<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 21, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
ADVANCED ENERGY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-0846841
(State or other jurisdiction (IRS Employer
of Identification Number)
incorporation or organization)
------------------
1625 SHARP POINT DRIVE
FORT COLLINS, COLORADO 80525
(970) 221-4670
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------
RICHARD P. BECK
ADVANCED ENERGY INDUSTRIES, INC.
1625 SHARP POINT DRIVE
FORT COLLINS, COLORADO 80525
(970) 221-4670
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
WITH COPIES TO:
MICHELLE L. JOHNSON BARRY L. DASTIN
CARISSA C. W. COZE RUSS A. CASHDAN
THELEN REID & PRIEST LLP KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, LLP
TWO EMBARCADERO CENTER, SUITE 1999 AVENUE OF THE STARS, SUITE 1600
2100 LOS ANGELES, CALIFORNIA 90067
SAN FRANCISCO, CALIFORNIA
94111-3995
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
/ / ______________________________
If this Form is a post-effective amendment pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. / / ______________________________
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value.................... 3,450,000 shares $38.34375 $132,285,938 $36,776
</TABLE>
- ------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended. The
above calculation is based on the average of the reported high and low
prices of the common stock on the Nasdaq National Market on September 17,
1999.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION. DATED SEPTEMBER 20, 1999.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>
3,000,000 Shares
[LOGO]
Common Stock
-----------
Advanced Energy Industries, Inc. is offering 1,000,000 shares of common
stock, and the selling stockholders identified in this prospectus are offering
2,000,000 of their shares of common stock. Advanced Energy will not receive any
of the proceeds from the sale of the shares being sold by the selling
stockholders.
The common stock is quoted on the Nasdaq National Market under the symbol
"AEIS". The last reported sale price for the common stock on September 17, 1999
was $38.125 per share.
Concurrently with this common stock offering and by a separate prospectus,
Advanced Energy is offering $100,000,000 principal amount of % convertible
subordinated notes due 2006, plus up to an additional $15,000,000 principal
amount of convertible notes to cover over-allotments by the underwriters for
that offering. The completion of this common stock offering and the convertible
notes offering are not dependent on one another.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS TO READ ABOUT
IMPORTANT FACTORS YOU SHOULD CONSIDER BEFORE PURCHASING SHARES OF THE COMMON
STOCK.
--------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
--------------
<TABLE>
<CAPTION>
Per Share Total
------------- ------------
<S> <C> <C>
Initial price to public.................................... $ $
Underwriting discount...................................... $ $
Proceeds, before expenses, to Advanced Energy.............. $ $
Proceeds, before expenses, to the selling stockholders..... $ $
</TABLE>
To the extent that the underwriters sell more than 3,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
450,000 shares from the selling stockholders at the initial price to public less
the underwriting discount.
--------------
The underwriters expect to deliver the shares against payment in New York,
New York, on , 1999.
GOLDMAN, SACHS & CO.
BANCBOSTON ROBERTSON STEPHENS
CIBC WORLD MARKETS
---------
Prospectus dated , 1999.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO
YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS AS WELL AS THE INFORMATION
INCORPORATED BY REFERENCE IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT
DECISION. REFERENCES IN THE PROSPECTUS TO "WE", "US", "OUR" OR "ADVANCED ENERGY"
ARE TO ADVANCED ENERGY INDUSTRIES, INC. AND ITS SUBSIDIARIES, UNLESS THE CONTEXT
REQUIRES OTHERWISE. ALL INFORMATION IN THIS PROSPECTUS ASSUMES THE UNDERWRITERS'
OVER-ALLOTMENT OPTIONS WITH RESPECT TO THE COMMON STOCK OFFERING AND THE
CONVERTIBLE NOTES OFFERING ARE NOT EXERCISED, UNLESS OTHERWISE STATED.
ABOUT ADVANCED ENERGY
OVERVIEW
We design, manufacture and support power conversion and control systems.
These systems are important components of industrial manufacturing equipment
that modifies surfaces or deposits or etches thin film layers on computer chips,
CDs, flat panel displays such as computer screens, DVDs, windows, eyeglasses,
solar panels and other products. Our systems refine, modify and control the raw
electrical power from a utility and convert it into power that is uniform and
predictable. This allows manufacturing equipment to produce and deposit very
thin films at an even thickness on a mass scale.
The ongoing demand for improvements in the performance, capacity and speed
of computer chips, flat panel displays and other products drives manufacturers
to develop more advanced technology to produce thinner, more consistent and more
precise layers of film. Thin film production processes enable manufacturers to
control and alter the electrical, magnetic, optical and mechanical
characteristics of materials. Our systems are used primarily in plasma-based
thin film production processes. Plasma is commonly created by applying enough
electrical force to a gas at reduced pressure to separate electrons from their
parent atoms. Plasma-based process technology was developed to address the
limitations of wet chemistry and thermal process technologies and to enable new
applications. Plasma-based processes are inherently more controllable and more
accurate for many applications than other thin film production processes because
of the electrical characteristics of plasma.
We market and sell our systems primarily to large, global original equipment
manufacturers of semiconductor, flat panel display, data storage and other
industrial thin film manufacturing equipment. We have sold our systems worldwide
to more than 100 OEMs and directly to more than 500 end-users. Our principal
customers include Applied Materials, Balzers, Eaton, Lam Research, Novellus,
Singulus and ULVAC. The semiconductor capital equipment industry accounted for
approximately 59% of our total sales in 1997, 49% in 1998 and 59% in the first
six months of 1999.
STRATEGY
We have achieved a market leadership position by applying our large base of
expertise in the interaction between plasma-based processes and power conversion
and control systems to design highly precise, customized power conversion and
control systems that provide a wide range of power frequencies for plasma-based
thin film processes. Our strategy is to continue to build upon our leadership
positions in the semiconductor capital equipment, flat panel display and data
storage industries while exploring other emerging markets. We believe our five
key growth opportunities are:
EXPANDING LEADERSHIP IN OUR CORE MARKETS. We are the market share leader in
the semiconductor capital equipment, data storage and flat panel display
markets. We plan to continue to increase our penetration in these three markets
by introducing new products and solutions for
4
<PAGE>
our existing customers and targeting new customers, but our primary focus will
continue to be on the semiconductor capital equipment market. For example, in
the semiconductor capital equipment market we believe that significant
opportunities exist for us to introduce new products for processes or
applications such as:
- etch applications using radio frequency power;
- gas abatement;
- on-line measurement of power characteristics; and
- copper electroplating.
PROVIDING INTEGRATED SOLUTIONS FOR CUSTOMERS. We believe that customers
want solutions that improve process control and yield, and decrease their total
cost and time to market. We are developing integrated systems to provide more
complete solutions that meet our customers' plasma-based process requirements.
We are identifying currently fragmented applications of technology involving
significant power, measurement and control content, and developing integrated,
high performance, robust and cost-effective solutions for these applications.
TARGETING EMERGING APPLICATIONS. We are targeting emerging applications
that have the potential to benefit from more efficient and reliable use of power
in manufacturing processes for telecommunications networking equipment,
automotive parts, tools, architectural glass and other industrial products.
PURSUING ACQUISITIONS TO FUEL GROWTH. We actively seek complementary
technologies and companies as a means to expand our presence in existing and
emerging markets and to provide integrated solutions for customers and potential
customers. We have acquired and integrated four companies in the last two years.
We continually evaluate companies whose products and technologies could enhance
our system level capabilities.
CAPITALIZING ON WORLDWIDE INFRASTRUCTURE. Our principal customers are
large, global OEMs that require that their suppliers have a well-developed
worldwide infrastructure. We plan to continue to take advantage of and expand
our established global infrastructure, operating skills and comprehensive
product portfolio to better serve these customers and to attract new customers
with international support needs.
SALES AND MARKETING
We sell our systems primarily through direct sales personnel to customers in
the United States, Europe and Asia, and through distributors in China, France,
Israel, Italy, Singapore, Sweden and Taiwan. Sales outside the United States
represented 23% of our total sales during 1997, 28% in 1998 and 28% in the first
six months of 1999. We maintain sales and service offices across the United
States in California, Colorado, Massachusetts, New Jersey and Texas. We maintain
sales and service offices outside the United States in Germany, Japan, South
Korea and the United Kingdom.
RF POWER PRODUCTS ACQUISITION
In October 1998, we acquired RF Power Products, which designs, manufactures
and supports radio frequency (RF) power conversion and control systems
consisting of generators and matching networks. Generators provide RF power and
matching networks provide control over power flow to the customers' equipment.
We believe our ability to offer an expanded line of RF systems to our existing
customer base has strengthened those relationships. We sell these products
principally to semiconductor capital equipment manufacturers. We also sell
similar systems to capital equipment
5
<PAGE>
manufacturers in the flat panel display and thin film data storage industries
and are exploring applications for these systems in other industries.
--------------
We incorporated in Colorado in 1981 and reincorporated in Delaware in 1995.
Our main offices are located at 1625 Sharp Point Drive, Fort Collins, Colorado
80525, and our telephone number is 970-221-4670.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
Advanced Energy................. 1,000,000 shares
Selling stockholders............ 2,000,000 shares
Over-allotment option............. Up to 450,000 shares by the selling stockholders.
Shares outstanding(1)............. As of September 16, 1999, there were 27,065,355 shares
of common stock outstanding.
Shares outstanding after the
common stock offering(1)........ 28,065,355 shares ( shares assuming the concurrent
convertible notes offering is completed and all of the
convertible notes are converted into common stock).
Use of proceeds................... For general corporate purposes, including acquisitions,
and working capital requirements. See "Use of Proceeds".
Nasdaq National Market symbol..... AEIS
Risk factors...................... You should read the "Risk Factors" section, beginning on
page 9, as well as the other cautionary statements,
risks and uncertainties described in this prospectus and
in the documents incorporated by reference, so that you
understand the risks associated with an investment in
the common stock.
Concurrent convertible notes
offering........................ Concurrently with this common stock offering and by
means of a separate prospectus, we are offering
$100,000,000 principal amount of % convertible
subordinated notes due 2006, plus up to an additional
$15,000,000 principal amount of convertible notes to
cover over-allotments by the underwriters for that
offering. The proceeds we receive from the sale of the
convertible notes will be used for general corporate
purposes, including acquisitions, and working capital
requirements. The completion of this common stock
offering and the convertible notes offering are not
dependent on one another.
</TABLE>
- --------------
(1) Excludes 1,993,961 shares of common stock issuable upon exercise of options
outstanding as of September 16, 1999, at a weighted average exercise price
of $13.32, 3,135,257 shares reserved for issuance under our 1995 Stock
Option Plan, 102,461 shares reserved for issuance under the RF Power stock
option plans we assumed in connection with our acquisition of RF Power in
October 1998, 94,500 shares reserved for issuance under our 1995
Non-Employee Director Stock Option Plan and 171,550 shares reserved for
issuance under our Employee Stock Purchase Plan.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary consolidated financial data in this chart for the years ended
December 31, 1994 to 1998 and as of December 31 of those years are derived from
our audited financial statements.
The summary consolidated statement of operations data for the year ended
December 31, 1998 and the related consolidated balance sheet and other data as
of and for the year ended December 31, 1998 were derived from consolidated
financial statements audited by Arthur Andersen LLP, independent accountants,
whose related audit report is included in our annual report on Form 10-K.
The summary consolidated statement of operations data for the years ended
December 31, 1996 and 1997 and the related consolidated balance sheet and other
data as of and for the year ended December 31, 1997 were derived from
consolidated financial statements audited in part by Arthur Andersen LLP and in
part by KPMG LLP, whose audit reports are included in our annual report on Form
10-K. KPMG LLP's audit report pertains to Advanced Energy Voorhees, Inc.,
formerly named RF Power Products, Inc., whose fiscal year end was November 30.
As such, the balance sheet and other data and the statement of operations data
of the Company for fiscal 1996 and 1997 includes the balance sheet of Advanced
Energy Voorhees, Inc. as of November 30, 1996 and 1997, and the statement of
operations for each of the two years in the period ended November 30, 1997,
respectively.
The summary consolidated statements of operations data for the years ended
December 31, 1994 and 1995, and the related consolidated balance sheet and other
data as of December 31, 1996 were restated from our audited consolidated
financial statements and from audited consolidated financial statements of
Advanced Energy Voorhees. The Advanced Energy Voorhees financial statements are
not included in our annual reports on Form 10-K.
The summary consolidated financial data in this chart for the six months
ended June 30, 1998 and 1999 and as of June 30, 1999 are derived from our
unaudited financial statements, which are included in our quarterly report on
Form 10-Q for the quarter ended June 30, 1999. The unaudited financial data has
been prepared on the same basis as the audited financial data and, in our
opinion, includes all normal recurring adjustments necessary for a fair
statement of the results for the periods covered.
The following data should be read in conjunction with the financial
statements and related notes incorporated by reference in this prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operation".
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales................................... $68,159 $121,075 $129,931 $175,758 $124,698 $75,850 $ 74,243
Cost of sales........................... 36,183 65,003 82,685 108,802 87,985 53,729 42,852
------- -------- -------- -------- -------- ------- --------
Gross profit............................ 31,976 56,072 47,246 66,956 36,713 22,121 31,391
------- -------- -------- -------- -------- ------- --------
Operating expenses
Research and development.............. 7,190 12,865 17,288 19,336 23,849 12,229 12,610
Sales and marketing................... 5,982 8,256 10,723 11,646 13,531 7,076 7,284
General and administrative............ 6,989 10,612 8,865 10,480 9,483 5,627 5,958
Other expenses (1).................... -- -- -- 5,780 2,625 -- --
------- -------- -------- -------- -------- ------- --------
Total operating expenses................ 20,161 31,733 36,876 47,242 49,488 24,932 25,852
------- -------- -------- -------- -------- ------- --------
Income (loss) from operations........... 11,815 24,339 10,370 19,714 (12,775) (2,811) 5,539
Other (expense) income.................. (96) (452) (39) (191) 358 227 17
------- -------- -------- -------- -------- ------- --------
Net income (loss) before income
taxes............................... 11,719 23,887 10,331 19,523 (12,417) (2,584) 5,556
Provision (benefit) for income taxes.... 4,386 9,089 3,960 7,467 (2,900) (333) 2,252
------- -------- -------- -------- -------- ------- --------
Net income (loss)....................... $ 7,333 $ 14,798 $ 6,371 $ 12,056 $ (9,517) $(2,251) $ 3,304
------- -------- -------- -------- -------- ------- --------
------- -------- -------- -------- -------- ------- --------
Basic earnings (loss) per share......... $ 0.36 $ 0.67 $ 0.25 $ 0.47 $ (0.36) $ (0.08) $ 0.12
------- -------- -------- -------- -------- ------- --------
------- -------- -------- -------- -------- ------- --------
Diluted earnings (loss) per share....... $ 0.32 $ 0.63 $ 0.25 $ 0.46 $ (0.36) $ (0.08) $ 0.12
------- -------- -------- -------- -------- ------- --------
------- -------- -------- -------- -------- ------- --------
OTHER DATA:
Ratio of earnings to fixed charges
(2)................................... 17.4x 36.5x 37.4x 41.6x --(3) --(3) 155.3x
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1999
DECEMBER 31, ------------------------------------------
------------------------------- AS FURTHER
1996 1997 1998 ACTUAL AS ADJUSTED(4) ADJUSTED(4)(5)
--------- --------- --------- --------- --------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents/marketable
securities.............................. $ 11,778 $ 32,215 $ 28,134 $ 25,498 $ 61,323 $ 158,048
Working capital........................... 41,638 74,342 62,059 66,964 102,789 199,514
Total assets.............................. 68,078 130,064 101,035 113,383 149,208 249,208
Total debt................................ 3,741 6,518 537 1,766 1,766 101,766
Stockholders' equity...................... 54,927 97,527 89,133 93,389 129,214 129,214
</TABLE>
- ------------------
Notes:
(1) Other operating expenses represent a restructuring charge, merger costs,
storm damages and recoveries and a write-off of purchased in-process
research and development expenses.
(2) The ratio of earnings to fixed charges represents, on a pre-tax basis, the
number of times earnings cover fixed charges. Earnings consist of net income
to which has been added interest expense on capital leases and long-term
debt. Fixed charges consist of interest expense on capital leases and
long-term debt.
(3) The losses for 1998 and the six months ended June 30, 1998 are not
sufficient to cover fixed charges by a total of approximately $12.2 million
for 1998 and $2.5 million for the six months ended June 30, 1998. As a
result, the ratio of earnings to fixed charges has not been computed for
either 1998 or the six months ended June 30, 1998.
(4) Reflects net proceeds of approximately $35,825,000 from our sale of
1,000,000 shares of common stock (assuming an offering price of $38.00 per
share), after deducting underwriters' discounts and commissions and
estimated offering expenses relating to the common stock offering.
(5) Reflects net proceeds of approximately $96,725,000 from the sale of
$100,000,000 of convertible notes in the concurrent convertible notes
offering (assuming an offering price of 100% of the principal amount), after
deducting underwriters' discounts and commissions and estimated offering
expenses relating to the convertible notes offering.
8
<PAGE>
RISK FACTORS
INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER
INFORMATION IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED BY REFERENCE
BEFORE DECIDING WHETHER TO PURCHASE OUR SECURITIES.
RISKS RELATED TO OUR BUSINESS
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS, WHICH
COULD NEGATIVELY IMPACT OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND STOCK
PRICE.
Our quarterly operating results have fluctuated significantly and we expect
them to continue to experience significant fluctuations. Downward fluctuations
in our quarterly results have historically resulted in decreases in the price of
our common stock. Quarterly operating results are affected by a variety of
factors, many of which are beyond our control. These factors include:
- changes or slowdowns in economic conditions in the semiconductor and
semiconductor capital equipment industries and other industries in which
our customers operate;
- the timing and nature of orders placed by major customers;
- customer cancellations of previously placed orders and shipment delays;
- pricing competition from our competitors;
- component shortages resulting in manufacturing delays;
- changes in customers' inventory management practices;
- the introduction of new products by us or our competitors; and
- costs incurred by responding to specific feature requests by customers.
In addition, companies in the semiconductor capital equipment industry and
other electronics companies experience pressure to reduce costs. Our customers
exert pressure on us to reduce our prices, shorten delivery times and extend
payment terms. These pressures could lead to significant changes in our
operating results from quarter to quarter.
In the past, we have incurred charges and costs related to events such as
acquisitions, restructuring and storm damages. The occurrence of similar events
in the future could adversely affect our operating results in the applicable
quarter.
Our operating results in one or more future quarters may fall below the
expectations of analysts and investors. In those circumstances, the trading
price of our common stock would likely decrease and, as a result, any trading
price of the convertible notes may decrease.
THE SEMICONDUCTOR AND SEMICONDUCTOR CAPITAL EQUIPMENT INDUSTRIES ARE HIGHLY
VOLATILE AND OUR OPERATING RESULTS ARE AFFECTED TO A LARGE EXTENT BY EVENTS IN
THOSE INDUSTRIES.
The semiconductor industry historically has been highly volatile and has
experienced periods of oversupply resulting in significantly reduced demand for
semiconductor fabrication equipment, which includes our systems. During
downturns, some of our customers have drastically reduced their orders to us and
have implemented substantial cost reduction programs. Sales to customers in the
semiconductor capital equipment industry accounted for 59% of our total sales in
1997, 49% in 1998 and 59% in the first six months of 1999. We expect that we
will continue to depend significantly on the semiconductor and semiconductor
capital equipment industries for the foreseeable future.
9
<PAGE>
A rapid decrease in demand for our products can occur with limited advance
notice because we supply subsystems to equipment manufacturers and make a
substantial and increasing proportion of our shipments on a just-in-time basis.
This decrease in demand can adversely impact our business and financial results
disproportionately because of its unanticipated nature.
A SIGNIFICANT PORTION OF OUR SALES ARE CONCENTRATED AMONG A FEW CUSTOMERS.
Our four largest customers accounted for 54% of our total sales in 1997, 47%
in 1998 and 52% in the first six months of 1999. Our largest customer accounted
for 31% of our total sales in 1997, 23% in 1998 and 31% in the first six months
of 1999. The loss of any of these customers or a material reduction in any of
their purchase orders would have a material adverse effect on our business,
financial condition and results of operations.
THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE.
We face substantial competition, primarily from established companies, some
of which have greater financial, marketing and technical resources than we do.
Our primary competitors are ENI, a subsidiary of Astec (BSR) plc, Applied
Science and Technology (ASTeX), Huettinger, Shindingen, Kyosan, Comdel and
Daihen. We expect that our competitors will continue to develop new products in
direct competition with ours, improve the design and performance of their
systems and introduce new systems with enhanced performance characteristics.
To remain competitive, we need to continue to improve and expand our systems
and system offerings. In addition, we need to maintain a high level of
investment in research and development and expand our sales and marketing
efforts, particularly outside of the United States. We may not be able to make
the technological advances and investments necessary to remain competitive.
New products developed by competitors or more efficient production of their
products could increase pressure on the pricing of our systems. In addition,
electronics companies, including companies in the semiconductor capital
equipment industry, have been facing pressure to reduce costs. Either of these
factors may require us to make significant price reductions to avoid losing
orders. Further, our current and prospective customers consistently exert
pressure on us to lower prices, shorten delivery times and improve the
capability of our systems. Failure to respond adequately to such pressures could
result in a loss of customers or orders.
WE MAY NOT BE ABLE TO INTEGRATE OUR ACQUISITIONS.
We have experienced significant growth through acquisitions and continue to
actively pursue acquisition opportunities. Our acquisitions to date generally
have been in markets in which we have limited experience. We may not be able to
compete successfully in these markets or might not be able to operate the
acquired businesses efficiently. Our business and results of operations could be
adversely affected if integrating these acquisitions results in substantial
costs, delays or other operational or financial problems.
Future acquisitions could place additional strain on our operations and
management. Our ability to manage future acquisitions will depend on our success
in:
- evaluating new markets and investments;
- monitoring operations;
- controlling costs;
- integrating acquired operations and personnel;
- maintaining effective quality controls; and
10
<PAGE>
- expanding our internal management, technical and accounting systems.
Also, in connection with future acquisitions we may issue equity securities
which could be dilutive, incur debt, recognize substantial one-time expenses or
create goodwill or other intangible assets that could result in significant
amortization expense.
WE ARE GROWING AND MAY BE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY.
We have been experiencing a period of growth and expansion. This growth and
expansion is placing significant demands on our management and our operating
systems. We need to continue to improve and expand our management, operational
and financial systems, procedures and controls, including accounting and other
internal management systems, quality control, delivery and service capabilities.
In order to manage our growth, we may also need to spend significant amounts
of cash to:
- fund increases in expenses;
- take advantage of unanticipated opportunities, such as major strategic
alliances or other special marketing opportunities, acquisitions of
complementary businesses or assets, or the development of new products; or
- otherwise respond to unanticipated developments or competitive pressures.
If we do not have enough cash on hand, cash generated from our operations or
cash available under our credit facility to meet these cash requirements, we
will need to seek alternative sources of financing to carry out our growth and
operating strategies. We may not be able to raise needed cash on terms
acceptable to us, or at all. Financings may be on terms that are dilutive or
potentially dilutive. If alternative sources of financing are required but are
insufficient or unavailable, we will be required to modify our growth and
operating plans to the extent of available funding.
SHORTAGES OF COMPONENTS NECESSARY FOR OUR PRODUCT ASSEMBLY CAN DELAY OUR
SHIPMENTS.
Manufacturing our power conversion and control systems requires numerous
electronic components. Dramatic growth in the electronics industry has
significantly increased demand for these components. This demand has resulted in
periodic shortages and allocations of needed components, and we expect to
experience additional shortages and allocations from time to time. Shortages and
allocations could cause shipping delays for our systems, adversely affecting our
results of operations. Shipping delays also could damage our relationships with
current and prospective customers.
We consider the inability to obtain electronic components from our suppliers
to be our most reasonably likely worst case year 2000 scenario. See "--The year
2000 issue could have an adverse impact on our business".
OUR DEPENDENCE ON SOLE AND LIMITED SOURCE SUPPLIERS COULD AFFECT OUR ABILITY TO
MANUFACTURE PRODUCTS AND SYSTEMS.
We rely on sole and limited source suppliers for some of our components and
subassemblies that are critical to the manufacturing of our systems. This
reliance involves several risks, including the following:
- the potential inability to obtain an adequate supply of required
components;
- reduced control over pricing and timing of delivery of components; and
11
<PAGE>
- the potential inability of our suppliers to develop technologically
advanced products to support our growth and development of new systems.
We believe that in time we could obtain and qualify alternative sources for
most sole and limited source parts or could manufacture the parts ourselves.
Seeking alternative sources or commencing internal manufacture of the parts
could require us to redesign our systems, resulting in increased costs and
likely shipping delays. We may be unable to manufacture the parts internally or
redesign our systems, which could result in further costs and shipping delays.
These increased costs would decrease our profit margins if we could not pass the
costs to our customers. Further, shipping delays could damage our relationships
with current and potential customers and have a material adverse effect on our
business and results of operations.
WE ARE HIGHLY DEPENDENT ON OUR INTELLECTUAL PROPERTY BUT MAY NOT BE ABLE TO
PROTECT IT ADEQUATELY.
Our success depends in part on our proprietary technology. We attempt to
protect our intellectual property rights through patents and non-disclosure
agreements. However, we might not be able to protect our technology, and
competitors might be able to develop similar technology independently. In
addition, the laws of certain foreign countries might not afford our
intellectual property the same protection as do the laws of the United States.
For example, our intellectual property is not protected by patents in several
countries in which we do business, and we have limited patent protection in
certain other countries. The costs of applying for patents in foreign countries
and translating the applications into foreign languages require us to select
carefully the inventions for which we apply for patent protection and the
countries in which we seek such protection. Generally, we have concentrated our
efforts to obtain international patents in the United Kingdom, Germany, France,
Italy and Japan because there are other manufacturers and developers of power
conversion and control systems in those countries, as well as customers for
those systems. Our inability or failure to obtain adequate patent protection in
a particular country could have a material adverse effect on our ability to
compete effectively in that country.
Our patents also might not be sufficiently broad to protect our technology,
and any existing or future patents might be challenged, invalidated or
circumvented. Additionally, our rights under our patents may not provide
meaningful competitive advantages.
We do not believe that any of our products are infringing any patents or
proprietary rights of others, although infringements may exist or might occur in
the future. Litigation may be necessary to enforce patents issued to us, to
protect our trade secrets or know-how, to defend ourselves against claimed
infringement of the rights of others or to determine the scope and validity of
the proprietary rights of others. Litigation could result in substantial cost
and diversion of our efforts. Moreover, an adverse determination in any
litigation could cause us to lose proprietary rights, subject us to significant
liabilities to third parties, require us to seek licenses or alternative
technologies from third parties or prevent us from manufacturing or selling our
products. Any of these events could have a material adverse effect on our
business, financial condition and results of operations.
WE MUST CONSTANTLY DEVELOP AND SELL NEW SYSTEMS IN ORDER TO KEEP UP WITH RAPID
TECHNOLOGICAL CHANGES.
The markets for our systems and the markets in which our customers compete
are characterized by ongoing technological developments and changing customer
requirements. We must continue to improve existing systems and to develop new
systems that keep pace with technological advances and meet the needs of our
customers in order to succeed. We might not be able to continue to improve our
systems or develop new systems. The systems we do develop
12
<PAGE>
might not be cost-effective or introduced in a timely manner. Developing and
introducing new systems may involve significant and uncertain costs. Our
business, financial condition and results of operations, as well as our customer
relationships, could be adversely affected if we fail to develop or introduce
improved systems and new systems in a timely manner.
WE MUST ACHIEVE DESIGN WINS TO RETAIN OUR EXISTING CUSTOMERS AND TO OBTAIN NEW
CUSTOMERS.
The constantly changing nature of semiconductor fabrication technology
causes equipment manufacturers to continually design new systems. We often must
work with these manufacturers early in their design cycles to modify our
equipment to meet the requirements of the new systems. Manufacturers typically
choose one or two vendors to provide the power conversion equipment for use with
the early system shipments. Selection as one of these vendors is called a design
win. It is critical that we achieve these design wins in order to retain
existing customers and to obtain new customers.
We typically must customize our systems for particular customers to use in
their equipment to achieve design wins. This customization increases our
research and development expenses and can strain our engineering and management
resources. These investments do not always result in design wins.
Once a manufacturer chooses a power conversion and control system for use in
a particular product, it is likely to retain that system for the life of that
product. Our sales and growth could experience material and prolonged adverse
effects if we fail to achieve design wins. In addition, design wins do not
always result in substantial sales or profits.
We believe that equipment manufacturers often select their suppliers based
on factors such as long-term relationships. Accordingly, we may have difficulty
achieving design wins from equipment manufacturers who are not currently
customers. In addition, we must compete for design wins for new systems and
products of our existing customers, including those with whom we have had
long-term relationships.
OUR EFFORTS TO BE RESPONSIVE TO CUSTOMERS MAY LEAD TO THE INCURRENCE OF COSTS
THAT ARE NOT READILY RECOVERABLE.
We may incur manufacturing overhead and other costs, many of which are
fixed, to meet anticipated customer demand. Accordingly, operating results could
be adversely affected if orders or revenues in a particular period or for a
particular system do not meet expectations.
We often require long lead times for development of our systems during which
times we must expend substantial funds and management effort. We may incur
significant development and other expenses as we develop our systems without
realizing corresponding revenue in the same period, or at all.
OUR SUCCESS DEPENDS UPON OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL.
Our success depends upon the continued efforts of our senior management team
and our technical, marketing and sales personnel. These employees may
voluntarily terminate their employment with us at any time. Our success also
depends on our ability to attract and retain additional highly qualified
management, technical, marketing and sales personnel. The process of hiring
employees with the combination of skills and attributes required to carry out
our strategy can be extremely competitive and time-consuming. We may not be able
to successfully retain existing personnel or identify, hire and integrate new
personnel. If we lose the services of key personnel for any reason, including
retirement, or are unable to attract additional qualified personnel, our
business, financial condition and results of operations could be materially and
adversely affected.
13
<PAGE>
WE CONDUCT MANUFACTURING AT ONLY A FEW SITES.
We conduct the majority of our manufacturing at our facilities in Fort
Collins, Colorado and in Voorhees, New Jersey. We also conduct manufacturing for
one customer in Austin, Texas. Tower Electronics, a subsidiary, conducts
manufacturing only at its facility in Fridley, Minnesota. Each facility
generally manufactures different systems. In July 1997, a severe rainstorm in
Fort Collins caused substantial damage to our Fort Collins facilities and to
some equipment and inventory. The damage caused us to stop manufacturing at that
facility temporarily and prevented us from resuming full production there until
mid-September 1997. Our insurance policies did not cover all of the costs that
we incurred in connection with the rainstorm. Future natural or other
uncontrollable occurrences at any of our primary manufacturing facilities that
negatively impact our manufacturing processes may not be fully covered by
insurance and could have a material adverse effect on our operations and results
of operations.
WE HAVE LIMITED EXPERIENCE IN MAINTAINING MULTIPLE MANUFACTURING FACILITIES.
The acquisitions of Tower Electronics in 1997 and RF Power Products in 1998
provided us with manufacturing facilities located outside of our facilities in
Fort Collins, Colorado. Accordingly, we have limited experience in maintaining
multiple manufacturing locations. Substantial costs and delays could result if
we fail to effectively manage and integrate our geographically separate
facilities.
WE MIGHT NOT BE ABLE TO COMPETE SUCCESSFULLY IN INTERNATIONAL MARKETS OR TO MEET
THE SERVICE AND SUPPORT NEEDS OF OUR INTERNATIONAL CUSTOMERS.
Our customers increasingly require service and support on a worldwide basis
as the markets in which we compete become increasingly globalized. We maintain
sales and service offices in Germany, Japan, South Korea and the United Kingdom.
Sales to customers outside the United States accounted for 23% of our total
sales in 1997, 28% in 1998 and 28% in the first six months of 1999, and we
expect international sales to continue to represent a significant portion of our
future sales. International sales are subject to various risks, including:
- currency fluctuations;
- governmental controls;
- political and economic instability;
- barriers to entry;
- trade restrictions;
- changes in tariffs and taxes; and
- longer payment cycles.
In particular, the Japanese market has historically been difficult for
non-Japanese companies, including us, to penetrate.
Providing support services for our systems on a worldwide basis also is
subject to various risks, including:
- our ability to hire qualified support personnel;
- maintenance of our standard level of support; and
- differences in local customers and practices.
14
<PAGE>
Our international activities are also subject to the difficulties of
managing overseas distributors and representatives and managing foreign
subsidiary operations.
We cannot assure you that we will be successful in addressing any of these
risks.
FLUCTUATIONS IN THE CURRENCY EXCHANGE RATE BETWEEN THE U.S. DOLLAR AND FOREIGN
CURRENCIES COULD ADVERSELY AFFECT OUR OPERATING RESULTS.
A portion of our sales is subject to currency exchange risks as a result of
our international operations. We have experienced fluctuations in foreign
currency exchange rates, particularly against the Japanese yen. Beginning in
1997, we entered into various forward foreign exchange contracts as a hedge
against currency fluctuations in the yen. We have not employed hedging
techniques with respect to any other currencies. Our current or any future
hedging techniques might not protect us adequately against substantial currency
fluctuations.
WE MUST MAINTAIN MINIMUM LEVELS OF CUSTOMIZED INVENTORY TO SUPPORT CERTAIN
CUSTOMER DELIVERY REQUIREMENTS.
We must keep a relatively large number and variety of customized systems in
our inventory to meet client delivery requirements because a substantial
proportion of our business involves the just-in-time shipment of systems. Our
inventory may become obsolete as we develop new systems and as our customers
develop new systems. Inventory obsolescence could have a material adverse effect
on our financial condition and results of operations.
WE ARE SUBJECT TO NUMEROUS GOVERNMENTAL REGULATIONS.
We are subject to federal, state, local and foreign regulations, including
environmental regulations and regulations relating to the design and operation
of our power conversion and control systems. We must ensure that our systems
meet certain safety and emissions standards, many of which vary across the
states and countries in which our systems are used. For example, the European
Union has published directives specifically relating to power supplies. We must
comply with these directives in order to ship our systems into countries that
are members of the European Union. In the past, we have invested significant
resources to redesign our systems to comply with these directives. We believe we
are in compliance with current applicable regulations, directives and standards
and have obtained all necessary permits, approvals and authorizations to conduct
our business. However, compliance with future regulations, directives and
standards could require us to modify or redesign certain systems, make capital
expenditures or incur substantial costs. If we do not comply with current or
future regulations, directives and standards:
- we could be subject to fines;
- our production could be suspended; or
- we could be prohibited from offering particular systems in specified
markets.
WE MAY INVEST IN START-UP COMPANIES AND COULD LOSE OUR ENTIRE INVESTMENT.
We have a majority interest in a start-up company and may invest in other
start-up companies that develop products and technologies which we believe may
provide us with future benefits. These investments may not provide us with any
benefit, and we may not achieve any economic return on any of these investments.
Our investments in these start-up companies are subject to all of the risks
inherent in investing in companies that are not established. We could lose all
or any part of our investments in these companies.
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<PAGE>
WE LEASE OUR FORT COLLINS, COLORADO FACILITIES AND A CONDOMINIUM FROM ENTITIES
IN WHICH TWO INDIVIDUALS WHO ARE INSIDERS AND MAJOR STOCKHOLDERS HAVE FINANCIAL
INTERESTS.
We lease our executive offices and manufacturing facilities in Fort Collins,
Colorado from Prospect Park East Partnership and from Sharp Point Properties,
LLC. Douglas S. Schatz, our Chairman and Chief Executive Officer, holds a 26.7%
interest in each of the leasing entities. G. Brent Backman, a member of our
board of directors, holds a 6.6% interest in each of the leasing entities.
Aggregate rental payments under such leases for 1998 totaled approximately $1.4
million. We also lease a condominium in Breckenridge, Colorado to provide
rewards and incentives to our customers, suppliers and employees. We lease the
condominium from AEI Properties, a partnership in which Mr. Schatz holds a 60%
interest and Mr. Backman holds a 40% interest. Aggregate rental payments under
the condominium lease for 1998 totaled approximately $36,000. Mr. Schatz owns
approximately 45.0% of our common stock, and Mr. Backman owns approximately 7.8%
of our common stock. Each of Messrs. Schatz and Backman is offering to sell
875,000 shares in this common stock offering and has granted the underwriters an
over-allotment option to purchase an additional 131,250 shares.
THE YEAR 2000 ISSUE COULD HAVE AN ADVERSE IMPACT ON OUR BUSINESS.
The year 2000 issue is the result of computer programs that rely on
two-digit date codes, instead of four-digit date codes, to indicate the year.
Computer programs which are unable to interpret the date code "00" as the year
2000 may not be able to perform computations and decision-making functions after
December 31, 1999 and could cause computer systems to malfunction. We have
developed a multi-phase program for year 2000 information systems compliance. In
what we believe to be the most reasonably likely worst case year 2000 scenario,
we would be unable to obtain electronic components from one or more of our
suppliers because of the suppliers' failure to timely become year 2000
compliant, and we would be unable to obtain the necessary components from
another source, manufacture the necessary components internally or to redesign
our systems to accommodate different components without substantial costs or
delays, or at all. We may not be able to respond fully and efficiently to those
concerns.
We estimate that the costs to remedy and test the year 2000 matters will be
immaterial. Our cost estimates do not include costs and time that may be
incurred as a result of any vendor's or customer's failures to become year 2000
compliant on a timely basis. In addition, we cannot predict whether any
litigation will be brought against us as a result of any supplier's or
customer's failure to become year 2000 compliant on a timely basis or claiming
that our products are not year 2000 compliant or otherwise.
RISKS RELATED TO THE COMMON STOCK
THE MARKET PRICE OF OUR STOCK HAS BEEN AND WILL LIKELY CONTINUE TO BE HIGHLY
VOLATILE.
The stock market generally and the market for technology stocks in
particular have experienced significant price and volume fluctuations, which
often have been unrelated or disproportionate to the operating performance of
such companies. From our IPO in November 1995 through September 17, 1999, the
closing prices of our common stock on the Nasdaq National Market have ranged
from $3.50 to $44.97. The market for our common stock likely will continue to be
subject to similar fluctuations. Many factors could cause the trading price of
our common stock to fluctuate substantially, including the following:
- future announcements concerning our business, our customers or our
competitors;
- variations in our operating results;
- announcements of technological innovations;
16
<PAGE>
- the introduction of new products or changes in product pricing policies by
us, our competitors or our customers;
- changes in earnings estimates by securities analysts or announcements of
operating results that are not aligned with the expectations of analysts
and investors;
- the economic and competitive conditions in the industries in which our
customers operate; and
- general stock market trends.
OUR MANAGEMENT HAS BROAD DISCRETION TO DETERMINE HOW TO USE THE FUNDS RAISED
FROM THE SALE OF THE COMMON STOCK AND THE CONVERTIBLE NOTES, AND MAY USE THOSE
FUNDS IN WAYS THAT MAY NOT INCREASE OUR OPERATING RESULTS OR MARKET VALUE.
The net proceeds we receive from our sale of common stock in this offering
and our sale of convertible notes in the concurrent convertible notes offering
have not been allocated for a particular purpose. We intend to use the net
proceeds for general corporate purposes, including acquisitions and working
capital requirements. We may use some or all of the net proceeds for
acquisitions, although no agreement or understanding with respect to any future
acquisition has been reached. Our management will have significant discretion as
to the use of the net proceeds of the offerings and you will not have the
opportunity, as part of your investment decision, to assess whether the proceeds
are being used appropriately. The net proceeds from this offering and the
concurrent convertible notes offering may be applied to uses that ultimately may
not increase our operating results or our market value.
OUR EXECUTIVE OFFICERS AND DIRECTORS OWN A MAJORITY OF OUR OUTSTANDING COMMON
STOCK, WHICH COULD ENABLE THEM TO CONTROL OUR BUSINESS AND AFFAIRS.
Our executive officers and directors own approximately 55.84% of our
outstanding common stock outstanding as of September 16, 1999. Assuming the sale
of common stock in the common stock offering, and without giving effect to
conversion of any convertible notes, our executive officers and directors will
own approximately 46.87% of our common stock. Douglas S. Schatz, our Chairman
and Chief Executive Officer, owns approximately 44.11% of our common stock
outstanding as of September 16, 1999 and, following the sale of common stock in
the common stock offering, will own 39.42% of our outstanding common stock.
These stockholdings give our executive officers and directors collectively, and
Mr. Schatz individually, significant voting power. Depending on the number of
shares that abstain or otherwise are not voted, our executive officers and
directors collectively, and Mr. Schatz individually, may be able to elect all of
the members of our board of directors and to control our business and affairs
for the foreseeable future.
ANTITAKEOVER PROVISIONS LIMIT THE ABILITY OF A PERSON OR ENTITY TO ACQUIRE
CONTROL OF US.
Our certificate of incorporation and bylaws include provisions which:
- allow the board of directors to issue preferred stock with rights senior
to those of the common stock without any vote or other action by the
holders of the common stock;
- limit the right of our stockholders to call a special meeting of
stockholders; and
- impose procedural and other requirements that could make it difficult for
stockholders to effect certain corporate actions.
In addition, we are subject to the anti-takeover provisions of the Delaware
General Corporation Law. Any of these provisions could delay or prevent a person
or entity from acquiring control of us. The effect of these provisions may be to
limit the price that investors are willing to pay in the future for
17
<PAGE>
our securities. These provisions might also discourage potential acquisition
proposals or could diminish the opportunities for our stockholders to
participate in a tender offer, even if the acquisition proposal or tender offer
is at a price above the then current market price for our common stock.
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Some of the statements contained in or incorporated by reference in this
prospectus discuss our plans and strategies for our business or make other
forward-looking statements, as this term is defined in the Private Securities
Litigation Reform Act. The words "anticipates", "believes", "estimates",
"expects", "plans", "intends" and similar expressions are intended to identify
these forward-looking statements, but are not the exclusive means of identifying
them. These forward-looking statements reflect the current views of our
management. However, various risks, uncertainties and contingencies could cause
our actual results, performance or achievements to differ materially from those
expressed in, or implied by, these statements, including the following:
- the success or failure of our efforts to implement our business strategy;
and
- the other risks and uncertainties discussed under the heading "Risk
Factors" and elsewhere in this prospectus and in the documents
incorporated by reference.
We do not have any obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
You should carefully consider the information set forth under the caption "Risk
Factors" and elsewhere in this prospectus and in the documents incorporated by
reference. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in, implied by or incorporated by reference in
this prospectus might not occur.
USE OF PROCEEDS
We are offering 1,000,000 shares of common stock. After deducting the
underwriters' discounts and commissions and estimated offering expenses, we
anticipate retaining approximately $35,825,000 of the proceeds from our sale of
common stock (based on an assumed offering price of $38.00 per share). We will
not receive any of the proceeds from the sale of common stock by the selling
stockholders.
Concurrently with our common stock offering, we are offering to sell
$100,000,000 of convertible notes. After deducting the underwriters' discounts
and commissions and estimated offering expenses, we anticipate retaining
proceeds from that offering of approximately $96,725,000, assuming a sale of the
convertible notes at 100% of the principal amount. We anticipate retaining
proceeds from the convertible notes offering of approximately $111,275,000 if
the underwriters for that offering exercise their over-allotment option in full.
We intend to use the net proceeds from these offerings of approximately
$132,550,000 for general corporate purposes, including acquisitions, and working
capital requirements. Although we actively seek acquisition opportunities, no
agreement or understanding with respect to any future acquisition has been
reached. Pending their ultimate use, we intend to invest the net proceeds from
these offerings in short-term, investment grade, interest bearing securities,
certificates of deposit or direct or guaranteed obligations of the United
States.
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<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock is quoted on the Nasdaq National Market under the symbol
"AEIS". The following table sets forth the range of high and low bid prices for
the common stock on the Nasdaq National Market for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1997
First quarter............................................................. 7 7/8 5 1/4
Second quarter............................................................ 14 3/8 7 1/8
Third quarter............................................................. 31 1/8 14 1/2
Fourth quarter............................................................ 34 1/8 12 1/4
1998
First quarter............................................................. 17 5/8 10
Second quarter............................................................ 15 1/16 11
Third quarter............................................................. 12 3/8 6
Fourth quarter............................................................ 22 7/8 5 5/8
1999
First quarter............................................................. 29 1/2 19 1/4
Second quarter............................................................ 36 5/8 23 1/2
Third quarter (through September 17, 1999)................................ 43 3/8 30 1/4
</TABLE>
DIVIDEND POLICY
We have not declared or paid any cash dividends on the common stock since
prior to 1994 when we were an S corporation for tax purposes. We currently
intend to retain all of our future earnings to finance our business. In
addition, our revolving credit facility prohibits us from declaring or paying
cash dividends on the common stock. As a result, we do not anticipate paying any
cash or other dividends on the common stock in the foreseeable future.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999, (1)
on a historical basis, (2) as adjusted to reflect our sale of 1,000,000 shares
of common stock at an assumed offering price of $38.00 per share, and (3) as
further adjusted to reflect the sale of $100,000,000 principal amount of
convertible notes at an assumed offering price of 100% of principal amount and
the application of the estimated proceeds, in each case net of our estimated
offering expenses and underwriters' discounts and commissions. You should read
this table together with our financial statements and notes thereto and other
financial and operating data included elsewhere in this prospectus or
incorporated by reference into this prospectus. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------------
AS
FURTHER
ACTUAL AS ADJUSTED ADJUSTED
--------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt and capital lease obligations............... $ 1,766 $ 1,766 $ 1,766
Convertible notes.......................................... -- -- 100,000
Stockholders' equity
Preferred stock, 1,000 shares authorized; none issued and
outstanding............................................ -- -- --
Common stock, 40,000 shares authorized; 26,969 issued and
outstanding (actual); 27,969 issued and outstanding (as
adjusted and as further adjusted)...................... 27 28 28
Additional paid-in capital................................. 62,193 98,017 98,017
Retained earnings.......................................... 32,443 32,443 32,443
Cumulative translation adjustment.......................... (1,274) (1,274) (1,274)
--------- ----------- ---------
Total stockholders' equity............................... 93,389 129,214 129,214
--------- ----------- ---------
Total capitalization................................... $ 95,155 $ 130,980 $ 230,980
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data in this chart for the years ended
December 31, 1994 to 1998 and as of December 31 of those years are derived from
our audited financial statements.
The selected consolidated statement of operations data for the year ended
December 31, 1998 and the related consolidated balance sheet and other data as
of and for the year ended December 31, 1998 were derived from consolidated
financial statements audited by Arthur Andersen LLP, independent accountants,
whose related audit report is included in our annual report on Form 10-K.
The selected consolidated statement of operations data for the years ended
December 31, 1996 and 1997 and the related consolidated balance sheet and other
data as of and for the year ended December 31, 1997 were derived from
consolidated financial statements audited in part by Arthur Andersen LLP and in
part by KPMG LLP, whose audit reports are included in our annual report on Form
10-K. KPMG LLP's audit report pertains to Advanced Energy Voorhees, Inc.,
formerly named RF Power Products, Inc., whose fiscal year end was November 30.
As such, the balance sheet and other data and the statement of operations data
of the Company for fiscal 1996 and 1997 includes the balance sheet of Advanced
Energy Voorhees, Inc. as of November 30, 1996 and 1997, and the statement of
operations for each of the two years in the period ended November 30, 1997,
respectively.
The selected consolidated statements of operations data for the years ended
December 31, 1994 and 1995, and the related consolidated balance sheet and other
data as of December 31, 1996 were restated from our audited consolidated
financial statements and from audited consolidated financial statements of
Advanced Energy Voorhees. The Advanced Energy Voorhees financial statements are
not included in our annual reports on Form 10-K.
The selected consolidated financial data in this chart for the six months
ended June 30, 1998 and 1999 and as of June 30, 1999 are derived from our
unaudited financial statements, which are included in our quarterly report on
Form 10-Q for the quarter ended June 30, 1999. The unaudited financial data has
been prepared on the same basis as the audited financial data and, in our
opinion, includes all normal recurring adjustments necessary for a fair
statement of the results for the periods covered.
The following data should be read in conjunction with the financial
statements and related notes incorporated by reference in this prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operation".
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales................................... $68,159 $121,075 $129,931 $175,758 $124,698 $75,850 $ 74,243
Cost of sales........................... 36,183 65,003 82,685 108,802 87,985 53,729 42,852
------- -------- -------- -------- -------- ------- --------
Gross profit............................ 31,976 56,072 47,246 66,956 36,713 22,121 31,391
------- -------- -------- -------- -------- ------- --------
Operating expenses
Research and development.............. 7,190 12,865 17,288 19,336 23,849 12,229 12,610
Sales and marketing................... 5,982 8,256 10,723 11,646 13,531 7,076 7,284
General and administrative............ 6,989 10,612 8,865 10,480 9,483 5,627 5,958
Other expenses(1)..................... -- -- -- 5,780 2,625 -- --
------- -------- -------- -------- -------- ------- --------
Total operating expenses................ 20,161 31,733 36,876 47,242 49,488 24,932 25,852
------- -------- -------- -------- -------- ------- --------
Income (loss) from operations........... 11,815 24,339 10,370 19,714 (12,775) (2,811) 5,539
Other (expense) income.................. (96) (452) (39) (191) 358 227 17
------- -------- -------- -------- -------- ------- --------
Net income (loss) before income
taxes............................... 11,719 23,887 10,331 19,523 (12,417) (2,584) 5,556
Provision (benefit) for income taxes.... 4,386 9,089 3,960 7,467 (2,900) (333) 2,252
------- -------- -------- -------- -------- ------- --------
Net income (loss)....................... $ 7,333 $ 14,798 $ 6,371 $ 12,056 $ (9,517) $(2,251) $ 3,304
------- -------- -------- -------- -------- ------- --------
------- -------- -------- -------- -------- ------- --------
Basic earnings (loss) per share......... $ 0.36 $ 0.67 $ 0.25 $ 0.47 $ (0.36) $ (0.08) $ 0.12
------- -------- -------- -------- -------- ------- --------
------- -------- -------- -------- -------- ------- --------
Diluted earnings (loss) per share....... $ 0.32 $ 0.63 $ 0.25 $ 0.46 $ (0.36) $ (0.08) $ 0.12
------- -------- -------- -------- -------- ------- --------
------- -------- -------- -------- -------- ------- --------
OTHER DATA:
Ratio of earnings to fixed charges
(2)................................... 17.4x 36.5x 37.4x 41.6x --(3) --(3) 155.3x
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1999
DECEMBER 31, ------------------------------------------
------------------------------- AS FURTHER
1996 1997 1998 ACTUAL AS ADJUSTED(4) ADJUSTED(4)(5)
--------- --------- --------- --------- --------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents/marketable secu-
rities.................................. $ 11,778 $ 32,215 $ 28,134 $ 25,498 $ 61,323 $ 158,048
Working capital........................... 41,638 74,342 62,059 66,964 102,789 199,514
Total assets.............................. 68,078 130,064 101,035 113,383 149,208 249,208
Total debt................................ 3,741 6,518 537 1,766 1,766 101,766
Stockholders' equity...................... 54,927 97,527 89,133 93,389 129,214 129,214
</TABLE>
- ------------------
Notes:
(1) Other operating expenses represent a restructuring charge, merger costs,
storm damages and recoveries and a write-off of purchased in-process
research and development expenses.
(2) The ratio of earnings to fixed charges represents, on a pre-tax basis, the
number of times earnings cover fixed charges. Earnings consist of net income
to which has been added interest expense on capital leases and long-term
debt. Fixed charges consist of interest expense on capital leases and
long-term debt.
(3) The losses for 1998 and the six months ended June 30, 1998 are not
sufficient to cover fixed charges by a total of approximately $12.2 million
for 1998 and $2.5 million for the six months ended June 30, 1998. As a
result, the ratio of earnings to fixed charges has not been computed for
either 1998 or the six months ended June 30, 1998.
(4) Reflects net proceeds of approximately $35,825,000 from our sale of
1,000,000 shares of common stock (assuming an offering price of $38.00 per
share), after deducting underwriters' discounts and commissions and
estimated offering expenses relating to the common stock offering.
(5) Reflects net proceeds of approximately $96,725,000 from the sale of
$100,000,000 of convertible notes in the concurrent convertible notes
offering (assuming an offering price of 100% of the principal amount), after
deducting underwriters' discounts and commissions and estimated offering
expenses relating to the convertible notes offering.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
We design, manufacture and support power conversion and control systems.
These systems are important components of industrial manufacturing equipment
that modifies surfaces or deposits or etches thin film layers on computer chips,
CDs, flat panel displays such as computer screens, DVDs, windows, eyeglasses,
solar panels and other products. We market and sell our systems primarily to
large, global OEMs of semiconductor, data storage, flat panel display and other
industrial thin film manufacturing equipment. A substantial and increasing
proportion of our sales are made on a just-in-time basis in which the shipment
of systems occurs within a few days or hours after an order is received. Our
revenues are recognized upon shipment of our systems. Since inception, we have
sold over 150,000 power conversion and control systems.
The semiconductor capital equipment industry accounted for approximately 59%
of our total sales in 1997, 49% in 1998 and 59% in the first six months of 1999.
We have been successful in achieving a number of design wins which have resulted
in our obtaining new customers and solidifying relationships with our existing
customers. We believe our ability to continue to achieve design wins with
existing and potential customers will be critical to our future success.
We continuously seek to expand our product offerings and customer base
through internal development and acquisitions.
In May 1997, we acquired the assets of MIK Physics, Inc. This acquisition
provided the base technology for our Astral products, which are high power
direct current (DC) systems used in PVD equipment.
In August 1997, we acquired Tower Electronics. This acquisition expanded our
technology and customer base, and provided us with the capability to design and
manufacture power conversion systems for use in modems, non-impact printers,
night vision goggles and laser devices.
We took another step towards achieving further market diversification in
September 1998 when we acquired the assets of Fourth State Technology. This
acquisition enhanced our capability to design and manufacture RF power-related
process control systems used to monitor and analyze data in thin film processes.
In October 1998, we acquired RF Power Products, which designs, manufactures
and supports RF power conversion and control systems consisting of generators
and matching networks. Generators provide radio frequency power and matching
networks provide control over power flow to the customers' equipment. We believe
our ability to offer an expanded line of RF systems to our existing customer
base has strengthened those relationships. We sell these products principally to
semiconductor capital equipment manufacturers. We also sell similar systems to
capital equipment manufacturers in the flat panel display and thin film data
storage industries, and are exploring applications for these products in other
industries.
In August 1999, we acquired a majority interest in LITMAS, a start-up
company that designs and manufactures plasma abatement systems and high-density
plasma sources. LITMAS' first product, "Litmas Blue", reduces "greenhouse gas"
(PFC and HFC) emissions from tools used in the etch process in the fabrication
of semiconductors. We believe that Litmas Blue and LITMAS' future products will
expand our product offerings to our existing and potential customers in the
semiconductor capital equipment industry.
23
<PAGE>
RESULTS OF OPERATIONS
The following table summarizes certain data as a percentage of sales
extracted from our statements of operations for the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------- -----------------
1997 1998 1998 1999
------ ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales............................................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................................... 61.9 70.6 70.8 57.7
------ ------- ------- ------
Gross margin..................................................... 38.1 29.4 29.2 42.3
------ ------- ------- ------
Operating expenses:
Research and development....................................... 11.0 19.1 16.1 17.0
Sales and marketing............................................ 6.6 10.9 9.3 9.8
General and administrative..................................... 6.0 7.5 7.4 8.0
Other expenses................................................. 3.3 2.1 -- --
------ ------- ------- ------
Total operating expenses......................................... 26.9 39.6 32.9 34.8
------ ------- ------- ------
Income (loss) from operations.................................... 11.2 (10.2) (3.7) 7.5
Other (expense) income........................................... (0.1) 0.2 0.3 0.0
------ ------- ------- ------
Net income (loss) before income taxes............................ 11.1 (10.0) (3.4) 7.5
Provision (benefit) for income taxes............................. 4.2 (2.4) (0.4) 3.0
------ ------- ------- ------
Net income (loss)................................................ 6.9% (7.6)% (3.0)% 4.5%
------ ------- ------- ------
------ ------- ------- ------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
SALES. We sell power conversion and control systems primarily to the
semiconductor capital equipment, data storage and industrial markets in the
United States, to the flat panel display and data storage markets in Japan, and
to the data storage and industrial markets in Europe. We also sell spare parts
and repair services worldwide through our global support organization.
Sales for the first six months of 1999 were $74.2 million, a decrease of 2%
from sales of $75.8 million in the first six months of 1998. The decrease was
attributable mostly to decreases in sales to industrial markets, which were
partially offset by increases in sales to customers in the semiconductor capital
equipment industry.
24
<PAGE>
The following tables summarize net sales and percentages of net sales by
customer type for the six-month periods ended June 30, 1998 and 1999:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Semiconductor capital equipment........................................ $ 40,820 $ 43,854
Data storage........................................................... 9,160 9,040
Flat panel display..................................................... 3,769 3,559
Industrial............................................................. 18,881 13,745
Customer service technical support..................................... 3,220 4,045
--------- ---------
$ 75,850 $ 74,243
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
Semiconductor capital equipment.......................................... 53.8% 59.1%
Data storage............................................................. 12.1 12.2
Flat panel display....................................................... 5.0 4.8
Industrial............................................................... 24.9 18.5
Customer service technical support....................................... 4.2 5.4
--------- ---------
100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>
The following tables summarize net sales and percentages of net sales by
geographic region for the six-month periods ended June 30, 1998 and 1999:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
United States and Canada............................................... $ 57,081 $ 53,453
Europe................................................................. 12,835 11,971
Asia Pacific........................................................... 5,714 8,457
Rest of world.......................................................... 220 362
--------- ---------
$ 75,850 $ 74,243
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
United States and Canada.................................................. 75.3% 72.0%
Europe.................................................................... 16.9 16.1
Asia Pacific.............................................................. 7.5 11.4
Rest of world............................................................. 0.3 0.5
--------- ---------
100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>
GROSS MARGIN. Our gross margin for the first six months of 1999 was 42.3%,
up from 29.2% in the first six months of 1998. The improvement in gross margin
was primarily a result of our efforts to reduce material and manufacturing
overhead costs, including implementation of our restructuring plan in the third
quarter of 1998.
25
<PAGE>
We provide warranty coverage for our systems ranging from 12 to 24 months.
We estimate the anticipated costs of repairing systems under such warranties
based on the historical average costs of repairs. To date, we have not
experienced significant warranty costs in excess of our recorded reserves.
RESEARCH AND DEVELOPMENT. Our research and development expenses are incurred
researching new technologies, developing new systems and improving existing
system designs. Research and development expenses for the first six months of
1999 were $12.6 million, up from $12.2 million in the first six months of 1998,
representing an increase of 3%. The increase was attributable to higher spending
for materials and supplies. As a percentage of sales, research and development
expenses increased to 17.0% in the first six months of 1999 from 16.1% in the
first six months of 1998.
We believe continued research and development investment for development of
new systems is critical to our ability to serve new and existing markets. Since
our inception, research and development costs generally have been internally
funded and all have been expensed as incurred.
SALES AND MARKETING. Sales and marketing expenses support domestic and
international sales and marketing activities which include personnel, trade
shows, advertising and other marketing activities. Sales and marketing expenses
for the first six months of 1999 were $7.3 million, up slightly from $7.1
million in the first six months of 1998, representing an increase of 3%. As a
percentage of sales, sales and marketing expenses increased to 9.8% in the first
six months of 1999 from 9.3% in the first six months of 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses support our
worldwide financial, administrative, information systems and human resources
functions. General and administrative expenses for the first six months of 1999
were $6.0 million, up from $5.6 million in the first six months of 1998,
representing an increase of 7%. As a percentage of sales, general and
administrative expenses increased to 8.0% in the first six months of 1999 from
7.4% in the first six months of 1998.
OTHER INCOME. Other income consists primarily of interest income and
expense, foreign exchange gains and losses, and other non-operating expenses.
Other income for the first six months of 1999 was $17,000, compared to $227,000
in the first six months of 1998, representing a decrease of 93%.
Interest expense consists principally of borrowings under our bank credit
and capital lease facilities and a state government loan.
We have experienced fluctuations in foreign currency exchange rates,
particularly against the Japanese yen. Beginning in 1997, we entered into
various forward foreign exchange contracts as a hedge against currency
fluctuations in the yen. We continue to evaluate various methods to minimize the
effects of currency fluctuations.
PROVISION FOR INCOME TAXES.The income tax provision was $2.3 million for the
first six months of 1999, compared to an income tax benefit of $333,000 for the
first six months of 1998. The estimated effective rate was 40.5% for the first
six months of 1999, compared to an effective income tax benefit rate of 12.9%
for the first six months of 1998. The higher effective consolidated tax rate for
the first six months of 1999 is attributable to losses recorded at our Advanced
Energy Voorhees subsidiary in the second quarter of 1998 for which no tax
benefit had been recorded and a shift in the mix of our taxable income toward a
greater share from countries with higher effective tax rates. Changes in the
relative earnings of our U.S. and foreign operations affect our consolidated
effective tax rate. To the extent that a larger percentage of taxable earnings
are derived from our foreign subsidiaries whose tax rates are higher than
domestic tax rates, we could experience a higher consolidated effective tax rate
than the historical rates we have experienced. We adjust our
26
<PAGE>
provision for income taxes periodically based upon the anticipated tax status of
all of our foreign and domestic entities.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1998
SALES. Sales for 1998 were $124.7 million, a decrease of 29% from sales of
$175.8 million for 1997. The decrease was due to decreased unit sales. The
semiconductor capital equipment industry, affected primarily by the Asian
financial crisis, experienced a severe downturn from the end of 1997 through
1998. This caused a 41% decrease in our sales to this industry in 1998 compared
to 1997, primarily in the United States and the Asia Pacific region. Sales to
the data storage industry decreased 27%, although sales to our largest customer
in that industry grew significantly from 1997 to 1998, resulting in higher sales
in Europe. Sales to industrial markets were slightly higher, but would have been
lower if not for the full-year effect of sales by Tower Electronics in 1998.
GROSS MARGIN. Our gross margin for 1998 was 29.4%, down from 38.1% in 1997.
The decrease in gross margin was primarily due to unfavorable absorption of
manufacturing overhead as a result of significant capacity expansion in 1997 and
the reduced level of sales in 1998.
RESEARCH AND DEVELOPMENT. Research and development expenses for 1998 were
$23.8 million, up from $19.3 million in 1997, representing an increase of 23%.
As a percentage of sales, research and development expenses increased to 19.1%
in 1998 from 11.0% in 1997 as a result of the lower sales base. The increase in
expenses from 1997 to 1998 is primarily due to increases in payroll, materials
and supplies, purchased services, and higher infrastructure costs for new
product development.
We recorded a one-time charge of $3.1 million in 1997 for the portion of the
Tower Electronics purchase price attributable to in-process research and
development. This one-time charge is not included in the $19.3 million reported
for research and development expense in 1997.
SALES AND MARKETING. Sales and marketing expenses for 1998 were $13.5
million, up from $11.6 million in 1997, representing an increase of 16%. The
increase is attributable to higher payroll costs incurred as we continue to
increase our sales management and product management capabilities. Additionally,
we increased spending in 1998 to develop worldwide applications engineering
capabilities. As a percentage of sales, sales and marketing expenses increased
to 10.9% in 1998 from 6.6% in 1997 as a result of the lower sales base.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for 1998
were $9.5 million, down from $10.5 million in 1997, representing a decrease of
10%. This decrease is primarily attributable to implementation of our 1998
restructuring plan. As a percentage of sales, general and administrative
expenses increased to 7.5% in 1998 from 6.0% in 1997. This increase was due to
the lower sales base.
OTHER EXPENSES. We took one-time charges totaling $5.8 million in 1997. We
took a net charge of $2.7 million for storm damage to our headquarters and main
manufacturing facilities that resulted from heavy rains in the Fort Collins area
in July 1997. We settled with our insurance carrier in 1998, and recorded a $1.1
million recovery in the fourth quarter of 1998.
As discussed above in "--Research and Development", our acquisition of Tower
Electronics resulted in a write-off of $3.1 million in 1997 for purchased
in-process research and development, which is nondeductible for income tax
purposes.
We took one-time charges totaling $3.7 million in 1998. In August 1998, we
announced a restructuring plan to respond to the downturn in the semiconductor
capital equipment market. The plan included a reduction of workforce of 128
people, the closure of one facility in our Fort Collins,
27
<PAGE>
Colorado campus, and the abandonment of plans to construct a new manufacturing
facility in Fort Collins. Other reductions in workforce at the Voorhees facility
were effected during 1998. We took a one-time charge of $1.0 million for the
restructuring in the third quarter of 1998.
On October 8, 1998, we acquired RF Power Products in a pooling of interests
that involved the exchange of four million shares of our common stock for the
publicly held common stock of RF Power Products. We incurred as part of the
business combination $2.7 million of acquisition expenses recorded in the fourth
quarter of 1998, which is non-capitalizable and generally nondeductible for
income tax purposes.
OTHER (EXPENSE) INCOME. Other (expense) income consists primarily of
interest income and expense, foreign exchange gains and losses and other
non-operating expenses. Interest income for 1998 was $1.1 million, up from $0.6
million in 1997, representing an increase of 83%. Interest income was due
primarily to earnings on investments made from the proceeds of our IPO in
November 1995 and our underwritten public offering in October 1997.
Interest expense decreased to approximately $0.2 million for 1998 from $0.5
million for 1997.
PROVISION (BENEFIT) FOR INCOME TAXES. The income tax benefit was $2.9
million for 1998 compared to an income tax provision of $7.5 million in 1997.
The estimated effective rate was 23.4% for 1998, compared to an effective rate
of 38.2% for 1997. The lower rate of the tax benefit in 1998 was due to
nondeductible costs associated with our acquisition of RF Power Products, and
foreign operating losses for which no benefit was recorded.
28
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables present quarterly results in dollars and as a
percentage of sales for each of the eight quarters in the period ended June 30,
1999. We believe that all necessary adjustments, consisting only of normal
recurring adjustments, have been included in the amounts stated below to present
fairly such quarterly information. The operating results for any quarter are not
necessarily indicative of results for any subsequent period.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1998 1998 1998 1998 1999 1999
--------- --------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales.......................... $ 52,688 $ 56,059 $ 43,869 $ 31,981 $ 26,292 $ 22,556 $ 32,728 $ 41,515
Cost of sales.................. 31,658 34,878 30,263 23,466 18,317 15,939 19,630 23,222
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit................... 21,030 21,181 13,606 8,515 7,975 6,617 13,098 18,293
--------- --------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development..... 5,484 5,656 5,835 6,394 5,722 5,898 5,852 6,758
Sales and marketing.......... 2,829 3,684 3,564 3,512 3,255 3,200 3,305 3,979
General and administrative... 2,780 3,371 2,859 2,768 2,353 1,503 2,870 3,088
Restructuring charge......... -- -- -- -- 1,000 -- -- --
Merger costs................. -- -- -- -- -- 2,742 -- --
Storm damages (recoveries)... 3,000 (300) -- -- -- (1,117) -- --
Purchased in-process research
and development............ 3,080 -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating expenses....... 17,173 12,411 12,258 12,674 12,330 12,226 12,027 13,825
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations................... 3,857 8,770 1,348 (4,159) (4,355) (5,609) 1,071 4,468
Other (expense) income......... (22) 37 98 129 (214) 345 (39) 56
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) before income
taxes........................ 3,835 8,807 1,446 (4,030) (4,569) (5,264) 1,032 4,524
Provision (benefit) for income
taxes........................ 2,544 2,305 552 (885) (1,089) (1,478) 498 1,754
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss).............. $ 1,291 $ 6,502 $ 894 $ (3,145) $ (3,480) $ (3,786) $ 534 $ 2,770
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Diluted earnings (loss) per
share........................ $ 0.05 $ 0.24 $ 0.03 $ (0.12) $ (0.13) $ (0.14) $ 0.02 $ 0.10
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Diluted weighted-average number
of shares and share
equivalents.................. 26,401 27,143 27,170 26,531 26,585 26,681 28,027 28,169
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1998 1998
--------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Percentage of Sales:
Sales..................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 60.1 62.2 69.0 73.4
--------- -------- -------- --------
Gross margin.............................. 39.9 37.8 31.0 26.6
--------- -------- -------- --------
Operating expenses:
Research and development................ 10.4 10.1 13.3 19.9
Sales and marketing..................... 5.4 6.6 8.1 11.0
General and administrative.............. 5.3 6.0 6.5 8.7
Restructuring charge.................... -- -- -- --
Merger costs............................ -- -- -- --
Storm damages (recoveries).............. 5.7 (0.5) -- --
Purchased in-process research and
development........................... 5.8 -- -- --
--------- -------- -------- --------
Total operating expenses.................. 32.6 22.2 27.9 39.6
--------- -------- -------- --------
Income (loss) from operations............. 7.3 15.6 3.1 (13.0)
Other income (expense).................... 0.0 0.1 0.2 0.4
--------- -------- -------- --------
Net income (loss) before income taxes..... 7.3 15.7 3.3 (12.6)
Provision (benefit) for income taxes...... 4.8 4.1 1.3 (2.8)
--------- -------- -------- --------
Net income (loss)......................... 2.5% 11.6% 2.0% (9.8)%
--------- -------- -------- --------
--------- -------- -------- --------
<CAPTION>
SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1999 1999
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Percentage of Sales:
Sales..................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 69.7 70.7 60.0 55.9
--------- -------- -------- --------
Gross margin.............................. 30.3 29.3 40.0 44.1
--------- -------- -------- --------
Operating expenses:
Research and development................ 21.8 26.1 17.9 16.3
Sales and marketing..................... 12.4 14.2 10.1 9.6
General and administrative.............. 8.9 6.7 8.8 7.4
Restructuring charge.................... 3.8 -- -- --
Merger costs............................ -- 12.2 -- --
Storm damages (recoveries).............. -- (5.0) -- --
Purchased in-process research and
development........................... -- -- -- --
--------- -------- -------- --------
Total operating expenses.................. 46.9 54.2 36.7 33.3
--------- -------- -------- --------
Income (loss) from operations............. (16.6) (24.9) 3.3 10.8
Other income (expense).................... (0.8) 1.6 (0.1) 0.1
--------- -------- -------- --------
Net income (loss) before income taxes..... (17.4) (23.3) 3.2 10.9
Provision (benefit) for income taxes...... (4.2) (6.5) 1.5 4.2
--------- -------- -------- --------
Net income (loss)......................... (13.2)% (16.8)% 1.6% 6.7%
--------- -------- -------- --------
--------- -------- -------- --------
</TABLE>
Our quarterly operating results have fluctuated significantly and we expect
them to continue to experience significant fluctuations. Quarterly results are
affected by a variety of factors, many of which are beyond our control,
including:
- changes or slowdowns in economic conditions in the semiconductor and
semiconductor capital equipment industries and other industries in which
our customers operate;
- the timing and nature of orders placed by major customers;
- customer cancellations of previously placed orders and shipment delays;
- pricing competition from our competitors;
- component shortages resulting in manufacturing delays;
- changes in customers' inventory management practices;
- the introduction of new products by us or our competitors; and
- costs incurred by responding to specific feature requests by customers.
A substantial portion of our shipments are made on a "just-in-time" basis in
which shipment of systems occurs within a few days or hours after an order is
received. Our backlog is not meaningful because of the importance of
"just-in-time" shipments. We are dependent on obtaining orders for shipment in a
particular quarter to achieve our revenue objectives for that quarter.
Accordingly, it is difficult for us to predict accurately the timing and level
of sales in a particular quarter. Due to our "just-in-time" program, we
anticipate quarterly fluctuations in sales to continue to occur.
30
<PAGE>
Sales fluctuated significantly during the periods presented, reflecting
changing demand. Demand for our systems is affected primarily by changes in the
semiconductor capital equipment market. The semiconductor capital equipment
market experienced a major but short-lived recovery in the second half of 1997,
but then a severe downturn began at the end of 1997 and continued through 1998
until the market began to recover in early 1999. Our quarterly sales generally
mirrored the market. To a lesser extent, sales are affected by events in the
data storage, flat panel display and other industrial markets.
Our gross margin fluctuated significantly, primarily reflecting the level at
which we utilized our manufacturing capacity. Successive decreases in gross
margin to 31.0% in the first quarter of 1998 and 26.6% in the second quarter of
1998 were due to decreased utilization of capacity resulting from two successive
quarterly decreases in sales to the semiconductor capital equipment industry.
Gross margin improved to 30.3% in the third quarter of 1998, despite continued
decreased utilization of capacity, due to lower material costs obtained through
supplier contract negotiations and cost improvements realized from our
restructuring. Gross margin declined to 29.3% in the fourth quarter of 1998, due
primarily to further decreased utilization of capacity resulting from another
decrease in sales to the semiconductor capital equipment industry. Gross margin
increased significantly to 40.0% in the first quarter of 1999, primarily as
result of our efforts to reduce material costs and, to a lesser extent, the
higher sales base. Gross margin increased again in the second quarter of 1999 to
44.1% due to the higher sales base.
Operating expenses have been affected by non-recurring charges and credits
and our responses to changes in demand for our product, particularly from the
semiconductor capital equipment industry. For example, in the third quarter of
1997, we recorded a $3.0 million charge in connection with storm damage we
experienced and wrote off $3.1 million of purchased in-process research and
development associated with the Tower Electronics acquisition. Due to the
downturn in the semiconductor capital equipment industry in 1998, our operating
expenses were held relatively flat during the first half of 1998 in anticipation
of an early recovery. With the extent and duration of the downturn still
uncertain, in the second half of 1998 we reduced operating expenses while
maintaining a minimum level of resources necessary to address an upturn in the
semiconductor capital equipment industry that began to occur in the first half
of 1999. Operating expenses in the third and fourth quarters of 1998 were also
affected by non-recurring charges and credits. Operating expenses increased in
the first two quarters of 1999, reflecting expenditures to support the
significant growth in sales during those periods. As a percentage of sales,
operating expenses have declined during periods of rapid sales growth, when
sales increased at a rate faster than our ability to add personnel and
facilities to support the growth, and increased during periods of flat or
decreased sales, when our infrastructure is retained to support anticipated
future growth.
Our provision (benefit) for income taxes fluctuated significantly from the
third quarter of 1997 through the second quarter of 1999, primarily due to the
effect of non-recurring charges and credits. For example, an effective income
tax rate of 66.3% in the third quarter of 1997 was due primarily to the $3.1
million write-off associated with the acquisition of Tower Electronics. An
effective income tax benefit rate of 28.1% for the fourth quarter of 1998 was
due primarily to nondeductible merger costs offset by tax benefits recorded for
operating losses incurred during the quarter.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations, acquired equipment and
met our working capital requirements through borrowings under our revolving line
of credit, long-term loans secured by property and equipment, cash flow from
operations and proceeds from equity offerings.
Operating activities used cash of $2.1 million in the first six months of
1999, primarily a result of increases in accounts receivable and inventories,
partially offset by net income, increases in accounts payable and increased
accruals for payroll, employee benefits and income taxes.
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Operating activities provided cash of $4.7 million in the first six months of
1998, primarily as a result of decreases in accounts receivable and inventories,
offset by the net loss, decreases in accounts payable and decreased accruals for
income taxes. We expect future receivable and inventory balances to fluctuate
with net sales. We provide just-in-time deliveries to certain of our customers
and may be required, under certain contracts or agreements, to maintain minimum
levels of inventory to satisfy our customers' delivery requirements. Any
increase of our inventory levels will require the use of cash to finance the
inventory.
Investing activities used cash of $1.1 million in the first six months of
1999 and included the purchase of property and equipment for $3.0 million,
offset by sales of $1.9 million of marketable securities. Investing activities
used cash of $3.2 million in the first six months of 1998 and included the
purchase of property and equipment for $4.0 million and the purchase of a stock
investment in a start-up company for $0.75 million, offset by sales of $1.5
million of marketable securities.
Financing activities in the first six months of 1999 provided cash of $3.0
million and consisted primarily of proceeds of $1.8 million from the exercise of
employee stock options and net increases in notes payable and capital lease
obligations of $1.2 million. Financing activities in the first six months of
1998 used cash of $1.6 million and consisted primarily of payment of notes
payable and capital lease obligations of $1.9 million, partially offset by
proceeds of $0.3 million from the exercise of employee stock options.
We plan to spend approximately $7.0 million through the remainder of 1999
and the first six months of 2000 for the acquisition of manufacturing and test
equipment and furnishings. Further, we continue to implement our management
system software, including the replacement of existing systems in our domestic
and foreign locations. We expect to incur aggregate costs of approximately $0.3
million related to training and implementation of the software through the year
2000.
As of June 30, 1999, we had working capital of $67.0 million. Our sources of
available funds as of June 30, 1999 consisted of $11.3 million of cash and cash
equivalents, $14.2 million of marketable securities, and a credit facility
consisting of a $30.0 million revolving line of credit, of which none was
outstanding as of June 30, 1999. Advances under the revolving line of credit
bear interest at either the prime rate (8.25% at September 16, 1999) minus 1.25%
or the LIBOR 360-day rate (6.0425% at September 16, 1999) plus 150 basis points,
at our option. All advances under the revolving line of credit will be due and
payable on December 7, 2000, unless up to $10 million of indebtedness is
converted into a 3-year term loan prior to that date.
We believe that our cash and cash equivalents, marketable securities, cash
flow from operations and available borrowings will be sufficient to meet our
working capital needs for the next twelve months. From time to time, we may
raise capital through additional equity or debt financing in order to take
advantage of favorable market conditions or to fund material capital equipment
purchases or desired expansion. We have considered, and will continue to
consider, possible acquisitions of businesses or entities, which we believe
could create synergies or opportunities for us. If we were to undertake one or
more acquisitions, we may require additional funds which may be provided by the
sale of equity or debt securities. The requisite funding might not be available
when required or it might not be available on terms acceptable to us.
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<PAGE>
BUSINESS
OVERVIEW
We design, manufacture and support power conversion and control systems.
These systems are important components of industrial manufacturing equipment
that modifies surfaces or deposits or etches thin film layers on computer chips,
CDs, flat panel displays such as computer screens, DVDs, windows, eyeglasses,
solar panels and other products. Our systems refine, modify and control the raw
electrical power from a utility and convert it into power that is uniform and
predictable. This allows manufacturing equipment to produce and deposit very
thin films at an even thickness on a mass scale. We market and sell our systems
primarily to large, global OEMs of semiconductor, flat panel display, data
storage and other industrial thin film manufacturing equipment.
We have sold our systems worldwide to more than 100 OEMs and directly to
more than 500 end-users. Since inception, we have sold more than 150,000 power
conversion and control systems. Our principal customers include Applied
Materials, Balzers, Eaton, Lam Research, Novellus, Singulus and ULVAC.
BACKGROUND
THE MARKET FOR PLASMA-BASED THIN FILM PRODUCTION PROCESSES
Manufacturing processes in use today employ thin film technology to modify
surfaces or to deposit or etch thin layers of materials on substrates such as
silicon, glass and metals. In recent years, significant technological advances
in thin film processes have permitted materials to be manipulated on an atomic
and molecular level. Manufacturers can now both deposit and etch layers of
materials that are less than one hundredth of a micron in thickness. Thin film
production processes enable manufacturers to control and alter the electrical,
magnetic, optical and mechanical characteristics of materials. Products produced
by thin film processing include integrated circuits, flat panel displays and
magnetic media. The ongoing demand for improvements in the performance, capacity
and speed of these products drives manufacturers to develop more advanced
technology to produce increasingly thinner, more consistent and more precise
layers of film.
Thin film production processes are now used in a broad and rapidly growing
range of industrial manufacturing processes. Thin film processes have been
employed most extensively in the semiconductor industry. In the fabrication of
integrated circuits, multiple thin film layers of insulating or conductive
materials are deposited on a wafer or substrate. Each thin film layer becomes an
integral part of microscopic device and circuitry features. For example, the
current generation dynamic random access memory chips (DRAMs) are manufactured
with ten to thirty layers of film and an overall thickness of no more than 0.5
microns. Thin film manufacturing processes similar to those employed in the
semiconductor industry are increasingly being used in the production of flat
panel displays such as the monitors in portable computers. These processes are
also used extensively in the data storage industry in the production of CDs,
DVDs and computer hard disks. Thin film processes for data storage products are
used to create the optical and magnetic storage mediums and to deposit
protective wear surfaces on the finished products. In addition, industrial
manufacturers have begun to use thin film processes to apply coatings or films
to a wide range of products, including solar panels, architectural glass,
eyeglasses, tools, bar-code readers, lenses, automotive parts, front surface
mirrors, razor blades, decorative wrappings and food product packaging.
The primary applications for thin film manufacturing include deposition, in
which a layer of material is deposited on a surface, and etch, in which unneeded
portions of a layer are removed. Thin film production was initially accomplished
with liquid chemicals, known as wet chemistry processing, or thermal processes.
Over time, those processes became inadequate for many
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<PAGE>
applications as the demand for products requiring thinner, more precise films
increased. Plasma-based process technology was developed to address the
limitations of wet chemistry and thermal technologies and to enable new
applications.
Today plasma-based processing is broadly used by thin film manufacturers.
Plasma is commonly created by applying enough electrical force to a gas at
reduced pressure to separate electrons from their parent atoms. The atom is
transformed to a highly energetic state. In plasma-based thin film processing,
the material to be altered, known as the substrate, and one or more specific
gases are inserted into a vacuum chamber. The plasma created from the gases is
then manipulated by electrical forces to alter the molecular characteristics of
the substrate surface. Plasma-based processes are inherently more controllable
and more accurate for many applications than other thin film production
processes because of the electrical characteristics of plasma. It is possible to
more precisely control the arrival rate, angle and energy of molecules at the
surface being modified using electrical forces. Plasma-based process technology
is expected to continue evolving to meet the worldwide growth in demand for
smaller, more versatile electronics, finer visual resolution products and denser
data storage mediums because of the precision provided by plasma's electrical
characteristics.
Below is an illustration of a plasma-based production process:
[Illustration titled "Plasma Process Illustration" depicting in diagram form the
flow of utility power to a power conversion and control system, with arrows
identifying the plasma, ions, electric field and substrate in the vacuum process
system.]
POWER CONVERSION AND CONTROL SYSTEM REQUIREMENTS
The effectiveness of plasma-based production processes depends in large part
on the quality of the electrical power used to ignite and manipulate the plasma.
A power conversion and control system used in a plasma-based process must
refine, modify and control the raw electrical power from a utility and convert
it into power that is uniform, predictable and precisely repeatable, which
permits the production of identical thin films of unvarying thickness on a mass
scale. Instability of electrical forces in the plasma may damage or destroy the
substrate under production, as well as the power conversion and control system.
A power conversion and control system must react within microseconds, or
millionths of a second, to changes in the level of the utility supplied power,
the electrical characteristics of the plasma and the process control settings in
order to avoid instabilities. The key requirements for plasma processing power
conversion and control systems are:
CONVERSION AND CONTROL OF HIGH POWER. Plasma-based production requires the
generation of extremely high levels of electrical power, usually in the range of
500 to 25,000 watts. In contrast, the power level required to operate most home
and office electrical equipment is generally far below 500 watts. A power
conversion and control system must include the ability to properly convert the
externally supplied power, and must also make accurate and fast measurements so
the system can be dynamically controlled. These measurements are difficult
because of the strong electrical fields
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<PAGE>
and electrical noise that result from the high power concentration and the
nature of the plasma itself. Additionally, a power conversion and control system
must meet the small footprint requirements of a clean room environment while
minimizing the impact of the concentration of electrical radiation and heat
caused by tightly packed high power circuitry.
CONTROL OVER A WIDE RANGE OF POWER LEVELS. Power conversion and control
systems for plasma-based processes must operate over a wide range of power
levels in order to support a variety of plasma-based processes and applications.
For example, a power conversion and control system may need to operate at power
levels that vary by a factor of one thousand. In contrast, the power supplies
used in most home and office electrical equipment generally only need to operate
at power levels that vary by no more than a factor of two. One of the most
challenging requirements for plasma-based process power conversion and control
systems is the need for system instrumentation to make rapid measurements of
many electrical characteristics, including current, voltage, power and impedance
levels. The measurements must be made with precision, speed and accuracy at both
low and high levels of power.
CONTROL OF UTILITY INSTABILITIES. Incoming power from a utility supplier is
subject to brownouts, surges, voltage transients and general voltage variations.
A power conversion and control system must serve as a buffer from the
variability of raw utility power sources. Under normal operating conditions,
excluding brownouts, voltage from the utility source may vary by as much as 10%.
In comparison, even a 1% variance in the power supply to a plasma chamber may
cause significant defects in the film under production.
CONTROL OF ARCS. One of the most critical problems that arises from a
failure to control power in a plasma-based process is arcing, which is
characterized by intense localized electrical discharges which act like
lightning. Arcs often cause serious damage to both the substrate and the power
conversion and control equipment. A power conversion and control system must not
only be rugged enough to withstand the impact of abrupt electrical changes in
the plasma, but must also contain circuitry to extinguish arcs as they occur.
The power system must act to control the power levels within less than a
microsecond in order to effectively control arcs.
CONTROL OF SYSTEM INSTABILITIES. The current and voltage in the plasma may
fluctuate in some advanced plasma-based processes using exotic gases and
electrode arrangements, causing system instabilities. The power conversion and
control system must promptly detect the changing electrical characteristics of
the plasma and adjust the power supply to prevent instabilities. If these system
instabilities are not properly controlled, the thin films will lack uniformity,
which may seriously impair the yield and performance of the products being
manufactured.
CHARACTERISTICS OF THE POWER CONVERSION AND CONTROL SYSTEM MARKET
The plasma-based processing industry requires a wide range of power
frequencies for plasma-based thin film processes, from zero frequency direct
current (DC) to alternating current (AC) at frequencies of several gigahertz.
Frequency influences the type of physical and chemical activity that will occur
in the plasma. Power conversion and control systems change the frequency of raw
utility power as required for particular applications. For example, DC is
typically used in PVD processes, while high frequency AC such as RF are
typically used in etch and chemical vapor deposition (CVD) processes.
Power conversion and control systems for plasma-based processes often need
to be highly customized to meet application and customer requirements. This
customization involves developing unique design and component configurations to
permit specific variations in power, voltage, current and frequency levels,
modifications for interfacing with customer equipment, and adjustments to
controls and external packaging requirements. The long-term challenge facing
manufacturers of power conversion and control systems is to efficiently produce
these complex, highly customized
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<PAGE>
systems in a cost effective manner. Moreover, power conversion and control
systems must be continuously adapted to address the requirements of the growing
number of applications using thin film production processes. The customers for
these types of systems are generally large, global OEMs in the semiconductor
capital equipment, flat panel display and data storage markets. They require a
global infrastructure from the manufacturers of power control and conversion
systems.
THE ADVANCED ENERGY SOLUTION
We have been and continue to be a pioneer in the development of power
conversion and control systems for advanced plasma-based production processes.
Key elements of the Advanced Energy solution include:
KNOWLEDGE OF PLASMA-BASED PROCESSES. Since our inception, we have built a
large base of expertise in the interaction between plasma-based processes and
power conversion and control systems. This knowledge allows us to develop
systems that optimize our customers' plasma-based processes and applications,
and to assist customers and potential customers in developing new process
applications. One of our core competencies is our ability to advise customers of
design advantages that may be achieved in plasma-based production processes for
specific applications and in the related power conversion and control systems.
We regularly place our scientists and engineers at customer sites to support
customers in their process development. We believe this application of knowledge
and resources is unique in the industry and represents a key competitive
strength.
UTILIZATION OF SWITCHMODE TECHNOLOGY. We believe that we developed the
first switchmode power conversion and control systems for plasma-based
processing. Switchmode power conversion is a digitally based solution to power
conversion that represents an improvement over previously employed alternatives.
Switchmode based systems are smaller, lighter and faster due to their use of
high speed switching. Switchmode technology also enables rapid control of the
high power required in plasma-based production processes and improves the
response time to random variables in the system. In addition, switchmode has the
benefit of significantly reducing the stored energy in a system, a major cause
of arcing. The MDX system, which we introduced in 1983, was the first switchmode
power supply available for PVD applications. It reduced the amount of stored
energy by a factor of 100 to 1,000 times compared to the technology then in use
and fostered the development and widespread use of PVD processes. We utilize
switchmode technology in the majority of our systems. We believe our expertise
with switchmode-based systems provides us with a competitive advantage.
MEASUREMENT AND CONTROL SOLUTIONS. We have designed our systems to
incorporate high speed, highly precise electronic measurement and system
controls. Multiple sensors continually measure current, voltage and other
electrical properties of the plasma. These measurements are converted into
signals, processed with digital signal processors, and the results then
converted to input signals for the power conversion and control systems. Our
power conversion and control systems thus dynamically control the flow of power
delivered, minimize stored energy, make precise system adjustments, compensate
for random variabilities and notify the user of out-of-range conditions. These
dynamic in-system controls enable our systems to prevent or eliminate arcs and
other system or utility related instabilities.
REUSABLE ENGINEERING AND MODULAR DESIGN. We provide customers with fast
time-to-market solutions by designing our components using:
- reusable engineering, in which the core technology of a component can be
incorporated in a similar component of a new system or a new product
platform; and
- modular design, in which the same component used in systems of one product
platform can be used in systems of another product platform.
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<PAGE>
Reusable engineering and programmable software-based architectures enable us
to modify our basic platforms to create solutions that are tailored for specific
applications and customer requirements. We achieve efficiencies by designing our
products to have an open architecture, common features and standard components
and interfaces across a variety of processes. As a result, we believe we have
the capability to deliver a broad range of customized products with short lead
times and on a competitively priced basis.
STRATEGY
We have achieved a market leadership position by applying our large base of
expertise in the interaction between plasma-based processes and power conversion
and control systems to design highly precise, customized power conversion and
control systems that provide a wide range of power frequencies for plasma-based
thin film processes. Our strategy is to continue to build upon our leadership
positions in the semiconductor capital equipment, flat panel display and data
storage industries while exploring other emerging markets. We believe our five
key growth opportunities are:
EXPANDING LEADERSHIP IN OUR CORE MARKETS. We are the market share leader in
the semiconductor capital equipment, data storage and flat panel display
markets. We plan to continue to increase our penetration in these three markets
by introducing new products and solutions for our existing customers and
targeting new customers, but our primary focus will continue to be on the
semiconductor capital equipment market. For example, in the semiconductor
capital equipment market, we believe that significant opportunities exist for us
to introduce new products for processes or applications such as:
- etch applications using RF power;
- gas abatement;
- on-line measurement of power characteristics; and
- copper electroplating.
PROVIDING INTEGRATED SOLUTIONS FOR CUSTOMERS. We believe that customers
want solutions that improve process control and yield, and decrease their total
cost and time to market. We are developing integrated systems to provide more
complete solutions that meet our customers' plasma-based process requirements.
We are identifying currently fragmented applications of technology involving
significant power, measurement and control content, and developing integrated,
high performance, robust and cost-effective solutions for these applications.
TARGETING EMERGING APPLICATIONS. We are targeting emerging applications
that have the potential to benefit from more efficient and reliable use of power
in manufacturing processes for telecommunications networking equipment,
automotive parts, tools, architectural glass and other industrial products.
PURSUING ACQUISITIONS TO FUEL GROWTH. We actively seek complementary
technologies and companies as a means to expand our presence in existing and
emerging markets and to provide integrated solutions for customers and potential
customers. We have acquired and integrated four companies in the last two years.
We continually evaluate companies whose products and technologies could enhance
our system level capabilities.
CAPITALIZING ON WORLDWIDE INFRASTRUCTURE. Our principal customers are
large, global OEMs that require that their suppliers have a well-developed
worldwide infrastructure. We plan to continue to take advantage of and expand
our established global infrastructure, operating skills and comprehensive
product portfolio to better serve these customers and to attract new customers
with international support needs.
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<PAGE>
PRODUCTS
Our switchmode power conversion and control systems have enabled our
customers to develop new plasma-based processing applications. In 1982, we
introduced our first low-frequency switchmode power conversion and control
system specifically designed for use in plasma processes. In 1983, we introduced
our first DC system designed for use in PVD applications. This DC system is a
compact, cost-effective power solution which greatly reduces stored energy, a
major limitation in PVD systems. In 1989, we introduced tuners used to match the
characteristics of the plasma with the RF generators. This theme was carried
further with the introduction of the Pinnacle series of DC systems in 1995. In
1990, we introduced the first switchmode RF power conversion and control systems
for use in semiconductor etch applications. This product line achieved
significant design wins because of its smaller size and its ability to provide
more precise control. In 1998, we developed the APEX series of RF systems which
use new technology to further reduce size and extend the frequency and power
range of our RF product line. We introduced a family of accessories for the DC
product line in 1993. These pulsed DC products provided major improvements in
arc prevention and suppression. We are currently extending the power range of
our systems to much higher power levels to enable us to supply products for
emerging industrial applications. The products in these product families range
in price from $1,500 to $150,000, with an average selling price of approximately
$9,200.
The acquisition of the assets of MIK Physics, Inc. provided the base
technology for our recently introduced Astral products, which are high-power DC
systems used in PVD equipment.
The acquisition of Tower Electronics in August 1997 expanded our product
line to include low-power DC power conversion systems for use in
telecommunications and other industrial applications. These power conversion
systems range in power from 50 watts to 600 watts and have an average selling
price of approximately $500.
The acquisition of RF Power Products in October 1998 expanded our product
line of RF generators and matching networks. Solid-state generators are
presently available for power requirements of up to 5,000 watts and are sold
primarily to capital equipment manufacturers in the semiconductor, flat panel
display, thin film, and analytical equipment markets. Tube-type generators are
available at power levels from 10,000 to 30,000 watts and are primarily sold to
capital equipment manufacturers in the thin film head manufacturing market. RF
matching networks are systems composed primarily of variable inductors and
capacitors with application-specific circuits that can be designed to a
customer's specific power requirements. Our RF generators and matching networks
have average selling prices similar to our DC products.
The acquisition of Fourth State Technology in September 1998 enhanced our
capability to design and manufacture RF power-related process control systems
used to monitor and analyze data in thin film processes. Fourth State's
technology also is enabling us to develop power conversion and control systems
that incorporate advanced measurement and control systems.
The acquisition of a majority interest in LITMAS in August 1999 is expected
to expand our product line to include plasma abatement systems and high-density
plasma sources. These products will be marketed to semiconductor capital
equipment manufacturers.
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The following chart sets forth our principal product lines and related basic
information:
<TABLE>
<S> <C> <C> <C> <C>
PRODUCT DESCRIPTION POWER/CURRENT MAJOR PROCESS
PLATFORM LEVEL APPLICATIONS
Direct MDX Power control and 500W-80kW PVD
Current conversion system - Metal sputtering
Products - Reactive sputtering
MDX-II Power control and 15kW-120kW PVD
conversion system - Metal sputtering
- Reactive sputtering
Pinnacle Power control and 6kW-120kW PVD
conversion system - Metal sputtering
- Reactive sputtering
Sparc-LE Arc management 1kW-60kW For use with MDX systems--permits
accessory precise control of reactive
sputtering of insulating films
E-Chuck Electrostatic less than 100W General wafer handling in
chuck power semiconductor PVD, CVD and etch
system applications
Radio HFV Power control and 3kW-8kW PVD
Frequency conversion system Etch
Products
RFX Power control and 600W General R&D
conversion system
RFG Power control and 600W-5.5kW Etch
conversion system CVD
RFXII Power control and 600W-5.5kW Etch
conversion system CVD
APEX Power control and 1000W-10kW Etch
conversion system CVD
AZX, VZX, Tuner 100W-5kW Impedance matching network
SwitchMatch
RF Power control and 500W-3kW Etch
conversion system CVD
Hercules Power control and 10kW-30kW PVD
conversion system
Atlas Power control and 1.5kW-5kW Etch
conversion system
Mercury Tuner 500W-10kW Impedance matching network
FTMS Tuner 2kW-5kW Impedance matching network
Low and Mid- PE and PE-II Low-frequency 1.25kW-30kW CVD
Frequency power control and PVD
Products conversion system - Reactive sputtering
Surface modification
PD Mid-frequency 1.25kW-8kW CVD
power control and PVD
conversion system - Reactive sputtering
Surface modification
LF Low-frequency 500W-1kW Etch
power control and PVD
conversion system
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
PRODUCT DESCRIPTION POWER/CURRENT MAJOR PROCESS
PLATFORM LEVEL APPLICATIONS
High-Power Astral-20 Pulsed DC power 20kW PVD
Products system - Metal sputtering
- Reactive sputtering
Astral-120 Pulsed DC power 120kW PVD
system - Reactive sputtering
Crystal Multizone 180kW Semiconductor epitaxy
induction heating
power system
Other Gen-Cal RF power 50W-3kW Generator diagnostic tool
Products measurement
RF-EP RF probe 50W-5kW End-point detection system
Z-Scan RP probe 50W-5kW Impedance measurement tool
RF-MS RF metrology 5W-5kW Plasma diagnostic tool
system
ID Ion-beam 500W-5kW Ion-beam deposition
conversion and Ion implantation
control system Ion-beam etching/milling
E'Wave Bi-polar 400W-8kW Electroplating copper onto a wafer
electroplating
</TABLE>
MARKETS, APPLICATIONS AND CUSTOMERS
MARKETS
Most of our sales historically have been made to customers in the
semiconductor capital equipment industry. Sales to customers in this industry
represented 59% of our sales in 1997, 49% in 1998 and 59% in the first six
months of 1999. Our power conversion and control systems are also used in the
flat panel display, data storage and other industrial markets. Following is a
discussion of the major markets for our systems:
SEMICONDUCTOR CAPITAL EQUIPMENT MANUFACTURING MARKET. We sell our products
primarily to semiconductor capital equipment manufacturers for incorporation
into equipment used to make integrated circuits. Our products are currently used
in a variety of applications including deposition, etch, ion implantation and
megasonic cleaning. The precise control over plasma-based processes that use our
power conversion and control systems enables the production of integrated
circuits with reduced feature sizes and increased speed and performance. We
anticipate that the semiconductor capital equipment industry will continue to be
a significant part of our business for the foreseeable future.
FLAT PANEL DISPLAY MANUFACTURING EQUIPMENT MARKET. We also sell our systems
to manufacturers of flat panel displays and flat panel projection devices, which
have fabrication processes similar to those employed in manufacturing integrated
circuits. Flat panel technology produces bright, sharp, large, color-rich images
on flat screens for products ranging from hand-held computer games to laptop
computer monitors to large-screen televisions. There are three major types of
flat panel displays, liquid crystal displays, field emitter displays and gas
plasma displays. There are two types of flat panel projection devices, liquid
crystal projection and digital micro-mirror displays. We sell our products to
all five of these markets.
DATA STORAGE MANUFACTURING EQUIPMENT MARKETS. Our products are sold to data
storage equipment manufacturers and to data storage device manufacturers for use
in producing a variety
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of products, including CDs, computer hard disks, both media and thin film heads,
CD-ROMs and DVDs. These products use a PVD process to produce optical and
magnetic thin film layers, as well as a protective wear layer. In this market
the trend towards higher recording densities is driving the demand for
increasingly dense, thinner and more precise films. The use of equipment
incorporating magnetic media to store analog and digital data continues to
expand with the growth of the laptop, desktop, and workstation computer markets.
OTHER INDUSTRIAL MARKETS. We sell our products to OEMs and producers of end
products in a variety of industrial markets. Thin film optical coatings are used
in the manufacture of many industrial products including solar panels,
architectural glass, eyeglasses, lenses, bar-code readers and front surface
mirrors. Thin films of diamond-like coatings and other materials are currently
applied to products in plasma-based processes to strengthen and harden surfaces
on such diverse products as tools, razor blades, automotive parts and hip joint
replacements. Other thin film processes that use our products also enable a
variety of industrial packaging applications, such as decorative wrapping and
food packaging. The advanced thin film production processes allow precise
control of various optical and physical properties, including color,
transparency and electrical and thermal conductivity. The improved adhesion and
high film quality resulting from plasma-based processing make it the preferred
method of applying the thin films. Many of these thin film industrial
applications require power levels substantially greater than those used in our
other markets.
We sell low-wattage power supplies to OEMs in the telecommunications,
non-impact printing and laser markets through Tower Electronics. For example,
Tower Electronics provides products to the largest manufacturer of non-impact
printers used for printing date codes and lot information on beverage cans.
APPLICATIONS
Our products have been sold for use in connection with the following
processes and applications:
<TABLE>
<CAPTION>
SEMICONDUCTOR DATA STORAGE FLAT PANEL DISPLAY INDUSTRIAL/RESEARCH
- --------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C>
Chemical vapor CD-ROMs Active matrix LCDs Automobile coatings
deposition CDs Digital micro-mirror Chemical, physical
(CVD)(metal and DVDs Field emission and materials
dielectric) Hard disk carbon wear displays research
Etch coatings Large flat panel Circuit board etch-
High density plasma Hard disk magnetic displays back and de-smear
CVD media LCD projection Consumer product
Ion implantation Magneto-optic CDs Liquid crystal coatings
Magnet field controls Recordable CDs displays Diamond-like coatings
Megasonic cleaning Thin film heads Medical applications Food package
Photo-resist Plasma displays Glass coatings
stripping Non-impact printing
Physical vapor Optical coatings
deposition Photovoltaics
Plasma-enhanced CVD Superconductors
Telecommunications
</TABLE>
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CUSTOMERS
We have sold our systems worldwide to more than 100 OEMs and directly to
more than 500 end-users. Since inception, we have sold more than 150,000 power
conversion and control systems. Our principal customers include Applied
Materials, Balzers, Eaton, Lam Research, Novellus, Singulus and ULVAC.
Sales to our top ten customers accounted in the aggregate for 67% of our
total sales in 1997, 62% in 1998 and 67% in the first six months of 1999. We
expect that sales of our products to these customers will continue to account
for a high percentage of our sales in the foreseeable future. Our customers
include:
<TABLE>
<S> <C>
Alcatel Comptech Mattson Technologies
Applied Materials Motorola
Balzers Novellus
CVC Products Optical Coatings Laboratory
Eaton PlasmaTherm
First Light Technology Singulus
Fujitsu Sony
Hewlett-Packard Sputtered Films
IBM Texas Instruments
Intevac 3Com
Komag ULVAC
Lam Research Verteq
Materials Research Division of Tokyo Videojet International
Electron, Ltd.
</TABLE>
MARKETING, SALES AND SERVICE
We sell our systems primarily through direct sales personnel to customers in
the United States, Europe and Asia, and through distributors and sales
representatives in China, France, Israel, Italy, Singapore, Sweden and Taiwan.
Our domestic sales personnel are located in our headquarters in Fort Collins,
Colorado, and in regional sales offices in:
- Voorhees, New Jersey;
- Austin, Texas
- Milpitas, California; and
- Concord, Massachusetts.
We also have international offices in:
- Tokyo, Japan;
- Filderstadt, Germany;
- Bicester, United Kingdom; and
- Seoul, South Korea.
Each of the international offices has primary responsibility for sales in its
respective market.
We sell our Tower Electronics products through manufacturers'
representatives.
We believe that customer service and technical support are important
competitive factors and are essential to building and maintaining close,
long-term relationships with our customers.
42
<PAGE>
Sales outside the United States represented approximately 23% of our total
sales during 1997, 28% in 1998 and 28% in the first six months of 1999. We
expect sales outside the United States to continue to represent a significant
portion of future sales. For a discussion of risks involved in international
sales, see "Risk Factors--We might not be able to compete successfully in
international markets or to meet the service and support needs of our
international customers".
We offer warranty coverage for our systems for periods ranging from 12 to 24
months after shipment against defects in design, materials and workmanship.
MANUFACTURING
We conduct the majority of our manufacturing at our facilities in Fort
Collins, Colorado and Voorhees, New Jersey. We also conduct manufacturing for
one customer in Austin, Texas. Tower Electronics conducts manufacturing at its
facility in Fridley, Minnesota. We generally manufacture different systems at
each facility. Our manufacturing activities consist of the assembly and testing
of components and subassemblies which our customers then integrate into their
equipment. Once final testing of all electrical and electro-mechanical
subassemblies is completed, the final system is subjected to a series of
reliability enhancing operations prior to shipment to customers. We purchase a
wide range of electronic, mechanical and electrical components, some of which
are custom products designed to our specifications. We also outsource some of
our subassembly work.
INTELLECTUAL PROPERTY
We have a policy of seeking patents on inventions governing new products or
technologies as part of our ongoing research, development and manufacturing
activities. We currently hold eighteen United States patents and four foreign
patents covering various aspects of our systems. We also have 47 patent
applications pending in the United States, Europe and Japan. We believe the
duration of our patents generally exceeds the life cycles of the technologies
disclosed and claimed in the patents.
For a discussion of risks involved in our intellectual property, see "Risk
Factors--We are highly dependent on our intellectual property but may not be
able to protect it adequately".
COMPETITION
The markets we serve are highly competitive and characterized by ongoing
technological developments and changing customer requirements. Significant
competitive factors in our markets include product performance, price, quality
and reliability and level of customer service and support. We believe that we
currently compete effectively with respect to these factors, although we might
not be able to compete effectively in the future.
The markets in which we compete have seen an increase in global competition,
especially from Japanese- and European-based equipment vendors. We have several
foreign and domestic competitors for each of our lines of products. Some of our
competitors are larger and have greater resources than we do. Our ability to
continue to compete successfully in these markets depends on our ability to
introduce system enhancements and new systems on a timely basis. Our primary
competitors are ENI, a subsidiary of Astec (BSR) plc, Applied Science and
Technology (ASTeX), Huettinger, Shindingen, Kyosan, Comdel and Daihen. Our
competitors are expected to continue to improve the design and performance of
their systems and to introduce new systems with competitive performance
characteristics. We believe we will be required to maintain a high level of
investment in research and development and sales and marketing in order to
remain competitive.
43
<PAGE>
RESEARCH AND DEVELOPMENT
The market for power conversion and control systems and related accessories
is characterized by ongoing technological changes. We believe that continued and
timely development of new systems and enhancements to existing systems to
support OEM requirements is necessary for us to maintain a competitive position
in the markets we serve. Accordingly, we devote a significant portion of our
personnel and financial resources to research and development projects and seek
to maintain close relationships with our customers and other industry leaders to
remain responsive to their product requirements.
Research and development expenses were $19.3 million in 1997, $23.8 million
in 1998 and $12.6 million in the first six months of 1999. These expenses
represented 11% of our total sales in 1997, 19% in 1998 and 17% in the first six
months of 1999. We believe that continued research and development investment
and ongoing development of new products are essential to the expansion of our
markets. We expect to continue to make significant investments in our research
and development activities.
EMPLOYEES
At June 30, 1999, we had a total of 1,018 employees, of whom 950 were
full-time employees. There is no union representation of our employees, and we
have never experienced an employee work stoppage. We utilize temporary employees
as a means to provide additional staff while reviewing the performance of the
temporary employee. We consider our employee relations to be good.
44
<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to our
directors and execuitve officers.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ------------------------------ --- -------------------------------------------------
<S> <C> <C>
Douglas S. Schatz............. 53 Chief Executive Officer and Chairman of the Board
Hollis L. Caswell............. 68 President, Chief Operating Officer and Director
Richard P. Beck............... 66 Senior Vice President, Chief Financial Officer
and Director
Richard Scholl................ 60 Senior Vice President and Chief Technology
Officer
Joseph Stach.................. 60 Senior Vice President
G. Brent Backman.............. 59 Director
Arthur A. Noeth............... 63 Director
Elwood Spedden................ 62 Director
Gerald M. Starek.............. 58 Director
Arthur W. Zafiropoulo......... 60 Director
</TABLE>
DOUGLAS S. SCHATZ is a co-founder and has been our Chief Executive Officer
and Chairman of the Board since our incorporation in 1981. From our
incorporation to July 1997, Mr. Schatz also served as our President. Mr. Schatz
co-founded Energy Research Associates, Inc., a designer of custom power
supplies, and served as its Vice President of Engineering from 1977 through
1980.
HOLLIS L. CASWELL joined our board of directors in February 1997 and served
on the Audit and Compensation Committees from that time until June 1997. Dr.
Caswell became our Chief Operating Officer in June 1997. He also became our
President in July 1999. From 1990 to 1994, Dr. Caswell was Chairman of the Board
and Chief Executive Officer of HYPRES, Inc., a manufacturer of superconducting
electronics. Prior to that time, Dr. Caswell served as Senior Vice President of
Unisys Corporation, an information technology company, and President of its
Computer Systems Group.
RICHARD P. BECK joined us in March 1992 as Vice President and Chief
Financial Officer and became a Senior Vice President in April 1998. He joined
our board of directors in September 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, and serves on the Audit and
Compensation Committees, of Applied Films Corporation, a publicly held
manufacturer of flat panel display equipment.
RICHARD A. SCHOLL joined us in 1988 as Vice President, Engineering. Mr.
Scholl became our Chief Technology Officer in September 1995. Prior to joining
us, Mr. Scholl was General Manager, Vacuum Products Division at Varian
Associates, Inc., a publicly held manufacturer of high-technology systems and
components.
JOSEPH STACH joined us in October 1998 as a Senior Vice President. Dr. Stach
had been the Chairman, President and Chief Executive Officer of RF Power
Products from 1992 until October 1998 when we acquired RF Power Products, which
we re-named Advanced Energy Voorhees, Inc. Dr. Stach continues to serve as
President of Advanced Energy Voorhees.
G. BRENT BACKMAN is a co-founder and has been on our board of directors
since our incorporation in 1981. Mr. Backman had been one of our Vice Presidents
from our incorporation until April 1998, when he became our Senior Vice
President, Special Projects. Mr. Backman served in this position until he
retired in January 1999. Prior to co-founding Advanced Energy,
45
<PAGE>
Mr. Backman was a Business Manager at Ion Tech, Inc., a manufacturer of ion beam
systems, sources, electronics and components.
ARTHUR A. NOETH joined our board of directors in July 1997 and has served on
the Audit and Compensation Committees since that time. From 1993 to 1998, Mr.
Noeth was President of the Implant Center, a provider of ion implant services to
the electronics industry. From April 1987 to September 1993, he was President of
A.N. Services, a business consulting service.
ELWOOD SPEDDEN joined our board of directors in August 1995 and has served
on the Audit and Compensation Committees since that time. Mr. Spedden was a
Senior Vice President of KLA Tencor, a manufacturer of automatic test equipment
used in the fabrication of semiconductors, from July 1996 to June 1997. 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. Mr. Spedden is also a
director of Insight Objects, a privately held software company.
GERALD M. STAREK joined our board of directors in October 1998, following
our acquisition of RF Power Products and has served on the Audit Committee since
that time. Mr. Starek had been a non-employee director of RF Power Products
since February 1994. Mr. Starek was the founder of Silicon Valley Group, Inc., a
supplier of automated wafer processing equipment for the semiconductor industry.
He served as Silicon Valley Group's Chairman from September 1984 to September
1991 and as Vice Chairman from September 1991 to April 1993. Mr. Starek also is
a director of AML Communications Inc., a manufacturer of amplifiers for
telecommunications equipment.
ARTHUR W. ZAFIROPOULO joined our board of directors in October 1998,
following our acquisition of RF Power Products and has served on the
Compensation Committee since that time. Mr. Zafiropoulo had been a non-employee
director of RF Power Products since July 1992. Mr. Zafiropoulo is the founder of
Ultratech Stepper, Inc., a company that develops and manufactures
photolithography equipment for the semiconductor industry. Mr. Zafiropoulo has
been Chief Executive Officer and Chairman of the Board of Ultratech Stepper
since March 1993. Mr. Zafiropoulo also served as President of Ultratech Stepper
from May 1997 to April 1999 and from March 1993 to March 1996. Mr. Zafiropoulo
is a director of Semi/Sematech, an association of U.S.-owned suppliers of
equipment, materials and services to the semiconductor industry and
Semiconductor and Equipment Materials International (SEMI), an international
trade association.
46
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table provides information as to the common stock beneficially
owned and to be offered in this offering by the following persons:
- each person known to us to own more than 5% of the common stock
outstanding;
- each selling stockholder; and
- all of the current executive officers and directors as a group.
The table assumes that the underwriters' over-allotment option is not
exercised. If the underwriters' over-allotment option is exercised, each selling
stockholder will sell an additional 15% of the "Shares to be Sold" listed
opposite his name.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED
OWNED PRIOR TO THE
OFFERING (1) AFTER THE OFFERING (1)
------------------------ SHARES TO --------------------------
NAME NUMBER PERCENT BE SOLD NUMBER PERCENT(2)
- --------------------------------------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Douglas S. Schatz (3).................. 11,939,500 44.11 875,000 11,064,500 39.42
G. Brent Backman (4)................... 2,116,500 7.82 875,000 1,241,500 4.42
Franklin Resources, Inc. (5)........... 1,756,100 6.49 -- 1,756,100 6.16
Richard P. Beck (6).................... 170,614 * 50,000 120,614 *
Hollis Caswell (7)..................... 271,858 * 50,000 221,858 *
Richard Scholl (8)..................... 398,840 1.47 100,000 298,840 1.05
Joseph Stach (9)....................... 348,508 1.27 50,000 298,508 1.05
All executive officers and directors as
a group (10 persons) (10)............ 15,364,584 55.84 2,000,000 13,364,584 46.87
</TABLE>
- ----------------
* Less than one percent (1.0%)
(1) The numbers in the table reflect the stockholders' beneficial ownership of
common stock as of September 16, 1999. A stockholder is considered to
beneficially own shares that:
- the stockholder actually holds;
- are held by persons related to the stockholder;
- are held by companies or trusts in which the stockholder has a significant
interest; and
- the stockholder has the right to acquire within 60 days, such as by
exercising a stock option.
(2) The percentage is based on 27,065,355 shares outstanding as of September
16, 1999 plus the 1,000,000 shares we are offering to sell in this offering.
(3) Mr. Schatz' business address is 1625 Sharp Point Drive, Fort Collins,
Colorado 80525.
(4) Mr. Backman has an option to purchase 7,500 shares. By November 15, 1999,
60 days following September 16, 1999, his option will be exercisable as to
2,500 of those shares. Consistent with footnote (1), the numbers in the
table include:
- 2,500 shares issuable upon the exercise of his option on or before
November 15, 1999; and
- 546,000 shares owned by Mr. Backman's wife, even though Mr. Backman
disclaims beneficial ownership of these shares.
Mr. Backman's address is 946 Lochland Court, Fort Collins, Colorado 80524.
47
<PAGE>
(5) This information is based on the Schedule 13G that Franklin Resources,
Inc., Charles B. Johnson, Rupert H. Johnson, Jr. and Franklin Advisers, Inc.
filed with the Securities and Exchange Commission on January 26, 1999. The
Schedule 13G indicates that these shares are held by one or more open- or
closed-end investment companies or other managed accounts that are advised
by investment advisory subsidiaries of Franklin Resources. Charles B.
Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
Franklin Resources, and Franklin Advisers is a subsidiary of Franklin
Resources. The address for each of these persons is reported as 777 Mariners
Island Boulevard, San Mateo, California 94404.
(6) Mr. Beck has options to purchase 40,000 shares. By November 15, 1999, his
options will be exercisable as to 15,313 shares, which shares are included
in the numbers in the table.
(7) Dr. Caswell has options to purchase 318,438 shares. By November 15, 1999,
his options will be exercisable as to 257,500 shares, which shares are
included in the numbers in the table.
(8) Mr. Scholl has options to purchase 10,000 shares. None of these options
will be exercisable by November 15, 1999. Mr. Scholl's wife, who is one of
our business unit managers, has options to purchase 23,874 shares. By
November 15, 1999, her options will be exercisable as to 18,468 of those
shares. The numbers in the table include:
- the 18,468 shares issuable upon the exercise of Mrs. Scholl's options on
or before November 15, 1999; and
- 300 shares owned by Mrs. Scholl.
(9) Dr. Stach has options to purchase 241,430 shares of our common stock. RF
Power Products had granted options to Dr. Stach prior to the time that we
acquired RF Power Products. We assumed those options and also granted new
options to Dr. Stach. By November 15, 1999, his options will be exercisable
as to 110,180 shares, which shares are included in the numbers in the table.
(10) The numbers in the table include:
- an aggregate of 431,121 shares that the executive officers and directors
can purchase under their stock options on or before November 15, 1999;
- 546,000 shares owned by Mrs. Backman;
- 300 shares owned by Mrs. Scholl and 18,468 shares issuable upon the
exercise of options owned by Mrs. Scholl; and
- 6,292 shares owned by the wife of one of our other directors.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 40,000,000 shares of common stock,
$0.001 par value, and 1,000,000 shares of preferred stock, $0.001 par value. As
of September 16, 1999, 27,065,355 shares of common stock were outstanding, held
by 901 holders of record, and no shares of preferred stock were outstanding. In
addition, 3,135,257 shares were reserved for issuance under our 1995 Stock
Option Plan, 102,461 shares were reserved for issuance under the RF Power stock
option plans we assumed in connection with our acquisition of RF Power in
October 1998, 94,500 shares were reserved for issuance under our 1995
Non-Employee Director Stock Option Plan and 171,550 shares were reserved for
issuance under our Employee Stock Purchase Plan. As of September 16, 1999,
options to purchase an aggregate of 1,993,961 shares of common stock were
outstanding under these plans.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred stock
that may be issued, the holders of common stock are entitled to receive ratably
any dividends that may be declared from time to time by the board of directors
out of funds legally available for the payment of dividends. See "Dividend
Policy". The holders of our common stock are entitled to share ratably in all
assets remaining after payment of liabilities and liquidation preferences of any
outstanding shares of preferred stock in the event of our liquidation,
dissolution or winding up. Holders of common stock have no preemptive rights or
rights to convert their common stock into any other securities. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and non-assessable.
PREFERRED STOCK
Our board of directors has the authority, without action by the
stockholders, to designate and issue up to 1,000,000 shares of preferred stock
in one or more series and to designate the dividend rate, voting rights and
other rights, preferences and restrictions of each series any or all of which
may be greater than the rights of the common stock. The actual effects of the
issuance of any shares of preferred stock upon the rights of holders of the
common stock might include:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; and
- delaying or preventing a change in control.
We have no present plans to issue any shares of preferred stock.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
Our certificate of incorporation and bylaws include provisions which:
- allow the board of directors to issue preferred stock with rights senior
to those of the common stock without any further vote or action by the
stockholders;
- limit the right of the stockholders to call a special meeting of
stockholders; and
- allow us to impose various procedural and other requirements that could
make it more difficult for stockholders to effect certain corporate
actions. Such provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party
49
<PAGE>
from attempting to acquire, control of Advanced Energy. Such provisions
could limit the price that certain investors might be willing to pay in
the future for shares of our common stock.
We also are subject to provisions of the Delaware General Corporation Law,
including Section 203 which prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless upon consummation of such transaction
the interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced or unless the
business combination is, or the transaction in which such person became an
interested stockholder was, approved in a prescribed manner. A "business
combination" includes a merger, an asset sale and any other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns 15%
or more of the corporation's voting stock.
TRANSFER AGENT
The transfer agent and registrar for our common stock is Boston Equiserve.
50
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-3 under the Securities Act of 1933, relating to the common
stock being offered. This prospectus is filed as part of the registration
statement. Other parts of the registration statement are omitted from this
prospectus. Statements made in this prospectus concerning the contents of any
contract or other document are not necessarily complete. For a more complete
description of the matter involved, you should read the entire contract or other
document, which has been filed as an exhibit to the registration statement.
We are required by the Securities Exchange Act of 1934 to file reports,
proxy statements and other information with the SEC. You may read and copy such
reports, proxy statements and other information at the SEC's public reference
facilities:
<TABLE>
<S> <C> <C>
WASHINGTON, D.C. NEW YORK CHICAGO
Judiciary Plaza Seven World Trade Center Citicorp Center
450 Fifth Street, N.W. Suite 1300 500 West Madison Street
Room 1024 New York, NY 10048 Suite 1400
Washington, D.C. 20549 Chicago, IL 60661-2511
</TABLE>
You may call 1-800-SEC-0330 for further information about the public
reference facilities. For a fee, the SEC will send copies of any of our filings
to you. In addition, our filed reports, proxy statements and other information
are contained in the Internet web site maintained by the SEC. The address is
http://www.sec.gov.
Our common stock is quoted on the Nasdaq National Market under the symbol
"AEIS", and our SEC filings can also be read at the following Nasdaq address:
Nasdaq Operations
1735 K Street, N.W.
Washington, D.C. 20006
The SEC allows us to incorporate by reference the information we file with
it, which means we can disclose important information to you by referring you to
those documents. The information incorporated by reference is considered to be a
part of this prospectus, and later information that we file with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until
we sell all of the securities:
- our annual report on Form 10-K for the year ended December 31, 1998;
- our quarterly reports on Form 10-Q for the quarters ended March 31, 1999
and June 30, 1999; and
- the description of our common stock contained in our Registration
Statement on Form 8-A filed October 12, 1995, and any amendment or report
filed for the purpose of updating such description.
You may request a copy of these filings, at no cost, by writing us at the
following address:
Advanced Energy Industries, Inc.
1625 Sharp Point Drive
Fort Collins, Colorado 80525
Attention: Richard P. Beck
or by calling Investor Relations at (970) 221-4670.
51
<PAGE>
LEGAL MATTERS
The validity of the common stock will be passed upon for us by Thelen Reid &
Priest LLP, San Francisco, California, who have acted as counsel to Advanced
Energy and to the selling stockholders in connection with this offering. Certain
legal matters will be passed upon for the underwriters by Kaye, Scholer,
Fierman, Hays & Handler, LLP, Los Angeles, California.
EXPERTS
The financial statements and schedules included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as set forth in their reports. In those
reports, that firm states that with respect to a certain subsidiary its opinion
is based on the reports of other independent public accountants. The financial
statements and supporting schedules referred to above have been included herein
in reliance upon the authority of those firms as experts in giving said reports.
52
<PAGE>
UNDERWRITING
Advanced Energy, the selling stockholders and the underwriters for the
offering named below have entered into an underwriting agreement with respect to
the shares being offered. Subject to certain conditions, each underwriter has
severally agreed to purchase the number of shares indicated in the following
table.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
- ----------------------------------------------------------------- ---------
<S> <C>
Goldman, Sachs & Co..............................................
BancBoston Robertson Stephens Inc................................
CIBC World Markets Corp..........................................
---------
Total.......................................................... 3,000,000
---------
---------
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 450,000
shares from the selling stockholders to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by Advanced Energy and the selling
stockholders. Such amounts are shown assuming both no exercise and full exercise
of the underwriters' option to purchase 450,000 additional shares.
<TABLE>
<CAPTION>
Paid by the Selling
Stockholders
-------------------------
Paid by Full
Advanced Energy No Exercise Exercise
----------------- ----------- ------------
<S> <C> <C> <C>
Per Share..................... $ $ $
Total......................... $ $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial price to public. Any such securities
dealers may resell any shares purchased from the underwriters to certain other
brokers or dealers at a discount of up to $ per share from the initial price
to public. If all the shares are not sold at the initial price to public, the
underwriters may change the offering price and the other selling terms.
Advanced Energy, Advanced Energy's directors and officers and the selling
stockholders have agreed with the underwriters not to dispose of or hedge any of
their common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 90 days after the date of this prospectus, except with the
prior written consent of Goldman, Sachs & Co. This agreement does not apply to
any existing employee benefit plans.
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in this offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
U-1
<PAGE>
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the underwriters have repurchased shares sold by
or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
As permitted by Rule 103 under the Securities Exchange Act of 1934, certain
underwriters and selling group members that are market makers ("passive market
makers") in the common stock may make bids for or purchases of common stock in
the Nasdaq National Market until a stabilizing bid has been made. Rule 103
generally provides that:
- a passive market maker's net daily purchases of the common stock may not
exceed 30% of its average daily trading volume in such securities for the
two full consecutive calendar months, or any 60 consecutive days ending
within the 10 days, immediately preceding the filing date of the
registration statement of which this prospectus forms a part,
- a passive market maker may effect purchases or display bids for common
stock at a price that exceeds the highest independent bid for the common
stock by persons who are not passive market makers, and
- bids made by passive market makers must be identified as such.
Advanced Energy has agreed to pay all expenses of the offering. The selling
stockholders will pay the underwriting discounts and commissions related to the
sale of their common stock.
Advanced Energy and the selling stockholders have agreed to indemnify the
several underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
Concurrently with this offering and by a separate prospectus, Advanced
Energy is offering $100,000,000 principal amount of % convertible subordinated
notes due 2006, plus an additional $15,000,000 principal amount of convertible
notes subject to the underwriters' over-allotment option. The completion of the
convertible notes offering and this common stock offering are not dependent on
one another. The underwriters for the convertible notes offering, of which
Goldman, Sachs & Co. is one, will receive customary compensation in connection
with the convertible notes offering.
U-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 9
Cautionary Note on Forward-Looking Statements............................. 18
Use of Proceeds........................................................... 18
Price Range of Common Stock............................................... 19
Dividend Policy........................................................... 19
Capitalization............................................................ 20
Selected Consolidated Financial Data...................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 23
Business.................................................................. 33
Management................................................................ 45
Principal and Selling Stockholders........................................ 47
Description of Capital Stock.............................................. 49
Where You Can Find More Information....................................... 51
Legal Matters............................................................. 52
Experts................................................................... 52
Underwriting.............................................................. U-1
</TABLE>
3,000,000 Shares
ADVANCED ENERGY
INDUSTRIES, INC.
Common Stock
---------------------
[LOGO]
---------------------
GOLDMAN, SACHS & CO.
BANCBOSTON
ROBERTSON STEPHENS
CIBC WORLD MARKETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Advanced Energy and the
selling stockholders in connection with the sale of the common stock and
convertible notes being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
------------------
<S> <C>
SEC Registration Fee................................... $ 36,776
NASD Filing Fee........................................ 13,729
Nasdaq Listing Fee..................................... 8,750
Printing............................................... 75,000
Legal Fees and Expenses................................ 100,000
Accounting Fees and Expenses........................... 18,000
Blue Sky Fees and Expenses............................. 10,000
Transfer Agent and Registrar Fees...................... 5,000
Miscellaneous.......................................... 7,745
------------------
Total.............................................. $ 275,000
------------------
------------------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law ("DGCL"), Advanced
Energy's Certificate of Incorporation, as amended (the "AE Certificate"),
provides that no director shall be personally liable to Advanced Energy or any
stockholder for monetary damages for breach of fiduciary duty as a director,
except for liability: (i) for any breach of the duty of loyalty to Advanced
Energy or its stockholders; (ii) for acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of the law; (iii) under
Section 174 of the DGCL; or (iv) for any transaction from which the director
derived an improper personal benefit. While the AE Certificate provides
protection from awards for monetary damages for breaches of fiduciary duty, it
does not eliminate the director's duty of care. Accordingly, the AE Certificate
will not affect the availability of equitable remedies, such as an injunction,
based on a director's breach of the duty of care. The provisions of the AE
Certificate described above apply to officers of Advanced Energy only if they
are directors of Advanced Energy and are acting in their capacity as directors,
and does not apply to officers of Advanced Energy who are not directors.
In addition, Advanced Energy's Bylaws provide that Advanced Energy shall
indemnify its Executive Officers (as defined in Rule 3b-7 promulgated under the
Exchange Act) and directors, and any employee who serves as an Executive Officer
or director of any corporation at Advanced Energy's request, to the fullest
extent permitted under and in accordance with the DGCL; provided, however, that
Advanced Energy may modify the extent of such indemnification by individual
contracts with its Executive Officers and directors; and, provided further, that
Advanced Energy shall not be required to indemnify any Executive Officer or
director in connection with any proceeding (or part thereof) initiated by such
person unless: (i) such indemnification is expressly required to be made by law;
(ii) the proceeding was authorized by the directors of Advanced Energy; (iii)
such indemnification is provided by Advanced Energy, in its sole discretion,
pursuant to the powers vested in Advanced Energy under the DGCL; or (iv) such
indemnification is required to be made under Article XI, Section 43, Subsection
(d) of Advanced Energy's Bylaws. Under the DGCL,
II-1
<PAGE>
directors and officers as well as employees and individuals may be indemnified
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement in connection with specified actions, suits or proceedings,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation as a derivative action) if they acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe their conduct was unlawful.
Advanced Energy maintains a policy of directors' and officers' liability
insurance that insures Advanced Energy's directors and officers against the
costs of defense, settlement or payment of a judgment under certain
circumstances.
In addition, the selling stockholders and the underwriters for this
offering, and the underwriters for the concurrent convertible notes offering,
have agreed to indemnify Advanced Energy's officers, directors and controlling
persons against certain civil liabilities, including liabilities under the
Securities Act of 1933.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement among the Underwriters, the selling
stockholders and Advanced Energy Industries, Inc.
4.1 Restated Certificate of Incorporation, as amended (1)
4.2 Bylaws (2)
4.3 Specimen Certificate for the Common Stock (2)
4.4 Form of Indenture between State Street Bank and Trust Company of
California, N.A., as trustee, and Advanced Energy Industries, Inc.
(including form of % Convertible Subordinated Note due 2006) (3)
4.5 Undertaking re Other Long-Term Debt
*5.1 Opinion of Thelen Reid & Priest LLP re Legality of the Common Stock
*23.1 Consent of Thelen Reid & Priest LLP (4)
23.2 Consent of Arthur Andersen LLP
23.3 Consent of KPMG LLP
24.1 Power of Attorney (5)
</TABLE>
- --------------
(1) Incorporated by reference from Advanced Energy's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999, filed July 28, 1999 (File No.
000-26966).
(2) Incorporated by reference from Advanced Energy's Registration Statement on
Form S-1, filed September 20, 1995, as amended (File No. 33-97188).
(3) Incorporated by reference from Advanced Energy's Registration Statement on
Form S-3 relating to the convertible notes, filed September 21, 1999.
(4) Included in Exhibit 5.1.
(5) Included on the signature pages to this Registration Statement.
* To Be Filed By Amendment.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(j) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fort Collins, State of Colorado, on September 17,
1999.
ADVANCED ENERGY INDUSTRIES, INC.
By: /s/ DOUGLAS S. SCHATZ
--------------------------------------
Name: Douglas S. Schatz
--------------------------------------
Title: Chief Executive Officer and Chairman of
the Board
--------------------------------------
II-4
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Douglas S. Schatz,
Hollis L. Caswell and Richard P. Beck, and each of them severally, acting alone
and without the other, his true and lawful attorney-in-fact with authority to
execute in the name of each such person, and to file with the Securities and
Exchange Commission, together with any exhibits thereto and other documents
therewith, any and all amendments (including without limitation post-effective
amendments) to this registration statement, and to sign any registration
statement for the same offering covered by this registration statement that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act,
necessary or advisable to enable the Registrant to comply with the Securities
Act and any rules, regulations and requirements of the Securities and Exchange
Commission in respect thereof, which amendments may make such changes in this
registration statement as the aforesaid attorney-in-fact deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
Date: September 17, 1999 /s/ DOUGLAS S. SCHATZ
--------------------------------------------
Douglas S. Schatz
Chief Executive Officer and Chairman of the
Board
(Principal Executive Officer)
Date: September 17, 1999 /s/ HOLLIS L. CASWELL
--------------------------------------------
Hollis L. Caswell
President, Chief Operating Officer and
Director
Date: September 17, 1999 /s/ RICHARD P. BECK
--------------------------------------------
Richard P. Beck
Senior Vice President and Chief Financial
Officer and Director
(Principal Financial and Accounting Officer)
Date: September 17, 1999 /s/ G. BRENT BACKMAN
--------------------------------------------
G. Brent Backman
Director
Date: September 17, 1999 /s/ ARTHUR A. NOETH
--------------------------------------------
Arthur A. Noeth
Director
Date: September 17, 1999 /s/ ELWOOD SPEDDEN
--------------------------------------------
Elwood Spedden
Director
Date: September 17, 1999 /s/ GERALD STAREK
--------------------------------------------
Gerald Starek
Director
Date: September 17, 1999 /s/ ARTHUR ZAFIROPOULO
--------------------------------------------
Arthur Zafiropoulo
Director
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement among the Underwriters, the selling
stockholders and Advanced Energy Industries, Inc.
4.1 Restated Certificate of Incorporation, as amended (1)
4.2 Bylaws (2)
4.3 Specimen Certificate for the Common Stock (2)
4.4 Form of Indenture between State Street Bank and Trust Company of
California, N.A., as trustee, and Advanced Energy Industries, Inc.
(including form of % Convertible Subordinated Note due 2006) (3)
4.5 Undertaking re Other Long-Term Debt
*5.1 Opinion of Thelen Reid & Priest LLP re Legality of the Common Stock
*23.1 Consent of Thelen Reid & Priest LLP (4)
23.2 Consent of Arthur Andersen LLP
23.3 Consent of KPMG LLP
24.1 Power of Attorney (5)
</TABLE>
- --------------
(1) Incorporated by reference from Advanced Energy's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999, filed July 28, 1999 (File No.
000-26966).
(2) Incorporated by reference from Advanced Energy's Registration Statement on
Form S-1, filed September 20, 1995, as amended (File No. 33-97188).
(3) Incorporated by reference from Advanced Energy's Registration Statement on
Form S-3 relating to the convertible notes, filed September 21, 1999.
(4) Included in Exhibit 5.1.
(5) Included on the signature pages to this Registration Statement.
* To Be Filed By Amendment.
<PAGE>
DRAFT OF SEPTEMBER 17, 1999
ADVANCED ENERGY INDUSTRIES, INC.
COMMON STOCK, $0.001 PAR VALUE
----------
UNDERWRITING AGREEMENT
----------------------
September __, 1999
Goldman, Sachs & Co.,
BancBoston Robertson Stephens
and CIBC World Markets
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
Advanced Energy Industries, Inc., a Delaware corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell to Goldman, Sachs & Co., BancBoston Robertson Stephens and CIBC
World Markets (the "Underwriters"), an aggregate of _________ shares of the
common stock, $0.001 par value of the Company ("Stock") and the stockholders of
the Company named in Schedule II hereto (the "Selling Stockholders"), propose,
subject to the terms and conditions stated herein, to sell to the Underwriters
an aggregate of ______ shares and, at the election of the Underwriters, up to
________ additional shares of Stock. The aggregate of _________ shares to be
sold by the Company and the Selling Stockholders is herein called the "Firm
Shares" and the aggregate of __________ additional shares to be sold by the
Selling Stockholders is herein called the "Optional Shares". The Firm Shares and
the Optional Shares which the Underwriters elect to purchase pursuant to Section
2 hereof are herein collectively called the "Shares."
1. (a) The Company and each of the Selling Stockholders
represents and warrants to, and agrees with, each of the Underwriters that:
(i) A registration statement on Form S-3 (File No. 33-____)
(the "Initial Registration Statement") in respect of the Shares has
been filed with the Securities and Exchange Commission (the
"Commission"); the Initial Registration Statement and any
post-effective amendment thereto, excluding exhibits thereto but
including all documents incorporated by reference in the prospectus
contained therein, each in the form heretofore delivered to you and for
each of the other Underwriters, have been declared effective by the
Commission in such form; other than a registration statement, if any,
increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under
<PAGE>
the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement or document incorporated by reference therein
has been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any
post-effective amendment thereto or the Rule 462(b) Registration
Statement, if any, has been issued and no proceeding for that
purpose has been initiated or threatened by the Commission (any
preliminary prospectus included in the Initial Registration
Statement or filed with the Commission pursuant to Rule 424(a) of
the rules and regulations of the Commission under the Act is
hereinafter called a "Preliminary Prospectus"; the various parts of
the Initial Registration Statement and the Rule 462(b) Registration
Statement, if any, including all exhibits thereto and including (i)
the information contained in the form of final prospectus filed with
the Commission pursuant to Rule 424(b) under the Act in accordance
with Section 5(a) hereof and deemed by virtue of Rule 430A under the
Act to be part of the Initial Registration Statement at the time it
was declared effective and (ii) the documents incorporated by
reference in the prospectus contained in the Initial Registration
Statement at the time such part of the Initial Registration
Statement became effective, each as amended at the time such part of
the Initial Registration Statement became effective or such part of
the Rule 462(b) Registration Statement, if any, became or hereafter
becomes effective, are hereinafter collectively called the
"Registration Statement"; such final prospectus, in the form first
filed pursuant to Rule 424(b) under the Act, is hereinafter called
the "Prospectus"; any reference herein to any Preliminary Prospectus
or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of
Form S-3 under the Act, as of the date of such Preliminary
Prospectus or Prospectus, as the case may be; any reference to any
amendment or supplement to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include any documents
filed after the date of such Preliminary Prospectus or Prospectus,
as the case may be, under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and incorporated by reference in such
Preliminary Prospectus or Prospectus, as the case may be; and any
reference to any amendment to the Registration Statement shall be
deemed to refer to and include any annual report of the Company
filed pursuant to Section 13(a) or 15(d) of the Exchange Act after
the effective date of the Initial Registration Statement that is
incorporated by reference in the Registration Statement);
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
2
<PAGE>
(iii) The documents incorporated by reference in the
Prospectus, when they became effective or were filed with the
Commission, as the case may be, conformed in all material respects to
the requirements of the Act or the Exchange Act, as applicable, and
the rules and regulations of the Commission thereunder, and none of
such documents contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and any
further documents so filed and incorporated by reference in the
Prospectus or any further amendment or supplement thereto, when such
documents become effective or are filed with the Commission, as the
case may be, will conform in all material respects to the requirements
of the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; PROVIDED, HOWEVER, that this representation
and warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing
to the Company by an Underwriter through Goldman, Sachs & Co.
expressly for use therein;
(iv) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement
or the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date
of the Registration Statement and any amendment thereto and as of the
applicable filing date of the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; PROVIDED,
HOWEVER, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through Goldman, Sachs & Co. expressly for use therein;
(v) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, except as set
forth or contemplated in the Prospectus or as would not have,
individually or in the aggregate, a material adverse effect on the
current or future consolidated financial position, business, prospects,
stockholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole ("Material Adverse Effect"); and, since
the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any
change in the capital stock, capital lease obligations or long-term
debt of the Company or any of its subsidiaries or any material adverse
change, or any development involving a prospective material adverse
change, in or affecting the general affairs, management, financial
position, stockholders'
3
<PAGE>
equity or results of operations of the Company and its subsidiaries,
taken as a whole, otherwise than as set forth or contemplated in the
Prospectus;
(vi) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not materially interfere with the use made and proposed
to be made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not materially
interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries;
(vii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with the corporate power and authority to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so
qualified or in good standing in any such jurisdiction; and each
subsidiary of the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified or in good standing in any
such jurisdiction;
(viii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital stock
of the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and conform to the description of the
Stock contained in the Prospectus; and all of the issued shares of
capital stock of each subsidiary of the Company have been duly and
validly authorized and issued, are fully paid and non-assessable and
are owned directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims;
(ix) The unissued Shares to be issued and sold by the Company
to the Underwriters hereunder have been duly and validly authorized
and, when issued and delivered against payment therefor as provided
herein, will be duly and validly issued and fully paid and
non-assessable and will conform in all material respects to the
description of the Stock contained in the Prospectus.
4
<PAGE>
(x) The issue and sale of Shares by the Company, the
compliance by the Company with all of the provisions of this Agreement
and the consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of its
subsidiaries is subject, except, in each case, (A) breaches,
violations or defaults which, individually or in the aggregate, would
not have a Material Adverse Effect and (B) would not have an adverse
effect on the Company's ability to consummate the transactions
contemplated hereby; nor will such actions result in any violation of
the provisions of the Certificate of Incorporation or By-laws of the
Company or any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or
any of its subsidiaries or any of their properties; and no consent,
approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required for the
issue and sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except the registration
under the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters;
(xi) Neither the Company nor any of its subsidiaries (A) is in
violation of its Certificate of Incorporation or By-laws or (B) in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be bound,
except in the case of (B) above where such default would not have a
Material Adverse Effect and would not have an adverse effect on the
Company's ability to consummate the transactions contemplated hereby;
(xii) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock, under the caption
"Material U.S. Federal Income Tax Consequences", and under the caption
"Underwriting", insofar as they purport to describe the provisions of
the laws and documents referred to therein, are accurate, complete and
fair;
(xiii) Other than as set forth in the Prospectus, there are
no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect; and,
to the best of the Company's knowledge, no such
5
<PAGE>
proceedings are threatened or contemplated by governmental authorities
or threatened by others;
(xiv) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company" or
an entity "controlled" by an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
(xv) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida
Statutes;
(xvi) Arthur Andersen LLP, who has opined as to certain
financial statements of the Company and its subsidiaries, and KPMG
LLP, who has opined as to certain financial statements of RF Power
Products, Inc., are each independent public accountants as required by
the Act and the rules and regulations of the Commission thereunder;
(xvii) The Company has reviewed its operations and that of its
subsidiaries and has made reasonable inquiries of any third parties
with which the Company or any of its subsidiaries has a material
relationship to evaluate the extent to which the business or operations
of the Company or any of its subsidiaries will be affected by the Year
2000 Problem. As a result of such review, except as specifically
described in the Prospectus, the Company has no reason to believe, and
does not believe, that the Year 2000 Problem will have a material
adverse effect on the general affairs, management, the current or
future consolidated financial position, business, prospects,
stockholders' equity or results of operations of the Company and its
subsidiaries or result in any material loss or interference with the
Company's business or operations. The "Year 2000 Problem" as used
herein means any significant risk that computer hardware, firmware or
software used in the receipt, transmission, processing, manipulation,
storage, retrieval, retransmission or other utilization of data or in
the operation of mechanical or electrical systems of any kind will not,
in the case of dates or time periods occurring after December 31, 1999,
function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000; and
(xviii) Neither the Company nor any of its subsidiaries own
any real property.
(b) Each of the Selling Stockholders, severally and not
jointly, solely with respect to himself, represents and warrants to, and
agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders
necessary for the execution and delivery by such Selling Stockholder
of this Agreement and the Power of Attorney and the Custody Agreement
hereinafter referred to, and for the sale and delivery of the Shares
to be sold by such Selling Stockholder hereunder, have been obtained,
except such consents,
6
<PAGE>
approvals, authorizations and orders as may be required under state
securities and Blue Sky laws, and such Selling Stockholder has full
right, power and authority to enter into this Agreement, the
Power-of-Attorney and the Custody Agreement (each is defined in
clause 1(b)(viii) below) and to sell, assign, transfer and deliver
the Shares to be sold by such Selling Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling
Stockholder hereunder and the compliance by such Selling
Stockholder with all of the provisions of this Agreement, the Power
of Attorney and the Custody Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with
or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any statute,
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder is bound or to which any
of the property or assets of such Selling Stockholder is subject,
except, in each case (A) breaches, violations or defaults which,
individually or in the aggregate, would not have a material adverse
effect on such Selling Stockholder's current or future financial
position, and (B) would not have an adverse effect on such Selling
Stockholder's ability to consummate the transactions contemplated
hereby; nor will such action result in any violation of the
provisions of or any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over
such Selling Stockholder or the property of such Selling
Stockholder;
(iii) Such Selling Stockholder has, and immediately prior to
each Time of Delivery (as defined in Section 4 hereof) such Selling
Stockholder will have, good and valid title to the Shares to be sold
by such Selling Stockholder hereunder, free and clear of all liens,
encumbrances, equities or claims; and, upon delivery of such Shares
and payment therefor pursuant hereto, good and valid title to such
Shares, free and clear of all liens, encumbrances, equities or claims,
will pass to the several Underwriters;
(iv) During the period beginning from the date of the
Prospectus and continuing to and including the date 90 days after the
date of the Prospectus, not to offer, sell contract to sell or
otherwise dispose of, except as provided hereunder, any securities of
the Company that are substantially similar to the Shares, including
but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any
such substantially similar securities (other than pursuant to employee
stock option plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of
this Agreement), without your prior written consent;
(v) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action which is designed to or which
has constituted or which might reasonably be expected to cause or
result in stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Shares;
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(vi) To the extent that any statements or omissions made in
the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto are made in
reliance upon and in conformity with written information furnished
to the Company by such Selling Stockholder expressly for use
therein, such Preliminary Prospectus and the Registration Statement
did, and the Prospectus and any further amendments or supplements
to the Registration Statement and the Prospectus, when they become
effective or are filed with the Commission, as the case may be,
will conform in all material respects to the requirements of the
Act and the rules and regulations of the Commission thereunder and
will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary
to make the statements therein not misleading;
(vii) In order to document the Underwriters' compliance with
the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or
at the First Time of Delivery (as hereinafter defined) a properly
completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department
regulations in lieu thereof);
(viii) Certificates in negotiable form representing all of
the Shares to be sold by such Selling Stockholder hereunder have
been placed in custody under a Custody Agreement, in the form
heretofore furnished to you (the "Custody Agreement"), duly
executed and delivered by such Selling Stockholder to
_______________, as custodian (the "Custodian"), and such Selling
Stockholder has duly executed and delivered a Power of Attorney, in
the form heretofore furnished to you (the "Power of Attorney"),
appointing the persons indicated in Schedule II hereto, and each of
them, as such Selling Stockholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver this
Agreement on behalf of such Selling Stockholder, to determine the
purchase price to be paid by the Underwriters to the Selling
Stockholders as provided in Section 2 hereof, to authorize the
delivery of the Shares to be sold by such Selling Stockholder
hereunder and otherwise to act on behalf of such Selling
Stockholder in connection with the transactions contemplated by
this Agreement and the Custody Agreement; and
(ix) The Shares represented by the certificates held in
custody for such Selling Stockholder under the Custody Agreement
are subject to the interests of the Underwriters hereunder; the
arrangements made by such Selling Stockholder for such custody, and
the appointment by such Selling Stockholder of the
Attorneys-in-Fact by the Power of Attorney, are to that extent
irrevocable; the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the death
or incapacity of any individual Selling Stockholder or, in the case
of an estate or trust, by the death or incapacity of any executor
or trustee or the termination of such estate or trust, or in the
case of a partnership
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or corporation, by the dissolution of such partnership or
corporation, or by the occurrence of any other event; if any
individual Selling Stockholder or any such executor or trustee
should die or become incapacitated, or if any such estate or trust
should be terminated, or if any such partnership or corporation
should be dissolved, or if any other such event should occur,
before the delivery of the Shares hereunder, certificates
representing the Shares shall be delivered by or on behalf of the
Selling Stockholders in accordance with the terms and conditions of
this Agreement and of the Custody Agreements; and actions taken by
the Attorneys-in-Fact pursuant to the Powers of Attorney shall be
as valid as if such death, incapacity, termination, dissolution or
other event had not occurred, regardless of whether or not the
Custodian, the Attorneys-in-Fact, or any of them, shall have
received notice of such death, incapacity, termination, dissolution
or other event.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell and each of the Selling Stockholders agrees,
severally and not jointly, to sell to each of the Underwriters, and each of
the Underwriters agrees, severally and not jointly, to purchase from the
Company and each of the Selling Stockholders, at a purchase price per share
of $__________, the number of Firm Shares (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying the aggregate number
of Firm Shares to be sold by the Company and each of the Selling Stockholders
as set forth opposite their respective names in Schedule II hereto by a
fraction, the numerator of which is the aggregate number of Firm Shares to be
purchased by such Underwriter as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the
aggregate number of Firm Shares to be purchased by all of the Underwriters
from all of the Selling Stockholders hereunder and (b) in the event and to
the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, each of the Selling Stockholders agrees,
severally and not jointly, to sell to each of the Underwriters, and each of
the Underwriters agrees, severally and not jointly, to purchase from each of
the Selling Stockholders, at the purchase price per share set forth in clause
(a) of this Section 2, that portion of the number of Optional Shares as to
which such election shall have been exercised (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the maximum number of Optional Shares that all of the
Underwriters are entitled to purchase hereunder.
The Selling Stockholders, as and to the extent indicated in
Schedule II hereto, hereby grant, severally and not jointly, to the
Underwriters the right to purchase at their election up to _________ Optional
Shares, at the purchase price per share set forth in clause (a) of the first
paragraph of this Section 2, for the sole purpose of covering sales of Shares
in excess of the number of the Firm Shares. Any such election to purchase
Optional Shares shall be made in proportion to the number of Optional Shares
to be sold by each Selling Stockholder. Any such election to purchase
Optional Shares may be exercised by written notice from you to the
Attorneys-in-Fact, given within a period of 30 calendar days after the date
of this Agreement, and setting forth the aggregate number of Optional Shares
to be purchased and the date on which such Optional Shares are to be
delivered, as
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determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Attorneys-in-Fact
otherwise agree in writing, earlier than two or later than ten business days
after the date of such notice.
As compensation to the Underwriters for their commitments hereunder,
each of the Company and the Selling Stockholders, as applicable, at each Time
of Delivery (as defined in Section 4 hereof) will pay to Goldman, Sachs &
Co., for the accounts of the several Underwriters, an amount equal to
$__________ per share for the Shares to be delivered by the Company and the
Selling Stockholders, as applicable, hereunder at such Time of Delivery.
3. Upon the authorization by you of the release of the Firm Shares,
the several Underwriters propose to offer the Firm Shares for sale upon the
terms and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours'
prior notice to the Company and the Selling Stockholders shall be delivered
by or on behalf of the Company and the Selling Stockholders to Goldman, Sachs
& Co., through the facilities of The Depository Trust Company ("DTC"), for
the account of each Underwriter, against payment by or on behalf of such
Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company and the Custodian to
Goldman, Sachs & Co. at least forty-eight hours in advance. The Company will
cause the certificates representing the Shares to be made available for
checking and packaging at least twenty-four hours prior to the Time of
Delivery (as defined below) with respect thereto at the office of DTC or its
designated custodian (the "Designated Office"). The time and date of such
delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m.,
New York time, on ____________, 1999 or such other time and date as Goldman,
Sachs & Co., the Company and the Selling Stockholders may agree upon in
writing, and, with respect to the Optional Shares, 9:30 a.m., New York time,
on the date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co., the Selling
Stockholders may agree upon in writing. Such time and date for delivery of
the Firm Shares is herein called the "First Time of Delivery", such time and
date for delivery of the Optional Shares, if not the First Time of Delivery,
is herein called the "Second Time of Delivery", and each such time and date
for delivery is herein called a "Time of Delivery".
At each Time of Delivery, the Company and each of the Selling
Stockholders, as applicable, will pay, or cause to be paid, the commission
payable at each Time of Delivery to the Underwriters under Section 2 hereof
by wire transfer of Federal (same-day) funds to the account specified by
Goldman, Sachs & Co.
(b) The documents to be delivered at each Time of Delivery by
or on behalf of the parties hereto pursuant to Section 7 hereof, including the
cross receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof will be delivered
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at the offices of [Kaye, Scholer, Fierman, Hays & Handler, LLP, 1999 Avenue of
the Stars, Suite 1600, Los Angeles, California 90067] (the "Closing Location"),
and the Shares will be delivered at the Designated Office, all at such Time of
Delivery. A meeting will be held at the Closing Location at _______ p.m.,
New York City time, on the New York Business Day next preceding such Time of
Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 4, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later
than the Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Act; to make no further amendment or any supplement to the
Registration Statement or Prospectus prior to such Time of Delivery
which shall be disapproved by you promptly after reasonable notice
thereof; to advise you, promptly after it receives notice thereof, of
the time when any amendment to the Registration Statement has been
filed or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish you with copies
thereof; to file timely all reports and any definitive proxy or
information statements required to be filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of the Prospectus and for so long
as the delivery of a prospectus is required in connection with the
offering or sale of the Shares; to advise you, promptly after it
receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus or suspending any such
qualification, promptly to use its best efforts to obtain the
withdrawal of such order;
(b) Promptly from time to time to take such action as you
may reasonably request to qualify the Shares for offering and sale
under the securities laws of such jurisdictions as you may request
and to comply with such laws so as to permit the continuance of
sales and dealings therein in such jurisdictions for as long as may
be necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
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(c) Prior to 10:00 a.m., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time
to time, to furnish the Underwriters with copies of the Prospectus in
New York City in such quantities as you may reasonably request, and, if
the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of issue of the Prospectus in
connection with the offering or sale of the Shares and if at such time
any event shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances under which
they were made when such Prospectus is delivered, not misleading, or,
if for any other reason it shall be necessary during such period to
amend or supplement the Prospectus or to file under the Exchange Act
any document incorporated by reference in the Prospectus in order to
comply with the Act or the Exchange Act, to notify you and upon your
request to file such document and to prepare and furnish without charge
to each Underwriter and to any dealer in securities as many copies as
you may from time to time reasonably request of an amended Prospectus
or a supplement to the Prospectus which will correct such statement or
omission or effect such compliance, and in case any Underwriter is
required to deliver a prospectus in connection with sales of any of the
Shares at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter,
to prepare and deliver to such Underwriter as many copies as you may
request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as
soon as practicable, but in any event not later than eighteen months
after the effective date of the Registration Statement (as defined
in Rule 158(c) under the Act), an earnings statement of the Company
and its subsidiaries (which need not be audited) complying with
Section 11(a) of the Act and the rules and regulations of the
Commission thereunder (including, at the option of the Company, Rule
158);
(e) During the period beginning from the date of the
Prospectus and continuing to and including the date 90 days after the
date of the Prospectus, not to offer, sell, contract to sell or
otherwise dispose of, except as provided hereunder, any securities of
the Company that are substantially similar to the Shares, including but
not limited to any securities that are convertible into or exchangeable
for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock
option plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of
this Agreement and other than the ___% Convertible Subordinated Notes
sold to the Underwriters pursuant to that certain Underwriting
Agreement, dated the date hereof), among the Company and Goldman, Sachs
& Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banc of
America Securities LLC, without your prior written consent;
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(f) To furnish to its stockholders as soon as practicable
after the end of each fiscal year an annual report (including a
balance sheet and statements of income, stockholders' equity and
cash flows of the Company and its consolidated subsidiaries
certified by independent public accountants) and, as soon as
practicable after the end of each of the first three quarters of
each fiscal year (beginning with the fiscal quarter ending after the
effective date of the Registration Statement), to make available to
its stockholders consolidated summary financial information of the
Company and its subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of
the Registration Statement, to furnish to you copies of all reports or
other communications (financial or other) furnished to stockholders,
and to deliver to you (i) as soon as they are available, copies of any
reports and financial statements furnished to or filed with the
Commission or any national securities exchange on which the Stock or
any class of securities of the Company is listed; and (ii) such
additional information concerning the business and financial condition
of the Company as you may from time to time reasonably request (such
financial statements to be on a consolidated basis to the extent the
accounts of the Company and its subsidiaries are consolidated in
reports furnished to its stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of
the Shares pursuant to this Agreement in the manner specified in the
Prospectus under the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares
on the National Association of Securities Dealers Automated Quotations
National Market System ("NASDAQ"); and
(j) If the Company elects to rely upon Rule 462(b), the
Company shall file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement, and the Company shall at
the time of filing either pay to the Commission the filing fee for
the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
6. The Company and each of the Selling Stockholders covenant
and agree with one another and with the several Underwriters that (a) the
Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or
producing any Agreement among Underwriters, this Agreement, the Blue Sky
Memorandum, closing documents (including
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any compilations thereof) and any other documents in connection with the
offering, purchase, sale and delivery of the Shares; (iii) all expenses in
connection with the qualification of the Shares for offering and sale under
state securities laws as provided in Section 5(b) hereof, including the fees
and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky and legal investment
survey; (iv) all fees and expenses in connection with listing the Shares on
the NASDAQ; (v) the filing fees incident to, and the fees and disbursements
of counsel for the Underwriters in connection with, any required review by
NASD Regulations, Inc. of the terms of the sale of the Shares; (vi) the cost
of preparing stock certificates; (vii) the cost and charges of any transfer
agent or registrar; and (viii) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section; and (b) such Selling Stockholder will pay or
cause to be paid all costs and expenses incident to the performance of such
Selling Stockholder's obligations hereunder which are not otherwise
specifically provided for in this Section, including (i) any fees and
expenses of counsel for such Selling Stockholder; (ii) such Selling
Stockholder's pro rata share of the fees and expenses of the
Attorneys-in-Fact and the Custodian; and (iii) all other costs, expenses and
taxes incident to the sale and delivery of the Shares to be sold by such
Selling Stockholder to the Underwriters hereunder. In connection with clause
(b)(iii) of the preceding sentence, Goldman, Sachs & Co. agrees to pay New
York State stock transfer tax, and the Selling Stockholder agrees to
reimburse Goldman, Sachs & Co. for associated carrying costs if such tax
payment is not rebated on the day of payment and for any portion of such tax
payment not rebated. It is understood, however, that the Company shall bear,
and the Selling Stockholders shall not be required to pay or to reimburse the
Company for, the cost of any other matters not directly relating to the sale
and purchase of the Shares pursuant to this Agreement, and that, except as
provided in this Section, and Sections 8 and 11 hereof, the Underwriters will
pay all of their own costs and expenses, including the fees of their counsel,
transfer taxes on resale of any of the Shares by them, and any advertising
expenses connected with any offers they may make.
7 The obligations of the Underwriters hereunder, as to the
Shares to be delivered at each Time of Delivery, shall be subject, in their
discretion, to the condition that all representations and warranties and
other statements of the Company and of the Selling Stockholders herein are,
at and as of such Time of Delivery, true and correct, the condition that the
Company and the Selling Stockholders shall have performed all of its and
their obligations hereunder theretofore to be performed, and the following
additional conditions:
(a) The Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing by the rules and regulations under the
Act and in accordance with Section 5(a) hereof; if the Company has
elected to rely upon Rule 462(b), the Rule 462(b) Registration
Statement shall have become effective by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement; no stop order suspending
the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
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(b) Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel
for the Underwriters, shall have furnished to you such written
opinion or opinions (a draft of each such opinion is attached as
Annex II(a) hereto), dated such Time of Delivery, with respect to
the matters covered in paragraphs (i), (ii), (vii), (xiii) and (xiv)
of subsection (c) below as well as such other related matters as you
may reasonably request, and such counsel shall have received such
papers and information as they may reasonably request to enable them
to pass upon such matters;
(c) Thelen Reid & Priest LLP, counsel for the Company,
shall have furnished to you their written opinion (a draft of such
opinion is attached as Annex II(b) hereto), dated such Time of
Delivery, in form and substance satisfactory to you, to the effect
that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware. The Company has the corporate
power and authority to own its properties and conduct its
business as described in the Prospectus;
(ii) The Company has an authorized capitalization
as set forth in the Prospectus, and all of the issued
shares of capital stock of the Company (including the
Shares being delivered at such Time of Delivery) have been
duly and validly authorized and issued and are fully paid
and non-assessable; and the Shares conform, in all material
respects, to the description of the Stock contained in the
Prospectus;
(iii) The Company is duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of each jurisdiction in which it owns
or leases properties or conducts any business so as to require
such qualification, except where the failure to be so
qualified or in good standing would not, individually or in
the aggregate, have a Material Adverse Effect (such counsel
being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of
matters of fact upon certificates of officers of the Company,
provided that such counsel shall state that they believe that
both you and they are justified in relying upon such opinions
and certificates);
(iv) Each subsidiary of the Company organized under
the laws of the United States, any state of the United States
or the District of Columbia (a "Domestic Subsidiary") has been
duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of
incorporation; and all of the issued shares of capital stock
of each Domestic Subsidiary have been duly and validly
authorized and issued, are fully paid and non-assessable, and
are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims (such
counsel being entitled to rely in respect of the opinion in
this
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clause upon opinions of local counsel and in respect of
matters of fact upon certificates of officers of the
Company or its subsidiaries, provided that such counsel
shall state that they believe that both you and they are
justified in relying upon such opinions and certificates);
(v) To such counsel's knowledge, the manufacturing
facilities located at 1625 Sharp Point Drive, Fort Collins,
Colorado and 1007 Laurel Oak Drive, Voorhees, New Jersey, held
under lease by the Company and RF Power Products, Inc. (the
"Principal Subsidiary") are held by them under valid,
subsisting and enforceable leases except as such enforcement
may be limited by bankruptcy and with such exceptions as are
not material and do not interfere with the use made and
proposed to be made of such property and buildings by the
Company and the Principal Subsidiary (in giving the opinion
in this clause, such counsel may state that no examination of
record titles for the purpose of such opinion has been made,
and that they are relying upon a general review of the titles
of the Company and the Principal Subsidiary, upon opinions of
local counsel and abstracts, reports and policies of title
companies rendered or issued at or subsequent to the time of
acquisition of such property by the Company or the Principal
Subsidiary, upon opinions of counsel to the lessors of such
property and, in respect of matters of fact, upon certificates
of officers of the Company or its subsidiaries, provided that
such counsel shall state that they believe that both you
and they are justified in relying upon such opinions,
abstracts, reports, policies and certificates);
(vi) To the best of such counsel's knowledge and
other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which
any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company
or any of its subsidiaries, would, individually or in the
aggregate, have a Material Adverse Effect and, to the best
of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or
threatened by others;
(vii) This Agreement has been duly authorized,
executed and delivered by the Company;
(viii) The issue and sale of Shares by the Company,
the compliance by the Company with all of the provisions of
this Agreement and the consummation of the transactions herein
contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such
counsel to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is
bound or to which any of the property or assets of the Company
or any of its subsidiaries is subject, except in each
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case, (A) breaches, violations or defaults which,
individually or in the aggregate, would not have a Material
Adverse Effect and (B) would not have an adverse effect on
the Company's ability to consummate the transactions
contemplated hereby; nor will such actions result in any
violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or
any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or any
of its subsidiaries or any of their properties;
(ix) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale
of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except such as
have been obtained under the Act, and such consents,
approvals, authorizations, registrations or qualifications as
may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by
the Underwriters;
(x) Neither the Company nor any of its Domestic
Subsidiaries is (A) in violation of its Certificate of
Incorporation or By-laws or (B) in default in the performance
or observance of any obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument known
to such counsel to which it is a party or by which it or any
of its properties may be bound, except in the case of (B)
where such default (1) would not have a Material Adverse
Effect and (2) would not have an adverse effect on the
Company's ability to consummate the transactions contemplated
hereby (such counsel being entitled to rely in respect of the
opinion in this clause upon opinions of local counsel and in
respect of matters of fact upon certificates of officers of
the Company or its Domestic Subsidiaries, provided that such
counsel shall state that they believe that both you and they
are justified in relying upon such opinions and certificates);
(xi) The statements set forth in the Prospectus under
the caption "Description of Capital Stock", insofar as they
purport to constitute a summary of the terms of the Stock,
under the caption "Material United States Federal Income Tax
Consequences", and under the caption "Underwriting", insofar
as they purport to describe the provisions of the laws and
documents referred to therein, are accurate, complete and fair
in all material respects;
(xii) The Company is not an "investment company" or
an entity "controlled" by an "investment company", as such
terms are defined in the Investment Company Act;
17
<PAGE>
(xiii) The documents incorporated by reference in the
Prospectus or any further amendment or supplement thereto made
by the Company prior to the Time of Delivery (other than the
financial statements and related schedules therein, as to
which such counsel need express no opinion), when they became
effective or were filed with the Commission, as the case may
be, complied as to form in all material respects with the
requirements of the Act or the Exchange Act, as applicable and
the rules and regulations of the Commission thereunder; and
they have no reason to believe that any of such documents,
when such documents became effective or were so filed, as the
case may be, contained, in the case of a registration
statement which became effective under the Act, an untrue
statement of a material fact, or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading, or, in the case of other
documents which were filed under the Act or the Exchange Act
with the Commission, an untrue statement of a material fact or
omitted to state a material fact necessary in order to make
the statements therein, in the light of the circumstances
under which they were made when such documents were so filed,
not misleading; and
(xiv) The Registration Statement and the Prospectus
and any further amendments and supplements thereto made by the
Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to
which such counsel need express no opinion) comply as to form
in all material respects with the requirements of the Act and
the rules and regulations thereunder; although they do not
assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration
Statement or the Prospectus, except for those referred to in
the opinion in subsection (xi) of this Section 7(c), they have
no reason to believe that, as of its effective date, the
Registration Statement or any further amendment thereto made
by the Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to
which such counsel need express no opinion) contained an
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading or that, as of its
date, the Prospectus or any further amendment or supplement
thereto made by the Company prior to such Time of Delivery
(other than the financial statements and related schedules
therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to
state a material fact necessary to make the statements
therein, in the light of the circumstances under which they
were made, not misleading or that, as of such Time of
Delivery, either the Registration Statement or the Prospectus
or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to
which such counsel need express no opinion) contains an untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
they do not know of any amendment to the Registration
18
<PAGE>
Statement required to be filed or of any contracts or other
documents of a character required to be filed as an exhibit to
the Registration Statement or required to be incorporated by
reference into the Prospectus or required to be described in
the Registration Statement or the Prospectus which are not
filed or incorporated by reference or described as required;
(d) The respective counsel for each of the Selling
Stockholders, as indicated in Schedule II hereto, each shall have
furnished to you their written opinion with respect to each of the
Selling Stockholders for whom they are acting as counsel (a draft of
each such opinion is attached as Annex II(c) hereto), dated such
Time of Delivery, in form and substance satisfactory to you, to the
effect that:
(i) A Power-of-Attorney and a Custody Agreement
have been duly executed and delivered by such Selling
Stockholder and constitute valid and binding agreements of
such Selling Stockholder in accordance with their terms;
(ii) This Agreement has been duly executed and
delivered by or on behalf of such Selling Stockholder; and the
sale of the Shares to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with
all of the provisions of this Agreement, the Power-of-Attorney
and the Custody Agreement and the consummation of the
transactions herein and therein contemplated will not conflict
with or result in a breach or violation of any terms or
provisions of, or constitute a default under, any statute,
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which such
Selling Stockholder is a party or by which such Selling
Stockholder is bound or to which any of the property or assets
of such Selling Stockholder is subject, except in each case,
breaches, violations or defaults which, individually or in the
aggregate, would not have a Material Adverse Effect and would
not have an adverse effect on the Company's ability to
consummate the transactions contemplated hereby, nor will such
action result in any violation of the provisions of or any
order, rule or regulation known to such counsel of any court
or governmental agency or body having jurisdiction over such
Selling Stockholder or the property of such Selling
Stockholder;
(iii) No consent, approval, authorization or order of
any court or governmental agency or body is required for the
consummation of the transactions contemplated by this
Agreement in connection with the Shares to be sold by such
Selling Stockholder hereunder, except ______________ which
[HAS] [HAVE] been duly obtained and [IS] [ARE] in full force
and effect, such as have been obtained under the Act and such
as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of such Shares
by the Underwriters;
19
<PAGE>
(iv) Immediately prior to such Time of Delivery, to
such counsel's knowledge, such Selling Stockholder has full
right, power and authority to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder
hereunder; and
(v) Good and valid title to such Shares, free and
clear of all liens, encumbrances, equities or claims, has been
transferred to each of the several Underwriters.
In rendering the opinion in paragraph (iv), such counsel may rely
upon a certificate of such Selling Stockholder in respect of matters of fact
as to ownership of, and liens, encumbrances, equities or claims on, the
Shares sold by such Selling Stockholder, provided that such counsel shall
state that they believe that both you and they are justified in relying upon
such certificate;
(e) [(i)] On the date of the Prospectus at a time
prior to the execution of this Agreement, at 9:30 a.m., New
York City time, on the effective date of any post-effective
amendment to the Registration Statement filed subsequent to
the date of this Agreement and also at each Time of
Delivery, Arthur Andersen LLP shall have furnished to you a
letter or letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, to the
effect set forth in Annex I hereto (the executed copy of
the letter delivered prior to the execution of this
Agreement is attached as Annex I(a) hereto and a draft of
the form of letter to be delivered on the effective date of
any post-effective amendment to the Registration Statement
and as of each Time of Delivery is attached as Annex I(b)
hereto);
[(ii) On the date of the Prospectus at a time prior
to the execution of this Agreement, at 9:30 a.m., New York
City time, on the effective date of any post-effective
amendment to the Registration Statement filed subsequent to
the date of this Agreement and also at each Time of Delivery,
KPMG LLP shall have furnished to you a letter or letters,
dated the respective dates of delivery thereof, in form and
substance satisfactory to you, to the effect set forth in
Annex II hereto (the executed copy of the letter delivered
prior to the execution of this Agreement is attached as Annex
II(a) hereto and a draft of the form of letter to be delivered
on the effective date of any post-effective amendment to the
Registration Statement and as of each Time of Delivery is
attached as Annex II(b) hereto);]
(f) (i) Neither the Company nor any of its
subsidiaries shall have sustained since the date of the latest
audited financial statements included or incorporated by reference
in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated
in the Prospectus, and (ii) since the respective dates as of which
information is given in the
20
<PAGE>
Prospectus there shall not have been any change in the capital
stock, capital lease obligations or long-term debt of the Company or
any of its subsidiaries or any change, or any development involving
a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, taken as a whole,
otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in clause (i) or (ii),
is in the judgment of Goldman, Sachs & Co., as representatives of
the Underwriters, so material (to the Company and its subsidiaries
taken as a whole) and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of
the Shares being delivered at such Time of Delivery on the terms and
in the manner contemplated in the Prospectus;
(g) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities by any
"nationally recognized statistical rating organization", as that term
is defined by the Commission for purposes of Rule 436(g)(2) under the
Act, and (ii) no such organization shall have publicly announced that
it has under surveillance or review, with possible negative
implications, its rating of any of the Company's debt securities;
(h) On or after the date hereof there shall not have occurred
any of the following: (i) a suspension or material limitation in
trading in securities generally on the New York Stock Exchange or on
NASDAQ; (ii) a suspension or material limitation in trading in the
Company's securities on NASDAQ; (iii) a general moratorium on
commercial banking activities declared by either Federal or New York
State authorities; or (iv) the outbreak or escalation of hostilities
involving the United States or the declaration by the United States of
a national emergency or war, if the effect of any such event specified
in this clause (iv) in the judgment of Goldman, Sachs & Co. makes it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus;
(i) The Shares at such Time of Delivery shall have been
duly listed for quotation on NASDAQ;
(j) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each of the executive officers and
directors of the Company and from each Selling Stockholder
substantially to the effect set forth in Subsection 1(b)(iv) hereof in
form and substance satisfactory to you;
(k) The Company shall have complied with the provisions of
Section 5(c) hereof with respect to the furnishing of prospectuses on
the New York Business Day next succeeding the date of this Agreement;
and
21
<PAGE>
(l) The Company and the Selling Stockholders shall have
furnished or caused to be furnished to you at such Time of Delivery
certificates of officers of the Company and of the Selling
Stockholders, respectively, satisfactory to you as to the accuracy
of the representations and warranties of the Company and the Selling
Stockholders, respectively, herein at and as of such Time of
Delivery, as to the performance by the Company and the Selling
Stockholders of all of their respective obligations hereunder to be
performed at or prior to such Time of Delivery, and as to such other
matters as you may reasonably request, and the Company shall have
furnished or caused to be furnished certificates as to the matters
set forth in subsections (a) and (f) of this Section.
8 (a) The Company and each of the Selling Stockholders,
jointly and severally, will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; PROVIDED, HOWEVER, that the Company and
the Selling Stockholders shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through Goldman, Sachs & Co. expressly for use therein; and
PROVIDED, FURTHER HOWEVER, that no Selling Stockholder (other than Mr. Schatz
and Mr. Backman with respect to (ii) and (iii)) shall be liable in any such
case to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any such amendment or supplement
with respect to (i) the number of shares of Stock beneficially owned by any
other Selling Stockholder; (ii) the percentage interests held by Douglas S.
Schatz and G. Brent Backman in the leasing entities referred to in "Risk
Factors-We lease our Fort Collins, Colorado facilities and a condominium from
entities in which two individuals who are insiders and major stockholders
have financial interests"; and (iii) the percentage interests which Mr.
Schatz and Mr. Backman hold in AEI Properties.
(b) Each Underwriter will indemnify and hold harmless the
Company and each Selling Stockholder against any losses, claims, damages or
liabilities to which the Company or such Selling Stockholder may become
subject, under the Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
an untrue statement or alleged untrue statement of a material fact contained
in any Preliminary Prospectus, the Registration Statement or the Prospectus,
or any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman,
Sachs & Co. expressly for use therein; and will reimburse the Company and
each Selling Stockholder for any legal or other expenses reasonably incurred
by the Company or such Selling Stockholder in connection with investigating
or defending any such action or claim as such expenses are incurred.
22
<PAGE>
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Stockholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Stockholders bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
23
<PAGE>
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Selling Stockholders on the one hand or the Underwriters on the other and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company, each of the
Selling Stockholders and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this subsection (d) were determined by PRO
RATA allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection (d),
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company and the Selling Stockholders under
this Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company or any Selling Stockholder within the meaning of
the Act.
9 (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery,
you may in your discretion arrange for you or another party or other parties
to purchase such Shares on the terms contained herein. If within thirty-six
hours after such default by any Underwriter you do not arrange for the
purchase of such Shares, then the Company and the Selling Stockholders shall
be entitled to a further period of thirty-six hours within which to procure
another party or other parties satisfactory to you to purchase such Shares on
such terms. In the event that, within the respective prescribed periods, you
notify the Company and the Selling Stockholders that you have so arranged for
the purchase of such Shares, or the Company and the Selling Stockholders
notify you that they have so arranged for the purchase of such Shares, you or
the Company or the Selling Stockholders shall have the right to postpone such
Time of Delivery for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement
or the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the
24
<PAGE>
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall
include any person substituted under this Section with like effect as if such
person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all the Shares to be purchased at such Time of Delivery,
then the Company and the Selling Stockholders shall have the right to require
each non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Selling Stockholders to sell the Optional
Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company or the Selling Stockholders, except
for the expenses to be borne by the Company and the Selling Stockholders and the
Underwriters as provided in Section 6 hereof and the indemnity and contribution
agreements in Section 8 hereof; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
10 The respective indemnities, agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and
the several Underwriters, as set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement, shall remain in
full force and effect, regardless of any investigation (or any statement as
to the results thereof) made by or on behalf of any Underwriter or any
controlling person of any Underwriter, or the Company, or any of the Selling
Stockholders, or any officer or director or controlling person of the
Company, or any controlling person of any Selling Stockholder, and shall
survive delivery of and payment for the Shares.
11 If this Agreement shall be terminated pursuant to Section 9
hereof, neither the Company nor the Selling Stockholders shall then be under
any liability to any Underwriter except as provided in Sections 6 and 8
hereof; but, if for any other reason any Shares are not delivered by
25
<PAGE>
or on behalf of the Company or a Selling Stockholder as provided herein, the
Company and each of the Selling Stockholders pro rata (based on the number of
Shares to be sold by the Company and the Selling Stockholders hereunder) will
reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares, but the Company and the Selling
Stockholders shall then be under no further liability to any Underwriter in
respect of the Shares except as provided in Sections 6 and 8 hereof.
12 In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to you as the representatives at 32 Old Slip, 21st
Floor, New York, New York 10005, Attention: Registration Department; if to
any Selling Stockholder shall be delivered or sent by mail, telex or
facsimile transmission to counsel for such Selling Stockholder at its address
set forth in Schedule II hereto; and if to the Company shall be delivered or
sent by mail, telex or facsimile transmission to the address of the Company
set forth in the Registration Statement, Attention: Secretary; provided,
however, that any notice to an Underwriter pursuant to Section 8(c) hereof
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire or
telex constituting such Questionnaire, which address will be supplied to the
Company or the Selling Stockholders by you upon request. Any such statements,
requests, notices or agreements shall take effect upon receipt thereof.
13 This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and the Selling Stockholders and,
to the extent provided in Sections 8 and 10 hereof, the officers and
directors of the Company and each person who controls the Company, any
Selling Stockholder or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser
of any of the Shares from any Underwriter shall be deemed a successor or
assign by reason merely of such purchase.
14 Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW PROVISIONS THEREOF.
26
<PAGE>
16 This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one
and the same instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us four counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters,
the Company and each of the Selling Stockholders. It is understood that your
acceptance of this letter on behalf of each of the Underwriters is pursuant
to the authority set forth in a form of Agreement among Underwriters, the
form of which shall be submitted to the Company and the Selling Stockholders
for examination, upon request, but without warranty on your part as to the
authority of the signers thereof.
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly
appointed as Attorney-in-Fact by such Selling Stockholder pursuant to a
validly existing and binding Power-of-Attorney which authorizes such
Attorney-in-Fact to take such action.
Very truly yours,
ADVANCED ENERGY INDUSTRIES, INC.
By:
-------------------------------------
Name:
Title:
DOUGLAS S. SCHATZ
G. BRENT BACKMAN
RICHARD P. BECK
HOLLIS CASWELL
RICHARD SCHOLL
JOSEPH STACH
By:
-------------------------------------
Name:
Title:
As Attorney-in-Fact acting on behalf of
each of the Selling Stockholders named in
Schedule II to in Schedule II to this
Agreement.
Accepted as of the date hereof
27
<PAGE>
GOLDMAN, SACHS & CO.
By:
----------------------------------
Name:
Title:
28
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
TOTAL NUMBER OF SHARES TO BE
UNDERWRITER FIRM SHARES PURCHASED IF
----------- TO BE PURCHASED MAXIMUM OPTION
----------------------- EXERCISED
-----------------------
<S> <C> <C>
Goldman, Sachs & Co.
BancBoston Robertson Stephens
CIBC World Markets
----------------------- -----------------------
2,000,000 450,000
Total ----------------------- -----------------------
----------------------- -----------------------
</TABLE>
29
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
TOTAL NUMBER OF SHARES TO BE
UNDERWRITER FIRM SHARES SOLD IF
----------- TO BE SOLD MAXIMUM OPTION
----------------------- EXERCISED
-----------------------
<S> <C> <C>
The Company......................................... 1,000,000
The Selling Stockholder(s):
Douglas S. Schatz (a) 875,000
G. Brent Backman (a) 875,000
Richard P. Beck (a) 50,000
Hollis Caswell (a) 50,000
Richard Scholl (a) 100,000
Joseph Stach (a) 50,000
--------- -------
2,000,000 450,000
Total.......................................
------------ ----------
------------ ----------
</TABLE>
__________
(a) These Selling Stockholders are represented by Thelen Reid & Priest LLP and
have appointed _________________ and _______________, and each of them, as the
Attorneys-in-Fact for such Selling Stockholders.
<PAGE>
We hereby agree to furnish to the SEC, upon request, a copy of the
instruments which define the rights of holders of our long-term debt. None of
such instruments not included as exhibits in this Form S-3 represents
long-term debt in excess of 10% of our consolidated total assets.
<PAGE>
ARTHUR ANDERSEN LLP
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-3 of our report dated
February 5, 1999 included in Advanced Energy Industries, Inc.'s Form 10-K for
the year ended December 31, 1998 and to all references to our Firm included in
this Registration Statement (File No. 333- ).
/S/ ARTHUR ANDERSEN LLP
Denver, Colorado,
September 20, 1999.
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Advanced Energy Industries, Inc.:
We consent to the incorporation by reference in the Registration Statement on
Form S-3 of Advanced Energy Industries, Inc. of our report dated January 16,
1998 with respect to the consolidated balance sheets of RF Power Products, Inc.
as of November 30, 1997 and 1996 and the related consolidated statements of
income, changes in shareholders' equity and cash flows for the years then ended
and related schedule (not separately presented herein), which report appears in
the annual report on Form 10-K of Advanced Energy Industries, Inc. for the year
ended December 31, 1998.
/S/ KPMG LLP
Philadelphia, Pennsylvania
September 17, 1999
