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 Sectioin 240.14a-11(c) or
Section 240.14a-12
FARO TECHNOLOGIES, INC.
(Name of Registrant as Specified In Its Charter)
FARO TECHNOLOGIES, INC.
(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:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
2
COLOR LOGO OF FARO TECHNOLOGIES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 27, 1998
Notice is hereby given that the Annual Meeting of Stockholders of FARO
TECHNOLOGIES, INC. (the "Company") will be held at the offices of the Company,
125 Technology Park, Lake Mary, Florida, on Monday, April 27, 1998 at 10:00
A.M., local time, for the following purposes:
1. To elect two directors, each to serve for a term of three
years; and
2. To transact such other business as may properly come before
the meeting.
Only stockholders of record at the close of business on March 13, 1998
are entitled to notice of and to vote at said meeting or any adjournment or
postponement thereof.
By Order of the Board of Directors
March 25, 1998 GREGORY A. FRASER, Ph.D.
Secretary
STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
3
FARO TECHNOLOGIES, INC.
PROXY STATEMENT
This statement is furnished in connection with the solicitation of
proxies for use at the Annual Meeting of Stockholders of FARO TECHNOLOGIES,
INC., a Florida corporation (the "Company"), to be held on Monday, April 27,
1998 at 10:00 A.M., local time, at the offices of the Company, 125 Technology
Park, Lake Mary, Florida, and at any adjournment or postponement thereof. The
Notice of Annual Meeting, this statement and the accompanying proxy, together
with the Company's Annual Report to Stockholders for the year ended December 31,
1997 are first being sent to stockholders on or about March 25, 1998.
The close of business on March 13, 1998 has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the meeting. At that date, the Company had outstanding 9,959,241 shares of
Common Stock, $.001 par value ("Common Stock"), each of which will be entitled
to one vote.
ELECTION OF DIRECTORS
The number of directors of the Company has been fixed by the Board of
Directors (the "Board"), pursuant to the Company's Bylaws, at seven, divided
into two classes of two directors each, and one class of three directors. At the
meeting, Common Stock represented by proxies, unless otherwise specified, will
be voted for the election of the two nominees hereinafter named to serve for a
term of three years, each until his successor is duly elected and qualified.
The following information is set forth with respect to the persons
nominated for election as a director and each director of the Company whose term
of office will continue after the meeting.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
DIRECTOR TERM
NAME AGE SINCE EXPIRES
---- --- ----- -------
Alexandre Raab..................................... 72 1982 1998
Norman H. Schipper, Q.C............................ 67 1982 1998
Alexandre Raab............................ Chairman of the Board of Advanced Agro
Enterprises, a privately held company in
Ontario, Canada, since 1991. From 1953
through 1990, Mr. Raab was the principal
shareholder and Chief Executive Officer of
White Rose Nurseries, Ltd., a privately held
horticultural firm. Mr. Raab is the father of
Simon Raab.
4
Norman H. Schipper, Q.C................... Formerly, a Partner in the Toronto office of
the law firm of Goodman, Phillips & Vineberg
from 1962 until his mandatory retirement as
Partner on December 31, 1997; now Of Counsel
to the firm.
DIRECTORS WHOSE TERMS WILL CONTINUE AFTER THE ANNUAL MEETING
DIRECTOR TERM
NAME AGE SINCE EXPIRES
---- --- ----- -------
Simon Raab, Ph.D................................... 44 1982 2000
Gregory A. Fraser, Ph.D............................ 42 1982 1999
Hubert d'Amours.................................... 58 1990 2000
Philip R. Colley................................... 59 1984 1999
Andre Julien....................................... 54 1986 2000
Simon Raab, Ph.D.......................... Chairman of the Board and Chief Executive
Officer of the Company since its inception in
1982, and President since 1986. Mr. Raab is a
co-founder of the Company.
Gregory A. Fraser, Ph.D.................. Chief Financial Officer and Executive Vice
President since May 1997, and Secretary and
Treasurer of the Company since its inception
in 1982. Mr. Fraser is a co-founder of the
Company.
Hubert d'Amours.......................... President of Montroyal Capital, Inc. and
Capimont, Inc., two venture capital
investment firms, since 1990.
Philip R. Colley......................... President of Colley, Borland and Vale
Insurance Brokers, Ltd. in Ontario, Canada,
since 1967.
Andre Julien............................. Retired; former President and owner of
Chateau Paints, Inc., a coatings and paint
manufacturer in Montreal, Canada from 1969
until his retirement in 1994. Mr. Julien also
was a co-founder in 1970 and a major
shareholder until 1977 of performance Sail
Craft, Inc., a Montreal-based sailboat
manufacturer which produces the Laser(TM)
sailboat.
Eight meetings of the Board were held during 1997. Each of the
directors, except for Alexandre Raab, attended at least 75% of the meetings of
the Board and the committees thereof of which he is a member during the periods
which he served. Alexandre Raab, who did not serve on any committees of the
Board during 1997, attended 63% of the meetings held by the Board.
The Board has an Audit Committee, the members of which are Messrs.
d'Amours, Julien and Simon Raab. There is no formal Chairman of the Audit
Committee; however, Mr. Raab has served as its ad hoc Chairman for purposes of
the orderly conduct of its meetings. The Audit Committee held one meeting during
1997. The
2
5
Audit Committee is responsible for reviewing the independence, qualifications
and activities of the Company's independent certified accountants and the
Company's financial policies, control procedures and accounting staff. The Audit
Committee recommends to the Board the appointment of the independent certified
public accountants and reviews and approves the Company's financial statements.
The Audit Committee also reviews transactions between the Company and any
officer or director or any entity in which an officer or director of the Company
has a material interest.
The Board has a Compensation Committee, the members of which are
Messrs. d'Amours and Julien. During 1997, Martin Koshar, a former director,
served on the Compensation Committee and presided as its Chairman. Mr. Julien
currently serves as Chairman of the Compensation Committee. The Compensation
Committee held one meeting during 1997. The Compensation Committee is
responsible for establishing the compensation of the Company's directors,
officers and other managerial personnel, including salaries, bonuses,
termination arrangements and other benefits. In addition, the Compensation
Committee administers the Company's 1993 Stock Option Plan, 1997 Employee Stock
Option Plan, and 1997 Nonemployee Director Stock Option Plan.
The Board does not have a Nominating Committee.
Based solely upon review of Forms 4 and 5 for the 1997 fiscal year, no
director or executive officer failed to timely file any reports required by
Section 16(a) of the Securities Exchange Act of 1934; however, Mr. Colley failed
to report on the his Form 5 the transfer to C-Green Enterprises, Inc. of 80,343
shares of the Company's Common Stock formerly owned directly by him.
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of March 13, 1998 (except
as noted) by each person known to the Company to own beneficially more than five
percent of the Company's Common Stock, each director, each nominee for election
as a director, each executive officer, and all executive officers and directors
as a group.
AMOUNT PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER OWNED(1) CLASS
------------------------ -------- -----
Simon Raab, Ph.D.(2)(9)................................. 10 *
Gregory A. Fraser, Ph.D.(3)(9).......................... 10 *
Hubert d'Amours(4)...................................... 68,521 *
Philip R. Colley(5)..................................... 157,325 1.58%
Andre Julien(6)......................................... 450,508 4.52%
Alexandre Raab(7)....................................... 498,158 5.00%
Norman H. Schipper, Q.C.(8)............................. 170,654 1.71%
HLM Management Co., Inc.(9)............................. 503,100 5.16%
Wilmington Trust Company(10)............................ 3,208,040 32.34%
All directors and executive officers as a group
(8 persons)........................................... 1,345,186 13.51%
- ------------------------
*Less than one percent. See Footnotes following page.
3
6
FOOTNOTES:
(1) The named stockholders have sole voting and dispositive power with
respect to all shares shown as being beneficially owned by them, except
as otherwise indicated.
(2) Held by Xenon Research, Inc. ("Xenon"). Simon Raab and Diana Raab, his
spouse, own all of the outstanding capital stock of Xenon. On December
31, 1997, Xenon transferred 2,765,785 shares to the Xenon Research,
Inc. Irrevocable Trust of 1997, UTD 12/31/97, of which Wilmington Trust
Company is the Trustee, and Xenon is the sole beneficiary. The number
of shares does not include 80,000 shares which Mr. Raab has the right
to acquire at an exercise price of $13.20 per share pursuant to options
which currently are not exercisable.
(3) On December 31, 1997, Gregory A. Fraser transferred 442,255 shares to
the Gregory A. Fraser Irrevocable Trust of 1997, UTD 12/31/97, of which
Wilmington Trust Company is the Trustee, and Mr. Fraser is the sole
beneficiary. The number of shares does not include 60,000 shares which
Mr. Fraser has the right to acquire pursuant to options at an exercise
price of $12.00 per share which currently are not exercisable.
(4) Represents 24,261 shares owned by Mr. d'Amours spouse, and includes
20,000 shares which Mr. d'Amours has the right to acquire pursuant to
currently exercisable stock options at an exercise price of $12.00 per
share. The number of shares reflected does not include 3,000 shares
which Mr. d'Amours has the right to acquire pursuant to options at an
exercise price of $12.00 per share which currently are not exercisable.
(5) Represents 41,982 shares and 80,343 shares owned by 483663 Ontario,
Ltd. and C-Green Enterprises, Inc., respectively, in which Mr. Colley
has a controlling interest, and includes 35,000 shares which Mr. Colley
has the right to acquire pursuant to currently exercisable stock
options at an exercise price of $12.00 per share. The number of shares
reflected does not include 3,000 shares which Mr. Colley has the right
to acquire pursuant to options at an exercise price of $12.00 per share
which currently are not exercisable.
(6) Represents 357,282 shares owned by Philanderer Tree, Inc., 58,226
shares owned by Philanderer Six, Inc., and includes 35,000 shares which
Mr. Julien has the right to acquire pursuant to currently exercisable
stock options at an exercise price of $12.00 per share. The number of
shares reflected does not include 3,000 shares which Mr. Julien has the
right to acquire pursuant to options at an exercise price of $12.00 per
share which currently are not exercisable. Mr. Julien is a shareholder
and serves as an executive officer and director of Philanderer Tree,
Inc. and Philanderer Six, Inc. and shares voting and dispositive power
of the shares owned by Philanderer Tree, Inc. and Philanderer Six,
Inc., each of which is a private investment company.
(7) Represents shares owned by Gaenal Holding, Inc., all of the capital
stock of which is owned by Mr. Raab, and includes 35,000 shares which
Mr. Raab has the right to acquire pursuant to currently exercisable
stock options at an exercise price of $12.00 per share. The number of
shares reflected does not include 3,000 shares which Mr. Raab has the
right to acquire pursuant to options at an exercise price of $12.00 per
share which currently are not exercisable. The address of each of Mr.
Raab and Gaenal Holding, Inc. is 675 Cocrane Drive, Suite 504, Markham,
Ontario L3R 0B8, Canada.
4
7
(8) Represents 135,654 shares owned by Shanklin Investments, Limited, in
which Mr. Schipper has a controlling interest, and includes 35,000
shares which Mr. Schipper has the right to acquire pursuant to
currently exercisable stock options at an exercise price of $12.00 per
share. The number of shares reflected does not include 3,000 shares
which Mr. Shipper has the right to acquire pursuant to options at an
exercise price of $12.00 per share which currently are not exercisable.
(9) The following information is derived from a Schedule 13G filed on
February 18, 1998 by HLM Management Co., Inc. reflecting beneficial
ownership as of December 31, 1997. HLM is an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940 and
has sole voting and dispositive power of the shares owned by it. The
address of HLM Management Co., Inc. is 22 Berkeley Street, Boston,
Massachusetts 02116.
(10) The following information is derived from a Schedule 13G and a Schedule
13G/A filed on January 10, 1998 and February 18, 1998, respectively, by
Wilmington Trust Company and Wilmington Trust Corporation (sometimes
collectively "Wilmington Trust") reflecting beneficial ownership as of
December 31, 1997. Wilmington Trust is considered the "beneficial
owner" in the aggregate of 3,208,040 shares of the Company's Common
Stock, which shares represent 2,765,785 held by Wilmington Trust as
Trustee of the Xenon Research, Inc. Irrevocable Trust of 1997 UTA
December 31, 1997, and 442,265 shares held by Wilmington Trust as
Trustee of the Gregory A. Fraser Irrevocable Trust UTA December 31,
1997. Wilmington Trust Company and its parent, Wilmington Trust
Corporation, each have sole voting and dispositive power of all of the
shares owned by each of the trusts. The address of each of Wilmington
Trust Company and Wilmington Trust Corporation is 1100 North Market
Street, Wilmington, Delaware 19890.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation
paid by the Company to the Chief Executive Officer and the Company's other
executive officer:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------- ---------------------------------
AWARDS PAYOUTS
OTHER ---------------------- -------
ANNUAL RESTRICTED ALL OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
--------------------------- ---- -------- -------- ------- ---------- --------- ------- -------
Simon Raab, Ph.D. 1997 $160,000 $ 30,063 80,000
President, Chairman and Chief 1996 $130,000 $ 0
Executive Officer 1995 $100,000 $ 0
Gregory A. Fraser, Ph.D. 1997 $116,083 $ 0 60,000
Executive Vice President, 1996 $111,467 $ 11,643
Chief Financial Officer, 1995 $ 91,980 $ 4,191
Secretary and Treasurer
5
8
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SHARES OPTIONS/SARS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% 10%
---- ------------ ------------ ---------- ---------- ------------ ----------
Simon Raab(1) 80,000 18.1% $13.20 9/13/2007 $1,108,800 $1,161,600
Gregory A. Fraser(2) 60,000 13.6% $12.00 9/13/2007 $ 756,000 $ 792,000
- --------------------
(1) Exercisable 26,666 shares on or after September 13, 1998, and 26,667
shares on or after each of September 13, 1999 and 2000. Mr. Raab's
options were granted at 110% of the public offering price in order to
qualify for treatment as incentive stock options.
(2) Exercisable 20,000 shares on or after each of September 13, 1998, 1999,
and 2000.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTIONS/SAR VALUE TABLE
VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF OPTIONS/SARS AT
UNEXERCISED FY-END ($)*
SHARES ACQUIRED OPTIONS/SARS -----------------------------
NAME ON EXERCISE VALUE REALIZED ($) AT FY-END (#) EXERCISABLE UNEXERCISABLE
---- --------------- ------------------ ------------- ----------- -------------
Simon Raab(1) 80,000 $ 0 $945,000
Gregory A. Fraser(2) 60,000 $ 0 $708,750
- --------------------
*Based on the average high and low sales prices of the Company's Common Stock on
December 31, 1997 as quoted on The Nasdaq Stock Market.
(1) Of the 80,000 stock options held by Mr. Raab, all were granted on
September 13, 1997, expire on September 13, 2007, and are exercisable
as to 26,666 shares on September 13, 1998, and as to 26,667 shares on
each of September 13, 1999 and 2000.
(2) Of the 60,000 stock options held by Mr. Fraser at December 31, 1997,
all were granted on September 13, 1997, expire on September 13, 2007,
and are exercisable as to 20,000 shares on each of September 13, 1998,
1999, and 2000.
REPORT BY THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board, which has responsibility for all aspects of
the compensation program for the executive officers of the Company. A component
of overall compensation is the granting of stock options, the award of which is
made by the Compensation Committee and is discussed in "Long-Term Stock
Incentives," below. The Compensation Committee consists of two Directors whose
names are listed at the end of this report, none of whom is a current or former
employee of the Company.
6
9
The Compensation Committee's primary objective with respect to
executive compensation is to establish programs which attract and retain key
managers and align their compensation with the Company's overall business
strategies, values, and performance. To this end, the Compensation Committee
established and the Board endorsed an executive compensation philosophy for 1997
which included the following considerations:
- a "pay-for-performance" feature that differentiates
compensation results based upon the Company's annual financial
performance; and
- stock incentives, in certain cases, as a component of
total compensation in order to closely align the interests of the
Company's executives with the long-term interests of shareholders which
facilitates retention of talented executives and encourages Company
stock ownership and capital accumulation; and
- emphasis on total compensation vs. cash compensation,
under which base salaries are generally set somewhat lower than
competitive levels but which motivates and rewards Company executives
with total compensation (including incentive programs) at or above
competitive levels, if the financial performance of the Company meets
or exceeds goals established for the year.
For 1997, the Company's executive compensation program was comprised of
the following primary components: (a) base salaries; (b) annual cash incentive
opportunities; and (c) long-term incentive opportunities in the form of stock
options. Each primary component of pay is discussed below.
BASE SALARIES. Base salaries paid under employment arrangements between
the Company and its executive officers are subject to annual review and
adjustment on the basis of individual and Company performance, level of
responsibility, individual experience, and competitive, inflationary, and
internal equity considerations. The base salary for Simon Raab, the Company's
President and Chief Executive Officer, was increased from 1996 to 1997 based
upon such factors as the Company's profitability, cash flow and capital spending
for the prior fiscal year, and subjective considerations such as overall
employee morale, succession planning, general personnel problems, and
competitive positions. The Compensation Committee generally attempts to set base
salaries of executive officers at levels which are comparable, but slightly
below "market" rates, as determined from information gathered by the Company
from publicly traded companies which are similar in size and in the same
industry group as the Company and which were used by Dow Jones in compiling the
Industrial Technology Index appearing in the performance graph set forth below.
The Compensation Committee believes that for the year ended December 31, 1997,
executive salaries, including the salary paid to Mr. Raab, the Company's
President and Chief Executive Officer, was less than the range of salaries paid
by the companies surveyed.
ANNUAL CASH INCENTIVES. Company executives are eligible to receive
annual cash bonus awards to focus attention on achieving key goals pursuant to
bonus plans designed to provide competitive incentive pay only in the event such
objectives are met or exceeded. The objectives include specific targets for
earnings as reflected in the Company's financial plan submitted by management
and approved by the Compensation Committee and the Board based on a variety of
factors, including viability of the target growth rate and amount of earnings
appropriate to satisfy shareholder expectations.
7
10
During the year ended December 31, 1997, Simon Raab, the Company's
Chief Executive Officer, exceeded the goals established by the Compensation
Committee and it awarded Mr. Raab a bonus equal to one percent of the Company's
1996 net income for the before income taxes.
LONG-TERM STOCK INCENTIVES. Long-term stock incentives, which are a
component of compensation, are awarded by the Compensation Committee of the
Board. The Compensation Committee consists of the two Directors whose names are
listed at the end of this report, each of whom qualifies as a disinterested
person for purposes of Rule 16b-3 under the Securities Exchange Act of 1934. The
Compensation Committee administers the Company's 1993 Stock Option Plan (the
"1993 Plan"), 1997 Employee Stock Option Plan (the "1997 Plan"), and 1997
Nonemployee Director Stock Option Plan (the "Nonemployee Director Plan") (the
1993 Plan, 1997 Plan, and Nonemployee Director Plan are collectively referred to
as the "Plans"), and determines the recipients of the nonqualified and incentive
Plans and non-Plan stock options and the exercise price of such stock options on
the date of grant.
The 1993 Plan provides for the grant of "incentive stock options,"
within the meaning of Section 422 of the Internal Revenue Code, and nonqualified
stock options, for federal income tax purposes, to officers and other key
employees of the Company, and nonqualified stock options to nonemployee
directors of the Company. The 1997 Plan provides for the grant of incentive
stock options and nonqualified stock options to officers and key employees of
the Company. The Nonemployee Director Plan provides for the grant of
nonqualified stock options and formula options to nonemployee directors. The
1993 Plan was originally adopted by the Board and shareholders in 1993. Grants
to executives under the Company's 1993 Plan and 1997 Plan are determined by the
Compensation Committee and are designed to align a portion of the executive
compensation package with the long-term interests of the Company's shareholders
by providing an incentive that focuses attention on managing the Company from
the perspective of an owner with an equity stake in the business.
Grants of stock options generally are limited to officers and other key
employees and managers, of the Company who are in a position to contribute
substantially to the growth and success of the Company and its subsidiaries.
Incentive stock options and nonqualified stock options are granted for terms up
to ten years, and are designed to reward exceptional performance with a
long-term benefit, facilitate stock ownership, and deter recruitment of key
Company personnel by competitors and others. In evaluating annual compensation
of executive officers, the Compensation Committee takes into consideration the
stock options as a percentage of total compensation, consistent with its
philosophy that stock incentives more closely align the interests of company
managers with the long-term interests of shareholders, and takes the number of
options granted to an into consideration in determining base salaries of
executive officers. In granting stock options to executive officers, the
Compensation Committee considers the number and size of stock options already
held by an executive officer when determining the size of stock option awards to
be made to the officer in a given fiscal year.
Messrs. Raab and Fraser were granted stock options in 1997 to acquire
80,000 shares and 60,000 shares, respectively, of the Company's Common Stock. At
March 13, 1998, the executive officers appearing in the Summary Compensation
Table held stock or currently held the right to acquire stock representing less
than one percent of the Company's outstanding Common Stock; however, on March
13, 1998, trusts in which said executive officers are directly or indirectly the
sole beneficiaries held 32.21% of the Company's outstanding Common Stock.
8
11
SECTION 162(M). Section 162(m) to the Internal Revenue Code of 1986, as
amended (the "Code"), which prohibits a deduction to any publicly held
corporation for compensation paid to a "covered employee" in excess of $1
million per year (the "Dollar Limitation"). A covered employee is any employee
who appears in the Summary Compensation Table who is also employed by the
Company on the last day of the Company's calendar year. The Compensation
Committee does not expect the deductibility of compensation paid in 1997 to any
executive officer to be affected by Section 162(m). The Compensation Committee
may consider alternatives to its existing compensation programs in the future
with respect to qualifying executive compensation for deductibility.
The Company generally is entitled to a tax deduction upon an employee's
exercise of nonqualified options in an amount equal to the excess of the value
of the shares over the exercise price. Such deduction is considered compensation
for purposes of the Dollar Limitation with respect to options having an exercise
price less than fair market value at the date of grant. Deductibility of
compensation in future years to Messrs. Raab and Fraser may be affected by the
Dollar Limitation if they remain covered employees and exercise options in
amounts which would result in compensation to Mr. Raab and/or Mr. Fraser
exceeding the Dollar Limitation in any year. As of December 31, 1997, Messrs.
Raab and Fraser held options to acquire 80,000 and 60,000 shares, respectively,
of the Company's Common Stock, with values of $945,000 and $708,750,
respectively. Of the options held by Messrs. Raab and Fraser at year end, all
expire on September 13, 2007, and none are currently exercisable. Messrs. Raab
and Fraser have each agreed to cooperate with the Company in exercising their
options so as to minimize any loss of deductibility due to the Dollar
Limitations.
CONCLUSION. As described above, the Company's executive compensation
program provides a link between total compensation and the Company's performance
and long-term stock price appreciation consistent with the compensation
philosophies set forth above. This program has been established since the
Company's establishment of its first stock option plan in 1993, and has been a
significant factor in the Company's growth and profitability and the resulting
gains achieved by the Company's shareholders.
COMPENSATION COMMITTEE
Hubert d'Amours
Andre Julien
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Hubert
d'Amours and Andre Julien. Prior to his resignation as a director of the Company
on March 9, 1998, Mr. Martin Koshar also served on the Compensation Committee as
its Chairman. Currently, Mr. Julien serves as Chairman of the Committee. Stock
option grants are considered part of the overall compensation for executive
officers of the Company. There were no transactions during the year ended
December 31, 1997 between the Company and members of the Compensation Committee
or entities in which they own an interest.
9
12
DIRECTORS FEES
Directors of the Company who are not executive officers receive fees of
$1,000 for each Board meeting attended, and $500 per committee meeting attended,
plus the expenses of attending meetings. During 1997, Messrs. d'Amours, Colley,
Julien, Alexandre Raab, and Schipper earned directors' fees of $1,000, $2,000,
$2,000, $1,000, and $2,000, respectively.
Generally, upon election to the Board, each director who is not an
executive officer is granted a stock option to acquire 3,000 shares of Common
Stock. The exercise price for such shares is equal to the closing sale price of
the Common Stock as reported on The Nasdaq Stock Market on the date the director
is elected or reelected to the Board. Options granted to Directors generally are
granted upon the same terms and conditions as options granted to executive
officers and key employees. Additionally, the Company's 1997 Nonemployee
Directors' Fee Plan permits nonemployee directors to elect to receive directors'
fees in the form of common Stock rather than cash. Common Stock issued in lieu
of cash directors' fees are issued at the end of the quarter in which the fees
are earned, with the number of shares being based on the fair market value of
the Common Stock for the five trading days immediately preceding the last
business day of the quarter. Directors may defer the receipt of fees for federal
income tax purposes, whether payable in cash or in Common Stock. During the year
ended December 31, 1997, all nonemployee directors' fees were paid in cash.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases its headquarters from Xenon Research, Inc.
("Xenon"), all of the issued and outstanding capital stock of which is owned by
Simon Raab, the Company's President and Chief Executive Officer, and Diana Raab,
his spouse. The term of the lease expires on February 28, 2001, and the Company
has two five-year renewal options. Base rent under the lease was $150,000 for
1997. Upon completion of the expansion of the leased facility, base rent
increased to $300,000 per annum, beginning February 1, 1998. Base rent during
renewal periods will reflect changes in the U.S. Bureau of Labor statistics
consumer Price Index for all Urban Consumers. The terms of the lease were
approved by an independent committee of the Company's Board of Directors upon
review of an independent market study of comparable rental rates and such terms
are, in the opinion of the Board of Directors, no less favorable than those that
could be obtained on an arm's-length basis.
PERFORMANCE GRAPH
The following line graph compares the Company's cumulative total
shareholder return with the cumulative total shareholder return of the Dow Jones
Equity Market Index and the Dow Jones Industrial Technology Index since the
Company's initial public offering in September 1997 assuming in each case an
initial investment of $100 on September 18, 1997:
10
13
FARO Dow Jones
Measurement Period Technologies, Industrial Dow Jones
(Fiscal Year Covered) Inc. Technology Global-US
- -----------------------------------------------------------------------
9/18/97 100.00 100.00 100.00
9/30/97 100.77 100.40 100.05
10/31/97 83.85 85.99 96.91
11/30/97 75.38 88.86 101.29
12/31/97 71.54 88.31 103.32
SELECTION OF INDEPENDENT AUDITORS
At the meeting of the Board of the Company held on February 19, 1998,
the Board selected Deloitte & Touche LLP to serve as the independent auditors
for the Company for the year ending December 31, 1997. Representatives of
Deloitte & Touche LLP are expected to be present at the stockholders' meeting to
respond to appropriate questions.
STOCKHOLDER PROPOSALS
Any stockholder who intends to present a proposal at the 1999 Annual
Meeting of Stockholders for inclusion in the proxy statement and form of proxy
relating to that meeting is advised that the proposal must be received by the
Company at its principal executive offices not later than November 25, 1998. The
Company will not be required to include in its proxy statement or form of proxy
a stockholder proposal which is received after that date or which otherwise
fails to meet requirements for stockholder proposals established by regulations
of the Securities and Exchange Commission.
11
14
OTHER MATTERS
The solicitation of proxies is made by and on behalf of the Board. The
cost of the solicitation will be borne by the Company, including the reasonable
expenses of brokerage firms or other nominees for forwarding proxy materials to
beneficial owners. In addition to solicitation by mail, proxies may be solicited
by telephone, telegraph or personally. Proxies may be solicited by directors,
officers and employees of the Company without additional compensation.
If the enclosed proxy is executed and returned, the shares represented
thereby will be voted in accordance with any specifications made by the
stockholder. In the absence of any such specification, they will be voted to
elect the directors as set forth under "Election of Directors" above. Pursuant
to the Company's Certificate and applicable law, broker nonvotes and abstaining
votes will not be counted in favor of or against the election of any nominee for
director or any of the proposals to be presented at the meeting.
The presence of a stockholder at the meeting will not operate to revoke
his proxy. A proxy may be revoked at any time insofar as it has not been
exercised by giving written notice to the Company.
If any other matters shall come before the meeting, the persons named
in the proxy, or their substitutes, will vote thereon in accordance with their
judgment. The Board does not know of any other matters which will be presented
for action at the meeting.
By Order of the Board of Directors
March 25, 1998 GREGORY A. FRASER, Ph.D.
Secretary
12
15
APPENDIX
P R O X Y
FARO TECHNOLOGIES, INC.
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 27, 1998
The undersigned stockholder appoints SIMON RAAB and GREGORY A. FRASER,
or either of them, as proxy with full power of substitution, to vote the shares
of voting securities of FARO Technologies, Inc. (the "Company") which the
undersigned is entitled to vote at the Annual Meeting of Stockholders to be held
at the offices of the Company, 125 Technology Park, Lake Mary, Florida, on
Monday, April 27, 1998, at 10:00 a.m., local time, and at any adjournments
thereof, upon matters properly coming before the meeting, as set forth in the
Notice of Annual Meeting and Proxy Statement, both of which have been received
by the undersigned. Without otherwise limiting the general authorization given
hereby, such proxy is instructed to vote as follows:
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE PROPOSALS INDICATED ON THIS CARD AND AS SUCH PROXIES DEEM
ADVISABLE WITH DISCRETIONARY AUTHORITY ON SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE MEETING AND ANY ADJOURNMENT OR ADJOURNMENTS THEREOF.
PLEASE CHECK THE BOXES BELOW, SIGN, DATE AND RETURN THIS PROXY TO FIRSTAR TRUST
COMPANY, 1555 NORTH RIVER CENTER DRIVE, SUITE 301, MILWAUKEE, WISCONSIN 53212,
IN THE SELF-ADDRESSED ENVELOPE PROVIDED.
- DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED -
FARO TECHNOLOGIES, INC. 1998 ANNUAL MEETING
1. ELECTION OF DIRECTORS
(each to serve for a term of three years)
1 - ALEXANDRE RAAB
2 - NORMAN H. SCHIPPER, Q.C.
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
listed to the left (except to vote for all nominees
as specified below). listed to the left.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME LISTED BELOW)
________________________________________________________________________________
In his discretion, the proxy is authorized to vote upon such other business as
may properly come before the meeting.
Check appropriate box DATED:_________________ NO. OF SHARES
Indicate changes below:
Address change? [ ] Name Change? [ ]
_______________________________________________
_______________________________________________
SIGNATURE(S) IN BOX
(Please sign exactly as your name appears
hereon. When signing as attorney, executor,
administrator, trustee or guardian, please
give your full title. If shares are jointly
held, each holder must sign. If a
corporation, please sign in full corporate
name by President or other authorized
officer. If a partnership, please sign in
partnership name by authorized person).
