<PAGE> 1
FSI LOGO
FSI INTERNATIONAL, INC.
322 LAKE HAZELTINE DRIVE
CHASKA, MINNESOTA 55318
612/448-5440
December 9, 1998
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 26, 1999.
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 two members of the Board of Directors, you are
being asked to vote on two other proposals.
Proposal 2 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 3 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 THREE
PROPOSALS.
Only shareholders of record at the close of business on December 1, 1998
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 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,
1998 ARE ENTITLED TO NOTICE OF AND TO VOTE AT THE ANNUAL MEETING AND ANY
ADJOURNMENT THEREOF.
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FSI INTERNATIONAL, INC.
------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 26, 1999
------------------------------
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 26, 1999, at 3:30 p.m.,
Minneapolis time, for the following purposes:
1. To elect two Class III directors for a three-year term.
2. 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 250,000.
3. To approve an amendment to the Company's 1997 Omnibus Stock Plan to
increase the number of shares reserved for issuance thereunder by
350,000.
4. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed December 1, 1998 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 9, 1998
<PAGE> 3
FSI INTERNATIONAL, INC.
------------------------------
PROXY STATEMENT FOR 1999
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. (the "Company"), a Minnesota corporation, of proxies for use
in connection with the Annual Meeting of Shareholders (the "Meeting" or "Annual
Meeting") to be held on Tuesday, January 26, 1999 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 beginning at 3:30 p.m.
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 10, 1998.
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 $3,000 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, 1998
are entitled to vote at the Meeting. On the record date 23,052,673 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 and 3 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.
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
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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 under 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.
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.
(THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY)
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table lists, as of October 16, 1998, 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 PERCENT OF SHARES
NAME OF PERSON OR IDENTITY OF GROUP AGE BENEFICIALLY OWNED BENEFICIALLY OWNED
- ------------------------------------------------- --- ------------------ ------------------
<S> <C> <C> <C>
EQSF Advisers, Inc. 3,318,200(1) 14.4%
767 Third Avenue
New York, NY 10017
Wisconsin Investment Board 2,405,100(1) 10.4
121 East Wilson Street
Madison, WI 53707
Joel A. Elftmann 58 992,806(2)(3) 4.3
James A. Bernards 52 30,001(2) *
Neil R. Bonke 56 18,001(2) *
Dale A. Courtney 61 138,828(2) *
Thomas D. George 58 20,000(2)(4)
Terrence W. Glarner 55 13,657(2) *
Joanna T. Lau 40 11,334(2) *
Peter A. Pope 48 148,273(2)
Benno G. Sand 44 87,414(2) *
Benjamin J. Sloan 58 143,998(2) *
J. Wayne Stewart 48 58,904(2)
Charles R. Wofford 65 32,992(2) *
All Nominees, Directors, Named Executives and
other executive officers as a group (16
persons) 1,723,501(2) 7.3
</TABLE>
- ---------------------------
* Less than 1%
(1) This information was obtained from the Nasdaq National Market, Inc. and was
identified as representing the entity's quarterly 13F filings reflecting
holdings as of September 30, 1998.
(2) Includes 25,000, 8,001, 18,001, 132,766, 10,000, 12,001, 11,334, 86,432,
63,100, 143,100, 52,100, 32,992 and 620,334 shares issuable pursuant to
currently exercisable options and options exercisable within 60 days of
October 16, 1998 in favor of Mr. Elftmann, Mr. Bernards, Mr. Bonke, Mr.
Courtney, Mr. George, Mr. Glarner, Ms. Lau, Mr. Pope, Mr. Sand, Mr. Sloan,
Mr. Stewart, Mr. Wofford and the Nominees, Named Executives and other
executive officers as a group, respectively.
(3) Includes 75,000 shares held in a partnership in which he shares voting and
investment power with his spouse.
(4) Includes 10,000 shares in which he shares voting and investment power with
his spouse.
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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. Terrence W. Glarner and Charles R. Wofford are Directors in the
class whose term expires at the Meeting. James A. Bernards and Joanna T. Lau are
Class I Directors with terms expiring in 2000. Neil R. Bonke, Joel A. Elftmann
and Thomas D. George are Class II Directors with terms expiring in 2001.
The Board has nominated and recommended that current directors Mr. Glarner
and Mr. Wofford be elected as Class III Directors, each to hold office until the
2002 Annual Meeting of Shareholders and until his respective successor is duly
elected and qualified. 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 1999 Meeting as Class III Directors
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 has also been Vice Chairman since
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. He is also a director of a private company in
Singapore.
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
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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
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
and Chairman since January 1990. She previously held
management positions with General Electric and Digital
Equipment Corporation. She also serves as a director of
INSO Corporation.
Class II Directors Whose Terms Continue Until the 2001 Meeting
NEIL R. BONKE Mr. Bonke has served as a director of the Company since
June 1994. From April 1993 until his retirement in
September, 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 boards of Electroglas, SANMINA Corp., 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 January
1998, Mr. Elftmann served as President of the Company.
Prior to 1977, Mr. Elftmann was Vice President and General
Manager of the Company. Mr. Elftmann is also Chairman of
the Supervisory Board of Metron 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 has served as a director since January 1998. 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.
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 six
times in fiscal 1998. The Board has an Audit, a Compensation, a Finance and a
Nomination Committee.
The Audit Committee, consisting of Messrs. Bernards, George and Glarner,
met two times in fiscal 1998. 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
independent auditors and the responses of management to such recommendations;
and reviewing and discussing with the
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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,
Bonke, Glarner and Lau. The Compensation Committee met two times and adopted
resolutions by written action twelve times in fiscal 1998. During the year, the
Omnibus Stock Plan Committee's functions were merged into those of the
Compensation Committee. The Committee's 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 Committee also grants
or makes recommendations to the Board concerning employee stock options, and
administers the FSI International, Inc. 1989 Stock Option Plan, 1994 Omnibus
Stock Plan and 1997 Omnibus Stock Plan. It also oversees the Company's Employees
Stock Purchase Plan.
The Company has a Finance Committee consisting of Messrs. Bernards, Glarner
and Wofford. It met once in fiscal 1998 and its functions include reviewing and
approving the investment policy of the Company's benefit plans, reviewing and
recommending debt and equity financings, and reviewing and recommending the
annual financial and capital plans.
The Company's Nomination Committee consists of Messrs. Elftmann, Bonke and
Wofford. It met two times and adopted resolutions by written action twice in
fiscal 1998. 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 1998, 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 except for Mr. Bonke who attended approximately 73% of the number of
meetings of the Board and Committees on which he serves.
COMPENSATION OF DIRECTORS
Each non-employee director of the Company (an "Outside Director") receives
a quarterly fee of $2,500 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 attending 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 12,000 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 5,000 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-half 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,
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.
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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 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 1998 fiscal year under the three leases totaled $792,200.
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 32% 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 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 and
Courtney, Senior Vice President; President, Surface Conditioning Division, of
the Company, are directors of m-FSI Ltd.
During the 1998 fiscal year, the Company sold approximately $66,789,000 of
its products to Metron and approximately $12,968,000 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 1998 the
Company paid Metron commissions of $1,523,000 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.
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 1998. Based solely on its
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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 29, 1998, 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. Bernards relating to the exercise of an
option in January 1998 and for Mr. George relating to the acquisition of stock
in May 1998 were 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 14 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 Committee of the Board (the "Compensation Committee") is
composed entirely of Outside Directors. The members of the Compensation
Committee are Messrs. Bernards, Bonke, Glarner and Lau. 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.
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
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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, Chief Administrative Office or Chief Operating
Officer. They complete and submit to the Compensation Committee a performance
appraisal for each executive officer reporting to them. 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.
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 Administrative Officer.
For fiscal 1998, no incentive awards were paid.
STOCK OPTIONS
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
9
<PAGE> 12
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.
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 1998.
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 1998, 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 50,000 shares at the
price of $7.66 per share in July of 1998 pursuant to the guidelines and
procedures described above. The options vest over three years.
JAMES A. BERNARDS NEIL R. BONKE TERRENCE W. GLARNER JOANNA T. LAU
Members of the Compensation Committee
10
<PAGE> 13
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows for the Chief Executive Officer and the four
other most highly compensated executive officers as of the fiscal year ended
August 29, 1998 and two additional executive officers who served in that
capacity during a portion of 1998, certain summary information concerning
compensation paid or accrued by the Company for services in all capacities for
the last fiscal year as well as compensation earned by such person for the
previous two fiscal years (if the person was an executive officer during any
part of such fiscal year):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------- -----------------------------------
AWARDS PAYOUTS
------------------------- -------
RESTRICTED
OTHER ANNUAL STOCK SECURITIES LTIP ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARD(S) UNDERLYING PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) (1) ($) OPTIONS/SARS ($) ($)(2)
- --------------------------------- ------ ------- ------ ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joel A. Elftmann, 1998 318,647 -- -- -0- 50,000 -- 48,023
Chairman and Chief 1997 327,167 -- -- -0- 20,000 -- 49,001
Executive Officer 1996 305,480 65,891 -- -0- -- -- 47,906
Dale A. Courtney, 1998 196,685 -- -- -0- 20,000 -- 25,378
Senior Vice President; 1997 176,334 -- -- -0- 37,500 -- 22,378
President, Surface 1996 182,313 19,531 -- -0- 7,500 -- 23,423
Conditioning Division
Peter A. Pope (3) 1998 198,199 -- -- -0- -- -- 21,855
1997 161,010 -- -- -0- 37,500 -- 22,833
1996 166,346 35,827 -- -0- 7,500 -- 22,597
Benno G. Sand, 1998 208,765 -- -- -0- 40,000 -- 21,400
Executive Vice President, 1997 175,404 -- -- -0- 37,500 -- 22,378
Chief Administrative Officer 1996 199,073 42,237 -- -0- 7,500 -- 22,676
and Secretary
Dr. Benjamin J. Sloan, 1998 219,202 -- -- -0- 40,000 -- 26,400
Executive Vice President, 1997 191,537 -- -- -0- 37,500 -- 31,978
Chief Operating Officer and 1996 194,080 76,446 -- -0- 7,500 -- 23,423
President, Microlithography
Division
J. Wayne Stewart (3) 1998 198,286 -- -- -0- -- -- 21,401
1997 151,788 -- -- -0- 37,500 -- 22,379
1996 157,884 33,958 -- -0- 7,500 -- 14,673
Charles R. Wofford 1998 151,981 -- -- -0- -- -- 20,899
Vice Chairman 1997 168,231 -- -- -0- 42,500 -- 17,501
1996 103,846 -- -- -0- 26,500 -- --
</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
policies to which the Company will upon the named individual's death or
liquidation of the policy, be entitled to a refund of all premium payments
made on the policy and the balance to the individual or his designated
beneficiaries; and (c) the Company's profit sharing contribution to the
401(k) Plan made in fiscal 1996 for the 1995 Plan (calendar) year, in
fiscal 1997 for the 1996 Plan (calendar) year. There was no contribution in
fiscal 1998 for the 1997 Plan (calendar) year. The dollar value of each
benefit for the fiscal year ended August 29, 1998 is: J. Elftmann, (a)
$6,400, (b) $41,623, (c) $0; D. Courtney, (a) $6,400, (b) $18,000, (c) $0;
P. Pope (a) $6,400, (b) $15,455, (c) $0; B. Sand, (a) $6,400, (b) $15,000,
(c) $0; B. Sloan, (a) $6,400, (b) $20,000, (c) $0; W. Stewart, (a) $6,400,
(b) $15,001, (c) $0; and C. Wofford, (a) $5,898, (b) $15,001, (c) $0.
(3) In connection with the establishment of The President's Office and the
reorganization of the executive management structure that resulted, Messrs.
Pope and Stewart ceased being executive officers of the Company.
11
<PAGE> 14
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 29, 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF TOTAL STOCK PRICE APPRECIATION
OPTIONS/SARS FOR OPTION TERM(2)
OPTIONS/SARS GRANTED TO EMPLOYEES EXERCISE ------------------------
NAME GRANTED(1) IN FISCAL YEAR OR BASE PRICE EXPIRATION DATE 5% 10%
- --------------------- ------------ -------------------- ------------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Joel A. Elftmann 50,000 6.1% 7.656 7/30/08 $240,741 $610,085
Dale A. Courtney 20,000 2.4% 7.656 7/30/08 $ 96,296 $244,034
Peter A. Pope 0 0 -- -- -- --
Benjamin J. Sloan 40,000 4.9% 7.656 7/30/08 $192,593 $488,068
Benno G. Sand 40,000 4.9% 7.656 7/30/08 $192,593 $488,068
J. Wayne Stewart 0 0 -- -- -- --
Charles R. Wofford 0 0 -- -- -- --
</TABLE>
- ---------------------------
(1) All of these options were granted under the Company's 1997 Omnibus Stock
Plan. One-third of the options granted will vest on each of the first two
anniversaries of the date of grant and the remainder on the third
anniversary. All options were granted at fair market value on the date of
grant and have a term of ten years. Generally all of the options will
become fully exercisable upon approval by the Company's Shareholders of a
merger, plan of exchange, sale of substantially all of the Company's assets
or plan of liquidation.
(2) We recommend caution in interpreting the financial significance of these
figures. They are calculated by multiplying the number of options granted
by the difference between a future hypothetical stock price and the option
exercise price and are shown pursuant to rules of the SEC. They assume the
value of Company stock appreciates 5% or 10% each year, compounded
annually, for the term of each option and do not take into account any
taxes that would be due. They are not intended to forecast possible future
appreciation, if any, of such stock price or to establish a present value
of options. Also, if appreciation does occur at the 5% or 10% per year
rate, the amounts shown would not be realized by the recipients until the
end of the option term.
(THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY.)
12
<PAGE> 15
The following table shows, as to the Named Executives, information
concerning stock options exercised and the value of options held by such persons
at the end of fiscal 1998 including those listed in the table above.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1998
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED OPTIONS/SARS AT FISCAL OPTIONS/SARS
ON EXERCISE VALUE REALIZED YEAR-END AT FISCAL YEAR-END($)(3)
NAME (NO.) ($)(1) EXERCISABLE(2)/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------- --------------- -------------- ---------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Joel A. Elftmann 0 0 25,000 65,000 $ 0 $0
Dale A. Courtney 0 0 130,266 46,900 $327,966 $0
Peter A. Pope 20,000 220,000 91,932 26,900 $160,109 $0
Benno G. Sand 0 0 60,600 66,900 $ 32,810 $0
Benjamin J. Sloan 0 0 140,600 66,900 $339,040 $0
J. Wayne Stewart 0 0 49,600 26,900 $ 589 $0
Charles R. Wofford 0 0 32,992 31,508 $ 33,010 $0
</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 ($6.0310
per share) less the exercise price.
CHANGE IN CONTROL AGREEMENTS
The Company has entered into Management Agreements (the "Agreements") with
Messrs. Elftmann, Courtney, Sand and Sloan. 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. The Company, however has adopted a general severance plan which does
provide severance benefits to employees in certain circumstances.
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) 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 two times the
individual's highest rate of compensation during the 12 months immediately
preceding the change in control and a specified percentage of the individual's
highest salary during the preceding twelve months in lieu of the individual's no
longer being eligible to participate in the Company's incentive plans. The
Agreements also provide for certain cash payments for outplacement services and
in lieu of certain insurance and benefit plans. 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, then as of December 1, 1998, the
approximate amounts payable to the Named Executives would be as follows: Mr.
Elftmann $935,000; Mr. Courtney $593,000; Mr. Sand $669,000; and Dr. Sloan
$725,000.
13
<PAGE> 16
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") and the Company's peer group index (the "Peer Index")over the
period of August 31, 1993 through August 31, 1998.
For several years, the Company has used a self-selected peer group index of
companies that manufacture equipment used in the microelectronics industry (the
Peer Index) as there is no published industry or line of business index that the
Company believes is appropriate for comparison purposes. The Peer Index consists
of the following companies: Applied Materials, Inc., ASM Lithography Holding NV;
CFM Technologies, Inc.; GaSonics International, Inc.; Integrated Process
Equipment Corporation, Lam Research Corporation, Mattson Technology, Inc.;
Novellus Systems, Inc., Semitool, Inc.; Silicon Valley Group, Inc.; SpeedFam
International, Inc. and Ultratech Stepper, Inc. (SubMicron Systems corporation
was dropped as it has been delisted).
The chart below assumes that $100 was invested on August 31, 1993 in each
of the Company's Common Stock, the Nasdaq-US and 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 International,
Inc. Nasdaq-U.S. Peer Index
<S> <C> <C> <C>
August 1993 100 100 100
August 1994 334 137 793
August 1995 1,173 185 1,702
August 1996 391 209 723
August 1997 673 291 1,968
August 1998 219 277 571
</TABLE>
<TABLE>
<CAPTION>
August 1993 August 1994 August 1995 August 1996 August 1997 August 1998
<S> <C> <C> <C> <C> <C> <C>
FSI International, Inc. 100 334 1,173 391 673 219
Nasdaq-U.S. 100 137 185 209 291 277
Peer Index 100 793 1,702 723 1,968 571
</TABLE>
14
<PAGE> 17
PROPOSAL TO AMEND THE FSI EMPLOYEES STOCK PURCHASE PLAN
(ITEM 2 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 1,550,000 to 1,800,000. 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. At the 1998 Annual Meeting, the
number of shares authorized was increased to 1,550,000.
ADMINISTRATION
The Stock Plan is administered by the Compensation Committee of the Board
(the "Stock Plan Committee"), consisting of not less than three members. Current
members of the committee are Messrs. Bernards, Bonke and Glarner and Ms. Lau. 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, the Compensation 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 1,550,000 shares of Common Stock are available for distribution under
the Stock Plan (of which approximately 1,143,474 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
250,000 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)
15
<PAGE> 18
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, 1998, approximately 900 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 or distributed to
the participant if he or she is not participating in the Plan.
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 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.
16
<PAGE> 19
AMENDMENT OR MODIFICATION
The Board of Directors 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 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 3 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 1,386,499 shares subject to
options have been granted, 1,290,082 shares are subject to outstanding options,
and only 459,918 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
17
<PAGE> 20
Shareholders approved an amendment to the 1997 Omnibus Plan to increase the
number of shares reserved for issuance by an additional 750,000 shares at the
1998 Annual Meeting. The Shareholders are being asked to approve the issuance of
an additional 350,000 shares under the plan at this Annual Meeting. For the
reasons described above the Board has authorized and is requesting the
Shareholders approve this proposed increase.
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 Compensation Committee (the
"Committee"). The Committee 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.
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 950 employees.
The total number of shares of Company Common Stock currently available for
distribution under the 1997 Omnibus Plan is 1,750,000 (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
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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 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 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
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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 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.
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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 is entitled
to receive a single grant of an option, on the date such director first becomes
a director, to purchase 12,000 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
5,000 shares of Common Stock (each, an "Annual Outside Director Option"). Such
Annual Outside 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-half of the total number of
shares of Common Stock subject to each such option shall become exercisable on
each of the first and second January 1st's following 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;
(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
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(iv) 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.
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,
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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
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
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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
SHAREHOLDER PROPOSALS AND OTHER MATTERS
Shareholder proposals intended to be considered at the Annual Meeting of
Shareholders for the fiscal year ended August 28, 1999 that are requested to be
included in the proxy statement for the Annual Meeting must be received by the
Company no later than August 12, 1999. 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. Any other shareholder proposals intended to be presented at the
1999 Annual Meeting of Shareholders must be received by the Company at its
principal executive office no later than October 27, 1999.
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.
ANNUAL REPORTS
THE ANNUAL REPORT OF THE COMPANY FOR FISCAL 1998 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 29, 1998, MAY DO SO WITHOUT CHARGE BY WRITING TO PATRICIA M.
HOLLISTER, CHIEF FINANCIAL OFFICER AND CORPORATE CONTROLLER, AT THE COMPANY'S
OFFICES, 322 LAKE HAZELTINE DRIVE, CHASKA, MINNESOTA 55318 OR BY VISITING THE
COMPANY'S WEBSITE AT WWW.FSI-INTL.COM.
By Order of the Board of Directors
/s/ Benno G. Sand
Benno G. Sand
Secretary
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<TABLE>
<S><C>
FSI INTERNATIONAL, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
For Withhold For All
1. ELECTION OF TWO CLASS III DIRECTORS. All All Except 2. APPROVAL OF THE AMENDMENT TO THE For Withhold Against
Nominees to serve as Class III / / / / / / FSI INTERNATIONAL, INC. EMPLOYEES / / / / / /
Directors for a three year term and STOCK PURCHASE PLAN, as described
until their respective successor shall in the accompanying Proxy Statement.
be elected and qualified are:
TERRENCE W. GLORNER AND CHARLES R. WOFFORD
(To withhold authority to vote for any 3. APPROVAL OF THE AMENDMENT TO THE FSI For Withhold Against
individual nominee write that nominee's INTERNATIONAL, INC. 1997 OMNIBUS / / / / / /
name on the line provided below and mark STOCK PLAN, as described in the
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.
_________________________________________________________
(Signature)
_________________________________________________________
(Signature, if held jointly)
____________________________________________________________________________________________________________________________________
- FOLD AND DETACH HERE -
</TABLE>
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, 1998, at the Annual Meeting of
Shareholders to be held on January 26, 1999, 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 AND 3. 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.)
________________________________________________________________________________
