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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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 (S) 240.14a-11(c) or (S) 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
FARO TECHNOLOGIES, INC.
[LOGO OF FARO]
125 Technology Park
Lake Mary, Florida 32746
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 25, 2002
----------------
To the Shareholders of FARO Technologies, Inc.:
Notice is hereby given that the Annual Meeting of Shareholders of FARO
Technologies, Inc. (the "Company") will be held at the offices of the Company,
125 Technology Park, Lake Mary, Florida, on Thursday, April 25, 2002 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.
2. To transact such other business as may properly come before the
meeting.
Shareholders of record as of the close of business on March 11, 2002 are
entitled to notice of and to vote at the Annual Meeting or any adjournment or
postponement of the Annual Meeting. Information relating to the matters to be
considered and voted on at the Annual Meeting is set forth in the proxy
statement accompanying this Notice.
By Order of the Board of Directors
/s/ Gregory A. Fraser
March 29, 2002 GREGORY A. FRASER, Ph.D.
Secretary
YOUR VOTE IS IMPORTANT
Shareholders who do not expect to attend the meeting in person are urged to
complete, date and sign the enclosed proxy and return it promptly in the
enclosed postage-paid envelope.
FARO TECHNOLOGIES, INC.
125 Technology Park
Lake Mary, Florida 32746
----------------
PROXY STATEMENT FOR
2002 ANNUAL MEETING OF SHAREHOLDERS
----------------
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of FARO Technologies, Inc. (the
"Company") for use at the Annual Meeting of Shareholders to be held on
Thursday, April 25, 2002 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 of Annual Meeting. The telephone number at that address is (407)
333-9911. The Notice of Annual Meeting, this Proxy Statement and the
accompanying proxy, together with the Company's Annual Report to Shareholders
and Form 10-K for the year ended December 31, 2001, are first being sent to
shareholders on or about March 29, 2002 to shareholders entitled to vote at the
Annual Meeting.
Shareholders of record as of March 11, 2002 (the "Record Date") are entitled
to notice of and to vote at the Annual Meeting. As of the Record Date, there
were 11,416,469 shares of the Common Stock outstanding and entitled to vote.
There is no other class of voting securities outstanding. Each outstanding
share of Common Stock is entitled to one vote on all matters submitted to a
vote of shareholders. Votes may not be cumulated in the election of directors.
The presence, in person or by proxy, at the Annual Meeting of the holders of a
majority of the share of Common Stock entitled to vote will constitute a quorum
for purposes of the Annual Meeting.
If the proxy card accompanying this Proxy Statement is properly executed,
dated and returned to the Company, and not revoked, the shares of Common Stock
represented by the proxy will be voted as instructed on the proxy card. If no
instructions are given, the shares of Common Stock represented by the proxy
will be voted "FOR" each of the Proposals listed in the Notice of Annual
Meeting of Shareholders and described more fully in this Proxy Statement. The
giving of the proxy does not affect the right to vote in person if the
shareholder attends the Annual Meeting. The shareholder may revoke the proxy at
any time prior to the voting of the shares represented by the proxy by giving
written notice of revocation to the Secretary of the Company, by delivering to
the Secretary of the Company a duly executed proxy bearing a later date or by
appearing at the Annual Meeting and voting by written ballot in person.
1
Proxies solicited by this Proxy Statement may be exercised only at the Annual
Meeting and any adjournment of the Annual Meeting and will not be used for any
other meeting. Proxies solicited by this Proxy Statement will be returned to
the Board of Directors and will be tabulated by an inspector of elections
designated by the Board of Directors who will not be employed by the Company or
any of its affiliates.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspector of elections appointed for the Annual Meeting who will also
determine whether a quorum is present for the transaction of business. The
Company's Bylaws provide that a quorum is present if the holders of a majority
of the issued and outstanding shares of Common Stock entitled to vote at the
Annual Meeting are present in person or represented by proxy. Abstentions will
be counted as shares that are present and entitled to vote for purposes of
determining whether a quorum is present. Shares held by nominees for beneficial
owners will also be counted for purposes of determining whether a quorum is
present if the nominee has the discretion to vote on at least one of the
matters presented, even though the nominee may not exercise discretionary
voting power with respect to other matters and even though voting instructions
have not been received from the beneficial owner (a "broker non-vote"). Neither
abstentions nor broker non-votes are counted in determining whether a proposal
has been approved.
Under Florida law, if a quorum exists, directors are elected by a plurality
of the votes cast by the shares entitled to vote in the election. Shareholders
are requested to vote by completing the enclosed proxy and returning it signed
and dated in the enclosed postage-paid envelope, which requires no postage if
mailed in the United States. Shareholders are urged to indicate their votes in
the spaces provided on the proxy. Proxies solicited by the Board of Directors
of the Company will be voted in accordance with the directions given in the
proxy. Where no instructions are indicated, signed proxies will be voted FOR
each of the proposals listed in the Notice of Annual Meeting of Shareholders.
Returning your completed proxy will not prevent you from voting in person at
the Annual Meeting, should you be present and wish to do so.
The cost of solicitation of Proxies by mail on behalf of the Board of
Directors will be borne by the Company. Proxies also may be solicited by
personal interview or by telephone by directors, officers, and other employees
of the Company without additional compensation. The Company also has made
arrangements with brokerage firms, banks, nominees, and other fiduciaries to
forward proxy solicitation materials for shares of common stock held of record
to the beneficial owners of such shares. The Company will reimburse such record
holders for their reasonable out-of-pocket expenses.
2
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors recommends the following nominees for election as
directors and urges each shareholder to vote "FOR" the nominees. Executed
proxies in the accompanying form will be voted at the annual meeting in favor
of the election as directors of the nominees named below, unless authority to
do so is withheld.
The Company's Board of Directors is divided into three classes, as nearly
equal as possible, with each class serving three-year terms expiring at the
third annual meeting of shareholders after their elections. The term of one of
the classes of directors expires at the 2002 Annual Meeting of Shareholders.
Accordingly, two directors will be elected at the Annual Meeting to serve until
their terms expire at the 2005 Annual Meeting of Shareholders (in each case,
until their respective successors are elected and qualified).
In the event any such nominee is unable to serve, the persons designated as
proxies will cast votes for such other person in their discretion as a
substitute nominee. The Board of Directors has no reason to believe that the
nominees named below will be unable, or if elected, will decline to serve.
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
---- --- -------- -------
Gregory A. Fraser, Ph.D.................................... 47 1982 2002
Stephen R. Cole............................................ 50 2000 2002
Gregory A. Fraser, Co-founder of the Company, has served as Executive
Ph.D.................. Vice President since September 1999. Formerly Chief
Financial Officer and Executive Vice President since
May 1997. Secretary, Treasurer and a director of the
Company since its inception in 1982.
Stephen R. Cole....... Fellow of Institute of Chartered Accountants of
Ontario, Canada. President since 1975 and Founding
Partner of Cole & Partners, a Toronto, Canada based
mergers and acquisition and corporate finance advisory
service company.
Messrs. Fraser and Cole will each be elected for a three-year term, with
their terms expiring at the 2005 Annual Meeting of Shareholders.
3
Directors Whose Terms Will Continue After the Annual Meeting
Director Term
Name Age Since Expires
---- --- -------- -------
Norman H. Schipper, Q.C.................................... 71 1982 2004
Simon Raab, Ph.D........................................... 49 1982 2003
Hubert D'Amours............................................ 63 1990 2003
Andre Julien............................................... 58 1986 2003
Norman H. Schipper, Formerly, a Partner in the Toronto office of the law
Q.C. ................... firm of Goodmans, LLP from 1962 until his mandatory
retirement as Partner on December 31, 1997; now Of
Counsel to the firm.
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.
Hubert d'Amours......... President of Montroyal Capital, Inc. and Capimont,
Inc., two venture capital investment firms, since
1990.
Andre Julien............ Independent consultant, formerly President, LAB
Pharmacological Research International, Montreal
Canada. Former President and owner of Chateau Paints,
Inc., a coatings and paint manufacturer in Montreal,
Canada from 1969 until 1994.
BOARD OF DIRECTORS
General
Nine meetings of the Board were held during 2001. In all the meetings, 94% of
the members attended the meetings of the Board and the committees thereof of
which they are a member, during the periods in which they served. The Board of
Directors also took certain actions by unanimous written consent in lieu of a
meeting as permitted by Florida law.
Audit Committee
The Audit Committee consists of Messrs. d'Amours, Julien, and Cole. There is
no formal Chairman of the Audit Committee. The Audit Committee held one meeting
during 2001 and all members were in attendance.
The Audit Committee reviews 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 Audit Committee is governed by a written charter
approved by the Board of Directors. A copy of this charter was appended to the
Company's 2001 Annual Meeting Proxy Statement.
4
Except as noted below, the members of the Audit Committee are independent, as
defined under the Nasdaq Stock Market regulations. The independent accountants
have access to the Committee without any other members of management being
present. In addition to its formal meeting, members of the Committee met with
management and the independent accountants before the announcement of the
quarterly earnings announcement during 2001. The full Committee reviewed annual
results, the Audit Committee report (see page 6 of this proxy statement) and
annual disclosure filings before filing.
The Company engaged Cole & Partners, a mergers and acquisition and corporate
finance advisory service firm, to serve as the Company's financial advisor in
connection with the Company's acquisition in January, 2002 of SpatialMetrix,
Inc. ("SMX"). Stephen R. Cole, one of the Company's directors and a member of
the Audit Committee, is the founding Partner and President of Cole & Partners.
The Company paid to Cole & Partners total fees of approximately $440,000 by
early 2002 for its services in the SMX acquisition. As a result of these
services, Mr. Cole does not satisfy for 2002 the independence qualifications of
the Nasdaq Stock Market for independent directors.
Nonetheless, the Nasdaq Stock Market regulations permit one director who is
not independent and is not a current employee or an immediate family member of
an employee of the Company to serve on the Audit Committee if the Board of
Directors, under exceptional and limited circumstances, determines that
membership on the Audit Committee by the individual is required by the best
interests of the Company and its shareholders. The Board of Directors has
determined that, despite the relationship described above, Mr. Cole's service
on the Audit Committee is in the best interests of the Company and its
shareholders. The Board of Directors' determination was based in part, on Mr.
Cole's extensive experience and training in financial matters. The Board of
Directors also concluded that neither the fee paid to Cole & Partners by early
2002 nor the Company's relationship with Cole & Partners in general, in the
opinion of the Board of Directors, interferes with the exercise of independent
judgement by Mr. Cole in carrying out his responsibilities as a director and a
member of the Audit Committee.
Compensation Committee
The Compensation Committee consists of all members of Board. Mr. Julien
currently serves as Chairman of the Compensation Committee. The Compensation
Committee held one meeting during 2001 and all members were in attendance. The
Compensation Committee is responsible for establishing the compensation of the
Company's directors and executive officers, 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 Non-employee Director Stock Option Plan.
5
Report of the Audit Committee
Management has the primary responsibility for the Company's financial
statements and its system of internal controls and the financial reporting
process. The independent accountants have the responsibility to express an
opinion on the financial statements based on an audit conducted in accordance
with generally accepted auditing standards. The Audit Committee has the
responsibility to monitor and oversee these processes.
In fulfilling its responsibilities, the Audit Committee recommended to the
Board the selection of the company's independent accountants, Ernst & Young
LLP. That firm has provided the written disclosures and the letter to the
Committee required by Independence Standards Board Standard 1 (Independence
Discussions with Audit Committees), and the Committee discussed with that firm
its independence. The Audit Committee also considered whether the provision of
non-audit services is compatible with maintaining the auditors' independence.
The Committee has also discussed with Ernst & Young LLP matters required to be
discussed by Statement on Auditing Standards No. 61 (Communications with Audit
Committees), as amended.
The Committee reviewed with the independent accountants the overall scope and
specific plans for its audit. Without management present, the Committee met
separately with the independent accountants to review the results of their
examinations, their evaluation of the company's internal controls, and the
overall quality of the Company's accounting and financial reporting. The
Committee reviewed and discussed with management and the independent
accountants the Company's audited financial statements.
Based on the Committee's review of the audited financial statements of the
Company, and on the Committee's discussions with management of the Company and
with Ernst & Young LLP, the Committee recommended to the Board of Directors
that the audited financial statements be included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001, for filing with the
Securities and Exchange Commission.
Hubert d' Amours, Audit Committee Member
Andre Julien, Audit Committee Member
Stephen Cole, Audit Committee Member
Director Compensation
Under the 1997 Non-Employee Directors' Fee Plan, directors of the Company who
are not executive officers are entitled to receive fees of $1,000 for each
Board meeting attended, and $500 per committee meeting attended, plus the
expenses of attending meetings. During 2001, Messrs. d'Amours, Cole, Julien,
Alexandre Raab, and Schipper earned directors' fees of $9,000, $10,000, $8,500,
$1,000, and $9,500, respectively. In 2001, Mr. Alexandre Raab retired from the
Board of Directors. Additionally, in 2001, Mr. Raab waived his earned fees.
6
Generally, upon election to the Board, and then annually on the day following
the annual meeting of shareholders, each director who is not an executive
officer is granted a stock option to acquire 3,000 shares of the Company's
Common Stock. The exercise price for such shares is equal to the closing sale
price of the Company's Common Stock as reported on The Nasdaq Stock Market on
the date the director is elected or reelected to the Board, or on the date of
the day following the annual meeting of shareholders for directors whose term
will continue after the annual meeting. 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 Non-employee
Directors' Fee Plan permits non-employee 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, 2001, all non-employee directors'
fees were deferred for federal income tax purposes.
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During 2001, the executive officers and directors of the Company filed with
the Securities and Exchange Commission (the "Commission") on a timely basis all
required reports relating to transactions involving equity securities of the
Company beneficially owned by them except as follows: Mr. Cole did not file on
a timely basis a report for the purchase of 7,500 shares of Common Stock in
April, 2001; Mr. d'Amours did not file on a timely basis a report for the
purchase of 12,000 shares of Common Stock in April, 2001; Mr. Julien did not
file on a timely basis a report for the sale of 5,854 shares of Common Stock in
November, 2001. Reports for these transactions subsequently were filed. The
Company has relied on the written representation of its executive officers and
directors and copies of the reports they have filed with the Commission in
providing this information.
7
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date (except as noted)
by each person known to the Company to own beneficially more than 5% of the
Company's Common Stock, each director, each nominee for election as a director,
each executive officer named in the Summary Compensation Table below, and all
executive officers and directors as a group. Except as otherwise indicated,
each of the shareholders listed below has sole voting power and investment
power over the shares beneficially owned.
Beneficially
Owned
-----------------
Name of Beneficial Owner Shares Percent
- ------------------------ --------- -------
Simon Raab, Ph.D.(1).... 3,105,249 27.0%
Gregory A. Fraser,
Ph.D.(2)............... 502,265 4.4%
Hubert d'Amours(3)...... 71,677 *
Andre Julien(4)......... 85,233 *
Norman H. Schipper,
Q.C.(5)................ 145,957 1.3%
Stephen R. Cole (6)..... 11,267 *
Wellington Management
Company, LLP (7)....... 725,000 6.3%
All directors and
executive officers as a
group (6 persons)...... 3,921,648 33.7%
- ----------------
* Less than 1%
(1) Includes 2,849,028 shares held by Xenon Research, Inc. ("Xenon"), and
includes options to purchase 100,000 shares at $3.64 per share which Mr.
Raab has the right to acquire pursuant to currently exercisable stock
options. Simon Raab and Diana Raab, his spouse, own all of the
outstanding capital stock of Xenon.
(2) Includes options to purchase 60,000 shares at $3.31 per share which Mr.
Fraser has the right to acquire pursuant to currently exercisable stock
options.
(3) Includes 10,317 notional shares subject to the terms of 1997 Non-Employee
Directors' Fee Plan, and options to purchase (i) 3,000 shares at $4.88
per share, (ii) 2,000 shares at $3.13, and (iii) 1,000 shares at $2.57
per share which Mr. d'Amours has the right to acquire pursuant to stock
options that are currently exercisable or are exercisable within 60 days
of the Record Date. The number of shares reflected does not include
options to purchase (i) 1,000 shares at $3.13 per share, or (ii) 2,000
shares at $2.57 per share which are currently not exercisable.
(4) Does not include 315,151 shares owned by Philanderer Six, Inc. Mr. Julien
has a minority interest in Philanderer Six, Inc., but does not have
voting power or dispositive power over the shares of common stock owned
by Philanderer Six, Inc. Shares owned includes 9,945 notional shares
subject to the terms of the 1997 Non-Employee Directors' Fee Plan, and
includes options to purchase (i) 3,000 shares at $4.88 per share, (ii)
2,000 shares at $3.13 per share and (iii) 1,000 shares at $2.57 per share
which Mr. Julien has the right to acquire pursuant to stock options that
are currently exercisable or are exercisable within 60 days of the Record
Date. The number of shares reflected does not include options to purchase
(i) 1,000 shares at $3.13 per share, or (ii) 2,000 shares at $2.57 per
share which are currently not exercisable.
(5) Includes 134,654 shares owned by Shanklin Investments, Limited, in which
Mr. Schipper has a controlling interest, and includes options to purchase
(i) 3,000 shares at $4.88 per share, (ii) 2,000 shares at $3.13 per
share, and (iii) 1,000 shares at $2.57 per share which Mr. Schipper has
the right to acquire pursuant to stock options that are currently
exercisable or are exercisable within 60 days of the Record Date. The
number of shares reflected does not include options to purchase (i) 1,000
shares, at $3.13 per share, or (ii) 2,000 shares at $2.57 per share which
are currently not exercisable.
8
(6) Includes 5,267 notional shares subject to the terms of the 1997 Non-
Employee Directors' Fee Plan and includes options to purchase (i) 3,000
shares at $2.75 per share and (ii) 3,000 shares at $2.57 per share which
Mr. Cole has the right to acquire pursuant to stock options that are
currently exercisable or are exercisable within 60 days of the Record
Date. Does not include 55,800 shares owned by Snow Powder Ridge Limited,
all the capital stock of which is owned by Mr. Cole's wife, or 2,461
shares held in trust for Snow Powder Ridge Limited.
(7) The following information is derived from a Schedule 13G filed on
February 12, 2002 by Wellington Management Co., LLP reflecting beneficial
ownership as of December 31, 2001. Wellington Management Co., LLP is an
investment adviser registered under Section 203 of the Investment
Advisors Act of 1940 and has sole voting and dispositive power of the
shares owned by it. The address of Wellington Management Co., Inc. is 75
State Street, Boston, Massachusetts 02109.
9
EXECUTIVE COMPENSATION
The following table sets forth certain information for the years ended
December 31, 2001, 2000, and 1999 with respect to compensation paid by the
Company to the Company's Chief Executive Officer and each of the Company's
other executive officers:
Summary Compensation Table
Annual Compensation Long Term Compensation
-------------------------------- ---------------------------
Awards Payouts
------------------- -------
Restricted
Other Annual Stock Options/ LTIP All Other
Salary Bonus Compensation Award(s) SARs Payouts Compensation
Name and Principal Position Year ($) ($) ($) ($) (#) ($) ($)
- --------------------------- ---- ------- ------ ------------ ---------- -------- ------- ------------
Simon Raab, Ph.D. 2001 235,600 --
President, Chairman and 2000 235,340 94,240
Chief Executive
Officer................ 1999 220,000 44,000
Gregory A. Fraser, Ph.D. 2001 184,000 --
Executive Vice President, 2000 171,013 51,360
Secretary and
Treasurer.............. 1999 160,000 32,000
The following table sets forth information with respect to grants of stock
options during 2001 to the executive officers named in the Summary Compensation
Table.
Option/SAR Grants in Last Fiscal Year
Potential
Realizable
Value At
Assumed
Annual Rates
of Stock
Percent of Price
Number of Total Appreciation
Shares Options/SARs Exercise For Option
Underlying Granted to Or Base Term
Options/SARs Employees in Price Expiration -------------
Name Granted Fiscal Year ($/Sh) Date 5% 10%
---- ------------ ------------ -------- ---------- ------ ------
Simon Raab, Ph.D.
President, Chairman and
Chief Executive
Officer................ -- -- -- -- -- --
Gregory A. Fraser, Ph.D.
Executive Vice
President, Secretary
and Treasurer.......... -- -- -- -- -- --
10
The following table sets forth information with respect to aggregate stock
option exercises by the executive officers named in the Summary Compensation
Table during 2001 and the year-end value of unexercised options held by such
executive officers.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Options/SAR Value Table
Value of
Unexercised
Number of In-the-Money
Unexercised Options/SARs at
Number of Options/SARs FY-End ($)(1)
Shares Acquired At FY-End -------------------------
Name on Exercise Value Realized ($) (#) Exercisable Unexercisable
---- --------------- ------------------ ------------ ----------- -------------
Simon Raab (2).......... -- $-- 100,000 $-- $--
Gregory A. Fraser (3)... -- $-- 60,000 $-- $--
- ----------------
(1) Based on the closing price of $2.24 per share of the Company's Common
Stock on December 31, 2001 as quoted on The Nasdaq Stock Market.
(2) All of 100,000 stock options held by Mr. Raab were granted on December 9,
1998, expire on December 9, 2008, and are currently exercisable.
(3) All of 60,000 stock options held by Mr. Fraser were granted on December
9, 1998, expire on December 9, 2008, and are currently exercisable.
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 the entire
Board, except in matters involving compensation of the two directors who are
employees of the Company, in which matters these two directors abstain from
voting.
The Compensation Committee's primary objective with respect to executive
compensation is to establish programs that 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 2001, which
included the following considerations:
. a "pay-for-performance" feature that differentiates compensation results
based upon organizational results and overall performance against plan;
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
11
. 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 2001, 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 to 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 unchanged in
2001. The Compensation Committee generally attempts to set base salaries of
executive officers at levels that 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, 2001,
executive salaries, including the salary paid to Mr. Raab were 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.
During the year ended December 31, 2001, the Compensation Committee did not
award annual cash incentive payments.
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 six Directors whose names are listed at
the end of this report, three of whom qualify as disinterested persons for
purposes of Rule 16b-3 under the Securities Exchange Act of 1934. The
Compensation Committee administers the
12
Company's 1993 Stock Option Plan (the "1993 Plan"), 1997 Employee Stock Option
Plan (the "1997 Plan"), and 1997 Non-Employee Director Stock Option Plan (the
"Non-Employee Director Plan") (the 1993 Plan, 1997 Plan, and Non-Employee
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 non-employee 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
Non-Employee Director Plan provides for the grant of nonqualified stock options
and formula options to non-employee 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 executive officer 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 not granted any stock options in 2000 and 2001.
During the fourth quarter of 2001, Messrs. Raab and Fraser surrendered 180,000
and 120,000 "out-of-the-money" options, respectively, previously granted under
the 1997 Plan. At March 11, 2002, the executive officers appearing in the
Summary Compensation Table held stock or currently held the right to acquire
stock representing 35.3 percent of the Company's outstanding Common Stock.
13
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 2001 to any
of the Company's executive officers to be adversely 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, 2001,
Messrs. Raab and Fraser held options to acquire 100,000 and 60,000 shares,
respectively, of the Company's Common Stock. All these options are at a higher
exercise price than the current market price. The options held by Messrs. Raab
and Fraser expire on December 9, 2008 and 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
Limitation.
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 executive compensation 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.
March 11, 2002 Compensation Committee
Hubert d'Amours
Andre Julien
Norman H. Schipper
Stephen R. Cole
Simon Raab
Gregory A. Fraser
14
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Messrs. Hubert d'Amours,
Andre Julien, Norman H. Schipper, Stephen R. Cole, Simon Raab, and Gregory A.
Fraser. Currently, Mr. Julien serves as Chairman of the Committee. There were
no transactions during the year ended December 31, 2001 between the Company and
members of the Compensation Committee or entities in which they own an
interest, other than as disclosed in CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, below.
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 2006, and the Company has two five-
year renewal options. Rent under the lease was $391,000 for 2001. 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.
The Company engaged Cole & Partners, a mergers and acquisition and corporate
finance advisory service firm, to serve as the Company's financial advisor in
connection with the Company's acquisition in January, 2002 of SpatialMetrix,
Inc. ("SMX"). Stephen R. Cole, one of the Company's directors, is the founding
Partner and President of Cole & Partners. The Company paid to Cole & Partners
total fees of approximately $440,000 by early 2002 for its services in the SMX
acquisition.
15
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:
COMPARISON OF 51 MONTH CUMULATIVE TOTAL RETURN*
AMONG FARO TECHNOLOGIES, INC.,
THE DOW JONES US TOTAL MARKET INDEX
AND THE DOW JONES US ADVANCED INDUSTRIAL EQUIPMENT INDEX
Cumulative Total Return
----------------------------------------------------------------------------------
9/18/97 9/97 12/97 3/98 6/98 9/98 12/98 3/99 6/99 9/99
FARO TECHNOLOGIES, INC. 100.00 100.77 71.54 73.85 65.00 19.42 24.62 39.23 30.77 21.15
DOW JONES US TOTAL MARKET 100.00 100.20 102.42 116.01 118.61 105.23 127.92 133.06 143.11 133.64
DOW JONES US ADVANCED
INDUSTRIAL EQUIPMENT 100.00 101.86 91.14 99.86 89.60 72.76 90.16 93.12 114.81 109.78
Cumulative Total Return
------------------------------------------------------------------------
12/99 3/00 6/00 9/00 12/00 3/01 6/01 9/01 12/01
FARO TECHNOLOGIES, INC. 18.08 25.00 19.23 29.23 18.46 15.38 16.68 11.69 13.78
DOW JONES US TOTAL MARKET 156.99 163.32 156.67 157.40 142.44 124.36 133.00 112.06 125.47
DOW JONES US ADVANCED
INDUSTRIAL EQUIPMENT 154.32 188.19 208.18 194.83 128.71 76.20 71.28 51.88 68.79
* $100 invested on September 18, 1997 in stock or index, including
reinvestment of dividends, fiscal year ending December 31.
16
INDEPENDENT PUBLIC ACCOUNTANTS
In 2000, Deloitte & Touch LLP ("Deliotte"), who had served as principal
accountant to audit the consolidated financial statements of the Company,
resigned from its engagement with the Company. Following Deloitte's
resignation, the Board of Directors of the Company approved the engagement of
Ernst & Young LLP as the its principal accountant and replacement for Deloitte.
During fiscal years 1998 and 1999, no report of Deloitte on the Company's
consolidated financial statements contained an adverse opinion or a disclaimer
of opinion, nor was one qualified as to uncertainty, audit scope, or accounting
principles. During fiscal years 1998 and 1999, there were no disagreements with
Deloitte on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Deloitte, would have caused Deloitte to
make a reference to the subject matter of the disagreements in connection with
its report.
Deloitte did not advise the Company at any time during fiscal years 1998 and
1999:
(a) that the internal controls necessary for the Company to develop
reliable consolidated financial statements did not exist;
(b) that information had come to its attention that had led it to no
longer be able to rely on management's representations, or that had made it
unwilling to be associated with the consolidated financial statements
prepared by management;
(c) of the need to expand significantly the scope of its audit, or that
information had come to its attention during fiscal years 1998 and 1999,
that if further investigated may (i) materially have impacted the fairness
or reliability of either: a previously issued audit report or the
underlying consolidated financial statements, or the consolidated financial
statements issued or to be issued covering the fiscal periods subsequent to
the date of the most recent consolidated financial statements covered by an
audit report or (ii) have caused it to be unwilling to rely on management's
representations or be associated with the Company's consolidated financial
statements; or
(d) that information had come to its attention that it concluded
materially impacts the fairness or reliability of either (i) a previously
issued audit report or the underlying consolidated financial statements
issued or to be issued covering the fiscal periods subsequent to the date
of the most recent consolidated financial statements covered by an audit
report.
17
Neither the Company nor anyone on its behalf has consulted with Ernst & Young
regarding either: (a) the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit opinion that
might be rendered on the Company's consolidated financial statements, and
neither a written report nor oral advice was provided to the Company that Ernst
& Young concluded was an important factor considered by the Company in reaching
a decision as to an accounting, auditing or financial reporting issue; or (b)
any matter that was the subject of either a disagreement or any other event
described above.
The fees for professional services rendered by Ernst & Young LLP in
connection with all audit and non-audit related matters for the year ended
December 31, 2001 were as follows:
Audit Fees
Ernst & Young LLP's fees for the audit of the Company's annual financial
statements for the year ended December 31, 2001 and the reviews of the interim
financial statements included in the Company's Quarterly Reports on Form 10-Q
filed during the year ended December 31, 2001,were $337,500. The Company also
paid during 2001 an additional $150,000 to Ernst & Young LLP for audit fees
relating to the audit of the Company's annual financial statements for the year
ended December 31, 2000.
Financial Information Systems Design and Implementation Fees
The Company did not engage Ernst & Young LLP to provide advice to the Company
regarding financial information systems design and implementation during the
year ended December 31, 2001.
All Other Fees
Ernst & Young LLP has billed the Company approximately $593,000 for all other
professional services rendered during the year ended December 31, 2001,
including audit-related services of $41,000 and non-audit services of $552,000.
Audit-related services included fees for business acquisitions and accounting
consultations. Non-audit services included fees for tax consultations and tax
preparation.
The Audit Committee has determined that the services provided by Ernst &Young
LLP that were not directly related to the most recent audit are compatible with
maintaining the principal accountant's independence.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting. Those representatives will have the opportunity to make a statement if
they desire to do so and are expected to be available to respond to appropriate
questions.
18
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
The deadline for submission of shareholder proposals pursuant to Rule 14a-8
under the Securities Exchange Act of 1934 ("Rule 14a-8") for inclusion in the
Company's proxy statement for its 2003 Annual Meeting of Shareholders is
November 29, 2002. Notice to the Company of a shareholder proposal submitted
otherwise than pursuant to Rule 14a-8 will be considered untimely, and the
persons named in proxies solicited by the Board of Directors of the Company for
its 2003 Annual Meeting of Shareholders may exercise discretionary voting power
with respect to any such proposal if received by the Company after February 12,
2003.
OTHER MATTERS
If any other matters shall come before the Annual 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
/s/ Gregory A. Fraser
March 29, 2002 GREGORY A. FRASER, Ph.D.
Secretary
19
PROXY
FARO TECHNOLOGIES, INC.
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 25, 2002
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 Thursday, April 25,
2002, 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 U.S. BANK,
N.A., 1555 NORTH RIVERCENTER DRIVE, SUITE 301, MILWAUKEE, WISCONSIN 53212, IN
THE SELF-ADDRESSED ENVELOPE PROVIDED.
DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED
FARO TECHNOLOGIES, INC. 2002 ANNUAL MEETING
1. TO ELECT TWO DIRECTORS:
(to serve for a term of three years)
1 - Gregory A. Fraser 2 - Stephen R. Cole
[_] FOR all nominees listed to the left (except as specified below).
[_] WITHHOLD AUTHORITY to vote for all nominees listed to the left.
(Instructions: To withhold authority to vote for any indicated
nominee, write the number(s) of the nominee(s) in the box provided
to the right.) [__________________]
In his discretion, the proxy is authorized to vote upon such other business as
may properly come before the meeting.
Check appropriate box
Indicate changes below:
Address Change? [_]
Name Change? [_]
Date , 2002 NO. OF SHARES
--------------------------------
--------------------------------
--------------------------------
Signature(s) in Box
--------------------------------
--------------------------------
Print Names
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 an authorized person.