As filed with the Securities and Exchange Commission on May 19, 2000
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ADVANCED ENERGY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-0846841
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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:
MICHELLE L. JOHNSON
J.J. ANDRE
THELEN REID & PRIEST LLP
101 SECOND STREET, SUITE 1800
SAN FRANCISCO, CALIFORNIA 94105-3601
Approximate date of commencement of proposed sale to the public:
FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT IS DECLARED EFFECTIVE.
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans,
please check the following box. []
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, other than securities offered
solely in connection with dividend or interest reinvestment
plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. []
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. []
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. []
CALCULATION OF REGISTRATION FEE
Title of Each Class Amount to Proposed Proposed Amount of
of Securities be Maximum Maximum Registration
to be Registered Registered Offering Aggregate Fee
Price Offering
Per Unit (1) Price (1)
Common Stock, $0.001 686,503 $51.9375 $35,655,249.56 $9,412.99
par value shares
(1) Estimated solely for the purpose of determining the
registration fee in accordance with Rule 457(c) under the
Securities Act of 1933, as amended. The above calculation
is based on the average of the reported high and low prices
of the Common Stock on the Nasdaq National Market on May 17,
2000.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION DATED MAY 19, 2000
The information in this preliminary prospectus is not complete and
may be changed. These securities may not be sold until the
registration statement filed with the securities and exchange
commission is effective. This preliminary prospectus is not an offer
to sell nor does it seek an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.
<PAGE>
PROSPECTUS
686,503 Shares
Advanced Energy Industries, Inc.
Common Stock
This prospectus relates to the public offering, which is not
being underwritten, of up to 686,503 shares of our common stock
by the selling stockholders identified in this prospectus. The
prices at which the stockholders may sell the shares will be
determined by the prevailing market for the shares or in
negotiated transactions. We will not receive any proceeds from
the sale of shares offered under this prospectus.
Our common stock is traded on the Nasdaq National Market
under the symbol "AEIS." The last reported sale price on May 17,
2000 was $51.375.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS TO
READ ABOUT IMPORTANT FACTORS YOU SHOULD CONSIDER BEFORE
PURCHASING SHARES OF THE COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER
REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES
OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is ________, 2000
<PAGE>
ADVANCED ENERGY INDUSTRIES, INC.
OVERVIEW
We design, manufacture and support power conversion and
control systems. These systems are important components of
industrial manufacturing equipment that modifies surfaces or
deposits or etches thin film layers on computer chips, CDs, flat
panel displays such as computer screens, DVDs, windows,
eyeglasses, solar panels and other products. Our systems refine,
modify and control the raw electrical power from a utility and
convert it into power that is uniform and predictable. This
allows manufacturing equipment to produce and deposit very thin
films at an even thickness on a mass scale.
The ongoing demand for improvements in the performance,
capacity and speed of computer chips, flat panel displays and
other products drives manufacturers to develop more advanced
technology to produce thinner, more consistent and more precise
layers of film. Thin film production processes enable
manufacturers to control and alter the electrical, magnetic,
optical and mechanical characteristics of materials. Our systems
are used primarily in plasma-based thin film production
processes. Plasma is commonly created by applying enough
electrical force to a gas at reduced pressure to separate
electrons from their parent atoms. Plasma-based process
technology was developed to address the limitations of wet
chemistry and thermal process technologies and to enable new
applications. Plasma-based processes are inherently more
controllable and more accurate for many applications than other
thin film production processes because of the electrical
characteristics of plasma.
We market and sell our systems primarily to large, global
original equipment manufacturers of semiconductor, flat panel
display, data storage and other industrial thin film
manufacturing equipment. We have sold our systems worldwide to
more than 100 OEMs and directly to more than 500 end-users. Our
principal customers include Applied Materials, Balzers, Eaton,
Lam Research, Novellus, Singulus and ULVAC. The semiconductor
capital equipment industry accounted for approximately 59% of our
total sales in 1997, 49% in 1998, 61% in 1999 and 62% in the
first three months of 2000.
We incorporated in Colorado in 1981 and reincorporated in
Delaware in 1995. Our main offices are located at 1625 Sharp
Point Drive, Fort Collins, Colorado 80525, and our telephone
number is (970) 221-4670.
RECENT DEVELOPMENTS
In April 2000, we acquired Noah Holdings, Inc. ("Noah"), a
privately-held manufacturer of solid state temperature control
systems used to control process temperatures during semiconductor
manufacturing. We believe that this acquisition will enable us
to increase our product offerings and provide more value to our
customers.
STRATEGY
We have achieved a market leadership position in the
semiconductor equipment, flat panel display and data storage
industries by applying our large base of expertise in the
interaction between plasma-based processes and power conversion
and control systems to design highly precise, customized power
conversion and control systems that provide a wide range of power
frequencies for plasma-based thin film processes. Our strategy
is to continue to build upon our leadership positions in these
industries while exploring other emerging markets. We believe
our five key growth opportunities are:
EXPANDING LEADERSHIP IN OUR CORE MARKETS. We believe we are
the market share leader in the semiconductor capital equipment,
data storage and flat panel display markets. We plan to continue
to increase our penetration in these three markets by introducing
new products and solutions for our existing customers and
targeting new customers, but our primary focus will continue to
be on the semiconductor capital equipment market. For example,
in the semiconductor capital equipment market we believe that
significant opportunities exist for us to introduce new products
for processes or applications such as:
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* etch applications using radio frequency power;
* gas abatement;
* on-line measurement of power characteristics; and
* copper electroplating.
PROVIDING INTEGRATED SOLUTIONS FOR CUSTOMERS. We believe
that customers want solutions that improve process control and
yield, and decrease their total cost and time to market. We are
developing integrated systems to provide more complete solutions
that meet our customers' plasma-based process requirements. We
are identifying currently fragmented applications of technology
involving significant power, measurement and control content, and
developing integrated, high performance, robust and cost-
effective solutions for these applications.
TARGETING EMERGING APPLICATIONS. We are targeting emerging
applications that have the potential to benefit from more
efficient and reliable use of power in manufacturing processes
for telecommunications networking equipment, automotive parts,
tools, architectural glass and other industrial products.
PURSUING ACQUISITIONS TO FUEL GROWTH. We actively seek
complementary technologies and companies as a means to expand our
presence in existing and emerging markets and to provide
integrated solutions for customers and potential customers. We
have acquired and integrated four companies in the last two
years. We continually evaluate companies whose products and
technologies could enhance our system level capabilities.
CAPITALIZING ON WORLDWIDE INFRASTRUCTURE. Our principal
customers are large, global OEMs that require that their
suppliers have a well-developed worldwide infrastructure. We
plan to continue to take advantage of and expand our established
global infrastructure, operating skills and comprehensive product
portfolio to better serve these customers and to attract new
customers with international support needs.
SALES AND MARKETING
We sell our systems primarily through direct sales personnel
to customers in the United States, Europe and Asia, and through
distributors in China, France, Israel, Italy, Singapore, and
Sweden. Sales outside the United States represented 23% of our
total sales during 1997, 28% in 1998, 29% in 1999 and 31% in the
first three months of 2000. We maintain sales and service
offices across the United States in California, Colorado,
Massachusetts, Minnesota, New Jersey and Texas. We maintain
sales and service offices outside the United States in Germany,
Japan, South Korea, the United Kingdom and Taiwan.
RF POWER PRODUCTS ACQUISITION
In October 1998, we acquired RF Power Products, which
designs, manufactures and supports radio frequency (RF) power
conversion and control systems consisting of generators and
matching networks. Generators provide RF power and matching
networks provide control over power flow to the customers'
equipment. We believe our ability to offer an expanded line of
RF systems to our existing customer base has strengthened those
relationships. We sell these products principally to
semiconductor capital equipment manufacturers. We also sell
similar systems to capital equipment manufacturers in the flat
panel display and thin film data storage industries and are
exploring applications for these systems in other industries.
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RISK FACTORS
Investing in our common stock involves a high degree of
risk. You should carefully consider the risks and uncertainties
described below and the other information in this prospectus and
in the documents incorporated by reference before deciding
whether to purchase our common stock.
RISKS RELATED TO OUR BUSINESS
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT
FLUCTUATIONS, WHICH COULD NEGATIVELY IMPACT OUR FINANCIAL
CONDITION, RESULTS OF OPERATIONS AND STOCK PRICE.
Our quarterly operating results have fluctuated
significantly and we expect them to continue to experience
significant fluctuations. Downward fluctuations in our quarterly
results have historically resulted in decreases in the price of
our common stock. Quarterly operating results are affected by a
variety of factors, many of which are beyond our control. These
factors include:
* changes or slowdowns in economic conditions in the
semiconductor and semiconductor capital equipment industries
and other industries in which our customers operate;
* the timing and nature of orders placed by major customers;
* customer cancellations of previously placed orders and
shipment delays;
* pricing competition from our competitors;
* component shortages resulting in manufacturing delays;
* changes in customers' inventory management practices;
* the introduction of new products by us or our competitors;
and
* costs incurred by responding to specific feature requests by
customers.
In addition, companies in the semiconductor capital
equipment industry and other electronics companies experience
pressure to reduce costs. Our customers exert pressure on us to
reduce our prices, shorten delivery times and extend payment
terms. These pressures could lead to significant changes in our
operating results from quarter to quarter.
In the past, we have incurred charges and costs related to
events such as acquisitions, restructuring and storm damages.
The occurrence of similar events in the future could adversely
affect our operating results in the applicable quarter.
Our operating results in one or more future quarters may
fall below the expectations of analysts and investors. In those
circumstances, the trading price of our securities would likely
decrease.
THE SEMICONDUCTOR AND SEMICONDUCTOR CAPITAL EQUIPMENT INDUSTRIES
ARE HIGHLY VOLATILE AND OUR OPERATING RESULTS ARE AFFECTED TO A
LARGE EXTENT BY EVENTS IN THOSE INDUSTRIES.
The semiconductor industry historically has been highly
volatile and has experienced periods of oversupply resulting in
significantly reduced demand for semiconductor fabrication
equipment, which includes our systems. During downturns, some of
our customers have drastically reduced their orders to us and
have implemented substantial cost reduction programs. Sales to
customers in the semiconductor capital equipment industry
accounted for 59% of our total sales in 1997, 49% in 1998, 61% in
1999 and 62% in the first three months of 2000. We expect that
we will continue to depend significantly on the semiconductor and
semiconductor capital equipment industries for the foreseeable
future.
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A rapid decrease in demand for our products can occur with
limited advance notice because we supply subsystems to equipment
manufacturers and make a substantial and increasing proportion of
our shipments on a just-in-time basis. This decrease in demand
can adversely impact our business and financial results
disproportionately because of its unanticipated nature.
A SIGNIFICANT PORTION OF OUR SALES ARE CONCENTRATED AMONG A FEW
CUSTOMERS.
Our four largest customers accounted for 51% of our total
sales in 1997, 47% in 1998, 53% in 1999 and 54% in the first
quarter of 2000. Our largest customer accounted for 31% of our
total sales in 1997, 23% in 1998, 32% in 1999 and 36% in the
first quarter of 2000. The loss of any of these customers or a
material reduction in any of their purchase orders would have a
material adverse effect on our business, financial condition and
results of operations.
THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE.
We face substantial competition, primarily from established
companies, some of which have greater financial, marketing and
technical resources than we do. Our primary competitors are ENI,
a subsidiary of Astec (BSR) plc, Applied Science and Technology
(ASTeX), Huettinger, Shindingen, Kyosan, Comdel and Daihen. We
expect that our competitors will continue to develop new products
in direct competition with ours, improve the design and
performance of their systems and introduce new systems with
enhanced performance characteristics.
To remain competitive, we need to continue to improve and
expand our systems and system offerings. In addition, we need to
maintain a high level of investment in research and development
and expand our sales and marketing efforts, particularly outside
of the United States. We may not be able to make the
technological advances and investments necessary to remain
competitive.
New products developed by competitors or more efficient
production of their products could increase pressure on the
pricing of our systems. In addition, electronics companies,
including companies in the semiconductor capital equipment
industry, have been facing pressure to reduce costs. Either of
these factors may require us to make significant price reductions
to avoid losing orders. Further, our current and prospective
customers consistently exert pressure on us to lower prices,
shorten delivery times and improve the capability of our systems.
Failure to respond adequately to such pressures could result in a
loss of customers or orders.
WE MAY NOT BE ABLE TO INTEGRATE OUR ACQUISITIONS.
We have experienced significant growth through acquisitions
and continue to actively pursue acquisition opportunities. Our
acquisitions to date generally have been in markets in which we
have limited experience. We may not be able to compete
successfully in these markets or might not be able to operate the
acquired businesses efficiently. Our business and results of
operations could be adversely affected if integrating these
acquisitions results in substantial costs, delays or other
operational or financial problems.
Future acquisitions could place additional strain on our
operations and management. Our ability to manage future
acquisitions will depend on our success in:
* evaluating new markets and investments;
* monitoring operations;
* controlling costs;
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* integrating acquired operations and personnel;
* maintaining effective quality controls; and
* expanding our internal management, technical and accounting
systems.
Also, in connection with future acquisitions we may issue
equity securities which could be dilutive, incur debt, recognize
substantial one-time expenses or create goodwill or other
intangible assets that could result in significant amortization
expense.
WE ARE GROWING AND MAY BE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY.
We have been experiencing a period of growth and expansion.
This growth and expansion is placing significant demands on our
management and our operating systems. We need to continue to
improve and expand our management, operational and financial
systems, procedures and controls, including accounting and other
internal management systems, quality control, delivery and
service capabilities.
In order to manage our growth, we may also need to spend
significant amounts of cash to:
* fund increases in expenses;
* 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 we do not have enough cash on hand, cash generated from
our operations or cash available under our credit facility to
meet these cash requirements, we will need to seek alternative
sources of financing to carry out our growth and operating
strategies. We may not be able to raise needed cash on terms
acceptable to us, or at all. Financings may be on terms that are
dilutive or potentially dilutive. If alternative sources of
financing are required but are insufficient or unavailable, we
will be required to modify our growth and operating plans to the
extent of available funding.
SHORTAGES OF COMPONENTS NECESSARY FOR OUR PRODUCT ASSEMBLY CAN
DELAY OUR SHIPMENTS.
Manufacturing our power conversion and control systems
requires numerous electronic components. Dramatic growth in the
electronics industry has significantly increased demand for these
components, particularly in the first quarter of 2000. This
demand has resulted in periodic shortages and allocations of
needed components, and we expect to experience additional
shortages and allocations from time to time. Shortages and
allocations could cause shipping delays for our systems,
adversely affecting our results of operations. Shipping delays
also could damage our relationships with current and prospective
customers.
OUR DEPENDENCE ON SOLE AND LIMITED SOURCE SUPPLIERS COULD AFFECT
OUR ABILITY TO MANUFACTURE PRODUCTS AND SYSTEMS.
We rely on sole and limited source suppliers for some of our
components and subassemblies that are critical to the
manufacturing of our systems. This reliance involves several
risks, including the following:
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* 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 our suppliers to develop
technologically advanced products to support our growth and
development of new systems.
We believe that in time we could obtain and qualify
alternative sources for most sole and limited source parts or
could manufacture the parts ourselves. Seeking alternative
sources or commencing internal manufacture of the parts could
require us to redesign our systems, resulting in increased costs
and likely shipping delays. We may be unable to manufacture the
parts internally or redesign our systems, which could result in
further costs and shipping delays. These increased costs would
decrease our profit margins if we could not pass the costs to our
customers. Further, shipping delays could damage our
relationships with current and potential customers and have a
material adverse effect on our business and results of
operations.
WE ARE HIGHLY DEPENDENT ON OUR INTELLECTUAL PROPERTY BUT MAY NOT
BE ABLE TO PROTECT IT ADEQUATELY.
Our success depends in part on our proprietary technology.
We attempt to protect our intellectual property rights through
patents and non-disclosure agreements. However, we might not be
able to protect our technology, and competitors might be able to
develop similar technology independently. In addition, the laws
of certain foreign countries might not afford our intellectual
property the same protection as do the laws of the United States.
For example, our intellectual property is not protected by
patents in several countries in which we do business, and we have
limited patent protection in certain other countries. The costs
of applying for patents in foreign countries and translating the
applications into foreign languages require us to select
carefully the inventions for which we apply for patent protection
and the countries in which we seek such protection. Generally,
we have concentrated our efforts to obtain international patents
in the United Kingdom, Germany, France, Italy and Japan because
there are other manufacturers and developers of power conversion
and control systems in those countries, as well as customers for
those systems. Our inability or failure to obtain adequate
patent protection in a particular country could have a material
adverse effect on our ability to compete effectively in that
country.
Our patents also might not be sufficiently broad to protect
our technology, and any existing or future patents might be
challenged, invalidated or circumvented. Additionally, our
rights under our patents may not provide meaningful competitive
advantages.
We do not believe that any of our products are infringing
any patents or proprietary rights of others, although
infringements may exist or might occur in the future. Litigation
may be necessary to enforce patents issued to us, to protect our
trade secrets or know-how, to defend ourselves against claimed
infringement of the rights of others or to determine the scope
and validity of the proprietary rights of others. Litigation
could result in substantial cost and diversion of our efforts.
Moreover, an adverse determination in any litigation could cause
us to lose proprietary rights, subject us to significant
liabilities to third parties, require us to seek licenses or
alternative technologies from third parties or prevent us from
manufacturing or selling our products. Any of these events could
have a material adverse effect on our business, financial
condition and results of operations.
WE MUST CONSTANTLY DEVELOP AND SELL NEW SYSTEMS IN ORDER TO KEEP
UP WITH RAPID TECHNOLOGICAL CHANGES.
The markets for our systems and the markets in which our
customers compete are characterized by ongoing technological
developments and changing customer requirements. We must
continue to improve existing systems and to develop new systems
that keep pace with technological advances and meet the needs of
our customers in order to succeed. We might not be able to
continue to improve our
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systems or develop new systems. The systems we do develop might
not be cost-effective or introduced in a timely manner. Developing
and introducing new systems may involve significant and uncertain
costs. Our business, financial condition and results of operations,
as well as our customer relationships, could be adversely affected
if we fail to develop or introduce improved systems and new systems
in a timely manner.
WE MUST ACHIEVE DESIGN WINS TO RETAIN OUR EXISTING CUSTOMERS AND
TO OBTAIN NEW CUSTOMERS.
The constantly changing nature of semiconductor fabrication
technology causes equipment manufacturers to continually design
new systems. We often must work with these manufacturers early
in their design cycles to modify our equipment to meet the
requirements of the new systems. Manufacturers typically choose
one or two vendors to provide the power conversion equipment for
use with the early system shipments. Selection as one of these
vendors is called a design win. It is critical that we achieve
these design wins in order to retain existing customers and to
obtain new customers.
We typically must customize our systems for particular
customers to use in their equipment to achieve design wins. This
customization increases our research and development expenses and
can strain our engineering and management resources. These
investments do not always result in design wins.
Once a manufacturer chooses a power conversion and control
system for use in a particular product, it is likely to retain
that system for the life of that product. Our sales and growth
could experience material and prolonged adverse effects if we
fail to achieve design wins. In addition, design wins do not
always result in substantial sales or profits.
We believe that equipment manufacturers often select their
suppliers based on factors such as long-term relationships.
Accordingly, we may have difficulty achieving design wins from
equipment manufacturers who are not currently customers. In
addition, we must compete for design wins for new systems and
products of our existing customers, including those with whom we
have had long-term relationships.
OUR EFFORTS TO BE RESPONSIVE TO CUSTOMERS MAY LEAD TO THE
INCURRENCE OF COSTS THAT ARE NOT READILY RECOVERABLE.
We may incur manufacturing overhead and other costs, many of
which are fixed, to meet anticipated customer demand.
Accordingly, operating results could be adversely affected if
orders or revenues in a particular period or for a particular
system do not meet expectations.
We often require long lead times for development of our
systems during which times we must expend substantial funds and
management effort. We may incur significant development and
other expenses as we develop our systems without realizing
corresponding revenue in the same period, or at all.
OUR SUCCESS DEPENDS UPON OUR ABILITY TO ATTRACT AND RETAIN KEY
PERSONNEL.
Our success depends upon the continued efforts of our senior
management team and our technical, marketing and sales personnel.
These employees may voluntarily terminate their employment with
us at any time. Our success also depends on our ability to
attract and retain additional highly qualified management,
technical, marketing and sales personnel. The process of hiring
employees with the combination of skills and attributes required
to carry out our strategy can be extremely competitive and time-
consuming. We may not be able to successfully retain existing
personnel or identify, hire and integrate new personnel. If we
lose the services of key personnel for any reason, including
retirement, or
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are unable to attract additional qualified personnel, our business,
financial condition and results of operations could be materially
and adversely affected.
WE CONDUCT MANUFACTURING AT ONLY A FEW SITES.
We conduct the majority of our manufacturing at our
facilities in Fort Collins, Colorado and in Voorhees, New Jersey.
We also conduct manufacturing for one customer in Austin, Texas.
Tower Electronics, a subsidiary, conducts manufacturing only at
its facility in Fridley, Minnesota. Noah, a subsidiary, conducts
manufacturing only at its facility in San Jose, California. Each
facility generally manufactures different systems. In July 1997,
a severe rainstorm in Fort Collins caused substantial damage to
our Fort Collins facilities and to some equipment and inventory.
The damage caused us to stop manufacturing at that facility
temporarily and prevented us from resuming full production there
until mid-September 1997. Our insurance policies did not cover
all of the costs that we incurred in connection with the
rainstorm. Future natural or other uncontrollable occurrences at
any of our primary manufacturing facilities that negatively
impact our manufacturing processes may not be fully covered by
insurance and could have a material adverse effect on our
operations and results of operations.
WE HAVE LIMITED EXPERIENCE IN MAINTAINING MULTIPLE MANUFACTURING
FACILITIES.
The acquisitions of Tower Electronics in 1997, RF Power
Products in 1998, and Noah in 2000 provided us with manufacturing
facilities located outside of our facilities in Fort Collins,
Colorado. Accordingly, we have limited experience in maintaining
multiple manufacturing locations. Substantial costs and delays
could result if we fail to effectively manage and integrate our
geographically separate facilities.
WE MIGHT NOT BE ABLE TO COMPETE SUCCESSFULLY IN INTERNATIONAL
MARKETS OR TO MEET THE SERVICE AND SUPPORT NEEDS OF OUR
INTERNATIONAL CUSTOMERS.
Our customers increasingly require service and support on a
worldwide basis as the markets in which we compete become
increasingly globalized. We maintain sales and service offices
in Germany, Japan, South Korea, the United Kingdom, and Taiwan.
Sales to customers outside the United States accounted for
23% of our total sales in 1997, 28% in 1998, 29% in 1999 and 31%
in the first three months of 2000, and we expect international
sales to continue to represent a significant portion of our
future sales. International sales are subject to various risks,
including:
* currency fluctuations;
* governmental controls;
* political and economic instability;
* barriers to entry;
* trade restrictions;
* changes in tariffs and taxes; and
* longer payment cycles.
In particular, the Japanese market has historically been
difficult for non-Japanese companies, including us, to penetrate.
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Providing support services for our systems on a worldwide
basis also is subject to various risks, including:
* our ability to hire qualified support personnel;
* maintenance of our standard level of support; and
* differences in local customers and practices.
Our international activities are also subject to the
difficulties of managing overseas distributors and
representatives and managing foreign subsidiary operations.
We cannot assure you that we will be successful in
addressing any of these risks.
FLUCTUATIONS IN THE CURRENCY EXCHANGE RATE BETWEEN THE U.S.
DOLLAR AND FOREIGN CURRENCIES COULD ADVERSELY AFFECT OUR
OPERATING RESULTS.
A portion of our sales is subject to currency exchange risks
as a result of our international operations. We have experienced
fluctuations in foreign currency exchange rates, particularly
against the Japanese yen. Beginning in 1997, we entered into
various forward foreign exchange contracts as a hedge against
currency fluctuations in the yen. We have not employed hedging
techniques with respect to any other currencies. Our current or
any future hedging techniques might not protect us adequately
against sudden or substantial currency fluctuations.
WE MUST MAINTAIN MINIMUM LEVELS OF CUSTOMIZED INVENTORY TO
SUPPORT CERTAIN CUSTOMER DELIVERY REQUIREMENTS.
We must keep a relatively large number and variety of
customized systems in our inventory to meet client delivery
requirements because a substantial proportion of our business
involves the just-in-time shipment of systems. Our inventory may
become obsolete as we develop new systems and as our customers
develop new systems. Inventory obsolescence could have a
material adverse effect on our financial condition and results of
operations.
WE ARE SUBJECT TO NUMEROUS GOVERNMENTAL REGULATIONS.
We are subject to federal, state, local and foreign
regulations, including environmental regulations and regulations
relating to the design and operation of our power conversion and
control systems. We must ensure that our systems meet certain
safety and emissions standards, many of which vary across the
states and countries in which our systems are used. For example,
the European Union has published directives specifically relating
to power supplies. We must comply with these directives in order
to ship our systems into countries that are members of the
European Union. In the past, we have invested significant
resources to redesign our systems to comply with these
directives. We believe we are in compliance with current
applicable regulations, directives and standards and have
obtained all necessary permits, approvals and authorizations to
conduct our business. However, compliance with future
regulations, directives and standards could require us to modify
or redesign certain systems, make capital expenditures or incur
substantial costs. If we do not comply with current or future
regulations, directives and standards:
* we could be subject to fines;
* our production could be suspended; or
* we could be prohibited from offering particular systems in
specified markets.
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WE MAY INVEST IN START-UP COMPANIES AND COULD LOSE OUR ENTIRE
INVESTMENT.
We have a majority interest in a start-up company and may
invest in other start-up companies that develop products and
technologies which we believe may provide us with future
benefits. These investments may not provide us with any benefit,
and we may not achieve any economic return on any of these
investments. Our investments in these start-up companies are
subject to all of the risks inherent in investing in companies
that are not established. We could lose all or any part of our
investments in these companies.
WE LEASE OUR FORT COLLINS, COLORADO FACILITIES AND A CONDOMINIUM
FROM ENTITIES IN WHICH TWO INDIVIDUALS WHO ARE INSIDERS AND MAJOR
STOCKHOLDERS HAVE FINANCIAL INTERESTS.
We lease our executive offices and manufacturing facilities
in Fort Collins, Colorado from Prospect Park East Partnership and
from Sharp Point Properties, LLC. Douglas S. Schatz, our Chairman
and Chief Executive Officer, holds a 26.7% interest in each of
the leasing entities. G. Brent Backman, a member of our board of
directors, holds a 6.6% interest in each of the leasing entities.
Aggregate rental payments under such leases for 1999 totaled
approximately $1.7 million. We also lease a condominium in
Breckenridge, Colorado to provide rewards and incentives to our
customers, suppliers and employees. We lease the condominium
from AEI Properties, a partnership in which Mr. Schatz holds a
60% interest and Mr. Backman holds a 40% interest. Aggregate
rental payments under the condominium lease for 1999 totaled
approximately $36,000. As of May 9, 2000, Mr. Schatz owns
approximately 40% of our common stock, and Mr. Backman owns
approximately 4% of our common stock.
RISKS RELATED TO OUR COMMON STOCK
THE MARKET PRICE OF OUR STOCK HAS BEEN AND WILL LIKELY CONTINUE
TO BE HIGHLY VOLATILE.
The stock market generally and the market for technology
stocks in particular have experienced significant price and
volume fluctuations, which often have been unrelated or
disproportionate to the operating performance of such companies.
From our IPO in November 1995 through May 9, 2000, the closing
prices of our common stock on the Nasdaq National Market have
ranged from $3.50 to $73.25. The market for our common stock
likely will continue to be subject to similar fluctuations. Many
factors could cause the trading price of our common stock to
fluctuate substantially, including the following:
* future announcements concerning our business, our customers
or our competitors;
* variations in our operating results;
* announcements of technological innovations;
* introduction of new products or changes in product pricing
policies by us, our competitors or our customers;
* changes in earnings estimates by securities analysts or
announcements of operating results that are not aligned with
the expectations of analysts and investors;
* economic and competitive conditions in the industries in
which our customers operate; and
* general stock market trends.
OUR EXECUTIVE OFFICERS AND DIRECTORS OWN A SIGNIFICANT PERCENTAGE
OF OUR OUTSTANDING COMMON STOCK, WHICH COULD ENABLE THEM TO
CONTROL OUR BUSINESS AND AFFAIRS.
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Our executive officers and directors owned approximately 46%
of our outstanding common stock outstanding as of May 9, 2000.
Douglas S. Schatz, our Chairman and Chief Executive Officer,
owned approximately 40% of our common stock outstanding as of May
9, 2000. These stockholdings give our executive officers and
directors collectively, and Mr. Schatz individually, significant
voting power. Depending on the number of shares that abstain or
otherwise are not voted, our executive officers and directors
collectively, and Mr. Schatz individually, may be able to elect
all of the members of our board of directors and to control our
business and affairs for the foreseeable future.
ANTITAKEOVER PROVISIONS LIMIT THE ABILITY OF A PERSON OR ENTITY
TO ACQUIRE CONTROL OF US.
Our certificate of incorporation and bylaws include
provisions which:
* allow the board of directors to issue preferred stock with
rights senior to those of the common stock without any vote
or other action by the holders of the common stock;
* limit the right of our stockholders to call a special
meeting of stockholders; and
* impose procedural and other requirements that could make it
difficult for stockholders to effect certain corporate
actions.
In addition, we are subject to the anti-takeover provisions
of the Delaware General Corporation Law. Any of these provisions
could delay or prevent a person or entity from acquiring control
of us. The effect of these provisions may be to limit the price
that investors are willing to pay in the future for our
securities. These provisions might also discourage potential
acquisition proposals or could diminish the opportunities for our
stockholders to participate in a tender offer, even if the
acquisition proposal or tender offer is at a price above the then
current market price for our common stock.
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Some of the statements contained in or incorporated by
reference in this prospectus discuss our plans and strategies for
our business or make other forward-looking statements, as this
term is defined in the Private Securities Litigation Reform Act.
The words "anticipates", "believes", "estimates", "expects",
"plans", "intends" and similar expressions are intended to
identify these forward-looking statements, but are not the
exclusive means of identifying them. These forward-looking
statements reflect the current views of our management. However,
various risks, uncertainties and contingencies could cause our
actual results, performance or achievements to differ materially
from those expressed in, or implied by, these statements,
including the following:
* the success or failure of our efforts to implement our
business strategy; and
* the other risks and uncertainties discussed under the
heading "Risk Factors" and elsewhere in this prospectus and
in the documents incorporated by reference.
We do not have any obligation to update publicly any forward-
looking statements, whether as a result of new information,
future events or otherwise. You should carefully consider the
information set forth under the heading "Risk Factors" and
elsewhere in this prospectus and in the documents incorporated by
reference. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in, implied by
or incorporated by reference in this prospectus might not occur.
USE OF PROCEEDS
All of the shares of our common stock are being sold by the
selling stockholders. We will not receive any proceeds from the
sale of these shares.
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SELLING STOCKHOLDERS
The following table sets forth the names of the selling
stockholders and the number of shares being registered for sale
as of the date of the prospectus and sets forth the number of
shares of common stock known by us to be beneficially owned by
each of the selling stockholders as of May 9, 2000. None of the
selling stockholders has had a material relationship with the
Company within the past three years other than as a result of the
ownership of the shares or other securities of Advanced Energy.
The shares offered by this prospectus may be offered from time to
time by the selling stockholders.
Pursuant to an acquisition of Noah on April 5, 2000, we
issued 686,503 shares of common stock to the selling
stockholders. As part of the acquisition, we undertook a
contractual obligation, by the terms of the Agreement and Plan of
Reorganization, to file a registration statement covering the
resale of the shares issued in such acquisition through the
filing of this Form S-3.
The selling stockholders, with the exception of Hultquist
Capital LLC, have entered into an Escrow and Indemnity Agreement
with Advanced Energy, dated April 5, 2000, under which the shares
being registered may only be offered, pledged, transferred, sold
or otherwise disposed of according to the following schedule: 90%
as of the date that financial results covering at least 30 days of
combined operations of Noah and Advanced Energy have been publicly
disclosed pursuant to a report filed by Advanced Energy with the
SEC, and 10% as of April 5, 2001 reduced by the amount of any
outstanding claims under the indemnity provisions of the Escrow and
Indemnity Agreement.
All information contained in the table below is based upon
information provided to us by the selling stockholders, and we
have not independently verified this information. We are not able
to estimate the amount of shares that will be held by the selling
stockholders after the completion of this offering because the
selling stockholders may offer all or some of their shares and
because there currently are no agreements, arrangements or
understandings with respect to the sale of any of their shares.
The following table assumes that all of the shares being
registered will be sold. The selling stockholders are not making
any representation that any shares covered by the prospectus will
be offered for sale. The selling stockholders reserve the right
to accept or reject, in whole or in part, any proposed sale of
shares.
Number of Shares Number of Shares
Name Beneficially Owned Registered
Robert W. Higgins 334,969 334,969
Galex Research (1) 121,907 121,907
Valentin Balter 81,271 81,271
Duane Allan Kogler 10,983 10,983
PacTech/Noah
Investments LLC 54,913 54,913
PacTech Partners LLC 28,902 28,902
Jerauld J. Cutini 8,237 8,237
Peter Adams 5,491 5,491
Oliver Janssen 3,980 3,980
Gary Hultquist 2,607 2,607
Hultquist Capital
LLC(2) 33,243 33,243
(1) Boris Atlas, who is an employee of a Noah, a subsidiary of
Advanced Energy, is a partner in Galex Research, a
California general partnership.
(2) Both Oliver Janssen and Gary Hultquist are members of
Hultquist Capital LLC.
13
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Robert W. Higgins, Duane Allan Kogler, and Peter Adams are
employed by Noah, a subsidiary of Advanced Energy.
This prospectus also covers any additional shares of common
stock that become issuable in connection with the shares being
registered by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without
the receipt of consideration which results in an increase in the
number of our outstanding shares of common stock.
PLAN OF DISTRIBUTION
We are registering all 686,503 shares on behalf of the
selling stockholders named in the table above. All of the shares
originally were issued by us in connection with our acquisition
of Noah. We will not receive proceeds from this offering. The
selling stockholders may sell the shares from time to time,
subject to certain restrictions. The selling stockholders will
act independently of us in making decisions with respect to the
timing, manner and size of each sale.
The sales may be made on the Nasdaq National Market or
otherwise, at prices and at terms then prevailing or at prices
related to the then current market price, or in negotiated
transactions. The selling stockholders may effect such
transactions by selling the shares to or through broker-dealers.
The shares may be sold by one or more of, or a combination of,
the following:
* a block trade in which the broker-dealer so engaged will
attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate
the transaction,
* purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this prospectus,
* an exchange distribution in accordance with the rules of
such exchange,
* ordinary brokerage transactions and transactions in which
the broker solicits purchasers, and
* in privately negotiated transactions.
To the extent required, this prospectus may be amended or
supplemented from time to time to describe a specific plan of
distribution. In effecting sales, broker-dealers engaged by the
selling stockholders may arrange for other broker-dealers to
participate in the resales.
The selling stockholders may enter into hedging transactions
with broker-dealers in connection with distributions of the
shares or otherwise. In such transactions, broker-dealers may
engage in short sales of the shares in the course of hedging the
positions they assume with the selling stockholders.
The selling stockholders also may sell shares short and
redeliver the shares to close out such short positions. The
selling stockholders may enter into option or other transactions
with broker-dealers which require the delivery to the broker-
dealer of the shares. The broker-dealer may then resell or
otherwise transfer such shares pursuant to this prospectus. The
selling stockholders also may loan or pledge the shares to a
broker-dealer. The broker-dealer may sell the shares so loaned,
or upon a default the broker-dealer may sell the pledged shares
pursuant to this prospectus.
Broker-dealers or agents may receive compensation in the
form of commissions, discounts or concessions from the selling
stockholders. Broker-dealers or agents may also receive
compensation from the purchasers of the shares for whom they act
as agents or to whom they sell as principals, or both.
Compensation as to a particular broker-dealer might be in excess
of customary commissions and will be in amounts to be negotiated
in connection with the sale. Broker-dealers or agents and any other
14
<PAGE>
participating broker-dealers or the selling stockholders
may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act of 1933 in connection with sales of the
shares. Accordingly, any such commission, discount or concession
received by them and any profit on the resale of the shares
purchased by them may be deemed to be underwriting discounts or
commissions under the Securities Act. Because a selling
stockholder may be deemed to be an "underwriter" within the
meaning of Section 2(11) of the Securities Act, each selling
stockholders will be subject to the prospectus delivery
requirements of the Securities Act. In addition, any securities
covered by this prospectus which qualify for sale pursuant to
Rule 144 promulgated under the Securities Act may be sold under
Rule 144 rather than pursuant to this prospectus. The selling
stockholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters
or broker-dealers regarding the sale of their securities. There
is no underwriter or coordinating broker acting in connection
with the proposed sale of shares by the selling stockholders.
The shares will be sold only through registered or licensed
brokers or dealers if required under applicable state securities
laws. In addition, in certain states the shares may not be sold
unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
The selling stockholders will be subject to applicable
provisions of the Securities Exchange Act of 1934 and the rules and
regulations thereunder, which provisions may limit the timing of
purchases and sales of any of the common stock by the selling
stockholders. The foregoing may affect the marketability of such
securities.
We will make copies of this prospectus available to the
selling stockholders and have informed them of the need for
delivery of copies of this prospectus to purchasers at or prior
to the time of any sale of the shares.
We will file a supplement to this prospectus, if required,
pursuant to Rule 424(b) under the Securities Act upon being
notified by any selling stockholder that any material arrangement
has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer. Such
supplement will disclose:
* the name of the selling stockholders and of the
participating broker-dealer(s),
* the number of shares involved,
* the price at which such shares were sold,
* the commissions paid or discounts or concessions allowed to
such broker-dealer(s), where applicable,
* that such broker-dealer(s) did not conduct any investigation
to verify the information set out or incorporated by
reference in this prospectus, and
* other facts material to the transaction.
We will bear all costs, expenses and fees in connection with
the registration of the shares. The selling stockholders will
bear all commissions and discounts, if any, attributable to the
sales of the shares.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a
Registration Statement on Form S-3 under the Securities Act,
relating to the common stock being offered. This prospectus
is filed as part of the registration statement. Other parts of
the registration statement are omitted from this prospectus.
15
<PAGE>
Statements made in this prospectus concerning the contents
of any contract or other document are not necessarily complete. For a
more complete description of the matter involved, you should read
the entire contract or other document, which has been filed as an
exhibit to the registration statement.
We are required by the Exchange Act to file reports, proxy
statements and other information with the SEC. You may read and copy
such reports, proxy statements and other information at the SEC's
public reference facilities:
Washington D.C. New York Chicago
Judiciary Plaza Seven World Trade Center Citicorp Center
450 Fifth Street, NW Suite 1300 500 West Madison Street
Room 1024 New York, NY 10048 Suite 1400
Washington, D.C. Chicago, IL 60661-2511
20549
You may call 1-800-SEC-0330 for further information about
the public reference facilities. For a fee, the SEC will send
copies of any of our filings to you. In addition, our filed
reports, proxy statements and other information are contained in
the Internet web site maintained by the SEC. The address is
http://www.sec.gov.
Our common stock is quoted on the Nasdaq National Market
under the symbol "AEIS", and our SEC filings can also be read at
the following Nasdaq address:
Nasdaq Operations
1735 K Street, N.W.
Washington, D.C. 20006
INCORPORATION BY REFERENCE
The SEC allows us to incorporate by reference the
information we file with it, which means we can disclose
important information to you by referring you to those documents.
The information incorporated by reference is considered to be a
part of this prospectus, and later information that we file with
the SEC will automatically update and supersede this information.
We incorporate by reference the documents listed below and any
future filings made with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act until all of the securities
registered in this offering are sold:
1. Our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2000, filed April 18, 2000 (File #000-26966).
2. Our Annual Report on Form 10-K for the year ended December
31, 1999, filed March 20, 2000 (File #000-26966).
3. Our Definitive Proxy Statement filed March 21, 2000 (File
#000-26966).
4. The description of our common stock which is contained in a
Registration Statement on Form S-3 filed under the Exchange
Act on September 21, 1999 (File #333-87459), including any
amendment or reports filed for the purpose of updating such
description.
You may request a copy of these filings, at no cost, by
writing us at the following address:
Advanced Energy Industries, Inc.
1625 Sharp Point Drive
Fort Collins, Colorado 80525
Attention: Richard P. Beck
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or by calling Investor Relations at (970) 221-4670.
LEGAL MATTERS
The validity of the common stock will be passed upon for us
by Thelen Reid & Priest LLP, San Francisco, California.
EXPERTS
The financial statements and schedules 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.
17
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[outside back cover]
TABLE OF CONTENTS
Page
Advanced Energy Industries, Inc. ................. 2
Risk Factors ..................................... 4
Cautionary Note on Forward-Looking Statements .... 12
Use of Proceeds ................................. 12
Selling Stockholders .............................. 13
Plan of Distribution .............................. 14
Where You Can Find More Information ............. 15
Incorporation by Reference ...................... 16
Legal Matters ................................... 17
Experts ......................................... 17
We have not authorized any person to make a statement that
differs from what is in this prospectus. If any person does make
a statement that differs from what is in this prospectus, you
should not rely on it. This prospectus is not an offer to sell,
nor is it seeking an offer to buy, these securities in any state
in which the offer or sale is not permitted. The information in
this prospectus is complete and accurate as of its date, but the
information may change after that date.
Advanced Energy Industries, Inc.
686,503 Shares
of Common Stock
--------------------
PROSPECTUS
--------------------
May 19, 2000
18
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate of the
expenses to be incurred by the Registrant in connection with the
issuance and distribution of the securities being registered:
Amount to
Be Paid
Registration Fee - SEC ........................ $ 9,412.99
Legal Fees and Expenses ........................ $20,000.00
Accounting Fees and Expenses ................... $10,000.00
Miscellaneous ................................. $ 3,000.00
----------
Total ......................................... $42,412.99
----------
ITEM 15. 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,
II-1
<PAGE>
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 16. EXHIBITS
The following is a list of Exhibits filed as part of the
Registration Statement:
2.1 Agreement and Plan of Reorganization between
the Registrant, Noah Holdings, Inc., and AE Cal Merger Sub, Inc.,
dated April 5, 2000.
2.2 Escrow and Indemnity Agreement between the Registrant,
the former stockholders of Noah Holdings, Inc. and Commercial
Escrow Services, Inc., dated April 5, 2000.
4.1 Restated Certificate of Incorporation, as amended (1)
4.2 Bylaws (2)
4.3 Specimen Certificate for the Common Stock (2)
4.4 Form of Indenture between State Street Bank and
Trust Company of California, N.A., as trustee, and Advanced
Energy Industries, Inc. (including form of 5.25% Convertible
Subordinated Note due 2006) (3)
4.5 Undertaking re: Other Long-Term Debt
5.1 Opinion of Thelen Reid & Priest LLP re legality of
common stock
23.1 Consent of Arthur Andersen LLP
23.2 Consent of KPMG LLP
23.3 Consent of Thelen Reid & Priest LLP (4)
24.1 Power of Attorney (5)
_________________________________________________________________
(1) Incorporated by reference from Advanced Energy's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999, filed July 28, 1999 (File No. 000-26966).
(2) Incorporated by reference from Advanced Energy's
Registration Statement on Form S-1, filed September 20,
1995, as amended (File No. 33-97188).
(3) Incorporated by reference from Advanced Energy's
Registration Statement on Form S-3, filed September
21, 1999 (File No. 333-87455).
(4) Included in Exhibit 5.1.
(5) Included on the signature pages to this Registration
Statement.
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UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration
statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) of
this section do not apply if the registration statement is on
Form S-3 and the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose 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.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for
the purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed 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.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than 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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
S-3 and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in
the City of Fort Collins, State of Colorado, on May 18, 2000.
ADVANCED ENERGY INDUSTRIES, INC.
By: /s/ DOUGLAS S. SCHATZ
Name: Douglas S. Schatz
Title: Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following
persons in the capacities and on the date indicated.
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints
Douglas S. Schatz, Hollis L. Caswell and Richard P. Beck, and
each of them severally, acting alone and without the other, his
true and lawful attorney-in-fact with authority to execute in the
name of each such person, and to file with the Securities and
Exchange Commission, together with any exhibits thereto and other
documents therewith, any and all amendments (including without
limitation post-effective amendments) to this registration
statement, 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.
Date: May 18, 2000 /s/ DOUGLAS S. SCHATZ
Douglas S. Schatz
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Date: May , 2000
Hollis L. Caswell
President, Chief Operating
Officer and Director
Date: May 18, 2000 /s/ RICHARD P. BECK
Richard P. Beck
Senior Vice President, Chief
Financial Officer and Director
(Principal Financial and
Accounting Officer)
II-4
<PAGE>
Date: May , 2000
G. Brent Backman
Director
Date: May 18, 2000 /s/ ARTHUR A. NOETH
Arthur A. Noeth
Director
Date: May 18, 2000 /s/ ELWOOD SPEDDEN
Elwood Spedden
Director
Date: May 18, 2000 /s/ GERALD STAREK
Gerald Starek
Director
Date: May 18, 2000 /s/ ARTHUR ZAFIROPOULO
Arthur Zafiropoulo
Director
II-5
<PAGE>
Exhibit 4.5
We hereby agree to furnish to the SEC, upon request, a copy of
the instruments which define the rights of holders of our long-
term debt. None of such instruments not included as exhibits in
this Form S-3 represents long-term debt in excess of 10% of our
consolidated total assets.
Exhibits 5.1 and 23.3
[Letterhead of Thelen Reid & Priest LLP]
May 18, 2000
Advanced Energy Industries, Inc.
1625 Sharp Point Drive
Fort Collins, CO 80525
Ladies and Gentlemen:
We have acted as counsel for Advanced Energy Industries,
Inc., a Delaware corporation (the "Company"), in connection with
the preparation of the Registration Statement on Form S-3, File
No. 333- (the "Form S-3") relating to the issuance and sale
by eleven of the Company's stockholders of up to 686,503 shares
of Common Stock (together, the "Offering").
In so acting, we have examined the Form S-3, the Company's
Certificate of Incorporation and Bylaws, as in effect as of the
date hereof, and such other documents, records, certificates of
officers of the Company, certificates of public officials and
other instruments as we have deemed necessary or appropriate
under the circumstances for purpose of giving the opinion
expressed herein. In making such examinations, we have assumed
(a) the genuineness of all signatures; (b) the authenticity of
all documents submitted to us as originals; (c) the conformity to
original documents of all documents submitted to us as certified
copies or photocopies; and (d) the identity and capacity of all
individuals acting or purporting to act as public officials.
Based upon, subject to and limited by the foregoing, we are
of the opinion that the shares of Common Stock to be offered and
sold hereby are legally issued, fully paid and non-assessable.
We are members of the bar of the State of California and we
express no opinion as to the laws of any state or jurisdiction
other than federal laws of the United States, the laws of the
State of California and the corporate laws of the State of
Delaware. We hereby consent to the filing of this opinion with
the Securities and Exchange Commission as an exhibit to the Form
S-3. We further consent to the use of our name under the heading
"Legal Matters" in the prospectus included in the Form S-3.
Very truly yours,
/s/ Thelen Reid & Priest LLP
THELEN REID & PRIEST LLP
JLM/MLJ
[LOGO OF ARTHUR ANDERSEN]
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the
use of our report incorporated by reference in this registration
statement of our report dated February 8, 2000 included in
Advanced Energy Industries, Inc.'s Form 10-K for the year ended
December 31, 1999 and to all references to our Firm included in
this Registration Statement (File No. 333- ).
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado
May 18, 2000.
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Advanced Energy Industries, Inc.:
We consent to the incorporation by reference in the
Registration Statement on Form S-3 of Advanced Energy Industries,
Inc. of our report dated January 16, 1998 with respect to the
consolidated statement of income, shareholders' equity, and cash
flows of RF Power Products, Inc. for the year ended November 30,
1997 and the related schedule (not presented herein), which
report appears in the annual report on the Form 10-K of Advanced
Energy Industries, Inc. for the year ended December 31, 1999.
/s/ KPMG LLP
Philadelphia, Pennsylvania
May 18, 2000
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
ADVANCED ENERGY INDUSTRIES, INC.
AE CAL MERGER SUB, INC.
AND
NOAH HOLDINGS, INC.
DATED AS OF APRIL 5, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1. DEFINITIONS 4
ARTICLE 2. THE MERGER 6
2.1 The Basic Transaction 6
2.2 The Closing 6
2.3 Effective Time 6
2.4 Articles of Incorporation and Bylaws 6
2.5 Directors and Officers of the Surviving Corporation 6
ARTICLE 3. CONVERSION AND EXCHANGE OF SECURITIES 6
3.1 Merger Sub Stock 6
3.2 Company Stock; Options. 6
3.3 Exchange of Certificates Representing Company Shares.8
3.4 Escrow Agreement. 10
3.5 Lost Certificates 10
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 11
4.1 Organization and Standing. 11
4.2 Capitalization. 11
4.3 Authorization; Enforceability; No Violation. 12
4.4 No Consents 13
4.5 Compliance With Laws 13
4.6 Financial Statements. 13
4.7 Absence of Litigation, Orders, Judgments. 14
4.8 Absence of Certain Changes 14
4.9 Taxes 15
4.10 Contracts 15
4.11 Intellectual Property. 15
4.12 Employee Benefit Plans. 16
4.13 No Brokers 17
4.14 Opinion of Financial Advisor 17
4.15 Parent Stock Ownership 17
4.16 Environmental Matters. 17
4.17 Insurance 18
4.18 Proprietary Information and Inventions and
Confidentiality Agreement 18
4.19 Accuracy of Documents and Information 18
4.20 Offices; Capital Equipment 19
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB 19
5.1 Organization and Standing. 19
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5.2 Capitalization. 20
5.3 Authorization; Enforceability; No Violation. 20
5.4 No Consents 21
5.5 Parent Reports. 21
5.6 No Brokers 22
5.7 No Reacquisition of Company Shares 22
5.8 Investment Company 22
5.9 Certain Tax Matters 22
ARTICLE 6. COVENANTS 23
6.1 Publicity 23
6.2 Registration Statement. 23
6.3 Listing Application 24
6.4 Expenses 24
6.5 Takeover Statute 24
ARTICLE 7. CONDITIONS TO CLOSING 25
7.1 Conditions to Each Party's Obligation to Effect the
Merger 25
7.2 Conditions to Obligation of the Company to Effect the
Merger 25
7.3 Conditions to Obligation of Parent and Merger Sub to
Effect the Merger 26
ARTICLE 8. TERMINATION 27
8.1 Termination by Either Parent or the Company 27
8.2 Extension; Waiver 27
ARTICLE 9. GENERAL PROVISIONS 27
9.1 Survival of Representations, Warranties and Covenants27
9.2 Notices 27
9.3 Assignment, Binding Effect 28
9.4 Entire Agreement 29
9.5 Amendment 29
9.6 Governing Law 29
9.7 Counterparts 29
9.8 Headings 29
9.9 Interpretation 29
9.10 Waivers 29
9.11 Incorporation of Exhibits 29
9.12 Severability 29
9.13 Enforcement of Agreement 30
9.14 Indemnity 30
ii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT"),
dated as of April 5, 2000, is made by and among Advanced Energy
Industries, Inc., a Delaware corporation ("PARENT"), AE Cal
Merger Sub, Inc., a California corporation and a wholly-owned
subsidiary of Parent ("MERGER SUB"), and Noah Holdings, Inc., a
California 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 long-term
strategic and financial benefits and, accordingly, 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
"AGREEMENT" has the meaning set forth in the preface above.
"APB NO. 16" means the Accounting Principles Board Opinion
Number 16.
"CALIFORNIA FILING MATERIALS" has the meaning set forth in
2.3 below.
"CALIFORNIA LAW" means the Corporation Code of the State of
California, as amended.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"CERTIFICATE" has the meaning set forth in 3.2(b) below.
"CLOSING" has the meaning set forth in 2.2(a) below.
"CLOSING DATE" has the meaning set forth in 2.2 below.
"CLOSING PRICE" means $59.41.
1
<PAGE>
"CODE" has the meaning set forth in the recitals above.
"COMMISSION" means the Securities and Exchange Commission.
"COMPANY" has the meaning set forth in the preface above.
"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 CONTRACT" means any material agreement, contract
and commitment, whether written or oral, to which the Company is
a party or by which it is bound.
"COMPANY DISCLOSURE SCHEDULE" means the disclosure schedule
delivered by 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, results of operations or
financial condition of the Company and Company Subsidiary, taken
as a whole.
"COMPANY OPTIONS" has the meaning set forth in
3.2(d)(i) below.
"COMPANY PREFERRED SHARES" means any issued or outstanding
share of preferred stock of the Company.
"COMPANY REAL PROPERTIES" means all real property ever
owned, leased or occupied by the Company, any Company Subsidiary
or any Predecessor.
"COMPANY SHARE" means any share of the common stock of Noah
Holdings, Inc.
"COMPANY SHAREHOLDERS" means the holders of Company Shares
as of the Closing Date.
"COMPANY SUBSIDIARY" has the meaning set forth in 4.1(b)
below.
"COPYRIGHTS" means 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.
"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 2.3 below.
2
<PAGE>
"ENFORCEABILITY EXCEPTIONS" has the meaning set forth in
4.3(d) below.
"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.
"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.
"ESCROW AGENT" means Commercial Escrow Services, Inc. or any
successor thereto appointed in accordance with the Escrow
Agreement.
"ESCROW AGREEMENT" has the meaning set forth in 3.4(a)
below.
"ESCROW AMOUNT" has the meaning set forth in 3.4(a) below.
"ESCROW FUNDS" has the meaning set forth in 3.4(a) below.
"ESCROW SHARES" has the meaning set forth in 3.4(a) below.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE AGENT" has the meaning set forth in 3.3(a) below.
"EXCHANGE FUND" has the meaning set forth in 3.3(a) below.
"EXCHANGE RATIO" has the meaning set forth in 3.2(a) below.
"FINANCIAL STATEMENTS" has the meaning set forth in 4.6
below.
"GAAP" means United States generally accepted accounting
principles, consistently applied.
3
<PAGE>
"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.
"INTERIM FINANCIAL STATEMENTS" has the meaning set forth in
4.6 below.
"IRS" means the federal Internal Revenue Service.
"ISOS" has the meaning set forth in 3.2(d)(iii) below.
"ISSUED PATENTS" means any and all of Company's 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.
"LETTER OF TRANSMITTAL" has the meaning set forth in 3.3c
below.
"MERGER CERTIFICATES" has the meaning set forth in 3.3(a)
below.
"MERGER SUB" has the meaning set forth in the preface above.
"MERGER" has the meaning set forth in 2.1 below.
"NON-DISCLOSURE AGREEMENT" means the Non-Disclosure
Agreement, dated March 12, 1999 between the Company and Parent.
"PARENT" has the meaning set forth in the preface above.
"PARENT BOARD" means the Board of Directors of Advanced
Energy Industries, Inc.
"PARENT DISCLOSURE SCHEDULE" means the disclosure schedule
delivered by Parent at or prior to the execution hereof to the
Company.
"PARENT MATERIAL ADVERSE EFFECT" means a material adverse
effect on or change in the business, results of operations or
financial condition of Parent and its Subsidiaries, taken as a
whole.
"PARENT OPTIONS" means all options to acquire Parent Common
Stock granted by Parent.
"PARENT PREFERRED STOCK" means the 1,000,000 authorized
shares of Parent preferred stock, par value $0.001 per share.
"PARENT REPORTS" means the reports, forms, registrations,
schedules, statements and other documents required to be filed by
Parent with the Commission.
"PARENT SHARE" means any share of the voting common stock of
Advanced Energy Industries, Inc.
4
<PAGE>
"PATENT APPLICATIONS" means any of Company's patent rights,
including, without limitation, all United States and foreign
utility and design patents, and all published or unpublished
non-provisional 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
abandoned patent applications.
"PATENTS" means Patent Applications and Issued Patents
collectively.
"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
3.3(f) below.
"PREDECESSOR" means any Person that owns or has ever owned,
leased or occupied the Company Real Properties.
"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" means a Registration Statement on
Form S-3 under the Securities Act with respect to the Parent
Shares transferred to the Company Shareholders in connection with
the Merger.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"SHAREHOLDERS' REPRESENTATIVES" has the meaning set forth in
3.4(b) below.
"SPECIFIED POST-CLOSING DIVIDENDS" has the meaning set forth
in 3.3(f) below.
"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
3.2(d)(i) below.
"SURVIVING CORPORATION" has the meaning set forth in 2.1
below.
"SWDA" means the Solid Waste Disposal Act, as amended.
5
<PAGE>
"TRADEMARKS" means 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.
ARTICLE 2.
THE MERGER
2.1 THE BASIC TRANSACTION |HiddenPara|
. 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
California Law.
2.2. THE CLOSING |HiddenPara|
. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place at the
offices of Thelen, Reid & Priest LLP, San Francisco, California
at 10:00 a.m., local time, on the date hereof (the "Closing
Date").
2.3 EFFECTIVE TIME |HiddenPara|
. On the Closing Date, the parties hereto shall cause the Merger
to be consummated by filing (i) an Agreement of Merger
substantially in the form of Exhibit A and all related officer's
certificates meeting the requirements of California Law (the
"California Filing Materials") in the office of the Secretary of
State of California, in accordance with the California Law. The
Merger shall become effective at the time of filing of the
California Filing Materials with the Secretary of State of
California (the "Effective Time").
2.4 ARTICLES OF INCORPORATION AND BYLAWS |HiddenPara|
. The Articles of Incorporation and Bylaws of Merger Sub in
effect immediately prior to the Effective Time shall be the
Articles of Incorporation and Bylaws of the Surviving
Corporation, until duly amended in accordance with applicable
law.
2.5 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
|HiddenPara|
. 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 |HiddenPara|
. 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.
6
<PAGE>
(a) CONVERSION OF SHARES. Each Company Share that is
issued and outstanding immediately prior to the Effective Time
shall be automatically converted into the right to receive 0.0577
Parent Shares (the "EXCHANGE RATIO").
(b) CANCELLATION OF COMPANY SHARES. At the Effective
Time, as a result of the Merger and without any action on the
part of the Company Shareholders, all Company Shares and any
other issued and outstanding capital stock of the Company,
including any Company Preferred Shares shall cease to be
outstanding, shall be canceled, retired, and shall cease to
exist, and each Company Shareholder shall thereafter cease to
have any rights with respect to such Company Shares, except the
right to receive upon the surrender of a certificate (a
"CERTIFICATE") representing such Company Shares (i) the number of
Parent Shares determined in accordance with this Section 3.2, and
(ii) cash, without interest, payable (A) in lieu of any
fractional Parent Shares, in accordance with Section 3.3(b), and
(B) Specified Post-Closing Dividends, in accordance with
Section 3.3(f).
(c) TREASURY SHARES AND SHARES HELD BY SUBSIDIARIES.
At the Effective Time, there are no Company Shares held in the
Company's treasury or held by a Company Subsidiary.
(d) OPTIONS.
(i) At the Effective Time, as a result of the
Merger and without any action on the part of holder thereof, the
options to purchase (i) 500,000 Company Shares granted by the
Company to Peter Adams and (ii) 200,000 Company Shares granted by
the Company to Duane Kogler, in each case prior to the Effective
Time (collectively, "COMPANY OPTIONS") shall be assumed by Parent
and shall be converted into options to purchase Parent Common
Stock (collectively, "Substituted Options"). Any and all other
outstanding options and warrants to purchase Company Shares and
similar rights, and any and all Company stock option plans, shall
be terminated immediately prior to the Effective Time and none of
Parent, the Company and the Surviving Corporation shall have any
further obligation with respect thereto.
(ii) Subject to subsection 3.2(d)(iii) below,
(A) the number of Parent Shares underlying a Substituted Option
shall be equal to the number of Company Shares 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 granted to each of the Persons set forth in clause (i)
above 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
7
<PAGE>
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 reduce the benefit of the
Substituted Option to the holder thereof.
(iv) Within 45 days after the Effective Time,
Parent shall use reasonable efforts to 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 Shares 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 best efforts to maintain the effectiveness
of any Registration Statement or Statements relating 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 Parent Shares for
delivery upon exercise of the Substituted Options.
3.3 EXCHANGE OF CERTIFICATES REPRESENTING COMPANY SHARES.
(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 Company Shareholders, for exchange (or to be placed in
escrow) in accordance with this Article 3, (i) certificates
representing the Parent Shares 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 Parent Shares 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. No interest will be
paid or accrued on the cash payable to Company Shareholders.
(c) Promptly after the Effective Time, Parent shall
cause the Exchange Agent to mail to each Company Shareholder of
record (i) a letter of transmittal, in a form and having such
provisions as Parent may reasonably specify ("LETTER OF
TRANSMITTAL"), which shall advise each such Company Shareholder
that delivery of Merger Certificates shall be effected, and risk
of loss and title to such Company Shareholder's Company Shares
shall pass, only upon delivery of the Certificates representing
such shares to the Exchange Agent, (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 and (iii) notice of the number of Parent Shares
to be placed in escrow pursuant to Section 3.4.
(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 Company Shares 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 Parent
Shares determined by multiplying the number of Company Shares
represented by the Certificate
8
<PAGE>
by the Exchange Ratio (and subtracting the number of Parent
Shares of such Company Shareholder to be placed in escrow
pursuant to Section 3.4), and (B) a check representing (1) the
amount of cash in lieu of fractional Parent Shares, 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 Shares
represented by the surrendered Certificate shall thereupon be
canceled. At the Effective Time, the Company shall cause each of
the Company Shareholders to deliver to Hultquist Capital LLC, on
a pro-rata basis, a number of Parent Shares such that, in the
aggregate, Hultquist Capital LLC receives 33,244 Parent Shares as
consideration for the services described in Section 4.13.
(e) In the event of a transfer of ownership of Company
Shares which is not registered in the transfer records of the
Company, a Merger Certificate representing the proper number of
Parent Shares, 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 Shares (subject to Section 3.4), if
the Certificate representing such Company Shares 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
Shares 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
Company Shares 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 Company Shares 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 Parent
Shares 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 Parent Shares 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 Parent Shares, less the amount of any withholding taxes
which may be required thereon.
(g) One year after the Effective Time, the Exchange
Agent shall deliver to the Surviving Corporation any portion of
the Exchange Fund (including the proceeds of any investments
thereof and any Parent Shares) that remains unclaimed by the
former Company Shareholders. Thereafter, former Company
Shareholders that have not surrendered their Certificates for
exchange shall look to the Surviving Corporation for delivery of
Merger Certificates, cash in lieu of fractional shares and unpaid
Post-Closing Dividends which such former Company Shareholder is
entitled to receive in respect of the Company Shares represented
by the theretofore unsurrendered Certificates, in each case,
without any interest thereon.
(h) None of Parent, the Company, the Surviving
Corporation, the Exchange Agent or any other Person shall be
liable to any former Company Shareholder for any amount
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properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
3.4 ESCROW AGREEMENT.
(a) ESCROW SHARES. At the Effective Time, the number
of Parent Shares equal to ten percent (10%) of: (i) the
aggregate Parent Shares issuable in accordance with this
Agreement pursuant to Section 3.2(a), minus the Parent Shares to
be delivered to Hultquist Capital LLC pursuant to Section 3.3(d)
(the "ESCROW SHARES") and (ii) any cash in lieu of fractional
shares to be issued to the Company Shareholders pursuant to
Section 3.3(b) (the "Escrow Funds" and, with Escrow Shares, the
"ESCROW AMOUNT") shall be reserved from that portion of the
Parent Common Stock otherwise issuable to the Company
Shareholders. The Escrow Amount shall be withheld pro rata from
the Parent Shares and cash in lieu of fractional shares to be
received by the Company Shareholders upon conversion of their
Shares. Prior to or at the Closing, the parties shall enter into
an agreement, substantially in the form attached hereto as
Exhibit B (the "ESCROW AGREEMENT"), regarding the terms under
which the Escrow Amount shall be held and released.
(b) APPOINTMENT OF SHAREHOLDERS' REPRESENTATIVES.
Pursuant to the Escrow Agreement, the Company Shareholders have
appointed or shall appoint Robert Higgins and Peter Adams as the
representatives of all of Company Shareholders (the
"Shareholders' Representatives"), who shall make decisions
required to be made under the Escrow Agreement on behalf of all
of the Company Shareholders and enforce all of the Company
Shareholders' rights thereunder. Each of the Shareholders'
Representatives shall have full power and authority to act for
and on behalf of all of the Company Shareholders with respect to
all matters set forth in the Escrow Agreement, including without
limitation resolution of contested claims and disposition of the
Escrow Amount. Any third party, including each of Parent and the
Escrow Agent, shall be entitled to rely on any action under the
Escrow Agreement by the Shareholders' Representatives as having
been made for and on behalf of the Company Shareholders, and any
such action shall be binding upon all of the Company
Shareholders. The Shareholders' Representatives shall not be
liable to the Company Shareholders by reason of any error or
judgment or of any act done or step taken or omitted by him in
good faith or for any mistake of fact or law, as may be further
provided in the Escrow Agreement.
3.5 LOST CERTIFICATES |HiddenPara|
. In the event any Certificate shall have been lost, stolen
or destroyed, upon the making and delivery of an affidavit 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
Parent Shares and cash deliverable in respect thereof pursuant to
this Agreement.
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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 and as of
the Effective Time.
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 material adverse
effect.
(b) The Company does not have any Subsidiaries other
than Noah Precision, Inc., a California corporation, and POU,
Inc. a California corporation (each a "COMPANY SUBSIDIARY").
Each Company Subsidiary (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 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
material adverse effect.
(c) Neither the Company nor Company Subsidiary 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.
(d) Neither the Company nor Company Subsidiary is in
violation of any provision of its respective articles of
incorporation, bylaws or other charter documents. The Company
Disclosure Statement sets forth (i) the full name of each Company
Subsidiary, its capitalization, and the ownership interest of
Company and each other Person (if any) therein, (ii) the
jurisdiction in which each Company Subsidiary is organized,
(iii) each jurisdiction in which the Company and each Company
Subsidiary is qualified to do business as a foreign Person,
(iv) a brief summary of the business and material operations of
each Company Subsidiary, and (v) the names of the current
directors and officers of the Company and each Company
Subsidiary. Company has made available to Parent accurate and
complete copies of the articles of incorporation, bylaws, and any
other charter documents, as currently in effect, of the Company
and each Company Subsidiary.
4.2 CAPITALIZATION.
(a) The authorized capital stock of the Company
consists of two classes of shares, Company common stock and
Company Preferred Stock. As of the Effective Date, (i) there are
30,000,000 Company Shares authorized, of which 11,891,641 Company
Shares are
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issued and outstanding; (ii) there are 1,500,000 Company
Preferred Shares authorized, of which 1,275,000 Company Preferred
Shares are issued and outstanding, and (iii) Company Options to
acquire 700,000 Company Shares are outstanding. As of the
Effective Time, all Company Preferred Shares shall be converted
into Company Shares in accordance with the Company's Articles of
Incorporation.
(b) All of the issued and outstanding Company Shares
have been duly authorized, validly issued, are fully paid,
nonassessable and free of preemptive or similar rights. Other
than Company Options, there are no existing and outstanding
warrants, rights, options, subscriptions, convertible securities
or other agreements or commitments which obligate the Company to
issue, transfer or sell any shares of capital stock of the
Company or any Company Subsidiary other than the options granted
to the Persons described in Section 3.2(d)(i).
(c) Neither the Company nor any Company Subsidiary has
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 Company Shareholders 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 a majority of the Company
Shares in accordance with the California Law, 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) to the Company's
knowledge, any statute, rule, regulation, judicial, governmental,
regulatory or administrative decree, order or judgment applicable
to the Company or any Company Subsidiary, 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.
(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.
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4.4 NO CONSENTS |HiddenPara|
. 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) to the
extent set forth herein, 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 Tax
Certificate, and (iii) the filing of the California Filing
Materials with the Secretary of State of California.
4.5 COMPLIANCE WITH LAWS |HiddenPara|
. The Company and each Company Subsidiary (i) have all Permits,
and each Permit is in full force and effect, and (ii) have made
all filings and registrations and the like, necessary or required
by law to conduct their respective businesses as currently
conducted. Neither the Company nor any Company Subsidiary has
received any governmental notice of any violation by such company
of any laws, rules, regulation or orders applicable to their
respective businesses. Neither the Company nor any Company
Subsidiary is in default or is not in compliance under any
Permits, and (b) to the knowledge of the Company, the business
and operations of the Company and each Company Subsidiary 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 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent: (i) an
audited consolidated balance sheet of the Company and each
Company Subsidiary as at December 31, 1999 (including the notes
thereto), and the related consolidated statements of income,
retained earnings and cash flow for the fiscal year ended
December 31, 1999 (collectively, the "Financial Statements"),
together with the report thereon of Branch, Neal, Daney & Spence
LLP, its independent certified accountants, and (ii) an unaudited
consolidated balance sheet of the Company and Company Subsidiary
as at February 29, 2000, and the related consolidated statements
of income, retained earnings and cash flow for the two months
then ended (collectively, the "Interim Financial Statements").
Each of the Financial Statements and Interim Financial Statements
fairly presents in all material respects the consolidated
financial position and the results of operations and cash flows
of the Company and each Company Subsidiary 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 as
consistently applied during the periods involved, except as may
be noted therein and subject to the fact that unaudited financial
statements do not contain full notes thereto. Neither the
Company nor any Company Subsidiary has 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, the Financial Statements or the Interim Financial
Statements or in the notes thereto or (ii) liabilities or
obligations incurred since February 29, 2000, in the ordinary
course of business, consistent with past practices. The
Company's financial reserves are adequate to cover claims already
incurred. The provision for taxes for the Company as set forth
in the Financial Statements and Interim Financial Statements is
adequate and accurate for taxes due and accrued to such date.
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(b) Subject to any reserves set forth in the Financial
Statements and Interim Financial Statements, all of the accounts
receivable and notes receivable owing to the Company as of the
date hereof constitute, and as of the Effective Time will
constitute, valid and enforceable claims arising from bona fide
transactions in the ordinary course of business, and there are no
known or asserted claims, refusals to pay, or other rights of
set-off against any thereof. There is (i) no account debtor or
note debtor delinquent in its payment by more than 60 days,
(ii) no account debtor or note debtor that has refused (or, to
the best knowledge of the Company, threatened to refuse) to pay
its obligations for any reason, (iii) to the best knowledge of
the Company, no account debtor or note debtor that is insolvent
or bankrupt, and (iv) no account receivable or note receivable
which is pledged to any third party by the Company.
(c) The accounts receivable shown on the Financial
Statements and the Interim Financial Statements consisted only of
items that are fully collectible, good and payable within six
months after the Closing. The Company Disclosure Schedule lists
all accounts receivable, unbilled invoices and other debts due or
recorded in the records of the Company. The amount of all
accounts receivable, unbilled invoices and other debts due or
recorded in the records and books of account of the Company will
be good, payable and collectible in full in the ordinary course
of business within six months after the Closing; no contest with
respect to the amount or validity of any amount is pending; and
none of such accounts receivable or other debts is or will at the
Closing be subject to any counterclaim or set-off. The values at
which accounts receivable are carried reflect the historical
accounts receivable valuation policy of the Company which is
consistent with GAAP applied on a consistent basis.
(d) All accounts payable and notes payable by the
Company to third parties as of the date hereof arose, and as of
the Closing will have arisen, in the ordinary course of business,
and there is no such account payable or note payable delinquent
in its payment.
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, any Company
Subsidiary or any of their 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.
(b) There are no outstanding orders, writs,
injunctions, decrees, judgments, awards, determinations or
directions, which involve transactions of or otherwise relate to
the Company, any Company Subsidiary or either of their 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.
4.8 ABSENCE OF CERTAIN CHANGES |HiddenPara|
. Since February 29, 2000, 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.
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4.9 TAXES |HiddenPara|
. The Company (i) has timely filed all material federal, state,
local, foreign, and other 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 |HiddenPara|
. Each Company Contract 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, 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, except to the extent that any material default
would not result in a Company Material Adverse Effect. 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, except to the extent that any material
default would not result in a Company Material Adverse Effect.
4.11 INTELLECTUAL PROPERTY.
(a) "Intellectual Property" means:
(i) Issued Patents;
(ii) Patent Applications;
(iii) Copyrights;
(iv) Trademarks;
(v) 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; and
(vi) all other intangible assets, properties and
rights (whether or not appropriate steps have been taken to
protect, under applicable law, such other intangible assets,
properties or rights).
(b) 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 has not and will not
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 all action necessary to maintain and protect its rights
in the material
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Intellectual Property that it owns or uses. Each item of
Intellectual Property owned or used by the Company hereunder will
be owned or available for use by the Surviving Corporation on
substantially identical terms and conditions immediately
subsequent to the Effective Time.
(c) 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. No consents
or waivers are required with respect to any Patent, registered
Copyright, registered Trademark, joint development agreements,
licenses or agreements relating to Intellectual Property owned or
used by the Company to consummate the transactions contemplated
by this Agreement.
(d) 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 has not and will not 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.
(e) 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 of the Intellectual Property of the Company.
4.12 EMPLOYEE BENEFIT PLANS.
(a) The Company has delivered to Parent complete and
correct copies of the plan documents (including trust, investment
management or custodial arrangements) relating to each Company
Benefit Plan, all other programs and arrangements providing for
deferred compensation or health, life or other welfare benefits,
the most recent Form 5500s, and the most recent IRS determination
letter relating to each "employee benefit plan" as defined under
Section3(3) of ERISA.
(b) No Company Benefit Plan, any fiduciary thereof,
nor the Company has engaged in a prohibited transaction within
the meaning of Section 4975 of the Code, or Section 406 of ERISA,
or has incurred any liability or penalty under Section 4975 of
the Code or Section 502(i) of ERISA except for such liability or
penalty that would not result in 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.
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(c) 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 except
for any liability that, if unsatisfied, would not result in a
Company Material Adverse Effect. 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.
(d) To the knowledge of the Company, there are no
pending or anticipated claims against or otherwise involving any
of the Company Benefit Plans and no suit, action or other
litigation (excluding claims for benefits incurred in the
ordinary course of the Company Benefit Plan activities) has been
brought against or with respect to any such Company Benefit Plan.
(e) All contributions required to be made as of the
date hereof to the Company Benefit Plans have been made or
provided for.
(f) 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.
(g) The Company has not entered into any severance
agreements or adopted any severance policies applicable to the
Company or its employees.
4.13 NO BROKERS |HiddenPara|
. 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 Hultquist Capital LLC as its financial advisor. 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. The services of Hultquist
Capital LLC are to be paid for by the Company Shareholders as
described in Section 3.3(d); neither the Company nor the
Surviving Corporation shall have any liability therefor.
4.14 OPINION OF FINANCIAL ADVISOR |HiddenPara|
. The Company has received the opinion of Hultquist Capital LLC
substantially to the effect that, as of the date hereof, the
Exchange Ratio and the transactions contemplated by this
Agreements are fair to the Company Shareholders from a financial
point of view.
4.15 PARENT STOCK OWNERSHIP |HiddenPara|
. Neither the Company nor any of its Subsidiaries owns any
Parent Shares or other securities convertible into Parent Shares.
4.16 ENVIRONMENTAL MATTERS.
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(a) To the knowledge of the Company after due inquiry
and investigation, there has not been any violation of any
Environmental Requirements by the Company, any Company Subsidiary
or any Predecessor, nor has there been any third party claim or
demand based upon any Environmental Requirements against the
Company or any Predecessor.
(b) To the knowledge of the Company after due inquiry
and investigation, neither the Company nor any Company Subsidiary
has disposed of, stored or used any Hazardous Materials on, nor
has it transported any Hazardous Materials from, any of the
Company Real Properties owned, leased or occupied by the Company,
in violation of applicable Environmental Requirements other than
a disposal, storage, use or transport. To the knowledge of the
Company after due inquiry and investigation, no Predecessor has
disposed of, stored or used any Hazardous Materials on, nor has
any such Predecessor transported any Hazardous Materials from,
any of the Company Real Properties owned, leased or occupied by
such Predecessor, in violation of applicable Environmental
Requirements.
(c) To the knowledge of the Company after due inquiry
and investigation, none of the following exists at any of the
real property currently owned, leased or occupied by the Company
or any Company Subsidiary or existed at any of the Company Real
Properties at the time the Company or any 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 after due inquiry
and investigation, 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
Environmental Requirements.
4.17 INSURANCE |HiddenPara|
. 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.
4.18 PROPRIETARY INFORMATION AND INVENTIONS AND
CONFIDENTIALITY AGREEMENT |HiddenPara|
. Each employee, consultant, service provider, officer and
director of the Company and each Company Subsidiary 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.
4.19 ACCURACY OF DOCUMENTS AND INFORMATION |HiddenPara|
. 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
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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 misleading,
except that the Company makes no representations or warranties
concerning any forward-looking statements (except that such
statements were made in good faith based on the reasonable belief
of the Person making such statement) or any statements made by
third parties other than affiliates, employees, officers,
directors, agents and advisors of the Company. 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, in the Company Disclosure Schedule or
otherwise disclosed by the Company to Parent in writing.
4.20 OFFICES; CAPITAL EQUIPMENT |HiddenPara|
. The offices and capital equipment of the Company and each
Company Subsidiary are in good operating condition and repair and
are adequate for the uses to which they are being put; and none
of such offices or capital equipment is in need of maintenance
and repairs except for ordinary and routine maintenance and
repairs that are not material in nature or cost.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth in the Parent Disclosure Schedule or in
the Parent Reports filed with the Commission prior to the date
hereof, Parent and Merger Sub make the following representations
and warranties to the Company as of the date of this Agreement
and as of the Effective Date.
5.1 ORGANIZATION AND STANDING.
(a) Parent and each of its 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 100 shares of
Merger Sub Common Stock, all of which are validly issued, fully
paid and nonassessable and are owned by Parent. Merger Sub is a
newly formed subsidiary of Parent with no significant business or
assets other than the Parent Shares. Prior to the Merger, Parent
will be in control of Merger Sub (within the meaning of Section
368(c)(1) of the Code).
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(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 Parent Shares and Parent Preferred Stock. As of
February 25, 2000, there were 28,440,881 Parent Shares, 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 February 25, 2000, there were
2,981,639 Parent Options to acquire Parent Shares that were
outstanding. From such date to the date of this Agreement, no
additional Parent Options have been granted.
(b) All of the issued and outstanding Parent Shares
have been duly authorized and validly issued and are fully paid,
nonassessable 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 Parent Shares 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 nonassessable and free
of preemptive rights.
(d) Neither Parent nor any of its Subsidiaries
(including without limitation Merger Sub) has 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 Parent on any matter.
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.
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(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 Bylaws 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 |HiddenPara|
. 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) to the extent set
forth herein, 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 Tax Certificate, and
(iii) the filing of the California Filing Materials with the
Secretary of State of California.
5.5 PARENT REPORTS.
(a) Parent has filed all Parent Reports since
November 17, 1995. 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 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
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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 September 30, 1999
in the ordinary course of business, consistent with past
practices, or (iii) liabilities disclosed in a Parent Report.
5.6 NO BROKERS |HiddenPara| Neither Parent nor any of its
Subsidiaries has 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. Other than the foregoing
arrangements, Parent 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.
5.7 NO REACQUISITION OF COMPANY SHARES |HiddenPara| Parent
has no plan or intention following the Merger to reacquire any
shares of its capital stock issued in connection with this
Agreement. Parent has no plan or intention to cause Company to
issue, after the Merger, additional shares of stock (or rights to
acquire shares of Company stock) that would result in Parent
losing the ability to vote at least 80% of the total number of
shares of all classes of stock of the Company.
5.8 INVESTMENT COMPANY |HiddenPara| Neither Parent nor
Merger Sub is an investment company within the meaning of Section
368(a)(2)(F)(iii) of the Code.
5.9 CERTAIN TAX MATTERS |HiddenPara|
(a) Following the Merger, Parent will hold at least
90% of the fair market value of its net assets, at least 70% of
the fair market value of its gross assets, at least 90% of the
fair market value of Merger Sub's net assets, and at least 70% of
the fair market value of Merger Sub's gross assets held
immediately prior to the Merger. For this purpose, Merger Sub's
assets immediately prior to the Merger shall be determined
without regard to any Parent Shares distributed in connection
with the Merger.
(b) No shares of Merger Sub have been or will be used
as consideration or issued to Company Shareholders in the Merger.
(c) The total fair market value of all consideration
other than Parent Shares received by Company Shareholders in
exchange for their Company Shares in the Merger (including,
without limitation, cash paid to Company Shareholders, if any, or
in lieu of fractional shares of Parent Shares) will be less than
20% of the aggregate fair market value of the Company Shares
outstanding immediately prior to the Merger.
(d) There is no intercorporate indebtedness existing
between Parent and Company or between Merger Sub and Company that
was issued, acquired or will be settled at a
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discount, and except as provided in this Agreement, Parent will
assume no liabilities of Company or Company Shareholders in
connection with the Merger. Merger.
(e) Parent has no present plan or intention following
the Closing to liquidate the Company, merge the Company with or
into another corporation, sell or otherwise dispose of the
capital stock of the Company (except for transfers of such stock
to corporations controlled by Parent within the meaning of Code
Section 368(a)(2)(C)), or cause the Company to sell or otherwise
dispose of any of its assets, except for dispositions made in the
ordinary course of business or transfers of assets to
corporations controlled by the Company (within the meaning of
Code Section 368(a)(2)(C)). Merger.
(f) Parent intends that, following the Merger, the
Company will continue its historic business or use a significant
portion of its historic business in a business.
ARTICLE 6.
COVENANTS
6.1 PUBLICITY |HiddenPara|
. The initial press release relating to this Agreement shall be
a joint press release and thereafter 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.
6.2 REGISTRATION STATEMENT.
(a) Parent and the Company shall cooperate and
promptly prepare and Parent shall file with the Commission within
45 days after the Closing Date the Registration Statement.
(b) Parent shall use reasonable efforts to 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, (i) to have the Registration Statement
declared effective by the Commission as promptly as practicable,
and (ii) to obtain timely any and all necessary state securities
or "blue sky" permits or approvals required to carry out the
transactions contemplated by this Agreement.
(c) The information supplied by the Company for
inclusion or incorporation by reference in the Registration
Statement shall not, at the time the Registration Statement is
declared effective, 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.
(d) The information supplied by Parent for inclusion
or incorporation by reference in the Registration Statement shall
not, at the time the Registration Statement is declared
effective, contain any untrue statement of a material fact or
omit to state a material fact
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<PAGE>
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.
(e) 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 Registration
Statement or comments thereon and responses thereto or requests
by the Commission for additional information.
(f) Parent shall maintain the effectiveness of the
Registration Statement until all Parent Shares issued in
connection with the Merger are sold or may be sold pursuant to
Rule 144 promulgated under the Securities Act, so long as Rule
415, or any successor rule under the Securities Act, permits an
offering on a continuous or delayed basis, and provided further
that applicable rules under the Securities Act governing the
obligation to file a post-effective amendment permit (in lieu of
filing a post-effective amendment that (i) includes any
prospectus required by Section 10(a)(3) of the Securities Act, or
(ii) reflects facts or events representing a material or
fundamental change in the information set forth in the
Registration Statement) the incorporation by reference of
information required to be included in clauses (i) and (ii) above
to be contained in periodic reports filed pursuant to Section 13
or 15(d) of the Exchange Act in the Registration Statement.
6.3 LISTING APPLICATION |HiddenPara|
. Parent shall promptly prepare and submit to the Nasdaq
National Market a listing application covering the Parent Shares
issuable in the Merger, and shall use its best efforts to obtain,
prior to the effectiveness of the Registration Statement,
approval for the listing of such Parent Common Stock, subject to
official notice of issuance.
6.4 EXPENSES |HiddenPara|
. 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 all costs and fees associated with the filing of the
Registration Statement with the Commission shall be paid by
Parent. The Company shall cause the Company Shareholders to pay
any and all fees and expenses of Hultquist Capital LLC in
relation to the Merger.
6.5 TAKEOVER STATUTE |HiddenPara|
. 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.
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ARTICLE 7.
CONDITIONS TO CLOSING
7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER |HiddenPara|
. 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
Company Shareholders, the Company Board and the Parent Board.
(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) 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, delivery and performance of this Agreement
shall have been obtained or made, except for filings in
connection with the 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.
(d) The Surviving Corporation shall have entered into
an employment agreement with Peter Adams in form and substance
satisfactory to Peter Adams and Parent. Such employment
agreement shall provide that Parent shall employ Peter Adams if
the Surviving Corporation dissolves or becomes insolvent.
(e) The Surviving Corporation shall have agreed to pay
to each non-salaried employee of the Company a bonus to be
employed by the Surviving Corporation after the Closing Date.
Each such bonus shall be in an amount equal to the amount paid to
such employee for the three (3) month period immediately prior to
the Closing Date. Such bonus shall be paid to each employee on
the three (3) month anniversary of the Closing Date so long as
such employee has not voluntarily terminated his or her
employment with the Surviving Corporation prior to such date.
The Surviving Corporation's obligation under this clause (e)
shall be guaranteed by Parent.
(f) This Agreement shall have been executed and
delivered by Parent and the Company.
7.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER |HiddenPara|
. 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
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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 the respective officers of
Parent and Merger Sub, dated the Closing Date, certifying to such
effect.
(b) The Company shall have received a legal opinion of
legal counsel to Parent, dated the Closing Date or a date not
more than five business days prior to the Closing Date, in form
and substance satisfactory to the Company.
7.3 CONDITIONS TO OBLIGATION OF PARENT AND MERGER SUB TO
EFFECT THE MERGER |HiddenPara|
. 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 an officer's
certificate of the Company, dated the Closing Date, certifying to
such effect.
(b) Parent shall have received a letter of Arthur
Andersen LLP, 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 an undertaking, in form
and substance satisfactory to Parent, from each Company
Shareholder and from Hultquist Capital LLC, that such Person will
continue as the beneficial owner of such Parent Company Stock and
will not transfer or otherwise dispose of any Parent Common Stock
until such time as the period required to account for the Merger
as a pooling of interests in accordance with APB No. 16 has
ended.
(d) The Escrow Agreement shall have been executed by
or on behalf of each of the Company Shareholders and delivered to
Parent.
(e) Parent shall have received the Financial
Statements and Interim Financial Statements together with the
Company's auditors opinion and management letters related
thereto.
(f) Parent shall have received written notice from
Hultquist Capital LLC that all of the fees and expenses owing by
the Company to Hultquist Capital LLC shall be satisfied in full
upon receipt by Hultquist Capital LLC of the Parent Shares as
described in Section 3.3(d). Such notice shall confirm that the
representations and warranties made by the Company Shareholders
in clauses (ii) through (viii) of the Escrow Agreement are also
applicable to, and
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true with respect to, Hultquist Capital LLC, as if Hultquist
Capital LLC had itself made such representations and warranties.
(g) Parent shall have received a legal opinion of
legal counsel to the Company, dated the Closing Date or a date
not more than five business days prior to the Closing Date, in
form and substance satisfactory to Parent.
ARTICLE 8.
TERMINATION
8.1 TERMINATION BY EITHER PARENT OR THE COMPANY
|HiddenPara|
. This Agreement may be terminated and the Merger may be
abandoned by action of the Company Board or Parent Board if 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 nonappealable; provided,
that the party seeking to terminate this Agreement pursuant to
this Section 8.1 shall have used all reasonable efforts to remove
such injunction, order or decree.
8.2 EXTENSION; WAIVER |HiddenPara|
. 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 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
|HiddenPara|
. 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
(a) the representatives and warranties contained in Article 4 and
Article 5 shall survive the Merger for a period of one (1) year
from the Closing Date, and (b) the covenants contained in
Article 3, Section 6.9, and this Article 9 shall survive the
Merger, but not beyond the extent, if any, specified therein.
9.2 NOTICES |HiddenPara|
. 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:
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If to Parent or Merger Sub:
Advanced Energy Industries, Inc.
1625 Sharp Point Drive
Fort Collins, CO 80525
Attn.: Richard P. Beck
Facsimile: 970-407-5204
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:
Noah Holdings, Inc.
6389 San Ignacio Avenue
San Jose, California 95119
Attn.: Robert W. Higgins, Chief Executive Officer
Facsimile: (408) 281-7797
with copies to:
Hopkins & Carley
The Letitia Building
70 South First Street
San Jose, California 95113
Attn.: Robert V. Hawn, Esq.
Facsimile: (408) 998-4790
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 |HiddenPara|
. 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, 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.
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9.4 ENTIRE AGREEMENT |HiddenPara|
. This Agreement, the Exhibits, the Company Disclosure Schedule,
the Parent Disclosure Schedule, the Non-Disclosure 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 |HiddenPara|
. This Agreement may be amended by the parties hereto at any
time before or after approval of the Merger by the Company
Shareholders, but after any such shareholder approval, no
amendment shall be made which by law 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 |HiddenPara|
. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without
regard to its rules of conflict of laws.
9.7 COUNTERPARTS |HiddenPara|
. 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 |HiddenPara|
. 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 |HiddenPara|
. In this Agreement, unless the context otherwise requires,
words describing the singular 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 |HiddenPara|
. 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 |HiddenPara|
. The Company Disclosure Schedule, the Parent 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 |HiddenPara|
. 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
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<PAGE>
broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.13 ENFORCEMENT OF AGREEMENT |HiddenPara|
. 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 California Court, this being in addition
to any other remedy to which they are entitled at law or in
equity.
9.14 INDEMNITY |HiddenPara|
. At any time after the Effective Time, the exclusive remedy
of the Parent Member Group (as defined in the Escrow Agreement)
for any breaches or misrepresentations shall be to resort to the
Indemnity Fund (as defined in the Escrow Agreement), other than
for any damages sustained by the Parent Member Group in the event
of fraud.
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IN WITNESS WHEREOF, the parties have executed this Agreement
and Plan of Reorganization and caused the same to be duly
delivered on their behalf on the day and year set forth in the
Preamble hereto.
COMPANY: NOAH HOLDINGS, INC.
By: /s/ ROBERT HIGGINS
Name: Robert Higgins
Title: Chief Executive Officer
MERGER SUB: AE CAL MERGER SUB, INC.
By: /s/ JOSEPH MONKOWSKI
Name: Joseph Monkowski
Title: Vice President
PARENT: ADVANCED ENERGY INDUSTRIES, INC.
By: /s/ JOSEPH MONKOWSKI
Name: Joseph Monkowski
Title: Senior Vice President
ESCROW AND INDEMNITY AGREEMENT
This ESCROW AND INDEMNITY AGREEMENT (the "ESCROW
AGREEMENT"), dated as of April 5, 2000, is made by and among
Advanced Energy Industries, Inc., a Delaware corporation
("PARENT"), the holders of common stock of Noah Holdings, Inc.
listed on Exhibit A (the "COMPANY SHAREHOLDERS") and Commercial
Escrow Services, Inc. as indemnity and escrow agent (the "ESCROW
AGENT").
RECITALS
WHEREAS, Noah Holdings, Inc., a California corporation
(the "COMPANY"), AE Cal Merger Sub, Inc., a California
corporation ("MERGER SUB"), and Parent are parties to that
certain Agreement and Plan of Reorganization, dated as of the
date hereof (the "MERGER AGREEMENT"), pursuant to which Merger
Sub shall be merged with and into the Company (the "MERGER"),
with the Company surviving as a wholly-owned subsidiary of
Parent;
WHEREAS, it is a condition precedent to the Merger
Agreement that each Company Shareholder enter into this
Agreement;
WHEREAS, the Merger Agreement contains, among other
things, representations, warranties and covenants of the Company,
indemnities with respect to the breach of which are being
provided by the Company Shareholders in this Escrow Agreement;
WHEREAS, pursuant to the Merger Agreement, promptly after
the Effective Time each Company Shareholder has agreed to cause a
portion of the Parent Shares into which the Company Shares are to
be converted (such shares, "INDEMNITY SHARES" and, together with
any cash in lieu of fractional shares, the "INDEMNITY AMOUNT") to
be deposited with the Escrow Agent in an escrow account
established pursuant to this Escrow Agreement and held and
subsequently disbursed in accordance with the terms of this
Escrow Agreement (such Indemnity Amount, together with any
dividends or other distributions received thereon, the "INDEMNITY
FUND");
WHEREAS, the Merger Agreement provides for the
Shareholder Representatives (as defined below) to act on behalf
of all Company Shareholders in connection with this Escrow
Agreement and the indemnification obligations contained in the
Merger Agreement; and
WHEREAS, the Escrow Agent has agreed to hold and to
release the Indemnity Fund pursuant to the terms of this Escrow
Agreement.
NOW, THEREFORE, in consideration of the mutual promises
and covenants herein contained, the parties hereto agree as
follows:
1. DEFINITIONS. Capitalized terms used but not defined
herein shall have the meanings set forth in the Merger Agreement.
As used in this Escrow Agreement, (i) "EXPENSE" means any and all
expenses incurred in connection with investigating, defending or
asserting any claim, action, suit or proceeding incident to any
matter indemnified against hereunder (including, without
limitation, court filing fees, court costs, arbitration fees or
costs, witness fees and reasonable fees and disbursements of
legal counsel, investigators, expert witnesses, consultants,
<PAGE>
accountants and other professionals), (ii) "LOSS" means any and
all losses, costs, obligations, liabilities, settlement payments,
awards, judgments, fines, penalties, damages, expenses,
deficiencies or other charges, and (iii) "PARENT GROUP MEMBERS"
means Parent and its affiliates and their respective successors
and assigns, including, after the Effective Time, the Surviving
Corporation.
2. INDEMNITY FUND.
a. Promptly after the Effective Time, Parent shall
deposit, or cause to be deposited, the Indemnity Shares in escrow
with the Escrow Agent. Such deposit shall constitute the initial
Indemnity Fund and shall be governed by the terms and conditions
of this Escrow Agreement. The Escrow Agent shall establish a
separate subaccount for each Company Shareholder ("SUBACCOUNT")
and credit to such Subaccount the number of Indemnity Shares and
cash in lieu of fractional shares set forth opposite the name of
such Company Shareholder on ANNEX A hereto.
b. Immediately after receipt from Parent of the
Indemnity Amount, the Escrow Agent shall confirm such receipt in
writing to Parent and the Shareholder Representatives.
c. All dividends and distributions in respect of the
Indemnity Shares, whether in cash, additional Parent Common Stock
or other property received by the Escrow Agent shall be
distributed currently to the Company Shareholders; provided that
stock dividends made to effect stock splits or similar events
shall be retained by the Escrow Agent as part of the Indemnity
Fund and credited proportionately to the Subaccounts to which the
Indemnity Shares are credited. In the event the Indemnity Shares
are reclassified or otherwise changed into or exchanged for other
securities, property or cash pursuant to any merger,
consolidation, sale of assets and liquidation or other
transaction, the securities, cash or other property received by
the Escrow Agent in respect of the Indemnity Shares shall be
retained by it as part of the Indemnity Fund and credited
proportionately to the Subaccounts to which the Indemnity Shares
are credited. All cash, property, Parent Common Stock and other
securities received and retained by the Escrow Agent as described
in this Subsection 2(d) are referred to herein as
"DISTRIBUTIONS". The provisions of this Section 2 shall apply to
successive Distributions.
d. Each Company Shareholder shall have the right to
vote all Indemnity Shares credited to such Company Shareholder's
Subaccount. The Escrow Agent will forward to each Company
Shareholder to whose Subaccount any Indemnity Shares are credited
all notices of shareholders' meetings, proxy statements and
reports to shareholders received by the Escrow Agent in respect
thereof and will either (i) vote the Indemnity Shares credited to
such Company Shareholder's Subaccount only in accordance with
written instructions received from such Company Shareholder, or
(ii) forward to such Company Shareholder a signed proxy enabling
the Company Shareholder to vote such Indemnity Shares. The
Escrow Agent shall be reimbursed for the cost of such forwarding
in accordance with Section 10(d).
3. INDEMNIFICATION.
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a. From and after the Effective Time, each Parent
Group Member shall be indemnified, held harmless and reimbursed
from the Indemnity Fund from and against any and all Loss and
Expense incurred by such Parent Group Member in connection with
or arising from:
i. any breach or failure to perform by the
Company of any of its agreements, covenants or obligations in
this Agreement; or
ii. any breach of any warranty or the inaccuracy
of any representation of the Company contained in Article 4 of
the Merger Agreement or any certificate delivered by or on behalf
of the Company pursuant to Article 7 of the Merger Agreement;
Any payment pursuant to this Section 3 shall be made in the form
of a transfer from the Indemnity Fund to the applicable Parent
Group Member(s). No Parent Group Member shall have any right to
any of the Indemnity Fund until the aggregate of all Loss and
Expense incurred as a result of the matters described in
subsections 3.a.i. or ii. exceed $25,000.
b. In the event of any inaccuracy in the computation
of the Exchange Ratio, Parent will recalculate the Exchange Ratio
and receive a sufficient number of Parent Shares from the
Indemnity Fund in order that the total number of shares of Parent
Shares issued and outstanding by virtue of the Merger Agreement
would be as would have resulted if such computation of the
Exchange Ratio had been true and correct in all respects at the
Effective Time.
4. NOTICE AND DETERMINATION OF CLAIMS.
a. If any Parent Group Member wishes to make a claim
for indemnification to be satisfied from the Indemnity Fund, such
Parent Group Member (individually or collectively, the "CLAIMING
PARTY") shall notify the Escrow Agent in writing (the "CLAIM
NOTICE") of the facts giving rise to such claim for
indemnification hereunder. The Claim Notice shall be accompanied
by a certificate of the Claiming Party attesting to the Claiming
Party's contemporaneous delivery of a duplicate copy of the Claim
Notice to the Shareholder Representatives. Such Claim Notice
shall describe in reasonable detail (to the extent then known)
the Loss or Expense, the method of computation of such Loss or
Expense and contain a reference to the provisions of this
Agreement in respect of which such Loss or Expense shall have
occurred. If the Claiming Party is not Parent, the Claim Notice
must be accompanied by a certificate from Parent confirming that
the Claiming Party is a Parent Group Member. At the time of
delivery of any Claim Notice to the Escrow Agent, a duplicate
copy of such Claim Notice shall be delivered by the Claiming
Party to the Shareholder Representatives.
b. Unless the Shareholder Representatives shall have
delivered an Objection in accordance with Section 4(c), the
Escrow Agent shall, on the twentieth day (or such earlier day as
the Shareholder Representatives shall authorize in writing to the
Escrow Agent) after receipt of a Claim Notice with respect to
indemnification for a specified amount, deliver to Parent, for
its account or for the account of each Parent Group Member named
in the Claim Notice, such portion of the Indemnity Fund, valued
in accordance with this Escrow Agreement, with a value equal to
the specified amount.
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<PAGE>
c. Until the twentieth day following delivery of a
Claim Notice, either of the Shareholder Representatives may
deliver to the Escrow Agent a written objection (an "OBJECTION")
to the claim made in such Claim Notice. At the time of delivery
of any Objection to the Escrow Agent, a duplicate copy of such
Objection shall be delivered to the Claiming Party.
d. Upon receipt of an Objection properly made, the
Escrow Agent shall (i) deliver to Parent, for its account or for
the account of each Parent Group Member named in the Claim
Notice, such portion of the Indemnity Fund, valued in accordance
with this Escrow Agreement, with a value equal to that portion of
the amount subject to the Claim Notice which is not disputed by
the Shareholder Representatives (if any) and (ii) designate and
segregate out of the Indemnity Fund a portion thereof, valued in
accordance with the Escrow Agreement, with a value equal to the
amount subject to the Claim Notice which is disputed by the
Shareholder Representatives. Thereafter, the Escrow Agent shall
not dispose of such segregated portion of the Indemnity Fund
until the Escrow Agent shall have received a certified copy of
the final decision of the arbitrators as contemplated by Section
5, or the Escrow Agent shall have received a copy of the written
agreement between the Claiming Party and the Shareholder
Representatives resolving such dispute and setting forth the
amount, if any, which such Claiming Party is entitled to receive.
The Escrow Agent will deliver to Parent, for its account or for
the account of each Parent Group Member entitled to payment, such
portion of the Indemnity Fund, valued in accordance with the
Escrow Agreement, with a value equal to the amount that the
Claiming Party is entitled to receive as set forth in the
arbitration decision after the expiration of ten (10) business
days from the receipt of such decision or, in the event that the
amount to which the Claiming Party is entitled is established
pursuant to an agreement between the Claiming Party and the
Shareholder Representatives, promptly after the Escrow Agent's
receipt of such agreement.
5. PAYMENT AND VALUATION.
a. Payments, deliveries or designations from the
Indemnity Fund made pursuant to any Claim Notice shall be made,
on a Subaccount by Subaccount basis, first from any cash and
second from any Indemnity Shares. For purposes of such payment,
delivery or designation, Indemnity Shares shall be valued at the
Market Value of such Indemnity Shares as determined in accordance
with Section 5(b) hereof. To the extent that any payment,
delivery or designation is made pursuant to this Escrow Agreement
in the form of securities, such payment, delivery or designation
shall be rounded to the nearest whole number of such securities,
and no fractional securities shall be paid, delivered or
designated.
b. The "MARKET VALUE" of each Parent Share in the
Indemnity Fund as of any date shall be the Closing Price. In the
event of any reclassification, stock split or stock dividend with
respect to Parent Common Stock or any change or conversion of
Parent Common Stock into other securities, appropriate and
proportionate adjustments, if any, shall be made to the Market
Value.
c. Payments and deliveries pursuant to a Claim Notice
shall be charged to and withdrawn from each Subaccount in
proportion to the respective balances in each, unless the Escrow
Agent is restrained, enjoined or stayed by law or court order
from withdrawing assets from a Subaccount, in which case the
amount which would have been drawn from such
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<PAGE>
Subaccount shall be allocated pro rata among and withdrawn from
the remaining Subaccounts as to which the Escrow Agent is not so
restrained, enjoined or stayed. If the Escrow Agent ceases to be
so restrained, enjoined or stayed, then, to the extent
practicable, such remaining Subaccounts from which such amount
was withdrawn shall be credited, pro rata, with the amount of
such withdrawal through a deduction from the Subaccount that was
the subject of such restraint, injunction or stay.
6. RESOLUTION OF CONFLICTS; ARBITRATION.
a. The Claiming Party shall deliver a written
response to the Shareholder Representatives in respect of any
Objection properly delivered by the Shareholder Representatives.
If after twenty (20) days following delivery of such response
there remains a dispute as to any claims, the Shareholder
Representatives and the Claiming Party shall attempt in good
faith for sixty (60) days to agree upon the rights of the
respective parties with respect to each of such claims. If the
Shareholder Representatives and the Claiming Party should so
agree, a memorandum setting forth such agreement shall be
prepared and signed by both and shall be furnished to the Escrow
Agent. The Escrow Agent shall be entitled to rely on any such
memorandum and shall distribute the Parent Common Stock or other
property, if any, from the Indemnity Fund in accordance with the
terms thereof.
b. If no such agreement can be reached after good
faith negotiation, either the Claiming Party or the Shareholder
Representatives may, by written notice to the other, demand
arbitration of the matter unless the amount of the Loss or
Expense is at issue in pending litigation with a third party, in
which event arbitration shall not be commenced until such amount
is ascertained or both parties agree to arbitration; and in
either such event the matter shall be settled by arbitration
conducted by three arbitrators. Within fifteen (15) days after
such written notice is sent, Parent and the Shareholder
Representatives shall each select one arbitrator, and the two
arbitrators so selected shall select a third arbitrator. The
decision of the arbitrators as to the validity and amount of any
claim in the related Claim Notice shall be binding, and
conclusive, and notwithstanding anything in this Section 6, the
Escrow Agent shall be entitled to act in accordance with such
decision and make or withhold payments out of the Indemnity Fund
in accordance therewith.
c. Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any
such arbitration shall be held in San Francisco, California under
the commercial rules then in effect of the American Arbitration
Association. The non-prevailing party to an arbitration shall
pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and
the expenses, including without limitation, attorneys' fees and
costs, reasonably incurred by the other party to the arbitration.
7. SHAREHOLDER REPRESENTATIVES.
a. Each Company Shareholder hereby knowingly and
voluntarily appoints and selects Robert Higgins and Peter Adams
as the "SHAREHOLDER REPRESENTATIVES" hereunder. Each Company
Shareholder acknowledges that each of the Shareholder
Representatives shall have the power to bind such Company
Shareholder in accordance herewith, and fully consents to such
power. Each of the Shareholder Representatives shall be
constituted and appointed as agent
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<PAGE>
for and on behalf of the Company Shareholders to give and receive
notices and communications, to authorize delivery to Parent Group
Members of the Parent Common Stock or other property from the
Indemnity Fund in satisfaction of claims by Parent Group Members,
to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply
with orders of courts and awards of arbitrators with respect to
such claims, and to take all actions necessary or appropriate in
the judgment of the Shareholder Representatives for the
accomplishment of the foregoing. The persons designated to serve
as the Shareholder Representatives may be changed by the holders
of a majority in interest of the Indemnity Fund from time to time
upon not less than 10 days prior written notice to Parent and the
Escrow Agent. No bond shall be required of the Shareholder
Representatives, and the Shareholder Representatives shall
receive no compensation for their services. Any expenses
incurred by the Shareholder Representatives in connection with
their services hereunder shall be reimbursed from the Indemnity
Fund upon presentation of appropriate expense documentation as
and to the extent provided in Section 7(b).
b. At least five (5) days prior to the Distribution
Date or any earlier date on which any Shareholder Representative
ceases to be a Shareholder Representative hereunder, the
Shareholder Representatives shall deliver written notice to the
Escrow Agent and Parent setting forth the amount of the
reasonable expenses incurred by the Shareholder Representatives
in connection with their duties under the Merger Agreement and
hereunder (the "SHAREHOLDER REPRESENTATIVES' EXPENSES"), which
expenses shall be reimbursed from the Indemnity Fund in
accordance with the provision of Section 9(d) hereof.
c. Neither Parent, any Parent Group Member nor the
Escrow Agent shall be responsible or liable for any acts or
omissions of any Shareholder Representative in such Shareholder
Representative's capacity as such, and each of them may rely on
any action or writing of all the then Shareholder Representatives
as being binding on all Shareholder Representatives for all
purposes.
d. A decision, act, consent or instruction of the
Shareholder Representatives shall constitute a decision of all
Company Shareholders for whom shares of Parent Common Stock
otherwise issuable to them are deposited in the Indemnity Fund
and shall be final, binding and conclusive upon each such Company
Shareholder, and the Escrow Agent and Parent may rely upon any
decision, act, consent or instruction of the Shareholder
Representatives as being the decision, act, consent or
instruction of each and every such Company Shareholder. The
Escrow Agent and each Parent Group Member are hereby relieved
from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the
Shareholder Representatives. For purposes of this Escrow
Agreement and the Merger Agreement, any action by any of the then
Shareholder Representatives shall be deemed to be the action of
and binding upon all of the Shareholder Representatives.
e. The Shareholder Representatives shall not be
liable to the Company Shareholders for any act done or omitted
hereunder while acting in good faith as Shareholder
Representatives and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the written advice of counsel
shall be conclusive evidence of such good faith. The Company
Shareholders shall severally indemnify the Shareholder
Representatives and hold them harmless from and against any loss,
liability or expense incurred without gross negligence or bad
6
<PAGE>
faith on the part of the Shareholder Representatives and arising
out of or in connection with the acceptance and administration of
their duties hereunder.
f. The Shareholder Representatives shall treat
confidentially and not disclose any nonpublic information from or
about the Company to any third party (except on a need-to-know
basis to individuals who agree to treat such information
confidentially).
8. THIRD-PARTY CLAIMS. In the event Parent becomes aware
of a third-party claim which Parent believes may result in a
demand against the Indemnity Fund, Parent shall notify the
Shareholder Representatives of such claim, and the Shareholder
Representatives shall be entitled, at their expense, to
participate in any defense of such claim. Parent shall have the
right in its sole discretion to settle any such claim; provided,
however, that if Parent effects the settlement of any such claims
without the consent of the Shareholder Representatives, the
Shareholder Representatives shall have the power or authority to
object under Section 4 or any other provision to the amount paid
in such settlement. In the event that the Shareholder
Representatives have consented to any such settlement, the
Shareholder Representatives shall have no power or authority to
object under Section 4 or any other provision to the amount paid
in such settlement.
9. TERM, TERMINATION AND DELIVERY OF INDEMNITY AMOUNT.
a. This Escrow Agreement shall be effective as of,
but not before, the Effective Time.
b. The indemnification provisions of Section 3 shall
terminate one year after the Effective Time or earlier, in whole
or in part, if Parent determines that such earlier termination is
required to comply with the requirements for accounting for the
Merger as a pooling of interests and gives the Escrow Agent and
the Shareholder Representatives notice to such effect (and no
claims shall be made by any Parent Group Member under Section 2
thereafter), except that such indemnification shall continue as
to any Loss or Expense in connection with which a Claim Notice is
given in accordance with the requirements of Section 4 on or
prior to the date such indemnification obligation would otherwise
terminate in accordance with Section 2, as to which the
indemnification obligation hereunder shall continue until the
liability to be satisfied from the Indemnity Fund, and all Parent
Group Members shall have been reimbursed out of the Indemnity
Fund for such Loss or Expense.
c. Upon termination of the indemnification
obligations under this Escrow Agreement and reimbursement of the
Parent Group Members of Losses and Expenses payable in respect
thereof hereunder, the Indemnity Fund shall terminate and shall
be distributed in accordance with this Section 9.
d. On the first anniversary of the Effective Time, or
earlier, if Parent so elects, in whole or in part, in a written
notice delivered to the Escrow Agent and the Shareholder
Representatives (the "DISTRIBUTION DATE"), the Escrow Agent
shall deliver to the Exchange Agent (or, if the agreement
appointing the Exchange Agent shall then have terminated, to
Parent) an amount (the "DISTRIBUTION AMOUNT") equal to (A) the
amount remaining in the Indemnity Fund, less (B) any amount
designated as subject to a claim pursuant to such Claim Notice to
the
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<PAGE>
extent such claim has not been resolved prior to such date, and
less (C) any amount previously designated in writing by the
Shareholder Representatives to the Escrow Agent (with a copy
delivered to Parent) as amounts that should be withheld to cover
their expenses incurred in connection with their activities
hereunder (to the extent the Escrow Agent shall then have
received written notice from the Shareholder Representatives to
such effect in accordance with Section 7(b)). Upon its receipt of
such Distribution Amount, the Exchange Agent or Parent, as the
case may be, shall disburse the Distribution Amount from each
Subaccount to the Company Shareholder for which such Subaccount
was established. No certificates or scrip representing fractional
shares of Parent Common Stock or any other security shall be
issued upon the fractional share; each Company Shareholder who
would otherwise have been entitled to a fractional share of
Parent Common Stock upon disbursement of the Distribution Amount
will be paid an amount in cash (without interest), rounded to the
nearest cent, determined by multiplying (i) the Market Value of
such Parent Common Stock or such other securities (in the case of
such other securities, as of the Distribution Date) by (ii) the
fractional interest to which such holder would otherwise be
entitled.
e. Any amounts retained in escrow after the
Distribution Date shall be held by the Escrow Agent and shall
first be used to indemnify the Parent Group Members, subject to
the terms and conditions of this Escrow Agreement, and upon
resolution and payment out of the Indemnity Fund of all pending
claims, any remaining amounts in escrow shall be transferred to
the Shareholder Representatives with respect to out of pocket
expenses incurred by them in connection with their activities
hereunder (to the extent the Escrow Agent shall then have
received written notice from the Shareholder Representatives to
such effect in accordance with Section 7(b)), and any remaining
shares shall be distributed to the Exchange Agent (or, if the
agreement appointing the Exchange Agent shall then have
terminated, to Parent), who shall disburse such portion in the
manner set forth in Section 4(a).
f. Upon distribution of the entire amount of the
Indemnity Fund, the Escrow Agent shall give the Exchange Agent or
Parent (in accordance with Section 14), as the case may be,
notice to such effect.
g. At any time prior to the termination of this
Escrow Agreement, the Escrow Agent shall, if so instructed in a
writing signed by Parent and the Shareholder Representatives,
release from the Indemnity Fund to Parent or the Exchange Agent,
as directed, the portion of the Indemnity Fund specified in such
writing.
10. LIABILITY AND COMPENSATION OF ESCROW AGENT.
a. The duties and obligations of the Escrow Agent
hereunder shall be determined solely by the express provisions of
this Escrow Agreement, and no implied duties or obligations shall
be read into this Escrow Agreement against the Escrow Agent. The
Escrow Agent shall, in determining its duties hereunder, be under
no obligation to refer to any other documents between or among
the parties related in any way to this Escrow Agreement (except
to the extent that this Escrow Agreement specifically refers to
or incorporates by reference provisions of any other document),
it being specifically understood that the following provisions
are accepted by all of the parties hereto. Parent shall
indemnify and hold the Escrow Agent harmless from and against any
and all liability and expense which may arise out of any action
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taken or omitted by the Escrow Agent, except such liability and
expense as may result from the gross negligence or willful
misconduct of the Escrow Agent. The reasonable costs and
expenses of the Escrow Agent to enforce its indemnification
rights under this Section 10(a) shall also be paid by Parent.
This right to indemnification shall survive the termination of
this Escrow Agreement and removal or resignation of the Escrow
Agent. With respect to any claims or actions against the Escrow
Agent which are indemnified by Parent under this Section 10,
Parent shall have the right to retain sole control over the
defense, settlement, investigation and preparation related to
such claims or actions; provided that (i) the Escrow Agent may
employ its own counsel to defend such a claim or action if it
reasonably concludes, based on the advice of counsel, that there
are defenses available to it which are different from or
additional to those available to Parent and (ii) neither Parent
nor the Escrow Agent shall settle or compromise any such claim or
action without the consent of the other, which consent shall not
be unreasonably withheld or delayed.
b. The Escrow Agent shall not be liable to any person
by reason of any error of judgment or for any act done or step
taken or omitted by it, or for any mistake of fact or law or
anything which it may do or refrain from doing in connection
herewith unless caused by or arising out of its own gross
negligence or willful misconduct.
c. The Escrow Agent shall be entitled to rely on, and
shall be protected in acting in reliance upon, any instructions
or directions furnished to it in writing signed by both Parent
and the Shareholder Representatives and shall be entitled to
treat as genuine, and as the document it purports to be, any
letter, paper or other document furnished to it by any Parent
Group Member or the Shareholder Representatives, and believed by
the Escrow Agent to be genuine and to have been signed and
presented by the proper party or parties. In performing its
obligations hereunder, the Escrow Agent may consult with counsel
to the Escrow Agent and shall be entitled to rely on, and shall
be protected in acting in reliance upon, the advice or opinion of
such counsel.
d. The Escrow Agent shall be entitled to its
customary fee for the performance of services by the Escrow Agent
hereunder for each year or portion thereof that any portion of
the Indemnity Fund remains in escrow and shall be reimbursed for
reasonable costs and expenses incurred by it in connection with
the performance of such services (such fees, costs and expenses
are hereinafter referred to as the "ESCROW AGENT'S
COMPENSATION"). The Escrow Agent shall render statements to
Parent setting forth in detail the Escrow Agent's Compensation
and the basis upon which the Escrow Agent's Compensation was
computed. The Escrow Agent's Compensation shall be paid by
Parent. Parent shall be entitled, upon submitting a written
request to the Escrow Agent, to be reimbursed out of the
Indemnity Fund for one hundred percent (100%) of any amount that
Parent is required to pay to the Escrow Agent pursuant to such
reimbursement obligation, payable in the same manner set forth in
Section 5 hereof for payment of claims.
e. The Escrow Agent may resign at any time by giving
sixty (60) days written notice to Parent and the Shareholder
Representatives; provided that such resignation shall not be
effective unless and until a successor Escrow Agent has been
appointed and accepts such position pursuant to the terms of this
Section 10. In such event, Parent and the Shareholder
Representatives shall appoint a successor Escrow Agent or, if
Parent and the Shareholder
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Representatives are unable to agree upon a successor Escrow Agent
within sixty (60) days after such notice, the Escrow Agent shall
be entitled to (i) appoint its own successor, provided that such
successor is reasonably acceptable to Parent and the Shareholder
Representatives or (ii) at the equal expense of Parent and the
Shareholder Representatives, petition any court of competent
jurisdiction for the appointment of a successor Escrow Agent.
Such appointment, whether by Parent and the Shareholder
Representatives, on the one hand, or the Escrow Agent, on the
other hand, shall be effective on the effective date of the
aforesaid resignation (the "INDEMNITY TRANSFER DATE"). On the
Indemnity Transfer Date, all right title and interest to the
Indemnity Fund, including interest thereon, shall be transferred
to the successor Escrow Agent and this Escrow Agreement shall be
assigned by the Escrow Agent to such successor Escrow Agent, and
thereafter, the resigning Escrow Agent shall be released from any
further obligations hereunder. The Escrow Agent shall continue
to serve until its successor is appointed, accepts the Escrow
Agreement and receives the transferred Indemnity Fund.
f. The Escrow Agent shall not have any right, claim
or interest in any portion of the Indemnity Fund except in its
capacity as Escrow Agent hereunder.
g. It is understood and agreed that in the event any
disagreement among Parent and the Shareholder Representatives
results in adverse claims or demands being made in connection
with the Indemnity Fund, or in the event the Escrow Agent in good
faith is in doubt as to what action it should take hereunder, the
Escrow Agent shall retain the Indemnity Fund until the Escrow
Agent shall have received (i) an enforceable final order of a
court of competent jurisdiction which is not subject to further
appeal directing delivery of the Indemnity Fund or (ii) a written
agreement executed by Parent and the Shareholder Representatives
directing delivery of the Indemnity Fund, in which event Escrow
Agent shall disburse the Indemnity Fund in accordance with such
order or agreement. Any court order referred to in clause (i)
immediately above shall be accompanied by a legal opinion of
counsel for the presenting party satisfactory to the Escrow Agent
to the effect that said court order or judgment is final and
enforceable and is not subject to further appeal. The Escrow
Agent shall act on such court order and legal opinion without
further question.
11. TAXES. All dividends, distributions, interest and
gains earned or realized on the Indemnity Fund ("EARNINGS") and
credited to a Subaccount shall be accounted for by the Escrow
Agent separately from the Indemnity Fund and, notwithstanding any
provisions of this Agreement, shall be treated as having been
received by the Company Shareholders to whose Subaccount the
Earning are credited for tax purposes. EXHIBIT A hereto sets
forth a list of each Company Shareholder's address and Taxpayer
Identification Number. The Escrow Agent annually shall file
information returns with the United States Internal Revenue
Service and payee statements with the Company Shareholders,
documenting such Earnings. The Company Shareholders shall
provide to the Escrow Agent all forms and information necessary
to complete such information returns and payee statements. In
the event the Escrow Agent becomes liable for the payment of
taxes, including withholding taxes, relating to Earnings or any
payment made hereunder, the Escrow Agent may deduct such taxes
from each applicable Subaccount.
12. REPRESENTATIONS AND WARRANTIES.
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<PAGE>
a. PARENT AND ESCROW AGENT. Each of Parent and the
Escrow Agent represents and warrants to each of the other parties
hereto that it is duly organized, validly existing and in good
standing under the laws of its jurisdiction of formation; that it
has the power and authority to execute and deliver this Escrow
Agreement and to perform its obligations hereunder; that the
execution, delivery and performance of this Escrow Agreement has
been duly authorized and approved by all necessary action; that
this Escrow Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms;
and that the execution, delivery and performance of this Escrow
Agreement will not result in a breach of or loss of rights under
or constitute a default under or a violation of any trust
(constructive or other), agreement, judgment, decree, order or
other instrument to which it is a party or it or its properties
or assets may be bound.
b. COMPANY SHAREHOLDER.
i. AUTHORIZATION. Each Company Shareholder
represents to each of the other parties hereto that such Company
Shareholder has the power and authority to execute and deliver
this Escrow Agreement and to perform its obligations hereunder;
that this Escrow Agreement constitutes such Company Shareholder's
legal, valid and binding obligation, enforceable against it in
accordance with its terms subject to the Enforceability
Exceptions; and that the execution, delivery and performance of
this Escrow Agreement by such Company Shareholder will not result
in a breach of or loss of rights under or constitute a default
under or a violation of any trust (constructive or other),
agreement, judgment, decree, order or other instrument to which
such Company Shareholder is a party or by which such Company
Shareholder's properties or assets may be bound.
ii. PURCHASE ENTIRELY FOR OWN ACCOUNT. Each
Company Shareholder represents that the Parent Shares will be
acquired for investment for such Company Shareholder's own
account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof and that such Company
Shareholder has no present intention of selling, granting any
participation in, or otherwise distributing the same. By
executing this Escrow Agreement, each Company Shareholder further
represents that such Company Shareholder does not have any
contract, undertaking, agreement or arrangement with any person
to sell, transfer or grant participation to such person or to any
third person, with respect to any of the Parent Shares.
iii. RELIANCE UPON COMPANY SHAREHOLDERS'
REPRESENTATIONS. Each Company Shareholder understands that the
Parent Shares are not registered under the Securities Act on the
ground that the issuance of shares under the Merger Agreement is
exempt from registration under the Securities Act pursuant to
Section 4(2) and/or Regulation D thereof, and that Parent's
reliance on such exemption is predicated on the Company
Shareholders' representations set forth herein. Each Company
Shareholder realizes that the basis for the exemption may not be
present if, not withstanding such representations, the Company
Shareholders have in mind merely acquiring the Parent Shares for
a fixed or determinable period in the future, or for a market
rise, or for sale if the market does not rise. No Company
Shareholder has any such intention.
11
<PAGE>
iv. RECEIPT OF INFORMATION. Each Company
Shareholder believes that such Company Shareholder has received
all the information necessary or appropriate for deciding whether
to purchase the Parent Shares. Each Company Shareholder further
represents that such Company Shareholder has had an opportunity
to ask questions and receive answers from Parent regarding the
terms and conditions of this Escrow Agreement and the Merger
Agreement and the issuance of the Parent Shares pursuant to the
Merger Agreement. Any and all of such questions have been
answered to the satisfaction of each Company Shareholder. The
foregoing, however, does not limit or modify the representations
and warranties of any Company Shareholder or the Company in
either this Escrow Agreement or the Merger Agreement.
v. INVESTMENT EXPERIENCE. Each Company
Shareholder represents that such Company Shareholder is
experienced in evaluating and investing in securities of
companies in a similar stage of development as Parent and
acknowledges that such Company Shareholder is able to fend for
himself, herself, or itself, can bear the economic risk of the
investment, and has such knowledge and experience in financial
and business matters that such Company Shareholder is capable of
evaluating the merits and risks of the investment. Each Company
Shareholder has been advised of and has had the opportunity to
employ the services of legal, accounting, financial and/or
investment advisors who are qualified by training and experience
in business and financial matters to assist such Company
Shareholder in evaluating the merits and risks of acquiring the
Parent Shares.
vi. ACCREDITED INVESTOR. Each Company
Shareholder has delivered to Parent prior to the Closing a
letter, in form and substance satisfactory to Parent, confirming
that such Company Shareholder is (a) an "Accredited Investor" as
defined in Rule 501 of the Securities Act, or (b) has such
knowledge and experience in financial and business matters that
he is capable of evaluating the merits and risks of the
prospective investment.
vii. RESTRICTED SECURITIES. Each Company
Shareholder understands that the Parent Shares are characterized
as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a
transaction not involving a public offering, and such securities
may be resold without registration under the Securities Act only
in certain limited circumstances. Each Company Shareholder
understands that resale or other transfer of the Parent Shares
will be subject to significant restrictions imposed by federal
and state securities laws, and by foreign securities laws, and,
as a result, such Company Shareholder may be required to hold the
Parent Shares indefinitely.
viii. LEGENDS. To the extent applicable, each
certificate or other document evidencing any of Parent Shares
issued to any Company Shareholder shall be endorsed with the
legends set forth below:
(1) The following legend under the
Securities Act:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES. THESE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE APPLICABLE
12
<PAGE>
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF
TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH
ANY APPLICABLE SECURITIES LAWS."
(2) Any legend imposed or required by
Parent's Bylaws or applicable state securities laws.
13. BENEFIT; SUCCESSOR AND ASSIGNS. This Escrow Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns but
shall not be assignable by any party hereto without the written
consent of all of the other parties hereto; provided, however,
that Parent may assign its rights and delegate its obligations
hereunder to any successor corporation in the event of a merger,
consolidation or transfer or sale of all or substantially all of
Parent's stock or assets and that the Escrow Agent may assign its
rights hereunder to a successor Escrow Agent appointed hereunder.
Except for the persons specified in the preceding sentence, this
Escrow Agreement is not intended to confer on any person not a
party hereto any rights or remedies hereunder.
14. NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given when
actually received and shall be given by a nationally recognized
overnight courier delivery service, certified first class mail or
by facsimile (with a confirmatory copy sent by overnight courier)
to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
If to the Escrow Agent:
Commercial Escrow Services, Inc.
3478 Buskirk Avenue, Suite 1032
Pleasant Hill, CA 94523
Attention: Toni Hardstone
Facsimile No.: (925) 941-6465
Telephone No.: (925) 937-9730
If to Parent or any Parent Group Member, to it at:
Advanced Energy Industries, Inc.
1625 Sharp Point Drive
Fort Collins, CO 80525
Attention: Richard P. Beck
Facsimile No.: (970) 407-5204
Telephone No.: (970) 221-4670
With copy to:
13
<PAGE>
Thelen Reid & Priest LLP
333 West San Carlos Street, 17th Floor
San Jose, CA 95110
Attn: Jay L. Margulies, Esq.
Facsimile No.: (408) 287-8040
Telephone No.: (408) 292-1815
If to any Company Shareholder, at the address set forth
on EXHIBIT A.
Any party may designate such other address in writing to all the
other parties hereto; provided that the Company Shareholders may
not specify more than one address at any time.
15. GOVERNING LAW. This Escrow Agreement shall be governed
by and construed in accordance with the laws of the State of
California without reference to conflict of laws principles.
16. COUNTERPARTS. This Escrow Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
17. HEADINGS. The section headings contained in this
Escrow Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Escrow
Agreement.
18. PARTIAL INVALIDITY. Wherever possible, each provision
hereof shall be interpreted in such manner as to be effective and
valid under applicable law, but in case any one or more of the
provisions contained herein shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such provision
shall be ineffective in the jurisdiction involved to the extent,
but only to the extent, of such invalidity, illegality or
unenforceability without invalidating the remainder of such
invalid, illegal or unenforceable provision or provisions or any
other provisions hereof, unless such a construction would be
unreasonable.
19. ENTIRE AGREEMENT; MODIFICATION AND WAIVER. This Escrow
Agreement and the Merger Agreement embody the entire agreement
and understanding among the parties hereto with respect to the
subject matter hereof and supersede any and all prior agreements
and understandings relating to the subject matter hereof.
Notwithstanding the preceding sentence, the parties hereto
acknowledge that the Escrow Agent is not a party to nor is it
bound by the Merger Agreement. No amendment, modification or
waiver of this Escrow Agreement shall be binding or effective for
any purpose unless it is made in a writing signed by the party
against whom enforcement of such amendment, modification or
waiver is sought. No course of dealing between the parties to
this Escrow Agreement shall be deemed to affect or to modify,
amend or discharge any provision or term of this Escrow
Agreement. No delay by any party to or any beneficiary of this
Escrow Agreement in the exercise of any of its rights or remedies
shall operate as a waiver thereof, and no single or partial
exercise by any party to or any beneficiary of this Escrow
Agreement of any such right or remedy shall preclude any other or
further exercise thereof. A waiver of any right or remedy on any
one occasion shall not be construed as a bar to or waiver of any
such right or remedy on any other occasion.
14
<PAGE>
20. INDEMNIFICATION. Without affecting, and separate and
apart from, each indemnity obligation contained in this Escrow
Agreement, Parent and each Company Shareholder hereby agree to
the following provisions in connection with the registration of
Parent Common Stock with the Commission as provided for in the
Merger Agreement:
a. Parent will indemnify each Company Shareholder in
respect of its Parent Shares to be subject to the Registration
Statement against all claims, losses, expenses, damages and
liabilities (or actions in respect thereto) arising out of or
based on any untrue statement by Parent (or alleged untrue
statement) of a material fact contained in the Registration
Statement or other document incident to the registration of such
shares, or based on any omission by Parent (or alleged omission)
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any
violation by the Parent of any rule or regulation promulgated
under the Securities Act or any state securities law applicable
to Parent and relating to action or inaction required of Parent
in connection with any such registration, and will reimburse each
such Company Shareholder for any reasonable legal and any other
expenses incurred in connection with investigating, defending or
settling any such claim, loss, damage, liability or action,
provided that the indemnity agreement contained in the provisions
of Section 20(a) shall not apply to amounts paid in settlement of
any such claim, loss, damage or liability if such settlement is
effected without the consent of Parent (which consent shall not
be unreasonably withheld) nor shall Parent be liable in any such
case to the extent that any such claim, loss, damage or liability
arises out of or is based on any untrue statement or omission
based upon written information furnished to Parent expressly for
use in connection with such registration by such Company
Shareholder.
b. Each Company Shareholder will, if Parent Shares
issuable to such Company Shareholder are included in the
securities as to which the registration is being effected,
indemnify Parent, each of its directors and officers, securities
covered by such registration statement, each person who controls
Parent and each underwriter within the meaning of the Securities
Act, and each other Company Shareholder against all claims,
losses, expenses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement by the
Company (or alleged untrue statement) of a material fact
contained in the Registration Statement or other related
document, or any omission by the Company (or alleged omission) to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will
reimburse Parent, such Company Shareholders, such directors,
officers, partners or persons for any reasonable legal or any
other expenses incurred in connection with investigating,
defending or settling any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon
and in conformity with written information furnished to Parent
expressly for use in connection with such registration by such
Company Shareholder specifically for use therein, provided,
however, that indemnity agreement contained in the provisions of
Section 20(b) shall not apply to amounts paid in settlement of
any such claim, loss, damage or liability if such settlement is
effected without the consent of such Company Shareholder (which
consent shall not be unreasonably withheld).
c. Each party entitled to indemnification under this
Section 20 (the "INDEMNIFIED PARTY") shall give notice to the
party required to provide indemnification (the
15
<PAGE>
"INDEMNIFYING PARTY") promptly after such Indemnified Party has
actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate
in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its
obligations hereunder, unless such failure resulted in actual
detriment to the Indemnifying Party. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with
the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party or a release from all
liability in respect of such claim or litigation.
21. INFORMATION BY HOLDER. Each Company Shareholder shall
promptly furnish to Parent such information regarding such
Company Shareholder as the Company may request in writing and as
shall be required in connection with any registration referred to
in the Merger Agreement.
22. COMPANY SHAREHOLDERS' UNDERTAKING. Each Company
Shareholder hereby agrees that it shall not trade or otherwise
reduce the economic risk relating to each Parent Share it
receives in connection with the Merger through short sales,
options or other similar transactions until financial results
covering at least thirty (30) days of combined operations of
Parent and the Surviving Corporations have been publicly
disclosed by Parent pursuant to a Parent Report. Parent is
obligated under the Exchange Act to publish such results in its
quarterly report on Form 10-Q for the second quarter of 2000 by
August 15, 2000.
(THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.)
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed
this Escrow Agreement as of the date first above written.
COMMERCIAL ESCROW SERVICES, INC.
BY: /s/ A. HARDSTONE
NAME: A. Hardstone
TITLE: President and Manager
ADVANCED ENERGY INDUSTRIES, INC.
BY: /s/ JOSEPH MONKOWSKI
NAME: Joseph Monkowski
TITLE: Senior Vice President
COMPANY SHAREHOLDERS:
/s/ ROBERT W. HIGGINS
NAME
GALEX RESEARCH
BY: /s/ B. ATLAS
NAME: B. Atlas
TITLE: General Partner
/s/ VALENTIN BALTER
NAME
/s/ DUANE ALLAN KOGLER
NAME
PACTECH/NOAH INVESTMENTS LLC
BY: /s/ THOMAS W. HALLORAN
NAME: Thomas W. Halloran
TITLE: Managing Member
PACTECH PARTNERS LLC
BY: /s/ THOMAS W. HALLORAN
NAME: Thomas W. Halloran
TITLE: President
/s/ JERAULD J. CUTINI
NAME
/s/ PETER ADAMS
NAME
A. G. EDWARDS & SONS, INC., AS
CUSTODIAN
BY: /s/ D. MICHAEL GUTHRIE
NAME: D. Michael Guthrie
TITLE: Staff Assistant
/s/ OLIVER JANSSEN
NAME
/s/ GARY HULTQUIST
NAME
17
<PAGE>
ANNEX A
COMPANY SHAREHOLDER NUMBER OF AE SHARES
1. Robert W. Higgins 35,201
6389 San Ignacio Avenue
San Jose, CA 95119
Facsimile #(408) 532-7691
Tax ####-##-####
2. Galex Research 12,811
6247 Royal Oak Court
San Jose, CA 95123
Facsimile #(408)281-7797
Tax #77-048-0018
3. Valentin Balter 8,541
10577 La Roda Drive
Cupertino, CA 95014
Facsimile #(408)255-3565
Tax ####-##-####
4. Duane Allan Kogler 1,154
408 Gwinn Ct.
San Jose, CA 95111
Facsimile #(408)574-2517
Tax ####-##-####
5. PacTech/Noah Investments LLC 5,771
One Embarcadero Center, Suite 1200
San Francisco, CA
Facsimile #(925)820-2865
Tax #94-334-2157
6. PacTech Partners LLC 3,037
One Embarcadero Center, Suite 1200
San Francisco, CA
Facsimile #(925)820-2865
Tax #94-334-2402
7. Jerauld J. Cutini 866
Gasonics, Inc.
2730 Junction Avenue
San Jose, CA 95134
Facsimile #
Tax ####-##-####
8. Peter Adams 577
5562 Morningside Drive
San Jose, CA 95138
Facsimile # (408) 281-7797
Tax ####-##-####
<PAGE>
9. A.G. Edwards & Sons (for Oliver Janssen) 144
One North Jefferson
St. Louis, MO 63103
Facsimile #(314) 955-5402
Tax #43-0895447
10. Oliver Janssen 274
One Embarcadero Center, Suite 1200
San Francisco, CA 94111
Facsimile #(415) 477-0165
Tax ####-##-####
11. Gary Hultquist 274
One Embarcadero Center, Suite 1200
San Francisco, CA 94111
Facsimile #(415) 477-0165
Tax ####-##-####
Total 68,650
