<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 2000
REGISTRATION NO. 333-43744
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ADVANCED ENERGY INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3679 84-0846841
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1625 SHARP POINT DRIVE
FORT COLLINS, COLORADO 80525
(970) 221-4670
(ADDRESS, INCLUDING POSTAL OR ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RICHARD P. BECK
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
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:
<TABLE>
<S> <C>
CARISSA C. W. COZE G. JAMES WILLIAMS JR.
J.J. ANDRE LAURIE P. GLASSCOCK
THELEN REID & PRIEST LLP CHRISMAN, BYNUM & JOHNSON, P.C.
101 SECOND STREET, SUITE 1800 1900 FIFTEENTH STREET
SAN FRANCISCO, CALIFORNIA 94105-3601 BOULDER, COLORADO 80302
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement and the
satisfaction or waiver of all other conditions to the merger described in the
proxy statement/prospectus.
If any of the securities being registered on this Form are to be offered
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, 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 filed pursuant to Rule 462(d)
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. [ ] __________
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.
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--------------------------------------------------------------------------------
<PAGE> 2
[EMCO LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Engineering Measurement Company will hold a special meeting of shareholders
on Monday, October 23, 2000 at 9:00 a.m. local time, at EMCO's offices at 600
Diagonal Highway, Longmont, Colorado 80501, for the following purposes:
1. To approve a merger agreement, dated as of July 6, 2000, between EMCO,
Advanced Energy Industries, Inc., a Delaware corporation ("Advanced
Energy"), and Flow Acquisition Corporation, a Colorado corporation and a
wholly owned subsidiary of Advanced Energy, that provides among other
things, for a merger of Flow Acquisition into EMCO so that EMCO will
become a wholly owned subsidiary of Advanced Energy and you will become
a stockholder of Advanced Energy, and
2. To transact any other business that properly comes before the meeting or
any adjournment or postponement of the meeting.
The accompanying Proxy Statement/Prospectus, dated September 22, 2000,
describes the proposed merger in detail and includes a copy of the Merger
Agreement.
Only shareholders of record at the open of business on September 21, 2000
are entitled to notice of and to vote at the meeting. Under Colorado law,
shareholders of EMCO have no right to an appraisal of the value of their shares
in connection with the merger. A list of shareholders is available for review at
the offices of EMCO. YOU ARE URGED TO VOTE PROMPTLY BY DATING, SIGNING AND
RETURNING THE ENCLOSED PROXY. YOU MAY REVOKE YOUR PROXY IN THE MANNER PROVIDED
IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
By order of the Board of Directors,
/s/ Charles Miller
Chairman
September 22, 2000
Longmont, Colorado
<PAGE> 3
EMCO LETTERHEAD
September 22, 2000
Dear EMCO Shareholder:
You are cordially invited to attend a special meeting of the shareholders
of Engineering Measurements Company to be held on Monday, October 23, 2000, at
9:00 a.m., local time at 600 Diagonal Highway, Longmont, Colorado.
THIS IS A VERY IMPORTANT SPECIAL MEETING THAT AFFECTS YOUR INVESTMENT IN
EMCO.
At this special meeting you will be asked to approve a merger in which:
- EMCO would become a wholly owned subsidiary of Advanced Energy;
- Each outstanding share of EMCO common stock would be converted into at
least 0.2018 shares of Advanced Energy common stock; and
- You would become a stockholder of Advanced Energy.
Advanced Energy will issue 900,000 shares of its common stock to the
security holders of EMCO.
Advanced Energy's common stock is quoted on the Nasdaq National Market
under the symbol "AEIS." On September 18, 2000, the closing price of the
Advanced Energy common stock was $42.38 per share.
Your board of directors has unanimously approved the merger, has determined
that the merger is in your best interests and unanimously recommends that you
vote FOR the approval of the merger agreement.
This proxy statement/prospectus contains important information about EMCO,
Advanced Energy, the merger and the special meeting. WE URGE YOU TO READ THE
PROXY STATEMENT/PROSPECTUS CAREFULLY, PARTICULARLY THE INFORMATION IN THE
SECTION "RISK FACTORS" BEGINNING ON PAGE 14.
A proxy card is enclosed to enable you to vote on the merger agreement
without attending the special meeting in person. Please complete, sign and date
the enclosed proxy card and return it to us as soon as possible in the enclosed
stamped envelope we have provided.
YOUR VOTE IS IMPORTANT AS THE AFFIRMATIVE VOTE OF TWO-THIRDS OF THE COMMON
STOCK IS REQUIRED TO APPROVE THE MERGER. A FAILURE TO VOTE HAS THE SAME EFFECT
AS A "NO" VOTE.
In connection with the merger, certain shareholders of EMCO who hold
approximately 60.0% of the EMCO common stock have granted Advanced Energy an
irrevocable proxy to vote for the merger.
Thank you for your cooperation.
Very truly yours,
/s/ Charles Miller
Chairman
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the Advanced Energy common stock to be
issued in the merger or determined if this proxy statement/prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated September 22, 2000, and was first
mailed to EMCO shareholders on or about September 22, 2000.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Questions and Answers About the Merger...................... 1
Summary of the Proxy Statement/Prospectus................... 4
The Companies............................................... 4
The Merger.................................................. 4
Advanced Energy Selected Consolidated Financial Data........ 9
EMCO Selected Financial Data................................ 10
Comparative Per Share Date.................................. 11
Market Price and Dividend Information....................... 12
Risk Factors................................................ 14
Risks Related to the Merger............................... 14
Risks Related to Advanced Energy's Business............... 15
EMCO Special Meeting........................................ 24
Date, Time and Place; Matters to be Considered............ 24
Record Date; Quorum; Voting at the Special Meeting........ 24
Security Ownership of Management; EMCO Voting
Agreements............................................. 24
Solicitation of Proxies; Revocation....................... 25
Expenses.................................................. 25
Availability of Independent Accountants................... 25
The Merger.................................................. 26
Background of the Merger.................................. 26
Recommendation of the EMCO Board of Directors and EMCO's
Reasons for the Merger................................. 28
Opinion of Quist Financial, Inc........................... 31
Advanced Energy's Reasons for the Merger.................. 36
Merger Consideration...................................... 37
No Fractional Shares...................................... 37
Exchange of Shares........................................ 37
Interests of EMCO's Management in the Merger and Potential
Conflicts of Interests................................. 38
Indemnification; Directors' and Officers' Insurance....... 38
Regulatory Matters........................................ 38
Dissenters' Rights Are Not Available...................... 39
Nasdaq National Market Listing............................ 39
Certain Federal Income Tax Consequences................... 39
Accounting Treatment...................................... 41
Resale of Advanced Energy Common Stock Received by EMCO
Shareholders........................................... 41
The Merger Agreement........................................ 42
The Merger................................................ 42
Representations and Warranties............................ 42
Conduct of Business Prior to the Merger................... 43
Covenants................................................. 44
Conditions to the Merger.................................. 44
No Solicitation; Board Recommendation..................... 45
Conduct of Business Following the Merger.................. 46
Termination of the Merger Agreement....................... 46
Fees, Expenses and Termination Fees....................... 47
Amendment................................................. 48
Employee Benefits......................................... 48
Information About the Companies............................. 49
Advanced Energy Industries, Inc. ......................... 49
Overview............................................... 49
Recent Developments.................................... 49
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Strategy............................................... 49
Markets................................................ 50
Sales and Marketing.................................... 51
Engineering Measurements Company.......................... 51
Overview............................................... 51
Products............................................... 52
Sales and Marketing.................................... 53
Description of Capital Stock................................ 53
Advanced Energy Common Stock.............................. 53
Advanced Energy Preferred Stock........................... 53
EMCO Common Stock......................................... 54
Security Ownership of Certain Beneficial Owners and
Management of EMCO........................................ 54
Comparison of Stockholders' Rights.......................... 55
General................................................... 55
Voting Groups............................................. 55
Cumulative Voting......................................... 56
Amendments to EMCO's Articles of Incorporation and
Advanced Energy's Certificate of Incorporation......... 56
Amendments to Bylaws...................................... 57
Vote Required for Merger and Certain Other Transactions... 57
Directors................................................. 57
Classification of Board of Directors...................... 57
Removal of Directors...................................... 58
Newly Created Directorships and Vacancies................. 58
Limitation of Director's Liability........................ 59
Indemnification of Directors and Officers................. 59
Special Meeting of Shareholders; Action by Consent........ 59
Business Combinations Involving a Change of Control....... 60
Dissenters' Rights........................................ 60
Dividends................................................. 61
Stock Repurchases......................................... 61
Corporate Records; Shareholder Inspection................. 62
Preemptive Rights......................................... 63
Where Can You Find More Information......................... 63
Incorporation by Reference.................................. 64
Legal Matters............................................... 65
Experts..................................................... 65
</TABLE>
APPENDICES
Appendix A Merger Agreement
Appendix B Fairness Opinion of Quist Financial, Inc.
Appendix C EMCO's Annual Report on Form 10-KSB for the year ended April 30,
2000
Appendix D EMCO's Quarterly Report on Form 10-QSB for the quarter ended July
31, 2000
ii
<PAGE> 6
Important business and financial information about Advanced Energy and EMCO
that you might want to consider in deciding whether to vote in favor of the
merger is not included in this proxy statement/prospectus, but rather is
incorporated by reference to other documents that have been filed with the
Securities and Exchange Commission. For a complete list of the documents
incorporated by reference in this proxy statement/prospectus, see "Where You Can
Find More Information" on page 63.
To obtain a free copy of any or all of the documents relating to Advanced
Energy that are incorporated by reference in this proxy statement/prospectus,
you may contact Advanced Energy's Investor Relations at 1625 Sharp Point Drive,
Fort Collins, Colorado 80525, Attention: Cathy Kawakami or by calling (970)
221-4670. To obtain a free copy of any or all of the documents relating to EMCO
that are incorporated by reference in this proxy statement/prospectus, you may
contact EMCO's Investor Relations at 600 Diagonal Highway, Longmont, Colorado
80501 or by calling (303) 651-0550 or by calling its investor relations firm at
(310) 208-2550. TO ENSURE TIMELY DELIVERY OF REQUESTED DOCUMENTS, YOU SHOULD
MAKE YOUR REQUESTS BY OCTOBER 16, 2000. You also may obtain free copies of these
documents on the Securities and Exchange Commission's website at www.sec.gov.
Information in this proxy statement/prospectus about Advanced Energy has
been provided by Advanced Energy. Information in this proxy statement/prospectus
about EMCO provided by EMCO. Neither company has independently investigated the
truth or accuracy of the information provided by the other.
-------------------------
TRADEMARKS
Advanced Energy, Microsweep, Sparc, Sparc-LE and the Advanced Energy logo
are registered trademarks of Advanced Energy. Mach-One, Digital Valve and the
EMCO logo are trademarks of EMCO.
iii
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT IS THE PROPOSED TRANSACTION FOR WHICH I AM BEING ASKED TO VOTE?
A. EMCO proposes to be acquired by Advanced Energy through a merger. In the
merger, Flow Acquisition Corporation, a subsidiary of Advanced Energy, will
merge into EMCO.
Q: WHAT WILL HAPPEN TO EMCO AND ITS SHAREHOLDERS AS A RESULT OF THE MERGER?
A: EMCO will become a wholly owned subsidiary of Advanced Energy, and EMCO
shareholders will become Advanced Energy stockholders.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: The EMCO shareholders and option holders together will receive 900,000 shares
of Advanced Energy common stock. You will receive at least 0.2018 shares of
Advanced Energy common stock for each share of EMCO common stock that you
own, except that Advanced Energy will not issue any fractional shares of
common stock. Instead of any fractional share of common stock, you will
receive cash based on the market price of the Advanced Energy common stock.
See page 37.
Security holders of EMCO will receive Advanced Energy common stock and rights
to acquire Advanced Energy common stock representing approximately 3% of the
Advanced Energy common stock outstanding after the merger.
Advanced Energy common stock is quoted on the Nasdaq National Market under
the trading symbol "AEIS." EMCO common stock is quoted on the Nasdaq National
Market under the trading symbol "EMCO." On September 18, 2000, Advanced
Energy common stock closed at $42.38 per share and EMCO common stock closed
at $8.00 per share. Because the total number of shares of Advanced Energy
common stock that Advanced Energy is obligated to issue in the merger is
fixed at 900,000, the market value of the Advanced Energy common stock that
you will receive in the merger will fluctuate prior to and following the
merger. Advanced Energy will not be required to issue more than 900,000
shares of its common stock to the EMCO shareholders and option holders, even
if the market price of the Advanced Energy common stock drops dramatically.
Q: DOES THE MARKET PRICE OF ADVANCED ENERGY COMMON STOCK FLUCTUATE
SIGNIFICANTLY?
A: Yes. Since Advanced Energy's IPO in November 1995, the closing prices of the
Advanced Energy common stock have ranged from $3.50 to $73.25. From January
1, 2000 to September 18, 2000, the closing prices of the Advanced Energy
common stock have ranged from $35.375 to $73.25. See "Market Price and
Dividend Information" on page 12, and "Risk Factors. The market price of
Advanced Energy common stock is highly volatile, which could lead to losses
for individual investors and costly securities class action litigation." on
page 16. You should obtain current market quotations for Advanced Energy
common stock.
Q: WHEN WILL THE MERGER BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. We hope
to complete the merger promptly following the special meeting of EMCO
shareholders.
Q: DOES THE EMCO BOARD OF DIRECTORS RECOMMEND THE MERGER?
A: Yes. After careful consideration, the EMCO board of directors unanimously
voted in favor of the merger and recommends that the EMCO shareholders vote
in favor of the merger. See "The Merger -- EMCO Reasons for the Merger" and
"-- Recommendation of the EMCO Board of Directors" on page 28.
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<PAGE> 8
Q: ARE THERE ANY RISKS INVOLVED IN THE MERGER?
A: The merger does involve risks. By approving the merger, you are agreeing in
essence to change your investment in EMCO into an investment in Advanced
Energy. Before voting on the merger, you should consider carefully the
information in this proxy statement/prospectus, particularly the information
in the section "Risk Factors" beginning on page 14.
Q: SHOULD I SEND IN MY EMCO STOCK CERTIFICATES NOW?
A: No. After we complete the merger, Advanced Energy will send you instructions
explaining how to exchange your shares of EMCO common stock for the
appropriate number of shares of Advanced Energy common stock.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
proxy statement/prospectus, please fill out and sign your proxy card. Then
mail your completed, signed and dated proxy card in the enclosed return
envelope as soon as possible so that your shares can be voted at the special
meeting.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED THE PROXY CARD?
A: You may change your vote by delivering a signed notice of revocation or a
subsequently dated and signed proxy card to EMCO's corporate secretary before
the special meeting. You also may attend the special meeting and vote in
person. See "EMCO Special Meeting -- Solicitation of Proxies; Revocation" on
page 25.
Q: IF MY SHARES ARE HELD IN "STREET NAME," WILL MY BROKER VOTE MY SHARES FOR ME?
A: Your broker will vote your shares only if told to do so. You should instruct
your broker to vote your shares, following the instructions provided by your
broker. Without instructions from you, your broker cannot vote your shares
and your shares will not be represented at the special meeting. See "EMCO
Special Meeting -- Record Date; Quorum; Voting at the Special Meeting" on
page 24.
Q: WILL I INCUR INCOME TAX AS A RESULT OF THE MERGER?
A: We have structured the merger to be tax-free to the EMCO shareholders for
federal income tax purposes, except that you may have to pay taxes on any
cash received instead of a fractional share of Advanced Energy common stock.
However, all EMCO shareholders are urged to consult their own tax advisors to
determine their particular tax consequences of the merger. See "The
Merger -- Certain Federal Income Tax Consequences" on page 39.
Q: IF I DO NOT VOTE FOR THE MERGER, BUT THE OTHER EMCO SHAREHOLDERS APPROVE IT,
CAN I GET CASH INSTEAD OF ADVANCED ENERGY COMMON STOCK?
A: No. In certain circumstances, a shareholder of a company that is being
acquired can require the company to purchase the shareholder's shares for
cash, if the shareholder does not vote for the merger. The right to require
this cash purchase is commonly called an "appraisal right" or "dissenters'
right." Under Colorado law, the EMCO shareholders do not have appraisal or
dissenters' rights in connection with the merger. See "The
Merger -- Dissenters' Rights Are Not Available" on page 39.
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The EMCO special meeting is scheduled to take place on Monday, October 23,
2000 at 9:00 a.m., local time, at 600 Diagonal Highway, Longmont, Colorado.
2
<PAGE> 9
Q: WHAT VOTE IS REQUIRED FOR APPROVAL?
A: The merger agreement must be approved by holders of more than 66 2/3% of the
outstanding shares of EMCO common stock entitled to vote. If you do not vote
or give instructions to your broker to vote your shares, that will have the
same affect as voting against the merger.
Q: WHO CAN HELP ANSWER MY QUESTIONS ABOUT THE MERGER, EMCO OR ADVANCED ENERGY?
A: You may call Christopher Hurley, Controller of EMCO at (303) 651-0550 or its
investor relations firm at (310) 208-2550.
3
<PAGE> 10
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
This summary highlights selected information from this proxy
statement/prospectus. It may not contain all of the information that may be
important to you. You should read the entire proxy statement/prospectus and the
documents referenced in it before making a decision whether to vote in favor of
the merger. In particular, you should read the documents attached to this proxy
statement/prospectus, including the merger agreement, Appendix A, the opinion of
Quist Financial, Inc., Appendix B, EMCO's Annual Report on Form 10-KSB, Appendix
C, and EMCO's Quarterly Report on Form 10-QSB, Appendix D.
THE COMPANIES
[EMCO LOGO]
ENGINEERING MEASUREMENTS COMPANY
600 Diagonal Highway
Longmont, Colorado 80501
(303) 651-0550
EMCO designs, manufactures, and markets electronic and electro-mechanical
instruments (flowmeters) for measuring the flow of liquids, steam and gases.
EMCO generates its revenues from the sales of flowmeter hardware in both foreign
and domestic markets. EMCO provides its customers with a family of products
capable of measuring almost any kind of fluid or gas flow. While EMCO has
historically been strongest in energy utility flow measurement, particularly
steam metering, it also has developed products capable of measuring most types
of process fluids, as well as fuel oils and natural gas. EMCO markets flowmeters
worldwide, primarily utilizing a network of distributors and commissioned sales
representatives as well as a direct sales force. EMCO's Mach One digital flow
controller is the subject of a joint development arrangement with Micron
Technology. The Mach One, designed for use in the semiconductor manufacturing
industry, is in the development stage and has attracted the attention of
semiconductor equipment manufacturers. EMCO was incorporated in Colorado in
1967.
[ADVANCED ENERGY LOGO]
ADVANCED ENERGY INDUSTRIES, INC.
1625 Sharp Point Drive
Fort Collins, Colorado 80525
(970) 221-4670
Advanced Energy's primary business is the design, manufacture and support
of power conversion and control systems. These systems are important components
of industrial manufacturing equipment that modify surfaces or deposit or etch
thin film layers on computer chips, CDs, flat panel displays such as computer
screens, DVDs, windows, eyeglasses, solar panels and other products. Advanced
Energy's 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. Advanced Energy was incorporated in Colorado in 1981
and reincorporated in Delaware in 1995.
THE MERGER
EMCO SPECIAL MEETING (PAGE 24)
The EMCO shareholders' special meeting to approve the merger agreement will
be held on Monday, October 23, 2000 9:00 a.m., local time, at EMCO's offices at
600 Diagonal Highway, Longmont, Colorado 80501. You can vote at the special
meeting if you owned shares of EMCO common stock at the
4
<PAGE> 11
opening of business on September 21, 2000. You can cast one vote for each share
of EMCO common stock that you owned on that date.
EMCO VOTING AGREEMENTS (PAGE 24)
Certain EMCO shareholders, who collectively hold approximately 60.0% of the
EMCO common stock outstanding, have granted Advanced Energy an irrevocable proxy
to vote their shares of EMCO common stock in favor of the merger agreement and
against any matter that could prevent the merger from being completed.
EMCO'S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE MERGER AGREEMENT
(PAGE 28)
EMCO's Board of Directors believes that the merger is in the best interests
of EMCO and its shareholders and unanimously recommends that you vote FOR
adoption of the merger agreement.
EMCO'S REASONS FOR THE MERGER (PAGE 28)
The EMCO Board of Directors has determined that the merger is in the best
interests of EMCO and its shareholders for numerous reasons. Those reasons
include:
- the exchange ratio,
- the prospects of EMCO,
- the expense and risks in developing its Mach One digital flow controller,
- the liquidity of the Advanced Energy stock,
- and the prospects of Advanced Energy.
OPINION OF EMCO'S FINANCIAL ADVISOR (PAGE 31)
In deciding to approve the merger, EMCO's board of directors considered an
opinion from Quist Financial, Inc. as to the fairness of the exchange ratio from
a financial point of view to the EMCO shareholders. The full text of the written
opinion of the financial advisor is attached to the back of this proxy
statement/prospectus as Appendix B. You should read the entire opinion carefully
for an understanding of the assumptions made, matters considered and limitations
on the review undertaken.
MERGER CONSIDERATION (PAGES 37 AND 48)
At the effective time of the merger, each share of your EMCO common stock
will be converted into at least 0.2018 of a share of Advanced Energy common
stock. In addition, EMCO options outstanding at the effective time of the merger
will be assumed by Advanced Energy and converted into the right to purchase
shares of Advanced Energy common stock, and amounts contributed by EMCO
employees to EMCO's employee stock purchase plan will be transferred to Advanced
Energy's employee stock purchase plan.
INTERESTS OF CERTAIN EMCO DIRECTORS AND OFFICERS IN THE MERGER THAT ARE IN
ADDITION TO YOUR INTERESTS (PAGE 28)
When considering the recommendations of EMCO's board of directors, you
should be aware that certain EMCO directors and officers have interests in the
merger that are different from, or are in addition to, yours. These interests
could cause the directors and officers of EMCO to be more likely to favor the
merger than if they did not have these interests.
DISSENTERS' RIGHTS (PAGE 39)
Neither EMCO nor Advanced Energy stockholders are entitled to dissenters'
rights with respect to the merger.
5
<PAGE> 12
NASDAQ NATIONAL MARKET LISTING (PAGE 39)
The shares of Advanced Energy common stock to be issued to you in the
merger will be listed on the Nasdaq National Market under the trading symbol
"AEIS." Upon the closing of the merger, all shares of EMCO common stock will be
delisted from the Nasdaq National Market and no longer traded on any market.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (PAGE 39)
The merger has been structured as a tax-free reorganization for United
States federal income tax purposes. Accordingly, in general EMCO common
shareholders who exchange their EMCO shares for shares of Advanced Energy common
stock in the merger will not recognize gain or loss for United States federal
income tax purposes, except that EMCO shareholders will recognize gain or loss
with respect to cash received instead of a fractional share of Advanced Energy
common stock. However, all EMCO shareholders are urged to consult their own tax
advisor to determine their particular tax consequences of the merger. It is a
condition to the merger that both Advanced Energy and EMCO receive legal
opinions that the merger constitutes a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code.
ACCOUNTING TREATMENT (PAGE 41)
Advanced Energy and EMCO intend for the merger to qualify as a "pooling of
interests" for financial accounting purposes, in accordance with generally
accepted accounting principles. Completion of the merger is conditioned upon the
receipt by Advanced Energy of a letter from Arthur Anderson LLP, its independent
public accountants, stating that, in its opinion, the merger will qualify for
pooling of interests accounting treatment.
RESTRICTIONS ON THE ABILITY TO SELL ADVANCED ENERGY STOCK (PAGE 41)
The shares of Advanced Energy common stock issued to EMCO shareholders in
the merger will be freely transferable, except for shares received by persons
who are considered to be "affiliates" of EMCO at the time of the special meeting
or persons who become affiliates of Advanced Energy. Affiliates of EMCO may only
resell shares of Advanced Energy common stock that they receive in the merger in
accordance with the restrictions of Rule 145 under the Securities Act of 1933,
unless the resale of the Advanced Energy common stock by the affiliate is
registered under the Securities Act or an exemption from registration is
available. Pooling of interests accounting requirements also restrict sales of
Advanced Energy stock by affiliates of EMCO.
CONDITIONS TO COMPLETION (PAGE 44)
Advanced Energy's and EMCO's obligations to complete the merger are subject
to the satisfaction or waiver of various closing conditions, including:
- approval of EMCO shareholders;
- the absence of breaches by the other party;
- no material adverse change to the other party;
- the receipt of legal opinions as to the tax treatment of the merger; and
- the receipt by Advanced Energy of a letter from its accountants that the
transaction will be accounted for as a pooling of interests.
If EMCO waives any conditions, it will consider the facts and circumstances
at that time and decide whether it should resolicit your proxy.
6
<PAGE> 13
NO SOLICITATION; BOARD RECOMMENDATION (PAGE 45)
EMCO has agreed not to:
- solicit or participate in any discussions with any person or entity
concerning an alternative acquisition proposal;
- provide any information to any person concerning an alternative
acquisition proposal; or
- authorize or propose an alternative acquisition proposal.
TERMINATION OF THE MERGER AGREEMENT (PAGE 46)
The merger agreement may be terminated before completion of the merger upon
the occurrence of certain events including:
- a material breach of the merger agreement by Advanced Energy or EMCO;
- the merger is not completed by December 31, 2000;
- the EMCO shareholders do not approve the merger agreement at the special
meeting;
- by EMCO, if the EMCO board of directors determines that abandoning the
merger is required by its fiduciary duties; or
- by Advanced Energy, if the EMCO board of directors withdraws its
recommendation of the merger or recommends an alternative transaction
with a third party.
PAYMENT OF TERMINATION FEES (PAGE 47)
If the merger agreement is terminated after an alternative corporate
transaction has been proposed to EMCO by a third party because:
- the EMCO shareholders do not approve the merger agreement at the special
meeting;
- the EMCO board of directors determines that abandoning the merger is
required by its fiduciary duties; or
- the EMCO board of directors withdraws its recommendation of the merger or
recommends an alternative transaction with a third party.
And if EMCO enters into a business combination or similar transaction in which a
third party acquires control of EMCO or more than 50% of its assets within 2
years after termination, then EMCO will pay Advanced Energy a termination fee of
$5 million.
VOTE REQUIRED TO APPROVE THE MERGER AGREEMENT (PAGE 57)
The affirmative vote of the holders of 66 2/3% of the shares of EMCO common
stock that were outstanding on the record date and entitled to vote is required
for approval and adoption of the merger agreement. The Advanced Energy
stockholders are not required to vote on the merger agreement.
FORWARD-LOOKING STATEMENTS IN THIS PROXY STATEMENT/PROSPECTUS
This proxy statement/prospectus contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act. Forward-looking
statements include statements with respect to Advanced Energy's and EMCO's
financial condition, results of operations and business and the expected impact
of the merger on Advanced Energy's financial performance. Words such as
anticipates, expects, intends, plans, believes, seeks, estimates and similar
expressions identify forward-looking statements.
These forward-looking statements are not guarantees of future performance
and are subject to certain risks and uncertainties that could cause actual
results to differ materially from the results contemplated by the
forward-looking statements. These risks and uncertainties include the risks
discussed in the section "Risk Factors" beginning on page 14.
7
<PAGE> 14
ADVANCED ENERGY SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary consolidated statement of operations data for 1997, 1998 and
1999 and the related consolidated balance sheets as of December 31, 1998 and
1999 are derived from consolidated financial statements audited by Arthur
Andersen LLP, independent accountants, which have been restated to include
financial data of both Noah Holdings, Inc., a company acquired by Advanced
Energy in April 2000 and Sekidenko, Inc., a company acquired by Advanced Energy
in August 2000. The restated audit report dated August 18, 2000 is included in
Advanced Energy's Current Report on Form 8-K dated September 15, 2000, which is
incorporated by reference in this proxy statement/prospectus. Both acquisitions
have been accounted for separately as "poolings of interests" under Accounting
Principles Board Opinion No. 16.
The summary consolidated statement of operations data for 1996 and 1997 and
the related consolidated balance sheet data as of December 31, 1997 are derived
from consolidated financial statements, audited in part by Arthur Andersen LLP
and in part by KPMG LLP. KPMG's audit report relates to Advanced Energy
Voorhees, Inc., formerly named RF Power Products, Inc., whose fiscal year end
was November 30. As such, the statement of operations data for 1996 and 1997
include the statements of operations of Advanced Energy Voorhees for the years
ended November 30, 1996 and 1997, and the balance sheet data for 1997 include
the balance sheet of Advanced Energy Voorhees as of November 30, 1997.
The summary consolidated statement of operations data for 1995 and the
related consolidated balance sheet data as of December 31, 1996 and 1995 are
restated from Advanced Energy's audited consolidated financial statements,
audited consolidated financial statements of Advanced Energy Voorhees,
consolidated financial statements of Noah Holdings, Inc. and financial
statements of Sekidenko, Inc. Stand-alone financial statements for Advanced
Energy Voorhees are not included in Advanced Energy's annual reports on Form
10-K.
On April 6, 2000, Advanced Energy acquired Noah Holdings, Inc. by issuing
approximately 687,000 shares of Advanced Energy's common stock and assuming
approximately 40,000 stock options to purchase its common stock. On August 18,
2000, Advanced Energy acquired Sekidenko, Inc. by issuing 2,100,000 shares of
Advanced Energy common stock. Both mergers constituted tax-free reorganizations
in which Noah Holdings, Inc. and Sekidenko, Inc. became wholly owned
subsidiaries of Advanced Energy. The mergers have been accounted for separately
as poolings of interests. Accordingly, the prior period consolidated financial
statements presented below have been restated to include Noah Holdings, Inc. and
Sekidenko, Inc. as though they had always been part of Advanced Energy.
The summary consolidated financial data in this chart for the six months
ended June 30, 1999 and 2000 and as of June 30, 1999 and 2000 are derived from
Advanced Energy's unaudited financial statements, which are included in Advanced
Energy's quarterly report on Form 10-Q for the quarter ended June 30, 2000 and
unaudited financial statements of Sekidenko, Inc. The unaudited financial data
has been prepared on the same basis as the audited financial data and, in the
opinion of Advanced Energy's management, include all normal recurring
adjustments necessary for a fair statement of the results for the periods
covered. Operating results for the six months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the entire year
2000.
This financial data highlights selected financial information of Advanced
Energy but does not necessarily include all of the financial information that is
important to you. You should also read "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and the notes to those statements included in Advanced Energy's most
recent Current Report on Form 8-K, Annual Report on Form 10-K and Quarterly
Report on Form 10-Q, which are incorporated by reference in this proxy
statement/prospectus.
8
<PAGE> 15
ADVANCED ENERGY SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales....................................... $130,184 $138,074 $188,339 $134,019 $202,849 $ 81,782 $160,730
Cost of sales............................... 69,241 88,368 116,683 94,000 110,647 46,280 81,700
-------- -------- -------- -------- -------- -------- --------
Gross profit.............................. 60,943 49,706 71,656 40,019 92,202 35,502 79,030
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Research and development.................. 13,082 17,471 19,860 24,405 28,326 13,012 16,617
Sales and marketing....................... 8,936 11,357 12,568 14,616 18,325 7,619 11,241
General and administrative................ 12,032 10,620 11,681 13,121 16,225 7,255 11,448
Restructuring charge...................... -- -- -- 1,000 -- -- --
Merger costs.............................. -- -- -- 2,742 -- -- 2,333
Storm damages (recoveries)................ -- -- 2,700 (1,117) -- -- --
Purchased in-process research and
development............................. -- -- 3,080 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total operating expenses.................... 34,050 39,448 49,889 54,767 62,876 27,886 41,639
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations............... 26,893 10,258 21,767 (14,748) 29,326 7,616 37,391
-------- -------- -------- -------- -------- -------- --------
Other (expense) income...................... (442) (75) (874) 201 1,550 (35) 852
-------- -------- -------- -------- -------- -------- --------
Net income (loss) before income taxes and
minority interest....................... 26,451 10,183 20,893 (14,547) 30,876 7,581 38,243
Provision (benefit) for income taxes........ 10,110 4,055 7,962 (3,522) 11,741 3,060 13,972
Minority interest in net income (loss)...... -- -- -- -- 69 -- (84)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)........................... $ 16,341 $ 6,128 $ 12,931 $(11,025) $ 19,066 $ 4,521 $ 24,355
======== ======== ======== ======== ======== ======== ========
Basic earnings (loss) per share............. $ 0.71 $ 0.24 $ 0.49 $ (0.38) $ 0.64 $ 0.15 $ 0.78
======== ======== ======== ======== ======== ======== ========
Diluted earnings (loss) per share........... $ 0.68 $ 0.23 $ 0.48 $ (0.38) $ 0.62 $ 0.15 $ 0.75
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents/marketable
securities................................ $ 15,243 $ 12,455 $ 32,551 $ 28,714 $207,483 $221,345
Working capital............................. 41,445 43,365 77,188 63,225 257,484 285,345
Total assets................................ 71,888 72,517 136,545 107,736 325,433 356,440
Total debt.................................. 3,717 5,037 8,784 1,603 139,012 138,649
Shareholders' equity........................ 49,867 56,495 99,969 92,163 156,989 186,337
</TABLE>
9
<PAGE> 16
EMCO SELECTED FINANCIAL DATA
The selected statement of operations data for 1996 through 2000 and the
related balance sheets as of April 30, 1996, 1997, 1998, 1999 and 2000 are
derived from financial statements audited by Grant Thornton LLP, independent
accountants which are included in EMCO's annual report on Form 10-KSB for the
year ended April 30, 2000, which is attached as Appendix C.
The selected statement of operations data for the three months ended July
31, 1999 and 2000 and the related balance sheet as of July 31, 2000 are derived
from unaudited financial statements and are included in EMCO's quarterly report
on Form 10-QSB for the three months ended July 31, 2000, which is attached as
Appendix D.
This financial data highlights selected financial information of EMCO but
does not necessarily include all of the financial information that is important
to you. You should also read "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and EMCO's financial statements and the
notes to those statements, included in EMCO's most recent 10-KSB and 10-QSB,
which are attached as Appendices C and D, respectively, and incorporated by
reference in this proxy statement/prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEARS ENDED APRIL 30, JULY 31,
-------------------------------------------------------------- -----------------------
1996(1) 1997 1998 1999 2000 1999 2000
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $8,665,808 $9,910,047 $9,862,297 $9,694,913 $9,234,052 $2,227,590 $2,462,131
Cost of sales...................... 4,852,125 5,626,944 5,921,450 5,711,006 5,693,569 1,356,913 1,474,266
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit..................... 3,813,683 4,283,103 3,940,847 3,983,907 3,540,483 870,677 987,865
Operating expenses:
Research & development........... 427,032 620,931 604,167 790,252 880,932 237,627 267,302
Sales & marketing................ 2,040,468 2,404,919 2,366,339 2,142,086 1,917,928 453,997 576,983
General & administrative......... 860,540 852,130 966,245 937,873 872,223 231,354 379,855
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses........... 3,328,040 3,877,980 3,936,751 3,870,211 3,671,083 922,978 1,224,140
Income (loss) from continuing
operations....................... 485,643 405,123 4,096 113,696 (130,600) (52,301) (236,275)
Other income (expense)............. 120,110 50,863 73,961 118,214 (60,265) 28,305 19,489
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income before taxes............ 605,753 455,986 78,057 231,910 (190,865) (23,996) (216,786)
Provision (benefit) for income
tax.............................. 205,704 184,194 (8,988) 34,972 (52,005) (29,457) (93,099)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)................ $ 400,049 $ 271,792 $ 87,045 $ 196,938 $ (138,860) $ 5,461 $ (123,687)
========== ========== ========== ========== ========== ========== ==========
Basic earnings (loss) per share.... $ 0.12 $ 0.08 $ 0.02 $ 0.05 $ (0.03) $ 0.00 $ (0.03)
========== ========== ========== ========== ========== ========== ==========
Diluted earnings (loss) per
share............................ $ 0.11 $ 0.08 $ 0.02 $ 0.05 $ (0.03) $ 0.00 $ (0.03)
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED APRIL 30,
-------------------------------------------------------------- JULY 31,
1996(1) 1997 1998 1999 2000 2000
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash & cash equivalents............ $ 532,721 $ 547,837 $ 940,687 $ 697,697 $ 609,050 $ 583,610
Working capital.................... 3,441,931 3,191,593 3,413,972 3,339,423 3,431,886 3,834,697
Total assets....................... 6,835,857 7,133,628 7,165,721 7,473,106 7,767,247 8,212,156
Long-term obligations.............. 601,482 188,100 189,700 220,500 244,400 235,500
Shareholders' equity............... 5,040,961 5,398,760 5,933,234 6,281,297 6,447,284 6,862,177
Shares outstanding(2).............. 3,441,315 3,497,565 3,982,199 4,042,374 4,125,259 4,223,842
Book value per share............... $ 1.46 $ 1.54 $ 1.49 $ 1.55 $ 1.56 $ 1.62
</TABLE>
-------------------------
(1) The financial statements for fiscal year 1996 were consolidated with General
Metrology Corporation, a wholly owned subsidiary of EMCO, which was
liquidated in fiscal year 1997.
(2) Number of shares adjusted to reflect 25% stock dividend in October 1998.
10
<PAGE> 17
COMPARATIVE PER SHARE DATA
The following table sets forth certain net income (loss) and book value per
share data for Advanced Energy and EMCO, on an historical basis and pro forma
basis. Equivalent pro forma data is based upon an assumed exchange ratio of
0.2018 of a share of Advanced Energy common stock for each share of EMCO common
stock.
This information should be considered along with the historical financial
data regarding Advanced Energy and EMCO that are included in this proxy
statement/prospectus and that are incorporated by reference in this proxy
statement/prospectus.
ADVANCED ENERGY HISTORICAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR DECEMBER 31, ENDED
------------------------ JUNE 30,
1997 1998 1999 2000
----- ------ ----- ------------
<S> <C> <C> <C> <C>
Net income (loss) per share -- basic........................ $0.49 $(0.38) $0.64 $0.78
Net income (loss) per share -- diluted...................... $0.48 $(0.38) $0.62 $0.75
Book value per share........................................ -- -- $5.07 $5.95
</TABLE>
EMCO HISTORICAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED APRIL 30, ENDED
--------------------------- JULY 31,
1998 1999 2000 2000
------ ------ ------- ------------
<S> <C> <C> <C> <C>
Net income (loss) per share -- basic........................ $0.02 $0.05 $(0.03) $(0.07)
Net income (loss) per share -- diluted...................... $0.02 $0.05 $(0.03) $(0.07)
Book value per share........................................ -- -- $ 1.56 $ 1.62
</TABLE>
PRO FORMA COMBINED DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS
DECEMBER 31,(1) ENDED
------------------------ JUNE 30,
1997 1998 1999 2000(2)
----- ------ ----- --------------
<S> <C> <C> <C> <C>
Combined Net income (loss) per share -- basic............... $0.48 $(0.36) $0.62 $0.75
Combined Net income (loss) per share -- diluted............. $0.47 $(0.36) $0.60 $0.72
Combined Book value per share............................... -- -- $5.14 $6.00
</TABLE>
EQUIVALENT PRO FORMA FOR EMCO SHAREHOLDERS(3)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS
DECEMBER 31,(1) ENDED
------------------------ JUNE 30,
1997 1998 1999 2000(2)
----- ------ ----- --------------
<S> <C> <C> <C> <C>
Net income (loss) per share -- basic........................ $0.10 $(0.07) $0.12 $0.15
Net income (loss) per share -- diluted...................... $0.09 $(0.07) $0.12 $0.15
Book value per share........................................ -- -- $1.04 $1.21
</TABLE>
-------------------------
(1) Advanced Energy's fiscal year ends on December 31; EMCO's fiscal year ends
on April 30. Advanced Energy's December 31, 1997, 1998 and 1999 fiscal years
have been combined with EMCO's April 30, 1998, 1999 and 2000 fiscal years
for the Pro Forma Combined Data and Equivalent Pro Forma for EMCO
shareholders.
(2) Represents Advanced Energy's quarterly results for the six months ended June
30, 2000 combined with EMCO's quarterly results for the six months ended
July 31, 2000. EMCO's quarterly results for the six months ended July 31,
2000 have been included both in the fiscal year ended December 31, 1999 and
the six months ended June 30.
(3) Represents Pro Forma Combined Data per share multiplied by an assumed
exchange ratio of 0.2018.
11
<PAGE> 18
MARKET PRICE AND DIVIDEND INFORMATION
MARKET PRICE INFORMATION
Advanced Energy's common stock is quoted on the Nasdaq National Market
under the symbol "AEIS." EMCO's common stock is quoted on the Nasdaq National
Market under the symbol "EMCO." The following tables show the range of high and
low bid prices for Advanced Energy's and EMCO's common stock on the Nasdaq
National Market for the periods indicated. These prices reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions. The EMCO prices also reflect a 25% stock dividend
paid in October 1998.
ADVANCED ENERGY
<TABLE>
<CAPTION>
HIGH BID LOW BID
-------- -------
<S> <C> <C>
FY 1998
First quarter............................................. $17.63 $10.00
Second quarter............................................ 15.06 11.00
Third quarter............................................. 12.38 6.00
Fourth quarter............................................ 22.88 5.63
FY 1999
First quarter............................................. 29.50 19.25
Second quarter............................................ 36.63 23.50
Third quarter............................................. 43.38 30.25
Fourth quarter............................................ 49.88 30.38
FY 2000
First quarter............................................. 77.44 42.94
Second quarter............................................ 72.88 35.25
Third quarter (through September 18)...................... 63.00 35.75
</TABLE>
EMCO
<TABLE>
<CAPTION>
HIGH BID LOW BID
-------- -------
<S> <C> <C>
FY 1999
First quarter............................................. $6.25 $4.00
Second quarter............................................ 4.63 3.20
Third quarter............................................. 5.03 4.00
Fourth quarter............................................ 5.00 4.00
FY 2000
First quarter............................................. 6.25 4.25
Second quarter............................................ 7.94 4.50
Third quarter............................................. 9.50 4.75
Fourth quarter............................................ 8.13 5.81
FY 2001
First quarter............................................. 10.75 5.56
Second quarter (through September 18)..................... 10.13 6.48
</TABLE>
DIVIDEND INFORMATION
Advanced Energy has not declared or paid any cash dividends on its common
stock since prior to 1994, when Advanced Energy was an S corporation for tax
purposes. Advanced Energy currently intends to retain all of its future earnings
to finance its business. In addition, Advanced Energy's revolving credit
facility prohibits Advanced Energy from declaring or paying cash dividends on
its common stock without
12
<PAGE> 19
the lender's consent. As a result, Advanced Energy does not anticipate paying
any cash or other dividends on its common stock for the foreseeable future.
EMCO has never paid cash dividends on its common stock and currently has no
plans to do so in the foreseeable future. EMCO paid a 25% stock dividend in
October 1998. As a result, EMCO issued 804,189 shares of its common stock. EMCO
has no restrictions on its ability to pay dividends.
RECENT MARKET PRICE INFORMATION
On July 5, 2000, the last trading day before announcement of the proposed
merger, the closing price of the Advanced Energy common stock on the Nasdaq
National Market was $52.6875 per share and the closing price of the EMCO common
stock on the Nasdaq National Market was $7.75 per share. On September 18, 2000,
the latest practicable trading day before the printing of this proxy
statement/prospectus, the closing price of the Advanced Energy common stock on
the Nasdaq National Market was $42.38 per share and the closing price of the
EMCO common stock on the Nasdaq National Market was $8.00 per share.
At an exchange ratio of 0.2018 shares of Advanced Energy common stock for
each share of EMCO common stock, the equivalent per share closing price for the
EMCO common stock would have been $10.63 on July 5, 2000 and $8.55 on September
18, 2000. These equivalent per share prices are calculated by multiplying the
closing prices of the Advanced Energy common stock by the assumed exchange
ratio.
Because the total number of shares of Advanced Energy common stock that
Advanced Energy is obligated to issue in the merger is fixed at 900,000, the
market value of the Advanced Energy common stock that you will receive in the
merger will fluctuate prior to and following the merger. Advanced Energy will
not be required to issue more than 900,000 shares of its common stock to the
EMCO shareholders and option holders, even if the market price of the Advanced
Energy common stock drops dramatically. YOU SHOULD OBTAIN CURRENT MARKET
QUOTATIONS FOR ADVANCED ENERGY COMMON STOCK.
NUMBER OF EMCO SHAREHOLDERS
As of September 21, 2000, there were 449 record holders of EMCO common
stock, as shown on the records of the transfer agent for EMCO's common stock.
13
<PAGE> 20
RISK FACTORS
By voting in favor of the merger, you will be choosing to invest in
Advanced Energy common stock. Investing in Advanced Energy's securities involves
a high degree of risk. You should carefully consider the risks and uncertainties
described below and the other information in this proxy statement/prospectus and
in the documents incorporated by reference in this proxy statement/prospectus
before deciding whether to vote in favor of the merger.
RISKS RELATED TO THE MERGER
WE MAY NOT ACHIEVE THE BENEFITS WE EXPECT FROM THE MERGER.
To realize the benefits or synergies we expect from the merger, we will
need to address a number of post-merger matters in a timely and efficient
manner. Key integration issues include:
- retaining and assimilating the key personnel of EMCO;
- marketing EMCO's semiconductor products and services to Advanced Energy's
customers;
- retaining EMCO's existing customers and strategic partners; and
- perfecting and commercializing EMCO's Mach One technology for digital
flow controllers used to improve semiconductor manufacturing.
The successful execution of these post-merger matters will involve
considerable risk and may not be successful. These risks include:
- Advanced Energy is inexperienced with flow control technology and,
accordingly, may not be able to integrate the technology with Advanced
Energy's existing products to provide the integrated solutions it
anticipates;
- integration of EMCO's operations with Advanced Energy's existing
operations may require significant diversion of management's attention
and other Advanced Energy resources;
- we may incur unanticipated expenses related to technology integration;
and
- the majority of EMCO's present sales are not to the semiconductor capital
equipment industry.
The combined company may not succeed in addressing these risks or other
problems encountered in connection with the merger, which would prevent us from
achieving the benefits we expect from the merger. Addressing some of these
risks, by the diversion of resources or the incurrence of significant costs,
could harm Advanced Energy's business and financial condition.
EMCO SHAREHOLDERS AND OPTION HOLDERS WILL RECEIVE A FIXED NUMBER OF SHARES OF
ADVANCED ENERGY COMMON STOCK DESPITE CHANGES IN THE MARKET VALUE OF EMCO COMMON
STOCK OR ADVANCED ENERGY COMMON STOCK.
Each share of EMCO common stock will be exchanged in the merger for at
least 0.2018 of a share of Advanced Energy common stock. The actual exchange
ratio will depend on the number of shares of EMCO common stock outstanding or
subject to options at the effective time of the merger. There will be no
adjustment for changes in the market price of EMCO common stock or Advanced
Energy common stock. In addition, neither EMCO nor Advanced Energy may terminate
the merger agreement solely because of changes in the market prices of their
common stock. Accordingly, the specific dollar value of Advanced Energy common
stock that EMCO shareholders and option holders will receive upon the merger's
completion will depend on the market value of Advanced Energy common stock when
the merger is completed and may decrease from the date you submit your proxy.
The share price of Advanced Energy common stock is by nature subject to the
general price fluctuations in the market for publicly traded equity securities
and has experienced significant volatility. We urge you to obtain recent market
quotations for Advanced Energy common stock and EMCO common stock. Neither
Advanced Energy nor EMCO can predict the market price of Advanced Energy common
stock at any time before or after the completion of the merger. See "-- Risks
Related to Advanced Energy's Business -- The market price of Advanced Energy
common stock is highly volatile, which could lead to losses for individual
investors and costly securities class action litigation" on page 16.
14
<PAGE> 21
MAINTAINING EMCO'S MANUFACTURING FACILITY COULD BE COSTLY.
Advanced Energy intends to maintain EMCO's manufacturing facility in
Longmont, Colorado. Although members of Advanced Energy's management team have
visited the Longmont facility, they will not fully understand EMCO's
manufacturing process, or the strengths and shortcomings of the manufacturing
facility, until after the merger has been completed and they have been operating
the facility for a while. Managing the Longmont facility and integrating its
operations with Advanced Energy's facilities throughout the country may involve
difficulties and costs that Advanced Energy does not currently anticipate. The
diversion of Advanced Energy resources, including management's attention and
financial expenses, to address unanticipated difficulties or pay unanticipated
costs could harm Advanced Energy's operations and results of operations.
ADVANCED ENERGY'S AND EMCO'S REASONS FOR THE MERGER ARE BASED IN PART ON
EXPECTATIONS.
Advanced Energy's and EMCO's evaluations of the potential benefits of the
merger, particularly relating to EMCO's Mach One flow controller useable in the
semiconductor manufacturing industry, were based in part on certain
forward-looking information including the other company's financial and new
product projections. Certain events or circumstances, many of which may be
outside the control of Advanced Energy and EMCO, may cause actual results to
differ materially from those projections. In addition, because the projections
were made by management of the other company, Advanced Energy's or EMCO's
evaluation of the projections may be based on unstated but inaccurate
assumptions.
EMCO'S OFFICERS AND DIRECTORS HAVE INTERESTS IN THE MERGER THAT MAY INFLUENCE
THEM TO SUPPORT THE MERGER.
The directors and officers of EMCO participate in arrangements with
Advanced Energy that provide them with interests in the merger that are
different from, or in addition to, yours. These interests include an employment
arrangement for Charles E. Miller, EMCO's current president, and continued
indemnification from certain liabilities. In addition options held by a director
of EMCO will become fully vested as a result of the merger.
These interests could cause the directors and officers of EMCO to be more
likely to favor the merger than if they did not hold these interests. See "The
Merger -- Interests of EMCO's Management in the Merger" on page 38.
A MEMBER OF EMCO'S BOARD OF DIRECTORS IS ALSO A MEMBER OF ADVANCED ENERGY'S
BOARD OF DIRECTORS, WHICH COULD INFLUENCE HIS VIEW OF THE MERGER, PARTICULARLY
IF ANOTHER COMPANY MAKES AN ALTERNATIVE PROPOSAL TO ACQUIRE EMCO.
Trung Doan, a director of EMCO, was appointed to the Board of Directors of
Advanced Energy one week after the merger agreement was signed. Mr. Doan's
affiliation with both EMCO and Advanced Energy could influence his view of the
merger. For example, if another company were to make an alternative proposal to
acquire EMCO, Mr. Doan's affiliation with Advanced Energy could prevent him from
being impartial in evaluating whether the alternative proposal would be more
favorable to the EMCO shareholders. In this circumstance, Mr. Doan could be
prohibited from participating in both EMCO and Advanced Energy directors'
meetings on this subject, which would deprive both companies' boards of
directors of a valuable advisor.
RISKS RELATED TO ADVANCED ENERGY'S BUSINESS
ADVANCED ENERGY'S QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT
FLUCTUATIONS, WHICH COULD NEGATIVELY IMPACT ITS FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND STOCK PRICE.
Advanced Energy's quarterly operating results have fluctuated significantly
and it expects to continue to experience significant fluctuations. Downward
fluctuations in its quarterly results have historically
15
<PAGE> 22
resulted in decreases in the price of its common stock. Quarterly operating
results are affected by a variety of factors, many of which are beyond Advanced
Energy's control. These factors include:
- changes or slowdowns in economic conditions in the semiconductor and
semiconductor capital equipment industries and other industries in which
its customers operate;
- the timing and nature of orders placed by major customers;
- customer cancellations of previously placed orders and shipment delays;
- pricing competition from its competitors;
- component shortages resulting in manufacturing delays;
- changes in customers' inventory management practices;
- the introduction of new products by Advanced Energy or its 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. Advanced
Energy's customers exert pressure on Advanced Energy to reduce prices, shorten
delivery times and extend payment terms. These pressures could lead to
significant changes in its quarterly operating results.
In the past, Advanced Energy has 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 its operating results in the
applicable quarter or quarters.
Advanced Energy's operating results in one or more future quarters may fall
below the expectations of analysts and investors. In those circumstances, the
trading price of Advanced Energy's common stock would likely decrease.
THE MARKET PRICE OF ADVANCED ENERGY COMMON STOCK IS HIGHLY VOLATILE, WHICH COULD
LEAD TO LOSSES FOR INDIVIDUAL INVESTORS AND COSTLY SECURITIES CLASS ACTION
LITIGATION.
The market for technology stocks, including Advanced Energy common stock,
has experienced significant price and volume fluctuations. These fluctuations
often have been unrelated or disproportionate to the operating performance of
the companies. From Advanced Energy's IPO in November 1995 through September 18,
2000, the closing prices of its common stock on the Nasdaq National Market have
ranged from $3.50 to $73.25. The market for Advanced Energy common stock likely
will continue to be subject to fluctuations. Many factors could cause the
trading price of Advanced Energy's common stock to fluctuate substantially,
including the following:
- future announcements concerning its business, its technology, its
customers or its competitors;
- variations in its operating results;
- introduction of new products or changes in product pricing policies by
Advanced Energy, its competitors or its customers;
- changes in earnings estimates by securities analysts or announcements of
operating results that are not aligned with the expectations of analysts
and investors;
- economic and competitive conditions in the industries in which its
customers operate; and
- general stock market trends.
In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. Many technology companies have been subject
to this type of litigation. Advanced Energy may also become involved in this
type of litigation. Litigation is often expensive and diverts management's
attention and resources, which could significantly harm its business, financial
condition and results of operations.
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THE SEMICONDUCTOR AND SEMICONDUCTOR CAPITAL EQUIPMENT INDUSTRIES ARE HIGHLY
VOLATILE AND ADVANCED ENERGY'S 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 capital equipment. These reductions, in turn, have significantly
reduced demand for Advanced Energy's systems. During downturns, some of Advanced
Energy's customers have drastically reduced their orders for Advanced Energy's
systems and have implemented substantial cost reduction programs. Sales to
customers in the semiconductor capital equipment industry accounted for 61% of
Advanced Energy's total sales in 1997, 52% in 1998, 65% in 1999 and 69% in the
first six months of 2000. Advanced Energy expects that it will continue to
depend significantly on sales to the semiconductor and semiconductor capital
equipment industries for the foreseeable future.
A rapid decrease in demand for Advanced Energy's products can occur with
limited advance notice because it supplies subsystems to equipment manufacturers
and makes a substantial and increasing proportion of its shipments on a
just-in-time basis. This decrease in demand can adversely impact its business
and financial results disproportionately because of its unanticipated nature.
A SIGNIFICANT PORTION OF ADVANCED ENERGY'S SALES ARE CONCENTRATED AMONG A FEW
CUSTOMERS.
Advanced Energy's four largest customers accounted for 50% of its total
sales in 1997, 46% in 1998, 53% in 1999 and 58% in the first half of 2000.
Advanced Energy's largest customer accounted for 31% of its total sales in 1997,
24% in 1998, 34% in 1999 and 40% in the first half of 2000. The loss of any of
these customers or a material reduction in any of their purchase orders would
significantly harm Advanced Energy's business, financial condition and results
of operations.
THE MARKETS IN WHICH ADVANCED ENERGY OPERATES ARE HIGHLY COMPETITIVE.
Advanced Energy faces substantial competition, primarily from established
companies, some of which have greater financial, marketing and technical
resources than it does. Advanced Energy's primary competitors are ENI, a
subsidiary of Astec (BSR) plc, Applied Science and Technology (ASTeX),
Huettinger, Shindingen, Kyosan, Comdel and Daihen. Advanced Energy expects that
its competitors will continue to develop new products in direct competition with
it, improve the design and performance of their systems and introduce new
systems with enhanced performance characteristics.
To remain competitive, Advanced Energy needs to continue to improve and
expand its systems and system offerings. Advanced Energy also needs to maintain
a high level of investment in research and development and expand its sales and
marketing efforts, particularly outside of the United States. Advanced Energy
may not be able to make the technological advances and investments necessary to
remain competitive.
New products developed by competitors or more efficient production by
competitors could increase pressure on the pricing of Advanced Energy's 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 Advanced Energy to make significant price reductions
to avoid losing orders. Further, Advanced Energy's current and prospective
customers consistently exert pressure on it to lower prices, shorten delivery
times and improve the capability of Advanced Energy's systems. Failure to
respond adequately to these pressures could result in a loss of customers or
orders.
ADVANCED ENERGY MAY NOT BE ABLE TO INTEGRATE ITS ACQUISITIONS.
Advanced Energy has experienced significant growth through acquisitions and
continues to actively pursue acquisition opportunities. Prior to 1997, Advanced
Energy did not make any significant acquisitions. In the three years from 1997
through 1999, Advanced Energy acquired four companies. In the first seven months
of 2000, Advanced Energy has acquired or entered into agreements to acquire
three additional companies. Many of Advanced Energy's acquisitions to date have
been in markets in which Advanced Energy has limited experience. Advanced Energy
may not be able to compete successfully in these
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markets or might not be able to operate the acquired businesses efficiently.
Advanced Energy's business and results of operations could be harmed if
integrating these acquisitions results in substantial costs, delays or other
operational or financial problems. Further, the increased pace of Advanced
Energy's acquisitions has required Advanced Energy to try to integrate multiple
acquisitions simultaneously. This has exponentially increased the demands placed
on Advanced Energy's management team and has decreased the time and effort that
management can give to integrating each acquisition, while it continues to
manage Advanced Energy's existing business.
Future acquisitions could place additional strain on Advanced Energy's
operations and management. Advanced Energy's ability to manage future
acquisitions will depend on Advanced Energy's success in:
- evaluating new markets and investments;
- monitoring operations;
- controlling costs;
- integrating acquired operations and personnel;
- maintaining effective quality controls; and
- expanding Advanced Energy's internal management, technical and accounting
systems.
Also, in connection with future acquisitions Advanced Energy 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.
ADVANCED ENERGY MAY BE UNABLE TO MANAGE ITS GROWTH EFFECTIVELY.
Advanced Energy has been experiencing a period of growth and expansion.
This growth and expansion is placing significant demands on Advanced Energy's
management and its operating systems. Advanced Energy needs to continue to
improve and expand its 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 Advanced Energy's growth, it may need to spend
significant amounts of cash to:
- fund increases in expenses;
- acquire additional facilities and equipment;
- 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 Advanced Energy does not have enough cash on hand, cash generated from
its operations or cash available under its credit facility to meet these cash
requirements, Advanced Energy will need to seek alternative sources of financing
to carry out growth and operating strategies. Advanced Energy may not be able to
raise needed cash on acceptable terms, 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, Advanced Energy will be
required to modify its growth and operating plans to the extent of available
funding.
SHORTAGES OF COMPONENTS NECESSARY FOR ADVANCED ENERGY'S PRODUCT ASSEMBLY CAN
DELAY SHIPMENTS.
Manufacturing power conversion and control systems requires numerous
electronic components. Dramatic growth in the electronics industry has
significantly increased demand for these components, particularly in the second
and third quarters of 2000. This demand has resulted in periodic shortages and
allocations of needed components, and Advanced Energy expects to experience
additional shortages and allocations from time to time. Shortages and
allocations could cause shipping delays for Advanced Energy's systems, adversely
affecting results of operations. Shipping delays also could damage relationships
with current and prospective customers.
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DEPENDENCE ON SOLE AND LIMITED SOURCE SUPPLIERS COULD AFFECT ADVANCED ENERGY'S
ABILITY TO MANUFACTURE PRODUCTS AND SYSTEMS.
Reliance on sole and limited source suppliers for some of Advanced Energy's
components and subassemblies that are critical to the manufacturing of its
systems 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
- the potential inability of suppliers to develop technologically advanced
products to support Advanced Energy's growth and development of new
systems.
Advanced Energy believes that in time it 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 Advanced Energy to redesign its systems,
resulting in increased costs and likely shipping delays. Advanced Energy may be
unable to manufacture the parts internally or redesign its systems, which could
result in further costs and shipping delays. These increased costs would
decrease its profit margins if Advanced Energy could not pass the costs to its
customers. Further, shipping delays could damage Advanced Energy's relationships
with current and potential customers and have a material adverse effect on its
business and results of operations.
ADVANCED ENERGY IS HIGHLY DEPENDENT ON ITS INTELLECTUAL PROPERTY, BUT MAY NOT BE
ABLE TO PROTECT IT ADEQUATELY.
Advanced Energy's success depends in part on its proprietary technology.
Advanced Energy attempts to protect its intellectual property rights through
patents, copyrights, trademarks, non-disclosure agreements and other protective
instruments. However, Advanced Energy might not be able to protect its
technology, and competitors might be able to develop similar technology
independently. In addition, the laws of certain foreign countries might not
afford intellectual property the same protection as do the laws of the United
States. For example, Advanced Energy's intellectual property is not protected by
patents in several countries in which it does business, and it has limited
patent protection in certain other countries. The costs of applying for patents
in foreign countries and translating the applications into foreign languages
require Advanced Energy to select carefully the inventions for which it applies
for patent protection and the countries in which it seeks such protection.
Generally, Advanced Energy has concentrated its 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. Advanced Energy's
inability or failure to obtain adequate patent protection in a particular
country could have a material adverse effect on its ability to compete
effectively in that country.
Advanced Energy's patents also might not be sufficiently broad to protect
its technology, and any existing or future patents might be challenged,
invalidated or circumvented. Additionally, rights under Advanced Energy's
patents may not provide meaningful competitive advantages.
Advanced Energy does not believe that any of its 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 Advanced Energy, to protect its trade secrets or know-how, to defend itself
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 Advanced Energy's efforts. Moreover, an
adverse determination in any litigation could cause Advanced Energy to lose
proprietary rights, subject it to significant liabilities to others, require
Advanced Energy to seek licenses or alternative technologies from third parties
or prevent it from manufacturing or selling its products. Any of these events
could have a material adverse effect on its business, financial condition and
results of operations.
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ADVANCED ENERGY MUST CONSTANTLY DEVELOP AND SELL NEW SYSTEMS IN ORDER TO KEEP UP
WITH RAPID TECHNOLOGICAL CHANGES.
The markets for Advanced Energy's systems and the markets in which its
customers compete are characterized by ongoing technological developments and
changing customer requirements. Advanced Energy must continue to improve
existing systems and to develop new systems that keep pace with technological
advances and meet the needs of customers in order to succeed. Advanced Energy
might not be able to continue to improve its systems or develop new systems. The
systems Advanced Energy does develop might not be cost-effective or introduced
in a timely manner. Developing and introducing new systems may involve
significant and uncertain costs. Advanced Energy's business, financial condition
and results of operations, as well as customer relationships, could be adversely
affected if it fails to develop or introduce improved systems and new systems in
a timely manner.
ADVANCED ENERGY MUST ACHIEVE DESIGN WINS TO RETAIN EXISTING CUSTOMERS AND TO
OBTAIN NEW CUSTOMERS.
The constantly changing nature of semiconductor fabrication technology
causes equipment manufacturers to continually design new systems. Advanced
Energy often must work with these manufacturers early in their design cycles to
modify its 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. Design wins are critical to Advanced Energy in order to
retain existing customers and to obtain new customers.
Advanced Energy typically must customize its systems for particular
customers to use in their equipment to achieve design wins. This customization
increases Advanced Energy's research and development expenses and can strain
Advanced Energy 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. Advanced Energy's sales and growth could experience material and
prolonged adverse effects if it fails to achieve design wins. In addition,
design wins do not always result in substantial sales or profits.
Advanced Energy believes that equipment manufacturers often select their
suppliers based on factors such as long-term relationships. Accordingly, it may
have difficulty achieving design wins from equipment manufacturers who are not
currently customers. In addition, Advanced Energy must compete for design wins
for new systems and products of existing customers, including those with whom it
has had long-term relationships.
ADVANCED ENERGY'S EFFORTS TO BE RESPONSIVE TO CUSTOMERS MAY LEAD TO THE
INCURRENCE OF COSTS THAT ARE NOT READILY RECOVERABLE.
Advanced Energy 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.
Advanced Energy often requires long lead times for development of its
systems during which times it must expend substantial funds and management
effort. Advanced Energy may incur significant development and other expenses as
Advanced Energy develops its systems without realizing corresponding revenue in
the same period, or at all.
ADVANCED ENERGY'S SUCCESS DEPENDS UPON ITS ABILITY TO ATTRACT AND RETAIN KEY
PERSONNEL.
Advanced Energy's success depends upon the continued efforts of its senior
management team and its technical, marketing and sales personnel. These
employees may voluntarily terminate their employment at any time. Advanced
Energy's success also depends on its 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 its strategy can be extremely competitive and
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time-consuming. Advanced Energy may not be able to successfully retain existing
personnel or identify, hire and integrate new personnel. If Advanced Energy
loses the services of key personnel for any reason, including retirement, or is
unable to attract additional qualified personnel, Advanced Energy's business,
financial condition and results of operations could be materially and adversely
affected.
ADVANCED ENERGY CONDUCTS MANUFACTURING AT ONLY A FEW SITES AND THEIR SITES ARE
NOT GENERALLY INTERCHANGEABLE.
Advanced Energy conducts the majority of its manufacturing at its
facilities in Fort Collins, Colorado and Voorhees, New Jersey. Advanced Energy
also conducts manufacturing in Austin, Texas, Fridley, Minnesota, San Jose,
California and Vancouver, Washington. Each facility generally manufactures
different systems. In July 1997, a severe rainstorm in Fort Collins caused
substantial damage to its Fort Collins facilities and to some equipment and
inventory. The damage caused Advanced Energy to stop manufacturing at that
facility temporarily and prevented it from resuming full production there until
September 1997. Advanced Energy's insurance policies did not cover all of the
costs that it incurred in connection with the rainstorm. Future natural or other
uncontrollable occurrences at any of Advanced Energy's manufacturing facilities
that negatively impact its manufacturing processes may not be fully covered by
insurance and could cause significant harm to its operations and results of
operations.
ADVANCED ENERGY MIGHT NOT BE ABLE TO COMPETE SUCCESSFULLY IN INTERNATIONAL
MARKETS OR TO MEET THE SERVICE AND SUPPORT NEEDS OF ADVANCED ENERGY'S
INTERNATIONAL CUSTOMERS.
Advanced Energy's customers increasingly require service and support on a
worldwide basis as the markets in which Advanced Energy competes become
increasingly globalized. Advanced Energy maintains sales and service offices in
Germany, Japan, South Korea, the United Kingdom, and Taiwan.
Sales to customers outside the United States accounted for 22% of Advanced
Energy's total sales in 1997, 27% in 1998, 27% in 1999 and 28% in the first six
months of 2000. Advanced Energy expects international sales to continue to
represent a significant portion of its 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 Advanced Energy, to penetrate.
Providing support services for Advanced Energy's systems on a worldwide
basis also is subject to various risks, including:
- the ability to hire qualified support personnel;
- maintenance of Advanced Energy's standard level of support; and
- differences in local customs and practices.
Advanced Energy's international activities are also subject to the
difficulties of managing overseas distributors and representatives and managing
foreign subsidiary operations.
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FLUCTUATIONS IN THE CURRENCY EXCHANGE RATE BETWEEN THE U.S. DOLLAR AND FOREIGN
CURRENCIES COULD ADVERSELY AFFECT ADVANCED ENERGY'S OPERATING RESULTS.
A portion of Advanced Energy's sales is subject to currency exchange risks
as a result of its international operations. Advanced Energy has experienced
fluctuations in foreign currency exchange rates, particularly against the
Japanese yen. Beginning in 1997, Advanced Energy entered into various forward
foreign exchange contracts as a hedge against currency fluctuations in the yen.
Advanced Energy has not employed hedging techniques with respect to any other
currencies. Advanced Energy's current or any future hedging techniques might not
protect it adequately against sudden or substantial currency fluctuations.
ADVANCED ENERGY MUST MAINTAIN MINIMUM LEVELS OF CUSTOMIZED INVENTORY TO SUPPORT
CERTAIN CUSTOMER DELIVERY REQUIREMENTS.
Advanced Energy must keep a relatively large number and variety of
customized systems in its inventory to meet client delivery requirements because
a substantial proportion of its business involves the just-in-time shipment of
systems. Advanced Energy's inventory may become obsolete as it develops new
systems and as its customers develop new systems. Inventory obsolescence could
have a material adverse effect on its financial condition and results of
operations.
ADVANCED ENERGY IS SUBJECT TO NUMEROUS GOVERNMENTAL REGULATIONS.
Advanced Energy is subject to federal, state, local and foreign
regulations, including environmental regulations and regulations relating to the
design and operation of its power conversion and control systems. Advanced
Energy must ensure that its systems meet certain safety and emissions standards,
many of which vary across the states and countries in which its systems are
used. For example, the European Union has published directives specifically
relating to power supplies. Advanced Energy must comply with these directives in
order to ship its systems into countries that are members of the European Union.
In the past, Advanced Energy has invested significant resources to redesign its
systems to comply with these directives. Advanced Energy believes it is in
compliance with current applicable regulations, directives and standards and has
obtained all necessary permits, approvals and authorizations to conduct its
business. However, compliance with future regulations, directives and standards
could require Advanced Energy to modify or redesign certain systems, make
capital expenditures or incur substantial costs. If Advanced Energy does not
comply with current or future regulations, directives and standards:
- it could be subject to fines;
- its production could be suspended; and
- it could be prohibited from offering particular systems in specified
markets.
ADVANCED ENERGY MAY INVEST IN START-UP COMPANIES AND COULD LOSE ITS ENTIRE
INVESTMENT.
Advanced Energy has invested in start-up companies, and may invest in other
start-up companies, that develop products and technologies which Advanced Energy
believes may provide it with future benefits. These investments may not provide
any benefit, and Advanced Energy may not achieve any economic return on any of
these investments. Advanced Energy's investments in these start-up companies are
subject to all of the risks inherent in investing in companies that are not
established. Advanced Energy could lose all or any part of its investments in
these companies.
ADVANCED ENERGY LEASES ITS FORT COLLINS, COLORADO FACILITIES AND A CONDOMINIUM
FROM ENTITIES IN WHICH TWO INDIVIDUALS WHO ARE INSIDERS AND MAJOR STOCKHOLDERS
HAVE FINANCIAL INTERESTS.
Advanced Energy leases its executive offices and manufacturing facilities
in Fort Collins, Colorado from Prospect Park East Partnership and from Sharp
Point Properties, LLC. Douglas S. Schatz, Advanced Energy's Chairman and Chief
Executive Officer, holds a 26.7% interest in each of the leasing entities. G.
Brent Backman, a director of Advanced Energy, holds a 6.6% interest in each of
the leasing entities.
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Aggregate rental payments under these leases for 1999 totaled approximately $1.7
million. Advanced Energy also leases a condominium in Breckenridge, Colorado to
provide rewards and incentives to its customers, suppliers and employees.
Advanced Energy leases 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 1999 totaled
approximately $36,000.
ADVANCED ENERGY EXECUTIVE OFFICERS AND DIRECTORS OWN A SIGNIFICANT PERCENTAGE OF
ADVANCED ENERGY'S COMMON STOCK, WHICH COULD ENABLE THEM TO CONTROL ADVANCED
ENERGY'S BUSINESS AND AFFAIRS.
Advanced Energy's executive officers and directors together owned
approximately 40.9% of its outstanding common stock outstanding as of August 18,
2000. Douglas S. Schatz, Chairman and Chief Executive Officer, owned
approximately 35.2% of Advanced Energy's common stock outstanding as of
September 1, 2000. These stockholdings give Advanced Energy's 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
on a particular matter, Advanced Energy's executive officers and directors
collectively, and Mr. Schatz individually, may be able to elect all of the
members of the board of directors and to control Advanced Energy's business and
affairs for the foreseeable future.
ANTI-TAKEOVER PROVISIONS LIMIT THE ABILITY OF A PERSON OR ENTITY TO ACQUIRE
CONTROL OF ADVANCED ENERGY.
Advanced Energy's 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 Advanced Energy's 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, Advanced Energy is 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 Advanced Energy. The effect of
these provisions may be to limit the price that investors are willing to pay in
the future for Advanced Energy's securities. These provisions might also
discourage potential acquisition proposals or could diminish the opportunities
for Advanced Energy's 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 its common stock.
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EMCO SPECIAL MEETING
DATE, TIME AND PLACE; MATTERS TO BE CONSIDERED
We are sending you this proxy statement/prospectus as part of the
solicitation of proxies by EMCO for use at the special meeting of EMCO
shareholders scheduled to be held at 9:00 a.m. local time on Monday October 23,
2000, at EMCO's offices at 600 Diagonal Highway, Longmont, Colorado. We are
first mailing this proxy statement/ prospectus, including a notice of the
special meeting of EMCO shareholders and a form of proxy on or about September
22, 2000.
At the special meeting, EMCO shareholders of record will be asked to
consider and vote upon the merger proposal and transact such other business as
may properly come before the special meeting.
THE BOARD OF DIRECTORS OF EMCO HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND HAS DETERMINED THAT THE MERGER IS ADVISABLE, FAIR TO YOU AND IN
YOUR BEST INTERESTS. THE BOARD OF DIRECTORS OF EMCO UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
RECORD DATE; QUORUM; VOTING AT THE SPECIAL MEETING
EMCO's board of directors has fixed the open of business on September 21,
2000 as the record date for the determination of shareholders entitled to notice
of, and to vote at, the special meeting. Only holders of record of EMCO common
stock at the open of business on the record date are entitled to notice of and
to vote at the special meeting. As of the record date, there were 4,225,342
outstanding shares of EMCO common stock held of record by 449 persons.
The presence, in person or by proxy, of the holders of at least a majority
of the shares entitled to vote at the special meeting is necessary to constitute
a quorum. Pursuant to the Colorado Business Corporations Act and EMCO's articles
of incorporation and bylaws, approval of the merger agreement requires the
affirmative vote of at least 66 2/3% of the outstanding shares of EMCO common
stock entitled to vote at the special meeting. Charles Miller, William A.
Ringer, Saied Hosseini, Walter Kluck, Thomas G. Miller, David S. Miller and
Trung Doan, who together hold approximately 60.0% of the EMCO shares entitled to
vote on the merger agreement, have signed voting agreements appointing Advanced
Energy their proxy to vote in favor of the merger.
Only shares affirmatively voted for approval of the merger agreement,
including shares represented by properly executed proxies that do not contain
voting instructions, will be counted as votes "FOR" the merger agreement.
Brokers who hold shares of EMCO common stock in street name for a customer
who is the beneficial owner of those shares may not deliver a proxy to vote the
customer's shares without specific instructions from the customer. These
non-voted shares are referred to as broker non-votes. EMCO common stock held in
street name will only be voted if the broker receives a completed voter
instruction form from the beneficial owner of those shares. A voter instruction
form has been sent to EMCO shareholders with this proxy statement/prospectus.
Abstentions and broker non-votes will be included in determining the
presence of a quorum, but will have the same effect as voting against the merger
agreement.
A list of shareholders of EMCO is available at the offices of EMCO and will
be available at the special meeting.
SECURITY OWNERSHIP OF MANAGEMENT; EMCO VOTING AGREEMENTS
As of the record date, EMCO's directors, executive officers, their
affiliates and a principal shareholder owned 2,534,583 shares of EMCO common
stock. Charles Miller, William A. Ringer, Saied Hosseini, Walter Kluck, Thomas
G. Miller, David S. Miller and Trung Doan, who together hold approximately 60.0%
of the EMCO shares entitled to vote on the merger agreement, have signed voting
agreements appointing Advanced Energy their proxy to vote in favor of the
merger.
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SOLICITATION OF PROXIES; REVOCATION
Shares of EMCO common stock represented by properly executed proxies
received in time for the special meeting will be voted in the manner specified
in the proxy. Proxies that are properly executed but do not contain instructions
will be voted "FOR" approval and adoption of the merger proposal. It is not
expected that any matter other than approval and adoption of the merger proposal
will be brought before the special meeting, but, if other matters are properly
presented, the persons named in such proxy will have authority, unless authority
to do so is withheld in the proxy, to vote in accordance with their judgment on
any other matter, including without limitation, any proposal to adjourn or
postpone the special meeting or otherwise concerning the conduct of the special
meeting.
A shareholder may revoke a proxy at any time prior to its exercise by (i)
delivering, prior to the special meeting, to EMCO's Corporate Secretary, a
written notice of revocation bearing a later date or time than the proxy; (ii)
delivering to EMCO's Corporate Secretary, a duly executed proxy bearing a later
date or time than the revoked proxy; or (iii) attending the special meeting and
voting in person. Attendance at the special meeting will not by itself
constitute a revocation of a proxy.
EXPENSES
EMCO will bear the cost of the solicitation of proxies from its
shareholders, and EMCO and Advanced Energy are each bearing one-half the cost of
printing and mailing this proxy statement/prospectus. In addition to the
solicitation by mail, EMCO's directors, officers and employees may solicit
proxies from its shareholders in person or by telephone, telegram or
electronically. Those directors, officers and employees will not be additionally
compensated for that solicitation, but may be reimbursed for out-of-pocket
expenses in connection therewith. EMCO has also retained a proxy solicitation
firm, ADP Investor Communication Services, to aid it in the solicitation
process. EMCO will pay that firm a fee of $1,650, plus reasonable expenses.
Arrangements will also be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation materials to the
beneficial owners of shares held of record by such persons. EMCO will reimburse
those custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses in connection therewith.
AVAILABILITY OF INDEPENDENT ACCOUNTANTS
Representatives of Grant Thornton LLP, independent auditors of EMCO, will
be present at the special meeting, will have the opportunity to make a statement
should they desire to do so and are expected to be available to respond to
appropriate questions.
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THE MERGER
BACKGROUND OF THE MERGER
Beginning in June 1999, the EMCO board of directors began to explore
various strategic alliances and arrangements for its semiconductor business.
EMCO received one proposal in June 1999 which involved a distribution agreement
for EMCO's products and a second proposal in the fall of 1999 to distribute the
Mach One product. Another proposal was evaluated beginning in September 1999
which included a buyout of the semiconductor portion of EMCO's business for cash
plus a royalty. Discussions were held with a company in late March 2000 through
mid-April 2000, regarding a strategic partnership related to the Mach One
product and an equity investment in EMCO by the company. A fifth company also
held discussions in April 2000 with EMCO regarding purchasing the Mach One
technology for cash. These proposals, each of which were from companies other
than Advanced Energy, were rejected by the EMCO board of directors as not giving
sufficient value to either the semiconductor business or the core flowmeter
business and because of unfavorable tax consequences to EMCO and its
shareholders.
At an EMCO board of directors meeting on February 3, 2000, directors Trung
Doan and William Ringer were asked to search for an executive to lead EMCO's
emerging semiconductor industry products division. Mr. Ringer contacted James
Gentilcore, President of Advanced Energy Voorhees, Inc., a subsidiary of
Advanced Energy, whom he had known for several years.
Charles E. Miller, President of EMCO, met with Mr. Gentilcore on February
14, 2000, to discuss EMCO's emerging semiconductor products division. They also
discussed an Advisory Council for EMCO, which Mr. Miller was working actively to
form, and whether Mr. Gentilcore would be interested in serving on EMCO's
Advisory Council concerning the semiconductor industry products.
On February 24, 2000, the Board of Directors of EMCO formed the Advisory
Council, consisting of Messrs. Doan, Ringer, Gentilcore, Jerry Howard and
Charles Miller, to develop a business plan for the semiconductor products
division. The Advisory Council met on March 9 and April 7, 2000. The Advisory
Council recognized that it would be difficult for EMCO to enter the
semiconductor market alone and discussed the advisability of having EMCO seek a
partnership or partnerships with market leaders in complementary product areas
to supplement EMCO's existing joint development agreement with Micron Technology
Inc. Mr. Howard has subsequently become EMCO's Vice President of Operations.
On April 18, 2000, Advanced Energy and EMCO entered into a non-disclosure
agreement relating to the exchange of non-public information in connection with
the consideration of a possible business combination or similar transaction.
On April 28, 2000, Mr. Miller sent Douglas Schatz, Chairman and Chief
Executive Officer of Advanced Energy, a copy of the EMCO Advisory Council's
business plan and requested a meeting to discuss a possible business
relationship.
At a meeting on May 4, 2000, Messrs. Miller, Schatz and Gentilcore
discussed the possibility of Advanced Energy acquiring EMCO for 800,000 to
1,000,000 shares of Advanced Energy common stock. On May 4, 2000, the closing
price of Advanced Energy's common stock was $60.625 per share. Mr. Miller agreed
to submit the concept proposal to EMCO's board of directors for consideration.
At an EMCO board of directors meeting on May 12, 2000, Mr. Miller
summarized the various discussions that he had held with representatives of
Advanced Energy and the possibility of completing some form of business
arrangement for EMCO's semiconductor business. At that same meeting, the EMCO
board of directors heard from G. James Williams, Jr. and David J. Cook of EMCO's
legal counsel, Chrisman, Bynum & Johnson P.C., regarding the directors'
fiduciary duties in this setting, met with representatives of an investment
advisor firm concerning work required to render a fairness opinion and the
Advisory Council presented its business plan. The general terms of the proposed
merger, additional possible terms and the merger process were described to the
EMCO board of directors by Mr. Miller and Mr. Williams. Mr. Wayne Ehlert of
Grant Thornton LLP, EMCO's accounting firm, responded to questions from EMCO's
board of directors.
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On May 18, 2000, Mr. Schatz spoke with Mr. Miller and proposed to issue
800,000 shares of Advanced Energy common stock in exchange for all of the EMCO
common stock. On May 19, 2000, certain EMCO directors and officers discussed
possible business transactions with Advanced Energy, as well as an alternative
proposal from a company other than Advanced Energy. In light of Advanced
Energy's then reduced stock price, the participating EMCO directors approved
submitting a proposal to Advanced Energy recommending a joint venture instead of
a full business combination. On May 19, 2000, the closing price of Advanced
Energy's common stock was $46.50 per share. Mr. Miller sent this proposal to Mr.
Schatz by e-mail on May 22, 2000.
On May 27, 2000, Mr. Ringer and Mr. Doan met with Mr. Schatz to discuss the
possibility of Advanced Energy acquiring only EMCO's semiconductor business.
This possibility was evaluated, but was rejected for tax and accounting reasons.
On June 14, 2000, Mr. Ringer and Mr. Miller met with Messrs. Schatz and
Gentilcore and Joseph Monkowski, Senior Vice President of Advanced Energy, and
representatives of Thelen Reid & Priest LLP, Advanced Energy's legal counsel, to
discuss the various alternative transactions. Advanced Energy proposed acquiring
EMCO for 900,000 shares of Advanced Energy common stock. On June 14, 2000, the
closing price of Advanced Energy's common stock was $53.375. Messrs. Ringer and
Miller indicated to Advanced Energy that they would present the proposal to
EMCO's board of directors.
During the week of June 15, 2000, Mr. Ringer began the search for a
financial advisor. After receiving a recommendation from a former business
associate and reviewing credentials, Mr. Ringer recommended engaging Quist
Financial, Inc. to serve as financial advisor to EMCO.
On June 15, 2000, the EMCO board of directors held a telephone board
meeting, which Mr. Williams of Chrisman, Bynum & Johnson, P.C. also attended.
Charles Miller described the terms of Advanced Energy's June 14, 2000 proposal.
The Merger's consequences, risks, and benefits were discussed. Messrs. Miller
and Ringer were authorized to continue negotiations with Advanced Energy. Mr.
Miller was authorized to negotiate to retain Quist Financial to render a
fairness opinion. On June 19, 2000 EMCO retained Quist Financial Inc.
From June 15, 2000 to June 30, 2000, Advanced Energy and EMCO conducted due
diligence reviews of each other and held numerous conference calls and meetings
to discuss the terms of the potential acquisition. Mr. Miller kept the EMCO
board of directors fully informed as to the status of all discussions with
Advanced Energy.
On June 29, 2000, the EMCO board of directors met to discuss a proposed
merger agreement submitted by Advanced Energy and the fairness opinion prepared
by Quist Financial. Mr. Brett Suchor of Quist Financial discussed the memorandum
supporting the fairness opinion in detail and responded to questions from the
EMCO board of directors. The EMCO board of directors also discussed several
issues relating to pooling of interests accounting treatment with
representatives of Grant Thornton LLP, EMCO's accounting firm.
From June 29, 2000 to July 6, 2000, Advanced Energy and EMCO continued to
negotiate the merger agreement.
On July 6, 2000, the EMCO board of directors met with representatives of
EMCO's financial, legal and accounting advisors to discuss the terms of the
merger agreement. Mr. Suchor of Quist Financial presented a financial analysis
of the transaction and responded to questions from the EMCO board of directors.
Legal counsel and EMCO's accountants also responded to questions from board
members regarding the terms of the agreement and pooling of interests accounting
treatment. EMCO's accountants delivered their pooling of interests report to the
EMCO board of directors. Following these discussions, the EMCO board of
directors determined that the merger agreement and the merger were in the best
interests of EMCO and its shareholders and authorized EMCO to enter into the
merger agreement.
Also on July 6, 2000, the Advanced Energy board of directors met via
teleconference to discuss the proposed transaction. After hearing presentations
from Messrs. Schatz and Monkowski on the due
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diligence investigations, the proposed merger agreement and the strategic
benefits of the proposed acquisition, a lengthy and detailed question and answer
session followed until all the director's questions had been addressed. The
Advanced Energy board of directors approved the merger agreement and authorized
Advanced Energy to enter into the merger agreement.
Following the Advanced Energy and EMCO board of directors meetings,
Advanced Energy and EMCO entered into the merger agreement and Advanced Energy
issued a press release announcing the execution of the agreement.
RECOMMENDATION OF THE EMCO BOARD OF DIRECTORS AND EMCO'S REASONS FOR THE MERGER
The board of directors of EMCO believes that the merger agreement is
advisable and in the best interests of EMCO and its shareholders. Accordingly,
the EMCO board of directors has unanimously approved the merger agreement and
recommends that EMCO shareholders vote for the adoption of the merger agreement.
In approving the merger agreement, EMCO's board of directors considered the
following benefits, which, in the view of the board, supported its
determination:
- The combined company, as compared to EMCO on its own, will have greater
financial resources and provide increased opportunities to expand EMCO's
product offerings and markets;
- The difficulties of EMCO entering the semiconductor equipment industry,
which was a business in which it had not previously engaged, and in
financing that project and building a world wide sales and support
organization for that market;
- The merger may increase value for EMCO shareholders, as well as provide a
more stable platform for EMCO's employees and customers;
- The merger will enable shareholders to continue to share indirectly in
EMCO's growth over the long term as part of a larger company with a more
liquid trading market;
- The merger will yield for EMCO shareholders an attractive exchange ratio
for their shares of EMCO common stock;
- The tax free treatment of the merger;
- Potential dilution of the share holdings of existing EMCO shareholders if
EMCO sought to finance its expansion through a further sale of equity
securities;
- The US and Israeli armies are jointly developing a Tactical High Energy
Laser (THEL), of which EMCO's digital valve products are key components,
as a defense against short range missiles. TRW is serving as the general
contractor on this project. Should this program be deployed, there could
be significant expenditures required for facilities and equipment in
order to meet the demand for this product;
- The liquidity provided by the market for Advanced Energy common stock
will reduce the risk associated with an investment in a smaller company
such as EMCO; and
- The prospects of Advanced Energy.
In reaching its decision to approve the merger agreement, the board of
directors of EMCO consulted with EMCO's management, as well as with its
financial, accounting and legal advisors. The following discussion of factors
considered by EMCO's board of directors is not intended to be exclusive but
summarizes the material factors considered.
EMCO's board of directors reviewed various historical information
concerning EMCO's and Advanced Energy's respective businesses, financial
performances and conditions, stock prices and trading activity, operations,
management teams and competitive positions. EMCO's board of directors considered
available information about Advanced Energy, including its public reports for
its most recently completed
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fiscal year and subsequent fiscal quarters as filed with the Securities and
Exchange Commission. In addition, the board of directors instructed management
to conduct additional due diligence on Advanced Energy's financial condition and
prospects, and the results of that due diligence were reported to EMCO's board
of directors. The board of directors concentrated in particular on each
company's financial condition, results of operations, businesses and prospects
before and after giving effect to the merger. Based in part upon these factors,
EMCO's board of directors believes that a merger with Advanced Energy would be
in the best interests of EMCO and its shareholders.
EMCO's board of directors examined current financial market conditions and
historical market prices, volatility and trading information with respect to
shares of EMCO common stock and Advanced Energy common stock. In particular,
EMCO's board of directors noted Advanced Energy's average daily trading volume
was significantly greater than EMCO's average daily trading volume.
EMCO's board of directors compared the consideration to be received by EMCO
shareholders in the merger with the consideration received in various comparable
merger transactions. The details of this comparison are set forth below under
"-- Opinion of Quist Financial Inc." on page 31. Based on this comparison, the
board of directors of EMCO believes that the merger consideration falls within
the range of what is reasonable and fair for EMCO shareholders.
EMCO's board of directors viewed the terms of the merger agreement,
including but not limited to, the fixed number of shares constituting the merger
consideration, the fact neither party could terminate solely based on the market
price of either party's stock, the parties' representations, warranties and
covenants, the conditions to their respective obligations and the termination
provisions, as reasonable in light of the entire transaction. EMCO's board of
directors also considered the terms of the proposed merger agreement regarding
EMCO's rights to consider and negotiate other acquisition proposals in certain
circumstances, as well as the possible effects of provisions regarding
liquidated damages. The board of directors considered that the provisions in the
merger agreement for the benefit of EMCO reasonably protected the interests of
EMCO shareholders, and those for the benefit of Advanced Energy did not present
any significant reasons not to proceed with the transaction considering all of
the circumstances. EMCO's board of directors considered the Quist Financial,
Inc. opinion that the merger consideration to be paid by Advanced Energy for
each share of EMCO common stock was fair to EMCO shareholders from a financial
point of view.
EMCO's board of directors considered the anticipated impact of the proposed
transactions on the combined company's future performance, financial and
otherwise, the relative size of EMCO and Advanced Energy, and the improved
prospects of the success of the Mach One semiconductor industry product if the
merger occurred. EMCO's board of directors also noted favorably that the former
EMCO shareholders, if stockholders of Advanced Energy after the merger, would
share the benefits of any success of the Mach One product.
EMCO's board of directors considered the merger's impact on EMCO's
customers and employees. Generally, the board viewed the impact on employees as
positive, in that they would become part of a diversified leader in
semiconductor capital equipment manufacturing markets and participate in a
successful company that has substantially greater resources than EMCO. EMCO's
board of directors also generally viewed the impact on EMCO's customers as
positive, in that they also would benefit from having a much larger company
standing behind EMCO's products and a knowledge that EMCO likely will have the
resources to continue to provide precision flowmeters for the semiconductor
industry and flowmeters and controllers for liquid, gas and steam applications
for other industries. Those same benefits would apply to EMCO's contract
electronics manufacturing and digital valve businesses.
EMCO's board of directors received reports from EMCO's management and its
financial advisor as to the results of their due diligence investigation of
Advanced Energy, which consisted in part of reviewing publicly available
information and research analyst reports. The reviewed reports indicated no
significant issues that would preclude approval of the merger by EMCO's board of
directors.
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The board of directors of EMCO also identified and considered a variety of
potentially negative factors in its deliberations concerning the merger,
including, but not limited to:
- The challenges of integrating a business such as EMCO with a much larger
company such as Advanced Energy, and the associated risk that the
potential benefits sought in the merger might not be fully realized;
- The possibility that the merger might not be consummated, and the effect
of public announcement of the merger on:
- EMCO's sales, operating results and stock price;
- EMCO's distributor network;
- EMCO's ability to attract and retain personnel;
- the progress of potential and actual development projects with third
parties who may view working with Advanced Energy differently than
working with EMCO; and
- EMCO's ability to secure financing for its future expansion.
- The possibility of substantial charges to be incurred in connection with
the merger, including costs of integrating the businesses and transaction
expenses arising from the merger;
- The risk that despite the efforts of the combined company, key technical
and management personnel might not remain employed with the combined
company;
- The interests of certain officers and directors of EMCO in the merger,
including the matters described under "The Merger -- Interests of EMCO's
Management in the Merger and Potential Conflicts of Interests" on page
40;
- The effect on EMCO's ability to consider competing offers prior to
completion of the merger, including the effect of the covenant to not
solicit other bidders and the liquidated damages provisions in the merger
agreement;
- Risks associated with fluctuations in Advanced Energy's stock price prior
to and after closing of the merger and the historical fluctuations in
that price;
- Limitations on the ability of EMCO affiliates to resell Advanced Energy
common stock; and
- Various other risks described under "Risk Factors" beginning on page 14.
In the judgment of EMCO's board of directors, the potential benefits of the
merger agreement outweighed these considerations.
The board of directors of EMCO also considered what alternatives existed to
the merger, including reviewing the prospects for EMCO continuing as an
independent company and alternative transactions previously considered by EMCO.
In light of the factors described above, the board of directors determined that
the value and benefits available to EMCO shareholders from the merger agreement
exceeded the potential they might realize from EMCO continuing as an independent
company.
EMCO's board of directors also considered the potential that a third party
might be willing to enter into a strategic relationship with EMCO or propose to
acquire EMCO. The board of directors did not, however, view this possibility as
likely to provide an alternative superior to the merger with Advanced Energy. In
this light, the board of directors of EMCO also evaluated Advanced Energy's
requirement that EMCO agree to the provisions of the merger agreement limiting
EMCO's rights to consider and negotiate acquisition proposals with others. It
appeared unlikely to the board of directors that EMCO would be able to enter
into a transaction with Advanced Energy without these provisions.
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OPINION OF QUIST FINANCIAL, INC.
Pursuant to an engagement letter dated June 19, 2000 (the "Engagement
Letter"), the EMCO Board retained Quist Financial, Inc. to act as its exclusive
financial advisor in connection with the merger, as described in the Engagement
Letter. Quist Financial's business is the valuation of businesses and business
interests, including both privately held and publicly traded companies, for all
purposes, including mergers and acquisitions. Since 1984, Quist Financial, Inc.
has successfully completed more than 1,500 valuation projects, principally in
the Rocky Mountain region. Quist's professional staff is experienced in valuing
companies in a wide range of industries (from emerging high tech and Internet
companies to those in traditional manufacturing, distribution and service
businesses). EMCO selected Quist Financial as its financial advisor on the basis
of Quist Financial's experience and expertise in transactions similar to the
merger and its reputation in the business community.
On June 29, 2000, Quist Financial delivered to the EMCO board of directors
its opinion, subsequently confirmed as of July 6, 2000, that the exchange ratio
is fair, from a financial point of view, to EMCO's shareholders as of that date.
No limitations were imposed by the EMCO Board on Quist Financial with respect to
the investigations made or procedures followed in rendering its opinion.
THE FULL TEXT OF THE QUIST FINANCIAL WRITTEN OPINION TO THE EMCO BOARD IS
ATTACHED AS APPENDIX B AND IS INCORPORATED HEREIN BY REFERENCE AND SHOULD BE
READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY STATEMENT/
PROSPECTUS. THE FOLLOWING SUMMARY OF QUIST FINANCIAL'S OPINION IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
Quist Financial's opinion is directed to the EMCO Board of directors and
does not constitute a recommendation to any shareholder as to how such
shareholder should vote with respect to the merger agreement. Quist Financial's
opinion addresses only the financial fairness of the Exchange Ratio to be
received by the EMCO shareholders pursuant to the merger agreement and does not
address the relative merits of the merger or alternatives to the merger, the
underlying decision of the EMCO Board to proceed with or effect the merger or
any other aspect of the merger. In furnishing this opinion, Quist Financial did
not admit that it is an expert within the meaning of the term "expert" as used
in the Securities Act, nor did it admit that its opinion constitutes a report or
valuation within the meaning of the Securities Act.
In connection with its opinion, Quist Financial, among other things:
- reviewed a draft of the merger agreement;
- held discussions with senior management, directors, representatives and
other advisors of EMCO and the Chief Financial Officer of Advanced Energy
concerning the business, operations and prospects of EMCO and Advanced
Energy;
- examined publicly available business and financial information relating
to EMCO and Advanced Energy;
- examined financial forecasts of EMCO and other information and data for
EMCO and Advanced Energy, including strategic implications and
operational benefits anticipated to result from the merger;
- reviewed the financial terms of the merger in relation to, among other
things, current and historical market prices and trading volumes of EMCO
and Advanced Energy capital stock;
- reviewed projections regarding Advanced Energy in analysts' reports;
- reviewed the historical and projected capitalization and financial
condition of EMCO;
- considered the financial terms of certain other similar transactions
recently effected that it considered relevant in evaluating the exchange
ratio and analyzed certain financial, stock market and other publicly
available information relating to the businesses of other companies whose
operations they considered relevant in evaluating those of EMCO and
Advanced Energy;
- considered and reviewed earnings projections for EMCO and Advanced Energy
as published by I/B/E/S International Inc.;
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- evaluated the pro forma financial impact of the EMCO projections upon
these published projected earnings for Advanced Energy; and
- conducted such other analyses and examinations and considered such other
information and financial, economic and market criteria as it deemed
appropriate.
The financial terms and conditions of the draft merger agreement reviewed
by Quist Financial are identical to those contained in the executed merger
agreement.
In connection with its review, Quist Financial relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available, furnished to them or discussed with
them. Quist Financial relied upon the assurances of the management of EMCO and
Advanced Energy that they were not aware of any facts that would make any of the
information provided to Quist Financial inaccurate or misleading. Quist
Financial assumed for purposes of its opinion that information provided to Quist
Financial had been prepared on a reasonable basis in accordance with industry
practice and, with respect to financial forecasts of EMCO, reflects the best
currently available estimates and judgment of EMCO's management. EMCO and
Advanced Energy do not publicly disclose internal management forecasts, and
EMCO's forecasts provided to Quist Financial were not prepared with a view
toward public disclosure. Advanced Energy did not provide Quist Financial with
internal forecasts; instead Quist Financial used forecasts regarding Advanced
Energy stated in analysts' reports. Any forecasts used by Quist Financial were
based upon numerous variables and assumptions that are inherently uncertain,
including, without limitation, factors related to general economic and
competitive conditions. Accordingly, actual results could vary significantly
from those set forth in such forecasts.
Quist Financial assumed that the merger will be treated as a tax-free
reorganization for U.S. federal income tax purposes and that it qualifies, and
will be accounted for, as a "pooling of interests" in accordance with generally
accepted accounting principles. Quist Financial did not make and was not
provided with an independent evaluation or appraisal of the assets of EMCO or
Advanced Energy and did not independently verify any pending or threatened
litigation, possible unasserted claims or other contingent liabilities. Quist
Financial has assumed that all necessary regulatory approvals and consents
required for the transaction will be obtained in a manner that will not have
adverse effects on EMCO or Advanced Energy or change the exchange ratio. Quist
Financial has assumed that neither EMCO nor Advanced Energy are party to any
material pending transactions, including external financing, recapitalizations,
acquisitions or merger discussions, other than the merger or in the ordinary
course of business. Finally, Quist Financial's opinion is based on economic,
monetary and market and other conditions disclosed to Quist Financial as of, and
the information made available to Quist Financial as of, the date of its
opinion. Accordingly, although subsequent developments may affect its opinion,
Quist Financial has not assumed any obligation to update, revise or reaffirm its
opinion. Quist Financial has also assumed that the merger will be consummated in
accordance with the merger agreement without waiver of any of the conditions
precedent to the merger contained in the merger agreement. Set forth below is a
brief summary of the report presented by Quist Financial to the EMCO Board on
June 29, 2000 in connection with its opinion.
Summary of Advanced Energy Proposal
Quist Financial calculated that as of June 27, 2000, the Advanced Energy
proposal reflected a fixed exchange ratio of 0.2107 shares of Advanced Energy
for each share of EMCO. The estimated gross aggregate consideration or purchase
price at that time was valued at $52,087,500, based on Advanced Energy's stock
price of $57.875 per share on that date. Quist Financial prepared a table
showing a range of potential values of the proposed transaction based upon $1
increments between Advanced Energy's 52-week trading high of $77.438 and trading
low of $30 per share. The date June 27, 2000 was used in the preparation of
materials presented by Quist Financial to the Board of Directors of EMCO on June
29, 2000. Quist Financial also calculated that as of July 6, 2000, the date on
which the merger agreement was signed, the estimated gross aggregate
consideration or purchase price at that time was valued at $47,418,750, based on
Advanced Energy's closing stock price of $52.6875 on July 5, 2000.
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Methodology
Quist Financial evaluated the merger proposal using two market approaches:
(i) public guideline company multiples with a control premium and comparable
change of control valuations, and (ii) an income approach using a discounted
cash flow analysis. To reflect the differences between the existing core
business of EMCO flowmeters for conservation and industrial purposes and the new
EMCO semiconductor products, Quist Financial divided EMCO's historical and
projected results in two divisions -- the core business and the new products
division. The new products division primarily includes the THEL digital value
product and the mass flowmeter products for the semiconductor industry. The new
products have not yet generated significant revenues, although EMCO has invested
significant funds in their development. To obtain an accurate representation of
EMCO's cash flow generation ability from its core business, Quist Financial
subtracted the cost and revenues related to the new products from EMCO's
consolidated income statement. In its valuation, Quist Financial separately
examined the value of EMCO's core business, the value of the new products
division, and the value of the consolidated company.
Market Approaches
1. Valuation Multiples of Similar Public Companies
Quist Financial used an analysis of similar public companies as an
indication of the value of EMCO's core business. Quist Financial examined 135
publicly traded companies in businesses similar to EMCO's core business and
selected seven of these companies as the best guideline companies for EMCO's
core business.
This group consisted of the following companies:
<TABLE>
<S> <C>
1. Badger Meter Corporation 5. Millipore Corporation
2. Dionex Corporation 6. Pall Corporation
3. The Donaldson Company 7. Puroflow Corporation
4. ISCO, Inc.
</TABLE>
From these companies, Quist Financial calculated multiples for Market Value
of Invested Capital (MVIC) to Sales, MVIC to Earnings Before Interest Taxes
Depreciation and Amortization (EBITDA), MVIC to Earnings Before Interest and
Taxes (EBIT) and MVIC to Projected Earnings in 2000 and 2001. Quist Financial
believed that, because EMCO's earnings were at least temporarily depressed as a
result of recent investments in research and development, an earnings-based
approach such as MVIC to EBIT was not a good indication of value. Excluding MVIC
to EBIT, this analysis imputed a range of MVIC of between $8.7 million and $18.6
million for EMCO's core business.
Quist Financial examined the market capitalization of EMCO before
development of the new products. Based on the average outstanding shares for the
year ended April 30, 1998, and EMCO's interest bearing debt, EMCO's MVIC was
$12.3 million before the new product development effort. On June 27, 2000, the
actual MVIC of EMCO was $33.0 million, implying a range of value for the new
products division of between $14.4 million and $24.3 million.
1.1. Public Company Multiples by Size Within Industry
Because EMCO's revenues, market capitalization and asset size are smaller
than many of the guideline companies who had similar operations, Quist Financial
did a second guideline comparison using 19 companies of a similar size.
Excluding MVIC to EBIT, this analysis resulted in an indicated value for EMCO's
core business of between $5.7 million and $10.2 million, below the value
indicated by the previous guideline companies.
1.2 Control Premium
These indicated values using multiples of MVIC are based on the trading
price of minority shares in publicly traded companies. Therefore, Quist
Financial applied a control premium in order to compare the value to the
proposed merger. Quist Financial analyzed the average control premium in 1999
and the first quarter of 2000 for companies with SIC Codes relevant to EMCO.
Quist Financial then selected a control premium range of 20-25% for the core
business and a control premium range of 40-70% for the new
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<PAGE> 40
products business. Applying these premiums to the business segments results in a
range of control value for EMCO between $42.5 million and $52.2 million.
2. Merger and Acquisition Approach
Quist Financial examined fifteen acquisitions completed between April 30,
1998 and June 27, 2000 within the SIC Codes relevant to EMCO. Based on this
analysis, the valuation multiples (MVIC to EBITDA, MVIC to Book Value of
Invested Capital and MVIC to Revenues) implied by the proposed merger with
Advanced Energy exceeded those of all fifteen comparable transactions.
Income Approach
Quist Financial's income approach focused on future cash flows available to
shareholders. Cash flows were then discounted back to the present using
appropriate discount rates. EMCO's business was again broken into two divisions
for the discounted future cash flow analysis.
The results for the core business are based on management's projections
without the sales relating to the semiconductor industry or THEL digital valves.
From Ibbotson's Cost of Capital, Quist Financial determined that the weighted
average cost of capital for the industry is 14%. Applying this discount to the
interim free cash flows over the period from April 30, 2000 to April 30, 2005,
resulted in a total present value of free cash flow of $878,000. Quist Financial
then assigned a terminal value to recognize future cash flows past 2005, based
upon a multiple of EBITDA. The sum of the present value of the interim cash
flows and terminal value indicated a total value of equity of $10.6 million for
the core business.
A similar methodology was then applied to the new products business.
However, additional financing in the amount of $10-15 million would be required
for the new products line. Based upon information on venture capital costs,
Quist Financial determined that the financing would result in a 50% dilution of
the equity in the new product line. Based on the risk profile, Quist Financial
determined a range of value between $46.6 million and $80.6 million as suitable
for the new products division. After applying the dilution impact, the range of
value of the current shareholders was between $23.3 million and $40.3 million.
Summing the core business and the new products business resulted in a total
value of EMCO between $39.9 million and $50.9 million.
Quist Financial also performed a discounted cash flow analysis based on
consolidated projections. In these projections, a majority of the revenue would
result from the division with the new products of EMCO. For this analysis, Quist
Financial took into account the growth rate of the total company with both
divisions, EBITDA multiples and the dilution from a partial funding of the
growth of new products using a secondary offering rather than venture capital
financing, as well as the fact that the core business would lower the overall
risk profile of EMCO resulting in a lower weighted average cost of capital.
Based on these assumptions, Quist Financial determined a range of $45.6 million
to $88.3 million for the value of EMCO. After accounting for the dilution
impact, the total value of the equity of EMCO was between $30.9 million and
$59.2 million. This amount was above the range indicated by valuing EMCO's
product lines separately and near the top of the range indicated by valuing the
consolidated EMCO.
Contribution and Dilution Analysis
Quist Financial analyzed the relative contribution for EMCO and Advanced
Energy to the pro forma merged entity with respect to net earnings. Data for
1999 was derived from EMCO's and Advanced Energy's financial statements. In
performing this analysis, Quist Financial did not assume any anticipated cost
savings, revenue enhancements or other potential effects of the business
combination. Quist Financial then determined each company's relative
contribution to net earnings of the combined EMCO and Advanced Energy. Quist
Financial compared the contribution to earnings to the 0.2107 exchange ratio for
each EMCO share as it existed on June 27, 2000. The results of this analysis
were that the exchange ratio was higher than EMCO's contributions to operating
results for the years 2000 and 2001 and were lower than EMCO's contribution for
operating results projected for 2002. Similar results were obtained when
comparing the effect on Advanced Energy's earnings projected for the years 2000
and 2001.
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Evaluation of Advanced Energy Stock Performance
Quist Financial analyzed Advanced Energy's operating performance using 22
analyst reports over the past two years and recent SEC filings for Advanced
Energy. Quist Financial also conducted a phone interview with Richard P. Beck,
Senior Vice President and Chief Financial Officer of Advanced Energy. Quist
Financial compared recent trading data and financial performance of Advanced
Energy to six publicly traded stocks of component manufacturers for the
semiconductor equipment industry.
This group consisted of the following companies:
<TABLE>
<S> <C>
1. Applied Sciences & Technology, Inc. 4. Cymer, Inc.
2. Asyst Technologies, Inc. 5. Helix Technology Corp.
3. Brooks Automation, Inc. 6. MKS Instruments, Inc.
</TABLE>
As of June 27, 2000, all of the publicly traded stocks were trading at a
substantial premium to their 52 week low (136% on average) and at a discount to
their 52 week high (42% on average).
Quist Financial also compared relationships between the value of the public
companies and their past and projected performance measures consisting of MVIC
to EBIT, MVIC to EBITDA and MVIC to Revenues. In addition, Quist Financial
reviewed multiples of the public company's stock price to earnings and projected
earnings in 2000 and 2001. As of June 27, 2000, Advanced Energy was priced at or
near the top of the range on all comparisons. The growth prospects for Advanced
Energy were believed to be in line with the industry group. Quist Financial
believed that the aggressive pricing of Advanced Energy stock added to a risk
associated with a fixed exchange ratio. Quist Financial adjusted Advanced
Energy's stock price to reflect the price which would exist if Advanced Energy
stock was priced in line with median multiples. From this analysis, Quist
Financial concluded that, if Advanced Energy was priced at or near the median
multiples of the other six comparable companies, its stock price would range
from $36 to $47 rather than the range of its 52-week trading high and low of
$77.44 and $30 respectively. Quist Financial also compared financial results as
of the latest available SEC filings by Advanced Energy and comparable stocks.
Advanced Energy's returns were well above the median returns for the comparable
group. Quist Financial further recognized Advanced Energy's significant market
share in the semiconductor component markets in which it competes. Quist
Financial believed that both these factors provided a justification for the
aggressive pricing paid for Advanced Energy's stock.
Quist Financial reviewed daily pricing data for Advanced Energy's common
stock from April 27, 2000 through June 27, 2000. Trading activity reflected a
decline in the price per share of Advanced Energy common stock of 12% over the
trading period. Quist Financial also reviewed the relative price performance of
EMCO common stock to Advanced Energy common stock over the past three years. As
of June 20, 2000, a $100 investment in EMCO on June 20, 1997 would be worth $133
as of June 20, 2000, whereas a $100 investment in Advanced Energy would be worth
$429. Quist Financial compared historical multiples paid for Advanced Energy and
EMCO over the past three years. The multiples paid for both EMCO and Advanced
Energy increased each year. Quist Financial noted that EMCO's MVIC/EBIT multiple
is high due to lower than expected earnings in 1999 and 2000. Quist Financial
also reviewed the recommendations of 12 analysts following Advanced Energy
stock. The recommendations at June 27, 2000 and for the prior three months were
primarily a strong buy or moderate buy, with some brokers recommending a hold.
Implied Historical Exchange Ratio
Quist Financial derived implied historical exchange ratios by dividing the
closing price per share of EMCO common stock by the closing price per share of
common stock of Advanced Energy for each trading day in the 36-month period from
June 19, 1997 to June 19, 2000, the 24-month period ending June 19, 2000 and the
12-month period ending June 19, 2000. Quist Financial calculated that the
implied exchange ratio as of June 27, 2000 was 0.1382, that the highest implied
exchange ratio during the 36-month period and the 12-month period were 0.7130
and 0.2254, respectively, and that the lowest implied exchange ratio during the
36-month period was 0.0838. This comparison helped identify the
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premium being offered. Over the past 12 months, the exchange ratio offered by
Advanced Energy as of June 27, 2000 was higher and thus more favorable than the
implied exchange ratios.
While the foregoing summary describes all analyses and examinations that
Quist Financial deems material to its opinion, it is not a comprehensive
description of all analyses and examinations actually conducted by Quist
Financial. The preparation of a fairness opinion necessarily is not susceptible
to partial analysis or summary description. Quist Financial believes that its
analyses and the summary set forth above must be considered as a whole and that
selecting portions of its analyses and of the factors considered, without
considering all analyses and factors, would create an incomplete view of the
process underlying the analyses set forth in the presentation to the EMCO board.
In addition, Quist Financial may have given various analyses more or less weight
than other analyses, and may have deemed various assumptions more or less
probable than other assumptions. The fact that any specific analyses has been
referred to in the summary above is not meant to indicate that such analyses was
given greater weight than any other analysis. Accordingly, the ranges of
valuations resulting from any particular analysis described above should not be
taken to be Quist Financial's view of the actual value of EMCO.
As described above in "Reasons for the Merger -- EMCO," Quist Financial's
opinion and presentation to the EMCO board were among the many factors taken
into consideration by the EMCO board in making its determination to approve, and
to recommend that the EMCO shareholders approve, the merger.
The exchange ratio was determined pursuant to negotiations between Advanced
Energy and EMCO and not pursuant to recommendations from Quist Financial. Quist
Financial was not requested to, nor did it, assist EMCO in soliciting
indications of interest from third parties for all or any part of EMCO.
EMCO agreed to pay Quist Financial, a fee of $35,000, which has been paid.
$15,000 of the fee was paid on signing of the engagement letter, $20,000 of that
fee was payable upon delivery of the opinion. EMCO also agreed to reimburse
Quist Financial for its reasonable out-of-pocket expenses. Quist is only
responsible for its own gross negligence or willful misconduct. Any liability of
Quist Financial to parties in connection with the merger cannot exceed the
aggregate fees actually received by Quist Financial under the engagement letter.
EMCO has agreed to indemnify Quist Financial, its affiliates, and their
respective partners, directors, officers, agents, consultants, employees and
controlling persons against certain liabilities including liabilities under the
federal securities laws.
ADVANCED ENERGY'S REASONS FOR THE MERGER
The Advanced Energy board of directors has determined that the merger
agreement is in the best interests of Advanced Energy and its stockholders. In
deciding to approve the merger agreement, the Advanced Energy board consulted
with its legal and financial advisors, as well as senior management of Advanced
Energy and considered the potential benefits from combining EMCO with Advanced
Energy to include the following:
- the addition of EMCO's digitized flow control technology will advance the
Company in its strategy to provide systems to its semiconductor OEM
customers that are more complete, integrated solutions to meet their
process requirements;
- flow measurement and control is one of the primary elements that affect
wafer quality, yield and system reliability, and EMCO's technology
appears to significantly outperform competitive solutions; and
- EMCO's approach to flow control uniquely addresses the next wave of
process challenges.
The board of directors also considered the following potentially countervailing
factors:
- Advanced Energy is inexperienced with flow control technology and,
accordingly, may not be able to integrate the technology with Advanced
Energy's existing products to provide the integrated solutions it
anticipates;
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- the issuance of 900,000 shares of common stock will be dilutive to the
Advanced Energy stockholders;
- the costs to integrate EMCO's business with Advanced Energy's existing
business may be significant and involve unexpected expenses; and
- integration of EMCO's business with Advanced Energy's existing business
may require significant diversion of management's attention and other
Advanced Energy resources.
On balance, the board of directors determined the acquisition of EMCO to be in
the interests of Advanced Energy and its stockholders and, accordingly, approved
the merger agreement.
MERGER CONSIDERATION
Your shares of EMCO common stock will be converted into the right to
receive Advanced Energy common stock at the effective time of the merger. The
exchange ratio will be based upon the total number of shares of EMCO common
stock outstanding or subject to stock options at the effective time of the
merger. The exchange ratio will be at least 0.2018 of a share of Advanced Energy
common stock for each share of EMCO common stock.
NO FRACTIONAL SHARES
No fractional shares of Advanced Energy common stock will be issued in
connection with the merger. If you would otherwise be entitled to receive a
fractional share of Advanced Energy common stock pursuant to the merger, you
will receive, instead, a cash payment, without interest, equal to that fraction
times the closing price of Advanced Energy common stock on the last trading date
prior to the date the merger becomes effective. For example, if you hold 1,000
shares of EMCO common stock at the time of the merger and the closing price of
the AE common stock on the effective date of the merger is $50, based on a
0.2018 exchange ratio you will receive 201 shares of AE common stock and $40 in
cash.
Outstanding options to purchase EMCO common stock, other than purchase
rights under EMCO's Employee Stock Purchase Plan, will become fully vested and
exercisable immediately prior to the effective time of the merger. Options that
are not exercised immediately prior to the merger will be assumed by Advanced
Energy and will become exercisable for Advanced Energy common stock, based on
the exchange ratio. See "The Merger Agreement -- Employee Benefits -- Stock
Options" on page 48.
EXCHANGE OF SHARES
Once the merger has been completed, the exchange agent will send you a
letter of transmittal with instructions for tendering your EMCO common stock
certificates in exchange for the Advanced Energy common stock you are entitled
to receive in the merger.
If you want your Advanced Energy shares to be issued to another person, the
certificate representing your EMCO shares must be properly endorsed to evidence
and effect the transfer of your right to receive the Advanced Energy common
stock in a form reasonably required by Advanced Energy. You must also pay any
transfer or other taxes required as a result of the issuance of Advanced Energy
shares to a person who is not the registered holder of the EMCO shares being
surrendered or establish to the satisfaction of Advanced Energy that the
applicable tax has been paid or is not applicable.
Any shares of Advanced Energy common stock or cash to be used to pay
fractional shares made available to the exchange agent that remains unclaimed by
EMCO shareholders for one year after the time the merger becomes effective will
be returned to Advanced Energy, and any EMCO shareholders who have not made an
exchange by that time must then look to the surviving corporation for payment of
their claim for merger consideration subject to state unclaimed property laws.
If you have lost your EMCO stock certificate, or if your certificate has
been stolen or destroyed, you should notify the exchange agent. Once you have
made an affidavit of the fact that the certificate has been lost, stolen or
destroyed, in a form reasonably satisfactory to Advanced Energy, you will be
entitled to
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receive the merger consideration for your shares. However, in that case Advanced
Energy or the exchange agent will first require you to deliver a suitable bond
or indemnity.
INTERESTS OF EMCO'S MANAGEMENT IN THE MERGER AND POTENTIAL CONFLICTS OF
INTERESTS
The directors and officers of EMCO participate in arrangements with
Advanced Energy that provide them with interests in the merger that are
different from, or in addition to, yours including the following:
- In the absence of acceleration because of the merger, the option to
purchase 5,000 shares of EMCO common stock of Trung Doan, a director of
EMCO, would not become exercisable until February 3, 2001. See "The
Merger Agreement -- Employee Benefits -- Stock Options" on page 48.
- Charles E. Miller, EMCO's current Chairman and Chief Executive Officer
will be the Chief Technical Officer and a director of EMCO following the
merger.
- EMCO's directors will receive continued indemnification from certain
liabilities and directors' and officers liability insurance following the
merger. See "-- Indemnification; Directors' and Officers' Insurance".
These interests could cause the directors and officers of EMCO to be more
likely to favor the merger than if they did not hold these interests.
Trung Doan, a director of EMCO, was appointed to the Board of Directors of
Advanced Energy one week after the merger agreement was signed. Mr. Doan's
affiliation with both EMCO and Advanced Energy could influence his view of the
merger. For example, if another company were to make an alternative proposal to
acquire EMCO, Mr. Doan's affiliation with Advanced Energy could prevent him from
being impartial in evaluating whether the alternative proposal would be more
favorable to the EMCO shareholders. In this circumstance, Mr. Doan could be
prohibited from participating in both EMCO and Advanced Energy directors'
meetings on this subject, which would deprive both companies' boards of
directors of a valuable advisor.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
The merger agreement provides that all rights to indemnification for acts
or omissions occurring at or prior to the merger existing in favor of the
current or former EMCO directors, officers, employees or agents, as provided in
the EMCO articles of incorporation, bylaws or applicable law, will survive the
merger and continue for a period of six years after the merger. All
indemnification rights in respect of any claim existing as of the end of this
six-year period will continue until final disposition. Advanced Energy will not
be obligated to provide indemnification in excess of the indemnification EMCO is
required to provide under its articles of incorporation or bylaws.
The merger agreement also provides that Advanced Energy will maintain, for
a period of six years from the effective time of the merger, a directors' and
officers' insurance and indemnification policy with an insurance company rated
at least "A" by A.M. Best Company, covering those persons who currently are
covered by that policy. The policy will continue to the extent that it provides
coverage for events occurring prior to or at the effective time of the merger.
Instead of maintaining EMCO's existing policy, Advanced Energy may provide
coverage under any policy maintained for the benefit of Advanced Energy or any
of its subsidiaries, as long as the terms of that policy are substantially
similar to EMCO's existing insurance and indemnification policy.
REGULATORY MATTERS
Advanced Energy and EMCO are not aware of any material governmental or
regulatory approvals required to be obtained in order to consummate the merger,
other than compliance with applicable federal and state securities and corporate
laws.
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DISSENTERS' RIGHTS ARE NOT AVAILABLE
In certain circumstances, a shareholder of a company that is being acquired
can require the company to purchase the shareholder's shares for cash, if the
shareholder does not vote for the merger. The right to require this cash
purchase is commonly called an "appraisal right" or "dissenters' right." The
holders of EMCO Common Stock do not have dissenters' rights under Article 113 of
the Colorado Business Corporation Act because EMCO's common stock is traded on
the Nasdaq National Market as of the record date for the special meeting, and
the EMCO shareholders will be receiving shares of Advanced Energy common stock
which will be listed on the Nasdaq National Market.
NASDAQ NATIONAL MARKET LISTING
The shares of Advanced Energy common stock to be issued to you in the
merger will be listed on the Nasdaq National Market under the trading symbol
"AEIS." Upon the closing of the merger, all shares of EMCO common stock will be
delisted from the Nasdaq National Market and no longer traded on any market.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The merger is intended to qualify as a tax-free reorganization for federal
income tax purposes. Accordingly, in general holders of EMCO common stock will
not recognize gain or loss for federal income tax purposes by reason of the
conversion of EMCO common stock into Advanced Energy common stock, except for
cash received in lieu of fractional shares. The merger will not have any tax
consequences to Advanced Energy stockholders.
TAX OPINIONS AS A CONDITION TO THE MERGER
Neither Advanced Energy nor EMCO has requested or will request a ruling
from the Internal Revenue Service with regard to the tax consequences of the
merger. However, it is a condition to the completion of the merger that Advanced
Energy receive an opinion from its counsel, Thelen Reid & Priest LLP, and EMCO
receive an opinion from its counsel, Chrisman Bynum & Johnson P.C., to the
effect that the merger will be treated as a reorganization under Section 368(a)
of the Internal Revenue Code and that Advanced Energy, Flow Acquisition
Corporation, and EMCO will each be a party to the reorganization. The opinion of
each counsel will represent counsel's best judgment as to the tax treatment of
the merger, but will not be binding on the Internal Revenue Service, other
taxing authorities, or the courts. Additionally, these opinions will be
conditioned upon the following assumptions:
- the truth and accuracy of the statements, covenants, representations and
warranties in the merger agreement, in the representations received from
Advanced Energy and EMCO to support the opinions, and in other documents
related to Advanced Energy and EMCO relied upon by such counsel for those
opinions;
- the performance of all covenants contained in the merger agreement;
- the accuracy of any representation or statement made "to the best of
knowledge" or similarly qualified without such qualification;
- the reporting of the merger as a reorganization under Section 368(a) of
the Internal Revenue Code by Advanced Energy and EMCO in their respective
federal income tax returns; and
- other customary assumptions as to the accuracy and authenticity of
documents provided to such counsel.
The following discussion of the federal income tax consequences of the
merger to Advanced Energy, EMCO, and EMCO shareholders assumes that the merger
will qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code.
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TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax consequences of the merger. This discussion is based on the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations,
administrative interpretations and court decisions as in effect as of the date
of this proxy statement/prospectus, all of which may change, possibly with
retroactive effect.
The discussion does not address all aspects of federal income taxation that
may be important to an EMCO shareholder in light of that shareholder's
particular circumstances or to an EMCO shareholder subject to special rules,
such as:
- a shareholder who is not a citizen or resident of the United States,
- a financial institution or insurance company,
- a tax-exempt organization,
- a dealer or broker in securities,
- a shareholder that holds its EMCO common stock as part of a hedge,
appreciated financial position, straddle or conversion transaction, or
- a shareholder who acquired its EMCO common stock pursuant to an exercise
of options or otherwise as compensation.
This discussion of material federal income tax consequences is intended to
provide only a general summary, and is not a complete analysis or description of
all potential federal income tax consequences of the merger. This discussion
does not address tax consequences that may vary with, or are contingent on,
individual circumstances. In addition, it does not address any non-income tax or
any foreign, state or local tax consequences of the merger.
ACCORDINGLY, WE STRONGLY URGE EACH EMCO SHAREHOLDER TO CONSULT ITS OWN TAX
ADVISOR TO DETERMINE THE PARTICULAR UNITED STATES FEDERAL, STATE OR LOCAL OR
FOREIGN INCOME OR OTHER TAX CONSEQUENCES TO IT OF THE MERGER.
TAX CONSEQUENCES OF THE MERGER TO ADVANCED ENERGY AND EMCO
Neither Advanced Energy nor EMCO will recognize any gain or loss as a
result of the merger.
TAX CONSEQUENCES OF THE MERGER TO EMCO SHAREHOLDERS
An EMCO shareholder who exchanges all of the shares of EMCO common stock
owned by the shareholder for shares of Advanced Energy common stock in the
merger will not recognize any gain or loss upon the exchange, except for any
gain or loss attributable to any cash received instead of a fractional share of
Advanced Energy common stock. The aggregate tax basis of the shares of Advanced
Energy common stock received by the EMCO shareholder in the merger will be the
aggregate tax basis of the shares of EMCO common stock surrendered in the merger
less any tax basis of the EMCO common stock surrendered that is allocated to any
fractional share of EMCO common stock for which cash is received. Also, the EMCO
shareholder's holding period for federal income tax purposes for the Advanced
Energy common stock received in exchange for shares of EMCO common stock in the
merger will include the period during which the shareholder held shares of EMCO
common stock that were surrendered in exchange for the shares of Advanced
Energy.
TAX CONSEQUENCES OF THE RECEIPT OF CASH INSTEAD OF A FRACTIONAL SHARE
An EMCO shareholder who receives cash instead of a fractional share of
Advanced Energy common stock will recognize gain or loss equal to the difference
between the amount of cash received and the portion of the adjusted tax basis of
the shareholder's shares of EMCO common stock that are allocable to the
fractional interest. The gain or loss will constitute capital gain or loss, and
will generally be long-term capital gain or loss if the holding period for the
shares was greater than one year as of the date of the exchange.
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ACCOUNTING TREATMENT
Advanced Energy and EMCO intend for the Merger to qualify as a pooling of
interests for accounting and financial reporting purposes. Advanced Energy will
not be required to complete the merger unless it receives a letter from Arthur
Andersen LLP, its independent public accountants, stating that, in its opinion,
the merger will qualify for pooling of interests accounting treatment. See "The
Merger Agreement -- Conditions to the Merger" on page 44.
Under the pooling of interests method of accounting, the historical basis
of the assets and liabilities of EMCO and Advanced Energy will be combined when
the merger becomes effective, the stockholders' equity accounts of EMCO and
Advanced Energy will be combined on Advanced Energy's consolidated balance
sheet, and no goodwill or other intangible assets will be created. Results of
operations of the combined company will include results of EMCO and Advanced
Energy for the entire fiscal period in which the merger occurs and the
historical results of operations of the separate companies for fiscal years
prior to the merger will be combined and reported as the results of operations
of the combined company.
RESALE OF ADVANCED ENERGY COMMON STOCK RECEIVED BY EMCO SHAREHOLDERS
The shares of Advanced Energy common stock issued to EMCO shareholders in
the merger will be freely transferable, except for shares received by persons
who are deemed to be "affiliates" of EMCO at the time of the special meeting or
persons who become affiliates of Advanced Energy following the merger. A person
may be deemed to be an affiliate of a company if the person controls, is
controlled by or is under common control with the company. Executive officers,
directors and significant shareholders generally are considered to be
affiliates. Affiliates of EMCO may only resell shares of Advanced Energy common
stock that they receive in the merger in accordance with the conditions of Rule
145 under the Securities Act, and persons who become affiliates of Advanced
Energy may only resell shares of Advanced Energy common stock in accordance with
the conditions of Rule 144 under the Securities Act, unless the resale of the
Advanced Energy common stock by the affiliate is registered under the Securities
Act or an exemption from registration is available. In addition, in order for
the merger to qualify for pooling of interests accounting treatment, affiliates
of EMCO may not sell, or in any other way reduce their risk with respect to,
shares of Advanced Energy common stock received in the merger, until after
Advanced Energy has published financial results covering at least 30 days of
combined operations of Advanced Energy and EMCO.
The merger agreement requires EMCO to use all reasonable efforts to deliver
to Advanced Energy a letter from each affiliate of EMCO agreeing to comply with
the transferability restrictions on the Advanced Energy common stock they
receive in the merger.
Advanced Energy may place legends on the certificates representing the
shares of AE common stock issued to affiliates of EMCO to restrict
transferability of those shares. Advanced Energy also may place stop transfer
instructions with the transfer agent of the Advanced Energy common stock. This
proxy statement/prospectus does not cover resales of Advanced Energy common
stock received by persons who are deemed to be affiliates of EMCO. No person is
allowed to use this proxy statement/prospectus in connection with any resales.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement. Because it is a summary, it does not include all the information that
may be important to you. We encourage you to read carefully the entire merger
agreement, which is attached as Appendix A to this document, before you decide
how to vote.
THE MERGER
The merger will close on the first business day after satisfaction or
waiver of the conditions to the merger agreement, or on another date as the
parties agree. The merger will become effective upon the filing of articles of
merger with the Secretary of State of the State of Colorado or at a later time
as may be agreed to in writing by EMCO and Advanced Energy, as specified in the
articles of merger. The closing date is expected to be on or about October 23,
2000.
At the effective time:
- Flow Acquisition Corporation will be merged into EMCO;
- the separate corporate existence of Flow Acquisition Corporation will
cease;
- each share of EMCO common stock outstanding will be converted into at
least 0.2018 of a share of Advanced Energy common stock; and
- EMCO will become a wholly owned subsidiary of Advanced Energy.
References to the surviving corporation in this proxy statement are to EMCO
following the effective time of the merger.
REPRESENTATIONS AND WARRANTIES
EMCO, Advanced Energy and Flow Acquisition Corporation have made
representations in the merger agreement, relating to, among other things:
- their respective organization and similar corporate matters;
- authorization, execution, delivery and enforceability of the merger
agreement;
- absence of conflicts under their charters and bylaws;
- accounting and tax treatment of the merger;
- their respective capital structures;
- required consents or approvals;
- documents filed with the SEC;
- completion of the merger not violating any agreements or law; and
- information included in this proxy statement/prospectus.
EMCO has made additional representations, relating to among other things:
- litigation;
- insurance;
- contracts and commitments;
- financial statements;
- absence of undisclosed liabilities;
- absence of material adverse events or changes;
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- compliance with laws;
- intellectual property matters;
- tax laws and tax returns;
- employee benefit plans and compliance with applicable laws;
- environmental matters;
- finders' or brokers' fees; and
- title to real and personal property.
The representations and warranties in the merger agreement are not easily
summarized. In addition, many of the representations and warranties are subject
to various qualifications and limitations, including qualifications as to
materiality. You are urged to read the merger agreement sections titled
"Representations and Warranties of the Company" and "Representations and
Warranties of Parent and Merger Sub" in Appendix A. None of the representations
and warranties of EMCO, Flow Acquisition Corporation or Advanced Energy will
survive the merger, but they must be accurate at the closing of the merger
agreement or else the merger might not be completed.
CONDUCT OF BUSINESS PRIOR TO THE MERGER
The merger agreement contains certain covenants by EMCO and Advanced Energy
pending the effective time of the merger. These covenants are designed to
provide notice to the other party of certain events and to ensure that the
intended tax and accounting treatment of the merger are maintained. Until the
earlier of the termination of the merger agreement or the effective time of the
merger, EMCO and Advanced Energy have agreed, unless the other party otherwise
consents in writing, to:
- promptly deliver to the other party copies of any SEC filings;
- notify the other party of any material adverse change, any material
litigation or governmental investigation, or the breach by it of any
representation and warranty contained in the merger agreement; and
- not take any action which would prevent the merger from qualifying as a
tax-free reorganization under Section 368 of the Internal Revenue Code or
a pooling of interests under Accounting Principles Board Opinion No. 16.
In addition, the merger agreement contains restrictions on EMCO's conduct
of business pending the effective time of the merger. These restrictions are
designed to prevent major changes in EMCO until the merger takes place, except
to the extent Advanced Energy consents to the changes. EMCO has agreed, unless
Advanced Energy otherwise consents in writing, to:
- conduct its operations according to its ordinary and usual course of
business, in substantially the same manner as previously conducted;
- not enter into or amend any employment or severance agreement with any
director or executive officer except in the ordinary course of business;
- not authorize or enter into any arrangement for the acquisition or sale
of assets or securities outside the ordinary course of business involving
aggregate consideration greater than $100,000;
- not amend in any material respect any employee benefit plan or adopt any
new employee benefit plan;
- not become liable for borrowed money or assume or guarantee the debt of
another person, except in the ordinary course of business;
- not make any loans or advances except in the ordinary course of business;
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- use reasonable efforts to:
- preserve intact its business organization and goodwill;
- keep available the services of its officers and employees in each
business function; and
- maintain satisfactory relationships with persons with whom it has
business relationships;
- not take any action which would adversely affect its ability to
consummate the merger or the other transactions contemplated by the
merger agreement;
- not amend its Articles of Incorporation or Bylaws;
- not declare or pay any dividend with respect to its capital stock;
- not issue any capital stock or other options, warrants or rights to
purchase or acquire capital stock or change the terms of any outstanding
securities, except that EMCO may issue capital stock upon the exercise of
options, warrants or rights outstanding as of July 6, 2000 and pursuant
to its stock purchase plan;
- not redeem or purchase shares of its capital stock except for cashless
exercises of stock options;
- not make any change or material election with respect to taxes; or
- not take or agree to take, any of the specific actions described in the
merger agreement, or any action which would make any of its
representations or warranties contained in the merger agreement untrue or
incorrect.
COVENANTS
Each of Advanced Energy, Flow Acquisition Corporation and EMCO has
undertaken additional covenants in the merger agreement. The following
summarizes the principal covenants.
Advanced Energy and EMCO have agreed, among other things, to:
- use all reasonable efforts to cooperate to determine which filings,
consents, approvals, permits or authorizations are required to be
obtained from governmental or regulatory authorities, and timely make all
such filings and seek all such consents, approvals, permits or
authorizations;
- allow representatives of the other party access to offices, files and
other information, and furnish the other party with financial and
operating data;
- consult and cooperate in making any press release or other public
statement regarding the merger; and
- for a period of six years after the effective time of the merger,
Advanced Energy will maintain directors' and officers' liability
insurance substantially similar to that maintained by EMCO prior to the
effective time.
EMCO will use all reasonable efforts to obtain letters from affiliates of
EMCO whereby they agree to comply with the provisions of Rule 145 issued under
the Exchange Act and the limitations of Accounting Principles Board Opinion No.
16.
CONDITIONS TO THE MERGER
The respective obligations of EMCO, Advanced Energy, and Flow Acquisition
Corporation to complete the merger are subject to the fulfillment or waiver of
the following conditions on or before the effective time of the merger:
- EMCO shareholders approve the merger agreement (which as a matter of law
is required and cannot be waived);
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<PAGE> 51
- all governmental approvals, authorizations, consents, filings or
expiration of waiting periods have been obtained or complied with other
than those which would not be reasonably likely to have a material
adverse effect on EMCO and Advanced Energy and its subsidiaries, taken as
a whole; and
- none of EMCO, Advanced Energy and Flow Acquisition Corporation shall be
subject to any order or injunction of a court which prohibits the
completion of the merger.
In addition, the obligations of EMCO to effect the merger are subject to
the fulfillment of the following conditions on or before the effective time of
the merger, any one of which may be waived by EMCO:
- the representations and warranties of Advanced Energy and Flow
Acquisition Corporation in the merger agreement are true and correct in
all material respects, at the effective time of the merger, with the same
force and effect as if made at the effective time of the merger except:
- for changes specifically permitted by the merger agreement; and
- that the accuracy of the representations and warranties that by their
terms speak as of the date of the merger agreement or some other date
will be determined as of that date;
- Advanced Energy has performed and complied in all material respects with
all agreements required to be performed by it on or prior to the closing
date of the merger;
- no material adverse change or effect with respect to Advanced Energy's
business, prospects, results of operations or financial condition will
have occurred; and
- EMCO has received an opinion of its counsel regarding the tax treatment
of the merger.
In addition, the obligations of Advanced Energy and Flow Acquisition
Corporation to effect the merger are subject to the fulfillment of the following
conditions on or before the effective time of the merger, any one of which may
be waived by Advanced Energy:
- the representations and warranties of EMCO contained in the merger
agreement are true and correct in all material respects at the effective
time of the merger, with the same force and effect as if made at the
effective time of the merger except:
- for changes specifically permitted by the merger agreement; and
- that the accuracy of the representations and warranties that by their
terms speak as of the date of the merger agreement or some other date
will be determined as of that date;
- EMCO has performed and complied in all material respects with all
agreements required by the merger agreement to be performed by it on or
prior to the date of the closing of the merger;
- Advanced Energy has received a letter from its independent public
accountants stating that the merger will qualify as a transaction to be
accounted for in accordance with the pooling of interests method;
- Advanced Energy has received an opinion of its counsel regarding the tax
treatment of the merger;
- EMCO's 1998 Stock Purchase Plan has been terminated and all stock and
cash distributed as provided in the merger agreement; and
- no material adverse change, or effect with respect to EMCO's business,
prospects, results of operations or financial condition has occurred.
NO SOLICITATION; BOARD RECOMMENDATION
EMCO has agreed that it will not take specified actions with respect to an
"alternative proposal" or an "alternative transaction," except for actions
required to be taken by the fiduciary duty of EMCO's board of directors.
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<PAGE> 52
The term "alternative proposal" means any bona fide offer or proposal made
by a third party relating to an alternative transaction. An alternative
transaction means any transaction or series of related transactions involving a
business combination, merger, sale of material assets, sale of shares of capital
stock or similar transaction by EMCO with a person, or company or entity other
than Advanced Energy.
Specifically, EMCO has agreed that it and its officers, directors,
affiliates, representatives, agents, employees, will not, directly or
indirectly:
- solicit, initiate, encourage or participate in any discussions or
negotiations with or provide any information to, any person or entity
concerning any alternative transaction; or
- authorize, propose or announce an intention to authorize or propose any
alternative transaction,
unless EMCO receives an alternative proposal in writing and EMCO's board of
directors determines in its good faith judgment, based as to legal matters on
the written advice of counsel, that failing to take any of the actions described
in the preceding paragraph would constitute a breach of the board of directors'
fiduciary duty.
In addition, EMCO has agreed to immediately provide Advanced Energy a copy
of any alternative proposal if EMCO receives an alternative proposal.
The EMCO board of directors is required to recommend the adoption and
approval of the merger agreement and approval of the merger to the EMCO
shareholders unless the EMCO board determines in its good faith judgment, based
as to legal matters on the written advice of counsel, that such approval would
constitute a breach of its fiduciary duty.
The merger agreement does not, however, prohibit EMCO's board of directors
from taking and disclosing to EMCO's shareholders a position contemplated by
Rules 14d-9 and 14e-2 under the Securities Exchange Act with regard to a tender
or exchange offer made by someone other than Advanced Energy.
CONDUCT OF BUSINESS FOLLOWING THE MERGER
Pursuant to the merger agreement Flow Acquisition Corporation will merge
into EMCO and EMCO will be the surviving corporation. All property, rights,
privileges, powers and franchises of EMCO and Flow Acquisition Corporation will
vest in the surviving corporation. All debts, liabilities and duties of EMCO and
Flow Acquisition Corporation will become the debts, liabilities and duties of
the surviving corporation. The surviving corporation will be a wholly owned
subsidiary of Advanced Energy.
Pursuant to the merger agreement, the articles of incorporation of Flow
Acquisition Corporation in effect immediately prior to the effective time of the
merger will become the articles of incorporation of the surviving corporation.
The name of the surviving corporation will be "Engineering Measurements Company"
and the bylaws of Flow Acquisition Corporation will become the bylaws of
Engineering Measurements Company following the effective time of the merger. The
directors of Flow Acquisition Corporation at the effective time of the merger
will become the initial directors of the surviving corporation. The officers of
Flow Acquisition Corporation immediately prior to the effective time of the
merger will become the initial officers of the surviving corporation.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement provides that it may be terminated at any time prior
to the effective time of the merger, whether before or after approval of the
merger by the shareholders of EMCO by mutual written consent of each of Advanced
Energy and EMCO; or by either Advanced Energy or EMCO if:
- the merger has not closed by December 31, 2000 (provided that the right
to terminate will not be available to any party whose action or failure
to act has proximately contributed to the failure to close the merger by
December 31, 2000 and the action or failure to act constitutes a
material breach of the merger agreement);
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- a court of competent jurisdiction or other governmental entity has
issued a final and non-appealable order, decree or ruling, or taken any
other final and non-appealable action, that permanently restrains,
enjoins or otherwise prohibits the merger (provided that the party
exercising the right to terminate has used all reasonable efforts to
remove that order, decree or ruling); or
- the required approval of the merger by the EMCO shareholders has not
been obtained at the EMCO special meeting.
Advanced Energy may terminate the merger agreement upon the occurrence of any of
the following events:
- a breach by EMCO of its representations or warranties, which breach has
had or is reasonably likely to have a material adverse effect on EMCO
and which is not curable or, if curable, is not cured within 30 days
after notice of the breach has been received by EMCO from Advanced
Energy;
- a material breach by EMCO of any of the covenants or agreements
contained in the merger agreement, which breach is not curable or, if
curable, is not cured within 30 days after notice of the breach has been
received by EMCO from Advanced Energy;
- the EMCO board of directors shall have withdrawn or modified in a manner
materially adverse to Advanced Energy its approval or recommendation of
the merger or the merger agreement; or
- the EMCO board of directors shall have recommended an alternative
proposal to the shareholders of EMCO;
EMCO may terminate the merger agreement upon the occurrence of any of the
following events:
- a breach by either of Advanced Energy or Flow Acquisition Corporation of
its representations or warranties, which breach has had or is reasonably
likely to have a material adverse effect on Advanced Energy and which is
not curable or, if curable, is not cured within 30 days after notice of
the breach has been received by Advanced Energy from EMCO;
- a material breach by Advance Energy of any of the covenants or
agreements contained in the merger agreement, which breach is not
curable or, if curable, is not cured within 30 days after notice of the
breach has been received by Advanced Energy from EMCO; or
- The EMCO board of directors determines in its good faith judgment, based
as to legal matters on the written advice of legal counsel, that
termination of the merger is required by its fiduciary duties.
FEES, EXPENSES AND TERMINATION FEES
Except as set forth below, all fees and expenses incurred in connection
with the merger agreement and the merger will be paid by the party that incurs
them. Advanced Energy and EMCO will share equally all fees and expenses incurred
in relation to the printing and filing fees paid in connection with the filing
of this proxy statement and the costs of printing and mailing this proxy
statement.
EMCO has agreed to pay Advanced Energy a termination fee of $5 million if
prior to the termination, an alternative proposal has been made to the EMCO
board of director and within two years following the termination, EMCO executes
an agreement with a third party providing for the acquisition of more than 50%
of EMCO's capital stock or assets and Advanced Energy or EMCO terminates the
merger agreement because:
- the EMCO shareholders have not approved the merger agreement at the EMCO
special meeting;
- the EMCO board of directors determines, in its good faith judgment, based
as to legal matters on the written advice of legal counsel, that
terminating the agreement and abandoning the merger is required by the
EMCO board of directors' fiduciary duties; or
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<PAGE> 54
- the EMCO board of directors shall have withdrawn or modified in a manner
materially adverse to Advanced Energy its approval or recommendation of
the merger or the merger agreement, or shall have recommended an
alternative proposal to the shareholders of EMCO.
EMCO is required to pay the termination fee within 15 business days of the
execution of an agreement providing for, or completion of, the alternative
transaction.
AMENDMENT
The merger agreement may be changed by written agreement of the parties at
any time before or after EMCO shareholders approve the merger. Any change after
the EMCO shareholders approve the merger that by law requires the approval of
EMCO shareholders, however, will require their approval to be effective.
EMPLOYEE BENEFITS
STOCK OPTIONS. At the effective time of the merger Advanced Energy will
assume all of the outstanding EMCO stock options. Pursuant to the EMCO stock
option plans, except the 1998 Employee Stock Purchase Plans, the vesting of all
options will accelerate, and all options will be immediately exercisable, as a
result of the merger. Each stock option assumed will continue to have and be
subject to substantially the same terms and conditions as under the EMCO stock
plan under which the stock option was granted except that:
- each option will be fully vested and exercisable;
- each option will be exercisable for the number of shares of Advanced
Energy common stock, rounded to the nearest whole share, equal to the
product obtained from multiplying the number of shares of EMCO common
stock covered by the option immediately prior to the effective time by
the exchange ratio; and
- the option price per share of Advanced Energy common stock will be
adjusted proportionately so that the aggregate exercise price for the
options will remain substantially unchanged for each holder.
Advanced Energy will file a registration statement on Form S-8 or other
appropriate form under the Securities Act covering the shares of Advanced Energy
common stock issuable upon exercise of the options assumed in the merger, or
will cause such shares to be included in an effective registration statement on
Form S-8 relating to one or more of Advanced Energy's stock option plans.
EMPLOYEE STOCK PURCHASE PLAN. EMCO's 1998 Employee Stock Purchase Plan will
be terminated prior to the effective time. All funds contributed to the 1998
Stock Purchase Plan that are not used to purchase shares of EMCO common stock
prior to the effective time will be transferred or otherwise credited to the
Advanced Energy 1995 Employee Stock Purchase Plan.
OTHER BENEFIT PLANS. Advanced Energy will provide or cause the surviving
corporation to provide to employees of EMCO who remain employees of the
surviving corporation following the effective time the same compensation and
benefit plans as are provided to other employees of Advanced Energy employed in
similar capacities.
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INFORMATION ABOUT THE COMPANIES
ADVANCED ENERGY INDUSTRIES, INC.
OVERVIEW
Advanced Energy's primary business is the design, manufacture and support
of 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.
Advanced Energy's 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. Advanced Energy's 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.
Advanced Energy was incorporated in Colorado in 1981 and reincorporated in
Delaware in 1995. Its main offices are located at 1625 Sharp Point Drive, Fort
Collins, Colorado 80525, and its telephone number is (970) 221-4670.
RECENT DEVELOPMENTS
In April 2000, Advanced Energy acquired Noah Holdings, Inc., a
privately-held manufacturer of solid state temperature control systems used to
control process temperatures during semiconductor manufacturing. In August,
2000, Advanced Energy acquired Sekidenko, Inc., a supplier of optical fiber
thermometers to the semiconductor capital equipment industry. Both acquisitions
were accounted for as poolings of interests pursuant to Accounting Principles
Board Opinion No. 16.
STRATEGY
Advanced Energy has achieved a market leadership position in the
semiconductor equipment, flat panel display and data storage industries by
applying its 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. Advanced Energy's
strategy is to continue to build upon its leadership positions in these
industries while exploring other emerging markets. Advanced Energy believes its
five key growth opportunities are:
EXPANDING LEADERSHIP IN ITS CORE MARKETS. Advanced Energy believes it is
the market share leader in the semiconductor capital equipment, data storage and
flat panel display markets. Advanced Energy plans to continue to increase its
penetration in these three markets by introducing new products and solutions for
existing customers and targeting new customers, but its primary focus will
continue to be on the semiconductor capital equipment market. For example, in
the semiconductor capital equipment market
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Advanced Energy believes that significant opportunities exist for it 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. Advanced Energy believes that
customers want solutions that improve process control and yield, and decrease
their total cost and time to market. Advanced Energy is developing integrated
systems to provide more complete solutions that meet its customers' plasma-based
process requirements. Advanced Energy is 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. Advanced Energy is 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. Advanced Energy actively seeks
complementary technologies and companies as a means to expand its presence in
existing and emerging markets and to provide integrated solutions for customers
and potential customers. Advanced Energy has acquired and integrated several
companies recently. Advanced Energy continually evaluates companies whose
products and technologies could enhance its system level capabilities.
CAPITALIZING ON WORLDWIDE INFRASTRUCTURE. Advanced Energy's principal
customers are large, global OEMs that require that their suppliers have a
well-developed worldwide infrastructure. Advanced Energy plans to continue to
take advantage of and expand its established global infrastructure, operating
skills and comprehensive product portfolio to better serve these customers and
to attract new customers with international support needs.
MARKETS
Advanced Energy markets and sells its systems primarily to large, global
original equipment manufacturers of semiconductor, flat panel display, data
storage and other industrial thin film manufacturing equipment. Advanced Energy
has sold its systems worldwide to more than 100 OEMs and directly to more than
500 end-users. Advanced Energy's principal customers include Applied Materials,
Balzers, Eaton, Lam Research, Novellus, Singulus and ULVAC. The semiconductor
capital equipment industry accounted for approximately 61% of Advanced Energy's
total sales in 1997, 52% in 1998, 65% in 1999 and 69% in the first six months of
2000. Following is a discussion of the major markets for Advanced Energy's
systems:
SEMICONDUCTOR CAPITAL EQUIPMENT MANUFACTURING MARKET. Advanced Energy sells
its products primarily to semiconductor capital equipment manufacturers for
incorporation into equipment used to make integrated circuits. Its products are
currently used in a variety of applications including deposition, etch, ion
implantation, photo-resist strip and megasonic cleaning. The precise control
over plasma-based processes that use its power conversion and control systems
enables the production of integrated circuits with reduced feature sizes and
increased speed and performance. Advanced Energy anticipates that the
semiconductor capital equipment industry will continue to be a substantial part
of its business for the foreseeable future.
DATA STORAGE MANUFACTURING EQUIPMENT MARKETS. Advanced Energy also sells
systems to data storage equipment manufacturers and to data storage device
manufacturers for use in producing a variety of products, including CDs,
computer hard disks, including both media and thin film heads, CD-ROMs
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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 and the consumer
electronics audio and video markets.
FLAT PANEL DISPLAY MANUFACTURING EQUIPMENT MARKET. Advanced Energy also
sells its 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 and desktop computer monitors to large-screen
televisions. There are three major types of flat panel displays, including
liquid crystal displays, field emitter displays and gas plasma displays. There
are two types of flat panel projection devices, including liquid crystal
projection and digital micro-mirror displays. Advanced Energy sells its products
to all five of these markets.
EMERGING MARKETS. Advanced Energy also sells its 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, barcode 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 its 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
Advanced Energy's other markets.
SALES AND MARKETING
Advanced Energy sells its systems primarily through direct sales personnel
to customers in the United States, Europe and Asia, and through distributors in
China, France, Israel, Italy, Singapore, and Sweden. Sales outside the United
States represented 22% of its total sales during 1997, 27% in 1998, 27% in 1999
and 28% in the first six months of 2000. Advanced Energy maintains sales and
service offices across the United States in California, Colorado, Massachusetts,
Minnesota, New Jersey and Texas. Advanced Energy maintains sales and service
offices outside the United States in Germany, Japan, South Korea, the United
Kingdom and Taiwan.
ENGINEERING MEASUREMENTS COMPANY
OVERVIEW
EMCO designs, manufactures, and markets electronic and electro-mechanical
instruments (flowmeters) for measuring the flow of liquids, steam and gases.
EMCO operates within the flow measurement devices and systems industry segment
(S.I.C. Code No. 3823). EMCO generates its revenues from the sales of flowmeter
hardware in both foreign and domestic markets. Revenue is also generated through
contract electronic printed circuit board assembly. With 33 years of experience
in the field of flow measurement, EMCO is able to provide its customers with a
family of products capable of measuring almost any kind of fluid or gas flow.
While EMCO has historically been strongest in energy utility flow measurement
(particularly steam metering), it has products capable of measuring most types
of process fluids, as well as fuel oils and natural gas. Primarily utilizing a
network of distributors and commissioned sales representatives as well as a
direct sales force, EMCO markets flowmeters worldwide.
EMCO has renewed a marketing agreement with Danfoss A/S, a flowmeter
company in Denmark which distributes products in different markets and runs for
a period until April 2001 with a six month renegotiations period. Terms of the
agreement with Danfoss A/S allow EMCO to be the non-exclusive
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distributor for Danfoss' MAG and MASS flowmeters in the U.S. industrial market
under the EMCO label. EMCO features six types of flowmeters capable of handling
a broad spectrum of applications (steam, gas and liquid), as well as a large
range of line sizes. These flowmeters position EMCO to compete on a product
level with any flowmeter manufacturer in the world.
PRODUCTS
EMCO develops and markets a series of products to measure the flow of
steam, chilled and hot water, natural gas, compressed gases and other fluids in
a pipeline. Also included are products, which support the primary flow
measurements, such as pressure, temperature measurements and supporting
electronics.
Sales of flowmeters and related products account for approximately 88% of
the total sales for EMCO for fiscal year 2000. The flowmeter products use two
major technologies in its product lines. The sales contribution by each
technology as a percent of sales for fiscal years 1999 and 2000 are as follows:
<TABLE>
<CAPTION>
TECHNOLOGY FY 1999 FY 2000
---------- ------- -------
<S> <C> <C>
Volumetric.................................................. 74% 68%
Mass........................................................ 26% 20%
</TABLE>
Volumetric technologies include the following products: turbine, vortex
shedding, ultrasonic, and positive displacement meters. Mass technologies
include the following products: electromagnetic, coriolis, flow processors and
digital valves.
EMCO manufactures several series of insertion meters for various
applications of steam, liquids and compressed gas measurement. The insertion
meters offer solutions to customers for metering flows in large size pipes. Each
is available with an assortment of options allowing for extremes in flow range,
pressure and temperature, with adaptation to various output requirements which
provide mass and energy measurement for totalizing or computer input.
EMCO introduced a line of vortex shedding flowmeters in fiscal year 1992.
The Vortex PhD has no moving parts, provides high reliability, has low
maintenance requirements and is capable of operating with dirty fluids.
EMCO introduced a clamp-on transit time ultrasonic flowmeter in January
2000. This product is a non-intrusive meter, which is attached to the outside of
pipes, and is used primarily to measure water, but is capable of measuring other
liquids including oil.
EMCO also develops, manufactures and markets a series of positive
displacement meters which provide accurate measurements of fluid flow rates. The
products' primary applications relate to the measurement of viscous fluids, such
as crude oil, as well as applications requiring a high degree of accuracy.
Digital valves are digitally actuated control valves providing industry
with a unique means of controlling and measuring the flow of fluids. Because of
their accuracy and speed of response, these products are capable of providing a
high degree of control that cannot easily be matched by other valves. In
addition, this product can be configured as a metering valve, thus providing
both measurement and control.
All EMCO flowmeter products utilize a family of digital flow processors to
provide a wide range of measurement processing. The flow processors provide the
desired outputs in engineering units, such as gallons, liters, etc., with
provisions for computing density, mass flow and enthalpy.
The Company introduced a commercial vortex shedding water flowmeter in
March 1997. This product is marketed into the commercial HVAC, ultra-pure and
de-ionized water and landscape/irrigation markets.
The Company provides contract electronic printed circuit board assembly.
These services provided 8% of EMCO's revenues in 1999 and 12% in 2000.
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Control of gases is critical to the production of semiconductors. EMCO has
developed the Mach One mass flow controller specifically for the semiconductor
market. This product has been designed to address the gas control needs of the
industry for greater accuracy, control range, response time, and adjustable
capacity. In addition, the Mach One operates at sub-atmospheric pressures, is
less susceptible to clogging and has no flow bypass which means improved process
repeatability. The Mach One has not yet been commercialized.
SALES AND MARKETING
EMCO primarily uses a network of distributors and commissioned sales
representatives, as well as a direct sales force, to market EMCO's flowmeters
worldwide. EMCO utilizes a direct sales force to market its contract electronic
printed circuit board assembly services.
In fiscal year 2000, EMCO had foreign sales of approximately $2,242,000, or
24.3% of sales, compared to approximately $2,691,000, or 27.8% of sales in
fiscal year 1999. The decrease of sales for fiscal year 2000 in Europe is due
primarily to lower sales to Danfoss in 2000. EMCO experienced a decrease in
sales to Asia due to a shift in the product mix to lower cost meters. Other
foreign sales are lower due to lower activity overall, rather than sales of a
single large project. All foreign sales are exports from domestic operations.
The breakdown of foreign sales for fiscal years 2000 and 1999, in dollars and
percent of total sales are:
<TABLE>
<CAPTION>
FY 2000 FY 1999
------------------ ------------------
<S> <C> <C> <C> <C>
Europe.............................................. $1,335,000 14.5% $1,580,000 16.3%
Asia................................................ 658,000 7.1% 755,000 7.8%
Other............................................... 249,000 2.7% 356,000 3.7%
</TABLE>
DESCRIPTION OF CAPITAL STOCK
ADVANCED ENERGY COMMON STOCK
Advanced Energy's is authorized to issue up to 40,000,000 shares of common
stock, of which 31,465,170 shares were outstanding on September 18, 2000. The
holders of Advanced Energy 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 Advanced Energy 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.
The holders of 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 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.
ADVANCED ENERGY PREFERRED STOCK
Advanced Energy's 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;
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- impairing the liquidation rights of the common stock; and
- delaying or preventing a change in control.
No preferred stock is currently outstanding and Advanced Energy has no
present plans to issue any shares of preferred stock.
EMCO COMMON STOCK
EMCO's authorized capital stock consists of 15,000,000 shares of common
stock, $0.01 par value. As of September 18, 2000, 4,225,342 shares of common
stock were outstanding, held by 449 holders of record. As of September 18, 2000,
options to purchase an aggregate of 238,163 shares of common stock were
outstanding under EMCO's 1991 Incentive Plan and 1997 Incentive Plan. A total of
750,000 shares were reserved for issuance under its 1991 Incentive Plan, 625,000
shares were reserved for issuance under EMCO's 1997 Incentive Plan and 187,500
shares were reserved for issuance under its Employee Stock Purchase Plan,
including shares that have already been issued under these plans.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF EMCO
The following table sets forth as of September 15, 2000, the number and
percentage of EMCO's shares of common stock owned of record and beneficially by
each person owning more than five percent (5%) of such common stock and by all
individual directors and officers and by all directors and officers as a group:
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE PERCENT
TITLE OF CLASS BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS (9)
-------------- ---------------- ----------------------- ------------
<S> <C> <C> <C>
Common Stock..................................... Charles E. Miller 1,482,804(1) 35.0
Common Stock..................................... William A. Ringer 123,625(2) 2.9
Common Stock..................................... Saied Hosseini 89,250(3) 2.1
Common Stock..................................... David S. Miller 426,250(4) 10.1
Common Stock..................................... Walter Kluck 29,292(5) 0.7
Common Stock..................................... Thomas G. Miller 460,862(6) 10.9
Common Stock..................................... Trung T. Doan 10,000(7) 0.2
Common Stock..................................... Jerry Howard 0(8) 0
All Directors and Officers as a Group
(Seven Persons)................................ 2,195,833 50.9%
</TABLE>
-------------------------
(1) Record and Beneficial; Mr. Miller has sole voting and investment power on
1,256,710 of the owned shares; 213,594 shares have shared voting and
investment power; also includes an option to purchase 12,500 shares of
common stock under the 1991 Incentive Plan. Charles E. Miller's business
address is 600 Diagonal Highway, Longmont, CO 80501.
(2) Record and Beneficial; Mr. Ringer has sole voting and investment power on
110,625 shares of the owned shares; 500 shares have shared voting and
investment power; also includes an option to purchase 12,500 shares of
common stock under the 1997 Incentive Plan. William A. Ringer's address is
P.O. Box 1018, Wilson, WY 83014.
(3) Record and Beneficial; Mr. Hosseini has sole voting and investment power on
64,250 of the owned shares; also includes an option to purchase 12,500
shares of common stock under the 1991 Incentive Plan and an option to
purchase 12,500 shares under the 1997 Incentive Plan. Saied Hosseini's
business address is 600 Diagonal Highway, Longmont, CO 80501.
(4) Record and Beneficial; Mr. Miller has sole voting and investment power on
68,813 of the owned shares; 357,437 shares have shared voting and investment
power. David S. Miller's business address is 420 E. Armour, N. Kansas City,
MO 64166.
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(5) Record and Beneficial; Mr. Kluck has sole voting and investment power on
2,187 of the owned shares; 2,105 shares have shared voting and investment
power; also includes an option to purchase 25,000 shares of common stock
under the 1997 Incentive Plan. Walter Kluck's business address is P.O. Box
421, Clifton, NJ 07015.
(6) Record and Beneficial; Mr. Miller has sole voting and investment power on
107,387 shares of the owned shares; 340,975 shares have shared voting and
investment power; also includes an option to purchase 12,500 shares of
common stock under the 1997 Incentive Plan. Thomas G. Miller's business
address is 11725 W. 112th St., Overland Park, KS 66210.
(7) Record and Beneficial; Mr. Doan has sole voting and investment power on
10,000 shares of the owned shares. Trung T. Doan's business address is 8000
S. Federal Way, Boise, Idaho 83707-0006.
(8) Record and Beneficial; Jerry Howard's business address is 600 Diagonal
Highway, Longmont, CO 80501.
(9) All options under the EMCO stock option plans (other than the Employee Stock
Purchase Plan and the option held by Mr. Doan for 5,000 shares of common
stock under the 1997 Incentive Plan) shall vest prior to the closing of the
merger and are included for determining the percentages. Mr. Doan's option
will become exercisable upon closing of the merger or if the merger were not
to occur on February 3, 2001.
COMPARISON OF STOCKHOLDERS' RIGHTS
Prior to the effective time of the merger, the rights of EMCO shareholders
are governed by the Colorado Business Corporation Act, or the CBCA, the EMCO
articles of incorporation and the EMCO bylaws. At the effective time of the
merger, the shareholders of EMCO will become stockholders of Advanced Energy, a
corporation governed by the Delaware General Corporation Law, or DGCL, the
Advanced Energy certificate of incorporation and the Advanced Energy bylaws. The
following discussion summarizes the material differences between the rights of
holders of shares of EMCO common stock and holders of shares of Advanced Energy
common stock.
GENERAL
The DGCL and the interpretations of those laws by Delaware courts is
generally more comprehensive and more developed than the CBCA and the
interpretation of those laws by Colorado courts. The DGCL is more frequently
updated and revised to meet changes in the business environment. The CBCA
replaced the Colorado Corporation Code effective July 1, 1994 and is a modern,
updated corporation statute. EMCO does not believe that it has been impeded in
operating its business under the CBCA.
VOTING GROUPS
Under the CBCA, EMCO shareholders are entitled to vote in voting groups in
certain circumstances. A voting group consists of all the shares of one or more
classes or series that, under the EMCO articles of incorporation or under the
CBCA, are entitled to vote and be counted together collectively on a matter at a
meeting of shareholders. If multiple voting groups are entitled to vote on a
matter, favorable action on the matter is taken only when it is duly approved by
each such voting group. Although the EMCO common stock is the only issued and
outstanding voting stock of EMCO and the EMCO articles of incorporation do not
provide for voting by voting groups, any other class or series of capital stock
that may be issued by EMCO in the future is entitled to vote separately as a
voting group under the CBCA in connection with some amendments to the EMCO
articles of incorporation and certain plans of merger and share exchange. See
"Comparison of Stockholders' Rights -- Amendments to the EMCO Articles of
Incorporation and the Advanced Energy Certificate of Incorporation" on page 56.
The DGCL has no equivalent provisions for voting groups although it does provide
for voting by class or series of stock in certain circumstances.
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CUMULATIVE VOTING
In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number of
directors to be elected. A stockholder may then cast all such votes for a single
candidate or may allocate them among as many candidates as the stockholder may
choose. Without cumulative voting, the holders of a majority of the shares
present at an annual meeting or any special meeting held to elect directors
would have the power to elect all the directors to be elected at that meeting,
and no person could be elected without the support of holders of a majority of
the shares voting at such meeting. Under the DGCL, cumulative voting in the
election of directors is not mandatory, but is a permitted option. The Advanced
Energy certificate of incorporation and the Advanced Energy bylaws do not
provide for cumulative voting in the election of directors.
Under CBCA Section 7-102-102(3), for corporations incorporated after
December 31, 1958, if cumulative voting is not desired in the election of
directors, a statement to that effect must be made in the articles of
incorporation. If no such statement is made, cumulative voting will be mandatory
in the election of directors, subject to the cumulative voting procedures set
forth under CBCA Section 7-107-209. The EMCO articles of incorporation expressly
state that cumulative voting will not be allowed in the election of directors.
AMENDMENTS TO EMCO'S ARTICLES OF INCORPORATION AND ADVANCED ENERGY'S CERTIFICATE
OF INCORPORATION
Under the CBCA, an amendment to EMCO's articles of incorporation, with
exceptions for routine amendments, must be proposed by the EMCO board of
directors or the holders of shares representing at least ten percent of all of
the votes entitled to be cast on the amendment, and must then be approved by the
holders of two-thirds of the votes entitled to be cast within the voting groups
entitled to vote on the amendment. Under the CBCA, all of the holders of EMCO
common stock, and each holder of shares of an affected class or series of stock,
if any, voting in separate voting groups, are entitled to vote on any amendment
of the EMCO articles of incorporation that would:
- increase or decrease the aggregate number of authorized shares of the
class or series;
- effect an exchange or reclassification of all or part of the shares of
the class or series into shares of another class or series;
- effect an exchange or reclassification, or create the right of exchange,
of all or part of the shares of another class or series into shares of
the class or series;
- change the designation, preferences, limitations, or relative rights of
all or part of the shares of the class or series;
- change the shares of all or part of the class or series into a different
number of shares of the same class or series;
- create a new class of shares having rights or preferences with respect to
distributions or dissolution that are prior, superior or substantially
equal to the shares of the class or series;
- increase the rights, preferences, or number of authorized shares of any
class or series that, after giving effect to the amendment, have rights
or preferences with respect to distributions or to dissolution that are
prior, superior, or substantially equal to the shares of the class or
series;
- limit or deny an existing preemptive right of all or part of the shares
of the class or series; or
- cancel or otherwise affect rights to distributions or dividends that have
accumulated but have not yet been declared on all or part of the shares
of the class or series.
Under the DGCL and Advanced Energy's certificate of incorporation,
amendments to the Advanced Energy certificate of incorporation must be adopted
by the Advanced Energy board of directors and must then be approved by the
holders of a majority of the voting power of the outstanding shares of stock
entitled to vote thereon.
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The DGCL requires the approval of a majority of the outstanding shares of a
class of stock, voting as a separate class, for any amendment that changes the
number of authorized shares of that class, changes the par value of that class
or adversely affects the powers, preferences or special rights of that class.
AMENDMENTS TO BYLAWS
As permitted under the CBCA, the EMCO bylaws provide that the EMCO bylaws
may be amended, supplemented or repealed by the EMCO board of directors or the
shareholders. As permitted under the DGCL, the Advanced Energy certificate of
incorporation provides that the Advanced Energy bylaws may be adopted, amended,
or repealed either by the Advanced Energy board of directors, or by the
affirmative vote of the holders of not less than 66 2/3% of the shares of voting
stock then outstanding.
VOTE REQUIRED FOR MERGER AND CERTAIN OTHER TRANSACTIONS
Under the CBCA, except for certain specific situations, a plan of merger or
share exchange or a transaction involving the sale, lease, exchange or other
disposition of all or substantially all of a corporation's property, other than
in the usual and regular course of business, must be adopted by the board of
directors and then approved by each voting group entitled to vote separately on
such plan, share exchange or transaction by the holders of the votes entitled to
be cast on such plan, share exchange or transaction by that voting group;
provided, however, that unless the articles of incorporation of a corporation
that was in existence on June 30, 1994 provides otherwise, a plan of merger or
share exchange which requires shareholder approval must be approved by
two-thirds of all votes entitled to be cast on the plan by that voting group.
EMCO's articles of incorporation do not provide for only a majority vote in such
case.
The CBCA requires separate voting by voting groups on: (i) a plan of merger
if the plan contains a provision that, if contained in an amendment to the
articles of incorporation, would require action by separate voting groups, and
(ii) a plan of share exchange by each class or series of shares included in the
share exchange, with each class or series constituting a separate voting group.
Under the DGCL, an agreement of merger or a sale, lease or exchange of all
or substantially all of Advanced Energy's assets must be approved by the
Advanced Energy board of directors and then adopted by the holders of a majority
of the voting power of the outstanding shares of stock entitled to vote thereon.
In addition to the affirmative vote required under the DGCL, the Advanced Energy
certificate of incorporation requires the affirmative vote of the holders of at
least two-thirds of the disinterested shares then outstanding to approve or
authorize any business combination that has not been approved in advance by a
majority of the independent directors.
DIRECTORS
The EMCO articles of incorporation provide that, unless fixed by the EMCO
bylaws, the number of directors will be five. The EMCO bylaws provide that the
EMCO board of directors will consist of at least one and not more than seven
members. The Advanced Energy certificate of incorporation states that the
Advanced Energy bylaws, as amended from time to time, will dictate the number of
directors that shall constitute the whole board. The Advanced Energy bylaws
provide that the number of directors will be fixed from time to time by
resolution of the Advanced Energy board of directors or by the stockholders of
Advanced Energy. The Advanced Energy bylaws further provide that the Advanced
Energy board of directors will consist of nine members until a duly adopted
resolution by the board or stockholders amends this provision in accordance with
Article V(A)(1) of the Advanced Energy certificate of incorporation and Article
IV of the Advanced Energy bylaws.
CLASSIFICATION OF BOARD OF DIRECTORS
A classified board is one with respect to which a certain number of
directors, but not necessarily all, are elected on a rotating basis each year.
Under the DGCL and CBCA, classification of a board of directors is permitted but
not required, pursuant to which the directors can be divided into as many as
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three classes with staggered terms of office, with only one class of directors
standing for election each year. Advanced Energy does not have a classified
board of directors. Each Advanced Energy director is elected each year at the
annual meeting of shareholders. Each director will serve until his or her
successor shall have been duly elected and qualified unless he or she shall
resign, become disqualified or shall otherwise be removed. See "-- Removal of
Directors" below. EMCO does not have a classified board of directors. Each EMCO
director is elected each year at the annual meeting of shareholders. Each
director serves until a successor is duly elected, he or she resigns, or is
disqualified or otherwise removed.
REMOVAL OF DIRECTORS
Under the EMCO bylaws, a member of the EMCO board of directors may be
removed in any manner provided by the statutes of Colorado.
Under CBCA Section 7-108-108, the shareholders may remove one or more
directors with or without cause unless the articles of incorporation provide
that the directors may be removed only for cause. The director may be removed
only if: (i) the number of votes cast in favor of removal exceeds the number of
votes cast against removal, and (ii) a meeting is called for the purpose of
removing him or her, and the meeting notice states that the purpose, or one of
the purposes, of the meeting is the removal of a director.
Under CBCA Section 7-108-109, a director may be removed by the district
court of the county in Colorado in which EMCO's principal or registered office
is located, in a proceeding commenced either by EMCO or by EMCO shareholders
holding at least ten percent of the outstanding shares of any class, if the
court finds that the director engaged in fraudulent or dishonest conduct or
gross abuse of authority or discretion with respect to EMCO and that removal is
in EMCO's best interests.
Under the DGCL and the Advanced Energy certificate of incorporation,
directors of Advanced Energy may be removed only for cause and only by the
affirmative vote of the holders of a majority of Advanced Energy voting stock
then outstanding; provided, however, that if a proposal to remove a director is
made by or on behalf of an interested stockholder or a director who is an
affiliate or associate of an interested stockholder, then such removal will also
require the affirmative vote of the holders of a majority of the disinterested
shares then outstanding.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Under the CBCA and the EMCO bylaws, vacancies in the EMCO board of
directors may be filled by the affirmative vote of a majority of the directors
then in office, even if less than a quorum, and newly created directorships
resulting from an increase in the number of directors, including an increase
effected by the EMCO board of directors, may be filled by the affirmative vote
of a majority of the directors then in office or by an election at an annual
meeting or at a special meeting of shareholders called for that purpose. A
director so chosen will hold office until the next annual meeting of
shareholders and thereafter until such director's successor shall have been
elected and qualified.
Under the DGCL, the Advanced Energy certificate of incorporation and the
Advanced Energy bylaws, newly created directorships resulting from death,
resignation, disqualification, an increase effected by the Advanced Energy board
of directors, or any other cause, shall, unless the Board of Directors
determines by resolution that any such vacancies or newly created directorships
shall be filled by the Stockholders, be filled by a majority of the directors
then in office, although less than a quorum. Each director so chosen to fill a
vacancy will hold office until such director's successor shall have been elected
and shall qualify or until such director shall resign or shall have been
removed. No reduction of the authorized number of directors will have the effect
of removing any director prior to the expiration of such director's term of
office.
Any other vacancy on the board of directors may be filled by a majority of
the directors then in office, even if less than a quorum, or by a sole remaining
director. Whenever the holders of any one or more classes or series of preferred
stock issued by Advanced Energy shall have the right, voting separately by class
or series, to elect directors at an annual or special meeting of the
stockholders, the election, term of
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office, filling of vacancies and other features of such directorships shall be
governed by the terms of the preferred stock designation applicable thereto. If,
at the time of filling any vacancy or any newly created directorship, the
directors then in office shall constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), the Delaware
Court of Chancery may, upon application of any stockholder or stockholders
holding at least 10% of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office.
LIMITATION OF DIRECTOR'S LIABILITY
As permitted by both the CBCA and the DGCL, both the EMCO articles of
incorporation and the Advanced Energy certificate of incorporation eliminate or
limit the personal liability of a director to EMCO or its shareholders and
Advanced Energy or its stockholders, respectively, for monetary damages based on
such director's breach of fiduciary duty, except for liability: (i) for any
breach of the director's duty of loyalty to the corporation or its shareholders
or stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for certain excess
or prohibited distributions, or (iv) for any transaction from which the director
derived an improper personal benefit.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The CBCA and the DGCL contain generally similar provisions for the
indemnification of directors, officers, employees and agents. The CBCA permits
indemnification of a director only if the director conducted himself or herself
in good faith and reasonably believed, in connection with conduct in an official
capacity, that his or her conduct was in the best interests of the corporation
and, in all other cases, that his or her conduct was at least not opposed to the
corporation's best interests. The DGCL permits such indemnification if the
director acted in good faith and reasonably believed that such conduct was in or
not opposed to the best interests of the corporation.
The CBCA generally precludes indemnification if there is an adjudication of
liability that the director obtained an improper personal benefit. The DGCL does
not specifically deal with cases of improper personal benefit. Neither the CBCA
nor the DGCL permits a corporation to indemnify directors against judgments in
actions brought by or in the right of the corporation in which such director was
adjudged liable to the corporation, and the DGCL extends such limitation to
indemnification of officers. However, both the CBCA and the DGCL permit
indemnification for reasonable expenses in such situations if the
indemnification is ordered by a court.
Both the CBCA and the DGCL permit the corporation to advance expenses upon
a written undertaking for their repayment if the person receiving the advance is
not ultimately entitled to indemnification. In addition, the CBCA requires: (i)
written affirmation of a good faith belief of having met his or her standard of
conduct and (ii) determination that facts known would not preclude
indemnification. The CBCA prohibits provisions in articles of incorporation,
bylaws, or contracts (but not necessarily insurance policies) that are
inconsistent with the statutory provisions, while the DGCL specifies that the
statutory provisions are not exclusive of other rights to indemnification or
advancement of expenses that may be provided by bylaws, agreements, votes of
stockholders or disinterested directors, or otherwise.
SPECIAL MEETING OF SHAREHOLDERS; ACTION BY CONSENT
Under the CBCA and the EMCO bylaws, a special meeting of the shareholders
of EMCO may be called for any purpose by the Chief Executive Officer, the
Chairman of the Board, the President or by the EMCO board of directors, and
shall be called by the President at the request of the holders of not less than
ten percent (10%) of all the outstanding shares of the corporation entitled to
vote at such meeting. Under the CBCA, unless the EMCO articles of incorporation
require that action be taken at a
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shareholders' meeting, any action required or permitted to be taken at a
shareholders' meeting may be taken without a meeting if all of the shareholders
entitled to vote thereon consent to such action in writing. Under the EMCO
bylaws, such action by consent will have the same force and effect as a
unanimous vote of the EMCO shareholders.
As permitted under the DGCL, the Advanced Energy certificate of
incorporation provides that special meetings of Advanced Energy stockholders may
be called at any time by: (i) the Chairman of the Board of Directors, (ii) the
Chief Executive Officer, or (iii) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exists any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption) and shall be held at such place, on such date, and at
such time as the Board of Directors shall fix.
BUSINESS COMBINATIONS INVOLVING A CHANGE OF CONTROL
Neither the CBCA, the EMCO articles of incorporation nor the EMCO bylaws
contain any special provisions regarding business combinations involving a
change of control.
The DGCL prohibits certain transactions between a Delaware corporation, the
shares of which are listed on a national securities exchange or the Nasdaq
National Market, and an "interested stockholder," unless the certificate of
incorporation of the corporation contains a provision expressly electing not to
be governed by this prohibition. The Advanced Energy certificate of
incorporation does not contain such an election. An "interested stockholder"
includes a person that is directly or indirectly a beneficial owner of 15% or
more of the voting power of the outstanding voting stock of the corporation and
such person's affiliates and associates. The provision prohibits certain
business combinations between an interested stockholder and a corporation for a
period of three years after the date the interested stockholder became an
interested stockholder, unless:
- the business combination is approved by the corporation's board of
directors prior to the date such stockholder became an interested
stockholder,
- the interested stockholder acquired at least 85% of the voting stock of
the corporation in the transaction in which such stockholder became an
interested stockholder, or
- the business combination is approved by a majority of the board of
directors and the affirmative vote of two-thirds of the outstanding stock
that is not owned by the interested stockholder.
DISSENTERS' RIGHTS
Under the CBCA, a shareholder who complies with Sections 7-113-202 and
7-113-204 of the CBCA, whether or not entitled to vote, is entitled to dissent
and obtain payment for the "fair value" of the shareholder's shares, including
"interest." CBCA Section 7-113-101(4) defines the term "fair value," with
respect to a dissenter's shares, to mean the value of the shares of common stock
immediately before the effective time of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation of
the corporate action except to the extent that exclusion would be inequitable.
CBCA Section 7-113-101(5) defines the term "interest" to mean interest from the
effective time of the corporate action until the date of payment, at the average
rate currently paid by the corporation on its principal bank loans or, if none,
at the legal rate of eight percent per annum, compounded annually, as specified
by Section 5-12-101 of the Colorado Revised Statutes. Dissenters' rights are
triggered in the event of:
- completion of a plan of merger to which EMCO is a party, if approval by
EMCO shareholders is required for the merger or if EMCO were a subsidiary
that was merged with its parent corporation;
- completion of a plan of share exchange to which EMCO is a party as the
corporation whose shares will be acquired;
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- completion of a sale, lease, exchange, or other disposition of all, or
substantially all, of EMCO's property, if a shareholder vote is required
for such disposition under the CBCA; or
- completion of a sale, lease, exchange, or other disposition of all, or
substantially all, of the property of an entity controlled by EMCO if
EMCO shareholders are entitled to vote on whether EMCO will consent to
the disposition.
Under the CBCA shareholders do not have dissenters' rights if their shares
are listed on a national securities exchange or on the Nasdaq National Market or
are held of record by more than 2,000 shareholders, provided, however, that this
limitation will not apply if the shareholder will receive for the shareholder's
shares, pursuant to the corporate action, anything except:
- shares of the corporation surviving the completion of the plan of merger
or share exchange;
- shares of any other corporation which at the effective date of the plan
of merger or share exchange either will be listed on a national
securities exchange or on the Nasdaq National Market or will be held of
record by more than 2,000 shareholders;
- cash in lieu of fractional shares; or
- any combination thereof.
A shareholder is also entitled to dissent and obtain payment of the "fair
value" of the shareholder's shares in the event of: (i) a reverse split that
reduces the number of shares owned by the shareholder to a fraction of a share
or to scrip if such fractional share or scrip is to be acquired for cash or the
scrip is to be voided under the CBCA or (ii) any corporate action, to the extent
provided by the EMCO bylaws or a resolution of the EMCO board of directors.
Generally, stockholders of a Delaware corporation who object to certain
mergers or consolidations of the corporation are entitled to appraisal rights,
requiring the surviving corporation to pay the "fair value" of the dissenting
shares. There are, however, no statutory rights of appraisal with respect to
stockholders of a Delaware corporation whose shares of stock are either: (i)
listed on a national securities exchange or the Nasdaq National Market or (ii)
held of record by more than 2,000 stockholders. In addition, no appraisal rights
shall be available for any shares of stock of a surviving corporation in a
merger if the merger did not require the approval of the stockholders of such
corporation. Further, the DGCL does not provide appraisal rights to stockholders
who dissent from the sale of all or substantially all of the corporation's
assets unless the certificate of incorporation provides otherwise. Advanced
Energy's certificate of incorporation does not provide stockholders with
appraisal rights.
DIVIDENDS
Under the CBCA, a dividend may be paid on the EMCO common stock unless,
after payment of the dividend: (i) EMCO would not be able to pay its debts as
they become due in the usual course of business or (ii) EMCO's total assets
would be less than the sum of its total liabilities plus the amount that would
be needed, if EMCO were dissolved at the time of the distribution, to satisfy
the preferential rights of shareholders whose preferential rights are superior
to those holders receiving the dividend.
Under the DGCL, a dividend may be paid on the Advanced Energy common stock
out of either surplus, defined as the excess of net assets over capital, or if
no surplus exists, out of net profits for the fiscal year in which the dividend
is declared and/or the preceding fiscal year. Dividends may not be paid on such
stock out of surplus if the capital of Advanced Energy is less than the
aggregate amount of the capital represented by the issued and outstanding stock
of all classes having a preference upon the distribution of assets.
STOCK REPURCHASES
Under the CBCA, EMCO may purchase, redeem or otherwise acquire its own
shares, unless after giving effect thereto: (i) EMCO would not be able to pay
its debts as they become due in the usual
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course of business or (ii) EMCO's total assets would be less than the sum of its
total liabilities plus the amount that would be needed, if EMCO were dissolved
at the time of the redemption, to satisfy the preferential rights of
shareholders whose preferential rights are superior to those holders whose
shares are to be acquired.
Under the DGCL, Advanced Energy may purchase, redeem or otherwise acquire
its own shares. However, Advanced Energy may not: (i) purchase or redeem its own
shares of capital stock for cash or other property when the capital of the
corporation is impaired or when such purchase or redemption would cause any
impairment of the capital of the corporation, except that a corporation may
purchase or redeem out of capital any of its own shares which are entitled upon
any distribution of its assets, whether by dividend or in liquidation, to a
preference over another class or series of its stock, if such shares will be
retired upon their acquisition and the capital of the corporation reduced, or
(ii) purchase, for more than the price at which they may then be redeemed, any
of its shares which are redeemable at the option of the corporation.
Under the CBCA, no contract or transaction between EMCO and one or more of
its directors or between EMCO and any other corporation, partnership,
association, or other organization in which one or more of EMCO's directors are
directors or officers, or have a financial interest, unless the contract or
transaction is between EMCO and an entity that owns, directly or indirectly, all
of the outstanding shares of EMCO or all of the outstanding shares or other
equity interests of which are owned, directly or indirectly, by EMCO, is void or
voidable solely for that reason, or solely because the director is present at or
participates in the meeting of the EMCO board of directors or committee thereof
which authorizes the contract or transaction, or solely because such director's
votes are counted for that purpose, if:
- the material facts as to such director's relationship or interest and as
to the contract or transaction are disclosed or are known to the EMCO
board of directors or the committee, and the EMCO board of directors or
committee in good faith authorizes, approves or ratifies the contract or
transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors constitute less than a
quorum;
- the material facts as to such director's relationship or interest and as
to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction is
specifically authorized, approved or ratified in good faith by a vote of
the shareholders; or
- the contract or transaction is fair to EMCO.
In addition, under the CBCA, the EMCO board of directors or a committee
thereof may not authorize a loan by EMCO to an EMCO director or to an entity in
which an EMCO director is a director or officer or has a financial interest or a
guaranty by EMCO of an obligation of an EMCO director or of an obligation of an
entity in which an EMCO director is a director or officer or has a financial
interest, unless such entity, where an entity is involved, is one that owns,
directly or indirectly, all of the outstanding shares of EMCO or all of the
outstanding shares or other equity interests of which are owned, directly or
indirectly, by EMCO, until at least ten days after written notice of the
proposed authorization of the loan or guaranty has been given to the holders of
the EMCO common stock who would be entitled to vote on such a transaction if the
matter were submitted to a vote of the shareholders.
The DGCL contains provisions regarding transactions with directors and
officers that are substantially similar to those of the CBCA. In addition, the
DGCL provides that Advanced Energy may loan money to, or guaranty any obligation
incurred by, its officers, including those who are also directors, if, in the
judgment of the Advanced Energy board of directors, such loan or guarantee may
reasonably be expected to benefit Advanced Energy.
CORPORATE RECORDS; SHAREHOLDER INSPECTION
Under the CBCA, a shareholder or a shareholder's agent or attorney is
entitled to inspect and copy, upon at least five business days' written notice
and during regular business hours at EMCO's principal
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office, the EMCO articles of incorporation, the EMCO bylaws, minutes of all
shareholders meetings and records of all actions taken by shareholders without a
meeting for the past three years, all written communications within the past
three years to shareholders as a group or to the holders of any class or series
of shares as a group, a list of the names and business addresses of current
directors and officers, the most recent corporate report delivered to the
Colorado Secretary of State, and certain financial statements of EMCO prepared
for periods ending during the last three years. In addition, a shareholder who:
- has been an EMCO shareholder for at least three months or who is a holder
of at least five percent of all of the outstanding shares of any class of
EMCO capital stock;
- makes a demand in good faith and for a purpose reasonably related to the
shareholder's interest as a shareholder;
- describes with reasonable particularity the purpose and the records the
shareholder desires to inspect; and
- requests records that are directly connected with the described purpose,
or such shareholder's agent or attorney is entitled to inspect and copy, upon at
least five business days' written notice and during regular business hours at a
reasonable location specified by EMCO; excerpts from minutes or records of any
EMCO board of directors meeting or action, minutes or records of any
shareholders' meeting or action, excerpts of records of any action of an EMCO
board of directors committee, waivers of notices of any shareholder, EMCO board
of directors or EMCO board of directors committee meeting, accounting records of
EMCO, and records of the names and addresses of shareholders.
Under the DGCL, any stockholder of Advanced Energy, in person or by
attorney or other agent, may, upon written demand under oath stating the purpose
thereof, during the usual hours for business, inspect for any proper purpose,
the corporation's stock ledger, a list of its stockholders, and its other books
and records, and to make copies or extracts therefrom.
PREEMPTIVE RIGHTS
EMCO's articles of incorporation do not permit preemptive rights or similar
rights to subscribe for any additional shares of stock, or for other securities
of any class, or for rights, warrants or options to purchase stock.
Under the DGCL, the stockholders of Advanced Energy do not have preemptive
rights unless specifically granted in the certificate of incorporation. The
Advanced Energy certificate of incorporation does not grant Advanced Energy
stockholders preemptive rights.
WHERE YOU CAN FIND MORE INFORMATION
Advanced Energy has filed with the Securities and Exchange Commission a
Registration Statement on Form S-4 under the Securities Act of 1933, relating to
the Advanced Energy common stock to be issued in the merger. This proxy
statement/prospectus is filed as part of the registration statement. Other parts
of the registration statement are omitted from this proxy statement/prospectus.
Statements made in this proxy statement/prospectus concerning the contents of
any contract or other document are not necessarily complete. For a more complete
description of the document involved, you should read the entire document, which
has been filed as an exhibit to the registration statement.
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Advanced Energy and EMCO 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 these reports, proxy statements and other information at the
SEC's public reference facilities:
<TABLE>
<CAPTION>
WASHINGTON D.C. NEW YORK CHICAGO
--------------- -------- -------
<S> <C> <C>
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 Advanced
Energy's or EMCO's filings to you. In addition, Advanced Energy and EMCO's 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.
Advanced Energy's common stock is quoted on the Nasdaq National Market
under the symbol "AEIS", and its SEC filings can also be read at the following
Nasdaq address:
Nasdaq Operations
1735 K Street, N.W.
Washington, D.C. 20006
EMCO's common stock is quoted on the Nasdaq National Market under the
symbol "EMCO" and its SEC filings can also be read at that address.
INCORPORATION BY REFERENCE
The SEC allows Advanced Energy and EMCO to incorporate by reference into
this proxy statement/prospectus information they file with the SEC. This means
that Advanced Energy and EMCO can disclose important information to you by
referring you to those documents, rather than stating that information in this
proxy statement/prospectus. The information incorporated by reference is
considered to be a part of this proxy statement/prospectus, and later
information that we file with the SEC will automatically update and supersede
this information. Advanced Energy and EMCO 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 Exchange Act until the merger is completed:
Advanced Energy:
- Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, filed
August 4, 2000 (File No. 000-26966).
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 filed
April 18, 2000 (File No. 000-26966)
- Annual Report on Form 10-K for the year ended December 31, 1999, filed
March 20, 2000 (File No. 000-26966).
- Current Report on Form 8-K dated August 10, 2000, filed August 14, 2000
(File No. 000-26966).
EMCO:
- Quarterly Report on Form 10-QSB for the quarter ended July 31, 2000,
filed September 14, 2000 (File No. 000-09880).
- Annual Report on Form 10-KSB for the year ended April 30, 2000 filed July
27, 2000 (File No. 000-09880).
- Current Report on Form 8-K dated July 6, 2000, filed July 21, 2000 (File
No. 000-09880).
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You may request a copy of Advanced Energy filings, at no cost, by writing
to Advanced Energy at the following address:
Advanced Energy Industries, Inc.
1625 Sharp Point Drive
Fort Collins, Colorado 80525
Attention: Cathy Kawakami
or by calling its Investor Relations department at (970) 221-4670.
You may request a copy of EMCO's filings, at no cost, by writing to EMCO at
the following address:
Engineering Measurements Company
600 Diagonal Highway
Longmont, Colorado 80501
Attention: Investor Relations
or by calling its Investor Relations department at (303) 651-0550 or its
investor relations firm at (310) 208-2550.
LEGAL MATTERS
The validity of the Advanced Energy common stock to be issued in the merger
and certain tax matters relating to the merger will be passed upon for Advanced
Energy by Thelen Reid & Priest LLP, San Francisco, California.
EXPERTS
The financial statements and schedules of Advanced Energy incorporated by
reference in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as set forth in their reports as of and for the
years ended December 31, 1999 and 1998. In the report for the year ended
December 31, 1997, that firm states that with respect to certain subsidiaries
its opinion is based on the reports of other independent public accountants. The
financial statements and supporting schedules referred to above have been
incorporated by reference herein in reliance upon the authority of those firms
as experts in giving said reports.
The financial statement and schedules of EMCO incorporated by reference in
this prospectus have been audited by Grant Thornton LLP independent public
accountants, as set forth in their reports as of and for the fiscal years ended
April 30, 1999 and 2000. The financial statements and supporting schedules
referred to above have been incorporated by reference herein and included in
Appendix C in reliance upon the authority of that firm as experts in giving said
reports.
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APPENDIX A
MERGER AGREEMENT
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AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), dated as of July
6, 2000, is made by and among ADVANCED ENERGY INDUSTRIES, INC., a Delaware
corporation ("Parent"), FLOW ACQUISITION CORPORATION, a Colorado corporation and
a wholly owned subsidiary of Parent ("Merger Sub"), and ENGINEERING MEASUREMENTS
COMPANY, a Colorado corporation (the "Company").
RECITALS
A. The Boards of Directors of Parent and the Company each have determined
that a business combination between Parent and the Company would enable the
companies to achieve short-term and long-term strategic and financial benefits
to the benefit of their respective stockholders and, accordingly, for that and
other reasons is in the best interests of their respective stockholders. Each of
such Boards of Directors desires to effect the Merger (as defined herein), on
the terms and subject to the conditions set forth herein.
B. It is intended that the Merger qualify as a reorganization within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the
"Code"), for federal income tax purposes.
C. It is intended that the Merger be accounted for as a pooling of
interests for financial accounting purposes.
D. Parent has incorporated and organized Merger Sub solely to facilitate
the Merger.
NOW, THEREFORE, in consideration of the mutual covenants and subject to the
terms and conditions set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
"Affiliate" means each "affiliate" as defined in Rule 145 of the rules and
regulations promulgated under the Securities Act.
"Affiliate Letter" has the meaning set forth in sec. 6.8.
"Agreement" has the meaning set forth in the preface above.
"Alternative Proposal" has the meaning set forth in sec. 6.1(b).
"APB No. 16" means the Accounting Principles Board Opinion Number 16.
"Articles of Merger" has the meaning set forth in sec. 2.3.
"CBCA" has the meaning set forth in sec. 2.1.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"Certificate" has the meaning set forth in sec. 3.2(b).
"Closing" has the meaning set forth in sec. 2.2.
"Closing Date" has the meaning set forth in sec. 2.2.
"Code" has the meaning set forth in the recitals above.
"Commission" means the Securities and Exchange Commission of the United
States of America.
"Company" has the meaning set forth in the preface above.
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"Company Benefit Plans" means all employee benefit plans as defined in
Section 3.3 of ERISA and any other plan, contract, program, policy or benefit
arrangements covering employees or former employees of the Company and all
employee agreements providing compensation, severance or other benefits to any
employee or former employee of the Company.
"Company Board" means the Board of Directors of the Company.
"Company Common Stock" means the common stock of the Company.
"Company Contract" has the meaning set forth in sec. 4.10.
"Company Disclosure Schedule" means the disclosure schedule delivered by
the Company at or prior to the execution hereof to Parent.
"Company Material Adverse Effect" means a material adverse effect on or
change in the business, prospects, results of operations or financial condition
of the Company and its Subsidiaries, taken as a whole.
"Company Option Plans" has the meaning set forth in sec. 3.2(d)(i).
"Company Options" has the meaning set forth in sec. 3.2(d)(i).
"Company Personnel" has the meaning set forth in sec. 6.10(a).
"Company Real Properties" means all real property ever owned, leased or
occupied by the Company or any Predecessor.
"Company Reports" has the meaning set forth in sec. 4.6(a).
"Confidentiality Agreement" has the meaning set forth in sec. 8.5(c).
"Copyrights" means any and all of Company's copyrights, copyrightable
works, semiconductor topography and mask work interests, including, without
limitation, all rights of authorship, use, publication, reproduction,
distribution, performance, transformation, moral rights and ownership of
copyrightable works, semiconductor topography works and mask works, and all
rights to register and obtain renewals and extensions of registrations, together
with all other interests accruing by reason of international copyright,
semiconductor topography and mask work conventions.
"Current Policy" has the meaning provided in sec. 6.14(b).
"Effective Date" means the date upon which this Agreement has been executed
by each of the parties.
"Effective Time" has the meaning set forth in sec. 2.3.
"Enforceability Exceptions" has the meaning set forth in sec. 4.3(c).
"Environmental Requirements" means any applicable laws, regulations,
ordinances or other provisions having the force or effect of law, or any
judicial, governmental, or administrative orders, requests, or determinations,
or any common law requirements relating to the protection of human health or the
environment (both natural and workplace), including without limitation any
Environmental Requirements concerning (A) the use, generation, treatment,
storage, transportation, handling or disposal of Hazardous Materials, (B) the
control of soil, surface or groundwater pollution products, (C) air quality and
emission standards, or (D) health, safety and hazard communication matters.
Environmental Requirements include, without limitation, CERCLA, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act, the
Clean Water Act, the Toxic Substances Control Act, the Clean Air Act, SWDA, the
Atomic Energy Act, the Federal Food Drug and Cosmetic Act, and equivalent state
and local ordinances and statutes and ordinances in countries other than the
United States of America.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"ERISA Affiliate" means any business or entity which is a member of the
same "controlled group of corporations," under "common control" or an
"affiliated service group" with an entity within the meanings of Sections
414(b), (c) or (m) of the Code, or required to be aggregated with the entity
under Section 414(o) of the Code, or is under "common control" with the entity,
within the meaning of Section 4001(a)(14) of ERISA, or any regulations
promulgated or proposed under any of the foregoing Sections.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" has the meaning set forth in sec. 3.3(a).
"Exchange Fund" has the meaning set forth in sec. 3.3(a).
"Exchange Ratio" means the number determined by dividing (i) 900,000 by
(ii) the total number as of the Effective Time of (A) outstanding shares of
Company Common Stock plus (B) shares underlying outstanding Company Options.
"Future Benefit Plans" has the meaning set forth in sec. 6.10(b).
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"Hazardous Materials" means any toxic, injurious or hazardous materials,
substances or wastes, toxic pollutants or contaminants, including petroleum
products, crude oil or any by-products or derivatives thereof as any of the
foregoing terms are defined in federal, state and local laws applicable to the
Company or Parent, as the case may be, but does not include commercially
available office cleaning or janitorial supplies.
"Intellectual Property" means any and all of the following of the Company
and the Company Subsidiaries: (i) Patents; (ii) Trademarks; (iii) Copyrights;
and (iv) any and all technology, ideas, inventions, designs, proprietary
information, unpublished research and development information, manufacturing and
operating information, know-how, formulae, trade secrets and technical data,
computer programs, and all hardware, software and processes.
"IRS" means the federal Internal Revenue Service.
"ISOs" has the meaning set forth in sec. 3.2(d)(iii).
"Issued Patents" means any and all issued patents, reissue or reexamination
patents, revivals of patents, utility models, certificates of invention,
registrations of patents, or extensions thereof, regardless of country or formal
name.
"Last Report Date" means April 30, 2000.
"Letter of Transmittal" has the meaning set forth in sec. 3.3(c).
"Merger" has the meaning set forth in sec. 2.1.
"Merger Certificates" has the meaning set forth in sec. 3.3(a).
"Merger Sub" has the meaning set forth in the preface above.
"Parent" has the meaning set forth in the preface above.
"Parent Board" means the Board of Directors of Parent.
"Parent Common Stock" means the common stock of the Parent.
"Parent Material Adverse Effect" means a material adverse effect on or
change in the business, prospects, results of operations or financial condition
of Parent and its Subsidiaries, taken as a whole.
"Parent Option Plans" has the meaning set forth in sec. 3.2(d)(iv).
"Parent Options" means all options to acquire Parent Common Stock granted
by Parent.
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"Parent Preferred Stock" means the 1,000,000 authorized shares of Parent
preferred stock.
"Parent Reports" has the meaning set forth in sec. 5.5.
"Parent Share" means any share of the voting common stock of Advanced
Energy Industries, Inc.
"Patent Applications" means any and all patent rights, including, without
limitation, all United States and foreign utility and design patents, and all
published or unpublished nonprovisional and provisional patent applications,
including, without limitation, any and all applications of additions,
divisionals, continuations, continuations-in-part, reexaminations,
substitutions, extensions, renewals, utility models, certificates of invention
or reissues thereof or therefor, invention disclosures and records of invention
for abandoned patent applications
"Patents" means the Patent Applications and the Issued Patents.
"Permits" means all valid and current permits, licenses, orders,
authorizations, registrations, approvals and other analogous instruments.
"Person" includes both natural persons and entities.
"Post Closing Dividends" has the meaning set forth in sec. 3.3(f).
"Predecessor" means any Person that owns or has ever owned, leased or
occupied the Company Real Properties.
"Proxy Statement/Prospectus" has the meaning provided in sec. 6.7(a).
"Qualified Plan" means each Company Benefit Plan that is intended to be a
"qualified plan" within the meaning of Section 401(a) of the Code, and either
(i) the IRS has issued a favorable determination letter that has not been
revoked, or (ii) an application for a favorable determination letter was timely
submitted to the IRS for which no final action has been taken by the IRS as of
the Closing Date.
"Registration Statement" has the meaning set forth in sec. 6.7(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiaries" of a party means Subsidiaries of such party
which constitute "significant subsidiaries" under Rule 405 promulgated by the
Commission under the Securities Act.
"Specified Post-Closing Dividends" has the meaning set forth in
sec. 3.3(f).
"Stock Purchase Plan" has the meaning set forth in sec. 3.2(d)(iv).
"Stockholders Meeting" means a meeting of the holders of Company Common
Stock.
"Subsidiary" of a party means any corporation or other organization,
whether incorporated or unincorporated, of which such party directly or
indirectly owns or controls at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions with respect to such
corporation or other organization, or any organization of which such party is a
general partner.
"Substituted Options" has the meaning set forth in sec. 3.2(d)(i).
"Surviving Corporation" has the meaning set forth in sec. 2.1.
"SWDA" means the Solid Waste Disposal Act, as amended.
"Termination Fee" has the meaning set forth in sec. 8.5(a).
"Trademarks" means any and all of Company's trademarks, registered
trademarks, applications for registration of trademark, service marks,
registered service marks, applications for registration of service marks, trade
names, registered trade names, and applications for registrations of trade
names.
"Transaction" has the meaning provided in sec. 6.1(b).
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ARTICLE 2
THE MERGER
2.1 The Basic Transaction. On the terms and subject to the conditions of
this Agreement, at the Effective Time, Merger Sub shall be merged with and into
the Company in accordance with this Agreement, and the separate corporate
existence of Merger Sub shall thereupon cease (the "Merger"). The Company shall
be the surviving corporation in the Merger (sometimes hereinafter referred to as
the "Surviving Corporation"), and shall become a wholly owned subsidiary of
Parent. The Merger shall have the effects specified in the Colorado Business
Corporation Act (the "CBCA").
2.2 The Closing. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place (a) at the offices of
the Company at 10:00 a.m., local time, on the first business day immediately
following the day on which the last to be fulfilled or waived of the conditions
set forth in Article 7 shall be completely fulfilled or waived in accordance
herewith, or (b) at such other time, date or place as Parent and the Company may
agree. The date on which the Closing occurs is hereinafter referred to as the
"Closing Date."
2.3 Effective Time. On the Closing Date, Articles of Merger meeting the
requirements of Section 7-111-105 of the CBCA in the form of Exhibit 2.3 (the
"Articles of Merger") shall be executed and filed in the office of the Colorado
Secretary of State, in accordance with the CBCA. The Merger shall become
effective at (a) the time of filing of the Articles of Merger with the Colorado
Secretary of State or (b) such later time as agreed by the parties hereto and
designated in the Articles of Merger as the effective time of the Merger (the
"Effective Time").
2.4 Articles of Incorporation and By-laws. The Articles of Incorporation
and By-laws of Merger Sub in effect immediately prior to the Effective Time
shall be the Articles of Incorporation and By-laws of the Surviving Corporation,
until duly amended in accordance with applicable law.
2.5 Directors and Officers of the Surviving Corporation. The directors and
officers of Merger Sub immediately prior to the Effective Time shall be the
directors and officers of the Surviving Corporation until their successors are
duly appointed or elected in accordance with applicable law.
ARTICLE 3
CONVERSION AND EXCHANGE OF SECURITIES
3.1 Merger Sub Stock. At the Effective Time, each share of common stock of
Merger Sub outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
non-assessable share of common stock of the Surviving Corporation.
3.2 Company Stock; Options.
(a) Exchange Ratio. At the Effective Time, each share of Company Common
Stock that is issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive a number of shares of Parent
Common Stock equal to the Exchange Ratio.
(b) Cancellation of Company Common Stock. At the Effective Time, as a
result of the Merger and without any action on the part of the holders thereof,
all shares of Company Common Stock outstanding at the Effective Time shall cease
to be outstanding, shall be canceled and retired and shall cease to exist, and
each holder of shares of Company Common Stock shall thereafter cease to have any
rights with respect to such shares of Company Common Stock, except the right to
receive upon the surrender of a certificate representing such shares of Company
Common Stock (a "Certificate") (i) the number of shares of Parent Common Stock
determined in accordance with this Section 3.2, and (ii) cash, without interest,
payable (A) in lieu of any fractional shares of Parent Common Stock, in
accordance with Section 3.3(b), and (B) as Specified Post-Closing Dividends, in
accordance with Section 3.3(f).
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(c) Treasury Shares and Shares Held by Subsidiaries. At the Effective Time,
as a result of the Merger and without any action on the part of Parent, Merger
Sub or the Company, any and all shares of Company Common Stock issued and held
in the Company's treasury shall cease to be outstanding, shall be canceled and
retired without payment of any consideration therefor and shall cease to exist.
(d) Options.
(i) At the Effective Time, as a result of the Merger and without any
action on the part of holder thereof, each option to purchase Company
Common Stock granted by the Company (collectively, "Company Options") under
one of its stock option plans (collectively, "Company Option Plans") that
remains outstanding and unexercised as of the Effective Time, whether or
not vested or exercisable, shall be assumed by Parent and shall be
converted into an option to purchase Parent Common Stock (collectively,
"Substituted Options").
(ii) Subject to subsection 3.2(d)(iii) below, (A) the number of shares
of Parent Common Stock underlying a Substituted Option shall be equal to
the number of shares of Company Common Stock underlying the subject Company
Option multiplied by the Exchange Ratio and rounded to the nearest whole
number, (B) the exercise price per share of a Substituted Option shall be
adjusted proportionately such that the aggregate exercise price under the
Substituted Options shall remain substantially unchanged, and (C) each
Substituted Option shall be exercisable on the same terms and subject to
the same conditions as had been applicable to the related Company Option,
except to the extent the number of shares and exercise price per share have
been adjusted pursuant to (A) and (B), respectively, of this subsection
3.2(d)(ii).
(iii) It is the intention of the parties that Company Options that
qualified as incentive stock options, within the meaning of Section 422 of
the Code ("ISOs"), immediately prior to the Effective Time, be converted,
when assumed by Parent, into Substituted Options that qualify as ISOs
immediately following the Effective Time, to the extent permitted by
Section 422 of the Code and applicable terms of the Company Option Plans.
In furtherance of such intention, the formulae, terms and conditions set
forth in subsection 3.2(d)(ii) above may be applied to, or modified for,
such Substituted Options as deemed reasonably necessary by Parent, so long
as any such application or modification does not materially reduce the
benefit of the Substituted Option to the holder thereof.
(iv) The Company's Employee Stock Purchase Plan (the "Stock Purchase
Plan") shall be terminated prior to the Closing. All funds invested in the
Stock Purchase Plan but not used by employees to purchase stock thereunder
prior to the Effective Time shall be transferred or otherwise credited to
employees of the Company such that, following the Effective Time, each such
employee shall have purchase rights under Parent's stock purchase plans
substantially similar to those existing under the Stock Purchase Plan
immediately prior to the Effective Time.
(v) On or prior to the Effective Time, Parent shall file with the
Commission a Registration Statement on Form S-3 or Form S-8, as determined
by Parent in its sole discretion, relating to the issuance of the Parent
Common Stock underlying the Substituted Options or shall cause such Parent
Common Stock to be included in an effective Registration Statement on Form
S-8 relating to one or more of Parent's stock option plans (collectively,
"Parent Option Plans"). So long as any Substituted Options remain
outstanding, Parent shall use its reasonable best efforts to maintain the
effectiveness of any Registration Statement(s) related to the Substituted
Options (and to maintain the current status of the prospectus or
prospectuses related thereto). At or prior to the Effective Time, Parent
shall take all corporate action necessary to reserve for issuance a
sufficient number of shares of Parent Common Stock for delivery upon
exercise of the Substituted Options. To the extent required by the relevant
market or exchange, Parent shall list or qualify all such shares for
trading on the principal market or exchange on which Parent Common Stock is
traded from time to time.
3.3 Exchange of Certificates Representing Company Common Stock.
(a) As of the Effective Time, Parent shall deposit, or shall cause to be
deposited, with an exchange agent reasonably acceptable to the Company (the
"Exchange Agent"), for the benefit of the holders of
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Company Common Stock, for exchange in accordance with this Article 3, (i)
certificates representing the shares of Parent Common Stock to be issued in
connection with the Merger ("Merger Certificates"), and (ii) Parent's good faith
estimate of the cash in lieu of fractional shares expected to be payable in
connection with the Merger. Such cash and Merger Certificates are referred to
herein as the "Exchange Fund."
(b) No fractional shares of Parent Common Stock shall be issued pursuant
hereto. In lieu of the issuance of any fractional share of Parent Common Stock,
cash will be paid in respect of any fractional share of Parent Common Stock that
would otherwise be issuable, and the amount of such cash shall be equal to such
fractional proportion of the closing price of one share of Parent Common Stock
as reported in The Wall Street Journal, Eastern Edition, as of the last day
prior to the Effective Time on which trading is conducted on the Nasdaq National
Market. No interest will be paid or accrued on the cash payable to holders of
shares of Company Common Stock.
(c) Promptly after the Effective Time, Parent shall cause the Exchange
Agent to mail to each holder of record of Company Common Stock (i) a letter of
transmittal, in a typical form and having such provisions as Parent may
reasonably specify ("Letter of Transmittal"), which shall advise the holder that
delivery of Merger Certificates shall be effected, and risk of loss to such
holder's shares of Company Common Stock shall pass, only upon delivery of the
Certificates representing such shares to the Exchange Agent, and (ii)
instructions for use in effecting the surrender of such Certificates in exchange
for Merger Certificates and cash in lieu of fractional shares from the Exchange
Fund.
(d) Upon surrender of a Certificate to the Exchange Agent for cancellation,
together with a duly executed and properly completed Letter of Transmittal, (i)
the holder of the shares of Company Common Stock represented by such Certificate
shall be entitled to receive in exchange therefor from the Exchange Fund (A) a
Merger Certificate representing that number of whole shares of Parent Common
Stock determined by multiplying the number of shares of Company Common Stock
represented by the Certificate by the Exchange Ratio, and (B) a check
representing (1) the amount of cash in lieu of fractional shares of Parent
Common Stock, if any, determined pursuant to paragraph (b) of this Section 3.3,
and (2) any Specified Post-Closing Dividends, in each case less any applicable
tax withholding, and (ii) the Company Common Stock represented by the
surrendered Certificate shall thereupon be canceled.
(e) In the event of a transfer of ownership of Company Common Stock which
is not registered in the transfer records of the Company, a Merger Certificate
representing the proper number of shares of Parent Common Stock, together with a
check for the cash to be paid in lieu of fractional shares, if any, may be
issued to such transferee of such Company Common Stock, if the Certificate
representing such Company Common Stock is presented to the Exchange Agent,
accompanied by all documents, in form and substance reasonably satisfactory to
Parent and the Exchange Agent, required to evidence and effect such transfer of
Company Common Stock and to evidence that any applicable stock transfer taxes
have been paid. There shall be no transfers on the transfer records of the
Company, at or after the Effective Time, of shares of Company Common Stock which
were outstanding immediately prior to the Effective Time.
(f) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions declared after the Effective Time on Parent Common Stock
("Post-Closing Dividends") shall be paid with respect to any shares of Company
Common Stock represented by a Certificate until such Certificate is surrendered
for exchange as provided herein. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the holder
of the certificates representing whole shares of Parent Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of Post-Closing Dividends with a record date after the Effective Time
theretofore payable with respect to such whole shares of Parent Common Stock and
not paid, less the amount of any withholding taxes which may be required thereon
("Specified Post-Closing Dividends"), and (ii) at the appropriate payment date,
the amount of Post-Closing Dividends with a record date after the Effective Time
but prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of Parent Common Stock, less the amount of any
withholding taxes which may be required thereon.
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(g) Certificates surrendered for exchange by any Affiliate of the Company
shall not be exchanged until Parent has received a written agreement from such
person as provided in Section 6.8.
(h) None of Parent, the Company, the Surviving Corporation, the Exchange
Agent or any other person shall be liable to any former stockholder of the
Company for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
3.4 Lost Certificates. In the event any Certificate shall have been lost,
stolen or destroyed, upon the making and delivery of an affidavit (in form and
substance satisfactory to the Surviving Corporation) of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the shares of Parent Common Stock and cash deliverable in respect
thereof pursuant to this Agreement.
3.5 Adjustment of Exchange Ratio. In the event that, subsequent to the
date of this Agreement but prior to the Effective Time, the outstanding shares
of Parent Common Stock shall have been changed into a different number of shares
or a different class as a result of a stock split, reverse stock split, stock
dividend, subdivision, reclassification, combination, exchange, recapitalization
or other similar transaction, the Exchange Ratio shall be appropriately
adjusted.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Company Disclosure Schedule, the Company makes
the following representations and warranties to Parent and Merger Sub, as of the
date of this Agreement.
4.1 Organization and Standing.
(a) The Company (i) is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation, (ii) has
all requisite corporate power and authority to own, operate and lease its
properties and carry on its business as now conducted, and (iii) is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the failure to so qualify, or be in good standing,
would have a Company Material Adverse Effect.
(b) The Company does not have any Subsidiaries and, except as set forth in
the Company Disclosure Schedule, does not own any equity securities or
securities convertible into or exchangeable or exercisable for equity securities
of any other company.
(c) The Company has not (i) filed or had filed against it a petition in
bankruptcy or a petition to take advantage of any other insolvency act, (ii)
admitted in writing its inability to pay its debts generally, (iii) made an
assignment for the benefit of creditors, (iv) consented to the appointment of a
receiver for itself or any substantial part of its property, or (v) generally
committed any act of insolvency (including the failure to pay obligations as
they become due) or bankruptcy.
4.2 Capitalization.
(a) The authorized capital stock of the Company consists of 15,000,000
shares of Company Common Stock. As of April 30, 2000, there were 4,125,259
shares of Company Common Stock issued and outstanding. From such date to the
date of this Agreement, no additional shares of capital stock of the Company
have been issued, except pursuant to the exercise of Company Options. As of
April 30, 2000, Company Options to acquire 338,038 shares of Company Common
Stock were outstanding. From such date to the date of this Agreement, no
additional Company Options have been granted.
(b) All of the issued and outstanding shares of Company Common Stock have
been duly authorized and validly issued and are fully paid, non-assessable and
free of preemptive or similar rights. Other than Company Options, there are no
existing and outstanding warrants, rights, options, subscriptions, convertible
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securities or other agreements or commitments which obligate the Company to
issue, transfer or sell any shares of capital stock of the Company.
(c) The Company does not have any outstanding bonds, debentures, notes or
other obligations pursuant to which the holders thereof have the right to vote
(or which are convertible into or exercisable for securities having the right to
vote) with the stockholders of the Company on any matter.
4.3 Authorization; Enforceability; No Violation.
(a) The Company has full corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder.
(b) Subject only to the approval of this Agreement and the transactions
contemplated hereby by the stockholders of the Company in accordance with the
CBCA, all corporate action necessary on the part of the Company for the
execution, delivery and performance of this Agreement has been duly taken.
(c) This Agreement constitutes (assuming this Agreement is a valid and
legally binding obligation of Parent and Merger Sub) a valid and legally binding
obligation of the Company, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity and public policy
considerations (the "Enforceability Exceptions").
(d) The execution, delivery and performance of this Agreement will not
result in any conflict with, breach or violation of or default (or an event
which, with notice or lapse of time or both, would constitute a default),
termination or forfeiture under (i) any terms or provisions of the Articles of
Incorporation or the Bylaws of the Company, (ii) any statute, rule, regulation,
judicial, governmental, regulatory or administrative decree, order or judgment
applicable to the Company, or (iii) any agreement, lease, license, permit or
other instrument to which the Company is a party or to which any of its assets
are subject, except where any such breach, violation, default, termination or
forfeiture would not have or result in a Company Material Adverse Effect.
(e) There is no action, suit, proceeding or investigation pending or, to
the knowledge of the Company, threatened against the Company that questions the
validity of this Agreement or the right of the Company to enter into this
Agreement or to consummate the transactions contemplated hereby.
4.4 No Consents. Except as set forth in the Company Disclosure Schedule,
no consent, approval, authorization, order, registration, qualification or
filing of or with any court or any regulatory authority or any other
governmental or administrative body is required on the Company's part for the
consummation by it of the transactions contemplated by this Agreement, except
(i) notices and filings required in order to comply with the Securities Act, the
Exchange Act, and state securities or "blue sky" laws, and (ii) the filing of
the Articles of Merger with the Colorado Secretary of State.
4.5 Compliance with Laws. Except where the failure to so comply would not
have a Company Material Adverse Effect, the Company (i) has all valid and
current Permits, and each Permit is in full force and effect, and (ii) has made
all filings and registrations and the like, necessary or required by law to
conduct its business as currently conducted. The Company has not received any
governmental notice of any violation by it of any laws, rules, regulation or
orders applicable to its business. Except where the failure to comply would not
have a Company Material Adverse Effect, (a) the Company is not in default under
any Permits and is in compliance with the same, and (b) the business and
operations of the Company are in compliance with all applicable foreign,
federal, state, local and county laws, ordinances, regulations, judgments,
orders, decrees or rules of any court, arbitrator or governmental, regulatory or
administrative agency or entity.
4.6 Company Reports.
(a) The Company has filed all reports, forms, registrations, schedules,
statements and other documents required to be filed by it with the Commission
since April 30, 1996 (the "Company Reports"). As of their respective dates, the
Company Reports complied as to form in all material respects with the
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requirements of the Securities Act or the Exchange Act, as the case may be, and
the applicable rules and regulations promulgated thereunder. Except to the
extent that information contained in any Company Report has been amended,
revised or superseded by a Company Report subsequently filed and publicly
available prior to the date of this Agreement, none of the Company Reports, when
filed, contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(b) Each of the balance sheets of the Company included in or incorporated
by reference into the Company Reports (including the related notes and
schedules) fairly presents in all material respects the financial position of
the Company as of its date, and each of the statements of income, retained
earnings and cash flows of the Company included in or incorporated by reference
into the Company Reports (including any related notes and schedules) fairly
presents in all material respects the results of operations and cash flows of
the Company for the periods set forth therein (subject, in the case of unaudited
statements, to normal year-end audit adjustments which would not be material in
amount or effect), in each case in accordance with GAAP, except as may be noted
therein and subject to the fact that unaudited financial statements do not
contain full notes thereto. The Company has no liabilities or obligations
required to be disclosed in a balance sheet or the notes thereto prepared in
accordance with GAAP, except (i) liabilities or obligations reflected on, or
reserved against in, a balance sheet of the Company or in the notes thereto, and
included in the Company Reports, (ii) liabilities or obligations incurred since
the Last Report Date in the ordinary course of business, consistent with past
practices, or (iii) liabilities disclosed in a Company Report.
4.7 Absence of Litigation, Orders, Judgments.
(a) There are no actions, suits or proceedings pending or, to the knowledge
of the Company, threatened which involve transactions of or otherwise relate to
the Company or any of its businesses or properties, at law or in equity, or
before any arbitrator of any kind, or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or other
instrumentality, domestic or foreign, that are reasonably likely to have a
Company Material Adverse Effect.
(b) There are no outstanding orders, writs, injunctions, decrees,
judgments, awards, determinations or directions, which involve transactions of
or otherwise relate to the Company or any of its businesses or properties, of
any court or arbitrator or under any outstanding order, regulation or demand of
any federal, state, municipal or other governmental instrumentality, domestic or
foreign, that are reasonably likely to have a Company Material Adverse Effect.
4.8 Absence of Certain Changes. Since the Last Report Date, the Company
has conducted its business only in the ordinary course of such business, and
there has not been (i) any Company Material Adverse Effect or any event which is
reasonably likely to result in a Company Material Adverse Effect; (ii) any
declaration, setting aside or payment of any dividend or other distribution with
respect to its capital stock; or (iii) any material change in its accounting
principles, practices or methods.
4.9 Taxes. The Company (i) has timely filed all material federal, state
and foreign tax returns required to be filed by it for tax years ended prior to
the date of this Agreement or requests for extensions have been timely filed and
any such request shall have been granted and not expired, and all such returns
are complete in all material respects, (ii) has paid or accrued all taxes shown
to be due and payable on such returns and (iii) has properly accrued all such
taxes for such periods subsequent to the periods covered by such returns.
4.10 Contracts. Each (a) agreement, contract and commitment, whether
written or oral, to which the Company is a party or by which it is bound and
which is filed as an exhibit to or described in a Company Report and (b)
material agreement, contract and commitment entered into by the Company, or by
which it became bound, after the Last Report Date (collectively, "Company
Contracts"), is a valid and legally binding obligation of the Company and, to
the knowledge of the Company, the other parties thereto, enforceable against the
Company and, to the knowledge of the Company, the other parties thereto,
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in accordance with its terms, subject to the Enforceability Exceptions. The
Company is not, and to the knowledge of the Company no other party to any
Company Contract is, in material default thereof. The Company has not, and to
the knowledge of the Company no other party to any Company Contract has,
performed any act or omitted to perform any act which act or omission, with the
giving of notice or passage of time or otherwise, will become a material default
thereunder.
4.11 Intellectual Property.
(a) The Company owns or has the right to use all Intellectual Property used
in the operation of its business as presently conducted, without any
interference or conflict with or misappropriation or infringement of the
Intellectual Property rights of others, other than any interference, conflict,
misappropriation or infringement which is not reasonably likely to result in (i)
a material adverse effect on the Company's ability to manufacture or sell any of
its material products or any material line of products or otherwise to operate
its business, (ii) a material liability of the Company, or (iii) material
redesign or other corrective costs to the Company. The Company has taken
commercially reasonable action to maintain and protect its rights in the
material Intellectual Property that it owns or uses. Each material item of
Intellectual Property owned or used by the Company immediately prior to the
Effective Time hereunder will be owned or available for use by the Surviving
Corporation on substantially identical terms and conditions immediately
subsequent to the Effective Time.
(b) Section 4.11 of the Company Disclosure Schedule sets forth all Patents,
registered Copyrights, registered Trademarks, joint development agreements,
licenses and agreements relating to Intellectual Property owned or used by the
Company (other than agreements or licenses for readily available "off-the-shelf"
software) that require a consent or waiver to consummate the transactions
contemplated by this Agreement.
(c) To its knowledge, the Company has not, within the past four years,
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of others other than any
interference, infringement, misappropriation or conflict which did not and is
not reasonably likely to result in (i) a material adverse effect on the
Company's ability to manufacture or sell any of its material products or any
material line of products or otherwise to operate its business, (ii) a material
liability of the Company, or (iii) material redesign or other corrective costs
to the Company. The Company has not received, and has no knowledge of, any
charge, complaint, claim, demand or notice alleging any such interference,
infringement, misappropriation, or conflict (including, without limitation, any
claim that the Company must license or refrain from using any Intellectual
Property rights of any other person), or that the Company's use of the
Intellectual Property constitutes unfair competition.
(d) To the knowledge of the Company, no fraud or misrepresentation has been
made by the Company or any of its officers, directors or employees or the
relevant inventors during the prosecution of any of the Patents of the Company,
nor has any fraud or misrepresentation been included in any documentation for or
other disclosure to any governmental agency of the Intellectual Property of the
Company.
4.12 Employee Benefit Plans.
(a) The Company does not maintain or contribute to or have any actual or,
to its knowledge, potential liability with respect to any (i) deferred
compensation or bonus or retirement plans or arrangements, (ii) qualified or
nonqualified defined contribution or defined benefit plans or arrangements which
are employee pension benefit plans (as defined in Section 3(2) of ERISA), or
(iii) employee welfare benefit plans, (as defined in Section 3(1) of ERISA),
stock option or stock purchase plans, or material fringe benefit plans or
programs whether in writing or oral and whether or not terminated. The Company
has never contributed to any multiemployer pension plan (as defined in Section
3(37) of ERISA) or has ever maintained or contributed to any defined benefit
plan (as defined in Section 3(35) of ERISA). The Company does not maintain or
contribute to any Company Benefit Plan which provides health, accident or life
insurance benefits to former employees, their spouses or dependents, other than
in accordance with Section 4980B of the Code.
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(b) With respect to each Company Benefit Plan that is intended to be a
"qualified plan" within the meaning of Section 401(a) of the Code, either (i)
the IRS has issued a favorable determination letter that has not been revoked,
or (ii) an application for a favorable determination letter was timely submitted
to the IRS for which no final action has been taken by the IRS. To the knowledge
of the Company, there is no reason that is not susceptible to cure why the
qualified status under Section 401(a) of the Code of any Company Benefit Plan
would be denied or revoked, whether retroactively or prospectively.
(c) To the knowledge of the Company, no Company Benefit Plan, any fiduciary
thereof, nor the Company has incurred any liability or penalty under Section
4975 of the Code or Section 502(i) of ERISA. Except as would not have a Company
Material Adverse Effect, each Company Benefit Plan has been maintained and
administered in all material respects in compliance with its terms and with
ERISA and the Code, to the extent applicable thereto.
(d) To the knowledge of the Company, neither the Company nor any ERISA
Affiliate (during the period of its affiliated status) has any existing
liability currently due and payable that has not been satisfied in full under
Title IV of ERISA or Section 412 of the Code. To the knowledge of the Company,
there are no current plans to terminate, whether voluntarily or involuntarily,
any materially underfunded pension plan of the Company or any ERISA Affiliate
that is subject to Title IV of ERISA.
(e) To the knowledge of the Company, there is no pending or anticipated
claim, suit, action or other litigation against or otherwise involving any of
the Company Benefit Plans (excluding claims for benefits incurred in the
ordinary course of the Company Benefit Plan activities) except those which would
either have no Company Material Adverse Effect or those which have been
released, dismissed, settled or otherwise satisfied, each of which is set forth
in Section 4.12(e) of the Company Disclosure Schedule.
(f) All material contributions required to be made as of the date hereof to
the Company Benefit Plans have been made or provided for.
(g) Except as set forth in Schedule 4.12 of the Company Disclosure
Schedule, the execution of, and performance of the transactions contemplated by,
this Agreement will not (either alone or upon the occurrence of any additional
or subsequent events) constitute an event under any benefit plan, policy,
arrangement or agreement or any trust or loan that will or is reasonably likely
to result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any employee of the Company.
(h) The Company has not entered into any severance agreements or adopted
any severance policies applicable to the Company or its employees which would
have a Company Material Adverse Effect or which have not either been satisfied
or provided for, and each such severance agreement and policy is set forth on
Section 4.12(h) of the Company Disclosure Schedule.
4.13 No Brokers. The Company has not entered into any contract,
arrangement or understanding with any person or firm which will or is reasonably
likely to result in the obligation of the Company, Parent or Merger Sub to pay
any finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby, except that the Company has retained
Quist Financial, Inc. to render a fairness opinion, the arrangements with which
have been disclosed in writing to Parent prior to the date hereof. Other than
the foregoing arrangements, the Company is not aware of any claim for payment of
any finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
4.14 Opinion of Financial Advisor. The Company has received the opinion of
Quist Financial, Inc. substantially to the effect that, as of the date hereof,
the Exchange Ratio is fair to the holders of Company Common Stock from a
financial point of view.
4.15 Parent Stock Ownership. The Company does not own any shares of Parent
Common Stock or other securities convertible into Parent Common Stock.
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4.16 Pooling of Interests; Tax Reorganization. To the knowledge of the
Company, having sought and obtained the advice of its accounting advisors, the
Company has not taken (or as of the date hereof failed to take) any action which
would prevent the accounting for the Merger as a pooling of interests in
accordance with APB No. 16, the interpretative releases issued pursuant thereto,
and the pronouncements of the Commission. To the knowledge of the Company, the
Company has not taken or failed to take any action which would prevent the
Merger from constituting a reorganization within the meaning of Section 368 of
the Code.
4.17 Environmental Matters.
(a) There has not been any violation of any Environmental Requirements by
the Company or, to the knowledge of the Company, any Company Predecessor, nor to
the knowledge of the Company has there been any third party claim or demand
based upon any Environmental Requirements against the Company or any Company
Predecessor, other than violations, claims or demands that have not resulted,
and are not reasonably likely to result, in a Company Material Adverse Effect.
(b) The Company has not disposed of, stored or used any Hazardous Materials
on, nor has it transported any Hazardous Materials from, any of the Company Real
Properties in violation of applicable Environmental Requirements other than a
disposal, storage, use or transport which has not resulted in and is not
reasonably likely to result in a Company Material Adverse Effect. To the
knowledge of the Company, no Company Predecessor has disposed of, stored or used
any Hazardous Materials on, nor has any such Company Predecessor transported any
Hazardous Materials from, any of the Company Real Properties in violation of
applicable Environmental Requirements.
(c) To the knowledge of the Company, none of the following exists at any of
the real property currently owned, leased or occupied by the Company or existed
at any of the Company Real Properties at the time the Company or the Company
Predecessor operated there: (i) underground storage tanks, (ii)
asbestos-containing material in any friable or damaged form or condition, (iii)
materials or equipment containing polychlorinated biphenyls (PCBs), or (iv)
landfills or surface impoundments.
(d) To the knowledge of the Company, none of the Company Real Properties is
or has been contaminated by any Hazardous Materials, in a manner that has given
or is reasonably likely to give rise to any material liability on the part of
the Company to any person, including without limitation any governmental
authority, for response costs, corrective action costs, personal injury,
property damage, natural resources damages or attorney fees, pursuant to CERCLA,
or SWDA, or any other Environmental Requirements, whether federal, state or
locally imposed.
4.18 Insurance. The Company maintains insurance with financially sound and
reputable insurers, in such amounts, and with such deductibles and covering such
risks as is customarily carried by companies engaged in similar businesses and
owning similar properties in the localities where the Company is located. The
Company Disclosure Schedule contains a list of each insurance policy presently
maintained by the Company.
4.19 Proprietary Information and Inventions and Confidentiality
Agreement. Each employee, consultant, service provider, officer and director of
the Company has executed a proprietary information and inventions and
confidentiality agreement, copies of which have been provided to Parent. The
Company is not aware that any of such persons is in violation thereof, and the
Company will use its best efforts to prevent any such violation.
4.20 Accuracy of Documents and Information. The copies of all instruments,
agreements, other documents and written information delivered by the Company to
Parent or its counsel are and will be complete and correct in all material
respects as of the date of delivery thereof. No representations or warranties
made by the Company in this Agreement, nor any document, written information,
statement, financial statement, letter, certificate or exhibit prepared and
furnished or to be prepared and furnished by the Company or its representatives
to Parent pursuant hereto or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of material fact, or omits
or will omit to state a material fact necessary to make the statements or facts
contained herein or therein not
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misleading. There is no presently existing event, fact or condition that would
have a Company Material Adverse Effect or that could reasonably be expected to
do so, which has not been set forth in this Agreement or the exhibits hereto or
otherwise disclosed by the Company to Parent in writing in the Company
Disclosure Schedule.
4.21 Title to Properties; Encumbrances. The Company Disclosure Schedule
contains a complete and accurate list of all real property owned by the Company
and all real property leases to which the Company is a party. Except as listed
in the Company Disclosure Schedule, the Company has good and marketable title to
its properties, interests in properties and assets, real and personal, used in
or necessary for the operation of the business of Company, free and clear of all
liens and encumbrances. The equipment of Company used in the operation of its
business is, taken as a whole, (i) adequate for the business conducted by
Company and (ii) in good operating condition and repair, ordinary wear and tear
excepted. To the knowledge of the Company, all real or personal property leases
to which Company is a party are valid, binding and enforceable against Company
and effective in accordance with their respective terms.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub make the following representations and warranties to
the Company as of the date of this Agreement.
5.1 Organization and Standing.
(a) Parent and each of its Significant Subsidiaries (i) is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, (ii) has all requisite corporate power and
authority to own, operate and lease its properties and carry on its business as
now conducted, and (iii) is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the failure to
so qualify, or be in good standing, would have a Parent Material Adverse Effect.
(b) Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation. Merger Sub
was organized for purposes of consummating the transactions contemplated by this
Agreement. Merger Sub has not engaged in any activity other than as provided in,
or contemplated by, this Agreement and, as of the date hereof, has no
liabilities of any nature, contingent or otherwise, other than liabilities or
obligations that may arise from this Agreement or the transactions contemplated
hereby. The authorized capital stock of Merger Sub consists of 1,000 shares of
Merger Sub Common Stock, all of which are validly issued, fully paid and
nonassessable and are owned by Parent.
(c) Neither Parent nor any of its Subsidiaries (including without
limitation Merger Sub) has (i) filed or had filed against it a petition in
bankruptcy or a petition to take advantage of any other insolvency act, (ii)
admitted in writing its inability to pay its debts generally, (iii) made an
assignment for the benefit of creditors, (iv) consented to the appointment of a
receiver for itself or any substantial part of its property or (v) generally
committed any act of insolvency (including the failure to pay obligations as
they become due) or bankruptcy.
5.2 Capitalization.
(a) The authorized capital stock of Parent consists of 40,000,000 shares of
Parent Common Stock and 1,000,000 shares of Parent Preferred Stock. As of March
31, 2000, there were 28,487,941 shares of Parent Common Stock, and no shares of
Parent Preferred Stock, issued and outstanding. From such date to the date of
this Agreement, no additional shares of capital stock of Parent have been
issued, except pursuant to the exercise of Parent Options. As of March 31, 2000,
Parent Options to acquire 1,933,578 shares of Parent Common Stock were
outstanding. From such date to the date of this Agreement, no additional Parent
Options have been granted.
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(b) All of the issued and outstanding shares of Parent Common Stock have
been duly authorized and validly issued and are fully paid, non-assessable and
free of preemptive rights. Other than Parent Options, there are no existing and
outstanding warrants, rights, options, subscriptions, convertible securities or
other agreements or commitments which obligate Parent to issue, transfer or sell
any shares of capital stock of Parent or Merger Sub.
(c) All of the shares of Parent Common Stock issuable as consideration in
the Merger at the Effective Time, when issued in accordance with the terms and
conditions of this Agreement, will be duly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights.
5.3 Authorization; Enforceability; No Violation.
(a) Each of Parent and Merger Sub has full corporate power and authority to
execute and deliver this Agreement, and to perform its respective obligations
hereunder.
(b) All corporate action necessary on the part of Parent and Merger Sub for
the execution, delivery and performance of this Agreement has been duly taken.
No approval of the stockholders of Parent is required by applicable law or the
rules of the Nasdaq National Market in connection with the consummation by
Parent or Merger Sub of the transactions contemplated hereby.
(c) This Agreement constitutes (assuming this Agreement is a valid and
binding obligation of the Company), a valid and legally binding obligation of
each of Parent and Merger Sub, enforceable against Parent and Merger Sub, as
applicable, in accordance with its terms, subject to the Enforceability
Exceptions.
(d) The execution, delivery and performance of this Agreement will not
result in any conflict with, breach or violation of or default (or an event
which, with notice or lapse of time or both, would constitute a default),
termination or forfeiture under (i) any terms or provisions of the Certificate
of Incorporation or the By-laws of Parent or any of its Subsidiaries (including
without limitation Merger Sub), (ii) any statute, rule, regulation, judicial,
governmental, regulatory or administrative decree, order or judgment applicable
to Parent or any of its Subsidiaries (including without limitation Merger Sub),
or (iii) any agreement, lease, license, permit or other instrument to which
Parent or any of its Subsidiaries (including without limitation Merger Sub) is a
party or to which any of its assets are subject, except where any such breach,
violation, default, termination or forfeiture would not have or result in a
Parent Material Adverse Effect.
(e) There is no action, suit, proceeding or investigation pending or
threatened against Parent or any of its Subsidiaries that questions the validity
of this Agreement or the right of Parent or Merger Sub to enter into this
Agreement or to consummate the transactions contemplated hereby.
5.4 No Consents. No consent, approval, authorization, order, registration,
qualification or filing of or with any court or any regulatory authority or any
other governmental or administrative body is required on the part of Parent or
any of its Subsidiaries for the consummation by Parent and Merger Sub of the
transactions contemplated by this Agreement, except (i) notices and filings
required in order to comply with the Securities Act, the Exchange Act and state
securities or "blue sky" laws, (ii) the filing of the Articles of Merger with
the Colorado Secretary of State and (iii) any notices and filings necessary to
comply with the rules of the Nasdaq National Market System.
5.5 Parent Reports.
(a) Parent has filed all reports, forms, registrations, schedules,
statements and other documents required to be filed by it with the Commission
since November 17, 1995 (the "Parent Reports"). As of their respective dates,
the Parent Reports complied as to form in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the applicable rules and regulations promulgated thereunder. Except to the
extent that information contained in any Parent Report has been amended, revised
or superseded by a Parent Report subsequently filed and publicly available prior
to the date of this Agreement, none of the Parent Reports, when filed, contained
any untrue statement of a
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material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) Each of the consolidated balance sheets of Parent included in or
incorporated by reference into the Parent Reports (including the related notes
and schedules) fairly presents in all material respects the consolidated
financial position of Parent and its Subsidiaries as of its date, and each of
the consolidated statements of income, stockholders' equity and cash flows of
Parent included in or incorporated by reference into the Parent Reports
(including any related notes and schedules) fairly presents in all material
respects the income, stockholders' equity and cash flows, as the case may be, of
Parent and its Subsidiaries for the periods set forth therein (subject, in the
case of unaudited statements, to normal year-end audit adjustments which would
not be material in amount or effect), in each case in accordance with GAAP,
except as may be noted therein and subject to the fact that unaudited financial
statements do not contain full notes thereto. Parent and its Subsidiaries do not
have any liabilities or obligations required to be disclosed in a consolidated
balance sheet or the notes thereto prepared in accordance with GAAP, except (i)
liabilities or obligations reflected on, or reserved against in, a consolidated
balance sheet of Parent or in the notes thereto, and included in the Parent
Reports, (ii) liabilities or obligations incurred since March 31, 2000 in the
ordinary course of business, consistent with past practices, or (iii)
liabilities disclosed in a Parent Report.
5.6 Pooling of Interests; Tax Reorganization. To the knowledge of Parent,
having sought and obtained the advice of its accounting advisors, neither Parent
nor any of its Subsidiaries has taken (or as of the date hereof failed to take)
any action which would prevent the accounting for the Merger as a pooling of
interests in accordance with APB No. 16, the interpretative releases issued
pursuant thereto, and the pronouncements of the Commission. To the knowledge of
Parent, neither Parent nor any of its Subsidiaries has taken or failed to take
any action which would prevent the Merger from constituting a reorganization
within the meaning of section 368 of the Code.
5.7 Accuracy of Documents and Information. The copies of all instruments,
agreements, other documents and written information delivered by Parent to the
Company or its counsel are and will be complete and correct in all material
respects as of the date of delivery thereof. No representations or warranties
made by Parent in this Agreement, nor any document, written information,
statement, financial statement, letter, certificate or exhibit prepared and
furnished or to be prepared and furnished by Parent or its representatives to
the Company pursuant hereto or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of material fact, or omits
or will omit to state a material fact necessary to make the statements or facts
contained herein or therein not misleading. There is no presently existing
event, fact or condition that would have a Parent Material Adverse Effect or
that could reasonably be expected to do so, which has not been set forth in this
Agreement or the exhibits hereto.
5.8 Company Options. Parent acknowledges that the vesting of all Company
Options will accelerate at the Effective Time.
ARTICLE 6
COVENANTS
6.1 Alternative Proposals.
(a) Upon execution and delivery of this Agreement, the Company, its
affiliates and their respective officers, directors, employees, representatives
and agents shall immediately cease any existing discussions or negotiations, if
any, conducted with any parties heretofore with respect to any acquisition of
all or any material portion of the assets of, or any equity interest in, the
Company or any business combination with the Company. Notwithstanding the
foregoing, the Company may issue Company Common Stock issuable upon exercise of
the Company Options outstanding on the date hereof and pursuant to the Stock
Purchase Plan, subject to the limitations set forth in Section 3.2(d)(iv).
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(b) Prior to the Closing Date, the Company may, solely in response to
unsolicited requests therefor, furnish non-public information regarding itself
to any corporation, partnership, person or other entity or group in respect of,
and may participate in discussions and negotiate with such entity or group
concerning, a business combination, merger, sale of material assets, sale of
shares of capital stock or similar transaction involving the Company (a
"Transaction"), provided that (i) such entity or group has submitted a written
proposal to the Board of Directors of the Company relating to any such
Transaction (an "Alternative Proposal"), (ii) the entity or group enters into
confidentiality agreements with the Company with respect to such non-public
information, and (iii) the Company Board, by a majority vote, determines in its
good faith judgment, based as to legal matters on the written advice of legal
counsel, that failing to take such action would constitute a breach of the
Company Board's fiduciary duty. The Company Board shall provide a copy of any
such written proposal to Parent and Merger Sub immediately after receipt
thereof, unless prohibited by the terms of such proposal.
(c) Neither the Company nor any of its affiliates, nor any of such Persons'
respective officers, directors, employees, representatives or agents, shall,
directly or indirectly (i) encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Parent and
Merger Sub, any affiliate or associate of Parent and Merger Sub or any designees
of Parent and Merger Sub) concerning any Transaction, or (ii) authorize, propose
or announce an intention to authorize or propose any Transaction (other than the
Merger), unless and until the Company has received an Alternative Proposal in
writing and the Company Board, by majority vote, has determined in its good
faith judgment, based as to legal matters on the written advice of legal
counsel, that failing to take such action would constitute a breach of the
Company Board's fiduciary duty; provided, however, that nothing herein shall
prevent the Company Board from taking, and disclosing to the Company's
stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under
the Exchange Act with regard to any tender offers; provided, further, that the
Company Board shall not recommend that the stockholders of the Company tender
their shares in connection with any such tender offer unless the Company Board
by a majority vote determines in its good faith judgment, based as to legal
matters on the written advice of legal counsel, that failing to take such action
would constitute a breach of the Company Board's fiduciary duty.
(d) Nothing in this Section 6.1 shall (i) permit the Company to terminate
this Agreement (except as specifically provided in Article 8 hereof), (ii)
permit the Company to enter into any agreement with respect to a Transaction
during the term of this Agreement (it being agreed that during the term of this
Agreement, the Company shall not enter into any agreement with any person that
provides for, or in any way facilitates, a Transaction, other than a
confidentiality agreement in customary form), or (iii) except as specifically
provided in Article 8, affect any other obligation of the Company under this
Agreement.
6.2 Interim Operations of the Company.
(a) Prior to the Effective Time, except as set forth in Section 6.2 of the
Company Disclosure Schedule or as contemplated by any other provision of this
Agreement, unless Parent has consented in writing thereto, the Company:
(i) shall conduct its operations according to their usual, regular and
ordinary course in substantially the same manner as heretofore conducted;
(ii) shall use its reasonable efforts to preserve intact its business
organizations and goodwill, keep available the services of its officers and
employees and maintain satisfactory relationships with those persons having
business relationships with them;
(iii) shall not amend its Articles of Incorporation or Bylaws;
(iv) shall promptly notify Parent of (A) any material adverse change
in its condition (financial or otherwise), business, properties, assets,
liabilities or the normal course of its business or of its properties, (B)
any material litigation or, to the extent known to the Company, any
material governmental complaints, investigations or hearings against or
otherwise involving the Company (or
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communications indicating that the same may be contemplated), or (C) the
breach of any representation or warranty of the Company contained herein;
(v) shall promptly deliver to Parent true and correct copies of any
report, statement or schedule filed by the Company with the Commission
subsequent to the date of this Agreement;
(vi) shall not enter into or amend any employment, severance or
similar agreements or arrangements with any of its directors or executive
officers, except (A) in the ordinary course of business consistent with
past practice, or (B) as otherwise provided in this Agreement;
(vii) shall not authorize, propose or announce an intention to
authorize or propose, or enter into negotiations or an agreement with
respect to any acquisition of assets or securities, any disposition of
assets or securities or any release or relinquishment of any contract
rights, which acquisitions, dispositions, releases or relinquishments would
be outside the ordinary course of business and would involve aggregate
consideration in excess of $100,000;
(viii) shall not issue any shares of capital stock or securities,
except as permitted by the last sentence of Section 6.1(a), or effect any
stock split or otherwise change its capitalization;
(ix) shall not grant, confer or award any options, appreciation
rights, warrants, conversion rights, restricted stock, stock units,
performance shares or other rights, not existing on the date hereof, with
respect to any shares of its capital stock or other securities of the
Company;
(x) shall not take any actions which would, or would be reasonably
likely to, prevent the Merger from qualifying as a reorganization within
the meaning of Section 368 of the Code;
(xi) shall not take any actions which would, or would be reasonably
likely to, prevent the Merger from qualifying as a transaction to be
accounted for as a pooling of interests in accordance with APB No. 16;
(xii) except as required by applicable law (in which case prompt
notice shall be given by the Company to Parent), shall not amend in any
material respect the terms of the Company Benefit Plans, including without
limitation any employment, severance or similar agreements or arrangements
in existence on the date hereof, or adopt any new employee benefit plans,
programs or arrangements or any employment, severance or similar agreements
or arrangements;
(xiii) shall not incur, create, assume or otherwise become liable for
borrowed money or assume, guarantee, endorse or otherwise become
responsible or liable for the obligations of any other individual,
corporation or other entity, except in the ordinary course of business;
(xiv) shall not make any loans or advances to any other Person, except
in the ordinary course of business;
(xv) shall not make any material tax election other than in the
ordinary course, or without the consent of Parent, which shall not
unreasonably be withheld, settle or compromise any material tax liability;
(xvi) shall not declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital
stock or other ownership interests;
(xvii) shall not directly or indirectly redeem, purchase or otherwise
acquire any shares of its capital stock, or make any commitment for any
such action; provided that cashless exercises of stock options shall not be
in violation of this clause (xvii); and
(xviii) shall not agree, in writing or otherwise, to take any of the
foregoing actions or take any action which would make any representation or
warranty in Article 4 hereof untrue or incorrect in any material respect as
of the Closing Date.
6.3 Meeting of Stockholders. The Company will take all action necessary in
accordance with applicable law and its Articles of Incorporation and Bylaws to
convene a Stockholders' Meeting as
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promptly as practicable to consider and vote upon the approval of this Agreement
and the transactions contemplated hereby. Unless the Company Board by a majority
vote determines in its good faith judgment, based as to legal matters on the
written advice of legal counsel, that taking such action would constitute a
breach of the Company Board's fiduciary duty, the Company Board shall recommend
such approval, and the Company shall take all lawful action to solicit such
approval, including, without limitation, timely mailing the Proxy
Statement/Prospectus.
6.4 Filings; Other Actions. Subject to the terms and conditions herein
provided, the Company and Parent shall: (a) use all reasonable efforts to
cooperate with one another in (i) determining which filings are required to be
made prior to the Effective Time with, and which other consents, approvals,
permits or authorizations are required to be obtained prior to the Effective
Time from, governmental or regulatory authorities of the United States, the
several states and foreign jurisdictions in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby and (ii) timely making all such filings and timely seeking all such
consents, approvals, permits or authorizations; and (b) use all reasonable
efforts to take, or cause to be taken, all other action and do, or cause to be
done, all other things necessary, proper or appropriate to consummate and make
effective the transactions contemplated by this Agreement.
6.5 Inspection of Records. From the date hereof to the Effective Time,
each of the Company and Parent shall (a) allow all designated officers,
attorneys, accountants and other representatives of the other party reasonable
access at all reasonable times to its respective offices, records and files,
correspondence, audits and properties, as well as to all information relating to
its respective commitments, contracts, titles and financial position, or
otherwise pertaining to its respective business and affairs, (b) furnish to the
other party and the other party's counsel, financial advisors, auditors and
other authorized representatives such financial and operating data and other
information as such persons may reasonably request and (c) instruct its
respective employees, counsel and financial advisors to cooperate with the other
party in the other party's investigation of its respective business.
6.6 Publicity. The initial press release relating to this Agreement shall
be a joint press release and thereafter, until the Effective Time, the Company
and Parent shall, subject to their respective legal obligations (including
requirements of stock exchanges and similar self regulatory bodies), consult
with each other, and use reasonable efforts to agree upon the text of any press
release, before issuing any such press release or otherwise making public
statements with respect to the transactions contemplated hereby and in making
any filings with any federal or state governmental or regulatory agency or with
any national securities exchange with respect thereto.
6.7 Proxy Statement/Prospectus.
(a) Parent and the Company shall cooperate and promptly prepare and Parent
shall file with the Commission as soon as practicable a Registration Statement
on Form S-4 under the Securities Act (the "Registration Statement"), with
respect to the Parent Common Stock issuable in the Merger, which Registration
Statement shall contain the proxy statement with respect to the meeting of the
stockholders of the Company in connection with the Merger (the "Proxy
Statement/Prospectus").
(b) The parties will cause the Proxy Statement/Prospectus, and Parent will
cause the Registration Statement, to comply as to form in all material respects
with the applicable provisions of the Securities Act, the Exchange Act and the
rules and regulations thereunder. Parent shall use all reasonable efforts, and
the Company shall cooperate with Parent, to have the Registration Statement
declared effective by the Commission as promptly as practicable.
(c) The information supplied by the Company for inclusion or incorporation
by reference in the Proxy Statement/Prospectus and the Registration Statement
shall not (i) at the time the Registration Statement is declared effective, (ii)
at the time the Proxy Statement/Prospectus (or any amendment thereof or
supplement thereto) is first mailed to holders of Company Common Stock, (iii) at
the time of the Stockholders' Meeting, or (iv) at the Effective Time, contain
any 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,
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in the light of the circumstances under which they are made, not misleading, and
shall comply as to form and substance with the requirements of the Securities
Act and the Exchange Act.
(d) The information supplied by Parent for inclusion or incorporation by
reference in the Proxy Statement/ Prospectus and the Registration Statement
shall not (i) at the time the Registration Statement is declared effective, (ii)
at the time the Proxy Statement/Prospectus (or any amendment thereof or
supplement thereto) is first mailed to holders of Company Common Stock, (iii) at
the time of the Stockholders' Meeting, or (iv) at the Effective Time, contain
any 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 are made, not misleading, and
shall comply as to form and substance with the requirements of the Securities
Act and the Exchange Act.
(e) No amendment or supplement to the Proxy Statement/Prospectus will be
made by the Company or Parent without the approval of the other (except to the
extent such amendment or supplement incorporates by reference other filings of
the Company or Parent). Parent will advise the Company, promptly after it
receives notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, the issuance of any
stop order, the suspension of the qualification of the Parent Common Stock
issuable in connection with the Merger for offering or sale in any jurisdiction,
or any request by the Commission for amendment of the Proxy Statement/Prospectus
or the Registration Statement or comments thereon and responses thereto or
requests by the Commission for additional information.
6.8 Affiliate Letters. Promptly after the date hereof, the Company shall
deliver to Parent a list of names and addresses of those persons who were, in
the Company's reasonable judgment, as of the record date for the Stockholders'
Meeting, Affiliates of the Company. The Company shall provide Parent such
information and documents as Parent shall reasonably request with respect to
such Affiliates. The Company shall use all reasonable efforts to deliver or
cause to be delivered to Parent, prior to the Closing Date, from each of the
Affiliates of the Company identified in the foregoing list, an affiliate letter
in form and substance reasonably acceptable to Parent in order to satisfy the
requirements of Rule 145 of the Securities Act and APB No. 16 (collectively,
"Affiliate Letters"). Parent shall be entitled to place legends as specified in
such Affiliate Letters on the certificates evidencing any Parent Common Stock to
be received by such Affiliates pursuant to the terms of this Agreement, and to
issue appropriate stop transfer instructions to the transfer agent for the
Parent Common Stock, consistent with the terms of such Affiliate Letters.
Subject to the receipt by Parent of satisfactory representations and warranties
from the relevant holders and/or brokers, such legends shall be removed and such
transfer instructions terminated at the earliest possible date under all
applicable laws and regulations.
6.9 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses except as
expressly provided herein and except that the filing fee in connection with the
filing of the Registration Statement or Proxy Statement/Prospectus with the
Commission and the expenses incurred in connection with printing and mailing the
Registration Statement and the Proxy Statement/Prospectus shall be shared
equally by the Company and Parent.
6.10 Employee Benefits.
(a) From and after the Effective Time, Parent shall provide or cause the
Surviving Corporation to provide to persons who are employees of the Company at
the Effective Time and who will continue as employees of the Surviving
Corporation after the Effective Time (the "Company Personnel") the same employee
compensation and benefit plans, programs and arrangements as are provided to
other employees of Parent employed in similar capacities to such Company
Personnel; provided, however, that subject to the foregoing, Parent shall not be
precluded from amending or terminating any particular plan, program or
arrangement, or from substituting any such plans, programs or arrangements with
plans, programs or arrangements applicable and available to other employees of
Parent and its Subsidiaries.
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(b) Following the Effective Time, Parent shall cause the benefit plans
covering the Company Personnel following the Effective Time (the "Future Benefit
Plans") to continue to recognize the service credit of the Company Personnel
accrued as of the Effective Time under the Company Benefit Plans for purposes of
participation, eligibility and vesting of benefits, to the extent permissible by
the terms of such Future Benefit Plans.
6.11 Agreements. Between the date hereof and the Closing Date, the Company
shall not enter into any agreement which the Company knows or has reason to know
is reasonably likely to cause any major customer of the Company to terminate any
material contracts, agreements or other obligations that exist between that
customer on the one hand, and the Company (or the Company following the Merger),
on the other hand and the Company shall take all reasonable action appropriate
to an effort to avoid such termination.
6.12 Takeover Statute. If any "fair price," "moratorium," "control share
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, the Company and the Company
Board shall grant such approvals and take such actions as are reasonably
necessary so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated hereby and otherwise act to
eliminate or minimize the effects of such statute or regulation on the
transactions contemplated hereby; provided, however, that the Company and the
Company Board shall not be required to grant such approvals or take such actions
if the Company Board, by majority vote, determines in its good faith judgment,
based as to legal matters on the written advice of legal counsel, that granting
such approvals or taking such actions would constitute a breach of the Company's
Board's fiduciary duties.
6.13 Interim Operations of Parent.
(a) Prior to the Effective Time, except as contemplated by any other
provision of this Agreement, unless the Company has consented in writing
thereto, Parent:
(i) shall promptly notify the Company of (A) any material adverse
change in its condition (financial or otherwise), business, properties,
assets, liabilities or the normal course of its business or of its
properties, (B) any material litigation or, to the extent known to Parent,
any material governmental complaints, investigations or hearings against or
otherwise involving Parent (or communications indicating that the same may
be contemplated), or (C) the breach of any representation or warranty of
Parent contained herein;
(ii) shall promptly deliver to the Company true and correct copies of
any report, statement or schedule filed by Parent with the Commission
subsequent to the date of this Agreement;
(iii) shall not take any actions which would, or would be reasonably
likely to, prevent the Merger from qualifying as a reorganization within
the meaning of Section 368 of the Code;
(iv) shall not take any actions which would, or would be reasonably
likely to, prevent the Merger from qualifying as a transaction to be
accounted for as a pooling of interests in accordance with APB No. 16; and
(b) shall not agree, in writing or otherwise, to take any of the foregoing
actions or take any action which would make any representation or warranty in
Article 5 hereof untrue or incorrect in any material respect as of the Closing
Date.
6.14 Directors' and Officers' Indemnification and Insurance.
(a) The Articles of Incorporation and By-laws of the Surviving Corporation
shall contain the respective provisions that are set forth, as of the date of
this Agreement, in the Articles of Incorporation and the By-laws of the Company
dealing with indemnification of officers, directors and employees of the Company
and other persons specified therein, which provisions shall not be amended,
repealed or otherwise modified for a period of six years from the Effective Time
in any manner that would affect
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adversely the rights thereunder with respect to actions or events occurring
prior to the Effective Time of individuals who were entitled to such
indemnification prior to the Effective Time.
(b) The Surviving Corporation shall maintain in effect for at least six
years from the Effective Time directors' and officers' liability insurance with
an insurance company rated at least "A" by A.M. Best Company, covering the
persons who, as of the date of this Agreement, are covered by the Company's
directors' and officers' liability insurance policy (the "Current Policy"). The
coverage provided by the directors' and officers' liability insurance maintained
by the Surviving Corporation shall be substantially similar to the coverage
provided by the Current Policy.
(c) Parent shall guarantee the obligations of the Surviving Corporation
provided by this Section 6.14.
(d) This Section 6.14 shall survive the consummation of the Merger, is
intended to benefit the Company, the Surviving Corporation and each indemnified
party, and shall be enforceable by the indemnified parties.
6.15 Rule 145 Compliance. For so long as resales of shares of Parent
Common Stock issued pursuant to the Merger are subject to the resale
restrictions set forth in Rule 145 under the Securities Act, Parent will use
reasonable efforts to comply with Rule 144(c)(1) under the Securities Act.
6.16 Tax Matters. Each party represents and warrants to the other parties
that the statements in the proposed form of certificate of such party (each, a
"Party's Certificate" and, together, the "Parties' Certificates") to be
delivered by such party in connection with the opinions to be delivered pursuant
to Article 7 are true and correct as of the date hereof, assuming for purposes
of this sentence that the Merger had been consummated on the date hereof. Each
party agrees that, at and prior to the Effective Time, it will not take any
action that would cause any of the statements in such party's Party's
Certificate to be false as of the Effective Time. Unless (and then only to the
extent) otherwise required by a "determination" (as defined in Section
1313(a)(1) of the Code) or by a similar applicable provision of state or local
income or franchise tax law, each party agrees (i) to report the Merger on all
tax returns and other filings as a tax-free reorganization within the meaning of
Section 368(a) of the Code and (ii) not to take any position in any audit,
administrative proceeding or litigation that is inconsistent with the
characterization of the Merger as such a reorganization.
ARTICLE 7
CONDITIONS TO CLOSING
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall have
been approved by the requisite vote of the holders of the issued and
outstanding shares of capital stock of the Company.
(b) None of the parties hereto shall be subject to any order or
injunction of a court of competent jurisdiction in the United States which
prohibits the consummation of the transactions contemplated by this
Agreement. In the event any such order or injunction shall have been
issued, each party agrees to use its best efforts to have any such
injunction lifted.
(c) The Registration Statement shall have become effective and shall
be effective at the Effective Time, and no stop order suspending
effectiveness of the Registration Statement shall have been issued, no
action, suit, proceeding or investigation by the Commission to suspend the
effectiveness thereof shall have been initiated and be continuing, and all
material approvals under state securities laws relating to the issuance or
trading of the Parent Common Stock to be issued to the Company stockholders
in connection with the Merger shall have been received.
(d) All consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution,
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delivery and performance of this Agreement shall have been obtained or
made, except for the filing of the Articles of Merger and any other
documents required to be filed after the Effective Time and except where
the failure to have obtained or made any such consent, authorization,
order, approval, filing or registration would not have a material adverse
effect on the business of Parent (and its Subsidiaries) and the Company,
taken as a whole, following the Effective Time.
7.2 Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) Parent shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date, the representations and warranties of Parent and
Merger Sub contained in this Agreement and in any document delivered in
connection herewith shall be true and correct in all material respects as
of the Closing Date, except that those representations and warranties which
address matters only as of a particular date shall have been true and
correct as of such date, and the Company shall have received a certificate
of an executive officer of Parent, dated the Closing Date, certifying to
such effect.
(b) The Company shall have received, prior to the effective date of
the Registration Statement, the opinion of Chrisman, Bynum & Johnson, P.C.,
counsel to the Company, to the effect that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of
section 368(a) of the Code, and that the Company, Parent and Merger Sub
each will be a party to that reorganization within the meaning of section
368(b) of the Code, and such firm shall have reconfirmed such opinion as of
the Closing Date. In rendering such opinion, Chrisman, Bynum & Johnson,
P.C. may require and rely upon such certificates of the Company, Parent and
Merger Sub and/or their respective officers or principal stockholders as
are customary for such opinions.
(c) From the date of this Agreement through the Effective Time, there
shall not have occurred a Parent Material Adverse Effect.
7.3 Conditions to Obligation of Parent and Merger Sub to Effect the
Merger. The obligations of Parent and Merger Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) The Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date, the representations and warranties of the Company
contained in this Agreement and in any document delivered in connection
herewith shall be true and correct in all material respects as of the
Closing Date, except that those representations and warranties which
address matters only as of a particular date shall have been true and
correct as of such date, and Parent shall have received a certificate of an
executive officer of the Company, dated the Closing Date, certifying to
such effect.
(b) Parent shall have received a letter of Arthur Andersen LLC, its
independent public accountants, dated as of the Closing Date, in form and
substance reasonably satisfactory to Parent, stating that such accountants
concur with management's conclusion that the Merger will qualify as a
transaction to be accounted for in accordance with the pooling of interests
method of accounting under the requirements of APB No. 16.
(c) Parent shall have received, prior to the effective date of the
Registration Statement, the opinion of Thelen Reid & Priest LLP, counsel to
Parent and Merger Sub, to the effect that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of
section 368(a) of the Code, and that the Company, Parent and Merger Sub
each will be a party to that reorganization within the meaning of section
368(b) of the Code, and such firm shall have reconfirmed such opinion as of
the Closing Date. In rendering such opinion, Thelen Reid & Priest LLP may
require and rely upon such certificates of the Company, Parent and Merger
Sub and/or their respective officers or principal stockholders as are
customary for such opinions.
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(d) The Stock Purchase Plan shall have been terminated and any stock
and/or cash distributed thereunder as set forth in Section 3.2(d)(iv).
(e) From the date of this Agreement through the Effective Time, there
shall not have occurred a Company Material Adverse Effect.
ARTICLE 8
TERMINATION
8.1 Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval of this Agreement by the stockholders of the Company, by the
mutual consent of Parent and the Company.
8.2 Termination by Either Parent or the Company. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either Parent or the Company if (a) the Merger shall not have been
consummated by December 31, 2000, or (b) the approval of the Company's
stockholders required by Section 7.1(a) shall not have been obtained at the
Stockholders' Meeting or any adjournment thereof, or (c) a United States federal
or state court of competent jurisdiction or United States federal or state
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and non-appealable; provided, that the party seeking to terminate this
Agreement pursuant to this paragraph (c) shall have used all reasonable efforts
to remove such injunction, order or decree; and provided, in the case of a
termination pursuant to paragraph (a) of this Section 8.2, that the terminating
party shall not have breached in any material respect its obligations under this
Agreement in any manner that shall have proximately contributed to the failure
to consummate the Merger by December 31, 2000.
8.3 Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the adoption and approval by the stockholders of the Company referred to in
paragraph (a) of Section 7.1, by action of the Company Board, if (a) the Company
Board, by majority vote, determines in its good faith judgment, based as to
legal matters on the written advice of legal counsel, that terminating this
Agreement and abandoning the Merger is required by the Company Board's fiduciary
duties, or (b) there has been a breach by Parent or Merger Sub of any
representation or warranty contained in this Agreement that has had or is
reasonably likely to have a Parent Material Adverse Effect, which breach is not
curable or, if curable, is not cured within 30 days after written notice of such
breach is given by the Company to Parent, or (c) there has been a material
breach of any of the covenants or agreements set forth in this Agreement on the
part of Parent, which breach is not curable or, if curable, is not cured within
30 days after written notice of such breach is given by the Company to Parent.
8.4 Termination by Parent. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, by action of the Board
of Directors of Parent, if (a) the Company Board shall have (i) withdrawn or
modified in a manner materially adverse to Parent its approval or recommendation
of this Agreement or the Merger or (ii) recommended an Alternative Proposal to
the Company stockholders, or (b) there has been a breach by the Company of any
representation or warranty contained in this Agreement that has had or is
reasonably likely to have a Company Material Adverse Effect, which breach is not
curable or, if curable, is not cured within 30 days after written notice of such
breach is given by Parent to the Company, or (c) there has been a material
breach of any of the covenants or agreements set forth in this Agreement on the
part of the Company, which breach is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by Parent to the
Company.
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<PAGE> 97
8.5 Effect of Termination and Abandonment.
(a) If this Agreement is terminated by the Company or Parent pursuant to
Section 8.2(b), 8.3(a) or 8.4(a), and (x) prior to such termination, a proposal
with respect to a Transaction shall have been made, and (y) within two (2) years
after such termination, either the Company enters into any agreement with
respect to a Transaction whereby any third party shall acquire beneficial
ownership of more than 50% of the Company's (i) outstanding shares of voting
stock or (ii) assets (measured by fair market value), then the Company shall pay
Parent, by wire transfer of immediately available funds, a fee (the "Termination
Fee") of Five Million Dollars ($5,000,000) within fifteen (15) business days
after the execution of such agreement or the consummation of such acquisition
(whichever shall first occur).
(b) The Company acknowledges that the agreements contained in this Section
8.5 are an integral part of the transactions contemplated in this Agreement, and
that, without these agreements, Parent and Merger Sub would not enter into this
Agreement; accordingly, if the Company fails to promptly pay the Termination Fee
when due and, in order to obtain such payment, Parent or Merger Sub commences a
suit which results in a judgment against the Company, the Company shall
reimburse Parent for its costs and expenses (including attorneys' fees) incurred
in connection with such suit, together with interest on the amount of the
Termination Fee at the prime rate, as then quoted in The Wall Street Journal,
from the date the Termination Fee was required to be paid.
(c) In the event of termination of this Agreement and the abandonment of
the Merger pursuant to this Article 8, all obligations of the parties hereto
shall terminate, except (i) the obligations of the parties set forth in this
Section 8.5 and Section 6.9, (ii) the provisions of Sections 9.3, 9.6, 9.9 and
9.13, and (iii) the Confidentiality Agreement previously executed between the
Company and Parent (the "Confidentiality Agreement"). Moreover, in the event of
termination of this Agreement pursuant to Section 8.3 or 8.4, nothing herein
shall prejudice the ability of the nonbreaching party from seeking damages,
after taking into account payment of the Termination Fee, if such fee has been
paid, from any other party for any willful breach of this Agreement, including
without limitation, attorneys' fees and the right to pursue any remedy at law or
in equity.
8.6 Extension; Waiver. At any time prior to the Effective Time, any party
hereto, by action taken by its Board of Directors, may, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE 9
GENERAL PROVISIONS
9.1 Nonsurvival of Representations, Warranties and Covenants. The
representations, warranties and covenants in this Agreement or in any instrument
delivered pursuant to this Agreement shall not survive the Merger; provided,
however, that the covenants contained in Article 3, Section 6.9, Section 6.14
and this Article 9 shall survive the Merger, but not beyond the extent, if any,
specified therein.
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<PAGE> 98
9.2 Notices. Any notice required to be given hereunder shall be sufficient
if in writing, and sent by facsimile transmission and by courier service (with
proof of service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
If to Parent or Merger Sub:
Advanced Energy Industries, Inc.
1625 Sharp Point Drive
Fort Collins, Colorado 80525
Attn.: Richard P. Beck
Facsimile: (970) 407-5300
with copies to:
Thelen Reid & Priest LLP
333 West San Carlos Street, 17th Floor
San Jose, CA 95110-2701
Attn.: Jay L. Margulies, Esq.
Facsimile: (408) 287-8040
If to the Company:
Engineering Measurements Company
600 Diagonal Highway
Longmont, Colorado 80501
Attn.: Charles E. Miller
Facsimile: (303) 678-7152
with copies to:
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, CO 80302
Attn: G. James Williams, Jr.
Facsimile: (303) 449-5426
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
9.3 Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary (except as provided in Section
6.14), nothing in this Agreement, expressed or implied, is intended to confer on
any person other than the parties hereto or their respective heirs, successors,
executors, administrators and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
9.4 Entire Agreement. This Agreement, the Exhibits, the Company Disclosure
Schedule, the Confidentiality Agreement and any documents delivered by the
parties in connection herewith constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.
9.5 Amendment. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of the Merger by the stockholders of the Company, but after any
such stockholder approval, no amendment shall be made which by law
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<PAGE> 99
requires the further approval of stockholders without obtaining such further
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
9.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado without regard to its rules of
conflict of laws.
9.7 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
9.8 Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
9.9 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations, partnerships and other
business entities and vice versa.
9.10 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
9.11 Incorporation of Exhibits. The Company Disclosure Schedule and all
Exhibits attached hereto and referred to herein are hereby incorporated herein
and made a part hereof for all purposes as if fully set forth herein.
9.12 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.13 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any Colorado court, this being in addition to
any other remedy to which they are entitled at law or in equity.
9.14 Knowledge. For purposes of this Agreement, (a) "to the knowledge of
the Company" or words of like import shall mean to the knowledge of Charles
Miller or William Ringer, and (b) "to the knowledge of Parent" or words of like
import shall mean to the knowledge of Douglas Schatz, Richard Beck or Joseph
Monkowski.
A-27
<PAGE> 100
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year set forth in the
Preamble hereto.
COMPANY: ENGINEERING MEASUREMENTS COMPANY
By: /s/ CHARLES E. MILLER
------------------------------------------
Title: President
MERGER SUB: FLOW ACQUISITION CORPORATION
By: /s/ DOUGLAS S. SCHATZ
------------------------------------------
Title: Chairman of the Board
PARENT: ADVANCED ENERGY INDUSTRIES, INC.
By: /s/ DOUGLAS S. SCHATZ
------------------------------------------
Title: Chairman of the Board and
Chief Executive Officer
A-28
<PAGE> 101
APPENDIX B
OPINION OF QUIST FINANCIAL, INC.
[QUIST FINANCIAL, INC. LETTERHEAD]
July 6, 2000
The Board of Directors
Engineering Measurements Company
600 Diagonal Highway
Longmont, CO 80501
Gentlemen:
Quist Financial, Inc. ("Quist") was retained by the Board of Directors of
Engineering Measurements Company ("Company"), a Colorado corporation, to express
an opinion as to the fairness from a financial point of view to the Company's
shareholders of the Exchange Ratio (as defined below) contemplated by the draft
Agreement and Plan of Reorganization (the "Agreement") to be entered into
between the Company and Advanced Energy Industries ("AEI"), a Delaware
corporation.
As more specifically set forth in the Agreement, and subject to the terms
and conditions thereof, the Company and AEI propose to enter into a business
combination (the "Business Combination") in which all of the Company's
outstanding shares of common stock and options would be exchanged for shares of
AEI common stock. The Exchange Ratio is the number determined by dividing (i)
900,000 by (ii) the total number of (A) outstanding shares of Company common
stock plus (B) the outstanding Company options.
Quist's principal business is the valuation of businesses and business
interests, including both privately held and publicly traded companies, for all
purposes, including mergers and acquisitions, divestitures, gift and estate
taxes, Employee Stock Ownership Plans, corporate and partnership
recapitalizations, dissolutions, and other purposes. Quist has had no prior
dealings with EMCO, its Board of Directors, or officers.
In arriving at our opinion, we reviewed a draft of the Agreement, and held
discussions with senior officers, directors and other representatives and
advisors of the Company and the Chief Financial Officer of AEI concerning the
business, operations and prospects of the Company and AEI. We examined publicly
available business and financial information relating to the Company and AEI as
well as financial forecasts and other information and data for the Company and
AEI that were provided to or otherwise discussed with us by the management of
the Company, including strategic implications and operational benefits
anticipated to result from the Business Combination as projected by the
managements of the Company and AEI. We reviewed the financial terms of the
Business Combination as set forth in the Agreement in relation to, among other
things: current and historical market prices and trading volumes of Company and
AEI capital stock; the historical and projected earnings and other operating
data of the Company; projections regarding AEI in analysts' reports, and the
historical and projected capitalization and financial condition of the Company.
We considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected that we considered relevant in
evaluation the Exchange Ratio and analyzed certain financial, stock market and
other publicly available information relating to the businesses of other
companies whose operations we considered relevant in evaluating those of the
Company and AEI. We considered and reviewed earnings projections published by
I/B/E/S International, Inc. for AEI and the Company. We also evaluated the pro
forma financial impact of the Company's projections upon I/B/E/S International,
Inc.'s projected earnings for AEI's. In addition, we conducted such other
analyses and examinations and considered such other information and financial,
economic and market criteria as we deemed appropriate in arriving at our
opinion.
B-1
<PAGE> 102
In rendering our opinion, we relied, without independent verification, upon
the accuracy and completeness of all financial and other information and data
publicly available, furnished to us, or discussed with us. We relied upon the
assurances of the managements of the Company and AEI that they are not aware of
any facts that would make any of the information provided to us inaccurate or
misleading. We have further relied upon the assurances of the Company's and
AEI's managements that the information provided has been prepared on a
reasonable basis in accordance with industry practice, and, with respect to
financial planning data, reflects the best currently available estimates and
judgment of the Company's management and that they are not aware of any
information or facts that would make the information provided to us incomplete
or misleading.
We assumed, with your consent, that the Business Combination will be
treated as a tax-free reorganization for U.S. federal income tax purposes and
that it qualifies, and will be accounted for, as a "pooling of interests" in
accordance with generally accepted accounting principles. We have not made or
been provided with an independent evaluation or appraisal of the assets or
liabilities of the Company or AEI. Without limiting the generality of the
foregoing, we have undertaken no independent analysis of any pending or
threatened litigation, possible unasserted claims or other contingent
liabilities, to which the Company or AEI, or any of their respective affiliates
is a party or may be subject; and our opinion makes no assumption concerning,
and therefore does not consider, the possible assertions of claims, outcomes or
damages arising out of any such matters. We have also assumed that all the
necessary regulatory approvals and consents required for the transaction will be
obtained in a manner that will not have adverse effects on the Company or AEI or
change the Exchange Ratio. We have assumed that neither the Company nor AEI are
party to any material pending transactions, including external financing,
recapitalizations, acquisitions or merger discussions, other than the Business
Combination or in the ordinary course of business. You have advised us, and we
have assumed, that the final terms of the Agreement will not vary materially
from those set forth in the draft reviewed by us. We have further assumed that
the Business Combination will be consummated in accordance with the terms of the
Agreement without waiver of any of the conditions precedent to the Business
Combination contained in the Agreement.
We were not requested to consider, and our opinion does not address, the
relative merits of the Business Combination as compared to any alternative
business strategies that might exist for the Company. Our opinion is limited to
the fairness, from a financial point of view, of the Exchange Ratio in the
Business Combination and does not address the Company's underlying business
decision to effect the Business Combination. We are not expressing any opinion
as to the likely trading range of AEI's common stock subsequent to the Business
Combination. Our opinion necessarily is based upon information available to us
and financial, stock market and other conditions and circumstances existing and
disclosed to us as of the date hereof and we assume no responsibility to update
or revise our opinion based upon circumstances or events occurring after the
date hereof. Events occurring after the date hereof could materially affect
assumptions used in preparing this opinion.
Our opinion expressed herein is provided for the information of the Board
of Directors of the Company in its evaluation of the Business Combination and
our opinion is not intended to be and does not constitute a recommendation of
the Business Combination to the Company or a recommendation to any stockholder
as to how such stockholder should vote on any matters relating to the Business
Combination.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio is fair, from a financial point of view, to
the Company's shareholders.
QUIST FINANCIAL, INC.
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-KSB
------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED: APRIL 30, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NO.: 0-9880
ENGINEERING MEASUREMENTS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
COLORADO 84-0572936
(STATE OR OTHER JURISDICTION OF (I.R.S. IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
600 DIAGONAL HIGHWAY, LONGMONT, COLORADO 80501
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
ISSUER'S TELEPHONE NUMBER: (303) 651-0550
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:
COMMON STOCK PAR VALUE $.01
(TITLE OF CLASS)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $9,234,052.
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant as of July 12, 2000 was $41,525,284.
The number of shares outstanding of Registrant's $.01 par value common
stock, as of July 12, 2000 was 4,205,092.
No documents are incorporated by reference into the text of this report.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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<PAGE> 104
PART I
ITEM 1. BUSINESS
GENERAL
Engineering Measurements Company ("EMCO" or the "Company") is a Colorado
corporation that was incorporated on January 4, 1967. The Company's executive
offices and factory are located at 600 Diagonal Highway, Longmont, Colorado
80501. Its telephone number is (303) 651-0550. The Company has a website at
www.emcoflow.com.
The Company designs, manufactures, and markets electronic and
electro-mechanical instruments (flowmeters) for measuring the flow of liquids,
steam and gases. The Company operates within the flow measurement devices and
systems industry segment (S.I.C. Code No. 3823). The Company generates its
revenues from the sales of flowmeter hardware in both foreign and domestic
markets. Revenue is also generated through contract electronic printed circuit
board assembly. With its 33 years experience in the field of flow measurement,
EMCO is able to provide its customers with a family of products capable of
measuring almost any kind of fluid or gas flow. While the Company has
historically been strongest in energy utility flow measurement (particularly
steam metering), it has products capable of measuring most types of process
fluids, as well as fuel oils and natural gas. Primarily utilizing a network of
distributors and commissioned sales representatives as well as a direct sales
force, the Company markets flowmeters worldwide.
The Company has a marketing agreement with Danfoss A/S, a flowmeter company
in Denmark which distributes products in different markets, which was renewed
October 6, 1998, and runs for a period of 30 months with a six month
renegotiation period. Terms of the agreement with Danfoss A/S allow the Company
to be the non-exclusive distributor for Danfoss' MAG and MASS flowmeters in the
U.S. industrial market under the "EMCO" label. EMCO features six types of
flowmeters capable of handling a broad spectrum of applications (steam, gas and
liquid), as well as a large range of line sizes. These flowmeters position the
Company to compete on a product level with any flowmeter manufacturer in the
world.
PRODUCTS
The Company has developed and markets a series of products to measure the
flow of steam, chilled and hot water, natural gas, compressed gases and other
fluids in a pipeline. Also included are products, which support the primary flow
measurements, such as pressure and temperature measurements and supporting
electronics.
Sales of flowmeters and related products account for approximately 88% of
the total sales for the Company. The Company flowmeter products use two major
technologies in its product lines. The sales contribution by each technology as
a percent of sales for fiscal years 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
TECHNOLOGY FY 1999 FY 2000
---------- ------- -------
<S> <C> <C>
Volumetric.................................................. 74% 68%
Mass........................................................ 26% 20%
</TABLE>
Volumetric technologies include the following products: turbine, vortex
shedding, ultrasonic, and positive displacement meters.
Mass technologies include the following products: electromagnetic,
coriolis, flow processors and digital valves. The Company manufactures several
series of insertion meters for various applications of steam, liquids and
compressed gas measurement. The insertion meters offer customers solutions for
metering flows in large size pipes. Each is available with an assortment of
options allowing for extremes in flow range, pressure and temperature, with
adaptation to various output requirements which provide mass and energy
measurement for totalizing or computer input.
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<PAGE> 105
The Company introduced a line of vortex shedding flowmeters in fiscal year
1992. The Vortex PhD has no moving parts, provides high reliability, has low
maintenance requirements and is capable of operating with dirty fluids.
The Company introduced a clamp-on transit time ultrasonic flowmeter in
January 2000. This product is a non-intrusive meter, which is attached to the
outside of pipes, and is used primarily to measure water, but is capable of
measuring other liquids including oil.
The Company also develops, manufactures and markets a series of positive
displacement meters which provide accurate measurements of fluid flow rates. The
products' primary applications relate to the measurement of viscous fluids, such
as crude oil, as well as applications requiring a high degree of accuracy.
As a result of the marketing agreement with Danfoss A/S of Denmark, EMCO
serves as the non-exclusive distributor for Danfoss' electromagnetic (MAG)
flowmeters and coriolis (MASS) flowmeters in the U.S. industrial marketplace.
These two Danfoss meters are marketed and distributed under the "EMCO" label in
the U.S., establishing EMCO as one of the few companies in the world to offer a
complete line of flowmetering technologies.
Digital valves are digitally actuated control valves providing industry
with a unique means of controlling and measuring the flow of fluids. Because of
their accuracy and speed of response, these products are capable of providing a
high degree of control that cannot easily be matched by other valves. In
addition, this product can be configured as a metering valve, thus providing
both measurement and control.
All Company flowmeter products utilize a family of digital flow processors
to provide a wide range of measurement processing. The flow processors provide
the desired outputs in engineering units, such as gallons, liters, etc., with
provisions for computing density, mass flow and enthalpy.
The Company introduced a commercial vortex shedding water flowmeter in
March 1997. This product is marketed into the commercial HVAC, ultra-pure and
de-ionized water and landscape/irrigation markets.
The Company provides contract electronic printed circuit board assembly.
These services provided 8% of EMCO's revenues in 1999 and 12% in 2000.
PRODUCT DISTRIBUTION
The Company primarily uses a network of distributors and commissioned sales
representatives, as well as a direct sales force, to market the Company's
flowmeters worldwide. The Company utilizes a direct sales force to market its
contract electronic printed circuit board assembly services.
COMPETITION
The Company encounters various levels of competition in its different
product lines. The flow products face somewhat less competition when the
application is large size steam lines. Here, the product is sold primarily on
the basis of quality, performance and return on investment, with little price
competition. In smaller sized steam lines, as well as applications where other
energy utilities or process fluids are being measured, the Company faces a
greater level of competition and price is often a factor. However, no one
company is a major force in this market segment.
The positive displacement meter products encounter direct competition in
most of their markets. Two companies, one utilizing the same technology and the
other employing a different technological approach, comprise most of the
competition. Quality, performance and selling price are all important
competitive factors.
The Company's ultrasonic products are sold into various water markets, and
face competition from both comparable and non-comparable technologies. Price can
be a factor, but so are reliability and maintenance costs. No one company is a
dominant force in this market segment.
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Digital Valve products offer unique performance characteristics as regards
to speed, accuracy and direct digital control. Where the application requires
these characteristics, the Company experiences no direct competition and price
is generally not a factor. In less demanding installations, the Company faces
direct competition from the manufacturers of more traditional control valves. In
such cases, price does become a competitive factor.
Contract surface mount technology board assembly faces extensive direct
competition for larger production runs. The Company is focusing on the
engineering prototype and small production run market niches where the emphasis
is on production quality and rapid turn around. In these markets there is
generally less competition and price is generally not a factor. No one company
is a major force in this market segment.
RAW MATERIALS
The Company purchases electronic components, printed circuit boards,
fabricated sheet metal parts, machined components, raw steel and aluminum,
metallic castings, various other materials and electrical energy from various
suppliers. These purchased components are generally available and the loss of
any one supplier would not have a material adverse impact on the Company's
operations.
CUSTOMERS
In Fiscal Years 1999 and 2000 no single customer accounted for more than
10% of the Company's revenues.
PATENTS
EMCO has acquired, or is currently pursuing, patent protection on a number
of its products. Although management believes that the protection afforded by
patenting is generally not important to the success of the Company's flowmeter
business, it is believed critical for its upcoming semi-conductor products.
Patents are prevalent in the flowmetering and semi-conductor industries and,
since the Company has not conducted exhaustive infringement searches on all of
its products, it is possible that one or more of its products may infringe upon
the patents of others.
Depending on the product involved, a lawsuit against the Company for patent
infringement could result in damages in a material amount being assessed against
the Company, which would have an adverse effect on the financial condition of
the Company. At this time the Company is not aware of any existing or threatened
litigation regarding matters involving the Company and its products.
SEASONAL AND OTHER CONDITIONS
The Company's sales and production are affected by slight seasonality
caused by the Company's emphasis on steam energy measurement. However, the
Company's marketing initiatives designed to increase the importance of the
Process Control market (a non-seasonal market) if successful, and the growth of
the contract printed circuit board assembly services should mitigate against the
effect of seasonality in the future. Sales are also affected by the capital
budgeting plans of large industrial firms, as well as by other economic and
political conditions in the U.S. and internationally.
WORKING CAPITAL REQUIREMENTS
The Company is not required to carry significant amounts of inventory to
meet rapid delivery requirements of customers or to assure itself of a
continuous allotment of goods from suppliers. In addition, the Company believes
its working capital of approximately $3,432,000 as of April 30, 2000, is
adequate to meet its current obligations. Although no assurances can be made,
the Company believes it has adequate cash flows from operations to fund future
operations and capital expenditure requirements for the next twelve months.
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<PAGE> 107
BACKLOG
At April 30, 2000, the total order backlog was approximately $1,386,000 as
compared to $1,290,000 at April 30, 1999. It is anticipated that the entire
backlog outstanding at April 30, 2000, will be shipped in the fiscal year ending
April 30, 2001.
GOVERNMENT APPROVALS AND REGULATION
The Company's principal products and services are not subject to government
approvals. The Company does not expect any significant effect on its business
from existing or probable government regulations. No material portion of the
Company's sales is subject to renegotiation of profits or termination of
contracts or subcontracts at the election of the government. If the Company's
products become subject to government regulation or approval however, it could
have a material adverse effect on the Company.
RESEARCH AND DEVELOPMENT
The Company maintains research and development programs on a continuing
basis. Research activities are primarily directed toward flow measurement and
control. The Company spent approximately $881,000 for research and development
in the fiscal year ending April 30, 2000, and about $790,000 in the fiscal year
ending April 30, 1999.
In 2000, the emphasis of research and development (R&D) was on new product
development. There is no assurance that the R&D efforts will result in
additional sales for the Company. Management believes that R&D expenses will
continue at the current levels in the future due to further new product
development and enhancements. The intent of the Company's R&D is twofold: 1)
Develop new flowmeter products for industries and applications for which it has
not historically provided products, and 2) Continue to lower product cost and
improve quality.
EFFECTS OF ENVIRONMENTAL REGULATIONS
Compliance with present federal, state and local regulations regarding the
discharge of materials into the environment or otherwise relating to the
protection of the environment should not have any material adverse effect on the
capital expenditures, earnings and competitive position of the Company. The
Company does not plan any capital expenditures for environmental control
facilities during the current and succeeding fiscal year. If the Company's
products, business or operations become subject to such environmental
regulations, however, it could have a material adverse effect on the Company's
results of operations and competitive position.
EMPLOYEES
At April 30, 2000, EMCO had 91 full-time employees, of which 8 are employed
in administrative duties, 14 in sales, marketing and customer service duties, 8
in R&D and 61 in production. This compares with 86 full-time employees at April
30, 1999. The Company had 2 part time employees at April 30, 2000.
FOREIGN SALES
In fiscal year 2000, the Company had foreign sales of approximately
$2,242,000, or 24.3% of sales, compared to approximately $2,691,000, or 27.8% of
sales in fiscal year 1999. The decrease of sales for fiscal year 2000 in Europe
is due primarily to lower sales to Danfoss in 2000. The Company experienced a
decrease in sales to Asia due to a shift in the product mix to lower cost
meters. Other foreign sales are
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<PAGE> 108
lower due to lower activity overall, rather than sales of a single large
project. The breakdown of foreign sales for fiscal years 2000 and 1999, in
dollars and percent of total sales are:
<TABLE>
<CAPTION>
FY 2000 FY 1999
------------------ ------------------
<S> <C> <C> <C> <C>
Europe...................................................... $1,335,000 14.5% $1,580,000 16.3%
Asia........................................................ 658,000 7.1% 755,000 7.8%
Other....................................................... 249,000 2.7% 356,000 3.7%
</TABLE>
All foreign sales are exports from domestic operations.
ITEM 2. PROPERTIES
The Company maintains its executive offices and factory at 600 Diagonal
Highway, Longmont, Colorado in a 44,800 square foot brick, concrete and cinder
block facility. In Management's opinion, the current executive offices and
factory space are more than adequate for the Company's current operations and
should provide enough space through Fiscal Year 2001 or later. Management also
believes the building is in adequate condition for office and factory use, and
will require no substantial improvements through Fiscal Year 2001 or later.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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<PAGE> 109
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
MARKET INFORMATION
The Company's common stock is listed and traded on the NASDAQ National
Market (Symbol EMCO). The table below represents the high and low bid prices of
the Company's common stock for its two most recent fiscal years. Such prices
reflect inter-dealer prices, without retail mark-up, mark-down or commissions
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
QUARTERS ENDED IN FISCAL YEAR 2000
-----------------------------------
07/31/99 10/31/99 01/31/00 04/30/00
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
High.................................................. $6.25 $7.94 $9.50 $8.13
Low................................................... $4.25 $4.50 $4.75 $5.81
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED IN FISCAL YEAR 1999
-----------------------------------
07/31/98 10/31/98 01/31/99 04/30/99
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
High.................................................. $6.25 $4.63 $5.03 $5.00
Low................................................... $4.00 $3.20 $4.00 $4.00
</TABLE>
APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
The number of holders of record of the Company's common stock as of July 6,
2000, were 451.
COMPANY DIVIDEND POLICY DISCLOSURE
The Company has never paid cash dividends on its common stock and currently
has no plans to do so in the foreseeable future. However, the Company had a 25%
stock dividend in October 1998. As a result, the Company issued an additional
804,189 shares of $.01 par value common stock. The Company has no restrictions
on the ability to pay dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain written statements of management of the Company included in this
Form 10-KSB and elsewhere may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are intended to be covered by the safe
harbors created thereby. These statements include the plans and objectives of
management for future operations and contain certain words such as "anticipate",
"believe", "plan", "expect" or similar words. The forward-looking statements
included herein and elsewhere are based on current expectations and assumptions
about an industry or business and involve judgments which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
statements will prove to be accurate. The forward looking statements are
dependent on certain risks and uncertainties including among others, a
discontinuance of the Danfoss arrangement, lack of market acceptance of new
products, research and development efforts which result in no additional sales
and the cost and impact of Year 2000 compliance by the Company and its
suppliers. In light of the significant uncertainties inherent in the
forward-looking statements, the inclusion of such information should not be
regarded as representation by the Company or any other person that the
objectives and plans of the Company will be achieved. The actual results of the
Company could differ materially from those anticipated in the forward-looking
statements contained herein and elsewhere.
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<PAGE> 110
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
LIQUIDITY, CAPITAL RESOURCES AND CASH FLOWS
Net working capital increased approximately $92,000 during the fiscal year
ended April 30, 2000, due primarily to higher income taxes receivable and
accounts receivable offset by lower cash and inventories and higher accrued
liabilities. The working capital ratio for fiscal year 2000 decreased to 4.2
from 4.4 in the previous fiscal year.
The Company has a $500,000 revolving line of credit with Wells Fargo Bank
West, N.A. through September 30, 2000, collateralized by accounts receivable.
The interest rate is at with Wells Fargo Bank West's prime rate. The Company has
not drawn against this line of credit as of the date of this Form 10-KSB.
The Company uses excess cash to invest in high grade securities until the
cash is needed for operations. As of April 30, 2000, the Company holds
approximately $616,000 in high grade investment securities.
Cash and cash equivalents decreased approximately $89,000, due to increases
in capital expenditures, income taxes receivable, and accounts receivable offset
by decreases in inventories. Management believes it has adequate cash to support
operations. This belief is supported by positive cash flows from operating
activities for fiscal year 2000 of approximately $426,000. The Company will
continue to manage cash in order to support operations.
Net accounts receivable increased by approximately $122,000, due to higher
sales volume of approximately $271,000 in the fourth quarter of fiscal year 2000
compared to the previous year. Collections of accounts receivable improved as
reflected by the 6.7 day decrease of the Company's Days Sales Outstanding (DSO)
to 47.6 days from 54.3 days in fiscal years 2000 and 1999, respectively.
Short-term investments increased approximately $60,000 during the year
ended April 30, 2000. The impact of recording investments at market value
decreased the cost by approximately $81,000.
Inventories decreased approximately $151,000 during the year ended April
30, 2000, which decreased the inventory turn ratio from 1.84 in 1999 to 1.47 in
2000. The lower inventories are mainly due to a shift in product mix from
material intensive to labor intensive sales. The decrease in inventory turns in
the face of lower inventory levels reflects this change in sales mix.
Income taxes receivable of approximately $75,000 in fiscal year 2000 has
replaced the income taxes payable of approximately $4,000 in fiscal year 1999.
The receivable was a result of the taxable loss in fiscal year 2000.
The Company had a note receivable of $138,920 at April 30, 1999, with an
unaffiliated third party to provide financing for the development of a new
flowmeter technology. The Company exercised the option to purchase the undivided
one-half interest of the developed technology for the balance of the receivable
during May 1999. This undivided one-half interest of the developed technology is
reflected on the balance sheet within "Other assets" and will be amortized over
its expected life.
Accounts payable increased approximately $11,000 in fiscal year 1999.
The Company does not have any material commitments for capital
expenditures. The Company believes that the proposed capital expenditures can be
financed from the Company's cash flow.
Net working capital and the working capital ratio for the last two fiscal
years were:
<TABLE>
<CAPTION>
AS OF APRIL 30
------------------------
2000 1999
---------- ----------
<S> <C> <C>
Working capital............................................. $3,431,886 $3,339,423
Working capital ratio....................................... 4.2 4.4
</TABLE>
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<PAGE> 111
Material changes in cash flows are summarized as follows:
<TABLE>
<CAPTION>
AS OF APRIL 30
----------------------
2000 1999
--------- ---------
<S> <C> <C>
Net cash provided by operating activities................... $ 426,316 $ 546,074
Net cash (used in) investing activities..................... $(829,361) $(949,630)
Net cash provided by financing activities................... $ 314,398 $ 160,566
Net decrease in cash and cash equivalents................... $ (88,647) $(242,990)
</TABLE>
Management believes EMCO will enjoy improved results in the future.
Although there is no assurance this will occur, management believes is that the
Company has a strong foundation upon which to grow. The Company has accomplished
the following:
A. The Company introduced a commercial vortex water flowmeter in March
1997. Sales of this product grew more than 8% in fiscal year 2000. Fiscal
year 1999 sales of the water flowmeter increased more than 150%. Management
believes sales will grow in fiscal year 2001 since the product was made
more rugged in a fiscal year 2000 design change. Increased marketing
efforts are being devoted to the water markets.
B. The Company continues to perform contract electronic printed
circuit board assembly. Sales from contract manufacturing in fiscal year
2000 were up more than 40% over the previous fiscal year. Additional sales
efforts are being made to increase sales of this service.
C. The Company introduced a clamp-on transit time ultrasonic flowmeter
in January 2000. This non-intrusive meter is attached to the outside of
pipes and is used to measure liquids, primarily water, but is capable of
measuring other liquids including oil. This product is in the early
introductory phase of its product life cycle.
D. The Company expects to continue R&D activity for new products to be
introduced in coming years. There is no assurance that the R&D activity
will result in additional sales for the Company. The Company also intends
to emphasize value engineering to sustain margin despite increasing price
competition.
E. The Company continues to make improvements in overall production
efficiency through increased investments in equipment. The Company is now
capable of greater production capacity at little or no increased fixed
cost. All equipment purchases were paid from the Company's cash flow.
F. The Company's balance sheet remains strong. The Company has
recently eliminated a poorly performing investment which resulted in a loss
on the sale of stock of $119,000 in the year ended April 30, 2000. Interest
and dividend income for the year was $55,000.
There can be no assurance, however, that these accomplishments will result
in improved or continued sales of its products or services. Actual results of
operations could differ materially from management's expectations.
Management is not aware of any known trends, events or uncertainties that
have had, or are likely to have, an impact on short-term or long-term liquidity
of the Company.
RESULTS OF OPERATIONS:
SALES REVENUES
Sales revenues for the Company decreased approximately $460,000 or 4.8% in
fiscal year 2000 as compared to fiscal year 1999. Existing product (Flow) sales
were lower in fiscal year 2000, primarily due to reduced sales to a major
European customer of approximately $348,000 in fiscal year 2000 as a result of a
restructuring of a sales agreement from a headquarters to a local operating unit
agreement. Sales were impacted as headquarters inventories were worked down.
Lower sales of a niche product of approximately $315,000 were impacted by an OEM
customer production problem which was resolved late in the fourth
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<PAGE> 112
quarter. This decrease in sales was partially offset by increased sales of the
new water meter introduced in March 1997, the ultrasonic flowmeter introduced in
January 2000 and contract printer circuit board assembly. The Company continues
to place a high priority on product quality and customer satisfaction.
Management believes this emphasis will have long-term positive impacts on sales.
The Company expects to continue to maintain a healthy product development
program.
NET INCOME (LOSS)
In fiscal year 2000, the Company recognized net losses of $138,860, as
compared to net income of $196,938 for fiscal year 1999. The loss in 2000 can be
attributed to the following:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Gross margin on sales....................................... 3,540,483 3,983,907
Income from operations...................................... (130,600) 113,696
Loss on sale of stock....................................... (119,025) (6,574)
Other income................................................ 59,504 125,054
Interest expense............................................ (744) (266)
Income tax provision/(benefit).............................. (52,005) 34,972
</TABLE>
The Company's decrease in net income in 2000 is due to the following
reasons: The gross margin on sales in 2000 was 38.3% compared to 41.1% in 1999,
which is attributable to higher labor and overhead cost, offset by lower
material costs. The loss from operations for 2000 was 1.41% of total sales
compared to income from operations of 1.17% in 1999. The change from income to
loss from operations is due to lower gross margin and increased research and
development costs offset by lower sales and marketing and general and
administrative expenses. The loss on sale of stock is approximately $112,000
greater in fiscal year 2000 than in 1999 primarily due to the loss on one
investment. Other income is approximately $66,000 lower in fiscal year 2000, due
in part to shifts in the makeup of the investment portfolio and gains on the
disposal of assets in fiscal year 1999. Interest expense was minimal in both
years as there was no corporate debt. Income taxes are approximately $87,000
less in fiscal year 2000 due to taxable losses in 2000 compared to taxable
income in 1999.
GROSS MARGINS
Overall gross margins for the past two years are reflected as follows:
<TABLE>
<CAPTION>
AS OF APRIL 30
--------------
2000 1999
----- -----
<S> <C> <C>
Gross margin................................................ 38% 41%
</TABLE>
The decrease in gross margin from 1999 to 2000 was due to higher overhead
(.8%) and labor (3.1%) and warranty costs (0.5%) partially offset by lower
material (1.7%) costs. Management believes investments made in 2000 will make
manufacturing more efficient in the future.
SELLING EXPENSE
The Company incurred the following selling expenses as a percent of sales:
<TABLE>
<CAPTION>
AS OF APRIL 30
--------------
2000 1999
----- -----
<S> <C> <C>
Selling expense............................................. 21% 22%
</TABLE>
Selling expense decreased by approximately $224,000 and as a percent to
sales. The savings were achieved in part due to a decrease in sales subject to
commissions and reduced labor and marketing promotion expenses. In the future,
management expects to continue to promote the Company's products through
increased electronic (internet) sales activities, advertising in trade journals,
telemarketing and trade shows.
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<PAGE> 113
GENERAL AND ADMINISTRATIVE
General and administrative expense for the Company as a percent of sales
for the past two years is as follows:
<TABLE>
<CAPTION>
AS OF APRIL 30
--------------
2000 1999
----- -----
<S> <C> <C>
General and administrative expense.......................... 9% 10%
</TABLE>
General and administrative expenses in fiscal year 2000 were slightly lower
than the prior year as a percent of sales. Actual expenses were approximately
$66,000 lower in fiscal year 2000, primarily due to lower labor. Although no
assurances can be made, management intends in the future for general and
administrative expenses not to increase as quickly as sales.
RESEARCH AND DEVELOPMENT
Research and development expense as a percent of the Company's sales over
the past two years is:
<TABLE>
<CAPTION>
AS OF APRIL 30
--------------
2000 1999
----- -----
<S> <C> <C>
Research and development expense............................ 10% 8%
</TABLE>
Research and development expenses increased approximately $91,000 in fiscal
year 2000, due to higher new product development costs. Management intends in
the future to continue product development activities; while continuing to
perform value engineering to lower product cost and improve product quality.
There is no assurance that the new product development activities will result in
additional sales for the Company.
LOSSES ON SALE/EXCHANGE OF STOCK
The Company recognized losses from the sale of stock, from investments, of
approximately $119,000 in fiscal year 2000, compared to losses of approximately
$7,000 in fiscal year 1999.
INTEREST RATES
The Company did not borrow any money in fiscal years 1999 and 2000.
INCOME TAXES
Income taxes as a percentage of pre-tax income are depicted below:
<TABLE>
<CAPTION>
AS OF APRIL 30
--------------
2000 1999
----- -----
<S> <C> <C>
Income tax (benefit) expense................................ (27)% 15%
</TABLE>
Please see Note 8 of the Notes to Financial Statements for a discussion of
the reasons income taxes have varied.
TRENDS
Most of the Company's sales (approximately 76%) are generated in the United
States. Therefore, the health of the U.S. economy has a significant impact on
the Company. However, the Company currently has such a small share of the total
market that management believes the Company can continue to grow despite the
fluctuations in the domestic economy. While the Company generates approximately
24% of sales internationally, management believes that an improved Asian
economy, along with continued sales emphasis in developing nations, could result
in increased international sales beyond the current 24% in the
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<PAGE> 114
near future. Management can make no assurances, however, that the economic and
political conditions of the U.S., Asia, Europe and developing countries will
result in increased sales in the future.
The Company has a diverse product mix. Therefore, it is unlikely that any
single current competitor could have a decidedly negative impact on EMCO. The
Company is able to address a number of different markets with a variety of
products and technologies. Therefore, the Company's product market risk is also
lower than many companies with less diverse product lines in the flow
measurement industry.
In recent years the Company has developed a new product line for the
commercial water market, and also a non-intrusive flowmeter which is attached to
the outside of the pipe. The Company is also selling contract manufacturing of
electronic printed circuit board assembly services. Revenues for these products
and services are increasing rapidly and now account for nearly 25% of the
Company's total revenues.
The Company intends to continue to devote resources to new product
development. However, there are no assurances that the new product development
costs will result in additional sales for the Company.
Finally, the Company has no debt. During fiscal year 1999 the Company
established a line of credit with Wells Fargo Bank West, N.A. which was renewed
in fiscal year 2000. In light of these events, management feels it has reduced
its exposure to developments that might impact capital markets and the
availability of capital.
Although it can make no assurances, the Company knows of no events and does
not anticipate any events to cause material changes in the revenue/cost
relationship in the foreseeable future.
YEAR 2000 COMPLIANCE
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). The Company replaced its
inventory and financial software in fiscal year 1998 with a system, which is
Year 2000 compliant. The Company evaluated its other internal-use software and
hardware for Year 2000 compliance, and implemented a plan to replace all
non-compliant items either through upgrade or replacement. The cost of these
upgrades/replacements was approximately $50,000.
The Company's products do not use time/date logic for internal sequencing
or calculation, and therefore the Company believes its products are Year 2000
compliant.
To date, any impacts of the Year 2000 Problem have been minimal and dealt
with as they appear.
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<PAGE> 115
ITEM 8. FINANCIAL STATEMENTS
The following financial statements of Engineering Measurements Company are
found on Pages 15 through 29.
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Certified Public Accountants.......... 14
Balance Sheets -- April 30, 2000 and 1999................... 15,16
Statements of Operations -- Years Ended April 30, 2000, and
1999...................................................... 17
Statements of Cash Flows -- Years Ended April 30, 2000, and
1999...................................................... 18
Statements of Changes in Stockholders' Equity -- Years Ended
April 30, 2000, and 1999.................................. 19
Notes to Financial Statements............................... 20 - 28
</TABLE>
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<PAGE> 116
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Engineering Measurements Company
We have audited the accompanying balance sheets of Engineering Measurements
Company, a Colorado corporation as of April 30, 2000 and 1999, and the related
statements of operations (and comprehensive operations), stockholders' equity
and cash flows for each of the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects the financial position of Engineering Measurements
Company as of April 30, 2000 and 1999, and the results of its operations and its
cash flows for each of the years then ended, in conformity with accounting
principles generally accepted in the United States.
GRANT THORNTON LLP
Denver, Colorado
June 15, 2000 (except for Note 14,
as to which the date is July 6, 2000)
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<PAGE> 117
ENGINEERING MEASUREMENTS COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
APRIL 30, 2000 APRIL 30, 1999
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 609,050 $ 697,697
Accounts receivable, net of allowance for doubtful
accounts and allowance for sales returns of $78,927 at
April 30, 2000 and $75,990 at April 30, 1999............ 1,219,365 1,097,330
Short-term investments.................................... 615,793 556,288
Inventories............................................... 1,516,251 1,667,011
Prepaid expenses.......................................... 89,439 31,757
Income taxes receivable................................... 75,000 0
Deferred income taxes..................................... 382,551 260,649
----------- -----------
Total current assets.................................... 4,507,449 4,310,732
----------- -----------
Property and equipment, at cost:
Land...................................................... 568,940 568,940
Building and improvements................................. 1,689,824 1,624,950
Vehicles.................................................. 22,196 22,196
Machinery and equipment................................... 4,268,002 4,099,524
Office furniture and fixtures............................. 1,223,750 1,301,489
----------- -----------
7,772,712 7,617,099
Less accumulated depreciation............................. (4,811,402) (4,725,996)
----------- -----------
Net property and equipment................................ 2,961,310 2,891,103
----------- -----------
Other assets
Note receivable............................................. 0 138,920
Other assets, net of amortization of $133,282 at April 30,
2000 and $99,306 at April 30, 1999...................... 298,488 132,351
----------- -----------
Total other assets...................................... 298,488 271,271
----------- -----------
TOTAL ASSETS............................................ $ 7,767,247 $ 7,473,106
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 332,161 $ 320,853
Accrued compensation...................................... 301,513 278,238
Accrued liabilities....................................... 441,889 372,218
----------- -----------
Total current liabilities............................... 1,075,563 971,309
----------- -----------
Long-term liabilities:
Deferred income taxes..................................... 244,400 220,500
----------- -----------
Total long-term liabilities............................. 244,400 220,500
----------- -----------
Stockholders' equity:
Common stock, $.01 par value;
15,000,000 shares authorized at April 30, 2000,
5,000,000 shares authorized at April 30, 1999; 4,321,006
shares issued at April 30, 2000, 4,232,774 shares issued
at April 30, 1999, 4,125,259 shares outstanding at April
30, 2000, 4,042,374 shares outstanding at April 30,
1999,................................................... 43,210 42,328
Capital in excess of par value............................ 3,001,606 2,650,332
Unrealized holding losses (net of taxes).................. (49,262) (38,711)
Retained earnings......................................... 4,118,187 4,257,047
Treasury stock at cost; 195,747 shares at April 30, 2000,
and 190,400 at April 30, 1999........................... (666,457) (629,699)
----------- -----------
Total stockholders' equity.............................. 6,447,284 6,281,297
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $ 7,767,247 $ 7,473,106
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
C-15
<PAGE> 118
ENGINEERING MEASUREMENTS COMPANY
STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
APRIL 30,
------------------------
2000 1999
---------- ----------
<S> <C> <C>
Sales....................................................... $9,234,052 $9,694,913
Cost of sales............................................... 5,693,569 5,711,006
---------- ----------
Gross margin on sales....................................... 3,540,483 3,983,907
---------- ----------
Operating expenses:
Selling................................................... 1,917,928 2,142,086
General and administrative................................ 872,223 937,873
Research and development.................................. 880,932 790,252
---------- ----------
Total operating expenses.................................... 3,671,083 3,870,211
---------- ----------
Income(loss) from operations................................ (130,600) 113,696
---------- ----------
Other income/(expense):
Loss on sale of stock..................................... (119,025) (6,574)
Interest expense.......................................... (744) (266)
Interest and dividend income.............................. 54,697 93,237
Other income.............................................. 4,807 31,817
---------- ----------
Total other income/(expense)................................ (60,265) 118,214
Income/(loss) before income taxes........................... (190,865) 231,910
Income tax provision/(benefit).............................. (52,005) 34,972
---------- ----------
Net income/(loss)........................................... $ (138,860) $ 196,938
========== ==========
Other comprehensive income (loss)
Unrealized holding loss................................... (10,551) (12,441)
Tax benefit of stock option exercise...................... 93,400 0
---------- ----------
Comprehensive income (loss)................................. (56,011) 184,497
========== ==========
Net earnings/(loss) per share............................... $ (0.03) $ 0.05
Net earnings/(loss) per share on a fully diluted basis...... $ (0.03) $ 0.05
========== ==========
Weighted average number of shares outstanding............... 4,082,890 4,021,729
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
C-16
<PAGE> 119
ENGINEERING MEASUREMENTS COMPANY
STATEMENTS OF CASH FLOWS
INCREASE/(DECREASE) IN CASH
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED APRIL 30,
------------------------------
2000 1999
------------ --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(138,860) $ 196,938
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization.......................... 541,450 479,642
Deferred tax provision/(benefit)....................... (98,002) 10,700
Provision for doubtful accounts/(recovery)............. 2,936 (12,223)
Loss on sales of investments........................... 119,025 6,574
(Gain)/Loss on disposal of assets...................... 1,406 (9,600)
Stock compensation..................................... 1,000 3,000
Changes in assets and liabilities --
Receivables............................................ (124,971) 329,349
Inventories............................................ 150,760 (429,960)
Income taxes receivable and prepaid expenses........... (132,682) 43,132
Accounts payable and accrued liabilities............... 104,254 (71,478)
--------- -----------
Net cash provided by operating activities................... 426,316 546,074
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net................................. (579,848) (834,604)
Expenditures for intangible assets........................ (62,993) (6,295)
Proceeds from/(expenditures for) note receivable.......... 1,800 (92,155)
Investment purchases...................................... (657,498) (1,277,561)
Proceeds from sale of investments......................... 468,417 1,251,385
Proceeds from sale of fixed assets........................ 761 9,600
--------- -----------
Net cash used in investing activities....................... (829,361) (949,630)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock................................ (36,758) --
Proceeds from exercise of stock options................... 351,156 160,566
--------- -----------
Net cash provided by financing activities................... 314,398 160,566
--------- -----------
Net decrease in cash and cash equivalents................... (88,647) (242,990)
Cash and cash equivalents at beginning of period............ 697,697 940,687
--------- -----------
Cash and cash equivalents at end of period........... $ 609,050 $ 697,697
========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during period for --
Interest............................................... $ 744 $ 266
Income taxes........................................... 24,633 3,428
SUPPLEMENTAL DISCLOSURE FOR NON CASH ITEMS:
Stock Compensation........................................ $ 1,000 $ 3,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
C-17
<PAGE> 120
ENGINEERING MEASUREMENTS COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN UNREALIZED
--------------------- EXCESS OF HOLDING RETAINED TREASURY
SHARES PAR VALUE PAR VALUE LOSSES EARNINGS STOCK
--------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1998............... 4,172,599 $41,726 $2,487,368 $(26,270) $4,060,109 $(629,699)
Net income............................ 196,938
Stock Options Exercised............... 59,538 596 159,970
Stock Compensation.................... 637 6 2,994
Unrealized holding (losses)............. (12,441)
--------- ------- ---------- -------- ---------- ---------
Balance at April 30, 1999............... 4,232,774 $42,328 $2,650,332 $(38,711) $4,257,047 $(629,699)
Net income............................ (138,860)
Treasury Stock........................ (36,758)
Employee Stock Purchase Plan.......... 4,495 45 20,606
Stock Options Exercised............... 83,519 835 329,670
Stock Compensation.................... 218 2 998
Unrealized holding (losses)............. (10,551)
--------- ------- ---------- -------- ---------- ---------
Balance at April 30, 2000............... 4,321,006 $43,210 $3,001,606 $(49,262) $4,118,187 $(666,457)
========= ======= ========== ======== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
C-18
<PAGE> 121
ENGINEERING MEASUREMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Engineering Measurements Company (EMCO or the Company) designs,
manufactures, and markets electronic and electro-mechanical instruments
(flowmeters) for measuring the flow of liquids, steam and gases. The Company
sells products for energy utility flow measurement (particularly steam
metering), and it also has products capable of measuring most types of process
fluids, as well as fuel oils and natural gas. Utilizing a network of
distributors and commissioned sales representatives, the Company markets
flowmeters worldwide. (See Note 8 to the Financial Statements). The Company also
markets contract electronics manufacturing services through its direct sales
force to businesses in northern Colorado. (See Note 9 to the Financial
Statements).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of cost or market determined by the
first-in, first-out method.
Investments
Investments in debt and qualifying equity securities are classified as
either held-to-maturity, trading or available-for-sale. Held-to-maturity
investments are debt securities that the Company has the positive intent and
ability to hold to maturity. These investments are recorded at amortized cost.
Debt and equity securities purchased for the purpose of resale in the near term
are classified as trading investments and are recorded at fair value. Unrealized
gains or losses on these investments are included in earnings of the current
period. Other debt and equity securities that are not categorized as
held-to-maturity or trading are classified as available-for-sale and reported at
fair value. Unrealized gains or losses on these securities are reported as a
separate component of stockholders' equity, net of applicable income tax expense
or benefit. All of the debt and qualifying equity securities of the Company are
considered available-for-sale.
Revenue Recognition
Revenue from manufactured products is recognized at the time of shipment to
the customer. Service revenue is recognized at the time of shipment of goods or
delivery of services to the customer. The sale price is fixed at the time of
shipment or delivery of the service and all risks transfer to the customer at
that point. Commissioned sales representatives do not stock product. Returns,
exchanges and restock charges have historically been insignificant.
Depreciation and Amortization
Depreciation of property and equipment is provided on the straight-line
method over the estimated useful lives listed below. Patents, product safety
approvals and purchased technology are amortized on a straight-line basis over
the periods listed below:
<TABLE>
<S> <C>
Building and improvements................................... 10 - 25 years
Vehicles.................................................... 3 - 8 years
Machinery and equipment..................................... 5 - 10 years
Office furniture and fixtures............................... 4 - 8 years
Patents..................................................... 5 - 17 years
Product Safety Approvals.................................... 5 - 6 years
Purchased Technology........................................ 5 years
</TABLE>
C-19
<PAGE> 122
ENGINEERING MEASUREMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Warranty
An estimated liability for warranty costs, based on management's estimate
of future warranty costs, is recorded in the year in which sales are made.
Earnings Per Share
Primary earnings per share are based on the weighted average number of
shares outstanding during the year. Diluted earnings per share are based on the
assumption that all diluted potential common shares are dilutive stock options
that were converted at the beginning of the year.
The Company's common stock was split five-for-four in the form of a stock
dividend in October 1998. All shares, stock option data, and earnings per share
amounts have been restated to give effect to this stock dividend.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30, 2000
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Net (Loss).................................................. $(138,860)
===========
BASIC EPS
Net Income available to common stockholders................. $(138,860) 4,082,890 $(0.03)
EFFECT OF DILUTIVE SECURITIES
Options..................................................... -- 124,690
--------- --------- ------
DILUTED EPS................................................. $(138,860) 4,207,580 $(0.03)
========= ========= ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30, 1999
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Net Income.................................................. $196,938
===========
BASIC EPS
Net Income available to common stockholders................. $196,938 4,021,729 $0.05
EFFECT OF DILUTIVE SECURITIES
Options..................................................... -- 80,832
DILUTED EPS
-------- --------- -----
Income available to stockholders plus assumed conversions... $196,938 4,102,561 $0.05
======== ========= =====
</TABLE>
Cash Equivalents
For purpose of the statements of cash flows, the Company considers all
highly liquid cash investments with original maturity dates of three months or
less to be cash equivalents.
Reclassifications
Certain reclassifications have been made to conform prior year's
information with the current year presentation.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the
C-20
<PAGE> 123
ENGINEERING MEASUREMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130
(SFAS 130), Reporting Comprehensive Income. SFAS 130 establishes standards for
the reporting and display of comprehensive income and its components.
3. INVESTMENTS
The Company classifies debt and equity securities as available-for-sale
securities. Available-for-sale securities are measured at fair value, with net
unrealized gains and losses reported in equity.
The amortized cost, unrealized gains and losses, and fair values of the
Company's available-for-sale securities held at April 30, 1999 and 2000 are
amortized as follows:
<TABLE>
<CAPTION>
GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available-for-sale securities
Equity securities.............................. $387,004 $1,134 $32,031 $356,107
Debt securities................................ 232,744 -- 32,563 200,181
-------- ------ ------- --------
April 30, 1999................................... $619,748 $1,134 $64,594 $556,288
======== ====== ======= ========
Available-for-sale securities
Equity securities.............................. $328,777 $ 0 $47,836 $280,941
Debt securities................................ 367,775 610 $33,533 334,852
-------- ------ ------- --------
April 30, 2000................................... $696,552 $ 610 $81,369 $615,793
======== ====== ======= ========
</TABLE>
The following table lists the maturities of debt securities held at April
30, 2000, classified as available-for sale:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in one year or less..................................... $257,877 $258,485
Due after one year through five years....................... 109,898 76,367
-------- --------
$367,775 $334,852
======== ========
</TABLE>
Proceeds on sales of securities classified as available-for-sale were
$461,670 in fiscal year 2000, compared to $1,251,385 in fiscal year 1999. Gains
of $29,763 and losses of $148,788 were realized on these sales for 2000, and
$48,810 in gains and $55,384 of losses for 1999. The Company uses the specific
identification method to determine cost of securities sold.
C-21
<PAGE> 124
ENGINEERING MEASUREMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVENTORIES
Inventories are as follows:
<TABLE>
<CAPTION>
APRIL 30
------------------------
2000 1999
---------- ----------
<S> <C> <C>
Raw material and work-in-process............................ $1,201,216 $1,263,617
Finished goods.............................................. 315,035 403,394
---------- ----------
$1,516,251 $1,667,011
========== ==========
</TABLE>
5. NOTE RECEIVABLE
At April 30, 1999, the Company had a note receivable of $138,920 with an
unaffiliated third party to provide financing in the development of a new
flowmeter technology. The note had a 6% interest rate and was payable upon
demand or upon termination of the loan agreement. The Company exercised the
option to purchase the undivided one-half interest of the developed technology
for the balance of the receivable in May, 1999.
6. SHORT-TERM DEBT
The Company signed a line of credit for up to $500,000 with Wells Fargo
Bank West, N.A., secured by accounts receivable on October 27, 1998. The line of
credit matured on September 30, 1999, at which time the agreement was renewed.
The new maturity date is September 30, 2000, and has an interest rate of 9.00%,
equal to Wells Fargo Bank's prime rate. The Company has not utilized the line of
credit.
7. INCOME TAXES
The Company accounts for income taxes under the liability method. Deferred
taxes are provided based upon the tax rate at which items of income and expense
are expected to be settled in the Company's tax return.
C-22
<PAGE> 125
ENGINEERING MEASUREMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of the provision (benefit) for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
-------------------
2000 1999
-------- -------
<S> <C> <C>
Current provision (benefit)
Federal................................................... $ 40,097 $21,292
State..................................................... 5,900 2,980
-------- -------
$ 45,997* $24,272
======== =======
Deferred provision (benefit)
Federal................................................... $(85,442) $ 9,180
State..................................................... (12,560) 1,520
-------- -------
$(98,002) $10,700
======== =======
Total provision (benefit)
Federal................................................... $(45,345) $30,472
State..................................................... (6,660) 4,500
-------- -------
$(52,005) $34,972
======== =======
</TABLE>
-------------------------
* Current provision does not include the benefit of the tax effect related to
the exercise of stock options.
The provision for income taxes differs from the amount determined by
applying the statutory rate to income before taxes, due to the following
reasons:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
-------------------
2000 1999
-------- -------
<S> <C> <C>
Income taxes at statutory rate.............................. $(72,500) $88,100
Permanent tax differences................................... 4,700 (21,500)
Change in estimate of prior year accrual.................... 11,863 (29,321)
Other....................................................... 3,932 (2,307)
-------- -------
Income tax expense(benefit)................................. $(52,005) $34,972
======== =======
</TABLE>
Components of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1999 1999
-------- --------
<S> <C> <C>
Assets
Reserve for bad debt...................................... $ 31,000 $ 30,000
Inventory cost capitalization............................. 15,000 9,000
Reserve for obsolete inventory............................ 68,000 75,000
Book basis of stock less than tax basis................... 81,000 35,000
Investments stated at market.............................. 31,000 25,000
Reserve for warranty costs................................ 18,000 21,000
Vacation accrual.......................................... 50,000 47,000
Net operating loss carry forward.......................... 72,000 0
Other..................................................... 16,551 18,649
-------- --------
$382,551 $260,649
Liabilities
Accelerated depreciation.................................. (244,400) (220,500)
-------- --------
Net Asset................................................. $138,151 $ 40,149
======== ========
</TABLE>
C-23
<PAGE> 126
ENGINEERING MEASUREMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Included in the Company's balance sheets as follows:
<TABLE>
<CAPTION>
APRIL 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Current assets.............................................. $382,551 $260,649
Long-term liabilities....................................... (244,400) (220,500)
-------- --------
Net Asset................................................. $138,151 $ 40,149
======== ========
</TABLE>
8. FOREIGN SALES
The Company had foreign sales of 24.3% and 27.8% of total sales in the
fiscal years ended April 30, 2000 and 1999, respectively. The breakdown of
foreign sales for fiscal years 2000 and 1999, in dollars and percent of total
sales are:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------------------------
2000 1999
------------------ ------------------
<S> <C> <C> <C> <C>
Europe................................................ $1,335,000 14.5% $1,580,000 16.3%
Asia.................................................. 658,000 7.1% 755,000 7.8%
Other................................................. 249,000 2.7% 356,000 3.7%
</TABLE>
9. SEGMENT INFORMATION
EMCO's core business has been, and continues to be, in the manufacture of
flow measurement devices and systems segment, SIC Code No. 3823. In the past,
EMCO has reported all of its operations in this segment. Effective with the
filing of the Company's 10-QSB for the period ending October 31, 1999, EMCO
adopted SFAS 131 related to reporting for segments of the business. EMCO's
contract electronics manufacturing (CEM) division, operating under the trade
name Advanced Technology Group (ATG), comes within the definition of SIC Code
No. 3672. ATG sales (all domestic) for the period ending April 30, 2000,
exceeded 10% of the total Company's sales which triggered the requirement to
report information by segments.
The information reported below is similar to information used by the
management and directors of the Company to assess the performance of the
operating segments and/or to allocate resources to those segments. This
information is based upon the Company's books, contains no inter-segment
revenues and utilizes estimated allocations of expenses and assets. Segment
profits (losses) are computed at the same level as income from operations on the
Statements of Operations and Comprehensive Operations. Segment assets for ATG
are for directly purchased long term equipment and do not reflect any allocation
of the building or other assets such as cash, accounts receivable or inventory.
<TABLE>
<CAPTION>
FY 2000 FY 1999
------------------------------------- -------------------------------------
CONTRACT CONTRACT
FLOW ELECTRONICS FLOW ELECTRONICS
PRODUCTS MANUFACTURING TOTALS PRODUCTS MANUFACTURING TOTALS
--------- ------------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Twelve Months Ended April 30:
Revenues................................. 8,096,555 1,137,497 9,234,052 8,892,756 802,157 9,694,913
Depreciation and amortization............ 396,357 145,093 541,450 378,880 100,762 479,642
Segment profits (losses)................. (197,989) 67,389 (130,600) 38,854 74,842 113,696
Segment assets........................... 7,296,172 471,075 7,767,247 6,942,166 530,940 7,473,106
Expenditures for segment assets.......... 476,563 103,285 579,848 417,233 417,371 834,604
</TABLE>
C-24
<PAGE> 127
ENGINEERING MEASUREMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLANS
The 1991 Nonemployee Director Stock Plan authorized 200,000 shares, while
the 1991 Incentive Plan authorized 600,000 shares. During fiscal year 1998, EMCO
terminated the 1991 Nonemployee and Incentive Plans and adopted a new plan, the
1997 Incentive Plan with 625,000 shares authorized. The Company issued options
for 127,000 shares under the plan in fiscal year 2000 and 164,375 shares in
fiscal year 1999.
A summary of stock option transactions follows:
<TABLE>
<CAPTION>
2000 1999
------------------------- -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Options outstanding May 1,............................. 295,182 $ 3.55 246,595 $ 2.86
Granted................................................ 127,000 $ 5.42 164,375 $ 4.00
Canceled............................................... (625) $ 4.80 (56,250) $ 2.72
Exercised.............................................. (83,519) $ 2.84 (59,538) $ 2.70
------- -------
Options outstanding April 30,.......................... 338,038 $ 4.43 295,182 $ 3.55
======= =======
</TABLE>
Weighted average fair value of options granted during the year ended April
30, 2000 and April 30, 1999 is $ 3.07 and $ 2.34 per share respectively.
The following information applies to options outstanding at April 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- -----------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE WEIGHTED
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$2.00 - $2.99............................. 58,125 1.40 $2.68 58,125 $2.68
$3.00 - $4.49............................. 84,188 2.23 $3.90 46,688 $3.85
$4.50 - $6.74............................. 179,725 8.18 $5.11 174 725 $5.08
$6.75 - $10.12............................ 16,000 9.80 $7.50 16,000 $7.50
------- -------
338,038 295,538
======= =======
</TABLE>
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock.
C-25
<PAGE> 128
ENGINEERING MEASUREMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Had compensation cost for the plan been determined based on the fair value
of the options at the grant dates consistent with the method of SFAS No. 123,
the Company's net earnings(loss) and earnings(loss) per share would have been:
<TABLE>
<CAPTION>
2000 1999
--------- --------
<S> <C> <C>
Net income (loss)
As reported............................................... (138,860) 196,938
Pro forma -- net of deferred tax benefit.................. (442,524) 81,520
Primary earnings (loss) per share
As reported............................................... $ (0.03) $ 0.05
Pro forma................................................. $ (0.11) $ 0.02
</TABLE>
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related to
grants made before the fiscal year ended April 30, 1996. The fair value of these
options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions for 2000
and 1999:
<TABLE>
<S> <C>
Expected life (years)....................................... 5.741
Risk-free interest rate..................................... 6.037%
Volatility.................................................. 50.000%
</TABLE>
The Black Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
11. EMPLOYEE STOCK PURCHASE PLAN
Shareholders approved the 1998 Employee Stock Purchase Plan in October
1998. The plan provides for eight semi-annual offering periods with an aggregate
of 187,500 shares of the Company's common stock. Eligible employees include
those having at least two years of continuous service at the beginning of the
offering period, who work at least 20 hours per week, are not 5% or greater
shareholders, and who earn less that $80,000 per year in annual base salary.
Employees may elect to have up to 10% of their regular base salary withheld for
the purchase of shares of the Company's common stock subject to limits of a
maximum of 500 shares or $25,000 worth of Common Stock per year. The Company
grants each participant an option to purchase on the last day of the six month
offering period the number of full shares of Common Stock as their payroll
deductions for that period will allow at the Option price for the period. The
option price for any period is ordinarily the lesser of 85% of the closing price
of the stock on the first or last day of the offering period or the nearest
prior day on which trading occurred. The first offering period began January 1,
1999. Employees purchased a total of 4,495 shares in the offering periods ending
June 30, 1999, and December 31, 1999.
12. EMPLOYEE BENEFIT PLAN
The Company implemented a 401(k) Retirement Plan in July 1993. Employees
may join the plan after one year of service, providing they are 21 years or
older. The Company has a 5 year vesting schedule on the plan. The Company match
for the fiscal years ending 2000 and 1999 was $21,925 and $22,360, respectively.
C-26
<PAGE> 129
ENGINEERING MEASUREMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
Estimated fair value of financial instruments held for purposes other than
trading are as follows as of April 30:
<TABLE>
<CAPTION>
2000 1999
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents................................ $609,050 $609,050 $697,697 $697,697
Short-term investments................................... 615,793 615,793 556,288 556,288
Note receivable.......................................... 0 0 138,920 138,920
</TABLE>
The following methods and assumptions were used to estimate the fair market
value of each class of financial instruments for which it is practicable to
estimate that value.
Cash, Cash Equivalents, and Note Receivable
The carrying amount approximates fair value because of the short maturity
of those instruments.
14. SUBSEQUENT EVENT
On July 6, 2000, the Company's Board of Directors voted unanimously to sign
a definitive agreement to enter into a merger to be accounted for as a pooling
of interests with Advanced Energy Industries, Inc., a Delaware corporation
headquartered in Fort Collins, Colorado. Under the terms of the agreement, all
of EMCO's outstanding common stock as of the effective date of the merger will
be exchanged for shares of Advanced Energy Industries, Inc. common stock based
upon an exchange ratio. The exchange ratio is determined by dividing 900,000 by
the sum of EMCO's outstanding shares plus outstanding options as of the closing
of the transaction. It is intended that this merger qualify as a reorganization
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended for federal income tax purposes.
C-27
<PAGE> 130
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT.
The following table sets forth the name and age of each Director and
Executive Officer of the Company, indicating all positions and offices with the
Company presently held by him, and the period during which he has served as
such:
<TABLE>
<CAPTION>
YEAR
ELECTED AS
DIRECTOR OR POSITION, DATE FIRST HELD AND PRINCIPAL OCCUPATION
NAME OF DIRECTOR OR OFFICER AGE OFFICER (FOR PAST FIVE YEARS)
--------------------------- --- ----------- ------------------------------------------------------------
<S> <C> <C> <C>
Charles E. Miller.......... 62 1967 Chief Executive Officer, President, Director and Chairman of
the Board, previously President from 1967 to 1987; Member of
the Board of Director Option Committee.
Saeid Hosseini............. 37 1995 Vice President of Sales and Marketing. Previously National
Sales Manager, Product Line Manager, and Manager of
Applications Engineering. Employed by the Company for more
than five years prior to this report.
Ken Teegardin.............. 38 1997 Vice President of Operations. Previously Director of
Manufacturing since February 1995. Employed in a
manufacturing management capacity at Johnson Yokogawa
Corporation, Newnan, Georgia, which is not an affiliate of
the Company, for more than five years prior to the date of
this report. Mr. Teegardin resigned effective June 23, 2000.
William A. Ringer.......... 66 1978 Director, Member of the Audit and Compensation Committees;
Former President of Granville Phillips Company, Boulder,
Colorado, which is not an affiliate of the Company. Employed
by Granville Phillips in an executive capacity for more than
five years prior to the date of this report.
Thomas G. Miller........... 53 1995 Director, Member of the Incentive Plan and Compensation
Committees; CEO and physician of College Park Family Care
Center of Overland Park, Kansas, which is not an affiliate
of the Company. Employed by College Park Family Care Center
in an executive capacity for more than five years prior to
the date of this report.
Walter Kluck............... 72 1995 Director, Member of the Audit, Compensation, and Incentive
Plan Committees; CEO of Industrial Representatives, Inc. of
Clifton, New Jersey, which is not an affiliate of the
Company. Employed by Industrial Representatives, Inc. in an
executive capacity for more than five years prior to the
date of this report.
</TABLE>
C-28
<PAGE> 131
<TABLE>
<CAPTION>
YEAR
ELECTED AS
DIRECTOR OR POSITION, DATE FIRST HELD AND PRINCIPAL OCCUPATION
NAME OF DIRECTOR OR OFFICER AGE OFFICER (FOR PAST FIVE YEARS)
--------------------------- --- ----------- ------------------------------------------------------------
<S> <C> <C> <C>
Trung T. Doan.............. 41 2000 Director, Member of the Audit Committee. Vice President of
Process Development at Micron Technology, Inc., Boise,
Idaho, which is not an affiliate of the Company. Director of
Nutool Corporation, Santa Clara, California, which is not an
affiliate of the Company. Employed by Micron Technology,
Inc. in an executive capacity for more than five years prior
to the date of this report.
</TABLE>
The Board of Directors has standing Audit, Compensation, and Incentive Plan
Committees. Mr. Ringer, Mr. Kluck and Mr. Doan constitute the members of the
Audit Committee, and Messrs. Thomas Miller, Ringer, and Kluck serve on the
Compensation Committee. Mr. Kluck and Mr. Thomas Miller serve on the Incentive
Plan Committee. The Audit Committee reviews financial statements. The Audit
Committee met once during the fiscal year ending April 30, 2000. The
Compensation Committee meets informally as required to recommend to the Board of
Directors the compensation to be paid to the officers of the Company and to
recommend to the Board of Directors any other profit sharing and bonus issues
that may come before the Board of Directors. The entire Board of Directors
administers the Incentive Plan. Incentive Plan Committee and the Board of
Director Option Committee make recommendations regarding the Incentive Plan.
Such Committees did not meet formally during the last fiscal year.
The Board of Directors held five meetings during the fiscal year ending
April 30, 2000. All Directors attended all meetings of the Board of Directors
and all committees on which they serve.
All Directors hold office until the next annual meeting of the shareholders
of the Company or until their successors have been elected and qualified.
Officers serve at the discretion of the Board of Directors and are elected
annually.
None of the Directors have been involved in any litigation or bankruptcy
during the past five years.
Charles E. Miller, Thomas G. Miller and David S. Miller are brothers. David
Miller is one of the Company's investment brokers.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with the copies of all Section 16(a) forms
they file. Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the last fiscal year, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten-percent beneficial
owners were complied with.
C-29
<PAGE> 132
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth all cash compensation awarded to, earned by,
or paid to the Company's Chief Executive Officer for services in all capacities
to the Company during the fiscal year ended April 30, 2000. There were no other
executive officers of the Company who earned $100,000 or more during fiscal year
2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------------------
AWARDS PAYOUTS
----------------------- ----------
(E) (G) (I)
ANNUAL COMPENSATION OTHER (F) SECURITIES ALL
(A) --------------------------- ANNUAL RESTRICTED UNDERLYING (H) OTHER
NAME AND (B) (C) (D) COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($) AWARDS($) SAR'S(#) PAYOUTS($) SATION($)
------------------ ---- --------- -------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles E. Miller,................... 1998 $135,000 $0 $67,500 0 0 0 $1,350
CEO and Chairman 1999 $135,000 $0 0 0 0 0 $1,350
of the Board 2000 $135,000 $0 0 0 0 0 $1,350
</TABLE>
Other Annual Compensation reflects the dollar value of the market price
over the exercise price on options exercised.
Other Compensation reflects the matching portion of the Company's 401K
plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
None.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(D)
NUMBER OF
SECURITIES (E)
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SAR'S AT OPTIONS/SAR'S AT
(B) FY-END(#) FY-END($)
SHARES -------------------- --------------------
(A) ACQUIRED (C) EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- -------------- ------------------ -------------------- --------------------
<S> <C> <C> <C> <C>
Charles E. Miller...................... 0 $0 6,250/0 $12,500/$0
6,250/0 $ 9,375/$0
</TABLE>
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
None.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company received an annual
Director's fee of $3,000. This fee is paid whether or not the Director attends
meetings of the Board and its Committees.
In fiscal year 1999, stock options to purchase 75,000 shares were issued to
the outside directors. Messrs. Ringer, Kluck and Thomas Miller were each issued
options to purchase 25,000 shares. In fiscal year 2000, stock options to
purchase 15,000 were issued to the new director, Mr. Doan.
C-30
<PAGE> 133
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS.
Upon the occurrence of a Change in Control, each Option granted under the
Company's 1997 Incentive Plan and outstanding at such time shall become fully
and immediately exercisable and shall remain exercisable until its expiration,
termination or cancellation pursuant to the terms of the Plan. A Change of
Control is where any person (who is not such a person on August 1, 1997) becomes
the "beneficial owner" directly or indirectly, of securities of EMCO
representing 35% or more of EMCO's outstanding securities.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of June 30, 2000, the number and
percentage of the Company's shares of Common Stock owned of record and
beneficially by each person owning more than five percent (5%) of such Common
Stock and by all individual directors and officers and by all directors and
officers as a group:
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE PERCENT
TITLE OF CLASS BENEFICIAL OWNER OF OWNERSHIP OF CLASS
-------------- ---------------- ----------------- --------
<S> <C> <C> <C>
Common Stock Charles E. Miller.......................................... 1,556,432(1) 37.7
Common Stock William A. Ringer.......................................... 123,625(2) 3.0
Common Stock Saeid Hosseini............................................. 89,250(3) 2.2
Common Stock David S. Miller............................................ 492,398(4) 12.0
Common Stock Walter Kluck............................................... 25,855(5) 0.6
Common Stock Thomas G. Miller........................................... 520,774(6) 12.6
Common Stock Ken Teegardin.............................................. 36,000(7) 0.9
Common Stock Trung T. Doan.............................................. 15,000(8) 0.4
All Directors and Officers as a Group (Seven Persons)........................ 2,366,936 55.4
</TABLE>
-------------------------
(1) Record and Beneficial; includes 1,543,932 shares of common stock owned
directly; an option to purchase 12,500 shares of common stock under the 1991
Incentive Plan; Mr. Miller has sole voting and investing power on 1,476,057
of the owned shares; the remaining 67,875 shares have shared voting and
investment power. Charles E. Miller's business address is 600 Diagonal
Highway, Longmont, CO 80501.
(2) Record and Beneficial; Mr. Ringer has sole voting and investment power on
98,125 shares of the owned shares; the remaining 500 shares have shared
voting and investment power. Mr. Ringer also has an option to purchase
25,000 shares of common stock pursuant to the 1997 Incentive Plan. William
A. Ringer's address is P.O. Box 1018, Wilson, WY 83014.
(3) Record and Beneficial; includes 61,750 shares of common stock owned with
sole voting and investment power; an option to purchase 15,000 shares of
common stock under the 1991 Incentive Plan and an option to purchase 12,500
shares under the 1997 Incentive Plan. Saeid Hosseini's business address is
600 Diagonal Highway, Longmont, CO 80501.
(4) Record and Beneficial; includes 492,398 shares of common stock owned. David
Miller has sole voting and investment power for 450,488 of the shares; the
remaining 41,910 shares have shared voting and investment power. David S.
Miller's business address is 420 E. Armour, N. Kansas City, MO 64166.
(5) Record and Beneficial; includes 855 shares of common stock owned with sole
voting and investment power; and an option to purchase 25,000 shares of
common stock under the 1997 Incentive Plan. Walter Kluck's business address
is P.O. Box 421, Clifton, NJ 07015.
(6) Record and Beneficial; Mr. Miller has sole voting and investment power on
491,837 of the owned shares; the remaining 3,937 shares have shared voting
and investment power. Mr. Miller has an option to purchase 25,000 shares of
common stock under the 1997 Incentive Plan. Thomas G. Miller's business
address is 11725 W. 112th St., Overland Park, KS 66210.
C-31
<PAGE> 134
(7) Record and Beneficial; includes 1,000 shares of common stock owned with sole
voting and investment power; and an option to purchase 12,500 shares of
common stock under the 1991 Incentive Plan and an option to purchase 22,500
shares under the 1997 Incentive Plan. Ken Teegardin's business address is
600 Diagonal Highway, Longmont, CO 80501.
(8) Record and Beneficial; Mr. Doan has an option to purchase 15,000 shares of
common stock under the 1997 Incentive Plan. Trung T. Doan's business address
is 8000 S. Federal Way, Boise, Idaho 83707-0006.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------- ----
<C> <S>
3 Articles of Incorporation and By-laws filed as Exhibits 2.1
and 2.2, respectively, to Registrant's Registration No.
2-69601 filed with the Commission and hereby incorporated by
reference.
3-1 Articles of Amendment to Articles of Incorporation as filed
as Exhibit 3-1 to Registrant's 10-K for the fiscal year
ended April 30, 1988 filed with the commission and hereby
incorporated by reference.
10-1 Loan agreement between the Registrant and the Colorado
National Bank of Denver, dated September 1, 1989, filed as
Exhibit 10-2 to Registrant's 10-K for the year ended April
30, 1990 filed with the Commission and hereby incorporated
by reference.
10-4 Loan agreement between the Registrant and Charles E. Miller,
dated April 9, 1990, filed as Exhibit 10-4 to the Company's
Report on Form 10-K for the year ended April 30, 1992 and
hereby incorporated by reference.
10-5 Voting Agreement, Agreement and Plan of Merger, Voting Trust
Agreement, Sale and Licensing Agreement, Amendment to Sale
and Licensing Agreement, Manufacturing and Lease Agreement,
and Agreement by and between the Company, Measurement
Auditors Company, Marcum Natural Gas Services, Inc., and
Colorado National Bank of Denver incorporated herein by
reference to Exhibits 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, and 2.7,
respectively, to registrant's Form 8-K dated June 25, 1991.
10-7 1991 Non-Employee Director Stock Plan, filed as Exhibit 10-7
to the Company's Report on Form 10-K for the year ended
April 30, 1992 and hereby incorporated by reference.
10-9 Delivery Contract EMCO -- Danfoss, Delivery Contract
Danfoss -- EMCO, and License Agreement, dated May 3, 1991;
filed as Exhibit 10-9 to the Company's Report on Form 10-K
for the year ended April 30, 1992 and hereby incorporated by
reference.
10-10 Loan agreement between the Registrant and Charles E. Miller,
dated June 10, 1993; filed as Exhibit 10-10 to the Company's
Report on Form 10-KSB for the year ended April 30, 1993, and
hereby incorporated by reference.
10-11 1991 Incentive Plan filed as Exhibit 10-11 to the Company's
Report on Form 10-KSB for the year ended April 30, 1993, and
hereby incorporated by reference.
10-12 Agreement, dated July 9, 1993, among Patrick Petroleum
Corporation of Michigan, the Company and General Metrology
Company, filed as Exhibit 10-12 to the Company's Report on
Form 10-Q for the quarter ended October 31, 1993, and hereby
incorporated by reference.
10-13 Amendment to License Agreement, and Delivery Contract
between Danfoss and EMCO, dated June 13, 1995, filed as
Exhibit 10-13 on Form 10-KSB for the year ended April 30,
1994, and hereby incorporated by reference.
</TABLE>
C-32
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------- ----
<C> <S>
10-15 1997 Incentive Plan as Exhibit A to the Company's Proxy
Statement for the Annual Meeting of Shareholders held
October 22,1997, filed on September 25, 1997, and hereby
incorporated by reference.
10-16 Amendment to License Agreement, and Delivery Contract
between Danfoss and EMCO, dated October 6, 1998, filed as
Exhibit 10-16 on Form 10-KSB for the year ended April 30,
1999.
21 List of Registrant's Subsidiaries; filed as Exhibit 22 to
the Company's Report on Form 10-K for year ended April 30,
1992, and hereby incorporated by reference.
23 Consent of Grant Thornton to incorporate auditors report
into the Registrant's S-8.
27 Financial Data Schedule for fiscal year ended April 30,
2000.
99 Press Release
</TABLE>
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended April 30, 2000.
C-33
<PAGE> 136
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Engineering Measurements Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
ENGINEERING MEASUREMENTS COMPANY
By: /s/ CHARLES E. MILLER
----------------------------------------
Charles E. Miller
(President)
Date: July 25, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ CHARLES E. MILLER /s/ WILLIAM A. RINGER
----------------------------------------------------- -----------------------------------------------------
Charles E. Miller William A. Ringer
(Director, Principal Executive Officer, Principal (Director)
Financial Officer and Principal Accounting Officer) July 25, 2000
July 25, 2000
/s/ WALTER KLUCK /s/ THOMAS G. MILLER
----------------------------------------------------- -----------------------------------------------------
Walter Kluck Thomas G. Miller
(Director) (Director)
July 25, 2000 July 25, 2000
/s/ TRUNG T. DOAN
-----------------------------------------------------
Trung T. Doan
(Director)
July 25, 2000
</TABLE>
C-34
<PAGE> 137
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3 Articles of Incorporation and By-laws filed as Exhibits 2.1
and 2.2, respectively, to Registrant's Registration No.
2-69601 filed with the Commission and hereby incorporated by
reference.
3-1 Articles of Amendment to Articles of Incorporation as filed
as Exhibit 3-1 to Registrant's 10-K for the fiscal year
ended April 30, 1988 filed with the commission and hereby
incorporated by reference.
10-1 Loan agreement between the Registrant and the Colorado
National Bank of Denver, dated September 1, 1989, filed as
Exhibit 10-2 to Registrant's 10-K for the year ended April
30, 1990 filed with the Commission and hereby incorporated
by reference.
10-4 Loan agreement between the Registrant and Charles E. Miller,
dated April 9, 1990, filed as Exhibit 10-4 to the Company's
Report on Form 10-K for the year ended April 30, 1992 and
hereby incorporated by reference.
10-5 Voting Agreement, Agreement and Plan of Merger, Voting Trust
Agreement, Sale and Licensing Agreement, Amendment to Sale
and Licensing Agreement, Manufacturing and Lease Agreement,
and Agreement by and between the Company, Measurement
Auditors Company, Marcum Natural Gas Services, Inc., and
Colorado National Bank of Denver incorporated herein by
reference to Exhibits 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, and 2.7,
respectively, to registrant's Form 8-K dated June 25, 1991.
10-7 1991 Non-Employee Director Stock Plan, filed as Exhibit 10-7
to the Company's Report on Form 10-K for the year ended
April 30, 1992 and hereby incorporated by reference.
10-9 Delivery Contract EMCO -- Danfoss, Delivery Contract
Danfoss -- EMCO, and License Agreement, dated May 3, 1991;
filed as Exhibit 10-9 to the Company's Report on Form 10-K
for the year ended April 30, 1992 and hereby incorporated by
reference.
10-10 Loan agreement between the Registrant and Charles E. Miller,
dated June 10, 1993; filed as Exhibit 10-10 to the Company's
Report on Form 10-KSB for the year ended April 30, 1993, and
hereby incorporated by reference.
10-11 1991 Incentive Plan filed as Exhibit 10-11 to the Company's
Report on Form 10-KSB for the year ended April 30, 1993, and
hereby incorporated by reference.
10-12 Agreement, dated July 9, 1993, among Patrick Petroleum
Corporation of Michigan, the Company and General Metrology
Company, filed as Exhibit 10-12 to the Company's Report on
Form 10-Q for the quarter ended October 31, 1993, and hereby
incorporated by reference.
10-13 Amendment to License Agreement, and Delivery Contract
between Danfoss and EMCO, dated June 13, 1995, filed as
Exhibit 10-13 on Form 10-KSB for the year ended April 30,
1994, and hereby incorporated by reference.
10-15 1997 Incentive Plan as Exhibit A to the Company's Proxy
Statement for the Annual Meeting of Shareholders held
October 22,1997, filed on September 25, 1997, and hereby
incorporated by reference.
10-16 Amendment to License Agreement, and Delivery Contract
between Danfoss and EMCO, dated October 6, 1998, filed as
Exhibit 10-16 on Form 10-KSB for the year ended April 30,
1999.
21 List of Registrant's Subsidiaries; filed as Exhibit 22 to
the Company's Report on Form 10-K for year ended April 30,
1992, and hereby incorporated by reference.
23 Consent of Grant Thornton to incorporate auditors report
into the Registrant's S-8.
27 Financial Data Schedule for fiscal year ended April 30,
2000.
99 Press Release.
</TABLE>
C-35
<PAGE> 138
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-QSB
------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________ .
COMMISSION FILE NO. 0-9880
ENGINEERING MEASUREMENTS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
COLORADO 84-0572936
(STATE OR OTHER JURISDICTION OF (I.R.S. IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
600 DIAGONAL HIGHWAY, LONGMONT, COLORADO 80501
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
Registrant's telephone number, including area code: (303) 651-0550
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
The number of shares outstanding of Registrant's $.01 par value common
stock, as of September 6, 2000, was 4,225,342.
Transitional Small Business Disclosure Format. Yes [ ] No [X]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
D-1
<PAGE> 139
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENGINEERING MEASUREMENTS COMPANY
BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JULY 31, 2000 APRIL 30, 2000
------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 583,610 $ 609,050
Accounts receivable, net of allowance for doubtful
accounts and allowance for sales returns of $89,563 at
July 31, 2000 and $78,927 at April 30, 2000............ 1,353,084 1,219,365
Short-term investments.................................... 638,251 615,793
Inventories............................................... 1,653,791 1,516,251
Prepaid expenses.......................................... 71,603 89,439
Income taxes receivable................................... 75,027 75,000
Deferred income taxes..................................... 573,810 382,551
----------- -----------
Total current assets.............................. 4,949,176 4,507,449
----------- -----------
Property and equipment, at cost:
Land...................................................... 568,940 568,940
Building and improvements................................. 1,697,984 1,689,824
Vehicles.................................................. 22,196 22,196
Machinery and equipment................................... 4,359,428 4,268,002
Office furniture and fixtures............................. 1,247,534 1,223,750
----------- -----------
7,896,082 7,772,712
Less accumulated depreciation............................. (4,928,856) (4,811,402)
----------- -----------
Net property and equipment........................ 2,967,226 2,961,310
----------- -----------
Other assets:
Other assets, net of amortization of $133,282 at April 30,
2000 and $147,048 at July 31, 2000..................... 295,754 298,488
----------- -----------
Total other assets................................ 295,754 298,488
----------- -----------
Total Assets...................................... $ 8,212,156 $ 7,767,247
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
(Continued)
D-2
<PAGE> 140
ENGINEERING MEASUREMENTS COMPANY
BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JULY 31, 2000 APRIL 30, 2000
------------- --------------
<S> <C> <C>
Current liabilities:
Accounts payable.......................................... $ 386,773 $ 332,161
Accrued compensation...................................... 282,995 301,513
Accrued liabilities....................................... 444,711 441,889
----------- -----------
Total current liabilities......................... 1,114,479 1,075,563
----------- -----------
Long-term liabilities:
Deferred income taxes..................................... 235,500 244,400
----------- -----------
Total long-term liabilities....................... 235,500 244,400
----------- -----------
Stockholders' equity:
Common stock, $.01 par value; 15,000,000 shares
authorized; 4,321,006 shares issued at April 30, 2000,
4,419,589 shares issued at July 31, 2000, 4,125,259
shares outstanding at April 30, 2000, 4,223,842 shares
outstanding at July 31, 2000........................... 44,196 43,210
Capital in excess of par value............................ 3,531,161 3,001,606
Unrealized holding losses (net of taxes).................. (41,223) (49,262)
Retained earnings......................................... 3,994,500 4,118,187
Treasury stock at cost; 195,747 shares at April 30, 2000,
and July 31, 2000...................................... (666,457) (666,457)
----------- -----------
Total stockholders' equity........................ 6,862,177 6,447,284
----------- -----------
Total Liabilities and Stockholders' Equity........ $ 8,212,156 $ 7,767,247
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
D-3
<PAGE> 141
ENGINEERING MEASUREMENTS COMPANY
STATEMENTS OF INCOME AND OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31,
------------------------
2000 1999
---------- ----------
<S> <C> <C>
Sales....................................................... $2,462,131 $2,227,590
Cost of sales............................................... 1,474,266 1,356,913
---------- ----------
Gross margin on sales....................................... 987,865 870,677
---------- ----------
Operating expenses:
Selling................................................... 576,983 453,997
General and administrative................................ 379,855 231,354
Research and development.................................. 267,302 237,627
---------- ----------
Total operating expenses.......................... 1,224,140 922,978
---------- ----------
Loss from operations........................................ (236,275) (52,301)
---------- ----------
Other income/(expense):
Gain/(loss) on sale of stock.............................. (2,309) 14,985
Interest expense.......................................... (8) (164)
Interest and dividend income.............................. 17,068 13,439
Other income.............................................. 4,738 45
---------- ----------
Total other income................................ 19,489 28,305
Loss from operations before income taxes.................... (216,786) (23,996)
Income tax benefit.......................................... (93,099) (29,457)
---------- ----------
Net earnings/(loss)......................................... $ (123,687) $ 5,461
========== ==========
Other comprehensive income
Unrealized holding gain/(loss)............................ 13,180 (1,313)
Tax benefit of stock option exercise...................... 112,201 0
---------- ----------
Comprehensive income........................................ $ 1,694 $ 4,148
========== ==========
Net earnings/(loss) per share -- basic...................... $ (0.03) $ 0.00
========== ==========
Net earnings/(loss) per share -- diluted.................... $ (0.03) $ 0.00
========== ==========
Weighted average number of shares outstanding -- basic and
diluted................................................... 4,155,717 4,021,729
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
D-4
<PAGE> 142
ENGINEERING MEASUREMENTS COMPANY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
----------------------------
INCREASE/(DECREASE) IN CASH 2000 1999
--------------------------- ------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings/(loss)....................................... $(123,687) $ 5,461
Adjustments to reconcile net earnings/(loss) to net cash
provided by operating activities --
Depreciation and amortization.......................... 149,312 129,824
Deferred tax benefit................................... (200,159) (9,800)
Provision for doubtful accounts........................ 10,637 8,156
(Gain)/Loss on sales of investments.................... 2,308 (14,985)
(Gain)/Loss on disposal of assets...................... 4,982 0
Stock compensation..................................... 0 1,000
Changes in assets and liabilities --
Receivables.......................................... (144,356) (48,684)
Inventories.......................................... (137,540) 109,248
Income taxes receivable and prepaid expenses......... 17,809 (17,797)
Accounts payable and accrued liabilities............. 38,916 (113,664)
--------- ---------
Net cash provided/(used) by operating activities............ (381,778) 48,759
--------- ---------
Cash flows from investing activities:
Capital expenditures, net................................. (146,444) (74,118)
Expenditures for intangible assets........................ (11,032) 0
Proceeds from note receivable............................. 0 1,800
Investment purchases...................................... (179,686) (223,972)
Proceeds from sale of investments......................... 162,959 125,700
--------- ---------
Net cash provided used in investing activities.............. (174,203) (170,590)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options................... 530,541 76,098
--------- ---------
Net cash used in financing activities....................... 530,541 76,098
--------- ---------
Net decrease in cash and cash equivalents................... (25,440) (45,733)
Cash and cash equivalents at beginning of period............ 609,050 697,697
--------- ---------
Cash and cash equivalents at end of period........ $ 583,610 $ 651,964
========= =========
Supplemental disclosure of cash flow information:
Cash paid during period for --
Interest............................................... $ 8 $ 164
Income taxes........................................... 27 0
Supplemental disclosure for non cash items:
Stock Compensation........................................ $ -- $ 1,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
D-5
<PAGE> 143
ENGINEERING MEASUREMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited, condensed financial statements have been
prepared in accordance with the instructions to the Form 10-QSB and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three months ended July 31, 2000, are not necessarily indicative
of the results that may be expected for the fiscal year ending April 30, 2001.
These statements should be read in conjunction with the financial statements and
footnotes thereto included in the Company's Form 10-KSB for the fiscal year
ended April 30, 2000.
1. INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out method) or
market, are as follows:
<TABLE>
<CAPTION>
JULY 31, 2000 APRIL 30, 2000
------------- --------------
<S> <C> <C>
Raw materials and work-in-process.................. $1,356,459 $1,201,216
Finished goods..................................... 297,332 315,035
---------- ----------
$1,653,791 $1,516,251
========== ==========
</TABLE>
2. INVESTMENTS
Investments are carried at fair market value. The Company's investment
securities are classified as available for sale and recorded on the balance
sheet at fair market value with unrealized gains and losses on these investments
shown as a separate component of stockholders' equity, net of related taxes. The
impact of these unrealized gains and losses, net of related taxes, is shown as a
part of other comprehensive income on the statements of income and comprehensive
income.
3. INCOME TAXES
Deferred income taxes are provided for items which are reported for tax
purposes in different periods than in the Statements of Operations.
4. REVENUE RECOGNITION
Revenue from manufactured products is recognized at the time of shipment to
the customer. Service revenue is recognized at the time of shipment of goods or
delivery of services to the customer. The sale price is fixed at the time of
shipment or delivery of the service and all risks transfer to the customer at
that point. Commissioned sales representatives do not stock product. Returns,
exchanges and restock charges are handled on a case-by-case basis.
5. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed by dividing net income by the
weighted average number of shares outstanding during the period. During the
three months ended July 31, 2000, there were a total of 239,663 shares
outstanding under the Company's stock option plans. There was no dilutive effect
of the outstanding
D-6
<PAGE> 144
ENGINEERING MEASUREMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
options for the three months ended July 31, 2000, as a result from a net
operating loss. For the three months ended July 31, 1999, the dilutive effect
was immaterial.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JULY 31, 2000
------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ -------------- ----------
<S> <C> <C> <C>
Net Income................................. $(123,687)
=========
BASIC EPS
Net Income available to common
stockholders............................. $(123,687) 4,155,717 $(0.03)
EFFECT OF DILUTIVE SECURITIES
Options.................................... 0 0
--------- ---------
DILUTED EPS
Income available to stockholders plus
assumed conversions...................... $(123,687) 4,155,717 $(0.03)
========= ========= ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JULY 31, 1999
------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ -------------- ----------
<S> <C> <C> <C>
Net Income................................. $5,461
======
BASIC EPS
Net Income available to common
stockholders............................. $5,461 4,054,682 $0.00
EFFECT OF DILUTIVE SECURITIES
Options.................................... 0 88,909
------ ---------
DILUTED EPS
Income available to stockholders plus
assumed conversions...................... $5,461 4,143,591 $0.00
====== ========= =====
</TABLE>
6. SEGMENT INFORMATION
EMCO's core business has been, and continues to be, in the manufacture of
flow measurement devices and systems segment, SIC Code No. 3823. In the past,
EMCO has reported all of its operations in this segment. Effective with the
filing of the Company's 10-QSB for the period ending October 31, 1999, EMCO
adopted SFAS 131 related to reporting for segments of the business. EMCO's
contract electronics manufacturing (CEM) division, operating under the trade
name Advanced Technology Group (ATG), comes within the definition of SIC Code
No. 3672. ATG sales (all domestic) for the three and nine month periods ending
January 31, 2000, exceeded 10% of the total Company's sales which triggered the
requirement to report information by segments.
The information reported below is similar to information used by the
management and directors of the Company to assess the performance of the
operating segments and/or to allocate resources to those segments. This
information is based upon the Company's books, contains no inter-segment
revenues and utilizes estimated allocations of expenses and assets. Segment
profits (losses) are computed at the same level as income from operations on the
Statements of Income and Operations. Segment assets for ATG are for directly
D-7
<PAGE> 145
ENGINEERING MEASUREMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
purchased long term equipment and do not reflect any allocation of the building
or other assets such as cash, accounts receivable or inventory.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
-------------------------------------------------------------------------------------
2000 1999
----------------------------------------- -----------------------------------------
CONTRACT CONTRACT
ELECTRONICS ELECTRONICS
FLOW PRODUCTS MANUFACTURING TOTALS FLOW PRODUCTS MANUFACTURING TOTALS
------------- ------------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ 2,077,278 384,853 2,462,131 1,944,120 283,470 2,227,590
Depreciation and
Amortization.......... 110,042 39,270 149,312 94,749 35,075 129,824
Segment Profits
(Losses).............. (223,118) (13,157) (236,275) (89,845) 37,544 (52,301)
Segment Assets.......... 7,728,387 483,769 8,212,156 6,940,135 498,653 7,438,788
Expenditures for Segment
Assets................ 118,944 38,532 157,476 71,330 6,788 78,118
</TABLE>
7. MERGER AGREEMENT WITH ADVANCED ENERGY INDUSTRIES, INC.
Engineering Measurements Company signed a definitive agreement to enter
into a merger with Advanced Energy Industries, Inc., (NASDAQ: AEIS) on July 6,
2000. Under the terms of the agreement, EMCO securities holders will receive
900,000 shares of Advanced Energy stock. The agreement is subject to the
approval of 2/3 of EMCO's shareholders and certain other conditions detailed in
the proxy statement/ prospectus. A special meeting of EMCO shareholders
scheduled for October 23, 2000, will be held to vote on the merger. The
agreement does not require the approval of Advanced Energy's stockholders.
D-8
<PAGE> 146
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
A. FINANCIAL CONDITION
The Company's net working capital increased approximately $403,000 during
the three months ended July 31, 2000. The most significant items impacting
working capital in this period are increases in accounts receivable, inventories
and deferred income tax assets. The current ratio was at 4.4 at July 31, 2000
and April 30, 2000.
Cash and cash equivalents decreased approximately $25,000 at July 31, 2000,
compared to April 30, 2000. Higher accounts receivable of approximately
$134,000, higher inventory balances of approximately $138,000 and capital and
intangibles expenditures of approximately $157,000 were the principal consumers
of cash during the period. Cash used in operations was approximately $382,000 in
the quarter. Proceeds from stock option exercises of approximately $531,000 were
a primary source of cash during the first three months of the fiscal year. The
Company intends to continue investing excess cash in investment securities until
the cash is needed for operations.
Accounts receivable increased by approximately $144,000 at July 31, 2000,
due to higher sales and slightly slower collections. The Days Sales Outstanding
(DSO) improved to 43.9 days for the three months ended July 31, 2000, compared
to 47.6 days for the year ended April 30, 2000.
Inventories increased approximately $138,000 in the first three months of
the fiscal year. The inventory turnover ratio for the three months ended July
31, stayed about the same at 1.46 compared to 1.47 for fiscal year 2000.
Inventory turns have remained steady while inventory levels have increased,
reflecting a build up prior to the introduction of the Mach-One mass flow
controller for the semiconductor market and inventories associated with turnkey
orders for the contract electronics manufacturing business, which previously had
not required the Company to buy and hold inventory. Management will continue to
review inventory levels in order to optimize shipments.
The Company had a note receivable of $138,920 at April 30, 1999, with an
unaffiliated third party to provide financing for the development of a new
flowmeter technology. The Company exercised the option to purchase the undivided
one-half interest of the developed technology for the balance of the receivable
during May 1999. This undivided one-half interest of the developed technology is
reflected on the balance sheet within "Other assets" and will be amortized over
its expected life.
The Company currently has no loans outstanding. The Company does not expect
any material capital expenditures in the next six months and anticipates all
cash needs will be satisfied from operations. The Company has renewed its
$500,000 revolving line of credit with Wells Fargo Bank West, N.A. through
September 2000. The Company currently has no outstanding loan balance on the
line of credit.
B. RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2000, COMPARED TO THE THREE MONTHS ENDED JULY 31,
1999
Sales were approximately $235,000 higher in the period ending July 31,
2000, compared to the period ending July 31, 1999, a 10.5% increase, due to
higher domestic demand in the flowmeter market, the new Sono-Trak ultrasonic
flowmeter introduced in January 2000, and increased sales of contract electronic
printed circuit board assembly services. International sales fell 20%, or
approximately $122,000 from the same quarter last year. As a result,
international sales, which had accounted for 28% of total revenues in the
quarter ended July 31, 1999, fell to just 20% of revenues in the same quarter
this year. Aggressive pricing by European competitors and a strong Dollar
hindered international sales in the period.
Gross profit increased by approximately $117,000 to 40.1% of sales in 2000
compared to 39.1% in 1999. Labor was 1.3% higher due to a more labor intensive
product mix, material cost was down 1.6% and overhead was down .5%, again due to
product mix.
D-9
<PAGE> 147
Operating expenses have increased approximately $301,000 from last year.
Selling expenses increased approximately $123,000. General and administrative
costs increased approximately $149,000, which included about $110,000 in costs
directly associated with the merger with Advanced Energy Industries, Inc.
Research and development costs increased approximately $30,000 over the same
period in the prior year.
Other income for the three months ended July 31, 2000, decreased
approximately $9,000 or 31% primarily due to a small loss from the sale of
investment securities in 2000, compared to a gain of approximately $15,000 in
1999. The Company had no interest expense attributable to debt in the periods
ending July 31, 2000, and 1999, respectively.
The income tax benefit for the three months ended July 31, 2000, was
approximately $93,000 compared to an income tax benefit of approximately $29,000
for the same period in 1999. The impact of deferred tax items resulted in
current tax rate of approximately 42.9% in 2000. The income tax expense rate in
the comparable period in 1999 was 122.8% due to the impact of deferred tax
items.
Other Comprehensive Income for the three month period ended July 31, 2000,
consisted of approximately $13,000 of unrealized holding gains on investment
securities, net of the related tax effects, and $112,000 of tax benefits
associated with the exercise of stock options. This compares to approximately
$1,000 of unrealized holding losses on investment securities, net of the related
tax effects, in the three months ended July 31, 1999. Tax benefits associated
with the exercise of stock options in 1999 were not material.
Net cash used by operating activities was $381,778 for the three months
ended July 31, 2000. Net cash provided by operating activities was $48,759 for
the three months ended July 31, 1999. Major changes in net cash from operating
activities year over year are the change from a small net profit in 1999 to a
loss and its associated tax benefit in 2000, and the increases in inventories
and accounts receivable in 2000.
MERGER AGREEMENT WITH ADVANCED ENERGY INDUSTRIES, INC.
Engineering Measurements Company signed a definitive agreement to enter
into a merger with Advanced Energy Industries, Inc., (NASDAQ: AEIS) on July 6,
2000. Under the terms of the agreement, EMCO securities holders will receive
900,000 shares of Advanced Energy stock. The agreement is subject to the
approval of 2/3 of EMCO's shareholders and certain other conditions detailed in
the proxy statement/ prospectus. A special meeting of EMCO shareholders
scheduled for October 23, 2000, will be held to vote on the merger. The
agreement does not require the approval of Advanced Energy's stockholders.
YEAR 2000 COMPLIANCE
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (this is commonly known as the "Year 2000 Problem" or "Y2K" problem). The
Company replaced its inventory and financial software in fiscal year 1998 with a
system which is Year 2000 compliant. The Company evaluated its other
internal-use software and hardware for Year 2000 compliance, and implemented a
plan to replace all non-compliant items either through upgrade or replacement.
The cost of these replacement/upgrades was approximately $50,000.
The Company's products do not use time/date logic for internal sequencing
or calculation, and therefore the Company believes its products are Year 2000
compliant.
To date, any impacts of the Year 2000 problem have been minimal and dealt
with as they appear.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None filed in the quarter ended July 31, 2000.
D-10
<PAGE> 148
(b) REPORTS ON FORM 8-K
One filed in the quarter ended July 31, 2000.
1. A press release dated July 6, 2000, announcing the signing of a merger
agreement with Advanced Energy Industries, Inc., of Fort Collins, Colorado.
D-11
<PAGE> 149
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Engineering Measurements Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
ENGINEERING MEASUREMENTS COMPANY
(Registrant)
By: /s/ CHARLES E. MILLER
------------------------------------
Charles E. Miller, Chairman
(Principal Financial Officer
and Chief Accounting Officer)
Date: September 14, 2000
D-12
<PAGE> 150
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law ("DGCL"), Advanced
Energy's Restated 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, 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.
ITEM 21. EXHIBITS
The following is a list of Exhibits filed as part of the Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Reorganization dated as of July 6,
2000, by and among Advanced Energy Industries, Inc. (the
"Company"), Flow Acquisition Corporation and Engineering
Measurements Company (included as Appendix A to the proxy
statement/prospectus filed as a part of this registration
statement)
3.1 The Company's Restated Certificate of Incorporation, as
amended(3)
3.2 The Company's By-laws(4)
4.1 Form of Specimen Certificate for the Company's Common
Stock(4)
</TABLE>
II-1
<PAGE> 151
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.2 Indenture dated November 1, 1999 between State Street Bank
and Trust Company of California, N.A., as trustee, and the
Company (including form of 5 1/4% Convertible Subordinated
Note due 2006)(5)
4.3 The Company hereby agrees to furnish to the SEC, upon
request, a copy of the instruments which define the rights
of holders of long-term debt of the Company. None of such
instruments not included as exhibits herein represents
long-term debt in excess of 10% of the consolidated total
assets of the Company.
5.1 Opinion of Thelen Reid & Priest LLP as to the legality of
the securities being registered.
8.1 Opinion of Thelen Reid & Priest LLP as to certain federal
income tax matters.
10.1 Comprehensive Supplier Agreement, dated May 18, 1998,
between Applied Materials Inc. and the Company.(1)+
10.2 Purchase Order and Sales Agreement, dated October 12, 1999,
between Lam Research Corporation and the Company.(5)
10.3 Purchase Agreement, dated November 1, 1995, between Eaton
Corporation and the Company.(6)+
10.4 Loan and Security Agreement, dated August 15, 1997, among
Silicon Valley Bank, Bank of Hawaii and the Company.(7)
10.5 Loan Agreement dated December 8, 1997, by and among Silicon
Valley Bank, as Servicing Agent and a Bank, and Bank of
Hawaii, as a Bank, and the Company, as borrower.(8)
10.6 Lease, dated June 12, 1984, amended June 11, 1992, between
Prospect Park East Partnership and the Company for property
in Fort Collins, Colorado.(4)
10.7 Lease, dated March 14, 1994, as amended, between Sharp Point
Properties, L.L.C., and the Company for property in Fort
Collins, Colorado.(4)
10.8 Lease, dated May 19, 1995, between Sharp Point Properties,
L.L.C. and the Company for a building in Fort Collins,
Colorado.(4)
10.9 Lease agreement, dated March 18, 1996, and amendments dated
June 21, 1996 and August 30, 1996, between RF Power
Products, Inc., and Laurel Oak Road, L.L.C. for property in
Voorhees, New Jersey.(9)
10.10 Form of Indemnification Agreement.(4)
10.11 Employment Agreement, dated June 1, 1998, between RF Power
Products, Inc., and Joseph Stach.(10)
10.12 1995 Stock Option Plan, as amended and restated.(10)
10.13 1995 Non-Employee Directors' Stock Option Plan.(10)
10.14 License Agreement, dated May 13, 1992 between RF Power
Products and Plasma-Therm, Inc.(11)
10.15 Lease Agreement dated March 18, 1996 and amendments dated
June 21, 1996 and August 30, 1996 between RF Power Products,
Inc. and Laurel Oak Road, L.L.C. for office, manufacturing
and warehouse space at 1007 Laurel Oak Road, Voorhees, New
Jersey.(9)
10.16 Direct Loan Agreement dated December 20, 1996 between RF
Power Products, Inc. and the New Jersey Economic Development
Authority.(9)
10.17 Lease, dated April 15, 1998, between Cross Park Investors,
Ltd., and the Company for property in Austin, Texas.(1)
10.18 Lease, dated April 15, 1998, between Cameron Technology
Investors, Ltd., and the Company for property in Austin,
Texas.(1)
10.19 Agreement and Plan of Reorganization, dated April 5, 2000,
between the Company, Noah Holdings, Inc. and AE Cal Merger
Sub, Inc.(2)
10.20 Escrow and Indemnity Agreement, dated April 5, 2000, between
the Company, the former stockholders of Noah Holdings, Inc.
and Commercial Escrow Services, Inc.(2)
10.21 Merger Agreement, dated July 21, 2000, between the Company,
Sekidenko, Inc., Dr. Ray R. Dils and Mercury Merger
Corporation.(12)
</TABLE>
II-2
<PAGE> 152
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of KPMG LLP.
23.3 Consent of Grant Thornton LLP.
23.4 Consent of Quist Financial, Inc.
23.5 Consent of Thelen Reid & Priest LLP.(13)
27.1 Financial Data Schedule for the Company.(14)
99.1 Form of Proxy for shareholders of Engineering Measurements
Company.
99.2 Form of Voting Agreement for certain shareholders of
Engineering Measurements Company.
</TABLE>
-------------------------
(1) Incorporated by reference to the Company's quarterly Report on Form 10-Q
for the quarter ended June 30, 1998 (File No. 0-26966), filed August 7,
1998.
(2) Incorporated by reference to the Company's Registration Statement on Form
S-3 (File No. 333-37378), filed May 19, 2000.
(3) Incorporated by reference to the Company's quarterly Report on Form 10-Q
for the quarter ended June 30, 1999 (File No. 0-26966), filed July 28,
1999.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-97188), filed September 20, 1995, as amended.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 (File No. 0-26966), filed March 20, 2000.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 (File No. 0-26966), filed March 28, 1996,
as amended.
(7) Incorporated by reference to the Company's Registration Statement on Form
S-3 (File No. 333-34039), filed August 21, 1997, as amended.
(8) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 (File No. 0-26966), filed March 24, 1998.
(9) Incorporated by reference to RF Power Products' Annual Report on Form 10-K
for the fiscal year ended November 30, 1996 (File No. 0-20229), filed
February 25, 1997.
(10) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 (File No. 0-26966), filed March 24, 1999.
(11) Incorporated by reference to RF Power Products' Registration Statement on
Form 10 (File No. 0-020229), filed May 19, 1992 as amended.
(12) Incorporated by reference to the Company's quarterly Report on Form 10-Q
for the quarter ended June 30, 2000 (File No. 0-26966), filed August 4,
2000.
(13) Included in Exhibits 5.1 and 8.1.
(14) Incorporated by reference to the Company's Current Report on Form 8-K dated
August 10, 2000, filed August 14, 2000 (File No. 000-26966).
+ Confidential treatment has been granted for portions of this agreement
ITEM 22. UNDERTAKINGS
(1) 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 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is
II-3
<PAGE> 153
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.
(2) The undersigned Registrant hereby undertakes as follows: that prior to
any public offering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
undersigned Registrant undertakes that such offering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(3) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment 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.
(4) Insofar as the 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.
(5) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(6) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE> 154
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant 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 20, 2000.
Advanced Energy Industries, Inc.,
a Delaware corporation
By: /s/ RICHARD P. BECK*
------------------------------------
Richard P. Beck
Senior Vice President
and Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Douglas S. Schatz
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 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, and to so execute and file a registration
statement and any post-effective amendment thereto 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.
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 dates indicated.
<TABLE>
<S> <C>
Date: September 20, 2000 /s/ DOUGLAS S. SCHATZ
------------------------------------------
Douglas S. Schatz
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Date: September 20, 2000 /s/ HOLLIS L. CASWELL*
------------------------------------------
Hollis L. Caswell
President, Chief Operating Officer and
Director
Date: September 20, 2000 /s/ RICHARD P. BECK*
------------------------------------------
Richard P. Beck
Senior Vice President, Chief Financial
Officer and Director
(Principal Financial and Accounting
Officer)
Date: September 20, 2000 /s/ G. BRENT BACKMAN*
------------------------------------------
G. Brent Backman
Director
</TABLE>
II-5
<PAGE> 155
<TABLE>
<S> <C>
Date:
------------------------------------------
Trung Doan
Director
Date: September 20, 2000 /s/ ARTHUR A. NOETH*
------------------------------------------
Arthur A. Noeth
Director
Date:
------------------------------------------
Elwood Spedden
Director
Date: September 20, 2000 /s/ GERALD STAREK*
------------------------------------------
Gerald Starek
Director
Date: September 20, 2000 /s/ ARTHUR ZAFIROPOULO*
------------------------------------------
Arthur Zafiropoulo
Director
*By: /s/ DOUGLAS S. SCHATZ
------------------------------------------
Douglas S. Schatz
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 156
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Reorganization dated as of July 6,
2000, by and among Advanced Energy Industries, Inc. (the
"Company"), Flow Acquisition Corporation and Engineering
Measurements Company (included as Appendix A to the proxy
statement/prospectus filed as a part of this registration
statement)
3.1 The Company's Restated Certificate of Incorporation, as
amended(3)
3.2 The Company's By-laws(4)
4.1 Form of Specimen Certificate for the Company's Common
Stock(4)
4.2 Indenture dated November 1, 1999 between State Street Bank
and Trust Company of California, N.A., as trustee, and the
Company (including form of 5 1/4% Convertible Subordinated
Note due 2006)(5)
4.3 The Company hereby agrees to furnish to the SEC, upon
request, a copy of the instruments which define the rights
of holders of long-term debt of the Company. None of such
instruments not included as exhibits herein represents
long-term debt in excess of 10% of the consolidated total
assets of the Company.
5.1 Opinion of Thelen Reid & Priest LLP as to the legality of
the securities being registered.
8.1 Opinion of Thelen Reid & Priest LLP as to certain federal
income tax matters.
10.1 Comprehensive Supplier Agreement, dated May 18, 1998,
between Applied Materials Inc. and the Company.(1)+
10.2 Purchase Order and Sales Agreement, dated October 12, 1999,
between Lam Research Corporation and the Company.(5)
10.3 Purchase Agreement, dated November 1, 1995, between Eaton
Corporation and the Company.(6)+
10.4 Loan and Security Agreement, dated August 15, 1997, among
Silicon Valley Bank, Bank of Hawaii and the Company.(7)
10.5 Loan Agreement dated December 8, 1997, by and among Silicon
Valley Bank, as Servicing Agent and a Bank, and Bank of
Hawaii, as a Bank, and the Company, as borrower.(8)
10.6 Lease, dated June 12, 1984, amended June 11, 1992, between
Prospect Park East Partnership and the Company for property
in Fort Collins, Colorado.(4)
10.7 Lease, dated March 14, 1994, as amended, between Sharp Point
Properties, L.L.C., and the Company for property in Fort
Collins, Colorado.(4)
10.8 Lease, dated May 19, 1995, between Sharp Point Properties,
L.L.C. and the Company for a building in Fort Collins,
Colorado.(4)
10.9 Lease agreement, dated March 18, 1996, and amendments dated
June 21, 1996 and August 30, 1996, between RF Power
Products, Inc., and Laurel Oak Road, L.L.C. for property in
Voorhees, New Jersey.(9)
10.10 Form of Indemnification Agreement.(4)
10.11 Employment Agreement, dated June 1, 1998, between RF Power
Products, Inc., and Joseph Stach.(10)
10.12 1995 Stock Option Plan, as amended and restated.(10)
10.13 1995 Non-Employee Directors' Stock Option Plan.(10)
10.14 License Agreement, dated May 13, 1992 between RF Power
Products and Plasma-Therm, Inc.(11)
10.15 Lease Agreement dated March 18, 1996 and amendments dated
June 21, 1996 and August 30, 1996 between RF Power Products,
Inc. and Laurel Oak Road, L.L.C. for office, manufacturing
and warehouse space at 1007 Laurel Oak Road, Voorhees, New
Jersey.(9)
10.16 Direct Loan Agreement dated December 20, 1996 between RF
Power Products, Inc. and the New Jersey Economic Development
Authority.(9)
</TABLE>
<PAGE> 157
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.17 Lease, dated April 15, 1998, between Cross Park Investors,
Ltd., and the Company for property in Austin, Texas.(1)
10.18 Lease, dated April 15, 1998, between Cameron Technology
Investors, Ltd., and the Company for property in Austin,
Texas.(1)
10.19 Agreement and Plan of Reorganization, dated April 5, 2000,
between the Company, Noah Holdings, Inc. and AE Cal Merger
Sub, Inc.(2)
10.20 Escrow and Indemnity Agreement, dated April 5, 2000, between
the Company, the former stockholders of Noah Holdings, Inc.
and Commercial Escrow Services, Inc.(2)
10.21 Merger Agreement, dated July 21, 2000, between the Company,
Sekidenko, Inc., Dr. Ray R. Dils and Mercury Merger
Corporation.(12)
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of KPMG LLP.
23.3 Consent of Grant Thornton LLP.
23.4 Consent of Quist Financial, Inc.
23.5 Consent of Thelen Reid & Priest LLP.(13)
27.1 Financial Data Schedule for the Company.(14)
99.1 Form of Proxy for shareholders of Engineering Measurements
Company.
99.2 Form of Voting Agreement for certain shareholders of
Engineering Measurements Company.
</TABLE>
-------------------------
(1) Incorporated by reference to the Company's quarterly Report on Form 10-Q
for the quarter ended June 30, 1998 (File No. 0-26966), filed August 7,
1998.
(2) Incorporated by reference to the Company's Registration Statement on Form
S-3 (File No. 333-37378), filed May 19, 2000.
(3) Incorporated by reference to the Company's quarterly Report on Form 10-Q
for the quarter ended June 30, 1999 (File No. 0-26966), filed July 28,
1999.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-97188), filed September 20, 1995, as amended.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 (File No. 0-26966), filed March 20, 2000.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 (File No. 0-26966), filed March 28, 1996,
as amended.
(7) Incorporated by reference to the Company's Registration Statement on Form
S-3 (File No. 333-34039), filed August 21, 1997, as amended.
(8) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 (File No. 0-26966), filed March 24, 1998.
(9) Incorporated by reference to RF Power Products' Annual Report on Form 10-K
for the fiscal year ended November 30, 1996 (File No. 0-20229), filed
February 25, 1997.
(10) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 (File No. 0-26966), filed March 24, 1999.
(11) Incorporated by reference to RF Power Products' Registration Statement on
Form 10 (File No. 0-020229), filed May 19, 1992 as amended.
(12) Incorporated by reference to the Company's quarterly Report on Form 10-Q
for the quarter ended June 30, 2000 (File No. 0-26966), filed August 4,
2000.
(13) Included in Exhibit 5.1 and 8.1.
(14) Incorporated by reference to the Company's Current Report on Form 8-K dated
August 10, 2000, filed August 14, 2000 (File No. 000-26966).
+ Confidential treatment has been granted for portions of this agreement
