Rebuffed FSII investor group seeks new owners, execs

April 4, 2007 – A group claiming to represent 6.5% ownership in wafer processing equipment firm in FSI International is pushing for new leadership and possibly new ownership of the company, laying out in surprisingly candid detail its efforts to discuss its concerns with the company’s top management.

In a detailed SEC filing, Chap-Cap Activist Partners Master Fund Ltd. says it contacted Benno Sand, FSI’s EVP of business development, seeking explanations as to why the public company has not pursued a sale “to a more diversified player in the semiconductor equipment sector,” and also seeking justification for CEO Donald Mitchell’s multimillion-dollar cash compensation/stock options, and the company’s allowance for him to be based in San Diego “while headquarters and core loyal employee base ‘shivers’ in climactically disadvantaged Chaska, MN.”

The group says Sand rebuffed efforts to discuss the issues with either himself or Mitchell with what Chapman describes with “insouciant,” phlegmatic,” and “hackneyed” responses. “In this industry, it doesn’t matter where the CEO lives because the customers are in Asia, Japan, China and Israel,” Chapman quoted Sand as saying. Mitchell also was contacted at his home in San Diego (the Chapman petitioners expressed “astonishment” that his wife answered the publicly listed telephone number), but didn’t get to talk with Mitchell. “Some three months later, neither Mr. Mitchell nor his wife and home office secretary Linda has returned Mr. Chapman’s telephone call,” the petitioners claim in the filing.

Following several quarters of worsening losses and declining revenues, as well as 11% workforce reductions and other cost control actions, Chapman says it plans to pursue several options in an effort to protect and enhance shareholder value, including soliciting interest in strategic buyers for the company, and recruiting alternate management and corporate governors.

Closing its filing, Chapman admits, however, that it “does not have any present plans or proposals that relate to or would result in any of the actions” it is seeking.


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