort is in the beginning stages of
implementation and will continue to be a significant investment in fiscal 1996
and 1997.
Project Enterprise encompasses all operations of the Company; design
engineering, communications, manufacturing and information reporting. To date,
FSI has installed new communication systems and new computer-aided design (CAD)
tools. The new communications systems make it easier for customers and
suppliers to do business with FSI. CAD tools allow our developers to take
advantage of advanced design techniques, such as three-dimensional modeling of
products--accelerating the design phase while lowering costs.
STAYING AHEAD OF THE TECHNOLOGY CURVE
Surface Conditioning
Customers are looking for technology that will allow them to meet their demands
for reliability today and versatility for tomorrow. Continuing our direction in
developing advanced products for wet, vapor and dry process technologies, FSI
made significant progress with our existing product line offerings--adding new
customers and expanding the applications of our current products of single wafer
systems and batch systems. For example, our latest generation of single wafer
technology now offers superior flexibility in process applications and tool
integrations.
________________________________________________________________________________
| |
| During the year, FSI made progress in establishing the necessary |
| infrastructure to support its growth. New computer-aided design tools |
| enable FSI engineer, Natarj Narayanswami, to perform three-dimensional |
| modeling of product designs "on-screen" instead of going through costly |
| physical modeling iterations. Ultimately it means FSI can bring new |
| products to market in less time and at a lower cost. A new manufacturing |
| facility in Chaska, Minnesota, provides added capacity for FSI to grow. |
| It adds manufacturing space, a parts warehouse and training center. |
|______________________________________________________________________________|
6 | FSI INTERNATIONAL
-123-
<PAGE>
[PHOTO]
G R O W T H
[PHOTO] [PHOTO]
Plans for Future Growth
-----------------------
Blueprints for FSI's new 100,000-square-foot
manufacturing facility
-124-
<PAGE>
In the area of gas-phase technology, FSI participated in a successful
research program funded by the National Institute of Standards and Technology
(NIST). During this program, we qualified a number of process applications for
the new ORION(TM) system and will deliver the first beta system next year.
We also seized the opportunity to enter an exciting new technological area
for surface conditioning--cryogenic aerosol cleaning. This new technology, which
we licensed from IBM in August, uses frozen ice particles formed by inert gases
to dislodge contaminants or residue particles from a silicon wafer's surface.
Licensing this promising, environmentally sound technology will allow us to
enter the market sooner; we expect to have our new ICE(TM) Processing System
commercially available in the second half of 1996.
Going forward, the Surface Conditioning division is committing significant
resources to broadening our process application technologies in all areas,
especially in the areas of vapor and dry technologies.
MICROLITHOGRAPHY
After successfully introducing the next generation POLARIS(R) system--the
POLARIS 2000 Cluster--near the close of fiscal 1994, the Microlithography
division's focus has been on fulfilling our customer commitments for the new
system.
During the year, FSI received several multi-system, multi-million-dollar
orders and has made good progress toward our goal of expanding our customer base
worldwide.
The Microlithography division increased the technological leadership of the
POLARIS 2000 with its higher throughput and enhanced productivity. For example,
a new high capacity feature allows the robotic handler to move horizontally
within the cluster and therefore access more modules in a single cluster.
We also successfully positioned the POLARIS 2000 Cluster tool in both the
high throughput manufacturing arena and the leading edge high-resolution
technology area. Because the POLARIS 2000 cluster tool supports both, it is
especially attractive for customers who require "mix and match" capability in
their manufacturing lines.
CHEMICAL MANAGEMENT
The Chemical Management division's goal is to be a total chemical management
solutions supplier. During fiscal 1995, we made significant strides in
accomplishing this goal.
Through an acquisition and a joint venture, plus our own internal development
activities, we dramatically broadened the product line and customer base, as
well as our manufacturing and program management capabilities.
Before the acquisition of ACS, FSI's capabilities were focused primarily on
blending, purification and on-site distribution of batch chemicals, through the
use of pump and pressure technologies. The ACS acquisition provided us with
products that utilize proprietary vacuum pressure technology for mixing and
delivering chemicals. In addition, through the acquisition, we now have products
that our customers can
- --------------------------------------------------------------------------------
/ /
/ Even as FSI's current generation of products earned industry and customer /
/ awards of excellence, FSI project managers, like Bruce Johnson, worked on /
/ increasing FSI's technological lead by enhancing existing products and /
/ developing next generation technology. /
- --------------------------------------------------------------------------------
8 | FSI INTERNATIONAL
-125-
<PAGE>
SIGNS OF EXCELLENCE
Awards from Texas Instruments,
Semiconductor International and
SGS Thomson Microelectronics
[2 PHOTOS]
[TECHNOLOGY]
-126-
<PAGE>
use to generate chemicals at their facility and for slurry mixing and delivery.
Slurry is used by our customers in conjunction with chemical mechanical
plananzation, or CMP technology, a new fast-growing process application.
Being a total chemical management solutions provider also means having
manufacturing and project management in major regions of the world. Our joint
venture, FSI Metron Europe, Limited, gives FSI manufacturing and program
management capability in Europe.
SATISFYING CUSTOMER NEEDS WORLDWIDE
As FSI becomes a chosen supplier throughout the world, we are building and
strengthening our distribution and support organization and adding programs that
provide feedback from our diverse customer base.
With semiconductor manufacturers needing local support and service all over
the globe, two of FSI's affiliated distributors consolidated with a third
worldwide distribution corporation to form one of the largest semiconductor
equipment and materials distribution companies outside of Japan.
The new organization--with operations in more than 20 countries and employing
over 300 semiconductor industry professionals--gives FSI a strong worldwide
distribution network, plus the local expertise to deliver world-class support.
Another aspect of being a global competitor is meeting international
standards for quality. In fiscal 1995, FSI achieved a major milestone on its
journey to reach world-class quality status by being awarded ISO 9001
certification, a highly valued rating that is becoming a requirement of doing
business with many of our customers. Although, as our awards prove, FSI has an
excellent reputation for quality products, we discovered numerous ways to
improve efficiency and product quality during the process.
Maintaining ISO 9001 certification is an ongoing effort involving reviews by
an external certification organization every six months and a substantial
commitment of time and resources. However, the results--greater productivity,
lower costs and continuous improvement in our product quality--are worth the
investment.
International support and ISO 9001 manufacturing processes are key to
providing our customers with unmatched products and service, but they do not
ensure success. To close the loop on our support efforts, we embarked on a
long-term customer satisfaction program early in 1995 that involves surveying
our worldwide customer base for feedback on our performance as a supplier.
While the financial results shown in this annual report indicate we are
meeting customer expectations, FSI's customer satisfaction program will provide
us with a true measure of our success. It will tell us precisely what we are
doing right and where we need to improve, so that we will achieve 100 percent
customer satisfaction, our ultimate goal.
- --------------------------------------------------------------------------------
/ To FSI's customers, support is a key element to the product. Customer /
/ liaison specialists, like Vicky Sons-Eiden, represent the organization /
/ every day in meeting customer expectations. The entire company is committed /
/ to achieving 100 percent customer satisfaction. During the year, FSI was /
/ awarded ISO 9001 certification, a company-wide achievement that requires /
/ ongoing commitment and cross-functional team effort. /
- --------------------------------------------------------------------------------
10 | FSI INTERNATIONAL
-127-
<PAGE>
SYMBOL OF QUALITY
-----------------
ISO 9001 certification mark
[2 PHOTOS]
[LOGO]
SUPPORT
-128-
<PAGE>
[FINANCIAL REVIEW]
Five-Year Selected Financial Data 13
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Consolidated Financial Statements 18
Notes to Consolidated Financial Statements 22
Independent Auditors' Report 32
Statement of Management Responsibility 32
-129-
<PAGE>
FIVE-YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal years ended August
--------------------------
(in thousands, except per share data) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS/1/,/2/
Sales $190,403 $96,437 $78,432 $46,879 $44,957
Gross profit 78,401 40,649 28,968 18,770 17,169
Selling, general and administrative expenses 33,909 19,552 14,496 11,170 12,299
Research and development expenses 24,865 15,743 11,760 9,783 8,376
Operating income (loss) 19,627 5,354 2,712 (2,183) (3,506)
Net income (loss) 19,286 5,646 2,958 (3,358) (3,264)
Net income (loss) per common share 1.13 .43 .28 (.36) (.37)
Weighted average common shares
and common share equivalents 17,071 13,222 10,558 9,275 8,715
- -------------------------------------------------------------------------------------------------
BALANCE SHEET/1/
Cash, cash equivalents and marketable securities $111,203 $10,725 $ 782 $ 67 $ 441
Working capital 146,130 27,778 13,421 10,934 13,355
Total assets 233,841 69,357 41,369 36,911 27,696
Total debt 80 182 3,096 5,842 503
Stockholders' equity 178,210 42,367 21,589 17,713 20,195
- ------------------------------------------------------------------------------------------------
</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 Note 2 of Notes to
Consolidated Financial Statements.
/2/Share information and per share information have been adjusted for a two-
for-one common stock split. See Note 19 of Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
1993 1994 1995
---------------------
<S> <C> <C> <C>
Sales (in millions) $ 78 $ 96 $ 190
Net Income (percent of sales) 3.8% 5.9% 10.1%
Stockholders' Equity (in millions) $ 22 $ 42 $ 178
---------------------
</TABLE>
FSI INTERNATIONAL | 13
-130-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth for the fiscal years indicated, certain income
and expense items as a percent of total sales.
<TABLE>
<CAPTION>
Percent of Sales
------------------------
Fiscal years ended August 1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of goods sold 58.8 57.9 63.1
Selling, general and administrative 17.8 20.3 18.5
Research and development 13.1 16.3 15.0
- --------------------------------------------------------------------------
Operating income 10.3 5.5 3.4
Other income (expense) 1.1 (0.2) (0.8)
- --------------------------------------------------------------------------
Income before income taxes 11.4 5.3 2.6
Income tax expense 3.1 1.3 0.5
Equity in earnings of affiliates 1.9 1.9 1.7
Net income 10.1 5.9 3.8
- --------------------------------------------------------------------------
</TABLE>
RESULTS OF OPERATIONS
Sales nearly doubled to $190.4 million for the fiscal year ended August 26, 1995
as compared to $96.4 million for the fiscal year ended August 27, 1994. The
increase in sales occurred in all product lines due to increased unit sales
driven primarily by the construction of new and the expansion of existing
manufacturing facilities by our semiconductor manufacturing customers, the
acquisition of Applied Chemical Solutions (ACS) and our investment in FSI Metron
Europe, Limited (FME).
Sales for fiscal 1994 increased 23 percent to $96.4 million from $78.4 million
for fiscal 1993. 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.
[GRAPH APPEARS HERE]
1993 1994 1995
---- ---- ----
Sales (in millions) $78 $96 $190
International sales were $69.6 million, $31.5 million and $26.6 million during
fiscal 1995, 1994 and 1993, respectively, and represented approximately 37
percent, 33 percent and 34 percent of sales during such periods. Sales increased
in Europe, the Far East and Japan during fiscal 1995. The majority of the
increase in international sales in fiscal 1995 related to significant
microlithography cluster sales in Asia. Sales of the Company's products in
Europe, the Far East and Japan also increased from fiscal 1993 to 1994.
[GRAPH APPEARS HERE]
1993 1994 1995
---- ---- ----
International Sales (in millions) $27 $31 $70
The Company believes its ability to continue to increase sales is dependent
upon increased demand for all three of the Company's product lines, sales growth
in international markets, as well as industry and general economic conditions.
Gross profit as a percentage of sales for fiscal 1995 was 41.2 percent as
compared to 42.1 percent for fiscal 1994. The decrease in gross profit
percentage is generally due to increased international sales which generally
carry lower gross profit mar-
14 | FSI INTERNATIONAL
-131-
<PAGE>
gins. In addition, the decrease was also related to an increase in the
percentage of total sales of the Company's lower margin products.
The Company's gross profit margin increased for fiscal 1994 to 42.1 percent
from 36.9 percent for fiscal 1993. The increase in gross profit percentage
between fiscal 1993 and 1994 was attributable primarily to a loss of
approximately $800,000 on $5.3 million of sales recognized in fiscal 1993 on a
chemical management system project, due to cost overruns. The increase was also
related to 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.
[GRAPH APPEARS HERE]
1993 1994 1995
---- ---- ----
Gross Profit (in millions) $29 $41 $78
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 expenses (SG&A) were $33.9 million, $19.6
million and $14.5 million or 17.8 percent, 20.3 percent and 18.5 percent of
sales during fiscal 1995, 1994 and 1993, respectively. The $14.3 million
increase in 1995 is due primarily to increased costs of approximately $3.3
million related to expanded customer support, increase in management incentive
bonuses and employee profit sharing of $1.5 million, increased commissions of
more than $1.0 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. In addition, the overall number of personnel in the
SG&A area increased more than 60 percent from the end of fiscal 1994 to the end
of fiscal 1995. The increase in SG&A expenses from fiscal 1993 to fiscal 1994
was chiefly due to expanded customer support and marketing of approximately $2.4
million, and management incentive bonuses and employee profit sharing of
approximately $625,000. The Company anticipates a further reduction in SG&A
expenses as a percentage of sales in fiscal 1996; however, it will increase its
investment in customer support and information systems technology.
[GRAPH APPEARS HERE]
1993 1994 1995
---- ---- ----
SG&A Expense (percent of sales) 18.5% 20.3% 17.8%
Research and development (R&D) expenses for fiscal 1995 were $24.9 million, or
13.1 percent of sales, as compared to $15.7 million, or 16.3 percent of sales,
for fiscal 1994. The increase of $9.2 million resulted primarily from the
Company's continued development efforts on new or existing products, including
the POLARIS(R) 2000 cluster, the EXCALIBUR(R) MVP system, the ORION(TM)
vacuum-based, gas phase (dry) cleaning system, the ICE(TM) cryogenic aerosol
cleaning system and certain chemical management products.
[GRAPH APPEARS HERE]
1993 1994 1995
---- ---- ----
R&D Expense (in millions) $12 $16 $25
R&D expenses for fiscal 1994 increased $3.9 million to $15.7 million from
$11.8 million for fiscal 1993. The increase in fiscal 1994 was primarily due to
realizing a full year of expenses for the Microlithography division's
demonstration and process development laboratory, and continued development
costs for the Company's ORION vacuum-based, gas phase (dry) cleaning system.
During fiscal years 1995, 1994 and 1993, the Company recognized approximately
$546,000, $1.3 million and $1.2 million, respectively, of third party funding as
reductions in
FSI INTERNATIONAL | 15
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<PAGE>
research and development expenses. The Company will continue to increase the
dollars invested in R&D; however, the Company expects less sponsored R&D funding
in fiscal 1996.
Other income (expense) was approximately $2.2 million of income, or 1.1
percent of sales, for fiscal 1995 as compared to $254,000 of expense, or (0.2)
percent of sales, for fiscal 1994. The majority of the change is due to an
increase of approximately $1.7 million in interest income recognized on cash and
cash equivalents, and marketable securities. The Company's cash and cash
equivalents, and marketable securities increased due to the proceeds of the two
secondary offerings completed in February and July 1995.
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- -----
<S> <C> <C> <C>
Operating Income (percent of sales) 3.4% 5.5% 10.3%
</TABLE>
Other income (expense) was approximately $254,000 of expense, or (0.2)
percent of sales, for fiscal 1994 as compared to $671,000 of expense, or (0.8)
percent of sales, for fiscal 1993. The decrease in expense in fiscal 1994 is due
to decreased interest expense as a result of eliminating the Company's
asset-based credit facility in March 1994. In addition, the Company's interest
income increased approximately $244,000 during fiscal 1994 due to increased
investments in cash and cash equivalents from the proceeds of a secondary
offering completed in November 1993.
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Effective Tax Rate (percent of pretax profit) 17.6% 24.6% 27.2%
</TABLE>
The Company's income tax expense was approximately $5.9 million, $1.3
million and $360,000 in fiscal 1995, 1994 and 1993, respectively. This equated
to an effective tax rate of 27.2 percent, 24.6 percent and 17.6 percent in
fiscal 1995, 1994 and 1993, respectively. The Company's effective tax rate was
lower than what would be expected using a 35 percent "statutory" effective tax
rate due to the reinstatement of deferred tax assets resulting from the
generation of taxable income in fiscal 1993, 1994 and 1995. The Company expects
its effective tax rate to increase in fiscal 1996.
The equity in earnings of affiliates was $3.6 million, $1.8 million and $1.3
million for fiscal 1995, 1994 and 1993, respectively. The increase in fiscal
1995 resulted from the increased earnings of its 40-percent-owned affiliate,
Metron Semiconductors Europe B.V. (MSE), and the Metron Asia Group (MSA) in
which it had a 50 percent ownership. The increase in fiscal 1994 from 1993 was
attributed to the increased earnings of both MSE and MSA. On July 5, 1995, MSE
acquired MSA and on July 6, 1995, acquired Transpacific Technology Corporation,
a U.S. distribution company. The Company owns 38 percent of this newly
consolidated entity.
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Equity in Earnings of Affiliates (in millions) $1.3 $1.8 $3.6
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents, and marketable securities were
approximately $111 million as of August 26, 1995, an increase of $100 million
from the end of fiscal 1994. The increase in cash and cash equivalents, and
marketable securities reflects the net proceeds of more than $100 million from
secondary stock offerings completed by the Company in February and July 1995.
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- -----
<S> <C> <C> <C>
Net Income (percent of sales) 3.8% 5.9% 10.1%
</TABLE>
16 | FSI INTERNATIONAL
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<PAGE>
The Company's accounts receivable as of August 26, 1995 increased
approximately $26.2 million, from the end of fiscal 1994. This increase is due
to increased sales levels in all product lines. In addition, the percentage of
foreign receivables as compared to total receivables almost doubled from the end
of fiscal 1994 to the end of fiscal 1995. Foreign receivables generally take
longer to collect than domestic receivables. The Company's inventory increased
approximately $15.4 million from the end of fiscal 1994 to the end of fiscal
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
August 26, 1995, the Company's ratio of current assets to current liabilities
was 3.7 to 1.0 and working capital was $146.1 million.
[GRAPH APPEARS HERE]
1993 1994 1995
---- ---- ----
Total Assets (in millions) $41 $69 $234
The Company had acquisitions of property, plant and equipment of $16.5 million
for fiscal 1995 as compared to $2.7 million for fiscal 1994. The increase
reflects investments in computer equipment and facilities expansion programs.
The Company expects to continue to increase its investment in facilities
expansion programs and computer systems in fiscal 1996. FSI opened a new
100,000-square-foot manufacturing facility in Chaska, Minnesota, in November
1995. The costs of purchasing the land and of constructing the new facility are
expected to total $11.5 million, and the cost of upgrading the computer systems
is expected to total more than $7.0 million when it is completed in the latter
part of fiscal 1996.
[GRAPH APPEARS HERE]
1993 1994 1995
---- ---- ----
Stockholders' Equity (in millions) $22 $42 $178
On January 31, 1995, the Company purchased a 50 percent equity interest in FME
for approximately $1.2 million. 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 in Europe a manufacturing capability for the Company's
chemical management systems.
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 during fiscal 1996. The Company believes that existing cash and cash
equivalents, marketable securities 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 stockholders.
FSI INTERNATIONAL | 17
-134-
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
------------------------------------------
Fiscal years ended August 26, 1995, August 27, 1994 and August 28, 1993 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales (including sales to affiliates of $42,625,000
$24,699,000 and $19,603,000, respectively) $190,403,364 $96,437,653 $78,432,284
Cost of goods sold 112,002,351 55,788,375 49,464,226
- ---------------------------------------------------------------------------------------------------------------------
Gross profit 78,401,013 40,649,278 28,968,058
Selling, general and administrative expenses 33,908,913 19,552,376 14,496,165
Research and development expenses 24,864,705 15,742,894 11,760,306
- ---------------------------------------------------------------------------------------------------------------------
Operating income 19,627,395 5,354,008 2,711,587
Interest expense (27,745) (417,521) (556,984)
Interest income 2,067,619 318,211 74,308
Other income (expense), net 133,079 (154,314) (188,217)
- ---------------------------------------------------------------------------------------------------------------------
Income before income taxes 21,800,348 5,100,384 2,040,694
Income tax expense 5,926,000 1,254,000 360,000
- ---------------------------------------------------------------------------------------------------------------------
Income before minority interest and equity
in earnings of affiliates 15,874,348 3,846,384 1,680,694
Minority interest (155,562) -- --
Equity in earnings of affiliates 3,566,900 1,799,750 1,277,261
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 19,285,686 $ 5,646,134 $ 2,957,955
=====================================================================================================================
Net income per common share $ 1.13 $ .43 $ .28
- ---------------------------------------------------------------------------------------------------------------------
Weighted average common shares and
common share equivalents 17,070,549 13,222,408 10,557,646
=====================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18 | FSI INTERNATIONAL
-135-
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 26, 1995 August 27, 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 97,143,176 $10,724,729
Marketable securities 14,059,682 _
Trade accounts receivable, less
allowance for doubtful accounts
of $1,225,000 and $525,000,
respectively 34,709,769 16,234,940
Trade accounts receivable from
affiliates 13,069,739 5,378,164
Inventories 31,859,135 16,452,665
Deferred income tax benefit 5,828,018 1,832,000
Prepaid expenses and other current
assets 4,362,652 4,112,238
- -------------------------------------------------------------------------------
Total current assets 201,032,171 54,734,736
- -------------------------------------------------------------------------------
Property, plant and equipment, net 19,352,519 5,143,244
Investment in affiliates 8,813,370 4,856,091
Deposits and other assets 4,048,242 4,622,798
Deferred income tax benefit--long-term 595,085 -
- -------------------------------------------------------------------------------
$233,841,387 $69,356,869
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 33,228 $ 148,834
Trade accounts payable 25,279,750 10,968,855
Accrued expense 21,252,755 8,948,086
Customer deposits 2,614,874 3,685,948
Deferred revenue 5,722,030 3,204,892
- -------------------------------------------------------------------------------
Total current liabilities 54,902,637 26,956,615
- -------------------------------------------------------------------------------
Long-term debt, less current mturities 46,711 33,228
Minority interest 681,558 -
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, 20,260,612 and 13,166,073
shares, respectively 144,379,884 28,719,418
Retained earnings 32,571,902 13,286,216
Cumulative translation adjustment 1,258,695 361,392
- -------------------------------------------------------------------------------
Total stockholders' equity 178,210,481 42,367,026
- -------------------------------------------------------------------------------
Commitments (notes 3, 5, 6, 17 and 20) $233,841,387 $69,356,869
===============================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
FSI INTERNATIONAL | 19
-136-
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------------ Cumulative
Fiscal years ended August 26, 1995, Number of Retained Translation
August 27, 1994 and August 28, 1993 Shares Amount Earnings Adjustment Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, August 29, 1992 9,533,602 $ 12,562,704 $ 4,682,127 $ 467,922 $ 17,712,753
Stock issuance 504,793 830,685 -- -- 830,685
Recision of shares (352,223) (171) -- -- (171)
Tax benefit from stock options exercised -- 156,711 -- -- 156,711
Change in cumulative translation adjustment -- -- -- (69,313) (69,313)
Net income -- -- 2,957,955 -- 2,957,955
- ---------------------------------------------------------------------------------------------------------------------
Balance, August 28, 1993 9,686,172 13,549,929 7,640,082 398,609 21,588,620
Stock issuance 3,479,901 14,804,079 -- -- 14,804,079
Tax benefit from stock options exercised -- 365,410 -- -- 365,410
Change in cumulative translation adjustment -- -- -- (37,217) (37,217)
Net income -- -- 5,646,134 -- 5,646,134
- ---------------------------------------------------------------------------------------------------------------------
Balance, August 27, 1994 13,166,073 28,719,418 13,286,216 361,392 42,367,026
Stock issuance 7,094,539 114,913,188 -- -- 114,913,188
Tax benefit from stock options exercised -- 747,278 -- -- 747,278
Change in cumulative translation adjustment -- -- -- 897,303 897,303
Net income -- -- 19,285,686 -- 19,285,686
- ---------------------------------------------------------------------------------------------------------------------
Balance, August 26, 1995 20,260,612 $144,379,884 $32,571,902 $1,258,695 $178,210,481
=====================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20 | FSI INTERNATIONAL
-137-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------------
Fiscal years ended August 26, 1995, August 27, 1994 and August 28, 1993 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 19,285,686 $ 5,646,134 $ 2,957,955
Adjustments to reconcile net income to net cash provided
by operating activities:
Minority interest 155,562 -- --
Depreciation and amortization 3,141,701 2,647,441 2,783,157
Provision for deferred income taxes (4,591,103) (696,000) (1,136,000)
Stock issued for services 65,643 141,376 --
Equity in earnings of affiliates (3,566,900) (1,799,750) (1,277,261)
Gain on sale of equipment (8,000) (19,254) --
Changes in operating assets and liabilities:
Trade accounts receivable (24,698,519) (7,298,164) (880,363)
Inventories (15,319,190) (3,332,475) 265,257
Prepaid expenses and other current assets (250,414) (2,234,324) 321,460
Trade accounts payable 13,019,625 3,285,564 999,624
Accrued expenses 13,043,417 2,840,603 2,667,696
Customer deposits (1,071,074) 2,901,801 (799,627)
Deferred revenue 2,517,138 1,589,371 488,763
Other 13,854 -- --
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,737,426 3,672,323 6,390,661
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment in FME, net of cash received (850,333) -- --
Acquisition of property, plant and equipment (16,525,386) (2,716,891) (2,455,266)
Proceeds from note receivable from affiliate 500,000 -- --
Purchase of marketable securities (15,560,502) -- --
Sales of marketable securities 1,500,820 -- --
Decrease (increase) in deposits and other assets 927,097 (4,151,350) 3,717
Proceeds from sale of equipment 8,000 19,254 --
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (30,000,304) (6,848,987) (2,451,549)
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Restricted cash -- 1,370,891 (539,295)
Principal payments on long-term debt (166,220) (924,365) (594,051)
Cash overdraft -- -- (652,714)
Notes payable to bank, net -- (1,989,497) (2,269,149)
Net proceeds from issuance of common stock 114,847,545 14,662,703 830,514
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 114,681,325 13,119,732 (3,224,695)
- -------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 86,418,447 9,943,068 714,417
Cash and cash equivalents at beginning of year 10,724,729 781,661 67,244
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 97,143,176 $10,724,729 $ 781,661
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
FSI INTERNATIONAL | 21
-138-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended August 26, 1995, August 27, 1994 and August 28, 1993
- -------------------------------------------------------
NOTE 1 | Summary of Significant Accounting Principles
- -------------------------------------------------------
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"). The 1995
consolidated financial statements also include the accounts of FSI Metron
Europe, Limited (FME), a joint venture owned equally by the Company and Metron
Semiconductors Europa B.V., an affiliate of the Company. This joint venture
interest was acquired as of January 31, 1995. All significant intercompany
balances and transactions have been eliminated in consolidation.
The Company's fiscal year ends on the last Saturday in August and is comprised
of 52 or 53 weeks.
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 installments, 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 or less are considered to be cash equivalents.
MARKETABLE SECURITIES. In fiscal 1995, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Under the provisions of this
statement, the Company classifies its marketable debt and equity securities in
one of three categories: trading, available-for-sale or held-to-maturity.
Trading securities are bought and held principally for the purpose of selling
them in the near-term. Held-to-maturity securities are those which the Company
intends to, and has the ability to hold until maturity. All other securities not
included in trading or held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair market value.
Held-to-maturity securities are recorded at cost, adjusted for the amortization
or accretion of premiums or discounts. Unrealized holding gains and losses for
trading securities are included in earnings. Available-for-sale securities'
unrealized holding gains and losses are excluded from earnings and reported as a
net amount and as a separate component of stockholders' equity until realized.
At August 26, 1995, cash equivalents and marketable securities consisted
mainly of investment grade commercial paper and U.S. Government Agency discount
notes and are considered by management to be available for sale. The substantial
majority of these investments are classified as cash equivalents. The remaining
investments are classified as marketable securities, most of which mature in
fiscal 1996. Because amortized cost approximates market, no adjustment has been
made to stockholders' equity as a result of changes in the market value of these
securities.
INVENTORIES. Inventories are valued at the lower of cost, determined by the
first-in, first-out method, or estimated net realizable value.
PROPERTY, PLANT AND EQUIPMENT. Leasehold improvements are carried at cost and
amortized over a three 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 one to seven years. When assets are
retired or disposed of, the cost and accumulated depreciation thereon is removed
from
22 | FSI INTERNATIONAL
-139-
<PAGE>
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.
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 five years.
INVESTMENT IN AFFILIATES. As of August 26, 1995, the Company's investment in
affiliated companies consists of a 40 percent interest in Metron Semiconductors
Europa B.V., a 50 percent interest in Metron Semiconductors (Hong Kong) Limited,
Metron Semiconductors Far East Limited and Metron Semiconductors Asia Limited
(collectively, Metron Asia Group), and a 49 percent interest in m.FSI Ltd., a
Japanese joint venture. Each investment is accounted for by the equity method
utilizing a three-month lag due to the affiliates' May and June year-ends.
Summary financial information for Metron Semiconductors Europa B.V., Metron Asia
Group and m.FSI Ltd. are included in note 6.
CAPITALIZED PRODUCT SOFTWARE COSTS. The Company capitalizes computer software
production costs once technological feasibility has been established for the
product. The capitalized costs are generally amortized over periods of two to
four years. The Company had unamortized capitalized software costs of
approximately $0 and $225,000 at August 26, 1995 and August 27, 1994,
respectively. The Company amortized approximately $225,000, $225,000 and
$432,000 in fiscal years 1995, 1994 and 1993, respectively.
INCOME TAXES. Deferred income taxes are provided in amounts sufficient to give
effect to temporary differences between financial and tax reporting.
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. Provisions are made
for the estimated costs of maintaining product warranties at the time the
product is sold.
FOREIGN CURRENCY TRANSLATION. Assets and liabilities of foreign subsidiaries
and investees are translated into U.S. dollar at current exchange rates.
Operating results of subsidiaries and investees are translated into U.S. dollars
using the average rates of exchange prevailing during the year. Unrealized gains
or losses resulting from translating subsidiaries and investees are included in
the cumulative translation adjustment account in stockholders' equity.
NET INCOME PER COMMON SHARE. Net income per common share is computed based on
the weighted average number of common shares and common share equivalents
outstanding during the year. All stock options and stock warrants are reflected
in the computation of common share equivalents. For all periods presented, fully
diluted and primary net income per common share are approximately the same.
RECLASSIFICATIONS. Certain fiscal 1994 and 1993 amounts have been reclassified
to conform to the fiscal 1995 presentation.
- --------------------------------------------------------------------------------
/ \
/ Note 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 prior financial statements have been restated to
reflect the merger. Prior to the merger, ACS prepared its financial statements
on a July 31 fiscal year-end. ACS's fiscal year 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 1994 and 1993 include ACS amounts for the
fiscal years ended August 27, 1994 and August 28, 1993, respectively.
FSI INTERNATIONAL | 23
-140-
<PAGE>
Sales and net income (loss) included in the Company's consolidated statements
of operations are as follows:
-----------------------------------------------------
Fiscal years ended August 26, 1995 August 27, 1994 August 28, 1993
- --------------------------------------------------------------------------------
Sales:
ACS $ 11,064,550 $ 2,390,082 $ 1,480,245
FSI and other
subsidiaries 179,338,814 94,047,571 76,952,039
- --------------------------------------------------------------------------------
$190,403,364 $96,437,653 $78,432,284
================================================================================
Net income (loss):
ACS $ 875,734 $ (869,617) $ (231,281)
FSI and other
subsidiaries 18,409,952 6,515,751 3,189,236
- --------------------------------------------------------------------------------
$ 19,285,686 $ 5,646,134 $ 2,957,955
================================================================================
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 fiscal 1995. The charge includes professional fees
and other direct transaction costs associated with the merger.
- -------------------------------------------------
| NOTE 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 and director 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 approximately $58,333, plus payment of executory costs such as
property taxes, maintenance and insurance.
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 percent per year
and is adjusted every three years to the fair market rental.
Future minimum lease payments for all leases with non-cancellable lease terms
in excess of one year at August 26, 1995 are as follows:
-------------------------------------
Related
Fiscal years ending August Party Leases Other Leases
- -------------------------------------------------------------------------------
1996 $ 847,958 $1,002,789
1997 790,000 757,258
1998 700,000 575,965
1999 700,000 502,684
2000 700,000 485,354
Thereafter 116,667 36,752
- -------------------------------------------------------------------------------
Total minimum lease payments $3,854,625 $3,360,802
===============================================================================
Rental expense for all operating leases consisted of the following:
-----------------------------------------------------
Fiscal years ended August 26, 1995 August 27, 1994 August 28, 1993
- --------------------------------------------------------------------------------
Rent expense for
related party leases $1,320,300 $1,289,800 $1,261,300
Rent expense for other
operating leases 909,400 763,600 889,800
- --------------------------------------------------------------------------------
$2,229,700 $2,053,400 $2,151,100
================================================================================
On June 1, 1991, the Company received a Demand Note Payable with interest at
approximately 0.75 percent over prime from Metron Semiconductors Asia Ltd. At
August 27, 1994, there was $500,000 outstanding against the note. The note
was paid in full in fiscal 1995. As of August 26, 1995, the Company is a
guarantor of approximately $400,000 of Metron Semiconductors Asia Ltd.'s debt.
24 | FSI INTERNATIONAL
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<PAGE>
- -------------------------------------------------
| NOTE 4 | Inventories |
- -------------------------------------------------
Inventories are summarized as follows:
-----------------------------------------
August 26, 1995 August 27, 1994
- --------------------------------------------------------------------------------
Finished products $ 7,048,392 $ 1,675,041
Work in process 6,448,693 5,965,322
Subassemblies 3,387,324 2,195,364
Raw materials and purchased parts 14,974,726 6,616,938
- --------------------------------------------------------------------------------
$31,859,135 $16,452,665
================================================================================
- -------------------------------------------------
| NOTE 5 | Property, Plant and Equipment |
- -------------------------------------------------
The components of property, plant and equipment are as follows:
-----------------------------------------
August 26, 1995 August 27, 1994
- --------------------------------------------------------------------------------
Leasehold improvements $ 3,387,698 $ 2,195,030
Office furniture and equipment 11,015,452 7,027,347
Manufacturing equipment 4,175,259 2,903,051
Lab equipment 5,205,462 4,955,367
Tooling 573,159 535,277
Vehicles 196,669 --
Capital-in-progress 10,170,725 --
- --------------------------------------------------------------------------------
34,724,424 17,616,072
Less accumulated depreciation
and amortization (15,371,905) (12,472,828)
- --------------------------------------------------------------------------------
$ 19,352,519 $ 5,143,244
================================================================================
The Company is in the process of completing a new manufacturing facility in
Chaska, Minnesota. Capital-in-progress costs relating to the building of
approximately $5,553,000 were incurred through August 26, 1995. During fiscal
1996, the Company anticipates approximately $5,950,000 will be incurred to
complete the facility. In addition, the Company has commitments for
approximately $1,400,000 for furniture and equipment related to this facility.
The majority of remaining capital-in-progress amounts relate to investments in
our information technology systems.
- -------------------------------------------------
| NOTE 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.:
-----------------------------------------------------
May 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Current assets $38,409 $31,637 $23,932
Noncurrent assets, net 5,038 2,952 3,029
Current liabilities 26,852 23,799 19,521
Noncurrent liabilities 81 539 762
Minority interest -- 1,020 621
Total stockholders' equity 16,514 9,231 6,057
- --------------------------------------------------------------------------------
-----------------------------------------------------
Fiscal years ended May 31, 1995 1994 1993
- --------------------------------------------------------------------------------
Sales $101,968 $84,097 $63,226
Net income before minority
interest 4,465 3,947 2,430
Minority interest (115) (413) (266)
Net income 4,350 3,534 2,164
- --------------------------------------------------------------------------------
FSI INTERNATIONAL | 25
-142-
<PAGE>
Metron Asia Group:
------------------------------------------------------
May 31, 1995 June 30, 1994 June 30, 1993
- --------------------------------------------------------------------------------
Current Assets $14,270 $7,360 $4,760
Noncurrent assets, net 628 197 290
Current liabilities 11,257 7,214 5,631
Noncurrent liabilities 87 -- --
Total stockholders'
(deficit) equity 3,554 343 (581)
- --------------------------------------------------------------------------------
Eleven
months ended Fiscal years ended
------------------------------------------------------
May 31, 1995 June 30, 1994 June 30, 1993
- --------------------------------------------------------------------------------
Sales $34,655 $17,964 $14,262
Net income 3,357 913 616
- --------------------------------------------------------------------------------
Metron Asia Group changed its fiscal year-end to May from June in fiscal 1995.
m.FSI Ltd:
------------------------------------------------------
June 30, 1995 1994 1993
- --------------------------------------------------------------------------------
Current Assets $6,430 $5,748 $4,494
Noncurrent assets, net 2,532 1,646 2,046
Current liabilities 4,989 4,613 5,669
Noncurrent liabilities 50 19 9
Total stockholders'
equity 3,923 2,762 862
- --------------------------------------------------------------------------------
------------------------------------------------------
Fiscal years ended June 30, 1995 1994 1993
- --------------------------------------------------------------------------------
Sales $9,641 $10,027 $4,487
Net income (loss) 581 1,737 (928)
- --------------------------------------------------------------------------------
The Company sold approximately $42,625,000, $24,699,000 and $19,603,000 of
its products to Metron Semiconductors Europa B.V., Metron Asia Group and m.FSI
Ltd. in fiscal 1995, 1994 and 1993, respectively. In addition, the Company paid
the Metron Asia Group a commission for direct sales to Asian customers of
$1,112,000, $459,000 and $432,000 in fiscal years 1995, 1994 and 1993,
respectively. At August 26, 1995 and August 27, 1994, trade accounts receivable
from affiliates was approximately $13,070,000 and $5,378,000, respectively.
On July 6, 1995, subsequent to the affiliates' fiscal year-ends, the
consolidation Metron Semiconductors Europa B.V., the Metron Asia Group and a
U.S. company named Transpacific Technology Corporation (TCC) was completed. The
Company owns 38.2 percent of this newly consolidated entity. As part of this
transaction, the Company is a guarantor of affiliate debt to former TTC
shareholders of approximately $489,000.
- ------------------------------------------
| NOTE 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:
--------------------------------------------
Fiscal years ended August 26, 1995 August 27, 1994
- --------------------------------------------------------------------------------
Minimum lease payments receivable $892,800 $1,488,000
Less:
Unearned revenue 50,872 135,016
- --------------------------------------------------------------------------------
Total net investments in sales
type leases $841,928 $1,352,984
================================================================================
Future minimum lease payments to be received are as follows:
--------------------------
Fiscal year Amount
- --------------------------------------------------------------------------------
1996 $595,200
1997 297,600
- --------------------------------------------------------------------------------
Total future minimum lease payments to be received $892,800
================================================================================
26 | FSI INTERNATIONAL
-143-
<PAGE>
Components of investments in equipment under operating leases are as follows:
--------------------------------------------
Fiscal years ended August 26, 1995 August 27, 1994
- --------------------------------------------------------------------------------
Equipment under operating leases $1,997,312 $1,997,312
Less accumulated depreciation 713,325 142,665
- --------------------------------------------------------------------------------
Equipment under operating leases, net $1,283,987 $1,854,647
================================================================================
The following is a schedule of future minimum lease payments under operating
leases:
--------------------------
Fiscal year Amount
- --------------------------------------------------------------------------------
1996 $ 839,000
1997 839,000
1998 211,100
- --------------------------------------------------------------------------------
$1,889,100
================================================================================
- ------------------------------------------
| NOTE 8 | Accrued Expenses |
- ------------------------------------------
Accrued expenses are summarized as follows:
--------------------------------------------
Fiscal years ended August 26, 1995 August 27, 1994
- --------------------------------------------------------------------------------
Commissions $ 1,385,205 $1,057,738
Commissions due to affiliates 1,602,530 56,127
Income taxes 4,201,245 501,781
Salaries and bonuses 4,984,319 2,989,010
Pension and profit sharing 1,298,115 449,600
Estimated product warranty 5,030,947 2,742,671
Product sales incentive commission 744,927 64,334
Other 2,005,467 1,086,825
- --------------------------------------------------------------------------------
$21,252,755 $8,948,086
================================================================================
- ------------------------------------------
| NOTE 9 | Long-Term Debt |
- ------------------------------------------
Long-term debt is summarized as follows:
--------------------------------------------
Fiscal years ended August 26, 1995 August 27, 1994
- --------------------------------------------------------------------------------
Installment loans due in monthly
installments of $10,899 in
principal and interest at 10%
through February 1995--secured
by stock $ -- $ 20,009
Installment loans on capital leases;
interest rates ranging from 9% to
14.25% through August 1996--secured
by underlying equipment 33,228 162,053
Other 46,711 --
- --------------------------------------------------------------------------------
79,939 182,062
Less current maturities 33,228 148,834
- --------------------------------------------------------------------------------
$46,711 $ 33,228
================================================================================
Maturities of long-term debt in fiscal 1997 and 1998, are $43,503 and $3,208,
respectively.
- ------------------------------------------
| NOTE 10 | 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.
FSI INTERNATIONAL | 27
-144-
<PAGE>
- ----------------------------------
| NOTE 11 | Income Taxes |
- ----------------------------------
The provision for income taxes is summarized as follows:
---------------------------------------------------
Fiscal years ended 1995 1994 1993
- --------------------------------------------------------------------------------
Current:
Federal $ 9,561,000 $1,627,000 $ 1,416,000
Foreign 204,000 -- --
State 752,000 323,000 80,000
- --------------------------------------------------------------------------------
10,517,000 1,950,000 1,496,000
- --------------------------------------------------------------------------------
Deferred:
Federal (4,084,000) (696,000) (1,136,000)
State (507,000) -- --
- --------------------------------------------------------------------------------
(4,591,000) (696,000) (1,136,000)
- --------------------------------------------------------------------------------
$ 5,926,000 $1,254,000 $ 360,000
================================================================================
In fiscal 1995, 1994 and 1993, there was a tax benefit of $747,278, $365,410
and $156,711, respectively, credited to stockholders' equity associated with
the exercise of stock options.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at August 26,
1995 and August 27, 1994 are as follows:
---------------------------------------------------
Fiscal years ended August 26, 1995 August 27, 1994
- --------------------------------------------------------------------------------
Deferred tax assets:
Inventory $3,522,000 $ 2,187,800
Revenue recognition 1,034,000 179,000
Accounts receivable 466,000 185,000
Property, plant and equipment 365,000 294,000
Accruals 915,000 594,500
Tax credit carryovers -- 484,300
Net operating loss carryover -- 466,500
Other, net 357,000 (115,300)
- --------------------------------------------------------------------------------
Total gross deferred tax assets 6,659,000 4,275,800
Valuation allowance -- (1,996,800)
- --------------------------------------------------------------------------------
Net deferred tax assets 6,659,000 2,279,000
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Accruals 236,000 201,000
Undistributed subsidiary income -- 150,000
Other, net -- 96,000
- --------------------------------------------------------------------------------
Total gross deferred tax liabilities 236,000 447,000
- --------------------------------------------------------------------------------
Net deferred tax assets $6,423,000 $ 1,832,000
================================================================================
28 | FSI INTERNATIONAL
-145-
<PAGE>
The effective tax rate differs from the statutory federal income tax rate as
follows:
----------------------------------------
Fiscal years ended 1995 1994 1993
- --------------------------------------------------------------------------------
Expected federal income tax expense 35.0% 34.0% 34.0%
State income taxes, net of federal
benefit 2.7 2.3 (7.2)
Research activities credit (1.0) (8.4) (13.2)
Valuation allowance (9.2) (0.8) (3.3)
Foreign sales corporation (2.6) (4.3) (10.3)
Undistributed earnings of subsidiary -- -- 5.1
Other items, net 2.3 1.8 12.5
- --------------------------------------------------------------------------------
27.2% 24.6% 17.6%
================================================================================
The Company reduced its valuation allowance from $1,996,800 as of August 27,
1994 to $0 as of August 26, 1995. Based on the Company's taxable income over the
last three fiscal years, management believes it is more likely than not that the
Company will realize the benefit of the net deferred tax asset of $6,423,000 as
of August 26, 1995 through the availability of taxable income in the carryback
period and future earnings.
The Company utilized approximately $1,300,000 of net operating loss
carryforwards from ASC in fiscal year 1995.
- ----------------------------------------------------
| NOTE 12 | Pensions and Profit Sharing Plans |
- ----------------------------------------------------
The Company has a defined contribution pension plan for employees, Total pension
cost for fiscal 1995, 1994 and 1993 was $857,826, $630,657 and $500,243,
respectively. There is no past service liability.
The Company's joint venture, FME, has a fully insured pension plan for its
present directors and employees with a minimum annual contribution of
approximately $33,000.
The Company also has an Employee 401(k) Retirement Plan, which allows for a
discretionary profit sharing contribution on a calendar year basis, covering
eligible employees. Contributions under the plan are determined by means of a
formula or at the discretion of the Board of Directors. Contributions accrued in
fiscal years 1995, 1994 and 1993 were $290,000, $200,000 and $150,000,
respectively.
- ----------------------------------------------------
| NOTE 13 | Stock Options and Warrants |
- ----------------------------------------------------
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 per share
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 Company's Stock Option Plans (the "Option Plans") authorize grants of
options to purchase shares of the Company's common stock to officers and
employees. Under the Option Plans, options become exercisable as 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.
FSI INTERNATIONAL | 29
-146-
<PAGE>
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 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
1994 Omnibus Stock
Option Plan 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
Directors Non-
statutory Plan 100,000 -- --
Granted (433,848) 433,848 8.70-26.00
Exercised -- (519,381) .94- 7.13
Cancelled 10,694 (17,694) 2.75- 7.13
- -----------------------------------------------------------------------------------
August 26, 1995 183,624 1,512,401 .94-26.00
===================================================================================
Number of shares
exercisable at
August 26, 1995 833,038 $ .94-7.125
======= ============
</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.
In August 1995, the Board of Directors, subject to the approval of the
shareholders at the 1996 annual shareholders meeting, amended the 1994 Omnibus
Stock Plan to increase the aggregate number of shares that may be purchased
under the plan by an additional 500,000 shares.
- -------------------------------------------------------------------------------
/ \
/ Note 14 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 26, 1995, 322,278 shares were reserved for future
employee purchases of stock under the Plan. On December 31, 1994, 1993 and 1992,
139,582 shares were issued at $4.78 per share, 153,436 shares were issued at
$3.16 per share and 171,222 shares were issued at $1.70 per share, respectively,
under the Plan.
In August 1995, the Board of Directors, subject to the approval of the
shareholders at the 1996 annual shareholders meeting, amended the Plan to
increase the number of shares that may be purchased under the Plan by 200,000
shares.
- -------------------------------------------------------------------------------
/ \
/ Note 15 Additional Sales Information \
/ \
- --------------------------------------------------------------------------------
International sales for the fiscal years ended 1995, 1994 and 1993 were
approximately 37 percent, 33 percent and 34 percent, respectively, of total
sales. (Included in these percentages and the table below are sales to
affiliates. See note 6.) International sales by geographic area, consisting
principally of export sales, are summarized as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------
Fiscal years ended 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asia $42,363,000 $16,015,000 $15,021,000
Europe 27,092,000 14,854,000 11,457,000
Other 149,000 626,000 113,000
- ------------------------------------------------------------------------------------------------
$69,604,000 $31,495,000 $26,591,000
================================================================================================
</TABLE>
The following summarizes significant customers comprising 10 percent or more
of the Company's direct customer sales, which includes sales through affiliates
to end users:
30 | FSI INTERNATIONAL
-147-
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------
1995 1994 1993
- --------------------------------------------------------------
<S> <C> <C> <C>
Customer A 16% -- 23%
Customer B -- 21% --
Customer C 12% -- --
Customer D 11% -- --
- --------------------------------------------------------------
"--" = less than 10%
</TABLE>
- --------------------------------------------------------------------------------
/ \
/ Note 16 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. The Company recognized
approximately $546,200, $1,342,100 and $1,202,700 of third party funding in
fiscal years 1995, 1994 and 1993, respectively.
- --------------------------------------------------------------------------------
/ \
/ Note 17 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.
- --------------------------------------------------------------------------------
/ \
/ Note 18 Supplementary Cash Flow Information \
/ \
- --------------------------------------------------------------------------------
The Company's non-cash investing and financing activities in fiscal 1993
included $117,195 for the purchase of equipment under capital leases. The
Company paid interest in fiscal 1995, 1994 and 1993 of $31,119, $442,688 and
$586,827, respectively. Income taxes paid in fiscal years 1995, 1994 and 1993
were $5,916,126, $1,751,000 and $595,691, respectively. In addition, the Company
realized, in fiscal years 1995, 1994 and 1993, a tax benefit from the exercise
of stock options in the amount of $747,278, $365,410 and $156,711,
respectively.
- --------------------------------------------------------------------------------
/ \
/ Note 19 Common Stock \
/ \
- --------------------------------------------------------------------------------
On June 1, 1995, the Board of Directors declared a two-for-one 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.
- --------------------------------------------------------------------------------
/ \
/ Note 20 Contingencies \
/ \
- --------------------------------------------------------------------------------
In the normal course of business, the Company from time to time becomes involved
in litigation which may ultimately result in a liability to the Company. It is
the opinion of management that facts known at the present time do not indicate
that there is a probability that any such litigation would have a material
effect on the Company's operations or its financial position. As of August 26,
1995, the Company believes it is not involved in any material litigation.
FSI INTERNATIONAL | 31
-148-
<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 26, 1995 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
26, 1995. 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 as of August 26, 1995 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 26, 1995, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 13, 1995
STATEMENT OF MANAGEMENT RESPONSIBILITY
The Company's management is responsible for the preparation, integrity and
objectivity of the consolidated financial statements and other financial
information presented in this report. The accompanying consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles and reflect the effects of certain estimates and judgments made by
management.
Management relies upon established accounting procedures and related systems
of internal control for meeting its responsibilities to maintain reliable
financial records. These systems are designed to provide reasonable assurance
that assets are safeguarded and that transactions are properly recorded and
executed in accordance with management's intentions. Management believes that
the established system provides an acceptable balance between the benefits and
associated costs of internal controls.
As part of their audit of the consolidated financial statements, KPMG Peat
Marwick LLP, the independent auditors, consider the internal control structure
of the Company to gain a basic understanding of the accounting system in order
to design an effective and efficient audit approach; however, it is not intended
to provide assurance on the system of internal control. Management recognizes
the constructive recommendations from the auditors as part of the auditing
process and responds to each suggestion.
The Audit Committee of the Board of Directors, which consists of two outside
and one inside director, meets periodically with management and the independent
accountants to review accounting, reporting, auditing and internal control
matters. The committee has direct and private access to the external auditors.
/s/ J A Elftmann /s/ Benno Sand
Joel A. Elftmann Benno Sand
Chairman, President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
32 | FSI INTERNATIONAL
-149-
<PAGE>
GLOSSARY
FSI PRODUCTS
Chemical Management: FSI is the only equipment company to offer totally
automated management and delivery of chemicals. This allows semiconductor
manufacturers to store bulk acids and solvents outside the cleanroom, and then
filter and dispense ultra-clean chemicals to equipment points-of-use.
Microlithography Clusters: These systems prime, coat, bake and develop
photosensitive material called photoresist on wafer surfaces. FSI manufactures
and distributes a microlithography cluster with advanced interface capability
and high reliability.
Spray Processors: FSI is the technology and market leader in "wet cleaning" of
silicon wafers through centrifugal spray processing. The Company's systems use a
computer-controlled, sequenced spray of chemicals to remove contamination, rinse
and dry the wafers. This approach provides high throughput, low cost of
ownership and low environmental impact.
Vapor Phase Processors: FSI is pioneering this market with a system that uses
gas and vapor to etch silicon dioxide from the wafer's surface. Benefits of
this fully automated system include process uniformity, low operating costs and
significant reduction in chemical waste.
INDUSTRY TERMS
Class 100/1000: A high-grade classification for a cleanroom or manufacturing
facility, designating the number and size of particles per cubic foot of air.
Cluster: Refers to a modular cluster of process stations that form an enclosed
work cell. FSI's POLARIS/R/ cluster consists of independent modules that can be
configured in any combination. A robotic handler moves wafers from station to
station while the wafers are primed, coated, baked and developed.
CMP--chemical mechanical planarization: A process that removes unwanted material
from the wafer surface by using a chemical slurry containing abrasives along
with mechanical equipment which applies pressure on a rotating platen to polish
the surface.
Contaminants: Unwanted material that adversely affects the physical or
electrical characteristics of a semiconductor wafer.
Etching: The process of removing material from a silicon surface to form the
microscopic "valleys" and "ridges" that make up a circuit.
Fabrication: The process of manufacturing a semiconductor that involves building
layer-upon-layer of circuitry on a silicon wafer.
Integrated Circuit: A semiconductor circuit combining the functions of many
electronic components in a single piece of semiconductor material, usually
silicon. These components are fabricated and interconnected on a single chip.
Semiconductor: Generally refers to integrated circuits or other solid state
devices formed in semiconducting materials.
Slurry: The chemical used in the chemical mechanical planarization process: The
chemical contains small particles, often silicon or alumina which aid in
polishing.
Wafer: The starting material for semiconductor device manufacture; a thin, round
slice of semiconductor material, primarily silicon, on which integrated circuits
are made and then cut into semiconductor chips.
FSI INTERNATIONAL | 33
-150-
<PAGE>
QUARTERLY DATA
The Company's fiscal quarters are generally 13 weeks, ending on a Saturday. The
fiscal year ends on the last Saturday in August and is comprised of 52 or 53
weeks.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
(in thousands, except per share data) First Quarter Second Quarter Third Quarter Fourth Quarter
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 (unaudited)/1/,/2/
Sales $30,184 $42,728 $53,503 $63,988
Gross profit 13,921 18,358 21,976 24,146
Operating income 2,719 4,848 5,220 6,840
Net income 3,050 4,090 5,006 7,140
Net income per common share .21 .28 .27 .35
- ------------------------------------------------------------------------------------------------------------------------------------
1994 (unaudited)/1/,/2/
Sales $21,415 $20,707 $26,087 $28,228
Gross profit 8,750 9,244 10,419 12,236
Operating income 1,070 1,160 1,708 1,416
Net income 1,101 1,218 1,644 1,683
Net income per common share .10 .09 .12 .12
- -----------------------------------------------------------------------------------------------------------------------------------
/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 Note 2 of Notes to Consolidated Financial
Statements.
/2/Share information and per share information have been adjusted for a two-for-one common stock split. See Note 19 of Notes to
Consolidated Financial Statements.
</TABLE>
COMMON STOCK PRICES
The Company's common stock is traded on the Nasdaq National Market under the
symbol FSII. The following table sets forth the highest and lowest stock prices,
as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
--------------------------------------------------
1995 1994
--------------------------------------------------
Fiscal quarter High Low High Low
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $14 1/4 $ 8 5/8 $6 1/2 $4 5/8
Second 18 1/8 12 1/8 6 7/8 4 7/8
Third 26 5/8 17 3/8 7 7/8 5 1/4
Fourth 35 22 3/4 9 5 3/8
- -------------------------------------------------------------------------
</TABLE>
There were approximately 400 stockholder accounts of record on November 3,
1995, approximately 50 of which are "street name" accounts that the Company
estimates to represent approximately 6,000 stockholders.
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 dividends in the foreseeable future.
[CHART GOES HERE]
34 | FSI INTERNATIONAL
-151-
<PAGE>
CORPORATE AND STOCKHOLDER INFORMATION
BOARD OF DIRECTORS
James A. Bernards
President
Facilitation, Incorporated
(Strategic planning,
directorships, organizational
development)
Neil R. Bonke
Chairman and Chief
Executive Officer
Electron, Inc.
(Automatic water probing
equipment manufacturer)
Joel A. Elftmann
FSI Chairman, President and
Chief Executive Officer
Terrence W. Glarner
President
West Concord Ventures, Inc.
(Venture capital)
Robert E. Lorenzini
Chairman
SunPower Corporation
(Solar energy power
generation systems)
Dr. William M. Marcy
Associate Dean of Engineering
for Research and Administration
Texas Tech University
Charles R. Wofford
Business and Management
Consultant
(former Texas Instruments
executive officer)
CORPORATE OFFICERS
Joel A. Elftmann
Chairman, President
and Chief Executive Officer
Co-founded FSI in 1973
Dr. Robert E. Cavins
Senior Vice President,
Chemical Management Division
Joined FSI in 1993
Dale A. Courtney
Senior Vice President,
Surface Conditioning Division
Joined FSI in 1987
Timothy D. Krieg
Vice President, Quality
and Human Resources
Joined FSI in 1979
Peter A. Pope
Executive Vice President,
Marketing and Account
Management
Joined FSI in 1982
Benno G. Sand
Executive Vice President
Chief Financial Officer
and Secretary
Joined FSI in 1982
Dr. Benjamin J. Sloan
Executive Vice President
Microisthography Division
Joined FSI in 1992
J. Wayne Stewart
Vice President, Operations
Joined FSI in 1994
CORPORATE
HEADQUARTERS
322 Lake Hazeltine Drive
Chaska, Minnesota
55318-1096
612/448-5440
COMMON STOCK
The common stock of FSI
International is traded on
the Nasdaq National Market
under the symbol FSII.
REGISTRAR AND
TRANSFER AGENT
Harris Trust & Savings Bank,
Shareholder Services Division
311 West Monroe Street
Chicago, Illinois 60606
312/461-2549
FORM 10-K
The Annual Reort on
Form 10-K filed with the
Securities and Exchange
Commission is available
to stockholders on request
by writing to:
Chief Financial Officer
FSI International, Inc.
322 Lake Hazeltine Drive
Chaska, Minnesota
55318-1096
612/448-8936
ANNUAL MEETING
All stockholders and other
interested parties are
invited to attend the Company's
annual meeting, scheduled for
January 24, 1996 at 3:30 p.m.
at the Marriott Hotel Minneapolis
30 South Seventh Street
Minneapolis, Minnesota.
INDEPENDENT
AUDITORS
KPMG Peat Marwick LLP
Minneapolis, Minnesota
LEGAL COUNSEL
Faegre & Benson LLP
Minneapolis, Minnesota
INVESTOR RELATIONS
COUNSEL
Padilla Speer Beardsley Inc.
Minneapolis, Minnesota
-152-
<PAGE>
[FSI LOGO]
FSI International, Inc.
Corporate Headquarters
322 Lake Hazeltine Drive
Chaska, MN 55318 USA
Phone: 612/448-5440
Fax: 612/448-1300
-153-
<PAGE>
EXHIBIT 21.0
------------
SUBSIDIARIES*
------------
JURISDICTION OF
NAME INCORPORATION
---- -------------
Applied Chemical Solutions, Inc. Minnesota
FSI International, Ltd. Guam
FSI Metron Europe, Limited England
_____________________
* FSI International, Inc. also owns interests in Metron Technology B.V.
(38%), and m-FSI, Ltd. (49%).
-154-
<PAGE>
EXHIBIT 23.0
------------
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
FSI International, Inc.:
We consent to incorporation by reference in the registration statements (No.'s
33-29494, 33-39919, 33-33649, 33-33647, 33-39920, 33-42893, 33-77852, 33-77854,
and 33-60903) on Form S-8 of FSI International, Inc. of our reports dated
October 13, 1995, relating to the consolidated balance sheets of FSI
International, Inc. and subsidiaries as of August 26, 1995 and August 27, 1994,
and the related consolidated statements of operations, stockholders' equity and
cash flows and related financial statement schedule for each of the years in the
three-year period ended August 26, 1995, which reports appear in or are
incorporated by reference in the August 26, 1995 annual report on Form 10-K of
FSI International, Inc.
/s/ KPMG PEAT MARWICK LLP
----------------------------
Minneapolis, Minnesota
November 20, 1995
-155-
<PAGE>
Exhibit 23.1
------------
Independent Auditors' Consent
The Board of Directors and Stockholders
FSI International, Inc.:
We consent to incorporation by reference in the registration statements (No.'s
33-29494, 33-39919, 33-33649, 33-33647, 33-39920, 33-42893, 33-77852, 33-77854
and 33-60903) on Form S-8 of FSI International, Inc. of our report dated July
20, 1995, relating to the consolidated balance sheets of Metron Semiconductors
Europa B.V. and subsidiaries as of May 31, 1995 and 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 May 31, 1995, which
report appears in or is incorporated by reference in the August 26, 1995 annual
report on Form 10-K of FSI International, Inc.
/s/ KPMG ACCOUNTANTS N.V.
Amsterdam, The Netherlands
November 20, 1995
-156-
<PAGE>
EXHIBIT 24.0
------------
POWER OF ATTORNEY
KNOW ALL BY MEN BY THESE PRESENTS, that I, the undersigned director of FSI
International, Inc. hereby appoint Joel A. Elftmann and Benno G. Sand, 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 name, place, and stead
of the undersigned, to sign and file with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, the Annual Report on Form
10-K for the fiscal year ended August 26, 1995 of FSI International, Inc. and
any and all amendments and exhibits thereto, with full power and authority to do
and perform any and all acts and things whatsoever requisite and necessary or
desirable, as fully and effectually in all respects as I could do if personally
present.
IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of October,
1995.
/s/ James A. Bernards
---------------------
James A. Bernards
-157-
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY MEN BY THESE PRESENTS, that I, the undersigned director of
FSI International, Inc. hereby appoint Joel A. Elftmann and Benno G. Sand, 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 name, place, and stead
of the undersigned, to sign and file with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, the Annual Report on Form
10-K for the fiscal year ended August 26, 1995 of FSI International, Inc. and
any and all amendments and exhibits thereto, with full power and authority to do
and perform any and all acts and things whatsoever requisite and necessary or
desirable, as fully and effectually in all respects as I could do if personally
present.
IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of October,
1995.
/s/ Neil R. Bonke
-----------------
Neil R. Bonke
-158-
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY MEN BY THESE PRESENTS, that I, the undersigned director of
FSI International, Inc. hereby appoint Joel A. Elftmann and Benno G. Sand, 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 name, place, and stead
of the undersigned, to sign and file with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, the Annual Report on Form
10-K for the fiscal year ended August 26, 1995 of FSI International, Inc. and
any and all amendments and exhibits thereto, with full power and authority to do
and perform any and all acts and things whatsoever requisite and necessary or
desirable, as fully and effectually in all respects as I could do if personally
present.
IN WITNESS WHEREOF, I have hereunto set my hand this 5th day of October,
1995.
/s/ Joel A. Elftmann
--------------------
Joel A. Elftmann
-159-
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY MEN BY THESE PRESENTS, that I, the undersigned director of
FSI International, Inc. hereby appoint Joel A. Elftmann and Benno G. Sand, 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 name, place, and stead
of the undersigned, to sign and file with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, the Annual Report on Form
10-K for the fiscal year ended August 26, 1995 of FSI International, Inc. and
any and all amendments and exhibits thereto, with full power and authority to do
and perform any and all acts and things whatsoever requisite and necessary or
desirable, as fully and effectually in all respects as I could do if personally
present.
IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of October,
1995.
/s/ Terrence W. Glarner
-----------------------
Terrence W. Glarner
-160-
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY MEN BY THESE PRESENTS, that I, the undersigned director of
FSI International, Inc. hereby appoint Joel A. Elftmann and Benno G. Sand, 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 name, place, and stead
of the undersigned, to sign and file with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, the Annual Report on Form
10-K for the fiscal year ended August 26, 1995 of FSI International, Inc. and
any and all amendments and exhibits thereto, with full power and authority to do
and perform any and all acts and things whatsoever requisite and necessary or
desirable, as fully and effectually in all respects as I could do if personally
present.
IN WITNESS WHEREOF, I have hereunto set my hand this 19th day of October,
1995.
/s/ Robert E. Lorenzini
-----------------------
Robert E. Lorenzini
-161-
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY MEN BY THESE PRESENTS, that I, the undersigned director of
FSI International, Inc. hereby appoint Joel A. Elftmann and Benno G. Sand, 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 name, place, and stead
of the undersigned, to sign and file with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, the Annual Report on Form
10-K for the fiscal year ended August 26, 1995 of FSI International, Inc. and
any and all amendments and exhibits thereto, with full power and authority to do
and perform any and all acts and things whatsoever requisite and necessary or
desirable, as fully and effectually in all respects as I could do if personally
present.
IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of October,
1995.
/s/ William M. Marcy
--------------------
William M. Marcy
-162-
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY MEN BY THESE PRESENTS, that I, the undersigned director of
FSI International, Inc. hereby appoint Joel A. Elftmann and Benno G. Sand, 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 name, place, and stead
of the undersigned, to sign and file with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, the Annual Report on Form
10-K for the fiscal year ended August 26, 1995 of FSI International, Inc. and
any and all amendments and exhibits thereto, with full power and authority to do
and perform any and all acts and things whatsoever requisite and necessary or
desirable, as fully and effectually in all respects as I could do if personally
present.
IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of October,
1995.
/s/ Charles R. Wofford
----------------------
Charles R. Wofford
-163-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FSI
INTERNATIONAL, INC.'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
AUGUST 26, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> AUG-26-1995 AUG-27-1994
<PERIOD-START> AUG-28-1994 AUG-29-1993
<PERIOD-END> AUG-26-1995 AUG-27-1994
<CASH> 97,143,176 10,724,729
<SECURITIES> 14,059,682 0
<RECEIVABLES> 49,004,508 22,138,104
<ALLOWANCES> 1,225,000 525,000
<INVENTORY> 31,859,135 16,452,665
<CURRENT-ASSETS> 201,032,171 54,734,736
<PP&E> 34,724,424 17,616,072
<DEPRECIATION> 15,371,905 12,472,828
<TOTAL-ASSETS> 233,341,387 69,356,869
<CURRENT-LIABILITIES> 54,902,637 26,956,615
<BONDS> 0 0
<COMMON> 144,379,884 28,719,418
0 0
0 0
<OTHER-SE> 33,830,597 13,647,608
<TOTAL-LIABILITY-AND-EQUITY> 233,841,387 69,356,869
<SALES> 190,403,364 96,437,653
<TOTAL-REVENUES> 190,403,364 96,437,653
<CGS> 112,002,351 55,788,375
<TOTAL-COSTS> 112,002,351 55,788,375
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 27,745 417,521
<INCOME-PRETAX> 21,800,348 5,100,384
<INCOME-TAX> 5,926,000 1,254,000
<INCOME-CONTINUING> 19,285,686 5,646,134
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 19,285,686 5,646,134
<EPS-PRIMARY> $1.14 $.43
<EPS-DILUTED> $1.13 $.43
<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>
