<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [x]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2).
[x] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
FSI INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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FSI LOGO
FSI INTERNATIONAL, INC.
322 LAKE HAZELTINE DRIVE
CHASKA, MINNESOTA 55318
612/448-5440
December 10, 1999
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 25, 2000.
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 one member of the Board of Directors, you are being
asked to consider and vote on two other matters, an increase (by 400,000) of the
number of shares outstanding under the Company's 1997 Omnibus Stock Plan and a
shareholder proposal relating to the Company's Share Rights Plan.
Your Board is unanimously opposed to the shareholder proposal and requests
you vote against it because we believe it is not in the best interests of either
the Shareholders or the Company. Your Board unanimously recommends that you vote
in favor of the director-nominee and the proposal to increase the shares
authorized under the 1997 Omnibus Stock Plan.
Please review the proxy materials carefully and vote FOR the
Director-Nominee, vote FOR the increase in shares under the Omnibus Stock Plan
and vote AGAINST the shareholder proposal.
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
JOEL A. ELFTMANN
Joel A. Elftmann
Chairman, President and Chief
Executive Officer
------------------------------
YOUR VOTE IS IMPORTANT
EVEN IF YOU OWN ONLY A FEW SHARES, AND WHETHER OR NOT YOU EXPECT TO BE
PRESENT AT THE MEETING, PLEASE SIGN, DATE AND PROMPTLY MAIL THE ENCLOSED PROXY
IN THE POSTAGE-PAID REPLY ENVELOPE PROVIDED. IT IS IMPORTANT THAT YOUR SHARES BE
REPRESENTED.
------------------------------
<PAGE> 3
FSI INTERNATIONAL, INC.
------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 25, 2000
------------------------------
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 25, 2000, at 3:30 p.m.,
Minneapolis time, for the following purposes:
1. To elect one Class I director for a three-year term.
2. To approve an amendment to the Company's 1997 Omnibus Stock Plan to
increase the number of shares reserved for issuance thereunder by
400,000.
3. To consider and vote upon a shareholder proposal recommending that the
Board of Directors redeem the rights under the Company's Share Rights
Plan.
4. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed December 3, 1999 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
BENNO G. SAND
Benno G. Sand
Secretary
December 10, 1999
<PAGE> 4
FSI INTERNATIONAL, INC.
------------------------------
PROXY STATEMENT FOR 2000
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 25, 2000 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 15, 1999.
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 $7,250 for its services and will reimburse Morrow & Co. 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 3, 1999
are entitled to vote at the Meeting. On the record date 24,777,761 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 and 2 and against Item 3 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 nominee for director will be elected to
the Board if he receives a majority of the shares present or represented and
entitled to vote at the Meeting on that matter. The increase in shares
authorized 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 on that matter. For the Shareholder proposal regarding the redemption of
rights issued under the Share Rights Plan to pass, it must receive the
affirmative vote of a majority of the shares present or represented and entitled
to vote on the proposal.
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 11, 1999, certain information
regarding the beneficial ownership of Common Stock of the Company by (i) each
director, (ii) the nominee 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. N/A 3,615,550(1) 14.6
767 Third Avenue
New York, NY 10017
Wisconsin Investment Board N/A 2,672,600(1) 10.8
121 East Wilson Street
Madison, WI 53707
Joel A. Elftmann 59 925,272(2)(3) 3.9
James A. Bernards 53 34,000(2) *
Neil R. Bonke 57 22,000(2) *
Dale A. Courtney 62 157,743(2) *
Thomas D. George 59 21,133(2)(4) *
Terrence W. Glarner 56 17,656(2) *
Luke R. Komarek 46 23,634(2) *
Joanna T. Lau 41 14,000(2) *
Dale M. Pescatrice 52 71,311(2) *
Benno G. Sand 45 113,587(2) *
Benjamin J. Sloan 59 166,531(2) *
Charles R. Wofford 66 41,600(2) *
All Nominees, Directors, Named Executives and
other executive officers as a group (14 persons) 1,695,940(2) 6.8
</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, 1999.
(2) Includes 46,666, 12,000, 22,000, 148,632, 11,333, 12,000, 23,634, 14,000,
70,000, 75,633, 165,633, 41,600 and 685,930 shares issuable pursuant to
currently exercisable options and options exercisable within 60 days of
October 11, 1999 in favor of Mr. Elftmann, Mr. Bernards, Mr. Bonke, Mr.
Courtney, Mr. George, Mr. Glarner, Mr. Komarek, Ms. Lau, Mr. Pescatrice, Mr.
Sand, Mr. Sloan, 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 NOMINEE 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. James A. Bernards and Joanna T. Lau are directors in the class
whose term expires at the Meeting. Neil R. Bonke, Joel A. Elftmann and Thomas D.
George are Class II Directors with terms expiring in 2001. Terrence W. Glarner
and Charles R. Wofford are Class III Directors with terms expiring in 2002. Ms.
Lau has indicated to the Company that she does not wish to stand for reelection
and Mr. Bonke has indicated his intent to resign as a director effective as of
the Annual Meeting.
As a result of these decisions (and given the Company's divestiture of its
Chemical Management Division), the Board has decided to reduce the size of the
Board back to six directors from eight. (At the January 22, 1992 Annual Meeting,
the shareholders approved a decrease in the Board size to six Directors.) As a
result, there is one vacant position on the Board, and the Board will continue
its efforts to identify and evaluate potential candidates in an effort to select
a sixth director for the Board.
The Board has nominated and recommended that current director Mr. Bernards
be elected as a Class I Director, to hold office until the 2003 Annual Meeting
of Shareholders and until his respective successor is duly elected and
qualified.
Mr. Bernards has indicated a willingness to serve as a director if elected.
In case Mr. Bernards 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 Mr. Bernards will be unable to serve as a director if
elected.
The accompanying proxy will be voted in favor of the election of the
nominee, unless the Shareholder giving the proxy indicates to the contrary on
the proxy.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE DIRECTOR-NOMINEE.
Certain information concerning the nominees and other directors follows:
Nominee for Election at the 2000 Meeting as a Class I Director
JAMES A. BERNARDS Mr. Bernards has served as a director of the Company since
July 1981. Since June 1993, Mr. Bernards has been President
of Facilitation, Inc., which provides business and
financial consulting services. Mr. Bernards was President
of the accounting firm of Stirtz, Bernards & Company from
May 1981 to June 1993. Since 1986, Mr. Bernards has been
President of Brightstone Capital, Ltd., a venture capital
fund manager. He is also a director of Fieldworks, Inc.,
Health Fitness Physical Therapy Corporation and several
private companies.
Class II Directors Whose Terms Continue Until the 2001 Meeting
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 to January 1998
and since August 1999, Mr. Elftmann has served as President
of the Company. Prior to 1977, Mr. Elftmann was Vice
President and General Manager of the Company. Mr. Elftmann
is also Chairman of the Supervisory Board of Metron
Technology B.V. and is a director of m-FSI
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Ltd., both of which are affiliates of the Company. 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.
and Amkor Technology, Inc.
Class III Directors Whose Term Continues Until the 2002 Meeting
TERRENCE W. GLARNER Mr. Glarner has served as a director of the Company since
October 1988. Since February 1993, Mr. Glarner has been
President of West Concord Ventures, Inc., a venture capital
company. From 1982 to February 1993, Mr. Glarner was
President of North Star Ventures, Inc. and North Star
Ventures II, Inc., venture capital funds. Mr. Glarner is
also a director of Aetrium Incorporated, Cima Labs, Inc.,
Datakey, Inc. and Premis Corp.
CHARLES R. WOFFORD Mr. Wofford has served as a director of the Company since
November 1992. He 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.
None of the directors or the nominee are related to one another or to any
executive officer of the Company.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board met twelve times and adopted resolutions by written action five
times in fiscal 1999. The Board has an Audit, a Compensation, a Finance and a
Nomination Committee.
The Audit Committee, consisting of Messrs. Bernards, George and Glarner,
met once in fiscal 1999. 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 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 and Glarner and Ms. Lau. The Compensation Committee adopted resolutions by
written action four times in fiscal 1999. 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 by written action in fiscal 1999. Its functions
include: reviewing and approving the investment policy of
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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 twice in fiscal 1999. 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 1999, each of the directors attended at least 75% of the
aggregate number of meetings of the Board and of the Committees on which he or
she serves.
COMPENSATION OF DIRECTORS
Each non-employee director of the Company (an "Outside Director") receives
a quarterly fee of $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 a
nonstatutory stock 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 two
subsequent January 1sts following 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 ten years after the date of
grant.
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
The Company's corporate headquarters and certain manufacturing facilities,
aggregating approximately 162,000 square feet, are leased from three Minnesota
partnerships which include two or more of the following individuals: Joel A.
Elftmann, Chairman of the Board, President and Chief Executive Officer of the
Company; Robert S. Blackwood, a former director and executive officer of the
Company; and Joseph H. Wyers, a former director and executive officer of the
Company. Annual rent under the three leases for the 1999 fiscal year totaled
$767,400.
The 140,000-square-foot main facility is leased from a partnership in which
all three such persons are partners under a lease expiring in October 2001,
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. In connection with the sale of the Chemical
Management Division to The BOC Group, Inc. ("BOC") in July 1999, the Company and
the partnership extended the lease for the Company's corporate headquarters for
an additional year (through October 2001) and subleased a portion of the
facility to BOC. Under the terms of the prime lease, 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
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estate appraisal. 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 22% of the outstanding common stock of
Metron Technology N.V. ("Metron"), a distributor of the Company's products. Joel
A. Elftmann, Chairman of the Board, President and Chief Executive Officer of the
Company, is also Chairman of the Supervisory Board of Metron.
The Company owns 49% of the outstanding capital stock of m-FSI Ltd., which
distributes and acts as a licensee for certain of the Company's products in
Japan. Messrs. Elftmann; Dale A. Courtney, Senior Vice President; President,
Surface Conditioning Division; and Jitesh R. Mehta, Staff Vice President,
International Business Development, of the Company, are directors of m-FSI Ltd.
During the 1999 fiscal year, the Company sold approximately $28,683,000 of
its products to Metron and approximately $1,510,000 of its products to m-FSI
Ltd. Sales to Metron (and its subsidiaries) and to m-FSI Ltd. are made by the
Company on commercially reasonable terms. In addition, in fiscal 1999 the
Company paid Metron commissions of $175,000 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.
BENEFICIAL REPORTING OWNERSHIP SECTION 16(A) COMPLIANCE
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 1999. Based solely on its review of the
copies of such reports received by it or written representations from certain
reporting persons, the Company believes that during the fiscal year ended August
28, 1999, all Section 16(a) filing requirements applicable to its officers and
directors and any ten percent Shareholders were complied with except that the
year-end Form 5 reports for certain directors and officers were not filed on a
timely basis.
REPORT OF THE COMPENSATION COMMITTEE
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.
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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 Ms. 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 the high technology and
semiconductor capital equipment industry. 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 industry related compensation surveys.
Executive compensation at the Company has three components: base salary,
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 under current tax laws 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 high technology and semiconductor industry peer group to which the Company
compares itself for compensation purposes. In determining an individual's base
salary, the Compensation Committee considers the compensation levels of similar
positions within the peer group, the responsibilities and performance of the
individual executive officer and the Company's recent financial performance.
Generally, salary decisions are made by the Compensation Committee near the
beginning of each calendar year based upon evaluations and recommendations made
by the Chief Executive Officer. A performance assessment for each executive
officer reporting to the Chief Executive Officer is submitted to the Committee.
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 reported for similar
positions in the peer group and technology and semiconductor industry
8
<PAGE> 12
compensation surveys. As part of the Company's cost control efforts, none of the
Company's executive officers received a base salary increase in fiscal 1999.
INCENTIVE BONUSES
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.
Typically each year a threshold, goal and maximum financial performance
target (profit or operating income) are established for the Company and each of
its two 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 generally 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.
Individual participants also may be 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 and survey data from the
Company's selected peer group and technology and semiconductor industry
compensation surveys for comparable positions. 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
Executive Vice President, Planning, Administration and Development. For fiscal
1999, no incentive awards were paid under the Company's bonus plan.
The Committee also has the authority to grant discretionary bonuses to
executive officers and other employees to recognize extraordinary efforts or
outstanding contributions relating to important Company projects. It has done so
infrequently. Discretionary bonuses were paid to certain individuals including
two of the Named Executives and two other officers relating to the successful
divestiture of the Chemical Management Division.
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 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
9
<PAGE> 13
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. Total compensation is
targeted at the competitive median of chief executive officers in a selected
peer group in the high technology and semiconductor equipment industry. In
evaluating and setting the CEO's target annual compensation the Committee
reviews the Company's business and financial performance and total compensation
data from the comparable peer group. 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
Base salary is targeted at the median salary of chief executive officers in
the comparable peer group. In determining Mr. Elftmann's base salary, the
Compensation Committee considers compensation levels of peer group chief
executive officers, performance and the Company's recent financial performance.
Mr. Elftmann did not receive an increase in base salary in fiscal 1999.
Incentive Bonus
Each year, Mr. Elftmann's potential incentive bonus as a percentage of base
salary at the threshold, goal and maximum financial performance targets is
established by the Compensation Committee and reflects its determination of what
is an appropriate incentive by putting a substantial portion of his compensation
at risk. Several factors are considered including the Company's financial goals
and incentive targets reported by the Company's peer group and high technology
and semiconductor industry compensation surveys. In fiscal year 1999, Mr.
Elftmann was eligible to receive up to 60 percent of his base salary if
predetermined financial goals were met. For fiscal 1999, Mr. Elftmann did not
receive an incentive award since the Company did not reach its threshold target.
Stock Options
As with other members of management, Mr. Elftmann is periodically awarded
stock options. Mr. Elftmann was granted a stock option for 20,000 shares at the
price of $7.25 per share in May of 1999 pursuant to the guidelines and
procedures described above. The options vest over three years.
JAMES A. BERNARDS NEIL R. BONKE TERRENCE W. GLARNER JOANNA T. LAU
Members of the Compensation Committee
10
<PAGE> 14
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows for the Chief Executive Officer and the four
other most highly compensated executive officers as of the fiscal year ended
August 28, 1999 and one additional executive officer who served in that capacity
during a portion of 1999, certain summary information concerning compensation
paid or accrued by the Company for services in all capacities for the last
fiscal year as well as compensation earned by such person for the previous two
fiscal years (if the person was an executive officer during any part of such
fiscal year):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------- -----------------------------------
AWARDS PAYOUTS
------------------------- -------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) (1) ($) (#) ($) ($)(2)
- --------------------------------- ------ ------- ------ ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joel A. Elftmann, 1999 315,000 -- -- -0- 20,000 -- 91,595
Chairman, President and Chief 1998 318,647 -- -- -0- 50,000 -- 48,023
Executive Officer 1997 327,167 -- -- -0- 20,000 -- 49,001
Dale A. Courtney, 1999 193,000 -- -- -0- 12,500 -- 58,587
Senior Vice President; 1998 196,685 -- -- -0- 20,000 -- 25,378
President, Surface 1997 176,334 -- -- -0- 37,500 -- 22,378
Conditioning Division
Luke R. Komarek 1999 140,000 38,000(3) -- -0- 12,500 -- 30,523
Vice President, General 1998 125,070 -- -- -0- 20,000 -- 9,779
Counsel and Assistant
Secretary(4)
Dale M. Pescatrice 1999 189,877 -- -- -0- 0 -- 350,172(5)
President, Chemical 1998 94,154 22,000 -- -0- 70,000 -- 876
Management Division(6)
Benno G. Sand, 1999 220,000 43,000(3) -- -0- 15,000 -- 78,817
Executive Vice President, 1998 208,765 -- -- -0- 40,000 -- 21,400
Planning, Administration 1997 175,404 -- -- -0- 37,500 -- 22,378
& Development; and Secretary
Dr. Benjamin J. Sloan, 1999 240,000 -- -- -0- 15,000 -- 65,187
Executive Vice President, 1998 219,202 -- -- -0- 40,000 -- 26,400
President, Microlithography 1997 191,537 -- -- -0- 37,500 -- 31,978
Division
</TABLE>
- ---------------------------
(1) Disclosure is not required by applicable SEC rules, as the aggregate amount
of perquisites and other personal benefits did not exceed the lesser of
$50,000 or 10% of the total salary and bonus for any of the Named
Executives.
(2) Compensation reported represents: (a) the estimated dollar value of Company
contributions to the Company's defined contribution pension plan based upon
such individual's earnings for the year being reported; (b) the dollar
value of premiums paid by the Company on split-dollar life insurance
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; (c) the payout of accrued vacation and sick leave in
connection with the elimination of that policy at the Company and the
conversion to a Company-wide paid time off (PTO) policy; and (d) the
Company's profit sharing contribution to the 401(k) Plan made in fiscal
1997 for the 1996 Plan (calendar) year. There was no contribution in fiscal
1998 for the 1997 Plan (calendar) year or in fiscal 1999 for the 1998 Plan
(calendar) year. The dollar value of each benefit for the fiscal year ended
August 28, 1999 is: J. Elftmann, (a) $6,400, (b) $44,141, (c) 41,054, (d)
$0; D. Courtney, (a) $6,400, (b) $16,720, (c) 35,467, (d) $0; L. Komarek,
(a) $5,561, (b) $15,000, (c) 9,962, (d) $0; D. Pescatrice (a) $0, (b)
$3,290, (c) 10,882, (d) $0; and B. Sand, (a) $6,400, (b) $19,587, (c)
52,830, (d) $0; B. Sloan, (a) $6,400, (b) $20,000, (c) 38,787, (d) $0.
(3) In connection with the sale of the Chemical Management Division, the
Compensation Committee awarded discretionary bonuses to certain individuals
involved in the transaction including these two named executives.
(4) Mr. Komarek became an officer of the Company in fiscal 1998.
(5) In connection with the sale of the Chemical Management Division and the
termination of his employment as a result, Mr. Pescatrice received severance
in the amount of $336,000 pursuant to the Management Agreement between him
and the Company and the Company was reimbursed by the acquiring company for
one half of this amount.
(6) Mr. Pescatrice joined the Company in fiscal 1998.
11
<PAGE> 15
STOCK OPTIONS
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth individual grants of stock options made to
the Named Executives during the fiscal year ended August 28, 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- ----------------------------------------------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES PERCENT OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS/SARS FOR OPTION TERM(2)
OPTIONS/SARS GRANTED TO EMPLOYEES EXERCISE OR -------------------------
NAME GRANTED(#)(1) IN FISCAL YEAR BASE PRICE($/SH) EXPIRATION DATE 5%($) 10%($)
- --------------------- ------------- -------------------- ---------------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joel A. Elftmann 20,000 6.0% 7.250 5/18/09 90,180 229,485
Dale A. Courtney 12,500 3.7% 7.250 5/18/09 56,362 143,428
Luke R. Komarek 12,500 3.7% 7.250 5/18/09 56,362 142,438
Dale M. Pescatrice 0 0 0 0 -- --
Benjamin J. Sloan 15,000 4.5% 7.250 5/18/09 67,635 172,113
Benno G. Sand 15,000 4.5% 7.250 5/18/09 67,635 172,113
</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> 16
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 1999 including those listed in the table above.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1999
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($)(3)
NAME (#) ($)(1) EXERCISABLE(2)/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------- --------------- -------------- ---------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Joel A. Elftmann 0 0 26,666 63,334 0 0
Dale A. Courtney 0 0 148,632 41,034 360,390 0
Luke R. Komarek 0 0 23,634 31,666 0 0
Dale M. Pescatrice 0 0 70,000 0 0 0
Benno G. Sand 10,000 96,250 75,633 56,867 0 0
Benjamin J. Sloan 0 0 165,633 56,867 375,670 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 ($6.438
per share) less the exercise price.
CHANGE IN CONTROL AGREEMENTS
The Company has entered into Management Agreements (the "Agreements") with
Messrs. Elftmann, Courtney, Komarek, 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 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, as defined in the Agreements, 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 which
term includes 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, 1999, the
approximate amounts payable to the Named Executives would be as follows: Mr.
Elftmann $947,800; Mr. Courtney $606,200; Mr. Komarek $428,200; Mr. Sand
$681,800; and Dr. Sloan $737,800.
13
<PAGE> 17
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, 1994 through August 31, 1999.
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.; 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 last year as it has been delisted and Integrated
Process Equipment Corporation was dropped as it merged with SpeedFam
International, Inc.).
The chart below assumes that $100 was invested on August 31, 1994 in each
of the Company's Common Stock, the Nasdaq-US and the 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.
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
FSI INTERNATIONAL, INC. NASDAQ-U.S. PEER INDEX
----------------------- ----------- ----------
<S> <C> <C> <C>
August 1994 100.00 100.00 100.00
August 1995 1173.00 185.00 1702.00
August 1996 391.00 209.00 723.00
August 1997 673.00 291.00 1968.00
August 1998 219.00 277.00 571.00
August 1999 234.00 928.00 1204.00
</TABLE>
<TABLE>
<CAPTION>
August 1994 August 1995 August 1996 August 1997 August 1998 August 1999
<S> <C> <C> <C> <C> <C> <C>
FSI International, Inc. 100 1,173 391 673 219 234
Nasdaq-U.S 100 185 209 291 277 928
Peer Index 100 1,702 723 1,968 571 1,204
</TABLE>
14
<PAGE> 18
PROPOSAL TO AMEND THE FSI 1997 OMNIBUS STOCK PLAN
(ITEM 2 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 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
Shareholders approved an amendment to the 1997 Omnibus Plan to increase the
number of shares of Common Stock reserved for issuance by an additional 750,000
shares at the 1998 Annual Meeting and approved the issuance of an additional
350,000 shares under the plan at the 1999 Annual Meeting. For similar reasons
the Board has authorized and is requesting the Shareholders approve an increase
in the number of shares authorized under the Plan by an additional 400,000
shares. As of December 3, 1999 (the meeting record date) there were 2,100,000
shares authorized under the Plan representing 8.5% of the total shares
outstanding. Of that amount, 602,629 shares are available for future option
grants and 1,495,705 shares are subject to issued but unexercised options. In
addition, there are 787,693 stock options outstanding under the Company's prior
stock option plans representing 3.2% of the total outstanding shares as of
December 3, 1999. In the aggregate, there are 2,886,027 shares subject to
outstanding options or that are available for issuance constituting 11.7% of the
total outstanding shares. In the event this proposal is approved by the
Shareholders, the total percent of outstanding shares available for issuance
(including those currently subject to issued but unexercised option grants)
based upon the total outstanding as of December 3, 1999 would be approximately
13%.
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 1997 Omnibus 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 1997 Omnibus Plan are described separately below.
15
<PAGE> 19
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 2,100,000 (subject to adjustment for
future stock splits, stock dividends and similar changes in the capitalization
of the Company). No more than 100,000 shares pursuant to a stock option or a
stock appreciation right may be granted to any one individual under the 1997
Omnibus Plan in any calendar year. Subject to this limitation, there is no limit
on the number of shares in respect of which awards may be granted by the
Committee to any person.
The 1997 Omnibus Plan provides that all awards are subject to agreements
containing the terms and conditions of the awards. Such agreements will be
entered into by the recipients of the awards and the Company on or after the
time the awards are granted and are subject to amendment, including unilateral
amendment by the Company unless such amendments are determined by the Committee
to be materially adverse to the participant and are not required as a matter of
law. Any shares of Company Common Stock subject to awards under the 1997 Omnibus
Plan which are not used because the terms and conditions of the awards are not
met may be reallocated 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.
16
<PAGE> 20
INCENTIVE AND NONSTATUTORY STOCK OPTIONS
Both incentive stock options and nonstatutory stock options may be granted
to participants at such exercise prices as the Committee may determine but not
less than 100% of the fair market value (as defined in the 1997 Omnibus Plan) of
the underlying stock as of the date the option is granted. Stock options may be
granted and exercised at such times as the Committee may determine, except that
unless applicable Federal tax laws are modified, (i) no incentive stock options
may be granted more than 10 years after the effective date of the 1997 Omnibus
Plan, (ii) an incentive stock option shall not be exercisable more than 10 years
after the date of grant and (iii) the aggregate fair market value of the shares
of Company Common Stock with respect to which incentive stock options held by an
employee under the 1997 Omnibus Plan and any other plan of the Company or any
affiliate may first become exercisable in any calendar year may not exceed
$100,000. Additional restrictions apply to an incentive stock option granted to
an individual who beneficially owns 10% or more of the outstanding shares of the
Company.
The purchase price for stock purchased upon the exercise of the options may
be payable in cash, in stock having a fair market value on the date the option
is exercised equal to the option price of the stock being purchased or in a
combination of cash and stock, as determined by the Committee. The Committee may
permit optionees to simultaneously exercise options and sell the stock purchased
upon such exercise pursuant to brokerage or similar relationships and use the
sale proceeds to pay the purchase price. The Committee may provide, at or after
the grant of a stock option, that a 1997 Omnibus Plan participant who surrenders
shares of stock in payment of an option shall be granted a new incentive or
nonstatutory stock option covering a number of shares equal to the number of
shares so surrendered.
In addition, options may be granted under the 1997 Omnibus Plan to
employees of entities acquired by the Company in substitution of options
previously granted to them by the acquired entity.
STOCK APPRECIATION RIGHTS AND PERFORMANCE UNITS
The value of a stock appreciation right granted to a participant is
determined by the appreciation in Company Common Stock, subject to any
limitations upon the amount or percentage of total appreciation that the
Committee may determine at the time the right is granted. The participant
receives all or a portion of the amount by which the fair market value of a
specified number of shares, as of the date the stock appreciation right is
exercised, exceeds a price specified by the Committee at the time the right is
granted. The price specified by the Committee must be at least 100% of the fair
market value of the specified number of shares of Company Common Stock to which
the right relates determined as of the date the stock appreciation right is
granted. No stock appreciation right may be exercised less than six months from
the date it is granted unless the participant dies or becomes disabled.
Performance units entitle the participant to payment in amounts determined
by the Committee based upon the achievement of specified performance targets
during a specified term. Payments with respect to stock appreciation rights and
performance units may be paid in cash, shares of Company Common Stock or a
combination of cash and shares as determined by the Committee. To date no such
awards have been made under the Plan nor are any currently contemplated.
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.
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The Committee may condition a grant upon the participant's agreement that
in the event of certain occurrences, which may include a participant's
competition with, unauthorized disclosure of confidential information of, or
violation of the applicable business ethics policy or business policy of the
Company or any of its affiliates, the awards paid to the participant within six
months prior to the termination of employment of the participant (or their
economic value) may be subject to forfeiture at the Committee's option.
ADJUSTMENTS, MODIFICATIONS, TERMINATION
The 1997 Omnibus Plan gives the Committee discretion to adjust the kind and
number of shares available for awards or subject to outstanding awards, the
option price of outstanding options, and performance targets for, and payments
under, outstanding awards of performance units in the event of mergers,
recapitalizations, stock dividends, stock splits or other relevant changes.
Adjustments in performance targets and payments on performance units are also
permitted upon the occurrence of such other events as may be specified by the
Committee, which may include changes in accounting practices of the Company or
changes in the participant's title or employment responsibilities. The 1997
Omnibus Plan also gives the Board the right to terminate, suspend or modify the
1997 Omnibus Plan, except that amendments to the 1997 Omnibus Plan are subject
to Shareholder approval if needed to comply with the incentive stock option
provisions of Federal tax laws. Under the 1997 Omnibus Plan, the Committee may
cancel outstanding options and stock appreciation rights generally in exchange
for cash payments to the participants in the event of certain dissolutions,
liquidations, mergers, statutory share exchanges or other similar events
involving the Company.
B. OUTSIDE DIRECTOR OPTIONS
AGREEMENTS
The 1997 Omnibus Plan provides that all options granted under the Plan be
subject to agreements governing the terms and conditions of the awards. Such
agreements will be entered into by the Outside Directors and the Company on or
after the time the options are granted. Any shares of Common Stock subject to an
option under the 1997 Omnibus Plan that are not used because the terms and
conditions of the option are not met may be reallocated under the Plan as though
they had not previously been awarded.
TYPES OF AWARDS
There are two types of automatic option grants under the terms of the 1997
Omnibus Plan: Initial Outside Director Options, and Annual Outside Director
Options.
Initial Outside Director Options
Each Outside Director first elected or appointed to the Board 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
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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
(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 the 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.
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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 in the corporate structure of the Company, the death of the
Outside Director or such other events as the Committee may determine. The
Committee may also provide that certain awards may be exercised in certain
events after the termination of services of the Outside Director or the death of
the recipient.
In addition, the termination of an Outside Director's award may be waived
in the event that the Outside Director enters into a consulting or other
advisory role with the Company which may, in some cases, involve entering into a
non-compete agreement with the Company.
FEDERAL TAX CONSIDERATIONS
The Company has been advised by its counsel that awards made under the 1997
Omnibus Plan generally will result in the following tax events for United States
citizens under current United States Federal income tax laws:
RESTRICTED AND UNRESTRICTED STOCK
Unless the participant files an election to be taxed under Section 83(b) of
the Code, (a) the participant will not realize income upon the grant of
restricted stock, (b) the participant will realize ordinary income, and the
Company will be entitled to a corresponding deduction, when the restrictions
have been removed or expire, and (c) the amount of such ordinary income and
deduction will be the fair market value of the restricted stock on the date the
restrictions are removed or expire. If the recipient files an election to be
taxed under Section 83(b) of the Code, the tax consequences to the participant
and the Company will be determined as of the date of the grant of the restricted
stock rather than as of the date of the removal or expiration of the
restrictions.
With respect to awards of unrestricted stock, (a) the participant will
realize ordinary income and the Company will be entitled to a corresponding
deduction upon the grant of the unrestricted stock, and (b) the amount of such
ordinary income and deduction will be the fair market value of such unrestricted
stock on the date of 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,
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respectively. If the participant pays the option price with shares that were
originally acquired pursuant to the exercise of an incentive stock option and
the statutory holding periods for such shares have not been met, the participant
will be treated as having made a disqualifying disposition of such shares, and
the tax consequences of such disqualifying disposition will be as described
above.
The foregoing discussion applies only for regular tax purposes. For
alternative minimum tax purposes an incentive stock option will be treated as if
it were a non-statutory stock option, the tax consequences of which are
discussed below.
NONSTATUTORY STOCK OPTIONS
A participant will realize no taxable income, and the Company will not be
entitled to any related deduction, at the time any nonstatutory stock option is
granted under the 1997 Omnibus Plan. At the time shares are transferred to the
participant pursuant to the exercise of a nonstatutory stock option, the
participant will realize ordinary income, and the Company will be entitled to a
deduction, equal to the excess of the fair market value of the stock on the date
of exercise over the option price. Upon disposition of the shares, any
additional gain or loss realized by the participant will be taxed as a capital
gain or loss.
STOCK APPRECIATION RIGHTS AND PERFORMANCE UNITS
Generally (a) the participant will not realize income upon the grant of a
stock appreciation right or performance unit award, (b) the participant will
realize ordinary income, and the Company will be entitled to a corresponding
deduction, in the year cash, shares of Common Stock or a combination of cash and
shares are delivered to the participant upon exercise of a stock appreciation
right or in payment of the performance unit award and (c) the amount of such
ordinary income and deduction will be the amount of cash received plus the fair
market value of the shares of common stock received on the date they are
received. The Federal income tax consequences of a disposition of unrestricted
shares received by the participant upon exercise of a stock appreciation right
or in payment of a performance unit award are the same as described above with
respect to a disposition of unrestricted shares.
WITHHOLDING
The 1997 Omnibus Plan permits the Company to withhold from cash awards, and
to require a participant receiving Common Stock under the 1997 Omnibus Plan to
pay the Company in cash, an amount sufficient to cover any required withholding
taxes. In lieu of cash, the Committee may permit a participant to cover
withholding obligations through a reduction in the number of shares delivered to
such participant or a surrender to the Company of shares then owned by the
participant.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE 1997 OMNIBUS PLAN
SHAREHOLDER PROPOSAL CONCERNING SHARE RIGHTS PLAN
(ITEM 3 ON THE PROXY CARD)
The following proposal is included at the request of EQSF Advisers, Inc., a
registered investment adviser to the Third Avenue Value Fund (collectively
referred to as "EQSF Advisers") and other investment companies. The Company will
furnish the address of the proponent, along with the number of shares of Common
Stock that it holds, promptly upon receipt of an oral or written request.
SHAREHOLDER PROPOSAL
RESOLVED: that it is hereby recommended that, as soon as practicable, the
Board of Directors redeem the rights distributed under the Company's Share
Rights Agreement dated May 22, 1997, which was adopted by the Board without
prior shareholder approval, and that the Board refrain in the future from
adopting any "rights plans" or "poison pills" and from issuing any rights under
any "rights plans" or "poison pills", without the prior approval of the
shareholders.
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SUPPORTING STATEMENT
The Board of Directors of FSI International, Inc. (the "Company") entered
into a Share Rights Agreement (the "Agreement") dated as of May 22, 1997. We
view rights issued pursuant to the Agreement as a type of anti-takeover device,
commonly known as a "poison pill," which injures shareholders by reducing
management accountability and by adversely affecting shareholder value.
The Company's Board acted unilaterally, without first seeking a vote by the
shareholders on whether they wished to have such a rights plan in effect. We
believe that these rights are designed to discourage or thwart a takeover of the
Company. We do not believe that the future possibility of a takeover justifies
the unilateral imposition of such a poison pill. At a minimum, we believe that
the shareholders should have the right to vote on the necessity of such a
powerful tool, which could be used to entrench existing management.
In recent years, various companies have been willing to redeem outstanding
rights. We believe that the Company should follow suit and should not adopt any
"rights plans" or "poison pills" or issue any rights under any "rights plans" or
"poison pills", without prior shareholder approval.
STATEMENT BY THE BOARD IN OPPOSITION TO THE PROPOSAL
INTRODUCTION
Your Board of Directors ("Board") opposes EQSF Advisers' proposal for the
following reasons:
- The Plan was unanimously adopted by and is currently administered by an
independent Board of Directors;
- A share rights plan is a widely accepted practice for the benefit of all
shareholders;
- The Plan affords the Board negotiating leverage to maximize value in the
Board's exercise of its fiduciary duties;
- There is no evidence to show that a share rights plan in any way blocks
or deters fair and equitable offers; and
- The evidence indicates that premiums paid are likely to increase at
companies with share rights plans.
BACKGROUND
The Share Rights Plan was adopted by the Board in May 1997 after seeking
advice and counsel from the Company's legal and financial advisers. Many other
semiconductor equipment manufacturers have adopted such plans. As adopted, the
Plan limited the ownership interests of any party or group of affiliated parties
to not more than 15% in order to avoid being deemed an "acquiring person" under
the Share Rights Plan. In March 1998, the Board amended the Plan to specifically
allow EQSF Advisers to own not more than 19% of the common stock of the Company
without being deemed an "acquiring person" under the Share Rights Plan.
In the summer of 1999, a representative of EQSF Advisers approached the
Company asking it to modify the Plan to allow EQSF Advisers to acquire
additional shares of Company stock without becoming an "acquiring person," up to
as much as 25% of the outstanding shares. After due consideration, the Board
decided not to revise the Plan. Subsequently the above proposal was submitted by
EQSF Advisers.
THE PLAN WAS ADOPTED AND IS ADMINISTERED BY AN INDEPENDENT BOARD OF DIRECTORS.
The Plan is not designed or intended to entrench management. Of the Board's
seven current members, six are independent, i.e., they are not employees or
consultants of the Company. When the Plan was adopted, only two of the directors
were insiders. The Company has had a longstanding practice that a majority of
the Board consist of independent directors, which practice will continue. The
Board is well aware of the concerns that some shareholders have expressed about
the possible abuse of share rights plans by other companies. The
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Share Rights Plan is not intended to prevent a takeover on terms that are fair
and equitable to all shareholders nor is it a deterrent to proxy contests
initiated by a shareholder. The Board is aware of its fiduciary duties and will
properly consider the interests of all shareholders should it receive a takeover
proposal.
THE SHARE RIGHTS PLAN IS A WIDELY ACCEPTED DEVICE BENEFITING ALL SHAREHOLDERS
The Share Rights Plan is similar to those adopted by well over 2,000 other
domestic corporations including a number of other semiconductor equipment
companies. Virtually all of these plans were adopted without shareholder
approval. The overriding objective of the Board in adopting the Share Rights
Plan was, and continues to be, the preservation and maximization of the
Company's long-term value for all shareholders.
THE SHARE RIGHTS PLAN AFFORDS YOUR BOARD NEGOTIATING LEVERAGE TO MAXIMIZE VALUE
The Board believes that a share rights plan will assist the Board in
fulfilling its fiduciary duty to act in the best interests of all shareholders.
The Share Rights Plan allows the Board adequate time and flexibility to
negotiate on behalf of the shareholders. It also enhances the Board's ability to
negotiate the highest possible bid from a potential acquirer. In addition, the
Share Rights Plan allows the Board to consider alternatives to a takeover bid
which may better maximize shareholder value.
THE SHARE RIGHTS PLAN DOES NOT BLOCK FAIR AND EQUITABLE OFFERS
The Share Rights Plan is not intended to prevent a takeover on terms that
are fair and equitable to all shareholders or deter a proxy contest for control
of the Company and it will not do so. In recent years, a number of companies
with share rights plans have received unsolicited offers and these offers were
successfully completed after the directors of these companies were satisfied
that the transaction, as negotiated, was fair to and in the best interests of
all shareholders. Thus, in the Board's view, other companies' experiences
indicate that rights plans neither prevent unsolicited offers from occurring nor
prevent companies from being acquired at prices that are fair to all
shareholders.
The Share Rights Plan does protect shareholders from certain abusive
takeover practices. In this regard, it is important to remember that hostile
acquirers are interested in buying a company as cheaply as they can and, in
attempting to do so, may use coercive tactics, partial or two-tiered bids and
stock accumulation programs which do not treat all shareholders fairly and
equally.
SHARE RIGHTS PLANS INCREASE PREMIUMS PAID AND DO NOT DECREASE THE LIKELIHOOD OF
TAKEOVER BIDS
Independent studies indicate that companies with share rights plans receive
higher takeover premiums than those without such plans rather than decrease
value as asserted by critics of rights plans. These studies also conclude that
share rights plans do not decrease the likelihood that takeover bids will be
made or completed for companies which implemented such plans.
FOR THE ABOVE REASONS, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE AGAINST THE ADOPTION OF THE SHAREHOLDER PROPOSAL.
SHAREHOLDER PROPOSALS AND OTHER MATTERS
Shareholder proposals intended to be considered at the Annual Meeting of
Shareholders for the fiscal year ended August 26, 2000 that are requested to be
included in the proxy statement for the Annual Meeting must be received by the
Company no later than August 17, 2000. 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 . 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
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shareholder proposals intended to be presented at the 2001 Annual Meeting of
Shareholders must be received by the Company at its principal executive office
no later than November 1, 2000.
ANNUAL REPORTS
THE ANNUAL REPORT OF THE COMPANY FOR FISCAL 1999 INCLUDING FINANCIAL
STATEMENTS IS BEING MAILED WITH THIS PROXY STATEMENT AND SUCH REPORT INCLUDES
THE COMPANY'S FORM 10-K ANNUAL REPORT, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR THE FISCAL YEAR ENDED AUGUST 28, 1999. EXCEPT AS EXPRESSLY
PROVIDED IN THE FORM 10-K REPORT, THE ANNUAL REPORT IS NOT TO BE DEEMED A PART
OF THE PROXY SOLICITATION MATERIAL AND IS NOT INCORPORATED HEREIN BY REFERENCE.
By Order of the Board of Directors
/s/ Benno G. Sand
Benno G. Sand
Secretary
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FSI INTERNATIONAL, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
<TABLE>
<CAPTION>
<S> <C>
BOARD RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2 BOARD RECOMMENDS A VOTE "AGAINST" ITEM 3
For Withhold Against
1. ELECTION OF A CLASS I DIRECTOR. / / / / / / 3. CONSIDERATION OF THE For Against Abstain
Nominee to serve as Class I SHAREHOLDER PROPOSAL REGARDING / / / / / /
Director for a three year term and until his respective THE COMPANY'S SHARE RIGHTS PLAN, as
successor shall be elected and qualified is: described in the accompanying Proxy Statement.
JAMES A. BERNARDS
2. APPROVAL OF THE AMENDMENT TO THE For Against Abstain
FSI INTERNATIONAL, INC. 1997 / / / / / /
OMNIBUS STOCK PLAN, as described
in the 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)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- FOLD AND DETACH HERE -
PROXY PROXY
FSI INTERNATIONAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Joel A. Elftmann, Patricia M. Hollister and
Luke R. Komarek, and each of them, as Proxies, each with the power to appoint
his or her 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 3, 1999, at the Annual
Meeting of Shareholders to be held on January 25, 2000, 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 ITEMS 1 AND 2 AND AGAINST ITEM 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.)
- --------------------------------------------------------------------------------
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