<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.
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[FSILOGO]
FSI INTERNATIONAL, INC.
322 LAKE HAZELTINE DRIVE
CHASKA, MINNESOTA 55318
952/448-5440
December 15, 2000
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders to
be held at the Radisson Plaza Hotel, 35 South Seventh Street, Minneapolis,
Minnesota, commencing at 3:30 p.m., Minneapolis time, on Wednesday, January 24,
2001.
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.
Please review the proxy materials carefully and use this opportunity to
take part in the affairs of the Company by voting on the items to be considered
at this meeting.
All Shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, we ask that you mark,
sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any Shareholder attending
the meeting may vote in person even if he or she has returned a proxy.
By Order of the Board of Directors
/s/ DONALD S. MITCHELL
Donald S. Mitchell
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 24, 2001
------------------------------
To our Shareholders:
The Annual Meeting of Shareholders of FSI International, Inc. (the
"Company") will be held at the Radisson Plaza Hotel, 35 South Seventh Street,
Minneapolis, Minnesota on Wednesday, January 24, 2001, at 3:30 p.m., Minneapolis
time, for the following purposes:
1. To elect three Class II directors for a three-year term.
2. To approve an amendment to the Company's 1997 Omnibus Stock Plan to
increase the number of shares reserved for issuance thereunder by
600,000.
3. To approve an amendment to the Company's Employees Stock Purchase Plan
to increase the number of shares reserved for issuance by 250,000.
4. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed December 4, 2000 as the record date for
the meeting, and only Shareholders of record at the close of business on that
date are entitled to receive notice of and vote at the meeting.
By Order of the Board of Directors
/s/ LUKE R. KOMAREK
Luke R. Komarek
Secretary
December 15, 2000
<PAGE> 4
FSI INTERNATIONAL, INC.
------------------------------
PROXY STATEMENT FOR 2001
ANNUAL MEETING OF SHAREHOLDERS
------------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL INFORMATION
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 Wednesday, January 24, 2001 and any adjournment thereof
for the purposes described below and in the accompanying Notice. The Meeting
will be held at the Radisson Plaza Hotel, 35 South Seventh Street, 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
(952) 448-5440. The mailing of this Proxy Statement and accompanying form of
proxy to Shareholders will commence on or about December 18, 2000.
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 4, 2000
are entitled to vote at the Meeting. On the record date 25,439,935 shares of
common stock ("Common Stock"), the only authorized and issued voting security of
the Company, were outstanding. Each Shareholder is entitled to one vote for each
share held and is not entitled to cumulate votes for the election of directors.
Proxies in the accompanying form which are properly signed and duly
returned to an officer of the Company will, unless otherwise specified on the
proxy, be voted for Items 1, 2 and 3 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
1
<PAGE> 5
entitled to vote on that matter at the Meeting, and is in effect a negative
vote, but a Shareholder (including a broker) who does not give authority to a
proxy to vote, or withholds authority to vote, on any matter shall not be
considered present and entitled to vote on that matter.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspector of elections (the "Inspector"). The Inspector will also determine
whether or not a quorum is present. In general, under Minnesota law, a quorum
consists of a majority of the shares entitled to vote which are present or
represented by proxy at the Meeting. The nominees for director will be elected
to the Board if the nominee 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, and in the
Stock 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.
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.)
2
<PAGE> 6
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table lists, as of October 13, 2000 (unless otherwise
indicated below), certain information regarding the beneficial ownership of
Common Stock of the Company by (i) each director, (ii) the nominees for
director; (iii) each executive officer named in the Summary Compensation Table
in this Proxy Statement (the "Named Executives"), (iv) all of such directors,
nominees, Named Executives and other executive officers as a group, and (v) each
person or entity known by the Company to own beneficially more than 5% of the
outstanding Common Stock of the Company. Except as otherwise noted below, each
listed beneficial owner has sole voting and investment power with respect to
such shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF SHARES
NAME OF PERSON OR IDENTITY OF GROUP AGE BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------------------------------------- --- ------------------ ------------------
<S> <C> <C> <C>
EQSF Advisers, Inc. N/A 3,484,000(1) 13.7
767 Third Avenue
New York, NY 10017
Wisconsin Investment Board N/A 2,644,700(1) 10.4
121 East Wilson Street
Madison, WI 53707
High Rock Capital Management N/A 1,304,900(1) 5.1
28 State Street, 18th Floor
Boston, MA 02109
Joel A. Elftmann 60 873,605(2)(3) 3.4
James A. Bernards 54 17,166(2) *
Dale A. Courtney 63 180,662(2) *
Terrence W. Glarner 57 18,822(2) *
Patricia M. Hollister 40 24,372(2) *
Willem D. Maris 61 0 *
Donald S. Mitchell 45 2,316(2)(4) *
Krishnamurthy ("Raj") Rajagopal 47 0 *
Benno G. Sand 46 114,814(2)(5) *
Benjamin J. Sloan 60 191,165(2) *
Charles R. Wofford 67 51,750(2) *
All Nominees, Directors, Named Executives and
other executive officers as a group (16
persons) 1,563,800(2) 6.2
</TABLE>
---------------------------
* Less than 1%
(1) This information was obtained from either the entity's quarterly 13F filings
as of September 30, 2000 that was provided to the Company or from the Nasdaq
National Market, Inc. and identified as representing the entity's quarterly
13F filings reflecting holdings as of September 30, 2000.
(2) Includes 54,999; 13,166; 166,665; 13,166; 22,319; 0; 0; 0; 101,165; 191,165;
51,750 and 81,032 shares issuable pursuant to currently exercisable options
and options exercisable within 60 days of October 13, 2000 in favor of Mr.
Elftmann, Mr. Bernards, Mr. Courtney, Mr. Glarner, Ms. Hollister, Mr. Maris,
Mr. Mitchell, Mr. Rajagopal, Mr. Sand, Mr. Sloan, Mr. Wofford and the
Directors, Nominees, Named Executives and other executive officers as a
group, respectively.
(3) Includes 55,000 shares held in a partnership in which he shares voting and
investment power with his spouse.
(4) Includes 500 shares in which he shares voting and investment power with his
spouse.
(5) Includes 6,065 shares in which he shares voting and investment power with
his spouse.
3
<PAGE> 7
ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
THE NOMINEES AND DIRECTORS
The Company's Articles of Incorporation, as amended, provide that the Board
be divided into three classes of directors of as nearly equal size as possible.
The members of each class are elected to serve a three-year term, and the terms
are staggered. Joel A. Elftmann and Thomas D. George are directors in the class
whose term expires at the Meeting. Terrence W. Glarner and Charles R. Wofford
are Class III Directors with terms expiring in 2002. Donald S. Mitchell and
James A. Bernards are Class I Directors with terms expiring in 2003. Mr. George
has indicated to the Company that he does not wish to stand for reelection.
The Board is recommending that Mr. Elftmann be re-elected a Class II
Director. Given the recent vacancy on the Board, the Board is also recommending
that Willem D. Maris, past Chairman of ASM Lithography, and Krishnamurthy
Rajagopal, Chief Executive Officer of BOC Edwards, be elected as Class II
Directors.
Messrs. Elftmann, Maris and Rajagopal have indicated a willingness to serve
as a director if elected. In case Messrs. Elftmann, Maris or Rajagopal 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
Messrs. Elftmann, Maris or Rajagopal will be unable to serve as a director if
elected.
The accompanying proxy will be voted in favor of the election of the
nominees, unless the Shareholder giving the proxy indicates to the contrary on
the proxy.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE DIRECTOR-NOMINEES.
Certain information concerning the nominees and other directors follows:
Nominees for Election at the 2001 Meeting as a Class II Director
<TABLE>
<S> <C>
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 December 1999, Mr. Elftmann
served as Chief Executive Officer of the Company. From 1977
to August 1983, and from May 1991 until December 1999, Mr.
Elftmann served as President of the Company. Prior to 1977,
Mr. Elftmann was Vice President and General Manager of the
Company. Mr. Elftmann is also Chairman of the Supervisory
Board of Metron Technology B.V. He also has been a director
of Veeco Instruments, Inc. since May 1994.
WILLEM D. MARIS Past Chairman of the Board of Management, President and
Chief Executive Officer, ASM Lithography ("ASML"). Mr. Maris
retired from ASML in December of 1999 after serving as
Chairman of the Board, President and CEO since 1990. He is
currently a member of the Board of Directors of MEMC
Electronic Materials, Inc. and Photronics, Inc. and is the
Chairman of the Supervisory Board of BE Semiconductor
Industries N.V. He also was the recent recipient of a
lifetime achievement award from SEMI Europe.
KRISHNAMURTHY RAJAGOPAL Chief Executive, BOC Edwards since June 1998, a subsidiary
of The BOC Group plc ("BOC Group"). In July 2000 he was
elected as an executive director of The BOC Group Board. He
joined BOC in 1981 and has held several positions at BOC
Edwards. He was appointed Managing Director, Edwards Vacuum
Products in 1993 and Managing Director, Vacuum Technology
Division in 1996. He has a PhD in mechanical engineering. He
currently is a member of the Board of Directors of Osaka
Sanso Kogyo and of several wholly owned subsidiaries of The
BOC Group.
</TABLE>
4
<PAGE> 8
<TABLE>
<S> <C>
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. He also consults with Norwest Venture Capital. 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 Inc., Cima Labs, Inc., Datakey, Inc., Premis
Corporation, and SpectraScience, Inc.
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 1998, Mr. Wofford has been on the board of
directors of ST Assembly Test Services in Singapore. Since
April 1994, Mr. Wofford has been a business and management
consultant. From April 1992 to April 1994, he was Chairman
of the Board, Chief Executive Officer, and President of the
FARR Company, a manufacturer of clean room filtration
systems and equipment. Mr. Wofford was President and Chief
Executive Officer of the FARR Company from September 1991 to
March 1992, and from July 1991 to August 1991 he was
President and Chief Operating Officer. From 1958 to 1991,
Mr. Wofford held a variety of positions with respect to
Texas Instrument's semiconductor operations in the United
States, Europe, Asia, and Latin America, including Senior
Vice President, Semiconductor Group.
Class I Directors Whose Term Continues Until the 2003 Meeting
JAMES A. BERNARDS Mr. Bernards has served as a director of the Company since
July 1981. Since June 1993, Mr. Bernards has been President
of Facilitation, Inc., which provides business and financial
consulting services. Mr. Bernards was President of the
accounting firm of Stirtz, Bernards & Company from May 1981
to June 1993. Since 1986, Mr. Bernards has been President of
Brightstone Capital, Ltd., a venture capital fund manager.
He is also a director of Health Fitness Corporation,
Fieldworks, Inc., Entegris, Inc., August Technology, Inc.,
and several private companies.
DONALD S. MITCHELL Donald S. Mitchell was named Chief Executive Officer and
President of FSI in December 1999 and was named a director
of the Company in March 2000. From its formation in 1998
until December 1999, he was President of Air Products
Electronic Chemicals, Inc., located in Carlsbad, California,
a division of Pennsylvania-based Air Products and Chemicals,
Inc. From 1991 to 1998 he served as President of Schumacher,
a leading global chemical equipment and services supplier to
the semiconductor industry. Throughout his career with
Schumacher, he held various executive positions, including
Vice President of Operations and Vice President of Sales and
Marketing.
</TABLE>
None of the directors or the nominees are related to one another or to any
executive officer of the Company.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board met five times and adopted resolutions by written action nine
times in fiscal 2000. The Board has an Audit, a Compensation, a Finance and a
Nomination Committee.
The Audit Committee, consisting of Messrs. Bernards, George and Glarner,
met six times in fiscal 2000. 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
5
<PAGE> 9
and the responses of management to such recommendations; and reviewing and
discussing with the independent auditors and the Company's management the
Company's financial reporting, loss exposures and internal controls.
The Company has a Compensation Committee consisting of Messrs. Bernards,
Glarner and Wofford. The Compensation Committee adopted resolutions by written
action six times and met four times in fiscal 2000. 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 did not meet in fiscal 2000. Its functions include: reviewing
and approving the investment policy of the Company's benefit plans; reviewing
and recommending debt and equity financings; and reviewing and recommending the
annual financial and capital plans.
The Company's Nomination Committee consists of Messrs. Elftmann, George and
Wofford. It met three times in fiscal 2000. 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 2000, each of the directors attended at least 75% of the
aggregate number of meetings of the Board and of the Committees on which he
serves.
COMPENSATION OF DIRECTORS
Each non-employee director of the Company (an "Outside Director") receives
a quarterly fee of $3,000 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 20,000 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. 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 7,500 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 on the
January 1st following the date of grant. 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; 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
2000 fiscal year totaled $797,200.
6
<PAGE> 10
The 140,000-square-foot facility is leased from a partnership in which all
three such persons are partners under a lease expiring in October 2001. 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. Mr. Rajagopal, a nominee for election to the Board of
Directors, is an executive director of The BOC Group plc which is the parent
company of BOC. In fiscal 2000, the sublease obligations of BOC totaled
$357,400. Under the terms of the prime lease, the Company also pays all real
estate taxes, insurance and maintenance expenses. 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 20.2% of the outstanding common stock of
Metron Technology B.V. ("Metron"), a distributor of the Company's products. Joel
A. Elftmann, Chairman of the Board, 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. Mitchell; John C. Ely, Vice President; President, Surface
Conditioning Division; and Jitesh R. Mehta, Staff Vice President, Asian Business
Development, of the Company, are directors of m-FSI Ltd.
During the 2000 fiscal year, the Company sold approximately $89,717,000 of
its products to Metron and approximately $11,138,000 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 2000 the
Company paid Metron commissions of $663,000 for direct sales by the Company to
Asia-Pacific customers.
In addition to the leasing policy discussed above, the Board has adopted a
policy regarding transactions, other than sales in the normal course of
business, between the Company and any affiliate, including loans from the
Company, requiring that all such transactions be approved by a majority of the
Board and a majority of the disinterested outside directors and that all such
transactions be for a bona fide business purpose and be entered into on terms at
least as favorable to the Company as could be obtained from unaffiliated
independent third parties.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors, certain officers and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
reports of ownership on Form 3 and changes in ownership on Forms 4 or 5 with the
SEC. Such officers, directors and ten percent Shareholders are also required by
the SEC's rules to furnish the Company with copies of all Section 16(a) reports
they file.
Specific due dates for such reports have been established by the SEC and
the Company is required to disclose in this Proxy Statement any failure to file
reports by such dates during fiscal 2000. 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
26, 2000, all Section 16(a) filing requirements applicable to its officers and
directors and any ten percent Shareholders were complied with.
7
<PAGE> 11
REPORT OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future 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 with the SEC, in whole or in
part, the following report shall not be deemed to be incorporated by reference
into any such filing or deemed filed with the SEC under the Securities Act or
Exchange Act.
MEMBERSHIP AND ROLE OF THE AUDIT COMMITTEE
The Audit Committee consists of the following members of the Company's
Board of Directors: James A. Bernards, Thomas D. George and Terrence W. Glarner.
Each of the members of the Audit Committee is independent as defined under the
National Association of Securities Dealers' listing standards. The Audit
Committee operates under a written charter adopted by the Board of Directors
which is included in this proxy statement as Appendix A.
The primary function of the Audit Committee is to provide advice with
respect to the Company's financial matters and to assist the Board of Directors
in fulfilling its oversight responsibilities regarding finance, accounting, and
legal compliance. The Audit Committee's primary duties and responsibilities are
to: (1) monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting and legal compliance;
(2) monitor the independence and performance of the Company's independent
auditors; and (3) provide an open avenue of communication among the independent
auditors, management, and the Board of Directors.
REVIEW OF THE COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED
AUGUST 26, 2000.
The Audit Committee has reviewed and discussed the audited financial
statements of the Company for the fiscal year ended August 26, 2000 with the
Company's management. The Audit Committee has discussed with KPMG LLP, the
Company's independent public accountants, the matters required to be discussed
by Statement on Auditing Standards No. 61 (Communication with Audit Committees).
The Audit Committee has also received the written disclosures and the
letter from KPMG LLP required by Independence Standards Board Standard No. 1
(Independence Discussion with Audit Committees) and the Audit Committee has
discussed with KPMG LLP, their independence.
Based on the Audit Committee's review and discussions noted above, the
Audit Committee recommended to the Board of Directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended August 26, 2000 for filing with the SEC.
JAMES A. BERNARDS THOMAS D. GEORGE TERRENCE W. GLARNER
Members of the Audit Committee
8
<PAGE> 12
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 or future filings under the 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 15 shall not
be incorporated by reference into any such filings, nor shall they be deemed to
be soliciting material or deemed filed with the SEC under the Securities Act or
the Exchange Act.
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board (the "Compensation Committee") is
composed entirely of Outside Directors. The current members of the Compensation
Committee are Messrs. Bernards, Glarner and Wofford. 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 certain 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 the interests of
Shareholders.
The Company's executive compensation program strives to be competitive with
the compensation provided by comparable companies in the high technology and
semiconductor 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.
9
<PAGE> 13
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, leadership competencies and
the achievement of learning and development goals. 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 compensation surveys. In fiscal 2000, the Company's
executive officers received base salary increases to reflect merit increases.
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, plan 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 plan target and maximum represents 120% of the
plan target.
All eligible participants are entitled to an award if the Company's
threshold, plan or maximum profit target is achieved. The potential award for
individuals with primarily corporate level responsibilities is based upon
whether the Company's threshold, plan 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,
plan 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. In fiscal 2001, the incentive program is
based on the Company's financial performance and each Division's performance
against several operating metrics.
Cash bonus awards at threshold, plan 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, plan and maximum is determined near the beginning
of the fiscal year by the Compensation Committee based upon recommendations made
by the Chief Executive Officer and the Vice President, Administration. Based
upon the Company's achievement of its financial performance plan target and the
Divisions achieving certain of their operating metrics, incentive awards were
paid under the FSI Management Incentive Plan to the Company's executive officers
and to the Company's employees under the Company's Profit Enhancement 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. No such discretionary bonuses were paid to executive officers in
fiscal 2000.
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
10
<PAGE> 14
professional and managerial personnel as well as to reward eligible employees
for outstanding performance and to provide a stock-based incentive to improve
the Company's financial performance.
Generally, stock options are granted to eligible employees from time to
time based primarily upon the individual's actual and/or potential contributions
and the Company's financial performance. To date, all stock options have been
granted at or above fair market value. Generally, such options vest over a
period of several years; however, for certain option grants, vesting is
accelerated if certain financial performance objectives are met. Accordingly, an
executive receiving an option generally is rewarded only if the market price of
the Company's Common Stock appreciates. Stock options are authorized by the
Compensation Committee. Since long-term options generally vest over time, the
Company periodically grants new options to provide continuing incentives for
future performance. The size of previous grants and the number of options held
are considered by the Compensation Committee, but are not entirely determinative
of future grants.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
The Compensation Committee determines the Chief Executive Officer'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, 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. Mitchell's base salary, the
Compensation Committee reviewed compensation levels of peer group chief
executive officers and Mr. Mitchell's skills and experience. Mr. Mitchell was
hired in fiscal 2000 and did not receive an increase in base salary in fiscal
2000.
Incentive Bonus
As part of the terms of his offer letter from the Company, Mr. Mitchell
received a sign-on bonus of $50,000. Pursuant to the terms of his employment
agreement, Mr. Mitchell was awarded a bonus in the amount of $192,000 at the end
of fiscal 2000 based on the achievement of key financial and strategic
objectives.
Stock Options
As part of his employment offer, Mr. Mitchell was granted an option of
400,000 shares of Common Stock of the Company vesting 25% each year over a
four-year period.
JAMES A. BERNARDS TERRENCE W. GLARNER CHARLES R. WOFFORD
Members of the Compensation Committee
11
<PAGE> 15
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows for the Chief Executive Officer and the four
other most highly compensated executive officers as of the fiscal year ended
August 26, 2000 who served in that capacity during any portion of fiscal 2000,
certain summary information concerning compensation paid or accrued by the
Company for services in all capacities for the last fiscal year as well as
compensation earned by such person for the previous two fiscal years (if the
person was an executive officer during any part of such fiscal year):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------- ------------------------------------
AWARDS PAYOUTS
------------------------- --------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARDS(S) OPTIONS/SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) (1) ($) (#) ($) ($)(2)
------------------------------ ------ ------- ------- ------------ ---------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joel A. Elftmann, 2000 315,000 63,000 -- -0- 0 -- 48,023
Chairman(3) 1999 315,000 -- -- -0- 20,000 -- 91,595
1998 318,647 -- -- -0- 50,000 -- 48,023
Donald S. Mitchell 2000 249,039 242,000 -- -0- 400,000 -- 10,002
President and Chief
Executive
Officer(4)
Dale A. Courtney, 2000 196,365 65,000 -- -0- 26,000 -- 21,400
Senior Vice President; 1999 193,000 -- -- -0- 12,500 -- 58,587
President, Surface 1998 196,685 -- -- -0- 20,000 -- 25,378
Conditioning Division(5)
Patricia M. Hollister 2000 143,943 23,250 -- -0- 22,000 -- 21,400
Chief Financial Officer 1999 130,813 38,000(7) -- -0- 12,500 -- 19,930
and Assistant Secretary(6) 1998 115,753 -- -0- 20,000 -- 7,386
Benno G. Sand, 2000 225,225 45,000 -- -0- 26,000 -- 26,414
Executive Vice President, 1999 220,000 43,000(7) -- -0- 15,000 -- 78,817
Business Development and 1998 208,765 -- -- -0- 40,000 -- 21,400
Investor Relations
Dr. Benjamin J. Sloan, 2000 240,000 2,885 -- -0- 26,000 -- 26,400
Executive Vice President; 1999 240,000 -- -- -0- 15,000 -- 65,187
President, Microlithography 1998 219,202 -- -- -0- 40,000 -- 26,400
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; and (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 by the Company and the balance to the individual or his
designated beneficiaries. For fiscal 1999, it also includes 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. The dollar value of each benefit for the fiscal year ended
August 26, 2000 is: J. Elftmann, (a) $6,400, (b) 41,623; D. Mitchell, (a)
$0, (b) $10,002; D. Courtney, (a) $6,400, (b) $15,000; P. Hollister, (a)
$6,400, (b) $15,000; B. Sand, (a) $6,400, (b) $20,014; B. Sloan, (a) $6,400,
(b) $20,000.
(3) Mr. Elftmann served as Chief Executive Officer for a portion of fiscal 2000.
(4) Mr. Mitchell became an officer of the Company in fiscal 2000 and his
compensation is for a partial fiscal year.
(5) Mr. Courtney resigned as an officer at the end of the fiscal year.
(6) Ms. Hollister became an officer of the Company in fiscal 1998.
(7) In connection with the sale of the Chemical Management Division in fiscal
1999, the Compensation Committee awarded discretionary bonuses to certain
individuals involved in the transaction including these two named
executives.
12
<PAGE> 16
STOCK OPTIONS
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth individual grants of stock options made to
the Named Executives during the fiscal year ended August 26, 2000.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES PERCENT OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS/SARS FOR OPTION TERM(2)
OPTIONS/SARS GRANTED TO EMPLOYEES EXERCISE OR ------------------------
NAME GRANTED(#)(1) IN FISCAL YEAR BASE PRICE($/SH) EXPIRATION DATE 5%($) 10%($)
--------------------- ------------- -------------------- ---------------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joel A. Elftmann 0
Donald S. Mitchell 400,000 39.0% 10.250 12/13/09 2,659,913 6,664,031
Dale A. Courtney 26,000 2.5% 13.063 4/18/10 250,654 600,303
Patricia M. Hollister 22,000 2.1% 13.063 4/18/10 212,092 507,949
Benno G. Sand 26,000 2.5% 13.063 4/18/10 250,654 600,303
Benjamin J. Sloan 26,000 2.5% 13.063 4/18/10 250,654 600,303
</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 except for Mr. Mitchell's. Mr. Mitchell's options vest
one-quarter on each of the four anniversaries of the date of grant. All
options were granted at fair market value on the date of grant and have a
term of ten years. Generally all of the options will become fully
exercisable upon approval by the Company's Shareholders of a merger, plan of
exchange, sale of substantially all of the Company's assets or plan of
liquidation.
(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.)
13
<PAGE> 17
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 2000
AND FISCAL YEAR-END OPTION/SAR VALUES
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 2000 including those listed in the table above.
<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 54,999 35,001 423,958 293,242
Donald S. Mitchell 0 0 0 400,000 0 2,500,000
Dale A. Courtney 0 0 166,665 49,001 1,764,130 262,573
Patricia M. Hollister 15,000 $142,608 22,319 39,981 179,013 225,256
Benno G. Sand 0 0 101,165 57,335 727,762 336,922
Benjamin J. Sloan 0 0 191,165 57,335 2,009,012 336,922
</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 ($16.500
per share) less the exercise price.
EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
On December 12, 1999, as part of its offer of employment, the Company and
Donald S. Mitchell signed an employment agreement (the "Mitchell Agreement").
Pursuant to that arrangement, Mr. Mitchell's annual salary is $350,000 subject
to annual increases at the discretion of the Board. The Mitchell Agreement also
provides that his annual incentive bonus at target performance will be 100% of
his salary. Mr. Mitchell is also entitled to payment of certain commuting and
living expenses and an annual perquisite amount.
The Company has entered into Management Agreements (the "Agreements") with
Messrs. Elftmann, Mitchell, Hollister, 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, 2000, the
approximate amounts payable to the Named Executives would be as follows: Mr.
Elftmann $947,800; Mr. Mitchell $1,465,800; Ms. Hollister $533,800; Mr. Sand
$712,600; and Dr. Sloan $737,800.
14
<PAGE> 18
PERFORMANCE GRAPH(1)
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, 1995 through August 31, 2000.
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-IPEC, Inc. and Ultratech Stepper, Inc.
The chart below assumes that $100 was invested on August 31, 1995 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 1995 100.00 100.00 100.00
August 1996 391.00 334.00 614.00
August 1997 673.00 376.00 1799.00
August 1998 219.00 525.00 524.00
August 1999 234.00 928.00 1204.00
August 2000 600.00 1352.00 1020.00
</TABLE>
<TABLE>
<CAPTION>
August 1995 August 1996 August 1997 August 1998 August 1999 August 2000
<S> <C> <C> <C> <C> <C> <C>
FSI International, Inc. 100 391 673 219 234 600
Nasdaq-U.S. 100 334 376 525 928 1352
Peer Index 100 614 1799 524 1204 1020
</TABLE>
---------------
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act, whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
15
<PAGE> 19
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 of Directors 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, approved the issuance of
an additional 350,000 shares under the plan at the 1999 Annual Meeting and at
the 2000 Annual Meeting approved an increase in the number of shares authorized
under the Plan by an additional 400,000 shares. As of December 4, 2000 (the
meeting record date) there were 2,500,000 shares authorized under the Plan
representing 9.8% of the total shares outstanding. Of that amount, 287,439
shares are available for future option grants and 2,039,923 shares are subject
to issued but unexercised options. In addition, there are 637,132 stock options
outstanding under the Company's prior stock option plans representing 2.5% of
the total outstanding shares as of December 4, 2000. In the aggregate, there are
2,677,055 shares subject to outstanding options or that are available for
issuance constituting 10.5% of the total outstanding shares. In the event the
proposal to increase the number of shares by 600,000 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 shares as of December 4, 2000 would be
approximately 12.9%.
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, options for Outside Directors 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.
16
<PAGE> 20
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 2,500,000 (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 100,000 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.
17
<PAGE> 21
To date no such awards have been made under the Plan nor are any currently
contemplated.
INCENTIVE AND NONSTATUTORY STOCK OPTIONS
Both incentive stock options and nonstatutory stock options may be granted
to participants at such exercise prices as the Committee may determine but not
less than 100% of the fair market value (as defined in the 1997 Omnibus Plan) of
the underlying stock as of the date the option is granted. Stock options may be
granted and exercised at such times as the Committee may determine, except that
unless applicable Federal tax laws are modified, (i) no incentive stock options
may be granted more than 10 years after the effective date of the 1997 Omnibus
Plan, (ii) an incentive stock option shall not be exercisable more than 10 years
after the date of grant and (iii) the aggregate fair market value of the shares
of Company Common Stock with respect to which incentive stock options held by an
employee under the 1997 Omnibus Plan and any other plan of the Company or any
affiliate may first become exercisable in any calendar year may not exceed
$100,000. Additional restrictions apply to an incentive stock option granted to
an individual who beneficially owns 10% or more of the outstanding shares of the
Company.
The purchase price for stock purchased upon the exercise of the options may
be payable in cash, in stock having a fair market value on the date the option
is exercised equal to the option price of the stock being purchased or in a
combination of cash and stock, as determined by the Committee. The Committee may
permit optionees to simultaneously exercise options and sell the stock purchased
upon such exercise pursuant to brokerage or similar relationships and use the
sale proceeds to pay the purchase price. The Committee may provide, at or after
the grant of a stock option, that a 1997 Omnibus Plan participant who surrenders
shares of stock in payment of an option shall be granted a new incentive or
nonstatutory stock option covering a number of shares equal to the number of
shares so surrendered.
In addition, options may be granted under the 1997 Omnibus Plan to
employees of entities acquired by the Company in substitution of options
previously granted to them by the acquired entity.
STOCK APPRECIATION RIGHTS AND PERFORMANCE UNITS
The value of a stock appreciation right granted to a participant is
determined by the appreciation in Company Common Stock, subject to any
limitations upon the amount or percentage of total appreciation that the
Committee may determine at the time the right is granted. The participant
receives all or a portion of the amount by which the fair market value of a
specified number of shares, as of the date the stock appreciation right is
exercised, exceeds a price specified by the Committee at the time the right is
granted. The price specified by the Committee must be at least 100% of the fair
market value of the specified number of shares of Company Common Stock to which
the right relates determined as of the date the stock appreciation right is
granted. No stock appreciation right may be exercised less than six months from
the date it is granted unless the participant dies or becomes disabled.
Performance units entitle the participant to payment in amounts determined
by the Committee based upon the achievement of specified performance targets
during a specified term. Payments with respect to stock appreciation rights and
performance units may be paid in cash, shares of Company Common Stock or a
combination of cash and shares as determined by the Committee. 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 other business policies 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.
However, the Company's By-laws currently provide that neither the Board nor a
Board Committee may reprice options already issued and outstanding without prior
approval of the Company's Shareholders. 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 20,000 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) or the death of an Outside Director, certain Initial
Outside Director Options 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
7,500 shares of Common Stock (each, an "Annual Outside Director Option"). Such
Annual Outside
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Directors Options shall be deemed to be granted to each Outside Director
immediately after such Annual Meeting and shall be granted regardless of whether
or not such Outside Director previously received, or simultaneously receives, an
Initial Outside Director Option. Initial Outside Director Options and Annual
Outside Director Options together are hereinafter sometimes referred to as
"Outside Director Options."
Annual Outside Director Options shall vest and become exercisable on the
January 1st 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 or the death of an
Outside Director, any future grants of 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 in 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
PROPOSAL TO AMEND THE FSI EMPLOYEES STOCK PURCHASE PLAN
(ITEM 3 ON THE PROXY CARD)
The Board of Directors recently approved an amendment to the Company's
Employees Stock Purchase Plan, as amended, (the "Stock Plan"), increasing the
number of shares reserved thereunder from 1,800,000 to 2,050,000. The
Shareholders are being asked to approve this amendment at the Meeting.
PURPOSE
The purpose of the Stock Plan is to permit eligible employees (including
officers) to purchase Common Stock of the Company through payroll deductions at
a specified percentage of the Common Stock's fair market value. The Stock Plan
is an employee stock purchase plan under Section 423 of the Internal Revenue
Code of 1986, as amended (the "Code").
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ADOPTION OF THE STOCK PLAN AND PRIOR AMENDMENTS
In 1990, the Company adopted the Stock Plan and reserved 200,000 shares for
issuance thereunder. At the 1991 Annual Meeting of Shareholders, the number of
shares of Common Stock reserved under the Stock Plan was increased to 400,000
shares. At the 1992 Annual Meeting of Shareholders, the number of shares
available for distribution was increased to 600,000, and at the 1993 Annual
Meeting of Shareholders, the number of shares available for distribution was
increased to 1,000,000. At the 1995 Annual Meeting, the number of shares
authorized under the Plan was increased from 1,000,000 to 1,200,000 and the
definition of "Affiliate" was modified to allow the Board discretion in
determining which affiliates of the Company (and therefore its employees) would
be eligible to participate in the Stock Plan. At the 1998 Annual Meeting, the
number of shares authorized was increased to 1,550,000. At the 1999 Annual
Meeting, the number of shares authorized was increased to 1,800,000.
ADMINISTRATION
The Stock Plan is administered by the Compensation Committee of the Board
(the "Stock Plan Committee"), consisting of not less than three members. Current
members of the committee are Messrs. Bernards, Glarner and Wofford. No person
may participate in the Stock Plan while a member of the Stock Plan Committee,
and no person shall become a member of the Stock Plan Committee, if, within one
year prior to becoming a member, that person shall have been eligible (i) to be
a participant in the Stock Plan, or (ii) for selection as a person to whom stock
might be allocated or to whom stock options or stock appreciation rights might
be granted pursuant to any other plan of the Company or any of its affiliates
entitling the participants therein to acquire stock, stock options or stock
appreciation rights of the Company or any of its affiliates. Subject to the
express provisions of the Stock Plan, the Compensation Committee, by majority
action, is authorized to interpret, prescribe, amend and rescind rules relating
to the Stock Plan, and to make all other determinations necessary or advisable
for administration of the Stock Plan.
ELIGIBILITY AND NUMBER OF SHARES
Up to 1,800,000 shares of Common Stock are available for distribution under
the Stock Plan (of which approximately 1,534,587 have already been distributed),
subject to appropriate adjustments by the Stock Plan Committee in the event of
certain changes in the outstanding shares of Common Stock by reason of a stock
dividend, stock split, combination, recapitalization or reclassification. If the
amendment to the Stock Plan is approved by the Shareholders, up to an additional
250,000 shares of Common Stock will be available for distribution under the
Stock Plan (subject to adjustments as described above). Shares delivered
pursuant to the Stock Plan shall be newly issued Common Stock of the Company.
Any employee of the Company or its subsidiaries (including officers and any
directors who are also employees) is eligible to participate in the Stock Plan
so long as such employee was employed on the fifteenth day of the month
immediately preceding the first day of a stock purchase period (January 1st or
July 1st) under the Stock Plan.
No eligible employee may be granted the right to purchase Common Stock
under, or otherwise participate in, the Stock Plan if after the purchase such
employee would own (or have the right to purchase) stock of the Company
possessing five percent or more of the total combined voting power or value of
all classes of stock of the Company.
As of December 1, 2000, approximately 825 employees were eligible to
participate in the Stock Plan.
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PARTICIPATION
An eligible employee who elects to participate in the Stock Plan may
contribute funds for the purchase of Common Stock under the Stock Plan by
electing to direct his or her employer to withhold from one to 10 percent of
that employee's "Base Earnings" (as defined in the Stock Plan).
A participant may elect to reduce (but not increase) the rate of
withholding or to make no further deductions all as set forth in greater detail
in the Stock Plan. Amounts withheld are held by the participant's employer until
the end of the applicable stock purchase period (January 1 to June 30 and July 1
to December 31) and are automatically applied to purchase Common Stock of the
Company unless the participant elects in writing to receive a refund pursuant to
rules adopted by the Stock Plan Committee and as set forth in the Stock Plan.
PURCHASE OF STOCK
Amounts withheld from (and not refunded to) a participant in the Stock Plan
are used to purchase Common Stock of the Company as of the last business day of
the stock purchase period at a price equal to 85 percent of the lesser of the
fair market value (as defined in the Stock Plan) of a share of Common Stock on
either the first or last business day of the stock purchase period. All amounts
so withheld are used to purchase the largest number of full shares of Common
Stock purchasable with such amount, unless the participant has properly notified
the Stock Plan Committee in advance that he or she elects to have less than the
entire amount contributed by such participant used to purchase shares in the
Stock Plan or to receive the entire amount in cash. Any amount not capable of
being used to purchase full shares of Common Stock will be carried over to the
next stock purchase period for the account of the participant or distributed to
the participant if he or she is not participating in the Plan.
As soon as practicable after the close of the stock purchase period, the
Company is required to issue to an agent on behalf of all Participants in the
Stock Plan a single certificate representing the respective shares of Common
Stock purchased under the Stock Plan, at which time participants shall have
privileges as Shareholders with respect to such shares.
No participant in the Stock Plan may purchase Common Stock under the Stock
Plan and all other employee stock purchase plans of the Company and any
subsidiaries at a rate in excess of $25,000 of the fair market value of such
stock (determined at the time the option to purchase stock is granted) for the
calendar year in which any such option to purchase stock granted to such
participant is outstanding at any time.
DEATH, DISABILITY, RETIREMENT OR OTHER TERMINATION OF EMPLOYMENT
No shares of Common Stock may be purchased by a participant with respect to
a stock purchase period if the participant's employment terminates more than
three months prior to the end of such stock purchase period. Any amount withheld
from or otherwise contributed by such a participant during the stock purchase
period is repaid to the participant with interest due, if any. If a participant
dies at any time during a stock purchase period, any amount withheld from or
otherwise contributed by such a participant is repaid to the participant's
personal beneficiary with interest due, if any.
RIGHTS NOT TRANSFERABLE
The rights of a participant in the Stock Plan are exercisable only by the
participant during his or her lifetime. No right or interest of any participant
in the Stock Plan is assumable, transferable or subject to any lien, directly or
indirectly, by operation of law or otherwise.
AMENDMENT OR MODIFICATION
The Board of Directors of the Company may at any time terminate, amend or
modify the Stock Plan, provided that approval by the Shareholders of the Company
is required to (i) increase the total amount of Common Stock awarded under the
Stock Plan (except for adjustments in the outstanding shares of Common Stock by
reason of a stock dividend or split, combination, recapitalization, or
reclassification), (ii) change the
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class of employees eligible to participate in the Stock Plan, (iii) withdraw the
administration of the Stock Plan from the Plan's Committee, (iv) permit any
member of the Stock Plan Committee to be eligible to participate in the Stock
Plan or (v) extend the duration of the Stock Plan.
FEDERAL TAX CONSIDERATION
The Company has been advised by its counsel that the stock acquired under
the Stock Plan generally will result in the following tax events for United
States citizens under current United States Federal Income Tax laws: No income
will be recognized by participants due to their purchase of shares under the
Stock Plan until the disposal of those shares. Participants who hold their
shares for more than eighteen months will have ordinary income in the year of
disposition equal to the lesser of (i) the excess of the fair market value of
the shares on the date of disposition over the purchase price paid by the
participant or (ii) 15% of the fair market value of the shares on the first day
of the applicable stock purchase period. If the holding period has been
satisfied when the participant disposes of the shares, the Company will not be
entitled to any deduction in connection with the disposition of the shares.
Participants who dispose of their shares within the eighteen-month period
after the shares are transferred to them will be considered to have realized
ordinary income in the year of disposition in an amount equal to the difference
between the fair market value of the shares on the date they were purchased by
the participant and the price paid by the participant. If such dispositions
occur, the Company generally will be entitled to a deduction at the same time
and in the same amount as the participants who make those dispositions are
deemed to have realized as ordinary income.
Participants will have a basis in their shares equal to the purchase price
of their shares plus any amount that must be treated as ordinary income at the
time of their disposition of the shares. Any additional gain or loss realized on
the disposition of shares acquired under the Stock Plan in excess of the basis
will be a capital gain or loss.
RESTRICTION ON RESALE
Certain officers and directors of the Company are deemed to be "affiliates"
of the Company as that term is defined under the Securities Act. Common Stock
acquired under the Stock Plan by an affiliate may only be reoffered or resold
pursuant to an effective registration statement or pursuant to Rule 144 under
the Securities Act or another exemption from the registration requirements of
the Securities Act.
SHAREHOLDER PROPOSALS AND OTHER MATTERS
Shareholder proposals intended to be considered at the Annual Meeting of
Shareholders for the fiscal year ended August 25, 2001 that are requested to be
included in the proxy statement for the Annual Meeting must be received by the
Company no later than August 20, 2001. 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 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 90 days before the first anniversary of this
year's Annual Meeting date, unless next year's meeting is more than 30 days
before or after such anniversary, in which case notice must be received not less
than 90 days in advance or, if later, within 10 days of the first public
announcement of the meeting date.
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ANNUAL REPORTS
THE ANNUAL REPORT OF THE COMPANY FOR FISCAL 2000 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 26, 2000. 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/ LUKE R. KOMAREK
Luke R. Komarek
Secretary
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APPENDIX A
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
OF
FSI INTERNATIONAL, INC.
I. AUDIT COMMITTEE PURPOSE
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
- Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, and legal
compliance.
- Monitor the independence and performance of the Company's independent
auditors.
- Provide an avenue of communication among the independent auditors,
management, and the Board of Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to the
independent auditors as well as anyone in the organization. The Audit Committee
has the ability to retain, at the Company's expense, special legal, accounting,
or other consultants or experts it deems necessary in the performance of its
duties.
II. AUDIT COMMITTEE COMPOSITION AND MEETINGS
Audit Committee members shall meet the requirements of the Nasdaq Exchange.
The Audit Committee shall be comprised of three or more directors as determined
by the Board, each of whom shall be independent nonexecutive directors, free
from any relationship that would interfere with the exercise of his or her
independent judgment. All members of the Committee shall have a basic
understanding of finance and accounting and be able to read and understand
fundamental financial statements, and at least one member of the Committee shall
have accounting or related financial management expertise.
Audit Committee members shall be appointed by the Board on the
recommendation of the Nomination Committee. If an audit committee Chair is not
designated or present, the members of the Committee may designate a Chair by
majority vote of the Committee membership.
The Committee shall meet at least three times annually, or more frequently
as circumstances dictate. The Audit Committee Chair shall prepare and/or approve
an agenda in advance of each meeting. The Committee should meet privately in
executive session with management, the independent auditors, and as a committee
to discuss any matters that the Committee or each of these groups believe should
be discussed. In addition, the Committee will establish a communication process
with management and the independent auditors if any significant matters arise
during the auditors' limited quarterly reviews.
III. AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
Review Procedures
1. Review and reassess the adequacy of this Charter at least annually.
Submit the charter to the Board of Directors for approval and have the document
published at least every three years in accordance with SEC regulations.
2. Review the Company's annual audited financial statements prior to filing
or distribution. Review should include discussion with management and
independent auditors of significant issues regarding accounting principles,
practices, and judgments.
3. In consultation with the management and the independent auditors
consider the integrity of the Company's financial reporting processes and
controls. Discuss significant financial risk exposures and the steps
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management has taken to monitor, control, and report such exposures. Review
significant findings prepared by the independent auditors together with
management's responses.
4. Review with financial management and the independent auditors any
significant matters which arise out of the Company's quarterly financial
statements review based upon the auditors' limited review. Discuss any
significant changes to the Company's accounting principles and any items
required to be communicated by the independent auditors in accordance with SAS
61 (see item 9). The Chair of the Committee may represent the entire Audit
Committee for purposes of this review.
Independent Auditors
5. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors. The Audit Committee shall review the
independence and performance of the auditors and annually recommend to the Board
of Directors the appointment of the independent auditors or approve any
discharge of auditors when circumstances warrant.
6. Approve the fees and other significant compensation to be paid to the
independent auditors.
7. On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships they have with the Company
that could impair the auditors' independence.
8. Review the independent auditors audit plan -- discuss scope, staffing,
locations, reliance upon management and general audit approach.
9. Prior to releasing the year-end earnings, discuss the results of the
audit with the independent auditors. Discuss certain matters required to be
communicated to audit committees in accordance with AICPA SAS 61.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
Other Audit Committee Responsibilities
11. Annually prepare a report to shareholders as required by the Securities
and Exchange Commission. The report should be included in the Company's annual
proxy statement.
12. Perform any other activities consistent with this Charter, the
Company's by-laws, and governing law, as the Committee or the Board deems
necessary or appropriate.
13. Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
A-2
<PAGE> 32
FSI INTERNATIONAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Donald S. Mitchell, 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 4, 2000, at
the Annual Meeting of Shareholders to be held on January 24, 2001, 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, 2 AND 3. THE PROXIES ARE AUTHORIZED TO VOTE THIS PROXY IN
THEIR DISCRETION WITH RESPECT TO OTHER MATTERS WHICH MAY PROPERLY COME BEFORE
THE MEETING.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
(Continued, and to be completed and signed on the reverse side.)
<PAGE> 33
FSI INTERNATIONAL, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" ITEMS 1, 2 AND 3
<TABLE>
<CAPTION>
For Withhold For All
All All Except
<S> <C> <C> <C> <C> <C> <C> <C>
1. ELECTION OF THREE CLASS II DIRECTORS. / / / / / / 3. APPROVAL OF THE AMENDMENT For Against Abstain
Nominees to serve as Class II TO THE FSI INTERNATIONAL, INC. / / / / / /
Directors for a three year term and EMPLOYEES STOCK PURCHASE PLAN,
until their respective successors as described in the
shall be elected and qualified are: accompanying Proxy Statement.
</TABLE>
01 JOEL A. ELFTMANN
02 WILLEM D. MARIS
03 KRISHNAMURTHY RAJAGOPAL
(To withhold authority to vote for any
individual nominee, write that nominee's
name and number on the line provided below
and mark the appropriate box.
<TABLE>
<S> <C> <C> <C> <C>
---------------------------------------- Please sign exactly as name appears on the
proxy card. When shares are held by joint
2. APPROVAL OF THE AMENDMENT TO THE For Against Abstain tenants, both should sign. When signing as
FSI INTERNATIONAL, INC. 1997 / / / / / / attorney, executor, administrator, trustee
OMNIBUS STOCK PLAN, as described or guardian, please give full title as such.
in the accompanying Proxy Statement. 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>
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