<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended FEBRUARY 26, 2000
-------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ -----------------------------
Commission File Number: 0-17276
--------------------------------------------------------
FSI INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1223238
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
322 LAKE HAZELTINE DRIVE, CHASKA, MINNESOTA 55318
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
612-448-5440
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] YES [ ] NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practical date:
COMMON STOCK, NO PAR VALUE - 25,105,468 SHARES OUTSTANDING AS OF MARCH 24, 2000
<PAGE> 2
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------------------- --------
<S> <C> <C>
Item 1. Consolidated Condensed Financial Statements:
Consolidated Condensed Balance Sheets as of February 26, 2000
(Unaudited) and August 28, 1999 3
Consolidated Condensed Statements of Operations
(Unaudited) for the quarters ended February 26, 2000
and February 27, 1999 5
Consolidated Condensed Statements of Operations (Unaudited)
for the six months ended February 26, 2000 and February 27, 1999 6
Consolidated Condensed Statements of Cash Flows (Unaudited)
for the six months ended February 26, 2000 and February 27, 1999 7
Notes to Consolidated Condensed Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 22
Item 3. Defaults upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURE 25
---------
</TABLE>
2
<PAGE> 3
PART I. Item 1. FINANCIAL INFORMATION
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
FEBRUARY 26, 2000 AND AUGUST 28, 1999
ASSETS
(Unaudited)
<TABLE>
<CAPTION>
February 26, August 28,
2000 1999
----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 18,079,333 $ 62,326,355
Marketable securities 18,392,251 27,671,653
Trade accounts receivable, net of allowance for
doubtful accounts of $3,434,000 and $2,578,000,
respectively 26,333,580 17,662,389
Trade accounts receivable from affiliates 21,298,475 12,659,778
Inventories 47,989,198 32,911,669
Refundable income taxes - 160,915
Prepaid expenses and other current assets 3,066,981 5,568,093
---------------- ----------------
Total current assets 135,159,818 158,960,852
---------------- ----------------
Property, plant and equipment, at cost 118,902,040 114,340,509
Less accumulated depreciation and amortization (58,108,570) (50,249,286)
---------------- ----------------
60,793,470 64,091,223
---------------- ----------------
Investment in affiliates 16,044,174 14,177,866
Intangibles 19,765,118 2,000,000
Deposits and other assets 3,352,723 3,473,280
---------------- -----------------
$ 235,115,303 $ 242,703,221
================ ================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
FEBRUARY 26, 2000 AND AUGUST 28, 1999
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
February 26, August 28,
2000 1999
---------------- ---------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 74,847 $ 30,059,696
Trade accounts payable 18,641,728 14,956,324
Accrued expenses 17,554,922 15,380,136
Customer deposits - 453,198
Deferred revenue 9,897,426 5,538,705
---------------- ---------------
Total current liabilities 46,168,923 66,388,059
---------------- ---------------
Long-term debt, less current maturities 23,345 2,998
Stockholders' equity:
Preferred stock, no par value; 9,700,000 shares
authorized; none issued and outstanding - -
Series A Junior Participating Preferred Stock, no par
value: 300,000 shares authorized; none issued and
outstanding. - -
Common stock, no par value; 50,000,000 shares
authorized; issued and outstanding, 25,058,244
and 23,391,953 shares at February 26, 2000 187,169,229 165,625,250
and August 28, 1999, respectively
Retained earnings 2,108,444 11,915,059
Cumulative translation adjustment (354,638) (1,228,145)
---------------- ---------------
Total stockholders' equity 188,923,035 176,312,164
---------------- ---------------
$ 235,115,303 $ 242,703,221
================ ===============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999
(Unaudited)
<TABLE>
<CAPTION>
February 26, February 27,
2000 1999
---------------- ----------------
<S> <C> <C>
Sales (including sales to affiliates of
$21,325,000 and $4,876,000, respectively) $ 45,797,736 $ 19,147,019
Cost of sales 28,651,690 13,694,498
--------------- ---------------
Gross profit 17,146,046 5,452,521
Selling, general and administrative expenses 11,484,046 8,448,259
Research and development expenses 8,863,861 6,761,759
--------------- ---------------
Operating loss (3,201,861) (9,757,497)
Interest expense (55,418) (718,221)
Interest income 589,229 1,285,151
Other income (expense), net 30,630 187,607
--------------- ---------------
Loss before income taxes (2,637,420) (9,002,960)
Income tax benefit - 3,510,331
--------------- ---------------
Loss before minority interest and equity in loss of affiliates (2,637,420) (5,492,629)
Equity in loss of affiliates (450,014) (781,972)
--------------- ---------------
Net loss from continuing operations (3,087,434) (6,274,601)
Discontinued operations:
Net loss from discontinued operations - (1,299,328)
--------------- ---------------
Net loss ($3,087,434) ($7,573,929)
--------------- ---------------
Net loss per common share - Basic
Continuing operations ($0.12) ($0.27)
Discontinued operations - ($0.06)
--------------- ---------------
Total loss ($0.12) ($0.33)
--------------- ---------------
Net loss per common share - Diluted
Continuing operations ($0.12) ($0.27)
Discontinued operations - ($0.06)
--------------- ---------------
Net loss ($0.12) ($0.33)
=============== ===============
Weighted average common shares 24,901,033 23,169,617
Weighted average common and potential common shares 24,901,033 23,169,617
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE> 6
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999
(Unaudited)
<TABLE>
<CAPTION>
February 26, February 27,
2000 1999
---------------- -----------------
<S> <C> <C>
Sales (including sales to affiliates of
$33,255,000 and $9,805,000, respectively) $ 76,704,497 $ 43,163,120
Cost of sales 49,449,447 29,857,744
---------------- -----------------
Gross profit 27,255,050 13,305,376
Selling, general and administrative expenses 22,545,431 17,644,967
In-process research and development write-off 6,370,000 -
Research and development expenses 17,248,672 14,690,675
---------------- -----------------
Operating loss (18,909,053) (19,030,266)
Gain on sale of investment in affiliates 5,409,744 -
Interest expense (321,223) (1,503,044)
Interest income 1,353,280 2,513,584
Other income (expense), net 78,959 192,539
---------------- -----------------
Loss before income taxes (12,388,293) (17,827,187)
Income tax benefit - 6,795,339
---------------- -----------------
Loss before minority interest and equity in loss of affiliates (12,388,293) (11,031,848)
Equity in loss of affiliates (923,322) (1,080,354)
---------------- -----------------
Net loss from continuing operations (13,311,615) (12,112,202)
Discontinued operations:
Loss on sale of discontinued operations (400,000) -
Net loss from discontinued operations - (2,540,447)
---------------- -----------------
Net loss ($13,711,615) ($14,652,649)
---------------- -----------------
Net loss per common share - Basic
Continuing operations ($0.54) ($0.52)
Discontinued operations (0.02) (0.11)
---------------- -----------------
Net loss ($0.56) ($0.63)
---------------- -----------------
Net loss per common share - Diluted
Continuing operations ($0.54) ($0.52)
Discontinued operations (0.02) (0.11)
---------------- -----------------
Net loss ($0.56) ($0.63)
================ =================
Weighted average common shares 24,428,393 23,108,545
Weighted average common and potential common shares 24,428,393 23,108,545
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE> 7
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 26, 2000 AND FEBRUARY 27, 1999
(Unaudited)
<TABLE>
<CAPTION>
February 26, February 27,
2000 1999
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ($13,711,615) ($14,652,649)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Gain on sale of investment in affiliates (5,409,744) -
Loss from discontinued operations 400,000 2,540,447
Write-off of in process research and development 6,370,000 -
Deferred income taxes - (7,971,487)
Depreciation and amortization 8,256,465 6,255,063
Allowance for doubtful accounts (92,068) (34,126)
Inventory reserves (554,618) (2,171,334)
Equity in loss of affiliates 923,322 1,080,354
Loss on disposition of equipment - 674,139
Changes in operating assets and liabilities:
Trade accounts receivable (16,449,069) 12,111,103
Inventories (10,606,788) 1,140,784
Prepaid and other current assets (3,245,058) (2,195,511)
Trade accounts payable 2,112,216 3,818,002
Accrued expenses 3,720,773 1,592,637
Customer deposits (453,198) 417,781
Deferred revenue 4,358,721 (3,953,765)
Refundable income taxes 160,915 9,785,061
Other - 74,927
---------------- -----------------
Net cash provided by (used in) operating activities (24,219,746) 8,511,426
---------------- -----------------
INVESTING ACTIVITIES:
Proceeds from sale of investment in affiliates 7,398,621 -
Proceeds from sale of equipment 622,438 980,432
Acquisition of property, plant and equipment (2,456,786) (4,574,191)
Investment in YieldUP, net of cash (6,522,515) -
Purchases of marketable securities (1,473,511) (30,183,805)
Maturities of marketable securities 10,762,913 17,645,827
Sale of marketable securities - 3,023,430
Increase in deposits and other assets (317,890) (1,564,332)
---------------- -----------------
Net cash provided by (used in) investing activities 8,013,270 (14,672,639)
---------------- -----------------
FINANCING ACTIVITIES:
Principal payments on long-term debt (30,317,525) (31,041)
Net proceeds from issuance of common stock 2,276,979 1,403,766
---------------- ------------------
Net cash provided by (used in) financing activities (28,040,546) 1,372,725
---------------- ------------------
Cash provided by discontinued operations - 4,429,939
---------------- ------------------
Decrease in cash and cash equivalents (44,247,022) (358,549)
Cash and cash equivalents at beginning of period 62,326,355 72,789,811
---------------- ------------------
Cash and cash equivalents at end of period $ 18,079,333 $ 72,431,262
================ ==================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
7
<PAGE> 8
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The accompanying consolidated condensed financial statements have been
prepared by the Company without audit and reflect all adjustments
(consisting only of normal and recurring adjustments) which are, in the
opinion of management, necessary to present a fair statement of the
results for the interim periods presented. The statements have been
prepared in accordance with the regulations of the Securities and
Exchange Commission but omit certain information and footnote
disclosures necessary to present the statements in accordance with
generally accepted accounting principles. The results of operations for
the interim periods presented are not necessarily indicative of the
results to be expected for the full fiscal year. These consolidated
condensed financial statements should be read in conjunction with the
Consolidated Financial Statements and footnotes thereto included in the
Company's Annual 10-K Report for the fiscal year ended August 28, 1999
previously filed with the Securities and Exchange Commission.
(2) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
February 26, August 28,
2000 1999
----------------- ----------------
<S> <C> <C>
Finished products $ 8,098,656 $ 6,759,290
Work-in-process 22,646,124 6,667,750
Subassemblies 3,912,448 8,967,812
Raw materials and purchased parts 13,331,970 10,516,817
----------------- ----------------
$ 47,989,198 $ 32,911,669
================= ================
</TABLE>
(3) SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------------
February 26, February 27,
2000 1999
------------------ -------------------
Schedule of interest and net income taxes paid:
<S> <C> <C>
Interest $726,390 $1,483,533
Income taxes ($81,926) ($11,992,195)
</TABLE>
The Company realized a tax benefit from disqualifying dispositions of
stock options of $0 and $35,278 in the first half of fiscal 2000 and
1999, respectively.
8
<PAGE> 9
(4) RECONCILIATION OF EARNINGS AND SHARE AMOUNTS USED IN EPS CALCULATION
<TABLE>
<CAPTION>
Basic Dilutives
Loss Per Share Effect of Loss Per Share
Net Loss To Common Dilutive Loss To Common
FOR THE QUARTERS ENDED Loss Stockholders Securities* Stockholders
- ---------------------- ---- ------------ ----------- ------------
<S> <C> <C> <C> <C>
FEBRUARY 26, 2000
Loss ($3,087,434) ($3,087,434) - ($3,087,434)
Shares - 24,901,033 - 24,901,033
Per share amount - ($0.12) - ($0.12)
FEBRUARY 27, 1999
Loss ($7,573,929) ($7,573,929) - ($7,573,929)
Shares - 23,169,617 - 23,169,617
Per share amount - ($0.33) - ($0.33)
FOR THE SIX MONTHS ENDED
- ------------------------
FEBRUARY 26, 2000
Loss ($13,711,615) ($13,711,615) - ($13,711,615)
Shares - 24,428,393 - 24,428,393
Per share amount - ($0.56) - ($0.56)
FEBRUARY 27, 1999
Loss ($14,652,649) ($14,652,649) - ($14,652,649)
Shares - 23,108,545 - 23,108,545
Per share amount - ($0.63) - ($0.63)
</TABLE>
* The effect of stock options were not included in the calculation of dilutive
earnings per share for the quarter and six months ended February 26, 2000 and
February 27, 1999 because their inclusion would have been anti-dilutive.
(5) COMPREHENSIVE INCOME (LOSS)
For the quarters and six months ended February 26, 2000 and February
27, 1999 net loss, items of other comprehensive income (loss) and
comprehensive loss are as follows:
<TABLE>
<CAPTION>
February 26, February 27,
2000 1999
----------------- -----------------
<S> <C> <C>
FOR THE QUARTERS ENDED:
-----------------------
Net loss ($3,087,434) ($7,573,929)
Items of other comprehensive income (loss):
Foreign currency translation 349,319 741,579
---------------- ----------------
Comprehensive loss ($2,738,115) ($6,832,350)
================ ================
FOR THE SIX MONTHS ENDED:
-------------------------
Net loss ($13,711,615) ($14,652,649)
Items of other comprehensive income (loss):
Foreign currency translation 873,507 1,066,162
---------------- ----------------
Comprehensive loss ($12,838,108) ($13,586,487)
================ ================
</TABLE>
9
<PAGE> 10
(6) ACQUISITION OF YIELDUP
On October 20, 1999 the Company acquired YieldUP International
Corporation (YieldUP renamed SCD Mountain View, Inc.) by paying
approximately $6,083,000 in cash and issuing 1,303,000 shares of common
stock to YieldUP shareholders.
SCD Mountain View, headquartered in Mountain View, California,
develops, manufactures and markets innovative cleaning, rinsing and
drying equipment designed to enable new processes and improve
manufacturing yields of semiconductor and other defect-sensitive
industries, such as flat panel displays and magnetic disks.
Under the definitive agreement, the YieldUP shareholders received
$0.7313 and 0.1567 of a share of FSI common stock for each share of
YieldUP stock. The Company also issued options covering 209,278 shares
of company common stock in substitution for previously outstanding
options to acquire shares of YieldUP's common stock. As of August 30,
1999, there were outstanding Series B warrants to purchase 4,155,421
shares of YieldUP common stock at an exercise price of $11.00 per share
and additional warrants to purchase 2,439 shares at an exercise price
of $10.25 per share. Following the merger, each outstanding warrant to
purchase YieldUP common stock became a warrant to acquire, on
substantially the same terms, the amount of whole shares of FSI common
stock and cash that the warrant holder would have received if the
holder had exercised the warrant immediately before the merger. For the
$11.00 Series B warrants, the market price of FSI common stock would
have to exceed $65.50 per share before the value of the cash and shares
of FSI common stock received upon exercise would exceed the warrant
exercise price. The warrants expire in November 2000 and will not be
exercisable after that time.
The acquisition was accounted for under the purchase method of
accounting. FSI incurred an in-process R&D write-off of $6,370,000 in
the first quarter of fiscal 2000 related to the acquisition.
Prior to the acquisition, two patent infringement lawsuits were filed
against YieldUP, which if resolved unfavorably could have a material
adverse impact on the Company. The probability of loss and related
amount cannot be presently estimated. For a discussion of the
litigation, see Part II, Item 1.
(7) SALE OF INVESTMENT IN AFFILIATE
The Company sold approximately 612,000 shares of its investment in
Metron Technology N.V. (Metron) stock as part of Metron's initial
public offering during the first quarter of fiscal 2000.
As a result of the sale, the Company received proceeds of $7,398,621
and recognized a gain of $5,409,744. The Company's ownership percentage
decreased from 32.7% to 21.7% as a result of this sale and the public
offering. As of February 26, 2000 the Company owns approximately
2,690,000 shares of Metron with a total cost basis of approximately
$13,300,000.
10
<PAGE> 11
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SECOND QUARTER AND FIRST HALF OF FISCAL 2000 COMPARED WITH THE SECOND QUARTER
AND FIRST HALF OF FISCAL 1999.
The information in this report, except for the historical information contained
herein, contains forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, and is subject to the safe
harbor created by that statute. Such statements are subject to various risks and
uncertainties. Actual results may be materially different from these
forward-looking statements. Factors that could cause actual results to differ
include overall industry conditions including general economic conditions; the
demand and price for semiconductors; the level of new orders and order delays or
cancellations; the timing and success of current and future product and process
development programs; the success of the Company's affiliated distributors; the
timing and extent of any industry upturn or downturn and the successful
optimization of new business systems. Other factors that could cause the results
of the Company to differ materially from those contained in any forward-looking
statements of the Company are included in the Company's Report on Form 10-K for
the 1999 fiscal year and other documents recently filed by the Company with the
Securities and Exchange Commission. In addition, readers are also directed to
the Risk Factors discussion found below under "Risk Factors". Readers also are
cautioned not to place undue reliance on these forward-looking statements as
actual results could differ materially. The Company assumes no obligation to
publicly release any revisions or updates to these forward-looking statements to
reflect future events or unanticipated occurrences. Such forward-looking
statements are marked with an asterisk (*).
The following table sets forth on a consolidated basis, for the fiscal period
indicated, certain income and expense items as a percent of total sales.
<TABLE>
<CAPTION>
Percent of Sales Percent of Sales
Quarter Ended Six Months Ended
---------------------------------- ---------------------------------
February 26, February 27, February 26, February 27,
2000 1999 2000 1999
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0 %
Cost of goods sold 62.6 71.5 64.5 69.2
Gross profit 37.4 28.5 35.5 30.8
Selling, general and administrative 25.1 44.1 29.4 40.9
In-process research and development - - 8.3 -
Research and development 19.3 35.3 22.5 34.0
Operating loss (7.0) (50.9) (24.7) (44.1)
Other income (expense), net 1.3 3.9 8.5 2.8
Loss before income taxes (5.7) (47.0) (16.2) (41.3)
Income tax (benefit) expense - (18.3) - (15.7)
Equity in loss of affiliates (1.0) (4.1) (1.2) (2.5)
--------------- ---------------- --------------- --------------
Net loss from continuing operations (6.7) (32.8) (17.4) (28.1)
Discontinued operations:
Net loss from discontinued operations - (6.8) (0.5) (5.9)
--------------- ---------------- --------------- ---------------
Net loss (6.7)% (39.6)% (17.9)% (34.0)%
=============== ================ =============== ===============
</TABLE>
11
<PAGE> 12
SALES
Sales were $45.8 million for the second quarter of fiscal 2000 as compared to
$19.1 million for the second quarter of fiscal 1999. Sales were $76.7 million
for the first half of fiscal 2000 as compared to $43.2 million for the first
half of fiscal 1999. Both the Microlithography and Surface Conditioning
Divisions experienced year-over-year revenue increases.
International sales were $20.4 million, and $5.0 million for the second quarter
of fiscal 2000 and 1999, respectively, and represented approximately 45% and
26%, respectively, of sales during these periods. International sales were $32.7
million and $9.8 million for the first half of fiscal 2000 and 1999,
respectively, and represented 43% and 23%, respectively, of sales during these
periods.
FSI's book-to-bill ratio was significantly above 1.0 for the second quarter of
fiscal 2000. FSI expects order rates to continue to be strong in the third
quarter of fiscal 2000 with sequential growth over the second quarter level.*
Sales in the third quarter of fiscal 2000 are expected to be up sequentially
also.* FSI expects annual sales to increase significantly in fiscal 2000 as
compared to fiscal 1999.*
GROSS PROFIT
Gross profit as a percentage of sales for the second quarter of fiscal 2000 was
37.4% as compared to 28.5% for the second quarter of fiscal 1999. Gross profit
as a percentage of sales for the first half of fiscal 2000 was 35.5% as compared
to 30.8% for the first half of fiscal 1999. The improvement in gross profit
margin percentage for the second quarter and first half of fiscal 2000 as
compared to 1999 is due to higher sales volume and stronger mix of higher margin
products offset by the higher level of foreign sales, which generally have lower
margins. As sales volumes continue to increase and if FSI can continue to
successfully reduce the POLARIS(R) 2500 costs, gross margins could approach the
high 30 percent level for fiscal 2000.*
FSI's gross profit margin does fluctuate due to a number of factors, including
the mix of products sold, as some products have higher margins than others, the
proportion of international sales, as some international sales generally have
lower margins, OEM systems content, competitive pricing pressures and
utilization of manufacturing capacity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $11.5 million for the
second quarter of fiscal 2000 as compared to $8.4 million for the second quarter
of fiscal 1999. Selling, general and administrative expenses increased to $22.5
million for the first half of fiscal 2000 as compared to $17.6 million for the
same period in fiscal 1999. The increase in the amount of SG&A expense in the
second quarter and the first half of fiscal 2000 as compared to the second
quarter and first half of fiscal 1999 was primarily due to additional
depreciation costs associated with the new business system, SAP, and the
amortization of intangibles related to the YieldUP acquisition.
FSI expects the quarterly amount of SG&A expense to remain relatively flat for
the remainder of fiscal 2000 as compared to the second quarter as it continues
its investment in expanding worldwide sales and support capability.* Also, as a
percent of sales, SG&A is expected to decrease for the remainder of fiscal
2000.*
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $8.9 million for the second
quarter of fiscal 2000 as compared to $6.8 million for the same period in fiscal
1999. Research and development expenses increased to $17.2 million for the first
half of fiscal 2000 as compared to $14.7 million for the same period in fiscal
1999. Also in the first quarter of fiscal 2000, FSI recorded a $6.4 million
in-process R&D write-off relating to the acquisition of YieldUP International
Corporation. The quarterly amount of R&D is expected to increase slightly for
the remainder of
12
<PAGE> 13
fiscal 2000 as compared to the second quarter of 2000.* However, we expect R&D
as a percent of sales to decrease in 2000 as compared to 1999.* We will continue
to remain focused on critical technologies and strategically invest in the
immersion technology for Surface Conditioning products, the CALYPSO(TM) spin-on
dielectric product, and 300mm products in both the Microlithography and Surface
Conditioning Divisions.
OTHER INCOME (EXPENSE), NET
Other income (expense), net was approximately $565,000 and $6.5 million for the
second quarter and first half of fiscal 2000 as compared to $755,000 and $1.2
million for the second quarter and first half of fiscal 1999. The decrease in
the amount for the second quarter of fiscal 2000 as compared to the second
quarter of fiscal 1999 is due to reduced interest income due to lower cash and
cash equivalents and marketable securities amounts offset by reduced interest
expense as a result of the debt repayment. The increase in the amount for the
first half of fiscal 2000 as compared to the first half of fiscal 1999 is
primarily due to reduced interest expense as a result of the debt repayment.
Additionally, the increase for the first half of fiscal 2000 is due to the $5.4
million gain recognized on the sale of approximately 612,000 shares of Metron
Technology's (our affiliate) stock in its initial public offering during the
first quarter.
Interest income is expected to be between $500,000 and $700,000 per quarter for
the remainder of fiscal 2000, depending upon the level of investments and the
interest rates.*
INCOME TAX BENEFIT
FSI recorded no tax benefit related to its operating losses for the second
quarter and first half of fiscal 2000. FSI recorded a tax benefit of $3.5
million and $6.8 million for the second quarter and first half of fiscal 1999,
respectively.
FSI does not expect to record any tax benefit or expense in the future until the
Company is consistently profitable on a quarterly basis. FSI's deferred tax
assets on the balance sheet as of February 26, 2000 have been fully reserved for
with a valuation allowance.
EQUITY IN LOSS OF AFFILIATES
The equity in loss of affiliates was approximately $450,000 of loss for the
second quarter of fiscal 2000, compared to approximately $782,000 of loss for
the second quarter of fiscal 1999. The equity in loss of affiliates was
approximately $923,000 of loss for the first half of fiscal 2000, compared to
$1.1 million of loss for the first half of fiscal 1999. The decrease in losses
is due to higher earnings at Metron.
DISCONTINUED OPERATIONS:
During the second quarter and first half of 2000, FSI continued to negotiate the
final closing balance sheet for the CMD divestiture to BOC. During the first
quarter FSI established an additional $400,000 reserve for expected costs
associated with completing two projects that were in process when BOC purchased
the division. During the second quarter, the parties settled on a final closing
balance sheet and no additional reserves were recorded.
LIQUIDITY AND CAPITAL RESOURCES
FSI's cash and cash equivalents and marketable securities were approximately
$36.5 million as of February 26, 2000, a decrease of $53.5 million from the end
of fiscal 1999. The decrease in cash, cash equivalents and marketable securities
is due to approximately $24.2 million in cash flow used to fund operations and
approximately $30.3 million used to repay long-term debt. In addition, during
the first quarter of fiscal 2000, the Company made $6.1 million in payments to
YieldUP shareholders as part of the acquisition consideration and received cash
proceeds of $7.4 million from the sale of Metron Technology stock.
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<PAGE> 14
FSI's accounts receivable increased by approximately 57% or $17.3 million from
the end of fiscal 1999. The increase in accounts receivable is due to higher
sales revenues.
FSI's inventory increased approximately $15.1 million to $48.0 million at
February 26, 2000 compared to $32.9 million at the end of fiscal 1999. The
increase in inventory was primarily in work-in-process as a result of improved
order activity.
As of February 26, 2000, the Company's current ratio of current assets to
current liabilities was 2.9 to 1.0 and working capital was $89.0 million.
FSI had acquisitions of property, plant and equipment of approximately $2.5
million and $4.6 million for the first half of fiscal 2000 and 1999,
respectively. It is anticipated FSI will invest approximately $5.0 to $8.0
million in fiscal 2000 in property, plant and equipment.*
FSI believes that with existing cash and cash equivalents, marketable securities
and internally generated funds, there will be sufficient funds to meet FSI's
current projected working capital and other cash requirements through at least
mid fiscal 2001.*
FSI believes that success in its industry requires substantial capital to
maintain the flexibility to take advantage of opportunities as they may arise.
FSI may, from time to time, as market and business conditions warrant, invest in
or acquire complementary businesses, products or technologies. FSI may fund such
activities with additional equity or debt financings. The sale of additional
equity or debt securities could result in additional dilution to our
stockholders.
YEAR 2000 UPDATE
The Company experienced no significant disruptions in mission critical
information technology and non-information technology systems on January 1, 2000
and believes those systems successfully responded to the year 2000 date change.
The Company expensed approximately $516,000 during fiscal 1999 and approximately
$90,000 in the first half of fiscal 2000 in connection with remediating its
internal systems and its products. As of April 10, 2000, the Company is not
aware of any material problems resulting from year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which establishes appropriate accounting for
derivative instruments and hedging activities. SFAS No. 133, as amended by SFAS
No. 137 must be adopted for financial statements issued for fiscal years
beginning after June 15, 2000. It is anticipated that FSI will adopt SFAS No.
133 in fiscal 2001. The impact of the adoption of SFAS No. 133 is not expected
to have a material impact on FSI's financial statements.*
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements." SAB 101
provides guidance on the recognition, presentation, and disclosure of revenue in
financial statements of all public registrants. The semiconductor capital
equipment industry and the accounting profession are currently evaluating
various practical implementation considerations. Changes in our revenue
recognition policy resulting from the interpretation of SAB 101 would not
involve any restatement of prior periods but would, to the extent applicable, be
reported as a change in accounting principle in the first quarter of fiscal
2001. Accordingly, any shipments that previously would have been reported as
revenue that do not meet SAB 101 revenue recognition guidance would be recorded
as revenue in future periods. At the current time, it is not possible to
determine the effect this change will have on our financial statements. However,
management believes that SAB 101, to the extent applicable to us, will not
affect the underlying strength or weakness of our business operations as
measured by the dollar value of our product shipments and cash flows.*
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<PAGE> 15
RISK FACTORS
Due to the nature of business and the industry in which the Company operates,
the following risk factors should be considered in addition to others described
above.
BECAUSE OUR BUSINESS DEPENDS ON THE AMOUNT THAT MANUFACTURERS OF
MICROELECTRONICS SPEND ON CAPITAL EQUIPMENT, DOWNTURNS IN THE MICROELECTRONICS
INDUSTRY MAY ADVERSELY AFFECT OUR RESULTS
The microelectronics industry experiences periodic slowdowns, which may have a
negative effect on our sales and operating results. For example, in fiscal 1996,
before the most recent industry slowdown, we reported net income from continuing
operations of $21 million. In contrast, in fiscal 1999, we reported a net loss
from continuing operations of $40 million. Our business depends on the amount
manufacturers of microelectronics spend on capital equipment. The amount they
spend on capital equipment depends on the existing and expected demand for
semiconductor devices and products that use semiconductor devices. The
microelectronics industry has experienced alternating upturns and downturns in
business activity. Some semiconductor manufacturers have experienced lower
demand and increased pricing pressure for their products. As a result, they have
purchased less semiconductor processing equipment and have sometimes delayed
making decisions to purchase capital equipment. In some cases, semiconductor
manufacturers have cancelled or delayed orders for our products.
IF WE DO NOT CONTINUE TO DEVELOP NEW PRODUCTS, WE WILL NOT BE ABLE TO COMPETE
EFFECTIVELY
Our business and results of operations could decline if we do not develop and
successfully introduce new or improved products that the market accepts. The
technology used in microelectronics manufacturing equipment and processes
changes rapidly. Industry standards change constantly and equipment
manufacturers frequently introduce new products. We believe that
microelectronics manufacturers increasingly rely on equipment manufacturers like
us to:
- - Design and develop more efficient manufacturing equipment
- - Design and implement improved processes for microelectronics manufacturers
to use
- - Make their equipment compatible with equipment made by other equipment
manufacturers
To compete, we must continue to develop, manufacture, and market new or improved
products that meet changing industry standards. To do this successfully, we
must:
- - Select appropriate products
- - Design and develop our products efficiently and quickly
- - Implement our manufacturing and assembly processes efficiently and on time
- - Make products that perform well for our customers
- - Market and sell our products effectively
- - Introduce our new products in a way that does not reduce sales of our
existing products
15
<PAGE> 16
FUTURE ACQUISITIONS MAY DILUTE OUR STOCKHOLDERS' OWNERSHIP INTERESTS AND HAVE
OTHER ADVERSE CONSEQUENCES
Because of consolidations in the semiconductor equipment industry served by us
and other competitive factors, our management will seek to acquire additional
product lines, technologies, and businesses if suitable opportunities develop.
Acquisitions may result in the issuance of our stock, which may dilute our
stockholders' ownership interests and reduce earnings per share. Acquisitions
may also increase debt levels and the amortization of goodwill and other
intangible assets, which could have a significant negative effect on our
financial condition and operating results. In addition, acquisitions involve
numerous risks, including:
- - Difficulties in absorbing the new business, product line, or technology
- - Diversion of management's attention from other business concerns
- - Entering new markets in which we have little or no experience
- - Possible loss of key employees of the acquired business
COSTS ASSOCIATED WITH OUR IDLE FACILITIES HAVE INCREASED AS A PERCENT OF SALES
WHILE REVENUES HAVE DECREASED
We are not currently able to fully utilize the new manufacturing facilities we
added in the last several years. These additional facilities and related costs
have increased our overall operating expenses. These higher expenses, together
with lower revenues, are having a negative effect on our gross profit margins.
This negative effect will continue until we are able to increase our use of our
facilities.
BECAUSE OF THE VOLATILITY OF OUR STOCK PRICE, YOUR ABILITY TO TRADE FSI SHARES
MAY BE ADVERSELY AFFECTED AND OUR ABILITY TO RAISE CAPITAL THROUGH FUTURE EQUITY
FINANCINGS MAY BE REDUCED
The price of our stock has been volatile in the past and may continue to be so
in the future. In the 1999 fiscal year, for example, our stock price ranged from
$3.50 to $14.31 per share. In the first six months of our current fiscal year,
our stock price has ranged from $6.19 to $20.00 per share. The potential reasons
for this volatility include:
- - Variations in our actual or anticipated financial results from quarter to
quarter
- - Announcements made by us, our competitors, or our customers
- - Government regulations
- - Industry developments
- - General market conditions
The prices of technology stocks, including ours, have been particularly affected
by extreme fluctuations in price and volume in the stock market generally. These
fluctuations have often been unrelated to the operating performance of the
companies whose stock is traded. These broad stock market fluctuations may have
a negative effect on our future stock price.
BECAUSE OUR QUARTERLY OPERATING RESULTS ARE VOLATILE, OUR STOCK PRICE COULD
DECREASE
In the past, our operating results have fluctuated from quarter to quarter and
are likely to do so in the future. These fluctuations may have a significant
impact on our stock price. The reasons for the fluctuations in our operating
results, such as sales, gross profits, and net income, include:
- - Economic conditions in the microelectronics industry
- - Financial results of our affiliates
- - A large portion of revenues being generated by a small number of sales
16
<PAGE> 17
- - Timing of orders placed by major customers
- - Competitive pricing pressures
- - The proportion of total sales made up by international sales
- - Product modifications requested by customers
- - Product mix and performance
- - Utilization of manufacturing capacity
BECAUSE INTERNATIONAL SALES ARE IMPORTANT TO US, AND BECAUSE MOST OF OUR
INTERNATIONAL SALES ARE THROUGH OUR AFFILIATED DISTRIBUTORS, REDUCTIONS IN THE
SALES EFFORTS OF THESE AFFILIATES COULD ADVERSELY AFFECT OUR RESULTS
The profits or losses of our affiliated distributors, Metron Technology B.V. and
m-FSI Ltd., can also significantly affect our financial results. We make most of
our international sales through these affiliated distributors. We have a 21.7%
ownership interest in Metron and a 49% interest in m-FSI. Fiscal 1999 sales
through m-FSI were $1.5 million or 1.3% of our total sales. Fiscal 1999 sales
through Metron were $28.7 million or 25.3% of our total sales. In addition,
these affiliates also provide service and support to many of our international
customers. Metron and m-FSI also distribute or sell products for companies other
than us. It could have a negative effect on our operating results if either of
these affiliates reduced its sales efforts, lost the business of a significant
company for which it distributes or sells products, or otherwise became less
financially viable.
We cannot guarantee that Metron or m-FSI will continue to successfully
distribute our products or the products of other companies. The failure of
Metron or m-FSI to do so could have a significant negative effect on our results
of operations.
CHANGES IN DEMAND CAUSED BY FLUCTUATIONS IN INTEREST AND CURRENCY EXCHANGE RATES
MAY REDUCE OUR INTERNATIONAL SALES
Almost all of our direct international sales are denominated in U.S. dollars.
Nonetheless, changes in demand caused by fluctuations in interest and currency
exchange rates may affect our international sales. Most of our international
sales, however, are through our affiliated distributors. Metron's sales of our
products and other companies' products are primarily denominated in U.S.
dollars, but its expenses are generally denominated in foreign currencies.
Accordingly, fluctuations in interest and currency exchange rates may affect
Metron's financial results. m-FSI sales are denominated in yen. As a result,
U.S. dollar/yen exchange rates may affect our equity interest in m-FSI's
earnings.
Metron and moFSI sometimes engage in so-called "hedging" or risk-reducing
transactions to try to limit the negative effects that the devaluation of
foreign currencies relative to the U.S. dollar could have on operating results.
They will do so if a sale denominated in a foreign currency is sufficiently
large to justify the costs of hedging. To hedge a sale, Metron or m-FSI will
typically commit to buy U.S. dollars and sell the foreign currency at a given
price at a future date. If the customer cancels the sale, Metron or m-FSI may be
forced to buy U.S. dollars and sell the foreign currency at market rates to meet
its hedging obligations and may incur a loss in doing so. To date, the hedging
activities of Metron and m-FSI have not had any significant negative effect on
us.
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<PAGE> 18
BECAUSE OF THE NEED TO MEET AND COMPLY WITH NUMEROUS FOREIGN REGULATIONS AND
POLICIES, THE VOLATILITY OF THE POLITICAL AND ECONOMIC ENVIRONMENTS IN FOREIGN
JURISDICTIONS AND THE DIFFICULTY OF MANAGING BUSINESS OVERSEAS, WE MAY NOT BE
ABLE TO SUSTAIN OUR HISTORICAL LEVEL OF INTERNATIONAL SALES
We and our affiliates operate in a global market. In fiscal 1999, approximately
29% of our sales revenue derived from sales outside the United States. In fiscal
1998, this figure was 39%, and in fiscal 1997 it was 32%. These figures include
sales through Metron and moFSI, which accounted for 92% of international sales
in 1999, 95% in 1998, and 98% in 1997. We expect that international sales will
continue to represent a significant portion of total sales. Sales to customers
outside the United States involve a number of risks, including the following:
- - Imposition of government controls
- - Compliance with U.S. export laws and foreign laws
- - Political and economic instability
- - Trade restrictions
- - Changes in taxes and tariffs
- - Longer payment cycles
- - Difficulty of administering business overseas
- - General economic conditions
In particular, the Japanese and Asia Pacific markets are extremely competitive.
The semiconductor device manufacturers located there are very aggressive in
seeking price concessions from suppliers, including equipment manufacturers like
us. In fiscal 1999, approximately 29% of our international sales were
attributable to these markets. Total sales to these markets have declined from
$21.2 million in fiscal 1997 to $9.4 million in fiscal 1999.
We seek to meet technical standards imposed by foreign regulatory bodies.
However, we cannot guarantee that we will be able to comply with those standards
in the future. Any failure by us to design products to comply with foreign
standards could have a significant negative impact on us.
BECAUSE OF THE SIGNIFICANT FINANCIAL RESOURCES NEEDED TO OFFER A BROAD RANGE OF
PRODUCTS, TO MAINTAIN CUSTOMER SERVICE AND SUPPORT AND TO INVEST IN RESEARCH AND
DEVELOPMENT, WE MAY BE UNABLE TO COMPETE WITH LARGER, BETTER-ESTABLISHED
COMPETITORS
The microelectronics equipment industry is highly competitive. We face
substantial competition throughout the world. We believe that to remain
competitive, we will need significant financial resources to offer a broad range
of products, to maintain customer service and support, and to invest in research
and development. We believe that the microelectronics industry is becoming
increasingly dominated by large manufacturers who have the resources to support
customers on a worldwide basis. Some of our competitors have substantially
greater financial, marketing, and customer-support capabilities than us. Large
equipment manufacturers may enter the market areas in which we compete. In
addition, smaller, emerging microelectronics equipment companies provide
innovative technology. We expect that our competitors will continue to improve
the design and performance of their existing products and processes. We also
expect them to introduce new products and processes with better performance and
pricing. We cannot guarantee that we will continue to compete effectively in the
United States or elsewhere.
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<PAGE> 19
BECAUSE WE DO NOT HAVE LONG-TERM SALES COMMITMENTS WITH OUR CUSTOMERS, IF THESE
CUSTOMERS DECIDE TO REDUCE, DELAY OR CANCEL ORDERS OR CHOOSE TO DEAL WITH OUR
COMPETITORS, THEN OUR RESULTS WILL BE ADVERSELY AFFECTED
If our significant customers, including IBM, Texas Instruments, or National
Semiconductor, reduce, delay, or cancel orders, then our operating results will
suffer. Our largest customers have changed from year to year. Sales to FSI's top
five customers accounted for approximately 49%, 41% and 45% of total sales in
fiscal 1999, 1998, and 1997, respectively. IBM accounted for more than 10% of
revenue during each of the last three years, representing 24% in fiscal 1999,
14% in fiscal 1998 and 22% in fiscal 1997. Texas Instruments accounted for 13%
of revenues during fiscal 1999. National Semiconductor accounted for 12% and 10%
of revenues in fiscal 1998 and 1997. We currently have no long-term sales
commitments with any of our customers. Instead, we generally make sales under
purchase orders.
BECAUSE WE RETAINED CERTAIN LIABILITIES FROM THE DIVESTITURE OF THE CHEMICAL
MANAGEMENT DIVISION OR AGREED TO INDEMNIFY BOC WITH RESPECT TO SPECIFIED
OBLIGATIONS AND LIABILITIES, WE MAY EXPERIENCE CHARGES IN EXCESS OF THE RESERVES
ESTABLISHED AT THE TIME OF THE DIVESTITURE WHICH COULD NEGATIVELY IMPACT RESULTS
FROM OPERATIONS
In connection with the divestiture of the Chemical Management Division, we
retained certain liabilities and agreed to indemnify BOC with respect to certain
specified obligations and liabilities. We had prepared the closing statement,
but BOC raised certain objections to it. The parties have resolved those
objections and came to an agreement regarding a purchase price adjustment. At
the time of the divestiture, we recorded reserves for known liabilities. As a
result of the closing statement of net assets negotiations, in the first quarter
of fiscal 2000, we established an additional $400,000 reserve for expected costs
associated with completing two projects that were in process when BOC purchased
the division. If we experience liabilities or charges in excess of established
reserves, our results of operations could be adversely impacted due to
additional costs associated with reserves.
BECAUSE WE DEPEND UPON OUR MANAGEMENT AND TECHNICAL PERSONNEL FOR OUR SUCCESS,
THE LOSS OF KEY PERSONNEL COULD PLACE US AT A COMPETITIVE DISADVANTAGE
Our success depends to a significant extent upon our management and technical
personnel. The loss of a number of these key persons could have a negative
effect on our operations. Competition is high for such personnel in our industry
in all locations. We periodically review our compensation and benefit packages
to ensure that they are competitive in the marketplace and make adjustments or
implement new programs for that purpose, as appropriate. We cannot guarantee
that we will continue to attract and retain the personnel we require to continue
to grow and operate profitably.
BECAUSE OUR INTELLECTUAL PROPERTY IS IMPORTANT TO OUR SUCCESS, THE LOSS OR
DIMINUTION OF OUR INTELLECTUAL PROPERTY RIGHTS THROUGH LEGAL CHALLENGE BY OTHERS
OR FROM INDEPENDENT DEVELOPMENT BY OTHERS, COULD ADVERSELY AFFECT OUR BUSINESS
We attempt to protect our intellectual property rights through patents,
copyrights, trade secrets, and other measures. However, we believe that our
financial performance will depend more upon the innovation, technological
expertise, and marketing abilities of our employees than on such protection. In
connection with our intellectual property rights, we face the following risks:
- - Our pending patent applications may not be issued or may be issued with more
narrow claims
- - Patents issued to us may be challenged, invalidated, or circumvented
- - Rights granted under issued patents may not provide competitive advantages
to us
- - Foreign laws may not protect our intellectual property rights
- - Others may independently develop similar products, duplicate our products,
or design around our patents
As is typical in the semiconductor industry, we occasionally receive notices
from others alleging infringement claims. We have been involved in patent
infringement litigation in the past and SCD Mountain View is currently
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involved in such litigation. We could become involved in similar lawsuits or
other patent infringement claims in the future. We cannot guarantee the outcome
of such lawsuits or claims, which may have a significant negative effect on our
business or operating results. See discussion on legal proceedings in Part II,
Item 1.
ADOPTION OF THE COMMON EUROPEAN CURRENCY MAY ADVERSELY AFFECT US AND OUR
AFFILIATED DISTRIBUTORS BY REQUIRING SYSTEMS MODIFICATIONS AND POSSIBLY
INCREASING THEIR CURRENCY EXCHANGE RISKS
We are in the process of analyzing the issues raised by the introduction of the
common European currency unit, the "Euro." The use of the Euro began on January
1, 1999 and will be phased-in through January 1, 2002. We do not expect the cost
of any necessary systems modification to be material and do not anticipate that
the introduction and use of the Euro will materially affect our results or those
of our affiliated distributors' international business operations.* Nor do we
expect the Euro to have a material effect on the currency exchange risks of our
or our affiliated distributors' businesses.* Our affiliate in Europe is
assessing their information technology systems to determine whether they will
accommodate the eventual elimination of the legacy currencies. If their
information technology systems are unable to do so, they would have to be
upgraded or replaced. Our management will continue to monitor the effect of the
implementation of the Euro.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our cash flows and earnings are subject to fluctuations in foreign exchange
rates due to investments in foreign-based affiliates. Our investments in
affiliates include a 21.7% interest in Metron Technology (Metron) and a 49%
interest in moFSI Ltd. Metron operates mainly in Europe, Asia Pacific and the
United States. moFSI Ltd. operates in Japan. Approximately 95% of fiscal 1999
sales to affiliates were to Metron. We denominate all U.S. export sales in U.S.
dollars
Metron attempts to limit its exposure to changing foreign currency exchange
rates through operational and financial market actions. Products are sold in a
number of countries throughout the world resulting in a diverse portfolio of
transactions denominated in foreign currencies. Certain short-term foreign
currency exposures are managed by the purchase of forward contracts to offset
the earnings and cash flow impact of non-functional currency denominated
receivables and payables.
We do not have significant exposure to changing interest rates as all material
outstanding debt was repaid on September 3, 1999 and all marketable securities
consist of debt instruments, all of which mature within one year. As of February
26, 2000, amortized cost approximates market value for all outstanding
marketable securities. We do not undertake any specific actions to cover our
exposure to interest rate risk and we are not party to any interest rate risk
management transactions.
Our investment in our affiliate, Metron, is accounted for by the equity method
of accounting and has a carrying value on the balance sheet of approximately
$13.3 million. The fair value of Metron is subject to stock market fluctuations.
Based on the closing stock price of Metron on February 25, 2000, the fair value
of our investment in Metron, was approximately $67.3 million.
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<PAGE> 21
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS There has been substantial litigation regarding
patent and other intellectual property rights in the
microelectronics industry recently. Commercialization of new
products or further commercialization of FSI's current products
could provoke claims of infringement by third parties. In the
future, litigation may be necessary to enforce patents issued to
FSI, to protect trade secrets or know-how owned by FSI or to defend
FSI against claimed infringement of the rights of others and to
determine the scope and validity of FSI's proprietary rights. Any
such litigation could result in substantial costs and diversion of
effort by FSI, which by itself could have a material adverse impact
on FSI's financial condition and operating results. Further, adverse
determinations in such litigation could result in FSI's loss of
proprietary rights, subject FSI to significant liabilities to third
parties, require FSI to seek licenses from third-parties or prevent
FSI from manufacturing or selling one or more products, any of which
could have a material adverse effect on FSI's financial condition
and results of operations.
In October 1996, Eric C. and Angie L. Hsu (the "plaintiffs") filed a
lawsuit in the Superior Court of California, County of Alameda,
Southern Division, against Semiconductors Systems, Inc. ("SSI"), a
wholly-owned subsidiary of FSI that was acquired in April 1996, and
the former shareholders of SSI. In the fall of 1995, pursuant to the
Employee Stock Purchase and Shareholder Agreement dated November 30,
1990 between Mr. Hsu and SSI (the "Shareholder Agreement") and in
connection with Mr. Hsu's termination of his employment with SSI in
August 1995, the former shareholders of SSI purchased the shares of
SSI common stock then held by Mr. Hsu. The plaintiffs are claiming,
among other things, that such purchase breached the Shareholder
Agreement and violated the California Corporations Code, breached
the fiduciary duty owed plaintiffs by the individual defendants and
constituted fraud. The plaintiffs are seeking, among other things,
damages in an amount to be proven at trial, punitive damages,
attorneys' fees and a constructive trust over the shares held in the
escrow mentioned below. Plaintiffs' claim for punitive damages was
dismissed by the trial court. SSI intends to vigorously defend the
lawsuit and FSI currently believes the trial will commence later in
2000.
FSI, on behalf of SSI, has made a claim with respect to the lawsuit
under the escrow created at the time of FSI's acquisition of SSI.
The escrow was established to secure certain indemnification
obligations of the former shareholders of SSI. The former
shareholders have agreed to hold FSI and SSI harmless from any claim
arising out of any securities transactions between the shareholders
or former shareholders of SSI and SSI. The escrow consists of an
aggregate of 250,000 shares of FSI Common Stock paid to the former
shareholders of SSI as consideration in the acquisition.
CFM Technologies, Inc. and CFMT, Inc. (collectively "CFM") filed a
complaint against YieldUP in United States District Court for the
District of Delaware in September 1995. The complaint alleged that
the drying process incorporated in certain YieldUP products
infringes a patent held by CFM. On October 14, 1997, a federal court
for the District of Delaware ruled in YieldUP's favor. In a written
opinion granting summary judgment for YieldUP, the United States
District Court held that CFM had failed to produce evidence on three
separate elements of the patent claim. To establish infringement,
evidence of all three elements was required. On June 30, 1998, the
United States District Court of Delaware granted CFM's petition for
re-argument of the summary judgment motion, and the re-argument
briefs have been filed by both parties. The judge has not yet ruled
as to whether to sustain his earlier ruling. If the original order
is overturned, the litigation may proceed to trial, and the
litigation and the associated costs may, and an unfavorable
adjudication could, have a material adverse impact on FSI.* CFM is
asking for monetary damages and an injunction against YieldUP's use
of the products at issue. A loss, if any resulting from an
unfavorable adjudication, cannot presently be estimated.
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CFM filed an additional complaint against YieldUP in United States
District Court for the District of Delaware on December 30, 1998.
The complaint alleged that the cleaning process incorporated in
certain of YieldUP's products infringes two patents held by CFM;
U.S. Patent Nos. 4,917,123 and 4,778,532. YieldUP plans to
vigorously defend its intellectual property rights against any and
all claims. FSI believes that the additional CFM patent infringement
lawsuit is without merit and that none of YieldUP's technology and
products infringes any of the CFM patents asserted in that
litigation. FSI believes YieldUP's technology is substantially
different from CFM's patented technology. YieldUP has filed an
answer to the complaint and a counter claim for non-infringement and
invalidity of CFM's patents. CFM is asking for monetary damages and
an injunction against YieldUP's use of those products at issue. A
loss, if any, resulting from an unfavorable adjudication, cannot
presently be estimated. The associated costs may, and an unfavorable
adjudication could, have a material adverse impact on FSI.
On April 4, 2000 the United States District Court for the District
of Delaware granted YieldUP's motion for summary judgment that the
`123 and `532 patents are invalid. YieldUP's counterclaims are still
pending and FSI anticipates that they will be tried in the near
future. Once judgment is entered based upon the courts granting
YieldUP's summary judgment motion, the courts' order may be appealed
by CFM.
Other than the litigation described above or routine litigation
incidental to FSI's business, there is no material litigation to
which FSI is a party or of which any of its property is subject.
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on January 25,
2000, the shareholders approved the following:
(1) Election of one Class I Director to serve a three-year term. The
nominated director was elected as follows:
<TABLE>
<CAPTION>
DIRECTOR-NOMINEE VOTES FOR VOTES ABSTENTIONS
---------------- --------- -----------------
<S> <C> <C>
James A. Bernards 21,665,880 1,616,462
</TABLE>
Charles R. Wofford and Terrence W. Glarner, as Class III Directors,
and Joel A. Elftmann and Thomas D. George, as Class II Directors,
continue to serve as directors of the Company.
(2) Proposal to increase the number of shares authorized under FSI
International, Inc.'s 1997 Omnibus Stock Plan by 400,000
shares. The proposal received 17,650,372 votes for and
5,074,429 votes against. There were 559,350 abstentions.
ITEM 5. OTHER INFORMATION
None
22
<PAGE> 23
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a)(3) Exhibits
* An asterisk next to a listed Exhibit indicates it is an
executive compensation plan or arrangement
2.0 Agreement and Plan of Reorganization, dated as of January 21,
1999 among FSI International, Inc., BMI International, Inc. and
YieldUP International, Corporation (15)
2.1 License Agreement for Microelectronic Technology between
YieldUP International, Corporation and FSI International, Inc.
dated January 21, 1999. (15)
2.2 Agreement and Plan of Reorganization by and Among FSI
International, Inc., Spectre Acquisition Corp., and
Semiconductor Systems, Inc. (1)
2.3 Asset Purchase Agreement dated as of June 9, 1999 between FSI
International, Inc. and The BOC Group, Inc. (15)
3.1 Restated Articles of Incorporation of the Company. (2)
3.2 Restated By-Laws. (3)
3.3 Amendment to Restated By-Laws. (4)
3.4 Amendment to Restated By-Laws. (17)
3.5 Articles of Amendment of Restated Articles of Incorporation
(17)
4.2 Form of Rights Agreement dated as of May 22, 1997 between FSI
International, Inc. and Harris Trust and Savings Bank, National
Association, as Rights Agent (6)
4.3 Amendment dated March 26, 1998 to Rights Agreement dated May
22, 1997 by and between FSI International, Inc. and Harris
Trust and Saving Bank,, National Association as Rights Agent
(7)
*10.1 FSI International, Inc. 1997 Omnibus Stock Plan (5)
*10.2 Split Dollar Insurance Agreement and Collateral Assignment
Agreement dated December 28, 1989, between the Company and Joel
A. Elftmann. (Similar agreements between the Company and each
of Dale A. Courtney, Patricia M. Hollister, Luke R. Komarek,
Benno G. Sand and Benjamin J. Sloan, have been omitted, but
will be filed if requested in writing by the Commission):(8)
10.3 Lease dated June 27, 1985, between the Company and Lake
Hazeltine Properties. (3)
10.4 Lease dated September 1, 1985, between the Company and
Elftmann, Wyers, Blackwood Partnership. (3)
10.5 Lease dated September 1, 1985, between the Company and
Elftmann, Wyers Partnership. (3)
10.6 Amendment No. 1 dated February 11, 1991 to lease between the
Company and Elftmann, Wyers, Blackwood Partnership (17)
10.7 Amendment No. 2 dated July 31, 1999 to lease between the
Company and Elftmann, Wyers, Blackwood Partnership (17)
*10.8 1989 Stock Option Plan. (4)
*10.9 Amended and Restated Employees Stock Purchase Plan.(14)
10.10 Shareholders Agreement among FSI International, Inc. and Mitsui
& Co., Ltd. and Chlorine Engineers Corp. Ltd. dated as of
August 14, 1991. (8)
10.11 FSI Exclusive Distributorship Agreement dated as of August 14,
1991 between FSI International, Inc. and moFSI, Ltd. (8)
10.12 FSI Licensing Agreement dated as of August 14, 1991, between
FSI International, Inc. and moFSI, Ltd. (8)
10.13 Amendment to FSI/Metron Distribution Agreement dated July 31,
1999 (18)
10.15 License Agreement, dated October 15, 1991, between the Company
and Texas Instruments Incorporated. (9)
10.16 Amendment No. 1, dated April 10, 1992, to the License
Agreement, dated October 15, 1991, between the Company and
Texas Instruments Incorporated. (9)
10.17 Amendment effective October 1, 1993 to the License Agreement,
dated October 15, 1991 between the Company and Texas
Instruments Incorporated (10)
23
<PAGE> 24
*10.18 Amended and Restated Directors' Nonstatutory Stock Option Plan.
(11)
*10.19 Management Agreement between FSI International, Inc. and Joel
A. Elftmann, effective as of June 5, 1998 (filed herewith)
(Similar agreements between the Company and its executive
officers have been omitted but will be filed if requested in
writing by the commission.)(14)
*10.20 FSI International, Inc. 1994 Omnibus Stock Plan. (12)
*10.21 FSI International, Inc. 1998 Incentive Plan. (14)
10.22 First Amendment to Lease made and entered into October 31, 1995
by and between Lake Hazeltine Properties and FSI International,
Inc. (13)
10.23 Distribution Agreement made and entered into as of March 31,
1998 by and between FSI International, Inc. and Metron
Technology B.V. (Exhibits to Agreement omitted) (14)
10.24 Lease dated August 9, 1995 between Skyline Builders, Inc. and
FSI International, Inc. (13)
10.25 Lease Rider dated August 9, 1995 between Skyline Builders, Inc.
and FSI International, Inc. (13)
10.29 Lease Amendment dated November, 1995 between Roland A. Stinski
and FSI International, Inc. (Exhibits to Amendment omitted)
(13)
*10.30 Employment Agreement entered into as of December 12, 1999 by
and between FSI International, Inc. and Donald S. Mitchell.
(filed herewith)
27.0 Financial Data Schedule (filed herewith)
(1) Filed as an Exhibit to the Company's Registration Statement on Form S-4
(as amended) dated March 21, 1996, SEC File No. 333-1509 and
incorporated by reference.
(2) Filed as an Exhibit to the Company's Report on Form 10-Q for the
quarter ended February 24, 1990, SEC File No. 0-17276, and incorporated
by reference.
(3) Filed as an Exhibit to the Company's Registration Statement on Form
S-1, SEC File No. 33-25035, and incorporated by reference.
(4) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 26, 1989, SEC File No. 0-17276, and incorporated by
reference.
(5) Filed as an Exhibit to the Company's Report on Form 10-Q for the fiscal
quarter ended March 1, 1997, SEC File No. 0-17276, and incorporated by
reference.
(6) Filed as an Exhibit to the Company's Report on Form 8-K, filed by the
Company on June 5, 1997, SEC File No. 0-17276, and incorporated by
reference.
(7) Filed as an Exhibit to the Company's Report on Form 8-A/A-1, filed by
the Company on April 16, 1998, Sec File No. 0-17276 and incorporated by
reference.
(8) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 31, 1991, as amended by Form 8 dated January 7, 1992,
SEC File No. 0-17276, and incorporated by reference.
(9) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 29, 1992, File No. 0-17276, and incorporated by
reference.
(10) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 28, 1993, SEC File No. 0-17276, and incorporated by
reference.
(11) Filed as an Exhibit to the Company's Report on Form 10-Q for the fiscal
quarter ended May 28, 1994, SEC File No. 0-17276, and incorporated by
reference.
(12) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 27, 1994, SEC File No. 0-17276, and incorporated by
reference.
(13) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 26, 1995, SEC File No. 0-17276 and incorporated by
reference.
(14) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 29, 1998, SEC File No. 0-17276, and incorporated by
reference.
(15) Filed as an Exhibit to the Company's Report on Form 8-K, filed by the
Company on June 23, 1999, SEC File No. 0-17276 and incorporated by
reference.
(16) Filed as an Exhibit to the Company's Report on Form S-4, filed by the
Company on September 13, 1999, SEC File No. 333-87003 and incorporated
by reference.
(17) Filed as an Exhibit to the Company's Report on Form 10-K for the fiscal
year ended August 28, 1999, SEC File No. 0-17276, and incorporated by
reference.
(18) Filed as an Exhibit to the Company's Report on Form 10-Q for the fiscal
quarter ended November 27, 1999, SEC File No. 0-17276 and incorporated
by reference.
- ---------------
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the second quarter ended
February 26, 2000.
24
<PAGE> 25
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FSI INTERNATIONAL, INC.
. . . . . . . . . . . .
[Registrant]
DATE: April 11, 2000
By: /s/Patricia M. Hollister
------------------------
Chief Financial Officer
on behalf of the
Registrant and as
Principal Financial Officer
25
<PAGE> 1
EXHIBIT 10.30
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 10th day of
December, 1999, by and between FSI International, Inc., a Minnesota corporation
(hereinafter "FSI"), and Donald S. Mitchell who has agreed to accept employment
in Minnesota with FSI as Chief Executive Officer and President (hereinafter
"Employee").
DEFINITIONS
Specific terms used in this Agreement have the following
meanings:
"Base Annual Salary" shall mean the highest annual rate of the
Employee's base salary with the Company during the 12 (twelve)
months preceding the date of termination of the Employee's
employment with the Company and its Subsidiaries (without
reduction for any salary reduction or other deferral
contribution to any employee benefit plan sponsored by the
Company).
"Cause" shall mean and be limited to, (i) willful and gross
neglect of duties by the Employee or (ii) an act or acts
committed by the Employee constituting a felony under United
States federal or applicable state law and substantially
detrimental to the Company or any Subsidiary or the reputation
of the Company or any Subsidiary, so long as Employee is given
written notice thereof and fails to promptly cure (if such
"Cause" can be cured) and subsequently there is a
determination by a resolution duly adopted by the affirmative
vote of not less than two-thirds of the entire membership of
the Board at a meeting thereof called and held for such
purpose (after reasonable notice is provided to the Employee
and the Employee is given an opportunity to be heard before
the Board) finding that in the good faith opinion of the Board
the Employee is guilty of the conduct described above in (i)
or (ii).
"Company" means, separately and collectively, FSI and any
entity in which FSI has an ownership interest, directly or
indirectly, of at least 20% (twenty percent) of the
outstanding shares of such entity.
"Competing Product"
(a) for the period you are an Employee of the
Company means any product or service that
competes with or will compete with any
product, product line, or service that is
sold, marketed, produced, distributed,
leased, or under development by the Company
with respect to which Employee performed
services of any kind or nature during the 24
(twenty-four) month period ending on the
date of the conduct at issue;
(b) for the period after Employee's employment
with the Company, has ended, any product or
service that competes with or will compete
with any product, product line, or service
that is sold, marketed, produced,
distributed, leased, or under development by
1
<PAGE> 2
the Company with respect to which Employee
performed services of any kind or nature
during the 24 (twenty-four) month period
ending on the date Employee's employment
with the Company ends.
"Confidential Information" means certain proprietary
information maintained in confidence by the Company as
intellectual property, trade secrets, or otherwise, including
but not limited to information relating to (i) the Company's
finances, processes, products, services, research, and
development, and (ii) its manufacturing, purchasing,
accounting, engineering, designing, marketing, merchandising,
selling, distributing, leasing, and servicing systems and
techniques; it also includes plans or proposals with regard to
any of the foregoing, whether implemented or not. All
information originated by Employee, or disclosed to Employee,
or to which Employee otherwise gains access, during the period
of Employee's employment with FSI that the Employee has reason
to believe is Confidential Information, or that is
characterized or treated by the Company as being Confidential
Information, or that would be of economic value to a third
party, shall be presumed to be Confidential Information.
"Customer" means any firm, person, corporation, or other
entity
(i) to whom or to which the Company has sold,
distributed, or leased its products or
services, or
(ii) whom or which the Company has solicited for
sales, distribution, or leasing of its
products or services,
whether directly or indirectly, and whether by or through
employees of the Company or of affiliated sales organizations.
"Customer Information" means information relating to
Customers' operations, processes, products, and research and
development and to Customers' manufacturing, purchasing, and
engineering systems and techniques.
"Restricted Country" means any nation or country in which the
Company had Customers, had business operations, or otherwise
did business, directly or indirectly, in the 24 (twenty-four)
month period ending on the effective date of the termination
of Employee's employment with FSI.
Terms not specifically defined will be interpreted in light of
the context in which they appear.
AGREEMENT:
In consideration of his/her employment by FSI, and the wages,
salary, and employee benefits to be provided to Employee in compensation for
his/her services, Employee hereby agrees as follows:
1. Employee acknowledges and agrees:
(a) That during the course of his/her employment
with FSI, Employee may have access to Confidential Information; that the Company
has developed and established
2
<PAGE> 3
and will continue to develop and establish a valuable and extensive trade in its
products and services; and that the Company would suffer great loss and
irreparable injury if Employee were to disclose any of the Confidential
Information, or use it in the solicitation of the customers of the Company or
use it to compete with the Company.
(b) That during the course of his/her employment
with FSI, Employee may have access to Customer Information; that Customer
Information obtained by Employee during the course of his/her employment with
FSI is a valuable asset of FSI; and that the Company would suffer great loss and
irreparable injury if Employee were to use Customer Information in the
solicitation of Customers of the Company or to otherwise compete with the
Company.
2. (a) Employee during his/her employment with FSI
and at all times thereafter shall maintain in strictest confidence and shall
not, without FSI's express advance written consent, directly or indirectly
(whether through written or printed materials, electronic media, or oral
communications, and whether Employee's source of information is written or
printed materials, electronic media, oral communications, or his/her own
memory),
(i) copy, or
(ii) transmit, publish, communicate, or otherwise disclose
or make available, or permit or cause to be
transmitted, published, communicated or otherwise
disclosed or made available, to any other firm,
person, corporation or other entity, or
(iii) use as owner, director, officer, manager, trustee,
partner, employee, independent contractor, agent, or
consultant in any business venture or other
enterprise or endeavor, any Confidential Information
or Customer Information.
(b) An exception to the provisions of paragraph
2(a), above, is that in the scope and course of his/her employment with FSI,
Employee may, in furtherance of the Company's business interests, communicate
Confidential Information or Customer Information to other responsible Company
personnel, Customers, and other persons or entities with whom or which the
Company has dealings, who have a need to know such information.
3. During Employee's employment under this Agreement and
for a period of one (1) year following termination of Employee's employment
hereunder, whether voluntary or involuntary:
(a) Employee will inform any new employer, prior
to accepting employment, of the existence of this Agreement and provide such
employer with a copy of this Agreement.
(b)(i) Except for ownership of 1% or less of the
shares of any company listed on a national or regional stock exchange, Employee
will not own any shares of stock or other ownership interest, either directly or
indirectly, or serve as a director, officer, manager, trustee, partner,
employee, independent contractor, agent, or consultant, or otherwise become
active or involved in the management, operation, or representation of a business
or other
3
<PAGE> 4
enterprise that is engaged in or about to engage in selling, marketing,
producing, distributing, leasing, designing, or developing a Competing Product
in any Restricted Country.
(ii) It is provided, however, that Employee may
accept employment with a business organization that is engaged or about to
engage in selling, marketing, producing, distributing, leasing, or developing a
Competing Product in a Restricted Country if (i) such business organization is
diversified to the extent that it has significant operations other than that
portion of the business organization that is engaged or about to engage in
selling, marketing, producing, distributing, leasing, or developing a Competing
Product; (ii) during the entire one year period following termination of
employment with FSI, such Employee will be rendering services to that portion of
the business organization that is not engaged or about to engage in selling,
marketing, producing, distributing, leasing, or developing a Competing Product;
and (iii) prior to acceptance of employment by Employee with such business
organization, separate written assurances satisfactory to FSI shall be received
and accepted by FSI from both the Employee and the business organization, in
each case stating that during the entire one year period following termination
of employment with FSI Employee will not be rendering services to any portion of
the business organization that, directly or indirectly, is engaged or about to
engage in selling, marketing, producing, distributing, leasing, designing, or
developing a Competing Product.
(c) Employee will not, on behalf of
himself/herself or any other person or entity, directly or indirectly sell,
distribute, or lease a Competing Product to, or solicit sales, distribution, or
leasing of a Competing Product to, any Customer with whom Employee communicated,
whether in person, through written or printed materials, or by telephone,
electronic mail, or other form of electronic transmission, during the 24
(twenty-four) month period ending on the effective date of the termination of
Employee's employment with FSI. This paragraph 3(c) shall not be interpreted to
limit or restrict in any way the commitments of Employee set forth in paragraph
3(b), above.
(d) Employee will not, directly or indirectly,
persuade, encourage, or entice, or attempt to persuade, encourage or entice:
employees of the Company to terminate their employment relationship with the
Company; manufacturers or suppliers to adversely alter, or modify, or to
discontinue, their relationship with the Company unless at the written request
of FSI's President or Vice President of Human Resources; or Customers to
discontinue purchasing from the Company.
4. If Employee is terminated by Company other than for
Cause, then Company shall pay Employee his Base Annual Salary for 1 (one) year,
such payments to be made during the Company's normal payroll periods at
Employee's last known address; provided, however, that the Company is not
obligated to pay such benefits if a majority of the Board of Directors
determines after giving Employee notice and an opportunity to be heard that he
has breached (and failed to cure, if such breach can be cured) any of Sections
2, 3, or 5 of the Agreement. Further, Employee shall not be entitled to such
severance payments in the event he voluntarily resigns. Such payments shall be
in lieu of any payments under the Company's Severance Plan and are conditioned
upon Employee's execution of a release in the form attached hereto and the
expiration (without rescission) of the applicable rescission period.
5. Upon termination of his/her employment with FSI, Employee
agrees to deliver promptly to FSI all records, manuals, books, blank forms,
documents, letters, memoranda, notes, notebooks, reports, data, tables,
photographs, videotapes, audio tapes,
4
<PAGE> 5
computer disks or other form of computer storage, and calculations or copies
thereof, whether in written or printed materials or electronic media of any kind
or nature, which are the property of the Company or which relate in any way to
the business, products, practices, or techniques of the Company and all other
property, Confidential Information, and Customer Information including, but not
limited to, all documents and electronic media which in whole or in part contain
any Confidential Information or Customer Information, whether or not
constituting intellectual property or trade secrets, which in any of these cases
are in his/her possession or under his/her control. Employee shall be permitted
to retain personal correspondence, documents and items which contain no
Confidential Information or Customer Information; prior to removing any such
personal materials, Employee will review them with a representative designated
by FSI.
6. Employee's employment is at-will. Neither this
Agreement, in whole or in part, nor any action taken hereunder shall be
construed as giving Employee any right to be retained in the employ of FSI for
any particular period of time nor shall it otherwise limit FSI's right to
terminate the employment of Employee at any time, with or without cause or
reason, or the Employee's right to resign.
7. Employee specifically acknowledges and agrees that
the terms and conditions of the above restrictive covenants are reasonable and
necessary for the protection of FSI's business, Confidential Information, and
Customer Information, whether or not characterized as intellectual property or
trade secrets, and to prevent damage or loss to FSI as a result of any action
taken by Employee.
8. Employee hereby acknowledges and agrees that any
breach by Employee of the foregoing provisions may cause FSI irreparable injury
for which there is no adequate remedy at law. Therefore, Employee expressly
agrees that FSI shall be entitled, in addition to any other remedies available,
to injunctive and/or other equitable relief to require specific performance or
prevent a breach under the provisions of this Agreement. Employee further agrees
that any delay by FSI in asserting a right under this Agreement, or any failure
by FSI to assert a right under this Agreement, does not constitute a waiver by
FSI of any right hereunder, and FSI may subsequently assert any or all of its
rights hereunder as if the delay or failure to assert rights had not occurred.
9. In the event that any portion of this Agreement may
be held to be invalid or unenforceable for any reason, it is hereby agreed that
said invalidity or unenforceability shall not affect the other portions of this
Agreement and that the remaining terms and conditions or portions hereof shall
remain in full force and effect and any court of competent jurisdiction may so
modify the objectionable provision as to make it valid, reasonable, and
enforceable.
10. This Agreement shall be binding upon and shall be
enforceable by the parties hereto and their respective successors and assignees.
11. This Agreement shall be governed by the laws of the
State of Minnesota.
12. This Agreement supersedes any previous agreement,
written or oral, between FSI and Employee relating to the same subject matter.
This Agreement may be amended or terminated only by a subsequent agreement in
writing signed by Employee and an officer of FSI.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first-above written.
FSI INTERNATIONAL, INC. EMPLOYEE
By: /s/J.A. Elftmann /s/D.S. Mitchell
-------------------------- --------------------------
Joel A. Elftmann Donald S. Mitchell
Its: Chairman
6
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<CURRENCY> US DOLLARS
<S> <C>
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0
<COMMON> 187,169,229
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<INTEREST-EXPENSE> 55,418
<INCOME-PRETAX> (2,637,420)
<INCOME-TAX> 0
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<EPS-DILUTED> (0.12)<F2>
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<F1>THIS AMOUNT REPRESENTS BASIC EPS FROM CONTINUING OPERATIONS. BASIC EPS FROM
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<F2>THIS AMOUNT REPRESENTS DILUTED EPS FROM CONTINUING OPERATIONS. DILUTED EPS
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<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
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<PERIOD-START> NOV-29-1999
<PERIOD-END> FEB-27-1999
<EXCHANGE-RATE> 1
<CASH> 72,431,262
<SECURITIES> 23,009,959
<RECEIVABLES> 22,588,849
<ALLOWANCES> 2,355,485
<INVENTORY> 40,918,756
<CURRENT-ASSETS> 188,067,217
<PP&E> 107,954,894
<DEPRECIATION> 44,319,492
<TOTAL-ASSETS> 282,923,659
<CURRENT-LIABILITIES> 49,139,602
<BONDS> 42,000,000
0
0
<COMMON> 164,746,151
<OTHER-SE> 26,998,848
<TOTAL-LIABILITY-AND-EQUITY> 282,923,659
<SALES> 19,147,019
<TOTAL-REVENUES> 19,147,019
<CGS> 13,694,498
<TOTAL-COSTS> 13,694,498
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,688
<INTEREST-EXPENSE> 718,221
<INCOME-PRETAX> (9,002,960)
<INCOME-TAX> (3,510,331)
<INCOME-CONTINUING> (6,274,601)
<DISCONTINUED> (1,299,328)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,573,929)
<EPS-BASIC> (0.27)<F1>
<EPS-DILUTED> (0.27)<F2>
<FN>
<F1>THIS AMOUNT REPRESENTS BASIC EPS FROM CONTINUING OPERATIONS. BASIC EPS FROM
NET LOSS IS (0.33).
<F2>THIS AMOUNT REPRESENTS DILUTED EPS FROM CONTINUING OPERATIONS. DILUTED EPS
FROM NET LOSS IS (0.33).
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-26-2000
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<PERIOD-END> FEB-26-2000
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<SECURITIES> 18,392,251
<RECEIVABLES> 51,066,077
<ALLOWANCES> 3,434,022
<INVENTORY> 47,989,198
<CURRENT-ASSETS> 135,159,818
<PP&E> 118,902,040
<DEPRECIATION> 58,108,570
<TOTAL-ASSETS> 235,115,303
<CURRENT-LIABILITIES> 46,168,923
<BONDS> 0
0
0
<COMMON> 187,169,229
<OTHER-SE> 1,753,806
<TOTAL-LIABILITY-AND-EQUITY> 235,115,303
<SALES> 76,704,497
<TOTAL-REVENUES> 76,704,497
<CGS> 49,449,447
<TOTAL-COSTS> 49,449,447
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 321,223
<INCOME-PRETAX> (12,388,293)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,311,615)
<DISCONTINUED> (400,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,711,615)
<EPS-BASIC> (0.54)<F1>
<EPS-DILUTED> (0.54)<F2>
<FN>
<F1>THIS AMOUNT REPRESENTS BASIC EPS FROM CONTINUING OPERATIONS. BASIC EPS FROM NET
LOSS IS (0.56).
<F2>THIS AMOUNT REPRESENTS DILUTED EPS FROM CONTINUING OPERATIONS. DILUTED EPS FROM
NET LOSS IS (0.56).
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-28-1999
<PERIOD-START> AUG-30-1998
<PERIOD-END> FEB-27-1999
<CASH> 72,431,262
<SECURITIES> 23,009,959
<RECEIVABLES> 22,588,849
<ALLOWANCES> 2,355,485
<INVENTORY> 40,918,756
<CURRENT-ASSETS> 188,067,217
<PP&E> 107,954,894
<DEPRECIATION> 44,319,492
<TOTAL-ASSETS> 282,923,659
<CURRENT-LIABILITIES> 49,139,602
<BONDS> 42,000,000
0
0
<COMMON> 164,746,151
<OTHER-SE> 26,998,848
<TOTAL-LIABILITY-AND-EQUITY> 282,923,659
<SALES> 43,163,120
<TOTAL-REVENUES> 43,163,120
<CGS> 29,857,744
<TOTAL-COSTS> 29,857,744
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (34,126)
<INTEREST-EXPENSE> 1,503,044
<INCOME-PRETAX> (17,827,187)
<INCOME-TAX> (6,795,339)
<INCOME-CONTINUING> (12,112,202)
<DISCONTINUED> (2,540,447)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,652,649)
<EPS-BASIC> (0.52)<F1>
<EPS-DILUTED> (0.52)<F2>
<FN>
<F1>THIS AMOUNT REPRESENTS BASIC EPS FROM CONTINUING OPERATIONS. BASIC EPS FROM NET
LOSS IS (0.63).
<F2>THIS AMOUNT REPRESENTS DILUTED EPS FROM CONTINUING OPERATIONS. DILUTED EPS FROM
NET LOSS IS (0.63).
</FN>
</TABLE>
