UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant x
Filed by a Party other than the Registrant o
Check the appropriate box:

o		Preliminary Proxy Statement

o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

x		Definitive Proxy Statement

o		Definitive Additional Materials

o		Soliciting Material Pursuant to §240.14a-12

ADVANCED ENERGY INDUSTRIES, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

x		No fee required.

o		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	(1)		Title of each class of securities to which transaction applies:
	(2)		Aggregate number of securities to which transaction applies:
	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
	(4)		Proposed maximum aggregate value of transaction:
	(5)		Total fee paid:

o		Fee paid previously with preliminary materials.

o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	(1)		Amount Previously Paid:
	(2)		Form, Schedule or Registration Statement No.:
	(3)		Filing Party:
	(4)		Date Filed:

 

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 6, 2009

 

To Our Stockholders:

 

The 2009 Annual Meeting of Stockholders of Advanced Energy Industries, Inc. (“Advanced Energy” or the “Company”) will be held on Wednesday, May 6, 2009, at 10:00 a.m. Mountain Daylight Time, at Advanced Energy’s corporate offices, 1625 Sharp Point Drive, Fort Collins, Colorado 80525. At the meeting, you will be asked to vote on the following matters:

 

1. Election of eight directors.

 

2. Ratification of the appointment of Grant Thornton LLP as Advanced Energy’s independent registered public accounting firm for 2009.

 

3. Any other matters of business properly brought before the meeting.

 

Each of the matters 1 and 2 is described in detail in the accompanying proxy statement, dated March 25, 2009.

 

If you owned common stock of Advanced Energy at the close of business on March 9, 2009, you are entitled to receive this notice and to vote at the meeting.

 

All stockholders are cordially invited to attend the meeting in person. If you do not plan to attend the meeting and vote your shares of common stock in person, please authorize a proxy to vote your shares in one of the following ways:

 

 

Any proxy may be revoked at any time prior to its exercise at the annual meeting.

 

By Order of the Board of Directors,

 

John D. Pirnot

Corporate Secretary

 

Fort Collins, Colorado

March 25, 2009

 

 

 

 

Please come to our 2009 Annual Meeting of Stockholders to learn about Advanced Energy, what we have accomplished in the last year and our plans for 2009. The meeting will be held:

 

Wednesday, May 6, 2009

10:00 a.m. Mountain Daylight Time

Advanced Energy’s Corporate Offices

1625 Sharp Point Drive

Fort Collins, Colorado 80525

 

This proxy statement describes the matters that management of Advanced Energy intends to present to the stockholders for approval at the annual meeting. Accompanying this proxy statement is Advanced Energy’s 2008 Annual Report to Stockholders and a form of proxy. All voting on matters presented at the annual meeting will be by proxy or by ballot in person, in accordance with the procedures described in this proxy statement. Instructions for voting are included in the proxy statement. Your proxy may be revoked at any time prior to the meeting in the manner described in this proxy statement.

 

I look forward to seeing you at the meeting.

 

 

Hans Georg Betz

Chief Executive Officer and President

 

This proxy statement and the accompanying proxy card are first being sent to stockholders on or about March 25, 2009.

 

GENERAL

 

This proxy statement and the accompanying materials are being sent to stockholders of Advanced Energy as part of a solicitation for proxies for use at the 2009 Annual Meeting of Stockholders. The Board of Directors of Advanced Energy (the “Board of Directors” or the “Board”) is making this solicitation for proxies. By delivering the enclosed proxy card by any of the methods described on the card, you will appoint each of Hans Georg Betz and Lawrence D. Firestone as your agent and proxy to vote your shares of common stock at the meeting. In this proxy statement, “proxy holders” refers to Dr. Betz and Mr. Firestone in their capacities as your agents and proxies.

 

Advanced Energy’s principal executive offices are located at 1625 Sharp Point Drive, Fort Collins, Colorado 80525. The telephone number is (970) 221-4670.

 

Proposals

 

We intend to present two proposals to the stockholders at the meeting:

 

1. Election of eight directors.

 

2. Ratification of the appointment of Grant Thornton LLP as Advanced Energy’s independent registered public accounting firm for 2009.

 

We do not know of any other matters to be submitted to the stockholders at the meeting. If any other matters properly come before the meeting, the proxy holders intend to vote the shares they represent as the Board of Directors may recommend.

 

Record Date and Share Ownership

 

If you owned shares of Advanced Energy common stock in your name as of the close of business on Monday, March 9, 2009, you are entitled to vote on the proposals that are presented at the meeting. On that date, which is referred to as the “record date” for the meeting, 41,911,985 shares of Advanced Energy common stock were issued and outstanding and were held by approximately 573 stockholders of record, according to the records of American Stock Transfer & Trust Company, Advanced Energy’s transfer agent.

 

Voting Procedures

 

Each share of Advanced Energy common stock that you hold entitles you to one vote on each of the proposals that are presented at the annual meeting. The inspector of the election will determine whether or not a quorum is present at the annual meeting. A quorum will be present at the meeting if a majority of the shares of common stock entitled to vote at the meeting are represented at the meeting, either by proxy or by the person who owns the shares. Advanced Energy’s transfer agent will deliver a report to the inspector of election in advance of the annual meeting, tabulating the votes cast by proxies returned to the transfer agent. The inspector of election will tabulate the final vote count, including the votes cast in person and by proxy at the meeting.

 

If a broker holds your shares, this proxy statement and a proxy card have been sent to the broker. You may have received this proxy statement directly from your broker, together with instructions as to how to direct the broker concerning how to vote your shares. Under the rules for Nasdaq-quoted companies, brokers cannot vote on certain matters without instructions from you. If you do not give your broker instructions or discretionary authority to vote your shares on such matters and your broker returns the proxy card without voting on a proposal, your shares will be recorded as “broker non-votes” with respect to the proposals on which the broker does not vote.

 

Broker non-votes and abstentions will be counted as present for purposes of determining whether a quorum is present. If a quorum is present, directors will be elected by a plurality of the votes present and each of the other matters described in this proxy statement will be approved by a majority of the votes cast on the proposal. Broker non-votes and abstentions will have no effect on the outcome of any of the matters described in this proxy statement.

The following table reflects the vote required for each proposal and the effect of broker non-votes and abstentions on the vote, assuming a quorum is present at the meeting:

 

 

If any other proposals are properly presented to the stockholders at the meeting, the number of votes required for approval will depend on the nature of the proposal. Generally, under Delaware law and the by-laws of Advanced Energy, the number of votes that may be required to approve a proposal is either a majority of the shares of common stock represented at the meeting and entitled to vote, or a majority of the shares of common stock represented at the meeting and casting votes either for or against the matter being considered. The enclosed proxy card gives discretionary authority to the proxy holders to vote on any matter not included in this proxy statement that is properly presented to the stockholders at the annual meeting.

 

Costs of Solicitation

 

Advanced Energy will bear the costs of soliciting proxies in connection with the annual meeting. In addition to soliciting your proxy by this mailing, proxies may be solicited personally or by telephone or facsimile by some of Advanced Energy’s directors, officers and employees, without additional compensation. We may reimburse our transfer agent, American Stock Transfer & Trust Company, our proxy agent, Mediant Communications, brokerage firms and other persons representing beneficial owners of Advanced Energy common stock for their expenses in sending proxies to the beneficial owners.

 

Delivery and Revocability of Proxies

 

You may vote your shares either by (i) marking the enclosed proxy card and mailing it in the enclosed postage prepaid envelope, (ii) voting online at www.proxypush.com/aeis, or (iii) voting by telephone at (866) 390-9955. If you mail your proxy, please allow sufficient time for it to be received in advance of the annual meeting.

 

If you deliver your proxy and change your mind before the meeting, you may revoke your proxy by delivering notice to our Corporate Secretary at Advanced Energy Industries, Inc., 1625 Sharp Point Drive, Fort Collins, Colorado 80525, stating that you wish to revoke your proxy or by delivering another proxy with a later date. You may vote your shares by attending the meeting in person but, if you have delivered a proxy before the meeting, you must revoke it before the meeting begins. Attending the meeting will not automatically revoke your previously-delivered proxy.

 

Delivery of Documents to Stockholders Sharing an Address

 

If two or more stockholders share an address, Advanced Energy may send a single copy of this proxy statement and other soliciting materials, as well as the 2008 Annual Report to Stockholders, to the shared address, unless Advanced Energy has received contrary instructions from one or more of the stockholders sharing the address. If a single copy has been sent to multiple stockholders at a shared address, Advanced Energy will deliver a separate proxy card for each stockholder entitled to vote. Additionally, Advanced Energy will send an additional copy of this proxy statement, other soliciting materials and the 2008 Annual Report to Stockholders, promptly upon oral or written request by any stockholder to Investor Relations, Advanced Energy Industries, Inc., 1625 Sharp Point Drive, Fort Collins, Colorado 80525; telephone number (970) 221-4670. If any stockholders sharing an address receive multiple copies of this proxy statement, other soliciting materials and the 2008 Annual Report to Stockholders and would prefer in the future to receive only one copy, such stockholders may make such request to Investor Relations at the same address or telephone number.

 

PROPOSAL NO. 1

 

ELECTION OF DIRECTORS

 

A board of eight directors is to be elected at the annual meeting. The Board of Directors has nominated for election the persons listed below. Each of the nominees is currently a director of Advanced Energy. In the event that any nominee is unable to or declines to serve as a director at the time of the meeting, the proxy holders will vote in favor of a nominee designated by the Board of Directors, on recommendation by the Corporate Governance and Nominations Committee to fill the vacancy. We are not aware of any nominee who will be unable or who will decline to serve as a director. The term of office of each person elected as a director at the meeting will continue from the end of the meeting until the next Annual Meeting of Stockholders (expected to be held in the year 2010), or until a successor has been elected and qualified or until such director’s earlier resignation or removal.

 

NOMINEES

 

 

 

 

The Board of Directors has determined that each of the nominees, other than Douglas S. Schatz and Hans Georg Betz, is an “independent director” as defined in Rule 4200(a)(15) of the Marketplace Rules of the Nasdaq Stock Market. To be considered independent, the Board must affirmatively determine that neither the director nor any immediate family member of the director had any direct or indirect material relationship with the Company within the last three years. The Board of Directors has made an affirmative determination that none of the independent directors has any relationship with Advanced Energy that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The independent directors, if all of them are elected at the annual meeting, will constitute a majority of the Board of Directors. There is no family relationship among any of the directors and any of the Company’s executive officers. The Company’s executive officers serve at the discretion of the Board.

 

Required Vote

 

The eight nominees will be elected to the Board upon receipt of a favorable vote (FOR) of a plurality of the votes cast at the meeting. Stockholders do not have the right to cumulate their votes for the election of directors. Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR each of the eight nominees. Votes withheld from a nominee will be counted for purposes of determining whether a quorum is present, but will not be counted as an affirmative vote for such nominee.

 

The Board of Directors recommends a vote “FOR” the election of each of the nominees named above.

 

Director Compensation

 

Director compensation for the fiscal year ended December 31, 2008 was as follows:

 

 

The following table shows director compensation information for 2008:

 

2008 Director Compensation

 

 

 

(1) Dr. Betz serves as the Company’s Chief Executive Officer and President and, as an employee of the Company, is not eligible for Director Compensation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Board of Directors Meetings

 

The Board of Directors held nine meetings in 2008. In 2008, the Board of Directors had an Audit and Finance Committee, a Corporate Governance and Nominations Committee and a Compensation Committee. In 2008, each incumbent director attended at least 75% of the aggregate number of meetings of the Board of Directors (held during the period for which he was a director) and the committees (held during the period for which he served on such committees) on which he served.

 

Members of the Board of Directors are welcomed and encouraged to attend, but are not required to attend, the Company’s annual stockholder meetings. The annual meeting of the Company’s stockholders held on May 7, 2008 was attended by one member of the Board, Dr. Betz.

 

Audit and Finance Committee

 

Composition and Meetings

 

In 2008, the Audit and Finance Committee consisted of Messrs. Beck (Chairman), Rohrs and Doan. On February 19, 2009, Mr. Ball was added as a member of the Audit and Finance Committee by appointment of the Board of Directors. Each of the members of the Audit and Finance Committee is an “independent director” within the meaning of Rule 4200(a)(15) of the Marketplace Rules of the Nasdaq Stock Market. The Board of Directors has evaluated the credentials of Messrs. Beck and Ball and determined that they are “audit committee financial experts” within the meaning of Item 401(h) of SEC Regulation S-K. The Board of Directors has also determined that each of the members of the Audit and Finance Committee is “independent” within the meaning of Section 10-A of the Securities Exchange Act of 1934. The Audit and Finance Committee met six times in 2008.

 

Policy on Audit and Finance Committee Approval of Audit and Permissible Non-Audit Services of the Independent Registered Public Accounting Firm

 

The Audit and Finance Committee approves all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit related services, tax services and other services. Approval is provided on a service-by-service basis. In 2008, the Audit and Finance

Committee approved all of the audit and non-audit services provided by Advanced Energy’s independent registered public accounting firm.

 

Audit and Finance Committee Charter and Responsibilities

 

The Audit and Finance Committee is governed by a written charter, which is available on our website at www.advanced-energy.com. The Audit and Finance Committee is responsible for, among other things:

 

 

The Audit and Finance Committee also conducts financial reviews with Advanced Energy’s independent registered public accounting firm prior to the release of financial information in the Company’s Forms 10-K and 10-Q.

 

Management has primary responsibility for Advanced Energy’s financial statements and the overall reporting process, including systems of internal controls. The independent registered public accounting firm audits the annual financial statements prepared by management, expresses an opinion as to whether those financial statements fairly present the financial position, results of operations and cash flows of Advanced Energy in conformity with accounting principles generally accepted in the United States and discusses with the Audit and Finance Committee any issues they believe should be raised.

 

Report of the Audit and Finance Committee

 

The Audit and Finance Committee has reviewed Advanced Energy’s audited financial statements, and met together and separately with both management and Grant Thornton LLP, the Company’s current independent registered public accounting firm to discuss Advanced Energy’s quarterly and annual financial statements and reports prior to issuance. In addition, the Audit and Finance Committee has discussed with the independent registered public accounting firm the matters outlined in Statement on Auditing Standards No. 61 (Communication with Audit Committees) to the extent applicable and received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). The Audit and Finance Committee has also discussed with the independent registered public accounting firm their independence.

 

Based on its review and discussion of the foregoing matters and information, the Audit and Finance Committee recommended to the Board of Directors that the audited financial statements be included in Advanced Energy’s 2008 Annual Report on Form 10-K. The Audit and Finance Committee has recommended the appointment of Grant

Thornton LLP as the Company’s independent registered public accounting firm for 2009, subject to stockholder approval.

 

The Audit and Finance Committee

Richard P. Beck, Chairman
Frederick A. Ball
Thomas M. Rohrs

Trung T. Doan

 

Corporate Governance and Nominations Committee

 

Composition and Meetings

 

The Corporate Governance and Nominations Committee consists of Messrs. Beck (Chairman), Grady and Spedden. Prior to July 29, 2008, the Corporate Governance and Nominations Committee consisted of Messrs. Beck (Chairman), Spedden and Doan, and prior to May 7, 2008, Dr. Posner was also a member. Each of the members of the Corporate Governance and Nominations Committee was and is an “independent director” within the meaning of Rule 4200(a)(15) under the Marketplace Rules of the Nasdaq Stock Market. The Corporate Governance and Nominations Committee met four times in 2008.

 

Corporate Governance and Nominations Committee Charter and Responsibilities

 

The Corporate Governance and Nominations Committee is governed by a written charter and Corporate Governance Guidelines that are available on our website at www.advanced-energy.com.

 

The Corporate Governance and Nominations Committee is responsible for:

 

 

Director Nominations

 

The Corporate Governance and Nominations Committee of the Board considers candidates for director nominees proposed by directors and stockholders. This committee may retain recruiting professionals to assist in identifying and evaluating candidates for director nominees. As set forth in the Company’s Guidelines, the

Corporate Governance and Nominations Committee strives for a mix of skills and diverse perspectives (functional, cultural and geographic) that is effective for the Board. Every effort is made to complement and supplement skills within the existing Board and strengthen any identified insufficiencies. In selecting the nominees, the Board assesses the independence, character and acumen of candidates. The Board also endeavors to establish a number of areas of collective core competency of the Board. Therefore, the Board assesses whether a candidate possesses skills including business judgment, leadership, strategic vision and knowledge of management, accounting, finance, industry, technology, manufacturing, international markets and marketing. Additional criteria include a candidate’s personal and professional ethics, integrity and values, as well as his or her willingness to devote sufficient time to prepare for and attend meetings and participate effectively on the Board.

 

The Corporate Governance and Nominations Committee of the Board evaluates and interviews potential director candidates. All members of the Board may interview the final candidates. The Corporate Governance and Nominations Committee will consider nominations by stockholders. The same identifying and evaluating procedures apply to all candidates for director nomination, including candidates submitted by stockholders.

 

The Corporate Governance and Nominations Committee will consider any and all director candidates recommended by our stockholders. If you are a stockholder and wish to recommend a candidate for nomination to the Board of Directors, you should submit your recommendation in writing to the Corporate Governance and Nominations Committee, in care of the Secretary of Advanced Energy at 1625 Sharp Point Drive, Fort Collins, Colorado 80525. Your recommendation should include your name and address, the number of shares of Advanced Energy common stock that you own, the name of the person you recommend for nomination, the reasons for your recommendation, a summary of the person’s business history and other qualifications as a director of Advanced Energy and whether such person has agreed to serve, if elected, as a director of Advanced Energy. Please also see the information under “Proposals of Stockholders” on page 30 of this proxy statement.

 

The Corporate Governance and Nominations Committee will apply the same processes and criteria in evaluating director candidates recommended by stockholders as it applies in evaluating director candidates recommended by directors, members of management or any other person.

 

Compensation Committee

 

Composition and Meetings

 

The Compensation Committee consists of Messrs. Spedden (Chairman), Rohrs, Doan and Grady. Prior to May 7, 2008, the Compensation Committee consisted of Messrs. Spedden (Chairman), Rohrs and Doan, and Dr. Posner. Each of the members of the Compensation Committee is a “non-employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, an “outside director” within the meaning of Section 162(m) under the Internal Revenue Code and an “independent director” within the meaning of Rule 4200(a)(15) of the Marketplace Rules of the Nasdaq Stock Market. The Compensation Committee met six times in 2008.

 

Committee Charter and Responsibilities

 

The Compensation Committee is governed by a written charter, which is available on our website at www.advanced-energy.com. The Compensation Committee is responsible for recommending salaries, incentives and other compensation for directors and officers of Advanced Energy, administering Advanced Energy’s incentive compensation and benefit plans and recommending to the Board of Directors policies relating to such compensation and benefit plans. The Compensation Committee has also from time to time retained an independent compensation consultant to assist and advise the Compensation Committee in fulfilling these responsibilities.

 

PROPOSAL NO. 2

 

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

On February 19, 2009, the Audit and Finance Committee approved the continued appointment of Grant Thornton LLP for 2009 as the Company’s independent registered public accounting firm. If the stockholders fail to ratify the appointment of Grant Thornton LLP, the Audit and Finance Committee will reconsider its selection. Even if the selection is ratified, the Audit and Finance Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit and Finance Committee feels that such a change would be in the best interests of Advanced Energy and our stockholders.

 

A representative of Grant Thornton LLP is expected to be present at the meeting and will have an opportunity to make a statement if he or she so desires. Moreover, the representative is expected to be available to respond to appropriate questions from the stockholders.

 

Audit Fees

 

For the fiscal years ended December 31, 2008 and 2007, fees billed by Grant Thornton LLP for professional services consisted of audit and audit-related fees and were $1,233,911 and $1,211,300, respectively. Audit fees were for professional services rendered for the audit of Advanced Energy’s consolidated financial statements and internal controls over financial reporting, review of interim financial statements, and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements.

 

The Audit and Finance Committee approved all services provided by Grant Thornton LLP during 2008.

 

Required Vote

 

Ratification of the appointment of Grant Thornton LLP as the independent registered public accounting firm for Advanced Energy for 2009 requires the affirmative (FOR) vote of a majority of the shares of common stock cast on the matter. For purposes of determining the number of votes cast on the matter, only those cast “For” or “Against” are included. Abstentions and broker non-votes are not included.

 

The Board of Directors recommends a vote “FOR” the ratification of the appointment of Grant Thornton LLP as Advanced Energy’s independent registered public accounting firm.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth the beneficial ownership of Advanced Energy common stock as of March 9, 2009 by:

 

 

 

 

 

 

 

 

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Compensation Philosophy and Objectives

 

Our Company’s long-term success depends on our ability to fulfill the expectations of our customers in a competitive environment and deliver value to stockholders. To achieve these goals, it is critical that we be able to attract, motivate, and retain highly talented individuals at all levels of the organization who are committed to the Company’s values and objectives.

 

The Company’s executive compensation program is based on the same objectives that guide the Company in establishing all of its compensation programs:

 

 

Overview of Executive Compensation Program

 

The Compensation Committee

 

The Compensation Committee of the Board has responsibility for establishing, implementing and monitoring adherence with the Company’s compensation philosophy. Accordingly, the Compensation Committee strives to develop and maintain competitive, progressive programs that attract, retain and motivate high-caliber employees, foster teamwork, and maximize the long-term success of Advanced Energy by appropriately rewarding our employees for their achievements.

 

In 2008, the Compensation Committee consisted of Mr. Spedden (Chairman), Messrs. Rohrs and Doan, and Dr. Posner up to May 7, 2008, at which time Dr. Posner ceased to be a member of the committee because his term as a director of the Company expired. On July 29, 2008, Mr. Grady was appointed to the Compensation Committee. Each of the members of the Compensation Committee was and is a “non-employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, an “outside director” within the meaning of Section 162(m)

under the Internal Revenue Code and an “independent director” within the meaning of Rule 4200(a)(15) of the Marketplace Rules of the Nasdaq Stock Market. The Compensation Committee met six times in 2008.

 

The Compensation Committee believes that the most effective executive compensation program is one that is designed to reward the achievement of specific annual, long-term and strategic goals by the Company, and that aligns interests of our executive officers with those of the stockholders by rewarding performance that meets or exceeds established goals, with the ultimate objective of exceeding corporate expectations and improving stockholder value. The Compensation Committee evaluates each executive officer’s performance and his compensation to ensure that the Company maintains its ability to attract and retain our executive officers and that each element of compensation provided to our executive officers remains competitive relative to the compensation paid to similarly situated executives of our peer companies.

 

The Compensation Committee has the authority to engage its own independent advisors to assist in making determinations with respect to the compensation of executives and other employees. The Compensation Committee engaged Compensation Strategies, Inc. in 2008 to provide updated market data regarding the compensation practices of Advanced Energy’s peer companies along with comparisons of the Company’s practices with respect to best practices within the industry. Compensation Strategies has not provided any other services to the Company and has received no compensation other than with respect to the services provided to the Compensation Committee.

 

Role of Executive Officers in Compensation Decisions

 

The Compensation Committee meets with the Company’s Chief Executive Officer and other senior executives in order to obtain recommendations with respect to the Company’s compensation programs and practices for executives and other employees. The Chief Executive Officer annually reviews the performance of each executive officer, other than himself. The Chief Executive Officer’s performance is reviewed by the Compensation Committee in executive session. With support from market compensation data, management makes recommendations to the Compensation Committee on the base salaries, bonus targets and equity compensation for the executive officers and other employees. The Compensation Committee considers, but is not bound by, and does not always accept, management’s recommendations with respect to executive compensation.

 

While management attends certain meetings of the Compensation Committee, the Compensation Committee also regularly holds executive sessions not attended by any members of management or by non-independent directors. The Compensation Committee makes all compensation decisions for the executive officers and approves recommendations regarding equity awards to all employees of the Company. The conclusions reached and recommendations based on these reviews, including with respect to salary adjustments and annual stock options or other equity award amounts, are presented to the Compensation Committee. The Compensation Committee can, and for 2008 did, exercise its discretion in modifying those recommended awards.

 

Benchmarking

 

One factor that the Compensation Committee considers when making compensation decisions is the compensation paid to executives of a peer group of companies. The Compensation Committee also considers data obtained from management’s recruitment activities, as well as factors such as historical rates of compensation, individual performance, competitive positioning, shareholder value achieved, and alignment with the Company’s overall compensation philosophy.

 

The peer group includes a range of companies with which the Compensation Committee believes the Company competes for talent or from which the Company is likely to recruit talent. In establishing compensation benchmarks for 2008, the Compensation Committee considered major high technology competitors for executive talent and companies of a size and scope similar to that of Advanced Energy as measured by market capitalization, revenue,

net income and total stockholder return, and data was appropriately size-adjusted. For 2008, the companies comprising this group of peer companies (the “Compensation Peer Group”) were:

 

 

To assist in the benchmarking process, the Compensation Committee in 2008 specifically requested that Compensation Strategies conduct reviews of the Company’s total compensation program for officers of the Company as well as for other senior managers and executives as compared to the Compensation Peer Group. Compensation Strategies provided the Compensation Committee with relevant market data, competitive assessments of the Company’s compensation practices compared to those of the Compensation Peer Group, and alternatives to consider when making compensation decisions for the executive officers of the Company.

 

Components of Executive Compensation

 

For 2008, the principal components of compensation for named executive officers were: (1) Base Salary, (2) Performance-Based Incentive Compensation, (3) Long-Term Equity Incentive Compensation, (4) Personal Benefits and Perquisites, and (5) Other Compensation. In determining the amount and relative allocation among each element of compensation for each named executive officer, the Compensation Committee considered the data of the Compensation Peer Group and made a determination based on its desire to offer comparable mix of compensation, individual circumstances of each executive and its own judgment of the appropriate balance of cash and equity, and short- and long-term compensation it believes will reward superior performance and foster achievement of our strategic goals.

 

Base Salary

 

Base salaries are set at levels that the Compensation Committee deems to be sufficient to attract and retain highly talented executive officers capable of fulfilling the Company’s key objectives. Base salaries are also set with the goal of rewarding executive officers on a day-to-day basis for their time and services while encouraging them to strive for performance-based and long-term incentives. The Compensation Committee generally aims to establish base salaries for our executive officers between the 40th and 60th percentile of base salaries for similarly situated officers at companies in the Compensation Peer Group. Salary levels are typically considered annually as part of the Company’s performance review process.

 

The 2008 base salary for each of our executive officers, other than Charles S. Rhoades, was determined based upon such officer’s base salaries for the preceding year, individual performance future potential, scope of his or her responsibilities and experience; an internal review of the executive’s current total compensation, both individually and relative to other executive officers; and financial performance of the Company during the prior year. Base salary for Mr. Rhoades, through his separation date of April 30, 2008, was determined pursuant to a transition agreement entered into with Mr. Rhoades on December 31, 2007.

 

In October 2008, as a result of declining global economic conditions and the company’s internal business forecasts management recommended and the Compensation Committee approved temporary ten percent reductions in the base salaries of the Company’s executive officers. In December 2008, management recommended and the Compensation Committee approved continuation of the ten percent base salary reduction into 2009, subject to restoration of such salaries to original levels in the event that the Company’s sustainable revenue exceeds by at least 5% the revenue level forecasted in the Company’s internal operating plan.

Annual Performance-Based Incentive Compensation

 

In 2008, the executive officers were eligible to participate in the Leadership Performance Incentive Plan (“LPIP”), under which incentive awards would be distributed from a bonus pool based upon the Company’s operating results in 2008 and each executive officer’s individual performance. Under the LPIP, the Company would have funded a bonus pool equal to 10% of the Company’s 2008 operating income if 2008 annual revenue and post-bonus operating income thresholds had been met. Revenue and operating income thresholds under the LPIP are set annually based upon achievement of the Company’s annual operating plan and approved by the Board of Directors.

 

The Compensation Committee aims to set each officer’s annual target bonus around the 65th percentile of the annual target bonus potentials for similarly situated officers at the companies in the Compensation Peer Group, in order to provide relatively high incentive compensation opportunities that reward goal achievement but that also take into consideration business cyclicality. In determining each officer’s annual target bonus, the Compensation Committee also considers the proposed amounts of base salary, equity incentive and other compensation as well as stockholder value created upon achievement of the specified performance targets. Target bonuses for executives in 2008 were:

 

 

If the bonus pool had been funded, individual performance objectives applicable to each participant would have been considered to determine the amount of the bonus. Individual performance objectives were set to reward exceptional individual performance with bonus modifiers based on the individual’s performance above target amounts, up to a maximum of 150% of such participant’s target bonus. In accordance with the goal of retaining key talent, an executive was required to remain an employee for the entire fiscal year to be eligible for any award under the incentive bonus plan.

 

Individual performance objectives for the Company’s executive officers are set annually by the Compensation Committee based upon the critical needs and goals of the Company for that year. For 2008, individual performance objectives for the Company’s executive officers were based upon each officer’s individual contributions to the Company’s overall performance in the categories of (1) long-term strategic planning and execution, (2) organizational development, (3) business process development, (4) reputation and quality of critical customer and investor relationships, and (5) improving efficiencies and decreasing costs. In addition, the Chief Executive Officer had individual performance objectives with respect to financial performance and company-wide quality improvement. The Compensation Committee maintained the discretion to evaluate each executive officer’s performance against these objectives and did not set specific metrics against these objectives for 2008.

 

In February 2009, the Compensation Committee met to determine the amounts of cash bonuses, if any, to award to the executive officers of the Company. Upon reviewing the financial performance of the Company for the fiscal year 2008, the committee determined that neither the 2008 annual revenue threshold nor the post-bonus operating income threshold had been met. As a result, the committee determined that no bonuses were to be awarded to the executive officers under the 2008 incentive compensation plan.

 

Long-Term Equity Incentive Compensation

 

The Company grants stock options and restricted stock units to the executive officers as long-term incentives and to align the executive officers’ interests with those of the Company’s stockholders. For 2008, all awards granted to the Company’s executive officers were in the form of stock options in order to maximize the alignment of the executive’s performance with the Company’s long-term interests. The initial award of restricted stock units granted to the Company’s Chief Executive Officer upon hire in 2005 continues to vest.

 

Prior to May 7, 2008 equity-based incentives were granted under the Company’s stockholder-approved 2003 Stock Option Plan, as amended January 31, 2005 and February 21, 2007. Subsequent to the annual stockholder meeting held on May 7, 2008, equity-based incentives were granted under the Company’s 2008 Omnibus Incentive Plan approved by the stockholders at the annual meeting. The Compensation Committee has granted equity awards at its scheduled meetings or by unanimous written consent, and the grants become effective and are priced based on

the closing price on the date of the Board of Directors meeting associated with such meeting or written consent. During 2008, equity based incentive awards were granted quarterly based upon an annual target recommendation from management, which the Compensation Committee had discretion to adjust at any time.

 

The number of options granted to each executive officer in 2008 was based upon a review by the Compensation Committee of each executive officer’s base salary, bonus potential, and individual performance and accomplishments, with the result in each case aimed at achieving total equity compensation between the 60th and 70th percentile of the total equity compensation paid to executive officers in comparable positions as reported by the Compensation Peer Group, based upon data contained in market research commissioned by the Compensation Committee. After considering the proposed amounts of base salary, target bonus and other compensation for each executive officer, the Compensation Committee determined that the amount of total executive equity-based compensation should be set at this level in order to emphasize the goals of retention and growth and to ensure strong alignment between executive performance and stockholder interests.

 

Personal Benefits and Perquisites

 

As U.S. employees, the executives were eligible to participate in health and welfare benefits, as offered to our U.S. workforce, designed to attract and retain its workforce in a competitive marketplace. These benefits help ensure that the Company has a healthy and focused workforce through reliable and competitive health and other personal benefits. These benefits were considered in relation to the total compensation package, but did not materially impact decisions regarding other elements of executive officer compensation.

 

All U.S. employees of the Company, including the executive officers, are eligible to participate in the Company’s 401(k) savings plan and are eligible to receive matching contributions by the Company of 50 percent of the first 6 percent of compensation contributed to the plan by the employee. In January 2009, the Compensation Committee determined to discontinue the Company’s matching contributions under the 401(k) savings plan as a cost reduction initiative as a result of declining global economic conditions and the Company’s internal business forecast.

 

All U.S. employees of the Company, including the executive officers, are eligible to participate in the Company’s Employee Stock Purchase Plan (ESPP), which provides participants with a right to purchase a limited number of shares of common stock of the Company at a purchase price equal to the lesser of 85% of the fair market value of the stock on either the opening or closing date of an offering under the plan. In February 2009, the Compensation Committee determined to discontinue the Company’s discount and look-back under the ESPP as a further cost reduction initiative.

 

Other Compensation

 

In 2008, the Company was a party to a change in control (“CIC”) agreement with each of the Chief Executive Officer, the Chief Financial Officer, and the Executive Vice President of Sales, Marketing and Service. The CIC agreements provide each of these executives with severance payments and certain benefits in the event of a termination without Cause or other involuntary termination following an actual or during a pending change in control. The Company entered into the CIC agreements in order to keep management focused on the Company’s stated corporate objectives irrespective of whether the achievement of such objectives makes the Company attractive for acquisition, and to avoid the distraction and loss of key management that could occur in connection with a rumored or actual change in corporate control.

 

Under the CIC agreements effective March 29, 2008, in the event of an executive’s termination without cause following an actual or during a pending change in control, the executive is entitled to receive: (a) all then accrued compensation and a pro-rata portion of executive’s target bonus for the year in which the termination is effected, (b) a lump sum payment equal to the executive’s then current annual base salary plus his or her target bonus for the year in which the termination is effected (or in the case of the Chief Executive Officer, two times such amount), (c) continuation of insurance and other benefits for 18 months following the date of termination, (d) an amount equal to the contributions that would have been made to the company’s retirement plans on behalf of executive, if the executive had continued to be employed for 12 months following the date of termination, and (e) reimbursement, up to $15,000, for outplacement services. In addition, all stock options and other equity awards then held by the

executive so terminated become fully vested and exercisable. The terms of the CIC agreements were determined by the Compensation Committee based on consideration of marketplace benchmark data and the Company’s retention objectives.

 

Tax and Accounting Implications

 

Section 162(m) of the Internal Revenue Code of 1986 generally limits to $1 million the corporate deduction for compensation paid to certain executive officers, unless the compensation is “performance-based” (as defined in Section 162(m)). Each of the members of the Board of Directors and the Compensation Committee carefully considers the potential impact of the limitation on executive compensation and considers it to be in the best interests of Advanced Energy and the stockholders to seek to qualify as tax deductible virtually all executive compensation. The Board of Directors and the Compensation Committee also recognize the need to consider factors other than tax deductibility in making compensation decisions and thus reserve the flexibility to award compensation that is not necessarily performance-based. During 2008, none of the executive officers of the Company had compensation in excess of $1,000,000.

 

Compensation Committee Interlocks and Insider Participation

 

The current members of the Compensation Committee are Messrs. Spedden (Chairman), Doan, Grady and Rohrs. None of such directors is or has been an officer or employee of Advanced Energy, nor has any of such persons had a direct or indirect interest in any business transaction with Advanced Energy involving an amount in excess of $120,000 or any other interlock relationship required to be reported under the rules of the Securities and Exchange Commission.

 

During 2008, no executive officer of Advanced Energy served as a member of the board of directors or compensation committee of another company that has any executive officers or directors serving on Advanced Energy’s Board of Directors or its Compensation Committee.

 

Compensation Committee Report

 

The information contained in this report shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically incorporates such information by reference in a document filed under the Securities Act or the Exchange Act

 

The Compensation Committee of the Board has reviewed and discussed with management the Compensation Discussion and Analysis for fiscal 2008. Based upon the review and discussions, the Compensation Committee recommended to the Board, and the Board has approved, that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement for its 2009 Annual Meeting of Stockholders.

 

This report is submitted by the Compensation Committee.

 

Elwood Spedden, Chairman
Trung T. Doan
Edward C. Grady
Thomas M. Rohrs

 

Management

 

Summary Compensation

 

The following table shows compensation information for fiscal 2006, 2007, and 2008 for the named executive officers.

 

2008 Summary Compensation Table

 

 

 

 

Grants of Plan-Based Awards

 

The following table shows all plan-based awards granted to the named executive officers during 2008. The option awards and the unvested portion of the stock awards identified in the table below are also reported in the Outstanding Equity Awards at 2008 Year-End Table on the following page.

 

2008 Grants of Plan-Based Awards

 

 

 

 

Outstanding Equity Awards

 

The following table shows all outstanding equity awards held by the named executive officers at the end of 2008. The following awards identified in the table below are also reported in the Grants of Plan-Based Awards Table on the previous page.

 

Outstanding Equity Awards at 2008 Year-End

 

 

 

Option Exercises and Stock Vested

 

The following table shows all stock options exercised and value realized upon exercise, as well as all stock awards vested and value realized upon vesting, by the named executive officers during 2008.

 

Option Exercises and Stock Vested for 2008

 

 

 

 

Pension Benefits

 

Advanced Energy’s named executive officers received no benefits in 2008 from the Company under defined pension or defined contribution plans other than the tax-qualified 401(k) Plan.

 

Nonqualified Deferred Compensation

 

Advanced Energy does not maintain a non-qualified deferred compensation plan.

Potential Payments upon Termination or Change in Control

 

The following table describes the potential payments and benefits under the Company’s compensation and benefit plans and arrangements to which the named executive officers would be entitled upon termination of employment.

 

 

 

 

 

Policies and Procedures with Respect to Related Party Transactions

 

The Board is committed to upholding the highest legal and ethical standards of conduct in fulfilling its responsibilities and recognizes that transactions with the Company involving related parties can present a heightened risk of potential or actual conflicts of interest. Accordingly, as a general matter, it is the policy of the Company to avoid related party transactions.

 

Although the Company has not memorialized its policy with respect to related party transactions, discussion of related party transactions is included as an agenda item for meetings of both the Corporate Governance and Nominations Committee and the Audit and Finance Committee as needed. The Corporate Governance and Nominations Committee and the Audit and Finance Committee discusses in detail every related party transaction identified by the Company’s directors and officers. Both the Corporate Governance and Nominations Committee and the Audit and Finance Committee, all of whose members are independent directors, must review and approve all related party transactions for which such approval is required under applicable law, including SEC and Nasdaq rules. Current SEC rules define a related party transaction to include any transaction, arrangement or relationship in which the Company is a participant and in which any of the following persons has or will have a direct or indirect interest:

 

 

In addition, the Audit and Finance Committee is responsible for reviewing and investigating any matters pertaining to the integrity of management, including conflicts of interests and adherence to the Company’s Code of Ethical Conduct. Under the Code of Ethical Conduct, directors, officers and all other members of the workforce are expected to avoid any relationships, influence or activity that would cause or even appear to cause a conflict of interest.

 

Certain Relationships and Related Transactions

 

Advanced Energy leases its executive offices and certain manufacturing facilities in Fort Collins, Colorado from Prospect Park East Partnership and Sharp Point Properties, LLC,. Aggregate payments under such leases for 2008 totaled approximately $3.2 million. Douglas S. Schatz, Chairman of the Board of Advanced Energy, holds a 26.67% member interest in each of these leasing entities. Mr. Schatz did not participate in the negotiations of these leases. Future minimum lease payments related to these properties is $11.2 million.

In November 2008, we reimbursed Mr. Schatz for a $125,000 filing fee that he paid to the Federal Trade Commission in connection with notifications submitted by us and Mr. Schatz under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The notifications were required in connection with Mr. Schatz’s acquisition of common stock upon the vesting of restricted stock units that had been granted to Mr. Schatz while he was serving as our Chief Executive Officer.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934 requires Advanced Energy’s executive officers and directors and persons who own more than ten percent of the outstanding common stock (“reporting persons”) to file with the Securities and Exchange Commission an initial report of ownership on Form 3 and changes in ownership on Forms 4 and 5. The reporting persons are also required to furnish Advanced Energy with copies of all forms they file. Based solely on its review of the copies of forms received by it and written representations from the reporting persons, Advanced Energy believes that each of the reporting persons timely filed all reports required to be filed in 2008 or with respect to transactions in 2008.

 

CORPORATE GOVERNANCE MATTERS

 

Codes of Conduct and Ethics

 

Advanced Energy has adopted Codes of Ethical Conduct that apply to the Board of Directors and employees. These Codes of Ethical Conduct are available on our website at www.advanced-energy.com. Any waivers of, or amendments to, our Codes of Ethical Conduct will be posted on our website.

 

Communications with Directors

 

The Board of Directors has established a process to receive communications from stockholders and other interested parties. Stockholders and other interested parties may contact any member, or all members, of the Board of Directors electronically or by mail. Electronic communications should be addressed to boardmembers@aei.com. Mail may be sent to any director or the Board of Directors in care of Advanced Energy’s corporate office at 1625 Sharp Point Drive, Fort Collins, CO 80525. All such communications will be forwarded to the full Board of Directors or to any individual director to whom the communication is addressed unless the communication is clearly of a marketing or inappropriate nature. It is the Board of Director’s practice to encourage all board members to attend the Company’s annual stockholder meeting, although no written policy has been adopted in that regard.

 

PROPOSALS OF STOCKHOLDERS

 

Proposals, including director nominations, that a stockholder desires to have included in Advanced Energy’s proxy materials for the 2010 Annual Meeting of Stockholders of Advanced Energy in accordance with SEC Rule 14a-8 must be received by the Secretary of Advanced Energy at its principal office (1625 Sharp Point Drive, Fort Collins, Colorado 80525) no later than December 2, 2009 in order to be considered for inclusion in such proxy materials. The proxy solicited by management of Advanced Energy for the 2009 Annual Meeting of Stockholders will confer discretionary authority to vote on any stockholder proposal presented at that meeting, unless Advanced Energy was provided with notice of the proposal no later than February 26, 2009.

 

FORM 10-K

 

A copy of Advanced Energy’s 2008 Annual Report on Form 10-K is included in the 2008 Annual Report to Stockholders accompanying this proxy statement. You can request an additional copy of the 2008 Annual Report on Form 10-K by mailing a request to the Secretary of Advanced Energy at 1625 Sharp Point Drive, Fort Collins, Colorado 80525.

 

REPRESENTATION AT THE ANNUAL MEETING

 

It is important that your stock be represented at the meeting, regardless of the number of shares that you hold. You are therefore urged to execute and return, at your earliest convenience, the accompanying proxy card in the envelope that has been enclosed or vote your shares by telephone or Internet as described on the proxy card. Instructions as to how to deliver your proxy are included in this proxy statement under the caption “Delivery and Revocability of Proxies” on page 3 and on the proxy card.

 

THE BOARD OF DIRECTORS

Dated: March 25, 2009

Fort Collins, Colorado