<PAGE>
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 Section240.14a-11(c) or
Section240.14a-12
ADVANCED ENERGY INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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:
-----------------------------------------------------------------------
<PAGE>
ADVANCED ENERGY INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
MAY 15, 1997
To the Stockholders:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders of
Advanced Energy Industries, Inc., a Delaware corporation, (the "Company"), will
be held on Thursday, May 15, 1997, at 10:00 a.m., local time, at the Monarch
Room, Advanced Energy Industries, Inc. 1625 Sharp Point Drive, Fort Collins,
Colorado 80525 for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected and qualified.
2. To ratify the appointment of Arthur Andersen LLP as independent
auditors of the Company for the fiscal year ending December 31, 1997.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 31, 1997 are
entitled to notice of and to vote at the meeting and any adjournment thereof.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she has returned a proxy.
By Order of the Board of Directors
Jay Margulies
SECRETARY
Fort Collins, Colorado
April 9, 1997
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND
RETURN IT IN THE ENCLOSED ENVELOPE (TO WHICH NO POSTAGE NEED BE AFFIXED IF
MAILED IN THE UNITED STATES).
<PAGE>
ADVANCED ENERGY INDUSTRIES, INC.
PROXY STATEMENT FOR 1997 ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of Advanced Energy Industries,
Inc., a Delaware corporation (the "Company"), for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on Thursday, May 15, 1997, at
10:00 a.m., local time, or at any adjournment thereof, for the purposes set
forth herein and in the accompanying Notice of Annual Meeting Of Stockholders.
The Annual Meeting will be held at the Company's executive offices at 1625 Sharp
Point Drive, Fort Collins, Colorado 80525. The Company's telephone number is
(970) 221-4670.
These proxy solicitation materials were mailed on or about April 9, 1997 to
all stockholders entitled to vote at the meeting. A copy of the Company's 1996
Annual Report to Stockholders accompanies this Proxy Statement.
RECORD DATE AND PRINCIPAL SHARE OWNERSHIP
Stockholders of record at the close of business on March 31, 1997 (the
"Record Date") are entitled to receive notice of and to vote at the Annual
Meeting. On the Record Date, 21,277,495 shares of the Company's Common Stock,
$0.001 par value (the "Common Stock"), were issued and outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the Annual Meeting and voting in person. Attending the Annual Meeting
in and of itself may not constitute a revocation of a proxy.
VOTING AND SOLICITATION
Each share of Common Stock entitles its holder to one vote on matters to be
acted upon at the Annual Meeting. Votes cast by proxy or in person at the Annual
Meeting will be tabulated by the Inspector of Elections (the "Inspector") with
the assistance of the Company's transfer agent. The Inspector will also
determine whether or not a quorum is present. The affirmative vote of a majority
of shares present in person or represented by proxy at a duly held meeting at
which a quorum is present is required under Delaware law for approval of
proposals presented to stockholders. In general, Delaware law also provides that
a quorum consists of a majority of the shares entitled to vote and present or
represented by proxy at the meeting. The Inspector will treat abstentions as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum but will not treat abstentions as votes in favor of
approving any matter submitted to the stockholders for a vote. Any proxy which
is returned using the form of proxy enclosed and which is not marked as to a
particular item will be voted for the election of directors, for ratification of
the appointment of the designated independent auditors and, as the case may be
with respect to any items not marked, as the proxy holders deem advisable, on
the other matters that may come before the meeting. If a broker indicates on the
enclosed proxy or its substitute that it does not have discretionary authority
as to certain shares to vote on a particular matter ("broker non-votes"), those
shares will not be considered as present with respect to that matter. The
Company believes that the tabulation procedures to be followed by the Inspector
are consistent with the general statutory requirements in Delaware concerning
voting of shares and determination of a quorum.
1
<PAGE>
The cost of soliciting proxies will be borne by the Company. The Company has
retained the services of the Bank of Boston c/o Boston Equiserve to aid in the
solicitation of proxies from bankers, bank nominees and other institutional
owners. The Company estimates that it will pay the Bank of Boston a fee not to
exceed $2,500 for its services and will reimburse the Bank of Boston for certain
out-of-pocket expenses. The Company may reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in
forwarding solicitation materials to such beneficial owners. Proxies may also be
solicited by certain of the Company's directors, officers and regular employees,
without additional compensation, personally or by telephone, telefax, or
telegram.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
A board of five directors is to be elected at the Annual Meeting. The
proxies cannot be voted for a greater number of persons than the five nominees
named below. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's five nominees named below, all of
whom are presently directors of the Company. In the event that any nominee of
the Company is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill the vacancy. The Company is
not aware of any nominee who will be unable or will decline to serve as a
director. The term of office of each person elected as a director will continue
until the next Annual Meeting of Stockholders or until a successor has been
elected and qualified.
The following table sets forth certain information concerning the nominees
which is based on data furnished by them.
<TABLE>
<CAPTION>
NOMINEES DIRECTOR PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
FOR DIRECTOR AGE SINCE DURING PAST FIVE YEARS
- ------------------------- --- ----------- -----------------------------------------------------------------------
<S> <C> <C> <C>
Douglas S. Schatz 51 1981 Douglas S. Schatz is a co-founder of the Company and has been its
President and Chief Executive Officer and a director since its
incorporation in 1981. Mr. Schatz also co-founded Energy Research
Associates, Inc. and served as its Vice President of Engineering from
1977 through 1980.
G. Brent Backman 56 1981 G. Brent Backman is a co-founder of the Company and has been a Vice
President and a director of the Company since its incorporation in
1981. Mr. Backman became Vice President, Special Projects in 1994.
Prior to co-founding the Company, Mr. Backman was a Business Manager at
Ion Tech, Inc. and a Laboratory Administrator at Hughes Aircraft
Company.
Richard P. Beck 63 1995 Richard P. Beck joined the Company in 1992 as Vice President and Chief
Financial Officer. He became a director of the Company in 1995. From
1987 to 1992, Mr. Beck served as Executive Vice President and Chief
Financial Officer of Cimage Corporation, a computer software company.
Mr. Beck is a director of Target Financial, Inc., a privately held
financial services company, since March, 1990.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NOMINEES DIRECTOR PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
FOR DIRECTOR AGE SINCE DURING PAST FIVE YEARS
- ------------------------- --- ----------- -----------------------------------------------------------------------
Elwood Spedden (1,2) 59 1995 Elwood Spedden joined the Board of Directors of the Company in
September 1995. Mr. Spedden is a Senior Vice President of Tencor
Instruments, a manufacturer of automatic test equipment used in the
fabrication of semiconductors, since July 1996. From 1990 through March
1996, Mr. Spedden was with Credence Systems Corporation, a manufacturer
of automatic test equipment used in the fabrication of semiconductors,
in various senior management positions including President, Chief
Executive Officer and Vice-Chairman of the Board of Directors. Mr.
Spedden is a director of Insight Objects, a privately held software
company, since January 1997.
<S> <C> <C> <C>
Hollis L. Caswell (1,2) 65 1997 Hollis L. Caswell joined the Board of Directors of the Company in
February 1997. Dr. Caswell has been Chairman of the Board of HYPRES,
Inc., a manufacturer of superconducting electronics since 1990. From
1984 to 1990 Dr. Caswell served as Senior Vice President of Unisys
Corporation and President of such company's Computer Systems Group. Dr.
Caswell is a director of Thomas Group, Inc., a publicly held consulting
company, since August, 1991.
</TABLE>
- ------------------------
(1) Member Of Audit Committee.
(2) Member of Compensation Committee.
There is no family relationship between any of the foregoing nominees or
between any of such nominees and any of the Company's executive officers.
BOARD MEETINGS AND COMMITTEES
On February 10, 1997, Hollis L. Caswell was elected to the Board of
Directors to fill the vacancy on the Board created by the resignation of Mr. Jon
Tompkins.
The Board of Directors of the Company held a total of seven meetings,
including two telephonic meetings, during the fiscal year ended December 31,
1996. The Board of Directors has an Audit Committee and Compensation Committee.
There is no Nominating Committee or committee performing the functions of a
nominating committee. Other than Dr. Caswell, who was elected to the Board of
Directors in February 1997, there is no incumbent director who attended fewer
than 75% of the meetings of the Board of Directors in 1996, and no incumbent
director who attended fewer than 75% of the meetings of the committee or
committees on which he served in 1996.
During 1996 the Audit Committee, which consisted of directors Spedden and
Tompkins, met twice. This committee recommends engagement of the Company's
independent auditors, reviews the scope of the audit, considers comments made by
the independent auditors with respect to accounting procedures and internal
controls and the consideration given thereto by the Company's management, and
reviews the internal accounting procedures and controls with the Company's
financial and accounting staff.
The Compensation Committee, which in 1996 consisted of directors Spedden and
Tompkins, met three times in 1996. This committee recommends salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company, administers the Company's various incentive
compensation and benefits plans and recommends policies relating to such
compensation and benefit plans.
3
<PAGE>
REQUIRED VOTE
The five nominees receiving the highest number of affirmative votes of the
shares present or represented by proxy and entitled to be voted for them shall
be elected as directors. Votes withheld from the respective nominees will be
counted for purposes of determining the presence of a quorum but will not be
counted as affirmative votes. Stockholders do not have the right to cumulate
their votes in the election of directors.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE ELECTION OF
THE FIVE NOMINEES NAMED ABOVE.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth the beneficial ownership of shares of Common
Stock of the Company as of March 15, 1997 by: (i) each person or entity who,
based on the information provided to the Company by such persons or entities,
owned beneficially more than five percent of the Company's Common Stock and such
person or entity's address; (ii) each nominee and director of the Company; (iii)
each named executive officer identified in the section of this proxy statement
captioned "Executive Compensation and Other Information"; and (iv) all current
directors and executive officers as a group.
<TABLE>
<CAPTION>
APPROXIMATE
NAME OF PERSON SHARES OWNED PERCENT OWNED
- ----------------------------------------- ------------- -------------
<S> <C> <C>
Douglas S. Schatz 13,162,300 61.9%
c/o Advanced Energy Industries, Inc.
1625 Sharp Point Drive
Fort Collins, CO 80525
G. Brent Backman 2,433,000 11.4%
c/o Advanced Energy Industries, Inc.
1625 Sharp Point Drive
Fort Collins, CO 80525
Eric A. Balzer 292,038 1.4%
Richard P. Beck (1) 277,917 1.3%
Richard A. Scholl (2) 669,367 3.1%
Elwood Spedden (3) 2,500 *
Hollis L. Caswell (4) 2,500 *
All current directors and executive 17,072,170 80.2%
officers as a group (10 persons)
(1,2,3,4,5)
</TABLE>
- ------------------------
* Less than 1%
(1) Includes 50,517 shares that Mr. Beck has the right to acquire within 60 days
of March 15, 1997, pursuant to a stock option granted by the Company.
(2) Includes 3,895 shares that his wife, Brenda Scholl, has a right to acquire
within 60 days of March 15, 1997, pursuant to stock options granted by the
Company. Mrs. Scholl is a business unit manager for the Company.
(3) Consists of shares that Mr. Spedden has the right to acquire within 60 days
of March 15, 1997 pursuant to stock options granted by the Company.
4
<PAGE>
(4) Consists of shares that Dr. Caswell has the right to acquire within 60 days
of March 15, 1997 pursuant to stock options granted by the Company.
(5) Includes 3,895 shares that a non-named executive officer has the right to
acquire within 60 days of March 15, 1997, pursuant to stock options granted
by the Company
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive meeting fees of
$3,000 for each Board of Directors meeting attended, other than telephonic
meetings, up to a maximum of four meetings, plus reimbursement for reasonable
out-of-pocket travel expenses. In addition, each person who is a non-employee
director is automatically granted upon becoming a director of the Company an
option to purchase 7,500 shares of the Company's Common Stock under the
Company's 1995 Non-Employee Directors' Stock Option Plan (the "Directors' Plan")
at a price per share equal to the fair market value of one share of the
Company's Common Stock on that date. Each option has a term of ten years and is
immediately exercisable as to 2,500 shares of Common Stock, and vest as to 2,500
shares of Common Stock on each of the second and third anniversaries of the
grant date. On each anniversary of the date on which a person becomes a
non-employee director, an option for an additional 2,500 shares will be granted
under the Directors' Plan to such director. Such additional options vest in full
on the third anniversary of the grant date and expire ten years after the grant
date. The exercise price of such options is equal to the fair market value of
the Common Stock on the respective grant date. Fifty-thousand (50,000) shares of
Common Stock have been reserved for issuance pursuant to options to be granted
under the Directors' Plan. As of March 15, 1997, options to purchase a total of
20,000 shares are outstanding under the Directors' Plan.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers ("named executive officers") of the Company (determined at
the end of the last fiscal year) for the fiscal year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
ANNUAL COMPENSATION ------------------------------
-------------------- SECURITIES
SALARY UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($) OPTIONS (#) COMPENSATION (1)
- ----------------------------------------------------- --------- --------- --------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Douglas S. Schatz.................................... 1996 288,989 0 0 9,500
Chairman of the Board 1995 288,283 50,568 0 10,290
and Chief Executive Officer
G. Brent Backman..................................... 1996 137,537 0 0 9,500
Vice President, Special Projects 1995 138,366 24,024 0 4,537
Eric A. Balzer....................................... 1996 147,820 0 0 9,500
Vice President Operations 1995 149,049 25,872 0 4,686
Richard P. Beck...................................... 1996 150,460 0 19,000 9,500
Vice President, Finance 1995 182,519 31,920 0 6,140
and Chief Financial Officer
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
ANNUAL COMPENSATION ------------------------------
-------------------- SECURITIES
SALARY UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($) OPTIONS (#) COMPENSATION (1)
- ----------------------------------------------------- --------- --------- --------- ----------- -----------------
Richard A. Scholl.................................... 1996 189,750 0 0 9,500
<S> <C> <C> <C> <C> <C>
Vice President and Chief Technology Officer 1995 191,700 33,264 0 6,485
</TABLE>
- ------------------------
(1) Amounts contributed by the Company to each of the named executive officers
under the Company's 401(k) profit sharing plan.
(2) In October 1996 Richard P. Beck voluntarily reduced his salary by 80% for
the fourth quarter of 1996 and Mr. Beck was granted in lieu thereof an
incentive stock option for 19,000 shares. See "Option Grants in Fiscal Year
1996".
OPTION GRANTS IN FISCAL YEAR 1996
The following table sets forth information as to an incentive stock option
granted to Richard P. Beck in lieu of 80% of Mr. Beck's salary for the fourth
quarter of 1996. Such option becomes fully vested and exercisable one year after
the date of grant. The option was granted under the terms of the Company's 1995
Stock Option Plan. No other named executive officer was granted any stock
options during the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME GRANTED 1996 PRICE DATE 5% 10%
- --------------------------------------- ----------- --------------- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard P. Beck........................ 19,000 4.9% $ 37/8 10/23/2006 $ 46,302 $ 117,339
</TABLE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996 AND OPTION VALUES AT END OF
FISCAL YEAR 1996
The following table sets forth information as to options exercised by the
named executive officers during the fiscal year ended December 31, 1996 and
options held by the named executive officers at December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN- THE-MONEY OPTIONS
OPTIONS AT AT DECEMBER 31, 1996
NAME DECEMBER 31, 1996 ($)(1)
- ------------------------------------------------------ ----------------------- -----------------------
<S> <C> <C>
Douglas S. Schatz..................................... -- --
G. Brent Backman...................................... -- --
Eric A. Balzer........................................ -- --
Richard P. Beck....................................... 85,885 $ 218,788
Richard A. Scholl (2)................................. 14,374 $ 28,619
</TABLE>
- ------------------------
(1) Market value of underlying securities at year-end minus exercise price.
(2) Includes 14,374 shares that his wife, Brenda Scholl, has a right to acquire
pursuant to a stock option granted by the Company. Mrs. Scholl is a business
unit manager for the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during the fiscal year ended
December 31, 1996 were Elwood Spedden and Jon Tompkins. Neither of such persons
is or has been an officer or employee of the
6
<PAGE>
Company or any of its subsidiaries, nor has either of such persons had a direct
or indirect interest in any business transaction with the Company which involved
an amount in excess of $60,000. None of the executive officers of the Company
has served as a member of the board of directors or on the compensation
committee of any other company of which any member of the Compensation Committee
is or has been an executive officer.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee, which consists of two non-employee directors,
reviews and makes recommendations with respect to the Company's executive
compensation policies and the compensation to be paid to each of the executive
officers. The recommendations of the Compensation Committee with respect to each
executive officers' compensation are subject to approval by the Board of
Directors.
COMPENSATION POLICIES
One of the primary goals in setting compensation policies is to maintain
competitive, progressive programs to attract, retain and motivate high caliber
executives, foster teamwork and maximize the long-term success of the Company by
appropriately rewarding such individuals for their achievements. Another goal is
to provide an incentive to executives to focus efforts on long-term strategic
goals for the Company by closely aligning their financial interests with
stockholder interests. To attain these goals the Company's executive
compensation program was designed to include base salary, annual incentives and
long-term incentives.
In formulating and administering the individual elements of the Company's
executive compensation program, planning, implementing and achieving long-term
objectives are emphasized to establish performance objectives, evaluate
performance and determine actual incentive awards.
Following these policies the Company has been able to attract and retain the
executive talent necessary to support a corporation which has increased its
revenues by more than 300 percent over the last four years.
COMPENSATION COMPONENTS
BASE SALARY The base salaries of executive officers were established after
review of relevant data of other executives with similar responsibilities from
published industry reports and surveys of similarly situated companies. The
objective is to maintain the Company's annual executive salaries at levels
competitive with the market average base salary of executive officers in similar
positions. The market is comprised of similarly sized high technology companies
within and outside the Company's industry. In 1997, a larger portion of each
executive officer's compensation will be in the form of a cash bonus, provided
certain target performance objectives are met. The Compensation Committee has
established base salary and incentives for the executive officers for 1997.
ANNUAL INCENTIVES The more aggressive incentive bonus levels for executives
are intended to provide the appropriate elements of variability and risk. Bonus
payments are tied specifically to targeted corporate performance. The Committee
will establish a base bonus amount, determined through review of a competitive
market survey for executives at similar levels, which will be incrementally
reduced if the Company does not meet its targeted performance or increased if
the Company exceeds its targeted performance. There is no minimum or maximum
percentage by which the bonus can be reduced or increased.
7
<PAGE>
STOCK OPTIONS The Committee will grant stock options under the Company's
Stock Option Plan to focus the executive's attention on the long-term
performance of the Company and on maximizing stockholder value. The grant of
stock options is closely tied to individual executive performance. The Committee
will grant such stock options after a review of various factors, including the
executive's potential contributions to the Company, current equity ownership in
the Company and vesting rates of existing stock options, if any. Incentive stock
options and nonstatutory stock options are granted with an exercise price of at
least 100% and 85%, respectively, of the fair market value of the Common Stock
subject to the option on the date of the grant and utilize vesting periods to
encourage retention of executive officers. Because of the direct benefit
executive officers receive through improved stock performance, the Committee
believes stock options serve to align the interests of executive officers
closely with those of other stockholders.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The compensation of the Chief Executive Officer, Mr. Douglas S. Schatz, was
based on the policies and procedures described above. In determining Mr.
Schatz's base salary and bonus, compensation levels for other chief executive
officers in high technology firms within and outside the industry were examined.
This information was compared to the relevant performance of such firms relative
to the Company's performance.
EFFECT OF SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code of 1986 (the "Code") generally
limits the corporate deduction for compensation paid to certain executive
officers to $1 million, unless the compensation is performance based. The Board
has carefully considered the potential impact of this tax code provision on the
Company and has concluded in general that the best interests of the Company and
the stockholders will be served if certain of the Company's stock-based
long-term incentives qualify as performance-based compensation within the
meaning of the Code. It is the Board's intention that, so long as it is
consistent with its overall compensation objectives, virtually all executive
compensation will be deductible for federal income tax purposes.
THE COMPENSATION COMMITTEE
Elwood Spedden
Jon D. Tompkins
8
<PAGE>
PERFORMANCE GRAPH
The following graph compares, for the period of time that the Company's
Common Stock has been registered under Section 12 of the Securities Exchange Act
of 1934, the cumulative total stockholder return for the Company, The Nasdaq
Stock Market U.S. and the Hambrecht & Quist Semiconductor Index. The stock price
performance on the following graph is not necessarily indicative of future stock
price performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HAMBRECHT AND QUIST NASDAQ ADVANCED ENERGY
<S> <C> <C> <C>
Semiconductor Index Stock Market - U.S. Industries, Inc.
11/17/1995 $100.00 $100.00 $100.00
Dec-1995 97.00 101.00 90.00
Jan-1996 96.00 101.00 87.50
Feb-1996 96.00 105.00 82.50
Mar-1996 92.00 106.00 80.00
Apr-1996 105.00 114.00 87.50
May-1996 102.00 120.00 80.00
Jun-1996 88.00 114.00 77.50
Jul-1996 78.00 104.00 56.30
Aug-1996 86.00 110.00 70.00
Sep-1996 100.00 118.00 53.80
Oct-1996 101.00 117.00 41.30
Nov-1996 127.00 124.00 66.30
Dec-1996 126.00 124.00 53.50
</TABLE>
- ------------------------
* Assumes $100 invested on November 17, 1995, the date of the Company's
initial public offering, in the Common Stock of Advanced Energy Industries,
Inc., and $100 invested on November 17, 1995 in the Nasdaq Stock
Market-U.S., and the Hambrecht & Quist Semiconductor Index.
CERTAIN TRANSACTIONS
The Company's executive offices and manufacturing facilities in Fort
Collins, Colorado are leased from Sharp Point Properties, LLP, a Colorado
limited liability (the "LLP"), in which Douglas S. Schatz, President, Chief
Executive Officer and Chairman of the Board of the Company, and G. Brent
Backman, Vice President, Special Projects of the Company, hold 26.67% and 6.66%
member interests, respectively. The Company believes that the terms of such
leases are no less favorable than could have been obtained from a third party
lessor. Aggregate rental payments under such leases for 1996 totaled
approximately $750,420. In May 1995, the Company entered into a new lease, also
with the LLP, for a building constructed adjacent to the Company's executive
offices in connection with the Company's expansion. Annual rental payments under
the new lease are approximately $552,513. In addition, the Company paid
approximately $1.3 million for leasehold improvements under this lease. The
Company believes that the terms of the new lease are no less favorable than
could have been obtained from a third party lessor.
The Company leases a condominium in Breckenridge, Colorado owned by a
partnership formed by Messrs. Schatz and Backman. The Company uses the
condominium to provide rewards and incentives to its customers, suppliers and
employees. The Company believes that the terms of such lease are no less
9
<PAGE>
favorable than could have been obtained from a third party lessor. Aggregate
rental payments under such lease for 1996 totaled $36,000.
The Company accepted promissory notes in lieu of cash in connection with
certain employees' exercises of stock options granted by the Company. Eric A.
Balzer, Vice President, Operations, issued a promissory note to the Company in
the principal amount of $225,865; Richard P. Beck, Vice President and Chief
Financial Officer, issued two promissory notes to the Company in the aggregate
principal amount of $220,494; Susan C. Schell, Vice President, Human Resources
and Corporate Quality, issued a promissory note to the Company in the principal
amount of $182,795; and Richard A. Scholl, Vice President and Chief Technology
Officer, issued a promissory note to the Company in the principal amount of
$454,310. Each of these promissory notes matures on June 28, 2000 and bears
interest at 6.83% per annum.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Unless marked to the contrary, proxies received will be voted "FOR" the
ratification of the appointment of Arthur Andersen LLP as the independent
auditors for the Company for the current year. Arthur Andersen LLP has been the
Company's independent auditors since 1994. If the stockholders fail to ratify
the appointment of Arthur Andersen LLP, the Board of Directors will reconsider
its selection.
Audit services of Arthur Andersen LLP during the 1996 fiscal year included
the examination of the consolidated financial statements of the Company and
services related to filings with the Securities and Exchange Commission ("SEC")
and other regulatory bodies.
The Audit Committee of the Company will meet with Arthur Andersen LLP on an
annual or more frequent basis. At such time the Audit Committee will review the
services performed by Arthur Andersen LLP for the preceding year, as well as the
fees charged for such services.
A representative of Arthur Andersen LLP is expected to be present at the
Annual Meeting and will have an opportunity to make a statement if he or she so
desires. Moreover, the representative is expected to be available to respond to
appropriate questions from the stockholders.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Company's
executive officers and directors and persons who own more than ten percent of a
registered class of the Company's equity securities to file an initial report of
ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC.
Executive officers, directors and greater than ten percent stockholders are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
forms they file. Based solely on its review of the copies of such forms received
by it, or written representations form certain reporting persons, the Company
believes that during the last fiscal year, all Section 16(a) filing requirements
applicable to its officers, directors and ten percent stockholders were complied
with.
PROPOSALS OF STOCKHOLDERS
Proposals that stockholders desire to have included in the Company's proxy
materials for the 1998 Annual Meeting of Stockholders of the Company must be
received by the Secretary of the Company at its principal office (1625 Sharp
Point Drive, Fort Collins, Colorado 80525) no later than December 10, 1997 in
order to be considered for inclusion in such proxy materials.
10
<PAGE>
FORM 10-K
A copy of the Company's 1996 Annual Report on Form 10-K will be available
without charge upon request to: Investor Relations, Advanced Energy Industries,
Inc. 1625 Sharp Point Drive, Fort Collins, Colorado 80525.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent as
the Board of Directors may recommend.
It is important that your stock be represented at the meeting, regardless of
the number of shares which you hold. You are, therefore, urged to execute and
return, at your earliest convenience, the accompanying proxy card in the
envelope which has been enclosed.
THE BOARD OF DIRECTORS
Dated: April 9, 1997
1456-PS-97
11
