<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
FSI INERNATIONAL, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
FSI INERNATIONAL, INC.
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11 (c)(1)(x1), or 14a-6(1)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
(1) Set forth the amount on which the filing fee is calculated and state how it
<PAGE> 2
FSI INTERNATIONAL, INC.
322 LAKE HAZELTINE DRIVE
CHASKA, MINNESOTA 55318
612/448-5440
December 10, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders to
be held at the Lutheran Brotherhood Building, 625 Fourth Avenue South,
Minneapolis, Minnesota, commencing at 3:30 p.m., Minneapolis time, on Tuesday,
January 27, 1998.
The Secretary's Notice of Annual Meeting and the Proxy Statement which
follow describe the matters on which action will be taken. During the meeting we
will also review the activities of the past year and items of general interest
about the Company.
In addition to electing three members of the Board of Directors and
approving the independent auditors, you are being asked to vote on two other
proposals.
Proposal 3 relates to your Board of Directors' recommendation to approve an
increase in the number of shares authorized under the Company's Employees Stock
Purchase Plan. The Plan allows the Company's employees to acquire Company stock
and it is intended to promote the long-term value of the Company.
Proposal 4 relates to your Board of Directors' recommendation to approve an
increase in the number of shares authorized under the FSI International Inc.
1997 Omnibus Stock Plan, a stock based incentive plan intended to motivate key
employees and promote the long-term value of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL FOUR
PROPOSALS.
Only Shareholders Of Record At The Close Of Business On December 1, 1997
Are Entitled To Notice Of And To Vote At The Annual Meeting And Any Adjournment
Thereof.
All Shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any Shareholder attending
the meeting may vote in person even if he or she has returned a proxy.
By Order of the Board of Directors
/s/ Joel A. Elftmann
Joel A. Elftmann
Chairman, President and
Chief Executive Officer
------------------------------
YOUR VOTE IS IMPORTANT
EVEN IF YOU OWN ONLY A FEW SHARES, AND WHETHER OR NOT YOU EXPECT TO BE
PRESENT AT THE MEETING, PLEASE SIGN, DATE AND PROMPTLY MAIL THE ENCLOSED PROXY
IN THE POSTAGE-PAID REPLY ENVELOPE PROVIDED. IT IS IMPORTANT THAT YOUR SHARES BE
REPRESENTED. ONLY SHAREHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON DECEMBER 1,
1997 ARE ENTITLED TO NOTICE OF AND TO VOTE AT THE ANNUAL MEETING AND ANY
ADJOURNMENT THEREOF.
------------------------------
<PAGE> 3
FSI INTERNATIONAL, INC.
------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 27, 1998
------------------------------
To the Shareholders of FSI International, Inc.:
The Annual Meeting of Shareholders of FSI International, Inc. (the
"Company") will be held at the Lutheran Brotherhood Building, 625 Fourth Avenue
South, Minneapolis, Minnesota on Tuesday, January 27, 1998, at 3:30 p.m.,
Minneapolis time, for the following purposes:
1. To elect three Class II directors for a three-year term.
2. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company for the fiscal year ending August 29, 1998.
3. To approve an amendment to the Company's Employees Stock Purchase Plan
(the "Stock Plan") to increase the number of shares reserved for
issuance thereunder by 350,000.
4. To approve an amendment to the Company's 1997 Omnibus Stock Plan to
increase the number of shares reserved for issuance thereunder by
750,000.
5. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed December 1, 1997 as the record date for
the meeting, and only Shareholders of record at the close of business on that
date are entitled to receive notice of and vote at the meeting.
By Order of the Board of Directors
/s/ Benno G. Sand
Benno G. Sand
Secretary
December 10, 1997
<PAGE> 4
FSI LOGO
FSI INTERNATIONAL, INC.
------------------------------
PROXY STATEMENT FOR 1998
ANNUAL MEETING OF SHAREHOLDERS
------------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement and the enclosed proxy are being furnished in
connection with the solicitation by the Board of Directors (the "Board") of FSI
International, Inc., a Minnesota corporation (the "Company"), of proxies for use
in connection with the Annual Meeting of Shareholders (the "Meeting") to be held
on Tuesday, January 27, 1998 and any adjournment thereof for the purposes
described below and in the accompanying Notice. The Meeting will be held at the
Lutheran Brotherhood Building, 625 Fourth Avenue South, Minneapolis, Minnesota.
So far as the Board and the management of the Company are aware, no matters
other than those described in this Proxy Statement will be acted upon at the
Meeting. If, however, any other matters properly come before the Meeting, it is
the intention of the persons named in the enclosed proxy to vote the same in
accordance with their judgment on such matters.
The address of the principal executive office of the Company is 322 Lake
Hazeltine Drive, Chaska, Minnesota 55318 and the Company's telephone number is
(612) 448-5440. The mailing of this Proxy Statement and accompanying form of
proxy to Shareholders will commence on or about December 12, 1997.
SOLICITATION OF PROXIES
The Company will pay the cost of soliciting proxies. The Company has
retained the services of Morrow & Co., Inc., a proxy solicitation firm to aid in
the solicitation of proxies from bankers, bank nominees, and other institutional
owners. The Company estimates that it will pay Morrow & Co. a fee of
approximately $2,500 for its services and will reimburse Morrow & Company for
certain out-of-pocket expenses. The Company may reimburse brokerage firms and
custodians, nominees and other record holders for forwarding soliciting
materials to the beneficial owners of stock of the Company. In addition to
solicitation by the use of the mails, certain directors, officers and employees
of the Company may solicit proxies by telephone, personal contact, or special
letter without additional compensation to them.
RECORD DATE AND OUTSTANDING VOTING SECURITIES
Only Shareholders of record at the close of business on December 1, 1997
are entitled to vote at the Meeting. On the record date 22,628,929 shares of
common stock ("Common Stock"), the only authorized and issued voting security of
the Company, were outstanding. Each Shareholder is entitled to one vote for each
share held and is not entitled to cumulate votes for the election of directors.
Proxies in the accompanying form which are properly signed and duly
returned to an officer of the Company will, unless otherwise specified on the
proxy, be voted for Items 1, 2, 3 and 4 as set forth on the proxy and voted in
the discretion of the proxy holders as to any other matter that may properly
come before the Meeting.
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VOTING REQUIREMENT
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock present and entitled to vote on a matter to be acted upon at the
Meeting is required for the approval of that matter. A Shareholder voting
through a proxy who abstains with respect to any matter is considered to be
present and entitled to vote on that matter at the Meeting, and is in effect a
negative vote, but a Shareholder (including a broker) who does not give
authority to a proxy to vote, or withholds authority to vote, on any matter
shall not be considered present and entitled to vote on that matter.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspector of elections (the "Inspector"). The Inspector will also determine
whether or not a quorum is present. In general, under Minnesota law, a quorum
consists of a majority of the shares entitled to vote which are present or
represented by proxy at the meeting. The candidates for directors will be
elected to the Board if they individually receive a majority of the shares
present or represented and entitled to vote at the meeting. The increase in
shares authorized under the Stock Plan, as defined below, and the 1997 Omnibus
Plan, as defined below, will require the affirmative vote of a majority of the
shares present or represented and entitled to vote, as will the ratification of
the independent auditors of the Company for the current year.
REVOCABILITY OF PROXIES
A Shareholder executing a proxy retains the right to revoke it at any time
before it is exercised by providing notice in writing to an officer of the
Company of termination of the proxy's authority or a properly signed and duly
returned proxy bearing a later date. A Shareholder attending the Meeting may
also revoke a proxy at the Meeting.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Shareholder proposals intended to be considered at the Annual Meeting of
Shareholders for the fiscal year ended August 29, 1998 must be received by the
Company no later than August 14, 1998. Such proposals may be included in next
year's proxy statement if they comply with certain rules and regulations
promulgated by the Securities and Exchange Commission ("SEC"). A Shareholder who
may be interested in submitting such a proposal is advised to contact legal
counsel familiar with the detailed requirements of the applicable rules and
regulations.
(THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY)
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<PAGE> 6
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table lists, as of October 17, 1997, certain information
regarding the beneficial ownership of Common Stock of the Company by (i) each
director, (ii) the nominees for director; (iii) each executive officer named in
the Summary Compensation Table in this Proxy Statement (the "Named Executives"),
(iv) all of such directors, nominees Named Executives and other executive
officers as a group, and (v) each person or entity known by the Company to own
beneficially more than 5% of the outstanding Common Stock of the Company. Except
as otherwise noted below, each listed beneficial owner has sole voting and
investment power with respect to such shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF SHARES
NAME AGE OWNED BENEFICIALLY OWNED
- ------------------------------------------------- --- ---------------- ------------------
<S> <C> <C> <C>
Joel A. Elftmann 57 992,206(1) 4.38%
James A. Bernards 51 26,001(2) *
Neil R. Bonke 55 14,001(3) *
Robert E. Cavins 62 46,665(4) *
Dale A. Courtney 60 130,153(5) *
Thomas D. George 57 -0-
Terrence W. Glarner 54 9,657(2) *
Joanna T. Lau 39 10,000(6) *
Robert E. Lorenzini 61 28,001(7) *
Benno G. Sand 43 78,038(8) *
Benjamin J. Sloan 57 135,198(9) *
Charles R. Wofford 64 19,351(10) *
All Nominees, Directors, Named Executives and
other executive officers as a group (14
persons) 1,684,536(11) 7.26%
</TABLE>
- ---------------------------
* Less than 1%
(1) Includes 20,000 shares issuable pursuant to currently exercisable options
and options exercisable within 60 days of October 17, 1997.
(2) Includes 8,001 shares issuable pursuant to currently exercisable options
and options exercisable within 60 days of October 17, 1997.
(3) Includes 14,001 shares issuable pursuant to currently exercisable options
and options exercisable within 60 days of October 17, 1997.
(4) Includes 44,300 shares issuable pursuant to currently exercisable options
and options exercisable within 60 days of October 17, 1997.
(5) Includes 123,966 shares issuable pursuant to currently exercisable options
and options exercisable within 60 days of October 17, 1997.
(6) Includes 10,000 shares issuable pursuant to currently exercisable options
and options exercisable within 60 days of October 17, 1997.
(7) Includes 18,001 shares issuable pursuant to currently exercisable options
and options exercisable within 60 days of October 17, 1997.
(8) Includes 54,300 shares issuable pursuant to currently exercisable options
and options exercisable within 60 days of October 17, 1997.
(9) Includes 134,300 shares issuable pursuant to currently exercisable options
and options exercisable within 60 days of October 17, 1997.
(10) Includes 19,351 shares issuable pursuant to currently exercisable options
and options exercisable within 60 days of October 17, 1997.
(11) Includes 603,153 shares issuable pursuant to currently exercisable options
and options exercisable within 60 days of October 17, 1997 granted to
thirteen executive officers and/or directors of the Company.
3
<PAGE> 7
ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
THE NOMINEES AND DIRECTORS
The Company's Articles of Incorporation, as amended, provide that the Board
be divided into three classes of directors of as nearly equal size as possible.
The members of each class are elected to serve a three-year term, and the terms
are staggered. Neil R. Bonke, Joel A. Elftmann, and Robert E. Lorenzini, are
Directors in the class whose term expires at the Meeting. Terrence W. Glarner
and Charles R. Wofford are Class III Directors with terms expiring in 1999.
James A. Bernards and Joanna T. Lau are Class I Directors with terms expiring in
2000.
The Board has nominated and recommended that current directors Mr. Bonke
and Mr. Elftmann be elected as Class II Directors, each to hold office until the
2001 Annual Meeting of Shareholders and until his respective successor is duly
elected and qualified. Mr. Lorenzini has indicated that he does not intend to
stand for reelection. The Board's Nomination Committee has evaluated and
identified a potential candidate and, as a result, the Board is also nominating
and recommending that Thomas D. George, a former Motorola executive, be elected
as a Class II Director. The Board of Directors' current size has been set at
eight members. Therefore, the Company will be evaluating additional candidates
in an effort to select the eighth member of the Board during the current fiscal
year.
Each of the nominees has indicated a willingness to serve as a director if
elected. In case any nominee is not a candidate for any reason, the proxies
named in the enclosed form of proxy may vote for a substitute nominee in their
discretion, unless an instruction to the contrary is indicated on the proxy. The
Company has no reason to believe that any nominee will be unable to serve as a
director if elected.
The accompanying proxy will be voted in favor of the election of the
nominees, unless the Shareholder giving the proxy indicates to the contrary on
the proxy.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE DIRECTOR-NOMINEES.
Certain information concerning the nominees and other directors follows:
Nominees for Election at the 1998 Meeting as Class II Directors
NEIL R. BONKE Mr. Bonke has served as a director of the Company since
June 1994. From April 1993 until his retirement in August,
1997, Mr. Bonke was Chairman of the Board of Electroglas
Inc., a manufacturer of automatic wafer probing equipment
for semiconductor device manufacturers. He also was Chief
Executive Officer of Electroglas from April 1993 to April
1996. He was a Group Vice President of General Signal and
President of General Signal's Semiconductor Equipment
Operations from September 1991 to July 1993. From 1990 to
1991, he was Chief Operating Officer of Cognex Corporation,
a manufacturer of machine vision systems for the
semiconductor and electronics industries, and from 1987 to
1990 was President of General Signal's Xynetics division, a
group of semiconductor equipment manufacturing companies
which included Electroglas. Mr. Bonke currently serves on
the Board of Electroglas, SANMINA Corporation, and SpeedFam
International, Inc.
JOEL A. ELFTMANN 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
also has 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
4
<PAGE> 8
Board of Metron Technology B.V. and is a director of m-FSI
Ltd. He also has been a director of Veeco Instruments, Inc.
since May 1994.
THOMAS D. GEORGE Mr. George is not currently a director but has been
nominated for election at the Meeting. He recently retired
from Motorola, Inc. where he served as President of its
Semiconductor Products Sector from April 1993 until May
1997. He served as Executive Vice President and Assistant
General Manager of the Sector from June 1986 to April 1993.
He is a director of Ultratech Stepper, Inc.
Class III Directors Whose Terms Continue Until the 1999 Meeting
TERRENCE W. GLARNER Mr. Glarner has served as a director of the Company since
October 1988. Since February 1993, Mr. Glarner has been
President of West Concord Ventures, Inc., a venture capital
company. From 1982 to February 1993, Mr. Glarner was
President of North Star Ventures, Inc. and North Star
Ventures II, Inc., venture capital funds. Mr. Glarner is
also a director of Aetrium Incorporated, Cima Labs, Inc.,
Datakey, Inc., and Premis Corp.
CHARLES R. WOFFORD Mr. Wofford has served as a director of the Company since
November 1992. He joined the Company as Vice Chairman in
February 1996. Since April 1994, Mr. Wofford has been a
business and management consultant. From April 1992 to
April 1994, he was Chairman of the Board, Chief Executive
Officer, and President of the FARR Company, a manufacturer
of clean room filtration systems and equipment. Mr. Wofford
was President and Chief Executive Officer of the FARR
Company from September 1991 to March 1992, and from July
1991 to August 1991 he was President and Chief Operating
Officer. From 1958 to 1991, Mr. Wofford held a variety of
positions with respect to Texas Instrument's semiconductor
operations in the United States, Europe, Asia, and Latin
America, including Senior Vice President, Semiconductor
Group.
Class I Directors Whose Terms Continue Until the 2000 Meeting
JAMES A. BERNARDS Mr. Bernards has served as a director of the Company since
July 1981. Since June 1993, Mr. Bernards has been President
of Facilitation, Inc., which provides business and
financial consulting services. Mr. Bernards was President
of the accounting firm of Stirtz, Bernards & Company from
May 1981 to June 1993. Since 1986, Mr. Bernards has been
President of Brightstone Capital, Ltd., a venture capital
fund manager. He is also a director of Health Fitness
Physical Therapy Corporation, Reality Interactive, Inc. and
several private companies.
JOANNA T. LAU Ms. Lau has served as a director of the Company since May,
1996. Ms. Lau is a founder of Lau Technologies, an
electronics manufacturer and system engineering company in
Littleton, Massachusetts and has served as its President
since March 1990. She previously held management positions
with General Electric and Digital Equipment Corporation.
She also serves as a director of INSO Corporation.
None of the above nominees or directors are related to one another or to
any executive officer of the Company.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board met seven times and adopted resolutions by written action three
times in fiscal 1997. The Board has an Audit, a Compensation, an Omnibus Stock
Plan, and a Nomination Committee.
The Audit Committee, consisting of Messrs. Bernards, Elftmann and Glarner,
met three times in fiscal 1997. Its functions include: recommending to the Board
the independent auditors for the Company; establishing and reviewing the
activities of the independent auditors; reviewing recommendations of the
5
<PAGE> 9
independent auditors and the responses of management to such recommendations;
and reviewing and discussing with the independent auditors and the Company's
management the Company's financial reporting, loss exposures and internal
controls.
The Company has a Compensation Committee consisting of Messrs. Bernards,
Glarner and Lorenzini. The Compensation Committee met three times and adopted
resolutions by written action four times in fiscal 1997. (Following the Meeting
it is the Company's intention to add Mr. Bonke and Ms. Lau to the Committee as
Mr. Lorenzini will no longer be a member of the Board.) Its functions include:
reviewing and reporting to the Board on the programs for developing senior
management personnel; approving and reporting to the Board the executive
compensation plans and the compensation (including incentive awards) of certain
executives; and reviewing and approving the Company's incentive plans.
The Company also has an Omnibus Stock Plan Committee consisting of Messrs.
Bernards, Glarner and Lorenzini. (Following the Meeting the Company intends that
the Compensation Committee's responsibilities will include those of the Omnibus
Stock Plan Committee). The Omnibus Stock Plan Committee grants or makes
recommendations to the Board concerning employee stock options, and administers
the FSI International, Inc. 1989 Stock Option Plan, the 1994 Omnibus Stock Plan
and the 1997 Omnibus Stock Plan. The Omnibus Stock Plan Committee adopted
resolutions by written action six times in fiscal 1997.
The Company's Nomination Committee consists of Messrs. Elftmann, Bonke and
Wofford. It met three times and adopted resolutions by written action once in
fiscal 1997. Its functions include: evaluating and recommending qualified
individuals to the Board; reviewing the qualifications of individuals for
election or reelection as members of the Board; and reviewing the charters and
membership of the Board's Committees and Board membership guidelines. The
Committee will consider persons whom Shareholders recommend as candidates for
election as Company directors. Any Shareholder wishing to make such a
recommendation should submit it to the Secretary of the Company.
During fiscal 1997, each of the directors attended at least 75% of the
aggregate number of meetings of the Board and of the Committees on which he or
she serves.
COMPENSATION OF DIRECTORS
Each non-employee director of the Company (an "Outside Director") receives
a quarterly fee of $1,500 for service on the Board and a fee of $1,000 for
attending meetings of the Board. In addition, each Outside Director receives a
fee of $500 for attendance at a meeting of a Committee on which the Director
serves if held other than the day of, the day preceding or the day following a
meeting of the Board or an Annual Meeting of the Company's Shareholders.
Upon joining the Board, each Outside Director receives a single grant of an
option to purchase 10,000 shares of Common Stock under the FSI 1997 Omnibus
Stock Plan (the "1997 Omnibus Plan"). The 1997 Omnibus Plan was approved by the
Shareholders at the Company's 1997 Annual Meeting of Shareholders. The purchase
price of each share subject to an option is the fair market value of a share of
Common Stock of the Company at the time the option is granted. The options vest
and become exercisable six months after the date of grant, except that vesting
is accelerated upon death or a change in control of the Company. Generally, the
options expire ten years from the date of grant, but expiration may occur sooner
in the event of an optionee's death. Each Outside Director serving as an Outside
Director of the Company immediately following an Annual Meeting of the Company's
Shareholders is granted a nonstatutory stock option under the 1997 Omnibus Plan
to purchase 4,000 shares of Common Stock at the fair market value at the time of
grant (each an "Annual Outside Director Option"). An Annual Outside Director
Option vests and becomes exercisable cumulatively on an annual basis as follows:
one-third of the total number of shares subject to each such option shall become
exercisable on each of the first and second anniversaries of the date of grant
and the remainder become exercisable on the third anniversary of the date of
grant, except that vesting is accelerated upon a change in control or upon the
Outside Director's death. Generally, Annual Outside Director Options expire five
years after the date of grant.
6
<PAGE> 10
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
The Company's corporate headquarters and certain manufacturing facilities,
aggregating approximately 161,500 square feet, are leased from three Minnesota
partnerships comprised of two or more of the following individuals: Joel A.
Elftmann, Chairman of the Board, President, and Chief Executive Officer of the
Company; Robert S. Blackwood, a former director and executive officer of the
Company; and Joseph H. Wyers, a former director and executive officer of the
Company. Annual rent for the 1997 fiscal year under the three leases totaled
$792,400.
The 140,000-square-foot main facility is leased from a partnership in which
all three such persons are partners under a lease expiring in October 2000,
subject to five three-year renewal options at the election of the Company. The
Company and the partnership, effective November 1, 1995, entered into a new
five-year lease at an annual rental rate of $700,000 per year, which rate
commenced December 1, 1995. The Company also pays all real estate taxes,
insurance and maintenance expenses. If the Company exercises a renewal option
then the rent is adjusted to its fair rental value based upon an independent
real estate appraisal. Commencing October 31, 1999 and annually thereafter
during the term of the lease, the Company has an option to purchase the property
for the greater of $4.0 million or 90% of the fair market value of the property.
Pursuant to the policy described below, the lease amendments were approved by a
majority of the Board and a majority of the disinterested directors.
The Company has adopted a policy prohibiting the lease of any additional
facilities from entities in which its officers or directors have a material
interest. However, this policy would not prohibit the Company from leasing any
further additions to the above facilities or any extensions of the existing
operating leases on the related facilities, if approved by a majority of the
members of the Board who have no interest in the ownership of such facility and
the terms of such rentals are based upon independent appraisals of the value of
such property and market rentals for comparable property.
The Company owns approximately 37.5% of the outstanding common stock of
Metron Technology B.V. ("Metron"), a distributor of the Company's products. Joel
A. Elftmann, Chairman of the Board, President and Chief Executive Officer of the
Company, is also Chairman of the Supervisory Board of Metron. The Company owns
49% of the outstanding capital stock of m-FSI Ltd., which distributes and acts
as a licensee for certain of the Company's products in Japan. Messrs. Elftmann,
Peter A. Pope, Executive Vice President, Marketing, Account Management and
Quality, and Dale A. Courtney, Executive Vice President; President, Surface
Conditioning Division, of the Company, are all directors of m-FSI Ltd.
During the 1997 fiscal year, the Company sold approximately $63,086,000 of
its products to Metron and approximately $10,540,000 of its products to m-FSI
Ltd. Sales to Metron (and its subsidiaries) and m-FSI Ltd. are made by the
Company on commercially reasonable terms. In addition, in fiscal 1997 the
Company paid Metron commissions of $1,774,000 for direct sales by the Company to
Asia-Pacific customers.
In addition to the leasing policy discussed above, the Board has adopted a
policy regarding transactions, other than sales in the normal course of
business, between the Company and any affiliate, including loans from the
Company, requiring that all such transactions be approved by a majority of the
Board and a majority of the disinterested outside directors and that all such
transactions be for a bona fide business purpose and be entered into on terms at
least as favorable to the Company as could be obtained from unaffiliated
independent third parties.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors, certain officers and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
reports of ownership on Form 3 and changes in ownership on Forms 4 or 5 with the
SEC. Such officers, directors and ten percent Shareholders are also required by
the SEC's rules to furnish the Company with copies of all Section 16(a) reports
they file.
7
<PAGE> 11
Specific due dates for such reports have been established by the SEC and
the Company is required to disclose in this Proxy Statement any failure to file
reports by such dates during fiscal 1997. Based solely on its review of the
copies of such reports received by it or written representations from certain
reporting persons, the Company believes that during the fiscal year ended August
30, 1997, all Section 16(a) filing requirements applicable to its officers and
directors and any ten percent Shareholders were complied with except that a Form
4 report for Mr. Benno G. Sand regarding his exercise of an option in July, 1997
was not filed on a timely basis.
REPORT OF THE COMPENSATION AND OMNIBUS STOCK PLAN COMMITTEES
OF THE BOARD ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, ("Securities
Act") or the Exchange Act, that might incorporate all or portions of future
filings, including this Proxy Statement, the following report and the
performance graph on page 16 shall not be incorporated by reference into any
such filings, nor shall they be deemed to be soliciting material or deemed filed
with the SEC under the Securities Act or the Exchange Act.
OVERVIEW AND PHILOSOPHY
The Compensation and Omnibus Stock Plan Committees of the Board
(collectively the "Compensation Committee") are composed entirely of Outside
Directors. The members of the Compensation Committee are Messrs. Bernards,
Glarner and Lorenzini. The Compensation Committee is responsible for reviewing
and/or administering the Company's compensation and stock option plans and
determining the compensation to be paid to the Chief Executive Officer and the
other executive officers of the Company including the executive officers listed
in the Summary Compensation Table. The objectives of the Company's executive
compensation program are:
- to attract, retain, motivate and reward high caliber executives;
- to foster teamwork and support the achievement of the Company's financial
and strategic goals through performance based financial incentives; and
- through stock-based compensation to align the executive officers'
interests with the success of the Company and Shareholders' interests.
The Company's executive compensation program strives to be competitive with
the compensation provided by comparable companies. In that respect, the Company
compares itself to a self-selected peer group (which is broader than the peer
group used in the Performance Graph that appears elsewhere in this Proxy
Statement). The self-selected peer group is subject to occasional change as
members of the peer group alter their focus, merge or are acquired, or as new
competitors emerge. In comparing itself to members of this peer group, the
Company relies upon salary survey data developed and published by several
external sources.
The Compensation Committee periodically conducts a review of its executive
compensation program. The purpose of the review is to ensure that the Company's
executive compensation program is meeting the objectives listed above. In its
review, the Compensation Committee considers data submitted by management and
external data, including compensation surveys.
Executive compensation at the Company has three components: base salary,
annual incentive bonus and stock options. The Compensation Committee uses its
discretion to set executive compensation at levels which, in its judgment, are
warranted by external, internal and individual circumstances. In particular, the
compensation program is designed to set total compensation potential (salary,
annual bonus, and stock options) at a level similar to the level of total
compensation paid to similarly positioned executives within the Company's
compensation peer group. The Company does not currently have a policy with
respect to the limit under Internal Revenue Code Section 162(m) on the
deductibility of the qualifying compensation paid to its executives as it is
likely that all such compensation will be deductible by the Company.
8
<PAGE> 12
BASE SALARY
The base salary of each of the executive officers, including the Chief
Executive Officer, is targeted to be at or near the competitive median within
the peer group. In determining an individual's base salary, the Compensation
Committee considers the compensation levels of similar positions within the peer
group, the responsibilities and performance of the individual executive officer
and the Company's recent financial performance.
Generally, salary decisions are made by the Compensation Committee near the
beginning of each calendar year based upon evaluations and recommendations made
by the Chief Executive Officer. The Chief Executive Officer completes and
submits to the Compensation Committee a performance appraisal for each executive
officer. The appraisal typically assesses such individual's performance in the
following areas: accountabilities of the position, individual goals and
objectives, special projects and assignments, management skills and the
achievement of an annual training/development plan. Generally, a salary
recommendation is made based upon the individual's overall performance
assessment and where the individual's salary falls within the range of salaries
for similar positions in the peer group.
For a majority of fiscal 1997, the executive salaries for all of the
Company's executive officers were reduced by 10% as part of the Company's cost
control measures. Effective June 1, 1997, after the salary reduction was lifted,
the Company's executive officers (other than Mr. Elftmann), including those
listed in the Summary Compensation Table, received merit increases.
ANNUAL INCENTIVE BONUS
Executive officers and certain key employees are each eligible to receive
an annual incentive bonus at the end of the fiscal year based upon the Company's
financial performance. The purpose of this annual cash incentive program is to
provide a direct financial incentive to executives and other key employees to
meet or exceed the Company's annual corporate and divisional financial
performance objectives and strategic goals.
Each year a threshold, goal and maximum financial performance target
(profit or operating income) are established for the Company and each of its
three divisions. Generally, for each of the divisions and for the Company,
threshold represents 85% of the goal target and maximum represents 120% of the
goal target.
All eligible participants are entitled to an award if the Company's
threshold, goal or maximum profit target is achieved. The potential award for
individuals with primarily corporate level responsibilities is based upon
whether the Company's threshold, goal or maximum targets have been reached.
However, individuals with primarily divisional responsibilities are eligible for
an award based upon the achievement of that division's threshold, goal or
maximum target even if the Company fails to reach its threshold target. A
significant portion of such individual's total bonus potential is related to the
division's profit performance.
Beginning with the 1998 Incentive Plan, each individual participant is also
eligible for a bonus based upon individual performance measurements ("MBO's").
However, for individuals whose performance is based upon the Company's financial
performance an award for MBO's can be paid only if the Company's threshold
target is achieved and for those with divisional responsibilities only if the
weighted average of the Company and the division's financial performance equals
or exceeds the threshold targets.
Cash bonus awards at threshold, goal and maximum targets are calculated
based upon a specified percentage of base salary determined primarily upon the
individual's job level within the organization. An individual's potential annual
incentive bonus at threshold, goal and maximum is determined near the beginning
of the fiscal year by the Compensation Committee based upon recommendations made
by the Chief Executive Officer, the Vice President, Human Resources, and the
Chief Financial Officer.
For fiscal 1997, awards were paid at the maximum level for the Chemical
Management Division. The Microlithography and Surface Conditioning Divisions and
the Company did not reach their threshold targets. Following fiscal year-end,
annual incentive bonuses were paid to all participants eligible in the Chemical
Management Division and approximately 55 individuals received such an award.
9
<PAGE> 13
STOCK OPTIONS -- OPTION GRANTS
Stock options are the principal vehicle used by the Company for the payment
of long-term compensation. The Company awards stock options to align the
interests of its executive officers and key personnel with those of its
Shareholders and to increase the long-term value of the Company. Through
deferred vesting, this component of the Company's compensation creates an
incentive for individuals to remain with the Company. The objectives of stock
option grants are to assist in the recruitment, motivation, and retention of key
professional and managerial personnel as well as to reward eligible employees
for outstanding performance and to provide a stock-based incentive to improve
the Company's financial performance.
Generally, stock options are granted to eligible employees from time to
time based primarily upon the individual's actual and/or potential contributions
and the Company's financial performance. To date, all stock options have been
granted at or above fair market value. Generally, such options vest over a
period of several years; however, for certain option grants, vesting is
accelerated if certain financial performance objectives are met. Accordingly, an
executive receiving an option generally is rewarded only if the market price of
the Company's Common Stock appreciates. Stock options are authorized by the
Compensation Committee. Since long-term options generally vest over time, the
Company periodically grants new options to provide continuing incentives for
future performance. The size of previous grants and the number of options held
are considered by the Compensation Committee, but are not entirely determinative
of future grants.
STOCK OPTIONS -- OPTION REPRICING
Historically, the policy of the Compensation Committee has been to grant
stock options periodically to key employees of the Company, including its
executive officers. The exercise price of the stock option is set at the fair
market value of the underlying stock on the date of grant. Accordingly, the
stock options provide value to employees who are granted options only when the
price of the Company's stock increases above the price on the date of grant.
On September 25, 1996, the Compensation Committee determined to grant
repriced options for all outstanding options which had an exercise price in
excess of $11.625, which was the exercise price for the repriced options. The
$11.625 per share exercise price represented the fair market value of the
underlying stock on September 25, 1996. Pursuant to the terms of the repriced
options, the unvested portion of all repriced options accepted and exchanged for
the prior options was to be delayed by one year. The Compensation Committee's
action was in response to the decline in the market price of the Company's stock
during the preceding months which had effectively eliminated the incentive value
of options with significantly higher exercise prices. The Compensation
Committee's decision was based on a number of other factors including
significant events that had taken place during the preceding months. These
events included the loss of certain key employees by the Company, the concern
over losing additional skilled employees, the resulting loss of incentives, and
the subsequent negative impact these events could have on the Company's
operating results and financial condition. In addition, the Compensation
Committee wanted to retain key employees who were critical to the Company's long
range success particularly given the various cost control measures which were
implemented at about the same time including mandatory furlough days, salary
freezes, and salary reductions in executive officers' pay. The Compensation
Committee determined that the repriced options were appropriate long-term
incentives for valued employees. However, the Compensation Committee did not
replace or reprice outstanding options held by non-employee directors under the
terms of the Company's stock option grants to directors.
As detailed in the Ten-Year Option Repricing table below, the repricing on
September 25, 1996 resulted in the issuance of repriced options with an exercise
price of $11.625 per share for all existing stock options with an exercise price
in excess of $11.625 per share. A total of 451,817 options, with exercise prices
ranging from $12.25 to $29.00 per share, were repriced, including 127,500
options held by current executive officers and 17,500 options held by former
executive officers.
10
<PAGE> 14
The following table presents information on the repricing of stock options
of any executive officer employed by the Company during the last ten fiscal
years.
FSI INTERNATIONAL, INC.
TEN-YEAR OPTION REPRICING
HELD BY ANY EXECUTIVE OFFICER
<TABLE>
<CAPTION>
MKT PRICE LENGTH OF
NO. OF AT TIME EXERCISE NEW ORIGINAL TERM
REPRICING OPTIONS OF PRICE AT EXERCISE REMAINING AT
NAME DATE REPRICED REPRICING REPRICING PRICE REPRICING DATE
- --------------------------------------- ---------- -------- ---------- --------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
JOEL A. ELFTMANN 09/25/1996 0 $11.6250 -- -- --
Chairman, President and
Chief Executive Officer
ROBERT E. CAVINS 09/25/1996 10,000 $11.6250 $15.969 $11.6250 8 yrs, 5 mo.
Executive Vice President; 09/25/1996 7,500 $11.6250 $20.500 $11.6250 9 yrs, 1 mo.
President, Chemical Management
Division
BENJAMIN J. SLOAN 09/25/1996 10,000 $11.6250 $15.969 $11.6250 8 yrs, 5 mo.
Executive Vice President; 09/25/1996 7,500 $11.6250 $20.500 $11.6250 9 yrs, 1 mo.
President, Microlithography Division
DALE A. COURTNEY 09/25/1996 10,000 $11.6250 $15.969 $11.6250 8 yrs, 5 mo.
Executive Vice President; 09/25/1996 7,500 $11.6250 $20.500 $11.6250 9 yrs, 1 mo.
President, Surface Conditioning
Division
BENNO G. SAND 09/25/1996 10,000 $11.6250 $15.969 $11.6250 8 yrs, 5 mo.
Executive Vice President; 09/25/1996 7,500 $11.6250 $20.500 $11.6250 9 yrs, 1 mo.
Chief Financial Officer and 11/27/1990 5,000 $ 0.9375 $ 3.250 $ 0.9375 4 yrs, 11 mo.
Secretary 11/27/1990 14,000 $ 0.9375 $ 3.625 $ 0.9375 6 yrs, 11 mo.
11/27/1990 12,000 $ 0.9375 $ 3.750 $ 0.9375 8 yrs, 9 mo.
11/27/1990 10,000 $ 0.9375 $ 2.125 $ 0.9375 9 yrs, 3 mo.
CHARLES R. WOFFORD 09/25/1996 15,000 $11.6250 $15.875 $11.6250 8 yrs, 5 mo.
Vice Chairman 09/25/1996 7,500 $11.6250 $15.970 $11.6250 8 yrs, 5 mo.
PETER A. POPE 09/25/1996 10,000 $11.6250 $15.969 $11.6250 8 yrs, 5 mo.
Executive Vice President, 09/25/1996 7,500 $11.6250 $20.500 $11.6250 9 yrs, 1 mo.
Marketing, Account 11/27/1990 10,000 $ 0.9375 $ 3.250 $ 0.9375 4 yrs, 11 mo.
Management and Quality 11/27/1990 10,000 $ 0.9375 $ 3.625 $ 0.9375 6 yrs, 0 mo.
11/27/1990 4,000 $ 0.9375 $ 3.625 $ 0.9375 7 yrs, 8 mo.
11/27/1990 10,000 $ 0.9375 $ 3.750 $ 0.9375 8 yrs, 9 mo.
11/27/1990 20,000 $ 0.9375 $ 2.125 $ 0.9375 9 yrs, 3 mo.
J. WAYNE STEWART 09/25/1996 10,000 $11.6250 $15.969 $11.6250 8 yrs, 5 mo.
Executive Vice President, 09/25/1996 7,500 $11.6250 $20.500 $11.6250 9 yrs, 1 mo.
Operations
TIMOTHY D. KRIEG(1) 09/25/1996 10,000 $11.6250 $15.969 $11.6250 8 yrs, 5 mo.
Former Vice President, 09/25/1996 7,500 $11.6250 $20.500 $11.6250 9 yrs, 1 mo.
Human Resources 11/27/1990 14,000 $ 0.9375 $ 3.625 $ 0.9375 6 yrs, 11 mo.
11/27/1990 10,000 $ 0.9375 $ 3.750 $ 0.9375 8 yrs, 9 mo.
11/27/1990 10,000 $ 0.9375 $ 2.125 $ 0.9375 9 yrs, 3 mo.
DON C. BURKMAN(2) 11/27/1990 20,000 $ 0.9375 $ 3.250 $ 0.9375 4 yrs, 11 mo.
Former Vice President, 11/27/1990 10,000 $ 0.9375 $ 3.625 $ 0.9375 6 yrs, 0 mo.
Technology & Development 11/27/1990 10,000 $ 0.9375 $ 3.750 $ 0.9375 8 yrs, 9 mo.
11/27/1990 10,000 $ 0.9375 $ 2.125 $ 0.9375 9 yrs, 3 mo.
WAYNE J. HUBIN(1) 11/27/1990 6,000 $ 0.9375 $ 3.625 $ 0.9375 6 yrs, 11 mo.
Former Vice President, 11/27/1990 4,000 $ 0.9375 $ 3.625 $ 0.9375 7 yrs, 8 mo.
Operations 11/27/1990 20,000 $ 0.9375 $ 3.750 $ 0.9375 8 yrs, 9 mo.
11/27/1990 20,000 $ 0.9375 $ 2.125 $ 0.9375 9 yrs, 3 mo.
</TABLE>
11
<PAGE> 15
<TABLE>
<CAPTION>
MKT PRICE LENGTH OF
NO. OF AT TIME EXERCISE NEW ORIGINAL TERM
REPRICING OPTIONS OF PRICE AT EXERCISE REMAINING AT
NAME DATE REPRICED REPRICING REPRICING PRICE REPRICING DATE
- --------------------------------------- ---------- -------- ---------- --------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
RICHARD H. JACKSON(2) 11/27/1990 21,562 $ 0.9375 $ 2.540 $ 0.9375 4 yrs, 1 mo.
Former President and Chief 11/27/1990 13,916 $ 0.9375 $ 3.250 $ 0.9375 4 yrs, 11 mo.
Executive Officer 11/27/1990 16,084 $ 0.9375 $ 3.625 $ 0.9375 3 yrs, 1 mo.
11/27/1990 11,500 $ 0.9375 $ 3.625 $ 0.9375 6 yrs, 0 mo.
11/27/1990 20,000 $ 0.9375 $ 3.750 $ 0.9375 8 yrs, 9 mo.
11/27/1990 20,000 $ 0.9375 $ 2.125 $ 0.9375 9 yrs, 3 mo.
</TABLE>
- ---------------------------
(1) Not currently an executive officer of the Company, but was an executive
officer of the Company at the time of the repricing.
(2) No longer employed by the Company, but was an executive officer of the
Company at the time of the repricing.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
The Compensation Committee determines Mr. Elftmann's compensation package
in accordance with the methodology described above. In evaluating and setting
the CEO's target annual compensation the Committee reviews the Company's
business and financial performance. That review is based upon a number of
factors including sales, earnings, divisional growth, backlog, market share,
return on equity and total Shareholder return. The Committee does not assign
relative weights or rankings to these factors, but instead makes a subjective
determination based upon a consideration of all of these factors as well as the
progress made with respect to the Company's long-term goals and strategies.
Base Salary
Mr. Elftmann did not receive an increase in base salary in fiscal 1997. In
connection with certain cost control measures instituted in early fiscal 1997,
Mr. Elftmann and the other officers agreed to a 10% reduction in their base
salary which was in place until May 25, 1997.
Incentive Bonus
Each year, Mr. Elftmann's potential incentive bonus at the threshold, goal
and maximum financial performance targets is established by the Compensation
Committee in relation to the Company's financial goals and reflects its
determination of what is an appropriate incentive by putting a substantial
portion of his compensation at risk. For fiscal 1997, Mr. Elftmann did not
receive an incentive award since the Company did not reach its threshold target.
Stock Options
As with other members of management, Mr. Elftmann is periodically awarded
stock options. Mr. Elftmann was granted a stock option for 20,000 shares at the
price of $12.00 per share in April of 1997 pursuant to the guidelines and
procedures described above. The options vest over four years.
JAMES A. BERNARDS TERRENCE W. GLARNER ROBERT E. LORENZINI
Members of the Compensation and Omnibus Stock Plan Committees
12
<PAGE> 16
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Chief
Executive Officer and the four other most highly compensated executive officers
as of the fiscal year ended August 30, 1997 for services in all capacities as
well as compensation earned by such person for the previous two fiscal years (if
the person was an executive officer during any part of such fiscal year):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------- -----------------------------------
AWARDS PAYOUTS
------------------------- -------
RESTRICTED
OTHER ANNUAL STOCK SECURITIES LTIP ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARD(S) UNDERLYING PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) (1) ($) OPTIONS/SARS ($) ($)(2)
- -------------------------------- ------ ------- ------- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joel A. Elftmann, 1997 327,167 -0- -- -0- 20,000 -0- 49,001
Chairman, President and 1996 305,480 65,891 -- -0- -0- -0- 47,906
Chief Executive Officer 1995 257,027 128,514 -- -0- 20,000 -0- 47,384
Dr. Robert E. Cavins, 1997 165,807 29,845 -- -0- 37,500 -0- 19,120
Executive Vice President; 1996 169,711 67,154 -- -0- 7,500 -0- 19,136
President, Chemical 1995 140,359 28,072 -- -0- 30,000 -0- 19,208
Management Division
Dale A. Courtney, 1997 176,334 -0- -- -0- 37,500 -0- 22,378
Executive Vice President; 1996 182,313 19,531 -- -0- 7,500 -0- 23,423
President, Surface 1995 142,384 71,192 -- -0- 30,000 -0- 22,746
Conditioning Division
Benno G. Sand, 1997 175,404 -0- -- -0- 37,500 -0- 22,378
Executive Vice President, 1996 199,037 42,237 -- -0- 7,500 -0- 22,676
Chief Financial Officer and 1995 152,352 76,181 -- -0- 30,000 -0- 23,332
Secretary
Dr. Benjamin J. Sloan, 1997 191,537 -0- -- -0- 37,500 -0- 31,978
Executive Vice 1996 194,080 76,446 -- -0- 7,500 -0- 22,423
President; President, 1995 167,681 68,749 -- -0- 30,000 -0- 22,746
Microlithography Division
</TABLE>
- ---------------------------
(1) Disclosure is not required by applicable SEC rules, as the aggregate amount
of perquisites and other personal benefits did not exceed the lesser of
$50,000 or 10% of the total salary and bonus for any of the Named
Executives.
(2) Compensation reported represents: (a) the estimated dollar value of Company
contributions to the Company's defined contribution pension plan based upon
such individual's earnings for the year being reported; (b) the dollar value
of premiums paid by the Company on split-dollar life insurance; and (c) the
Company's profit sharing contribution to the 401(k) Plan made in fiscal 1995
for the 1994 Plan (calendar) year, in fiscal 1996 for the 1995 Plan
(calendar) year, and in fiscal 1997 for the 1996 Plan (calendar) year. The
dollar value of each benefit for the fiscal year ended August 30, 1997 is:
J. Elftmann, (a) $6,400, (b) $41,623, (c) $978; R. Cavins, (a) $6,400, (b)
$11,742, (c) $978; D. Courtney, (a) $6,400, (b) $15,000, (c) $978; B. Sand,
(a) $6,400, (b) $15,000, (c) $978; and B. Sloan, (a) $6,400, (b) $24,600,
(c) $978.
13
<PAGE> 17
STOCK OPTIONS
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth individual grants of stock options made to
the Named Executives during the fiscal year ended August 30, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF TOTAL STOCK PRICE APPRECIATION
OPTIONS/SARS FOR OPTION TERM(3)
OPTIONS/SARS GRANTED TO EMPLOYEES EXERCISE ------------------------
NAME GRANTED IN FISCAL YEAR OR BASE PRICE EXPIRATION DATE 5% 10%
- --------------------- ------------ -------------------- ------------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Joel A. Elftmann 20,000(2) 1.96% $12.000 4/30/07 $150,935 $382,498
Robert E. Cavins 17,500(1) 1.72% $11.625 9/25/06 $127,941 $324,227
20,000(2) 1.96% $12.000 4/30/07 $150,935 $382,498
Benjamin J. Sloan 17,500(1) 1.72% $11.625 9/25/06 $127,941 $324,227
20,000(2) 1.96% $12.000 4/30/07 $150,935 $382,498
Dale A. Courtney 17,500(1) 1.72% $11.625 9/25/06 $127,941 $324,227
20,000(2) 1.96% $12.000 4/30/07 $150,935 $382,498
Benno G. Sand 17,500(1) 1.72% $11.625 9/25/06 $127,941 $324,227
20,000(2) 1.96% $12.000 4/30/07 $150,935 $382,498
</TABLE>
- ---------------------------
(1) These options were granted under the Company's 1994 Omnibus Stock Plan and
represent repriced options pursuant to the determination made by the
Compensation Committee to offer to employees repriced options as more fully
described in the Compensation Committee Report appearing elsewhere in this
Proxy Statement.
(2) All of these options were granted under the Company's 1997 Omnibus Stock
Plan. One-fourth of the options granted will vest on each of the first four
anniversaries of the date of grant. All options were granted at fair market
value on the date of grant and have a term of ten years. Generally all of
the options will become fully exercisable upon approval by the Company's
Shareholders of a merger, plan of exchange, sale of substantially all of the
Company's assets or plan of liquidation.
(3) We recommend caution in interpreting the financial significance of these
figures. They are calculated by multiplying the number of options granted by
the difference between a future hypothetical stock price and the option
exercise price and are shown pursuant to rules of the SEC. They assume the
value of Company stock appreciates 5% or 10% each year, compounded annually,
for the term of each option and do not take into account any taxes that
would be due. They are not intended to forecast possible future
appreciation, if any, of such stock price or to establish a present value of
options. Also, if appreciation does occur at the 5% or 10% per year rate,
the amounts shown would not be realized by the recipients until the end of
the option term.
(THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY.)
14
<PAGE> 18
The following table shows, as to the Named Executives, information
concerning stock options exercised and the value of options held by such persons
at the end of fiscal 1997 including those listed in the table above.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1997
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED OPTIONS/SARS AT FISCAL OPTIONS/SARS
ON EXERCISE VALUE REALIZED YEAR-END AT FISCAL YEAR-END($)(3)
NAME (NO.) ($)(1) EXERCISABLE(2)/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------- --------------- -------------- ---------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Joel A. Elftmann 26,000 311,350 13,333 26,667 92,664 176,336
Robert E. Cavins 0 0 34,133 43,367 339,664 298,149
Dale A. Courtney 0 0 113,799 43,367 1,660,986 298,149
Benno G. Sand 21,000 336,000 44,133 43,367 497,164 298,149
Benjamin J. Sloan 0 0 124,133 43,367 1,800,914 298,149
</TABLE>
- ---------------------------
(1) Represents market value of underlying securities on date of exercise less
the exercise price.
(2) Includes options exercisable within 60 days of fiscal year end.
(3) Represents market value of underlying securities at fiscal year end ($18.50
per share) less the exercise price.
CHANGE IN CONTROL AGREEMENTS
The Company has entered into Management Agreements (the "Agreements") with
each of the Named Executives. The Agreements are operative only upon the
occurrence of certain changes in control of the Company. Absent a change in
control, the Agreements do not require the Company to retain the executive
officers or to pay them any specified level of compensation or benefits.
Each Agreement provides that if, within two years after a change in
control, the executive officer's employment is terminated by the Company other
than (i) for cause, (ii) on account of the death, disability or retirement of
the executive, or (iii) except for the Agreements entered into with Joel A.
Elftmann, Benjamin J. Sloan and Benno G. Sand, voluntarily by the executive
(other than voluntary terminations following events that constitute a
"Constructive Involuntary Termination" (as defined in the Agreements, and
including compensation reductions, demotions, relocations and excessive
travel)), the executive is entitled to receive a lump sum severance payment.
The amount of the lump sum severance payment is equal to one times (or, in
the case of Messrs. Elftmann, Sand and Sloan, one and one-half times) the
individual's highest rate of compensation during the 12 months immediately
preceding the change in control, and payment of a bonus at the "Plan" level for
that Plan Year or a specified percentage of the lump sum payment if no plan is
then in effect. The Agreements also allow the Named Executive to continue his
participation in certain insurance and other benefit plans of the Company for
two years following a change in control. If a change in control of the Company
occurred and resulted in the termination of a Named Executive, giving rise to
payments under these Agreements as of December 1, 1997, the approximate amounts
payable to the Named Executives would be as follows: Mr. Elftmann $661,500; Dr.
Cavins $245,000; Mr. Courtney $259,000; Mr. Sand $388,500; and Dr. Sloan
$399,000.
15
<PAGE> 19
PERFORMANCE GRAPH
The graph below compares the performance of the Company's Common Stock to
cumulative five year performance on the Nasdaq Stock Market -- U.S. Companies
("Nasdaq-US"), the Company's prior peer group index (the "Former Peer Index")
and a new Company-determined peer group index (the "New Peer Index") over the
period of August 31, 1992 through August 31, 1997.
For several years, the Company has used a self-selected peer group index of
companies that manufacture equipment used in the microelectronics industry (the
Former Peer Index) as there is no published industry or line of business index
that the Company believes is appropriate for comparison purposes. The Former
Peer Index consists of Applied Materials, Inc., KLA-Tencor Corporation, Lam
Research Corporation, LTX Corporation, Novellus Systems, Inc., and Silicon
Valley Group, Inc. Given recent industry changes and following an evaluation of
the members of this group, the Company has determined to use a somewhat
different group (the New Peer Index) which consists of the following companies:
Applied Materials, Inc., Integrated Process Equipment Corporation, Lam Research
Corporation, Novellus Systems, Inc., and Silicon Valley Group, Inc. (In
addition, other companies which the Company currently intends to include in the
New Peer Index once they have had a five year trading history include: ASM
Lithography Holding NV; CFM Technologies, Inc.; GaSonics International, Inc.;
Mattson Technology, Inc.; Semitool, Inc.; SpeedFam International, Inc.;
SubMicron Systems Corporation; and Ultratech Stepper, Inc.).
The chart below assumes that $100 was invested on August 31, 1992 in each
of the Company's Common Stock, the Nasdaq-US, the Former Peer Index and the New
Peer Index and that all dividends were reinvested. In addition, the graph
weights the constituent companies on the basis of their respective market
capitalizations measured at the beginning of each relevant time period.
<TABLE>
<CAPTION>
FSI
Measurement Period International, Former Peer New Peer
(Fiscal Year Covered) Inc. Nasdaq-U.S. Index Index
<S> <C> <C> <C> <C>
August 1992 100 100 100 100
August 1993 193 132 332 269
August 1994 334 137 398 335
August 1995 1173 185 829 737
August 1996 391 209 375 327
August 1997 673 291 1064 903
</TABLE>
16
<PAGE> 20
PROPOSAL TO RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS
(ITEM 2 ON THE PROXY CARD)
The firm of KPMG Peat Marwick LLP, independent public accountants, has
audited the financial statements of the Company since 1984. The Board has again
selected KPMG Peat Marwick LLP to serve as the Company's independent auditors
for the fiscal year ending August 29, 1998 subject to ratification by the
Shareholders. While it is not required to do so, the Board is submitting the
selection of KPMG Peat Marwick LLP for ratification in order to ascertain the
view of the Company's Shareholders. If this selection is not ratified, the Audit
Committee and the Board will reconsider such selection. PROXIES SOLICITED BY THE
BOARD WILL BE VOTED FOR THE APPOINTMENT OF KPMG PEAT MARWICK LLP, UNLESS
SHAREHOLDERS SPECIFY OTHERWISE IN THEIR PROXIES.
A representative of KPMG Peat Marwick LLP will be present at the Meeting
and will be afforded an opportunity to make a statement if such representative
so desires and will be available to respond to appropriate questions during the
Meeting.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE APPOINTMENT OF KPMG
PEAT MARWICK LLP.
PROPOSAL TO AMEND THE FSI EMPLOYEES STOCK PURCHASE PLAN
(ITEM 3 ON THE PROXY CARD)
The Board of Directors recently approved an amendment to the Company's
Employees Stock Purchase Plan, as amended, (the "Stock Plan"), increasing the
number of shares reserved thereunder from 1,200,000 to 1,550,000. The
Shareholders are being asked to approve this amendment at the Meeting.
PURPOSE
The purpose of the Stock Plan is to permit eligible employees (including
officers) to purchase Common Stock of the Company through payroll deductions at
a specified percentage of the Common Stock's fair market value. The Stock Plan
is an employee stock purchase plan under Section 423 of the Internal Revenue
Code of 1986, as amended (the "Code").
ADOPTION OF THE STOCK PLAN AND PRIOR AMENDMENTS
In 1990, the Company adopted the Stock Plan and reserved 200,000 shares for
issuance thereunder. At the 1991 Annual Meeting of Shareholders, the number of
shares of Common Stock reserved under the Stock Plan was increased to 400,000
shares. At the 1992 Annual Meeting of Shareholders, the number of shares
available for distribution was increased to 600,000, and at the 1993 Annual
Meeting of Shareholders, the number of shares available for distribution was
increased to 1,000,000. At the 1995 Annual Meeting, the number of shares
authorized under the Plan was increased from 1,000,000 to 1,200,000 and the
definition of "Affiliate" was modified to allow the Board discretion in
determining which affiliates of the Company (and therefore its employees) would
be eligible to participate in the Stock Plan.
ADMINISTRATION
The Stock Plan is administered by a committee appointed by the Board (the
"Stock Plan Committee"), consisting of not less than three members. Current
members are James A. Bernards, Terrence W. Glarner and Charles R. Wofford.
(Effective January 28, 1998 it will be administered by the Compensation
Committee which will have responsibility for administering all of the Company's
stock based plans). No person may participate in the Stock Plan while a member
of the Stock Plan Committee, and no person shall become a member of the Stock
Plan Committee, if, within one year prior to becoming a member, that person
shall have been eligible (i) to be a participant in the Stock Plan, or (ii) for
selection as a person to whom stock might be allocated or to whom stock options
or stock appreciation rights might be granted pursuant to any other plan of the
Company or any of its affiliates entitling the participants therein to acquire
stock, stock options or stock appreciation rights of the Company or any of its
affiliates. Subject to the express provisions of the Stock Plan,
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<PAGE> 21
the Stock Plan Committee, by majority action, is authorized to interpret,
prescribe, amend and rescind rules relating to the Stock Plan, and to make all
other determinations necessary or advisable for administration of the Stock
Plan.
ELIGIBILITY AND NUMBER OF SHARES
Up to 1,200,000 shares of Common Stock are available for distribution under
the Stock Plan (of which approximately 869,414 have already been distributed),
subject to appropriate adjustments by the Stock Plan Committee in the event of
certain changes in the outstanding shares of Common Stock by reason of a stock
dividend, stock split, combination, recapitalization or reclassification. If the
amendment to the Stock Plan is approved by the Shareholders, up to an additional
350,000 shares of Common Stock will be available for distribution under the
Stock Plan (subject to adjustments as described above). Shares delivered
pursuant to the Stock Plan shall be newly issued Common Stock of the Company.
Any employee of the Company or its subsidiaries (including officers and any
directors who are also employees) is eligible to participate in the Stock Plan
so long as such employee was eligible to participate on the date preceding a
stock purchase period (December 31st or June 30th) under the Stock Plan.
No eligible employee may be granted the right to purchase Common Stock
under, or otherwise participate in, the Stock Plan if after the purchase such
employee would own (or have the right to purchase) stock of the Company
possessing five percent or more of the total combined voting power or value of
all classes of stock of the Company.
As of December 1, 1997, approximately 1,030 employees were eligible to
participate in the Stock Plan.
PARTICIPATION
An eligible employee who elects to participate in the Stock Plan may
contribute funds for the purchase of Common Stock under the Stock Plan by
electing to direct his or her employer to withhold from one to 10 percent of
that employee's "Base Earnings" (as defined in the Stock Plan).
A participant may elect to reduce (but not increase) the rate of
withholding or to make no further deductions all as set forth in greater detail
in the Stock Plan. Amounts withheld are held by the participant's employer until
the end of the applicable stock purchase period (January 1 to June 30 and July 1
to December 31) and are automatically applied to purchase Common Stock of the
Company unless the participant elects in writing to receive a refund pursuant to
rules adopted by the Stock Plan Committee and as set forth in the Stock Plan.
PURCHASE OF STOCK
Amounts withheld from (and not refunded to) a participant in the Stock Plan
are used to purchase Common Stock of the Company as of the last business day of
the stock purchase period at a price equal to 85 percent of the lesser of the
fair market value (as defined in the Stock Plan) of a share of Common Stock on
either the first or last business day of the stock purchase period. All amounts
so withheld are used to purchase the largest number of full shares of Common
Stock purchasable with such amount, unless the participant has properly notified
the Stock Plan Committee in advance that he or she elects to have less than the
entire amount contributed by such participant used to purchase shares in the
Stock Plan or to receive the entire amount in cash. Any amount not capable of
being used to purchase full shares of Common Stock will be carried over to the
next stock purchase period for the account of the participant.
As soon as practicable after the close of the stock purchase period, the
Company is required to issue and to deliver to participants certificates
representing the respective shares of Common Stock purchased under the Stock
Plan, at which time participants shall have privileges as Shareholders with
respect to such shares.
No participant in the Stock Plan may purchase Common Stock under the Stock
Plan and all other employee stock purchase plans of the Company and any
subsidiaries at a rate in excess of $25,000 of the fair
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<PAGE> 22
market value of such stock (determined at the time the option to purchase stock
is granted) for the calendar year in which any such option to purchase stock
granted to such participant is outstanding at any time.
DEATH, DISABILITY, RETIREMENT OR OTHER TERMINATION OF EMPLOYMENT
No shares of Common Stock may be purchased by a participant with respect to
a stock purchase period if the participant's employment terminates more than
three months prior to the end of such stock purchase period. Any amount withheld
from or otherwise contributed by such a participant during the stock purchase
period is repaid to the participant with interest due, if any. If a participant
dies at any time during a stock purchase period, any amount withheld from or
otherwise contributed by such a participant is repaid to the participant's
personal beneficiary with interest due, if any.
RIGHTS NOT TRANSFERABLE
The rights of a participant in the Stock Plan are exercisable only by the
participant during his or her lifetime. No right or interest of any participant
in the Stock Plan is assumable, transferable or subject to any lien, directly or
indirectly, by operation of law or otherwise.
AMENDMENT OR MODIFICATION
The Board of the Company may at any time terminate, amend or modify the
Stock Plan, provided that approval by the Shareholders of the Company is
required to (i) increase the total amount of Common Stock awarded under the
Stock Plan (except for adjustments in the outstanding shares of Common Stock by
reason of a stock dividend or split, combination, recapitalization, or
reclassification), (ii) change the Class of employees eligible to participate in
the Stock Plan, (iii) withdraw the administration of the Stock Plan from the
Plan's Committee, (iv) permit any member of the Stock Plan Committee to be
eligible to participate in the Stock Plan or (v) extend the duration of the
Stock Plan.
FEDERAL TAX CONSIDERATION
The Company has been advised by its counsel that the stock acquired under
the Stock Plan generally will result in the following tax events for United
States Citizens under current United States Federal Income Tax laws: No income
will be recognized by participants due to their purchase of shares under the
Stock Plan until the disposal of those shares. Participants who hold their
shares for more than eighteen months will have ordinary income in the year of
disposition equal to the lesser of (i) the excess of the fair market value of
the shares on the date of disposition over the purchase price paid by the
participant or (ii) 15% of the fair market value of the shares on the first day
of the applicable stock purchase period. If the holding period has been
satisfied when the participant disposes of the shares, the Company will not be
entitled to any deduction in connection with the disposition of the shares.
Participants who dispose of their shares within the eighteen-month period
after the shares are transferred to them will be considered to have realized
ordinary income in the year of disposition in an amount equal to the difference
between the fair market value of the shares on the date they were purchased by
the participant and the price paid by the participant. If such dispositions
occur, the Company generally will be entitled to a deduction at the same time
and in the same amount as the participants who make those dispositions are
deemed to have realized as ordinary income.
Participants will have a basis in their shares equal to the purchase price
of their shares plus any amount that must be treated as ordinary income at the
time of their disposition of the shares. Any additional gain or loss realized on
the disposition of shares acquired under the Stock Plan in excess of the basis
will be capital gain or loss.
RESTRICTION ON RESALE
Certain officers and directors of the Company are deemed to be "affiliates"
of the Company as that term is defined under the Securities Act. Common Stock
acquired under the Stock Plan by an affiliate may only be
19
<PAGE> 23
reoffered or resold pursuant to an effective registration statement or pursuant
to Rule 144 under the Securities Act or another exemption from the registration
requirements of the Securities Act.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE AMENDMENT TO
THE FSI INTERNATIONAL, INC. EMPLOYEES STOCK PURCHASE PLAN
PROPOSAL TO AMEND THE FSI 1997 OMNIBUS STOCK PLAN
(ITEM 4 ON THE PROXY CARD)
AMENDMENT TO FSI 1997 OMNIBUS STOCK PLAN
The Company's 1997 Omnibus Stock Plan (the "1997 Omnibus Plan") was
approved by the Board effective December 2, 1996 and by the Shareholders of the
Company on January 22, 1997. To date, approximately 0 shares have been issued,
731,750 shares are subject to outstanding options, and only 268,250 shares
remain available for issuance. To accommodate the increase in the number of
employees participating in the 1997 Omnibus Plan and to enable the Company to
continue to offer such persons the opportunity to realize stock appreciation and
facilitate stock ownership in the Company as well as facilitate the recruitment
or retention of high-caliber individuals to key management positions, the Board
has approved an amendment to the 1997 Omnibus Plan to increase the number of
shares reserved for issuance by an additional 750,000 shares, subject to
Shareholder approval. The Shareholders are being asked to approve such amendment
at the Meeting.
The Compensation Committee of the Board of Directors and the Board of
Directors continue to believe that stock-based compensation programs are a key
element in achieving the Company's continued financial and operational success.
The Company's compensation programs have been designed to motivate
representatives of the Company to work as a team to achieve the corporate goal
of maximizing Shareholder return.
PURPOSE
The purpose of the 1997 Omnibus Plan is to motivate key employees to
produce a superior return to the Shareholders of the Company by offering such
eligible personnel an opportunity to realize stock appreciation, by facilitating
their stock ownership and by rewarding them for achieving a high level of
corporate financial performance. In addition, the Stock Plan promotes the
interests of the Company and its Shareholders by providing Outside Directors
with an opportunity to acquire a proprietary interest in the Company, to
compensate Outside Directors for their contributions to the Company and to aid
in attracting and retaining Outside Directors. Options granted under the 1997
Omnibus Plan to Outside Directors are nonstatutory stock options that do not
meet the requirements of Section 422 of the Internal Revenue Code.
ADMINISTRATION
The 1997 Omnibus Plan is administered by the Omnibus Stock Plan Committee
(the "Committee"). (Effective January 28, 1998 it will be administered by the
Compensation Committee which will have responsibility for administering all of
the Company's stock based plans). The Board has the authority to adopt, revise
and waive rules relating to the 1997 Omnibus Plan and to determine the timing
and identity of participants, the amount of any awards, and other terms and
conditions of awards. The Committee may delegate its responsibilities under the
1997 Omnibus Plan to members of management of the Company or to others with
respect to the selection and grants of awards to employees of the Company who
are not deemed to be officers, directors or 10% Shareholders of the Company
under applicable Federal securities laws. Certain grants of options and the
amount and nature of the awards to be granted to Outside Directors are
automatic. Because the Plan has two basic components, Outside Director options
and discretionary options for employees and consultants, the terms of which are
substantially different, these two separate components of the Stock Plan are
described separately below.
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<PAGE> 24
A. AWARDS TO EMPLOYEES AND CONSULTANTS
ELIGIBILITY AND NUMBER OF SHARES
All employees of the Company and its affiliates are eligible to receive
awards under the 1997 Omnibus Plan at the discretion of the Committee.
Nonstatutory stock options under the 1997 Omnibus Plan also may be awarded by
the Committee to individuals or entities that are not employees but who provide
services to the Company or its affiliates in capacities such as advisers,
directors, and consultants. The Company and its affiliates presently have
approximately 1,375 employees.
The total number of shares of Company Common Stock currently available for
distribution under the 1997 Omnibus Plan is 1,000,000 (subject to adjustment for
future stock splits, stock dividends and similar changes in the capitalization
of the Company). No more than 100,000 shares pursuant to a stock option or a
stock appreciation right may be granted to any one individual under the 1997
Omnibus Plan in any calendar year. Subject to this limitation, there is no limit
on the number of shares in respect of which awards may be granted by the
Committee to any person.
The 1997 Omnibus Plan provides that all awards are subject to agreements
containing the terms and conditions of the awards. Such agreements will be
entered into by the recipients of the awards and the Company on or after the
time the awards are granted and are subject to amendment, including unilateral
amendment by the Company unless such amendments are determined by the Committee
to be materially adverse to the participant and are not required as a matter of
law. Any shares of Company Common Stock subject to awards under the 1997 Omnibus
Plan which are not used because the terms and conditions of the awards are not
met may be reallocated under the 1997 Omnibus Plan as though they had not
previously been awarded, unless such shares were used to calculate the value of
stock appreciation rights which have been exercised.
TYPES OF AWARDS
The types of awards that may be granted under the 1997 Omnibus Plan include
restricted and unrestricted stock, incentive and nonstatutory stock options,
stock appreciation rights, performance units, and other stock-based awards.
Subject to the restrictions described in this Proxy Statement with respect to
incentive stock options, such awards are exercisable by the participants at such
times as are determined by the Committee. Except as noted below, during the
lifetime of a person to whom an award is granted, only that person (or that
person's legal representative) may exercise an option or stock appreciation
right, or receive payment with respect to performance units or any other award.
No award may be sold, assigned, transferred, exchanged or otherwise encumbered
other than pursuant to a qualified domestic relations order. However, the
Committee may provide (i) that an award shall be transferable to a successor in
the event of a participant's death, or (ii) that an award (other than incentive
stock options) may be transferable to members of the participant's immediate
family or to one or more trusts for the benefit of such family members or
partnerships in which such family members are the only partners, if the
participant does not receive any consideration for the transfer.
In addition to the general characteristics of all of the awards described
in this Proxy Statement, the basic characteristics of each type of award that
may be granted to an employee (and in some cases, a consultant, director, or
other advisor) under the 1997 Omnibus Plan are as follows:
RESTRICTED AND UNRESTRICTED STOCK, AND OTHER STOCK-BASED AWARDS
The Committee is authorized to grant, either alone or in conjunction with
other awards, stock and stock-based awards. The Committee shall determine the
persons to whom such awards are made, the timing and amount of such awards, and
all other terms and conditions. Company Common Stock granted to participants may
be unrestricted or may contain such restrictions, including provisions requiring
forfeiture and imposing restrictions upon stock transfer, as the Committee may
determine. Unless forfeited, the recipient of restricted Common Stock will have
all other rights of a Shareholder, including without limitation, voting and
dividend
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<PAGE> 25
rights. The 1997 Omnibus Plan provides that no more than 100,0000 shares in the
form of restricted stock and 25,000 shares in the form of unrestricted stock can
be issued under the 1997 Omnibus Plan.
To date no such awards have been made under the Plan nor are any currently
contemplated.
INCENTIVE AND NONSTATUTORY STOCK OPTIONS
Both incentive stock options and nonstatutory stock options may be granted
to participants at such exercise prices as the Committee may determine but not
less than 100% of the fair market value (as defined in the 1997 Omnibus Plan) of
the underlying stock as of the date the option is granted. Stock options may be
granted and exercised at such times as the Committee may determine, except that
unless applicable Federal tax laws are modified, (i) no incentive stock options
may be granted more than 10 years after the effective date of the 1997 Omnibus
Plan, (ii) an incentive stock option shall not be exercisable more than 10 years
after the date of grant and (iii) the aggregate fair market value of the shares
of Company Common Stock with respect to which incentive stock options held by an
employee under the 1997 Omnibus Plan and any other plan of the Company or any
affiliate may first become exercisable in any calendar year may not exceed
$100,000. Additional restrictions apply to an incentive stock option granted to
an individual who beneficially owns 10% or more of the outstanding shares of the
Company.
The purchase price for stock purchased upon the exercise of the options may
be payable in cash, in stock having a fair market value on the date the option
is exercised equal to the option price of the stock being purchased or in a
combination of cash and stock, as determined by the Committee. The Committee may
permit optionees to simultaneously exercise options and sell the stock purchased
upon such exercise pursuant to brokerage or similar relationships and use the
sale proceeds to pay the purchase price. The Committee may provide, at or after
the grant of a stock option, that a 1997 Omnibus Plan participant who surrenders
shares of stock in payment of an option shall be granted a new incentive or
nonstatutory stock option covering a number of shares equal to the number of
shares so surrendered.
In addition, options may be granted under the 1997 Omnibus Plan to
employees of entities acquired by the Company in substitution of options
previously granted to them by the acquired entity.
STOCK APPRECIATION RIGHTS AND PERFORMANCE UNITS
The value of a stock appreciation right granted to a participant is
determined by the appreciation in Company Common Stock, subject to any
limitations upon the amount or percentage of total appreciation that the
Committee may determine at the time the right is granted. The participant
receives all or a portion of the amount by which the fair market value of a
specified number of shares, as of the date the stock appreciation right is
exercised, exceeds a price specified by the Committee at the time the right is
granted. The price specified by the Committee must be at least 100% of the fair
market value of the specified number of shares of Company Common Stock to which
the right relates determined as of the date the stock appreciation right is
granted. No stock appreciation right may be exercised less than six months from
the date it is granted unless the participant dies or becomes disabled.
Performance units entitle the participant to payment in amounts determined
by the Committee based upon the achievement of specified performance targets
during a specified term.
Payments with respect to stock appreciation rights and performance units
may be paid in cash, shares of Company Common Stock or a combination of cash and
shares as determined by the Committee.
ACCELERATION OF AWARDS, LAPSE OF RESTRICTIONS, FORFEITURE
The Committee may provide for the lapse of restrictions on restricted stock
or other awards, accelerated exercisability of options, stock appreciation
rights and other awards or acceleration of the term with respect to which the
achievement of performance targets for performance units is determined in the
event of a change in control of the Company, other fundamental changes in the
corporate structure of the Company, the death of the participant or such other
events as the Committee may determine. The Committee may provide that
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<PAGE> 26
certain awards may be exercised in certain events after the termination of
employment or death of the participant.
The Committee may condition a grant upon the participant's agreement that
in the event of certain occurrences, which may include a participant's
competition with, unauthorized disclosure of confidential information of, or
violation of the applicable business ethics policy or business policy of the
Company or any of its affiliates, the awards paid to the participant within six
months prior to the termination of employment of the participant (or their
economic value) may be subject to forfeiture at the Committee's option.
ADJUSTMENTS, MODIFICATIONS, TERMINATION
The 1997 Omnibus Plan gives the Committee discretion to adjust the kind and
number of shares available for awards or subject to outstanding awards, the
option price of outstanding options, and performance targets for, and payments
under, outstanding awards of performance units in the event of mergers,
recapitalizations, stock dividends, stock splits or other relevant changes.
Adjustments in performance targets and payments on performance units are also
permitted upon the occurrence of such other events as may be specified by the
Committee, which may include changes in accounting practices of the Company or
changes in the participant's title or employment responsibilities. The 1997
Omnibus Plan also gives the Board the right to terminate, suspend or modify the
1997 Omnibus Plan, except that amendments to the 1997 Omnibus Plan are subject
to Shareholder approval if needed to comply with the incentive stock option
provisions of Federal tax laws. Under the 1997 Omnibus Plan, the Committee may
cancel outstanding options and stock appreciation rights generally in exchange
for cash payments to the participants in the event of certain dissolutions,
liquidations, mergers, statutory share exchanges or other similar events
involving the Company.
B. OUTSIDE DIRECTOR OPTIONS
AGREEMENTS
The 1997 Omnibus Plan provides that all options granted under the Plan be
subject to agreements governing the terms and conditions of the awards. Such
agreements will be entered into by the Outside Directors and the Company on or
after the time the options are granted. Any shares of Common Stock subject to an
option under the 1997 Omnibus Plan that are not used because the terms and
conditions of the option are not met may be reallocated under the Plan as though
they had not previously been awarded.
TYPES OF AWARDS
There are two types of automatic option grants under the terms of the 1997
Omnibus Plan: Initial Outside Director Options, and Annual Outside Director
Options.
Initial Outside Director Options
Each Outside Director first elected or appointed to the Board on or after
January 22, 1997 is entitled to receive a single grant of an option, on the date
such director first becomes a director, to purchase 10,000 shares of Common
Stock.
Subject to the prior expiration of an Initial Outside Director Option as
described below, these options vest and become exercisable six months after the
date of grant. In the event of a change in control of the Company (as defined in
the 1997 Omnibus Plan), the death or permanent disability of an Outside
Director, any Initial Outside Director Option held by such individual or his or
her legal representative that was not previously exercisable shall become
immediately exercisable in full.
Annual Outside Directors Options
For each Annual Meeting of Shareholders during the term of the 1997 Omnibus
Plan, each Outside Director serving as an Outside Director of the Company
immediately following such Annual Meeting shall be granted, by virtue of serving
as an Outside Director of the Company, a nonstatutory stock option to purchase
4,000 shares of Common Stock (each, an "Annual Outside Director Option"). Such
Annual Outside
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<PAGE> 27
Directors Options shall be deemed to be granted to each Outside Director
immediately after such Annual Meeting and shall be granted regardless of whether
or not such Outside Director previously received, or simultaneously receives, an
Initial Outside Director Option. Initial Outside Director Options and Annual
Outside Director Options together are hereinafter sometimes referred to as
"Outside Director Options."
Annual Outside Director Options shall vest and become exercisable
cumulatively on an annual basis, as follows: one-third of the total number of
shares of Common Stock subject to each such option shall become exercisable on
each of the first and second anniversaries of the date of grant and the
remaining Common Stock subject to such option shall become exercisable on the
third anniversary of the date of grant. Each such option, to the extent
exercisable, shall be exercisable in whole or in part.
In the event of a change in control of the Company, the death or permanent
disability of an Outside Director, any Annual Outside Director Options held by
such individual or his or her legal representative that was not previously
exercisable shall become immediately exercisable in full.
Termination of Outside Director Options
Each Outside Director Option granted pursuant to the 1997 Omnibus Plan and
all rights to purchase Common Stock thereunder shall terminate on the earliest
of:
(i) ten years after the date such option is granted;
(ii) the expiration of the period specified in the agreement after the
death or permanent disability of an Outside Director; or
(iii) the date, if any, fixed for cancellation pursuant to the 1997
Omnibus Plan (e.g., in the event of a dissolution, liquidation or
merger, etc.); or ninety days after the date the Outside Director
ceases to be a director of the Company; provided, however, that
the option shall be exercisable during this 90-day period only to
the extent that option was exercisable as of the date the person
ceases to be an Outside Director unless the cessation results from
the director's death or permanent disability. Notwithstanding the
preceding sentence, if an Outside Director who resigns or whose
term expires then becomes a consultant or employee of the Company
within ninety days of such resignation or term expiration, the
Outside Director Options of such person shall continue in full
force and effect.
In no event shall such option be exercisable at any time after its original
expiration date. When an option is no longer exercisable, it shall be deemed to
have lapsed or terminated and will no longer be outstanding.
Purchase Price and Exercise of Outside Director Options
All Outside Director Options granted pursuant to the Plan are nonstatutory
stock options and the price per share of Common Stock subject to an Outside
Director Option is 100% of the fair market value of the Company's Common Stock
on the date of grant as defined in the 1997 Omnibus Plan.
An Outside Director Option may be exercised in whole or in part by delivery
of a written notice of exercise accompanied by payment in full of the exercise
price in cash, in shares of previously acquired Common Stock having a fair
market value at the time of exercise equal to the exercise price or a
combination thereof.
During the lifetime of an Outside Director only the Outside Director or his
or her guardian or legal representative may exercise the option. An option may
be assignable or transferable by the Outside Director to the extent authorized
by the Committee. An option may be exercised after the death or permanent
disability of the Outside Director by such individual's legal representatives,
heirs, or legatees, but only within the period specified in the agreement
relating to such Outside Director Options.
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<PAGE> 28
Other Awards
The Committee, in its discretion, may grant options or other Awards to an
Outside Director, but only in substitution for Outside Director Options held by
that director.
To date no such awards have been granted and none are currently
contemplated.
ADJUSTMENTS, MODIFICATIONS, TERMINATION
The Committee may provide for the accelerated exercisability of Outside
Director Options in the event of a change or control of the Company, other
fundamental changes of the corporate structure of the Company, the death of the
Outside Director or such other events as the Committee may determine. The
Committee may also provide that certain awards may be exercised in certain
events after the termination of services of the Outside Director or the death of
the recipient.
In addition, the termination of an Outside Director's award may be waived
in the event that the Outside Director enters into a consulting or other
advisory role with the Company which may, in some cases, involve entering into a
non-compete agreement with the Company.
FEDERAL TAX CONSIDERATIONS
The Company has been advised by its counsel that awards made under the 1997
Omnibus Plan generally will result in the following tax events for United States
citizens under current United States Federal income tax laws:
RESTRICTED AND UNRESTRICTED STOCK
Unless the participant files an election to be taxed under Section 83(b) of
the Code, (a) the participant will not realize income upon the grant of
restricted stock, (b) the participant will realize ordinary income, and the
Company will be entitled to a corresponding deduction, when the restrictions
have been removed or expire, and (c) the amount of such ordinary income and
deduction will be the fair market value of the restricted stock on the date the
restrictions are removed or expire. If the recipient files an election to be
taxed under Section 83(b) of the Code, the tax consequences to the participant
and the Company will be determined as of the date of the grant of the restricted
stock rather than as of the date of the removal or expiration of the
restrictions.
With respect to awards of unrestricted stock, (a) the participant will
realize ordinary income and the Company will be entitled to a corresponding
deduction upon the grant of the unrestricted stock, and (b) the amount of such
ordinary income and deduction will be the fair market value of such unrestricted
stock on the date of the grant.
When the participant disposes of restricted or unrestricted stock, the
difference between the amount received upon such disposition and the fair market
value of such shares on the date the recipient realizes ordinary income will be
treated as a capital gain or loss.
INCENTIVE STOCK OPTIONS
No taxable income to a participant will be realized, and the Company will
not be entitled to any related deduction, at the time any incentive stock option
is granted under the 1997 Omnibus Plan. If certain statutory employment and
holding period conditions are satisfied before the participant disposes of
shares acquired pursuant to the exercise of such an option, then no taxable
income will result upon the exercise of such option and the Company will not be
entitled to any deduction in connection with such exercise. Upon disposition of
the shares after expiration of the statutory holding periods, any gain or loss
realized by a recipient will be a capital gain or loss. The Company will not be
entitled to a deduction with respect to a disposition of the shares by a
participant after the expiration of the statutory holding periods.
Except in the event of death, if shares acquired by a participant upon the
exercise of an incentive stock option are disposed of by such participant before
the expiration of the statutory holding periods (a "disqualifying disposition"),
such participant will be considered to have realized as compensation, taxable as
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ordinary income in the year of disposition, an amount, not exceeding the gain
realized on such disposition, equal to the difference between the exercise price
and the fair market value of the shares on the date of exercise of the option.
The Company will be entitled to a deduction at the same time and in the same
amount as the participant is deemed to have realized ordinary income. Any gain
realized on the disposition in excess of the amount treated as compensation or
any loss realized on the disposition will constitute capital gain or loss,
respectively. If the participant pays the option price with shares that were
originally acquired pursuant to the exercise of an incentive stock option and
the statutory holding periods for such shares have not been met, the participant
will be treated as having made a disqualifying disposition of such shares, and
the tax consequences of such disqualifying disposition will be as described
above.
The foregoing discussion applies only for regular tax purposes. For
alternative minimum tax purposes an incentive stock option will be treated as if
it were a non-statutory stock option, the tax consequences of which are
discussed below.
NONSTATUTORY STOCK OPTIONS
A participant will realize no taxable income, and the Company will not be
entitled to any related deduction, at the time any nonstatutory stock option is
granted under the 1997 Omnibus Plan. At the time shares are transferred to the
participant pursuant to the exercise of a nonstatutory stock option, the
participant will realize ordinary income, and the Company will be entitled to a
deduction, equal to the excess of the fair market value of the stock on the date
of exercise over the option price. Upon disposition of the shares, any
additional gain or loss realized by the participant will be taxed as a capital
gain or loss.
STOCK APPRECIATION RIGHTS AND PERFORMANCE UNITS
Generally (a) the participant will not realize income upon the grant of a
stock appreciation right or performance unit award, (b) the participant will
realize ordinary income, and the Company will be entitled to a corresponding
deduction, in the year cash, shares of Common Stock or a combination of cash and
shares are delivered to the participant upon exercise of a stock appreciation
right or in payment of the performance unit award and (c) the amount of such
ordinary income and deduction will be the amount of cash received plus the fair
market value of the shares of common stock received on the date they are
received. The Federal income tax consequences of a disposition of unrestricted
shares received by the participant upon exercise of a stock appreciation right
or in payment of a performance unit award are the same as described above with
respect to a disposition of unrestricted shares.
WITHHOLDING
The 1997 Omnibus Plan permits the Company to withhold from cash awards, and
to require a participant receiving Common Stock under the 1997 Omnibus Plan to
pay the Company in cash, an amount sufficient to cover any required withholding
taxes. In lieu of cash, the Committee may permit a participant to cover
withholding obligations through a reduction in the number of shares delivered to
such participant or a surrender to the Company of shares then owned by the
participant.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE 1997 OMNIBUS PLAN
OTHER MATTERS
As of the date of the Proxy Statement, management knows of no matters that
will be presented for determination at the Meeting other than those referred to
in this Proxy Statement. If any other matters properly come before the meeting,
calling for a vote of Shareholders, the proxy holders have discretionary
authority, unless it is expressly revoked, to vote all proxies in accordance
with their best judgment.
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ANNUAL REPORTS
THE ANNUAL REPORT OF THE COMPANY FOR FISCAL 1997 INCLUDING FINANCIAL
STATEMENTS IS BEING MAILED WITH THIS PROXY STATEMENT. IT IS NOT TO BE DEEMED A
PART OF THE PROXY SOLICITATION MATERIAL AND IS NOT INCORPORATED HEREIN BY
REFERENCE. SHAREHOLDERS WHO WISH TO OBTAIN A COPY OF THE COMPANY'S FORM 10-K
ANNUAL REPORT, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL
YEAR ENDED AUGUST 30, 1997, MAY DO SO WITHOUT CHARGE BY WRITING TO BENNO G.
SAND, CHIEF FINANCIAL OFFICER, AT THE COMPANY'S OFFICES, 322 LAKE HAZELTINE
DRIVE, CHASKA, MINNESOTA 55318.
By Order of the Board of Directors
/s/ Benno G. Sand
Benno G. Sand
Secretary
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<PAGE> 31
PROXY PROXY
FSI INTERNATIONAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Joel A. Elftmann, Luke R. Komarek and
Benno G. Sand, and each of them, as Proxies, each with the power to
appoint his substitute, and hereby authorizes such Proxies to represent and to
vote, as designated below, all the shares of common stock of FSI International,
Inc. held of record by the undersigned on December 1, 1997, at the Annual
Meeting of Shareholders to be held on January 27, 1998, or any adjournment
thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4. THE PROXIES ARE AUTHORIZED
TO VOTE THIS PROXY IN THEIR DISCRETION WITH RESPECT TO OTHER MATTERS WHICH MAY
PROPERLY COME BEFORE THE MEETING.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(Continued, and to be completed and signed on the reverse side.)
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<PAGE> 32
FSI INTERNATIONAL INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
[ ]
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<S><C>
For Withhold For All
1. ELECTION OF THREE CLASS II DIRECTORS. All All Except 2. RATIFICATION OF THE APPOINTMENT OF For Withhold Against
Nominees to serve as Class II / / / / / / KPMG PEAT MARWICK LLP as independent / / / / / /
Directors for a three year auditors of the Company for the 1998
term and until their respective fiscal year.
successor shall be elected and
qualified are: 3. APPROVAL OF THE AMENDMENT TO THE For Withhold Against
FSI INTERNATIONAL, INC. EMPLOYEES / / / / / /
NEIL R. BONKE, JOEL A. ELFTMANN AND STOCK PURCHASE PLAN, as described in
THOMAS D. GEORGE the accompanying Proxy Statement
(To withhold authority to vote for any 4. APPROVAL OF THE AMENDMENT TO THE For Withhold Against
individual nominee write that nominee's FSI INTERNATIONAL, INC. 1997 OMNIBUS / / / / / /
name on the line provided below and STOCK PLAN, as described in the
mark the appropriate box above.) accompanying Proxy Statement.
---------------------------------------
Please sign exactly as name appears on the proxy card.
When shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership,
please sign in partnership name by an authorized person.
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(Signature)
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(Signature, if held jointly)
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