<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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 Section 240.14a-11(c) or Section
240.14a-12
FUSION SYSTEMS CORPORATION
----------------------------------------------------
(Name of Registrant as Specified in Its Charter)
FUSION SYSTEMS CORPORATION
----------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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: not
applicable
(2) Aggregate number of securities to which transactions applies: not
applicable
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: not applicable
(4) Proposed maximum aggregate value of transaction: not applicable
(5) Total fee paid: not applicable
[ ] 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: not applicable
(2) Form, Schedule or Registration Statement No.: not applicable
(3) Filing party: not applicable
(4) Date filed: not applicable
<PAGE> 2
FUSION SYSTEMS CORPORATION
7600 STANDISH PLACE
ROCKVILLE, MARYLAND 20855
--------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
--------------------
To the Stockholders of
FUSION SYSTEMS CORPORATION:
The Annual Meeting of Stockholders of FUSION SYSTEMS CORPORATION (the
"Corporation"), a Delaware corporation, will be held on Thursday, June 19, 1997
at 10:00 a.m., local time, at The Gaithersburg Hilton, 620 Perry Parkway,
Gaithersburg, Maryland 20877, for the following purposes:
1. To fix the number of Directors of the Corporation at five (5) and
to elect two (2) Class I Directors to serve for 3-year terms or
until their successors are elected and qualified.
2. To ratify the selection of Arthur Andersen LLP as independent
auditors for the fiscal year ending December 31, 1997.
3. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only stockholders of record at the close of business on April 24, 1997
are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in
person. However, to assure your representation at the meeting, you are urged
to mark, sign, date and return the enclosed proxy card as promptly as possible
in the postage-prepaid envelope enclosed for that purpose. Any stockholder
attending the meeting may vote in person even if such stockholder has returned
a proxy.
By Order of the Board of Directors
Joseph F. Greeves
Secretary
Rockville, Maryland
May 15, 1997
<PAGE> 3
FUSION SYSTEMS CORPORATION
7600 STANDISH PLACE
ROCKVILLE, MARYLAND 20855
--------------------
PROXY STATEMENT
--------------------
MAY 15, 1997
Proxies in the form enclosed with this proxy statement are solicited
by the Board of Directors of Fusion Systems Corporation, a Delaware corporation
(the "Corporation"), for use at the Annual Meeting of Stockholders to be held
on Thursday, June 19, 1997, at 10:00 a.m., local time, at The Gaithersburg
Hilton, 620 Perry Parkway, Gaithersburg, Maryland 20877.
Only stockholders of record at the close of business on April 24, 1997
(the "Record Date") will be entitled to notice of and to vote at the meeting
and any adjournments thereof. As of that date 7,483,221 shares of common
stock, $.01 par value per share (the "Common Stock"), of the Corporation were
outstanding. The holders of Common Stock are entitled to one vote per share on
any proposal presented at the meeting. Stockholders may vote in person or by
proxy. Execution of a proxy will not in any way affect a stockholder's right
to attend the meeting and vote in person. Any stockholder giving a proxy has
the right to revoke it by written notice to the Secretary of the Corporation at
any time before it is exercised.
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote at the meeting is necessary
to constitute a quorum for the transaction of business. Votes withheld from any
nominee, abstentions and broker "non-votes" are counted as present or
represented for purposes of determining the presence or absence of a quorum for
the meeting. A "non-vote" occurs when a nominee holding shares for a
beneficial owner votes on one proposal, but does not vote on another proposal
because, in respect of such other proposal, the nominee does not have
discretionary voting power and has not received instructions from the
beneficial owner.
In the election of directors, the nominees receiving the highest
number of affirmative votes of the shares present or represented and entitled
to vote at the meeting shall be elected as directors. On all other matters
being submitted to stockholders, an affirmative vote of a majority of the
shares present or represented and voting on each such matter is required for
approval. An automated system administered by the Corporation's transfer agent
tabulates the votes. The vote on each matter submitted to stockholders is
tabulated separately. Abstentions are included in the number of shares present
or represented and voting on each matter. Broker "non-votes" are not so
included.
The persons named as attorneys in the proxies are officers of the
Corporation. All properly executed proxies returned in time to be counted at
the meeting will be voted. In addition to the election of two directors, the
stockholders will consider and vote upon a proposal to ratify the selection of
auditors, as further described in this proxy statement. Where a choice has been
specified on the proxy with respect to the foregoing matters, the shares
represented by the proxy will be voted in accordance with the specifications
and will be voted FOR if no specification is indicated.
The Board of Directors of the Corporation knows of no other matters to
be presented at the meeting. If any other matter should be presented at the
meeting upon which a vote properly may be taken, shares represented by all
proxies received by the Board of Directors will be voted with respect thereto
in accordance with the judgment of the persons named as attorneys in the
proxies.
An Annual Report to Stockholders, containing financial statements for
the fiscal year ended December 31, 1996, is being mailed together with this
proxy statement to all stockholders entitled to vote. This proxy statement and
the form of proxy were first mailed to stockholders on or about May 15, 1997.
<PAGE> 4
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of the Record Date certain
information regarding beneficial ownership of the Corporation's Common Stock
by: (i) each person or entity who, to the knowledge of the Corporation, owned
beneficially more than 5% of the shares of Common Stock of the Corporation
outstanding at such date; (ii) each director or nominee for director of the
Corporation; (iii) each executive officer identified in the Summary
Compensation Table set forth below under "Compensation and Other Information
Concerning Directors and Officers"; and (iv) all directors, nominees for
election to the Board of Directors and executive officers of the Corporation as
a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENTAGE OF COMMON
OF BENEFICIAL OWNER OF OWNERSHIP (1) STOCK OUTSTANDING
- ------------------- ---------------- -----------------
<S> <C> <C>
J. & W. Seligman & Co. Incorporated
100 Park Avenue
New York, NY 10017 (2).......................... 1,024,358 13.7
Magten Asset Management Corp.
35 East 21st Street
New York, NY 10010 (3).......................... 417,600 5.6
Mellon Bank Corporation
c/o Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, PA 15258 (4)......................... 440,000 5.9
Leslie S. Levine (5)................................. 212,283 2.8
John C. Matthews (6)................................. 132,026 1.8
Joseph F. Greeves (7)................................ 14,036 *
Steven F. Hodlin (8)................................. 2,667 *
A. David Harbourne (9)............................... 10,000 *
Daniel Tessler (10).................................. 104,999 1.4
Charles J. Coulter (11).............................. 29,435 *
Jon D. Tompkins (12)................................. 10,999 *
Andrea Geisser (13).................................. 2,500 *
Directors, Nominees and Executive Officers as
a group (9 persons) (14)........................... 518,945 6.9
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Except as otherwise noted, each person or entity named in the table
has sole voting and investment power with respect to the shares.
(2) According to a Schedule 13G/A filed with the Securities and Exchange
Commission on February 13, 1997, J. & W. Seligman has sole voting
power for 1,003,828 shares and sole dispositive power for 1,024,358
shares.
(3) According to a Schedule 13G filed with the Securities and Exchange
Commission on February 13, 1997, Magten has shared voting power on
350,900 shares and shared dispositive power on 417,600 shares.
(4) According to a Schedule 13G filed with the Securities and Exchange
Commission on January 31, 1997, Mellon has sole voting power of
372,000 shares, sole dispositive power of 398,000 and shared
dispositive power of 41,000 shares.
(5) Includes 160,261 shares issuable upon the exercise of outstanding
stock options exercisable on the Record Date or within 60 days
thereafter. Also includes 6,390 shares of Common Stock held by his
wife, Marsha Levine and 11,700 shares of Common Stock held by his
daughter, Rachel Levine. Mr. Levine disclaims beneficial ownership of
such shares.
2
<PAGE> 5
(6) Includes 90,045 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
Also includes 1,891 shares held in joint tenancy with his wife,
Patricia Matthews.
(7) Includes 13,334 shares issuable upon the exercise of outstanding
stock options exercisable on the Record Date or within 60 days
thereafter.
(8) Includes 2,667 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(9) Mr. Harbourne left the Corporation in September 1996 in connection
with the sale of the Corporation's UV curing business.
(10) Includes 87,499 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(11) Includes 19,717 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(12) Includes 9,999 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(13) Includes 2,500 shares issuable upon the exercise of outstanding stock
options exercisable on the Record Date or within 60 days thereafter.
(14) Includes 386,022 shares issuable upon the exercise of outstanding
stock options exercisable on the Record Date or within 60 days
thereafter.
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES
The Corporation's Board of Directors is currently fixed at five (5)
members, all of whom are outside, non-employee directors except for Mr. Levine.
The Corporation's Amended and Restated By-Laws divide the Corporation's Board
of Directors into three classes. The members of each class of directors serve
for staggered three-year terms. Messrs. Levine and Tessler are Class I
directors whose terms expire at the meeting. The Board is also composed of two
Class II directors (Messrs. Coulter and Tompkins) and one Class III director
(Mr. Geisser) whose terms expire upon the election and qualification of
directors at the Annual Meeting of Stockholders to be held in 1999 and 1998,
respectively.
The Board of Directors has nominated and recommended that Messrs.
Levine and Tessler, who are both currently members of the Board of Directors,
be elected Class I directors to hold office until the 2000 Annual Meeting of
Stockholders, or until their successors have been duly elected and qualified or
until such director's earlier resignation or removal. The Board of Directors
knows of no reason why the nominees should be unable or unwilling to serve, but
if the nominees should for any reason be unable or unwilling to serve, the
proxies will be voted for the election of such other persons for the office of
directors as the Board of Directors may recommend in the place of such
nominees. Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the nominees named below.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THE FOLLOWING LIST OF NOMINEES.
The following table sets forth the nominees to be elected at the
meeting and each director whose term of office will extend beyond the meeting,
the year such nominee or continuing director was first elected a director, the
positions currently held by the nominee and each continuing director with the
Corporation, the year that each nominee's or continuing director's term will
expire and the class of director of each nominee and continuing director.
3
<PAGE> 6
<TABLE>
<CAPTION>
NOMINEE'S OR DIRECTOR'S
NAME AND YEAR NOMINEE
OR DIRECTOR FIRST POSITION(S) WITH YEAR TERM CLASS OF
BECAME A DIRECTOR THE CORPORATION WILL EXPIRE DIRECTOR
- ----------------------- --------------- ----------- --------
<S> <C> <C> <C>
NOMINEES:
Leslie S. Levine (1991)........ President, Chief Executive Officer 2000 I
and Director
Daniel Tessler (1973).......... Chairman of the Board of Directors 2000 I
CONTINUING DIRECTORS:
Charles J. Coulter (1983)...... Director 1999 II
Jon D. Tompkins (1994)......... Director 1999 II
Andrea Geisser (1996)......... Director 1998 III
</TABLE>
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the Class I nominees to be elected at
the meeting, the current directors who will continue to serve as directors
beyond the meeting, and the executive officers of the Corporation, their ages,
and the positions currently held by each such person with the Corporation.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Leslie S. Levine..................... 56 President, Chief Executive Officer and Director
John C. Matthews..................... 57 Senior Vice President and President, Fusion
Semiconductor Systems Corporation
Joseph F. Greeves.................... 40 Vice President, Chief Financial Officer,
Treasurer and Secretary
Steven F. Hodlin..................... 42 Vice President, Corporate Quality
Daniel Tessler....................... 53 Chairman of the Board of Directors
Charles J. Coulter (1)(2)............ 71 Director
Jon D. Tompkins (1)(2)............... 56 Director
Andrea Geisser (1)(2)................ 54 Director
</TABLE>
- ---------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
4
<PAGE> 7
DIRECTORS TO BE ELECTED AT THE MEETING
LESLIE S. LEVINE, a founder of the Corporation, has served as President
and Chief Executive Officer of the Corporation since July 1992. Mr. Levine has
served as a Director of the Corporation since December 1991. From 1983 to 1992,
Mr. Levine was Executive Vice President for Finance and Administration of the
Corporation. He holds a Ph.D. in physics from Columbia University.
DANIEL TESSLER has been a Director of the Corporation since 1973 and
Chairman of the Board of Directors since February 1994. Mr. Tessler has served
as Chairman and Chief Executive Officer of Fusion Lighting, Inc. since 1994,
and as chairman of Tessler and Cloherty, Inc. and Venture Advisors, Inc.,
private investment firms, since 1980 and 1991, respectively.
DIRECTORS WHOSE TERMS EXTEND BEYOND THE MEETING
CHARLES J. COULTER has been a Director of the Corporation since 1983. Mr.
Coulter served as President of American Research & Development, a venture
capital firm, from 1972 to June 1992. Mr. Coulter serves as a director of Antex
Biologics Inc.
ANDREA GEISSER has served as a Director of the Corporation since June
1996. Mr. Geisser has served as a Managing Director of Fenway Partners, Inc.,
a principal investing firm specializing in middle-market acquisitions, since
July 1994, and a partner of the general partner of its affiliated investment
partnership since the organization of such partnership in January 1995. Prior
to joining Fenway Partners, Mr. Geisser served Butler Capital Corporation
("BCC") as a managing director from February 1989 until June 1994, acting as a
director of many of BCC's portfolio companies. Mr. Geisser is a director of
Van de Kamp's Inc. Mr. Geisser is also a director of several Fenway portfolio
companies and a trustee of Corporate Property Investors, a real estate
investment trust.
JON D. TOMPKINS has served as a Director of the Corporation since December
1994. Mr. Tompkins has served as President and Chief Executive Officer of
Tencor Instruments since April 1991 and as chairman of the board of directors
of Tencor Instruments since November 1993. Mr. Tompkins serves as a director
of Varian Associates, a manufacturer of semiconductor equipment, and as a
director of SEMI/SEMATECH, an association of U.S. semiconductor equipment and
materials companies.
EXECUTIVE OFFICERS
JOHN C. MATTHEWS has been with the Corporation since 1979 and currently
serves as Senior Vice President. In March 1996, he was appointed President,
Fusion Semiconductor Systems Corporation ("Fusion Semiconductor"), a
wholly-owned subsidiary of the Corporation. Mr. Matthews served as Senior Vice
President of Fusion Semiconductor from 1993 until 1996, and as Vice President
(Semiconductor) from 1983 to 1993. Prior to that time, he served as Marketing
Manager of Fusion UV Curing.
JOSEPH F. GREEVES joined the Corporation as Vice President, Chief
Financial Officer, Treasurer and Secretary in May 1995. Prior to joining the
Corporation, Mr. Greeves served as Executive Vice President and Chief Financial
Officer of Ogden Environmental and Energy Services, Co., Inc., a division of
Ogden Corporation which provided consulting services, lab services, remediation
services and independent power production on a worldwide basis.
STEVEN F. HODLIN joined the Corporation as Director, Corporate Quality in
February 1995. He was appointed Vice President, Corporate Quality in December
1995. Prior to joining the Corporation, Mr. Hodlin served as Vice President,
Quality and Reliability Systems for Penril Datability Networks. He has been a
Malcolm Baldrige Quality Award Examiner since 1994 and a U.S. Senate
Productivity Award examiner since 1992.
Executive officers of the Corporation are elected by the Board of
Directors on an annual basis and serve until their successors have been duly
elected and qualified.
5
<PAGE> 8
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met eight times during the fiscal year ended
December 31, 1996. The Audit Committee of the Board of Directors, of which
Messrs. Coulter, Geisser and Tompkins are currently members, reviews, with the
independent accountants and management, the annual financial statements and
independent accountants' opinion, reviews the results of the examination of the
Corporation's financial statements by the independent accountants, recommends
the retention of the independent accountants to the Board of Directors and
periodically reviews the Corporation's accounting policies and internal
accounting and financial controls. During the fiscal year ended December 31,
1996, the Audit Committee met five times. The Board of Directors also has
appointed a Compensation Committee, whose members currently are Messrs.
Coulter, Geisser and Tompkins. The Compensation Committee, which held seven
meetings during the fiscal year ended December 31, 1996, is responsible for
administering the Corporation's stock ownership plans and for reviewing and
approving compensation matters concerning the executive officers of the
Corporation. The Board of Directors does not currently have a standing
nominating committee. Each of the directors attended at least 75% of the
aggregate of all meetings of the Board of Directors and of all Committees on
which he serves.
6
<PAGE> 9
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION SUMMARY
The following table sets forth certain information with respect to the
annual and long-term compensation of the Corporation's Chief Executive Officer
and each of the Corporation's four other most highly compensated executive
officers (collectively, the "Named Executive Officers") for the fiscal years
ended December 31, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------------- ------------
Name and Principal Position
- ---------------------------
Option All Other
Year Salary ($) Bonus ($) Awards (#)(1) Compensation($)(2)
---- ---------- --------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Leslie S. Levine 1996 $244,125 $ 85,000 27,000 $11,085
President and Chief 1995 217,632 165,000 30,000 11,610
Executive Officer 1994 196,711 142,800 70,261 11,987
John C. Matthews 1996 162,409 75,000 22,000 10,635
Senior Vice President and 1995 150,274 91,000 30,000 11,610
President, Fusion 1994 139,612 82,000 40,045 11,987
Semiconductor
Joseph F. Greeves (3) 1996 152,116 58,700 19,000 5,584
Vice President and Chief 1995 87,234 44,000 20,000 152
Financial Officer 1994 -- -- -- --
Steven F. Hodlin (4) 1996 121,730 30,000 10,750 5,178
Vice President - 1995 84,865 21,000 8,000 192
Corporate Quality 1994 -- -- -- --
A. David Harbourne (5) 1996 114,812 30,000 0 9,486
Senior Vice President and 1995 150,274 61,000 30,000 10,800
President, UV Curing 1994 139,612 82,000 31,954 11,177
</TABLE>
- ---------------
(1) Includes options granted in 1997 for services performed in 1996.
(2) Includes premiums paid on life insurance policies and contributions by the
Corporation to 401(k) plan for the benefit of the Named Executive Officers.
(3) Mr. Greeves joined the Corporation in May 1995.
(4) Mr. Hodlin joined the Corporation in February 1995.
(5) Mr. Harbourne left the Corporation in September 1996 in connection with
the sale of the Corporation's UV curing business.
7
<PAGE> 10
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made to the
Named Executive Officers pursuant to the Corporation's stock plans during the
year ended December 31, 1996:
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------
Percent of Potential Realizable
Total Value at Assumed
Number of Options Annual Rates of
Securities Granted to Stock Price Appreciation
Underlying Employees Exercise for Option Term (1)
Options in Fiscal Price Expiration ---------------------------
Name Granted(#) Year ($/Share) Date 5%($) 10%($)
- ---- ---------- --------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Leslie S. Levine............ 12,000 5.72% $19.50 9/19/06 $147,160 $ 372,935
John C. Matthews............ 12,000 5.72 19.50 9/19/06 147,160 372,935
Joseph F. Greeves........... 15,000 7.14 19.50 9/19/06 183,950 466,168
Steven F. Hodlin............ 7,000 3.33 19.50 9/19/06 85,843 217,545
A. David Harbourne.......... 0 -- -- -- -- --
</TABLE>
- ----------------
(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%)
on the market value of the Corporation's Common Stock on the date of
option grant over the term of the options. These numbers are calculated
based on rules promulgated by the Securities and Exchange Commission and
do not reflect the Corporation's estimate of future stock price growth.
Actual gains, if any, on stock option exercises and Common Stock holdings
are dependent on the timing of such exercises and the future performance
of the Corporation's Common Stock. There can be no assurance that the
rates of appreciation assumed in this table can be achieved or that the
amounts reflected will be received by the individuals.
8
<PAGE> 11
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END VALUES
The following table sets forth information with respect to options to
purchase the Corporation's Common Stock granted to the Named Executive Officers
under the Corporation's stock plans, including (i) the number of shares of
Common Stock purchased upon exercise of options during the fiscal year ended
December 31, 1996; (ii) the net value which would have been realized upon such
exercise had such shares been sold; (iii) the number of unexercised options
outstanding at December 31, 1996; and (iv) the value of such unexercised
options at December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
Numbers of Unexercised Value(2) of Unexercised
Shares Options at In-the-Money Options at
Acquired on Value December 31, 1996 (#) December 31, 1996 ($) (2)
Name Exercise (#) Realized($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Leslie S. Levine........ -- $ -- 136,840/55,421 $1,432,381/$139,275
John C. Matthews........ -- -- 76,696/45,349 732,734/88,411
Joseph F. Greeves....... -- -- 6,667/28,333 0/26,250
Steven F. Hodlin........ -- -- 2,667/12,333 0/12,250
A. David Harbourne...... 51,954 323,920 0/0 0/0
</TABLE>
- -------------
(1) Amounts disclosed in this column were calculated based on the difference
between the fair market value of the Corporation's Common Stock on the date
of exercise and the exercise price of the options in accordance with
regulations promulgated under the Securities Exchange Act of 1934, as
amended, and do not reflect amounts received by the Named Executive
Officers.
(2) Value is based on the difference between the option exercise price and the
fair market value at December 31, 1996, the last day during fiscal year
1996 for which market prices are available ($21.25 per share as quoted on
the Nasdaq National Market), multiplied by the number of shares underlying
the option.
STOCK PLANS
The Corporation currently has three stock ownership plans: the 1994 Stock
Option Plan, the 1994 Non-Employee Director Stock Option Plan, and the 1994
Employee Stock Purchase Plan. In addition, as of the Record Date, options to
purchase an aggregate of 196,732 shares of Common Stock were outstanding under
the Corporation's 1984 Stock Option Plan, which expired on December 31, 1993.
SEVERANCE AGREEMENTS
The Corporation has in place severance agreements, which would be
activated if and when a change in control (as defined in the agreements) of the
Corporation occurs, with a significant number of employees including all of its
executive officers. The agreements with its executive officers provide for the
payment of the following compensation and benefits upon the termination in
certain circumstances of an executive officer's employment with the Corporation
following a change in control of the Corporation: (i) the continuation of their
base pay for a period equal to one month for each $5,000 of base pay up to a
maximum of 24 months; (ii) incentive compensation for the pro-rata portion of
the year the executive officer was employed with the Corporation; (iii) payment
in cash of the amount of any health, life and disability insurance premiums the
Corporation would have paid on the officer's behalf had the officer been
employed during the payment period established in (i) above or a payment of
such premiums directly to the plan if the executive officer is continuing
health insurance under the Corporation's plan; and (iv) a payment for full
executive outplacement to a maximum of 15% of the officer's base pay and
incentive
9
<PAGE> 12
compensation paid during the twelve-month period prior to the termination of
employment, or payment to the executive officer of said amount. Mr. Levine's
severance agreement includes one additional event constituting a change of
control under his agreement; this added definition provides that a change of
control shall be deemed to have occurred when, during any consecutive two-year
period, the individuals who at the beginning of such period constituted the
Board of Directors of the Corporation (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Corporation was approved by a vote of 66-2/3% of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Corporation then in office.
Pursuant to these agreements, whether or not there is a change in control,
each executive officer has agreed to maintain the confidentiality of
Corporation information and assign to the Corporation all inventions and
product improvements related to the Corporation's business operations developed
by such person during the term of the agreement and during the one-year period
thereafter. Moreover, each executive officer has agreed that during the term of
his respective employment with the Corporation and thereafter for two years,
such person will not compete with the Corporation by engaging in any capacity
in any business which is competitive with the business of the Corporation,
unless the Corporation determines that the fulfillment of such person's duties
in the proposed employment would not likely cause the disclosure or use of any
confidential information of the Corporation.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Corporation's executive compensation program is administered by
the compensation committee of the Board of Directors (the "Compensation
Committee"), which is comprised entirely of non-employee directors. Pursuant to
authority delegated by the Board of Directors, the Compensation Committee is
responsible for reviewing and administering the Corporation's stock ownership
plans and reviewing and approving compensation matters concerning the executive
officers of the Corporation.
The Corporation's executive compensation program is designed to
provide levels of compensation that assist the Corporation in attracting,
motivating and retaining qualified executive officers and aligning the
financial interests of the Corporation's executive officers with those of its
stockholders by providing a competitive compensation package based on
corporate, separate business unit and individual performance. Compensation
under the executive compensation program is comprised of cash compensation in
the form of salary and annual incentive bonuses, and long-term incentive awards
in the form of stock option grants. In addition, the compensation program is
comprised of various benefits, including medical and insurance plans, and the
Corporation's 1994 Employee Stock Purchase Plan and 401(k) profit-sharing plan.
These plans are generally available to all U.S. employees of the Corporation.
BASE SALARY
Compensation levels for each of the Corporation's executive officers,
including the Chief Executive Officer, are generally set within the range of
salaries that the Compensation Committee believes are paid to executive
officers with comparable qualifications, experience and responsibilities at
similar companies. In setting compensation levels, the Compensation Committee
seeks to align total executive compensation levels with corporate performance.
Accordingly, base salary levels are set at what the Compensation Committee
believes are at the low-end of base salaries paid to executive officers with
comparable qualifications, experience and responsibilities at similar
companies, while providing relatively higher cash bonus and incentive award
opportunities. In addition, the Compensation Committee generally takes into
account such factors as (i) the Corporation's past financial performance and
future expectations; (ii) business unit performance and future expectations;
(iii) individual performance and experience; and (iv) past salary levels. The
Compensation Committee does not assign relative weights or rankings to these
factors, but instead makes a determination based upon the consideration of all
of these factors as well as the progress made with respect to the Corporation's
long-term goals and strategies. Generally, salary decisions for the
Corporation's executive officers are made by the Compensation Committee near
the beginning of each calendar year.
10
<PAGE> 13
Fiscal 1996 base salaries were determined by the Compensation
Committee after reviewing the base compensation paid to executive officers at
other semiconductor and high-tech equipment manufacturing companies. Base
salary levels for each of the Corporation's executive officers, other than the
Chief Executive Officer, were also based upon evaluations and recommendations
made by the Chief Executive Officer.
INCENTIVE COMPENSATION
Each executive officer is eligible to receive a cash bonus at the end
of the fiscal year based upon the Corporation's performance, as well as
individual and business unit performance. Additional bonuses may be awarded
during the fiscal year to reward an executive officer for superior performance.
Generally, bonus awards for each of the Corporation's executive officers, other
than the Corporation's Chief Executive Officer, are based upon the
recommendations of the Corporation's Chief Executive Officer. Bonuses are
intended to be a significant portion of an executive officer's total
compensation and are distributed shortly after the end of the fiscal year.
Fiscal 1996 annual bonus amounts for each of the Corporation's
executive officers were determined by the Compensation Committee after
reviewing information assembled by The Radford Group on comparative salary and
bonus arrangements at comparable companies. Bonus amounts for each of the
executive officers, other than the Chief Executive Officer, were also based
upon evaluations and recommendations made by the Chief Executive Officer. In
respect of the fiscal year ended December 31, 1996, annual bonuses totaling
$278,700 were awarded to the Corporation's executive officers based upon a
combination of corporate and individual performance. Of the annual bonuses
awarded to executive officers in respect of fiscal 1996, Mr. Levine received
$85,000 and Messrs. Greeves, Harbourne, Hodlin and Matthews, collectively,
received $193,700.
STOCK OPTIONS
Stock options are the principal vehicle used by the Corporation for
the payment of long-term compensation, to provide a stock-based incentive to
improve the Corporation's financial performance and to assist in the
recruitment, motivation and retention of key professional and managerial
personnel. The Corporation's stock option plans are administered by the
Compensation Committee. To date, the Compensation Committee has not granted
stock options at less than fair market value.
Generally, stock options are granted to eligible employees from time
to time based primarily upon the individual's actual and/or potential
contributions to the Corporation and the Corporation's financial performance.
Stock options are designed to align the interests of the Corporation's
executive officers with those of its stockholders by encouraging executive
officers to enhance the value of the Corporation, the price of the Common Stock
and, hence, the stockholders' return. In addition, the exercisability of stock
options over a period of time is designed to defer the receipt of compensation
by the option holder, thus creating an incentive for the individual to remain
with the Corporation. The Corporation periodically grants new options to
provide continuing incentives for future performance.
During the fiscal year ended December 31, 1996, options to purchase an
aggregate of 46,000 shares of Common Stock were awarded to the Corporation's
executive officers. Of such options, 12,000 were granted to Mr. Levine and an
aggregate of 34,000 were granted to the Corporation's other executive officers.
OTHER BENEFITS
The Corporation also has various broad-based employee benefit plans.
Executive officers participate in these plans on the same terms as eligible,
non-executive employees, subject to any legal limits on the amounts that may be
contributed or paid to executive officers under these plans. The Corporation
offers a stock purchase plan, under which employees may purchase Common Stock
at a discount, and a 401(k) profit-sharing plan, which permits employees to
invest in a wide variety of funds on a pre-tax basis. The Corporation also
maintains insurance and other benefit plans for its employees.
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<PAGE> 14
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally limits the tax deduction to $1 million for compensation paid
to any of the executive officers unless certain requirements are met. The
Compensation Committee has considered these requirements and the related
regulations. It is the Compensation Committee's present intention that, so
long as it is consistent with its overall compensation objectives,
substantially all executive compensation shall be deductible for federal income
tax purposes.
MR. LEVINE'S COMPENSATION
Consistent with the executive compensation policies described above of
providing relatively low base salaries combined with higher incentive bonuses,
the Compensation Committee determined the base salary, incentive bonus and
stock options received by Mr. Levine, the Corporation's President and Chief
Executive Officer, for services rendered in fiscal 1996. For the fiscal year
ended December 31, 1996, Mr. Levine received $244,125 in base salary and was
awarded a bonus of $85,000 based upon a combination of individual and corporate
performance. Mr. Levine's bonus compensation for fiscal 1996 was approximately
35% of his base salary. In addition, in fiscal 1996 Mr. Levine was granted
options to purchase 12,000 shares of Common Stock and in fiscal 1997 Mr. Levine
was granted options to purchase 15,000 shares of Common Stock for services
performed in 1996.
RESPECTFULLY SUBMITTED BY
THE COMPENSATION COMMITTEE
Charles J. Coulter
Andrea Geisser
Jon D. Tompkins
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Corporation's Board of Directors has established a Compensation
Committee consisting of Messrs. Coulter, Geisser and Tompkins. No person who
served as a member of the Compensation Committee was, during the past fiscal
year, an officer or employee of the Corporation or any of its subsidiaries, was
formerly an officer of the Corporation or any of its subsidiaries, or had any
relationship requiring disclosure herein. No executive officer of the
Corporation served as a member of the compensation committee of another entity
(or other committee of the Board of Directors performing equivalent functions
or, in the absence of any such committee, the entire Board of Directors), one
of whose executive officers served as a director of the Corporation.
COMPENSATION OF DIRECTORS
The Corporation's non-employee directors receive a fee of $15,000 per year
for service as a member of the Board of Directors, other than the Chairman of
the Board of Directors who receives $75,000. All directors are reimbursed for
expenses incurred in connection with attending Board of Directors and committee
meetings. Non-employee directors are also automatically granted options to
purchase shares of the Corporation's Common Stock pursuant to the 1994
Non-Employee Director Stock Option Plan.
12
<PAGE> 15
STOCK PERFORMANCE GRAPH
The following graph compares the yearly change in the cumulative total
stockholder return on the Corporation's Common Stock during the period from the
Corporation's initial public offering on May 12, 1994 through December 31,
1996, with the cumulative total return on the Center for Research in Securities
Prices Index for the Nasdaq Stock Market (U.S. Companies) (the "Nasdaq Stock
Market (U.S. Companies) Index") and the Hambrecht & Quist Technology Index (the
"H & Q Technology Index"). The comparison assumes $100 was invested on May 12,
1994 in the Corporation's Common Stock at the $16.00 initial offering price and
in each of the foregoing indices and assumes reinvestment of dividends, if any.
COMPARISON OF FIVE YEAR(1) CUMULATIVE TOTAL RETURN AMONG
FUSION SYSTEMS CORPORATION, NASDAQ STOCK MARKET (U.S. COMPANIES) INDEX
AND H & Q TECHNOLOGY INDEX
[GRAPH]
<TABLE>
<CAPTION>
===============================================================================================
5/12/94 12/30/94 12/29/95 12/31/96
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FUSION SYSTEMS CORPORATION $100 $164.06 $175.00 $132.81
NASDAQ STOCK MARKET (U.S. COMPANIES) INDEX $100 $105.39 $149.05 $183.34
H&Q TECHNOLOGY INDEX $100 $120.32 $180.22 $215.99
===============================================================================================
</TABLE>
- ----------------
(1) Prior to May 12, 1994 the Corporation's Common Stock was not
publicly traded. Comparative data is provided only for the periods since that
date.
13
<PAGE> 16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1992, the Corporation transferred selected assets of its imaging
business unit to a wholly-owned subsidiary, Fusion Lighting, Inc. ("Fusion
Lighting") and distributed the stock of Fusion Lighting to the shareholders of
the Corporation in proportion to their holdings of Fusion Systems Corporation
stock.
The Corporation continues to sublease a facility to Fusion Lighting
and provides limited administrative services such as data management services.
The Corporation has also provided additional services including materials
procurement, shipping and receiving, and accounting to Fusion Lighting.
Additionally, the Corporation's former Japanese subsidiary (sold in connection
with the sale of the UV curing business) purchased and resold certain imaging
products from Fusion Lighting to fulfill preexisting contractual commitments.
See Note 9 of Notes to the Corporation's Consolidated Financial Statements
contained in the Corporation's Report on Form 10-K and also in the
Corporation's Annual Report to Shareholders.
Daniel Tessler, Chairman of the Board of Directors of the Corporation,
also serves as Chairman of the Board of Directors and Chief Executive Officer
of Fusion Lighting. Leslie S. Levine, a director and President and Chief
Executive Officer of the Corporation, also serves as a director and President
of Fusion Lighting. As of April 10, 1997, Mr. Tessler and Mr. Levine
beneficially owned approximately 6% and 4%, respectively, on a Common Stock
equivalent basis of Fusion Lighting, and 8% and 4%, respectively, of a series
of non-convertible preferred stock of Fusion Lighting. An affiliate of Mr.
Tessler also owned warrants, not presently exercisable, to acquire an
additional 7% of Fusion Lighting at such date. A summary of the
above-described transactions between the Corporation and Fusion Lighting in the
fiscal year ended December 31, 1996 is as follows (in thousands):
Purchase of equipment from Fusion Lighting......................... $ 78
Procurement of materials and fixed assets for Fusion Lighting...... 51
Corporate services and sales support provided to Fusion Lighting... 1,047
Building sublease rent............................................. 190
The amount receivable from Fusion Lighting as of December 31, 1996 was
$241,000.
At the time of the Corporation's sale of the UV curing business to
Fairey Group, plc ("Fairey") in September of 1996, in a separate transaction,
Fusion Lighting received $5 million from Fairey, in consideration for a mutual
non-compete agreement, a cross license of technology, a change of corporate
name of Fusion Lighting and a right of first opportunity to serve as Fusion
Lighting's exclusive distributor for certain of its products which have
application to UV curing.
In 1996, the Corporation paid Venture Advisors, Inc. ("VAI")
$1,046,500 for services rendered in connection with the sale of the UV curing
business. Mr. Tessler, Chairman of the Board of Directors of the Corporation,
is the President and controlling stockholder of VAI. The Corporation also
received additional consulting services from VAI totaling $67,500.
The Corporation has adopted a policy whereby all transactions between
the Corporation and its officers, directors and affiliates shall be on terms no
less favorable to the Corporation than could be obtained from unrelated third
parties and shall be approved by a majority of the disinterested members of the
Corporation's Board of Directors.
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<PAGE> 17
PROPOSAL 2
RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected the firm of Arthur Andersen LLP
("Arthur Andersen"), independent certified public accountants, to serve as
auditors for the fiscal year ending December 31, 1997. Arthur Andersen has
served as the Corporation's accountants since 1990. It is expected that a
member of Arthur Andersen will be present at the meeting with the opportunity
to make a statement if so desired and will be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THE RATIFICATION OF THIS SELECTION.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Corporation's
directors, executive officers and holders of more than 10% of the Corporation's
Common Stock (collectively, "Reporting Persons") to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock of the Corporation. Such persons are
required by regulations of the SEC to furnish the Corporation with copies of
all such filings. Based on its review of the copies of such filings received
by it with respect to the fiscal year ended December 31, 1996 and written
representations from certain Reporting Persons, the Corporation believes that
all Reporting Persons complied with all Section 16(a) filing requirements in
the fiscal year ended December 31, 1996, except for the following: Mr. Geisser
filed a late Form 3.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the proxy
statement to be furnished to all stockholders entitled to vote at the next
Annual Meeting of Stockholders of the Corporation must be received at the
Corporation's principal executive offices not later than December 1, 1997. In
order to curtail controversy as to the date on which a proposal was received by
the Corporation, it is suggested that proponents submit their proposals by
certified mail, return receipt requested to 7600 Standish Place, Rockville,
Maryland 20855, Attention: Ellen S. Ranard, General Counsel.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation,
and in addition to soliciting stockholders by mail through its regular
employees, the Corporation may request banks, brokers and other custodians,
nominees and fiduciaries to solicit their customers who have stock of the
Corporation registered in the names of a nominee and, if so, will reimburse
such banks, brokers and other custodians, nominees and fiduciaries for their
reasonable out-of-pocket costs. Solicitation by officers and employees of the
Corporation may also be made of some stockholders in person or by mail,
telephone or telegraph following the original solicitation.
By Order of the Board of Directors
Joseph F. Greeves
Secretary
Rockville, Maryland
May 15, 1997
15
<PAGE> 18
[FRONT SIDE OF PROXY CARD]
FUSION SYSTEMS CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 19, 1997
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder of Fusion Systems Corporation, a Delaware
corporation (the "Corporation"), hereby acknowledges receipt of the Notice of
1997 Annual Meeting of Stockholders and Proxy Statement, and hereby appoints
Joseph F. Greeves and Ellen S. Ranard, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the Annual Meeting
of Stockholders of the Corporation to be held at The Gaithersburg Hilton, 620
Perry Parkway, Gaithersburg, Maryland 20877 on June 19, 1997 at 10:00 a.m.,
local time, and at any adjournment or adjournments thereof, and to vote all
shares of Common Stock which the undersigned would be entitled to vote if then
and there personally present, on the matters set forth below:
1. To fix the number of Directors of the Corporation at five (5) and to
elect two (2) Class I Directors to serve for 3-year terms or until their
successors are elected and qualified.
/ / FOR all nominees listed below / / WITHHOLD
(except as indicated)
If you wish to withhold authority to vote for any individual nominee,
strike a line through that nominee's name in the list below.
Class I Directors: Leslie S. Levine, Daniel Tessler
2. To ratify the selection of the firm of Arthur Andersen LLP as
independent auditors for the fiscal year ending December 31, 1997.
/ / FOR / / AGAINST / / ABSTAIN
and, in their discretion, upon such other matter or matters which may properly
come before the meeting or any adjournment of adjournments thereof.
<PAGE> 19
[REVERSE SIDE OF PROXY CARD]
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR THE RATIFICATION
OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS AND AS SAID
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
Dated: , 1997
------------------
------------------------------
Signature
------------------------------
Signature
(This Proxy should be marked, dated and signed by the shareholder(s)
exactly as his or her name appears hereon, and returned promptly in the
enclosed envelope. Persons signing in a fiduciary capacity should so indicate.
If shares are held by joint tenants or as community property, both should
sign.)
