i PROXY STATEMENT FOR ANNUAL GENERAL MEETING

Transcription

PROXY STATEMENT FOR ANNUAL GENERAL MEETING OF SHAREHOLDERS
OF GERMANY1 ACQUISITION LIMITED
Proxy Statement dated 23 July 2009
Dear Shareholders:
Germany1 shareholders ("Shareholders") are cordially invited to attend the annual general meeting of the
Shareholders (the "Annual General Meeting") of Germany1 Acquisition Limited ("Germany1" or the
"Company"), a Guernsey company, relating to the proposed acquisition of AEG Power Solutions B.V., a
Netherlands corporation ("AEG" and together with its subsidiaries, "AEG Group"), and the transactions
contemplated thereby (the "Acquisition"), pursuant to the Share Purchase Agreement dated 23 July (the
"Acquisition Agreement") by and among Germany1, Ripplewood Power Systems I L.L.C., Ripplewood Power
Systems II L.L.C. and each of the persons listed on Schedule A to the Acquisition Agreement (together with
Ripplewood Power Systems I L.L.C. and Ripplewood Power Systems II L.L.C., the "Sellers") and AEG, as well
as other proposals.
If the Acquisition is consummated, Germany1 will deliver at closing cash and shares as set forth below plus or
minus an amount in cash equal to the sum of AEG's (i) estimated net cash and (ii) estimated working capital
adjustment, in each case estimated as of the closing day without giving effect to the closing. Following the
closing, these estimated amounts will be compared against the actual amounts with any subsequent adjustments
payable in cash by Germany1 to the Sellers or by the Sellers to Germany1, as the case may be.
At least EUR 200,000,000 of the total purchase price must be paid in cash, subject to net cash and working
capital adjustment described above (the "Cash Portion").
The balance of the total purchase price will be paid in convertible shares in Germany1 (the "Convertible
Shares"). The Convertible Shares will be non-listed shares of no par value, which will have the same voting
rights as, and shall rank pari passu in right of payment with respect to dividend and upon liquidation with, the
other no par value shares (the "Shares") in Germany1. The Convertible Shares will be divided into two classes of
equal amounts. One class will automatically convert into ordinary Shares upon the six month anniversary of the
closing of the Acquisition (the "Class A Convertible Shares"). The other class will automatically convert upon
the first year anniversary of the closing of the Acquisition (the "Class B Convertible Shares"). As a result of the
conversion terms of the Convertible Shares, the Convertible Shares will not be freely transferable until after their
conversion at which point the Company will at its expense cause those shares to be listed on Euronext (and on
any other exchange on which the Shares are listed at that time, if any) and those shares will be freely transferable
in accordance with the articles of incorporation of the Company (the "Articles of Incorporation"). The
Acquisition will accordingly result in Convertible Shares being issued to the Sellers such that the Sellers'
ownership interest in Germany1 is expected to be approximately 33.0% on a fully diluted basis (i.e. assuming
that all of our Warrants have been exercised on a cashless basis at a Share price of EUR 10.00 and a strike price
of EUR 7.50 and not taking into account any redemption of Public Shares), which interest may later increase up
to a maximum of approximately 35.8% on a fully diluted basis pursuant to an earn-out payment equal to EUR
50,000,000, EUR 25,000,000 of which is payable in Convertible Shares and the other half is payable in cash, if
certain targets are met with respect to fiscal years 2009, 2010 and 2011. For further information on the future
ownership interest of the Sellers in the Company following the Acquisition, including the future maximum
possible amount of ownership interest of the Sellers in Germany1, please refer to the sections "Dilution", and
"Beneficial Ownership of Securities" of the Proxy Statement.
The Board of Directors has fixed the close of business two days prior to the Annual General Meeting (after
giving effect to all settlements on that date) as the record date ("Record Date") for the determination of
Shareholders entitled to attend and vote at the Annual General Meeting and at any adjournments or
postponements thereof.
We issued 25,000,000 Shares pursuant to our initial public offering ("IPO") on 21 July 2008 ("Public Shares"
and the holders thereof "Public Shareholders"). Except as noted below, we will consummate the Acquisition if it
is approved by a majority of the votes cast by our Public Shareholders at the Annual General Meeting where
Public Shareholders holding a majority of our Public Shares are present or voting by proxy. Pursuant to our
Articles of Incorporation, Public Shareholders voting against the Acquisition proposal will be entitled to exercise
their right to redeem their Public Shares for cash in an amount equal to a pro rata share of the amounts held in
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the trust account established by Germany1 and maintained by Carey Commercial as trustee into which a portion
of the net proceeds of the IPO (less certain expenses and taxes) were deposited (the "Trust Account"). The
election to exercise redemption rights must be made on the proxy card (which must be submitted in accordance
with the instructions on the proxy card) and subsequent delivery of the Shares must be made via a bank or
broker, being or using an admitted institution of Euroclear Nederland to ABN AMRO Bank N.V., acting under
the name RBS ("RBS"), no later than 3.00 p.m. (CET) on the business day before the Annual General Meeting.
If the redemption rights are exercised by valid delivery of the proxy card, the relevant Public Shareholder has
voted against the Acquisition proposal, and the Shares have been validly delivered for redemption to RBS, and if
the Acquisition is completed, we will redeem each applicable Public Share for an amount equal to such Public
Share's pro rata portion of the Trust Account (less certain expenses and taxes), calculated on the date being two
Business Days prior to consummation of the Acquisition. However, if the holders of 7,500,000 or more Public
Shares, representing 30% or more of the total number of Public Shares, exercise their redemption rights, then, in
accordance with the terms of our Articles of Incorporation and the documents governing the Trust Account, we
will not consummate the Acquisition and those Shares will not be redeemed. Based on the amount of cash held
in the Trust Account, net of accrued taxes and expenses as of 15 June 2009, without taking into account any
interest earned or expenses incurred after such date, Public Shareholders will be entitled to redeem each Public
Share that they hold for approximately EUR 10.05 per Public Share (not taking into account interest of
EUR 141,524.65 accrued for the period from 1 June 2009 to 15 June 2009 in the Trust Account). If you exercise
your redemption rights, then your Shares will be redeemed for cash and cancelled. If the Acquisition is not
completed, or you do not vote against the Acquisition proposal or your Shares have not been delivered in time,
then these Shares will not be redeemed. If the Acquisition is completed, a Public Shareholder who exercises its
redemption rights will continue to own any Warrants to acquire Public Shares as such Warrants will remain
outstanding and unaffected by the exercise of redemption rights. Prior to exercising redemption rights, Public
Shareholders should consider the market price of our Shares as they may receive higher proceeds from the sale
of their Shares in the public market than from exercising their redemption rights. Our Shares are listed on
Euronext Amsterdam by NYSE Euronext ("Euronext Amsterdam") under the symbol "GAL1S". On 22 July
2009, the last practicable date prior to the publication of this Proxy Statement, the last quoted sales price was
EUR 9.75 per Share.
A Public Shareholder, together with any of its Affiliates or any other person with whom it is acting in concert or
as a "group", will be restricted from seeking redemption rights with respect to more than 25% of the Public
Shares. A determination as to whether a Public Shareholder and/or the party with whom it is acting in concert or
as a "group" shall be made on the basis of Article 5:45(5) Dutch Financial Supervision Act (wet op het financieel
toezicht). Accordingly, if you purchase or acquire more than 25% of the Public Shares and a proposed Business
Combination is approved, you will not be able to seek redemption rights with respect to the full amount of your
Public Shares and may be forced to hold a portion of your Public Shares or sell them in the after-market.
Prior to our IPO, we sold 7,450,000 of our shares to LCP1 Limited, a holding company incorporated under the
laws of Guernsey that is controlled by Florian Lahnstein and jointly owned by Prof. Dr. h.c. Roland Berger,
Florian Lahnstein and Dr. Thomas Middelhoff ("LCP1" or the "Sponsor" and the individuals, jointly, the
"Management Team"), and 50,000 of our shares to Dr. Arnold Bahlmann for an aggregate price of EUR 10,000
or approximately EUR 0.0013 per Share (such Shares, together with the Shares acquired by LCP1, are referred
to as the "Founding Shares"; and the Management Team, together with Dr. Bahlmann, the "Founding
Shareholders"). Dr. Bahlmann has since sold his Founding Shares in Germany1 to Dr. Middelhoff. 1,250,000 of
the Founding Shares were automatically redeemed at our IPO. In addition, our Founding Shareholders purchased
a total of 2,000,000 Public Shares in our IPO. Accordingly, our Founding Shareholders now beneficially hold a
total of 8,250,000 of our Shares. The Founding Shareholders transferred their Founding Shares and Public
Shares acquired in our IPO to a Dutch foundation (the "Foundation") following our IPO. In connection with the
Shareholder vote required to approve the Acquisition, the Foundation will (i) abstain from voting all of the
Founding Shares and (ii) will vote the Public Shares acquired by our Founding Shareholders and other directors
or officers (or their Affiliates) in our IPO or in the secondary market in favor of the Acquisition.
Each Shareholder's vote is very important. Whether or not you plan to attend the Annual General Meeting in
person, please submit your proxy card without delay. Shareholders may revoke proxies at any time before they
are voted at the Annual General Meeting. Voting by proxy will not prevent a Shareholder from voting such
Shareholder's Public Shares in person if such Shareholder subsequently chooses to attend the Annual General
Meeting.
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The Takeover Code
Introduction
Germany1 is a limited company, listed on Euronext and registered in Guernsey and with its central place of
management and control in the UK, Channel Islands or Isle of Man, Germany1 is subject to the provisions of the
City Code on Takeovers and Mergers (the "Takeover Code"). The Panel on Takeovers and Mergers of the United
Kingdom (the "Panel") has confirmed that following completion of the Acquisition it will consider that
Germany1's central place of management and control is no longer in the UK, Channel Islands or Isle of Man,
and, therefore, for so long as that remains the case, the Takeover Code will not apply to any offer made to
Shareholders in the Company to acquire their Shares.
The Takeover Code is issued and administered by the Panel. Germany1 is a company to which the Takeover
Code currently applies and its shareholders are accordingly entitled to the protections afforded by the Takeover
Code.
The Takeover Code and the Panel operate principally to ensure that shareholders are treated fairly and are not
denied an opportunity to decide on the merits of a takeover and that shareholders of the same class are afforded
equivalent treatment by an offeror. The Takeover Code also provides an orderly framework within which
takeovers are conducted. In addition, it is designed to promote, in conjunction with other regulatory regimes, the
integrity of the financial markets.
Germany1 shareholders should note that, if the Acquisition is completed, they will not receive the
protections afforded by the Takeover Code in the event of a subsequent offer to acquire their shares in the
Company.
Brief details of the Panel, the Takeover Code and protections given by the Takeover Code are described below.
For further information about the Takeover Code please refer to the section "Further Information relating to the
Takeover Code" of the Proxy Statement.
The General Principles and Rules of the Takeover Code
The Takeover Code is based upon a number of general principles which are essentially statements of standards
of commercial behavior. For your information, these general principles are set out in the section "Further
Information relating to the Takeover Code" of the Proxy Statement. The general principles apply to all
transactions which are subject to the Takeover Code. They are expressed in broad general terms, and the
Takeover Code does not define the precise extent of, or the limitations on, their application. They are applied by
the Panel in accordance with their spirit to achieve their underlying purpose.
In addition to the general principles, the Takeover Code contains a series of Rules, of which some are effectively
expansions of the general principles and examples of their application and others are provisions governing
specific aspects of takeover procedure. Although most of the Rules are expressed in more detailed language than
the general principles, they are not framed in technical language and, like the general principles, are to be
interpreted to achieve their underlying purpose. Therefore, their spirit must be observed as well as their letter.
The Panel may derogate or grant a waiver to a person from the application of a Rule in certain circumstances.
Giving up the protection of the Takeover Code
A summary of the application of the Takeover Code to takeovers generally is set out in the section "Further
Information relating to the Takeover Code" of the Proxy Statement. You are encouraged to read this
information carefully as it outlines certain important protections which you will be giving up if you agree
to the Acquisition.
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Rule 9 of the Takeover Code
Under Rule 9 of the Takeover Code, any person who acquires an interest (as defined in the Takeover Code) in
shares which, taken together with shares in which he and persons acting in concert with him are interested, carry
30% or more of the voting rights of a company which is subject to the Takeover Code, is normally required to
make a general offer to all the remaining shareholders to acquire their shares.
Similarly, when any person, together with persons acting in concert with him, is interested in shares which in the
aggregate carry not less than 30% of the voting rights of such a company but does not hold shares carrying more
than 50% of such voting rights, a general offer will normally be required if any further shares are acquired by
any such person.
An offer under Rule 9 must be made in cash and at the highest price paid by the person required to make the
offer, or any person acting in concert with him, for any interest in shares of the company during the 12 months
prior to the announcement of the offer.
The Panel will normally waive the requirement for a general offer to be made in accordance with Rule 9 if the
shareholders of the company, excluding any persons connected in any way with the offeror or any associated
company ("Independent Shareholders"), pass an ordinary resolution on a poll approving such a waiver (a
"Whitewash Resolution"). The Panel has the power to waive the requirement for a Whitewash Resolution to be
put to the shareholders of the company at an extraordinary general meeting where Independent Shareholders
holding more than 50% of the company's shares capable of being voted on such a resolution confirm in writing
that they would vote in favor of a Whitewash Resolution were one to be put to the shareholders of the company
at an extraordinary general meeting.
The issue of Shares to the Sellers of AEG, Ripplewood Power Systems I L.L.C., Ripplewood Power Systems II
L.L.C., Brock Trust L.L.C., holders in AEG's management equity plan (as discussed below), Parinvest SAS and
ENAC Ventures L.L.C. (whom for the purposes of the Takeover Code are deemed a concert party) may result in
the Sellers, when taken together, becoming interested in a maximum of 26,708,955 Convertible Shares
representing approximately 52.93% of the Company's enlarged issued voting share capital (as shown by the table
below).
The table below sets out the possible maximum shareholdings of the Sellers (assuming that the existing Warrants
are not exercised and holders of 7,499,999 of the Company's Public Shares vote against the Acquisition and such
Public Shares are redeemed by the Company) as a result of (i) the Acquisition completing; and (ii) the maximum
number of Shares being issued to the Sellers as a result of the adjustment to reflect AEG’s net cash and working
capital; (iii) the maximum number of Shares being issued to the Sellers as a result of the targets for fiscal years
2009, 2010 and 2011 being achieved pursuant to the earn-out provisions contained in the Acquisition Agreement
and (iv) the maximum number of Shares being awarded to Brock Trust L.L.C. or those members of the
management team who are participants in both the AEG management equity plan and the Incentive Plan (and
thus are Sellers of AEG).
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Identity of
Shareholder
Ripplewood Power
Systems I L.L.C. ..........
Ripplewood Power
Systems II L.L.C..........
Brock Trust L.L.C.
AEG management
equity plan2 ..................
Parinvest SAS ..............
ENAC Ventures
L.L.C. ...........................
Total .............................
1
2
Percentage Percentage Percentage Percentage
of issued
of the
of the
of issued
voting
issued
issued
voting share
share
voting
voting
capital
capital
share
share
immediately
following
capital
capital
following
the full
following following
completion
conversion the issue
the issue
of the
of the
of the
of the
proposed
Acquisition1 Convertible maximum maximum
Shares1
number of number of
Shares
Shares
pursuant
pursuant
to the
to the
earn-out1 Incentive
Plan to
Brock
Trust
LLC1
Percentage Percentage Percentage
of the issued
of the
of the issued
voting share
issued
voting share
capital
voting
capital
following
share
following
the issue of
capital
the issue of
the
following
the
maximum
the issue
maximum
number of
of the
number of
Shares
maximum
Shares
pursuant to number of pursuant to
the
Shares
the earn-out
Incentive
pursuant
and the
Plan to AEG
to the
Incentive
management earn-out Plan to AEG
equity plan1
and the management
Incentive equity plan1
Plan to
Brock
Trust
LLC1
26.50%
26.50%
28.02%
25.12%
25.12%
26.63%
26.63%
11.37%
6.25%
11.37%
6.25%
12.02%
6.60%
10.78%
11.13%
10.78%
5.92%
11.42%
11.23%
11.42%
6.28%
1.60%
1.97%
1.60%
1.97%
1.69%
2.08%
1.52%
1.87%
6.73%
1.87%
1.61%
1.98%
6.56%
1.98%
0.06%
47.76%
0.06%
47.76%
0.06%
50.48%
0.06%
50.48%
0.06%
50.48%
0.06%
52.93%
0.06%
52.93%
Including the issuance of a maximum number of 2,500,000 Shares which might be required as a purchase price adjustment pursuant to
clause 1.6(k) of the Acquisition Agreement.
Participants in the AEG management equity plan are: Kirit Wadhia; Kaivon Mortazavi; John Case; Alan Wickberg; John Taylor;
Enrique De La Cruz Moreno; Gladwyn DeVidts; Peter Bon; Yann Civilise; Erik Van Baren; Eric Lebreton; Dominique Manet; Joerg
Liedloff; Michael Liese; Dietmar Papenfort; Karl-Heinz Schulz; Louis Dosch; Marios Michaelides; Michel Rocher; Ingo Labayru;
Francois Richon; Peter Heidemann; Christophe Bourgueil; Jesus Maria Ortiz De Zarate Rodriguez; Mihaela Mateciuc; Michael Koike.
Whilst Germany1 will no longer be subject to the Code when the Acquisition is completed, if the place of central
management and control were to change and the Panel were to consider it to be in the UK, Channel Islands or
Isle of Man, Germany1 may once again become subject to the Takeover Code. If, at that point, the Sellers hold
more than 50% of the Germany1’s issued voting share capital, the Sellers may accordingly acquire further shares
in Germany1 without incurring any further obligation under Rule 9 to make a general offer, although individual
Sellers will not be able to increase their percentage interests in shares through or between a Rule 9 threshold
without Panel consent.
The Company has obtained such written confirmation from the Independent Shareholders of more than 50% of
the existing issued voting share capital and the Panel has waived the requirement for a Whitewash Resolution to
be approved at a Annual General Meeting of the Company. Accordingly, by voting in favor of the resolutions to
be proposed at the Annual General Meeting of the Company, you will be approving the Acquisition being
effected without the requirement for the Sellers to make a general offer under Rule 9 of the Takeover Code.
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HOW TO OBTAIN ADDITIONAL INFORMATION
If you would like to receive additional information or if you want additional copies of this document, please
contact your bank or broker. Agreements contained in the appendices or documents filed by Germany1 with the
Netherlands Authority for Financial Markets, are available without charge upon written or oral request. Please
contact the following:
Germany1 Acquisition Limited
Elizabeth House, 1st and 2nd Floors
Les Ruettes Braye
St. Peter Port, Guernsey GY1 1EW
Attention: Corporate Secretary:
C.L. Secretaries Limited
Tel: +44 1481 737275
or
RBS
Equity Capital Markets/
Corporate Actions
HQ 3130
Gustav Mahlerlaan 10
1082 PP
Amsterdam, The Netherlands
Tel: +31 20 3836707
e-mail: corporate.actions@rbs.com
If you would like to request documents, please do so no later than 5 August 2009 to receive them before the
Annual General Meeting. Please be sure to include your complete name and address in your request. You should
rely only on the information contained in this Proxy Statement in deciding how to vote on the Acquisition and
other proposals. Neither Germany1 nor AEG has authorized anyone to give any information or to make any
representations other than those contained in this Proxy Statement. Do not rely upon any information or
representations made outside of this Proxy Statement. The information contained in this Proxy Statement may
change after the date of this Proxy Statement.
The place, date and time of the Annual General Meeting is as follows: Elizabeth House, 1st and 2nd Floors, Les
Ruettes Braye, St. Peter Port, Guernsey GY1 1EW, on 12 August 2009 at 10.00 a.m. British Summer Time
(11.00 a.m. CET).
We encourage you to read this Proxy Statement carefully. In particular, you should review the matters
discussed under the caption "RISK FACTORS" beginning on page 31.
Germany1's Board of Directors unanimously recommends that Germany1 Shareholders vote "FOR"
approval of the Acquisition and the other proposals.
/s/
Roland Berger
/s/
Thomas Middelhoff
__________________________________
Berger/Middelhoff
Co-Chairmen of the Board of Directors of
Germany1
DATE
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GERMANY1 ACQUISITION LIMITED
Elizabeth House, 1st and 2nd Floors
Les Ruettes Braye
St. Peter Port, Guernsey GY1 1EW
Notice of Annual General Meeting of the Shareholders of Germany1 Acquisition Limited to be held on 12
August 2009
To Shareholders:
An annual general meeting of Shareholders (the "Annual General Meeting") of Germany1 Acquisition Limited
(the "Company" or "Germany1"), a Guernsey company, will be held at the registered office of Germany1
Acquisition Limited, Elizabeth House, 1st and 2nd Floors, Les Ruettes Braye, St. Peter Port, Guernsey GY1 1EW
on 12 August 2009, at 10.00 a.m. British Summer Time (11.00 a.m. CET), to consider and vote upon the
following resolutions.
1.
THAT KPMG CI be appointed as auditors of Germany1;
2.
THAT the Directors be authorized to determine the remuneration of the auditors;
3.
THAT the Annual Report and Financial Statements of the Company for the period from incorporation to
31 December 2008 be approved and adopted;
4.
THAT the acquisition by the Company of AEG Power Solutions B.V. (the "Acquisition") upon the terms
of a share purchase agreement dated 23 July 2009 (the "Acquisition Agreement") by and among the
Company, Ripplewood Power Systems I L.L.C., Ripplewood Power Systems II L.L.C. and each of the
persons listed on Schedule A to the Acquisition Agreement and AEG, as described in a Proxy Statement
dated 23 July 2009 and sent to Shareholders with this Notice (the "Proxy Statement"), be approved and
the Directors be authorized to take all steps necessary to give effect to the Acquisition, including the
performance of the transactions contemplated by the Acquisition Agreement and the release of funds
necessary for the purposes of the Acquisition from the Trust Account (as defined in the Articles of
Incorporation);
5.
THAT an adjournment proposal be adopted to authorize the adjournment of the Annual General Meeting
to a later date or dates, if necessary, to permit further solicitation and voting of proxies in the event that
there are insufficient votes at the time of the Annual General Meeting to adopt the Acquisition proposal;
6.
THAT the AEG 2009 Executive Performance Equity Incentive Plan (which shall only become effective
upon completion of the Acquisition) as provided to the Annual General Meeting and signed by the
Chairmen for the purposes of identification be approved;
7.
THAT Prof. Dr. h.c. Roland Berger be re-appointed as a Director of the Company;
8.
THAT Keith Corbin be re-appointed as a Director of the Company;
9.
THAT Bruce Brock be appointed as a Director of the Company;
10.
THAT Robert Huljak be appointed as a Director of the Company;
11.
THAT Timothy Collins be appointed as a Director of the Company;
12.
THAT Leonhard Fischer be appointed as a Director of the Company;
13.
THAT Prof. Dr. Mark Wössner be appointed as a Director of the Company; and
14.
THAT the share capital of the Company be increased by the creation of a number of Class A Convertible
Shares and Class B Convertible Shares (the "Convertible Shares") as is necessary to complete and
otherwise satisfy the terms of the Acquisition on the terms and conditions as described in the Proxy
Statement, such shares being redeemable ordinary shares of no par value and being "Shares" within the
meaning of the Company's Articles of Incorporation and, as such, having all of the rights of Shares set out
in the Articles of Incorporation and being subject to such transfer restrictions as the Directors (pursuant to
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article 9 of the Articles of Incorporation) may determine and (i) in the case of the Class A Convertible
Shares, automatically converting into Public Shares (within the meaning of Germany1's Articles of
Incorporation) on the six month anniversary of the closing of the Acquisition and (ii) in the case of the
Class B Convertible Shares automatically converting into Public Shares on the one year anniversary of
the Acquisition. For the avoidance of doubt, the holders of the Convertible Shares, who shall
be Shareholders (as defined in the Articles of Incorporation), shall be entitled to: (a) vote at any meeting
of the Shareholders together with other Shareholders as a single class (save to the extent that any action to
be taken at the meeting entitles the holders of Convertible Shares to rely upon and apply the provisions in
article 35.1 of the Articles of Incorporation, in which case the holders of each class of Convertible
Shares shall be entitled to, inter alia, vote as a separate class); and (b) share equally with the other
Shareholders in respect of any dividends or liquidation or other distributions declared or made in respect
of the Shares (provided that the holders of Convertible Shares shall be treated as Public Shareholders (as
defined in the Articles of Incorporation) for the purposes of article 138 of the Articles of Incorporation).
As of the date of this Proxy Statement, there were 25,000,000 Public Shares issued and outstanding and entitled
to vote on the Acquisition proposal. Only Shareholders of Germany1 who hold Shares of record as of the close
of business two days before the Annual General Meeting (after giving effect to all settlements on that date) (the
"Record Date") are entitled to attend and vote at the Annual General Meeting or any adjournment of the Annual
General Meeting. Approval of the Acquisition requires the presence of Shareholders holding a majority of the
Public Shares, in person or by proxy, at the Annual General Meeting and the affirmative vote of a majority of the
votes cast at the Annual General Meeting in favor of resolution 4 above. In addition, in order for the Acquisition
to be approved, regardless of whether the Acquisition receives such requisite votes in favor, only holders of less
than 7,500,000 Public Shares, such number representing 30.0% of the Public Shares, may vote against the
Acquisition and exercise their redemption rights to have their Shares redeemed for cash. The other proposals
require the approval of holders of a majority of the votes cast at the Annual General Meeting.
The Board of Directors has determined that persons entitled to attend and vote at the Annual General Meeting
shall be those persons who on the Record Date are recorded as Shareholders of Germany1 in one of the
following registers, regardless of whether such persons are Shareholders at the time of the Annual General
Meeting:
•
the records of the institutions affiliated with Nederlands Centraal Instituut voor Giraal Effectenverkeer
B.V. ("Euroclear Nederland") within the meaning of the Dutch Securities Depositary Act (Wet giraal
effectenverkeer); and
•
the Shareholders' register of Germany1 maintained by Carey Commercial Limited as of the Record Date.
A Shareholder entitled to attend and vote at the Annual General Meeting is entitled to appoint one or more
proxies to attend and vote at the meeting on behalf of that Shareholder. A proxy may be an individual or a body
corporate who is not required to be a Shareholder. Whether or not you plan to attend the Annual General
Meeting in person, please submit your proxy card without delay in accordance with the instructions on the proxy
card, and, in any event, so that it arrives no later than 11.00 a.m. (CET) two days before the time scheduled for
the Annual General Meeting. Voting by proxy will not prevent you from voting your Shares in person if you
subsequently choose to attend the Annual General Meeting. If you fail to return your proxy card, and do not
attend the Annual General Meeting in person, your Shares will not be counted for purposes of determining
whether a quorum is present at the Annual General Meeting. You may revoke a proxy at any time before it is
voted at the Annual General Meeting by executing and returning a proxy card dated later than the previous proxy
card or by attending the Annual General Meeting in person.
Shareholders holding their Shares through Euroclear Nederland are not included in the Company's Shareholders'
register in the name of the Shareholder, as such Shares are included in the Shareholders´ register under the name
of Euroclear Nederland. If Shareholders who hold their shares through Euroclear Nederland wish to (i) attend the
Annual General Meeting, or (ii) appoint a proxy to attend, speak and vote on their behalf, or (iii) give voting
instructions without attending the meeting, they must instruct RBS accordingly. One of the aforementioned
options should be made known to RBS via a bank or broker being or using an admitted institution of Euroclear
Nederland ("Admitted Institution") before 11.00 a.m. (CET) two days before the Annual General Meeting. To do
this, Shareholders are advised to contact their bank or broker as soon as possible and advise them which of the
three options they prefer.
viii
Shareholders holding their shares through Euroclear Nederland and who indicate that they wish to attend the
Annual General Meeting may not receive an admittance card. They may therefore be asked to identify
themselves at the Annual General Meeting using a valid passport, identity card or driving license.
The Proxy Statement and all documents which by law or the Articles of Incorporation must be made available
for inspection with respect to the intended Annual General Meeting have been made available in printed form
free of charge at the agent's office at RBS, Equity Capital Markets/Corporate Actions HQ3130, Gustav
Mahlerlaan 10, 1082 PP, Amsterdam, The Netherlands, at the Company's offices at Elizabeth House, 1st and 2nd
Floors, Les Ruettes Braye, St. Peter Port, Guernsey GY1 1EW and on the Company's website (www.gal1.de).
Germany1's Board of Directors unanimously recommends that Germany1 Shareholders vote "FOR"
approval of each of the proposals.
By order of the Board of Directors,
/s/
Roland Berger
/s/
Thomas Middelhoff
__________________________________
Berger/Middelhoff
Co-Chairmen of the Board of Directors of
Germany1
ix
Important Information
This document does not constitute an offer to sell, or a solicitation of an offer to purchase, any securities to
any person in any jurisdiction. This document is intended solely for Shareholders of Germany1 in
connection with their vote concerning the Acquisition and the other proposals and is not to be used for
any other purpose. This Proxy Statement is published in English and will be made available free of charge
at Germany1's registered office at Elizabeth House, 1st and 2nd Floors, Les Ruettes Braye, St. Peter Port,
Guernsey GY1 1EW, at RBS, Equity Capital Markets/Corporate Actions HQ3130, Gustav Mahlerlaan 10,
1082 PP, Amsterdam, The Netherlands, and on Germany1's Website (www.ga1.de).
This Proxy Statement has been published by Germany1 for, among other things, the purpose of providing
information to its Shareholders on the proposed Acquisition.
The Shares have not been and will not be registered under the U.S. Securities Act of 1933 (as amended,
the "Securities Act") and Germany1 has only offered and sold such Shares in the United States to
qualified institutional buyers in reliance on Rule 144A under the Securities Act and outside the United
States in offshore transactions in reliance on Regulation S under the Securities Act. The Shares may not
be reoffered, resold, pledged or otherwise transferred except (A) (i) to a person whom the purchaser
reasonably believes is a qualified institutional buyer in a transaction meeting the requirements of Rule
144A, (ii) in an offshore transaction complying with Rule 903 or 904 of Regulation S, or (iii) pursuant to
an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available)
and (B) in accordance with all applicable securities laws of the states of the United States.
As such, Germany1 is not subject to any obligation to provide information that would be required to be
provided in a Proxy Statement that complies with the securities laws of the United States, in particular
Regulation 14A under the Securities Exchange Act of 1934, which requirements may be applicable to
shares that have been registered under the Securities Act ("Regulation 14A"). In this Proxy Statement,
Germany1 has, however, generally intended to provide information that is similar to information that
would be required to be provided in a Proxy Statement that complies with Regulation 14A. Nevertheless,
in certain cases we have omitted information that would be required in a Proxy Statement that complies
with Regulation 14A that we believe would not be useful or material to investors, and in such cases this
Proxy Statement deviates from the disclosure requirements of Regulation 14A. No representation or
warranty, express or implied, is made by Germany1 that the Proxy Statement, if it were required to
comply with the requirements of Regulation 14A, would in fact satisfy such requirements and nothing
contained in this Proxy Statement shall be relied upon as a promise or representation by Germany1
regarding such compliance.
Unless otherwise stated in this Proxy Statement, references to "we," "us" or "our" refer to Germany1.
The differences between individual figures within this statement and the resultant totals are due to
rounding.
x
TABLE OF CONTENTS
SUMMARY............................................................................................................................................................ 1
QUESTIONS AND ANSWERS ABOUT THE ACQUISITION........................................................................... 9
SELECTED HISTORICAL INFORMATION OF GERMANY1 ........................................................................ 21
SELECTED FINANCIAL INFORMATION OF AEG ........................................................................................ 22
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION ....................................................... 24
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE INFORMATION ............ 28
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS.............................. 30
RISK FACTORS .................................................................................................................................................. 31
THE ANNUAL GENERAL MEETING OF SHAREHOLDERS ........................................................................ 45
PROPOSAL I – APPOINTMENT OF AUDITORS OF GERMANY1................................................................ 50
PROPOSAL II – AUTHORIZATION OF THE DIRECTORS TO DETERMINE THE REMUNERATION OF
THE AUDITORS.................................................................................................................................................. 51
PROPOSAL III – APPROVAL AND ADOPTION OF THE ANNUAL REPORT AND FINANCIAL
STATEMENTS OF THE COMPANY FOR THE PERIOD FROM INCORPORATION TO 31 DECEMBER
2008 ...................................................................................................................................................................... 52
PROPOSAL IV – ACQUISITION PROPOSAL .................................................................................................. 53
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION.................................................................... 64
THE ACQUISITION AGREEMENT................................................................................................................... 66
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS............................... 74
PROPOSAL VI – APPROVAL AND ADOPTION OF AEG 2009 EXECUTIVE PERFORMANCE EQUITY
INCENTIVE PLAN.............................................................................................................................................. 83
PROPOSALS VII – XIII – REAPPOINTMENT OF PROF. DR. H.C. ROLAND BERGER AND KEITH
CORBIN AS DIRECTORS OF GERMANY1 AND APPOINTMENT OF BRUCE BROCK, ROBERT
HULJAK, TIMOTHY COLLINS, LEONHARD FISCHER AND PROF. DR. MARK WÖSSNER AS
DIRECTORS OF GERMANY1 ........................................................................................................................... 86
PROPOSAL XIV – APPROVAL OF CAPITAL INCREASE ............................................................................. 87
FURTHER INFORMATION RELATING TO THE TAKEOVER CODE.......................................................... 88
INFORMATION ABOUT GERMANY1............................................................................................................. 90
GERMANY1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ............................................................................................................................. 92
INFORMATION ABOUT AEG........................................................................................................................... 95
AEG MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.............................................................................................................................................. 114
CURRENT BOARD OF DIRECTORS AND MANAGEMENT....................................................................... 130
POST ACQUISITION BOARD OF DIRECTORS AND MANAGEMENT..................................................... 139
COMPENSATION DISCUSSION AND ANALYSIS....................................................................................... 144
DILUTION ......................................................................................................................................................... 147
BENEFICIAL OWNERSHIP OF SECURITIES................................................................................................ 150
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS ................................................. 151
MARKET PRICE OF SECURITIES AND DIVIDENDS.................................................................................. 153
DESCRIPTION OF THE SECURITIES ............................................................................................................ 154
SUBMISSION OF SHAREHOLDER PROPOSALS......................................................................................... 158
DEFINITIONS.................................................................................................................................................... 159
INDEX TO FINANCIAL STATEMENTS..........................................................................................................F-1
Annex A – Share Purchase Agreement
xi
SUMMARY
THIS SUMMARY MUST BE READ AS AN INTRODUCTION TO THIS PROXY STATEMENT. ANY
DECISION ON THE PROPOSED ACQUISITION AND OTHER PROPOSALS SHOULD BE BASED ONLY
ON CONSIDERATION OF THIS PROXY STATEMENT AS A WHOLE, INCLUDING THE RISK
FACTORS AND THE FINANCIAL STATEMENTS INCLUDED IN THIS PROXY STATEMENT. YOU
SHOULD READ THIS ENTIRE PROXY STATEMENT CAREFULLY.
The Annual General Meeting
This Proxy Statement is being furnished to Shareholders for use at the Annual General Meeting, and at any
adjournments or postponements of that meeting. At the Annual General Meeting, Shareholders will be asked to
consider and vote upon the following proposals.
1.
To approve the appointment of KPMG CI as auditors of Germany1;
2.
To authorize the Directors to determine the remuneration of the auditors;
3.
To approve and adopt the Annual Report and Financial Statements of the Company for the period from
incorporation to 31 December 2008;
4.
To approve the acquisition by the Company of AEG Power Solutions B.V. upon the terms of a share
purchase agreement dated 23 July 2009 by and among the Company, Ripplewood Power Systems I
L.L.C., Ripplewood Power Systems II L.L.C. and each of the persons listed on Schedule A to the
Acquisition Agreement and AEG, as described in the Proxy Statement and sent to Shareholders with a
notice of Annual General Meeting and to authorize the Directors to take all steps necessary to give effect
to the Acquisition, including the performance of the transactions contemplated by the Acquisition
Agreement and the release of funds necessary for the purposes of the Acquisition from the Trust Account
(as defined in the Articles of Incorporation);
5.
To approve and adopt an adjournment proposal to authorize the adjournment of the Annual General
Meeting to a later date or dates, if necessary, to permit further solicitation and voting of proxies in the
event that there are insufficient votes at the time of the Annual General Meeting to adopt the Acquisition
proposal;
6.
To approve and adopt the AEG 2009 Executive Performance Equity Incentive Plan (which shall only
become effective upon the completion of the Acquisition) as provided to the Annual General Meeting and
signed by the Chairmen for the purposes of identification;
7.
To approve the re-appointment of Prof. Dr. h.c. Roland Berger as a Director of the Company;
8.
To approve the re-appointment of Keith Corbin as a Director of the Company;
9.
To approve the appointment of Bruce Brock as a Director of the Company;
10.
To approve the appointment of Robert Huljak as a Director of the Company;
11.
To approve the appointment of Timothy Collins as a Director of the Company;
12.
To approve the appointment of Leonhard Fischer as a Director of the Company;
13.
To approve the appointment of Prof. Dr. Mark Wössner as a Director of the Company; and
14.
To approve the increase of the share capital of the Company by the creation of a number of Class A
Convertible Shares and Class B Convertible Shares as is necessary to complete and otherwise satisfy the
terms of the Acquisition on the terms and conditions as described in the Proxy Statement, such
shares being redeemable ordinary shares of no par value and being "Shares" within the meaning of the
Company's Articles of Incorporation and, as such, having all of the rights of Shares set out in the Articles
1
of Incorporation and being subject to such transfer restrictions as the Directors (pursuant to article 9 of the
Articles of Incorporation) may determine and (i) in the case of the Class A Convertible Shares,
automatically converting into Public Shares (within the meaning of Germany1's Articles of Incorporation)
on the six month anniversary of the closing of the Acquisition and (ii) in the case of the Class B
Convertible Shares automatically converting into Public Shares on the one year anniversary of the
Acquisition. For the avoidance of doubt, the holders of the Convertible Shares, who shall be Shareholders
(as defined in the Articles of Incorporation), shall be entitled to: (a) vote at any meeting of the
Shareholders together with other Shareholders as a single class (save to the extent that any action to be
taken at the meeting entitles the holders of Convertible Shares to rely upon and apply the provisions in
The Annual General Meeting will be held on 12 August 2009, at 10.00 a.m. British Summer Time (11.00 a.m.
CET), at the registered office of Germany1 Acquisition Limited, Elizabeth House, 1st and 2nd Floors, Les
Ruettes Braye, St. Peter Port, Guernsey GY1 1EW.
Information on Germany1
Germany1 is a blank check company incorporated under the laws of Guernsey on 21 May 2008, with registered
number 48933. Germany1 was formed to acquire an operating business or several operating businesses in
Germany, Austria or Switzerland, through a merger, stock exchange, asset acquisition, reorganization or similar
business combination (a "Business Combination"). Germany1 will not engage in any substantive business until
consummation of a Business Combination. Germany1's Shares and Warrants are currently listed on Euronext
Amsterdam and trade separately under the symbols "GAL1S" and "GAL1W", respectively.
On 21 July 2008, we consummated our IPO of 25,000,000 units at an offering price of EUR 10.00 per unit,
generating total gross proceeds of EUR 250,000,000. Each unit consisted of one Share and one Warrant that
entitles its holder to purchase one Share for EUR 7.50. We agreed to pay the underwriters in the offering an
underwriting fee of EUR 11,250,000, and the underwriters agreed that EUR 5,000,000 of such fee would not be
payable unless and until we completed a Business Combination. In addition, the payment of EUR 314,000 of
other IPO expenses was deferred until the consummation of a Business Combination.
On 26 June 2008, LCP1 Limited ("LCP1" or the "Sponsor"), a company that is controlled by Mr. Lahnstein, with
Prof. Dr. h.c. Berger and Dr. Middelhoff holding the minority interest, acquired an aggregate of 7,450,000
shares. Our Non-executive Director, Dr. Bahlmann, purchased 50,000 of our Shares (such Shares, together with
the Shares acquired by LCP1, are referred to as the "Founding Shares"). Dr. Bahlmann has since sold his
Founding Shares to Dr. Middelhoff. The Founding Shares were purchased at an aggregate price of EUR 10,000
(or approximately EUR 0.001333 per Share). 1,250,000 of the 7,500,000 Founding Shares were automatically
redeemed at our IPO. Additionally, Mr. Lahnstein, Prof. Dr. h.c. Berger and Dr. Middelhoff purchased, through
LCP1, 6,000,000 warrants at a price of EUR 1.00 per warrant (the "Sponsor Warrants") (EUR 6,000,000 in
aggregate) prior to the IPO. The Founding Shareholders purchased a further 2,000,000 units in the IPO at the
IPO price of EUR 10.00 per unit.
Upon the closing of our IPO, an aggregate EUR 248.5 million (which includes EUR 6.0 million of proceeds
from the private placement of Warrants to our Founding Shareholders and EUR 5.0 million in deferred
underwriting compensation) was deposited into the Trust Account. Approximately EUR 1.24 million was
withheld from the Trust Account to pay expenses associated with our IPO, as well as to provide working capital
to fund our initial business, general and administrative expenses and taxes. Through the date of this Proxy
Statement, we have withdrawn approximately EUR 4.3 million of interest earned on the Trust Account to pay
such expenses. The net proceeds deposited into the Trust Account remain on deposit in the Trust Account
earning interest and will not be released until the earlier of the consummation of a Business Combination or our
liquidation. As of 15 June 2009, the balance in the Trust Account was EUR 251,273,454.37 (not including
interest of EUR 141,524.65 accrued for the period from 1 June 2009 to 15 June 2009). All of these funds are
invested in the Deutsche Global Liquidity Series PLC Money Market Fund, currently earning interest of
approximately 1.10% per annum.
If the proposals set forth in this Proxy Statement are not approved, and the Acquisition is not consummated, we
will continue to search for an operating company or assets to acquire. However, if we do not consummate a
2
Business Combination by 24 July 2010 (or 24 January 2011 if, by 24 July 2010, the Company has signed a letter
of intent with a potential target and obtained the approval of the extension by a majority of votes cast by the
Public Shareholders in respect of their Public Shares at a general meeting of Shareholders where a quorum is
present) (the "Business Combination Deadline"), our corporate existence will cease, except for the purposes of
winding up our affairs and liquidating. The Business Combination Deadline may be extended with the approval
of Shareholders. For purposes of approving an extension of the Business Combination Deadline, a quorum shall
constitute Public Shareholders holding a majority of the Public Shares. In connection with the Shareholder vote
required to extend the Business Combination Deadline, the Foundation will (i) abstain from voting all of the
Founding Shares and (ii) vote any Shares acquired by our Founding Shareholders or other Directors (or their
Affiliates) in our IPO or in the secondary market in favor of an extension of the Business Combination Deadline.
The Acquisition
Pursuant to the Acquisition Agreement, Germany1 is proposing to acquire 100% of the shares in a Dutch entity
that will be incorporated and which will, at the closing of the Acquisition, hold 100% of the shares in AEG (the
"Holdco"). As a result of the Acquisition, Germany1 will own and operate the combined business and operations
of AEG and its subsidiaries. The purchase price for the Acquisition will be a combination of cash and shares of
Germany1, as described in further detail under "The Acquisition Agreement". Following the Acquisition, we
intend to merge Holdco into a newly-formed Dutch subsidiary. The terms of the Acquisition Agreement and
related agreements are the result of arm's length negotiations between our representative and representatives of
the Sellers, and Germany1 believes that such terms comply with the criteria set out in the IPO Prospectus.
We focused our efforts on seeking a Business Combination with one or more operating businesses with principal
business operations in Germany, Austria or Switzerland, in particular family-owned businesses, portfolio
companies of private equity funds and corporate spin-offs. Through these efforts, Germany1 identified and
reviewed information with respect to more than 100 acquisition opportunities based on the acquisition criteria
disclosed in the IPO Prospectus. We elected to pursue a transaction with AEG rather than with the other
companies with which we held preliminary discussions primarily because, in our judgment, AEG had advantages
in each of our key screening criteria. AEG possesses a strong management team, is profitable, operates in an
industry with significant barriers to entry and favorable structural trends, has multiple opportunities for growth,
has a number of attractive strategies for the future development and strategic positioning of the business and, in
general, meets the requirements of a company that is "ready to be public".
After careful consideration of the terms and conditions of the Acquisition Agreement and the consideration to be
paid in the Acquisition, our Board of Directors unanimously approved the Acquisition and determined that the
Acquisition Agreement and the Acquisition, upon the terms and conditions set forth in the Acquisition
Agreement, are advisable and fair to, and in the best interests of, the Company and its Shareholders and that the
fair market value of AEG meets the 80% Threshold. In reaching this decision, our Board of Directors reviewed
due diligence reports or summaries thereof, including financial and tax due diligence, commercial due diligence
and legal due diligence prepared by professional external advisors, and considered a wide range of business,
financial and other factors, which factors our Board of Directors believes, on the whole, weigh in favor of
approval of the Acquisition.
Our Board of Directors determined not to obtain a fairness opinion in connection with the approval of the
Acquisition Agreement because of (i) its internal ability to value the business against public comparables and
other market index measures, (ii) its general exercise of its business judgment and (iii) its knowledge that the
valuation of the proposed Acquisition would be tested by the market and factors that our Shareholders deemed
relevant and that 30% of the Public Shareholders could effectively veto the proposed Acquisition if they did not
deem such valuation to be fair.
3
The Acquisition Agreement
On 23 July 2009, we entered into the Acquisition Agreement with the Sellers. Upon completion of the
Acquisition, we will, through our ownership of Holdco, indirectly own all of the issued and outstanding capital
stock of AEG. In addition, all of the options to acquire shares in AEG outstanding prior to the closing will be
cancelled and converted into the right to receive payments in accordance with the terms of the Acquisition
Agreement. Following the Acquisition, we will cause Holdco to be merged into a newly formed subsidiary of
Germany1 to be incorporated in the Netherlands.
The base consideration payable to the Sellers consists of (i) EUR 200,000,000 in cash and (ii) 19,208,955
Convertible Shares. The Convertible Shares will be non-listed shares of no par value, which will have the same
voting rights as, and shall rank pari passu in right of payment with respect to dividends and upon liquidation
with, the Public Shares in Germany1 (save that for the purposes of article 138 of the Company's Articles of
Incorporation, holders of the Convertible Shares shall be treated as Public Shareholders). The Convertible Shares
will be divided into two classes of equal amounts, Class A Convertible Shares and Class B Convertible Shares,
converted free of charge after the six month and first year anniversaries of the closing of the Acquisition,
respectively. As a result of the conversion terms of the Convertible Shares, the Convertible Shares will not be
freely transferable until after their conversion. The cash consideration will be adjusted upwards or downwards to
account for closing date net cash and working capital and is also subject to an earn-out in cash and Convertible
Shares of Germany1 valued at up to EUR 50 million based on the achievement of certain performance targets
with respect to fiscal years 2009, 2010 and 2011. Any consideration adjustment to be made in cash shall instead
be made in the form of Convertible Shares if and to the extent making such payment in cash would have caused
the consideration paid to the Sellers in the form of Convertible Shares to be less than 41% of the total
consideration paid, provided that the number of Convertible Shares to be issued for this purpose shall be limited
to a maximum of 2.5 million Convertible Shares.
The Acquisition Agreement contains other terms and conditions typical for a transaction of this nature, including
closing conditions, representations and warranties, pre- and post-closing covenants, indemnification provisions,
limitations of liability, and termination provisions. For a more detailed description of the Acquisition Agreement,
see "The Acquisition Agreement".
Germany1´s Insider Share Ownership
The Founding Shareholders hold an aggregate of 6,250,000 Founding Shares and an aggregate of 2,000,000
Public Shares, which are being held in trust by the Foundation, representing approximately 26.4% of the
outstanding Germany1 Shares before dilution. In connection with the Shareholder vote required to approve the
Acquisition, the Foundation will (i) abstain from voting all of the Founding Shares and (ii) will vote all Public
Shares in favor of the Acquisition.
Consideration Offered to Shareholders
Public Shareholders will not receive any cash or property in the Acquisition, but instead will continue to hold
their Shares. After giving effect to the Acquisition, our Public Shareholders (including Public Shares held by our
Founding Shareholders) will own approximately 53.7% of the aggregate number of issued Shares, including
Convertible Shares, on a fully diluted basis (i.e. assuming that all Warrants have been exercised on a cashless
basis (as described in the section "Dilution") at a Share price of EUR 10.00 and a strike price of EUR 7.50 and
not taking into account any redemption of Public Shares or any purchase price adjustments, the "Fully Diluted
Basis"). Depending on the amount of earn-out payable to the Sellers, EUR 25,000,000 of which is payable in the
form of Shares in Germany1 with the other half payable in cash, our Public Shareholders (including Public
Shares held by our Founding Shareholders) may hold approximately 51.5% of the aggregate number of issued
Shares, including Convertible Shares on a Fully Diluted Basis. For an overview of the dilutive effects of the
Acquisition, see "Dilution".
Irrevocable Undertakings
We have already entered into irrevocable undertakings or other similar arrangements with some of our
Shareholders (the "Committed Shareholders") who, in the aggregate, hold Public Shares in excess of 70.1% of
our outstanding Public Shares as at the date of this Proxy Statement, pursuant to which they have agreed to vote
their Public Shares in favor of the Acquisition and related resolutions and/or not request redemption of their
Public Shares. Therefore, assuming the Committed Shareholders vote in accordance with their commitment, the
4
Acquisition will be approved, at the Annual General Meeting and consummated even if our remaining
Shareholders vote against the Acquisition.
Germany1's Recommendations to Shareholders; Reasons for the Acquisition
After careful consideration of the terms and conditions of the Acquisition, the Board of Directors has determined
that the Acquisition is advisable and fair to, and in the best interests of, Germany1 and its Shareholders. After
careful consideration of the terms and conditions of the Acquisition and other proposals, the Board of Directors
has unanimously approved all such proposals. Accordingly, the Board of Directors recommends that the
Shareholders vote:
1.
"FOR" the appointment of KPMG CI as auditors of Germany1;
2.
"FOR" the authorization of the Directors to determine the remuneration of the auditors;
3.
"FOR" the approval and adoption of the Annual Report and Financial Statements of the Company for the
period from incorporation to 31 December 2008;
4.
"FOR" the approval of the acquisition by the Company of AEG Power Solutions B.V. upon the terms of a
share purchase agreement dated 23 July 2009 by and among the Company, Ripplewood Power Systems I
Acquisition Agreement and AEG, as described in a Proxy Statement and sent to Shareholders with a
notice of Annual General Meeting and the authorization of the Directors to take all steps necessary to give
effect to the Acquisition, including the performance of the transactions contemplated by the Acquisition
5.
"FOR" the approval and adoption of an adjournment proposal to authorize the adjournment of the Annual
General Meeting to a later date or dates, if necessary, to permit further solicitation and voting of proxies
in the event that there are insufficient votes at the time of the Annual General Meeting to adopt the
Acquisition proposal;
6.
"FOR" the approval and adoption of the AEG 2009 Executive Performance Equity Incentive Plan (which
shall only become effective upon the completion of the Acquisition) as provided to the Annual General
Meeting and signed by the Chairmen for the purposes of identification;
7.
"FOR" the re-appointment of Prof. Dr. h.c. Roland Berger as a Director of the Company;
8.
"FOR" the re-appointment of Keith Corbin as a Director of the Company;
9.
"FOR" the appointment of Bruce Brock as a Director of the Company;
10.
"FOR" the appointment of Robert Huljak as a Director of the Company;
11.
"FOR" the appointment of Timothy Collins as a Director of the Company;
12.
"FOR" the appointment of Leonhard Fischer as a Director of the Company;
13.
"FOR" the appointment of Prof. Dr. Mark Wössner as a Director of the Company; and
14.
"FOR" the approval of the increase of the share capital of the Company by the creation of a number of
Class A Convertible Shares and Class B Convertible Shares as is necessary to complete and otherwise
satisfy the terms of the Acquisition on the terms and conditions as described in the Proxy Statement, such
5
For a description of the factors that the Board of Directors considered in reaching its decision to recommend the
Acquisition, see "Proposal IV – Acquisition Proposal – Factors Considered by the Germany1 Board in
Approving the Acquisition."
Interests of Certain Persons in the Acquisition
In considering the recommendation of the Board of Directors to vote "FOR" the approval of the Acquisition,
Germany1's Shareholders should be aware that some of Germany1's executive officers and the Board of
Directors have interests in the Acquisition that are different from, or in addition to, the interests of Germany1's
Shareholders generally. Germany1's Shareholders should also understand that the current officers of AEG and
those persons who will become Directors upon consummation of the Acquisition have interests that are different
from, or in addition to, the interests of Germany1's Shareholders generally. For a description of these interests,
see "Interests of Certain Persons in the Acquisition."
If the Acquisition is not approved and Germany1 is unable to complete another Business Combination by the
Business Combination Deadline, Germany1 will be forced to liquidate. In such case, the Sponsor Warrants will
expire and such Warrants will therefore become valueless. In addition, the Founding Shares held by the
Foundation will also become valueless, as the Founding Shareholders have agreed that they would not be entitled
to receive any proceeds with respect to such Shares in a liquidation. Alternatively, if the Acquisition is approved,
Germany1's Officers and Directors will benefit because they will continue to hold their Shares.
Risks
We have conducted no operations and generated no operating revenues to date. In making your decision, you
should consider carefully the proposed Acquisition and risks related thereto. In addition, there are various risks
associated with the Acquisition, including:
Risks Associated with the Proposed Acquisition
•
If the benefits of the Acquisition do not meet the expectations of the marketplace, investors, financial
analysts or industry analysts, the market price of our Shares may decline;
•
If we are unable to complete the Acquisition or a Business Combination with another party and are forced
to dissolve and liquidate, third parties may bring claims against us and, as a result, the proceeds held in
Trust could be reduced and the liquidation price received by our Shareholders could be less than the unit
price in our IPO and our Warrants could expire worthless;
•
We may have insufficient time or funds to complete an alternate Business Combination if the Acquisition
proposal is not adopted by our Public Shareholders or the Acquisition is not completed for other reasons;
•
If our Public Shareholders fail to vote or abstain from voting on the Acquisition proposal, they may not
exercise their redemption rights and redeem their Shares for a pro-rata portion of the Trust Account;
•
Our Founding Shareholders, Directors and Officers may have interests in the Acquisition that are
different from yours;
•
Our Founding Shareholders own Public Shares and may purchase additional Public Shares in the market,
which may give them greater influence over the approval of the Acquisition;
•
We expect to incur significant costs associated with the proposed Acquisition, whether or not the
Acquisition is completed, which will reduce the amount of cash otherwise available for other purposes;
6
•
The consideration to be paid as part of the Acquisition is subject to change, and the exact consideration is
not determinable at this time;
•
We did not obtain an opinion from an unaffiliated third party as to the fair market value of AEG or that
the price we pay for the business is fair to our Shareholders;
•
Upon completion of the Acquisition, the holdings of our current Public Shareholders will be diluted by
the issuance of Shares to the Sellers and the Sellers will be able to influence Germany1's affairs
significantly;
•
Our outstanding Warrants may be exercised in the future, which would increase the number of Shares and
result in further dilution for our current Shareholders;
•
We may choose to redeem our outstanding Warrants at a time that is disadvantageous to our Warrant
holders;
•
If our due diligence investigation of AEG Group proves to be inadequate, subsequent write-offs that
impair the financial condition of AEG Group may be required;
•
We will only be entitled to request limited indemnification or reimbursement from the Sellers for
damages arising out of the Acquisition;
•
If we lose our key management and technical personnel, our business may suffer;
•
We plan to implement a stock incentive plan, which may adversely impact our net income and dilute our
current Shareholders;
•
We do not have any operations and AEG has never operated as a public company. Fulfilling the ongoing
obligations as a public company after the Acquisition of AEG will be expensive and time consuming;
•
Upon completion of the Acquisition, dividends paid to us will become subject to Dutch tax laws and a
possible subsequent change of our corporate domicile to the EU may subject us to an unfavorable tax
regime;
Risks Associated with the Business of AEG Group
•
The global economy is still undergoing a period of unprecedented volatility associated with a general
slowdown in demand, including the end markets served by AEG Group;
•
AEG Group's profitability and the success of its growth strategy are heavily dependent on the growth of
the solar energy industry and polysilicon production;
•
AEG Group could face a decline in demand from the polysilicon manufacturing industry due to
technology substitutions;
•
AEG Group could face a decline in demand from the polysilicon manufacturing industry if government
subsidies and economic incentives for the solar industry are reduced or eliminated;
•
AEG Group historically recognized significantly lower revenues in the first quarter and its results of
operation may fluctuate significantly from quarter to quarter in the future;
•
AEG Group's business is project driven and its success depends upon its ability to timely complete
current orders and to continuously secure new orders;
•
In the Power Controllers business a small number of customers account for a substantial part of revenues;
•
Amounts included in AEG Group's order backlog may not result in actual revenue or translate into
profits;
•
AEG Group may not be able to manage its further growth effectively;
7
•
AEG Group's expansion in selected emerging markets bears risks;
•
An inability to consummate or successfully integrate future acquisitions may jeopardize AEG Group's
growth strategy;
•
The success of AEG Group's DC Telecom business is highly dependent on market acceptance of its
newly launched products and ongoing business relationship with Alcatel;
•
The envisaged sale of AEG Group's DC Converter business might not occur;
•
AEG Group operates in highly competitive markets and a failure to compete effectively may result in a
loss of market share and/or an inability to maintain or increase prices for its products and services;
•
AEG Group may be unable to keep pace with the technological development of power systems or to
develop new products on a timely basis;
•
The ongoing shift of AEG Group's standard product manufacturing to low-cost countries bears risks;
•
Any disruption of AEG Group's production could impair its financial performance;
•
AEG Group's product manufacturing is subject to laws and regulations of different jurisdictions and
failure to comply could result in the imposition of fines or restrictions on operations and remedial
liabilities;
•
Product defects or product liability claims with alleged or actual harm caused by AEG Group's products
could result in increased costs, damage to AEG Group's reputation and loss of revenues and market share;
•
A shortage of, or increases in the prices of, raw materials and/or components could deteriorate AEG
Group's results of operations;
•
AEG Group may be unable to adequately protect its technological know-how and intellectual property
rights;
•
AEG Group may infringe third-party patents;
•
AEG Group relies on a licensing agreement for the use of the AEG trademark;
•
Current or future credit and financial market conditions could limit AEG Group's access to financing;
•
AEG Group may incur increased costs for pension agreements and other long term employee benefits.
8
QUESTIONS AND ANSWERS ABOUT THE ACQUISITION
Q. On what am I voting?
A. You are being asked to vote on the following proposals:
1.
2.
3.
4.
To approve the acquisition by the Company of AEG Power Solutions B.V. upon the terms of a share
purchase agreement dated 23 July 2009 by and among the Company, Ripplewood Power Systems I
Acquisition Agreement and AEG, as described in the Proxy Statement and sent to Shareholders with a
notice of Annual General Meeting and to authorize the Directors to take all steps necessary to give effect
to the Acquisition, including the performance of the transactions contemplated by the Acquisition
5.
To approve and adopt an adjournment proposal to authorize the adjournment of the Annual General
Meeting to a later date or dates, if necessary, to permit further solicitation and voting of proxies in the
event that there are insufficient votes at the time of the Annual General Meeting to adopt the Acquisition
proposal.
6.
To approve and adopt the AEG 2009 Executive Performance Equity Incentive Plan (which shall only
become effective upon the completion of the Acquisition) as provided to the Annual General Meeting and
signed by the Chairmen for the purposes of identification;
7.
8.
9.
10.
11.
12.
13.
14.
terms of the Acquisition on the terms and conditions as described in this Proxy Statement, such
9
Q: What ist the date and time of the Annual General Meeting?
The Annual General Meeting will be held on 12 August 2009, at 10.00 a.m. British Summer Time (11.00 a.m.
CET), at the registered office of Germany1, Elizabeth House, 1st and 2nd Floors, Les Ruettes Braye, St. Peter
Port, Guernsey.
Q: What is the Record Date for the Annual General Meeting and who is entitled to vote?
A. The Board of Directors has determined that persons entitled to attend and vote at the Annual General Meeting
shall be those persons who on close of business two days prior to the Annual General Meeting (after giving
effect to all settlements on that date) (the "Record Date") are recorded as Shareholders of Germany1 in one of
the following registers, regardless of whether such persons are Shareholders at the time of the Annual General
Meeting:
•
the records as of the Record Date of the institutions affiliated with Euroclear Nederland Nederland within
the meaning of the Dutch Securities Depositary Act (Wet giraal effectenverkeer)]; or
•
the Shareholders' register of Germany1 maintained by Carey Commercial Limited.
register in the name of the Shareholder as such Shares are included in the Shareholders' register under the name
of Euroclear Nederland. If Shareholders who hold their Shares through Euroclear Nederland wish to (i) attend
the Annual General Meeting, or (ii) appoint a proxy to attend, speak and vote on their behalf, or (iii) give voting
instructions without attending the meeting, they must instruct RBS via their bank or broker which is or uses an
Admitted Institution before 11.00 a.m. (CET) two days before the Annual General Meeting. The proxy cards of
Shareholders holding their Shares through Euroclear Nederland must be submitted to RBS via their bank or
broker which is or uses an admitted institution of Euroclear Nederland. Shareholders are advised to contact their
bank or broker as soon as possible.
Shareholders holding their Shares through Euroclear Nederland and who indicate they wish to attend the Annual
General Meeting may not receive an admittance card. They may, therefore, be asked to identify themselves at the
Annual General Meeting using a valid passport, identity card or driving license.
Q. Who are our Founding Shareholders and how do they hold their Shares?
A. Our Founding Shareholders are Florian Lahnstein, Prof. Dr. h.c. Roland Berger and Dr. Thomas Middelhoff.
Our Founding Shareholders beneficially hold an aggregate of 6,250,000 Founding Shares and 2,000,000 Public
Shares. In addition, our Founding Shareholders hold an aggregate of 6,000,000 Sponsor Warrants and 2,000,000
Public Warrants. These Founding Shares and Public Shares, and Sponsor Warrants and Public Warrants, were
transferred to Stichting Administratiekantoor Germany1 Acquisition Limited (the "Foundation"). Without the
prior approval of Deutsche Bank AG, the Shares held by the Foundation will not be transferable, exchangeable
or released until the earlier of (i) Germany1's liquidation and (ii) one year following the consummation of a
Business Combination. The Warrants held by the Foundation will not be transferable, exchangeable or released
until the earlier of (i) Germany1's liquidation and (ii) the consummation of a Business Combination.
Q. How do the Founding Shareholders intend to vote?
A. In connection with the vote of the Annual General Meeting required for the Acquisition, the Foundation will
(i) abstain from voting all of the Founding Shares and (ii) will vote the Public Shares acquired by our Founding
Shareholders in favor of the Acquisition. The Foundation intends to vote "FOR" the other proposals.
Q. What vote is required in order to approve the Acquisition?
A. Approval of the Acquisition requires approval at the Annual General Meeting by a majority of the votes cast
by our Public Shareholders where Shareholders holding a majority of our Public Shares are present in person or
10
by proxy. However, if the holders of 30% (7,500,000) or more of the Public Shares vote against adoption of the
Acquisition proposal and exercise their redemption rights to exchange their Shares for cash at the per Share
redemption price prior to the vote on the Acquisition at the Annual General Meeting, Germany1 will not
complete the Acquisition and such Shares will not be redeemed.
We have already entered into irrevocable undertakings or other similar arrangements with some Committed
Shareholders who, in the aggregate, hold Public Shares in excess of 70.1% of our outstanding Public Shares as at
the date of this Proxy Statement, pursuant to which they have agreed to vote their Public Shares in favor of the
Acquisition and related resolutions and/or not request redemption of their Public Shares. Therefore, assuming the
Committed Shareholders vote in accordance with their commitment, the Acquisition will be approved, at the
Annual General Meeting and consummated even if our remaining Shareholders vote against the Acquisition.
Q. What vote is required in order to approve the other proposals?
A. Approval of the other proposals requires the affirmative vote of a majority of the votes cast at the meeting,
and is conditioned upon approval of the Acquisition.
Q. Why is the Company proposing the Acquisition?
A. We were organized to effect an acquisition of control, by way of asset acquisition, merger, capital stock
exchange, share purchase or similar transaction with one or more operating businesses in Austria, Germany or
Switzerland. In accordance with our Articles of Incorporation, we must submit the Business Combination to our
Shareholders for approval prior to completion of the transaction. We have negotiated the terms of a Business
Combination with the Sellers for the Acquisition of AEG pursuant to the Acquisition Agreement. AEG, formerly
3W Power Holdings B.V., is a leading provider of highly engineered, custom and standard power electronic
solutions for a broad range of infrastructure and industrial applications. AEG currently operates through three
divisions: Power Controllers, Protect Power and DC Telecom. See "Information about AEG" for further
information on the business of AEG. We believe that AEG is a successful turnaround story under experienced
management, that it has a leading market position in its industry, that it has a history of strong financial
performance with further room for operational improvements that will enhance profitability, and that AEG has a
sound strategy for strengthening its current market position and expanding into complementary markets.
Following completion of the Acquisition, our Management Team intends to work with the existing AEG
management team to strengthen the financial performance of AEG, as described below.
Q. How much is the Company paying for the Acquisition?
A. Pursuant to the terms of the Acquisition Agreement, we will pay EUR 200,000,000 in cash consideration for
AEG and issue 19,208,955 of Convertible Shares (50% being Class A Convertible Shares and 50% being Class
B Convertible Shares) to the Sellers, subject to certain adjustments for closing date net cash and working capital
to be determined no later than 90 days after closing of the Acquisition. Any adjustment to be made in cash shall
instead be made in the form of Convertible Shares if and to the extent making such payment in cash would have
caused the total consideration paid to the Sellers in the form of Convertible Shares to be less than 41% of the
total consideration paid, provided that the maximum number of Convertible Shares to be issued for this purpose
shall be limited to 2.5 million Convertible Shares. Immediately following the conversion of all Convertible
Shares, which automatically happens for the Class A Convertible Shares with the six month anniversary of the
closing of the Acquisition and for the Class B Convertible Shares with the first anniversary of the closing of the
Acquisition, the Sellers' ownership interest in Germany1 is expected to be approximately 33.0% on a Fully
Diluted Basis excluding the earn-out payment equal to EUR 50,000,000, EUR 25,000,000 of which is payable in
cash and the other half is payable in form of 2,500,000 Convertible Shares. The Convertible Shares will not be
transferrable until after their conversion, but the Sellers will have no restrictions on the sale of their Shares
thereafter. We may pay up to an additional EUR 25,000,000 to the Sellers and issue up to 2,500,000 Convertible
Shares to the Sellers so that their interest could increase to as much as 35.8% on a Fully Diluted Basis pursuant
to an earn-out that will become payable after the closing of the Acquisition if certain targets with respect to fiscal
years 2009, 2010 and 2011 are met. Any adjustment to be made in cash shall instead be made in the form of
Convertible Shares if and to the extent making such payment in cash would have caused the total consideration
paid to the Sellers in the form of Convertible Shares to be less than 41% of the total consideration paid, provided
that the maximum number of Convertible Shares to be issued for this purpose shall be limited to 2.5 million
Convertible Shares. See "The Acquisition Agreement" for further details.
11
Q. Why do the Board of Directors believe the purchase price is reasonable?
A. Based on our due diligence and financial analysis, the Board of Directors has concluded that the purchase
price for AEG is reasonable. See "Approval of the Acquisition – Factors Considered by our Board of Directors
in Approving the Acquisition" for a detailed description of the Board of Directors' assessment. Pursuant to the
terms of our IPO Prospectus and our agreement with the underwriters of our IPO, any business acquired by us
must have a fair market value equal to at least 80% of the amount in the Trust Account at the time of the
Acquisition (the "80% Threshold"). The Board of Directors concluded that the 80% Threshold was met.
In reaching this decision, the Board of Directors reviewed due diligence reports or summaries thereof, including
financial and tax due diligence, commercial due diligence and legal due diligence, prepared by professional
external advisors and came to the conclusion that, in its opinion, the consideration to be paid by us in the
Acquisition is fair to Germany1 and to Shareholders as a group.
In arriving at our opinion, we have, among other things:
i.
reviewed the final Acquisition Agreement, dated 23 July 2009;
ii.
reviewed certain information furnished to us by the AEG management, including historical financial
information and financial forecasts and analyses relating to the business, operations and prospects of
AEG;
iii.
held discussions with members of senior management of AEG and Ripplewood Holdings L.L.C.
("Ripplewood" or "Ripplewood Holdings") concerning the matters described in paragraph (ii) above;
iv.
visited AEG's manufacturing site in Belecke;
v.
reviewed the valuation multiples for certain publicly traded power electronics and solar companies that
we deemed relevant;
vi.
compared the proposed financial terms of the Acquisition with the financial terms of certain other
transactions that we deemed relevant; and
vii.
conducted such other financial studies, market/commercial analyses, due diligence and investigations as
we deemed appropriate.
Q. What happens to the funds deposited in the Trust Account after consummation of the Acquisition?
A. Upon consummation of the Acquisition, all amounts (net of any taxes and fees and expenses) relating to the
Trust Account will be released to us. We will use these funds to pay, among other things, a portion of the
purchase price of the Acquisition, the EUR 5,314,000 of deferred underwriting commissions and other expenses
deferred from the IPO, and the redemption price to any Public Shareholders who have properly exercised their
redemption rights. To the extent not used for making such payments, any cash released to us from the Trust
Account may be used for our general corporate purposes.
Q. What will be the Company's strategy after the Acquisition is completed?
A. If the Acquisition is approved and consummated, our strategy is to create further value for AEG Group by
accelerating investments in power electronics and solar energy products and other high growth sectors,
integrating strategic acquisitions, completing the turnaround of AEG Group's business and making the "AEG"
brand the standard in the power electronics industry. As regards to AEG group's business divisions, we are of the
view that AEG Group's Power Controllers division should further capitalize on the growth in the solar energy
market, utilize existing technologies for other and/or affiliated growth applications (such as energy efficiency),
increase the amount of service activities to the installed customer base and make selected acquisitions to gain
access to specific customers. In AEG Group's Protect Power business, we would aim to focus on higher growth
and margin activities (such as LED and inverters) and to play an active role in the expected consolidation of the
fragmented traditional industrial uninterruptible power supply market. Additionally, we believe that AEG
Group's DC Telecom division should increase resilient and high margin services activities and focus on specific
markets such as Asia and Africa.
12
Q. Who will manage the acquired business?
A. Following the Annual General Meeting, our Board of Directors will consist of three executive Directors and
five Non-executive Directors. AEG's operating management will continue in their respective roles and enter into
employment agreements with Germany1 or its subsidiaries. Bruce Brock will serve as Chief Executive Officer
and Robert Huljak will serve as Chief Operating Officer. Timothy Collins, Leonhard Fischer, Prof. Dr. Mark
Wössner, Prof. Dr. h.c. Roland Berger and Keith Corbin will act as non-Executive Directors. After the
Acquisition it is intended to appoint a further Director as Chief Financial Officer of Germany1. For more
detailed information, please see the section "Post Acquisition Board of Directors and Management".
Q. How many Shares and Warrants will the Founding Shareholders hold after completion of the Business
Combination?
A. As of the date of this Proxy Statement, the Founding Shareholders collectively beneficially own 8,250,000
Shares and 8,000,000 Warrants, or 26.4% of our outstanding Shares (including Founding Shares and Public
Shares) and 25.8% of our outstanding Warrants (including Sponsor Warrants and Public Warrants). Following
completion of the Acquisition, our Founding Shareholders will hold the same number of Shares and Warrants,
subject to any effects from exercises of Warrants made after the closing, which number of Shares will then
amount to 16.3% (excluding Shares resulting from the exercise of Warrants and not taking into account any
redemption of Public Shares) of our outstanding Shares, due to the dilutive effects of the issuance of Shares to
the Sellers. Assuming the issuance of an additional 2,500,000 Shares to the Sellers pursuant to the earn-out
provision contained in the Acquisition Agreement, the percentage interest of the Founding Shareholders could be
reduced to 15.6% (excluding Shares resulting from the exercise of Warrants and not taking into account any
redemption of Public Shares or the possible issuance of additional Convertible Shares as a potential share
component of a purchase price adjustment).
Q. What is the recommendation of the Board of Directors?
A. The Board of Directors unanimously recommends that you vote "FOR" the Acquisition and other proposals.
Q. What will happen if I fail to vote or abstain from voting?
A. If you do not appear at the Annual General Meeting in person or by proxy, or if you abstain by appearing in
person and not voting or by returning a proxy and not instructing how your Shares should be voted, or if your
Shares are held in street name and you do not instruct your broker or bank how to vote, your Shares will not be
counted as being voted either "for" or "against" approval of the Acquisition and other proposals and you will not
have the ability to exercise your redemption rights, as described below. We encourage you to avoid abstaining,
however, as excessive abstentions could cause the vote on the Acquisition to fail or require us to seek a revote on
the Acquisition and other proposals at considerable expense to us.
Q. What constitutes a quorum for the Annual General Meeting?
A. The holders of a majority of the Public Shares, present in person or represented by proxy, constitute a quorum
at the Annual General Meeting, given that the meeting is considering the Acquisition.
Q. Do I have redemption rights?
A. If you hold Public Shares and vote against the Acquisition, you will have the right to exercise your right to
have your Public Shares redeemed for cash in an amount equal to your Public Shares, pro rata portion of the
Trust Account (less certain expenses and taxes) in connection with the Acquisition. If the holders of 30%
(7,500,000) or more of the Public Shares vote against the Acquisition and demand that we redeem their Public
Shares, the Acquisition will not be consummated, and no redemption will occur. Public Shareholders who
exercise their redemption rights will retain all rights to any Warrants that they may hold.
If, notwithstanding your vote, the Acquisition is completed, you will be entitled to receive a pro rata portion of
the aggregate amount on deposit in the Trust Account, including any interest earned but excluding certain
expenses and taxes incurred prior to the closing date of the Acquisition. As of 15 June 2009, the balance in the
Trust Account was EUR 251,273,454.37 (not including interest of EUR 141,524.65 accrued for the period from
1 June 2009 to 15 June 2009). Therefore, if a Shareholder had voted against the Acquisition proposal and had
properly exercised its redemption rights as of 15 June 2009, such Shareholder would have been entitled to
receive approximately EUR 10.05 per Public Share as of such date.
13
Q. How do I exercise my redemption rights?
A. If you wish to exercise your redemption rights, you must (i) vote against the Acquisition, (ii) notify us of your
decision to exercise your redemption rights by completing and submitting your proxy card in accordance with
the instructions on the proxy card, (iii) continue to hold your Public Shares through the closing of the
Acquisition and (iv) deliver your Public Shares to RBS via your bank or broker which is or uses an Admitted
Institution before 3.00 p.m. (CET) one business day before the Annual General Meeting. Any action that does
not include a vote against the Acquisition will prevent you from exercising your redemption rights. Delivery of
your Public Shares under the above procedure does not effect a transfer of title of the Public Shares, and,
accordingly, any shareholder who effects delivery of his Public Shares remains entitled to attend the Annual
General Meeting. Your vote on any proposal other than the Acquisition will have no impact on your right to seek
redemption.
Prior to exercising redemption rights, you should consider the market price of the Shares as you may receive
more proceeds from the sale of your Public Shares in the public market than you would from exercising your
redemption rights if the market price per Share is higher than the amount of cash that you would receive upon
exercise of your redemption rights. On 22 July 2009 the last practicable date before the publication of this Proxy
Statement, the last quoted sales price per Share was EUR 9.75.
Q: How can I submit my vote?
A. A Shareholder may submit its vote for or against the proposals submitted at the Annual General Meeting in
person or by proxy. Shareholders may appoint another person as their proxy to exercise all or any of their rights
to attend and speak and vote at the Annual General Meeting. A Shareholder may appoint more than one proxy in
relation to the Annual General Meeting, provided that each proxy is appointed to exercise the rights attached to a
different Share or Shares held by it. All Shares held by persons entitled to vote and represented by duly
completed proxy forms and that are not revoked, will be voted at the Annual General Meeting as instructed on
the proxy forms. Shareholders and their duly appointed proxy holders who wish to attend the Annual General
Meeting in person must register and bring their attendance card as well as a form of personal identification to
enter the meeting.
register in the name of the Shareholder, as such Shares are included in the Shareholders' register under the name
of Euroclear Nederland. If Shareholders who hold their Shares through Euroclear Nederland wish to (i) attend
the Annual General Meeting or (ii) appoint a proxy to attend, speak and vote on their behalf or (iii) give voting
instructions without attending the meeting, they must instruct RBS via their bank or broker which is or uses an
Admitted Institution before 11.00 a.m. (CET) two days before the Annual General Meeting. The proxy cards of
Shareholders holding their Shares through Euroclear Nederland must be submitted to RBS via their bank or
broker which is or uses an Admitted Institution. Shareholders are advised to contact their bank or broker as soon
as possible. Shareholders holding their Shares through Euroclear Nederland and who indicate they wish to attend
the Annual General Meeting may not receive an admittance card. They may, therefore, be asked to identify
themselves at the Annual General Meeting using a valid passport, identity card or driving license.
If you wish to exercise your redemption rights, you must (i) vote against the Acquisition, (ii) notify us of your
decision to exercise your redemption rights by completing and submitting your proxy card in accordance with
the instructions on the proxy card, (iii) continue to hold your Public Shares through the closing of the
Acquisition and (iv) deliver your Public Shares to RBS via your bank or broker which is or uses an Admitted
Institution before 3.00 p.m. (CET) one business day before the Annual General Meeting.
Q: Can additional matters aside from the proposals noted in this Proxy Statement be presented by
Shareholders at the meeting?
Although Shareholders may raise any matter relating to the formation of Germany1, or arising out of the annual
report of the Directors, for discussion at the meeting, they may not propose any new resolutions for approval. In
addition, Shareholders may only propose amendments to the proposals if such proposed amendment is not so
fundamental as to destroy the intent of the original proposal, or to materially alter its effect. The proposed
amendment must also fall within the scope of the notice covering the Annual General Meeting. Any proposed
amendment shall only be considered by the meeting at the discretion of the Chairman of the Annual General
Meeting.
14
Q. When do you expect the Acquisition to be completed?
A. It is currently anticipated that the Acquisition will be completed, or closed, promptly following our Annual
General Meeting.
Q. What will I receive in the Acquisition?
A. If the Acquisition is completed and you vote your Shares for the Acquisition, you will continue to hold the
Shares you currently own. If the Acquisition is completed but you have voted your Shares against the
Acquisition and have elected to exercise your redemption rights, you will be entitled to receive the redemption
price for each Public Share you own.
Q. What happens if the Acquisition is not consummated?
A. If the Acquisition is not consummated, we will continue to search for a Business Combination. If, however,
we do not complete a Business Combination by the Business Combination Deadline, our corporate purpose and
powers will be limited to acts and activities relating to dissolving, liquidating and winding up Germany1 and the
Board of Directors will take all such action as necessary to dissolve and liquidate our Company as soon as
reasonably practicable. The liquidator will adopt a plan of dissolution and liquidation and promptly initiate
procedures for our dissolution and liquidation. Subject to compliance with Guernsey law, we will then liquidate
our Company, including the Trust Account, as part of a plan of dissolution and liquidation. This would result in a
distribution to our Public Shareholders on a pro rata basis of the funds in the Trust Account (less certain
expenses and taxes), and all of our other net assets. The Trust Account could, however, become subject to the
claims of our creditors which could take priority over the claims of our Public Shareholders and reduce the
amount available for distribution. The Founding Shareholders and the Foundation have waived any entitlement
to receive any distributions in connection with the Founding Shares in the case of a liquidation. In a liquidation,
the dissolution and distribution process would take at least two months.
Q. What happens if I am a Germany1 Shareholder and I sell my Shares before the Annual General
Meeting?
A. The Record Date for the Annual General Meeting is the close of business two days prior to the Annual
General Meeting (after giving effect to all settlements on that date). If you hold your Shares on the Record Date
but transfer your Shares before the Annual General Meeting, you will retain your right to attend and vote at the
Annual General Meeting.
Q. If I am not going to attend the Annual General Meeting in person, should I return my proxy card
instead?
A. Yes. Shareholders may appoint another person as their proxy to exercise all or any of their rights to attend and
speak and vote at the Annual General Meeting. A Shareholder may appoint more than one proxy in relation to
the Annual General Meeting, provided that each proxy is appointed to exercise the rights attached to a different
Share or Shares held by him. After carefully reading and considering the information contained in this document,
please fill out and sign your proxy card. Then return the enclosed proxy card as soon as possible so that your
Shares may be represented at the Annual General Meeting. Shareholders holding their Shares through Euroclear
Nederland via banks or brokers should submit their proxy cards to RBS via the bank or broker which is or uses
an Admitted Institution not later than 11.00 a.m. (CET) two days before the Annual General Meeting.
Q. What do I do if I wish to change my vote?
A. If you wish to change your vote, send a later-dated, signed proxy card in the manner as set forth on the proxy
card prior to the date of the Annual General Meeting or attend the Annual General Meeting of Shareholders,
revoke your proxy and vote in person. If you hold your Shares though Euroclear Nederland via banks and
brokers and you wish to change your vote, inform RBS via your bank or broker which is or uses an Admitted
Institution.
Q. If my Shares are held in "street name" by my broker, will my broker vote my Shares for me?
A. Your broker can vote your Shares only if you provide instructions on how to vote. You should instruct your
broker to vote your Shares, following the directions provided by your broker. To exercise your redemption
rights, you must make an affirmative election by directing your broker to vote against the Acquisition and check
15
the appropriate box on the proxy card and ensure that the proxy card is delivered as set forth on the proxy card
prior to the Annual General Meeting. If you wish to have your Shares redeemed, you should deliver the Shares
via your bank or broker which is or uses an Admitted Institution before 3.00 p.m. (CET) one day before the
Annual General Meeting to RBS.
Q. If my Shares are held by my custodian, will my custodian vote my Shares for me?
A. Your custodian can vote your Shares only if you provide instructions on how to vote. You should instruct
your custodian to vote your Shares, following the directions provided by your custodian. To exercise your
redemption rights, you must make an affirmative election by directing your custodian to vote against the
Acquisition and check the appropriate box on the proxy card and ensure that the proxy card is delivered prior to
the Annual General Meeting. If you wish to have your Public Shares redeemed, you should deliver the Public
Shares via your bank or broker to RBS which is or uses an Admitted Institution before 3.00 p.m. (CET) one
business day before the Annual General Meeting.
Q. What are the tax consequences of the proposed Acquisition?
A. The following description only relates to the income taxation of Shareholders in Germany, the UK and
Switzerland as these are the jurisdictions which we believe that more than 5% of our Shareholders have their tax
domicile. The below description does not deal with any other kinds of taxation and is limited to the income tax
consequences of the Acquisition and the redemption of Shares by Shareholders. It does not describe income
taxation to the extent it remains unaffected by the Acquisition or the redemption of Shares. The description does
not include income tax consequences for Shareholders that are subject to special tax treatment. It does not
purport to be a comprehensive description of all tax considerations that may be relevant to a Shareholder's
decision to approve the Acquisition or require redemption of its Shares. We strongly advise each Shareholder to
discuss the individual tax consequences of an approval of the Acquisition or redemption of Shares with a
professional tax advisor.
UK Tax Considerations
Shareholders who are resident in the UK will not be deemed to have disposed of their Shares by virtue of the
Acquisition so that no liability to UK taxation should arise for the UK Shareholders directly as a result of the
Acquisition. In the case of a Shareholder which is a UK resident company and which owns 25% of the Shares, it
is possible that the Company might be treated as a "controlled foreign company" of that Shareholder following
the Acquisition so that, depending on the facts, the profits of the Company might be apportioned to such
Shareholder (in proportion to the holding of Shares) for the purposes of computing that Shareholder's liability to
UK corporation tax.
A UK resident Shareholder who votes against the Acquisition and exercises the right to redeem the Shares may,
depending on the particular circumstances of that Shareholder, realize a chargeable gain for UK tax purposes to
the extent that the proceeds received on redemption exceed the acquisition cost of the Shares.
Swiss Tax Considerations
The information contained in this section is not intended as tax advice and does not purport to describe all of the
tax considerations that may be relevant to Shareholders. It is explicitly limited to certain income tax
consequences for investors fiscally resident in Switzerland and does also not cover the Swiss tax treatment of the
Warrants. Investors are urged to consult their own tax advisors as to Swiss or other tax consequences of the
acquisition, ownership and disposition of the Shares.
Provided that the investment in Shares of the Company is not publicly advertized or marketed in Switzerland and
is therefore not qualified as a collective capital investment in terms of the Federal Act on Collective Capital
Investments of 23 June 2006, the following tax consequences apply for purposes of Federal Direct Tax and, in
principle, also for cantonal and municipal income taxes:
Tax consequences for investors who opt for the Business Combination
For Shareholders who do not exercise their redemption rights and are therefore retaining their Shares, the
Acquisition of AEG does not have any direct impact on their current taxation.
16
Tax consequences for investors who opt for redemption of their Shares
Shares held by individuals and qualified by the competent tax administration as private assets:
Provided that the redemption of the Shares by the Company does not qualify as a direct partial liquidation or
provided that the Shares are sold by Shareholders on the market instead of redeeming, the sales price qualifies as
a tax free private capital gain. Please note in particular that the qualification as tax free private capital gain does
not apply to individuals qualified as professional securities dealers.
The redemption of the Shares by the Company qualifies as a direct partial liquidation to the extent that
•
the redeemed Shares are intended to be used or are used to reduce the Company's capital by way of
cancellation, or
•
the total amount of redeemed Shares exceeds 10% of the Company's total number of Shares (first in –
first out), or
•
the redeemed Shares which do not exceed 10% of the Company's total number of Shares are not reissued
by the Company to the market within six years of the date of redemption.
The tax consequence of a direct partial liquidation is that the difference between redemption price and par value
of the Shares (nil) is subject to personal income tax in Switzerland.
Shares held as business assets:
The difference between book value and redemption price or sales price, respectively, constitutes taxable income.
German Tax Considerations
German Tax Considerations depends on whether the Shareholders accept the Business Combination or opt for
redeeming their Shares.
Taxation for Shareholders accepting the Business Combination
The taxation depends on whether the German Investment Tax Act, the German Foreign Tax Act or only the
German and Corporate Income Tax Act applies.
Taxation according to German Investment Tax Act
Shareholders of the Company could be treated as holders of investment shares if the Company is to be deemed
an investment fund according to the German Investment Tax Act. The preconditions are:
•
the Company invests in assets as described in Sec. 2 (4) German Investment Act (Investmentgesetz);
•
the Company invests in accordance with the principle of risk diversification;
•
the Company either offers a redemption scheme whereby a Shareholder is entitled to return his Shares in
exchange for payout of his interest in the company or the company is subject to investment supervision in
its state of residence.
According to the circular of the German Financial Supervisory Authority (Bundesanstalt für
Finanzdienstleitungsaufsicht) as of 22 December 2008, also foreign investment funds have to observe limits
concerning their capital investments. In general, a foreign investment fund may only invest 20% (30% for hedge
funds) of his assets in a participation of an enterprise. Since the Company will acquire AEG with nearly the
whole of its assets, the German Investment Tax Act should not apply.
Taxation according to German Foreign Tax Act
If the German Investment Tax Act will not apply, the Shareholders may be subject to tax pursuant to the German
Foreign Tax Act. According to Sec. 7 (6, 6a) German Foreign Tax Act, interim profits deriving from the capital
17
investment received by a foreign intermediary domiciled in a tax haven are subject to an adverse taxation in the
event the Shareholder holds at least 1% of the share capital of the Company. Interim profits deriving from capital
investment are defined as income deriving from cash, receivables, participations or similar assets. Dividends
distributed to the Company are not within the scope of the aforesaid definition and are, therefore, not harmful
passive profits in the scope of the German Foreign Tax Act.
If the Company receives other income than dividends, there might be a risk that the German Foreign Transaction
Act applies unless the gross income deriving from the capital investment is not more than 10% of the overall
gross income and does not amount to more than EUR 80,000 at the level of the intermediary company or EUR
80,000 for all harmful income deriving from several intermediaries at the level of the respective Shareholder.
Insofar as the German Foreign Tax Act applies, the interim profits deriving from the capital investment will be
attributed pro-rata to the Shareholders, and the Shareholders will be taxed as if all interim profits of the
Company have been distributed to the Shareholders. The interim profits will be fully taxable at the level of the
Shareholders at their respective individual tax rate.
Taxation according to the German Income and Corporate Income Tax Act
Dividends received by the Company will only be subject to tax according to the German Income and Corporate
Income Tax (and Trade Tax) in so far as neither the German Investment Act nor the German Foreign Tax Act
applies. In this case, the intermediary will not be deemed to be partially or wholly tax transparent and the
Business Combination has no influence on the taxation of the Shareholders.
Taxation of dividends received by a Shareholder holding the Shares as private assets
Dividends received by the Company will be taxed at a final flat tax rate of 25% plus 5.5% solidarity surcharge
thereon resulting in an aggregate tax burden of 26.375% and church tax if applicable. Subject to an annual lump
sum allowance (Sparerpauschbetrag) of EUR 801 (1.602 for married couples filing jointly), the Shareholders
will not be entitled to deduct expenses incurred in connection with the capital investment from their income. If
the flat tax leads to a higher tax burden in comparison to the Shareholder's individual tax rate, the latter could opt
for taxation at his individual tax rate.
If Shareholders hold more than 1% of the Company's share capital, Sec. 17 Income Tax Act will apply leading to
a taxable amount of 60% of the dividends instead of the final flat tax rate.
Taxation of dividends received by a Shareholder holding the Shares as business assets
With respect to the Shares held as business assets of an individual, 60% of the dividend will be subject to tax at
the individual tax rate. Therefore, 60% of business expenses in connection with the capital investments are
deductible. Dividends are, in principle, also subject to trade tax. However, trade tax is partly entirely credited
against the Shareholder's personal income tax liability depending on the applicable municipal trade tax rate and
individual circumstances.
For corporate Shareholders, only 5% of the dividends will be subject to Corporate Income Tax (15%) plus
solidarity surcharge (5.5%) thereon. Business expenses actually incurred in connection with the dividends are
entirely tax deductible. 95% of dividend income must, in principle, be added back when determining the trade
taxable income and is, therefore, subject to trade tax.
Withholding Tax
In principle, dividends deriving from a foreign corporate entity are also subject to withholding tax in the event a
German bank, German credit institution, German securities trading company will be deemed to be the paying
agent for the dividends. Withholding tax will be levied at a rate of 26.375% (and church tax if applicable).
Taxation of Shareholders redeeming their Shares
If a Shareholder chooses to redeem its Shares, the taxation depends on whether the German Investment Tax Act
applies or not.
18
Taxation of the redemption according to German Investment Tax Act
Shareholders of the Company redeeming their Shares could be treated as holders of investment shares if the
Company is deemed to be an investment fund as described above. Since the Company invests in several assets in
accordance with Sec. 2 (4) Investment Act in the period up to the business combination, the criteria of risk
diversification is fulfilled. According to the circular of the German Financial Supervisory Authority
(Bundesanstalt für Finanzdienstleitungsaufsicht) as of 22 December 2008, the Shareholders must have the
opportunity to redeem their Shares at a minimum once within a period of two years. Since the Shareholders may
redeem their Shares only at that time, the German Investment Tax Act should not apply. However, it cannot be
excluded that the German Investment Tax Act may under certain circumstances be applicable.
The taxable income deriving from the redemption of Shares has to be calculated according to Sec. 8 Investment
Tax Act, depending on whether the Shares are held as private or business assets and whether the Company
complies with the German reporting and publication requirements.
Taxation of capital gains realized by a Shareholder holding the Shares as private assets
Acquisition of the Shares before 1 January 2009
In the event the Shares are redeemed within one year after their acquisition, income deriving from the
redemption will be subject to income tax at the respective individual tax rate of the Shareholder. Income deriving
from the redemption is defined as the redemption price minus acquisition costs. Deemed distributed earnings
(ausschüttungsgleiche Erträge) and interim profits (Zwischengewinn) may reduce the income under certain
conditions.
Acquisition of the shares after 31 December 2008
Income resulting from the redemption of the Shares will be, in principle, subject to income tax at a rate of 25%
plus 5.5% solidarity surcharge thereon irrespective of any holding period of the Shares. Income deriving from
the redemption is defined as redemption price minus acquisition costs. In general, deemed distributed earnings
(ausschüttungsgleiche Erträge) and received interim profits have to be deducted from the redemption price and
the paid tax on the deemed distributed earnings has to be added on the redemption price. Interim profits paid by
the Shareholder have to be deducted from the acquisition costs.
Taxation of capital gains realized by a Shareholder holding the Shares as business assets
Income resulting from the redemption of the Shares will be, in general, subject to income/corporate income and
trade tax. Insofar as the income includes stock profits (e.g. distributed and reinvested dividends), 60% of this
income will be subject to income tax at the individual tax rate plus 5.5% solidarity surcharge thereon and trade
tax if the Shareholder is an individual. If the Shareholder is a corporate entity, 5% of this income will be taxed at
a rate of an aggregate tax burden of approximately 30%.
Withholding Tax
Income deriving from the redemption of the Shares will be subject to withholding tax in the event the paying
agent is a German bank, German credit institution, German securities trading company and the Shares have been
acquired after 31 December 2008.
Taxation of the Redemption according to the German Income and Corporate Income Tax Act
If the German Investment Tax Act does not apply, the taxation should be as follows:
Taxation of capital gains realized by a Shareholder holding the shares as private assets
Acquisition of the Shares before 1 January 2009
50% of the capital gains (the redemption price minus acquisition costs and costs related to the redemption)
realized upon disposal of the Shares will be subject to income tax at the individual income tax rate plus 5.5%
solidarity surcharge thereon if the disposal takes place within one year after the acquisition of the Shares. If the
Shareholders' aggregate capital gains from private sales transactions in the relevant calendar year is less than
EUR 600, such capital gains are not taxed.
19
After expiry of the one year period mentioned above, 60% of the capital gains realized upon disposal of the
Shares will be taxed at the individual income tax rate plus 5.5% solidarity surcharge thereon only if the seller of
the Shares or in case of gratuitous transfer its legal predecessor has held, directly or indirectly, at least 1% of the
share capital of the Company at any time during the five years prior to the disposal.
Acquisition of the Shares after 31 December 2008
Any gains upon the redemption of Shares will be subject to a final flat tax (Abgeltungssteuer) of 25% plus
solidarity surcharge thereon (5.5%) resulting in an aggregate tax burden of 26.375%, if the Shareholder or. in the
event of a gratuitous transfer, its legal predecessor has not held directly or indirectly 1% or more of the share
capital of Germany1 at any time during the last 5 years prior to the disposal. Except for an annual lump sum
allowance (Sparerpauschbetrag) of EUR 801 (EUR 1.602 for married couples filing jointly), Shareholders will
not be entitled to deduct expenses in connection with capital investments from their income. If the flat tax results
in a higher tax burden as opposed to the Shareholders individual tax rate, the Shareholder may opt for taxation at
his individual tax rate. But this option may only be exercised for all capital gains, and income from capital
investments and married couples may only jointly exercise the option.
The final flat tax (Abgeltungssteuer) will not apply and 60% of the capital gains realized upon disposal are taxed
at the individual income tax rate plus 5.5% solidarity surcharge thereon if the seller of Shares or, in event of a
gratuitous transfer, its legal predecessor has held directly or indirectly at least 1% of the share capital of the
Company at any time during the last five years prior to disposal.
Taxation of capital gains realized by a Shareholder holding the Shares as business assets
If the Shares are held by an individual, 60% of the capital gains realized upon disposal are subject to income and
trade tax. Correspondingly, 60% of the business expenses related to such capital gains and 60% of any losses
incurred upon disposal of Shares are tax deductible. However, trade tax is credited against the Shareholder's
personal income tax liability depending on the applicable municipal trade tax rate and individual circumstances.
Capital gains realized by a corporate Shareholder upon disposal of Shares are generally exempt from corporate
income tax and trade tax. However, 5% of the capital gain is deemed to be a non-deductible business expense
and is, therefore, subject to corporate and income tax. Losses incurred upon the disposal of Shares or other
impairment of Shares value is not tax deductible.
Withholding Tax
Capital gains deriving from the redemption of Shares are subject to withholding tax in the event the paying agent
is a German bank, German credit institution, German securities trading company and the Shares have been
acquired after 31 December 2008.
Q. Who will pay for this proxy solicitation?
A. We have retained RBS as our agent. As agent RBS will also be responsible for dealing with administrative
matters relating to proxy voting. RBS will receive a fee, as well as reimbursement for certain costs and out-ofpocket expenses incurred by them in connection with their services, all of which will be paid by us. Members of
our Board of Directors may solicit proxies by mail, personal contact, letter, telephone, facsimile and other
electronic means, for which no additional compensation will be paid, although they may be reimbursed for their
out-of-pocket expenses. We will bear the cost of preparing, assembling and mailing the enclosed form of proxy,
this Proxy Statement and other material that may be sent to Shareholders in connection with this solicitation. We
may reimburse brokerage firms and other nominee holders for their reasonable expenses in sending proxies and
related materials to the beneficial owners of our Shares.
Q. Who can help answer my questions?
A. If you have any questions or need assistance in voting your Shares, please contact your bank or broker or
alternatively RBS, Equity Capital Markets / Corporate Actions, HQ3130, e-mail: corporate.actions@rbs.com,
Gustav Mahlerlaan 10, 1082 PP, Amsterdam, The Netherlands, at +31 20 3836707.
20
SELECTED HISTORICAL INFORMATION OF GERMANY1
The summary historical financial information of Germany1 for the period from 21 May 2008 to 31 December
2008 and as of 31 December 2008 presented below was derived from and should be read in conjunction with the
audited financial statements of Germany1 for the period from its incorporation on 21 May 2008 to 31 December
2008, prepared in accordance with IFRS (see page F-1 ff.) and audited by Deloitte LLP, St. Peter Port, Guernsey,
and the section "Germany1 Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this Proxy Statement.
Income Statement Data
Period 21 May 2008 to 31 December 2008
(EUR thousand except per share data)
Interest Income and Foreign Exchange Gains.................
Expenses .........................................................................
Profit for the Period.........................................................
Earnings per Share (EUR)1 ..............................................
Earnings per Share Diluted (EUR)2 .................................
Balance Sheet Data
Total Assets.....................................................................
Thereof Trust Account ....................................................
Thereof Cash and Cash Equivalents3...............................
Current Liabilities4 ..........................................................
Equity Shareholders' Funds.............................................
1
2
3
4
4,026
351
3,675
0.12
0.06
31 December 2008
(EUR thousand)
252,586
249,914
2,582
5,464
247,122
Calculated on the basis of 31,250,000 Shares in issue.
Calculated on the basis of 62,250,000 Shares in issue and under the assumption that all outstanding Warrants have been exercised and
Germany1 has not made use of the option to require a cashless exercise with regard to all Warrants.
Stem from interest earned on the Trust Account and have been increased on 9 January 2009 to the maximum admissible amount of
EUR 4,300 thousand by way of a further transfer of interest earned on the Trust Account.
Includes EUR 5,314 thousand of deferred IPO expenses payable at completion of a Business Combination.
21
SELECTED FINANCIAL INFORMATION OF AEG
Financial Years 2008, 2007 and 2006
The summary historical financial information of AEG Group as of and for the years ended 31 December 2008,
31 December 2007 and 31 December 2006 was derived from and should be read in conjunction with the
consolidated financial statements of AEG as of and for the year ended 31 December 2008, prepared in
accordance with IFRS audited by KPMG Netherlands, the consolidated financial statements of AEG as of and
for the year ended 31 December 2007 prepared in accordance with IFRS audited by KPMG Netherlands and the
section "AEG Management's Discussion and Analysis of Financial Condition and Results of Operations"
included in this Proxy Statement.
In the table below the DC Converter business has been reported as discontinued operations in the years 2008 and
2007. In 2006, the DC Converter business has been reported as continuing operations.
In the table below we have not included information about AEG for the financial years 2005 and 2004, as, due to
the age of such information and the fact that AEG has only been under current ownership since 2005 and has
undergone significant restructuring, we did not consider this information meaningful for our Shareholders.
31 December
20071
(EUR thousand)
20081
20061
Income Statement Data
Revenues ......................................................................
Cost of Sales ................................................................
Gross Profit (Loss) .......................................................
Selling, General and Administrative Expenses ............
Research and Development Costs ................................
Other Operating Income...............................................
Other Operating Expenses............................................
Operating Profit/ (Loss) before Financing Costs .........
Financial Expenses, Net...............................................
Profit/ (Loss) before Taxes...........................................
Income Taxes ...............................................................
Profit/ (Loss) from Continuing operations ...................
Profit / (Loss) from Discontinued operations1 .............
Profit / (Loss) for the Period ........................................
342,836
(227,454)
115,382
(54,010)
(6,661)
3,241
(2,298)
55,654
(3,839)
51,815
(15,866)
35,949
(9,737)
26,212
218,223
(169,756)
48,467
(42,001)
(4,418)
(2,119)
(71)
(4,329)
(4,400)
3,299
(1,101)
(2,341)
(3,442)
247,208
(186,198)
61,010
(47,584)
(10,163)
6
(3,154)
115
(4,804)
(4,689)
(268)
N/A
N/A
(4,957)
Selected Balance Sheet Data
Non-Current Assets......................................................
Current Assets..............................................................
Total Assets..................................................................
Provisions and Current Liabilities................................
Non-current Liabilities .................................................
Stockholders' Equity ....................................................
Total Liabilities and Stockholders' Equity ...................
37,640
252,818
290,458
222,878
23,811
43,769
290,458
40,895
157,633
198,528
139,373
41,775
17,380
198,528
39,467
131,745
171,212
107,579
41,879
21,754
171,212
Selected Cash Flow Data
Net Cash Provided by / (Used in) Operating
Activities ......................................................................
Net Cash Provided by / (Used in) Investing
Activities ......................................................................
Net Cash Provided by / (Used in) Financing
Activities ......................................................................
Cash at Year End .........................................................
64,818
3,362
(9,929)
(16,207)
(4,982)
(6,188)
(10,889)
54,631
13,500
27,312
8,400
11,213
Other Selected Financial and operational Data
EBIT2............................................................................
EBIT Margin3 ...............................................................
Gross Profit Margin4 ....................................................
Net Profit Margin5 ........................................................
55,654
16.2%
33.7%
10.5%
(71)
0.0%
22.2%
(0.5%)
115
0.0%
24.7%
(2.0%)
22
1
2
3
4
5
In December 2008, AEG signed a Memorandum of Understanding whereby it agreed to sell the DC Converter business held by Harmer
+ Simmons S.A.S. to members of AEG's management. The transaction, which was subject to certain conditions, was due to be
completed on 20 February 2009. As a number of the required conditions were not met, the proposed sale to management has been
abandoned. However, as AEG is still committed to sell the DC Converter business, the DC Converter business has been presented as a
discontinued operation and classified as held for sale as of 31 December 2008. As the 2007 summary historical information was
derived from the audited consolidated financial statements of AEG as of and for the year ended 31 December 2008 it reflects the
treatment of the DC Converter business as a discontinued operation. In the 2006 summary historical information, the DC Converter
business is presented as continuing operations.
Corresponds to the line item in AEG's income statement "operating profit before financing costs" and represents operating profit before
financial income/expenses and income tax.
EBIT divided by revenues.
Gross profit divided by revenues.
Profit for the period from continued operations (excluding the DC Converter business) divided by revenues from continued operations
(excluding the DC Converter business).
First Five Months of 2009
The table below shows selected consolidated financial information of AEG as of and for the five-month period
ended 22 May 2009 prepared in accordance with IFRS and excluding discontinued operations (DC Converter
business). This information derives from management accounts and has not been audited. The figures below may
not add up to the sums indicated due to rounding.
22 May 2009
(EUR million)
Revenues1 .........................................................................
thereof Power Controllers ................................................
thereof Protect Power.......................................................
thereof DC Telecom.........................................................
Order Backlog2 .................................................................
thereof Power Controllers ................................................
thereof Protect Power.......................................................
thereof DC Telecom.........................................................
1
2
193.5
126.5
50.2
16.8
293.4
212.6
69.2
11.7
Revenues are shown after the elimination of intra-group revenues.
Order backlog has been determined as the sum of Power Controllers', Protect Power's, and DC Telecom's order backlog as of 22 May
2009.
23
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION
On 23 July 2009, Germany1 and the Sellers entered into an Acquisition Agreement relating to the proposed
Acquisition. If this Acquisition is consummated, Germany1 will deliver at closing cash and Convertible Shares
as set out in Note 1 to the Unaudited Pro Forma Condensed Combined Financial Statements included in this
Proxy Statement.
The following unaudited pro forma condensed combined balance sheet information combines the historical
audited balance sheets of Germany1 and AEG as of 31 December 2008, giving effect to the Acquisition as if it
had occurred on 31 December 2008.
The unaudited pro forma condensed combined statement of income (loss) information for the fiscal year ended
31 December 2008 combine the historical audited statement of income of Germany1 from 21 May 2008 (date of
inception) through 31 December 2008, with the historical audited consolidated statement of income from
continuing operations of AEG for the fiscal year ended 31 December 2008. This unaudited pro forma condensed
combined statement of income (loss) gives effect to the Acquisition as if it had occurred on 1 January 2008.
The historical financial information has been adjusted to give effect to pro forma events that are directly
attributable to the Acquisition, are factually supportable and, in the case of the pro forma statement of income
(loss), have a recurring impact. The unaudited pro forma condensed combined financial statements have been
prepared using International Financial Reporting Standards (IFRS) as published by the International Accounting
Standards Board (IASB) and as adopted by the EU.
The unaudited pro forma condensed combined financial statements include estimates and assumptions to
determine the purchase price consideration available at this time. These estimates and assumptions may differ
from the estimates and actual results in the final accounting for the Acquisition as additional information
becomes available, and such differences may be material. For the calculation of the equity consideration a
trading price of EUR 10.00 per Share is assumed. The purchase price consideration is further subject to change
based upon recording of actual transaction cost and adjustments for net cash and working capital, as well as
further cash payments and additional Shares that may be issued if specific performance targets are met (earnout). The unaudited pro forma condensed combined financial statements do not reflect any payments in cash or
Shares that may be made in accordance with any such purchase price adjustment or earn-out.
The Acquisition will be accounted for using the acquisition method as stated in IFRS 3 (no early adoption of
IFRS 3 rev. 2008). The unaudited pro forma condensed combined financial statements include estimates to
adjust assets and liabilities of AEG to their respective fair values based upon preliminary information available
at this time. These estimates may differ from the estimates in the final accounting for the Acquisition as
additional information becomes available, and such differences may be material. The purchase price allocation
is, among others, subject to the changes of the purchase price consideration as well as to the completion of third
party appraisals of tangible and intangible assets of the acquired AEG business.
The unaudited pro forma condensed combined balance sheet as at 31 December 2008 and the unaudited pro
forma condensed combined statement of income (loss) for the year ended 31 December 2008 have been prepared
using two different assumptions for the levels of approval of the transaction by the Germany1 Shareholders:
•
Assuming no exercise of redemption rights: This presentation assumes that none of Public Shares
exercise their redemption rights; and
•
Assuming maximum exercise of redemption rights: This presentation assumes that 29.99% holders of
Public Shares exercise their redemption rights and that Germany1 pays a portion of the purchase price
with the issuance of a promissory note payable to the Sellers.
Germany1 is providing this information to aid you in your analysis of the financial aspects of the Acquisition.
The unaudited pro forma condensed combined financial statements should be read in conjunction with the
historical financial statements of Germany1 and AEG and the related notes thereto included elsewhere in this
Proxy Statement. The unaudited pro forma condensed combined financial statements are provided for illustrative
purposes only and do not purport to present what the actual results of operations or financial position would have
been had the transactions actually occurred on the dates indicated, nor do they purport to represent results of
operations for any future period or financial position for any future date.
24
Unaudited Pro Forma Condensed Combined Balance Sheet as of 31 December 2008
Germany1
as of
31
December
2008
AEG PS
as of
31
December
2008
Total
Note
Pro-Forma
Pro-Forma Note Pro-Forma
Pro-Forma
Adjustments (Assuming
(Assuming
No Exercise
(Assuming
Maximum
No Exercise
of
Maximum
Exercise of
of
Redemption
Exercise of Redemption
Redemption
Rights)
Redemption
Rights)
Rights)
Rights)
(EUR thousand)
ASSETS
Intangible assets ............................................................
Goodwill........................................................................
Property, plant and equipment ......................................
Other non-current assets ...............................................
Total non-current assets .............................................
Inventories.....................................................................
Receivables ...................................................................
Other current assets.......................................................
Cash and cash equivalents ............................................
Cash held in trust...........................................................
Assets classified as held for sale...................................
Total current assets.....................................................
Total assets...................................................................
LIABILITIES AND
STOCKHOLDER'S EQUITY
Capital stock..................................................................
Share and warrant premium ..........................................
Additional paid-in capital .............................................
Legal Reserve................................................................
Accumulated profit (deficit) .........................................
Cumulative translation adjustments..............................
Total Stockholders' equity
Pensions and other post-retirement
Obligations ....................................................................
Other long-term debt.....................................................
Deferred tax liabilities...................................................
Total non-current liabilities .......................................
Short term debt (including current
portion of long term debt) .............................................
Deferred IPO expenses .................................................
Accounts payable ..........................................................
Customers' deposits and advances ................................
Other current liabilities .................................................
Liabilities classified as held for sale .............................
Total current liabilities ...............................................
Total liabilities and stockholder's equity ..................
0
90
2,582
249,914
252,586
252,586
7,360
7,360
23,960
6,320
37,640
62,706
97,435
16,063
54,631
23,960
6,320
37,640
62,706
97,525
16,063
57,213
249,914
21,983 21,983
252,818 505,404
290,458 543,044
217
243,447
3,675
247,122
0
5,314
150
5,464
252,586
21,502
6,885
14,585
(f)
(e)
371,444
90,281
788
462,513
11,253
(a)
(b)
(c)
(d)
(m)
249,914
(200,000)
(5,314)
(3,700)
6,518
(a)
(249,914)
378,804
90,281
24,748
6,320
500,153
73,959
97,525
16,063
104,631
(191,243)
271,271
0
21,983
314,161
814,315
217
243,447
(l)
(b)
(217)
192,090
0
435,537
21,502
6,885
18,260
(l)
(l)
(d)
(l)
(m)
(l)
(21,502)
(6,885)
(15,500)
915
6,518
(580)
154,839
0
0
10,193
580
580
43,769 290,891
19,992
744
3,075
23,811
19,992
744
3,075
23,811
27,745
27,745
5,314
56,399
74,350
47,802
16,732
228,342
543,044
56,249
74,350
47,802
16,732
222,878
290,458
(h)
(i)
(g)
(j)
(2,105)
(k)
108,351
106,246
(c)
(d)
(5,314)
15,500
10,186
271,271
378,804
90,281
24,748
6,320
500,153
73,959
97,525
16,063
54,631
(o)
(p)
24,974
1,500
(m)
(n)
(1,500)
(74,974)
(50,000)
(50,000)
(n)
(p)
(74,974)
1,500
0
362,062
0
0
8,693
(m)
0
445,730
(1,500)
(74,974)
17,887
744
111,426
130,057
27,745
0
71,899
74,350
47,802
16,732
238,528
814,315
0
21,983
264,161
764,315
0
370,755
17,887
744
111,426
130,057
(o)
24,974
24,974
(50,000)
52,719
0
71,899
74,350
47,802
16,732
263,502
764,315
See the accompanying notes to the unaudited pro forma condensed combined financial statements, which are an
integral part of the statements, elsewhere in this Proxy Statement.
25
Unaudited Pro Forma Condensed Combined Statement of Income (Loss) for the financial year ended 31 December
2008
Germany1
(Period
from 21
May 2008 to
31
December
2008)
AEG PS Continuing
Operations
(Year
Ended
31
December
2008)
Total
Note
Pro Forma
Pro-Forma
Adjustments (Assuming No
(Assuming No
Exercise of
Exercise of
Redemption
Redemption
Rights)
Rights)
Note
Pro Forma
Adjustments
(Assuming
Maximum
Exercise of
Redemption
Rights)
Pro Forma
(Assuming
Maximum
Exercise of
Redemption
Rights)
(EUR thousand)
Revenues ........................
4,026
Cost of sales .................
342,836
346,862
(227,454)
(227,454)
Gross profit ...................
4,026
115,382
119,408
Selling, general and
administrative
expenses .........................
(351)
(54,010)
(54,361)
Research and
development costs ..........
Other operating income
Other operating
expenses .........................
Operating
profit/(loss) before
financing costs ..............
3,675
115,382
0
115,382
(d)
(26,253)
(93,180)
(93,180)
(c)
(105)
(e)
(12,461)
(6,661)
(6,661)
3,241
3,241
(2,298)
(2,298)
(2,298)
(2,298)
55,654
59,329
1,053
(4,892)
51,815
55,490
(15,866)
(15,866)
35,949
39,624
3,675
(4,026)
3,241
1,053
Profit/(loss) from
continuing operations ..
342,836
(227,454)
(6,661)
(4,892)
Income taxes...................
342,836
(227,454)
3,241
Interest expense..............
3,675
(4,026)
(6,661)
Interest income ...............
Profit/(Loss) before
taxes ...............................
(a)
(42,845)
(a), (b)
(f)
1,206
16,484
0
16,484
2,259
(b)
(1,206)
1,053
(4,892)
(g)
(1,249)
(6,141)
(2,455)
11,396
(41,639)
13,851
10,908
(4,958)
(30,731)
8,893
(4,958)
(2,455)
6,439
integral part of the statements, elsewhere in this Proxy Statement.
26
Pro forma operating figures1
2008
Pro Forma operating figures
(unaudited)
1
Assuming No Exercise of
Redemption Rights
Assuming Maximum Exercise
of Redemption Rights
(EUR thousand)
(EUR thousand)
EBIT unadjusted .....................................................
Factors affecting EBIT
Pro forma adjustment - Increase of amortization
and depreciation due to recurring effects of
purchase price allocation ("PPA") ..........................
EBIT adjusted ........................................................
16,484
16,484
38,819
55,303
38,819
55,303
EBIT unadjusted .....................................................
Amortization/ depreciation including PPA
amortization ............................................................
16,484
16,484
43,308
43,308
EBITDA .................................................................
59,792
59,792
EBITDA is EBIT (earnings before interest and taxes) before depreciation/amortization of, and write-ups to, fixed assets. We disclose
EBITDA, as we believe that it is a valuable measure for assessing the Group’s total performance. EBITDA is not an indicator defined by
IFRS. As a result, it is possible that other companies use a different method to calculate EBITDA and that the disclosed pro forma EBITDA
is not comparable in this form with other similarly-named measures published by other companies. The adjusted EBIT was calculated based
on EBIT while eliminating amortization on assets resulting from purchase price allocation. The adjusted EBIT should always be considered
together with the IFRS key indicators, and not taken on their own, as their informative-value is restricted in various aspects.
27
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER
SHARE INFORMATION
The following tables set forth certain historical per share data of Germany1 Shares and AEG common stock and pro
forma per share data of Germany1 and AEG giving effect to the Acquisition as if it occurred on 31 December 2008.
The information in the tables should be read in conjunction with the audited financial statements of Germany1 and
the audited financial statements of AEG and the attached notes as well as the unaudited pro forma condensed
combined financial statements, included in this Proxy Statement. The unaudited pro forma combined information
provided below is for illustrative purposes only. Germany1 and AEG may have performed differently had they been
combined previously. You should not rely on this information as being indicative of the historical results that would
have been achieved had Germany1 and AEG always been combined or the future results that we will experience
after the Acquisition.
Period 1 January to 31 December 20081
(EUR)
Germany1
Earnings per Share2 .........................................................
Earnings per Share Diluted3 ............................................
Cash Dividend per Share.................................................
Book Value per Share4 ....................................................
Book Value per Share Diluted5 .......................................
AEG
Earnings (excluding discontinued operations) per
share, undiluted6 ..............................................................
Earnings (including discontinued operations) per
share, undiluted6 ..............................................................
share, diluted7 ..................................................................
share, diluted7
share, partially diluted8 ....................................................
share, partially diluted8 ....................................................
Cash Dividend per share6 ................................................
Book Value per share9 .....................................................
Pro forma Combined
Pro forma Earnings per share (assuming no exercise
of redemption rights), undiluted10 ....................................
Pro forma Earnings per share (assuming maximum
exercise of redemption rights), undiluted11 ......................
Cash Dividend per share .................................................
Pro forma Book Value per share (assuming no
Pro forma Book Value per share (assuming maximum
1
2
3
4
5
6
7
8
0.12
0.06
0.00
7.91
7.70
1.66
1.21
1.35
0.99
1.53
1.12
0.00
2.02
0.18
0.15
0.00
8.83
8.63
For Germany1, only the period from its date of incorporation on 21 May 2008 to 31 December 2008 is covered.
Calculated on the basis of 31,250,000 Shares.
Calculated on the basis of 62,250,000 Shares assuming the exercise of all warrants.
Calculated as Equity Shareholders' Funds divided by 31,250,000 Shares.
Calculated as Equity Shareholders' Funds divided by 62,250,000 Shares assuming the exercise of all Warrants and an increase in Equity
Shareholders' Funds resulting from a cash payment of EUR 7.50 per warrant.
Calculated on the basis of 21,718,712 ordinary shares.
Calculated on the basis of a number of 26,538,537 shares (including management shares and shares to be issued upon the exercise of options
and the convertible loan to Alcatel Lucent).
Calculated on the basis of a number of 23,503,007 shares (including management shares and shares to be issued upon the exercise of
options, but excluding the shares to be issued upon exercise of the convertible loan to Alcatel Lucent, as this loan was repaid subsequent to
year end 2008).
28
9
10
11
12
13
Calculated as Stockholders' equity divided by 21,718,712 ordinary shares.
Calculated as Pro Forma Total Stockholders' equity divided by 50,459 thousand shares.
Calculated as Pro Forma Total Stockholders' equity divided by 42,959 thousand shares.
Calculated as Pro Forma Total Stockholders Equity divided by 50,459 thousand shares.
Calculated as Pro Forma Total Stockholders Equity divided by 42,959 thousand shares.
29
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS
We believe that some of the information in this Proxy Statement constitute forward-looking statements. You can
identify these statements by forward-looking words such as "may", "expect", "anticipate", "contemplate", "seek",
"believe", "estimate", "intend", and "continue" or similar words. You should read statements that contain these
words carefully because they:
•
discuss future expectations;
•
contain projections of future results of operations or financial condition; or
•
state other "forward-looking" information.
We believe it is important to communicate our expectations to our Shareholders. However, there may be events in
the future that we are not able to predict accurately or over which we have no control. Forward-looking statements
are based on our current expectations and assumptions regarding our business, the economy and other future
conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent
uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially
from those contemplated by forward-looking statements. We caution you therefore that you should not rely on any
of these forward-looking statements as statements of historical fact or as guarantees or assurances of future
performance. Important factors that could cause actual results to differ materially from those in the forward-looking
statements include regional, national or global political, economic, business, competitive, market and regulatory
conditions as well as, but not limited to, the following:
•
successful implementation of the Acquisition including the number and percentage of our Shareholders
voting against the Acquisition proposal and exercising their redemption rights;
•
general economic conditions;
•
prospects of the solar energy industry and polysilicon production;
•
AEG's growth prospects, business strategy and plans;
•
AEG's results of operation and financial condition;
•
the result of future financing efforts; and
•
our ability to pay dividends to our Shareholders.
Any forward-looking statement made by us in this Proxy Statement speaks only as of the date of this Proxy
Statement and is expressly qualified in its entirety by these cautionary statements. Factors or events that
could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict
all of them. Subject to any applicable law, we undertake no obligation to publicly update any forward-looking
statement, whether as a result of new information, future developments or otherwise.
Before you grant your proxy or instruct how your vote should be cast or vote on the approval of the
Acquisition, you should be aware that the occurrence of the events described in the "Risk Factors" section
and elsewhere in this Proxy Statement could have a material adverse effect on Germany1 and/or AEG.
30
RISK FACTORS
You should carefully consider the following risk factors, together with all of the other information included in this
Proxy Statement before you decide whether to vote or direct your vote to be cast to approve the Acquisition and the
related proposals. If any of these factors actually occur, the business, financial condition or results of operations of
Germany1 could be materially and adversely affected, the value of our Shares could decline and Shareholders could
lose all or part of their investment. As Germany1's operations will be those of AEG Power Solutions B.V. and will
thus be subject to all of the operating risks of AEG, a number of the following risk factors relate to the business and
operations of AEG Group.
Risks Associated with the Proposed Acquisition
If the benefits of the Acquisition do not meet the expectations of the marketplace, investors, financial analysts or
industry analysts, the market price of our Shares may decline.
The market price of our Shares may decline as a result of the Acquisition if AEG does not perform as expected or if
we do not otherwise achieve the perceived benefits of the Acquisition as rapidly as, or to the extent anticipated by,
the marketplace, investors, financial analysts or industry analysts. Accordingly, investors may experience a loss as a
result of a decline in the market price of their Shares, and our ability to raise future capital, if necessary, in the
capital markets may be materially adversely affected.
If we are unable to complete the Acquisition or a Business Combination with another party and are forced to
dissolve and liquidate, third parties may bring claims against us and, as a result, the proceeds held in Trust could
be reduced and the liquidation price received by our Shareholders could be less than the unit price in our IPO
and our Warrants could expire worthless.
Although, we have already entered into irrevocable undertakings or other similar arrangements with Committed
Shareholders who, in the aggregate, hold Public Shares in excess of 70.1% of our outstanding Public Shares as at the
date of this Proxy Statement, pursuant to which they have agreed to vote in favor of the Acquisition and related
resolutions and/or not to request redemption of their Public Shares, it cannot be guaranteed that all Committed
Shareholders will vote in accordance with their commitment. The Acquisition may also need to be abandoned for
other reasons that may occur after the date of this Proxy Statement. If we are, due to a dissenting vote of our Public
Shareholders or for any other reason, unable to complete the Acquisition or a Business Combination with another
party by the Business Combination Deadline and are forced to dissolve and liquidate, third parties may bring claims
against us. Our placing of funds in the Trust Account may not protect those funds from such third party claims.
There is no guarantee that all vendors, prospective target businesses or other entities we engage will execute
agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust
Account, or if executed, such agreements would prevent those parties from making claims against the Trust Account.
There is also no guarantee that such entities will agree to waive any claims they may have in the future as a result of,
or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the Trust
Account for any reason. Accordingly, the proceeds held in the Trust Account may be subject to claims which would
take priority over the claims of our Shareholders and, as a result, the per-Share liquidation price could be less than
the unit price in our IPO due to such claims. If we are unable to complete a Business Combination and are forced to
dissolve and liquidate, we cannot assure you that our Board of Directors will be able to satisfy obligations for which
they may be personally liable. Furthermore, our outstanding Warrants are not entitled to participate in a liquidating
distribution and the Warrants will therefore expire and become worthless in the event of a liquidation.
We may have insufficient time or funds to complete an alternate Business Combination if the Acquisition
proposal is not adopted by our Public Shareholders or the Acquisition is not completed for other reasons.
Pursuant to our Articles of Incorporation, we must liquidate and dissolve if we do not complete a Business
Combination with a business having a fair market value of at least 80% of the balance in the Trust Account
(excluding deferred underwriting commissions, taxes paid or reserved for the Trust Account and fees and expenses
related to the Trust Account) at the time of execution of definitive documentation related to such acquisition, by the
Business Combination Deadline. Although, we have already entered into irrevocable undertakings or other similar
arrangements with Committed Shareholders who, in the aggregate, hold Public Shares in excess of 70.1% of our
outstanding Public Shares as at the date of this Proxy Statement, pursuant to which they have agreed to vote in favor
of the Acquisition and related resolutions and/or not to request redemption of their Public Shares, it cannot be
guaranteed that all Committed Shareholders will vote in accordance with their commitment. Thus, if the Acquisition
is not approved by our Public Shareholders or we are unable to complete the Acquisition for any reason, we may not
31
be able to consummate an alternative Business Combination within the required time frame, either due to insufficient
time or insufficient operating funds. In such case, we would be forced to dissolve and liquidate and our Public
Shareholders may receive less than anticipated, and our Warrants would expire and become worthless.
If our Public Shareholders fail to vote or abstain from voting on the Acquisition proposal, they may not exercise
their redemption rights and redeem their Shares for a pro-rata portion of the Trust Account.
Our Public Shareholders, who vote against the Acquisition proposal may, at the same time, exercise their redemption
rights and redeem their Shares for cash in an amount equal to such Public Shareholder's pro rata portion of the funds
in the Trust Account (less certain expenses and taxes). Any Public Shareholder who fails to vote or abstains from
voting on the Acquisition proposal may not exercise his redemption right and, as a result, will not be entitled to have
his Shares redeemed.
Our Founding Shareholders, Directors and Officers may have interests in the Acquisition that are different from
yours.
Our Founding Shareholders either directly or beneficially own an aggregate of 8,250,000 Shares, of which 6,250,000
are Founding Shares and 2,000,000 are Public Shares, and 8,000,000 Warrants, of which 6,000,000 are Sponsor
Warrants and 2,000,000 are Public Warrants. The Founding Shares and Sponsor Warrants will be valueless if we do
not consummate a Business Combination. Furthermore, the EUR 6,000,000 purchase price of the Sponsor Warrants
will be included in the amount that is distributed to our Public Shareholders in the event of our liquidation. In light
of the amounts of consideration paid, the Founding Shareholders will likely benefit from the completion of the
Acquisition, even if the Acquisition causes the market price of our Shares to significantly decrease. In addition,
because our Founding Shareholders have purchased their existing Shares at a lower average cost than our Public
Shareholders, they may profit from the Acquisition even if it would be unprofitable for our Public Shareholders. This
may influence the decision of our Founding Shareholders to promote the Acquisition. In addition, if we liquidate,
our Founding Shareholders and our Board of Directors may become personally liable for amounts owed under
certain circumstances (for example, for claims of vendors, service providers or other entities that are owed money by
us for services rendered or contracted for or products sold to us, or by claims of prospective target businesses for
fees and expenses of third parties that we may have agreed to pay in the event that we do not consummate a
combination with such target business). Moreover, our Directors and Officers will not receive reimbursement for any
out-of-pocket expenses incurred by them to the extent that there are insufficient funds available from the amounts
held outside the Trust Account. As a result, the potentially conflicting personal and financial interests of our
Founding Shareholders, Directors and Officers may have influenced the decision of our Board of Directors to
approve the Acquisition proposal. In considering the recommendations of our Board of Directors to vote for the
Acquisition proposal, you should consider these interests.
Our Founding Shareholders own Public Shares and may purchase additional Public Shares in the market, which
may give them greater influence over the approval of the Acquisition.
Apart from their holdings of Founding Shares, which are not entitled to vote on the proposed Acquisition, our
Founding Shareholders either directly or beneficially own an aggregate of 2,000,000 Public Shares, which allow
them to influence the approval of the Acquisition. Moreover, our Founding Shareholders or their respective
Affiliates could acquire additional Shares in the market prior to our Annual General Meeting, which they also could
use to further influence a vote in favor of the Acquisition. Thus, our Founding Shareholders, existing holding of
Public Shares and any additional purchases of Public Shares they may make would probably further increase the
chances that the Acquisition will be approved even if one ore more of the Shareholders who has already entered into
an irrevocable undertaking or other similar arrangements and agreed to vote in favor of the Acquisition, will not vote
in accordance with their undertaking or other arrangement.
We expect to incur significant costs associated with the proposed Acquisition, whether or not the Acquisition is
completed, which will reduce the amount of cash otherwise available for other purposes.
We expect to incur significant costs associated with the proposed Acquisition, whether or not the Acquisition is
completed. According to our current planning, we expect to incur approximately EUR 3.7 million in costs associated
with the proposed Acquisition for professional fees, including legal, accounting, printing, proxy solicitation,
regulatory and other fees. These costs will reduce the amount of cash otherwise available for other purposes.
However, there is no assurance that the actual costs will not exceed our current planning and estimates. In the event
that we will, for any reason, be unable to complete the Acquisition, we will also be required to bear the costs for the
failed attempt. But, even if we are able to complete the Acquisition, there is no assurance that the significant costs
associated with the Acquisition will prove to be justified in light of the benefit ultimately realized.
32
The consideration to be paid as part of the Acquisition is subject to change, and the exact consideration is not
determinable at this time.
The Acquisition consideration consists of EUR 200 million in cash and 19,208,955 Shares (assuming a Share price
of EUR 10.00), plus or minus net cash and working capital adjustments, and plus a share and cash earn-out worth up
to an aggregate of EUR 50 million. Subject to the purchase price adjustments, the cash portion of the total purchase
price will equal EUR 200 million and the remainder of the total purchase price will be paid in Convertible Shares,
except that if Germany1 does not have EUR 200 million in cash at closing due to redemptions, it will issue a
promissory note to the Sellers for up to EUR 25 million. Any consideration adjustment to be made in cash shall
caused the consideration paid to the Sellers in the form of Convertible Shares to be less than 41% of the total
consideration paid, provided that the maximum number of Convertible Shares to be issued for this purpose shall be
limited to a maximum of 2.5 million Convertible Shares. The net closing date cash and working capital adjustments
will not be calculated until 90 days after closing of the Acquisition, which could result in a decrease or an increase of
the Acquisition consideration. Furthermore, the exact earn-out amount will not be calculated until after the end of
2011. Since the closing date net cash and working capital adjustments and exact amount of earn-out cannot be
calculated at this time, the total consideration to be paid in the Acquisition is not currently known.
We did not obtain an opinion from an unaffiliated third party as to the fair market value of AEG or that the price
we pay for the business is fair to our Shareholders.
Our Board of Directors has not obtained an opinion from an unaffiliated third party that AEG meets the 80%
Threshold at the time of execution of definitive documentation or that the price that we pay for AEG is fair to our
Shareholders. Our Board of Directors determined not to obtain a fairness opinion in connection with the approval of
the purchase agreement because of (i) its internal ability to value the business against public comparables and other
market index measures, (ii) its general exercise of its business judgment and (iii) its knowledge that the valuation of
the proposed Acquisition would be tested by the market and factors that our Shareholders deemed relevant and that
30% of the Public Shareholders could effectively veto the proposed Acquisition if they did not deem such valuation
to be fair. Therefore, our Board of Directors did not undertake the kind of in depth analysis that a financial advisor
would have undertaken in the rendering of a fairness opinion. The determination of the fair market value of a
business involves a consideration of a wide range of factors, including the subjective opinion of the Board of
Directors. Assumptions on which the valuation of the company or its business operations are based may prove in
retrospect materially incorrect. Our Board of Directors, in valuing AEG and approving the Acquisition, determined
on the basis of the information provided or developed during the due diligence process that they had sufficient
information and expertise to determine that AEG's fair market value meets the 80% Threshold and that the purchase
price is fair to our Shareholders. Accordingly, in considering approving this Acquisition, you will be relying on the
determination made by our Board of Directors.
Upon completion of the Acquisition, the holdings of our current Public Shareholders will be diluted by the
issuance of Shares to the Sellers and the Sellers will be able to influence Germany1's affairs significantly.
Immediately after the Acquisition is completed, we will issue Convertible Shares to the Sellers equal to
approximately 33.0% of our aggregate issued Shares, including Convertible Shares, on a Fully Diluted Basis. The
holdings of the Sellers may later increase to up to 35.8% on a Fully Diluted Basis pursuant to an earn-out payment if
certain targets are met. It is a condition to the Sellers, obligation to complete the Acquisition that two Seller
designees, Timothy Collins and Leonhard Fischer, will be appointed as Directors with effect from the Annual
General Meeting. As a result, the Sellers will have significant representation on our Board of Directors and will have
voting power to significantly influence our policies, business and affairs. As a result, the Sellers may pursue their
own interests, which may conflict with the interest of the other Shareholders. Furthermore, our Public Shareholders,
who currently hold 80% of our Shares (including Public Shares held by our Founding Shareholders), will be diluted
after giving effect to the Acquisition and will hold approximately 53.7% of the aggregate issued Shares, including
Convertible Shares, on a Fully Diluted Basis. The figures are based on the assumption that none of our Public
Shareholders exercise their redemption rights. In the event that the holders of 29.99% of the Public Shares exercise
their redemption rights, the number of Public Shares outstanding after the Acquisition would decrease and, as a
result, the remaining Public Shareholders would end up holding 46.8% of the aggregate issued Shares, including
Convertible Shares, on a Fully Diluted Basis, and the portion of Convertible Shares held by the Sellers would
increase to 37.9% accordingly. In addition, if we are required to pay the entire earn-out to the Sellers, half of which
will be paid in Convertible Shares, our current Public Shareholders would hold 44.6%, on a Fully Diluted Basis, if
the holders of 29.99% of the Public Shares exercise their redemption rights. Based on the assumptions that no
Warrants are exercised, 29.99% of the Public Shares are subject to redemption and we are required to pay the entire
earn-out, our Public Shareholders would face maximum dilution and would hold 38.5% of our aggregate number of
33
issued Shares, including Convertible Shares. In addition, any consideration adjustment to be made in cash shall
caused the consideration paid to the Sellers in the form of Convertible Shares to be less than 41% of the total
consideration paid, provided that the maximum number of Convertible Shares to be issued for this purpose shall be
limited to a maximum of 2.5 million Convertible Shares. For this reason, the shareholders of the Sellers may even
exceed the percentages indicated above. As a result, the degree of dilution our current Shareholders will face as a
result of the Acquisition is uncertain.
Our outstanding Warrants may be exercised in the future, which would increase the number of Shares and result
in further dilution for our current Shareholders.
Outstanding redeemable Warrants to purchase an aggregate of 31,000,000 Shares of Germany1 (including Warrants
to purchase an aggregate of 6,000,000 Shares of Germany1 of our Founding Shareholders) will become exercisable
on the later of (i) the consummation of the Acquisition and (ii) 21 July 2009. Our outstanding Warrants have an
exercise price of EUR 7.50 per Share. To the extent that all outstanding Warrants were exercised and based on a
Share price of EUR 10.00, we made use of our option to require a cashless exercise with regard to all Warrants (net
share settlement according to the treasury method) as described in the section "Dilution" and none of the Shares
subject to redemption rights were redeemed, we would have had a total aggregate number of approximately 58.2
million Shares, including Convertible Shares, not taking into account any redemption of Public Shares or issuance of
Shares pursuant to the earn-out provision contained in the Acquisition Agreement or any purchase price adjustments,
representing an increase of 7.75 million Shares, diluting our existing Shareholders. In addition, sales of substantial
numbers of such Shares in the public market could adversely affect the market price of our Shares.
We may choose to redeem our outstanding Warrants at a time that is disadvantageous to our Warrant holders.
We may redeem the Warrants issued as a part of our units sold in the IPO at any time after the Warrants become
exercisable in whole and not in part, at a price of EUR 0.01 per Warrant, upon a minimum of 30 days' prior written
notice of redemption, if and only if, the closing price of our Shares (as quoted on the daily official list of Euronext
Amsterdam) exceeds EUR 13.25 per Share for any 20 trading days within a 30 trading day period ending three
Business Days before we send the notice of redemption. Redemption of the Warrants could force the Warrant
holders to exercise the Warrants and pay the exercise price at a time when it may be disadvantageous for the holders
to do so, to sell the Warrants at the then current market price when they might otherwise wish to hold the Warrants
or to accept the nominal redemption price which, at the time the Warrants are called for redemption, is likely to be
substantially less than the market value of the Warrants.
If our due diligence investigation of AEG Group proves to be inadequate, subsequent write-offs that impair the
financial condition of AEG Group may be required.
Prior to the conclusion of an Acquisition Agreement with AEG, we conducted a due diligence investigation of AEG
Group, including high-level legal due diligence focusing on areas which we believe to be material to AEG Group
and its business. It can, therefore, not be assured that this diligence identified all material issues that may be present
inside AEG Group or its business, or that factors outside of AEG Group and its business will not arise in the future.
If we have failed to identify such issues, we may, after the completion of the Acquisition, be forced to write-down or
write-off assets, restructure operations, or incur impairment or other charges that could result in material losses. In
such an event, our Shareholders may experience a sharp decline in the market price of their Shares and may loose
some or all of their investment.
We will only be entitled to request limited indemnification or reimbursement from the Sellers for damages arising
out of the Acquisition.
The representations, warranties, covenants and agreements contained in the Acquisition Agreement and in any
instrument delivered pursuant to the Acquisition Agreement, including any rights arising out of any breach of such
representations, warranties, covenants and agreements, will not survive the completion of the Acquisition, except for
certain representations regarding the Sellers' title to shares and ability to enter the Acquisition Agreement and sell
such shares, an indemnification provision for certain potential tax liabilities in Germany and those covenants and
agreements that by their terms are to be performed in whole or in part after completion. Accordingly, we will not, in
the majority of cases, be entitled to indemnification or reimbursement for any losses we may suffer, directly or
indirectly, as a result of a diminution of value of AEG, or a claim of a third party, even if the Sellers are found to
have breached their representations, warranties, covenants and agreements contained in the Acquisition Agreement
and other transaction documents.
34
If we lose our key management and technical personnel, our business may suffer.
The success of the integration of AEG will be dependent upon the continued service of a relatively small group of
key executives, including Bruce Brock, its chief executive officer, and Robert Huljak, its chief operating officer,
who are expected to remain with the company post closing. Although we currently intend to retain the existing
management of AEG following the proposed Acquisition, we cannot assure you that such individuals will remain
with us for the immediate or foreseeable future. The loss of the services of one or more of these executives could
materially adversely affect our ability to integrate the business and operations of AEG and manage the business
going forward.
We plan to implement a stock incentive plan, which may adversely impact our net income and dilute our current
Shareholders.
In order to enhance the commitment of our key personnel after the completion of the Acquisition, we intend to
establish an employee benefit plan for our directors and members of the management team. The plan may comprise
stock options, stock appreciation, stock purchase, phantom stock or other equity-based employee benefits. Expenses
associated with such share-based compensation may materially adversely affect our net income and dilute our
current Shareholders. The total number of Shares reserved and available for issuance under the plan is intended to be
2,500,000 Shares consisting, in whole or in part, of authorized and unissued Shares or treasury Shares. Under the
plan, Shares may be granted to eligible members of the management for free or stock options may be exercised by
members of the management, allowing members of the management to acquire Shares at a pre-determined price,
which may be lower than the prevailing market price. To the extent that Shares are granted under the stock incentive
plan or stock options are exercised, additional Shares of the Company will be issued, which will result in the dilution
of the Company's Shareholders and increase the number of Shares eligible for re-sale in the public market. Sales of
substantial numbers of such Shares in the public market could materially adversely affect the market price of the
Company's Shares.
We do not have any operations and AEG has never operated as a public company. Fulfilling the ongoing
obligations as a public company after the Acquisition of AEG will be expensive and time consuming.
AEG, as a private company, has not been required to prepare or file periodic and other reports with the Netherlands
Authority for the Financial Markets ("AFM") under applicable securities laws of the Netherlands and the applicable
listing requirements of Euronext Amsterdam. Although we have already gathered experience with the applicable
disclosure requirements for listed companies, we have not undertaken any business operations. It will therefore be
necessary to maintain additional disclosure controls and procedures and internal control over financial reporting in
order to comply with the securities laws of the Netherlands and applicable stock exchange rules with respect to the
activities of AEG Group. We expect that compliance with these obligations will require significant time and
resources of our Management Team and our finance and accounting staff and will significantly increase our legal,
insurance and financial compliance costs. As a result of the increased costs associated with being a public company
after the Acquisition, our profitability may suffer.
Upon completion of the Acquisition, dividends paid to us will become subject to Dutch tax laws and a possible
subsequent change of our corporate domicile to the EU may subject us to an unfavorable tax regime.
Upon completion of the proposed Acquisition, our ability to pay dividends to our Shareholders will depend on
dividends paid to us. Since our corporate domicile is located in Guernsey, dividends paid to us will not be covered
by the European Parent - Subsidiary Directive (Council Directive 90/435/EEC of 23 July 1990 on the common
system of taxation applicable in the case of parent companies and subsidiaries of different Member States). Pursuant
to the current Dutch tax regulations, we expect a dividend withholding tax rate of 15% to apply for such dividend
payments. It can, however, not be excluded that the Dutch foreign tax payer rules will apply to us. Although, we do
not believe that such rules will be applicable to us, Dutch tax authorities may take a different view. In this event, we
would be subject to Dutch corporate income tax at a rate of 25.5% on, amongst other things, any income, including
dividend and capital gains, arising from indirect interests in AEG. Furthermore, if the Acquisition is approved by our
Shareholders and consummated, we will consider whether it would be advantageous for Germany1 and Shareholders
to change the corporate domicile of Germany1 to a jurisdiction in the EU such as Luxembourg, the Netherlands or
Germany. In such an event, we would likely be exempted from dividend withholding taxes. However, we would be
considered fully tax resident in such jurisdiction and become subject to a tax regime which may be unfavorable in
comparison to Guernsey tax regulations and which may materially adversely affect our ability to pay dividends to
our Shareholders.
35
In addition, the consummation of the Acquisition as well as a possible subsequent change of our corporate domicile,
could lead to adverse tax consequences such as an impairment of deferred tax assets that may have arisen from
temporary differences or operating loss and tax credit carry forwards of AEG Group, in which case we could be
obligated to write-off certain tax assets.
36
Risks Associated with the Business of AEG Group
The global economy is still undergoing a period of unprecedented volatility associated with a general slowdown in
demand, including the end markets served by AEG Group.
The current economic downturn may challenge the global business operations of AEG Group in a number of ways.
Operations may be materially adversely affected by decreases in the general level of economic activity, such as
decreases in business and consumer spending, capital spending, industrial production and government procurement
which could result in a decrease in or cancellation of orders for AEG Group's products and services and negatively
impact the ability of its customers to make timely payments. In particular, the demand for products requiring
significant capital expenditures, such as custom AC power solutions of AEG Group's Power Controllers business or
AC and DC custom power solutions of AEG Group's Protect Power business, is typically affected by general
economic conditions. In addition, the likelihood that one or more of AEG Group's customers or suppliers experience
financial distress or bankruptcy may increase as a result of the global economic downturn. The duration and severity
of the current disruption in financial markets and adverse economic conditions in Europe, Asia, North America and
other countries in which AEG Group conducts its operations is not foreseeable. A prolonged period of economic
decline could have a material adverse effect on AEG Group's business, results of operations, liquidity and financial
condition.
Furthermore, the current economic downturn and the uncertainty about future economic developments make it
challenging to forecast AEG Group's operating results, make business decisions and identify the risks that may affect
the business. If AEG Group is not able to efficiently and appropriately adapt to changes resulting from the difficult
macroeconomic environment, its business, results of operations, liquidity and financial condition may be materially
adversely affected.
AEG Group's profitability and the success of its growth strategy are heavily dependent on the growth of the solar
energy industry and polysilicon production.
AEG Group's revenues from continuing operations have increased from EUR 218,223 thousand in 2007 by
EUR 124,613 thousand, or 57%, to EUR 342,836 thousand in 2008 and AEG Group's gross profit from continuing
operations has increased from EUR 48,467 thousand in 2007 by EUR 66,915 thousand, or 138%, to EUR 115,382
thousand in 2008. These increases have mainly been driven by AEG Group's Power Controllers business, which
supplies products incorporated into polysilicon production plants. Furthermore, growth of the polysilicon industry is
also a key driver for growth of AEG Group's Protect Power business as AEG Group sells Protect Power products as
an add-on to Power Controllers solutions. AEG Group's strategy for future growth is also based on the assumption
that polysilicon production capacity will continue to expand.
Although the solar energy industry has experienced substantial growth over the last five years, it still remains a
relatively small part of the total power generation market and competes with other sources of renewable energy, as
well as conventional power generation. Negative financial news, tighter credit markets and declines in asset values
have recently affected the growth expectations for the photovoltaic industry. In particular, the current crisis is
impacting the short-term availability of financing, which affects the demand for solar systems and makes it difficult
to finance large-scale projects. Additionally, the photovoltaic industry still faces a number of challenges, including
cost-effectiveness of solar energy and the performance and reliability of solar modules compared to conventional
power generation and other renewable energy sources. In addition, the downturn in the global construction market
has reduced demand for solar systems in new residential and commercial buildings, which in turn has reduced
demand for solar cells and polysilicon.
The development of the polysilicon production, which is a critical factor for AEG Group's growth prospects, has
been cyclical in recent years. Although there had been a shortage of polysilicon due to production capacity that was
insufficient to meet demand, polysilicon supply has recently exceeded the demand due to the slowdown in demand
from the solar energy industry and due to an increase in capacity at existing production facilities and by new entrants
to the polysilicon production industry. An excess in production capacity for polysilicon could materially adversely
affect demand for AEG Group's Power Controllers products and result in declining sales volumes and price pressure.
A downturn or sustainable decrease in the global demand for solar systems and/or a considerable period of oversupply of polysilicon could materially adversely affect AEG Group's profit margins and growth prospects and could
in turn have a material adverse effect on AEG Group's business, results of operations, liquidity and financial
condition.
37
AEG Group could face a decline in demand from the polysilicon manufacturing industry due to technology
substitutions.
AEG Group's Power Controllers solutions for polysilicon manufacturing are integrated into the most widely used
polysilicon production technology, which is known as the Siemens process. However, the Siemens process, which is
a method whereby silicon depositions from silane or trichlorosilane, or TCS, gas are grown on heated rods inside a
cooled bell jar is not the only known technology for producing polysilicon. An alternative polysilicon production
method is the fluidized bed reactor, or FBR, process, in which polysilicon is grown from hot polysilicon granules
suspended in an upward flow of silane or TCS gas inside a specially designed chamber. The FBR process has certain
advantages over the Siemens process, including that it allows for the continuous production and extraction of
polysilicon, consumes less energy and is less labor intensive. There can be no assurance that the FBR process or
other polysilicon growth technologies will not supersede the Siemens process as the most commonly used method of
polysilicon production. Moreover, solar modules consisting of solar cells made of polysilicon could be replaced by
solar modules using various thin-film technologies. Thin-film technology is a relatively new next generation solar
photovoltaic technology which represents less than 10% of solar cells manufactured today, but which does not
require polysilicon. If other technologies for producing polysilicon beyond the Siemens process become more widely
used or more widely available or if polysilicon-based solar modules become increasingly displaced by modules
based on thin film or other technologies, demand for AEG Group's Power Controllers products and/or total solutions,
including add-on products of Protect Power, may significantly decrease, which could have a material adverse effect
on AEG Group's business, results of operations, liquidity and financial condition.
AEG Group could face a decline in demand from the polysilicon manufacturing industry if government subsidies
and economic incentives for the solar industry are reduced or eliminated.
Demand for renewable energies has historically been dependent in part on the availability of government subsidies
and incentives. Currently, the cost of solar electricity substantially exceeds the retail price of electricity in most
major markets in the world. As a result, federal, state and local governmental bodies in many countries, most notably
Germany, Italy, Spain, South Korea, China and the United States, have provided subsidies in the form of feed-in
tariffs, rebates, tax write-offs and other incentives to end-users, distributors, system integrators and/or manufacturers
of photovoltaic products to promote the use of solar energy and to reduce dependency on other forms of energy.
Many of these government incentives are due to be phased out or expire over time, cease upon exhaustion of the
allocated funding or are subject to cancellation or non-renewal.
Further, any government subsidies and incentives could be reduced or eliminated altogether at any time and for any
reason. The reduction, expiration or elimination of relevant government subsidies or incentives may materially
adversely affect demand for Power Controllers products for polysilicon production and may, thus, have a material
adverse effect on AEG Group's business, results of operations, liquidity and financial condition.
AEG Group historically recognized significantly lower revenues in the first quarter and its results of operation
may fluctuate significantly from quarter to quarter in the future.
AEG Group typically recognizes higher levels of revenue during the second and fourth calendar quarters than during
the first calendar quarter because of the capital expenditure patterns of AEG Group's customers and commissioning
of the delivered hardware. AEG Group typically recognizes the highest level of revenue during the fourth calendar
quarter, especially in December. Fluctuations in quarterly revenue have resulted in net losses being incurred in
certain quarters of recent years, particularly in the first calendar quarter. AEG Group anticipates that it will continue
to experience significant fluctuations in revenues and results of operations on a quarterly basis that may culminate in
net losses as a result, particularly in the first calendar quarter. As consequence, the quarterly reporting of the
financial results of any quarterly period should not be taken as indication of results to be expected for the full fiscal
year.
AEG Group's business is project driven, and its success depends upon its ability to timely complete current orders
and to continuously secure new orders.
AEG Group is a provider of highly engineered, custom and standard electronic power solutions for a broad range of
applications. Investments in energy, manufacturing and general infrastructure projects are important drivers of
demand across AEG Group's end markets. Accordingly, AEG Group's business is mainly project-driven and several
of its customers are one-time customers. Typical industrial and telecom power systems are expected to have a field
life greater than 20 years and ten years, respectively, and thus a considerable portion of AEG Group's revenues are
non-recurring revenues. AEG Group, therefore, depends on continually and consistently securing orders in
connection with renewable energy, manufacturing and general infrastructure projects. Due to the cyclicality of its
38
business, a concentration of customer orders at peak times may lead to a capacity overload on AEG Group's
production lines, which may lead to delays, and customers may demand penalties for breach of contract, claim for
damages suffered through delayed delivery and/or cancel their orders. On the other hand, the absence of incoming
customer orders could lead to an under-utilization of AEG production capacity. Either a capacity overload or a
failure to secure sufficient new orders could have a material adverse effect on AEG Group's business, results of
operations, liquidity and financial condition.
In the Power Controllers business a small number of customers accounts for a substantial part of revenues.
In its Power Controllers business, AEG Group currently depends on a small number of customers that generate a
substantial part of its revenues. For example, based on order backlog as at 22 May 2009, three customers accounted
for approximately 57% of AEG's Power Controllers order backlog. AEG Group anticipates that its dependence on a
limited number of customers in the Power Controllers business will continue for the foreseeable future, and there is a
risk that existing customers may not elect to do business with AEG Group in the future or will experience financial
difficulties. Furthermore, many customers are at an early stage and are dependent on the equity capital markets to
finance their purchase of AEG Group's products. As a result, the default in payment by any such major customer, the
loss of existing orders or lack of new orders in a specific financial period, or a change in the product acceptance
schedule by such customers in a specific financial period, could have a material adverse effect on AEG Group's
business, results of operations, liquidity and financial condition.
Amounts included in AEG Group's order backlog may not result in actual revenue or translate into profits.
Robust growth in the polysilicon market has resulted in significant order backlog growth for Power Controllers
products in recent years. As of 22 May 2009, AEG Group's order backlog in the Power Controllers division was
approximately EUR 212.6 million, a portion of which has subsequently been recognized as revenue. Although order
backlog is based on signed purchase orders or other written contractual commitments, AEG Group cannot guarantee
that its order backlog will result in actual revenue in the originally anticipated period or at all. For example, a
number of AEG Group's agreements allow customers to terminate the agreement without cause at any time and do
not necessarily have to provide an equivalent compensation. AEG Group's customers may cancel their orders,
experience project delays or default on the terms of their contracts with AEG as a result of external market factors or
other factors beyond AEG Group's control. In addition, AEG Group's backlog is only partly secured by advance
payments and customers may fail to make payments when due or request that AEG Group extends payment terms. It
can, furthermore, not be excluded that contract modifications could result in lower prices or in a reduction in the
number of units deliverable under the contract. Moreover, due to the current economic downturn, there may be
enhanced risks that customers who signed purchase orders fall into financial default. For example, some customers
of AEG have asked to postpone deliveries, and one customer has become insolvent. If AEG Group's order backlog
fails to result in revenue in a timely manner, or at all, this could have a material adverse effect on its results of
AEG Group may not be able to manage its further growth effectively.
AEG Group recently experienced a period of high growth, mainly driven by the demand from the high growth of the
polysilicon manufacturing industry. In 2008, AEG Group's revenues from continuing operations increased by 57%
compared to 2007. In anticipation of continued growth in demand for its Power Controllers products from the
polysilicon manufacturing industry, AEG Group is planning to further expand its business operations over the next
few years, particularly in selected emerging markets such as China and India. Although AEG Group has already
adapted its expansion plan in light of the current global economic downturn, it still intends to significantly expand its
business operations over the next few years. The success of AEG Group's expansion plans depends on many
different factors, such as its ability to maintain and expand relationships with customers, suppliers and other third
parties, improve its operational and financial systems, enhance internal procedures and controls, increase its
manufacturing capacity, and recruit, train and retain technicians and skilled employees. It can, however, not be
guaranteed that current and planned operations, personnel, systems, internal procedures and controls will be
adequate to support AEG Group's growth. If AEG Group is unable to manage its growth effectively, AEG Group
may not successfully execute its business strategies and its business, results of operations, liquidity and financial
condition may be materially adversely affected.
AEG Group's expansion in selected emerging markets bears risks.
To date, Europe, particularly Germany and France, has been AEG Group's most important end market. However,
given the increase of large scale solar power projects in Asia, particularly in China, and India, AEG Group has
started to expand its presence in the emerging Asian markets. Consequently, the success of AEG Group's growth
39
strategy depends on its ability to enhance its presence and expand its sales in Asia. AEG Group is a relatively new
entrant to such markets and has only limited experience with the economic, legal, political and competitive
environments of these markets. Governments may exercise significant control over economic growth through the
allocation of resources, the setting of monetary policies and a preferential treatment of particular industries or
companies. In addition, AEG Group also faces risks associated with legal systems in emerging markets. Due to the
rapid evolvement of legal systems in these countries, interpretation and enforcement of many laws, regulations and
rules are not always consistent and legal proceedings often involve uncertainties. Available legal protection,
including protection of intellectual property rights, may, therefore, be limited. There can be no assurance that AEG
Group will be able to develop, implement and maintain policies and strategies that will be effective in each of the
envisaged markets and the occurrence of any of the foregoing factors may impede AEG Group's plans to expand in
emerging Asian markets and could, as a result, have a material adverse effect on AEG Group's business, results of
An inability to consummate or successfully integrate future acquisitions may jeopardize AEG Group's growth
strategy.
AEG Group's growth strategy is partly based on acquisitions. AEG Group's ability to successfully effectuate
potential acquisitions in the future will depend on various factors, including its ability to identify acceptable
acquisition candidates, its ability to consummate acquisitions on favorable terms, a successful integration of the
acquired businesses, including the integration of financial, technological and management processes, procedures and
controls of the acquired businesses into its own existing operations and adequate financing for acquisitions being
available on terms acceptable to AEG Group. The process of integrating acquired businesses into existing operations
may result in unforeseen operating difficulties and may require additional financial resources and attention from
management that would otherwise be available for the ongoing development or expansion of existing operations.
Furthermore, even if successfully integrated, the acquired business may not achieve the results AEG Group
expected. Failure to successfully consummate and/or integrate acquired businesses could have a material adverse
effect on AEG Group's business, results of operations, liquidity and financial condition.
The success of AEG Group's DC Telecom business is highly dependent on market acceptance of its newly
launched products and ongoing business relationship with Alcatel.
AEG Group's DC Telecom division has recently undergone a restructuring in which production and invoicing has
been centralized into fewer facilities and a new technology was implemented to increase the competitiveness of its
products. DC Telecoms' product technology has historically not been at the level of products offered by competitors
and had to be sold at a lower margin. AEG Group expects that its new products based on the G5-technology for DC
solutions (a first order for a G5 system was delivered in May 2009) should bring DC Telecom to technological parity
with key competitors. However, it cannot be assured that the launch of its new products will be successful in terms
of revenue and margin expectations.
Moreover, DC Telecom historically has had a supply agreement with Alcatel, negotiated at the time the business was
acquired by the present Sellers from Alcatel-Lucent, in which DC Telecom was guaranteed a minimum purchase
quantity if DC Telecom offered its products at market prices. That supply agreement expired in 2008. Although
AEG Group is confident in its ability to maintain its strong business relationship with Alcatel-Lucent following the
expiry of the supply agreement, there is a risk that Alcatel-Lucent will reduce or cease ordering products from DC
Telecom. In the event of an absence of market acceptance for AEG Group's new DC Telecom products or a
deterioration of its relationship with Alcatel-Lucent or if AEG Group for any other reason fails to successfully
reposition its DC Telecom business in the future, such an event could have a material adverse effect on AEG Group's
The envisaged sale of AEG Group's DC Converter business might not occur.
AEG Group intended to sell its DC Converter business to members of its management team. The transaction, which
was subject to certain conditions, was due to be completed on 20 February 2009. As a number of the required
conditions were not met, the proposed sale has been abandoned. In 2008, the DC Converter business produced losses
of approximately EUR 9.7 million. The DC Converter business is currently undergoing a restructuring, and AEG
estimates that it will incur EUR 4.8 million in restructuring costs. AEG is still committed to sell the DC Converter
business. It is a condition precedent to the closing obligations of Germany1 under the Acquisition Agreement that
one or several of the Sellers grant a put option to Germany1 with regard to the DC Converter business, see "The
Acquisition Agreement". If, however, AEG Group or the Company, as the case may be, for any reason, fails to
complete the envisaged sale of this business segment in 2009, or at all, or is unable to find another suitable solution
to either dispose of or restructure its DC Converter business, it may be forced to further incur losses generated by
40
this business segment or its restructuring, which could have a material adverse impact on its business, results of
AEG Group operates in highly competitive markets and a failure to compete effectively may result in a loss of
market share and/or an inability to maintain or increase prices for its products and services.
The market for custom and standard power system solutions is highly competitive and AEG Group faces tough
competition in all three business divisions: Power Controllers, Protect Power and DC Telecom. AEG Group
competes, domestically and internationally, with individual producers, as well as with vertically integrated
manufacturers, some of which have greater resources than AEG Group. In the Power Controllers' business, technical
expertise, reputation and customer references are regarded as critical factors in selecting a component supplier,
whereas competition in the Protect Power business is focused on developing cost-efficient and durable solutions for
customers operating in challenging environments, and competition in the DC Telecom business is mainly driven by
price as well as reliability and quality requirements. In each of these business divisions, competitors of AEG Group
may develop new or improved products that are better suited to meet customers' requirements, are superior to AEG
Group's products or may adapt more readily to new technologies. Additionally, new competitors may emerge in the
future. Such potential competitors may have substantially greater financial, technical, manufacturing and other
resources which may allow them to realize economies of scale, synergies and purchase certain raw materials and key
components at lower prices. There can be no assurance that AEG Group's business, results of operations, liquidity
and financial condition will not be materially adversely affected by increased competition in the markets in which it
operates or that its products will be able to compete successfully with those of its competitors.
AEG Group may be unable to keep pace with the technological development of power systems or to develop new
products on a timely basis.
AEG Group offers technically demanding products in each of its three business divisions. For instance, Protect
Power solutions are offered in industrial end markets where near 100% power availability, long lifetimes and errorfree performance in very harsh environments are essential. As a result, it is critical for AEG Group to develop, on a
timely basis, technologically advanced products that are capable of meeting customer requirements with costeffective, rationalized and flexible functional subassemblies and modules, such as inverters, converters, chargers,
power semiconductor stacks and controls. Maintaining a technologically advanced position will require continuous
investments in research and development, but there can be no assurance that AEG Group will have at all times
sufficient resources to make the necessary investments to maintain its position. Although AEG Group is not
currently aware of any emerging standards or new products which could render its existing products obsolete, there
can be no assurance that this will not happen in the future. A failure to keep pace with technological advances or to
develop new products could have a material adverse impact on its business, results of operations, liquidity and
financial condition.
The ongoing shift of AEG Group's standard product manufacturing to low-cost countries bears risks.
AEG Group has recently worked to shift its standard product manufacturing from production facilities in Western
Europe to facilities and contract manufacturers in lower-cost regions, such as Asia and Eastern Europe. AEG Group
invests in technical capabilities at its facilities in Malaysia, Bangalore and China in order to provide sustainable
engineering support for its planned expansion in Asia. Although significant efforts have been undertaken to ensure
that quality is maintained and the logistics of low-cost manufacturing are efficiently managed, product
manufacturing in these countries may be to a greater extent susceptible to failure and interruptions, such as
unanticipated power interruptions, telecommunication and/or equipment failures. Moreover, AEG Group may face
difficulties in recruiting and retaining the necessary personnel to run its operations, such as capable technicians,
particularly those with expertise in the power systems and/or solar energy industry, due to a lack of qualified
technicians and other qualified personnel in such regions. If AEG Group fails to successfully implement its strategy
of partly shifting its production to lower-cost countries or to attract and retain qualified employees, its business,
results of operations, liquidity and financial condition could be materially adversely affected.
Any disruption of AEG Group's production could impair its financial performance.
AEG Group manages production, design and test facilities at seven locations in Europe, Asia and North America.
AEG Group may encounter interruptions in its manufacturing processes due to events beyond its control, such as
fires, explosions, strikes or violent weather conditions. Any stoppage in production at any of its production facilities,
even if only temporary, could reduce its revenues and earnings for the affected period or lead to increased returns,
cancellations of orders or contractual penalties and could cause AEG Group to lose future sales. Any disruption of
41
AEG Group's production could therefore have a material adverse impact on its business, results of operations,
liquidity and financial condition.
AEG Group's product manufacturing is subject to laws and regulations of different jurisdictions and failure to
comply could result in the imposition of fines or restrictions on operations and remedial liabilities.
AEG Group's product manufacturing is subject to numerous federal, state, local and foreign laws and regulations,
including labor, environmental, health and safety regulations, in a multitude of jurisdictions across its global
operations. Compliance with these laws and regulations requires certain capital expenditures and may become
increasingly cost-intensive. For example, in May 2009, AEG Group employed more than 500 employees in
Germany. Under the One-Third Participation Act (Drittelbeteiligungsgesetz), a company with a workforce of over
500 employees is required to form a co-determined supervisory board (mitbestimmter Aufsichtsrat), a third of whose
members must be employee representatives. Formation of the board is scheduled for the beginning of 2010 which
may subject AEG Group to additional costs. In addition, existing laws and regulations may be revised or
reinterpreted and new laws and regulations may be adopted. Although AEG Group has implemented and enforces
global compliance and work safety programs, there can be no assurance that it will be found to have complied with
all applicable laws or regulations in every jurisdiction or may not become liable for injuries or damages that may
occur due to accidents on any of their premises. For example, there was a fatal industrial accident in the year 2005 at
AEG Group's production facility in Bellecke, Germany and AEG Group was subject to a compensation claim. The
relevant governmental authorities have the right to impose fines or deadlines to cure any non-compliance or to order
AEG Group to cease product manufacturing if it fails to comply. Any failure to comply with laws and regulations
could have a material adverse impact on AEG Group's business, results of operations, liquidity and financial
condition.
Product defects or product liability claims with alleged or actual harm caused by AEG Group's products could
result in increased costs, damage to AEG Group's reputation and loss of revenues and market share.
Although performance and quality testing is routinely executed at each of AEG Group's manufacturing facilities
prior to delivery, products may contain defects that are not detected. AEG Group typically encounters periodic
returns of products due to non-conformity to customer specifications or product defects, requiring it to replace such
products.
AEG Group's products are generally sold with a standard warranty for technical defects. AEG Group provides
warranty coverage typically not exceeding a period of 24 months from delivery for all of its product lines, other than
specific industrial markets, which require longer warranty periods. AEG's telecom product line has a standard
warranty period of twelve months. As a result, AEG Group bears the risk of warranty claims on all supplied
products, including component parts manufactured by third parties. There can be no assurance that AEG Group will
be successful in claiming under any warranty or indemnity provided to AEG Group by its suppliers in the event of a
successful warranty claim against AEG Group by a customer or that any recovery from such supplier would be
adequate. Moreover, AEG Group may be exposed to an inherent business risk of exposure to product liability claims
in the event that the use of its products is alleged to have resulted in harm to others or to property. AEG Group's
Power Controllers products are integrated into automated processes where precise control of temperature, voltage
and current is critical. By integrating its products into critical and technically-demanding applications, AEG Group is
particularly exposed to potential liability as a result of the failure of its products, whether as a result of product
malfunction, defects, improper installation or other causes. The successful assertion of product liability claims
against AEG Group could result in potentially significant monetary damages and could, by damaging AEG's
reputation, reduce market acceptance of its products. AEG Group faces the risk that product defects, warranty claims
and/or product liability claims could have a material adverse effect on its business, results of operations, liquidity
and financial condition.
A shortage of, or increases in the prices of, raw materials and/or components could deteriorate AEG Group's
results of operations.
AEG Group's expenditures for raw materials and components currently represent its most important cost item. A
wide variety of raw materials and components are required for AEG Group's production. Although the majority of
raw materials and components used in AEG Group's products are available from a variety of suppliers, and AEG
Group maintains multiple sources of supplies for its major raw material and component requirements, certain items,
including base metals such as copper and certain components, are available only from a limited number of suppliers
or are subject to commodity market fluctuations. AEG Group may be unable to pass increases in raw material prices
on to its customers, which could lead to a decrease in AEG Group's operating margins or even a loss. Moreover, the
current credit and financial market crisis may enhance the risk that any of AEG Group's suppliers will become
42
insolvent. In this event, AEG Group may lose advance payments made to such supplier, and the inability of a
supplier to fulfill its contractual obligations to deliver raw materials or manufacture components required for AEG
Group's products could prevent AEG Group from delivering its products to its customers on schedule or at all.
Delivery failures, shortages in raw materials or price increases could therefore have a material adverse effect on
AEG Group's business, results of operations, liquidity and financial condition.
AEG Group may be unable to adequately protect its technological know-how and intellectual property rights.
AEG Group has a significant patent portfolio and numerous trade secrets that maintain its technologically advanced
position. The success of AEG Group's operations depends, to a certain extent, on its ability to protect its current and
future proprietary technologies, product designs, know-how and manufacturing processes under relevant intellectual
property laws, patents, trademarks and copyright rights. Third parties may infringe, misappropriate or otherwise
violate AEG Group's proprietary technologies, product designs, manufacturing processes and/or intellectual property
rights. Litigation to prevent, or seek compensation for, such infringement, misappropriation or other violation may
be costly and may divert management attention and other resources away from AEG Group's business without any
guarantee of success. The enforcement of intellectual property related laws in emerging countries has historically
been weak. Accordingly, intellectual property rights and confidentiality protections available to AEG Group in
China, India or other emerging markets may not be as effective as in Western Europe or the United States.
Furthermore, a number of patents have been assigned by Alcatel-Lucent to AEG in conjunction with a patent
assignment and license agreement. The transfer of the assigned patents has not yet been registered with the patent
offices and the patents appear as registered in the name of Alcatel-Lucent. Although AEG Group's patent ownership
has never been challenged, in defending its patent rights, AEG would have to rely on the patent assignment and
license agreement. An inability on the part of AEG Group to adequately protect its technological know-how or to
prevent infringement of its intellectual property rights by third parties could have a material adverse effect on AEG
Group's business, results of operations, liquidity and financial condition.
AEG Group may infringe third-party patents.
AEG Group cannot guarantee that it will not infringe third-party patents while conducting its business activities. In
addition, third-party patents could be granted in the future that prevent AEG Group from continuing certain business
activities without a license from the patent holder. AEG Group's revenues could decrease if AEG Group requires the
use of a third-party patent in the future and the patent holder is not prepared to grant AEG Group a license on
commercially viable terms, or at all. An inability to obtain such third-party licenses could require AEG Group to find
an available substitute technology, which, if found, might lead to lower quality products or increased costs, which
could seriously harm its competitive position. In addition, AEG Group could become involved in patent litigation.
Such patent disputes could be lengthy and require considerable personnel and financial resources. If the outcome of
such a legal dispute is unfavorable for AEG Group, it could be ordered to pay substantial license fees, royalties
and/or damages. Any perceived or actual infringement by AEG Group of third-party patents could have a material
adverse effect on AEG Group's business, results of operations, liquidity and financial condition.
AEG Group relies on a licensing agreement for the use of the AEG trademark.
The use of the AEG trademark is subject to a licensing agreement with AB Electrolux that expires on 1 July 2018.
Under the licensing agreement, AEG Group has to observe certain conditions, including, among other things,
approval by AB Electrolux of the trade marketed products against the quality standards set by AB Electrolux, denial
by AB Electrolux of any product liability or other warranty claims, a sales target and prior approval from AB
Electrolux as to the suppliers used by AEG Group. If AEG Group fails to renew the agreement beyond 2018 or to
continuously meet the conditions of the licensing agreement, this could have a material adverse effect on its
Current or future credit and financial market conditions could limit AEG Group's access to financing.
In recent months, the financial markets have experienced a significant liquidity shortage. If the availability of
financing remains limited, AEG Group could incur increased costs associated with its financing by way of credit
facilities and/or other debt instruments. Although, AEG Group may obtain additional capital in the course of the
proposed Acquisition that may be used to finance its working capital needs, AEG Group may require additional
capital to finance its business operations and future growth strategy or to replace existing financing arrangements,
which may be difficult to obtain. AEG Group's ability to access financing may be limited, at a time when AEG
Group intends to capitalize on business opportunities, refinance maturing debt or react to a changing economic and
business environment. If financing arrangements are not available or can only be concluded on terms or at conditions
43
that are disadvantageous to AEG Group, AEG Group's business, results of operations, liquidity and financial
condition may be materially adversely affected.
AEG Group may incur increased costs for pension agreements and other long term employee benefits.
In accordance with local legislation and historical practices in each country, AEG Group takes part in employee
benefit plans and numerous employees of AEG Group are entitled to pension and retirement benefits and other long
term employee benefits. Some of these arrangements are unfunded and benefits have to be paid from the AEG
Group's general assets. Benefit payments are dependent upon multiple factors, including assumptions of future
economic and company specific developments. Such developments are difficult to predict, may be subject to change
at any time and may result in fluctuations of future obligations under the respective arrangements. An increase of
costs under such arrangements could have a material adverse effect on AEG Group's business, results of operations,
liquidity and financial condition.
44
THE ANNUAL GENERAL MEETING OF SHAREHOLDERS
The Annual General Meeting of Shareholders
We are furnishing this Proxy Statement to you as part of the solicitation of proxies for use at the Annual General
Meeting, and at any adjournment or postponement thereof, called to consider and vote upon the Acquisition and
other proposals set forth herein. This document provides you with the information you need to know to be able to
vote or instruct your vote to be cast at the Annual General Meeting.
Date, Time and Place
We will hold the Annual General Meeting at 10.00 a.m. British Summer Time (11.00 a.m. CET), on 12 August 2009
at Elizabeth House, 1st and 2nd Floors, Les Ruettes Braye, St. Peter Port, Guernsey, GY1 1EW.
Purpose of the Annual General Meeting of Shareholders
At the Annual General Meeting we are asking Shareholders:
1.
2.
3.
4.
To approve the acquisition by the Company of AEG Power Solutions B.V. upon the terms of a share purchase
agreement dated 23 July 2009 by and among the Company, Ripplewood Power Systems I L.L.C.,
Ripplewood Power Systems II L.L.C. and each of the persons listed on Schedule A to the Acquisition
Agreement and AEG, as described in the Proxy Statement and sent to Shareholders with a notice of Annual
General Meeting (the "Proxy Statement") and to authorize the Directors to take all steps necessary to give
effect to the Acquisition, including the performance of the transactions contemplated by the Acquisition
Agreement and the release of funds necessary for the purposes of the Acquisition from the Trust Account (as
defined in the Articles of Incorporation);
5.
To approve and adopt an adjournment proposal to authorize the adjournment of the Annual General Meeting
to a later date or dates, if necessary, to permit further solicitation and voting of proxies in the event that there
are insufficient votes at the time of the Annual General Meeting to adopt the Acquisition proposal;
6.
To approve and adopt the AEG 2009 Executive Performance Equity Incentive Plan (which shall only become
effective upon the completion of the Acquisition) as provided to the Annual General Meeting and signed by
the Chairmen for the purposes of identification;
7.
8.
9.
10.
11.
12.
13.
14.
terms of the Acquisition on the terms and conditions as described in the Proxy Statement, such shares being
45
redeemable ordinary shares of no par value and being "Shares" within the meaning of the Company's Articles
of Incorporation and, as such, having all of the rights of Shares set out in the Articles of Incorporation and
being subject to such transfer restrictions as the Directors (pursuant to article 9 of the Articles of
Incorporation) may determine and (i) in the case of the Class A Convertible Shares, automatically converting
into Public Shares (within the meaning of Germany1's Articles of Incorporation) on the six month
anniversary of the closing of the Acquisition and (ii) in the case of the Class B Convertible Shares
automatically converting into Public Shares on the one year anniversary of the Acquisition. For the avoidance
of doubt, the holders of the Convertible Shares, who shall be Shareholders (as defined in the Articles of
Incorporation), shall be entitled to: (a) vote at any meeting of the Shareholders together with other
Shareholders as a single class (save to the extent that any action to be taken at the meeting entitles the holders
of Convertible Shares to rely upon and apply the provisions in article 35.1 of the Articles of Incorporation, in
which case the holders of each class of Convertible Shares shall be entitled to, inter alia, vote as a separate
class); and (b) share equally with the other Shareholders in respect of any dividends or liquidation or other
distributions declared or made in respect of the Shares (provided that the holders of Convertible Shares shall
be treated as Public Shareholders (as defined in the Articles of Incorporation) for the purposes of article 138
of the Articles of Incorporation).
Board of Directors Recommendations
Our Board of Directors:
•
has unanimously determined that the Acquisition proposal is advisable and fair to, and in the best interests of,
Germany1 and our Shareholders and that the fair market value of AEG is at least equal to the 80% Threshold;
•
has unanimously approved and declared advisable the Acquisition proposal and other proposals described
herein; and
•
unanimously recommends that Shareholders vote "FOR" the Acquisition proposal and other proposals
described herein.
Record Date; Who is Entitled to Vote
The Record Date for the Annual General Meeting is on close of business two days prior to the Annual General
Meeting (after giving effect to all settlements on that date). Record holders of our Shares at the close of business on
the Record Date are entitled to attend and vote or have their votes cast at the Annual General Meeting. On the
Record Date, there were 31,250,000 Shares outstanding, which includes 25,000,000 Public Shares and 6,250,000
Founding Shares.
Each Shareholder who is present in person or by proxy shall have, on a show of hands, one vote, and on a poll every
Shareholder who is present in person or by proxy shall have one vote for every Share of which it is the holder.
Quorum
The presence of the holders of a majority of our Public Shares, in person or represented by proxy, constitutes
a quorum at the Annual General Meeting, given that the Acquisition proposal is being considered at the
meeting.
46
Voting Your Shares
Shareholders may appoint another person as their proxy to exercise all or any of their rights to attend and speak and
vote at the Annual General Meeting. A Shareholder may appoint more than one proxy in relation to the Annual
General Meeting, provided that each proxy is appointed to exercise the rights attached to a different Share or Shares
held by him.
Your proxy card shows the number of Shares that you own. There are two ways to vote at the Annual General
Meeting, voting in person or voting by proxy:
•
If you vote by proxy card, the person whose name is listed on the proxy card, your "proxy", will vote your
Shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on
how to vote your Shares, your Shares will be voted as recommended by our Board of Directors: "FOR" the
adoption of the Acquisition proposal and other proposals;
•
You can attend the Annual General Meeting and vote in person. We will give you a ballot when you arrive.
However, if your Shares are held in the name of your broker, bank or other nominee, you must get a proxy
from the broker, bank or other nominee. That is the only way we can be sure that the broker, bank or nominee
has not already voted your Shares.
Shareholders holding their Shares through Euroclear Nederland via banks and brokers are not included in the
Company's shareholders´ register in the name of the Shareholder. Their Shares are included in the Shareholders´
register under the name of Euroclear Nederland. If Shareholders who hold their Shares through Euroclear Nederland
wish to (i) attend the Annual General Meeting or (ii) appoint a proxy to attend, speak and vote on their behalf or (iii)
give voting instructions without attending the meeting, they must instruct RBS via their bank or broker which is
using an Admitted Institution before 11.00 a.m. (CET) two days before the Annual General Meeting. The proxy
cards of Shareholders holding their Shares through Euroclear Nederland must be submitted to RBS via their bank or
broker which is or uses an Admitted Institution. Shareholders are advised to contact their bank or broker as soon as
possible. Shareholders holding their Shares through Euroclear Nederland and who indicate they wish to attend the
Annual General Meeting may not receive an admittance card. They may, therefore, be asked to identify themselves
at the Annual General Meeting using a valid passport, identity card or driving license.
If you wish to exercise your redemption rights, you must (i) vote against the Acquisition, (ii) notify us of your
decision to exercise your redemption rights by completing and submitting your proxy card in accordance with the
instructions on the proxy card, (iii) continue to hold your Public Shares through the closing of the Acquisition and
(iv) deliver your Public Shares to RBS via your bank or broker which is or uses an Admitted Institution before 3.00
p.m. (CET) one business day before the Annual General Meeting.
Who Can Answer Your Questions About Voting Your Shares
If you have any questions about how to vote or direct a vote in respect of your Shares, you may contact either
Germany1 and its representatives at 1st and 2nd Floors Elizabeth House, Les Ruettes Braye, St. Peter Port, Guernsey
GY1 1 EW, Channel Islands, by phone at +44 1481 714442, or your bank or broker or, alternatively, RBS, Gustav
Mahlerlaan 10, 1082 PP, Amsterdam, The Netherlands, by phone at +31 20 3836707, e-mail:
corporate.actions@rbs.com.
No Additional Matters May Be Presented at the Annual General Meeting
The Annual General Meeting has been called only to consider the adoption of the Acquisition proposal and other
proposals described in this Proxy Statement. Although Shareholders may raise any matter relating to the formation
of Germany1, or arising out of the annual report of the Directors, for discussion at the meeting, they may not propose
any new resolutions for approval. In addition, Shareholders may only propose amendments to the proposals if such
proposed amendment is not so fundamental as to destroy the intent of the original proposal, or to materially alter its
effect. The proposed amendment must also fall within the scope of the notice covering the meeting. Any proposed
amendment shall only be considered by the meeting at the discretion of the Chairman of the meeting.
47
Revoking Your Proxy
If you submit a proxy, you may revoke it at any time before it is exercised by doing any one of the following:
•
For Public Shares, you may send another proxy card with a later date;
•
For Founding Shares, you may notify C.L. Secretaries Limited, our corporate secretary, PO Box 285, 1st and
2nd Floors, Elizabeth House Les Ruettes Brayes, St Peter Port, Guernsey GY1 4LX, in writing before the
Annual General Meeting that you have revoked your proxy; or
•
You may attend the general meeting, revoke your proxy, and vote in person in case you have registered your
Shares for the Annual General Meeting.
Vote Required to Approve the Acquisition
The affirmative vote of holders of a majority of the Public Shares voting in person or by proxy at the Annual General
Meeting, at which the majority of the Public Shares are represented in person or by proxy, are required to approve
the Acquisition and the transactions contemplated thereby. The affirmative vote of a majority of the votes cast for
such resolution at the Annual General Meeting is required to approve the other proposals.
Abstentions
If you are not present at the Annual General Meeting, either by not appearing in person or failing to return a proxy,
or if you abstain from voting, your Shares will not be counted as voting either "for" or "against" the Acquisition and
other proposals and you will forfeit your Redemption Rights.
Redemption Rights
Pursuant to our Articles of Incorporation, Public Shareholders voting against the Acquisition proposal will be
entitled to exercise their right to redeem their Public Shares for cash in an amount equal to a pro rata share of the
amounts held in the Trust Account (less certain expenses and taxes). The election to exercise redemption rights must
be made on the proxy card, the Shareholder must vote against the Acquisition proposal, and subsequent delivery of
the Public Shares must be made via a bank or broker, being or using an admitted institution of Euroclear Nederland
to ABN AMRO Bank N.V., acting under the name RBS ("RBS") no later than 3.00 p.m. (CET) one day before the
Annual General Meeting. If the redemption rights are exercised by valid delivery of the proxy card, the relevant
Public Shareholder has voted against the Acquisition proposal, and the Public Shares have been validly delivered for
redemption to RBS and if the Acquisition is completed, we will redeem each applicable Public Share for an amount
equal to such Public Share's pro rata portion of the Trust Account established by Germany1 and maintained by Carey
Commercial as trustee into which a portion of the net proceeds of the IPO were deposited (less certain expenses and
taxes), calculated on the date being two Business Days prior to consummation of the Acquisition. However, if the
holders of 7,500,000 or more Public Shares, representing 30% or more of the total number of Public Shares, exercise
their redemption rights, then, in accordance with the terms of our Articles of Incorporation and the documents
governing the Trust Account, we will not consummate the Acquisition and those Shares will not be redeemed. Based
on the amount of cash held in the Trust Account, net of accrued taxes and expenses as of 15 June 2009, without
taking into account any interest earned or expenses incurred after such date, Public Shareholders will be entitled to
redeem each Share that they hold for approximately EUR 10.05 per Public Share (not taking into account interest of
EUR 141,524.65 accrued for the period from 1 June 2009 to 15 June 2009 in the Trust Account). If you exercise
your redemption rights, then your Public Shares will be redeemed for cash and cancelled. If the Acquisition is not
completed, you do not vote against the Acquisition proposal or your Public Shares have not been delivered in time,
then these Public Shares will not be redeemed. A Public Shareholder who exercises redemption rights will continue
to own any Warrants to acquire Shares held by such Public Shareholder as such Warrants will remain outstanding
and unaffected by the exercise of redemption rights. Prior to exercising redemption rights, Public Shareholders
should consider the market price of our Shares as they may receive higher proceeds from the sale of their Shares in
the public market than from exercising their redemption rights. Our Shares are listed on Euronext Amsterdam under
the symbol "GAL1S."
Please note that we have already entered into irrevocable undertakings or other similar arrangements with some of
Committed Shareholders who, in the aggregate, hold Public Shares in excess of 70.1% of our outstanding Public
Shares as at the date of this Proxy Statement, pursuant to which they have agreed to vote their Public Shares in favor
of the Acquisition and related resolutions and/or not request redemption of their Public Shares. Therefore, assuming
48
the Committed Shareholders vote in accordance with their commitment, the Acquisition will be approved, at the
Annual General Meeting and consummated even if our remaining Shareholders vote against the Acquisition.
A Public Shareholder, together with any of its Affiliates or any other person with whom it is acting in concert or as a
"group", will be restricted from seeking redemption rights with respect to more than 25% of the Public Shares. A
determination as to whether a Shareholder and/or the party with whom it is acting in concert or as a "group" shall be
made on the basis of Article 5:45(5) Financial Supervision Act. Accordingly, if you purchase or acquire more than
25% of the Public Shares and a proposed Business Combination is approved, you will not be able to seek redemption
rights with respect to the full amount of your Public Shares and may be forced to hold a portion of your Public
Shares or sell them in the after-market.
Solicitation Costs
We have retained RBS as our agent. RBS will receive a fee as well as reimbursement for certain costs and out-ofpocket expenses incurred by them in connection with their services, all of which will be paid by us. In addition,
members of our Board of Directors may solicit proxies by mail, personal contact, letter, telephone, facsimile and
other electronic means, for which no additional compensation will be paid, although they may be reimbursed for
their out-of-pocket expenses. We will bear the cost of preparing, assembling and mailing the enclosed form of proxy,
this Proxy Statement and other material that may be sent to Shareholders in connection with this solicitation. We
may reimburse brokerage firms and other nominee holders for their reasonable expenses in sending proxies and
related materials to the beneficial owners of our Shares.
AFTER CAREFUL CONSIDERATION OF THE TERMS AND CONDITIONS OF THE ACQUISITION
PROPOSAL, THE BOARD OF DIRECTORS OF GERMANY1 BELIEVES THAT THE ACQUISITION
PROPOSAL IS ADVISABLE AND FAIR TO, AND IN THE BEST INTERESTS OF, GERMANY1 AND ITS
SHAREHOLDERS AND THAT THE FAIR MARKET VALUE OF AEG IS AT LEAST EQUAL TO THE
80% THRESHOLD. AFTER CAREFUL CONSIDERATION OF THE TERMS AND CONDITIONS OF
ALL OF THE PROPOSALS, THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED ALL OF
THE PROPOSALS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
ACQUISITION AND THE OTHER PROPOSALS. SEE "PROPOSAL IV – THE ACQUISITION
PROPOSAL – FACTORS CONSIDERED BY OUR BOARD OF DIRECTORS GERMANY1 BOARD IN
APPROVING THE ACQUISITION".
49
PROPOSAL I – APPOINTMENT OF AUDITORS OF GERMANY1
Shareholders are also being asked to approve the appointment of KPMG CI as auditors of Germany1.
Required Vote
Approval of the appointment of KPMG CI as auditors of the Company requires the affirmative vote of a majority of
the votes cast in respect of the resolution at the Annual General Meeting.
Recommendation
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS HAS APPROVED AND
DECLARED ADVISABLE THE APPOINTMENT OF KPMG CI AS AUDITORS OF THE COMPANY
AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF
THE APPOINTMENT OF KPMG CI AS AUDITORS OF THE COMPANY.
50
PROPOSAL II – AUTHORIZATION OF THE DIRECTORS TO
DETERMINE THE REMUNERATION OF THE AUDITORS
Shareholders are also being asked to approve the authorization of the Directors to determine the remuneration of the
auditors.
Required Vote
Approval of the authorization of the Directors to determine the remuneration of the auditors requires the affirmative
vote of a majority of the votes cast in respect of the resolution at the Annual General Meeting.
Recommendation
DECLARED ADVISABLE THE AUTHORIZATION OF THE DIRECTORS TO DETERMINE THE
REMUNERATION OF THE AUDITORS AND UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE AUTHORIZATION OF THE DIRECTORS TO
DETERMINE THE REMUNERATION OF THE AUDITORS.
51
PROPOSAL III – APPROVAL AND ADOPTION OF THE ANNUAL
REPORT AND FINANCIAL STATEMENTS OF THE COMPANY FOR
THE PERIOD FROM INCORPORATION TO 31 DECEMBER 2008
Shareholders are also being asked to approve and adopt the Annual Report and Financial Statements of the Company
for the period from incorporation (21 May 2008) to 31 December 2008.
Required Vote
Approval of the adoption of the Annual Report and Financial Statements of the Company for the period from
incorporation (21 May 2008) to 31 December 2008 requires the affirmative vote of a majority of the votes cast in
respect of the resolution at the Annual General Meeting.
Recommendation
DECLARED ADVISABLE THE APPROVAL AND ADOPTION OF THE ANNUAL REPORT AND
FINANCIAL STATEMENT OF THE COMPANY FOR THE PERIOD FROM INCORPORATION (21
MAY 2008) TO 31 DECEMBER 2008 AND UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE ANNUAL REPORT AND
FINANCIAL STATEMENT OF THE COMPANY FOR THE PERIOD FROM INCORPORATION TO 31
DECEMBER 2008.
52
PROPOSAL IV – ACQUISITION PROPOSAL
The discussion in this Proxy Statement of the Acquisition and the principal terms of the Acquisition Agreement is
subject to, and is qualified in its entirety by reference to, the Acquisition Agreement, a copy of which is attached as
Annex A to this Proxy Statement and is incorporated in this Proxy Statement by reference.
Description of the Transaction
Pursuant to the Acquisition Agreement, Germany1 is proposing to acquire 100% of the shares in Holdco. As a result
of the Acquisition, Germany1 will indirectly own and operate the combined business and operations of AEG and its
subsidiaries. The purchase price for the Acquisition will be a combination of cash and shares of Germany1, as
described in further detail under "The Acquisition Agreement". The terms of the Acquisition Agreement and related
agreements are the result of arm's length negotiations between our representative and representatives of the Sellers,
and Germany1 believes that such terms comply with the criteria set out in the IPO Prospectus.
The following is a discussion of the background of these negotiations and the Acquisition.
Background
We are a blank check company that was formed on 21 May 2008 to effect a merger, capital stock exchange, share
purchase, asset acquisition, reorganization or similar transaction. On 21 July 2008, we consummated our IPO of
25,000,000 units at an offering price of EUR 10.00 per unit, generating total gross proceeds of EUR 250,000,000.
Each unit consisted of one Share and one Warrant that entitles its holder to purchase one Share for EUR 7.50. We
agreed to pay the underwriters in the offering an underwriting fee of EUR 11,250,000, and the underwriters agreed
that EUR 5,000,000 of such fee would not be payable unless and until we completed a Business Combination.
Upon the closing of our IPO, an aggregate of EUR 248.5 million (which includes EUR 6.0 million of proceeds from
the private placement of Warrants to our Founding Shareholders and EUR 5.0 million in deferred underwriting
compensation) was deposited into the Trust Account. Approximately EUR 1.24 million was withheld from the Trust
Account to pay expenses associated with our IPO, as well as for working capital to fund our initial business, general
and administrative expenses and taxes. Through the date of this Proxy Statement, we have withdrawn approximately
EUR 4.3 million of interest earned on the Trust Account to pay such expenses. The net proceeds deposited into the
Trust Account remain on deposit in the Trust Account earning interest and will not be released until the earlier of the
consummation of a Business Combination or our liquidation. As of 15 June 2009, the amount held in the Trust
Account was approximately EUR 251,273,454.37 (not including interest of EUR 141,524.65 accrued for the period
from 1 June 2009 to 15 June 2009). All of these funds are invested in the Deutsche Global Liquidity Series PLC
Money Market Fund, currently earning interest of approximately 1.10% per annum.
We stated in our IPO Prospectus that we intended to focus our efforts on seeking a Business Combination with one
or more operating businesses with principal business operations in Germany, Austria or Switzerland. Although our
acquisition strategy is not limited by specific industry characteristics, we have focused on targets which have the
following characteristics:
•
family-owned businesses;
•
portfolio companies of private equity funds; and
•
corporate spin-offs.
Preliminary Identification of Target and Discussions with the Sellers
Subsequent to our IPO, our Officers and Directors and other representatives commenced an active search for a
prospective operating business. As part of our efforts to identify potential acquisitions, we contacted bankers from
leading investment banks, private equity professionals, business brokers, business owners, lawyers and others to
describe our Company and share our criteria for a potential acquisition target. During these discussions, we often
provided such parties with background materials we had prepared and other information concerning our organization
and our search for potential acquisition targets. In many cases, we needed to educate prospective targets about
"blank check" companies and explain, from our perspective, the benefits we could offer to them versus other
financing or exit alternatives. In addition, we were contacted independently by a number of investment bankers,
53
private equity professionals, business brokers, business owners, lawyers and others who had learned of our IPO and
were interested in bringing to our attention potential targets. Other than customary non-disclosure agreements and
letters waiving potential claims against our Trust Account, we have not entered into any agreements with any entities
through which we identified potential acquisition targets other than AEG.
Through these efforts, Germany1's Management Team identified and reviewed information with respect to more
than 100 acquisition opportunities based on the acquisition criteria disclosed in the IPO Prospectus. Among these
opportunities, Germany1's Management Team focused on companies that had the best combination of the following
characteristics:
•
Proven operating and financial track record;
•
Predictable cash flow and high cash flow conversion;
•
Leading market position;
•
Experienced management team;
•
Diversified customer and supplier base;
•
Strong equity story;
•
"Hidden champion" with outstanding brand;
•
Long-term value creation possibilities;
•
Platform for growth;
•
Reasonable valuation expectations;
•
The ability to deploy capital productively; and
•
Understanding and acceptance of Germany1's structure, acquisition process and timing.
Given the high volume of leads resulting from our level of outreach activity, Germany1's Management Team
adopted a transaction screening methodology aimed at rapidly evaluating each opportunity and were able to quickly
eliminate transactions that did not fully meet our acquisition criteria. Beginning on 21 July 2008, we began applying
this screening process to all potential candidates. The screening methodology included both financial and strategic
factors. First, we applied a general financial analysis to determine the potential transaction size of each opportunity
in comparison to our mandated 80% Threshold. Specifically, we analyzed recent acquisition multiples and current
public trading multiples comparable to each potential target, and using such information, determined the
approximate enterprise value for each candidate based on the financial data, including revenue, operating profit, cash
flow and earnings, to which we had access. We determined the approximate transaction size by assessing the
estimated enterprise value of the target and multiplying that amount by the likely majority or minority ownership
stake available to us in any transaction. Simultaneously, we did fundamental research on the business and economic
trends driving each candidate's revenue and profit growth. Taken together, if the size of a particular transaction fell
below our minimum size requirement or there were no compelling economic trends supporting a candidate's growth
or valuation, we eliminated a target transaction from additional in-depth consideration. On that basis, we were able
to narrow the total roster of over 100 potential targets to a remaining list of 19 candidates other than AEG with
whom we pursued additional discussions.
Between 16 September 2008 and 22 April 2009, we entered into non-disclosure agreements with 8 of the 19
potential targets (not including AEG). These potential targets included a payment processing company, a
professional publishing company, an e-Commerce retail company, a medical company, a shipping company, a
packaging logistics company, a financial services advisory company and a utilities company. In three of these cases,
discussions were terminated because the target company determined it would pursue an auction sale. Our search
criteria typically excluded candidates selling via auction due to our inability to assess or control the speed of such a
sale and our belief that the auction process would not be compatible with our acquisition strategy since our need for
a Shareholder vote to consummate a transaction, in most cases, put us at a material disadvantage to other auction
participants. In the five remaining cases, discussions continued until 10 June 2009, at which time, because we
54
believed that the opportunity of entering into a transaction with AEG was highly attractive for our Shareholders, we
ended those discussions.
We elected to pursue a transaction with AEG rather than with the other companies with which we held preliminary
discussions primarily because, in our judgment, AEG had advantages in each of our key screening criteria. AEG
possesses a strong management team, is profitable, operates in an industry with significant barriers to entry and
favorable structural trends, has multiple opportunities for growth, has a number of attractive strategies for the future
development and strategic positioning of the business and, in general, meets the requirements of a company that is
"ready to be public." In addition, we believed that the proposed terms of the transaction were favorable to our
Shareholders and that the likelihood of completing the transaction, once a purchase agreement was signed, was high.
Although each of the other potential targets exhibited some or all of these qualities in varying degrees, our
management team believed that the combination of AEG's attributes provided the most favorable prospects to
increase our Shareholder value. After careful review of these and other target businesses, we entered into extensive,
detailed negotiations with the Sellers and entered into the Acquisition Agreement on 23 July 2009.
After consummation of our IPO, on 13 September 2008, representatives of Sagent Advisors Inc. ("Sagent
Advisors"), the financial advisor of the Sellers, contacted us and spoke to Gero Wendenburg on 15 September 2008
about whether we would be interested in exploring a potential transaction between us and the Sellers regarding AEG.
Sagent Advisors explained that the Sellers were considering pursuing a sale of AEG through an auction process and
that the Sellers might be interested in remaining shareholders of AEG as a public company through a Business
Combination with Germany1. Gero Wendenburg told Sagent Advisors that we would be interested in looking at the
company in the industrial/infrastructure and solar energy industry. Gero Wendenburg did not discuss any details of a
proposed transaction with Sagent Advisors.
On 26 September 2008, AEG and Germany1 entered into a non-disclosure agreement, following which Sagent
Advisors delivered a confidential information memorandum to Germany1.
On 20 October 2008, Germany1's Management Team received unaudited financials updated for the third quarter
2008 of AEG together with a bid instruction letter.
On 28 October 2008, Germany1 submitted a bid letter expressing a preliminary indication of interest in AEG to
Sagent Advisors.
On 3 November 2008, Florian Lahnstein and Gero Wendenburg had a conference call with Sagent Advisors to
discuss the proposed transaction.
On 10 December 2008, our Management Team attended a management presentation given by members of AEG's
management team in Belecke, Germany.
On 15 December 2008, our Management Team and, during the period of 15 May to 1 July 2009, our advisors were
granted access to the virtual data room of AEG.
On 18 December 2008, a telephonic meeting of our executive Directors was held to discuss the proposed transaction.
The discussion included, among other things, an overview of general trends for the solar energy industry, the merits
of the transaction (including discussion of financial metrics and comparison against other opportunities considered
by us), discussion of the 10 December 2008 trip to Belecke, Germany, the proposed due diligence process, and the
possible effects of the market's recent decline and liquidity changes on other transactions that we could pursue.
On 9 January 2009, Germany1's Management Team received a vendor due diligence report prepared by the advisors
of AEG.
On 27 January 2009, Germany1's Management Team conducted a due diligence conference call with the advisors of
AEG, on the basis of the vendor due diligence report.
On 3 February 2009, Germany1's Management Team conducted a due diligence conference call with the AEG
management team on the basis of the vendor due diligence report.
On 3 March 2009, Sagent Advisors provided Germany1's Management Team with an unaudited financial update on
AEG, including the FY2008 financials as well as figures for the backlog of AEG for the years ended 2006 through
2008.
55
On 5 March 2009, Sagent Advisors provided us with a detailed order backlog as of 13 February 2009.
On 13 March 2009, Germany1's Management Team conducted a further due diligence conference call with the AEG
management team on the basis of financial update and order backlog.
During the week of 20 April 2009, Germany1's Management Team attended meetings with its advisors to discuss the
potential Business Combination with AEG and to gain advice on both industry and equity capital markets aspects.
On 28 April 2009, Germany1's Management Team engaged with AlphaSights to conduct expert interviews in
relation to solar energy markets, competing solar technologies, polysilicon manufacturing process, polysilicon
manufacturers and its respective capacities plans, all of which AEG is exposed to.
On 5 May 2009, Germany1's Management Team consulted with an industry expert of a leading investment bank and
met with a solar industry investor to better understand the current momentum of the industry.
On 7 May 2009, Sagent Advisors provided Germany1's Management Team with the special purpose AEG audited
2008 financial statements, a reconciliation between financials for the fiscal year 2008 and these financial statements,
and an unaudited financial update for the first quarter 2009. In addition, Germany1's Management Team received an
initial draft of the Acquisition Agreement from Sagent Advisors.
On 11 May 2009, Germany1 submitted a revised offer to Sagent Advisors.
On 15 May 2009, Germany1's Management Team engaged its commercial, financial, tax, legal and capital markets
advisors to commence the "phase 1" due diligence process, focusing on commercial and financial due diligence.
During the period of 15 May to 1 July 2009, there were frequent communications between Germany1's Management
Team, its advisors and AEG and their respective advisors regarding due diligence and transaction terms.
The phase 1 due diligence conducted by Germany1's Management Team with respect to AEG included the
following:
•
Calls with industry experts;
•
Research via industry publications on industry dynamics, cycles, operating cost projections, and other
industry factors;
•
Multiple calls/discussions with management regarding operations, backlog and industry capacity increase;
•
Background checks; and
•
Site visits.
On 20 May 2009, Sagent Advisors provided us with AEG's 5-year business plan.
On 26 May 2009, we received a final bid instruction letter from Sagent Advisors.
On 30 May 2009, Germany1's Management Team received and renewed phase 1 due diligence reports from its
advisors regarding commercial due diligence, financial due diligence and valuation analysis followed by detailed
calls thereafter.
On 31 May 2009, Dr. Thomas Middelhoff and Florian Lahnstein met with Timothy Collins, founder and CEO of
Ripplewood, the principal owner of AEG, to discuss principle deal terms.
On 5 June 2009, Germany1 submitted a detailed revised offer to Ripplewood.
Between 5 June and 12 June 2009, multiple discussions occurred between Germany1, Sagent Advisors and
Ripplewood, which resulted in an agreement in principle on certain key terms.
On 12 June 2009, Germany1's Management Team, together with its advisors, began conducting its "phase 2" due
diligence process, focusing on legal, financial and taxation due diligence.
56
Phase 2 due diligence conducted by Germany1's Management Team with respect to AEG included the following:
•
AEG customer calls;
•
Multiple calls/discussions with management regarding operations and projections; and
•
further commercial, financial, taxation, operational and legal due diligence conducted by Germany1 and third
party advisors;
•
Legal review of documentation.
Throughout the month of June 2009, our Board of Directors was updated with multiple e-mails on the status of the
Acquisition. Our Board of Directors was also sent a significant amount of information concerning the
industrial/infrastructure industry, in general, as well as AEG, in particular. Such information included, but was not
limited to, numerous Wall Street research reports, results of internal and third-party due diligence and third-party
research reports.
On 17 June 2009, we commenced negotiations in respect of the Acquisition Agreement.
On 25 June 2009, Germany1's Management Team received and reviewed phase 2 reports from its professional
external advisors regarding commercial, financial, legal due diligence and valuation analysis followed by detailed
calls thereafter.
On 26 June 2009, a meeting of our Board of Directors was held to discuss the status of the proposed transaction. At
that meeting, Germany1's Management Team also presented an internal investor memorandum, including detailed
financials and valuation metrics for the Acquisition. For a summary of the key information in the model, see
"Factors Considered by the Germany1 Board of Directors in Approving the Acquisition – Financial factors."
On 26 June 2009, all of the Directors agreed that, (a) the Business Combination is advisable and fair to, and in the
best interests of, the Company and its Shareholders and that the fair market value of AEG meets the 80% Threshold;
(b) the terms and conditions of the Business Combination and other proposals are approved; (c) the Board of
Directors shall recommend to the Shareholders to vote for the approval of the Business Combination and to
authorize the Directors to take all steps necessary to give effect to the Business Combination; (d) any Director will
be authorized to do all acts and things so as to carry into effect the purposes of the foregoing resolutions and to sign
and deliver on behalf of Germany1 any and all documents which he may consider necessary or desirable in his
absolute discretion pursuant to or in connection with the Business Combination.
On 19 July 2009, our representatives and the Seller negotiated the final terms of the Acquisition Agreement and the
ancillary documents.
On 23 July 2009, the parties executed the Acquisition Agreement. Immediately thereafter, each party issued separate
press releases announcing the execution of the Acquisition Agreement.
Germany1, AEG and the combined entity have not paid and will not pay any finder's fees to any person or entity in
connection with the Acquisition.
Factors Considered by our Board of Directors in Approving the Acquisition
After careful consideration of the terms and conditions of the Acquisition Agreement and the consideration to be
paid in the Acquisition, our Board of Directors unanimously approved the Acquisition and determined that the
Acquisition Agreement and the Acquisition, upon the terms and conditions set forth in the Acquisition Agreement,
are advisable and fair to us and our Shareholders and that the fair market value of AEG meets the 80% Threshold. In
reaching this decision, materials reviewed included due diligence reports (or summaries thereof), including financial
and tax due diligence, commercial due diligence and legal due diligence prepared by professional external advisors.
The Board of Directors came to the conclusion that, in its opinion and subject to the assumptions and conditions set
forth therein, the consideration to be paid by us in Acquisition is fair to Germany1 and our Shareholders.
Accordingly, our Board of Directors unanimously recommends that Germany1 Shareholders vote "FOR" the
approval of the Acquisition and the adoption of the Acquisition Agreement, as well as for the other proposals
submitted to the Shareholders.
57
Our Board of Directors considered a wide range of business, financial and other factors and believes that the nonexhaustive list of factors below, which are all of the material factors considered by our Board of Directors, strongly
supports its determination and recommendation to approve the Acquisition. In approving the Acquisition, our Board
of Directors relied on financial and other information relating to AEG Group and considered a wide variety of
factors. Due to the complexity of these factors, our Board of Directors did not consider it practical to, nor did it
attempt to, quantify or otherwise assign relative weights to the specific factors it considered in reaching its decision.
In addition, individual members of the Board of Directors may have given different weight to different factors.
(i)
Business Factors
•
Leading market position in specialized power controllers for the production of crystalline silicon. AEG
believes that their Power Controllers products are the most widely used Power Controllers for the production
of crystalline silicon. From January 2009 through June 2009, AEG Group delivered 318 power controllers
units for the Siemens process;
•
Recognized enabler of new entrants to the polysilicon industry. A leading investment bank, Barclays Capital,
estimates that between 2008 and 2012, approximately 125,000 metric tons (excluding metallurgical silicon)
of polysilicon production capacity will be added by existing producers and new entrants. We believe that new
entrants to the polysilicon industry will be responsible for a significant portion of the new capacity to be
added and that they will include both chemical and solar energy companies. As one of a small number of
companies providing power controllers commercially, AEG management believes they are well positioned to
supply a substantial portion of equipment that they expect to be ordered by new entrants;
•
Large installed base of PV equipment. Since 2006, AEG Group has delivered over 650 power controller units.
AEG believes that their installed base of Power Controllers products promotes recurring sales of additional
equipment because of their strong reputation in delivering high quality products and the customer references
they have achieved in the past. In addition, they believe their large installed base should support higher sales
of parts and service in the future as their customers' machines age, increasing upgrade and replacement sales;
•
Established relationships with many of the world's leading industrial/infrastructure and solar energy
companies. AEG Group has been providing manufacturing equipment to the solar energy industry for over 25
years and has established relationships with many of the world's leading polysilicon production
manufacturers and integrators. Furthermore, AEG Group maintains strong business relationships with many
blue-chip customers within the industrial/infrastructure industries. AEG management believes that they have
developed a reputation for providing high quality equipment. They believe their relationships and reputation
in the marketplace will support continued growth in the business;
•
Established presence in China, a major growth market for solar manufacturing. AEG Group has longstanding operations in China and has supplied their Power Controllers products used by some of China's
largest polysilicon producing companies. Today, many of the world's leading solar energy companies are
based in China and it is expected that the demand for polysilicon from Chinese solar energy companies will
increase for the foreseeable future. AEG management believes that their established position with leading
Chinese solar energy companies and their existing infrastructure in China should provide them with an
advantage in winning future equipment orders in China;
•
Outsourced manufacturing model. AEG Group outsources the manufacturing of its power electronics
equipment components, and their factory focuses on assembly operations, testing and the production of
proprietary components. This model results in a highly variable cost structure, modest working capital
requirements and a relatively small number of manufacturing employees. In addition, they believe their
model allows them to respond more quickly to increases in demand than many of their competitors because
they do not need to add significant new facilities, equipment or personnel to increase production;
•
Experienced management team. An important factor for us in evaluating an acquisition target was whether
the target had a management team with specialized knowledge of the markets within which it operates and the
ability to lead a company in a rapidly changing environment. We believe that AEG's management, including
Mr. Bruce Brock, chief executive officer and Mr. Robert Huljak, chief operating officer, in particular, have
experience and talent in the industrial/ infrastructure and solar energy industry as demonstrated by the
background of the members of AEG's management;
•
AEG Group has a high quality workforce and good relations with its unions. Union members take leadership
roles in facility and product management teams. AEG focuses on providing strong levels of employee
58
training as well as career development and job succession planning targeted at providing AEG Group's
personnel with an understanding of business fundamentals and an awareness of the impact of their daily
responsibilities on the financial health of their facility, their business unit and the company as a whole;
•
"AEG" is a well recognized and trusted brand. We believe the brand stands for quality, reliability and trust
and is a strong asset to the business with potential for growth;
•
AEG Group's technology leadership. AEG Group has a history of product innovation. AEG's strategy is to
improve existing products in order to drive accelerated replacement of existing products, introduce new
products that exceed the performance of competitors' products and develop new products that address the
changing needs of power electronics. For example, AEG Group is currently one of the very few providers of
high end system solutions for the 18+ pair chemical vapor deposition reactor;
•
AEG Group's power electronic products are mission critical. AEG Group's power electronic products are in
many instances mission critical applications which are difficult to replicate and often only represent a small
amount of the overall costs of the project. AEG Group consistently provides "best in class" German
engineering that is highly valued by its end customers, having established itself as the leading producer of
power controllers and technology leader in industrial uninterruptible power supply ("UPS");
•
Focus on expanding value-enhancing services offering. AEG intends to focus on the expansion of its services
offered, which still represents a portion of revenues that is below the industry average in the recent past. As
AEG Group's installed base increases and AEG Group focuses on expansion in its services business, the
services business is expected to increase accordingly;
•
High barriers to entry. We believe that there are significant barriers to enter the markets in which AEG
operates. For example, AEG Group's Power Controllers products control the voltage and the current during
the polysilicon production process, which is crucial for the production for near pure polysilicon. In addition,
power controllers are complex and costly to replace. At the same time, the costs for power controllers only
account for a small fraction of the total costs of constructing polysilicon production facilities. Polysilicon
producers, therefore, usually purchase power controllers from well experienced providers with strong
references and, management believes, are less inclined to take the risk of ordering unproven products from
new market entrants. As high reliability and customization of the products are critical in order to meet health
and safety standards, customers in the Protect Power business have a clear preference for established
suppliers with well proven products. In addition, throughout all of its business divisions, AEG Group profits
from significant repeat business, as customers tend to treat an initial supplier as a preferred supplier in the
future;
•
Low capital intensity and a high cash conversion rate. We consider AEG Group's business not to be capital
intense. At the same time, AEG Group benefits from a comparatively high portion of profits that are
converted into cash flow. Therefore, AEG Group's production should not require significant up-front
financing;
•
Platform for growth. AEG Group has invested significantly in the creation of additional production capacity
in order to be able to capitalize on the growth opportunities of the markets in which it operates. In particular,
in its Power Controllers business AEG Group has established a production base that should enable it to react
quickly to the expected further growth in demand for its products from polysilicon producers;
(ii)
Financial Factors
•
AEG's net losses in 2006 and low profitability of its Protect Power solutions and DC Telecom division. In our
evaluation of AEG, we considered the net losses experience by AEG Group in 2006 and the current low
profitability of Protect Power and DC Telecom. We, however, determined that the growth prospects of AEG
outweighed these concerns based on various factors, including our belief that AEG Group has the ability to
further enhance margins due to learned operating efficiencies and a lower cost structure primarily driven by
future volume purchase discounts, bargaining power with vendors and higher utilization of its factory, which
should help absorb overhead going forward;
•
Significant opportunities for strategic acquisitions. AEG believes there are opportunities for smaller and
larger strategic acquisitions in both the solar energy and industrial/infrastructure segments of its markets.
AEG Group also recently completed several capital spending projects and its management expects typical
capital spending to be between approximately EUR 3 and EUR 5 million annually. Given AEG Group's
59
expected levels of earnings and projected interest expenses, its management believes AEG should have the
capacity to make additional strategic acquisitions funded by free cash flow, which we define as net income
plus depreciation, amortization and other non-cash expenses less capital expenditures;
•
AEG is a recently rebranded company that has experienced a turnaround within the last few years. Our
Board of Directors considered the fact that AEG is a recently turned around and rebranded company and
provides a limited operating history in its restructured and rebranded form. Members of our Board of
Directors believe that the information reviewed was nevertheless sufficient to make an assessment as to AEG
Group's business going forward;
•
Comparable company and transaction valuation metrics. Our executive Directors reviewed a due diligence
report and analyses of valuation metrics for comparable companies and transactions that our advisors
believed were relevant to the AEG transaction and presented a summary of their review to the Board of
Directors. Based on this review and the attributes of AEG Group's business, our Board of Directors was able
to conclude that the enterprise value of AEG was within the range of values suggested by comparable
companies and comparable transactions. Accordingly, our Board of Directors found the consideration to be
paid to the Sellers to be fair to us and our Shareholders;
•
AEG's record of growth and potential for future growth. We believe that AEG Group has a well-established
and growing brand and has in place the core infrastructure for strong business operations that should enable
AEG Group to achieve growth both organically and through accretive strategic acquisitions. Our belief in
AEG Group's growth potential is based in part on AEG Group's historical growth rate. AEG Group
experienced a growth rate of approximately 57% in revenues from EUR 218 million in 2007 to revenues of
EUR 343 million in 2008, while the management turned around the business from an EBIT negative company
(2007 negative EBIT of EUR 0.1 million) to an EBIT of EUR 55.7 million in 2008;
(iii)
Other Factors
•
The risk that the Public Shareholders would vote against the Acquisition and exercise their redemption
rights. Our Board of Directors considered the risk that the Public Shareholders would vote against the
Acquisition and decide to redeem their Shares for cash upon consummation of the Acquisition, thereby
depleting the amount of cash available to Germany1 following the transaction. Because of the strong capital
structure enjoyed by AEG and other factors, our Board of Directors deemed this risk to be minimal and
believes that AEG should still be able to implement its business plan even if the maximum number of Public
Shareholders exercised their redemption rights;
•
Certain Officers and Directors of Germany1 may have different interests in the Acquisition that differ from
those of the Germany1 Shareholders. Our Board of Directors considered the fact that certain Officers and
Directors of Germany1 may have interests in the Acquisition that are different from, or are in addition to, the
interests of our Shareholders generally, including the matters described under "Interests of Certain Persons in
the Acquisition" below. However, this fact would exist with respect to a Business Combination with any
target company, and the Board of Directors does not believe that the potentially disparate interests here are a
reason not to approve the Acquisition;
•
Dependency on the success of the polysilicon business. Our Board of Directors considered the risk that the
vast majority of AEG Group's profit in 2008 was contributed by its Power Controllers division and that AEG
will be dependent on the success of this division, which is, in turn, highly dependent on the solar energy
industry. The Board of Directors believes that the strong growth in the solar energy industry and AEG
Group's Power Controllers business, as well as its strategic focus on diversification both in terms of revenues
and geographically should mitigate the risk;
•
Technology substitutions. Our Board of Directors considered the risk of technology substitutions in the
photovoltaic market. Such risk is twofold: (i) the Siemens process as most widely used for the production of
polysilicon could be substituted for an alternative polysilicon production method, particularly the fluidized
bed reactor, or FBR, process, which uses less energy and is less labor intensive, and (ii) solar modules
consisting of solar cells made of polysilicon could be replaced by solar modules using thin-film technologies,
which either do not require polysilicon or significantly less polysilicon. However, the dominant market
position of both technologies (approximately 85% market share of the Siemens process and approximately
90% market share of silicon-based solar modules) should mitigate the risk that one of these technologies will
be substituted over the medium or long term;
60
•
Rebound in demand for solar energy systems. Our Board of Directors considered the risk that AEG Group
could be hit by a downturn or sustainable decrease in the global demand for solar systems. Although the solar
energy industry has experienced substantial growth over the last five years, the current economic downturn
makes it difficult to finance large-scale projects, which has reduced demand for solar energy systems in new
residential and commercial buildings. However, the Board of Directors believes that favorable conditions for
the adoption of solar electricity generation, such as rising prices of conventional energy sources, geopolitical
supply risks environmental pollution from fossil fuels and government incentive programs for the
development of solar energy should mitigate the risk and provide for sustainable growth rates in the future;
•
Business dependent on certain individuals. Our Board of Directors recognized that AEG Group's future
success depends to a significant extent upon its Chief Executive Officer, Bruce Brock, and its Chief
Operating Officer, Robert Huljak. Our Board of Directors believes that the ability of Germany1 to use its
publicly traded Shares to provide appropriate compensation and incentive packages should provide adequate
means to retain these individuals, as well as the means to attract other people needed to grow the business.
•
Results of due diligence reports. Our Board of Directors considered the results of Germany1's legal, financial,
accounting and commercial due diligence review of AEG Group, including due diligence reports from our
attorneys on such aspects of AEG Group's operations as corporate structure, customer contracts, employment
matters, intellectual property, litigation, real estate, pensions and tax issues;
•
Amounts included in AEG Group's order backlog may not result in actual revenue or translate into profits.
As of 22 May 2009, AEG Group's order backlog was approximately EUR 293.4 million, a portion of which
has subsequently been recognized as revenue. Our Board of Directors recognized that although this amount is
based on signed purchase orders or other written contractual commitments, AEG Group cannot guarantee that
their order backlog will result in actual revenue in the originally anticipated period or at all. AEG Group's
customers may experience project delays or cancel orders as a result of external market factors and economic
or other factors beyond AEG Group's control. If AEG Group's order backlog fails to result in revenue in a
timely manner or at all, AEG Group could experience a reduction in revenue, profitability and liquidity. We
believe that, based on the due diligence conducted, including customer interviews, management discussions
and expert calls, the customers currently included in the backlog are generally comprised of well-established
customers, which are unlikely to cancel their orders, which should mitigate the risk;
•
Dependence on a small number of customers in any given fiscal year for a substantial part of AEG's revenue
in the Power Controllers division. In each fiscal year, AEG's Power Controllers division depends on a small
number of customers for a substantial part of AEG's revenue. For example, based on order backlog from 22
May 2009, three customers accounted for approximately 57% of AEG's Power Controllers order backlog. As
a result, the default in payment by any of these major customers, the loss of existing orders or lack of new
orders in a specific financial period, or a change in the product acceptance schedule by such customers in a
specific financial period, could significantly reduce AEG's Power Controllers revenues and have a material
adverse effect on AEG's financial condition, results of operations, business and/or prospects. AEG anticipates
that its dependence on a limited number of customers within Power Controllers in any given fiscal year will
continue for the foreseeable future. There is a risk that existing customers will elect not to do business with
AEG Group in the future or will experience financial difficulties. Furthermore, many of their customers are at
an early stage and many are dependent on the equity capital markets to finance their purchase of AEG
Group's products. As a result, these customers could experience financial difficulties and become unable to
fulfill their contracts. If AEG Group does not develop relationships with new customers, it may not be able to
increase, or even maintain, its revenues. However, given AEG Group's strong relationship with blue-chip
customers, its reputation based on quality and reliability of their products and leadership in the market for
power controllers, our Board of Directors believes that AEG should be well positioned to limit the risk of
customer dependency.
The foregoing discussion of the information and factors considered by the Germany1 Board of Directors is not
meant to be exhaustive, but includes the material information and factors considered by the Germany1 Board of
Directors.
In the view of our Board of Directors, these potentially countervailing factors did not, individually or in the
aggregate, outweigh the advantages of the Acquisition.
Our Board of Directors determined not to obtain a fairness opinion in connection with the approval of the purchase
agreement because of (i) its internal ability to value the business against public comparables and other market index
measures, (ii) its general exercise of its business judgment and (iii) its knowledge that the valuation of the proposed
61
Acquisition would be tested by the market and factors that our Shareholders deemed relevant and that 30% of the
Public Shareholders could effectively veto the proposed Acquisition if they did not deem such valuation to be fair.
Therefore, our Board of Directors did not undertake the kind of in depth analysis that a financial advisor would have
undertaken in the rendering of a fairness opinion. In determining that the Acquisition of AEG is fair to, and in the
best interests of, Germany1 and its Shareholders, our Board of Directors utilized objective standards generally
accepted by the financial community, such as actual historical and potential future revenues, actual historical,
comparable industry multiples, earnings and cash flow. Members of our Board of Directors and its representatives
also had discussions with members of the management of AEG concerning the financial condition, current and
historical operating results for AEG, projected growth in revenue and operating profit and the business outlook for
AEG. In arriving at its fairness determination, our Board of Directors considered the results of all of its analyses and
did not attribute any particular weight to any factor or analysis considered by it. Rather, our Board of Directors made
its determination as to fairness on the basis of its experience and judgment after considering the results of all of its
analyses. The foregoing discussion of the information and factors considered by our Board of Directors is not
intended to be exhaustive, but includes the material factors considered by our Board of Directors. In view of the
variety of factors considered in connection with its evaluation of the Acquisition, our Board of Directors did not find
it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in
reaching its determination and recommendation. In addition, individual Directors may have given differing weights
to different factors. After weighing all of the different factors, our Board of Directors unanimously approved the
Acquisition Agreement and the related transactions and recommends that our Shareholders approve the Acquisition
proposal.
Satisfaction of the 80% Threshold
Pursuant to the terms of our Prospectus and our agreement with the underwriters of our IPO, any business acquired
by us must have a fair market value equal to at least 80% of the amount in the Trust Account at the time of the
Acquisition. Based on the financial analysis of AEG, our Board of Directors concluded that this 80% Threshold was
met.
Required Vote
See "The Annual General Meeting of Shareholders – Vote Required to Approve the Acquisition".
Redemption Rights
See "The Annual General Meeting of Shareholders – Redemption Rights".
Possible Change of Corporate Domicile of Germany1
We are currently considering whether it would be advantageous for Germany1 and its Shareholders to change the
corporate domicile of Germany1 to a jurisdiction in the EU such as Luxembourg, the Netherlands or Germany
pursuant to a so-called "migration", though we are not currently seeking the consent of our Shareholders to take such
action. If the Acquisition is approved by the Shareholders and consummated, we will continue to explore this option
and, if we conclude that it would be in the best interest of Germany1 and its Shareholders, will call a meeting of the
Shareholders of Germany1 to vote on the approval of the migration of Germany1 to such a jurisdiction. At such
time, we would provide our Shareholders with information relevant to making a decision whether to approve such a
migration.
Consequences if the Acquisition is not approved
If the Acquisition is not approved by the Shareholders, the Acquisition will not be consummated and we will
continue to search for a Business Combination. However, if we do not complete a Business Combination by the
Business Combination Deadline our corporate purpose and powers will be limited to acts and activities relating to
dissolving, liquidating and winding up our Company and the Board of Directors will take all such action as
necessary to dissolve and liquidate our Company as soon as reasonably practicable. The liquidator will adopt a plan
of dissolution and liquidation promptly and initiate procedures for our dissolution and liquidation.
Subject to compliance with Guernsey law, we will then liquidate our Company, including the Trust Account, as part
of a plan of dissolution and liquidation. This would result in a distribution to our Public Shareholders on a pro rata
basis of the funds in the Trust Account (less certain expenses and taxes) and all of our other net assets. The Trust
Account could, however, become subject to the claims of our creditors which could take priority over the claims of
our Public Shareholders and reduce the amount available for distribution. The Founding Shareholders and the
62
Foundation have waived any entitlement to receive any distributions in connection with the Founding Shares in the
case of such a liquidation. The dissolution and distribution process would take at least two months and possibly
substantially longer.
Irrevocable Undertakings
We have entered into irrevocable undertakings or other similar arrangements with Committed Shareholders who, in
the aggregate, hold Public Shares in excess of 70.1% of our outstanding Public Shares as at the date of this Proxy
Statement. Pursuant to the irrevocable undertakings or other similar arrangements, the Committed Shareholders have
agreed to vote their Public Shares in favor of the Acquisition and related resolutions and/or not request redemption
of their Public Shares. Therefore, assuming all of the Committed Shareholders fulfill their voting obligations
contained in the Irrevocables, the Acquisition will be approved at the Annual General Meeting and consummated
even if the remaining Shareholders vote against the Acquisition and exercise their redemption rights.
Recommendation
AFTER CAREFUL CONSIDERATION, GERMANY1'S BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE OR INSTRUCT YOUR VOTE TO BE CAST "FOR" THE
ACQUISITION PROPOSAL.
63
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
GERMANY1
In considering the recommendation of the Germany1 Directors to vote "FOR" the approval of the Acquisition and
the adoption of the Acquisition Agreement, the Germany1 Shareholders should be aware that some of Germany1's
executive Officers and Directors have interests in the Acquisition that are different from, or in addition to, the
interests of Germany1's Shareholders generally. The Directors were aware of these differing interests and considered
them, among other matters, in evaluating and negotiating the Acquisition Agreement and the Acquisition and in
recommending to the Shareholders that they vote in favor of approving the Acquisition and adopting the Acquisition
Agreement. These interests include, among other things:
Holders of Shares and Warrants
In aggregate, our Directors currently hold 8,250,000 Shares in the Company. Of these, 6,250,000 are Founding
Shares and 2,000,000 are Public Shares. Additionally, our Directors hold 8,000,000 Warrants, of which 6,000,000
are Sponsor Warrants and 2,000,000 are Public Warrants:
•
On 26 June 2008, LCP1 Limited ("LCP1"), a company that is controlled by Mr. Lahnstein with Prof. Dr. h.c.
Berger and Dr. Middelhoff holding the minority interest (the "Sponsor"), acquired an aggregate of 7,450,000
Shares. Our Non-executive director, Dr. Bahlmann, purchased 50,000 Shares (together with the Shares
acquired by the Sponsors referred to as the "Founding Shares"), which he subsequently sold to Dr.
Middelhoff. The Founding Shares were purchased at an aggregate price of EUR 10,000 (or approximately
EUR 0.001333 per share). 1,250,000 of the 7,500,000 Founding Shares were automatically redeemed at the
IPO;
•
Additionally, our Sponsor purchased, through LCP1, 6,000,000 Sponsor Warrants at a price of EUR 1.00 per
Warrant (EUR 6,000,000 in aggregate) prior to the IPO;
•
In the IPO Mr. Lahnstein, Prof. Dr. h.c. Berger and Dr. Middelhoff purchased a further 2,000,000 units at a
price of EUR 10. Each unit comprises one Public Warrant.
Other than the Shares described above, the Founding Shareholders and our other Directors did not purchase any
Shares in the secondary market from the date of our IPO through the date of filing of this Proxy Statement. The
Founding Shareholders and other Directors have no specific plans to purchase Germany1 Shares in the secondary
market prior to the closing of the Acquisition but are not restricted from doing so. If Founding Shareholders or other
Directors purchase Shares in the secondary market from Germany1 Shareholders that are likely to vote against the
transaction or that are likely to redeem their Shares, the probability that the Acquisition will succeed increases.
The Founding and Public Shares and the Sponsor and Public Warrants held by the Directors were transferred to the
Foundation. The Shares held by the Foundation will not be transferable, exchangeable or released until the earlier of:
(i) our liquidation and (ii) one year following the consummation of a Business Combination. The Warrants held by
the Foundation will not be transferable, exchangeable or released until the earlier of: (i) our liquidation and (ii) the
later of one year from the admission of our Shares to trading and the consummation of our Business Combination.
If the Acquisition is not approved and Germany1 is unable to complete another Business Combination by the
Business Combination Deadline, Germany1 will be forced to liquidate. In such event, the remaining 6,250,000
Founding Shares will become worthless, because the Founding Shareholders have agreed that they will not receive
any liquidation proceeds with respect to such Shares but that the surplus assets remaining after payment of all
creditors shall be divided pari passu among the Public Shareholders pro rata to their holdings of those Public Shares.
If Germany1 is unable to complete a Business Combination within the prescribed time frames and is forced to
liquidate its assets, there will be no distribution with respect to outstanding Warrants, and the Warrants will thereby
expire worthless.
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Directors' fees
If the Acquisition is completed, Prof. Dr. h.c. Berger and Keith Corbin will continue as Directors of the Company
and will receive any cash fees, stock options or stock awards that the Board of Directors determines to pay its
directors.
Directors' Personal liability
If Germany1 is liquidated prior to the consummation of a Business Combination, Mr. Lahnstein, Prof. Dr. h.c.
Berger and Dr. Middelhoff will be personally liable to pay debts and obligations, if any, to potential acquisition
targets (that have not signed a waiver) or vendors or other entities that are owed money by Germany1 for services
rendered or contracted for to the extent such creditors bring claims that would otherwise require payment from
monies in the Trust Account in excess of the EUR 4.3 million cap provided for in our Articles of Incorporation. This
arrangement was entered into to ensure that, in the event of a liquidation, the Trust Account is not reduced by claims
of creditors. Based on Germany1's estimated debts and obligations, Germany1 does not currently expect that Mr.
Lahnstein, Prof. Dr. h.c. Berger and Dr. Middelhoff will have any exposure under this arrangement in the event of a
liquidation.
Other possible Conflicts of Interests of Directors relating to the Business Combination
For other possible conflicts of interests of our Directors relating to the Business Combination, please refer to the
section "Current Board of Directors and Management – Conflicts of Interest".
AEG
Shareholders should be aware that the current officers of AEG and those persons who will become directors of
Germany1 appointed with effect from the Annual General Meeting have interests that are different from, or in
addition to, the interests of Germany1's Shareholders generally. Following the Acquisition, it is expected that Bruce
Brock and Robert Huljak will continue their respective roles and enter into employment agreements with Germany1
or its subsidiaries. It is contemplated that such individuals will receive compensation and benefits that are no less
than the level of compensation and benefits that AEG has maintained for these individuals. At present, no
employment agreements have been entered into with these persons. We are currently in discussions regarding such
employment agreements, which will, however, not be finalized before the date of this Proxy Statement. Thus, you
will not have information relating to the future compensation of AEG's management you may deem material to your
decision on whether or not to vote in favor of the Acquisition. Timothy Collins, who is proposed to be appointed
director with effect from the Annual General Meeting, founded Ripplewood Holdings L.L.C. in 1995 and has been
Chief Executive Officer and Senior Managing Director since its inception. Immediately after the Acquisition is
completed, Ripplewood Power Systems I L.L.C. and Ripplewood Power Systems II L.L.C. will own in the aggregate
Convertible Shares equal to 26% of our aggregate issued Shares, including Convertible Shares, on a Fully Diluted
Basis. See "Beneficial Ownership of Securities".
Current members of AEG's management hold collectively 342,000 of AEG's class B shares and 250,000 options for
class B shares. Former members of AEG's management hold collectively 128,000 of AEG's class B shares and
69,290 options for class B shares. In addition, Brock Trust L.L.C., of which Bruce Brock and Robert Huljak are
beneficiaries, holds 1,600,000 of AEG's class B shares and 1,475,684 options for class B shares. The options are
exercisable for class B shares under specified conditions at an exercise price of EUR 1.00 per share. All of the
options to acquire shares in AEG outstanding as of the closing will be cancelled and converted into the right to
receive payments in accordance with the terms of the Acquisition Agreement. See "Beneficial Ownership of
Securities".
65
THE ACQUISITION AGREEMENT
The following description summarizes the material provisions of the Acquisition Agreement and is not meant as a
substitute for reviewing the Acquisition Agreement itself, a copy of which is attached as Annex A to this Proxy
Statement. As such, the summary below is qualified in its entirety by reference to the actual provisions of the
Acquisition Agreement.
General; Structure of the Acquisition
On 23 July 2009, we entered into the Acquisition Agreement with the Sellers. Upon closing of the Acquisition, we
will acquire 100% of the shares in Holdco, which will own all of the issued and outstanding capital stock of AEG. In
addition, all of the options to acquire shares in AEG outstanding prior to the closing will be cancelled and converted
into the right to receive payments in accordance with the terms of the Acquisition Agreement. Following the
Acquisition, it is anticipated that we will cause Holdco to be merged with and into a newly formed subsidiary of
Germany1 to be incorporated in the Netherlands, whereupon the separate existence of Holdco shall cease.
Consideration
The base consideration payable to the Sellers consists of (i) EUR 200,000,000 in cash and (ii) 19,208,955 registered
Convertible Shares in Germany1. The Convertible Shares will be non- listed shares of no par value, which will have
the same voting rights as, and will rank pari passu in right of payment with respect to dividends and upon liquidation
with, the Public Shares in Germany1. The Convertible Shares will be divided into two classes of equal amounts,
Class A Convertible Shares and Class B Convertible Shares, converted free of charge after the six month and first
year anniversaries of the closing of the Acquisition, respectively. As a result of the conversion terms of the
Convertible Shares, the Convertible Shares will not be freely transferable until after their conversion. The
consideration payable to the Sellers will be adjusted upwards or downwards to account for closing date net cash and
working capital and is also subject to an earn-out in cash and Convertible Shares of Germany1 valued at up to
EUR 50,000,000 based on the achievement of certain performance targets with respect to fiscal years 2009, 2010
and 2011, as further described below under "Earn-Out".
Net Cash and Net Working Capital – Consideration Adjustment
At the closing of the Acquisition, the cash consideration to be paid will be EUR 200,000,000 plus or minus
adjustments for net cash on the closing date and the amount by which the working capital on the closing date
exceeds or is less than the agreed target on the basis of the Sellers' best estimate. The final price will be calculated
after the closing of the Acquisition after giving effect to the post-closing adjustment for net cash and working
capital, and to the earn-out payments. Upon final determination of closing date net cash and working capital
adjustments, payments may be made to the Sellers or Germany1, as the case may be. Any such adjustment payments
by the Sellers or Germany1, as the case may be, will generally be paid in cash and limited to EUR 5 million. To
provide for any adjustment payments that may become due by the Sellers, such amounts will be deposited into an
escrow account pending final determination of such adjustments, and thereafter paid to Germany1 or released to the
Sellers, as applicable. Any consideration adjustment to be made in cash shall instead be made in the form of
Convertible Shares if and to the extent making such payment in cash would have caused the consideration paid to the
Sellers in the form of Convertible Shares to be less than 41% of the total consideration paid, provided that the
number of Convertible Shares to be issued for this purpose shall be limited to a maximum of 2.5 million Convertible
Shares.
Earn-out
The Acquisition Agreement contains earn-out provisions which provide for the payment of additional cash and
Convertible Shares to the Sellers if certain Adjusted EBITDA targets for the AEG Group are met with respect to
fiscal years 2009, 2010 and 2011, as described below.
If Adjusted EBITDA of the AEG Group in respect of fiscal year 2009 is less than 90% of EUR 106,100,000, no
amount of earn-out consideration will be payable in respect of fiscal year 2009 and 900,000 Convertible Shares will
be returned to us by the escrow agent.
If Adjusted EBITDA in respect of fiscal year 2009 is equal to or greater than 90% of EUR 106,100,000, the Sellers
will receive 900,000 Convertible Shares.
66
If Adjusted EBITDA in respect of fiscal year 2009 exceeds 90% of EUR 106,100,000, Germany1 will also pay the
Sellers up to EUR 9,000,000, on a sliding scale based on the amount by which Adjusted EBITDA in respect of fiscal
year 2009 exceeds 90% of EUR 106,100,000.
If Adjusted EBITDA of the AEG Group in respect of fiscal year 2010 is less than 90% of EUR 124,800,000, no
amount of earn-out consideration will be payable in respect of fiscal year 2010 and 850,000 Convertible Shares will
be returned to us by the escrow agent.
If Adjusted EBITDA in respect of fiscal year 2010 is equal to or greater than 90% of EUR 124,800,000, Germany1
will pay the Sellers an additional EUR 8,500,000, and the Sellers will receive 850,000 Convertible Shares.
If Adjusted EBITDA in respect of fiscal year 2009 is equal to or greater than 90% of EUR 106,100,000 and (ii)
Adjusted EBITDA in respect of fiscal year 2010 exceeds 100% of EUR 124,800,000, Germany1 will pay the Sellers
an additional amount (the "2010 Catch-up Payment") up to the amount by which EUR 9,000,000 exceeds the cash
earn-out payment for 2009, if any, on a sliding scale based on the amount by which Adjusted EBITDA in respect of
fiscal year 2010 exceeds 100% of EUR 124,800,000.
If Adjusted EBITDA in respect of fiscal year 2011 is less than 90% of EUR 139,000,000, no amount of earn-out
consideration will be payable in respect of fiscal year 2011.
If Adjusted EBITDA in respect of fiscal year 2011 is equal to or greater than 90% of EUR 139,000,000, Germany1
will pay the Sellers an additional EUR 7,500,000, and the Sellers will receive 750,000 Convertible Shares.
If Adjusted EBITDA in respect of fiscal year 2009 is equal to or greater than 90% of EUR 106,100,000 and (ii)
Adjusted EBITDA in respect of fiscal year 2011 exceeds 100% of EUR 139,000,000, Germany1 will pay the Sellers
an additional amount up to the amount by which EUR 9,000,000 exceeds the sum of (i) the cash earn-out payment
for 2009 and (ii) the 2010 Catch-up Payment, if any, on a sliding scale based on the amount by which Adjusted
EBITDA in respect of fiscal year 2011 exceeds 100% of EUR 139,000,000.
All cash payments of earn-out amounts are to be made, together with interest on such amount from the date that is
five business days after the determination of the Adjusted EBITDA for a relevant earn-out period, at an interest rate
equal to the three (3) month Euro Inter-Bank Offered Rate (EURIBOR) plus 2.00%.
If the parties are not able to resolve any dispute regarding the determination of the Adjusted EBITDA for the
relevant earn-out period within a certain time period, then an independent accounting firm selected by the parties
will resolve the remaining disagreements.
To protect the integrity of the business understanding regarding the earn-out consideration during the earn-out
period, Germany1 is required to continue the business of AEG Group in consistence with past practice, refrain from
taking any actions which could have a negative effect on the opportunity of the Sellers to receive the earn-out
consideration, to cause AEG Group to maintain the books and records in accordance with past practice and to
provide quarterly unaudited and annual audited financial statements in accordance with IFRS as supplied in the past,
except where such actions have been approved by the members of the Board of Directors proposed by Ripplewood.
In the event that Germany1 undergoes a change of control during the earn-out period, Germany1 shall pay to the
Sellers all of the outstanding earn-out payments that could become due and payable as of the date of such change of
control, unless the Sellers' representative otherwise consents.
Closing Conditions
The obligations of the parties to close the Acquisition are subject to conditions precedent that are customary for a
transaction of this type as follows:
The following are the most important conditions to the obligations of both parties to consummate the Acquisition:
(i) approval of relevant anti-trust authorities has been received; (ii) there is no injunction, law or court order
prohibiting the consummation of the Acquisition; (iii) the appropriate level of consent of the Germany1 shareholders
has been obtained; (iv) holders of no more than 29.99% of the Shares have exercised their redemption rights; and (v)
the consent of a third party required under the Acquisition Agreement has been obtained.
The following are the most important conditions to the obligations of the Sellers to consummate the Acquisition:
(i) the representations and warranties of Germany1 are true and correct at and as of the closing in all material
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respects, with certain exceptions of representations made as of the a particular date, and Sellers are not obligated to
consummate the Acquisition if any breaches by us exceed a defined threshold in value; subject to specified
limitations, and (ii) Germany1 has duly performed and complied in all material respects with all agreements
contained in the Acquisition Agreement required to be performed or complied with by it at or before the closing; and
(iii) Germany1 shall have taken certain actions with respect to the appointment of Timothy Collins and Leonhard
Fischer to the Board of Directors.
The following are the most important conditions to the obligations of Germany1 to consummate the Acquisition: the
representations and warranties of the Sellers are true and correct in all material respects at and as of the closing, with
certain exceptions made as of a particular date, and we are not obligated to consummate the Acquisition if breaches
by the Sellers exceed a defined threshold in value; (ii) the Sellers have duly performed and complied in all material
respects with all agreements contained in the Acquisition Agreement required to be performed or complied with by
them at or before the closing; (iii) since the date of the Acquisition Agreement, there will not have been any change
or effect that is materially adverse to the business, properties, assets, financial condition or results of operations of
the companies in the AEG Group taken as a whole, subject to certain exceptions as set forth under the definition of
"Material Adverse Effect" in the Acquisition Agreement; (iv) effective as of the closing, certain directors and
officers of the companies in the AEG Group will have resigned from office; and (v) Germany1 has agreed with any
of Sellers on a put right regarding all of the equity interests in Harmer & Simmons (France) SAS.
Representations and Warranties of Sellers
The Acquisition Agreement contains customary seller representations and warranties. These warranties have been
issued on the date of signing and will be repeated on the closing date, subject to specified limitations. The seller
warranties relate to, among other things, general and commercial aspects, intellectual property/information
technology, real estate, employment and retirement benefits.
None of the representations, warranties, covenants and agreements in the Acquisition Agreement or in any
instrument delivered pursuant to the Acquisition Agreement, including any rights arising out of any breach of such
representations, warranties, covenants and agreements, will survive the closing of the Acquisition, except for certain
warranties concerning the shareholders' ownership of the shares they are selling and the ability to sell such shares
free of any liens (with certain exceptions), which survive for five years following the closing, and those covenants
and agreements that by their terms apply or are to be performed in whole or in part after the closing of the
Acquisition.
The following summarizes the most important warranties given by the Sellers:
•
Title in the AEG and Holdco shares, authority and capacity of the Sellers and absence of third party's rights;
•
Absence of any conflicts or need for any consents or approvals;
•
Corporate status of Holdco and AEG and its subsidiaries;
•
Capitalization of Holdco and AEG;
•
Financial statements as of 31 December 2008, 31 December 2007 and 31 December 2006;
•
Absence of undisclosed liabilities;
•
Real property and other assets, including intellectual property;
•
Material contracts;
•
Employee related matters;
•
Compliance with law and litigation;
•
Tax matters;
•
Absence of certain changes since 31 December 2008;
68
•
Environmental matters;
•
Transaction expenses;
•
Customers, distributors and suppliers;
Representations and warranties of Germany1
The following is a summary of the representations and warranties we give with respect to us:
•
Corporate status and authority;
•
Requirements of a shareholders approval;
•
Absence of conflicts or a need for consents and approvals;
•
Capitalization;
•
Financial statements as of 31 December 2008;
•
Absence of undisclosed liabilities;
•
Available cash and the trust account;
•
Compliance of law and litigation;
•
Absence of changes;
•
Transaction expenses.
Indemnification
Each Seller will indemnify Germany1 for any losses which Germany1 suffers from a breach of such Seller's
representations to title of its shares and ability to enter the Acquisition Agreement to sell its shares, if a claim is
made by Germany1 for losses incurred from a breach of such representation during the five years following closing.
Germany1 will also be indemnified, out of an escrow account to be set up for such purpose, for certain tax liabilities
that could become due in Germany as a result of an ongoing audit by the German tax authorities.
Germany1 and AEG will be indemnified, solely from amounts on deposit in the tax escrow fund described below,
from German taxes imposed on AEG or any of its German subsidiaries (i) for taxable years 2004-2007 as a result of
the current audit in Germany and (ii) for the 2008 taxable year or the portion of the 2009 taxable year ending before
the Closing Date to the extent attributable to issues raised in the current audit in Germany. The initial amount in the
tax escrow fund shall be EUR 5,000,000 in cash and 500,000 Convertible Shares. In addition, on the first occasion
when any cash and/or Convertible Shares would otherwise be payable under the earn-out, up to EUR 8,000,000 of
such amount (determined valuing Convertible Shares at EUR 10 each) will be added to the tax escrow fund in the
same relative proportion of cash and Convertible Shares as would have been paid under the earn-out. Amounts
available in the tax escrow will be reduced upon determination by an Independent Accounting Firm that AEG’s and
its German subsidiaries’ potential liability for such taxes would be lower than the amount on deposit in the tax
escrow fund. And upon a final determination of the amount of such taxes amounts in the tax escrow fund will be
available to indemnify Germany1 and AEG.
Covenants
The following is a summary of the most important covenants contained in the Acquisition Agreement. The rights
and obligations of the Sellers described below and elsewhere in this summary of the Acquisition Agreement will
generally be exercised or performed by Ripplewood Power Systems I, L.L.C., as the representative of the Sellers:
Conduct of Business: From the date of the Acquisition Agreement until the closing, AEG is generally required to
conduct its business in the ordinary course in substantially the same manner in which it previously has been
conducted and not to take certain actions specified in the "Absence of Certain Changes" warranty given by the
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Sellers. From the date of the Acquisition Agreement until the Closing, Germany1 may not take certain actions
specified in the "Absence of Changes" warranty given by Germany1.
Access and Information: From the date of the Acquisition Agreement until the Closing, the Sellers must cause the
companies in the AEG Group to give to Germany1 and its employees, officers and representatives reasonable access
at all reasonable times upon reasonable notice to the properties, books and records of the companies in the AEG
Group and to furnish such information and documents in their possession relating to the companies in the AEG
Group as Germany1 may reasonably request, which information is to be treated confidentially by Germany1.
Notifications and Supplements to Disclosures: The parties are obligated to notify each other if they become aware
that any warranty is untrue or inaccurate or that they have breached any covenant, or if there has been a material
adverse effect.
No Solicitation: Neither the Sellers nor AEG, on the one hand, and Germany1, on the other hand, may pursue an
alternative transaction.
Reasonable Efforts: Each of the parties must use its commercially reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate in the most expeditious manner practicable the transactions provided
for in the Acquisition Agreement.
Cash Shortfall Amount: In the event Germany1 has less than EUR 200,000,000 cash available to pay the cash
portion of the purchase price after deduction of amounts to pay Shareholders who opt to redeem their Shares and
Germany1's transaction fees and expenses, Germany1 must issue a promissory note payable to the Sellers in an
amount equal to the lesser of the shortfall and EUR 25,000,000.
Third Party Consents: The Sellers must, and must cause the companies in the AEG Group to, (i) reasonably
cooperate (at Germany1's expense) with Germany1 to obtain any consents required from third parties in connection
with the consummation of the transactions contemplated by the Acquisition Agreement and (ii) use their best efforts
to obtain the consent of the counterparty with respect to a certain license agreement.
Employee-Related Matters: From and after the closing of the Acquisition, Germany1 must, or must cause one of the
companies in the AEG Group or another subsidiary of Germany1 to, honor, pay, perform, and satisfy any and all
liabilities, obligations and responsibilities to or in respect of each employee of the companies in the AEG Group
arising under the terms of or in connection with any AEG benefit plan, employment agreement, works agreement or
collective bargaining agreement maintained by any company in the AEG Group.
Tax Matters: Germany1 will not (and will cause the companies in the AEG Group not to), make an election under
Section 338 of the U.S. internal revenue code with respect to Holdco or any company in the AEG Group. During the
two-year period beginning with the closing of the Acquisition, Germany1 will (and will cause AEG to) use its best
efforts to maintain the level operations of AEG at all times during the taxable year of AEG in which the closing of
the Acquisition occurs, and must not (and will cause AEG not to) take any position or action inconsistent therewith.
During such period, without the prior written consent of the Sellers' representative, Germany1 will not undertake any
corporate transaction which could reasonably be expected to cause any of the Sellers or any of their direct or indirect
shareholders, partners, members or equityholders to recognize any gains or losses in the Convertible Shares for US
federal income tax purposes except that the purchaser may migrate to a jurisdiction in the European Union in a
transaction described in the appendix to the Acquisition Agreement. Germany1 will file with the U.S. Internal
Revenue Service an election to disregard the newly formed subsidiary of Germany1 described in this section under
"General; Structure of the Acquisition" for U.S. federal income tax purposes, such election to be effective no later
than the date such subsidiary is organized, and will ensure that such subsidiary remains disregarded as an entity
separate from Germany1 for U.S. federal income tax purposes at all relevant times. Germany1 will cause the merger
described in this section under "General; Structure of the Acquisition" and will not take any position for U.S. federal
income tax purposes inconsistent with the treatment of the Acquisition, taken together with such merger, as a
reorganization for such purposes.
Securities Act: Germany1 may not offer to sell or otherwise dispose of the AEG Shares so acquired by it in violation
of any of the registration requirements of the Securities Act of 1933, as amended, or the applicable securities laws of
any other jurisdiction.
Euronext Listing: Germany1 will cause the Germany1 Shares issued to the Sellers (including shares forming part of
the earn-out consideration) to be authorized for listing on Euronext and any other exchange on which Shares may be
70
listed, immediately following conversion. Germany1 will make all necessary filings and take all necessary corporate
action to effectuate such listings.
Uses of Cash: From and after the date of the Acquisition Agreement, Germany1 and its subsidiaries, if any, must
generally hold and reserve their available cash in anticipation of their cash needs at, following and in connection
with the closing of the Acquisition. In furtherance of the foregoing, Germany1 may not make any distribution or
other payment to its shareholders or sponsors other than payment of the purchase price for the AEG shares, amounts
due to redeeming Shareholders, and certain specified expenses. Immediately prior to the closing of the Acquisition,
Germany1 must have on deposit an amount in immediately available cash not less than the sum of EUR 250,000,000
plus an amount sufficient to satisfy certain specified unpaid fees and expenses in connection with the transactions
contemplated by the Acquisition Agreement. If and to the extent Germany1 incurs costs and expenses in connection
with the Acquisition that cannot be covered by (i) the working capital available to Germany1 (approximately
EUR 4.3 million) and (ii) funds in the Trust Account in excess of EUR 250 million, the Founding Shareholders will
sell a necessary number of Shares in the market and provide the proceeds of such sales to Germany1 in order to
compensate Germany1 for such excess costs. Deutsche Bank has agreed to release the Founding Shareholders from
their lock-up obligations with regard to such sales.
Covenant Not to Compete: For a period of two years from and after the closing of the Acquisition, neither
Ripplewood nor any of its controlled Affiliates will engage directly or indirectly in any business that any of the
companies in the AEG Group conducts as of the closing of the Acquisition in any geographic area in which any of
the companies in the AEG Group conducts that business as of closing of the Acquisition; provided, however, that no
owner of less than 3% of the outstanding stock of any publicly traded corporation will be deemed to engage in any
such business solely by reason thereof.
No Interference: In general, neither Ripplewood nor any of its controlled Affiliates may, directly or indirectly
through another person for a period of two years after the closing of the Acquisition, (i) induce or attempt to induce
any employee of AEG, Germany1 or any of their Affiliates to leave the employ thereof, or in any way interfere with
the relationship between AEG, Germany1 or any of their Affiliates and any employee thereof, (ii) hire any person
who was an employee of AEG, Germany1 or any of their Affiliates at any time during the twelve-month period
immediately prior to the date on which such hiring would take place or (iii) call on, solicit or service any customer,
supplier, licensee, licensor or other business relation of AEG, Germany1 or any of their Affiliates (including any
person that was a customer, supplier or other potential business relation of the AEG, Germany1 or any of their
Affiliates at any time during the twelve-month period immediately prior to such call, solicitation or service), to
induce or attempt to induce such Person to cease doing business with AEG, Germany1 or any of their Affiliates, or
in any way interfere with the relationship between any such customer, supplier, licensee or business relation of AEG,
Germany1 or any of their Affiliates.
Limitation of Liability
It is the explicit intent and understanding of each of the parties to the Acquisition Agreement that no party nor any of
its Affiliates, representatives or agents is making any representation or warranty whatsoever, oral or written, express
or implied, other than those expressly set forth in the Acquisition Agreement. None of the companies in the AEG
Group, any of their Affiliates or any other person will have or be subject to any liability obligation to Germany1, its
Affiliates or any other person resulting from any representation or warranty, oral or written, express or implied,
made by the companies in the AEG Group, their Affiliates, representatives or agents, including, without limitation,
any document, material or information (including, without limitation, any projections, forecasts, estimates or
budgets) provided or made available to Germany1, its Affiliates or representatives in the documents provided in the
due diligence, offering memoranda, vendor diligence reports, management presentations or any other form in
expectation of the transactions contemplated by the Acquisition Agreement. The parties disclaim, implied warranties
and representations as to condition, merchantability, or suitability of any assets of the companies in the AEG Group,
and except as set forth in the Acquisition Agreement, Germany1 takes the assets of the companies in the AEG Group
on an "as is"; "where is" basis. The parties agree that the Acquisition is an arm's-length transaction in which the
parties' undertakings and obligations are limited to the performance of their obligations under the Acquisition
Agreement. Each of the parties has only a contractual relationship with the other parties, based solely on the terms of
the Acquisition Agreement, and there is no special relationship of trust or reliance between it and any of the other
parties.
71
Termination
The Acquisition Agreement may only be terminated as follows: (i) at any time prior to the closing of the Acquisition
by mutual consent of the Sellers and Germany1, (ii) either by the Sellers or Germany1, if either (x) at the Annual
General Meeting, Germany1 Shareholder approval is not obtained or (y) the holders of 30% or more of Germany1
Public Shares validly exercise their redemption rights, (iii) either by the Sellers by written notice to Germany1, or by
Germany1 by written notice to the Sellers, if any event, fact or condition occurs or exists that otherwise makes it
impossible to satisfy a condition precedent to the terminating party's obligations to consummate the transactions
contemplated by the Acquisition Agreement, and such event, fact or condition has not been cured or waived by the
non terminating party within 20 business days of notice thereof from the terminating party, unless the occurrence or
existence of such event, fact or condition is attributable to a breach of the Acquisition Agreement by the terminating
party, or (iv) by the Sellers or by Germany1, if the closing of the Acquisition has not taken place on or before the
date that is 180 days from the date of the Acquisition Agreement or such later date as the Sellers and Germany1 may
have agreed to in writing, provided that the non- occurrence of the closing of the Acquisition is not attributable to a
breach of the Acquisition Agreement by the terminating party.
If the Acquisition Agreement is terminated, it will become null and void and of no further force or effect, except for
certain confidentiality, publicity and expense obligations. Termination will not release the Sellers, AEG or
Germany1 from any liability for any breach by such party of the terms and provisions of the Acquisition Agreement
or to impair the right of the Sellers to compel specific performance by Germany1, or the right of Germany1 to
compel specific performance by the Sellers, of its or their respective obligations under the Acquisition Agreement.
Expenses
Germany1 will generally bear the expenses incurred by it, and AEG and the Sellers will generally bear the expenses
incurred by them, in connection with the Acquisition Agreement and the transactions contemplated thereby,
including all fees and disbursements of counsel and accountants retained by the relevant party, provided that all
transfer or similar taxes applicable to or imposed upon or by reason of the transfer of the AEG Shares will be paid by
Germany1, and Germany1 will file all necessary tax returns and other documents with respect to such taxes.
Assignment
The Acquisition Agreement is binding upon and inures to the benefit of the parties thereto and their respective
successors and permitted assigns, provided that any assignment or transfer, by operation of law or otherwise, by any
party thereto requires the prior written consent of Germany1 (in the case of an assignment or transfer by any Seller)
or the Sellers (in the case of an assignment or transfer by Germany1), and any purported assignment or other transfer
without such consent will be void and unenforceable.
Governing Law
The Acquisition Agreement will be construed, performed and enforced in accordance with the laws of the State of
New York, without regard to the conflicts of law principles of such state.
Dispute Resolution
Any dispute or disagreement arising out of, in connection with, or related to the Acquisition Agreement will be
submitted for binding resolution by arbitration in accordance with the Swiss Rules of International Arbitration of the
Swiss Chamber of Commerce in effect at the time of commencement of the arbitration, except to the extent that such
rules conflict with the provisions of the Acquisition Agreement, in which case the provisions of the Acquisition
Agreement control. Either party may commence the arbitration by submitting a notice of arbitration. The arbitration
will be conducted by an arbitral tribunal consisting of three arbitrators. Each of Germany1 and the Sellers will
appoint one arbitrator. The two arbitrators so appointed will attempt to agree upon the third arbitrator within fifteen
days from appointment of the second arbitrator. The seat of the arbitration will be Zurich, Switzerland and the
arbitration will be conducted in the English language.
72
Sellers' Representative
Each Seller appoints Ripplewood Power Systems I L.L.C. as his, her or its exclusive proxy, representative, agent and
attorney-in-fact for all purposes under the Acquisition Agreement and related agreements.
Disclosure Letter
On the date of the Acquisition Agreement, the Sellers delivered a disclosure letter containing information required
by, or exceptions to, the representations and warranties made by the Sellers. Such letter may be supplemented,
modified or updated by the Sellers prior to the closing of the Acquisition with respect to matters first arising after the
date of the Acquisition Agreement. In addition, prior to the closing of the Acquisition, Germany1 may provide to the
Sellers any updates or changes with respect to the representations and warranties made by Germany1 for matters first
arising after the date of the Acquisition Agreement.
73
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
On 23 July 2009, Germany1 and the Sellers entered into an Acquisition Agreement relating to the proposed
Acquisition. If this Acquisition is consummated, Germany1 will deliver at closing cash and Convertible Shares as set
out in Note 1 to the Unaudited Pro Forma Condensed Combined Financial Statements.
The following unaudited pro forma condensed combined balance sheet information combines the historical audited
balance sheets of Germany1 and AEG as of 31 December 2008, giving effect to the Acquisition as if it had occurred
on 31 December 2008.
The unaudited pro forma condensed combined statement of income (loss) information for the fiscal year ended 31
December 2008 combine the historical audited statement of income of Germany1 from 21 May 2008 (date of
inception) through 31 December 2008, with the historical audited consolidated statement of income from continuing
operations of AEG for the fiscal year ended 31 December 2008. This unaudited pro forma condensed combined
statement of income (loss) gives effect to the Acquisition as if it had occurred on 1 January 2008.
The historical financial information has been adjusted to give effect to pro forma events that are directly attributable
to the Acquisition, are factually supportable and, in the case of the pro forma statement of income (loss), have a
recurring impact. The unaudited pro forma condensed combined financial statements have been prepared using
International Financial Reporting Standards (IFRS) as published by the International Accounting Standards Board
(IASB) and as adopted by the EU.
The unaudited pro forma condensed combined financial statements include estimates and assumptions to determine
the purchase price consideration available at this time. These estimates and assumptions may differ from the
estimates and actual results in the final accounting for the Acquisition as additional information becomes available,
and such differences may be material. For the calculation of the equity consideration a trading price of EUR 10.00
per Share is assumed. The purchase price consideration is further subject to change based upon recording of actual
transaction cost and adjustments for net cash and working capital, as well as further cash payments and additional
Shares that may be issued if specific performance targets are met (earn-out). The unaudited pro forma condensed
combined financial statements do not reflect any payments in cash or Shares that may be made in accordance with
any such purchase price adjustment or earn-out.
The Acquisition will be accounted for using the acquisition method as stated in IFRS 3 (no early adoption of IFRS 3
rev. 2008). The unaudited pro forma condensed combined financial statements include estimates to adjust assets and
liabilities of AEG to their respective fair values based upon preliminary information available at this time. These
estimates may differ from the estimates in the final accounting for the Acquisition as additional information becomes
available, and such differences may be material. The purchase price allocation is, among others, subject to the
changes of the purchase price consideration, as well as to the completion of third party appraisals of tangible and
intangible assets of the acquired AEG business.
The unaudited pro forma condensed combined balance sheet as at 31 December 2008 and the unaudited pro forma
condensed combined statement of income (loss) for the year ended 31 December 2008 have been prepared using two
different assumptions for the levels of approval of the transaction by the Germany1 Shareholders:
•
Assuming no exercise of redemption rights: This presentation assumes that none of Public Shares exercise
their redemption rights; and
•
Assuming maximum exercise of redemption rights: This presentation assumes that 29.99% holders of Public
Shares exercise their redemption rights and that Germany1 pays a portion of the purchase price with the
issuance of a promissory note payable to the Sellers.
Germany1 is providing this information to aid you in your analysis of the financial aspects of the Acquisition. The
unaudited pro forma condensed combined financial statements should be read in conjunction with the historical
financial statements of Germany1 and AEG and the related notes thereto included elsewhere in this Proxy Statement.
The unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and do
not purport to present what the actual results of operations or financial position would have been had the transactions
actually occurred on the dates indicated, nor do they purport to represent results of operations for any future period
or financial position for any future date.
74
Unaudited Pro Forma Condensed Combined Balance Sheet as of 31 December 2008
Germany1
as of
31
December
2008
AEG PS
as of
31
December
2008
Total
Note
Pro-Forma
Pro-Forma Note Pro-Forma
Pro-Forma
(Assuming
No Exercise
(Assuming
Maximum
No Exercise
of
Maximum
Exercise of
of
Redemption
Redemption
Rights)
Redemption
Rights)
Rights)
Rights)
(EUR thousand)
ASSETS
Intangible assets .............................................................
Goodwill.........................................................................
Property, plant and equipment .......................................
Other non-current assets ................................................
Total non-current assets ..............................................
Inventories......................................................................
Receivables ....................................................................
Other current assets........................................................
Cash and cash equivalents .............................................
Cash held in trust............................................................
Assets classified as held for sale....................................
Total current assets......................................................
Total assets....................................................................
LIABILITIES AND
STOCKHOLDER'S EQUITY
Capital stock...................................................................
Share and warrant premium ...........................................
Additional paid-in capital ..............................................
Legal Reserve.................................................................
Accumulated profit (deficit) ..........................................
Cumulative translation adjustments...............................
Total Stockholders' equity
Pensions and other post-retirement
Obligations .....................................................................
Other long-term debt......................................................
Deferred tax liabilities....................................................
Total non-current liabilities ........................................
Short term debt (including current
portion of long term debt) ..............................................
Deferred IPO expenses ..................................................
Accounts payable ...........................................................
Customers' deposits and advances .................................
Other current liabilities ..................................................
Liabilities classified as held for sale ..............................
Total current liabilities ................................................
Total liabilities and stockholder's equity ...................
0
90
2,582
249,914
252,586
252,586
7,360
7,360
23,960
6,320
37,640
62,706
97,435
16,063
54,631
23,960
6,320
37,640
62,706
97,525
16,063
57,213
249,914
21,983 21,983
252,818 505,404
290,458 543,044
217
243,447
3,675
247,122
0
5,314
150
5,464
252,586
21,502
6,885
14,585
(f)
(e)
371,444
90,281
788
462,513
11,253
(a)
(b)
(c)
(d)
(m)
249,914
(200,000)
(5,314)
(3,700)
6,518
(a)
(249,914)
378,804
90,281
24,748
6,320
500,153
73,959
97,525
16,063
104,631
(191,243)
271,271
0
21,983
314,161
814,315
217
243,447
(l)
(b)
(217)
192,090
0
435,537
21,502
6,885
18,260
(l)
(l)
(d)
(l)
(m)
(l)
(21,502)
(6,885)
(15,500)
915
6,518
(580)
154,839
0
0
10,193
580
580
43,769 290,891
19,992
744
3,075
23,811
19,992
744
3,075
23,811
27,745
27,745
5,314
56,399
74,350
47,802
16,732
228,342
543,044
56,249
74,350
47,802
16,732
222,878
290,458
(h)
(i)
(g)
(j)
(2,105)
(k)
108,351
106,246
(c)
(d)
(5,314)
15,500
10,186
271,271
378,804
90,281
24,748
6,320
500,153
73,959
97,525
16,063
54,631
(o)
(p)
24,974
1,500
(m)
(n)
(1,500)
(74,974)
(50,000)
(50,000)
(n)
(p)
(74,974)
1,500
0
362,062
0
0
8,693
(m)
0
445,730
(1,500)
(74,974)
17,887
744
111,426
130,057
27,745
0
71,899
74,350
47,802
16,732
238,528
814,315
0
21,983
264,161
764,315
0
370,755
17,887
744
111,426
130,057
(o)
24,974
24,974
(50,000)
52,719
0
71,899
74,350
47,802
16,732
263,502
764,315
integral part of these statements.
75
Unaudited Pro Forma Condensed Combined Statement of Income (Loss) for the financial
year ended 31 December 2008
Germany1
(Period
from 21
May 2008 to
31
December
2008)
AEG PS Continuing
Operations
(Year
Ended 31
December
2008)
Total
Note
Pro Forma
Pro-Forma
Adjustments (Assuming No
(Assuming No
Exercise of
Exercise of
Redemption
Redemption
Rights)
Rights)
Note
Pro Forma
Adjustments
(Assuming
Maximum
Exercise of
Redemption
Rights)
Pro Forma
(Assuming
Maximum
Exercise of
Redemption
Rights)
(EUR thousand)
Revenues ........................
4,026
Cost of sales .................
342,836
346,862
(227,454)
(227,454)
Gross profit ...................
4,026
115,382
119,408
Selling, general and
administrative
expenses .........................
(351)
(54,010)
(54,361)
Research and
development costs ..........
(a)
(4,026)
342,836
342,836
(227,454)
(227,454)
(4,026)
115,382
0
115,382
(d)
(26,253)
(93,180)
(93,180)
(c)
(105)
(e)
(12,461)
(6,661)
(6,661)
(6,661)
(6,661)
3,241
3,241
3,241
3,241
(2,298)
(2,298)
(2,298)
(2,298)
55,654
59,329
Interest income ...............
1,053
1,053
Interest expense..............
(4,892)
(4,892)
51,815
55,490
(15,866)
(15,866)
35,949
39,624
Other operating
expenses .........................
Operating
profit/(loss) before
financing costs ..............
Profit/(Loss) before
taxes ...............................
3,675
3,675
Income taxes...................
Profit/(loss) from
continuing operations ..
3,675
(a), (b)
(f)
(42,845)
16,484
1,206
2,259
(4,892)
(41,639)
13,851
10,908
(4,958)
(30,731)
8,893
0
16,484
(b)
(1,206)
1,053
(g)
(1,249)
(6,141)
(2,455)
11,396
(4,958)
(2,455)
6,439
integral part of these statements.
76
Pro forma operating figures1
2008
Pro Forma operating figures
(unaudited)
1
Assuming No Exercise of
Redemption Rights
Assuming Maximum Exercise
(EUR thousand)
(EUR thousand)
EBIT unadjusted .....................................................
Factors affecting EBIT
Pro forma adjustment - Increase of amortization
and depreciation due to recurring effects of
purchase price allocation ("PPA") ..........................
EBIT adjusted ........................................................
16,484
16,484
38,819
55,303
38,819
55,303
EBIT unadjusted .....................................................
Amortization/ depreciation including PPA
amortization ............................................................
16,484
16,484
43,308
43,308
EBITDA .................................................................
59,792
59,792
EBITDA is EBIT (earnings before interest and taxes) before depreciation/amortization of, and write-ups to, fixed assets. We disclose
EBITDA, as we believe that it is a valuable measure for assessing the Group’s total performance. EBITDA is not an indicator defined by
IFRS. As a result, it is possible that other companies use a different method to calculate EBITDA and that the disclosed pro forma EBITDA
is not comparable in this form with other similarly-named measures published by other companies. The adjusted EBIT was calculated based
on EBIT while eliminating amortization on assets resulting from purchase price allocation. The adjusted EBIT should always be considered
together with the IFRS key indicators, and not taken on their own, as their informative-value is restricted in various aspects.
77
Notes
1. Calculation of preliminary Purchase Price Consideration
On 23 July 2009, we entered into the Acquisition Agreement with the Sellers. Upon closing of the Acquisition,
Germany1 will indirectly own all of the issued and outstanding capital stock of AEG. The base consideration for all
the issued and outstanding capital stock of AEG consists of (i) EUR 200,000,000 in cash and (ii) 19,208,955
Convertible Shares. The consideration for the shares in AEG will be adjusted upwards or downwards to account for
net cash and working capital and is also subject to an earn-out payable in cash and Convertible Shares valued at up
to EUR 50,000,000 based on the achievement of certain performance targets with respect to fiscal years 2009, 2010
and 2011, which is described elsewhere in this Proxy Statement.
At the time of initially accounting for the business combination the earn-out and possible purchase price adjustments
are not considered within the calculation of the purchase price according to IFRS 3 unless the payable is probable
and the amount can be measured reliably. If the earn-out becomes payable in the future there will be an increase in
goodwill with no impact on future earnings. Nevertheless, since additional Shares would be issued a dilutive effect
on earnings per Share would occur.
The following table has been prepared using the two different levels of approval of the Acquisition (i) assuming no
exercise of redemption rights and (ii) assuming maximum exercise of redemption rights, both of which are described
elsewhere in this Proxy Statement. Assumptions and estimates used in the determination of the purchase price
consideration are (i) a trading price of EUR 10.00 per Share is assumed, (ii) that the earn-out payments in cash and
shares is not probable and therefore has not been taken into account and (iii) that there is no upward or downward
purchase price adjustment to account for net cash and working capital. The direct related Acquisition costs are
estimated to be EUR 3,700 thousand.
Source
Assuming No Exercise
Assuming Maximum
Rights
(EUR thousand)
Germany1 cash 31 December 2008 ...................................
Deferred IPO cost...............................................................
Estimated direct acquisition cost........................................
Cost compensation from founders .....................................
252,496
(5,314)
(3,700)
6,518
Cash immediately before transaction.............................
250,000
250,000
200,000
0
192,090
74,974
175,026
24,974
192,090
Consideration paid in cash .................................................
Estimated consideration paid in shares ..............................
Net cash and working capital adjustments .........................
Estimated direct acquisition cost Germany1 ......................
200,000
192,090
0
3,700
200,000
192,090
0
3,700
Estimated purchase price consideration ........................
395,790
Cash in trust held for payment to Germany1
stockholders that exercise their redemption rights .............
Cash available for the acquisition ......................................
Promissory note payable to Sellers ....................................
Issuance of new shares...................................................
1
252,496
(3,814)
(3,700)
5,018
1
2
3
Uses
1
4
395,790
To reflect compensation from Founding Shareholders that is paid if cost and expenses in connection with the Acquisition cannot be covered
by (i) the working capital available to Germany1 and (ii) funds in the trust account in excess of EUR 250 million.
78
4
2
To reflect the cash payments to Germany1's Shareholders for the maximum redemption amounting to their pro rata interest in the Trust
Account. The pro forma adjustment assumes a cash repayment of EUR 10.00 per Share, based on the value of the Trust Account as of 31
December 2008. The actual amount may differ from this estimate.
Under the Acquisition Agreement, in the event Germany1 has less than EUR 200,000,000 cash available to pay the cash portion of the
purchase price after deduction of amounts to pay Shareholders who opt to redeem their Shares and Germany1's transaction fees and
expenses, Germany1 must issue a promissory note payable to the Sellers in an amount equal to the lesser of the shortage and
EUR 25,000,000.
Assumes no purchase price adjustments due to net cash or net working capital.
3
4
2. Purchase Price Allocation
The following table provides information regarding the pro forma purchase price, the pro forma adjustments to
AEG’s assets and liabilities and the pro forma goodwill, in EUR thousands, as if the Acquisition had occurred on
31 December 2008:
Total pro forma purchase price of AEG .........
395,790
Pro forma net assets acquired..........................
305,509
Book value of AEG's stockholders' equity as of
31 December 2008 ..............................................
Transaction related cost of AEG .........................
Fair value adjustments ........................................
Property, Plant and Equipment ...........................
Intangible assets ..................................................
Inventories ..........................................................
Pensions and other post-retirement obligations ..
Fair value adjustments before deferred tax .........
Deferred tax - tax rate 28.1% ..............................
43,769
(15,500)
277,240
788
371,444
11,253
2,105
385,591
(108,351)
Pro forma goodwill ...........................................
90,281
The purchase price has been allocated to the acquired assets and liabilities and the difference between the purchase
price allocation and the fair value of the net assets acquired was recorded as goodwill. The purchase price allocation
is based on information available and expectations and assumptions deemed reasonable by management. The
valuation of the intangible assets has been carried out by using a weighted average cost of capital of 11%. A
deviation of 1% upwards or downwards would have an impact of approximately EUR 20 million, respectively,
downwards or upwards.
The purchase price allocation is preliminary until Germany1 completes a third-party valuation and determines the
fair values, actual direct Acquisition cost and final net cash and working capital adjustments, respectively, and
calculates the earn-out amount. Any additional adjustments to reflect AEG’s assets and liabilities at fair value would
affect the pro forma goodwill, and may affect depreciation and amortization expenses in the future. Apart from these
adjustments, the earn-out payable under the Acquisition Agreement could result in an increase of goodwill of EUR
50 million. The final amounts allocated to assets acquired and liabilities assumed could differ significantly from the
preliminary amounts presented in the unaudited pro forma condensed combined financial statements. See note 3.g
and 3.h for the estimated useful lives of the acquired assets.
3. Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet
Assuming no exercise of redemption rights
(a)
To record the reclassification from "cash held in trust" to "cash";
(b)
To record the base consideration being cash paid (EUR 200 million) to the Sellers and equity consideration
(19,208,955 Convertible Shares at an assumed share price of EUR 10.00, or EUR 192 million) issued in the
Acquisition;
(c)
To reflect the payment of deferred IPO fees related to Germany1's initial public offering. These deferred IPO
fees become payable once the Acquisition is completed;
79
(d)
To reflect the estimated direct attributable Acquisition costs of EUR 3.7 million as direct Acquisition cost of
Germany1 and EUR 15.5 million of transaction related costs of AEG.
(e)
To reflect receivables at book value carried on AEG’s financial statements, which are estimated to
approximate fair value.
(f)
To adjust inventory to reflect estimated market value less cost to sell.
(g)
To adjust property, plant and equipment values to fair value based on management’s estimate, pending
completion of a third-party valuation. The average remaining useful lives of the assets are expected to be
between 2 and 8 years for equipment. The fair value adjustment and the remaining useful life can differ
significantly in the final purchase price allocation.
(h)
To record the estimated fair value of intangible assets based on management’s estimate, pending completion
of a third-party valuation. The fair value adjustment and the remaining useful life can differ significantly in
the final purchase price allocation. The uplifts for the following intangible assets have currently been
identified:
Description
Order backlog
Customer relationships
Technology
Amount
(EUR thousand)
30,482
273,854
67,108
Amortization Period
1 - 3 years
13 - 14 years
4 - 15 years
371,444
(i)
To record pro forma goodwill based on the preliminary purchase price consideration and the preliminary
purchase price allocation.
(j)
To record estimated pension liabilities assumed in the Acquisition based on the estimated fair value of the
deferred benefit obligation, pending the final purchase price allocation as of the Acquisition date.
(k)
To reflect the deferred income tax effect at an assumed tax rate of 28.1%, related to the net pro forma
adjustments. AEG’s actual effective tax rate after the Acquisition is completed may vary significantly from
this estimate, depending upon the relative earnings and deductions in the various tax jurisdictions.
(l)
To eliminate AEG’s historical shareholders equity.
(m)
To reflect compensation from Founding Shareholders that is paid if cost and expenses in connection with the
Acquisition cannot be covered by (i) the working capital available to Germany1 and (ii) funds in the Trust
Account in excess of EUR 250 million.
Assuming maximum exercise of redemption rights
(n)
To reflect the cash payment to Germany1’s Shareholders for redemption amounting to their pro rata interest
in the Trust Account. The pro forma adjustment assumes a cash repayment of EUR 10.00 per share and a
29.99% redemption. The actual amount may differ from this estimate.
(o)
To reflect issuance of a promissory note payable to Sellers to fund a portion of the purchase price due to the
cash shortfall resulting from the exercise of redemption rights by Public Shareholders.
(p)
To reflect decreased underwriting fees payable in case of a maximum exercise of redemption rights, which
has been agreed with the underwriters of the IPO.
80
4. Adjustments to the Unaudited Pro Forma Condensed Combined Statement of Income
(loss)
Assuming no exercise of redemption rights
(a)
To reclassify Germany1 interest on Trust Account as interest income.
(b)
To reflect lower interest income on lower cash on Trust Account after consummation of the Acquisition.
(c)
To reflect increased depreciation expenses for the financial year ended 31 December 2008 as a result of the
pro forma estimated adjusted fair value of property, plant and equipment as part of the purchase price
allocation.
(d)
To reflect increased amortization expenses for the financial year ended 31 December 2008 as a result of the
pro forma estimated adjusted fair value of intangible assets as part of the purchase price allocation.
(e)
To record the recurring impact of amortization of order backlog.
(f)
To reflect the deferred income tax effects at an assumed tax rate of 28.1%, related to the net pro forma
adjustments. AEG’s actual effective tax rate following the Acquisition may vary significantly from this
estimate, depending upon the relative earnings and deductions in the various tax jurisdictions.
Assuming maximum exercise of redemption rights
(g)
To reflect interest expense for the promissory note payable to Sellers issued to fund a portion of the purchase
price due to the cash shortfall resulting from the exercise of redemption rights by Public Shareholders.
Nonrecurring Items
The pro forma balance sheet includes nonrecurring pro forma adjustments for nonrecurring order backlog and fair
value adjustments on inventories. The amortization effects are not included in the pro forma condensed combined
statement of income (loss). The total nonrecurring impact of those fair value adjustments on the pro forma
condensed combined statement of income (loss) for fiscal year 2008 is approximately minus EUR 3.2 million (net of
tax).
Furthermore, the effect of one-time payments of AEG as a result of the Acquisition is not included in the pro forma
condensed combined statement of income (loss). The total nonrecurring impact on pro forma condensed combined
statement of income (loss) for fiscal year 2008 is approximately minus EUR 14.1 million (net of tax).
81
5. Pro Forma Combined Earnings Per Share
The following table set forth the determination of weighted average Shares outstanding assuming that the initial
public offering of Germany1 and the Acquisition of AEG had occurred on 1 January 2008.
Reconciliation of weighted average common shares outstanding - 31 December 2008
Without Contingent Consideration
in thousand shares
Basic
Diluted
Shares outstanding (including Founder Shares), 31 December 2008.....
Shares issued - purchase price consideration1 ........................................
Germany1 warrants outstanding1 ..........................................................
Shares outstanding assuming no redemption ....................................
31,250
19,209
50,459
31,250
19,209
7,750
58,209
Less conversion shares - assuming maximum conversion .....................
Shares outstanding assuming maximum redemption .......................
(7,500)
(7,500)
42,959
50,709
1
Assuming a Share price of EUR 10.00 per share and a cashless exercise of Warrants.
The historical earnings per Share for Germany1 in 2008 were EUR 0.12 (basic) and EUR 0.06 (diluted), respectively
(historical amounts calculated based on cash exercise). Pro forma income (loss) per Share was calculated by dividing
pro forma net income (loss) by the weighted average number of Shares as follows, assuming the Germany1 IPO had
occurred on 1 January 2008.
Assuming No Exercise
Number of ordinary shares outstanding upon consummation
of the acquisition (in thousand shares)...................................
Pro forma income (in EUR thousand)....................................
Pro forma earnings per share (in EUR thousand)
basic .......................................................................................
diluted ....................................................................................
Pro forma adjusted income (in EUR thousand)1
Pro forma adjusted earnings per share (in EUR)
basic ...........................................................................................
diluted ......................................................................................
1
Assuming Maximum
Rights
50,459
8,893
42,959
6,439
0.18
0.15
0.15
0.13
36,804
34,349
0.73
0.63
0.80
0.68
The pro forma adjusted income has been calculated based on the profit from continuing operations (EUR 8.9 million; assuming no
redemptions, and EUR 6.4 million assuming the maximum number of redemptions) plus the amortization effects from the purchase price
allocation (EUR 38.9 million in 2009) and less income taxes arising out of the purchase price allocation (based on tax rate of 28.1%).
82
PROPOSAL VI – APPROVAL AND ADOPTION OF AEG 2009
EXECUTIVE PERFORMANCE EQUITY INCENTIVE PLAN
AEG Shareholders are also being asked to approve and adopt the AEG 2009 Executive Performance Equity
Incentive Plan (the "Incentive Plan").
Summary of the AEG 2009 Executive Performance Equity Incentive Plan
This is a summary of the principal features of the Incentive Plan. It is qualified in its entirety by reference to the full
text of the Incentive Plan.
Background
The Incentive Plan reserves 2,500,000 Shares of Germany1 for issuance in accordance with its terms. The purpose of
the Incentive Plan is to enable Germany1 to offer its senior management whose past, present and/or potential
contributions to Germany1 have been are or will be important to the success of Germany1, an opportunity to acquire
a proprietary interest in Germany1.
The various types of incentive awards that may be provided under the Incentive Plan will enable Germany1 to
respond to changes in compensation practices, tax laws, accounting regulations and the size and diversity of its
business. However, no person will receive grants of Shares of Germany1 with an aggregate market value in excess
of EUR 1,000,000 at the date of grant, per year.
Conditional Effectiveness
The Incentive Plan will become effective upon the completion of the Acquisition. If the Acquisition is not completed
for any reason, the Incentive Plan shall not become effective.
Administration
The Incentive Plan will be administered by a committee of Germany1's Board of Directors ("Compensation
Committee"). Subject to the provisions of the Incentive Plan, the Compensation Committee shall determine, among
other things, the persons to whom from time to time awards may be granted, the specific type of awards to be
granted, the number of Shares subject to each award, share prices, any restrictions or limitations on the awards, and
any vesting, exchange, deferral, surrender, cancellation, acceleration, termination, exercise or forfeiture provisions
related to the awards.
Performance Conditions
All awards will be subject to performance conditions set by the Compensation Committee before grant. These
performance conditions will be structured to include a sliding scale of targets with graduated vesting, with full
vesting requiring the delivery of outstanding levels of performance. The performance period for awards will be a one
year period starting at the beginning of the financial year in which the award is granted, or later. Awards will lapse at
the end of the applicable performance period to the extent that the performance conditions have not been satisfied.
The performance conditions may not be retested.
The Compensation Committee may vary the performance conditions applying to existing awards to take account of
events that the Compensation Committee considers to be exceptional, provided the Compensation Committee
considers the varied condition is fair and reasonable and not materially less challenging than the original condition
would have been but for the event in question.
Vesting
Awards will normally vest following the second anniversary of grant ("Restriction Period") once the Compensation
Committee has determined the extent to which the applicable performance conditions have been satisfied and
provided the participant remains an employee or Director in the Company's group.
83
Types of Awards
Performance Options
Stock options granted under the Incentive Plan are performance based options ("Performance Options"). The
Incentive Plan provides restricted stock options (regarding the Restriction Period and Performance Conditions)
which may be granted in combination with any other Share-based award under the Incentive Plan. The
Compensation Committee will determine the exercise price per share purchasable under a Performance Option. The
number of Shares covered by Performance Options that may be exercised by any participant during any calendar
year cannot have an aggregate fair market value in excess of EUR 1,000,000 at the date of grant.
A Performance Option may only be granted within a 10-year period from the date of the consummation of
Acquisition and may only be exercised within 10 years from the date of the grant. Subject to any limitations or
conditions the Compensation Committee may impose, stock options may be exercised, in whole or in part, at any
time during the term of the stock option after the 2-years Restriction Period by giving written notice of exercise to us
specifying the number of Shares to be purchased. The notice must be accompanied by payment in full of the
purchase price, either in cash or, if provided in the agreement, in Shares or any combination of the two.
Performance Shares
Under the Incentive Plan, Germany1 may award performance based Shares ("Performance Shares") either alone or in
addition to other awards granted under the Incentive Plan. The Compensation Committee determines the persons to
whom grants of Performance Shares are made, the number of Shares to be awarded, the price if any to be paid for
the Performance Shares by the person receiving the Shares from us, the time or times within which awards of
Performance Shares may be subject to forfeiture, the vesting schedule and rights to acceleration thereof, and possibly
all other terms and conditions of the Performance Shares awards.
Performance Shares awarded under the Incentive Plan may not be transferred during the applicable Restriction
Period, usually two years. In order to enforce these restrictions, the Incentive Plan requires that all Performance
Shares awarded to the holder remain in Germany1's physical custody until the restrictions have terminated and all
vesting requirements with respect to the performance conditions have been fulfilled. A breach of any restriction
regarding the Performance Shares will cause a forfeiture of the Performance Shares and any retained distributions.
Other Share-Based Awards
Under the Incentive Plan, Germany1 may grant other Share-based awards, subject to limitations under applicable
law that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related
to, Shares, as deemed consistent with the purposes of the Incentive Plan. These other Share-based awards may be in
the form of purchase rights, Shares awarded that are not subject to any restrictions or conditions, convertible or
exchangeable debentures or other rights convertible into Shares and awards valued by reference to the value of
securities of, or the performance of, one of Germany1's subsidiaries.
Termination of Employment Restrictions
If a holder's employment with Germany1 or a subsidiary of Germany1 is terminated for any reason whatsoever and
within 12 months after the date of termination, the holder either (i) accepts employment with any competitor of, or
otherwise engages in competition with, Germany1, (ii) solicits any of Germany1's customers or employees to do
business with or render services to the holder or any business with which the holder becomes affiliated or to which
the holder renders services, or (iii) uses or discloses to anyone outside Germany1 any of Germany1's confidential
information or material in violation of Germany1's policies or any agreement between Germany1 and the holder, the
Compensation Committee may require the holder to return to Germany1 the economic value of any award that was
realized or obtained by the holder at any time during the period beginning on the date that is 12 months prior to the
date the holder's employment with Germany1 is terminated.
84
Term and Amendments
Unless terminated by the Board of Directors, the Incentive Plan will continue to remain effective until no further
awards may be granted and all awards granted under the Incentive Plan are no longer outstanding. Notwithstanding
the foregoing, grants of awards may be made only until ten years from the date of the consummation of the
acquisition. The Board of Directors may at any time, and from time to time, amend the Incentive Plan, provided that
no amendment will be made that would impair the rights of a holder under any agreement entered into pursuant to
the Incentive Plan without the holder's consent.
Required Vote
Approval and adoption of the AEG 2009 Executive Performance Equity Incentive Plan requires the affirmative vote
of the majority of the votes cast in respect of the resolution at the Annual General Meeting.
Recommendation
AFTER CAREFUL CONSIDERATION, GERMANY1'S BOARD OF DIRECTORS HAS APPROVED AND
DECLARED ADVISABLE THE APPROVAL AND ADOPTION OF THE AEG 2009 EXECUTIVE
PERFORMANCE EQUITY INCENTIVE PLAN AND UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE AEG 2009 EXECUTIVE PERFORMANCE
EQUITY INCENTIVE PLAN.
85
PROPOSALS VII – XIII – REAPPOINTMENT OF PROF. DR. H.C.
ROLAND BERGER AND KEITH CORBIN AS DIRECTORS OF
GERMANY1 AND APPOINTMENT OF BRUCE BROCK, ROBERT
HULJAK, TIMOTHY COLLINS, LEONHARD FISCHER AND PROF. DR.
MARK WÖSSNER AS DIRECTORS OF GERMANY1
Shareholders are also being asked to approve the re-appointment of Prof. Dr. h.c. Roland Berger and Keith Corbin as
Directors of Germany1 and to approve the appointment of Bruce Brock, Robert Huljak, Timothy Collins, Leonhard
Fischer and Prof. Dr. Mark Wössner as Directors of Germany1.
Required Vote
Approval of the re-appointment of Prof. Dr. h.c. Roland Berger and Keith Corbin as Directors of Germany1 and the
appointment of Bruce Brock, Robert Huljak, Timothy Collins, Leonhard Fischer and Prof. Dr. Mark Wössner as
Directors of Germany1 requires the affirmative vote of a majority of the votes cast in respect of the resolution at the
Annual General Meeting.
Recommendation
AFTER CAREFUL CONSIDERATION, GERMANY1'S BOARD OF DIRECTORS HAS APPROVED AND
DECLARED ADVISABLE THE RE-APPOINTMENT OF PROF. DR. H.C. ROLAND BERGER AND
KEITH CORBIN AS DIRECTORS OF GERMANY1 AND THE APPOINTMENT OF BRUCE BROCK,
ROBERT HULJAK, TIMOTHY COLLINS, LEONHARD FISCHER AND PROF. DR. MARK WÖSSNER
AS DIRECTORS OF GERMANY1 AND UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE RE-APPOINTMENT OF PROF. DR. H.C.
ROLAND BERGER AND KEITH CORBIN AS DIRECTORS OF GERMANY1 AND THE
APPOINTMENT OF BRUCE BROCK, ROBERT HULJAK,TIMOTHY COLLINS, LEONHARD FISCHER
AND PROF. DR. MARK WÖSSNER AS DIRECTORS OF GERMANY1.
86
PROPOSAL XIV – APPROVAL OF CAPITAL INCREASE
Shareholders are also asked to approve the increase of the share capital of the Company by the creation of a
number of Class A Convertible Shares and Class B Convertible Shares as is necessary to complete and otherwise
satisfy the terms of the Acquisition on the terms and conditions as described in the Proxy Statement, such
Company's Articles of Incorporation and, as such, having all of the rights of Shares set out in the Articles of
Incorporation and being subject to such transfer restrictions as the Directors (pursuant to article 9 of the Articles
of Incorporation) may determine and (i) in the case of the Class A Convertible Shares, automatically converting
into Public Shares (within the meaning of Germany1's Articles of Incorporation) on the six month anniversary of
the closing of the Acquisition and (ii) in the case of the Class B Convertible Shares automatically converting into
Public Shares on the one year anniversary of the Acquisition. For the avoidance of doubt, the holders of
the Convertible Shares, who shall be Shareholders (as defined in the Articles of Incorporation), shall be entitled
to: (a) vote at any meeting of the Shareholders together with other Shareholders as a single class (save to the
extent that any action to be taken at the meeting entitles the holders of Convertible Shares to rely upon and apply
the provisions in article 35.1 of the Articles of Incorporation, in which case the holders of each class of
Convertible Shares shall be entitled to, inter alia, vote as a separate class); and (b) share equally with the other
Shareholders in respect of any dividends or liquidation or other distributions declared or made in respect of the
Shares (provided that the holders of Convertible Shares shall be treated as Public Shareholders (as defined in the
Articles of Incorporation) for the purposes of article 138 of the Articles of Incorporation).
Required vote
Approval of the capital increase of the Company by the creation of a number of Class A Convertible Shares and
Class B Convertible Shares as is necessary to complete and otherwise satisfy the terms of the Acquisition of no
par value requires the affirmative vote of the majority of the votes cast in respect of the resolution at the Annual
General Meeting.
Recommendation
AFTER CAREFUL CONSIDERATION, GERMANY1'S BOARD OF DIRECTORS HAS APPROVED
AND DECLARED ADVISABLE THE APPROVAL OF THE INCREASE OF THE SHARE CAPITAL
OF THE COMPANY BY THE CREATION OF A NUMBER OF CLASS A CONVERTIBLE SHARES
AND CLASS B CONVERTIBLE SHARES AS IS NECESSARY TO COMPLETE AND OTHERWISE
SATISFY THE TERMS OF THE ACQUISITION ON THE TERMS AND CONDITIONS AS
DESCRIBED IN THE PROXY STATEMENT, SUCH SHARES BEING REDEEMABLE ORDINARY
SHARES OF NO PAR VALUE AND BEING "SHARES" WITHIN THE MEANING OF THE
COMPANY'S ARTICLES OF INCORPORATION AND, AS SUCH, HAVING ALL OF THE RIGHTS
OF SHARES SET OUT IN THE ARTICLES OF INCORPORATION AND BEING SUBJECT TO SUCH
TRANSFER RESTRICTIONS AS THE DIRECTORS (PURSUANT TO ARTICLE 9 OF THE
ARTICLES OF INCORPORATION) MAY DETERMINE AND (I) IN THE CASE OF THE CLASS A
CONVERTIBLE SHARES, AUTOMATICALLY CONVERTING INTO PUBLIC SHARES (WITHIN
THE MEANING OF GERMANY1'S ARTICLES OF INCORPORATION) ON THE SIX MONTH
ANNIVERSARY OF THE CLOSING OF THE ACQUISITION AND (II) IN THE CASE OF THE
CLASS B CONVERTIBLE SHARES AUTOMATICALLY CONVERTING INTO PUBLIC SHARES
ON THE ONE YEAR ANNIVERSARY OF THE ACQUISITION. FOR THE AVOIDANCE OF DOUBT,
THE HOLDERS OF THE CONVERTIBLE SHARES, WHO SHALL BE SHAREHOLDERS (AS
DEFINED IN THE ARTICLES OF INCORPORATION), SHALL BE ENTITLED TO: (A) VOTE AT
ANY MEETING OF THE SHAREHOLDERS TOGETHER WITH OTHER SHAREHOLDERS AS A
SINGLE CLASS (SAVE TO THE EXTENT THAT ANY ACTION TO BE TAKEN AT THE MEETING
ENTITLES THE HOLDERS OF CONVERTIBLE SHARES TO RELY UPON AND APPLY THE
PROVISIONS IN ARTICLE 35.1 OF THE ARTICLES OF INCORPORATION, IN WHICH CASE THE
HOLDERS OF EACH CLASS OF CONVERTIBLE SHARES SHALL BE ENTITLED TO, INTER
ALIA, VOTE AS A SEPARATE CLASS); AND (B) SHARE EQUALLY WITH THE OTHER
SHAREHOLDERS IN RESPECT OF ANY DIVIDENDS OR LIQUIDATION OR OTHER
DISTRIBUTIONS DECLARED OR MADE IN RESPECT OF THE SHARES (PROVIDED THAT THE
HOLDERS OF CONVERTIBLE SHARES SHALL BE TREATED AS PUBLIC SHAREHOLDERS (AS
DEFINED IN THE ARTICLES OF INCORPORATION) FOR THE PURPOSES OF ARTICLE 138 OF
THE ARTICLES OF INCORPORATION) AND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE CAPITAL INCREASE.
87
FURTHER INFORMATION RELATING TO THE TAKEOVER CODE
The General Principles of the Takeover Code
1.
All holders of the securities of an offeree company of the same class must be afforded equivalent
treatment; moreover, if a person acquires control of a company, the other holders of securities must be
protected;
2.
The holders of the securities of an offeree company must have sufficient time and information to enable
them to reach a properly informed decision on the bid; where it advises the holders of securities, the board
of the offeree company must give its views on the effects of implementation of the bid on employment,
conditions of employment and the locations of the company's places of business;
3.
The board of an offeree company must act in the interests of the company as a whole and must not deny
the holders of securities the opportunity to decide on the merits of the bid;
4.
False markets must not be created in the securities of the offeree company, of the offeror company or of
any other company concerned by the bid in such a way that the rise or fall of the prices of the securities
becomes artificial and the normal functioning of the markets is distorted;
5.
An offeror must announce a bid only after ensuring that he/she can fulfill in full any cash consideration, if
such is offered, and after taking all reasonable measures to secure the implementation of any other type of
consideration;
6.
An offeree company must not be hindered in the conduct of its affairs for longer than is reasonable by a
bid for its securities.
Detailed application of the Takeover Code
The following is a summary of key provisions of the Takeover Code which apply to transactions to which the
Takeover Code applies. You should note that, by agreeing to the Acquisition, you will be giving up the
protections afforded by the Takeover Code.
Equality of treatment
General Principle 1 of the Takeover Code states that all holders of securities of an offeree company of the same
class must be afforded equivalent treatment. Furthermore, Rule 16 requires that, except with the consent of the
Panel, special arrangements may not be made with certain shareholders in the Company if there are favorable
conditions attached which are not being extended to all shareholders.
Information to shareholders
General Principal 2 requires that holders of securities of an offeree company must have sufficient time and
information to enable them to reach a properly informed decision on a bid. Consequently, a document setting out
full details of an offer must be sent to the offeree company's shareholders.
The opinion of the offeree board and independent advice
The board of the offeree company is required by Rule 3.1 of the Takeover Code to obtain competent independent
advice on an offer and the substance of such advice must be made known to its shareholders. Rule 25.1 requires
that the board of the offeree company must circulate its opinion on the offer and its reasons for forming that
opinion. That opinion must include on the board's views on: the effects of implementation of the offer on all the
company's interests, including, specifically, employment; and on the offeror's strategic plans for the offeree
company and their likely repercussions on employment and the locations of the offeree company's places of
business.
The circular from the offeree company must also deal with other matters such as interests and recent dealings in
the securities of the offeror and the offeree company by relevant parties and whether the directors of the offeree
company intend to accept or reject the offer in respect of their own beneficial shareholdings.
88
Rule 20.1 states that information about the companies involved in the offer must be made equally available to all
offeree company shareholders as nearly as possible at the same time and in the same manner.
More than one class of equity share capital
Rule 14 provides that where a company has more than one class of equity share capital, a comparable offer must
be made for each class whether such capital carries voting right or not
Optionholders and holders of convertible securities or subscription rights.
Rule 15 of the Takeover Code provides that when a Takeover Code offer is made for voting equity share capital
or other transferable securities carrying voting rights and the offeree company has convertible securities
outstanding, the offeror must make an appropriate offer or proposal to the stockholders to ensure their interests
are safeguarded. Rule 15 also applies in relation to holders of options and other subscription rights. If the reregistration takes effect, these protections will be lost.
89
INFORMATION ABOUT GERMANY1
Germany1
Business Overview
We are a blank check company formed under the laws of Guernsey on 21 May 2008 as a limited liability
company for the purpose of acquiring one or more operating businesses with principal business operations in
Germany, Austria or Switzerland through a merger, share swap, share purchase, asset acquisition, reorganization
or similar transaction. As of 21 July 2008, our Shares and Warrants have been listed and traded on Euronext
Amsterdam.
Effecting a Business Combination
General
We intend to complete a Business Combination with one or more operating businesses with a fair market value
equal to at least the 80% Threshold. As long as the target business or controlling portion of a target business we
propose to acquire has a fair market value in excess of such threshold, we may seek to complete a Business
Combination with any variety of businesses, including early-stage companies, financially-troubled companies or
well-established companies. If we cannot determine the fair market value of a target business independently, we
will obtain an opinion from an unaffiliated, independent investment banking, valuation or appraisal firm as to the
fair market value of the target business. If a target business is affiliated with any of our Founding Shareholders,
we are required to obtain an opinion from an unaffiliated, independent investment banking, valuation or
appraisal firm as to the fairness of the transaction to our Shareholders.
Sources of Target Businesses
Potential target business candidates were brought to our attention through solicited and unsolicited proposals by
various affiliated and unaffiliated sources, including investment bankers, venture capital funds, our Board of
Directors and their respective Affiliates, and other members of the financial community. We did/did not
currently intend to engage the services of professional firms that specialize in business acquisitions/and
compensated such firms. We will not, however, compensate any of our Founding Shareholders, members of the
Board of Directors, or any of their Affiliates for bringing a potential target business candidate to our attention.
Opportunity for Shareholder Approval of the Acquisition
We will seek Shareholder approval at the Annual General Meeting before we effect the Acquisition, even if the
Acquisition would not otherwise require Shareholder approval under applicable law. A majority of the Public
Shares voting at a meeting in which a majority of the Public Shares is present must vote in favor of the resolution
of the Annual General Meeting for approval of the Acquisition.
We will proceed with the Acquisition only if (1) the Acquisition is approved by the Annual General Meeting and
(2) we confirm that we have sufficient financial resources to pay both:
•
the cash consideration required for the Acquisition; and
•
all sums due to any Public Shareholders who vote against the Acquisition and simultaneously exercise
their redemption rights.
In connection with the vote by the Annual General Meeting required for the Acquisition, the Foundation will
abstain from voting the Founding Shares it holds and will vote any Public Shares it holds in favor of the
Acquisition; therefore, such securities will have no redemption rights, which rights have also explicitly been
waived by the Founding Shareholders and the Foundation.
90
Funds to be held in the Trust Account
At the closing of our IPO, we deposited EUR 248.5 million in the Trust Account. Only interest in an amount up
to EUR 4.3 million and fees, taxes and expenses associated with the Trust Account may be released until
notification to Deutsche Bank of the consummation of the Acquisition or commencement of our liquidation by
operation of law. Upon consummation of the Acquisition, the entire amount in the Trust Account will be
released to us, of which EUR 5.3 million will be paid as deferred IPO expenses (EUR 5.0 million of which will
be paid to the underwriters in our IPO as deferred underwriting fees). The amount remaining will be used to pay
amounts, if any, to Shareholders exercising their redemption rights with any remaining amounts to be used for
our general corporate purposes.
Redemption Rights
See "The Annual General Meeting of Shareholders – Redemption Rights"
Distribution if no Business Combination
If we do not complete a Business Combination by the Business Combination Deadline, our corporate purpose
and powers will be limited to acts and activities relating to dissolving, liquidating and winding up our Company
and the Board of Directors will take all such action as necessary to dissolve and liquidate our Company as soon
as reasonably practicable. The liquidator will adopt a plan of dissolution and liquidation promptly and initiate
procedures for our dissolution and liquidation.
Subject to compliance with Guernsey law, we will then liquidate our Company, including the Trust Account, as
part of a plan of dissolution and liquidation. This would result in a distribution to our Public Shareholders on a
pro rata basis of the funds in the Trust Account (less certain expenses and taxes) and all of our other net assets.
The Trust Account could, however, become subject to the claims of our creditors which could take priority over
the claims of our Public Shareholders and reduce the amount available for distribution. The Founding
Shareholders and the Foundation have waived any entitlement to receive any distributions in connection with the
Founding Shares in the case of such a liquidation. The dissolution and distribution process will take at least two
months.
Legal Proceedings
We are not, and have not been, involved in any governmental, legal or arbitration proceedings that may have or
have had in the 12 months before the date of this Proxy Statement a significant effect on our financial position or
profitability. We are not aware that any such proceedings are pending or threatened.
91
GERMANY1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The below financial information of Germany1 for the period from 21 May 2008 to 31 December 2008 and as of
31 December 2008 was derived from and should be read in conjunction with the audited financial statements of
Germany1 for the period from its incorporation on 21 May 2008 to 31 December 2008 prepared in accordance
with IFRS (see page F-1 ff.).
Overview
We are a blank check company formed on 21 May 2008 under the laws of Guernsey as a limited liability
company for the purpose of acquiring one or more operating businesses with principal business operations in
Germany, Austria or Switzerland through a merger, share swap, share purchase, asset acquisition, reorganization
or similar transaction. Net proceeds from the issuance of units, Founding Shares and Sponsor Warrants after
deduction of costs (including EUR 5,314 thousand of deferred IPO expenses only payable at completion of the
Business Combination) in connection with our IPO amounted to approximately EUR 249 million.
We have not generated, and will not generate, any operating revenues until after the completion of a Business
Combination. We have generated non-operating income in the form of interest income on the Trust Account and
have incurred expenses (for legal, financial reporting, accounting and auditing compliance) as a result of being a
public company listed on Euronext Amsterdam as well as in connection with identifying a target business for a
Business Combination. Such expenses have been paid out of the EUR 4,300 thousand available to us until
completion of a Business Combination.
Factors affecting Results of Operations
Our results of operations are mainly affected by the prevailing money market interest level on the one hand and
the current stage in the process of identifying a target on the other.
Almost all of our revenues result from interest income. All of our available funds are invested in short term
investments. As at 31 December 2008, EUR 247 million was invested in the Deutsche Global Liquidity Series
PLC Money Market Fund with remaining funds held in accounts with Deutsche Bank International Limited,
Guernsey. Higher money market interest rate levels will therefore increase our interest income and, thus, our
revenues, while decreasing money market interest rate levels will have the opposite effect.
The closer the process of identifying a target comes to a possible Business Combination, the higher the expenses
incurred by us will be. In particular, fees arising in connection with a financial, tax and legal due diligence of a
possible target and the preparation and negotiation of the necessary documentation tend to increase significantly
in the phase immediately prior to signing a sale purchase agreement with a target's shareholders.
Results of Operations
For the period from 21 May 2008 to 31 December 2008, we had a profit of EUR 3,675 thousand consisting of
interest income of EUR 4,026 thousand less operating expenses of EUR 351 thousand. Operating expenses
consist of a large number of relatively small expense items, such as travel costs, administration fees, compliance
fees, audit fees, insurance costs and Directors' fees.
Financial Condition and Liquidity
We consummated our IPO of 25,000,000 units for an issue price of EUR 10 per unit on 21 July 2008. The gross
proceeds of this offering (including proceeds from the issuance and Sponsor Warrants) amounted to
EUR 256,000 thousand. In connection with the IPO we paid total costs of EUR 7,246 thousand (not including
EUR 5,314 thousand of IPO costs that have been deferred until completion of a Business Combination).
As described in the Prospectus, EUR 1,240 thousand of the net proceeds were held outside of the Trust Account
to pay expenses associated with our IPO as well as working capital to fund our initial business, general and
administrative expenses and taxes. The remainder of the net proceeds was placed into a Trust Account. The cash
in Trust is under supervision of Carey Commercial Limited, acting as Trustee. The balance on the Trust Account
at 31 December 2008 was EUR 249,914 thousand. A balance of EUR 247,199 thousand was invested in The
92
Deutsche Global Liquidity Series PLC Money Market Fund with the remaining balance held by Deutsche Bank
International Limited, Guernsey. The amounts held in the Trust Account are to be held in escrow until a
Business Combination has been approved by the Shareholders and consummated. The Management Team has up
to 24 months from 24 July 2008 to effect a Business Combination. If after 24 months, a Business Combination is
not executed, the Management need to put a proposal to the Shareholders to wind up the Company and return the
Trust Account funds as part of the liquidation.
As set out in the Prospectus, we have the right to the interest received on the Trust Account up to a maximum of
EUR 4,300 thousand to ensure cover for the costs and expenses arising during the period after the closing of our
IPO on 24 July 2008 and prior to the completion of a Business Combination. As at 31 December 2008,
EUR 2,600 thousand of accrued interest on the proceeds held in the Trust Account had been transferred and the
remaining EUR 1,700 thousand of the capped amount was transferred on 9 January 2009 to cover costs and
expenses. We believe that these funds are sufficient for our current working capital purposes.
Critical Accounting Policies
We have identified the following critical accounting policies which require us to make assumptions about
matters that were uncertain at the time those policies were applied and with respect to which we could
reasonably have made different assumptions in the relevant period or with respect to which changes in the
assumptions reasonably likely to occur from period to period would have a material impact on the presentation
of our financial condition, changes in financial condition or results of operations. Investors should read the
following paragraphs in conjunction with the financial statements, including the related notes, set forth
beginning on page F-1.
Deferred IPO Costs
We have deferred costs in relation to the IPO of EUR 5,314 thousand, payable on completion of a Business
Combination. These liabilities are conditional, but we have chosen to account for the liability at face value since
this amount is payable on the completion of a Business Combination.
Public Shares
Shareholders who vote against any proposed Business Combination and request redemption may be entitled to
the repayment of their share of the net proceeds of the IPO, plus the interest income that has accrued on those
proceeds (less up to EUR 4,300 thousand that may be and have been withdrawn from the Trust Account by us to
fund our working capital and other expenses). We will not consummate a Business Combination if Shareholders
who hold 30% or more of the Public Shares vote against the Business Combination and exercise their
redemption rights.
Each of our Shareholders may request redemption of their Public Shares for a pro rata portion of the Trust
Account at any time after the mailing of information to the Shareholders for the meeting to be held concerning
the proposed Business Combination but prior to the vote taken at such meeting. The request will not be granted
unless:
(i)
the Shareholder votes against the Business Combination;
(ii)
the Business Combination is approved and consummated;
(iii)
the Shareholder continues to hold the Public Shares at the time of consummation of the Business
Combination; and
(iv)
the Shareholder follows the specific procedures for redemption set forth in the information sent to
Shareholders concerning the proposed Business Combination.
Accordingly, the Shares have been accounted for as equity.
Warrants and Founding Shares
We issued 6,000,000 Sponsor Warrants in a private placement immediately prior to the IPO. The fair value of
the Sponsor Warrants was estimated not to be materially above the Sponsor Warrants issue price and so no share
based payment charge was applicable.
93
Founding Shares were issued in connection with the Company's incorporation prior to the IPO. The Directors
consider the fair value of these Shares to be equal to the issue price and, therefore, no share-based payment
charge arose.
Contractual Obligations
We did not have contractual obligations as at 31 December 2008 that were not recognized in our financial
statements.
Qualitative and Quantitative Disclosure of Market Risk
We are exposed to interest rate risk, credit risk, liquidity risk and currency risk from the financial instruments we
hold. For a detailed disclosure of these risks please refer to note 15 to our audited financial statements for the
period from 21 May 2008 to 31 December 2008 prepared in accordance with IFRS (see page F-2 et sqq.).
94
INFORMATION ABOUT AEG
Overview
AEG Group is a leading provider of highly-engineered power system solutions for a broad range of end markets
where customer applications require precise and near 100% available alternating current power ("AC") or direct
current power ("DC"). AEG Group operates through three divisions: Power Controllers (generating 37% of AEG
Group's revenues in 2008), Protect Power (45%) and DC Telecom (18%). AEG Group also provides its global
customer base with a comprehensive range of services supporting installation, commissioning, maintenance and
repair. AEG Group intends to sell its DC Converter business which is held by Harmer + Simmons S.A.S. and is
currently operated as part of its DC Telecom business.
AEG, formerly Saft Power Systems Group, was acquired from Alcatel by funds managed by Ripplewood, a
private equity firm based in New York, in 2005. Ripplewood teamed with an industrial partner, the Brock Group,
as part of its acquisition of Saft Power Systems Group, to assist management in formulating and implementing
the key business and operational initiatives undertaken by AEG.
Saft Power Systems Group was introduced as a subsidiary of Saft Batteries in 1947, offering a line of battery
chargers and power systems. To reinforce its portfolio of power quality products and increase its global market
presence, Saft Power Systems Group acquired NIFE and AEG SVS Power Supply Systems in 1992 and 1998,
respectively, and took responsibility for selected Alcatel Power Systems activities in 1995. In 1995, Alcatel
acquired Harmer & Simmons Ltd., a United Kingdom-based provider of DC power technology for telecom
customers, to form the telecom power systems group of Saft Batteries, a subsidiary of Alcatel. Between 2001
and 2002, Saft Power Systems Group was separated from Saft Batteries, and was subsequently merged with
Alcatel Converters in 2002. In 2008, Saft Power Systems Group was renamed and rebranded as 3W Power
Holding and subsequently to AEG.
To date, AEG Group operates globally with significant market presence in Europe and Asia, and growing market
presence in the Americas, the Middle East, Russia and Africa. AEG Group has recently experienced a strong
growth in revenue and gross profit. Revenues have increased from EUR 218.2 million in 2007 by EUR 124.6
million, or 57%, to EUR 342.8 million in 2008. Gross profit increased from EUR 48.5 million in 2007 by EUR
66.9 million, or 138% to EUR 115.4 million in 2008.
The increase in revenues and gross profit was mainly attributable to an increase in revenues generated in the
Power Controllers business due to a strong increase in orders from polysilicon producers. Continued demand
from customers in these markets has resulted in significant order and backlog growth for Power Controllers'
systems and modules. The backlog for Power Controllers products has increased from EUR 142 million as of 31
December 2007 to EUR 213 million as of 22 May 2009.
Business Divisions
AEG Group is comprised of three divisions: Power Controllers, Protect Power and DC Telecom.
•
Power Controllers: Provides modules and customized systems that precisely control power for critical
industrial applications, such as temperature-sensitive processes in polysilicon manufacturing for solar
cells and microelectronics and specialized glass manufacturing for float, solar and thin film transistor
glass;
•
Protect Power: Provides reliable custom and standard power system solutions, particularly systems for
UPS, that ensure continuous power for rugged industrial infrastructure applications, including oil and gas,
power generation, transmission and distribution, solar inverters for grid connectors, water utilities,
transportation and process manufacturing;
•
DC Telecom: Provides reliable custom and standard power system solutions that ensure continuous
power for telecom applications, including fixed and wireless network equipment, central telecom
switches and other communications infrastructure.
95
The table below gives an overview of the divisions' most important products and end markets.
Product group overview
Power Controllers
Division
Products
•
•
•
End markets/
applications
•
•
Protect Power
DC Telecom
Standard control
modules
Custom system solutions
Services
•
•
•
•
AC industrial power
DC industrial power
Solar inverter systems
Services
Industrial processes
(polysilicon
manufacturing, glass and
plastics
Furnace OEMs
•
•
Oil and gas
Power (generation,
transmission and
distribution) and solargrid connected
Water
Transportation
Process manufacturing
•
•
•
•
•
•
•
•
•
DC Telecom
integrated systems
DC Telecom
components
Services
Telecom OEMs
Fixed line and
wireless service
providers
Internet and cable
television service
providers
Power Controllers
According to its own estimates, AEG is the leading provider of power controller systems. The Power Controllers
division offers high-reliability digital AC power controller modules and custom system solutions for critical
power-dependent process applications. Thermally-sensitive manufacturing operations that require tightly
controlled voltages and/or currents include polysilicon manufacturing, a highly purified form of silicon and a key
component for solar cells, as well as semiconductors, specialized glass manufacturing for solar panels, flat
screen televisions, computer monitors and other displays, float glass processing, plastic extrusion, chemical
preheating, automotive paint drying and infrared drying.
Power controllers are mission critical parts that go into polysilicon plants at which they control the voltage and
current which is crucial for the production of near 100%-pure polysilicon. AEG Group's Power Controllers
products are specifically adapted to the most widely used and proven polysilicon production technology, the
Siemens Process (See "Markets and Competition - Power Controllers Market – Polysilicon Production").
The table below shows the unaudited revenues and unaudited Adjusted EBIT generated in AEG Group's Power
Controllers division for the years 2006, 2007, 2008 and the first five months of 2009.
2006
EUR million
Revenues.............
Adjusted EBIT1 ....
1
22.2
6.3
+/32.4%
41.2%
2007
EUR million
29.4
8.9
+/334.0%
559.6%
2008
EUR million
127.6
58.7
Jan - May 09
EUR million
126.5
66.3
For a description of the adjustments that were made in the calculation of Adjusted EBIT, see "AEG Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Power Controllers Products
Power Controllers offers a full line of standard control modules (easy-to-use modules for industrial applications)
and custom system solutions (complete thermal and power control AC Systems for industrial applications).
These solutions are especially critical in the production of polysilicon. Power Controllers solutions for the
production of silicon feedstock are developed for the most widely used and proven polysilicon production
technology, the Siemens Process.
Power control solutions typically represent a small portion of a customer's total project cost (typically ranging
from EUR 5 million to EUR 12 million, and no greater than EUR 30 million in the largest projects, which can
require a total investment in excess of EUR 500 million), but are extremely critical as even slight imperfections
in the polysilicon manufacturing process resulting from inaccurate power and temperature levels can render
valuable output unusable. Power Controllers provides a service offering to commission, repair and maintain its
installed base.
96
•
Standard Control Modules
The Power Controllers division offers standard digital thyristor power controllers under the Thyro-S,
Thyro-A and Thyro-P product lines. The Thyro family of controller modules switch, control and regulate
electrical energy for industrial processes. Typical applications include end markets where melting,
heating, drying or forming must be done precisely and reliably, such as furnace controls, glass processing,
plastic extrusion, chemical preheating, automotive paint drying and infrared drying.
The Thyro-S line is used for low-intensity applications, such as glass bending, while the Thyro-A line is
used for medium-intensity applications, such as vacuum furnaces, TFT glass production, and the Thyro-P
is used for high-intensity applications, such as TFT glass and polysilicon production.
Standard Control Modules overview
Thyro-S
Maximum voltage..............
Current...............................
230V – 500V
16A – 280A
Thyro-A
230V – 600V
16A – 1500A
Thyro-P
230V – 690V
37A – 2900A
Standard control modules are offered in ranges from 16A to 2900A with voltages of 230V to 690V.
Standard controller modules offer communication via Profibus-DP, Modbus RTU, CANopen and
DeviceNet. The Power Controllers division's standard controller modules carry both Communautés
Européennes (CE), the quality standard required for power products in Europe, Asia and the Middle East,
and Underwriters Laboratories (UL), the quality standard required for power products in North America,
certifications.
In 2008, standard control modules accounted for approximately 11% of AEG Group's revenues in the
Power Controllers division.
•
Custom System Solutions
The Power Controllers division offers custom solutions utilizing its standard Thyro-S, Thyro-A and
Thyro-P Controller modules to provide integrated systems for industrial applications requiring precise
control of temperature, and/or voltage and current. This division specializes in designing AC systems for
complex, high-voltage, high-current power and thermal control applications. These systems include
power electronics and modules, electro-mechanical devices, controllers and electrical distribution means
(buss bars, cables, connectors, sensors) as an integrated system that ensures the appropriate operation of
the solution. The Thyro-P based Power Controllers custom solutions are driven by a proprietary
Application Specific Integrated Circuit ("ASIC") within the power controller module, which offers
functional capability for industrial thermal and power control applications.
In 2008, custom total solutions accounted for approximately 88% of AEG Group's revenues in the Power
Controllers division.
•
Services
Power Controllers offers, through the Protect Power division's global service network, on-site and infactory repair and commissioning services, with capabilities in installation, cold and hot commissioning
and on-going maintenance. Cold commissioning consists of on-site verification of product performance to
meet customer specifications independent of the customer's total system operations. Hot commissioning
consists of testing the integrated power and thermal control system to ensure correct functionality.
In 2008, services accounted for approximately 1% of AEG Group's revenues in the Power Controllers
division.
97
Strategic outlook and growth prospects for Power Controllers
AEG sees further growth potential in its Power Controllers business despite challenging economic conditions.
AEG aims at capitalizing on its strong market position and its technological progressiveness by pursuing the
following strategic objectives:
•
Growth generated by new entrants to the polysilicon market. Barriers to enter the polysilicon market
are high as the production of polysilicon is highly complex, capital requirements for the construction of a
polysilicon production facility are significant and there is a long lead time to get a plant to production (for
example, the construction of a polysilicon production facility with a 5,000 ton annual capacity typically
takes two to three years to build). As a result, new entrants to the polysilicon market must spend
significant time and capital expenditures in order to become established and will, therefore, seek highly
reliable and reputable partners for the construction of their manufacturing facilities. As power controllers
are a mission critical part of polysilicon production, AEG believes that new entrants to the polysilicon
market are also particularly interested in establishing stable and long-lasting relationships with suppliers
of power controllers and prefer well experienced companies that have established a strong reputation;
•
Growth generated by replacements and upgrades. Current increases in polysilicon production capacity
may lead to oversupply and enhanced price pressure. As a consequence, existing suppliers and new
entrants to the market will be required to improve their cost base. Energy is the most significant cost
factor in the production process and producers may seek to improve their energy efficiency by installing
technologically advanced power control systems. Due to its technologically advanced product offering,
AEG expects to benefit from replacements and upgrades of polysilicon production lines;
•
Expansion of service offerings. Given the capital intensive and complex nature of thermally-sensitive
manufacturing processes and highly fragile output requirements, AEG believes that customers are
increasingly interested in receiving maintenance services. AEG Group is planning to offer additional
maintenance solutions for Power Controllers systems, particularly in rapidly expanding geographic
markets, such as China;
•
Emerging applications. AEG is pursuing numerous opportunities that have recently emerged to utilize
Power Controllers' systems and modules in applications with high power consumption levels such as
energy control for lighting systems for street, parking lot and commercial building environments, where
significant potential exists for energy savings through increased application of dimmers and other
controls.
Power Controllers Customers
Power Controllers' products and solutions are marketed to a broad variety of customers globally. Power
Controllers' two largest customers accounted for 64% and its ten largest customers for approximately 83% of its
revenue in 2008. They include traditional suppliers, integrators and new entrants to the market.
In 2008, Power Controllers generated 26% of its revenue from customers based in Europe, 28% of its revenue
from customers based in North America and 46% of its revenue from customers based in Asia.
Protect Power
The Protect Power division is a global provider of power protection systems for industrial and commercial
infrastructure applications where customer requirements necessitate dependable, high-performance solutions.
The implications of poor power availability or quality in these applications can be catastrophic, especially in
situations where lives are at risk, the environment can be polluted or where sudden shutdowns can cause
significant damage to or loss of critical, high-priced equipment. Infrastructure end markets requiring customized,
rugged power solutions include oil and gas, power generation, transmission and distribution, data and IT,
transportation and renewable energies industries.
UPS equipment provides emergency power and, depending on the topology, line regulation by supplying power
from a separate source when utility power is not available. UPS systems can be used to provide uninterrupted
power to equipment, typically for 5-15 minutes until an auxiliary power supply can be turned on, utility power
restored, or equipment safely shut down.
98
The table below shows the unaudited revenues and unaudited Adjusted EBIT generated in AEG Group's Protect
Power division for the years 2006, 2007, 2008 and the first five months of 2009.
2006
EUR million
Revenues.............
Adjusted EBIT1 ...
1
107.4
(7.8)
+/-
2007
EUR million
22.8%
(51.3)%
+/-
131.9
(3.8)
2008
EUR million
17.1%
n/a
Jan - May 09
EUR million
154.5
3.1
50.2
(3.7)
Protect Power Products
Protect Power consists of three primary product lines and services:
•
AC industrial power: Offers precise and reliable power conversion, filtering and AC back-up
functionality for a broad range of industrial applications across the division's end markets. UPS
capabilities in combination with other key power quality functions are used in applications to approach
100% availability and clean AC voltage waveforms.
•
DC industrial power: Provides power filtering and back-up battery storage for heavy-duty applications,
including oil and gas, transportation and utilities. These systems are typically used to charge batteries and
to provide a DC voltage for industrial applications.
•
Solar inverter systems: This product line converts DC energy generated by solar cells into AC energy
for injection into electric grid systems. These systems are built to support solar facilities in all
environments, ranging from remote locations to densely populated areas, and offer high reliability, low
maintenance and modularity.
•
Services: Services offered include installation, commissioning, ongoing maintenance and repair,
consulting and spare parts. The division offers these services globally through its team of service
professionals, as well as through third-party service partners.
DC industrial power
AC industrial power
•
•
•
Custom AC industrial
systems
High power standard
UPS systems
Low power standard
UPS systems
•
•
•
Custom DC
industrial systems
Standard DC
industrial systems
Modular DC
industrial systems
Solar inverter systems
•
•
•
String inverters
Mid-power
inverters
Turn key solar
systems
Services
•
•
•
•
Technical
consultancy
Installation
Commissioning
Maintenance and
repairs
Total System Solutions
The breadth of custom and standard solutions and its systems expertise allows the division to create complete
system solutions that address the full range of customers' power needs. As part of these offerings, Protect Power
partners with customers to develop system specifications, architect and simulate application environments,
provide highly-engineered solutions, and install, commission and service the total system.
Selected total system solutions include:
•
Overhead and On-Board Rail: The offering includes high power, high availability solutions for onboard and overhead railway applications. The division's on-board railway offerings include chargers,
converters, batteries and total systems that provide power electronic solutions for electric locomotives,
high-speed trains, light rail vehicles and trams, subways and buses. Additionally, the division offers
power systems to ensure the availability of reliable power for railway infrastructure applications using
overhead rail catenaries as a source of energy. Applications include power system support for signals,
track points and level crossings;
•
Motive Chargers: Total systems solutions includes a line of chargers for traction batteries used in motive
power applications, including forklifts, sweepers, scrubbers, golf carts, electric scooters, motorbikes and
99
aerial work platforms. It has developed global partnerships with major Original Equipment Manufacturers
("OEMs") in the motive power industry;
•
Turn-Key Solar Power Management: Protect Power builds on its extensive solar inverter systems
capabilities by offering a full range of power-related capabilities for turn-key management of solar
projects, including photovoltaic solutions, power needs and environmental constraints analysis, site
surveys and sizing and engineering of integrated solutions.
The division provides supplemental monitoring and control capabilities, distribution components, batteries and
other value-added products as part of its total system solutions offering.
Strategic outlook and growth prospects for Protect Power
While 2009 is proving to be a challenging year for Protect Power with industrial and infrastructure markets
experiencing a slowdown due to lower capital spending and limited sources of funding, AEG believes that the
mission critical importance of reliable and high quality electrical power to ensure health and safety standards
provides for a stable and loyal customer base which rely on AEG as one of a few suppliers with a strong
historical track record, global service solutions and broad geographic spread. AEG is pursuing a strategy of using
the current period of economic downturn to improve existing products and invest in attractive long-term markets:
•
Expansion of market presence. Protect Power has targeted the solar energy and the industrial LED
markets as an area with long-term growth potential and expects these markets to be significant
contributors to revenue growth. Growth is also expected to continue in the Power Controllers custom
system solutions market, which Protect Power successfully exploited during 2008 in conjunction with the
Power Controllers division. The Protect Power division is further extending its worldwide presence by
leveraging its existing relationships with large global end users and contractors focused on very large
infrastructure projects.
•
New product offerings. Protect Power is focused on expanding its offering into the marketplace for
alternative energy, particularly for grid-connected solar energy applications. The division is developing a
full range of solar power system solutions, including grid-connected DC-to-AC string and central
inverters for solar farm power generation, rural electrification systems and off-grid solar power systems
for telecom customers.
•
Pursuing strategic acquisitions. Apart from AEG, Chloride Group PLC and Gutor Electronic L.L.C., as
the three major providers of protect power solutions for industrial and commercial infrastructure
applications, the market of protect power solutions for industrial and infrastructural applications is highly
fragmented. AEG therefore aims to bolster its market position by participating in market consolidation
through potential bolt-on acquisitions of niche suppliers.
Protect Power Customers
The AEG Group offers its Protect Power solutions to a broad range of industrial customers located throughout
the world, including end-users, global engineering firms and specialized contractors. Protect Power's ten largest
customers accounted for approximately 24% of its revenue in 2008.
In 2008, Protect Power generated 73% of its revenue from customers based in Europe, 4% of its revenue from
customers based in North America, 8% of its revenue from customers in Middle East and 14% of its revenue
from customers based in Asia.
DC Telecom
The DC Telecom division designs, manufactures and markets custom and standard DC power systems for the
telecom end market. These solutions offer reliable, clean and controlled power for a variety of telecom
infrastructure applications, including fixed line and wireless networks, central offices, equipment OEMs and
telecom, internet and cable television service providers.
While AEG Group views the DC Telecom market as another vertical market for Protect Power, AEG created the
DC Telecom systems division due to its unique customer set, standardization requirements in DC Telecom's
space and specific sales channels. DC Telecom's key technologies (rectifiers and controllers), however, are
similar in function to those required in Protect Power. The higher volume rectifiers and controllers developed for
100
DC Telecom's market are product platforms that are slightly modified and environmentally hardened for the
Protect Power market. DC Telecom incorporates modular design capabilities in developing products that
minimize customers' total cost of ownership by offering easy maintenance and flexibility for future expansion.
The table below shows the unaudited revenues and unaudited Adjusted EBIT generated in AEG Group's DC
Telecom division for the years 2006, 2007, 2008 and the first five months of 2009.
2006
EUR million
Revenues.......................
Adjusted EBIT1 .............
1
57.5
3.3
+/(1.0)%
n/a
2007
EUR million
56.9
(1.0)
+/6.7%
n/a
2008
EUR million
60.7
0.9
Jan - May 09
EUR million
16.8
(1.2)
DC Telecom Products
DC Telecom's systems offering includes power conversion and filtering capabilities to support a telecom
network in the event of power spikes, surges, brownouts or other fluctuations. Additionally, DC Telecom offers
extensive control capabilities to service providers, allowing customers to remotely or locally monitor their
networks for potential power issues that could impact the continuous operation of their equipment. DC Telecom
products are available in standard or custom-configured distribution modules with multiple voltage
configurations (48V, 24V or 12V) and can be designed as either standalone or expandable systems that meet
almost any power requirement. The fundamental modules of DC Telecom systems include AC-to-DC Rectifiers,
Controllers, DC Distribution, AC Distribution, DC-to-AC Inverters and Batteries.
DC Telecom Integrated Systems
DC Telecom offers integrated systems across multiple power ranges that are used in a variety of applications.
These systems are classified as mini, compact and high power systems, as well as integrated power units, which
are used in telecom infrastructure applications requiring reliable performance in rugged environments.
•
Mini Systems
DC Telecom mini systems offer power output ranging from 270W to 3.5kW. Mini Systems are typically
used for fixed and wireless broadband applications, wireless base transceiver systems, microwave links,
small private automatic branch exchanges and systems based on the Advanced Telecom Computing
Architecture Standard.
•
Compact Systems
DC Telecom compact systems offer power output ranging from 4kW to 60kW with output voltages
ranging from 12 to 120V. Typical applications include wireless network base stations, including systems
based on global system for mobile communications ("GSM") and code division multiple access
("CDMA") technologies, the world's key cellular platforms, as well as point of presence systems, digital
loop carrier equipment, Internet protocol-based communication networks, small microwave networks and
mobile switching centers.
•
High Power Systems
DC Telecom high power systems offer power output ranging from 60kW to over 500kW with output
voltages ranging from 48V to 60V. High power systems are typically used to power large central office
switches, exchanges, optical switches and backbone networks, Internet hubs and web hosting sites.
DC Telecom Components
•
AC-to-DC Rectifiers: DC Telecom offers switch-mode rectifier-based solutions that receive AC power,
as provided by a utility, and convert it using an AC-to-DC rectifier to create near-100% reliable,
continuous and clean DC power outputs, typically at 24V or 48V. The converted DC power is then
provided to other components of the power system such as switching gear, controllers and base station
101
transceivers through the use of distribution components. The conversion of AC power to clean DC power
at exact power levels is critical to ensuring continuous functionality of voltage-sensitive telecom systems;
•
Controllers and Connections: DC Telecom products include a variety of controllers for telecom power
systems, including rectifier controllers (monitor voltage, frequency and current), battery management
controllers (monitor back-up power supply levels) and monitoring controllers (offer remote or local
monitoring and interrogation to support problem solving and preventative maintenance). The division's
controllers are available for systems ranging from small, sub-rack-sized systems to network controllers
monitoring up to 120 rectifiers in large parallel systems.
In 2008, DC Telecom components and integrated systems accounted for 82% of AEG's revenues generated in its
DC Telecom division.
Services
DC Telecom is expanding the services it is offering in both developed and emerging markets. The division
provides services through its own professionals or subcontractors, as appropriate, in order to maximize its reach
into local markets. DC Telecom has service provider agreements in place in all of its key markets. Services
represent an important part of DC Telecom's strategy to enhance its offering of total power supply solutions for
customers. Given DC Telecom's extensive operating history and long-term customer relationships with major
telecom customers, AEG's management believes the existing installed base of DC Telecom solutions offers
sizeable opportunities for growth in services, including training, replacement, repairs and consulting.
Additionally, DC Telecom is focused on offering services for central offices in dense population centers and
high-growth emerging markets, where power reliability and availability are major concerns for telecom services
providers.
In 2008, services accounted for 18% of AEG's revenues generated in its DC Telecom division.
DC Converter Business
As part of its DC Telecom business, the AEG Group also operates the DC Converter business, which includes a
portfolio of industry-standard isolated DC-DC converters and a range of bus converters which provide optimized
solutions for systems employing distributed power architecture. These products are designed for telecom and
industrial applications and offer a wide choice of output voltage and current options. In December 2008, AEG
signed a memorandum of understanding whereby it agreed to sell the DC Converter business held by Harmer +
Simmons S.A.S. to members of AEG's management. The transaction, which was subject to certain conditions,
was due to be completed on 20 February 2009. As a number of the required conditions were not met, the
proposed sale has been abandoned. AEG is still committed to sell the DC Converter business. It is a condition
precedent to the closing obligations of Germany1 under the Acquisition Agreement that one or several of the
Sellers grant a put option to Germany1 with regard to the DC Converter business, see "The Acquisition
Agreement".
Strategic outlook and growth prospects for DC Telecom
The AEG Group is currently developing upgraded DC Telecom offerings to expand its presence in the outdoor
and low power telecom systems markets. The next generation product (G-5) has been introduced during the
second quarter of 2009. The G-5 platform significantly improves the power density of rectifiers, provides
improved efficiency and reduces manufacturing costs, and will be used as the platform for the next generation of
DC modular industrial power products.
DC Telecom Customers
The division has customer relationships with telecom companies throughout the world, including telecom OEMs
and service providers. Over the last three years, the DC Telecom division has received preferred supplier status
from a range of new customers, including four global telecom equipment and service providers.
DC Telecom currently markets its products in Europe, Asia and the Middle East, and has a growing presence in
the Americas. DC Telecom products are sold to over 500 customers in 95 countries. The ten largest customers
accounted for approximately 80% of its revenue in 2008. DC Telecom's largest customer, Alcatel-Lucent,
accounted for approximately 30% of its revenue in 2008.
102
In 2008, the business generated approximately 69% of its revenue from customers based in Europe, the Middle
East and Africa and approximately 31% of its revenue from customers based in Asia and the Americas.
Manufacturing and Supply
Manufacturing
AEG Group conducts its manufacturing at 4 facilities in Europe and Asia. The table below provides an overview
of locations and sizes of its production sites:
Location
Europe
Belecke, Germany
Tours, France
Asia
Beijing, China
Penang, Malaysia
Division
Functional expertise
Power Controllers
Protect Power
Power Controllers
Protect Power
DC Telecom
Manufacturing, Services, R&D, Sales
Services
Power Controllers
Protect Power
Power Controllers
Protect Power
DC Telecom
Manufacturing, Services, Sales
Manufacturing, Services, Sales
Manufacturing
Manufacturing
Manufacturing, Services, R&D
Size
(square
meters)
Leased/
owned
26,227
Owned
13,537
Owned
2,100
Leased
6,000
Owned
AEG Group's manufacturing and design processes include electrical and mechanical engineering, procurement,
assembly, functional testing and customer factory acceptance testing. AEG Group's manufacturing strategy is to
invest in and maintain direct control over the most critical high-end custom power systems manufacturing
capabilities, including systems integration, functional testing and customer factory acceptance testing, while
outsourcing all secondary processes where practicable and cost-effective. All outsourced products are qualified
and certified to meet AEG Group's design specifications, functional requirements and agency standards.
Quality Assurance
Customer factory acceptance testing is performed at AEG Group's manufacturing facilities prior to delivery to
ensure customer satisfaction with the design, performance and quality of its custom solutions. For large systems,
AEG's product quality accounting is tracked during "test field" system integration testing and is followed by a
stringent customer factory acceptance testing, which is conducted prior to delivery at the AEG Group's
manufacturing facilities under customer supervision and monitoring and during the life of the product in the
field. Following completion of the customer factory acceptance testing, products are then packaged to prevent
damage during shipping and handling.
Service Centers
AEG Group provides service support for the operating lifetime of its power systems. Services are provided by
AEG Group's dedicated service professionals in Europe, North America and Asia, as well as a global network of
third-party service partners. Almost all AEG facilities provide field application engineering support and service.
AEG offers a flexible range of support options for customers, including but not limited to help desks, 24-hour
hotlines and on-site maintenance and repairs. AEG Group's service contracts range from one on-site visit per
year to permanent on-site service, depending on customer requirements.
Supply
The raw materials and components used in AEG Group's products are available from a variety of suppliers, and
AEG Group has established long-term cooperative relationships with numerous suppliers in order to ensure a
stable supply of raw materials and components. AEG Group generally ensures that at least two suppliers are
available for each item. Material costs generally represent the largest component of AEG Group's costs.
103
For Power Controllers products, AEG Group purchases power silicon (thyristors), customized ASICs, low
frequency magnetics, electro-mechanical components, mechanical components, large capacitors and additional
raw materials, such as copper. Electro-mechanical components include circuit breakers and connectors.
Mechanical components include frames, covers, shelves and cooling apparatuses.
For Protect Power, primary materials purchased by AEG Group include power silicon (thyristors), microprocessors and integrated control modules, low frequency magnetics, batteries (lead-acid, nickel-cadmium and
lithium-ion), mechanical and electro-mechanical components and additional raw materials, such as copper.
For DC Telecom, AEG Group purchases power transistors (complementary metal-oxide semiconductor, field
effect transistors), integrated control modules, micro-processors, high frequency magnetics, electro-mechanical
components, lead acid batteries and mechanical components. Electro-mechanical components include circuit
breakers, fans and connectors. Mechanical components include frames, covers, shelves and cooling apparatuses.
Sales and Marketing
The AEG Group markets its products and services through direct sales teams specific to each division and the
applicable end markets. AEG Group's sales and sales management team comprised of 143 employees as of 31
December 2008. Sales teams are assigned to OEMs, end users, value-added resellers and manufacturers'
representatives. Over 90% of AEG Group's products are sold directly to OEMs and end users, with the
remainder sold through catalogues or third-party distributors.
The AEG Group utilizes a regional sales strategy to provide targeted Power Controllers, Protect Power and DC
Telecom offerings for each market.
AEG Group's sales strategy for Power Controllers and Protect Power is tailored to the various geographic
markets in which it competes. Some of the key considerations are summarized below:
•
Europe: Maintain attractive margins while increasing AEG Group's current market position through
existing and new business opportunities. Sustain and cultivate relationships with key customers, with a
particular focus on providing quality and reducing delivery times;
•
North America: Target end-users and engineering companies in selected end markets to expand AEG
Group's presence in the oil and gas, power generation (nuclear power plant refurbishment) and silicon and
specialized glass manufacturing industries;
•
Middle East: Expand the Protect Power business by offering total power system solutions to end
customers and contractors, primarily in the oil and gas, power generation, transportation and distribution
end markets;
•
Asia: Expand presence in Power Controllers with customized systems to support the silicon and
specialized glass manufacturing end markets, while pursuing standard Power Controllers offerings. In
addition, expand the Protect Power business by offering total Power System solutions to end customers
and contractors, primarily in the oil and gas, power generation, transportation and distribution end
markets.
DC Telecom's sales team is focused on pursuing sizable opportunities to provide total solutions for telecom
applications in markets with less reliable power infrastructure systems, including the Middle East, Africa and
Asia. Additionally, AEG Group is focused on continuing to offer custom DC power supply systems to wireless,
wireline and broadband service providers, especially in Western Europe.
To capture the growing market for low power UPS products, AEG Group has established a network of
distributors throughout Europe, North Africa and the Middle East, with a centralized logistics center in
Germany. In addition, AEG Group utilizes its sales force to pursue direct sales of low power UPS products to
end users as part of large infrastructure projects.
Research and Development
AEG has dedicated technical teams composed of experienced R&D-focused product development application
engineers with expertise in architecting and designing custom system solutions. AEG Group has 168 technical
104
team members at facilities in Europe (Germany, Italy, France, the United Kingdom, the Netherlands and Spain),
North America (United States and Canada) and Asia (Singapore, Malaysia, India and China). Power Controllers,
Protect Power and DC Telecom each have product development and application engineering teams to support
AEG Group's overall strategy of offering innovative, differentiated and customized products for customers
demanding robust and field-tested power solutions with near-100% reliability.
AEG Group's technical team overview
AEG Group technical teams
Product development teams
Location
Belecke, Germany
Hainault, United Kingdom
Penang, Malaysia
Toronto, Canada
Tours, France
Vitoria, Spain
Products
Power controllers and AC protect power systems
Modular DC protect power systems
DC telecom and DC protect power systems
AC and CDC protect power systems
DC telecom and DC protect power systems
DC protect power and solar inverter systems
Application Engineering teams
Application engineers in regional manufacturing centers
•
Bangalore, India
•
Belecke, Germany
•
Beijing, China
•
Dallas, USA
•
Hainault, United Kingdom
•
Milan, Italy
•
Penang, Malaysia
•
Singapore, Singapore
•
Toronto, Canada
•
Tours, France
•
Vitoria, Spain
•
Zwanenburg, The Netherlands
Application Engineering
Within AEG Group, product development engineers are responsible for designing product platforms that are
capable of meeting the demanding requirements of industrial end markets with cost-effective, rationalized and
flexible functional subassemblies and modules, such as inverters, converters, chargers, power semiconductor
stacks and controls.
AEG Group's application engineers are responsible for working directly with customer specifications in
designing solutions to meet customers' power application needs in a cost-effective manner and designing custom
systems using released platforms to meet customers' functional requirements, ensure engineering documentation
is generated for system assembly and testing, provide customer maintenance documentation and meet industry
requirements for compliance and agency approval.
Product Development
Product development is a key component of AEG Group's success and its management has invested in technical
skills and design tools to upgrade AEG Group's capabilities to address market opportunities and provide
technologically advanced products to its customers. In developing new offerings, product development engineers
focus on ensuring that AEG Group's platforms are able to handle the most challenging environments, while still
remaining cost-effective and flexible.
Most of AEG Group's systems, firmware, mechanics and electronics are developed at AEG Group's facilities in
Germany, France, the Netherlands, the United Kingdom, Canada and Spain. AEG Group is currently establishing
technical capabilities at its facilities in Malaysia, Bangalore and China to provide sustaining engineering support
for AEG Group's expansion in Asia, as well as supporting its sourcing and low-cost manufacturing efforts for
new and existing systems and solutions.
105
AEG Group's product development engineers are focused on implementing a building block strategy to develop
next generation product platforms. The building block strategy aims to reduce complexity in AEG Group's
product lines while improving product quality by standardizing commonly-used components and subassemblies.
By selectively reducing part customization, AEG Group seeks to reduce material and production costs, improve
working capital efficiency and better leverage the workflow of its application engineers.
Employees
The AEG Group had a total of 1,691 employees, including permanent and temporary employees, as of 31
December 2008. 577 employees were based in Germany. The table below provides a breakdown of the number
of employees in each department:
AEG Group headcount overview (as of 31 December 2008)
Category
Direct functions
Direct manufacturing ...........
Service engineers .................
Service technicians...............
Test technicians....................
Direct apprentices/trainees ...
Direct total
Indirect functions
Executive management ........
Sales and sales
management .........................
Supply chain.........................
Research and Development..
Application engineering .......
Service/quality control1 ........
General and
administrative2 .....................
Other3 ...................................
Indirect total .........................
AEG Group total.................
1
2
3
Power
Controllers
Protect
Power
DC
Telecom
DC
Converter
-
-
-
1
4
4
15
13
6
3
75
24
45
60
9
26
64
64
35
58
310
310
Shared
Total
442
97
45
66
16
666
442
97
45
66
16
666
2
7
18
26
41
31
17
17
8
23
58
8
7
19
88
9
15
58
143
176
156
106
94
18
42
196
196
15
24
145
145
87
27
310
976
155
177
1,025
1,691
Includes service and installation as well as quality and qualification.
Includes accounting and controllers, human resources, general and administrative and information technology.
Includes strategic business unit, indirect manufacturing and marketing and communications.
Intellectual Property
Patents
The AEG Group has a significant patent portfolio and numerous trade secrets that it uses to maintain a
technological leadership position in the industrial power electronics market. AEG relies on its own patents and
trade secrets as well as on licensed technologies to run its business.
The AEG Group owns a number of national and European patent registrations. However, a number of patents
have been assigned by Alcatel-Lucent to AEG in conjunction with a patent assignment and license agreement
entered into during Ripplewood's acquisition of the Saft Power Systems Group (the predecessor of AEG) from
Alcatel. Although AEG Group's patent ownership has never been challenged, the transfer of the assigned patents
has not yet been registered with the competent patent offices and the patents still appear as registered in the name
of Alcatel-Lucent.
Trademarks
AEG markets primarily under the AEG™ and Harmer & Simmons™ brand names.
106
AEG utilizes the AEG™ brand name globally on its power electronics product lines under an exclusive,
transferrable and renewable license from Electrolux AB. According to its agreement with Electrolux AB, AEG
pays a royalty based on the revenue from products sold under the AEG™ brand name for an initial term of ten
years, expiring in 2018.
The Harmer & Simmons™ brand name is used globally for its DC Telecom product lines and in selected
circumstances for Protect Power offerings in China. The brand name will likely be assigned to DC Converter
upon a sale of the business.
Material Contracts
Supply
AEG Group entered into a supply agreement with one major supplier of high power semi-conductor disks
according to which AEG Group will receive at least 5,000 high power semi-conductor disks per month. AEG
Group made an (investment-supporting) advance payment of EUR 6,000,000 of which EUR 1,300,000 had to be
reimbursed by 30 June 2009 and the remaining amount of EUR 4,700,000 shall be reimbursed through price
reductions on the purchases of products until December 2012. Until the end of 2011, AEG Group must procure
at least 70% of its demand for these products from the supplier provided that the suppliers' worldwide market
share for high power discs does not exceed 30%.
Trademark
On 1 July 2008, AEG entered into a trademark license agreement with AB Electrolux regarding the license of the
"AEG" trademark worldwide (except for Iran, Sudan, Syria, North Korea, Cuba) for, among other things,
uninterruptible power supplies; switch mode power supplies; power controllers and DC power supply systems.
The trademark license agreement with AB Electrolux ends at 1 July 2018. It provides for a largely exclusive
(non-exclusive for inverters and photovoltaic inverters being less than 7kW) license under certain conditions.
These conditions include, among other things, approval by AB Electrolux of the trade marketed products against
the quality standards set by AB Electrolux, denial by AB Electrolux of any product liability or other warranty
claims, a sales target and prior approval by AB Electrolux of the suppliers used by AEG.
Markets and Competition
Power Controllers Market
Overview
The main customers for Power Controllers products participate in the market for complex polysilicon
production. Major increases in demand for high-purity polysilicon, a key production input for solar cells and
microelectronics, have substantially increased orders for Power Controllers offerings during recent years.
Solar Energy
Solar energy is generated when sunlight is directly converted into electricity using solar cells, or photovoltaics,
which are made out of a special form of semiconductor silicon feedstock, known as polysilicon. Solar power is
one of the fastest growing sources of renewable energy. Worldwide solar photovoltaic installations have grown
at a 35% annual rate from about 80 megawatts in 1995 to approximately 4.1 gigawatts in 2008 and are projected
to grow at a 27% annual rate to 75.6 gigawatts in 2020 (Source: Deutsche Bank research, 2009). During the
corresponding period, solar photovoltaic module prices have declined from approximately USD 11 per watt to
about USD 4 per watt (Source: Barclays Capital, 2009). Though historically small in scale, the solar energy
industry has witnessed consistent, healthy growth over the past 20 years. Key drivers of the growing demand for
solar power include increasing scarcity and rising prices of conventional energy sources, the desire for energy
security and energy independence with regard to fossil fuels, an increased preference for environmentallyfriendly and renewable energy sources and government incentive programs that are aimed at generating
economies of scale and making solar energy more cost competitive.
According to Credit Suisse, global demand for solar energy consumption is expected to rise due to increasing per
capita consumption in emerging markets. Developed countries consume seven times the energy per capita as
developing countries such as India and China. The urbanization of emerging markets and the rise of global living
107
standards should place strong long-term upward pressure on the demand for fossil fuels. In response to this trend,
the list of countries with incentives for solar and renewable energy is growing and includes: Germany, the
United States, Spain, Italy, France, Greece, Portugal, Korea, Australia, India, China, Canada and Israel, among
others.
To date, a number of different technologies have been developed to harness solar energy. Crystalline siliconbased solar cells represent approximately 90% of global solar cells manufactured today:
•
Crystalline silicon photovoltaic systems are manufactured using either multicrystalline, monocrystalline
or string ribbon technologies. Multicrystalline is currently the most widely used silicon technology;
•
Due to its high conversion efficiency (about 14% to 21%) and proven high volume manufacturing
processes it has some advantages over other newly emerging technologies;
•
Its dependency on high-purity polysilicon is regarded as its main disadvantage.
Thin-film technology is a relatively new technology which represents less than 10% of solar cells manufactured
today:
•
It eliminates the use of expensive polysilicon;
•
Disadvantages are its lower conversion efficiency (6% to 11%), lack of proven manufacturing technology
and use of toxic, non-recyclable raw materials.
The concentrating solar power ("CSP") technology revived as another alternative to generate solar energy:
•
CSP solar thermal plants are large utility-scale projects;
•
However, the use of CSP systems is geographically limited as they require direct sunlight which is not
required by the other technologies and of environmental impact studies are required due to its intensive
use of natural resources, such as water.
Polysilicon production
Polysilicon demand is being driven by significantly increased demand for solar cells in large-scale power
generation projects. Upstream production of polysilicon is the most concentrated segment of the market and
Deutsche Bank estimates that the top ten polysilicon producers will control more than 80% of the industry's
capacity in the next two years despite nearly 100 new entrants in the polysilicon business. Upstream production
has the greatest capital intensity and often represents the bottleneck in the production of solar cells and
microelectronics due to limited production capacity. Strong acceleration in end market demand has historically
driven the upstream segments to critical undersupply of polysilicon and the need for significantly more
polysilicon manufacturing facilities.
Strong demand for solar-grade polysilicon has been met by significant increases in supply. While Credit Suisse
expects oversupply of solar-grade polysilicon in 2010 and 2011, Deutsche Bank, JPMorgan and Nomura expect
oversupply in 2009 and 2010 resulting in increased competition and price erosion. Grid parity is the point in time
at which solar electricity is equal to or cheaper than the conventional grid electricity. As a result of raw material
oversupply, Citigroup expects grid parity to materialize for Italy in 2010, California in 2011, Spain in 2012 and
Germany in 2013 (Source: Citigroup, Investment Research, September 2008).
Polycrystal silicon global supply-demand balance for solar cells
Tons
2006
2007
2008e
2009e
2010e
2011e
2012e
Supply .........................................
Demand.......................................
Demand-supply balance ..........
13,700
17,600
128%
18,150
26,000
143%
34,100
34,000
100%
52,250
59,000
113%
85,500
78,000
91%
118,500
104,000
88%
123,500
125,000
101%
Source:
Credit Suisse, 1 April 2009; Rare Metals News
The greatest value in the solar value chain will likely remain upstream in polysilicon and ingots given the
ongoing shortage of both materials, which has created pricing power for upstream solar companies. UBS
108
estimates that the highest margins in the solar value chain will be found in the polysilicon section due to high
barriers to entry. High entry barriers, better execution and cost competitiveness are reasons for Deutsche Bank to
expect stronger and more resilient margins in upstream.
Industry analysts believe that the size of the opportunity for polysilicon production is significant. According to a
range of different sources shown below, total polysilicon supply is expected to grow by an average of 50% in
2009 and 43% in 2010. Deutsche Bank assumes a total production of 311,000 metric tons by 2020 and estimates
a 2008-2020 CAGR of 16%. As solar cell production increases, industry analysts believe that production scale
benefits and increased efficiency will make solar cells less expensive as a power source, further fueling
polysilicon demand worldwide.
Total Polysilicon supply
Metric tons
HSBC, 6 Jan 09...............................................
Deutsche Bank, 6 Feb 091 ...............................
Collins Stewart, 12 Feb 09..............................
Arburthnot, 13 Feb 09.....................................
Commerzbank/DKW, 18 Mar 09....................
Nomura, 2 Apr 092 ..........................................
Barclays Capital, 1 May 093 ...........................
Needham, 20 Apr 09 .......................................
Morgan Stanley, 1 Jun 09 ...............................
Hapoalim Securities, 23 Jun 094 .....................
Mean ...............................................................
Median ............................................................
1
2
3
4
2008e
56,800
55,000
57,831
75,180
60,845
61,134
59,083
74,660
53,675
62,658
-
2009e
2010e
2011e
2012e
86,300
52%
72,000
31%
80,300
39%
109,400
46%
89,733
48%
98,900
62%
91,234
54%
119,650
60%
79,404
48%
102,518
64%
50%
50%
112,600
31%
110,000
53%
114,950
43%
154,610
41%
124,579
39%
134,393
36%
138,425
52%
164,900
38%
115,333
45%
159,211
55%
43%
42%
201,750
31%
156,362
25%
174,695
26%
200,900
22%
146,301
27%
196,818
24%
26%
26%
175,770
12%
200,725
15%
228,655
16%
14%
15%
Assumes 311,000 MT by 2020e with a 08-10 CAGR of 41% and a 08-20 CAGR of 16%.
Base case assuming Tier-1, Tier-2 and Tier-3 players ramp 75%, 60% and 25% of planned 2009 capacity on schedule.
2008 actual.
2008 actual; includes assumptions for new, as well as unforeseen, market participants.
The growth the solar energy market experienced in 2007 and in the first three quarters of 2008 has subsided due
to a sudden lack of investment resulting from the world's recent economic downturn. 2009 year-to-date orders
have slowed as existing customers have shifted their focus to cost reductions and improving process quality,
rather than further increasing capacity. Analysts, however, are predicting that increased government investment
and subsidies in many countries, especially China, will provide the stimulus required to eventually jumpstart
long-term growth in the solar energy market.
To date, a number of different technologies have been developed to produce polysilicon. The Siemens process is
the principal polysilicon production process in operation worldwide and has been in existence for nearly fifty
years. The Siemens process has a market share in global polysilicon production of approximately 85%. In the
Siemens process, high-purity silicon rods are exposed to trichlorosilane at approximately 1150 C. High
temperatures result in high energy consumption (~70 – 120 kWh/kg), which increases the manufacturing costs
and energy pay back times of solar power systems.
The Fluidized Bed Reactor (FBR) process is designed to minimize energy usage in silicon production (~10
kWh/kg). This will result in lower production costs and faster energy payback time for solar cells. However,
AEG's management believes that it has not yet been proven that the FBR process can be operated as costeffectively and stably as the Siemens process. Other polysilicon production processes, such as the metallurgical
production process, are of minor significance, as they have not yielded sufficiently pure polysilicon at acceptable
cost levels.
109
Competition
According to its own estimates, AEG Group is the global leader for AC power systems supporting the
production of polysilicon using the Siemens process with a market share of approximately 70%. AEG Group,
competes against regional players from the US and China.
Power Controllers' primary competitors for the power controller modules include Ametek, Inc. (HDR Power
Systems), CD Automation, Control Concepts, Inc., Invensys plc (Eurotherm), JUMO GmbH & Co. KG, Sichuan
Injet Electric Co., Ltd. and Spang & Company, Inc., among others. At the systems level, the primary competitors
with DC solutions are Friem SpA and Spang & Company, Inc. and the primary competitors with AC solutions
are Spang & Company, Inc., Beijing Sanyi Power and Electronics Company and Injet.
Protect Power Systems Market
Overview
Protect Power infrastructure end markets, including oil and gas, petrochemicals, power generation, transmission
and distribution, water and transportation, are experiencing growth due to increasing global demand for energy
and reliable infrastructure. According to estimates of AEG's management, Protect Power's end markets comprise
approximately EUR 6.85 billion of opportunity globally, of which approximately EUR 2.5 billion relates to
renewable energy and power generation applications, approximately EUR 1.0 billion relates to LED lightning,
approximately EUR 1.1 billion relates to infrastructure applications (oil and gas and transportation) and
approximately EUR 2.3 billion relates to large (>10 kVA) data & IT/building applications.
UPS market
The global UPS market has an estimated volume of approximately USD 7.4 billion and is expected to grow by
above average rates in the medium to long term, relative to GDP growth. With estimated market volume of USD
9.5 billion in 2013, the CAGR is forecast to be 5%. Structural factors likely to support this growth include high
growth rates of data centers and the strong need for increased IT infrastructure. Also, power downtime has
growing opportunity costs as equipment failures due to power problems have serious reputational and financial
risks. Additionally, power infrastructure is ageing in developed countries and investment has been slow to
respond. Emerging markets have frequently seen power demand out-strip supply leading to persistent power
interruptions. Finally, sustained R&D has led to technological and product advances in UPS systems, which has
helped grow the overall UPS market.
Global UPS market, 2007-2013 (USD billions)
CAGR:+5%
10
9.1
8.6
9
8
U S$ billions
7
9.5
7.4
8.2
7.8
6.9
6
5
4
3
2
1
0
2007
Source:
2008
2009
2010
2011
2012
2013
Gartner, Global Industry analyst, 2008
110
There are several industrial and commercial infrastructure applications for the use of reliable UPS systems, for
example, certain operations in the oil and gas industry, such as conducting offshore or onshore fields, pipelines,
processing and refining. Due to the high risk of explosions in this industry, UPS systems are mission critical to
increased safety for personnel by ensuring continuous power to fire and gas detection devices, emergency
shutdown devices, navigational instruments and onboard weather stations. Power management is also critical to
ensure a specific oil and gas operational requirement.
Solar inverters
Solar inverters transform DC power to AC power and are required for every solar panel. Consequently, the solar
inverter market enjoys high growth rates with the 2008-2013 CAGR estimated at 26% from EUR 1.3 billion in
2008 to EUR 4.2 billion in 2013. Solar inverters are not expected to become a commodity product in the near
future as they involve complex technology that has not fully matured yet. Manufacturing is made more
challenging as several manual assembly steps are required in the process. (Source: IMS Research, 2009)
Competition
Protect Power has specialized expertise in providing its highly-customized, reliable power protection solutions
across numerous industrial end markets including oil and gas, petrochemicals, utilities, transportation and
infrastructure. These segments have three main competitors: AEG, Chloride Group PLC and Gutor Electronic
L.L.C. Competitors in the market segment of system applications include Ametek, Inc. (SCI), Benning
Elektrotechnik, Chloride Group PLC and Schneider Electric SA (Gutor).
DC Telecom Market
Overview
According to AEG's management, DC Telecom products are positioned for growth in support of robust global
demand for telecom network infrastructure development, especially for broadband and wireless applications. The
continuous expansion and upgrading of global telecom networks will require significant future investment in
network infrastructure, including reliable power supply systems. Specifically, both the wireless and fixed line
telecom infrastructure market are expected to grow at a CAGR of 6% from 2006 through 2010, while the
wireline telecom infrastructure market is expected to grow at a CAGR of 7% over the same period. The
communications infrastructure markets in Europe, the Middle East and Africa (EMEA) and North America are
expected to grow at a CAGR of 5% from 2006 through 2010 and markets in other areas of the world are
expected to grow at a CAGR of 8% over the same period.
DC Telecom Addressable Market
System size (total market; EUR 1.4bn)
Geography
EMEA
22%
High Power
20%
Asia
42%
Compact
25%
Mini
55%
Americas
36%
Source:
IMS Research, 2008
DC Telecom is also targeting the market for reliable wireless base station solutions in India, which it entered in
mid-2006, where AEG estimates DC Telecom's addressable market to account for over EUR 200 million.
Additionally, during 2008, DC Telecom has focused on further expansion in Africa, where the addressable
market for DC Telecom solutions, including batteries, during 2008 is estimated at USD 125 million.
111
Competition
The market for telecom systems is relatively consolidated, with significant barriers to entry driven by customers'
stringent reliability and quality requirements. According to AEG's management, key drivers in the markets
served by DC Telecom products include price competitiveness, efficiency and system power density (the amount
of DC power generated from AC power in a given space). Increased power density allows customers to utilize
more efficient electronics within a smaller footprint and achieve substantial cost savings on a price per watt
basis. Primary competitors of the DC Telecom division include Delta Electronics, Inc., Emerson Electric Co.
(Network Power), Eaton Corp., Eltek ASA, Lineage Holdings, Inc. and Power-One, Inc., among others.
Regulatory Environment
AEG Group is subject to the effects of laws, regulations, supervisory provisions and international industry
standards in three aspects.
First, AEG Group operates its business internationally with production and engineering facilities located in
different countries in Europe, Asia and North America. AEG Group is therefore subject to legal and regulatory
provisions, including, among others, provisions of environmental protection, occupational safety and health care
regulations, in a multitude of jurisdictions. Second, insofar as AEG Group's customers are subject to legal
requirements or have to meet technical standards, AEG Group must design its products and ensure their
manufacture so as to comply with all applicable legal requirements and standards. Third, as regards to AEG
Group's polysilicon producing customers, government incentives for the promotion of renewable energy sources
are of fundamental importance, because the various incentive programs for operators of photovoltaic systems
generate an indirect demand for the polysilicon and the products of AEG Group.
Occupational safety, health care and environmental protection regulation
AEG Group is subject to occupational safety and health care regulation, in each of the jurisdictions in which it
operates. Such laws and regulations vary from country to country. In the European Union, for instance, member
states have all transposed into their national legislation a series of Directives that establish minimum standards
on occupational safety and health. These directives (of which there are about 20 on a variety of topics) follow a
structure of requiring the employer to assess the workplace risks and put in place preventive measures based on a
hierarchy of control. This hierarchy starts with the elimination of hazards and ends with personal protective
equipment. European member states have enforcement authority to ensure that the basic legal requirements
relating to occupational safety and health are met.
In the United States, the Occupational Safety and Health Act of 1979 created both the National Institute for
Occupational Safety and Health ("NIOSH") and the Occupational Safety and Health Administration ("OSHA").
OSHA, in the U.S. Department of Labor, is responsible for developing and enforcing workplace safety and
health regulations. NIOSH, in the U.S. Department of Health and Human Services, is focused on research,
information, education, and training in occupational safety and health.
Environmental law is a complex and interlocking body of statutes, laws, regulations, treaties, conventions,
regulations and policies that may differ from country to country. Areas of concern in environmental law include
emission control, restrictions on the use of hazardous materials, waste management and the prevention of
contaminations of soil and land.
In the European Union, manufacturing of electronic equipment is also subject to the Directive on the restriction
of the use of certain hazardous substances in electrical and electronic equipment (2002/95/EC) commonly
referred to as the Restriction of Hazardous Substances Directive (or RoHS). The RoHS Directive restricts the use
of six hazardous materials in the manufacture of various types of electronic and electrical equipment. It is closely
linked with the Waste Electrical and Electronic Equipment Directive (WEEE) 2002/96/EC, which sets
collection, recycling and recovery targets for electrical goods.
Product standards and certifications
The market for electrical generation products, power control and protection systems is heavily influenced by
government regulations, technical standards and policies concerning the issuance of product certificates. Most of
AEG Group's products require certifications and approvals from the local authorities of the customer's home
state prior to its installation. As a consequence, the power systems solutions provided by AEG Group have to
comply with various national and international technical standards and industry norms, including, among others,
112
standards on electrical equipment of machines, erection of power installations with nominal voltages up to 1000
V, protection against electric shock, radio interference suppression of electrical appliances and systems, safety of
machines, safety-related parts of control systems and general design guidelines.
Government Incentives for Photovoltaics
Federal, state and local governmental bodies in many countries, including Germany, Italy, Spain, South Korea,
China and the United States, have provided subsidies in the form of feed-in tariffs, rebates, tax write-offs and
other incentives to end-users, distributors, system integrators and/or manufacturers of photovoltaic products to
promote the use of solar energy.
Legislation for the promotion of renewable energy sources in the member states of the European Union is based
on numerous European regulations, especially the Directive of 27 September 2001 on the promotion of
electricity produced from renewable energy sources in the internal electricity market (2001/77/EC). In January
2008, the European Commission put forward a proposal for a new Directive on renewable energies to replace the
existing measures, which was adopted by the Parliament on 17 December 2008. According to this Directive,
each member state should increase its use of renewable energies such as solar, wind or hydro in a bid to increase
the EU's share from 8.5% of the bloc's energy mix today to 20% by 2020. EU member states will be permitted to
link their national support schemes to those of other EU member states.
In the United States, the Federal Energy Policy Act of 2005 provides tax credits for residential energy property,
including solar-electric systems, solar water heating systems and fuel cells. Under this law, a taxpayer may claim
a credit of 30% of qualified expenditures, which include labor costs for onsite preparation, assembly or original
system installation, and for piping or wiring to interconnect a system to the home. If the federal tax credit
exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year. In addition,
several states, including California and Colorado, have issued incentive programs to promote renewable
energies.
113
AEG MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The financial information of AEG Group as of and for the years ended 31 December 2008 and 31 December
2007 and as of 31 December 2006 presented below was derived from and should be read in conjunction with the
audited consolidated financial statements of AEG as of and for the year ended 31 December 2008 and as of and
for the year ended 31 December 2007 prepared in accordance with IFRS included in this Proxy Statement.
Overview
AEG Group is a leading provider of highly-engineered, custom and standard power system solutions for a broad
range of infrastructure and industrial applications. It covers the global infrastructure market through its three
specialized divisions: Power Controllers, Protect Power and DC Telecom (see "Information about AEG –
Business Divisions").
Segment reporting in AEG's consolidated financial statements comprises two segments: PPSG (Protect Power
Solutions Group; comprising Power Controllers, Protect Power, DC Telecom and services related thereto) and
the DC Converter business. As AEG is committed to sell the DC Converter business, it has been presented as a
discontinued operation and classified as held for sale in the financial statements as of and for the year ended 31
December 2008.
AEG Group operates globally with significant market presence in Europe and Asia, and a growing market
presence in the Americas, the Middle East, China, India, Russia and Africa.
In 2008, AEG Group generated revenue of EUR 342,836 thousand and operating profit before financing costs
from continuing operations of EUR 55,654 thousand. For an explanation of discontinued operations please see
note 5 to the audited consolidated financial statements of AEG as of and for the year ended 31 December 2008
included in this Proxy Statement.
Factors affecting Results of Operations
The most important factors that may affect AEG Group's results of operations include the following:
Solar Energy Industry
A significant portion of AEG Group's increase in revenues and an even higher portion of AEG Group's increase
in profitability in the recent years is attributable to a strong growth in demand for AEG Group's products from
the solar energy industry and, in particular, polysilicon producers. Polysilicon is the base material for the
production of silicon-based solar cells used in solar modules and also used in semiconductor devices. The
willingness of polysilicon producers to enhance production capacity (and purchase AEG Group's products)
therefore correlates to the global demand for silicon-based solar energy systems. In turn, global demand for
silicon-based solar energy systems is influenced by a number of factors, such as government incentives for
photovoltaic energy sources, the price of conventional forms of energy and the availability and costs of
financing, as photovoltaic systems are largely financed by borrowing capital.
In the past, the market for polysilicon has been cyclical. In recent years, there was a shortage of polysilicon due
to production capacity that was insufficient to meet demand. Recently, polysilicon supply has increased due to
an increase in polysilicon production capacity, partly as a result of new entrants to the polysilicon production
industry. A slowdown in the solar panel market and in the semiconductor device market has also contributed to
excess supply in the polysilicon market.
An excess in production capacity for polysilicon could lead to a decrease and a shortage in production capacity
for polysilicon and, thereby, lead to an increase in demand for AEG Group's products and, thus, increase AEG
Group's profitability.
114
Costs of Materials
For its three business divisions AEG Group mainly purchases the following raw materials and components:
For Power Controllers, AEG Group purchases power silicon (thyristors), customized ASICs, low frequency
magnetics, electro-mechanical components, mechanical components, large capacitors and additional raw
materials, such as copper. Electro-mechanical components include circuit breakers and connectors. Mechanical
components include frames, covers, shelves and cooling apparatuses.
For Protect Power, primary materials purchased by AEG Group include power silicon (thyristors), microprocessors and integrated control modules, low frequency magnetics, batteries (lead-acid, nickel-cadmium and
lithium-ion), mechanical and electro-mechanical components and additional raw materials, such as copper.
For DC Telecom, AEG Group purchases power transistors (complementary metal-oxide semiconductor, field
effect transistors), integrated control modules, micro-processors, high frequency magnetics, electro-mechanical
components, lead acid batteries and mechanical components. Electro-mechanical components include circuit
breakers, fans and connectors. Mechanical components include frames, covers, shelves and cooling apparatuses.
Costs of materials have accounted for approximately 53% of revenues in 2007 and 48% of revenues in 2008.
Any decrease or increase in prices for raw materials or components can have a significant effect on AEG Group's
profitability.
DC Converter Business
In December 2008, AEG signed a memorandum of understanding whereby it agreed to sell the DC Converter
business held by Harmer + Simmons S.A.S. to members of AEG's management. The transaction, which was
subject to certain conditions, was due to be completed on 20 February 2009. As a number of the required
conditions were not met, the proposed sale has been abandoned. In 2008, the DC Converter business produced
losses of EUR 9,737 thousand which are reported as losses from discontinued operations. AEG is still committed
to sell the DC Converter business but has also initiated restructuring plans in order to lead the DC Converter
business back to profitability. The restructuring plan is currently being implemented. The results of the
implemented restructuring as well as a possible divestment could have a significant effect on AEG's profitability.
It is a condition precedent to the closing obligations of Germany1 under the Acquisition Agreement that one or
several of the Sellers grant a put option to Germany1 with regard to the DC Converter business, see "The
Acquisition Agreement".
Introduction of the G5 system in DC Telecom
Some elements of DC Telecoms' product technology have historically not been at the level of products offered
by competitors. DC Telecom, therefore, had to sell its products at discounted prices resulting in comparatively
low margins. In order to eliminate this disadvantage, AEG Group has developed a new generation of products
based on the so-called G5-technology for DC solutions, with a first order for a G5 system being delivered in
May 2009. The successful introduction of this new product generation to the market would bring DC Telecom to
technological parity with key competitors. This could improve the margins earned by AEG Group in the DC
Telecom business and, thus, its overall profitability.
Outsourcing of production in connection with increased standardization and modularization of products
In its Protect Power and DC Telecom business, AEG has initiated a process aiming at an increased
standardization and modularization of product components. This allows for shifting the production of such
components to lower cost production facilities such as Penang, Malaysia, or to have such components produced
by an outsourcing partner. A number of product components have undergone this process and standardized
product components have already been developed in 2008. It is also intending to follow this approach in 2009.
Generally, AEG Group's goal in the standardization and modularization process is to earn higher margins on its
products. Therefore, the extent to which AEG Group will be able to successfully implement this strategy is
expected to have an impact on AEG Group's profitability.
115
Results of Operations
Comparison of 2008 and 2007
The following table shows AEG's consolidated income statements and statement of recognized income and
expense for the year ended 31 December 2008 and the year ended 31 December 2007:
31 December
2007
2008
(EUR thousand)
Revenues .................................................................................
Cost of sales ............................................................................
Gross profit ...........................................................................
Selling, general and administrative expenses..........................
Research and development costs ............................................
Other operating income ..........................................................
Other operating expenses . ......................................................
Operating profit/ (loss) before financing costs....................
Financial expenses, net ...........................................................
Profit/ (loss) before taxes . ....................................................
Income Taxes .........................................................................
Profit/ (loss) from continuing operations ............................
Profit / (loss) from discontinued operations . ..........................
Profit / (loss) for the Period .................................................
342,836
(227,454)
115,382
(54,010)
(6,661)
3,241
(2,298)
55,654
(3,839)
51,815
(15,866)
35,949
(9,737)
26,212
218,223
(169,756)
48,467
(42,001)
(4,418)
(2,119)
(71)
(4,329)
(4,400)
3,299
(1,101)
(2,341)
(3,442)
Foreign currency translation differences for foreign
operations ...............................................................................
Income and expense recognized directly in equity ............
Profit (loss) for the period … ..................................................
Total recognized income and expense for the period ........
169
169
26, 212
26,381
(1,009)
(1,009)
(3,442)
(4,451)
Revenues
Revenues have increased from EUR 218,223 thousand in 2007 by EUR 124,613 thousand, or 57%, to
EUR 342,836 thousand in 2008.
The increase in revenues is mainly attributable to an increase in revenues generated in the Power Controllers
business unit and, to some extent, due to an increase in revenues generated in the Protect Power business unit.
Revenues in DC Telecom increased only slightly.
Divisional split
Revenues in the Power Controllers business have increased from EUR 29.4 million in 2007 by EUR 98.2
million, or 334%, to EUR 127.6 million in 2008. This increase is mainly the result of a strong increase in orders
from polysilicon producers. These orders have gained significant momentum since August 2007. Due to their
relatively long lead time of approximately nine to twelve months, these orders only started to translate into
revenues in 2008. The increase in total order volume mainly results from orders having been placed by new
customers as well as an increase in the average order size. The strong growth in orders reflects the significant
expansion of polysilicon production capacity worldwide and, most notably, in Asia in 2008. The increase in
average order size results from increased sales to integrators, which typically order for several projects and an
increased number of orders for expansion phases. Orders for expansion phases usually exceed orders for
development phases, as silicon producers need to test the production equipment first on a relatively small scale
before ramping-up capacity to make use of economies of scale with larger expansionary phases of plant
commissioning.
Revenues in the Protect Power business have increased from EUR 131.9 million in 2007 by EUR 22.6 million,
or 17%, to EUR 154.5 million in 2008. This increase is attributable to all major product categories, with the
strongest increase in sales of resale products and solar inverters. The increase in revenues follows investments in
sales and project management teams focusing on specific markets such as oil and gas.
116
Revenues in the DC Telecom business have increased from EUR 56.9 million in 2007 by EUR 3.8 million, or
6.7%, to EUR 60.7 million in 2008. This increase results from increases in sales for all product categories.
Increased penetration of the Asian market and, in particular, Malaysia and Singapore through an Asian based
sales team improved sales of DC Telecom products to Asia. In addition, increased infrastructure activity in
emerging markets, especially India, has also contributed to the increase in revenues.
Geographical split
Of the total revenues before consolidation and including discontinued operations in 2007, 29% were generated in
Germany, 33% in France, 20% in the Rest of Europe and 18% in the Pacific, Asia and North America, whereas,
in 2008, 46% were generated in Germany, 24% in France, 16% in the Rest of Europe and 14% in Pacific, Asia
and North America. Revenues have been attributed to each geographical regions based upon the location of the
manufacturing facility and/or the marketing entity. The decrease in the percentage of all other regions of the total
revenues is mainly attributable to the revenues in Germany more than doubling from 2007 to 2008 as a result of
the strong increase in sales of products manufactured in Belecke, Germany to polysilicon producers in 2008.
Cost of sales
Cost of sales comprise variable costs (material costs, labor costs, and variable sales expenses), fixed costs
(engineering costs, supply chain expenses, operation and manufacturing costs and installation and service costs),
operating reserves (product sales reserves and bad debt reserves) and changes in value of inventory.
Cost of sales have increased from EUR 169,756 thousand in 2007 by EUR 57,698 thousand, or 34%, to
The increase in cost of sales was mainly attributable to increases in cost of sales in the Power Controllers and the
Protect Power business and, to a significantly lesser extent, to an increase in cost of sales in the DC Telecom
business.
In the Power Controllers business the material costs form the largest portion of total cost of sales, followed by
fixed operation and manufacturing costs and labor costs. The increase from 2007 to 2008 is attributable to an
increase throughout all categories of cost of sales, most notably material costs, followed by fixed operation and
manufacturing costs and labor costs.
Also in the Protect Power business material costs are the majority of cost of sales, followed by labor costs, fixed
operation and manufacturing costs, fixed engineering costs and fixed installation and service costs. The increase
in cost of sales in 2008 is mainly attributable to an increase in materials costs while the other components of cost
of sales remained relatively unchanged.
Material costs also make up the largest portion of cost of sales in the DC Telecom business, followed by labor
costs and fixed operation and manufacturing costs. The slight increase in cost of sales in the DC Telecom
business in 2008 was primarily due to a shift in the product mix towards more resale products.
Gross profit and gross profit margin
Gross profit increased from EUR 48,467 thousand in 2007 by EUR 66,915 thousand, or 138%, to EUR 115,382
thousand in 2008. The gross profit margin increased from 22% in 2007 to 34% in 2008, mainly due to a strong
increase in sales from the Power Controllers business in which AEG Group earns above average gross margins.
In the Power Controllers business the gross profit margin improved from 2007 to 2008, mainly due to a
disproportionately lower increase in variable costs than in revenue due to a significant bonus payment of a
polysilicon producing customer for early delivery that did not result in higher material or labor costs. In addition,
the increase in margin also results from a more favorable product mix, as AEG Group commenced selling 18pair and 24-pair systems on which it earns higher margins in 2008. The productivity gains in 2008 of personnel
newly hired in 2006 and 2007 lead to a decrease in labor costs as a portion of revenue. As a percentage of
revenues, fixed costs remained relatively stable, as economies of scale effects were set off by a ramp-up in 2008
for the strongly increasing order flow from polysilicon producers resulting in staff spending a larger portion of
their time for the Power Controllers business.
117
In the Protect Power business the gross margin improved in 2008 due to a decrease in variable and fixed costs as
a percentage of revenues. However, a significant part of this decrease results from a bigger portion of the
Belecke fixed costs having been allocated to the Power Controllers business in 2008 compared to 2007.
In the DC Telecom business the gross profit margin remained relatively stable in 2008.
Selling, general and administrative expenses
Selling, general and administrative expenses have increased from EUR 42,001 thousand in 2007 by EUR 12,009
thousand, or 29%, to EUR 54,010 thousand in 2008 mainly due to continued expansion of the business as well as
higher award payments in conjunction with revenue and profitability growth.
Research and development costs
Research and development costs have increased from EUR 4,418 thousand in 2007 by EUR 2,243 thousand, or
51%, to EUR 6,661 thousand in 2008. Actual research and development costs have been EUR 9,888 thousand in
2008 and EUR 5,997 thousand in 2007 of which EUR 3,227 thousand and EUR 1,579 thousand, respectively,
(after deduction of amortization and write-off) have been capitalized and are therefore not recognized in the
income statement.
Whereas other operating income amounted to EUR 3,241 thousand in 2008, the AEG Group did not recognize
other operating income in 2007. The other operating income in 2008 is a result of a settlement between
Ripplewood Holdings and Alcatel of legal proceedings resulting from the acquisition of the SPS Group by
Ripplewood Holdings from Alcatel. This resulted in a reversal of the estimated additional purchase consideration
recorded as a provision by AEG.
Other operating expenses
Other operating expenses have increased from EUR 2,119 thousand in 2007 by EUR 179 thousand, or 8%, to
EUR 2,298 thousand in 2008. In both years the other operating expenses mainly comprise restructuring costs in
the form of employee termination benefits and result from the restructuring of operations in Germany, France
and the Netherlands (2008) and Germany, France and Romania (2007).
Operating profit before financing costs (EBIT)
After a negative EBIT of EUR 71 thousand in 2007, EBIT increased to EUR 55,654 thousand in 2008. This
represents the operating profit (loss) before financing costs and taxation of continuing operations.
Divisional split
The following EBIT information per business division is mainly adjusted for recurring shared overhead costs and
other adjustments. Shareholders should note that the adjustments and, in particular, the shared overhead costs are
costs that are necessary for the business divisions' operations.
AEG Group uses earnings before interest and taxes, adjusted as set forth below ("Adjusted EBIT"), as a measure
of evaluating financial performance of its business unit. Adjusted EBIT does not represent cash flows from
operations as defined by generally accepted accounting principles ("GAAP"), is not a measure derived in
accordance with GAAP and should not be considered by the reader as an alternative to operating income before
financing costs.
Adjusted EBIT may not be comparable to other similarly titled measures as reported by other companies, as
other companies may calculate these measures differently than AEG does. Adjusted EBIT should not be
considered in isolation, or as a substitute for analysis of the AEG Group's operating results, including its income
statements and cash flow statements, as reported under IFRS.
The following table sets forth a reconciliation of Adjusted EBIT (a non-GAAP measure) to reported EBIT for
AEG Group for the years ended 31 December 2008 and 2007.
118
31 December
2007
2008
(EUR million)
Reported EBIT .......................................................
Adjustments
Recurring shared overhead costs..........................................
Other adjustments ................................................................
Adjusted EBIT ...................................................................
55.7
(0.1)
6.3
0.7
62.7
5.3
(1.2)
4.1
In the Power Controllers business, Adjusted EBIT increased from EUR 8.9 million in 2007 by EUR 49.8 million,
or 560%, to EUR 58.7 million in 2008.
In the Protect Power business, Adjusted EBIT improved from a negative EBIT of EUR 3.8 million in 2007 to a
positive EBIT of EUR 3.1 million in 2008.
In the DC Telecom business, Adjusted EBIT improved from a negative EBIT of EUR 1.0 million in 2007 to a
positive EBIT of EUR 0.9 million in 2008.
Financial expenses, net
Financial expenses comprise interest income and expenses, exchange gains and losses, finance fees, pension
expenses and bank charges.
Financial expenses (net) have decreased from EUR 4,329 thousand in 2007 by EUR 490 thousand, or 11%, to
EUR 3,839 thousand in 2008 mainly due to an increase in interest and other financial income that was only
partly offset by an increase in exchange losses and an increase in interest expenses as a result of an increasing
interest rate level.
Income taxes
After a tax credit of EUR 3,299 thousand in 2007, there was an income tax charge that amounted to EUR 15,866
thousand in 2008. This primarily reflects the significant improvement of AEG Group's profitability in 2008.
Profit/ (loss) from discontinued operations
Losses from discontinued operations have increased from EUR 2,341 thousand in 2007 by EUR 7,396 thousand,
or 316%, to EUR 9,737 thousand in 2008. The DC Converter business is currently undergoing a restructuring
and AEG estimates that it will incur EUR 4.8 million in restructuring costs.
In December 2008, AEG signed a Memorandum of Understanding whereby it agreed to sell the DC Converter
business held by Harmer + Simmons S.A.S. to members of the Company's management. The transaction, which
was subject to certain conditions, was due to be completed on February 20, 2009. As a number of the required
conditions were not met, the proposed sale to management has been abandoned. However, as AEG is still
committed to sell the DC Converter business, it has been presented as a discontinued operation. It is a condition
precedent to the closing obligations of Germany1 under the Acquisition Agreement that one or several of the
Sellers grant a put option to Germany1 with regard to the DC Converter business, see "The Acquisition
Agreement".
119
The following table gives a brief overview of results of operations in the AEG Group's discontinued DC
Converter business:
31 December
2007
2008
(EUR thousand)
Results of discontinued operation
Revenues ..............................................................................
Expenses ..............................................................................
Results from operating activities before financing costs.
Financial expenses, net ........................................................
Loss before taxes . ..............................................................
Income taxes .......................................................................
Results from operating activities, net of income tax .......
44,225
(52,609)
(8,384)
(228)
(8,612)
(1,125)
(9,737)
54,570
(56,574)
(2,004)
(264)
(2,268)
(73)
(2,341)
The main reason for the significant decrease in revenues is that the revenues generated with sales to AEG
Group's main customer in the DC Converter business have decreased significantly in 2008. As the level of costs
could not be reduced accordingly, this effect also impaired AEG Group's profitability in the DC Converter
business.
Profit (loss) for the period
Profit (loss) for the period has changed from a loss of EUR 3,442 thousand in 2007 by EUR 29,654 thousand to a
profit of EUR 26,212 thousand in 2008.
Income and expenses recognized directly in equity
In 2007, the AEG Group recognized expenses of EUR 1,009 thousand directly in equity resulting from foreign
currency translation differences. In 2008, an income of EUR 169 thousand was recorded, again, resulting from
currency translation differences.
120
The following table shows AEG's consolidated income statements and statement of recognized income and
expense for the year ended 31 December 2007 and the year ended 31 December 2006, derived from the audited
consolidated financial statements of AEG as of and for the year ended 31 December 2007 and prepared in
accordance with IFRS. In these financial statements, the DC Converter business has not been reported as
discontinued operations. The financial information for financial year 2007 presented below, therefore, deviates
from the financial information for financial year 2007 contained in the comparison of financial years 2008 and
2007, which is derived from the audited consolidated financial statements of AEG as of and for the year ended
31 December 2008, in which the DC Converter business has been reported as a discontinued operation.
31 December
2006
2007
(EUR thousand)
Revenues ..............................................................................
Cost of sales .........................................................................
Gross profit ........................................................................
Selling, general and administrative expenses.......................
Research and development costs .........................................
Other operating income .......................................................
Other operating expenses . ...................................................
Operating profit/ (loss) before financing costs.................
Financial expenses, net ........................................................
Result before taxation . ......................................................
Income Taxes ......................................................................
Net loss ...............................................................................
267,939
(208,654)
59,285
(49,997)
(8,575)
(2,788)
(2,075)
(4,593)
(6,668)
3,226
(3,442)
247,208
(186,198)
61,010
(47,584)
(10,163)
6
(3,154)
115
(4,804)
(4,689)
(268)
(4,957)
operations ............................................................................
Income and expense recognized directly in equity .........
(Loss) income for the year … ..............................................
Recognized income and expense for the year .................
(1,009)
(1,009)
(3,442)
(4,451)
656
656
(4,957)
(4,301)
Revenues
Revenues have increased from EUR 247,208 thousand in 2006 by EUR 20,731 thousand, or 8%, to
EUR 267,939 thousand in 2007 mainly due to an increase in sales in the Protect Power and Power Controllers
business that was only partly offset in a decrease in revenues in the DC Converter business.
Divisional split
Revenues in the Power Controllers business increased from EUR 22.2 million in 2006 by EUR 7.2 million, or
32.4%, to EUR 29.4 million in 2007. This increase is mainly attributable to an increase in revenues generated
with polysilicon producers resulting from sales to new customers and an increase in revenues from standard
modules resulting from gains in market share and an increase in demand due to favorable economic conditions
and the development of new applications and standard modules.
Revenues in the Protect Power business increased from EUR 107.4 million in 2006 by EUR 24.5 million, or
22.8%, to EUR 131.9 million in 2007. This increase results from increases in all major product categories, most
notably from the sale of manufactured products, compact UPS and resale products.
Revenues in the DC Telecom business decreased from EUR 57.5 million in 2006 by EUR 0.6 million, or 1.0%,
to EUR 56.9 million in 2007. This slight decrease mainly results from lower demand from one of DC Telecom's
main customers, Alcatel Lucent.
121
Geographical Split
Of the total revenues before consolidation in 2006, 39% were generated in France, 26% in Germany, 21% in the
Rest of Europe and 14% in Pacific, Asia, North America, whereas in 2007 33% were generated in France, 29%
in Germany, 20% in the Rest of Europe and 18% in Pacific, Asia and North America. Revenues have been
attributed to geographical regions based upon the location of the manufacturing facility or the marketing entity.
Cost of Sales
Cost of sales have increased from EUR 186,198 thousand in 2006 by EUR 22,456 thousand, or 12%, to
EUR 208,654 thousand in 2007 mainly due to a higher level of revenues and the increase in variable costs
resulting therefrom.
Gross profit
Gross profit has decreased from EUR 61,010 thousand in 2006 by EUR 1,725 thousand, or 3%, to EUR 59,285
thousand in 2007. The gross profit margin has decreased from 25% in 2006 to 22% in 2007 mainly due to the
pressure on product prices in AEG Group's DC Converter business.
Selling, general and administrative expenses
Selling, general and administrative expenses have increased from EUR 47,584 thousand in 2006 by EUR 2,413
thousand, or 5%, to EUR 49,997 thousand in 2007. The increase in expenses is a result of the business expansion
in 2007 that was only partly offset by a decline in general and administrative costs across AEG Group.
Research and development costs decreased from EUR 10,163 thousand in 2006 by EUR 1,588 thousand, or 16%,
to EUR 8,575 thousand in 2007. Actual research and development costs have been EUR 11,229 thousand in
2007 and EUR 11,594 thousand in 2006 of which EUR 2,654 thousand and EUR 1,431 thousand, respectively,
(after deduction of amortization and write-off) have been capitalized and are therefore not recognized in the
income statement.
Other operating expenses have decreased from EUR 3,154 thousand in 2006 by EUR 366 thousand, or 12%, to
EUR 2,788 thousand in 2007 mainly due to a decrease in restructuring costs.
Financial expenses, net
Financial expenses (net) have decreased from EUR 4,804 thousand in 2006 by EUR 211 thousand, or 4%, to
EUR 4,593 thousand in 2007 mainly due to a decrease in exchange losses that was only partly offset by an
increase in interest expenses.
Operating profit before financing costs (EBIT)
After a positive EBIT of EUR 115 thousand in 2006 EBIT decreased to a negative EBIT of EUR 2,075 thousand
in 2007.
Divisional split
The following EBIT information per business division is mainly adjusted for recurring shared overhead costs and
other adjustments. Shareholders should note that the adjustments and, in particular, the shared overhead costs are
costs that are necessary for the business divisions' operations.
AEG Group uses earnings before interest and taxes, adjusted as set forth below ("Adjusted EBIT"), as a measure
of evaluating financial performance of its business unit. Adjusted EBIT does not represent cash flows from
operations as defined by generally accepted accounting principles ("GAAP"), is not a measure derived in
accordance with GAAP and should not be considered by the reader as an alternative to operating income before
financing costs.
122
Adjusted EBIT may not be comparable to other similarly titled measures as reported by other companies, as
other companies may calculate these measures differently than AEG does. Adjusted EBIT should not be
considered in isolation, or as a substitute for analysis of the AEG Group's operating results, including its income
statements and cash flow statements, as reported under IFRS.
In the Power Controllers business, Adjusted EBIT increased from EUR 6.3 million in 2006 by EUR 2.6 million,
or 41%, to EUR 8.9 million in 2007.
In the Protect Power business, Adjusted EBIT improved from a negative EUR 7.8 million in 2006 to a negative
EUR 3.8 million in 2007.
In the DC Telecom business, Adjusted EBIT decreased from a positive EUR 3.3 million in 2006 to a negative
EUR 1.0 million in 2007.
This EBIT information per division does not include recurring shared overhead costs, restructuring expenses,
non-recurring expenses attributed to AEG and management fees.
Income taxes
Income taxes were EUR 268 thousand in 2006. In 2007, the AEG Group recorded a tax credit of EUR 3,226
thousand. This tax credit is made up of the expected tax benefit associated with the net income loss before tax
and the recognition of previously unrecognized tax loss carry forward.
Net loss
Net loss for the period has decreased from EUR 4,957 thousand in 2006 by EUR 1,515 thousand, or 31%, to
Income and expenses recognized directly in equity
In 2006, the AEG Group recognized income of EUR 656 thousand directly in equity resulting from foreign
currency translation differences. In 2007, expenses of EUR 1,009 thousand were recorded, again, resulting from
currency translation differences.
Financial Condition and Liquidity
Stockholders' equity decreased from EUR 21,754 thousand at 31 December 2006 to EUR 17,380 at 31 December
2007 and then increased to EUR 43,769 at 31 December 2008 corresponding equity ratios (relation of
stockholder's equity to total assets) of 13% at 31 December 2006, 9% at 31 December 2007 and 15% at 31
December 2008. The changes result mainly from profit/loss recorded for the respective periods.
Financial debt (short term and long term interest bearing debt) increased from EUR 35,571 thousand at 31
December 2006 (including financial debt related to the operations presented as discontinued operations in 2008)
to EUR 49,071 thousand (excluding financial debt presented as held for sale) at 31 December 2007 and then
decreased to EUR 28,489 thousand (excluding financial debt presented as held for sale) at 31 December 2008. In
January and March 2009, AEG Group has paid its obligations to Alcatel under a note instrument issued in
connection with the acquisition of AEG in 2005, thereby reducing financial indebtedness by approximately
EUR 15,000 thousand.
123
31 December
2008
2007
(EUR thousand)
Cash flows from operating activities
Profit (loss) from continuing operations .............................
Adjustments ........................................................................
Net cash provided by (used in) operating activities
before changes in working capital, interest and taxes....
Net change in current assets and liabilities
Increase in inventories ........................................................
(Increase) in trade receivables and related accounts ...........
(Increase) in advances and progress payments....................
Increase in customer deposits and advances .......................
Increase (decrease) in trade payables and related
accounts...............................................................................
(Increase) decrease in other current assets and liabilities,
net (excluding financing) ....................................................
Cash provided by / (used in) operating activities
before interest and taxes...................................................
Interest received ..................................................................
Interest paid.........................................................................
Taxes recovered/(paid)........................................................
Net cash provided by/(used in) operating activities,
continuing operations .......................................................
Net cash provided by/(used in) operating activities,
discontinued operations ....................................................
Net cash provided by/(used in) operating activities
(total) ..................................................................................
Cash flow from investing activities
Proceeds from disposal of fixed assets................................
Capital expenditures............................................................
Increase (decrease) in other non-current financial assets ....
Recapitalization of discontinued operations........................
Net cash (used in) investing activities, continuing
operations...........................................................................
Net cash (used in) investing activities, discontinued
operations............................................................................
Net cash (used in) investing activities (total)...................
Cash flow from financing activities
Increase/(decrease) of short term debt ................................
Decrease/(increase) of long term debt.................................
Net cash provided by / (used in) financial activities,
Net cash provided by / (used in) financial activities,
discontinued operations.......................................................
Net cash provided / (used in) by financing activities
(total) ..................................................................................
Net effect of exchange rate changes
Net increase/(decrease) in cash and cash equivalents,
Net increase/(decrease) in cash and cash equivalents,
discontinued operations.......................................................
Net increase/(decrease) in cash and cash equivalents
(total) ..................................................................................
Cash and cash equivalents at beginning of period .........
Cash and cash equivalents transferred to assets held for
sale ......................................................................................
Cash and cash equivalents at December 31 ....................
35,949
20,218
(1,101)
(104)
56,167
(1,205)
(26,565)
(31,049)
(3,703)
53,529
(5,298)
(7,893)
(1,130)
20,374
21,275
(7,115)
(1,854)
5,248
67,800
988
(2,065)
(1,905)
2,981
104
(1,988)
2,265
64,818
3,362
(7,994)
4,971
56,824
8,333
210
(9,991)
(181)
(4,900)
1,265
(3,947)
15
-
(14,862)
(2,667)
(1,345)
(16,207)
(2,315)
(4,982)
(13,046)
(267)
13,566
782
(13,313)
14,348
2,424
(848)
(10,889)
(414)
13,500
(752)
36,229
14,291
(6,915)
1,808
29,314
27,312
16,099
11,213
(1,995)
54,631
27,312
124
The strong increase in net cash provided by operating activities (total) from EUR 8,333 thousand in 2007 by
EUR 48,491 thousand to EUR 56,824 thousand in 2008 is mainly due to the cash generating growth in AEG
Group's continued operations. This effect was only partly offset by the discontinued DC Converter business
turning from cash positive in 2007 to cash negative in 2008.
The increase in net cash used in investing activities (total) from EUR 4,982 thousand in 2007 by
EUR 11,225 thousand to EUR 16,207 thousand in 2008 mainly results from increased capital expenditure
requirements in 2008 resulting from increased business activity and a recapitalization of discontinued operations
in 2008.
After net cash provided by financing activities (total) of EUR 13,500 thousand in 2007, net cash used in
financing activities (total) amounted to EUR 10,889 thousand in 2008. This is mainly the result of short term
bank debt having been repaid in 2008.
125
The following table shows AEG's consolidated cash flow statements for the year ended 31 December 2007 and
the year ended 31 December 2006, derived from the audited consolidated financial statements of AEG as of and
for the year ended 31 December 2007 and prepared in accordance with IFRS. In these financial statements, the
DC Converter business has not been reported as discontinued operations. The financial information for financial
year 2007 presented below, therefore, deviates from the financial information for financial year 2007 contained
in the comparison of 2008 and 2007, which is derived from the audited consolidated financial statements of AEG
as of and for the year ended 31 December 2008, in which DC Converter have been reported as discontinued
operations.
31 December
2007
2006
(EUR thousand)
Cash flow from operating activities
Net (loss) income .............................................................
Adjustments .....................................................................
Net cash (used in) by operating activities before
changes in working capital, interest and taxes ............
Net change in current assets and liabilities:
(Increase) in inventories...................................................
(Increase) in trade receivables and related accounts ........
(Increase) in advances and progress payments.................
Increase in customers' deposits and advances ..................
Increase/(decrease) in trade payables and related
accounts............................................................................
Decrease in other current assets and liabilities, net
(excluding financing) .......................................................
Cash provided by/(used in) operating activities
before interest and taxes................................................
Interest received ...............................................................
Interest paid......................................................................
Taxes recovered/(paid).....................................................
Net cash provided by/(used in) operating activities
(carried forward)............................................................
Proceeds from disposal of fixed assets.............................
Capital expenditures.........................................................
(Increase) decrease in other non-current financial
assets ................................................................................
Net cash (used in) investing activities ...........................
Increase of short-term debt...............................................
Increase of long-term debt ...............................................
Net cash provided by financial activities......................
Net effect of exchange rate changes ..............................
Net increase/(decrease) in cash and cash
equivalents ......................................................................
Cash and cash equivalents at beginning of year...............
Cash and cash equivalents at end of year ....................
(3,442)
344
(4,957)
4,435
(3,098)
(522)
(2,078)
(6,037)
(1,130)
19,350
(6,556)
(9,998)
(71)
569
(3,252)
10,930
5,641
402
9,396
179
(2,131)
889
(5,246)
191
(1,726)
(3,148)
8,333
(9,929)
1,404
(6,390)
154
(6,312)
4
(4,982)
(30)
(6,188)
12,718
782
13,500
(752)
8,095
305
8,400
797
16,099
11,213
27,312
(6,920)
18,133
11,213
After net cash used in operating activities amounted to EUR 9,929 thousand in 2006, AEG Group recorded net
cash provided by operating activities of EUR 8,333 thousand in 2007. This improvement is mainly the result of
improvements in operation working capital driven by customer advance payments with orders for polysilicon
production facilities.
The decrease in net cash used in investing activities from EUR 6,188 thousand in 2006 by EUR 1,206 thousand
to EUR 4,982 thousand in 2007 mainly due to an increase in proceeds from the disposal of fixed assets.
Net cash provided by financing activities increased from EUR 8,400 thousand in 2006 by EUR 5,100 thousand
to EUR 13,500 thousand in 2007 mainly due to an increase in short term debt.
126
Critical Accounting Policies
The following critical accounting policies which required AEG to make assumptions about matters that were
uncertain at the time those policies were applied and with respect to which AEG could reasonably have made
different assumptions in the relevant period or with respect to which changes in the assumptions reasonably
likely to occur from period to period would have a material impact on the presentation of the AEG's financial
condition, changes in financial condition or results of operations. Investors should read the following paragraphs
in conjunction with the financial statements, including the related notes, included in this Proxy Statement.
The balance sheet amounts disclosed below relate only to continuing operations in 2008, whereas the 2007
figures include both the continuing and discontinued operations.
Reserve for write-downs of inventories and work in progress
Inventories and work in progress are measured at the lower of cost or net realizable value. Cost is primarily
calculated on a weighted average price basis. Reserves for inventories and work in progress are calculated based
on an analysis of foreseeable changes in demand, technology or the market in order to determine obsolete or
excess inventories and work in progress. Reserves amounted to EUR 4,455 thousand at 31 December 2008 (2007
EUR 5,012 thousand).
The valuation allowances are accounted for in cost of sales.
Allowance for doubtful customer receivables
The amount of the allowance reflects both the customers' ability to honor their debts and the age of the debts in
question. A higher default rate than estimated or the deterioration of the major customers' credit worthiness
could have an adverse impact on future results. Allowances for doubtful customer receivables were EUR 1,419
thousand at 31 December 2008 (2007 EUR 1,505 thousand).
Intangible assets
AEG Group has intangible assets acquired for cash, through business combinations or capitalized development
costs.
Timely impairment tests are carried out in the event of indications of a reduction in value of intangible assets
held. Possible impairments are based on discounted future cash flows fair values of the assets concerned. A
change in the market conditions or the cash flows initially estimated can therefore lead to a review and a change
in the impairment loss previously recorded.
Net Intangible assets were EUR 7,360 thousand at December 31, 2008 (2007 EUR 6,061 thousand). No
impairment loss in relation to continuing operations was recorded at 31 December 2008 and 2007 respectively.
Impairment of property, plant and equipment
When events or changes in market conditions indicate that tangible or intangible assets may be impaired, such
assets are reviewed in detail to determine whether their carrying value is lower than their recoverable value,
which could lead to recording an impairment loss (recoverable value is the higher of its value in use and its fair
value less costs of sale). Value in use is estimated by calculating the present value of the future cash flows
expected to be derived from the asset. Fair value less costs to sell is based on the most reliable information
available (such market statistics and recent transactions). No impairment loss relating to continuing operations
was recorded at 31 December 2008 and 2007 respectively.
Provision for warranty costs and other contractual obligations
Provisions are recorded for warranties given to customers on AEG Group's products or for expected losses and
for penalties incurred in the event of failure to meet contractual obligations. These provisions are calculated
based on historical return rates and warranty costs expensed as well as on estimates. These provisions and
subsequent changes to the provisions are recorded in cost of sales. Costs and penalties that will be effectively
paid can differ considerably from the amounts initially reserved and could therefore have a significant impact on
future results. Provisions for contractual obligations represent EUR 5,928 thousand at 31 December 2008 (2007
EUR 4,834).
127
Deferred taxes
Deferred tax assets relate to tax losses carried forward and to deductible temporary differences between reported
amounts and the tax bases of assets and liabilities. The assets relating to the tax loss carried forward are
recognized if it is probable that AEG Group will dispose of future taxable profits against which these tax losses
can be set off.
At 31 December 2008, deferred tax assets were EUR 4,941 thousand (2007 EUR 9,819 thousand). Evaluation of
AEG Group's capacity to utilize tax losses carried forward relies on significant judgment. AEG analyses the
positive and negative elements to conclude as to the probability of utilization in the future of these tax losses
carried forward. This analysis is carried out regularly in each tax jurisdiction where significant deferred tax
assets are recorded.
If future taxable results are considerably different from those forecasts that support recording deferred tax assets,
AEG Group will be obliged to revise downwards or upwards the amount of the deferred tax assets, which would
have a significant balance sheet and net income impact.
Pension and retirement obligations
AEG Group participates in defined contribution and defined benefit plans for employees. All these obligations
are measured based on actuarial calculations relying upon assumptions, such as the discount rate, return on plan
assets, future salary increases, employee turnover and mortality tables.
These assumptions are updated annually. The assumptions adopted for 2008 and how they have been determined
are detailed in note 20 to audited consolidated financial statements of AEG as of and for the year ended 31
December 2008 and as of and for the year ended 31 December 2007 included in this Proxy Statement.
Contractual Obligations
Contractual cash obligations
The following table as at 31 December 2008 presents minimum payments that AEG Group will have to make in
the future under contracts and firm commitments. Amounts related to capital lease obligations are fully reflected
in the consolidated balance sheet.
Less than one
year
1-3 years
4-5 years
Total
(EUR thousand)
Commitments on customer contracts .........
Unconditional purchase obligations ...........
Total – Commitments ..............................
1,083
66,470
67,553
1,232
1,055
2,287
377
377
2,692
67,525
70,217
Rental expense under operating leases amounted to EUR 4,977 thousand.
Other commitments
Less than one
year
1-3 years
4-5 years
Total
(EUR thousand)
Commitments on customer contracts .........
7,458
886
46
8,390
The unconditional purchase obligations are due to the requirements to place firm commitments for components
required in the manufacturing of Protect Power products. A significant portion of the purchase obligations are
funded by customer deposits and advances. Commitments on customer contracts are shown net of bonds and
guarantees secured by cash collateral. In addition, AEG has entered into a joint and several guarantee with
Calyon Bank in France as a guarantee in an amount of EUR 6 million to a bond line in favor of AEG Power
Solutions SAS (formerly Power Systems SAS).
128
Trademark License Agreement
With effect from 1 July 2008, AEG entered into a trademark license agreement with AB Electrolux (publ) which
granted AEG the right to use the AEG trademark for an initial term of ten years. An annual royalty is payable
based on 1% of the net selling price of the respective trademarked product. A minimum annual royalty of
EUR 1,600 thousand, EUR 2,738 thousand and EUR 2,783 is payable for 2008 (since 1 July 2008), 2009 and
2010, respectively, if these amounts are greater than the royalty based on actual sales. Beginning 2011, the
royalty payable is based on actual sales. AEG can terminate the agreement after 2011 with a one year notice
period.
Disclosure of Market Risk
AEG Group is subject to market risk, including interest rate risk, foreign exchange risk and counterparty risk. It
has a centralized treasury management in order to minimize its exposure to these risks. At 31 December 2008,
2007 and 2006 AEG Group did not use derivative instruments.
Firm commercial contracts or other firm commitments are not hedged.
129
CURRENT BOARD OF DIRECTORS AND MANAGEMENT
GERMANY 1
Board of Directors and Officers
As of the date of this Proxy Statement, we have seven Directors and four Officers, as follows:
Name
Age
Prof. Dr. h.c. Roland Berger ......................... 71
Florian Lahnstein .......................................... 44
Dr. Thomas Middelhoff ................................ 56
Gero Wendenburg ......................................... 40
Dr. Arnold Bahlmann ................................... 56
Horst Brockmueller1 ..................................... 50
Keith Corbin1 ................................................ 56
1
Position
Co-Chairman, Executive Director and Officer
CEO, Executive Director and Officer
Co-Chairman, Executive Director and Officer
Executive Director and Officer
Non-executive Director
Independent Director and member of the Audit Committee.
Directors
Prof. Dr. h.c. Roland Berger has been Co-Chairman, a member of our Management Team and an Executive
Director since 24 June 2008. Prof. Dr. h.c. Berger is the founder and chairman of Roland Berger Strategy
Consultants, Munich, Germany. Prof. Dr. h.c. Berger is a member of various supervisory and advisory boards of
national and international companies, foundations and organizations. These include Fiat Group, Turin, Italy;
Telecom Italia, Milan, Italy; FC Bayern München, Munich, Germany; Prime Office AG, Munich, Germany and
Blackstone Germany (Chairman). Prof. Dr. h.c. Berger is also a member of various international advisory
boards, including Sony Corporation, Tokyo, Japan, and The Blackstone Group, New York, USA. Prof. Dr. h.c.
Berger studied business administration in Munich. Since 1996 Prof. Dr. h.c. Berger has been a lecturer and since
2000 an Honorary Professor for Business Administration and Management Consulting at the Brandenburg
Technical University in Cottbus. Prof. Dr. h.c. Berger was a member of many expert groups advising various
federal and state governments. In 2007, Prof. Dr. h.c. Berger was appointed by the European Commission to the
"High Level Group of Independent Stakeholders on Administrative Burdens" headed by former State Premier
Dr. Edmund Stoiber. Prof. Dr. h.c. Berger is Honorary Consul General of the Republic of Finland in Bavaria and
Thuringia. Prof. Dr. h.c. Berger is Chairman of the Board of Trustees of his private Roland Berger Foundation.
The business address of Prof. Dr. h.c. Berger is Roland Berger Strategy Consultants, Mies-van-der Rohe Str. 6,
80807 Munich, Germany.
Florian Lahnstein has been Chief Executive Officer, a member of our Management Team and an Executive
Director since our incorporation. Mr. Lahnstein is the founding partner of LCP1, Lahnstein Partners LLP and
Berger Lahnstein Middelhoff & Partners LLP. From 2007 to June 2008, Mr. Lahnstein was Co-Head of
European Investment Banking and a Member of the Executive Committee at Bear Stearns International, based in
London. From 2001 to 2006, Mr. Lahnstein was Head of German telecom, media and technology (TMT) and
subsequently Co-Head of German Investment Banking at UBS Investment Banking in London and Frankfurt.
Mr. Lahnstein is the founding partner of Arrow Capital, a venture capital firm focusing on TMT start-ups,
founded in 2000. From 1998 to 2000, Mr. Lahnstein was Head of German TMT at Merrill Lynch Investment
Banking in London. From 1990 to 1998, Mr. Lahnstein held various positions in New York and Hamburg with
Bertelsmann AG, a privately held media company, including Managing director of T1 New Media and Executive
Vice President of Bertelsmann New Media and director of Artist Development at Arista/BMG. Mr. Lahnstein
has executed mergers and acquisitions deals worth over EUR 40 billion. Mr. Lahnstein holds a Masters in
finance and marketing from the University of Cologne, and is a guest lecturer in corporate finance at the WHU
Koblenz / Brucerius Law School Programme (Master in Law and Business) Hamburg. The business address of
Mr. Lahnstein is 1st and 2nd Floors, Elizabeth House, Les Ruettes Braye, St. Peter Port, Guernsey, GY1 1EW.
Dr. Thomas Middelhoff has been Co-Chairman, a member of our Management Team and an Executive Director
since 24 June 2008. Dr. Thomas Middelhoff is Chairman and founding partner of Berger Lahnstein Middelhoff
& Partners LLP. Dr. Middelhoff was Chairman of the management board at Arcandor AG, Essen (previously
KarstadtQuelle AG), a position he has held from May 2005 until February 2009. From June 2003 to May 2005,
130
Dr. Middelhoff was Head of Europe for corporate investment at Investcorp International Limited based in
London. From 1986 to 2002, Dr. Middelhoff held a variety of positions at Bertelsmann AG, a privately held
media company, the most senior of which was CEO. Dr. Middelhoff currently holds a number of board seats
including with The New York Times Company, a position he has held since 2003. Dr. Middelhoff holds a degree
in business administration from the University of Münster, and a doctorate from the University of Saarland,
Saarbrücken. Dr. Middelhoff has been the recipient of a number of awards, including an Honorary Doctorate
from the Leipzig Graduate School of Management in 2008. The business address of Dr. Middelhoff is 1st and
2nd Floors, Elizabeth House, Les Ruettes Braye, St. Peter Port, Guernsey, GY1 1EW.
Gero Wendenburg has been an Executive Director since our incorporation. Gero Wendenburg is a partner of
Berger Lahnstein Middelhoff & Partners LLP and Lahnstein Partners LLP. From October 2007 to June 2008 Mr.
Wendenburg was a Managing Director at Bear Stearns International Ltd, based in London. From 1997 to
October 2007, Mr. Wendenburg worked at UBS Investment Bank in London, New York and Frankfurt in various
positions, the most senior of which was Executive Director. Mr. Wendenburg holds a degree in business
administration from the University of Passau. The business address of Mr. Wendenburg is 1st and 2nd Floors,
Elizabeth House, Les Ruettes Braye, St. Peter Port, Guernsey, GY1 1EW.
Dr. Arnold Bahlmann has been a Non-executive Director since 24 June 2008. Dr. Bahlmann is currently an
executive consultant to Permira, the international private equity firm, a position he has held since July 2003. Dr.
Bahlmann is the Chairman of the Board of ITI Neovision, a member of the supervisory board of Business
Gateway AG, a member of the supervisory board of TVN Group, a member of the supervisory board of Telegate
AG and a member of the supervisory board of Senator Entertainment AG. Since April 2007, Dr. Bahlmann has
been a member of the supervisory board and an investor in YOC AG, a mobile marketing company. From 1982
to 2003, Dr. Bahlmann held various positions at Bertelsmann AG, the most senior position being the Chairman
of Bertelsmann Capital, as well as head of corporate strategy and a member of the executive board of
Bertelsmann AG. Dr. Bahlmann holds a doctorate from the University of Cologne, as well as a degree in
business administration from the University of Cologne. The business address of Dr. Bahlmann is Possartstr. 13,
81679 Munich, Germany.
Horst Brockmueller has been a Non-executive Director since 24 June 2008. Mr. Brockmueller is currently
Chairman and Managing Partner of Catalyst Equity Partners LLP, a position he has held since 2001. From 2000
to 2001, Mr. Brockmueller was the Chairman of Systematics Integration. From 1997 to 2000, Mr. Brockmueller
was a leading member of the enterprise resource planning offering team and the global quality assurance team
for IBM Global Services EMEA. Mr. Brockmueller holds a degree in business administration from the
University of Hamburg. The business address of Mr. Brockmueller is Suite 5, Queripel House, 1 Duke of York
Square, London, SW3 4LY.
Keith Corbin has been a Non-executive Director since 24 June 2008. Mr. Corbin is currently the Group
Executive Chairman of Nerine Trust Company Limited, a position he has held since April 2000. In March 1999,
Mr. Corbin founded Larem Trustees Limited as majority shareholder and Chairman. From 1997 to 2000, Mr.
Corbin worked as an independent consultant, undertaking assignments with a number of financial services
groups. From 1979 to 1997, Mr. Corbin was the Group Managing director at Havelet Holdings Limited, an
international financial services group. Mr. Corbin is currently a director of a number of public and regulated
financial services companies including various investment funds. The business address of Mr. Corbin is P. O.
Box 434, Nerine House, St George's Place, St Peter Port, Guernsey, CI GY1 3ZG.
Board of Directors
Pursuant to our Articles of Incorporation, our Directors are granted broad authority to manage our business and
may exercise all powers in such respect. Our Board of Directors may meet in such manner and with such
frequency as they deem appropriate. Directors may appoint any person to be a Director, either to fill a vacancy or
as an additional Director so long as such appointment does not cause the number of Directors to exceed the
maximum number of Directors contained in our Articles of Incorporation (if any). Our Directors may take
actions by unanimous written consent or by a majority vote at a board meeting. The Board of Directors hold any
meetings they have outside of the United States, the United Kingdom, the Netherlands and Germany.
131
Number and Terms of Office of Directors
Our Board of Directors currently consists of seven Directors, who will serve until each resigns, is removed by a
majority vote of the Shareholders or is otherwise removed in accordance with our Articles of Incorporation.
Therefore, none of our Directors have a designated term of office provided that, pursuant to our Articles of
Incorporation, one third of the Directors (or if their number is not a multiple of three, the number nearest one
third) shall retire from office at each Annual General Meeting after the consummation of the Business
Combination. These individuals play a key role in evaluating prospective acquisition candidates, selecting the
target business, and structuring, negotiating and consummating a Business Combination. None of these
individuals has been a principal of or affiliated with a public company or blank check company that executed a
business plan similar to our business plan and none of these individuals is currently affiliated with such an entity.
We believe that the skills and expertise of these individuals, their collective access to target businesses, and their
ideas, contacts, and acquisition expertise should enable them to successfully assist us in completing a Business
Combination. However, there is no assurance such individuals will, in fact, be successful in doing so.
Independent Directors and Board Committee
Our Board of Directors has determined that two of our Directors, Horst Brockmueller and Keith Corbin, are
independent Non-executive Directors in that our Board of Directors believes they are independent in character
and judgment and free from relationships or circumstances which are likely to affect, or could appear to affect,
their judgment.
Our Board of Directors has one standing committee, an Audit Committee (the "Audit Committee"). The
members of our Audit Committee are Horst Brockmueller and Keith Corbin. The Audit Committee is
responsible for, among other things, considering matters relating to financial controls and reporting, internal and
external audits, the scope and results of audits and the independence and objectivity of auditors. They monitor
and review our audit function and, with the involvement of our independent auditor, focus on compliance with
applicable legal and regulatory requirements and accounting standards. We have engaged Deloitte Touche
Tohmatsu as our independent auditors. The Audit Committee is responsible for selecting and engaging our
independent auditors.
In addition, our independent Directors, Mr. Brockmueller and Mr. Corbin, are charged with the following
responsibilities:
•
monitor compliance with the terms of our IPO on a quarterly basis and, if any non-compliance is
identified, take all action necessary to rectify such non-compliance or otherwise cause compliance with
the terms of our IPO;
•
review and each approve any related-party transaction to ensure that such transaction is on terms that are
no less favorable to us than those that would be available to us with respect to such a transaction from
unaffiliated third parties; and
•
approve the reimbursement of any expenses incurred by our Sponsor, Officers or our Directors exceeding
EUR 10,000.
Director and Officer Compensation
In connection with their efforts in sourcing or executing a Business Combination involving us, our Directors and
Officers will receive compensation which is expected to take the form of a transfer of Founding Shares by our
Sponsor to these individuals; provided, however, that such transfer will be subject to lock-up provisions.
We pay an aggregate of EUR 40,000 per annum to our three Non-executive Directors, Dr. Arnold Bahlmann,
Horst Brockmueller and Keith Corbin, as compensation for their services on our Board of Directors.
Other than as described above, in no event will we pay our Directors, Officers or any entity with which they are
affiliated any finder's fee or other compensation prior to or in connection with the consummation of a Business
Combination. However, these individuals will be reimbursed for any out-of pocket expenses, such as travel
expenses, incurred in connection with activities on our behalf to identify potential target businesses and perform
due diligence on suitable targets, provided, however, that the amounts of any such reimbursements will be
limited to the extent they exceed the amount available from the funds held outside the Trust Account. After a
132
Business Combination, our Officers or Directors who remain with us may be paid consulting, management or
other fees.
Appointment Letters with our Directors
We have entered into letters of appointment with our Directors on the following terms:
Prof. Dr. h.c. Roland Berger
On 24 June 2008, Prof. Dr. h.c. Berger entered into a letter of appointment with us to act as Executive Director
for no fee. The appointment may be terminated by either party upon three months written notice.
Florian Lahnstein
On 24 June 2008, Mr. Lahnstein entered into a letter of appointment with us to act as Executive Director for no
fee. The appointment may be terminated by either party upon three months written notice.
Dr. Thomas Middelhoff
On 24 June 2008, Dr. Middelhoff entered into a letter of appointment with us to act as Executive Director for no
fee. The appointment may be terminated by either party upon three months written notice.
Gero Wendenburg
On 24 June 2008, Mr. Wendenburg entered into a letter of appointment with us to act as Executive Director for
no fee. The appointment may be terminated by either party upon three months written notice.
Dr. Arnold Bahlmann
On 24 June 2008, Dr. Bahlmann entered into a letter of appointment with us to act as Non-executive Director for
a fee of EUR 10,000 per annum. The appointment may be terminated by either party upon three months written
notice. In addition, in connection with Dr. Bahlmann's appointment to act as a Non-executive Director, he has
purchased 50,000 Shares from us in a private placement at an aggregate price of EUR 65.00 (or approximately
EUR 0.0013 per Share), which he later resold to Dr. Middelhoff.
Horst Brockmueller
On 24 June 2008, Mr. Brockmueller entered into a letter of appointment with us to act as Non-executive Director
for a fee of EUR 10,000 per annum. The appointment may be terminated by either party upon three months
written notice.
Keith Corbin
On 24 June 2008, Mr. Corbin entered into a letter of appointment with us to act as Non-executive Director for a
fee of EUR 20,000 per annum. The appointment may be terminated by either party upon three months written
notice.
Employees
We have four Executive Directors who are also our Officers. Our Executive Directors and Officers are not
obligated to contribute any specific number of hours per week to us, though Florian Lahnstein and Gero
Wendenburg devote a majority of their time to our affairs. The amount of time they devote in any time period
varies based on the availability of suitable target businesses to investigate. Other than our executive Directors
and Officers, we will not have any employees prior to the consummation of a Business Combination. None of
our Directors or Officers has service contracts with us providing for benefits upon termination of employment.
Duties of Directors under Guernsey Law
Under Guernsey law, a director must avoid actual or potential conflicts arising between his duties to us and his
personal interests. In cases where an actual or potential conflict does arise, the director must ensure that he
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discloses the interest in the existing or proposed transaction to us at the first possible Board of Directors' meeting
and subsequently receives our approval.
In addition to the general duty of directors to act in good faith and in what the directors consider to be our best
interest, our Directors are also subject to the requirements under the code of practice made under section 35 of
The Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey)
Law, 2000 (the "Code of Practice"). Under the Code of Practice, our Directors must ensure that they understand
and act in accordance with their duties and our Articles of Incorporation and seek advice on those when
necessary. In addition, our Directors must ensure that:
(i)
the Board of Directors has effective control of us;
(ii)
they have adequate experience, expertise and resources to enable them to discharge their responsibilities
as Directors;
(iii)
the basis on which they are to be remunerated (if any) is agreed or recorded in writing;
(iv)
we keep proper accounts and records, observe the minimum retention periods under any applicable laws
and file accounts and returns as required by the Companies Law; and
(v)
we comply with any anti-money laundering laws and requirements.
Our Directors must also (a) treat us as a separate legal entity from our Shareholders, Directors and others, and
avoid conflicts of interest with us and deal with us in accordance with our Articles of Incorporation; (b) know
who owns us (except to the extent that our Shares are traded on a stock exchange) and give continuing
consideration to our business and financial position and have full and up to date information on us; (c) consider
whether to resign from office and/or to notify the Guernsey Financial Services Commission ("GFSC") of the
circumstances if they believe that we are being used for illegal purposes, trading wrongfully or breaking the law
in other ways; and (d) cooperate fully with any regulatory or other authority which is entitled to information
about our affairs and not attempt to avoid those responsibilities by purporting to contract out of them or
assigning them to others.
The Code of Practice is not a statement of the law and a failure to comply with the Code of Practice does not
automatically make a director liable to any sanction or proceedings. However, the court may, and the GFSC will,
take into account any breach of the Code of Practice which is relevant to any decision which either of them has
to make.
Limitation on Liability and Indemnification of Directors
Our Directors and Officers may be indemnified out of our assets from and against all actions and liabilities in
respect of which they may be lawfully indemnified and which are incurred by them in the execution of their duty
except such (if any) as they may incur or sustain by or through their own negligence, default, breach of duty or
breach of trust. We may purchase and maintain insurance for the benefit of our Directors and Officers including
insurance against costs, charges, expenses, losses or liabilities suffered or incurred by such persons in the actual
or purported discharge of their respective duties, powers and discretions in relation to us.
We have entered into agreements with our Directors and Officers to provide contractual indemnification, with
effect from the consummation of a Business Combination, pursuant to the authority to give such indemnification
provided in our Articles of Incorporation. We believe that these provisions and agreements are necessary to
attract qualified directors and officers. We may purchase a policy of directors' and officers' liability insurance
that insures our Directors and Officers against the cost of defense, settlement or payment of a judgment in some
circumstances and insures us against our obligations to indemnify the Directors and Officers. These provisions
may discourage Shareholders from bringing a lawsuit against our Directors and Officers for breach of their
fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation
against our Directors and Officers, even though such an action, if successful, might otherwise benefit us and our
Shareholders. Furthermore, a Shareholder's investment may be adversely affected to the extent we pay the costs
of settlement and damage awards against our Directors and Officers pursuant to these indemnification
provisions. We believe that these provisions, the insurance and the indemnity agreements are necessary to attract
and retain talented and experienced directors and officers.
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Corporate Governance
As a Company incorporated under the laws of Guernsey, although proper corporate governance has to be
maintained as a matter of Guernsey law, there is no statutory corporate governance code applicable to us.
Conflicts of Interest
General
•
Our Founding Shareholders currently beneficially hold an aggregate of 8,250,000 of our Shares,
6,250,000 of which are Founding Shares and 2,000,000 of which are Public Shares, and 8,000,000 of our
Warrants, 6,000,000 of which are Sponsor Warrants and 2,000,000 of which are Public Warrants. If we
do not complete a Business Combination by the Business Combination Deadline, our Founding
Shareholders will not participate in a distribution of proceeds with respect to the Founding Shares and the
proceeds of the sale of the Sponsor Warrants will become part of the distribution of the Trust Account to
our Public Shareholders, and the Sponsor Warrants will expire valueless. As Florian Lahnstein, Prof. Dr.
h.c. Roland Berger and Dr. Thomas Middelhoff will in aggregate have beneficial ownership of all of the
Founding Shares and all of the Sponsor Warrants, they may have a conflict of interest in determining
whether a particular target business is an appropriate business with which to effect the Business
Combination;
•
None of our Directors or Officers is required to commit his full time to our affairs, which may result in
conflicts of interest in allocating management time among various business activities;
•
In the course of their other business activities, our Directors may become aware of investment and
business opportunities which may be appropriate for presentation to us as well as the other entities with
which they are affiliated. They may have conflicts of interest in determining to which entity a particular
business opportunity should be presented. For example, one of our Non-executive Directors, Dr. Arnold
Bahlman, is a senior advisor of Permira and has obligations towards Permira with regards to the sourcing
of business opportunities relating to media companies. To the extent we consider a potential Business
Combination with target businesses in the media, retail or tourism sectors, Dr. Bahlmann may have
conflicts of interest. Similarly, each of our Directors are, or may become, engaged in business activities in
addition to ours which may create conflicts of interest or prevent them from referring certain business
opportunities to us. Should any of the Directors have conflicts of interest, such individual may vote in
connection with the Board's approval of the proposed Business Combination only after prior disclosure of
his interest in the transaction and provided that such transaction shall only be approved by the Board of
Directors if the Board of Directors unanimously approves the transaction;
•
According to Sec. 88 of the German Stock Corporation Act (Aktiengesetz) the members of the
management board of a German stock corporation may not, without the consent of the supervisory board
(Aufsichtsrat), engage in any trade business (irrespective of whether in the business sector of the stock
corporation) or enter into any dealings in the company's business sector either on their own behalf or on
behalf of others. In addition, management board members may not, without the consent of the supervisory
board, accept office as a member of the management board, manager or general partner of another
commercial enterprise. Based on legal practice, Sec. 88 of the German Stock Corporation Act applies to
executive directors of German limited liability companies (GmbH-Gesetz) as well. These statutory noncompete obligations are generally amended and specified in the service agreements of board members.
We believe that our Directors have obtained any necessary authorizations and consents to act in such
capacity from German companies where they hold management board positions;
•
Our Sponsor, Officers and Directors are not prohibited from pursuing a Business Combination with a
company with which they are affiliated provided that we obtain an opinion from an independent
investment banking firm that the Business Combination with such target business is fair to the
Shareholders and the proposed Business Combination is approved by all of our independent Directors.
There is therefore a risk that our Sponsor, Officers and Directors will seek Business Combination targets
that further their interests above the interests of our Company. None of our Sponsor, Officers or Directors
are affiliated with AEG.
•
In the event we elect to make a substantial down payment, or otherwise incur significant expenses, in
connection with a potential Business Combination, our expenses could exceed the remaining proceeds not
held in the Trust Account. Our Directors may have a conflict of interest with respect to evaluating a
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particular Business Combination if we incur such excess expenses. Specifically, our Directors may tend
to favor potential Business Combinations with target businesses that offer to reimburse any expenses in
excess of our available proceeds not held in Trust Account;
•
Our Directors may have a conflict of interest with respect to evaluating a particular Business Combination
if the retention, resignation or removal of any one or more of such Directors were included by a target
business as a condition to any agreement with respect to a Business Combination. We have been advised
by our Directors that they will not take retaining their positions into consideration in determining which
acquisition to pursue;
•
The Shares transferred to the Foundation will not be released until the earlier of one year from our
consummation of a Business Combination and our liquidation for failure to complete a Business
Combination by the Business Combination Deadline. The Warrants transferred to the Foundation will not
be released until the earlier of (i) our liquidation for failure to complete a Business Combination and (ii)
the later of (a) one year after the Date of the IPO and (b) our consummation of a Business Combination.
The personal and financial interests of certain of our Directors to have their Shares and Warrants (and, in
the case of our Management Team, the Shares and Warrants owned by the Sponsor) released from the
Foundation may influence their motivation in identifying and selecting a target business, completing a
Business Combination and securing the release of their Shares and Warrants;
•
Unless we consummate a Business Combination, our Directors will not receive reimbursement for out-ofpocket expenses incurred by them to the extent that there are insufficient funds available from the amount
held outside the Trust Account together with the net interest on the balance held in the Trust Account up
to an aggregate amount of EUR 4,300,000, previously released from the Trust Account for working
capital. These amounts, which were calculated based on our Directors' estimates of the funds needed to
finance our operations until the Business Combination Deadline, also must fund our legal, financial,
reporting, accounting and auditing compliance fees, as well as any down payment required in connection
with a Business Combination, which will reduce the funds we have available to reimburse for out-ofpocket expenses. Thus, the financial interests of our Directors could influence their motivation for
selecting a target business, and they may tend to favor potential acquisitions of target businesses that offer
to reimburse expenses that we do not have the funds to reimburse ourselves.
Conflict of Interest Limitations
To minimize potential conflicts of interest, we may not enter into a Business Combination (i) with any entity
which is affiliated with or has otherwise received a financial investment from any of the Sponsor, the
Management Team, Officers and Directors or any of their Affiliates or of which any of the Sponsor, the
Management Team, Officers or Directors is a director, nor (ii) with the manager or selling group members or any
of their Affiliates unless we first obtain an opinion from an independent investment banking firm that the
Business Combination with such target business is fair to the Shareholders and such proposed Business
Combination is approved by all of our independent Directors. If such opinions are obtained, we anticipate
distributing copies, or making a copy of such opinions available, to our Shareholders. Although our Directors
and Officers have not consulted with any valuation expert or an investment banker in connection with such an
opinion, it is possible that the opinion would only be able to be relied upon by our Board of Directors and not by
our Shareholders. We will need to consider the cost in making a determination as to whether to hire a valuation
expert or investment bank that will allow our Shareholders to rely on its opinion, and we expect to do so unless
the cost is substantially in excess of what it would be otherwise. In the event that we obtain an opinion that
cannot be relied on by our Shareholders, we will include appropriate explanatory disclosure in the notice to our
Shareholders explaining why Shareholders may not rely on the opinion. While our Shareholders might not have
legal recourse against the valuation or investment banking firm in such case, the fact that an independent expert
has evaluated, and passed upon, the fairness of the transaction is a factor our Shareholders may consider in
determining whether or not to vote in favor of the potential Business Combination. None of our Sponsor,
Officers or Directors are affiliated with AEG, so the requirements set forth above shall not apply to the
Acquisition.
Each of our Sponsor, our Management Team and our other Directors and Officers has agreed for the period until
the earlier of the consummation a Business Combination or our liquidation, that they will not form, invest in or
become affiliated with any other blank check or blind pool company.
All ongoing and future transactions between us and any of our Directors, Officers and our Sponsor will be on
terms believed by us to be no less favorable than are available from unaffiliated third parties and such
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transactions will require prior approval in each instance by all our independent Directors and will be effected in
accordance with the provisions of our Articles of Incorporation concerning conflicts of interests. We will not
enter into any such transaction unless it is unanimously approved by our independent Directors and our Board of
Directors determines that the terms of such transaction are no less favorable to us than those that would be
available with respect to such a transaction from unaffiliated third parties.
Other Directorships
Our Directors are currently directors or partners of the following other companies or partnerships:
Berger Lahnstein Middelhoff & Partners LLP; FIAT S.p.A.; Fresenius SE; Prime Office AG; Schuler AG;
Roland Berger Strategy Consultants Holding GmbH; Roland Berger AG; Senator Entertainment AG; Wilhelm
von Finck AG; Telecom Italia S.p.A.; WMP EuroCom AG; Live Holding AG; Wittelsbacher Ausgleichsfonds.
Florian Lahnstein
Berger Lahnstein Middelhoff & Partners LLP; Lahnstein Partners LLP; LCP1 Limited.
Dr. Thomas Middelhoff
Berger Lahnstein Middelhoff & Partners LLP; BHF Bank; moneybookers.com Ltd; NRW Bank; Senator
Entertainment AG; The New York Times.
Dr. Arnold Bahlmann
Bertelsmann AG; Bertelsmann Capital; BertelsmannSpringer; Business Gateway AG; Lavena Holdings 1-5; SBS
Broadcasting; Senator Entertainment AG; Telegate AG; TVN Group; YOC AG; ITI Neovision.
Horst Brockmueller
Catalyst Equity Partners LLP; Jentro Technologies GmbH; MAP (Management Application Partners) Limited;
MAP (Medical Application Partners) Limited; Catalyst Global Shipping Partners LLP.
Keith Corbin
Agnelli Limited; Aldhouse Limited; Alexis Resources Limited; Allendale Group (PTC) Limited; Amherst
Resources Limited; Barlows Limited; Bijou Management Limited; Bird Investment Holdings PTC Limited;
Birnamton Investments (PTC) Limited; Blue Sapphire Limited; Boisfort Limited; Bounty Capital Partners
Limited; Braye Limited; Brentlin Holdings Limited; Brookland Enterprise Limited; C & D Consulting Limited;
Cameron & Cameron Trust Company Limited; Canonbury Investments Limited; Casey Investment Limited; Cert
Corsham Limited; Cert International Limited; Cert Rotherham Limited; Clydon (PTC) Limited; Colorcraft
Merchandising Limited; Continuum Insurance Company PCC Limited; Copeland (PTC) Investments Limited;
Cossie Limited; Cottenham Financial Limited; Crawford Incorporation Limited; DAnconia Holdings Limited;
Darwin Finance (Guernsey) Limited; Darwin Property Investment Management (Guernsey) Limited; Darwin
West Country (Guernsey) Limited; Deerhound Limited; Dermott (PTC) Limited; Diaval Limited; Diddleosie
Holdings Limited; Diniz Limited; Dofco Limited; Dominare Limited; Edgeville Investments Limited; Edulis
Limited; EFGCI Trust Company Limited; Einstein Holdings Limited; Everlast Investments Limited; Felicia
Limited; Fitchburg Investments (PTC) Limited; Forsyth Services (PTC) Limited; G.F.H. Investments Limited;
Garston Corporation; Gems Secretaries Limited; Gems Trustees Limited; Gidney Limited; Global Composites
Group International Limited; Glycera Limited; GPX Limited; Green Operations Ltd; Green Operations Two Ltd;
Green W Group Limited; Greyherst Limited; GSL Limited; H2Eye (International) Limited; Hancock Property
Limited; Heatherdown (PTC) Limited; Hedrington Holdings (PTC) Limited; Heritage Projects (Guernsey)
Limited; Howell Assets Inc (Limited); Israel Opportunities Fund Limited; Israel Opportunities Management
Company Limited; ITSL Limited; Jerwood Limited; La Rochelle Limited; Lace Properties Limited; Larem
Management Limited; Larem Trustees Limited; Larndare (PTC) Limited; Leigh Management Limited; Leighton
Resources Limited; Lincoln Trust Company Limited; Lore Nominees Limited; Lucilla Limited; Marlena
Limited; Marquis Consultants Limited; Meadham Limited; Minerva Capital Limited; Minho Company (PTC)
Limited; Moberlyn Company Limited; Mollet (PTC) Limited; Motala Limited; Motivo Holdings Limited;
Mtracking Limited; Multi-Strategy Phoenix Fund Limited; Mutual Management Limited; Navarra Limited;
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Nelson Investment Services Limited; Nerine Fund Administrators Limited; Nerine International Holdings
Limited; Nerine Nominees (New Zealand) Limited; Nerine Trust Company (Asia) Limited; Nerine Trust
Company (BVI) Limited; Nerine Trust Company (Hong Kong) Limited; Nerine Trust Company Limited; Nexus
Investments PCC Limited; NFS Limited; North South Partners Limited; NovaSage Incorporations (BVI)
Limited; Oakdene Limited; Optavo Limited; Oykel Limited; Pink Software Limited; Portobello Overseas
Corporation; Rand Holdings Limited; Rapier Holdings Limited; Readfield Investments (PTC) Limited; Roker
Investments Limited; Romeril (PTC) Limited; Rudham (PTC) Limited; Sacrum Limited; SCS Trust Company
Limited; Shitake Limited; Smugglers Cove (PTC) Limited; Snettisham Limited; Strongfield Investments
Limited; Tarrasa (PTC) Limited; Tieton Limited; Torteval Trust Company Limited; Total Asset Allocation Fund
Limited; Total Asset Allocation Management Limited; Treasure Isle Investments Limited; Trehurst Holdings
Limited; Trinity Resources Limited; Universal Ventura Limited; Ventrock Limited; Verlain Resources Limited;
White Rock Resources Limited; Wisteria Investment Management Ltd.; Wright Company (PTC) Limited.
138
POST ACQUISITION BOARD OF DIRECTORS AND MANAGEMENT
Following the Acquisition, it is proposed that our Board of Directors will consist of two executive Directors and
five non-executive Directors. AEG's operating management will continue in their respective roles and enter into
employment agreements with Germany1 or its subsidiaries. In addition, it is intended that at a later stage another
Director will be appointed as Germany1's Chief Financial Officer.
Set forth below are the names, ages, positions, and business and education descriptions of the persons who it is
intended will serve as our Directors and executive Officers following the Acquisition.
Name
Age
Bruce Brock .................................................. 66
Robert Huljak................................................ 62
Timothy Collins ............................................ 53
Leonhard Fischer........................................... 46
Prof. Dr. h.c. Roland Berger ......................... 71
Prof. Dr. Mark Wössner1 ............................... 70
Keith Corbin1................................................. 56
1
Position
Chief Executive Officer, Executive Director and Officer
Chief Operating Officer, Executive Director and Officer
Chairman, Non-executive Director
Independent Director and member of the Audit Committee.
It is intended that Florian Lahnstein, Dr. Thomas Middelhoff, Gero Wendenburg, Dr. Arnold Bahlmann and
Horst Brockmueller will resign and not seek re-appointment at the Annual General Meeting. If any of Florian
Lahnstein, Dr. Thomas Middelhoff, Gero Wendenburg, Dr. Arnold Bahlmann and Horst Brockmueller provide
written notice to the Company that he is unwilling to be re-elected, then pursuant to Article 81 of the Articles of
Incorporation, each person providing such notice shall not be deemed to be re-elected and at the conclusion of
the Annual General Meeting each such person shall cease to be a Director. At the same time, Prof. Dr. h.c.
Roland Berger will be re-appointed as Chairman of the non-executive board. Keith Corbin will be re-appointed
as a non-executive Director. The remaining Directors, as detailed below, are to be appointed by ordinary
resolution of our Shareholders at the Annual General Meeting.
Timothy Collins and Leonhard Fischer will enter into appointment letters with a fixed term of 2 years from the
date of their appointment, and all other newly appointed Directors will be appointed for an indefinite period. The
Directors will pass a resolution to provide for the replacement mechanics of Timothy Collins and Leonhard
Fischer in the event one or both of them leave the Company. Generally, the resolution will provide that (i) if
either Timothy Collins or Leonhard Fischer were to leave the Company, the remaining Director will have the
power to select the replacement for the leaving Director, pursuant to the powers granted to committees under
Article 97 (Appointment and constitution of committees) of the Articles of Incorporation; and (ii) in the event
both Timothy Collins and Leonhard Fischer were to leave the Company, the Directors will request replacement
director nominees from Ripplewood, and will nominate such persons to be appointed to the Board of Directors
unless the Directors decide that such replacement director nominees are not of sufficiently acceptable character,
upon which further replacement director nominees will be suggested by Ripplewood and those replacement
director nominees will be nominated for appointment to the Board of Directors. In their appointment letters,
Timothy Collins and Leonhard Fischer will agree to resign from our Board of Directors in the event the Business
Combination does not complete. The Executive Directors will enter into agreements whereby they agree to
resign in the event the Business Combination does not complete.
If these Directors are required to resign, then the remaining Directors, i.e., Prof. Dr. h.c. Roland Berger, Prof. Dr.
Mark Wössner, and Keith Corbin, will have the power to appoint replacement Directors pursuant to Article 84 of
our Articles of Incorporation. According to Article 84 of our Articles of Incorporation, the Directors have the
power at any time to appoint any person to be a Director either to fill a casual vacancy or as an additional
Director, but so that the total number of Directors does not exceed the maximum number fixed by or in
accordance with the Articles of Incorporation. Any person so appointed by the Directors shall hold office until
the next Annual General Meeting and shall then be eligible for election.
Bruce Brock
Bruce Brock will be an Executive Director and serve as Chief Executive Officer.
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Bruce Brock has over 35 years of experience within various industrial and technology based businesses. In
January 2005, Mr. Brock assumed the position of President, CEO and Managing Director of AEG. Between
1997 and 2000, he led the Lucent Power Systems (LPS) business as Chief Operating Officer. After selling LPS,
Mr. Brock formed the Brock Group and partnered with Bob Huljak. The Brock Group provided management
consulting services to several corporations and start-up venture capital sponsored companies. In 2001, the Brock
Group partnered with Ripplewood Holdings to perform operational and business due diligence and established
strategic forward-looking business plans to identify and target potential electronic Acquisition projects. In 2005,
the team acquired what is now known as AEG Power Solutions.
After graduating from the University of Minnesota in 1967 with a degree in Aeronautical Engineering, Mr.
Brock joined Honeywell as a Production Engineer. He held a variety of operational, engineering, management,
and executive management positions in Residential, Industrial and Aerospace businesses until 1993, when he
joined the Allied Signal Corporation as a senior member of the automotive business. Mr. Brock graduated in
1983 from a Honeywell sponsored MBA program conducted by the Harvard Business School.
Robert Huljak
Robert Huljak will be an Executive Director and serve as Chief Operating Officer.
In January 2005, Robert Huljak assumed the position of Chief Operating Officer (COO) of AEG after it was
acquired by Ripplewood Holdings and the Brock Group.
Prior to joining AEG, Mr. Huljak partnered with Bruce Brock to form the Brock Group. In 2001, the Brock
Group partnered with Ripplewood Holdings to establish strategic business plans for potential acquisitions of
business in the electronic sector. In 2005 the team acquired what is now known as AEG Power Solutions.
In November 1996, Mr. Huljak became Chief Technical Officer of Lucent Power Systems (LPS) and was
promoted to Vice President, Development in February 1998. Prior to joining Lucent, Mr. Huljak was the
Director of Development for MagneTek's Lighting Group.
Mr. Huljak started his career at IBM as an engineer in 1970. He spent 23 years at IBM and concluded his tenure
in 1993 as the Director of Development of the company's Power Supply Group, now known as Celestica. He also
served on the Board of Directors for the Power Sources Manufacturers Corporation and on the University of
Texas-Arlington Advisory Board for Engineering.
Mr. Huljak graduated from the University of Wisconsin in 1969 with a Bachelor of Science in Electrical
Engineering. In 1973, Mr. Huljak graduated from Syracuse University with a Master of Science in Electrical
Engineering.
Timothy Collins
Timothy Collins will serve as a non-executive Director.
Timothy Collins founded Ripplewood Holdings L.L.C. in 1995 and has been Chief Executive Officer and Senior
Managing Director since its inception. Prior to founding Ripplewood Holdings L.L.C., he managed the New
York office of Onex Corporation, a Toronto-based investment company, from 1990 to 1995. Prior to Onex, Mr.
Collins was a Vice President at Lazard Frères & Company from 1984 to 1990. Previously, he worked, from 1981
to 1984, with the management consulting firm of Booz, Allen & Hamilton, specializing in strategic and
operational issues of major industrial and financial firms. Mr. Collins currently serves as a director of
Commercial International Bank, RSC Equipment Rental and RHJ International, all of which is publicly traded.
He also serves as a director of The Readers Digest Association, Inc., a privately-held portfolio company of
Ripplewood Holdings L.L.C., and Weather Investments S.p.A. He is involved in several not-for-profit and public
sector activities, including the Trilateral Commission, Yale Divinity School Advisory Board, Yale School of
Organization and Management Board of Advisors, and the Board of Overseers of the Weill Cornell Medical
College, and is a member of the Council on Foreign Relations. Mr. Collins is also a Trustee of the Carnegie Hall
Society. Mr. Collins has a B.A. degree in Philosophy from DePauw University and a M.B.A. in Public and
Private Management from Yale University's School of Organization and Management. Mr. Collins received an
honorary Doctorate of Humane Letters from his alma mater in 2004.
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Leonhard Fischer
Leonhard Fischer will serve as a non-executive Director.
Leonhard Fischer has served as Chief Executive Officer of RHJ International SA ("RHJI") since January 2009.
Mr. Fischer was Co-Chief Executive Officer of RHJ since May 2007 and a member of the Board of Directors
since September 18, 2007. Prior to joining RHJI, Mr. Fischer was Chief Executive Officer of Winterthur Group
from 2003 to 2006, an insurance subsidiary of Credit Suisse, and a member of the Executive Board of Credit
Suisse Group from 2003 to March 2007. Mr. Fischer joined Credit Suisse Group from Allianz AG, where he had
been a Member of the Management Board and Head of the Corporates and Markets Division since 2001.
Previously, he had been with Dresdner Bank AG as a member of the Executive Board since 1998 and with JP
Morgan in Frankfurt since 1987. Mr. Fischer holds an M.A. in Finance from the University of Georgia and a
Business Management Degree from the University of Bielefeld.
Prof. Dr. Mark Wössner
Prof. Dr. Mark Wössner will serve as a non-executive Director.
Prof. Dr. Mark Wössner is the Chairman of the Supervisory Board of Heidelberger Druck and Supervisory
Board Member of Douglas Group, Loewe AG and eCircle AG. He is member of the Advisory Board of Berger
Lahnstein Middelhoff & Partners LLP. From 1983 to 1998, Prof. Dr. Mark Wössner was the CEO and later
Chairman of Bertelsmann AG. Prof. Dr. Mark Wössner is a former Chairman of Citigroup Germany, a former
Board Member of Daimler AG and a former Chairman of Deutsche Bank Advisory Board. Prof. Dr. Mark
Wössner holds a Masters degree in engineering from University of Karlsruhe (TH), a doctorate from the
University of Stuttgart (TH) and was appointed to Honorary Professorship by TU Munich in 2005.
Prof. Dr. h.c. Roland Berger will serve as non-executive Director and Chairman of the Board of Directors.
For details of Prof. Dr. h.c. Roland Berger's biography, please refer to the previous section "Current Board of
Directors and Management".
Keith Corbin
Keith Corbin will serve as non-executive Director.
For details of Keith Corbin's biography, please refer to the previous section "Current Board of Directors and
Management".
Terms of Office of Directors
Each Director, with the exception of Timothy Collins and Leonhard Fischer, will serve for an indefinite time,
and until each resigns or is removed by a majority vote of the Shareholder or otherwise in accordance with our
Articles of Incorporation. Further, according to our Articles of Incorporation, at each Annual General Meeting
after the consummation of the Business Combination, one third of the Directors for the time being (or, if their
number is not a multiple of three, the number nearest one third) shall retire from office. A retiring Director shall
be eligible for re-election.
Timothy Collins and Leonhard Fischer will each be appointed for a fixed period of two years.
For information on resignations of certain Directors in case the Acquisition is not completed, please refer to the
beginning of this section "Post Acquisition Board of Directors and Management".
Independent Directors
Our Board of Directors has determined that following the Acquisition, two of our Directors, Keith Corbin and
Prof. Dr. Mark Wössner, will be independent Non-executive Director since our Board of Directors believes they
are independent in character and judgment and free from relationships or circumstances which are likely to
affect, or could appear to affect, this judgment.
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Board Committees
Following the Acquisition, our Board of Directors will retain its Audit Committee. According to our Articles of
Incorporation, the Audit Committee must consist of independent Directors. The members of our Audit
Committee will be Keith Corbin and Prof. Dr. Mark Wössner.
The Board of Directors has not previously formed a Compensation Committee because it did not pay any of the
executive Officers a regular salary. The Board of Directors will form a Compensation Committee after the
consummation of the Business Combination. The members of Compensation Committee will be Keith Corbin,
Prof. Dr. Mark Wössner and Leonhard Fischer.
Our Board of Directors may establish other committees as it deems necessary or appropriate from time to time.
Further Information on the Directors
During the preceding five years, none of our prospective post-Acquisition Directors and Officers have been
publicly accused of or convicted of any fraudulent offences, served as an officer or director of any company
subject to a bankruptcy, receivership or liquidation, been the subject of any public incrimination or of sanctions
by a statutory or regulatory authority (including designated professional bodies) or been disqualified by any
court of competent jurisdiction from acting as a member of the administrative, management or supervisory body
of any issuer or from participating in the management or conduct of the affairs of any issuer.
Other Directorships
Our post-Acquisition Directors are currently directors or partners of the following other companies or
partnerships:
Bruce Brock
Brock Trust L.L.C. (Delaware); Brock Consulting L.C.C. (Delaware); AEG Power Solutions GmbH; AEG
Power Solutions BV; AEG Power Solutions Limited (UK); AEG Power Solutions USA Inc.; Power Supply
Systems Finance Company (UK) Limited; RD Power Limited Harmer; Simmons Limited; Harmer and Simmons
Holdings Limited.
Robert Huljak
AEG Power Solutions Inc. (Canada); AEG Power Solutions USA Inc.
Timothy Collins
Ripplewood Holdings L.L.C.; Commercial International Bank; RSC Equipment Rental; RHJ International; The
Readers Digest Association, Inc; Weather Investments S.p.A.
Leonhard Fischer
RHJ International SA.
Prof. Dr. Mark Wössner
Heidelberger Druck; Douglas Group; Berger Lahnstein Middelhoff & Partners LLP; Loewe AG; eCircle AG.
For details of Prof. Dr. h.c. Roland Berger's other directorships, please refer to the previous section "Current
Board of Directors and Management".
Keith Corbin
For details of Keith Corbin's other directorships, please refer to the previous section "Current Board of Directors
and Management".
142
Duties of Directors under Guernsey Law
For a general overview of directors' duties under Guernsey Law, please see the section on "Current Board of
Directors and Management".
Limitation of liability and indemnification
Our Directors and Officers may be indemnified out of our assets from and against all actions and liabilities in
respect of which they may be lawfully indemnified and which is incurred by them in the execution of their duty
except such (if any) as they may incur or sustain by or through their own negligence, default, breach of duty or
breach of trust. We may purchase and maintain insurance for the benefit of our Directors and Officers including
insurance against costs, charges, expenses, losses or liabilities suffered or incurred by such persons in the actual
or purported discharge of their respective duties, powers and discretions in relation to us.
We intend to enter into new agreements with our Directors and Officers post-Acquisition.
Corporate Governance
As a Company incorporated under the laws of Guernsey, although proper corporate governance has to be
maintained as a matter of Guernsey law, there is no statutory corporate governance code applicable to us.
143
COMPENSATION DISCUSSION AND ANALYSIS
Germany1 before the Business Combination
Executive compensation
In the fiscal year ending 31 December 2008, the Company had aggregate administrative expenses for director's
fees of EUR 22,191.
Each of the directors has signed a letter of appointment with the Company setting out the terms of their
appointment. The following Non-executive directors received the following fee:
EUR
Mr. Corbin................................................................................
Dr. Bahlmann.............................................................................
Mr. Brockmueller ......................................................................
10,425
5,000
5,000
Prof. Dr. h.c. Berger, Mr. Lahnstein, Dr. Middelhoff and Mr. Wendenburg have waived their right to receive a
fee. The directors will not receive any other compensation or fees of any kind, including finder's fees, consulting
fees or other similar compensation. However, the directors will be reimbursed for any out-of-pocket expenses
incurred in connection with activities on our behalf, such as identifying potential target businesses and
performing due diligence on potential Business Combinations. There is no limit on the amount of these out-ofpocket expenses and there is no review of the reasonableness of the expenses by anyone other than our Board of
Directors, which includes persons who seek reimbursement, or a court of competent jurisdiction if such
reimbursement is challenged.
None of the directors had a service contract with the Company during the period, and, accordingly, a director is
not entitled to a minimum period of notice or to compensation in the event of their removal as a director.
If the Business Combination is completed, Prof. Dr. h.c. Berger and Keith Corbin will continue as directors of
the post-Business Combination entity.
IPO expenses
The following IPO costs were paid to Directors: Mr. Lahnstein received EUR 6,781, Mr. Wendenburg received
EUR 6,756 and Prof. Dr. h.c. Berger received EUR 5,141 for out-of-pocket expenses.
Service fees to LCP1
LCP1 has agreed to provide certain operating and support services for a fee of up to EUR 300,000 over the
course of 30 months to the Company in accordance with the Prospectus. In the period to 31 December 2008,
LCP1 received fees of EUR 70,000 for providing the aforementioned services. As at 31 December 2008, all
incurred service fees had been paid. LCP1 is a company controlled by Mr. Lahnstein, with Dr. Middelhoff and
Prof. Dr. h.c. Berger holding minority interests. An amount of EUR 1,667 was outstanding to LCP1 in respect of
ordinary redeemable shares redeemed during the period ended 31 December 2008.
144
AEG executive compensation before the Business Combination
The aggregate compensation paid to senior AEG management (Bruce Brock, Robert Huljak, Gladwyn De Vidts,
Peter Bon and Dominique Manet) including incentive bonus payments, pension contributions, compensation for
travel and other benefits during the financial year ended 31 December 2008 was EUR 2,303,467.
We maintain directors' and officers' liability insurance.
Outstanding Equity Awards
Current members of AEG's management hold collectively 342,000 of AEG's class B shares and 250,000 options
for class B shares. Former members of AEG's management hold collectively 128,000 of AEG's class B shares
and 69,290 options for class B shares. In addition, Brock Trust L.L.C., of which Bruce Brock and Robert Huljak
are beneficiaries, holds 1,600,000 of AEG's class B shares and 1,475,684 options for class B shares. The options
are exercisable for class B shares under specified conditions at an exercise price of EUR 1.00 per share. All of
the options to acquire shares in AEG outstanding as of the closing will be cancelled and converted into the right
to receive payments in accordance with the terms of the Acquisition Agreement. See "Beneficial Ownership of
Securities".
Germany1 following the Business Combination
Methods for determining compensation
Upon the consummation of the Acquisition, Germany1 will commence to pay its Officers regular salaries. We
will seek to provide compensation packages that are competitive in terms of potential value to our executives,
and which are tailored to the characteristics and needs of Germany1 within its post-combination industry in order
to create value for its Shareholders. We intend to be competitive with other similarly situated companies in our
industry following the Acquisition.
The foundation of Germany1's compensation policy will be that compensation paid to executive Officers should
be aligned on a long-term and short-term basis. The general compensation policy of the Board of Directors is
that total compensation should be tied to the individual performance and supplemented with awards tied to
Germany1's performance in achieving financial and non-financial objectives.
The primary objective of Germany1's compensation programme, including the executive compensation
programme, will be to attract and retain qualified management personnel. A further objective of the
compensation programme will be to provide incentives and reward each member of management for his or her
contribution to Germany1's business. In addition, Germany1 strives to promote an ownership mentality among
the key Directors and Officers. Finally, Germany1 endeavors to ensure that the compensation programme is
perceived as fundamentally fair to all stakeholders. The future compensation programme of the combined
company will be based upon these objectives.
We believe that it is important when making compensation-related decisions to be informed as to current
practices of similarly situated publicly held companies in the similar field. We will stay apprised of the cash and
equity compensation practices of publicly held companies in our industry and related industries by reviewing
such companies' reports and through other resources. Any companies chosen for inclusion in any benchmarking
group would have business characteristics comparable to ours, including revenues, financial growth matrix, stage
of development, employee head count and market capitalization. While benchmarking may not always be
appropriate as a stand alone tool for setting compensation, we generally believe that gathering this information
will be an important part of our compensation-related decision making process.
Germany1 has agreed to maintain for each of AEG's executive officers executive compensation and benefits at
levels that are substantially comparable to the levels of executive compensation and benefits that AEG had
maintained for these individuals.
145
Elements of executive compensation programme
We anticipated that our executives' compensation will have three primary components – salary, cash incentive
bonus and equity-based awards. We anticipate determining the appropriate level for each compensation
component based on individual performance and other financial and non-financial objectives.
Base salary. We anticipate setting executive base salaries at levels comparable to those of executives in similar
positions and with similar responsibilities at comparable companies. We will seek to maintain base salary
amounts at or near the industry norms, while avoiding paying amounts in excess of what we believe is necessary
to motivate executives to meet corporate goals. It is anticipated that base salaries will generally be reviewed
annually, subject to terms of employment agreements and we will seek to adjust base salary amounts to realign
such salaries to industry norms after taking into account individual responsibilities, performance and experience.
Annual bonuses. We intend to utilize cash incentive bonuses for executives to focus them on achieving key
operational and financial objectives within certain stipulated time horizons. It is anticipated that we will
determine performance parameters for appropriate executives annually and that we will determine the level of
achievements for each corporate goal at the end of each year.
Severance benefit. We currently have no severance benefits plan. We may consider the adoption of a severance
plan for executive officers and other employees in the future.
Other compensation. We may establish and maintain various employee benefit plans, including medical and
retirement insurance plans.
AEG 2009 Executive Performance Equity Incentive Plan
We intend to also use share options or other share based awards to reward long-term performance. We believe
that providing a meaningful portion of our executives total compensation package in share options or other share
based awards will align the incentives of our executives with the interests of our Shareholders and our long-term
success. We anticipate setting up an incentive compensation plan under which the equity award will be granted.
For further information on the Company's share incentive plan, please refer to the section "Proposal VI –
Approval and Adoption of AEG 2009 Executive Performance Equity Incentive Plan" of this document.
Individual Compensation
Executive compensation will be determined by the Board of Directors following the Annual General Meeting.
146
DILUTION
On the date of this Proxy Statement, there were 31,250,000 Shares outstanding, which include 25,000,000 Public
Shares and 6,250,000 Founding Shares. In addition, there were 31,000,000 Warrants outstanding, which include
25,000,000 Public Warrants and 6,000,000 Sponsor Warrants.
Structure of our share capital before the Acquisition
The following table sets forth the current structure of our share capital (i) not taking into account any effects
resulting from the exercise of Warrants and (ii) based on the assumption that all of our Warrants will be
exercised and we made use of our option to require a cashless exercise with regard to all Warrants. If we take
advantage of this option, all holders of Warrants would pay the exercise price by surrendering its Warrants for
that number of Shares equal to the quotient obtained by dividing (x) the product of the number of Shares
underlying the Warrants, multiplied by the difference between the fair market value (as described below) and the
exercise price of the Warrants by (y) the fair market value. The fair market value shall mean the average last
quoted sale price of Shares on Euronext Amsterdam for the ten trading days ending on the third trading day prior
to the date on which the Warrants have been exercised.
Shareholdings 1
Before the
Acquisition
(excluding
Warrants)
Shares
(million)
Public Shares................................................................................
Shares issued as a result of the exercise of Public Warrants2 ......
Founding Shares...........................................................................
Shares issued as a result of the exercise of Sponsor Warrants3 ....
Total ............................................................................................
1
2
3
25.00
n/a
6.25
n/a
31.25
Before the
Acquisition
(including
Warrants)
in %
80
n/a
20
n/a
100
Shares
(million)
25.00
6.25
6.25
1.50
39.00
in %
64
16
16
4
100
The figures have been rounded and, therefore, may not add up exactly to the totals shown.
Implied number of shares based on 25 million Public Warrants at a Share price of EUR 10.00 and a strike price of EUR 7.50 (treasury
method applied).
Implied number of Shares based on 6 million Sponsor Warrants at a Share price of EUR 10.00 and a strike price of EUR 7.50 (treasury
method applied)
Please note that, if we will not make use of our option to require a cashless exercise of Warrants, the total
number of Shares issued as a result of the exercise of Warrants could increase to up to 61,250,000.
Structure of our share capital after the Acquisition excluding redemption of Shares
The following table sets forth the structure of our share capital:
•
after the consummation of the Acquisition and issuance of 19,208,955 Convertible Shares (not taking into
account any purchase price adjustments) to the Sellers (i) not taking into account any effects resulting
from the exercise of Warrants (see column two of the table below) and (ii) based on the assumption that
all of our Warrants will be exercised and we made use of our option to require a cashless exercise with
regard to all Warrants (see column one of the table below); and
•
assuming the issuance of an additional 2,500,000 Convertible Shares to the Sellers (not taking into
account any purchase price adjustments) pursuant to the earn-out provision contained in the Acquisition
Agreement (i) not taking into account any effects resulting from the exercise of Warrants (see column
four of the table below) and (ii) based on the assumption that all of our Warrants will be exercised and we
made use of our option to require a cashless exercise with regard to all Warrants (see column three of the
table below).
147
The following table does not take into account the potential sale of Shares held by the Founding Shareholders for
the compensation for excess expenses or possible issuance of additional Convertible Shares to the Sellers as part
of a purchase price adjustment. See "The Acquisition Agreement".
Shareholdings1
Post Acquisition
(including
Warrants)
Shares
(million)
Public Shares...................
Shares issued as a
result of the exercise of
Public Warrants2 .................
Founding Shares..............
Shares issued as a
result of the exercise of
Sponsor Warrants3 .............
Sellers' Convertible
Shares .............................
Convertible Shares
issued to the Sellers
pursuant to the earn-out
provision ........................
Total4 ......................................
1
2
3
4
Post Acquisition
(excluding
Warrants)
Shares
(million)
in %
in %
Post Earn-out
(including Warrants)
Post Earn-out
(excluding Warrants)
Shares
(million)
Shares
(million)
in %
in %
25.00
43
25.00
50
25.00
41
25.00
47
6.25
6.25
11
11
n/a
6.25
n/a
12
6.25
6.25
10
10
n/a
6.25
n/a
12
1.50
3
n/a
n/a
1.50
2
n/a
n/a
19.21
33
19.21
38
19.21
32
19.21
36
n/a
58.21
n/a
100
n/a
50.46
n/a
100
2.50
60.71
4
100
2.50
52.96
5
100
method applied).
method applied).
Aggregate number of issued Shares, including Convertible Shares.
Structure of our share capital after the Acquisition including redemption of 29.99% of our Shares
The following table is based on the assumption that the holders of 29.99% of our Public Shares exercise their
redemption rights and sets forth the structure of our share capital:
•
after the consummation of the Acquisition and issuance of 19,208,955 Convertible Shares to Sellers (not
taking into account any purchase price adjustments) (i) not taking into account any effects resulting from
the exercise of Warrants (see column two of the table below) and (ii) based on the assumption that all of
our Warrants will be exercised (see column one of the table below) and we made use of our option to
require a cashless exercise with regard to all Warrants; and
•
assuming the issuance of an additional 2,500,000 million Convertible Shares to the Sellers (not taking
into account any purchase price adjustments) pursuant to the earn-out provision contained in the
Acquisition Agreement (i) not taking into account any effects resulting from the exercise of Warrants (see
column four of the table below) and (ii) based on the assumption that all of our Warrants will be exercised
and we made use of our option to require a cashless exercise with regard to all Warrants (see column
three of the table below).
148
The following table does not take into account the potential sale of Shares held by the Founding Shareholders for
the compensation for excess expenses or possible issuance of additional Convertible Shares to the Sellers as part
of a purchase price adjustment, see "The Acquisition Agreement".
Shareholdings 1
Post Acquisition
(including
Warrants)
Shares
(million)
Public Shares.................
Shares issued as a
result of the exercise
of Public Warrants2 .......
Founding Shares
Shares issued as a
result of the exercise
of Sponsor Warrants3.......
Sellers' Convertible
Shares............................
Convertible Shares
issued to the Sellers
pursuant to the earnout provision .................
Total4 .....................................
1
2
3
4
Post Acquisition
(excluding
Warrants)
Shares
(million)
in %
in %
Post Earn-out
(including Warrants)
Shares
(million)
Post Earn-out
(excluding
Warrants)
Shares
(million)
in %
in %
17.50
35
17.50
41
17.50
33
17.50
39
6.25
6.25
12
12
n/a
6.25
n/a
15
6.25
6.25
12
12
n/a
6.25
n/a
14
1.50
3
n/a
n/a
1.50
3
n/a
n/a
19.21
38
19.21
45
19.21
36
19.21
42
n/a
50.71
n/a
100
n/a
42.96
n/a
100
2.50
53.21
5
100
2.50
45.46
6
100
method applied).
method applied).
Aggregate number of issued Shares, including Convertible Shares.
149
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth, as of 23 July 2009, (i) the actual beneficial ownership of the Shares and (ii) the
projected beneficial ownership of the Shares (including Convertible Shares) immediately following the
Acquisition by (a) each person owning (or expected to own) greater than 5% of Germany1's outstanding Shares;
(b) each current Director and Officers of Germany1; (c) each current Director and Officer as a group prior to the
Acquisition; (d) each person that is expected to be a Director or Officer following the Acquisition; and (e) each
person that is expected to be a Director or Officer following the Acquisition. The following table has been
prepared based on the assumptions set forth in the pro forma financial statements. For purposes of calculating
this information, we have assumed two different levels of approval of the Acquisition by the Public
Shareholders, as follows:
•
Assuming no exercise of redemption rights: This presentation assumes that none of the Public
Shareholders exercise their redemption rights;
•
Assuming maximum exercise of redemption rights: This presentation assumes that redemption rights are
exercised with respect to 29.99% of the Public Shares; and
•
Not taking into account the issuance of Convertible Shares pursuant to the earn-out or a purchase price
adjustment provisions contained in the Acquisition Agreement.
The unaudited pro forma financial statements contain important information regarding the assumptions used in
calculating this information. See "Unaudited Pro Forma Condensed Combined Financial Statements". The
figures in the following table have been rounded and, therefore, may not add up exactly to the totals shown. The
following table does not take into account the potential sale of Shares held by the Founding Shareholders for the
compensation for excess expenses. See "The Acquisition Agreement".
After the Acquisition1;2
Before the Acquisition
Assuming No
Redemption
Name of Beneficial Owner
and Management
Florian Lahnstein ......................
Dr. Thomas Middelhoff ............
Prof. Dr. h.c. Roland Berger .....
LCP1 .........................................
Ripplewood Power Systems I
L.L.C. .......................................
Ripplewood Power Systems
II L.L.C. ...................................
Brock Trust L.L.C.3........................
AEG Management 4 .......................
Parinvest SAS ...........................
ENAC Ventures L.L.C..............
Total shares outstanding
1
2
3
4
# of Shares
%
# of Shares
%
Assuming Maximum
Redemption (29.99%)
# of Shares
%
666,666
716,667
666,667
6,200,000
2.13%
2.29%
2.13%
19.84%
666,666
716,667
666,667
6,200,000
1.32%
1.42%
1.32%
12.29%
666,666
716,667
666,667
6,200,000
1.55%
1.67%
1.55%
14.43%
0
0.00%
10,661,193
21.13%
10,661,193
24.82%
0
0
0
0
0
0.00%
0.00%
0.00%
0.00%
0.00%
4,573,435
2,512,608
644,792
792,419
24,508
9.06%
4.98%
1.28%
1.57%
0.05%
4,573,435
2,512,608
644,792
792,419
24,508
10.65%
5.85%
1.50%
1.84%
0.06%
31,250,000
100.00%
50,458,955
100.00%
42,958,956
100.00%
Shareholdings are based on the assumption that Brock Trust L.L.C. and the management exercise their options for AEG shares prior to
closing of the Acquisition and that there are no purchase price adjustments.
Shareholdings refer to the aggregate number of issued Shares (including Convertible Shares).
Bruce Brock and Robert Huljak are beneficiaries of Brock Trust L.L.C.
Individuals participating in AEG's management equity plan.
150
CERTAIN RELATIONSHIPS AND RELATED-PARTY
TRANSACTIONS
AGREEMENTS WITH SHAREHOLDERS
Purchase of Founding Shares and Sponsor Warrants: On 26 June 2008, our Sponsor acquired an aggregate of
7,450,000 Founding Shares, and Dr. Bahlmann, one of our Non-executive Directors, purchased 50,000 Founding
Shares from us at a price of approximately EUR 0.0013 per Share (or an aggregate purchase price of
EUR 10,000 for 7,500,000 Founding Shares) in a private placement. Dr. Bahlmann has since sold his Founding
Shares to Dr. Middelhoff. 1,250,000 of the Founding Shares were automatically redeemed at our IPO. In
addition, our Founding Shareholders purchased a total of 2,000,000 Public Shares in our IPO. Accordingly, our
Founding Shareholders now beneficially hold a total of 8,250,000 of our Shares. In addition, our Sponsor
purchased 6,000,000 of our Warrants at a purchase price of EUR 1.00 per Warrant (for an aggregate price of
EUR 6,000,000). Each of Prof. Dr. h.c. Roland Berger, Florian Lahnstein and Dr. Thomas Middelhoff
contributed EUR 2,000,000 to our Sponsor for the purchase of the Sponsor Warrants and our Sponsor holds the
Sponsor Warrants as trustee for these individuals.
Transfer of Founding Shares and Sponsor Warrants to the Foundation: Pursuant to an underwriting
agreement between the Manager, the Foundation, our Founding Shareholders and our other Directors, all the
Founding Shares and the Sponsor Warrants were transferred to the Foundation. The Founding Shareholders
remain the beneficial owners of the Founding Shares and Sponsor Warrants and our Founding Shareholders, our
Management Team and our other Directors (or their Affiliates) remain the beneficial owners of the Shares and
Warrants acquired in our IPO or the secondary market that were transferred to the Foundation, but the
Foundation is the record owner of the book-entry interests in the Founding Shares and Sponsor Warrants and
such other Shares and Warrants that have been transferred to the Foundation and holds all voting rights
thereunder. The Foundation issued Depositary Receipts to the Founding Shareholders, our Management Team
and other Directors (or their Affiliates) (as appropriate) for the Founding Shares and Sponsor Warrants and any
Shares and Warrants acquired in our IPO or in the secondary market. Neither the Shares held by the Foundation
nor the Depositary Receipts for these Shares will be transferable, exchangeable or released until the earlier of our
liquidation for failure to complete a Business Combination and one year following our consummation of a
Business Combination. Neither the Warrants held by the Foundation nor the Depositary Receipts for these
Warrants will be transferable, exchangeable or released until the earlier of (i) our liquidation for failure to
complete a Business Combination and (ii) the later of (a) one year after the Date of the IPO and (b) our
consummation of a Business Combination. During the applicable lock-up period, the Depositary Receipts may
not be exchanged for Shares or Warrants. Upon expiration of the applicable lock-up period, the Depositary
Receipts will be cancelled by the Foundation in exchange for which the underlying Shares and Warrants will be
transferred to the beneficial owners.
Notwithstanding the transfer restrictions set out above with respect to any Shares and Warrants held by the
Foundation, our Directors may transfer or assign their interest in the Depositary Receipts for any Shares and
Warrants, as applicable, held by the Foundation to their respective Affiliates, subject to certain conditions
including that the transferee enters into a lock-up agreement providing for a lock-up on similar terms to those
above. Any of the foregoing transfers will be made in accordance with applicable securities law. The Founding
Shareholders and Directors have also agreed that for a period of twelve months following the expiration of such
holding period, they each will, and will procure that each of their Affiliates will, only dispose of such Shares and
Warrants (i) in accordance with the reasonable requirements of the Manager to ensure an orderly market in our
listed securities and (ii) in transactions effected through our stockbrokers.
In connection with the Shareholder vote required to approve the Business Combination, the Foundation will (i)
abstain from voting all of the Founding Shares and (ii) vote any Public Shares it holds that were acquired by our
Founding Shareholders, our Management Team or our Directors (or their Affiliates) in our IPO or in the
secondary market in favor of the Acquisition at the Annual General Meeting.
Equity Trust Co. N.V. serves as the sole board member of the Foundation and has been appointed to such
position until the earlier of (i) four years from the date of their appointment and (ii) automatic cancellation of all
Depositary Receipts. Equity Trust Co. N.V. and the Foundation have agreed with the Manager and the Company
that the documents governing the Foundation may not be amended except with the prior written consent of the
Manager.
151
Administrative Services Agreement: We have entered into an administrative services agreement with our
Sponsor for the use of office space and certain administrative and support services. We have agreed to pay our
Sponsor EUR 10,000 per month for these services until the earlier of our consummation of a Business
Combination and our liquidation. This arrangement has been agreed to by LCP1 for our benefit and is not
intended to provide LCP1 compensation in lieu of a management fee. We believe that such terms are at least as
favorable as we could have obtained from an affiliated third party.
AGREEMENTS WITH DIRECTORS AND OFFICERS
Executive compensation
In the fiscal year ending 31 December 2008, the Company had aggregate administrative expenses for Director's
fees of EUR 22,191.
Each of the Directors has signed a letter of appointment with the Company setting out the terms of their
appointment. The following Non-executive Directors received the following fee:
EUR
Mr. Corbin................................................................................
Dr. Bahlmann.............................................................................
Mr. Brockmueller ......................................................................
10,425
5,000
5,000
Prof. Dr. h.c. Berger, Mr. Lahnstein, Dr. Middelhoff and Mr. Wendenburg have waived their right to receive a
fee. The Directors will not receive any other compensation or fees of any kind, including finder's fees, consulting
fees or other similar compensation. However, the Directors will be reimbursed for any out-of-pocket expenses
incurred in connection with activities on our behalf such as identifying potential target businesses and
performing due diligence on potential Business Combinations. There is no limit on the amount of these out-ofpocket expenses (provided, however, that the amounts of any such reimbursements will be limited to the extent
they exceed the amount available from the funds held outside the Trust Account) and there is no review of the
reasonableness of the expenses by anyone other than our Board of Directors, which includes persons who seek
reimbursement, or a court of competent jurisdiction if such reimbursement is challenged.
None of the Directors had a service contract with the Company during the period, and, accordingly, a Director is
not entitled to a minimum period of notice or to compensation in the event of their removal as a Director.
If the Acquisition is completed, Prof. Dr. h.c. Berger and Keith Corbin will continue as directors of Germany1
following the Acquisition.
IPO expenses
The following IPO costs were paid to Directors: Mr. Lahnstein received EUR 6,781, Mr. Wendenburg received
EUR 6,756 and Prof. Dr. h.c. Berger received EUR 5,141 for out-of-pocket expenses.
Service Fees to LCP1
LCP1 has agreed to provide certain operating and support services for a fee of up to EUR 300,000 over the
course of 30 months to the Company in accordance with the Prospectus. In the period to 31 December 2008,
LCP1 received fees of EUR 70,000 for providing the aforementioned services. As at 31 December 2008, all
incurred service fees had been paid. LCP1 is a company controlled by Mr. Lahnstein, with Dr. Middelhoff and
Prof. Dr. h.c. Berger holding minority interests. An amount of EUR 1,667 was outstanding to LCP1 in respect of
ordinary redeemable shares redeemed during the period ended 31 December 2008.
152
MARKET PRICE OF SECURITIES AND DIVIDENDS
Germany1 Acquisition Limited
Our Shares and Warrants are listed and traded on Euronext Amsterdam under the symbols "GAL1S" and
"GAL1W", respectively. On 22 July 2009, the last quoted sale prices of our Shares and Warrants were EUR 9.75
and EUR 0.50, respectively. The Warrants, which entitle the holder to purchase one Share at an exercise price of
EUR 7.50 per Share, will become exercisable on the later of (i) our completion of a Business Combination and
(ii) 21 July 2009. The Warrants will expire on 21 July 2012 at 5:40 p.m., Central European Time, or earlier upon
redemption. We do not currently have any authorized equity compensation plans. The following table sets forth,
for the calendar quarter indicated, the quarterly high and trade information of our Shares and Warrants as
reported on Euronext Amsterdam by NYSE Euronext. The quotations listed below reflect interdealer prices,
without retail markup, markdown or commission, and may not necessarily represent actual transactions:
Quarter Ended
21 July – 30 September 2008
1 October – 31 December 2008
1 January – 31 March 2009
1 April – 30 June 2009
1
Shares1
High
Low
Units1
High
Low
EUR 11.05
EUR 9.75
EUR 10.50
EUR 10.00
EUR 9.70
EUR 8.30
EUR 8.50
EUR 9.00
EUR 11.05
n/a
n/a
n/a
EUR 9.95
n/a
n/a
n/a
Warrants1
High
EUR 0.60
EUR 0.60
EUR 0.43
n/a
Low
6
EUR 0.60
EUR 0.51
EUR 0.43
n/a
Units were split into shares and warrants on 1 September 2008 and stopped trading in the form of units.
Holders of our Shares and Warrants should obtain current market quotations for their securities. The market
price of our Shares and Warrants could vary at any time.
Dividends
We have not paid any dividends on our Shares to date and do not intend to pay dividends upon completion of the
Acquisition. We currently intend to retain all future earnings, if any, for use in the operations and expansion of
our business. As a result, we do not anticipate paying cash dividends in the foreseeable future but rather intend to
maintain all future earnings, if any, for use in operation and expansion of our business. Any future determination
as to the declaration and payment of cash dividends will be at the discretion of our Board and will depend on
factors our Board deems relevant, including among others, our results of operations, financial condition and cash
requirements, business prospects, and the terms of our credit facilities and other financing arrangements.
153
DESCRIPTION OF THE SECURITIES
Set forth below is a description of the Shares and Warrants, summaries of certain provisions of our Articles of
Incorporation and certain requirements of Guernsey legislation in effect on the date hereof. This summary does
not purport to be complete and is qualified in its entirety by reference to the full Articles of Incorporation and
applicable provisions of Guernsey law.
General
The registered name of the Company is Germany1 Acquisition Limited. We were incorporated as a limited
liability company under Guernsey law on 21 May 2008, with registered number 48933. Our registered office
address is 1st and 2nd Floors, Elizabeth House, Les Ruettes Braye, Guernsey GY1 1EW. Our phone number is
+44 (0)1481 714442.
The objects for which we were established are unrestricted and we have full power and authority to carry out any
object not prohibited by the Companies Law as the same may be revised from time to time, or any other law of
Guernsey. However, as described in this Proxy Statement, it is our aim to carry out the Acquisition.
Share Capital
Our share capital consists of an unlimited number of Shares of no par value. As of the date of this Proxy
Statement, there are 31,250,000 Shares issued and outstanding. Of these Shares, 6,250,000 are Founding Shares
and 25,000,000 are Public Shares.
Our Founding Shareholders have agreed:
•
to the transfer of their Founding Shares to the Foundation and that they will not be released to the
Founding Shareholders until the earlier of (i) our liquidation or (ii) one year following our consummation
of a Business Combination, except for the potential sale of Shares held by the Founding Shareholders as
compensation for excess expenses, see "The Acquisition Agreement";
•
that the Foundation will abstain from voting the Founding Shares at the Annual General Meeting, and as a
result, they will not be able to exercise their right to request redemption;
•
that the Foundation will abstain from voting the Founding Shares at a general meeting of Shareholders
called for the purpose of approving an extension to our Business Combination Deadline; and
•
to waive their rights to participate in any liquidating distribution but only with respect to the Founding
Shares.
Warrants
Public Shareholder Warrants
On the date of this Proxy Statement, 31,000,000 Warrants are outstanding. The Warrants, which entitle the
holder to purchase one Share at an exercise price of EUR 7.50 per Share, will become exercisable on the later of
(i) our completion of a Business Combination and (ii) 21 July, 2009. The Warrants will expire on 21 July, 2012
at 5:40 p.m., Central European time, or earlier upon redemption. We will, at all times, have the option to require
any holders that wish to exercise their Warrants to do so on a "cashless basis" as described in the section
"Dilution".
154
We may redeem the outstanding Warrants (other than the 6,000,000 Warrants held by LCP1 Limited) at any time
after they become exercisable:
•
in whole or in part;
•
at a price of EUR 0.01 per Warrant;
•
upon a minimum of 30 days' prior written notice of redemption, and
•
if, and only if, the closing price of our Shares (as quoted on the Daily Official List of Euronext
Amsterdam) equals or exceeds EUR 13.25 per Share for any 20 trading days within a 30 day trading
period ending three Business Days before we send the notice of redemption.
If we call the Warrants for redemption, each Warrant holder will be entitled to exercise its Warrant prior to the
date scheduled for redemption by payment of the exercise price in cash, provided, however, that we will have the
option to require such Warrant holders to exercise such Warrants on a "cashless basis" (net share settlement
according to the treasury method). However, there can be no assurance that the price of the Shares will equal or
exceed the EUR 13.25 trigger price or the Warrant exercise price during the period commencing after the
redemption call is made.
The Warrants are governed by Guernsey law and are issued under the terms set forth in a Guernsey law governed
Warrant agreement between ABN AMRO Bank N.V., as warrant agent, and us. You should review a copy of the
Warrant agreement, which is available upon request, for a complete description of the terms and conditions
applicable to the Warrants.
Sponsor Warrants
Our Sponsor purchased 6,000,000 Warrants at a price of EUR 1.00 per Warrant (EUR 6,000,000 in the
aggregate) in a private placement. Each of Prof. Dr. h.c. Roland Berger, Florian Lahnstein and Dr. Thomas
Middelhoff contributed EUR 2,000,000 to our Sponsor for the purchase of the Sponsor Warrants and our
Sponsor holds the Sponsor Warrants as trustee for these individuals. The purchase price of the Sponsor Warrants
was added to the proceeds from our IPO being held in the Trust Account. If we do not complete a Business
Combination within the Business Combination Deadline, the proceeds from the sale of the Sponsor Warrants
will become part of the distribution of the Trust Account to our Public Shareholders and the Sponsor Warrants
will expire valueless. The 6,000,000 Sponsor Warrants are substantially similar to our other Warrants, except
that the Sponsor Warrants are non-redeemable so long as they are held by our Sponsor, our Management Team
and their Affiliates and the Sponsor Warrants have been transferred to the Foundation and will not be released to
our Sponsor until the earlier of (i) our liquidation for failure to complete a Business Combination and (ii) the
later of (a) 21 July 2009 and (b) our consummation of a Business Combination.
Foundation for Founding Shares and Sponsor Warrants
Pursuant to an underwriting agreement between the Manager, the Foundation, our Founding Shareholders and
our other Directors, all the Founding Shares and the Sponsor Warrants have been transferred to the Foundation,
and any Shares or Warrants acquired in our IPO or the secondary market by our Founding Shareholders, our
Management Team and our other Directors (or their Affiliates) have also been transferred to the Foundation as
soon as practicable following their acquisition. The Founding Shareholders remain the beneficial owners of the
Founding Shares, our Sponsor remains the beneficial owner of Sponsor Warrants and our Founding
Shareholders, our Management Team and our other Directors (or their Affiliates) remain the beneficial owner of
any Shares and Warrants acquired in our IPO or the secondary market that were transferred to the Foundation,
but the Foundation is the record owner of the book-entry interests in the Founding Shares and Sponsor Warrants
and such other Shares and Warrants that have been transferred to the Foundation and holds all voting rights
thereunder. The Foundation has issued Depositary Receipts to the Founding Shareholders, our Management
Team and other Directors (or their Affiliates) (as appropriate) for the Founding Shares and Sponsor Warrants
and any Shares and Warrants acquired in our IPO or in the secondary market. Neither the Shares held by the
Foundation nor the Depositary Receipts for these Shares will be transferable, exchangeable or released until the
earlier of our liquidation for failure to complete a Business Combination and one year following our
consummation of a Business Combination. Neither the Warrants held by the Foundation nor the Depositary
Receipts for these Warrants will be transferable, exchangeable or released until the earlier of (i) our liquidation
for failure to complete a Business Combination and (ii) the later of (a) 21 July 2009 and (b) our consummation
of a Business Combination. During the applicable lock-up period, the Depositary Receipts may not be exchanged
155
for Shares or Warrants. Upon expiration of the applicable lock-up period, the Depositary Receipts will be
cancelled by the Foundation in exchange for which the underlying Shares and Warrants will be transferred to the
beneficial owners.
Notwithstanding the transfer restrictions set out above with respect to any Shares and Warrants held by the
Foundation, our Directors may transfer or assign their interest in the Depositary Receipts for any Shares and
Warrants, as applicable, held by the Foundation to their respective Affiliates, subject to certain conditions
including that the transferee enters into a lock-up agreement providing for a lock-up on similar terms to those
above. Any of the foregoing transfers will be made in accordance with applicable securities law. The Founding
Shareholders and Directors have also agreed that for a period of 12 months following the expiration of such
holding period, they each will, and will procure that each of their Affiliates will, only dispose of such Shares and
Warrants (i) in accordance with the reasonable requirements of the Manager to ensure an orderly market in our
listed securities and (ii) in transactions effected through our stockbrokers.
In connection with the Shareholder vote required to approve the Acquisition, the Foundation will (i) abstain from
voting all of the Founding Shares and (ii) vote the Public Shares it holds for our Founding Shareholders the
Acquisition.
Equity Trust Co. N.V. serves as the sole board member of the Foundation and has been appointed to such
position until the earlier of (i) four years and (ii) automatic cancellation of all Depositary Receipts. Equity Trust
Co. N.V. and the Foundation have agreed with the Manager and the Company that the documents governing the
Foundation may not be amended except with the prior written consent of the Manager.
Rights of Holders of Depositary Receipts Issued by the Foundation
Holders of Depositary Receipts issued by the Foundation have, among others, the following rights:
•
The right to inspect documents in relation to any acquisition contemplated by us, such as the annual
accounts and reports for the last three years of the legal persons to be merged, certain interim statements
of assets and liabilities or annual accounts which have not been adopted and the Acquisition proposal;
•
The right to attend and address general meetings of Shareholders in person or be represented by a person
holding a written proxy;
•
One or more holders who jointly represent at least 10% of our issued Share capital may, on their
application, be authorized by the interim provisions judge of the court to convene a general meeting of
Shareholders; and
•
Holders representing a market value of at least EUR 50,000,000 or 1% of the issued Share capital may
request that we include any matter in the convening notice of the general meeting of Shareholders,
provided such request is submitted at least sixty days prior to such meeting.
Paying, Warrant, Listing and Euroclear Agent
RBS is acting as our issuing, transfer and paying agent for our Shares and Warrants in the Netherlands.
Form and Transfer of Units, Shares and Warrants
The Shares and Warrants are held in registered form in the name of Euroclear Nederland and are held in bookentry form with settlement through Euroclear Nederland.
Share Issuances
Our Shareholders do not have any statutory pre-emptive rights with respect to future issuances of our securities
under Guernsey law nor pursuant to our Articles of Incorporation. Our Board of Directors will approve any
future offering or offerings of our securities in accordance with our Articles of Incorporation. No other
announcements or disclosures are required under Guernsey law.
156
Accounts and Audits
We are required to prepare the accounts annually, which must be accompanied by an annual report. The Audit
Committee will instruct an auditor to audit the accounts prepared by our Board of Directors, to report the
outcome of the audit to our Shareholders at our annual meeting and to issue an auditor's opinion on such audit.
As a Company listed on Euronext Amsterdam, we are required to make our annual accounts and our semi-annual
accounts available to the public within five and four months, respectively, of the end of the period to which such
report relates. Since implementation of Directive 2004/109/EC on the harmonization of transparency
requirements in relation to information about issuers whose securities are admitted to trading on a regulated
market into Dutch law, we are required to publish our annual accounts and semi-annual report within four
months and two months, respectively, of the end of the period to which such report relates. Also, twice a year
interim management statements must be made public in the period between 10 weeks after the beginning and 6
weeks before the end of the relevant six month period. Furthermore, as a listed Company we are also be required
to disclose annually a document including or referring to the information we publicly disclosed in the 12 months
preceding the publication of our annual report under applicable laws and regulations.
Our accounting date is 31 December of each year. Our annual report and financial statements in respect of each
fiscal year are prepared in accordance with IFRS and will be published within four months of the annual
accounting date and will be sent to Shareholders.
Voting Rights
At the Annual General Meeting, each Share confers the right to cast one vote, although the Foundation has
agreed to abstain from voting the Founding Shares and to vote the Public Shares held by the Foundation in favor
of the Acquisition and other proposals. Every Shareholder will be authorized to attend the Annual General
Meeting, either in person or by means of a written proxy, to speak at the meeting and to exercise the voting
rights.
Dividends and Other Payments
We have not paid any dividends on our Shares to date and will not pay cash dividends prior to the completion of
a Business Combination. After we complete a Business Combination, the payment of dividends will depend on
our revenues and earnings, if any, our capital requirements and our general financial condition and whether we
will be solvent immediately after payment of the dividend. The payment of dividends after a Business
Combination will be within the discretion of our Board of Directors at that time. Our Board of Directors
currently intends to retain any earnings for use in our business operations and, accordingly, we do not anticipate
that our Board of Directors will declare any dividends in the foreseeable future. Further, any credit agreements
we may enter into in connection with a Business Combination may restrict or prohibit payment of dividends. In
the event that we do pay dividends, our Board of Directors will determine the dates on which any entitlements to
dividends arise, the methods of calculating such dividends, periodicity and the cumulative or non-cumulative
nature of dividend payments.
157
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholders may raise any matter relating to the formation of Germany1, or arising out of the annual report of
the Directors, for discussion at the meeting, but they may not propose a new resolution for approval. In addition,
Shareholders may only propose amendments to the proposals if such proposed amendment is not so fundamental
as to destroy the intent of the original proposal, or to materially alter its effect. The proposed amendment must
also fall within the scope of the notice covering the meeting. Any proposed amendment shall only be considered
by the meeting at the discretion of the Chairman of the meeting.
158
DEFINITIONS
"80% Threshold"
"AC"
"Acquisition"
"Acquisition Agreement"
"Adjusted EBIT"
"Adjusted EBITDA"
"Admitted Institution"
"AEG"
"AEG Group"
"Affiliates"
"AFM"
"Annual General Meeting"
"Audit Committee"
"Articles of Incorporation"
"ASIC"
"Board of Directors"
"Business Combination"
"Business Combination Deadline"
"Business Day"
"CAGR"
"Carey Commercial"
"Cash Portion"
The requirement that the Business Combination that the Company
consummates must be with a target business or businesses that have a
fair market value of at least 80% of the balance in the Trust Account
(excluding (i) deferred underwriting commissions, (ii) taxes paid or
reserved for the Trust Account, and (iii) fees and expenses relating to
the Trust Account) at the time of the execution of definitive
documentation relating to such Business Combination.
Alternating current power.
The transactions contemplated by the Acquisition Agreement.
The share purchase agreement dated 23 July 2009 by and among
Germany1, the Sellers and AEG Power Solutions B.V.
Operating profit before financing costs on a business division level
adjusted for recurring shared overhead costs and other IFRS
adjustments.
For any period, the EBIT of AEG Group for such period, extracted
from and determined in a manner consistent with AEG’s management
reporting for the year ended 31 December 2008 plus the amounts, to
the extent deducted in arriving at EBIT, of AEG Group’s charges for
depreciation and amortization for such period.
A bank or broker being or using an admitted institution of Euroclear
Nederland.
AEG Power Solutions B.V., a Netherlands corporation.
AEG together with its subsidiaries.
In relation to any person, (a) a company or undertaking (i) that
directly, or indirectly through one or more intermediaries, controls or
is controlled by or is under common control with such person (and
"control" (including the terms "controlling", "controlled by" and
"under common control with") means the possession, direct or
indirect, of the power to direct or cause the direction of the
management, policies or activities of a person whether through the
ownership of securities, by contract or agency or otherwise); or (ii) in
relation to which such person is interested, whether legally or
beneficially, in shares comprised in more than 50% of the equity
share capital of such company or undertaking; (b) a spouse, civil
partner, former spouse, former civil partner, sibling, parent, child or
step child (up to the age of 18) of such person; or (c) any person or
persons acting in his or their capacity as trustee or trustees of a trust
of which such person is the beneficiary.
The Netherlands Authority for the Financial Markets.
The annual general meeting of Germany1 to be held pursuant to this
Proxy Statement, and any adjournment thereof.
The audit committee of the Board of Directors.
Our Articles of Incorporation.
Application-specific integrated circuit.
Our Board of Directors.
Merger, capital stock exchange, share purchase, asset acquisition,
reorganization or similar transaction.
24 July 2010 (or 24 January 2011 if, by 24 July 2010, the Company
has signed a letter of intent with a potential target and obtained the
approval of the extension by a majority of votes cast by the Public
Shareholders in respect of their Public Shares at a general meeting of
Shareholders where a quorum is present).
A day on which Euronext Amsterdam is open for trading.
Compounded Annual Growth Rate.
Carey Commercial Limited.
Cash portion of the total purchase price that will be equal to the
159
"CDMA"
"Class A Convertible Shares"
"Class B Convertible Shares"
"Code of Practice"
"Committed Shareholders"
"Company"
"Companies Law"
"Convertible Shares"
"CSP"
"DC"
"DC Converter"
"DC Telecom"
"Depositary Receipt"
"Deutsche Bank AG, London Branch"
"Director"
"EBIT"
"Euroclear Nederland"
"Euroclear Agent"
"Euronext Amsterdam"
"Financial Supervision Act"
"Foundation"
"Founding Shareholders"
"Founding Shares"
"Fully Diluted Basis"
amount of Germany1's cash at closing (including cash held in the
Trust but excluding any amounts paid upon the exercise of
redemption rights by Shareholders), less transaction expenses, but
will not in any event be less than the Minimum Cash Amount.
Code division multiple access.
Convertible Shares which will automatically convert free of charge
into Public Shares on the six month anniversary of the closing of the
Acquisition.
Convertible Shares which will automatically convert free of charge
into Public Shares on the first year anniversary of the closing of the
Acquisition.
The code of practice made under section 35 of The Regulation of
Fiduciaries, Administration Businesses and Company Directors, etc.
(Bailiwick of Guernsey) Law, 2000.
Shareholders who have entered into irrevocable undertakings or other
similar arrangements with us.
Germany1 Acquisition Limited.
The Companies (Guernsey) Law, 2008 as amended, superseded or
replaced from time to time.
Non-listed Class A Convertible Shares and Class B Convertible
Shares of equal amounts in Germany1, which will have the same
voting rights as, and shall rank pari passu in right of payment with
respect to dividends and upon liquidation with the Public Shares in
Germany1. The Convertible Shares will generally not be transferable
until after their conversion.
Concentrating solar power.
Direct current power.
AEG's DC converter business segment that is currently operated as
part of its DC Telecom division.
AEG's DC Telecom business division.
The embodiment of rights and duties derived from a Share or a
Warrant (certificate) of a holder towards the Foundation, the
Company and third parties by virtue of the terms of administration,
the Articles of Incorporation of the Foundation and the law.
Deutsche Bank AG, a corporation domiciled in Frankfurt am Main,
Germany, operating in the United Kingdom under branch registration
number BR000005, acting through its London branch at Winchester
House, 1 Great Winchester Street, London EC2N 2DB.
A person appointed as a director of the Company.
Corresponds to the line item in AEG's income statement "operating
profit before financing costs" and represents operating profit before
financial income/expenses and income tax.
Euroclear Nederland (Nederlands Centraal Instituut voor Giraal
Effectenverkeer B.V.).
Please refer to RBS.
Euronext Amsterdam by NYSE Euronext.
The Dutch Financial Supervision Act (Wet op het financieel toezicht).
Stichting Administratiekantoor Germany1 Acquisition Limited, the
Dutch foundation to which the Founding Shares and Sponsor
Warrants were transferred as well as any Shares or Warrants acquired
in our IPO or the secondary market by our Founding Shareholders and
our Directors.
Our Management Team, together with Dr. Arnold Bahlmann (until
the time he sold his Shares to Dr. Thomas Middelhoff).
The 7,500,000 Shares acquired by the Founding Shareholders for an
aggregate price of EUR 10,000 or approximately EUR 0.0013 per
Share.
Calculation of our Shareholders' dilution in connection with the
Acquisition based on the assumption that all Warrants have been
exercised on a cashless basis at a Share price of EUR 10.00 and a
160
"Germany1"
"GFSC"
"GSM"
"Holdco"
"IFRIC"
"IFRS"
"Incentive Plan"
"Independent Shareholders"
"IPO"
"KPMG CI"
"KPMG Netherlands"
"LCP1"
"Management Team"
"Manager"
"Minimum Cash Amount"
"NIOSH"
"OEM"
"Officer"
"Panel"
"Performance Options"
"Performance Shares"
"OSHA"
"Power Controllers"
"Prospectus" or "IPO Prospectus"
"Protect Power"
"Proxy Statement"
"Public Shares"
"Public Shareholder"
"Public Warrants"
"Record Date"
"Regulation 14A"
"RBS "
"Ripplewood"
or
Holdings"
"Rule 9"
"Sagent Advisors"
"Securities Act"
"Sellers"
"Shareholders"
"Ripplewood
strike price of EUR 7.50 and not taking into account any redemption
of Public Shares or any purchase price adjustments.
Germany1 Acquisition Limited.
Guernsey Financial Services Commission.
Global system for mobile communications.
A holding company that will, at the closing of the Acquisition, hold
100% of the shares in AEG.
International Financial Reporting Interpretations Committee.
International financial reporting standards as adopted in the European
Economic Area by Regulation (EC) No. 1606/2002 (as amended) on
the application of international accounting standards.
The AEG 2009 Executive Performance Equity Incentive Plan to be
set up following the Acquisition.
Persons unconnected with Germany1 or its associated companies.
Germany1´s initial public offering in July 2008.
KPMG Channel Islands Limited.
KPMG Accountants N.V.
LCP1 Limited, a holding company incorporated under the laws of
Guernsey that is controlled by Florian Lahnstein and jointly owned by
Prof. Dr. h.c. Roland Berger, Florian Lahnstein and Dr. Thomas
Middelhoff.
Prof. Dr. h.c. Roland Berger, Florian Lahnstein and Dr. Thomas
Middelhoff.
Deutsche Bank AG, London Branch.
At least EUR 200,000,000 of the total purchase price minus certain
expenses specified in the Acquisition Agreement.
The National Institute for Occupational Safety and Health.
Original equipment manufacturer.
A person appointed as a officer of the Company.
The Panel on Takeovers and Mergers of the United Kingdom.
Stock options granted under the AEG 2009 Executive Performance
Equity Incentive Plan.
Shares granted under the AEG 2009 Executive Performance Equity
Incentive Plan.
The Occupational Safety and Health Administration.
AEG's power controllers solutions business division.
Our IPO prospectus dated 2 July 2008, as supplemented by the
supplemental prospectus dated 14 July 2008.
AEG's protect power solutions business division.
This document.
All Shares other than the Founding Shares and the Convertible
Shares.
A Shareholder who owns Public Shares. For clarity, this includes our
Founding Shareholders, Management Team and our other Directors,
but only with respect to Shares purchased by them in our IPO and in
the secondary market and transferred to the Foundation.
All Warrants other than the Sponsor Warrants.
The close of business two days prior to the Annual General Meeting
(after giving effect to all settlements on that date).
Regulation 14A under the Securities Exchange Act of 1934.
ABN AMRO Bank N.V., trading under the name RBS.
Ripplewood Holdings L.L.C.
Rule 9 of the Takeover Code.
Sagent Advisors Inc.
The U.S. Securities Act 1933, as amended.
Ripplewood Power Systems I L.L.C. and Ripplewood Power Systems
II L.L.C. and each of the persons listed on Schedule A to the
Acquisition Agreement.
Holders of book-entry interests in the Shares.
161
"Shares"
"Sponsor"
"Sponsor Warrants"
"Takeover Code"
"TFT"
"Trust" or "Trust Account"
"UPS"
"Warrant"
"Whitewash Resolution"
Our ordinary shares of no par value (including, where expressly
stated, the Convertible Shares).
LCP1.
6,000,000 Warrants purchased by our Sponsor in a private placement
at a price of EUR 1.00 per Warrant (EUR 6,000,000 in the aggregate).
Each of Prof. Dr. h.c. Roland Berger, Florian Lahnstein and Dr.
Thomas Middelhoff contributed EUR 2,000,000 to the Sponsor for
the purchase of the Sponsor Warrants and the Sponsor holds the
Sponsor Warrants as trustee for these individuals.
The City Code on Takeovers and Mergers
Thin film transistor.
The trust account established for Germany1 and maintained by Carey
Commercial as trustee into which a portion of the net proceeds of the
IPO were deposited.
Uninterruptible power supply.
A Warrant which entitles the holder to purchase one Share at a price
of EUR 7.50.
An ordinary resolution passed on a poll, by Independent Shareholders
approving the waiver by the Panel on the obligations on the Sellers
that would otherwise arise (pursuant to Rule 9) to make a mandatory
offer for the entire issued share capital of the Company.
162
INDEX TO FINANCIAL STATEMENTS
Germany1 Acquisition Limited, consolidated financial statements for the period from
incorporation on 21 May 2008 to 31 December 2008
○
○
○
○
○
○
F-2
Balance Sheet
Income Statement
Statement of Changes in Equity
Cash Flow Statement
Notes to the Financial Statements
Independent Auditors' report
F-3
F-4
F-5
F-6
F-7
F-19
AEG Power Solutions B.V. (formerly 3W Power Holdings B.V. and Power Supply
Systems Holdings (The Netherlands) B.V. respectively), 2008 financial statements
F-21
○
○
○
○
○
○
○
○
○
○
F-22
F-23
F-24
F-26
F-28
F-63
F-64
F-65
F-70
F-71
Consolidated Income Statement for the Year ended 31 December 2008
Consolidated Statement of Recognised Income and Expense
Consolidated Balance Sheet as at 31 December 2008
Consolidated Cash Flow Statement for the Year 2008
Notes to the 2008 Consolidated Financial Statements
Company Balance Sheet as at 31 December 2008
Company Income Statement for the Year ended 31 December 2008
Notes to 2008 Company Financial Statements
Other Information
Auditor's Report
3W Power Holdings B.V. (formerly Power Supply Systems Holdings (The Netherlands)
B.V.), 2007 financial statements
○
○
○
○
○
○
○
○
○
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F-73
Consolidated Income Statement for the Year ended 31 December 2007
Consolidated Statement of Recognised Income and Expense
Consolidated Balance Sheet as at 31 December 2007
Consolidated Cash Flow Statement for the Year 2007
Notes to the 2007 Consolidated Financial Statements
Company Balance Sheet as at 31 December 2007
Company Income Statement for the Year ended 31 December 2007
Notes to 2007 Company Financial Statements
Other Information
Auditors' Report
F-74
F-75
F-76
F-78
F-80
F-106
F-107
F-108
F-111
F-112
F-1
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCORPORATION
ON 21 MAY 2008 TO 31 DECEMBER 2008
F-2
Balance Sheet
as at 31 December 2008
Notes
€
Current assets
Cash and cash equivalents............................................................................................
Trust account................................................................................................................
Receivables ..................................................................................................................
6
7
8
2,581,683
249,914,110
90,438
252,586,231
Current liabilities
Payables .......................................................................................................................
Deferred IPO expenses ................................................................................................
9
10
149,488
5,314,367
5,463,855
Net assets.....................................................................................................................
Equity
Share and warrant premium .........................................................................................
Retained earnings.........................................................................................................
Equity shareholders' funds .......................................................................................
247,122,376
11
243,447,683
3,674,693
247,122,376
The financial statements on pages 9 to 23 were approved by the Board of Directors on 30.04.2009 and signed on
its behalf by:
Mr F. O. Lahnstein
Director
Mr K. Corbin
Director
F-3
Income Statement
For the period from incorporation on 21 May 2008 to 31 December 2008
Continuing operations
Notes
€
Revenue .................................................................................................................
4
4,025,666
Expenses ................................................................................................................
Profit for the period from continuing operations
5
350,973
3,674,693
Earnings per share
Basic ......................................................................................................................
12
0.12
Diluted...................................................................................................................
12
0.06
All items above derive from continuing operations.
F-4
Statement of Changes in Equity
Notes
Shares issued in period
Shares redeemed in period
Units issued in period
Warrants issued in period
Issue costs
Profit for the period
Balance as at 31 December 2008
11
11
11
11
11
Share and
Warrant
Premium
Retained
Earnings
Total
€
€
€
10,000
(1,667)
250,000,000
6,000,000
(12,560,650)
-
3,674,693
10,000
(1,667)
250,000,000
6,000,000
(12,560,650)
3,674,693
243,447,683
3,674,693
247,122,376
F-5
Cash Flow Statement
Notes
Profit from operating activities............................................................................
Increase in trade and other receivables ...................................................................
Increase in trade and other payables .......................................................................
Net cash generated from operating activities ..........................................................
8
9
Financing ...............................................................................................................
Share and warrant issue ..........................................................................................
Issue costs paid .......................................................................................................
Share redemption ....................................................................................................
Net cash from financing activities...........................................................................
11
11
11
€
3,674,693
(90,438)
149,488
3,733,743
256,010,000
(7,246,283)
(1,667)
248,762,050
Increase in cash and cash equivalents and trust account .........................................
252,495,793
Cash and cash equivalents and trust account at the beginning of the period...........
-
Cash and cash equivalents and trust account at the end of the period.............
6&7
252,495,793
F-6
Notes to the Financial Statements
For the period from corporation on 21 May 2008 to 31 December 2008
1
General information
Germany1 Acquisition Limited (the "Company") was incorporated in Guernsey on 21 May 2008. The Company
is listed on Euronext Amsterdam.
The Company is subject to certain parts of the Netherlands Financial Supervision Act (Wet op het Financieel
Toezicht).
The Company was granted consent to raise funds under The Control of Borrowing (Bailiwick of Guernsey)
Ordinances 1959, as amended.
2
Accounting policies
Statement of compliance
The financial statements have been prepared in conformity with International Financial Reporting Standards
("IFRS") issued by the International Accounting Standards Board, interpretations issued by the International
Financial Reporting Interpretations Committee ("IFRIC"), the Listing Rules of Euronext Amsterdam, the
regulated market of Euronext Amsterdam N. V., applicable legal and regulatory requirements of Guernsey Law
and applicable Dutch law. They reflect the following policies:
Basis of preparation
The financial statements have been prepared on a going concern basis under the historical cost basis, as modified
by the revaluation of investment properties and financial assets and liabilities at fair value through profit or loss.
F-7
Standards and interpretations issued but not yet effective as at the date of authorisation of the financial
information
At the date of these financial statements, the following standards and interpretations which have not been applied
in these financial statements, were in issue but not yet effective:New standards
IFRS1 First time adoption of International Financial Reporting Standards - Amendment
replacing to the cost of an investment............................................................................................
IFRS2 Share Based Payments - Amendment relating to vesting conditions and cancellations .....
IFRS3 Business Combinations - Comprehensive revision on applying the acquisition method ...
IFRS5 Non-current assets held for sale and discontinued operations............................................
IFRS8 Operating segments ............................................................................................................
IAS1 Presentation of financial statements - Comprehensive revision including requiring a
statement of comprehensive income..............................................................................................
IAS20 Government grants and disclosure of government assistance ............................................
IAS23 Borrowing costs - Comprehensive revision to prohibit immediate expensing ..................
IAS27, IAS28 and IAS31 - Consequential amendments arising from amendments to IFRS3
IAS28 Investments in associates
IAS29 Financial reporting in hyperinflationary economies
IAS31 Interest in joint ventures
IAS32 Financial instruments presentation - Amendments relating to puttable instruments and
obligations arising on liquidation ..................................................................................................
IAS36 Impairment of assets...........................................................................................................
IAS38 Intangible assets - Recognition of mail order catalogues as prepayments..........................
IAS39 Financial instruments - Recognition and measurement......................................................
IAS40 Investment property - Recognition of investment property in construction as
investment property measured at fair value ...................................................................................
IAS41 Agriculture .........................................................................................................................
IFRIC15 Agreements for the construction of real estate ...............................................................
IFRIC17 Distributions of non-cash assets to owners.....................................................................
IFRIC18 Transfers of assets from customers.................................................................................
Effective for
periods
beginning on
or after
1 January 2009
1 January 2009
1 January 2009
1 July 2009
1 January 2009
1 January 2009
1 January 2009
1 January 2009
1 July 2009
1 July 2009
1 January 2009
1 July 2009
1 January 2009
1 January 2009
1 January 2009
1 January 2009
1 January 2009
1 January 2009
1 January 2009
1 July 2009
1 July 2009
The directors anticipate that the adoption of these standards and interpretations in future periods may have no
material impact on the financial statements of the Company except for additional disclosure on capital and
financial instruments when the relevant standards and interpretations come into effect.
The directors believe that other pronouncements which are in issue but not yet operative or adopted by the
Company will not have a material impact on the financial statements of the Company other than as detailed in
note 2 "Basis of preparation".
Going concern
The Company was created to acquire one or more businesses operating in Germany, Switzerland or Austria.
Management are looking to identify a potential transaction and seek its approval by the shareholders.
Management have 24 months from 24 July 2008 to effect such a Business Combination. If after this period,
management have not affected such a transaction, management need to put a proposal to the shareholders to
place the Company in liquidation and return the funds held in the trust account, and all other assets and liabilities
to the shareholders. Whilst the Company does not have free access to the trust account, management note that
the Company has sufficient assets outside the trust account to meet its ongoing costs. As such, management are
confident that the Company will continue in existence for at least 12 months after approval of these financial
statements and accordingly, these financial statements have been prepared on a going concern basis.
F-8
Functional and presentational currency
The directors have selected the Euro as the presentational currency of the Company. The directors have also
selected the Euro as the functional currency, as the Company is listed on Euronext Amsterdam and has received
all its funding in that currency.
Segmental reporting
The Company has no activities, except for seeking to accomplish a Business Combination. Therefore segmental
reporting is not relevant for these financial statements.
Foreign currencies
In preparing the financial statements the transactions in currencies other than the Company's functional currency
are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date,
monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing
on the balance sheet date. Non-monetary items are carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary
items that are measured in terms of historical cost in foreign currency are not retranslated.
Exchange differences are recognised in the Income Statement in the period in which they arise.
Revenue
Interest income is included in the financial statements on an accruals basis using the effective interest rate
method.
Expenses
Expenses are accounted for on an accruals basis.
Share issue costs have been expensed against the share premium account in accordance with IAS32 "Financial
Instruments: Disclosure and Presentation" and IAS29 "Financial Instruments: Recognition and Measurement".
Taxation
The Company has obtained tax exempt status under Category B of the Income Tax (Exempt Bodies) (Guernsey)
Ordinance 1989, subject to the payment of an annual fee which is currently set at £600.
Receivables
Receivables are measured at amortised cost using the effective interest method, less any impairment.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity
of three months or less. The carrying amounts of these approximate their fair value.
Dividends payable
Dividends payable are recognised as a liability in the year in which they are declared and paid.
Other assets and liabilities
Other assets and liabilities are not interest bearing and are stated at their nominal value.
Trust account
The cash in trust comprises the net proceeds of the IPO, the cash received in a private placement of the Sponsor
Warrants in the amount of € 6,000,000 and € 5,000,000 of the underwriting fee that the underwriters have agreed
to defer until the completion of a Business Combination. The balance on the trust account at 31 December 2008
F-9
was € 249,914,110. A balance of € 247,199,305 was invested in The Deutsche Global Liquidity Series PLC
Money Market Fund with the remaining balance held by Deutsche Bank International Limited, Guernsey. The
amount held in trust will only be freely available to the Company upon completion of a Business Combination,
as set out in the Prospectus dated 2 July 2008 published by the Company, as supplemented by the supplemental
prospectus dated 14 July 2008. The cash in trust is under supervision of Carey Commercial Limited, acting as
Trustee. As the Company has the right to the interest received on the trust account (up to € 4,300,000) and can
direct how the trust account is invested it is treated as an asset of the Company.
Financial liabilities and equity instruments issued by the Company
Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the
substance of the contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an equity after deducting
all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.
The ordinary redeemable Shares and Warrants have been classified as equity as they do not have a defined right
to either income or assets of the Company.
Principles for the Cash Flow Statement
The Cash Flow Statement has been drawn up according to the indirect method, separating the cash flows from
operating activities, investing activities and financing activities. The net result has been adjusted for amounts in
the Income Statement and movement in the Balance Sheet which have not resulted in cash income or
expenditure in the period.
The cash amounts in the Cash Flow Statement include those assets that can be converted into cash without any
restrictions and without any material risk of decreases in value as a result of the transaction. Dividends that have
been proposed and declared are included in the cash flow from financing activities.
Earnings per share
Earnings per share (EPS) has been calculated based on the time-weighted number of shares per balance sheet
date.
Underwriting fee
Part of the underwriting fee has been paid and the remaining will be paid on consummation of a Business
Combination.
3
Use of estimates and judgements
The Company makes certain estimates and assumptions regarding the future. Estimates and judgements are
continually evaluated based on historical experience and other factors, including expectations of future events
that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year discussed below.
The Company has deferred costs in relation to the IPO, payable on completion of a Business Combination (see
note 10). These liabilities are conditional, but management is of the opinion that since this amount is payable on
the completion of a Business Combination, the liability should be accounted for at face value.
Shareholders who vote against any proposed Business Combination and request redemption may be entitled to
the repayment of their share of the proceeds of the IPO, plus the interest income that has accrued on those
proceeds (less up to € 4,300,000 that may be withdrawn from the trust account by the Company to fund its
working capital and other expenses). The Company will not consummate a Business Combination if
F-10
shareholders who hold 30% or more of the IPO shares vote against the Business Combination and exercise their
redemption rights.
Each of the Company's shareholders may request redemption of their Public Shares for a pro rata portion of the
trust account at any time after the mailing of information to the shareholders for the meeting to be held
concerning the proposed Business Combination, but prior to the vote taken at such meeting. The request will not
be granted unless:
(i)
(ii)
(iii)
(iv)
the shareholder votes against the Business Combination,
the Business Combination is approved and consummated,
the shareholder continues to hold the Public Shares at the time of consummation of the Business
Combination; and
the shareholder follows the specific procedures for redemption set forth in the information sent to
shareholders concerning the proposed Business Combination.
Accordingly, the shares have been accounted for as equity within these financial statements.
The Company issued 6,000,000 warrants ("Sponsor Warrants") in a private placement immediately prior to the
IPO. The fair value of the Sponsor Warrants was estimated by the Company not to be materially above the
Sponsor Warrants issue price and so no share based payment charge was applicable.
Founding Shares were issued in connection with the Company's incorporation prior to the IPO. The Directors
consider the fair value of these shares to be equal to the issue price and therefore no share-based payment charge
arose.
4
Revenues
Revenue
Interest receivable from financial assets that are not at fair value through profit or loss............
Gains on foreign exchange..........................................................................................................
€
4,025,468
198
4,025,666
5
Administrative expenses
Administrative expenses
Directors' fees ...............................................................................................................................
Secretarial fees ..............................................................................................................................
Legal fees......................................................................................................................................
Trustee fees ...................................................................................................................................
Filing fee .......................................................................................................................................
Administration fees.......................................................................................................................
Compliance fee .............................................................................................................................
Accountancy fees ..........................................................................................................................
Audit fees......................................................................................................................................
Insurance costs ..............................................................................................................................
Travel costs ...................................................................................................................................
Stationery & subscriptions ............................................................................................................
Advertising....................................................................................................................................
Courier and telefone......................................................................................................................
Bank charges ................................................................................................................................
€
22,191
9,281
11,348
4,254
149
69,339
41,887
3,060
40,000
24,562
108,580
2,320
9,861
2,430
1,711
350,973
F-11
6
Deutsche Bank call account ..........................................................................................................
Deutsche Bank fixed account........................................................................................................
€
6,326
2,575,357
2,581,683
Per the Company's Prospectus € 1,240,000 of capital raised at the IPO was held outside of the trust account. It
was estimated that these funds would cover the estimated IPO costs of € 1,000,000 and sundry expenses of
€ 240,000.
To ensure cover for the costs and expenses arising during the period after the closing date on 24 July 2008 and
prior to the completion of a Business Combination, up to € 4,300,000 of working capital can be transferred from
interest earned on the trust account. As at 31 December 2008 € 2,600,000 had been transferred and the remaining
€ 1,700,000 was transferred on 9 January 2009.
The directors consider that the carrying amounts of these assets approximate their fair value.
7
Trust account
Trust account
Deutsche Bank trust call account ..................................................................................................
Deutsche Global Liquidity Series PLC Money Market Fund .......................................................
Interest accrued .............................................................................................................................
€
2,711,574
247,199,305
3,231
249,914,110
The amounts held in the trust account, in accordance with the Investment Trust Agreement, are to be held in
escrow until a successful Business Combination has been approved by the shareholders and consummated.
Management have up to 24 months from 24 July 2008 to effect such a Business Combination. If after 24 months,
a Business Combination is not executed, management need to put a proposal to the shareholders to wind up the
Company and return the trust account funds as part of the liquidation. Up to that time, interest on the amounts
held in the trust account, up to € 4,300,000, can be released to the Company for use as working capital.
The directors consider that the carrying amounts of these assets approximate their fair value.
8
Receivables
Receivables
€
Payments.......................................................................................................................................
Credit card deposits.......................................................................................................................
30,438
60,000
90,438
There are no trade receivables balances included which are past due.
The directors consider that the carrying amounts of receivables approximate their fair value.
F-12
9
Payables
Payables
Accounts payable ..........................................................................................................................
Accruals ........................................................................................................................................
€
52,412
97,076
149,488
The directors consider that the carrying amounts of accounts payable and accruals approximate their fair value.
10
Deferred IPO expenses
Deferred IPO expenses
€
5,314,367
The Company has provided for IPO costs. These consist of € 5,000,000 payable to the underwriter of the IPO in
accordance with the Underwriting Agreement, € 251,649 legal costs and € 62,718 road show expenses. These
costs will become payable at completion of a Business Combination.
The following IPO costs were paid to related parties: Mr F. O. Lahnstein € 6,781, Mr G. A. Wendenburg € 6,756
and Professor R. Berger € 5,141 for out-of-pocket expenses incurred and LCP1 € 20,000 for operating and
support services to the Company.
11
Called up share capital
Authorised
€
Unlimited number of ordinary redeemable shares of nil par value ................................................
31,000,000 warrant shares at nil par value.....................................................................................
Issued ordinary share capital
€
31,250,000 ordinary redeemable shares at nil par value ................................................................
31,000,000 warrant shares at nil par value.....................................................................................
Share and warrant premium account
7,500,000 ordinary redeemable Founding Shares issued at €0.0013333 per share........................
25,000,000 units issued at €10 per unit..........................................................................................
6,000,000 Sponsor Warrants at €1 per unit....................................................................................
Issue costs ......................................................................................................................................
1,250,000 ordinary redeemable Founding Shares redeemed at €0.0013333 per share ..................
€
10,000
250,000,000
6,000,000
(12,560,650)
(1,667)
243,447,683
Each unit consists of one ordinary redeemable share of no par value in the Company ("Public Share") and one
warrant ("Public Warrant"). Each Public Warrant entitles the holder to purchase one share at a price of € 7.50.
The Public Warrants are exercisable on the later of:
(i) completion of the Business Combination; and
(ii) one year following the Admission Date.
Directors' interests
On 26 June 2008, LCP1 Limited ("LCP1"), a company that is controlled by Mr Lahnstein with Professor R.
Berger and Dr. Middelhoff holding the minority interest (the "Sponsors"), acquired an aggregate of 7,450,000
F-13
shares. Our Non-executive director, Dr. Bahlmann, purchased 50,000 shares (together with the shares acquired
by the Sponsors are referred to as the "Founding Shares"). The Founding Shares were purchased at an aggregate
price of € 10,000 (or approximately € 0.001333 per share). 1,250,000 of the 7,500,000 Founding Shares were
automatically redeemed at the IPO.
Additionally, the Sponsors purchased 6,000,000 warrants at a price of € 1.00 per warrant (the "Sponsor
Warrants") (€ 6,000,000 in aggregate) prior to the IPO. At the Offering Mr F. O. Lahnstein, Professor R. Berger
and Dr. Middelhoff purchased a further 2,000,000 units at a price of € 10 as offered to the public. Each unit
comprises of one ordinary redeemable share of no par value in the Company ("Public Share") and one warrant
("Public Warrant").
The Founding and Public Shares and the Sponsor and Public Warrants held by the directors were transferred to
Stichting Administratiekantoor Germany1 Acquisition Limited (the "Foundation"). The Shares held by the
Foundation will not be transferable, exchangeable or released until the earlier of:
(i)
(ii)
our liquidation; and
one year following our consummation of our Business Combination.
The Warrants held by the Foundation will not be transferable, exchangeable or released until the earlier of:
(i)
(ii)
our liquidation; and
the later of:
(a)
one year from the Admission Date; and
(b)
our consummation of our Business Combination
Share rights
The rights attached to the Public Shares are as follows:
(i) Voting rights
Subject to any rights or restrictions attached to any class or classes of shares on a show of hands each
shareholder shall have one for each share of which he is the holder. On a poll, votes maybe given either
personally or by proxy.
(ii) Dividends
Shareholders of Public Shares are entitled to receive, and participate in, any dividends or other distributions out
of our profits available for dividend and resolved to be distributed in respect of any accounting period or other
income or right to participate therein.
(iii) Distribution on winding-up
On winding-up whether voluntarily or otherwise, the value of assets as and when disposed of, will be divided
amongst the public shareholders in accordance with their shareholding after all other financial obligations and
costs have been met.
Capital risk management
The Company's current capital is represented by ordinary redeemable Shares and Warrants, together referred to
as "units" as disclosed above, cash and cash equivalents as disclosed in notes 6 and 7, and retained earnings. The
directors do not believe that they currently need to raise additional funds following the IPO in order to meet the
expenditures required for operating our business. However, the Company may need to raise additional funds,
through a private offering of debt or equity securities, if such funds were required to consummate a Business
Combination. Subject to compliance with applicable securities laws, the Company would only consummate such
financing in connection with the consummation of a Business Combination.
The Company does not have any externally imposed capital requirements.
F-14
IPO issue costs
Total issue costs amounted to € 12,560,650. Amounts paid to Deloitte Touche Tohmatsu in respect of non-audit
services in respect of the IPO were £75,000. Amounts due to Deutsche Bank in respect of underwriting fees were
€ 11,250,000 in accordance with the Underwriting Agreement.
An amount of € 5,314,367 remains unpaid until the consummation of the Business Combination, the details of
which are included in note 10.
These amounts have been expensed against the Share and Warrant premium account along with other listing
expenses in accordance with the accounting policies of the Company.
12
Earning per share
The earnings per share amount to € 0.12 (€ 0.06 diluted). These amounts have been calculated as follows:
Earnings per share calculation
Basic
Profit attributable to ordinary shareholders (numerator) €..................................
Diluted earnings (no adjustments) € ...................................................................
Average number of shares basic (denominator)..................................................
Average number of shares basic and diluted (denominator) ...............................
Earnings per share €............................................................................................
3,674,693
13
3,674,693
31,250,000
0.12
62,250,000
0.06
Total expense ratio
Total expense ratio
Total net assets value (A)..............................................................................................................
Average equity (B)........................................................................................................................
Total expense ratio (A/B).............................................................................................................
14
Diluted
€
350,973
243,447,683
1.4417%
Net assets value per share
Net assets value per share
€
Total net assets value (A)..............................................................................................................
Total number of shares (B) ...........................................................................................................
247,122,376
31,250,000
Net assets value per share (A/B) .................................................................................................
7.91
15
Financial instruments – risk management
The Company is exposed to interest rate risk, credit risk, liquidity risk and currency risk from the financial
instruments it holds. The risk management policies employed by the Company to manage these risks are
discussed below.
Principal financial instruments
The principal financial instruments used by the Company, from which financial instrument risk arises, are trade
receivables, cash and cash equivalents, trust account and trade and other payables.
F-15
Categories of financial instruments
Financial assets - loans and receivables
€
Cash and cash equivalents..........................................................................................................
Trust account..............................................................................................................................
Receivables ................................................................................................................................
2,581,683
249,914,110
90,438
252,586,23
Financial liabilities measured at amortised cost
€
149,488
5,314,367
5,463,855
Payables .....................................................................................................................................
Deferred IPO expenses ..............................................................................................................
Interest risk
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest
rates. The Company's exposure to interest rate risk relates to the Company's obligation to provide working
capital from interest earned on the trust account which is on a variable interest rate. Interest at variable rates
expose the Company to cash flow risk. The Company monitors its interest risk on an on-going basis.
At reporting date, if interest rates had been 250 basis points higher/lower and all other variables were held
constant, the Company's net profit would increase/decrease by € 630,554. This is mainly attributable to the
Company's exposure to interest rates on its variable rate trust account.
The following table details the Company's remaining contractual maturity for its non-derivative financial assets:
31 December 2008
Cash and cash equivalents.....
Weighted
average
effective
interest
rate
%
3.5
Less than 1
year
1 to 5 years
More than
5 years
Total
€
€
€
€
252,495,793
-
-
252,495,793
F-16
Credit risk
Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of
future cash inflows from financial assets on hand at the balance sheet date. The Company's cash in trust and cash
and cash equivalents are maintained by Deutsche Bank International Limited, Guernsey and Deutsche Global
Liquidity Series PLC Money Market Fund. This largely reduces the credit risk of the Company to the underlying
investments in the Money Market Fund defaulting on payment. The Company monitors the placement of cash
balances on an on-going basis and ensures that the credit ratings of its counterparties are continuously monitored.
Standard & Poor has rated Deutsche Bank International Limited as A+ and Deutsche Global Liquidity Series
PLC Money Market Fund as AAA, which reduces the Company's exposure to credit risk.
The ageing of receivables is as follows:
Less than 1
year
1 to 5 years
More than
5 years
Total
31 December 2008
€
€
€
€
Prepayments.............................................
Credit card deposits..................................
30,438
60,000
90,438
-
-
30,438
60,000
90,438
Maximum exposure
The Company's maximum exposure to credit risk is as below:
31 December 2008
Cash and cash equivalents..................................................................................
Trust account......................................................................................................
Receivables ........................................................................................................
Carrying
value
Maximum
exposure
€
€
2,581,683
249,914,110
90,438
252,495,793
2,581,683
249,914,110
90,438
252,495,793
F-17
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting its financial obligations as they
fall due.
The Company believes that the funds available outside of the trust account, together with interest income of up
to € 4,300,000 earned on the trust account balance that can be released will be sufficient to pay costs and
expenses which are incurred prior to the completion of a Business Combination. The Company monitors costs
incurred on an on-going basis.
The following table sets out the carrying amount, by maturity, of the Company's financial assets and liabilities:
Less than 1
year
1 to 5 years
More than
5 years
Total
€
€
€
€
31 December 2008
Assets:
Cash and cash equivalents........................
Receivables ..............................................
252,495,793
90,438
252,586,231
-
-
252,495,793
90,438
252,586,231
149,488
5,314,367
5,463,855
-
-
149,488
5,314,367
5,463,855
Liabilities:
Payables ...................................................
Deferred IPO expenses ............................
Currency risk
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange
rates. Currency risk arises when the future commercial transactions and recognised assets and liabilities are
denominated in a currency that is not the Company's measured currency. All of the Company's material
transactions are denominated in Euros which is the Company's functional and presentational currency. As a
consequence the Company does not have a material exposure to currency risk.
Market price risk
As the Company is only investing in cash or liquidity funds, the Company does not have a material exposure to
market price risk.
16
Ultimate controlling parties and related parties disclosure
The Company has no ultimate controlling party.
Parties are considered to be related if one party has the ability to control the other party or exercise significant
influence over the other party in making financial or operational decisions.
LCP1 Limited ("LCP1") has agreed to provide certain operating and support services for a fee of up to € 300,000
over the course of 30 months to the Company in accordance with the Prospectus. In the period to 31 December
2008, LCP1 received fees of € 70,000 for providing the aforementioned services. No amounts in respect of these
were outstanding as at 31 December 2008. LCP1 is a company controlled by Mr F. O. Lahnstein, with Dr.
Middelhoff and Professor R. Berger holding minority interests.
An amount of € 1,667 was outstanding to LCP1 in respect of ordinary redeemable shares redeemed during the
period to 31 December 2008 (see note 11).
17
Events post balance sheet
There are no post balance sheet events.
F-18
Independent Auditors' Report to the Members of Germany1 Acquisition Limited
We have audited the financial statements (the "financial statements") of Germany1 Acquisition Limited for the
period from incorporation on 21 May 2008 to 31 December 2008 which comprises the Income Statement, the
Statement of Changes in Equity, the Balance Sheet, the Cash Flow Statement and the related notes 1 to 17. These
financial statements have been prepared under the accounting policies set out therein.
This report is made solely to the Company's members, as a body, in accordance with section 262 of The
Companies (Guernsey) Law 2008 and the Netherlands Financial Supervision Act (Wet op het Financieel
Toezicht) insofar applicable. Our audit work has been undertaken so that we might state to the Company's
directors those matters we are required to state to them in an auditors' report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and
the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors' and auditors'
As described in the Statement of directors' responsibilities, the Company's directors are responsible for the
preparation of the financial statements in accordance with applicable Guernsey Law and International Financial
Reporting Standards issued and adopted by the International Accounting Standards Board and the Netherlands
Financial Supervision Act (Wet op het Financieel Toezicht) insofar as applicable.
Our responsibility is to audit the financial statements in accordance with relevant Guernsey legal and regulatory
requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view in accordance with
the relevant financial reporting framework and are properly prepared in accordance with The Companies
(Guernsey) Law, 2008 and the Netherlands Financial Supervision Act (Wet op het Financieel Toezicht) insofar
applicable. We also report if in our opinion, the Director's Report is not consistent with the financial statements,
the Company has not kept proper accounting records or if we have not received all the information and
explanations we require for our audit.
We read the Directors' Report and consider the implications for our report if we become aware of any apparent
misstatements within it.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts
and disclosures in the financial statements. It also includes an assessment of the significant estimates and
judgements made by the directors in the preparation of the financial statements, and of whether the accounting
policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered
necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming
our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.
F-19
Opinion
In our opinion the financial statements give a true and fair view in accordance with International Financial
Reporting Standards issued and adopted by the International Accounting Standards Board, of the state of the
Company's affairs as at 31 December 2008 and of the Company's profit for the period from incorporation on 21
May 2008 to 31 December 2008 and have been properly prepared in accordance with The Companies
(Guernsey) Law, 2008 and the Netherlands Financial Supervision Act (Wet op het Financieel Toezicht) insofar
applicable.
Deloitte LLP
Chartered Accountants
St Peter Port, Guernsey
30 April 2009
Neither an audit nor a review provides assurance on the maintenance and integrity of the website, including
controls listed to achieve this, and in particular whether any changes may have occurred to the financial
information since first published. These matters are the responsibility of the directors but no control procedures
can provide absolute assurance in this area.
Legislation in Guernsey and the Netherlands governing the preparation and dissemination of financial
information differs from legislation in other jurisdictions.
F-20
AEG POWER SOLUTIONS B.V.
(FORMERLY 3W POWER HOLDINGS B.V. AND
POWER SUPPLY SYSTEMS HOLDINGS (THE NETHERLANDS) B.V.
RESPECTIVELY)
2008 FINANCIAL STATEMENTS
F-21
Consolidated income statement for the year ended 31 December 2008
2008
€ 1,000
Revenues.................................................
Cost of sales ............................................
4
7
8
9
10
10
€ 1,000
48,467
115,382
(42,001)
(4,418)
–
(2,119)
(54,010)
(6,661)
3,241
(2,298)
Operating profit / (loss) before
financing costs .......................................
Finance income .......................................
Finance expenses ....................................
2007*)
€ 1,000
218,223
(169,756)
342,836
(227,454)
Gross profit............................................
Selling, general and administrative
expenses..................................................
Research and development costs.............
Other operating income...........................
Other operating expenses........................
€ 1,000
(59,728)
(48,538)
55,654
(71)
104
(4,433)
1,053
(4,892)
Financial expense, net.............................
(3,839)
(4,329)
Profit / (loss) before taxation................
51,815
(4,400)
(15,866)
3,299
35,949
(1,101)
(9,737)
(2,341)
26,212
(3,442)
Income taxes ...........................................
11
Profit / (loss) from continuing
operations ..............................................
Profit / (loss) from discontinued
operations................................................
Profit / (loss) for the period
attributable to the equity holders of
the Company .........................................
5
*) See discontinued operation in note 5
The accompanying notes form an integral part of these consolidated financial statements.
F-22
Consolidated statement of recognised income and expense
2007
€ 1,000
2008
€ 1,000
operations..................................................................................... 18
169
(1,009)
Income and expense recognised directly in equity ...................
169
(1,009)
(Loss) income for the year ...........................................................
26,212
(3,442)
Recognised income and expense for the year............................
26,381
(4,451)
F-23
Consolidated balance sheet as at 31 December 2008
(before profit appropriation)
31 Dec. 2008
€ 1,000
€ 1,000
Intangible fixed assets, net............
12
Property, plant and equipment ........
Depreciation....................................
13
13
30,459
(6,778)
31,470
(7,510)
23,681
23,960
14
11
1,334
9,819
1,379
4,941
Total non-current assets ...............
Inventories, net................................
Trade receivables and related
accounts, net....................................
Advances and progress payments ...
Other current assets.........................
Current income taxes ......................
Cash and cash equivalents ..............
Assets classified as held for sale .....
6,061
7,360
Property, plant and equipment,
net ...................................................
Other non-current financial assets
Deferred tax assets ..........................
31 Dec. 2007
€ 1,000
€ 1,000
6,320
11,153
37,640
40,895
15
62,706
41,241
16, 23
97,435
4,937
6,253
4,873
54,631
21,983
80,290
1,227
4,371
3,192
27,312
–
17
24
6
Total current assets.......................
252,818
157,633
Total assets.....................................
290,458
198,528
F-24
31 December 2008
€ 1,000
€ 1,000
Common stock ......................................
Additional paid-in capital .....................
Currency translation adjustments..........
Legal reserves .......................................
Retained earnings / (accumulated
deficit)...................................................
217
21,502
580
6,885
217
21,502
411
4,068
14,585
(8,818)
Stockholder's equity attributable to
the equity holders of the company..... 18
Pension and other post-retirement
obligations............................................. 20
Other long-term debt............................. 21
Deferred tax liabilities........................... 11
17,380
43,769
22,153
15,976
3,646
19,992
744
3,075
Total non-current liabilities ...............
Provisions .............................................
Current portion of long-term debt.........
Short-term debt .....................................
Customers' deposits and advances ........
Trade payables and related accounts.....
Current income tax liabilities................
Other current liabilities .........................
Liabilities classified as held for sale .....
31 December 2007
€ 1,000
€ 1,000
41,775
23,811
22
21
21
24
23
25
6
10,597
484
32,611
21,107
47,603
1,063
25,908
–
10,030
15,449
12,296
74,350
56,249
12,963
24,809
16,732
Total provisions and current
liabilities...............................................
222,878
139,373
Total liabilities.....................................
246,689
181,148
Total stockholder's equity and
liabilities...............................................
290,458
198,528
F-25
Consolidated cash flow statement for the year 2008
27
2007 *)
2008
€ 1,000
€ 1,000
€ 1,000
Cash flow from operating activities
Net (loss) income ....................................
Adjustments ............................................ 26
35,949
20,218
(1,101)
(104)
Net cash (used in) by operating
activities before changes in working
capital, interest and taxes .....................
56,167
(1,205)
(26,565)
(5,298)
(31,049)
(7,893)
(3,703)
(1,130)
53,529
20,374
21,275
(7,115)
(1,854)
5,248
Cash provided by/(used in) operating
activities before interest and taxes.......
67,800
2,981
Interest received ......................................
Interest paid.............................................
Taxes recovered/(paid)............................
988
(2,065)
(1,905)
104
(1,988)
2,265
Net cash provided by/(used in)
operating activities, continuing
operations ..............................................
64,818
3,362
operating activities, discontinued
operations................................................ 5
(7,994)
4,971
Net change in current assets and
liabilities:
27
(Increase) in inventories .................
•
(Increase) in trade receivables and
•
related accounts ..............................
(Increase) in advances and
•
progress payments ..........................
Increase in customers' deposits
•
and advances...................................
Increase/(decrease) in trade
•
payables and related accounts.........
Decrease in other current assets
•
and liabilities, net (excluding
financing)........................................
operating activities (carried forward)....
56,824
€ 1,000
8,333
F-26
2007*)
2008
€ 1,000
Brought forward.........................................
Proceeds from disposal of fixed assets.......
Capital expenditures...................................
(Increase) decrease in other non-current
financial assets ...........................................
Recapitalisation of discontinued
operations...................................................
€ 1,000
€ 1,000
€ 1,000
8,333
56,824
210
(9,991)
1,265
(3,947)
(181)
15
(4,900)
–
Net cash (used in) investing activities,
continuing operations ..............................
(14,862)
(2,667)
Net cash (used in) investing activities,
continuing operations.................................
(1,345)
(2,315)
Net cash (used in) investing activities .....
(4,982)
(16,207)
Increase / (decrease) of short-term debt .....
(Decrease) / increase of long-term debt .....
(13,046)
(267)
13,566
782
Net cash provided by financing
activities, continuing operations .............
(13,313)
14,348
2,424
(848)
Net cash provided by financing activities,
discontinued operations ............................. 5
activities ....................................................
(10,889)
13,500
Net effect of exchange rate changes........
(414)
(752)
Net increase/(decrease) in cash and
cash equivalents, continuing operations.
36,229
14,291
Net increase/(decrease) in cash and cash
equivalents, continuing operations............. 5
(6,915)
1,808
cash equivalents........................................
29,314
16,099
Cash and cash equivalents at beginning
of year ........................................................
27,312
11,213
Cash and cash equivalents transferred to
assets held for sale ..................................... 5
(1,995)
–
Cash and cash equivalents at end of
year............................................................
54,631
27,312
F-27
Notes to the 2008 consolidated financial statements
1
Reporting entity
AEG Power Solutions B.V. (formerly 3W Power Holdings B.V. and Power Supply Systems Holdings
(The Netherlands) B.V. respectively) (The "Company") is a Company domiciled in the Netherlands. The
address of the Company's registered office is Weerenweg 29, 1161 AH Zwanenburg, the Netherlands and
its legal seat is in Amsterdam. The consolidated financial statements of the Company as at and for the
year ended 31 December 2008 comprise the Company and its subsidiaries (together referred to as the
"Group").
The majority shareholders of the Company are Ripplewood Power Systems I L.L.C. and Ripplewood
Power Systems II L.L.C., which are managed by Ripplewood Holdings, I L.L.C.
The Group is engaged in the design, development, manufacture, marketing, sale and distribution of AC
and DC power systems, converters, power modules, battery chargers, uninterruptible power systems
(UPS), power controllers and power conversion products. There are manufacturing operations in France,
Germany, and Malaysia.
In a meeting on 6 December 2007, the Directors of the Company decided to commence a process
whereby certain assets and or business divisions of the Group could be sold.
In December 2008, the Directors signed a Memorandum of Understanding whereby the power conversion
products known as the Converters business at Lannion in France held by Harmer + Simmons S.A.S.
would be sold to members of its management team. Accordingly, the Converters segment has been
deemed to be a discontinued operation and classified as held for sale as at December 31, 2008 (See notes
5 and 6).
During the year, a number of internal reorganisations were completed which included the sale and
transfer by the Company of the shareholding in Saft Power Systems B.V. to AEG Power Solutions GmbH
in May 2008 and in November 2008, the Company repurchased and transferred the shareholding in Saft
Power Systems B.V. from AEG Power Solutions GmbH. On December 29, 2008 Saft Power Systems
B.V. was merged into AEG Power Solutions B.V.
Finally, the Directors decided to change the name of the Company from Power Supply Systems Holdings
(The Netherlands) B.V. to 3W Power Holdings B.V. and subsequently into AEG Power Solutions B.V.
2
Basis of preparation and significant accounting policies
The consolidated financial statements of AEG Power Solutions B.V. and its subsidiaries are prepared in
accordance with International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB) and their interpretation as adopted by the European Union (EU) and
also comply with Book 2 Title 9 of The Netherlands Civil Code. The accounting policies set out below
have been applied consistently to all periods presented in these consolidated financial statements.
The consolidated financial statements were authorized for issue by the Board of Directors on
6 July 2009.
a)
Principles of consolidation
The consolidated financial statements include the financial statements of AEG Power Solutions B.V. and
subsidiaries over which the Group has control. Control exists when the Group has the power to govern the
financial and operating policies of an entity so as to obtain benefits from its activities.
All significant intercompany balances and transactions have been eliminated in consolidation.
With reference to the company income statement of the company, use has been made of the exemption
pursuant to Section 402 of Book 2 of the Netherlands Civil Code.
F-28
b)
Business combinations
Business combinations are accounted for in accordance with the purchase method.
Once control is achieved over a Company, its assets and liabilities are measured at their fair value at the
acquisition date in accordance with IFRS requirements. Any difference between the fair value and the
carrying value is accounted for in the respective underlying asset or liability. In the case of the acquisition
of the SPS (Saft Power Systems) Group in 2005, the excess between the Group's share in the net fair
value of the identifiable assets, liabilities and contingent liabilities over cost was reassessed and the
residual remaining excess was recognised in income.
c)
Foreign currency translation
The balance sheets of consolidated subsidiaries outside the Euro zone are translated into Euros at the
year-end rate of exchange, and their income statements and cash flow statements are translated at the
average annual rate of exchange. The resulting translation adjustments are included in stockholders'
equity under "cumulative translation adjustments".
Fair value adjustments arising from the acquisition of a foreign entity are considered as assets and
liabilities of that entity. They are listed in the entity's functional currency and translated using the closing
exchange rate.
Foreign currency transactions are translated at the rate of exchange applicable on the transaction date. At
year-end, foreign currency monetary assets and liabilities are translated at the rate of exchange prevailing
on that date. The resulting exchange gains and losses are recorded in the income statement in other
financial income (loss).
Financial information prepared in currencies other than the Euro has been converted at the Euro rate per
foreign currency unit set out below:
Country
Canada ......................
China.........................
India ..........................
Malaysia....................
Romania ....................
Russia........................
Singapore ..................
United Kingdom .......
United States .............
d)
Currency
Closing rates
2008
Average
rates 2008
CAD
CHY
INR
MYR
ROL
RUB
SGD
GBP
USD
0.59
0.11
0.01
0.21
0.25
0.02
0.50
1.05
0.72
0.64
0.10
0.02
0.20
0.27
0.03
0.48
1.26
0.68
Closing rates Average rates
2007
2007
0.69
0.09
0.02
0.21
0.28
0.03
0.47
1.36
0.68
0.68
0.10
0.02
0.21
0.30
0.03
0.48
1.46
0.73
Research and development expenses
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical
knowledge and understanding is expensed when incurred. Development activities involve a plan or design
for the production of new or substantially improved products and processes. Development expenditure is
capitalized only if development costs can be measured reliably, the product or process is technically and
commercially feasible, future economic benefits are probable, and the Group intends to, and has sufficient
resources to, complete development and to use or sell the asset. The expenditure capitalized includes the
cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for
its intended use. Other development expenditure is expensed when incurred.
Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated
impairment losses.
Amortisation commences as soon as the product or process in question is available for use and is
recognised on a straight-line basis over the estimated useful lives, usually 3 to 7 years.
F-29
e)
Intangible assets and property plant and equipment
Only items whose cost can be reliably measured and for which economic benefits are likely to flow to the
Group are recognised as assets.
Whenever events or changes in market conditions indicate a risk of impairment of intangible assets and
property, plant and equipment, a detailed review is carried out in order to determine whether the net
carrying amount of such assets remains lower than their recoverable amount which is defined as the
greater of fair value (less costs to sell) and value in use. Value in use is measured by discounting the
expected future cash flows from continuing use of the asset and its ultimate disposal.
For the purpose of impairment testing, assets are grouped together into the smallest group of assets that
generate cash inflows from continuing use that are largely independent of the cash inflows of other assets
or groups of assets (the "cash-generating unit").
When such review indicates that recoverable values are lower than net carrying amounts, the Group
considers the effect of alternative business strategies, such as committed restructuring plans at affected
companies on its future cash flows. If necessary, an impairment loss is recorded to reduce the carrying
amount of these intangible assets and plant, property and equipment to recoverable value.
An impairment loss is reversed if there has been a changes in the estimates used to determine the
recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount
does not exceed the carrying amount that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised.
f)
Negative goodwill
Any excess in the net fair value of acquired identifiable assets, liabilities and contingent liabilities over
cost is, after reassessment, recognised in income.
g)
Intangible assets
Intangible assets include purchased software, patents and licences and are stated at cost less amortisation
and impairment losses. Intangible assets are generally amortised on a straight-line basis over their
estimated useful lives, usually three to seven years.
Depreciation method, useful lives and residual values are reviewed at each reporting date.
h)
Property, plant and equipment
Property, plant and equipment are stated at cost (or at fair value in the case of acquisitions) less
accumulated depreciation and impairment losses. Depreciation is generally calculated on a straight-line
basis over the following useful lives:
•
Buildings, plant and equipment:
20 - 30 years.
•
Infrastructure and fixtures:
10 - 20 years.
•
Equipment and tools:
5 - 10 years.
•
Small equipment and tools:
2 - 5 years.
Fixed assets held under capital lease arrangements that transfer substantially all of the benefits and risks
of ownership to the Group are capitalized. Land is not depreciated.
Depreciation method, useful lives and residual values are reviewed at each reporting date.
F-30
i)
Non-current assets held for sale
Non-current assets (or disposal groups comprising assets and liabilities) that are expected to be recovered
primarily through sale rather than through continuing use are classified as held for sale. Immediately
before classification as held for sale, the assets (or components of a disposal group) are remeasured in
accordance with the Group's accounting policies. Thereafter generally assets (or disposal group) are
measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on
initial classification as held for sale and subsequent gains or losses on remeasurement are recognised in
profit or loss.
j)
Inventories and work in progress
Inventories and work in progress are valued at the lower of cost, including indirect production costs,
where applicable, or net realisable value. Cost is primarily calculated on a weighted average price basis.
k)
Cash and cash equivalents in the consolidated statement of cash flows and in the balance sheet include
cash (cash funds and term deposits) and cash equivalents (short-term investments that are very liquid and
readily convertible to known amounts of cash and that are only subject to negligible changes of value).
Cash and cash equivalents in the statement of cash flows do not include investments in listed securities,
investments with an initial maturity date exceeding three months and without an early exit clause, or bank
accounts restricted in use, other than restrictions due to regulations applied in a specific country or sector
of activities (exchange controls, etc.).
Bank overdrafts are considered as financing and are also excluded from cash and cash equivalents.
l)
Pension and other post-retirement obligations
In accordance with local legislation and historical practices of each country, the Group participates in
employee benefit plans.
For defined contribution plans, the Group expenses contributions as and when they are due. As the Group
is not liable for any legal or constructive obligations under the plans beyond the contributions paid, no
provision is made. Provisions for defined benefit plans are determined as follows:
•
using the Projected Unit Credit Method (with projected final salary), each period of service gives
rise to an additional unit of benefit entitlement and each unit is measured separately to calculate
the final obligation. Actuarial assumptions such as mortality rates, rates of employee turnover and
projection of future salary levels are used to calculate the obligation;
•
using the "corridor" method, whereby actuarial gains and losses are recognised when the
cumulative unrecognised amount thereof at the beginning of the period exceeds a "corridor". The
corridor is 10 percent of the greater of the present value of the obligation and the fair value of the
assets at the beginning of the period. The corridor is calculated and applied separately for each
plan. The net cumulative unrecognised actuarial gain or loss at the beginning of the period in
excess of the corridor is amortised on a straight-line basis over the expected remaining working
lives of the employees in the plan.
The expense resulting from the change and other post-retirement obligations is recorded in income from
operating activities or in other financial income (loss) depending upon the nature of the underlying
obligation.
The Group applies the corridor method to recognize in the profit or loss actuarial gains and losses over
the expected average remaining working lives of employees in the plan and accordingly, decided not to
adopt the Amendment to IAS 19 Employee Benefits – Actuarial Gains and Losses, Group Plans and
Disclosures as at 1 January 2006, whereby all actuarial gains and losses arising from defined benefit plans
would be recognised directly in equity immediately.
F-31
m)
Provisions for restructuring
Provisions for restructuring costs are recorded when the restructuring programs have been approved by
Group management and have been announced, resulting in an obligation of the Group to third parties.
Such costs primarily relate to severance payments, early retirement, costs for notice periods not worked,
re-training costs of terminated employees, and other costs linked to the shut-down of facilities. Write-offs
of fixed assets, inventories and other assets directly linked to restructuring measures are also included in
restructuring costs.
n)
Deferred taxation
Deferred income taxes are computed under the balance sheet liability method for all temporary
differences arising between tax bases of assets and liabilities and their reported amounts, including the
reversal of entries recorded in individual accounts of subsidiaries solely for tax purposes. All amounts
resulting from changes to the tax rate are recorded in the year in which the tax rate change is substantially
enacted.
Deferred income tax assets are recorded in the consolidated balance sheet when it is probable that the tax
benefit will be realized in the future.
Deferred tax assets and liabilities are not discounted and are calculated based on the most recently voted
tax rate applicable to the following fiscal year.
To assess the ability of the Group to recover tax assets, the following elements have been taken into
account:
•
forecasts of future tax results;
•
analysis of income or loss in recent years, excluding non-recurring items;
•
historical data concerning recent years' tax results.
o)
Revenue recognition
In general, the Group recognizes revenue from the sale of goods and equipment when a contractual
arrangement with its customer exists, delivery has occurred, the amount of revenue can be measured
reliably and it is probable that the economic benefits associated with the transaction will flow to the
Group. Accruals for estimated returns are recorded at the same time based on contract terms and prior
claims experience.
In arrangements where the customer specifies final acceptance of the goods, equipment, services or
software, revenue is generally deferred until all the acceptance criteria have been met.
Revenue from training and consulting services is recognized when the services are performed.
For product sales made through resellers and distributors, revenue is recognized at the time of shipment to
the distributors.
The Group accrues for warranty costs, sales returns and other allowances based on contract terms and its
historical experience.
F-32
p)
Share based payments
A management equity programme allows certain key members of Group management to acquire shares in
the Company and to receive options. The fair value of options granted is recognized as an employee
expense with a corresponding increase in equity. The fair value is measured at grant date and spread over
the period during which the employees become unconditionally entitled to the options. The fair value of
the options granted is measured using a valuation model, taking into account the terms and conditions
upon which the options were granted. The amount recognized as an expense is adjusted to reflect the
actual number of share options that vest.
q)
Financial instruments
Non-derivative financial instruments comprise investments in equity and debt securities, trade and other
receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair
value through profit and loss, any directly attributable transaction costs. Subsequent to initial recognition
non-derivative financial instruments, not being held-to-maturity investments, available-for-sale financial
assets and financial assets at fair value through profit or loss, are measured at amortised cost using the
effective interest method, less any impairment losses.
r)
Discontinued operations
A discontinued operation is a component of the Group's business that represents a separate major line of
business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary
acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon
disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an
operation is classified as a discontinued operation, the comparative income and cash flow statements are
re-presented as if the operation had been discontinued from the start of the comparative period.
s)
The preparation of consolidated financial statements in accordance with International Financial Reporting
Standards implies that the Group makes a certain number of estimates and assumptions that are
considered realistic and reasonable. However, subsequent facts and circumstances could lead to changes
in these estimates or assumptions, which would affect the value of the Group's assets, liabilities,
stockholders equity and net income.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised and in any future periods affected.
The balance sheet amounts disclosed in the notes below relate only to continuing operations in 2008,
whereas the 2007 figures include both the continuing and discontinued operations.
i)
Inventories and work in progress are measured at the lower of cost or net realizable value. Cost is
primarily calculated on a weighted average price basis. Reserves for inventories and work in progress are
calculated based on an analysis of foreseeable changes in demand, technology or the market, in order to
determine obsolete or excess inventories and work in progress. Reserves amounted to € 4,455,000 at 31
December 2008 (2007: € 5,012,000).
ii)
The amount of the allowance reflects both the customers' ability to honour their debts and the age of the
debts in question. A higher default rate than estimated or the deterioration of our major customers' credit
F-33
worthiness could have an adverse impact on future results. Allowances for doubtful customer receivables
were € 1,419,000 at 31 December 2008 (2007: € 1,505,000).
iii)
Intangible assets
The Group has intangible assets acquired for cash, through business combinations, or capitalised
development costs.
Timely impairment tests are carried out in the event of indications of reduction in value of intangible
assets held. Possible impairments are based on discounted future cash flows and/or fair values of the
assets concerned. A change in the market conditions or the cash flows initially estimated can therefore
lead to a review and a change in the impairment loss previously recorded.
Intangible assets, net were € 7,360,000 at 31 December 2008 (2007: € 6,061,000). No impairment loss
was recorded at 31 December 2008 and 2007.
iv)
When events or changes in market conditions indicate that tangible or intangible assets may be impaired,
such assets are reviewed in detail to determine whether their carrying value is lower than their
recoverable value, which could lead to recording an impairment loss (recoverable value is the higher of its
value in use and its fair value less costs to sell) (see note 2 (e)). Value in use is estimated by calculating
the present value of the future cash flows expected to be derived from the asset. Fair value less costs to
sell is based on the most reliable information available (market statistics, recent transactions, etc.). No
impairment loss was recorded at 31 December 2008 and 2007.
v)
Provisions are recorded for warranties given to customers on products or for expected losses and for
penalties incurred in the event of failure to meet contractual obligations. These provisions are calculated
subsequent changes to the provisions are recorded in cost of sales. Costs and penalties that will be
effectively paid can differ considerably from the amounts initially reserved and could therefore have a
significant impact on future results.
Provisions for contractual obligations represent € 5,928,000 at 31 December 2008 (2007: € 4,834,000)
(see note 22).
vi)
Deferred taxes
Deferred tax assets relate to tax loss carry forwards and to deductible temporary differences between
reported amounts and the tax bases of assets and liabilities. The assets relating to the tax loss carry
forwards are recognized if it is probable that the Group will dispose of future taxable profits against
which these tax losses can be set off.
At 31 December 2008, deferred tax assets were € 4,941,000 (2007: € 9,819,000) (see note 11c).
Evaluation of the Group's capacity to utilize tax loss carry forwards relies on significant judgment. The
Group analyses the positive and negative elements to conclude as to the probability of utilization in the
future of these tax loss carry forwards, which also consider the factors indicated in note 2(n). This
analysis is carried out regularly in each tax jurisdiction where significant deferred tax assets are recorded.
If future taxable results are considerably different from those forecasts that support recording deferred tax
assets, the Group will be obliged to revise downwards or upwards the amount of the deferred tax assets,
which would have a significant balance sheet and net income impact.
F-34
vii)
As indicated in note 2(l), the Group participates in defined contribution and defined benefit plans for
employees. All these obligations are measured based on actuarial calculations relying upon assumptions,
such as the discount rate, return on plan assets, future salary increases, employee turnover and mortality
tables.
These assumptions are updated annually. The assumptions adopted for 2008 and how they have been
determined are detailed in note 20.
3
Acquisitions of subsidiaries
a)
The Group made no acquisitions of subsidiaries during the years ended 31 December 2008 and 2007.
b)
Group entities
On July 1, 2008 the Company signed a licensing agreement with Electrolux and with it gained permission
to name the subsidiaries covered "AEG". At 31 December 2008 and 2007, the Group held 100%
ownership interest in the following subsidiaries:
Country of incorporation
PSS Holdings (France).......................................................... France
AEG SPS S.A.S. .................................................................. France
Harmer & Simmons S.A.S. ................................................... France
AEG PS GMBH .................................................................... Germany
AEG SVS PSS Sörnewitz GmbH.......................................... Germany
AEG PS Co. Ltd.................................................................... United Kingdom
RD Power Ltd ....................................................................... United Kingdom
Harmer & Simmons Holdings Ltd. ....................................... United Kingdom
Harmer & Simmons Ltd........................................................ United Kingdom
PSS Finance Company Ltd. .................................................. United Kingdom
AEG PS SL ........................................................................... Spain
Harmer & Simmons Spa ....................................................... Italy
SPS SRL (in liquidation)....................................................... Romania
AEG PS Pte Ltd. ................................................................... Singapore
Harmer & Simmons SDN BHD ............................................ Malaysia
AEG PS SDN BHD............................................................... Malaysia
AEG PS USA Inc.................................................................. USA
AEG PS Inc........................................................................... Canada
Harmer & Simmons LLC...................................................... Russia
AEG PS Co. Ltd.................................................................... China
Harmer & Simmons PSS (India) Private Limited ................. India
4
Information by business and by geographical area
The Group operates principally in the electrical power supply business through the production,
distribution and marketing of AC and DC electrical power systems, converters, uninterruptible power
systems, power controllers and power conversion products.
The Converters business has been deemed discontinued at 31 December 2008 and comparative
information has been restated accordingly.
F-35
Geographical area's
The Group operates geographically on a regional basis and regional management is responsible for all the
business activities of the Group in the countries comprising that region.
Consolidated net sales, operating profit (loss), net property, plant and equipment and total assets are
presented by geographical region below:
2008
France
Germany
Rest of
Europe
€ 1,000
€ 1,000
€ 1,000
Revenues............ 100,339
Operating
profit/(loss) ........ (11,847)
Property, plant
and equipment....
7,284
Total assets......... 113,866
Pacific,
Asia,
North
America
€ 1,000
Elimination
Consoli- Disconti- Continudated
nued
ing
operations
€ 1,000
€ 1,000
€ 1,000
€ 1,000
193,066
68,707
61,700
(36,751)
387,061
44,225
342,836
43,821
38,908
5,246
(28,858)
47,270
(8,384)
55,654
14,412
155,917
2,035
122,523
2,987
51,248
–
(143,580)
26,718
299,974
2,758
24,992
23,960
274,982
2007
France
Germany
Rest of
Europe
€ 1,000
€ 1,000
€ 1,000
Revenues............ 104,283
Operating
profit/(loss) ........ (13,880)
Property, plant
and equipment....
6,949
Total assets......... 101,532
Pacific,
Asia,
North
America
€ 1,000
Elimination
Consoli- Disconti- Continudated
nued
ing
operations
€ 1,000
€ 1,000
€ 1,000
€ 1,000
91,486
62,201
56,622
(41,799)
272,793
54,570
218,223
1,827
3,444
250
6,284
(2,075)
(2,004)
(71)
12,042
80,192
2,008
91,846
2,682
36,696
–
(111,738)
23,681
198,528
–
–
23,681
198,528
Revenues are attributed to geographical regions based on the location of the manufacturing facility and/or
the marketing company.
Revenues and operating profit/(loss) by the principal business units: Converters and PPSG (Protect Power
Solutions Group) before shared costs, the holding company and consolidation adjustments are provided
below:
2008
Protect
Power
Solutions
€ 1,000
Revenues..........
Operating
profit/(loss) ......
Shared
Costs
AEG PS Converters Adjust- Consoli- Disconti- Continuing
ments
dated
nued
operations
€ 1,000
€ 1,000
€ 1,000
346,054
–
–
44,225
62,560
(7,505)
(1,666)
(8,384)
€ 1,000
€ 1,000
(3,218) 387,061
2,265
47,270
€ 1,000
€ 1,000
44,225
342,836
(8,384)
55,654
F-36
2007
Protect
Power
Solutions
€ 1,000
Revenues..........
Operating
profit/(loss) ......
5
Shared
Costs
AEG PS Converters Adjust- Consoli- Disconti- Continuing
ments
dated
nued
operations
€ 1,000
€ 1,000
€ 1,000
€ 1,000
€ 1,000
€ 1,000
€ 1,000
227,890
–
–
54,570
(9,667) 272,793
54,570
218,223
8,377
(5,234)
(1,376)
(2,004)
(1,838)
(2,004)
(71)
(2,075)
Discontinued operation
In December 2008, the Directors signed a Memorandum of Understanding whereby they agreed to sell
the Converters business held by Harmer & Simmons S.A.S. at Lannion in France to members of the
Company's management. The transaction, which was subject to certain conditions, was due to be
completed on 20 February 2009. As a number of the required conditions were not met, the proposed sale
to management has been abandoned (see note 31). However, the Directors are still committed to a plan to
sell the Converters business during 2009, and accordingly, the segment has been presented as a
discontinued operation and classified as held for sale as at December 31, 2008. The comparative income
statement has been re-presented to show the discontinued operation separately from continued operations.
2007
2008
€ 1,000
Result of discontinued operation
Revenue ................................................... 4
Expenses ..................................................
Results from operating activities
before financing costs ............................
€ 1,000
€ 1,000
€ 1,000
54,570
(56,574)
44,225
(52,609)
(8,384)
(2,004)
(228)
(264)
Result before taxes .................................
(8,612)
(2,268)
Income taxes ............................................ 9
(1,125)
(73)
Results from operating activities, net
of income tax...........................................
(9,737)
(2,341)
Financial expense, net.............................. 8
F-37
An impairment loss of € 2,862,000 on the remeasurement of the disposal group to the lower of its
carrying amount and its fair value less costs to sell has been recognised in other expenses. A write-down
of € 1,241,000 of a deferred tax asset initially recognised on temporary differences has been recorded in
income tax expense.
2007
2008
€ 1,000
€ 1,000
€ 1,000
€ 1,000
Cash flow from operating activities,
discontinued operations
Net (loss) income from discontinued
operations...............................................
Adjustments ........................................... 26
(9,737)
5,889
(2,341)
448
capital, interest and taxes,
discontinued operations.......................
(3,848)
(1,893)
(1,763)
3,220
3,112
1,856
–
–
19
340
(5,848)
2,499
429
393
Cash provided by/(used in)
operating activities before interest
and taxes, discontinued operations.....
(7,899)
6,415
Interest received .....................................
Interest paid............................................
Taxes recovered/(paid)...........................
7
(386)
284
75
(143)
(1,376)
liabilities:
(Increase) / decrease in
•
inventories .....................................
(Increase) in trade receivables
•
and related accounts.......................
•
progress payments .........................
Increase in customers' deposits
•
and advances..................................
Increase / (decrease) in trade
•
payables and related accounts........
•
financing).......................................
operating activities, discontinued
operations (carried forward) .................
(7,994)
4,971
F-38
2007
2008
€ 1,000
€ 1,000
Brought forward.....................................
Cash flow from investing activities,
Proceeds from disposal of fixed assets...
Capital expenditures...............................
(Increase) decrease in other noncurrent financial assets...........................
€ 1,000
4,971
(7,994)
–
(1,340)
139
(2,443)
(5)
(11)
Net cash (used in) investing
activities, discontinued operations......
Cash flow from financing activities,
Increase / (decrease) of short-term
debt ........................................................
Recapitalisation of discontinued
operations...............................................
€ 1,000
(2,315)
(1,345)
(2,476)
(848)
4,900
–
activities, discontinued operations......
2,424
(848)
cash equivalents, discontinued
operations .............................................
(6,915)
1,808
Cash and cash equivalents at
beginning of year, discontinued
operations...............................................
8,910
7,102
year, discontinued operations .............
1,995
8,910
F-39
6
Assets and liabilities classified as held for sale
As indicated in note 5 above, the Converters segment is presented as a discontinued operation and the
assets and liabilities of Harmer + Simmons S.A.S. have been presented as held for sale at 31
December 2008, following the Directors commitment to sell the business during 2009. At 31
December 2008, Harmer + Simmons S.A.S. comprised assets of € 21,983,000 less liabilities of €
16,732,000.
2008
€ 1,000
Assets classified as held for sale
Property, plant and equipment, net ...............................................................
Other non-current assets ...............................................................................
Inventories, net..............................................................................................
Trade and other receivables and related accounts, net ..................................
Other current assets.......................................................................................
Current income tax........................................................................................
Cash and cash equivalents ............................................................................
13(a)
5
2,758
139
5,764
9,668
1,624
35
1,995
21,983
Liabilities classified as held for sale
Deferred tax liabilities...................................................................................
Provisions .....................................................................................................
Short-term debt .............................................................................................
Pension and other post-retirement obligations ..............................................
Trade and other payables ..............................................................................
Customer deposits and advances...................................................................
Other current liabilities .................................................................................
696
1,335
4,793
1,056
5,895
359
2,598
16,732
7
2008
€ 1,000
Research and development costs...................................................................
Less:..............................................................................................................
2007
€ 1,000
9,888
(3,227)
5,997
(1,579)
6,661
4,418
Commencing 2006, the Group has implemented procedures and processes to permit the monitoring and
capitalisation of costs on projects designed to develop new marketable products which meet the
capitalisation criteria as set out in IAS 38 "Intangible Assets". Consequently, only costs incurred on
projects relating to the development of new products launched from 2006 are capitalised.
With effect from 1 January 2006, the Company has also implemented a research and development
funding scheme within the Group. All intellectual property rights are held by the Company and
subsidiaries pay a funding royalty contribution based on 2.5% or 5% of sales, less intercompany
purchases, depending on whether the development project is in-house, as is the case with power controls
and convertors, or purchased from third parties as is the case with telecoms and batteries.
F-40
The research and development expense presented above comprises total costs for the year of € 9,888,000.
€ 3,227,000 has been subtracted from this amount. This represents the net of € 3,583,000 of projects
capitalized during 2008 less amortization of € 245,000 and less the write-off of previously capitalized
projects with a net book value of € 111,000.
8
Other income, net, consists of the following for the period:
2008
€ 1,000
Waiver of liabilities due to Alcatel
2007
€ 1,000
–
3,241
Other operating income relates principally to the reversal of the estimated additional purchase
consideration recorded as a provision upon the acquisition of the SPS Group from Alcatel. At the time of
the acquisition, Alcatel requested an additional payment of € 2,813,000. Ripplewood Holdings contested
the remainder of the Alcatel request and filed a counter-claim under the terms of the Share Sale and
Purchase Agreement amounting to € 5,839,000. This contingent gain was not recorded.
On 19 December 2008, the Company signed a settlement agreement whereby Alcatel agreed to pay AEG
Power Solutions B.V. the following amounts:
•
€ 600,000 in relation to an Italian court claim in respect of the insolvency proceedings of the
Tecnosistemi Group for which Alcatel had guaranteed any payment for this claim under the Share
Sale and Purchase Agreement.
•
Up to € 60,000 in full and final settlement of a claim by Eudosea. This case is still pending. The
final amount of the indemnity is not yet known.
All remaining rights and entitlements to claims between the two entities were irrevocably waived as part
of this settlement agreement.
Consequently € 3,241,000 has been recorded as other income in respect of the amounts due to Alcatel in
the context of the original SPA and include € 2,190,000 contingent purchase price provision outstanding
at 31 December 2007, the Technosistemi and Eudosea claims referred to above for € 660,000, the residual
purchase price debt due to Alcatel for € 243,000 and other miscellaneous liabilities due to Alcatel for €
148,000.
9
2008
€ 1,000
Restructuring costs (see note 22) ..................................................................
Net loss on sale of fixed assets......................................................................
Other .............................................................................................................
2007
€ 1,000
(2,091)
(68)
(139)
(1,827)
(33)
(259)
(2,298)
(2,119)
F-41
10
Financial income and expenses
Financial income and expenses consists of the following:
2008
€ 1,000
2007
€ 1,000
Interest income..............................................................................................
Other financial income .................................................................................
894
159
104
-
Financial income .........................................................................................
1,053
104
Interest expense.............................................................................................
Exchange (loss)/gain.....................................................................................
Invoice finance facility fees ..........................................................................
Pensions expense – interest, net....................................................................
Bank charges.................................................................................................
Other financial expenses ...............................................................................
(2,126)
(1,213)
(284)
(948)
(321)
-
(1,932)
(561)
(327)
(853)
(429)
(331)
Financial expenses.......................................................................................
(4,892)
(4,433)
11
Income tax
a)
Analysis of income tax benefit (charge)
The income tax charge consists of the following:
2008
€ 1,000
2007
€ 1,000
Current income tax benefit / (charge) ...........................................................
Deferred income tax benefit / (charge) .........................................................
(13,260)
(2,606)
1,678
1,621
Income tax benefit / (charge), continuing operations...............................
(15,866)
3,299
Income tax benefit / (charge), discontinued operations ...........................
(1,125)
(73)
F-42
b)
Effective income tax rate
The effective income tax rate can be analysed as follows:
2008
€ 1,000
2007
€ 1,000
Profit (Loss) before taxes..............................................................................
Weighted average income tax rate ................................................................
51,815
28.40%
(4,400)
38.94%
Expected tax benefit / (charge), continuing operations............................
Impact of:
Tax effect of unrecognized tax loss carry forwards..............................
•
Tax effect of recognition of previously unrecognized tax loss carry
•
forwards................................................................................................
Tax effect of unrecognized temporary differences ...............................
•
Tax exemption (Malaysia)....................................................................
•
Non-deductible items............................................................................
•
Tax credits ............................................................................................
•
Other .....................................................................................................
•
(14,717)
1,713
(2,909)
(2,832)
412
(59)
–
153
1,570
(316)
5,500
(874)
58
(104)
–
(162)
Actual income tax benefit / (charge), continuing operations...................
(15,866)
3,299
c)
Deferred tax balances
At 31 December 2008, net deferred tax assets were as follows:
2008
€ 1,000
2007
€ 1,000
Deferred tax assets recognizable.....................................................................
Of which not recognized.................................................................................
33,417
(28,476)
23,937
(14,118)
Net deferred tax assets recognized..................................................................
Deferred tax liabilities.....................................................................................
4,941
(3,075)
9,819
(3,646)
Net deferred tax assets..................................................................................
1,866
6,173
F-43
Changes during the year 2008:
31 Dec. 2007 Transferred
to assets and
liabilities
held for sale
€ 1,000
€ 1,000
Pension and retirement obligations ...............
Property, plant and equipment and
intangible assets ............................................
Temporary differences arising from other
balance sheet captions...................................
Impact on
net income
31 Dec. 2008
€ 1,000
€ 1,000
2,704
(352)
565
2,917
(1,165)
412
(237)
(990)
1,418
(520)
650
1,548
Deferred tax assets on temporary
differences, gross.........................................
Deferred tax assets not recognized................
2,957
(2,403)
(460)
(1,241)
978
638
3,475
(3,006)
differences, net ............................................
554
(1,701)
1,616
469
Deferred tax assets on loss carry
forwards, net................................................
5,619
–
(4,222)
1,397
Net deferred tax assets................................
6,173
(1,701)
(2,606)
1,866
31 Dec. 2007 Transferred
to assets and
liabilities
held for sale
€ 1,000
€ 1,000
Impact on
net income
31 Dec. 2008
€ 1,000
€ 1,000
Deferred tax assets recognized......................
Deferred tax liabilities...................................
9,819
(3,646)
–
(1,701)
(4,878)
2,272
4,941
(3,075)
6,173
(1,701)
(2,606)
1,866
F-44
Change during the year 2007:
31 Dec. 2006
€ 1,000
intangible assets ............................................
Translation
adjustments
€ 1,000
Impact on
net income
€ 1,000
31 Dec. 2007
€ 1,000
3,146
-
(442)
2,704
(3,938)
-
2,773
(1,165)
2,464
(7)
(1,039)
1,418
differences, gross.........................................
1,672
(1,472)
(7)
-
1,292
(931)
2,957
(2,403)
differences, net ............................................
200
(7)
361
554
forwards, net................................................
4,441
(13)
1,191
5,619
4,641
(20)
1,552
6,173
31 Dec. 2006
Translation
adjustments
€ 1,000
€ 1,000
Impact on
net income
€ 1,000
31 Dec. 2007
€ 1,000
9,180
(4,539)
(20)
-
659
893
9,819
(3,646)
4,641
(20)
1,552
6,173
The Group carries out an analysis of its deferred taxes in each country by applying to each subsidiary or
tax grouping the national tax regulations, particularly those relating to tax loss carried forwards. Deferred
tax assets primarily relate to tax loss carry forwards, accrued pension and retirement obligations and other
non-deductible reserves.
In assessing deferred tax assets, management considers whether it is probable that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this assessment.
Based upon the level of historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, management believes it is probable that the
Company will realize the benefits of these deductible differences at 31 December 2008. The amount of
the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of
future taxable income during the carry forward period are reduced.
F-45
d)
Deferred tax asset on losses carried forward
As at 31 December 2008
2009 .......................................................................................
2010 .......................................................................................
2011 .......................................................................................
2012 .......................................................................................
2013 and thereafter ................................................................
Recognized
€ 1,000
Unrecognized
€ 1,000
Total
€ 1,000
–
–
–
–
1,397
–
–
–
–
25,470
–
–
–
–
26,867
1,397
25,470
26,867
The unrecognised deferred tax assets on losses carried forward includes the losses carried forward related
to the discontinued operations (Lannion).
As at 31 December 2007
2008 .......................................................................................
2009 .......................................................................................
2010 .......................................................................................
2011 .......................................................................................
2012 and thereafter ................................................................
Recognized
€ 1,000
Unrecognized
€ 1,000
Total
€ 1,000
–
–
–
–
5,619
424
1,080
1,068
1,018
8,125
424
1,080
1,068
1,018
13,744
5,619
11,715
17,334
F-46
12
Intangible assets
Changes in other intangible assets:
Software
Patents and
licenses
€ 1,000
€ 1,000
Capitalised
development
costs
€ 1,000
Total
€ 1,000
Gross value:
As at 1 January 2007 ............................
•
Additions .............................................
•
Additions (internally developed) ..........
•
Disposals...............................................
•
Other changes .......................................
•
808
388
–
(167)
1,206
794
–
–
–
–
1,431
–
3,087
(227)
–
3,033
388
3,087
(394)
1,206
•
•
•
•
•
•
As at 1 January 2008 ............................
Additions ..............................................
Disposals...............................................
Transfer to assets held for sale..............
Other changes .......................................
2,235
709
–
(99)
(457)
11
794
–
1
–
–
–
4,291
–
4,115
(804)
(1,603)
–
7,320
709
4,116
(903)
(2,060)
11
•
As at 31 December 2008 .....................
2,399
795
5,999
9,193
Accumulated amortization:
As at 1 January 2007 ............................
•
Amortization charge .............................
•
Disposals...............................................
•
Other changes .......................................
•
(293)
(605)
148
5
(193)
(100)
–
2
(17)
(207)
1
–
(503)
(912)
149
7
•
•
•
•
•
As at 1 January 2008 ............................
Disposals...............................................
Transfer to assets held for sale..............
Other changes .......................................
(745)
(735)
96
356
(5)
(291)
(99)
–
–
–
(223)
(521)
26
308
–
(1,259)
(1355)
122
664
(5)
•
As at 31 December 2008 .....................
(1033)
(390)
(410)
(1,833)
Carrying amount as at 31 December
2008 ..............................................................
1,366
405
5,589
7,360
2007 ..............................................................
1,490
503
4,068
6,061
€ 1,179,000 of other changes to the gross value of software in 2007 relates to a transfer from assets in
progress to intangible assets during the year. The assets transferred to assets held for sale have been
subsequently impaired.
F-47
13
Gross value:
• Balance as at 1 January 2007.......
• Additions .....................................
• Disposals......................................
• Other changes ..............................
• Net effect of exchange rate
changes ........................................
Land
Buildings
€ 1,000
€ 1,000
Plant,
equipment
and tools
€ 1,000
Other
Total
€ 1,000
€ 1,000
2,066
–
–
–
17,848
50
(34)
5
9,333
2,573
(3,017)
19
2,745
292
(110)
(1,147)
31,992
2,915
(3,161)
(1,123)
(20)
(67)
(41)
(36)
(164)
Balance as at 1 January 2008....
Additions .....................................
Disposals......................................
Transfer to assets held for sale.....
Other changes ..............................
Net effect of exchange rate
changes ........................................
2,046
–
–
–
–
17,802
595
(7)
(139)
–
8,867
5,433
(1,331)
(3,930)
406
1,744
478
(118)
(290)
(2)
30,459
6,506
(1,456)
(4,359)
404
6
15
(61)
(44)
(84)
Balance as at 31 December 2008......
2,052
18,266
9,384
1,768
31,470
(17)
(9)
–
(1)
(1,885)
(900)
6
(4)
(3,044)
(1,683)
1,663
(165)
(627)
(303)
50
80
(5,573)
(2,895)
1,719
(90)
2
19
23
17
61
•
•
•
•
•
•
• Balance as at 1 January 2007.......
• Depreciation charge .....................
• Disposals......................................
• Other charges...............................
• Net effect of exchange rate
changes ........................................
•
•
•
•
•
•
Balance as at 1 January 2008.......
Depreciation charge .....................
Disposals......................................
Transfer to assets held for sale.....
Other changes ..............................
changes ........................................
(25)
(9)
–
–
–
(2,764)
(865)
1
33
–
(3,206)
(1,926)
1,014
1,418
(406)
(783)
(334)
93
150
1
(6,778)
(3,134)
1,108
1,601
(405)
(1)
(8)
79
28
98
•
Balance as at 31 Dec. 2008 ........
(35)
(3,603)
(3,027)
(845)
(7,510)
Carrying amount as at 31 Dec.
2008 ....................................................
2,017
14,663
6,357
923
23,960
2007 ....................................................
2,021
15,038
5,661
961
23,681
F-48
Property, plant and equipment held under capital lease arrangements are limited to the Group's premises
in Spain and represent less than 10% of the cost of the Group's total property, plant and equipment at
31 December 2008. The capital lease obligation terminated in 2008 (see note 21).
14
Other non-current financial assets consist mainly of deposits held in Germany as security against ATZ
early retirement costs.
15
Inventories, net
Inventories consist of the following:
2008
€ 1,000
2007
€ 1,000
Raw materials .................................................................................................
Work in progress.............................................................................................
Finished products ............................................................................................
38,322
19,252
9,587
22,934
13,284
10,035
Inventory, gross.............................................................................................
67,161
46,253
Reserve for slow-moving and obsolete inventories ........................................
(4,455)
(5,012)
62,706
41,241
16
Trade receivables and related accounts, net
Trade receivables and related accounts, net, consist of the following:
2008
€ 1,000
Trade accounts receivable...............................................................................
Allowance for doubtful accounts ....................................................................
2007
€ 1,000
98,854
(1,419)
81,795
(1,505)
97,435
80,290
At 31 December 2008 € 13,037,000 (2007: € 28,197,000) of accounts receivable were pledged as security
for outstanding balances under lending facilities (see note 21).
F-49
17
Other current assets
Other current assets consist of the following:
2007
€ 1,000
2008
€ 1,000
VAT and other taxes recoverable....................................................................
Social security charges recoverable ................................................................
Prepaid expenses.............................................................................................
Other debtors...................................................................................................
Deposits ..........................................................................................................
Non-trade receivables .....................................................................................
Other ...............................................................................................................
18
2,547
54
1,422
394
174
1,519
143
1,577
423
447
228
388
877
431
6,253
4,371
Stockholder's equity
Common Additional
paid-in
stock
capital
€ 1,000
Balance as at 1
January 2007 .............
Deferred share-based
payments .....................
Legal reserve
development costs.......
Total recognised
income and expense ....
Balance as at 31
December 2007 ..........
Deferred share-based
payments .....................
Legal reserve
development costs.......
Total recognised
income and expense ....
Balance as at 31
December 2008 ..........
€ 1,000
Currency
translation
reserve
Legal
reserves
€ 1,000
€ 1,000
Retained
earnings/
(accumulated
deficit)
€ 1,000
Total
€ 1,000
217
21,502
1,420
1,413
(2,798)
21,754
–
–
–
–
77
77
–
–
–
2,655
(2,655)
–
–
–
(1,009)
–
(3,442)
(4,451)
217
21,502
411
4,068
(8,818)
17,380
–
–
–
–
8
8
–
–
–
2,817
(2,817)
–
–
–
169
–
26,212
26,381
217
21,502
580
6,885
14,585
43,769
F-50
a)
Capital stock and additional paid-in capital
At 31 December 2008 and 2007, the capital stock consisted of:
Common
stock
€ 1,000
18.248,712 ordinary A shares of nominal value € 0.01 .....
2.470,000 ordinary B shares of nominal value € 0.01 .......
1.000,000 ordinary C shares of nominal value € 0.01 .......
Additional
paid-in
capital
€ 1,000
Total
€ 1,000
182
25
10
18,067
2,445
990
18,249
2,470
1,000
217
21,502
21,719
The holders of 'A' 'B' and 'C' ordinary shares are entitled to receive dividends, if declared, by the General
Meeting of Stockholders and are entitled to one vote per share at meetings of the Company.
b)
Capital increase program for management with subscription stock option plan
Under a capital program for members of management of the Group, approved by the Supervisory Board,
470,000 ordinary 'B' shares were issued in 2005 at a price of € 1.00 per share (see note 19).
c)
Legal reserves
In accordance with Article 365.2 of Book 2 of The Netherlands Civil Code, the Company is obliged to
maintain legal reserves for non distributable reserves in the amount of development costs incurred at the
balance sheet date (as presented under Intangible fixed assets in the Company balance sheet). As a
consequence, as at 31 December 2008, € 6,885,000 of retained earnings are part of a legal reserve and are
non distributable (31 December 2007: € 4,068,000).
19
Share-based payments
On 25 January 2005, the Group established the Saft Management Equity Program which entitled key
management personnel to purchase shares in the Company. During 2005, 470,000 Ordinary B shares were
purchased at an issue price of € 1.00. In addition, a non-qualified stock option agreement was entered into
by the key management personnel to enable them to purchase additional Ordinary B shares. Total options
granted amounted to 1,773,616 with an exercise price of € 1.00. One third of the options granted are
deemed to have vested annually on the anniversary date of the stock option plan with the final vesting
period ending in September 2008. The vesting may be accelerated if certain performance targets are
achieved. The options under certain circumstances can vest immediately and can only be exercised in the
event of a change in control. The amount recognised as an expense is adjusted to reflect the actual number
of share options that vest.
The fair value of services received in return for share options granted are measured by reference to the
fair value of share options granted. The estimate of the fair value of the services received is measured
based on the Black-Scholes formula. The contractual life of the option is ten years.
Fair value of share options and assumptions
Fair value at measurement date................................................................
Share price ...............................................................................................
Exercise price...........................................................................................
Expected volatility ...................................................................................
Expected dividends ..................................................................................
Risk-free interest rate...............................................................................
Marketability discount .............................................................................
€ 0.39
€1
€1
25%
nil
2.407%
50%
F-51
The marketability discount is due to the fact that no public market exists for the equity securities, highly
concentrated ownership, low prospects of liquidity and the fact that the options may only be exercised in
the event of change of control.
The share options are granted under a service condition and a non-market performance condition. Such
conditions are not taken into account in the grant date fair value measurement of the services rendered.
There are no market conditions associated with the share option grants.
The number and weighted average exercise price of share options at 31 December 2008 and 2007 is as
follows:
Weighted
average
exercise
price
€
Outstanding at the beginning of the year and at the end of
the year....................................................................................
Vesting adjustment..................................................................
Forfeited during the period .....................................................
Outstanding and exercisable at 31 December.....................
2008
Number of
options
1
2007
Number of
options
1,773,616
24,568
(3,210)
1,773,616
–
–
1,794,974
1,773,616
Share options granted and recognised for the year ended 31 December 2008 amounted to € 8,000 (2007:
€ 77,000) and were recorded as compensation expense in selling, general and administrative expenses.
20
In accordance with the laws and customs of each country, the Group provides pension and retirement
benefits to its employees. In France, the Group employees benefit from a retirement indemnity plan. In
other countries, the plans depend upon local legislation, the business and the historical practice of the
subsidiary concerned.
Over and above state pension plans, the plans can be defined contribution plans or defined benefit plans.
In the latter case, the plans are wholly or partially funded by assets solely to support such plans.
a)
State plans
In certain countries, and more particularly in France and Italy, the Group participates in state plans for
which contributions expensed correspond to the contributions due to the state organizations. State plans
are considered to be defined contribution plans.
b)
Defined contribution plans
The benefits paid out depend solely on the amount of contributions paid into the plan and the investment
returns arising from the contributions. The Group's obligation is limited to the amount of contributions
that are expensed.
c)
Defined benefit plans
Independent actuaries calculate annually the Group's obligation in respect of these plans, using the
projected unit credit method. Actuarial assumptions comprise mortality, rates of employee turnover,
projection of future salary levels and revaluation of future benefits. Future estimated benefits are
discounted using discount rates appropriate to each country. These plans have differing characteristics:
F-52
•
Perpetual annuity: the retirees benefit from the receipt of a pension during their retirement. These
plans are to be found primarily in Germany and the Netherlands.
•
Lump-sum payments on the employee's retirement or departure: these plans are to be found
primarily in France and Italy.
For retirement plans, actuarial gains and losses are recognised as income or expense in accordance with
"the corridor" method: net cumulative actuarial gains and losses exceeding the greater of 10% of the
present value of the defined benefit obligations and 10% of the fair value of the plan assets are amortized
as income or expense over the expected average remaining working lives of the employees participating
in those plans.
To determine actuarial valuations, actuaries for the Group have determined general assumptions on a
country-by-country basis and specific assumptions (rate of employee turnover, salary increases) company
by company. The principal assumptions for 2008 by the main geographical segments are as follows:
Discount
rate
%
France ............................................................................................................
Germany ........................................................................................................
6.0
5.9
Future
salary
increases
%
2.5
2.0
Components of net periodic cost for the year ended 31 December is as follows:
2008
€ 1,000
Service cost ....................................................................................................
Interest cost ....................................................................................................
Expected return on plan assets .......................................................................
Amortization of prior service cost..................................................................
Amortization of recognized actuarial (gain)/loss ...........................................
Contributions by plan participants .................................................................
Other ..............................................................................................................
2007
€ 1,000
162
948
(28)
–
(81)
(20)
16
213
853
(20)
–
89
(54)
5
997
1,086
The change in the benefit obligation and the net amount recognized and recorded in the consolidated
balance sheet is as follows:
2008
€ 1,000
2007
€ 1,000
Benefit obligation as at 1 January ..................................................................
Service cost ....................................................................................................
Interest cost ...................................................................................................
Actuarial loss/(gain).......................................................................................
Benefits paid ..................................................................................................
Other ..............................................................................................................
Transferred to liabilities held for sale ............................................................
19,522
251
1,014
(998)
(844)
(239)
(969)
22,701
308
933
(3,432)
(805)
(183)
–
Benefit obligation as at 31 December .........................................................
17,737
19,522
The reduction in the benefit obligation at 31 December 2007 is due to the change in actuarial assumptions
in Germany where the discount rate used at 31 December 2007 was 5.5% compared to 4.34% at 31
December 2006.
F-53
Reconciliation of funded status at 31 December:
2008
€ 1,000
2007
€ 1,000
Fair value of plan assets.................................................................................
Benefit obligations .........................................................................................
(985)
17,737
(473)
19,522
Funded status (plan assets less benefit obligations) .......................................
Unrecognised net actuarial gain/(loss) ...........................................................
Write-down of discontinued operation's pension liability to fair value .........
Transferred to liabilities held for sale ............................................................
16,752
3,947
(620)
(87)
19,049
3,104
–
–
Accrued liability as at 31 December ..........................................................
19,992
22,153
As at 31 December 2008, unrecognised actuarial gains in Germany in excess of the greater of either 10%
of the present value of the defined benefit obligation or 10% of the fair value of any plan assets amount to
€ 1,744,000 (2007: € 1,604,700). This amount will be amortised to net periodic cost over the expected
average remaining working lives of the employees participating in the plan with effect from 1 January
2009.
The plan assets relate to Germany (€ 439,000) and The Netherlands (€ 546,000).
21
Financial debt
Financial debt as at 31 December consists of the following:
2008
€ 1,000
Unsecured convertible subordinated note issued to Alcatel, bearing
interest at 7% due 25 January 2011 ...............................................................
Purchase price, resident amount due to Alcatel .............................................
Invoice finance facility, secured by trade accounts receivable ......................
Obligations under capital leases.....................................................................
Bank loans and overdrafts..............................................................................
Accrued interest .............................................................................................
Other ..............................................................................................................
Long-term debt - non-current portion ............................................................
Long-term debt - current portion ...................................................................
Short-term debt ..............................................................................................
2007
€ 1,000
14,989
–
11,690
–
606
460
744
14,989
243
22,001
484
10,081
529
744
28,489
49,071
744
15,449
12,296
15,976
484
32,611
28,489
49,071
Under the terms of the Share Sale and Purchase Agreement dated 25 January 2005, the Company has
issued a note instrument to Alcatel for € 14,000,000. The instrument is a fixed rate subordinated
unsecured convertible note, bearing interest at a fixed annual rate of 7%, payable semi-annually and
maturing on 25 January 2011. Interest due at 25 July 2005 and 25 July 2006 amounting to € 989,000 has
been capitalised. Interest accrued and unpaid at 31 December 2008 amounted to € 460,000 (2007:
€ 460,000).
Alcatel has the right to convert the total outstanding amount of the loan, excluding accrued and unpaid
interest, into Ordinary C shares up to the maturity date of the loan instrument. The number of shares
F-54
issued in the event of conversion is determined by the principal amount of the note outstanding at the date
of conversion divided by a conversion price which is set at € 4.61. The conversion price would be
adjusted in the event of, among others, distributions of dividends, options or warrants at less than fair
market value to Company stockholders or of the Company's assets. Alcatel has no right to participate in
capital increases of the Company.
On 30 December 2008, the Company notified Alcatel of its intention to repay the Note Instrument. At 31
December 2008 the total amount due under the Note was € 15,449,000 representing a € 14,000,000
principal, capitalised interest of € 989,000 and accrued interest of € 460,000. In January 2009 the
Company paid all of the accrued and capitalised interest due as at 25 January 2009. The principal amount
together with interest accrued since 25 January 2009 was paid on 31 March 2009. Following repayment
of the Note and the waiver of liabilities (see note 8), the Company has no further obligations to Alcatel
other than through normal trading.
The balance of € 243,000 on December 2007, due to Alcatel represents the residual outstanding debt
balance based on the initial estimated debt balance on closing at 25 January 2005. Under the terms of the
Settlement Agreement dated 19 December 2008 between Alcatel and the Company, Alcatel has agreed to
waive this amount.
The Group has entered into financing agreements which provided for trade receivable financing facilities
in France, The Netherlands, Italy and Spain, up to a maximum of € 31,800,000 as at 31 December 2008.
At 31 December 2008, an amount of € 13,037,000 invoices were pledged (2007 € 28,197,000). After
deduction of a reserve for default losses of € 1,347,000 (2007 € 6,196,000), the net amount financed
amounted to € 11,690,000 at 31 December 2008 (2007 € 22,001,000).
On 2 July 2007, the Group entered into a secured short-term bridge facility agreement with a financial
institution maturing 30 June 2008. The agreement provided a maximum facility of € 15,000,000 bearing
interest at Libor plus 1.25%. Interest accrued and unpaid at 31 December 2007 amounted to € 69,000. The
facility was secured by a pledge on the shares of Power Supply Systems Holdings France SAS and on the
shares of AEG Power Supply Systems GmbH. The facility was repaid prior to the maturity date during
2008.
The various debt agreements contain restrictions on working capital, payments of cash dividends outside
the Group, restrict liens on assets and the sale of subsidiaries.
The aggregate maturities of long-term financial debt for each of the five years subsequent to 31 December
2008 are € 15,449,000 in 2009, € 19,000 in 2010, € 62,000 in 2011, € 62,000 in 2012 and € 601,000 in
2013.
The capital lease obligation in respect of the premises in Spain and which terminated in 2008 had the
following scheduled principal repayments:
2007
€ 1,000
2008
€ 1,000
Capital lease short-term financial debt...........................................................
–
484
Capital lease long-term financial debt............................................................
–
–
–
484
Other loans include two interest-free government grants totalling € 744,000 from the Spanish Ministry of
Education in respect of research and development at the Company's Vitoria facility. The first grant of
€ 224,000 will be reimbursed in equal annual instalments between September 2010 and September 2021.
The second grant of € 520,000 will be reimbursed in annual instalments between September 2011 and
September 2022.
F-55
a)
Debt analysis by rate
2008
€ 1,000
Total fixed rate debt .....................................................................................
Total floating rate debt.................................................................................
2007
€ 1,000
15,449
13,040
15,518
33,553
28,489
49,071
The Group does not use hedging instruments and all of the Group's debt was denominated in Euros at 31
December 2008 and 2007.
b)
Fair value
The fair value of the Group's debt is determined for each loan by discounting the future cash flows using
a discount rate corresponding to bond yields at the end of the year, adjusted by the Group's credit rate
risk. The fair value of debt and bank overdrafts at floating interest rates approximates the net carrying
amounts.
c)
Market-related exposures
The Group has a centralized treasury management in order to minimise the Group's exposure to market
risks, including interest rate risk, foreign exchange risk and counterparty risk. At 31 December 2008 and
2007, the Group did not use derivative financial instruments.
Firm commercial contracts or other firm commitments are not hedged. Due to the diversity of its
customer base and their diverse geographical locations, Group management considers that the credit risk
relating to customers is limited and that there is no risk of significant credit concentration.
22
Provisions
Provisions can be specified as follows:
31 Dec.
2007
€ 1,000
(a) Provisions for restructuring
expenses...................................
(b) Provisions for customer
liabilities ..................................
(c) Provision for estimated
additional purchase
consideration............................
(d) Provisions for long-service
awards......................................
(e) Other ........................................
a)
Transferred Charged Utilisa- Reclassifi- 31 Dec.
to liabilities
to
tion
cation
2008
held for sale expense
and other
€ 1,000
€ 1,000 € 1,000
€ 1,000
€ 1,000
2,834
(50)
2,091
(1,193)
–
3,682
4,834
(379)
3,549
(2,053)
(23)
5,928
2,190
–
–
(2,190)
–
–
553
186
(213)
(73)
–
29
(62)
–
–
–
278
142
10,597
(715)
5,669
(5,498)
(23)
10,030
Provisions for restructuring expenses
At 31 December 2008, provisions for restructuring expenses consisted primarily of the Altersteilzeit
(ATZ) arrangements in Germany, which permit employees to seek early retirement. During the year
ended 31 December 2008, charges of € 792,000, € 332,000 and € 909,000 were taken in Germany, France
F-56
and the Netherlands to cover the costs associated with restructuring part of the operations. The
restructuring costs mainly include employee termination benefits.
b)
Provisions for customer liabilities
Customer liabilities primarily relate to warranties, anticipated contract losses and penalties and disputes
relating to commercial contracts.
c)
Provision for estimated additional purchase consideration
As disclosed in note 8, the provision related to the estimated additional purchase consideration with
respect to the acquisition of the AEG Group (formerly Saft Power Systems) has been reversed in the
current year due to a claims and waiver settlement agreement signed between AEG Power Solutions and
Alcatel. The unutilised portion of this reversal has been recognised in other operating income.
d)
Provision for long-service awards
Long-service awards are granted to French employees on retirement based on their length of service,
grade and salary and determined by an independent actuarial calculation.
23
Accounts due to/from and transactions with related parties
Included in trade accounts receivable and accounts payable and related accounts were the following
amounts due to Ripplewood Group or Alcatel Group companies at 31 December:
2007
€ 1,000
2008
€ 1,000
Due from Alcatel group – continuing operations...........................................
Due from Alcatel group – assets held for sale ...............................................
Due to Ripplewood group..............................................................................
Due to Alcatel group – continuing operations ...............................................
Due to Alcatel group – liabilities held for sale...............................................
Due to Alcatel Group, loan note and interest (note 21)..................................
4,912
4,317
–
(71)
(532)
(15,449)
8,262
–
(382)
(283)
–
(15,762)
Transactions with related parties during the period were as follows:
Alcatel
2007
2008
€ 1,000
€ 1,000
Ripplewood
2007
2008
€ 1,000
€ 1,000
Sale of goods and services – continuing
operations ......................................................
Sale of goods and services – discontinued
operation ........................................................
Purchase of goods and services .....................
Fees and expenses billed – continuing
operations ......................................................
Fees and expenses billed – discontinued
operation ........................................................
Interest on loan note from Alcatel .................
–
–
13,135
12,235
–
–
–
–
25,114
49
32,343
–
(516)
(507)
–
(47)
–
–
–
–
(1,022)
(1,049)
(960)
(1,049)
The sale of goods and services to Alcatel are mainly based on a three-year contract which ended
25 January 2008 and are at market conditions. The Company continued its relationship with Alcatel
notwithstanding the decision to discontinue the Converters business.
The Company also has related-party relationships with its Management Board and the Supervisory Board.
The Board remuneration, including the share-based payments during 2008 and 2007 are as follows:
F-57
2008
€ 1,000
Management Board.........................................................................................
1,417
2007
€ 1,000
963
The remuneration of the Supervisory Board is included in the management fees charged by Ripplewood
and amounts to € 516,000 and € 507,000 respectively in 2008 and 2007.
The members of AEG's management hold collectively 470,000 of AEG's class B shares and 319,920
options for class B shares.
The Brock Trust LLC holds 1,600,000 of AEG's class B shares and 1,475,684 options for class B shares.
24
Customer deposits and advances
Customer deposits and advances consist of the following:
2008
€ 1,000
Germany .........................................................................................................
France .............................................................................................................
USA ................................................................................................................
Other ...............................................................................................................
2007
€ 1,000
62,766
7,152
3,065
1,367
19,124
780
–
1,203
74,350
21,107
Advance payments are contractual payments received from customers at the start (and/or in stages) of
projects. They primarily relate to power controller projects and average approximately 30% of the total
contract value. The Group has issued bonds for some of these advance payments as well as for certain
performance guarantees given to customers. A part of those bonds issued is secured by cash collateral.
The amount of cash collateralised as at 31 December 2008 amounted to € 18,893,000 (2007:
€ 5,072,000).
25
Other current liabilities
Other current liabilities consist of the following:
2008
€ 1,000
Accrued wages and salaries ............................................................................
Accrued social security charges......................................................................
VAT payable...................................................................................................
Other accrued taxes.........................................................................................
Customer credit balances ................................................................................
Accrued other non-trade payables...................................................................
Other ...............................................................................................................
2007
€ 1,000
14,209
2,927
430
1,017
259
5,803
164
11,343
3,866
1,669
782
1,095
4,439
1,350
24,809
24,544
F-58
26
Net cash provided by (used in) operating activities before changes in working capital,
interest and taxes
2008
€ 1,000
Profit/(loss) from continuing operations
Adjustments:
Depreciation of tangible assets ..............................................................
•
Amortization of intangible assets ..........................................................
•
Net (loss)/gain on disposal of assets ......................................................
•
Write-off of assets .................................................................................
•
Changes in pension and retirement obligations .....................................
•
Provisions ..............................................................................................
•
Interest expense, net ..............................................................................
•
Taxes......................................................................................................
•
Waiver of miscellaneous Alcatel liabilities ...........................................
•
Share-based payment .............................................................................
•
Net cash provided by (used in) operating activities before
changes in working capital, interest and taxes ..........................................
35,949
(1,101)
2,698
866
68
111
(631)
148
1,232
15,866
(148)
8
2,477
748
57
38
233
(2,409)
1,828
(3,153)
–
77
20,218
(104)
56,167
(1,205)
2008
€ 1,000
Profit/(loss) from discontinued operations.................................................
Adjustments:
•
•
Net loss / (gain) on disposal of assets ....................................................
•
•
Impairment loss on assets classified as held for sale .............................
•
•
Provisions ..............................................................................................
•
•
Taxes......................................................................................................
•
Net cash provided by (used in) operating activities before
2007
€ 1,000
2007
€ 1,000
(9,737)
(2,341)
436
489
9
667
2,862
(474)
620
155
1,125
418
164
–
189
–
51
(499)
198
(73)
5,889
448
(3,848)
(1,893)
F-59
27
Operating working capital
31 Dec.
2007
€ 1,000
Transferred
to assets and
liabilities
held for sale
€ 1,000
Cash flow
Translation
adjustments
31 Dec.
2008
€ 1,000
€ 1,000
€ 1,000
Inventories, net...............................
Trade receivables and related
accounts, net...................................
Advances and progress payments ..
Customer deposits and advances....
Trade payables and related
accounts .........................................
41,241
(5,213)
26,565
113
62,706
80,290
1,227
(21,107)
(13,030)
–
340
31,049
3,703
(53,529)
(874)
7
(54)
97,435
4,937
(74,350)
(48,967)
13,217
(21,275)
776
(56,249)
Operating working capital, net ...
52,684
(4,686)
(13.487)
(32)
34,479
28
Contractual obligations and disclosure related to off-balance sheet commitments
a)
The following table presents minimum payments that the Group will have to make in the future under
contracts and firm commitments. Amounts related to capital lease obligations are fully reflected in the
consolidated balance sheet.
2008
Less than
1 year
€ 1,000
Operating leases ........................................
Unconditional purchase obligations..........
1 - 3 years
4 - 5 years
Total
€ 1,000
€ 1,000
€ 1,000
1,083
66,470
1,232
1,055
377
–
2,692
67,525
67,553
2,287
377
70,217
2007
Less than
1 year
€ 1,000
1 - 3 years
4 - 5 years
Total
€ 1,000
€ 1,000
€ 1,000
2,384
44,661
2,603
4
148
–
5,135
44,665
47,045
2,607
148
49,800
Rental expense under operating leases amounted to € 4,977,000 in 2008 (2007: € 4,564,000).
F-60
b)
Other commitments
Less than
1 year
€ 1,000
1 - 3 years
4 - 5 years
Total
€ 1,000
€ 1,000
€ 1,000
Commitments on customer contracts
2008 ..............................................................
7,458
886
46
8,390
2007 ..............................................................
1,899
6,004
602
8,505
The unconditional purchase obligations are due to the requirements to place firm commitments for
components required in the manufacturing of Protect Power products. A significant portion of the
purchase obligations are funded by customer deposits and advances. Commitments on customer contracts
are shown net of bonds and guarantees secured by cash collateral. In addition, the Company entered into a
joint and several guarantee with Calyon Bank in France as a guarantee in an amount of € 6 million to a
bond line issued in favor of AEG Power Solutions SAS (formerly Saft Power Systems SAS).
c)
Trademark License Agreement
With effect from 1 July 2008, the Company entered into a trademark license agreement with AB
Electrolux which granted the Company the right to use the AEG trademark for an initial term of ten years.
An annual royalty is payable based on 1% of the net selling price of the respective trademarked product.
A minimum annual royalty of € 1,600,000, € 2,737,500 and € 2,782,500 is payable for 2008, 2009 and
2010 respectively if these amounts are greater than the royalty based on actual sales. Beginning 2011, the
royalty payable is based on actual sales. The Company can terminate the agreement after 2011 with a one
year notice period.
29
Payroll and numbers of staff
a)
Payroll costs
2008
€ 1,000
Wages and salaries (including social security and pension costs) ..................
b)
2007
€ 1,000
80,116
66,330
2008
2007
Staff numbers by geographical location, continuing operations
France ............................................................................................................
Germany ........................................................................................................
Rest of Europe ...............................................................................................
Asia Pacific ....................................................................................................
North America ...............................................................................................
301
577
188
395
48
311
439
140
336
46
1,509
1,272
F-61
30
Contingencies
Management of the Group believes that any legal proceedings incidental to the conduct of its business,
including employee related actions, are adequately reserved against in the consolidated financial
statements or will not result in any significant costs to the Group in the future.
31
Subsequent events
As indicated in note 5 above, the Company had intended to complete the sale of its Converters business to
members of the management team. This transaction which was scheduled to close on 20 February 2009
has now been abandoned. Nevertheless the Company still intends to dispose of this activity during 2009.
As part of its normal mode of operation as a private equity firm, the manager of the majority shareholders
of the Company, Ripplewood Holdings L.L.C., is in discussions concerning the divestment of its interests
in the Group.
F-62
Company balance sheet as at 31 December 2008
31 Dec. 2007
€ 1,000
€ 1,000
31 Dec. 2008
€ 1,000
€ 1,000
Fixed assets
Intangible fixed assets.............................. 32
Tangible fixed assets ...............................
Loans receivable - related parties............. 33
Participating interests in group
companies ................................................ 33
5,589
419
17,054
4,068
5
17,858
33,445
22,482
44,413
56,507
Current assets
Inventory..................................................
Accounts receivable .................................
Receivables from group companies .........
Other receivables .....................................
Cash and cash equivalents .......................
Common stock........................................
Additional paid-in capital......................
Currency translation adjustments
Legal reserve ..........................................
Retained earnings / (accumulated
deficit) .....................................................
–
–
1,850
305
806
775
3,316
12,232
1,015
2,085
19,423
2,961
75,930
47,374
217
21,502
580
6,885
217
21,502
411
4,068
14,585
(8,818)
Stockholder's equity............................... 34
43,769
17,380
Non-current liabilities............................ 36
48
25,522
Current liabilities ................................... 37
32,113
4,472
75,930
47,374
F-63
Company income statement for the year ended 31 December 2008
2008
€ 1,000
2007
€ 1,000
Share in results from participating interests, after taxation.............................
Other results after taxation..............................................................................
21,589
4,623
(4,552)
1,110
Net profit / (loss)............................................................................................
26,212
(3,442)
F-64
Notes for the 2008 company financial statements
General
The consolidated financial statements are part of the 2008 financial statements of AEG Power Solutions
B.V. (formerly known as 3W Power Holdings B.V. and Power Supply Systems Holdings (The
Netherlands) B.V. respectively).
With reference to the company income statement of the company, use has been made of the exemption
pursuant to Section 402 of Book 2 of the Netherlands Civil Code.
AEG Power Solutions B.V. was incorporated in the Netherlands on 24 September 2004 initially as Prima
Pharm Benelux B.V., with an issued share capital of € 40,000. The Company changed its name on
24 January 2005 into Power Supply Systems Holdings (The Netherlands) B.V. No significant activity
from operations occurred during the period from 24 September 2004, date of incorporation, to
24 January 2005. On January 2005, the Company acquired the former Saft Power Systems business of
Alcatel. The company name was changed as 3W Power Holdings B.V. on 18 January 2008.
On 29 December 2008, the Company merged with AEG Power Solutions B.V. (formerly known as Saft
Power Systems B.V.), effective 1 January 2008. Following this merger, the company name was changes
to AEG Power Solutions B.V.
The majority shareholders of the Company are Ripplewood Power Systems I L.L.C. and Ripplewood
Power Systems II L.L.C., which are managed by Ripplewood Holdings, I L.L.C.
The Company holds and owns various companies that are engaged in the design, development,
manufacture, marketing, sale and distribution of AC and DC power systems, converters, power modules,
battery chargers, uninterruptible power systems (UPS), power controllers and power conversion products.
There are manufacturing operations in France, Germany and Malaysia.
Accounting principles
For setting the principles for the recognition and measurement of assets and liabilities and determination
of result for its company financial statements, the Company makes use of the option provided in section
2:362 (8) of the Netherlands Civil Code. This means that the principles for the recognition and
measurement of assets and liabilities and determination of the result (hereinafter referred to as principles
for recognition and measurement) of the company financial statements of the Company are the same as
those applied for the consolidated EU-IFRS financial statements. Participating interests, over which
significant influence is exercised, are stated on the basis of the equity method. These consolidated EUIFRS financial statements are prepared according to the standards laid down by the International
Accounting Standards Board and adopted by the European Union (hereinafter referred to as EU-IFRS).
Please see Note 2 to the Consolidated Financial Statements for a description of these principles.
Principles for the valuation of assets and liabilities and the determination of the result
The principles for the valuation of assets and liabilities and the determination of the result are the same as
those applied to the consolidated financial statements, with the exception of the following:
Result from participating interests
The share in the result of participating interests consists of the share of AEG Power Solutions B.V. in the
result of these participating interests.
Results on transactions, where the transfer of assets and liabilities between AEG Power Solutions B.V.
and its participating interests and mutually between participating interests themselves, are not recorded
insofar as they can be deemed unrealised. An amount of € 21,589,000 profit (2007: € 4,552,000 loss) of
share in results from participating interests relates to group companies.
F-65
32
Intangible assets
Capitalised
development costs
€ 1,000
Gross value:
As at 1 January 2007 ....................................................................................
•
Additions (internally developed) ..................................................................
•
Disposals.......................................................................................................
•
1,431
3,087
(227)
•
•
•
•
As at 1 January 2008 ....................................................................................
Additions (internally developed) ..................................................................
Disposals.......................................................................................................
Impairment of intangible assets held for sale ...............................................
4,291
4,115
(804)
(1,603)
•
As at 31 December 2008 .............................................................................
5,999
As at 1 January 2007 ....................................................................................
•
Amortization
charge .....................................................................................
•
Disposals.......................................................................................................
•
(17)
(207)
1
•
•
•
•
As at 1 January 2008 ....................................................................................
Amortization charge .....................................................................................
Disposals.......................................................................................................
Cumulative amortisation of impaired intangible held for sale......................
(223)
(521)
26
308
•
As at 31 December 2008 .............................................................................
(410)
Carrying amount as at 31 December 2008........................................................
5,589
Carrying amount as at 31 December 2007........................................................
4,068
33
Financial fixed assets
2008
€ 1,000
Participating interests in group companies ....................................................
Loans receivable - related parties...................................................................
2007
€ 1,000
33,445
17,054
22,482
17,858
50,499
40,340
F-66
The movements of the financial fixed assets can be shown as follows:
Balance as at 1 January 2008
Changes:
Merger with Saft Power Systems B.V. ........................
•
New incorporations through merger with Saft Power
•
Systems B.V. ...............................................................
Payment/(repayment)...................................................
•
Exchange differences...................................................
•
Dividends received ......................................................
•
Result from participating interests...............................
•
Balance as at 31 December 2008.....................................
Participating
interests in
group
companies
€ 1,000
Loans
receivable related
parties
€ 1,000
Total
22,482
17,858
40,340
(3,687)
–
(3,687)
4,098
17,794
169
(29,000)
21,589
–
(804)
–
–
–
4,098
16,990
169
(29,000)
21,589
33,445
17,054
50,499
€ 1,000
Due to the merger with Saft Power Systems B.V., the Company eliminated its participating interest in this
company for € 3,687,000. In addition, the participating interests of € 4,098,000 held by Saft Power
Systems B.V. prior to the merger were added.
34
For details regarding stockholder's equity reference is made to note 18 of the consolidated financial
statements.
35
For details regarding share-based payments reference is made to note 19 of the consolidated financial
statements.
36
Non-current liabilities
2007
€ 1,000
2008
€ 1,000
Financial debts ..............................................................................................
Other financial debts .....................................................................................
Provisions ......................................................................................................
–
–
48
14,989
10,533
–
48
25,522
In 2007, the unsecured convertible subordinated note issued to Alcatel was presented under financial
debts. In 2008 this debt was transferred to current liabilities (see also note 21). Other financial debts have
been repaid during the year.
F-67
37
Current liabilities
2008
€ 1,000
Current portion of financial debts ..................................................................
Other accounts payable ..................................................................................
Accounts payable to suppliers and trade creditors .........................................
Payables to group companies.........................................................................
Provision ........................................................................................................
Accruals related to acquisition fees................................................................
38
2007
€ 1,000
14,989
7,520
1,986
7,618
–
–
–
300
1,501
–
481
2,190
32,113
4,472
Contingencies and subsequent events
For details regarding contingencies and subsequent events reference is made to notes 30 and 31 of the
consolidated financial statements.
39
Fees of the auditor
With reference to Section 2:382a(1) and (2) of the Netherlands Civil Code, the following fees for the
financial year have been charged by KPMG Accountants NV to the Company, its subsidiaries and other
consolidated entities:
KPMG
Accountants
N.V.
For the year 2008
€ 1,000
Other
KPMG
member
firms and
affiliates
€ 1,000
Total KPMG
€ 1,000
Statutory audit of annual accounts .......................................
Other assurance services ......................................................
Tax advisory services .................................................
•
Other non-audit services .............................................
•
70
-
697
59
128
650
767
59
128
650
Total ..................................................................................
70
1,534
1,604
KPMG
Accountants
N.V.
For the year 2007
€ 1,000
Other
KPMG
member
firms and
affiliates
€ 1,000
Total KPMG
€ 1,000
Statutory audit of annual accounts .......................................
Other assurance services ......................................................
Tax advisory services ..................................................
•
Other non-audit services ..............................................
•
68
-
594
45
89
662
45
89
-
Total ....................................................................................
68
728
796
F-68
Amsterdam, 6 July 2009
Management Board
Peter Bon
Bruce A. Brock
The Supervisory Board
Don A. Wagner
Scott Spielvogel
Christopher Minnetian
F-69
Other information
Provisions in the articles of association governing the appropriation of profit
According to article 25 of the Company's articles of association, the profit is at the disposal of the General
Meeting of Stockholders, which can allocate the profit wholly or partly to the general or specific reserve
funds.
The Company can only make payments to the stockholders and other parties entitled to the distributable
profit for the amount the stockholders' equity is greater than the paid-up and called-up part of the capital
plus the legally required reserves.
Proposal for profit appropriation
The General Meeting of Stockholders will be asked to approve the following appropriation of the 2008
profit: an amount of € 26,212,000 to be added to the other reserves. The result after taxes for 2008 is
included under the retained earnings item in the stockholder's equity.
Subsequent events
Except for abandoned sale of the Converters business referred to in note 31 above, there were no
significant events, whether favourable or unfavourable, that have occurred subsequently to the balance
sheet date.
As part of its normal mode of operation as a private equity firm, the manager of the majority shareholders
of the Company, Ripplewood Holdings L.L.C., is in discussions concerning the divestment of its interests
in the Group.
Subsidiaries
AEG Power Solutions B.V. (formerly 3W Power Holdings and Power Supply Systems Holdings (The
Netherlands) B.V. respectively) has subsidiaries as detailed in note 3 of the consolidated financial
statements.
Auditor's report
The auditor's report is set forth on the following pages.
F-70
Auditor's report
Report on the financial statements
We have audited the accompanying 2008 financial statements of AEG Power Solutions B.V. (formerly
Power Supply Systems Holdings (The Netherlands) B.V. and 3W Power Holdings B.V. respectively),
Amsterdam. The financial statements consist of the consolidated financial statements and the company
financial statements. The consolidated financial statements comprise the consolidated balance sheet as at
31 December 2008, the consolidated income statement, statement of recognised income and expense and
cash flow statement for the year then ended, and a summary of significant accounting policies and other
explanatory notes. The company financial statements comprise the company balance sheet as at 31
December 2008, the company income statement for the year then ended and the notes.
Management's responsibility
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with International Financial Reporting Standards as adopted by the European Union and with
Part 9 of Book 2 of the Netherlands Civil Code, and for the preparation of the Directors' Report in
accordance with Part 9 of Book 2 of the Netherlands Civil Code.
This responsibility includes: designing, implementing and maintaining internal control relevant to the
preparation and fair presentation of the financial statements that are free from material misstatement,
whether due to fraud or error; selecting and applying appropriate accounting policies; and making
accounting estimates that are reasonable in the circumstances.
Auditor's responsibility
Our responsibility is to express an opinion on the financial statements based on our audit. We conducted
our audit in accordance with Dutch law. This law requires that we comply with ethical requirements and
plan and perform our audit to obtain reasonable assurance whether the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the Company's
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company's internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion with respect to the consolidated financial statements
In our opinion, the consolidated financial statements give a true and fair view of the financial position of
AEG Power Solutions B.V. as at 31 December 2008 and of its result and its cash flows for the year then
ended in accordance with International Financial Reporting Standards as adopted by the European Union
and with Part 9 of Book 2 of the Netherlands Civil Code.
F-71
Opinion with respect to the company financial statements
In our opinion, the company financial statements give a true and fair view of the financial position of
AEG Power Solutions B.V. as at 31 December 2008 and of its result for the year then ended in
Report on other legal and regulatory requirements
Pursuant to the legal requirement under 2:393 sub 5 part f of the Netherlands Civil Code, we report, to the
extent of our competence, that the Directors' Report is consistent with the financial statements as required
by 2:391 sub 4 of the Netherlands Civil Code.
Amstelveen, 6 July 2009
KPMG ACCOUNTANTS N.V.
R.W.G. van Teeffelen RA
F-72
3W POWER HOLDING B.V.
(FORMERLY POWER SUPPLY SYSTEMS HOLDINGS (THE
NETHERLANDS) B.V.)
2007 FINANCIAL STATEMENTS
F-73
Consolidated income statement for the year ended 31 December 2007
2007
EUR 1,000
EUR 1,000
Revenues.................................................. 4
Cost of sales .............................................
Selling, general and administrative
expenses...................................................
Research and development costs.............. 5
Other operating income............................ 6
Other operating expenses......................... 7
247,208
(186,198)
267,939
(208,654)
Gross profit.............................................
2006
EUR 1,000
EUR 1,000
61,010
59,285
(47,584)
(10,163)
6
(3,154)
(49,997)
(8,575)
–
(2,788)
(61,360)
(60,895)
Operating profit/(loss)before
financing costs ........................................
(2,075)
115
Financial expense, net.............................. 8
(4,593)
(4,804)
Result before taxation............................
(6,668)
(4,689)
3,226
(268)
(3,442)
(4,957)
Income tax................................................ 9
Net loss ....................................................
F-74
Consolidated statement of recognised income and expense
2007
EUR 1,000
Foreign currency translation differences for foreign operations ..........
2006
EUR 1,000
(1,009)
656
Income and expense recognised directly in equity ..........................
(1,009)
656
(Loss) income for the year ...................................................................
(3,442)
(4,957)
Recognised income and expense for the year ..................................
(4,451)
(4,301)
2c
F-75
Consolidated balance sheet as at 31 December 2007
2007
EUR 1,000
EUR 1,000
Intangible fixed assets, net...................
10
Property, plant and equipment ...............
Depreciation...........................................
11
11
2,530
6,061
31,992
(5,573)
30,459
(6,778)
Property, plant and equipment, net....
Other non-current financial assets..........
Deferred tax assets .................................
2006
EUR 1,000
EUR 1,000
26,419
23,681
12
9
Total non-current assets ......................
Inventories, net.......................................
13
Trade receivables and related accounts,
net .......................................................... 14, 21
Advances and progress payments ..........
Other current assets................................
15
Current income taxes .............................
Cash and cash equivalents .....................
1,338
9,180
1,334
9,819
11,153
10,518
40,895
39,467
41,241
39,552
80,290
1,227
4,371
3,192
27,312
74,896
97
3,678
2,309
11,213
Total current assets..............................
157,633
131,745
Total assets............................................
198,528
171,212
F-76
2007
EUR 1,000
EUR 1,000
Common stock ......................................
Additional paid-in capital .....................
Accumulated deficit ..............................
Currency translation adjustments..........
Pension and other post-retirement
obligations............................................. 18
Other long-term debt............................. 19
Deferred tax liabilities........................... 9
21,754
17,380
21,869
15,471
4,539
22,153
15,976
3,646
Total non-current liabilities ...............
Provisions .............................................
Current portion of long-term debt.........
Short-term debt .....................................
Customers' deposits and advances ........
Trade payables and related accounts.....
Current income tax liabilities................
Other current liabilities .........................
217
21,502
(1,385)
1,420
217
21,502
(4,750)
411
Stockholder's equity............................ 16
2006
EUR 1,000
EUR 1,000
41,879
41,775
20
19
21
22
13,505
207
19,893
1,795
51,640
965
19,574
10,597
484
32,611
21,107
47,603
1,063
25,908
Total provisions and current
liabilities...............................................
139,373
107,579
Total stockholder's equity and
liabilities...............................................
198,528
171,212
F-77
Consolidated cash flow statement for the year 2007
2007
EUR 1,000 EUR 1,000
2006
EUR 1,000
EUR 1,000
Cash flow from operating
activities
Net (loss) income ...................................
Adjustments ...........................................
23
(3,442)
344
(4,957)
4,435
capital, interest and taxes ....................
23
(3,098)
(522)
(2,078)
(6,556)
(6,037)
(9,998)
(1,130)
(71)
19,350
569
(3,252)
10,930
5,641
402
Cash provided by/(used in) operating
activities before interest and taxes.........
9,396
(5,246)
Interest received .......................................
Interest paid..............................................
Taxes recovered/(paid).............................
179
(2,131)
889
191
(1,726)
(3,148)
liabilities:
(Increase) in inventories ................
•
•
•
•
•
•
(Increase) in trade receivables and
related accounts .............................
progress payments .........................
Increase in customers' deposits and
advances ........................................
Increase/(decrease) in trade
payables and related accounts........
financing).......................................
operating activities (carried forward).....
24
8,333
(9,929)
F-78
2007
EUR 1,000 EUR 1,000
Brought forward.......................................
Cash flow from investing
activities
Proceeds from disposal of fixed assets.....
Capital expenditures.................................
(Increase) decrease in other non-current
financial assets .........................................
(9,929)
8,333
1,404
(6,390)
154
(6,312)
4
(30)
Net cash (used in) investing
Activities ..................................................
Cash flow from financing
activities
Increase of short-term debt ......................
Increase of long-term debt .......................
2006
EUR 1,000
EUR 1,000
(6,188)
(4,982)
8,095
305
12,718
782
activities ...................................................
13,500
8,400
Net effect of exchange rate changes.......
(752)
797
cash equivalents.......................................
16,099
(6,920)
Cash and cash equivalents at beginning
of year ......................................................
11,213
18,133
year...........................................................
27,312
11,213
F-79
Notes to the 2007 consolidated financial statements
1
Reporting entity
3W Power Holdings B.V. (formerly Power Supply Systems Holdings (The Netherlands) B.V.) (The
"Company") is a Company domiciled in the Netherlands. The address of the Company's registered office
is Weerenweg 10, 1161 AH Zwanenburg, the Netherlands. The consolidated financial statements of the
Company as at and for the year ended 31 December 2007 comprise the Company and its subsidiaries
(together referred to as the "Group").
The ultimate parent company of 3W Power Holdings B.V. (formerly Power Supply Systems Holdings
(The Netherlands) B.V.) is Ripplewood Partners II, L.P. a private equity fund incorporated in the United
States of America.
The Group is engaged in the design, development, manufacture, marketing, sale and distribution of AC
and DC power systems, converters, power modules, battery chargers, uninterruptible power systems
(UPS), power controllers and power conversion products. There are manufacturing operations in France,
Germany, and Malaysia. As part of the restructuring program announced in 2006, manufacturing
operations in Canada have now ceased. On 22 February 2007, Harmer and Simmons SAS Lannion, a
subsidiary of the Group, entered into an agreement with a third party to sell the majority of the assets of
Saft Romania, including inventories, test equipment and manufacturing lines at their net book value. The
employees of Saft Romania have been transferred to the third party. A production contract has also been
entered into with the third party.
In a meeting on 6 December 2007, the Directors of the Company decided to commence a process
whereby certain assets and or business divisions of the Group could be sold. This process will include the
sale and transfer of the shareholding in Harmer and Simmons (Beijing) Co. Ltd, a subsidiary of Saft
Power Systems Pte Ltd (Singapore) to the Company and the sale and transfer of the shareholding in Saft
Power Systems Pte Ltd, a subsidiary of Saft Power Systems B.V. (the Netherlands) to the Company.
Finally, the Directors decided to change the name of the Company from Power Supply Systems Holdings
(The Netherlands) B.V. to 3W Power Holdings B.V.
2
Basis of preparation and significant accounting policies
The consolidated financial statements of 3W Power Holdings B.V. (formerly Power Supply Systems
Holdings (The Netherlands) B.V.) and its consolidated subsidiaries are prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards
Board (IASB) and their interpretation as adopted by the European Union (EU). The accounting policies
set out below have been applied consistently to all periods presented in these consolidated financial
statements.
a)
Principles of consolidation
The consolidated financial statements include the financial statements of 3W Power Holdings B.V.
(formerly Power Supply Systems Holdings (The Netherlands) B.V. and subsidiaries over which the
Group has control. Control exists when the Group has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities.
All significant intercompany balances and transactions have been eliminated in consolidation.
b)
Business combinations are accounted for in accordance with the purchase method.
Once control is achieved over a company, its assets and liabilities are measured at their fair value at the
acquisition date in accordance with IFRS requirements. Any difference between the fair value and the
carrying value is accounted for in the respective underlying asset or liability. In the case of the acquisition
of the SPS Group in 2005, the excess between the Group's share in the net fair value of the identifiable
assets, liabilities and contingent liabilities over cost was reassessed and the residual remaining excess was
recognized in income (see note 3).
F-80
c)
Foreign currency translation
The balance sheets of consolidated subsidiaries outside the euro zone are translated into euros at the yearend rate of exchange, and their income statements and cash flow statements are translated at the average
annual rate of exchange. The resulting translation adjustments are included in stockholders' equity under
"cumulative translation adjustments".
Fair value adjustments arising from the acquisition of a foreign entity are considered as assets and
liabilities of that entity. They are listed in the entity's functional currency and translated using the closing
exchange rate.
Foreign currency transactions are translated at the rate of exchange applicable on the transaction date. At
year-end, foreign currency monetary assets and liabilities are translated at the rate of exchange prevailing
on that date. The resulting exchange gains and losses are recorded in the income statement in other
financial income (loss).
Financial information prepared in currencies other than the euro has been converted at the euro rate per
foreign currency unit set out below:
Country
Canada ......................
China.........................
India ..........................
Malaysia....................
Romania ....................
Russia........................
Singapore ..................
United Kingdom .......
United States .............
d)
Currency
Closing rates
2007
%
CAD
CHY
INR
MYR
ROL
RUB
SGD
GBP
USD
Average
rates 2007
%
0.69
0.09
0.02
0.21
0.28
0.03
0.47
1.36
0.68
0.68
0.10
0.02
0.21
0.30
0.03
0.48
1.46
0.73
Closing rates
2006
%
0.65
0.10
0.02
0.22
0.30
0.03
0.50
1.49
0.76
Average
rates 2006
%
0.70
0.11
0.02
0.22
0.28
0.03
0.50
1.47
0.80
Research and development expenses
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical
knowledge and understanding is expensed when incurred. Development activities involve a plan or design
for the production of new or substantially improved products and processes. Development expenditure is
capitalized only if development costs can be measured reliably, the product or process is technically and
commercially feasible, future economic benefits are probable, and the Group intends to, and has sufficient
resources to, complete development and to use or sell the asset. The expenditure capitalized includes the
cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for
its intended use. Other development expenditure is expensed when incurred.
Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated
impairment losses.
Amortisation commences as soon as the product or process in question is available for use and is
recognised on a straight-line basis over the estimated useful lives, usually 3 to 7 years.
e)
Intangible assets and property plant and equipment
Only items whose cost can be reliably measured and for which economic benefits are likely to flow to the
Group are recognised as assets.
Whenever events or changes in market conditions indicate a risk of impairment of intangible assets and
property, plant and equipment, a detailed review is carried out in order to determine whether the net
carrying amount of such assets remains lower than their recoverable amount which is defined as the
greater of fair value (less costs to sell) and value in use. Value in use is measured by discounting the
expected future cash flows from continuing use of the asset and its ultimate disposal.
F-81
When such review indicates that recoverable values are lower than net carrying amounts, the Group
considers the effect of alternative business strategies, such as committed restructuring plans at affected
companies on its future cash flows. If necessary, an impairment loss is recorded to reduce the carrying
amount of these intangible assets and plant, property and equipment to recoverable value.
f)
Negative goodwill
Any excess in the net fair value of acquired identifiable assets, liabilities and contingent liabilities over
cost is, after reassessment, recognised in income.
g)
Intangible assets
Intangible assets include purchased software, patents and licences. Intangible assets are generally
amortised on a straight-line basis over their estimated useful lives, usually three to seven years.
h)
Property, plant and equipment are stated at cost (or at fair value in the case of acquisitions) less
accumulated depreciation and impairment losses. Depreciation is generally calculated on a straight-line
basis over the following useful lives:
•
Buildings, plant and equipment:
20 - 30 years.
•
Infrastructure and fixtures :
10 - 20 years.
•
Equipment and tools:
5 - 10 years.
•
Small equipment and tools:
2 - 5 years.
Fixed assets held under capital lease arrangements that transfer substantially all of the benefits and risks
of ownership to the Group are capitalized.
i)
Inventories and work in progress
Inventories and work in progress are valued at the lower of cost, including indirect production costs,
where applicable, or net realisable value. Cost is primarily calculated on a weighted average price basis.
j)
Cash and cash equivalents in the consolidated statement of cash flows and in the balance sheet include
cash (cash funds and term deposits) and cash equivalents (short-term investments that are very liquid and
readily convertible to known amounts of cash and that are only subject to negligible changes of value).
Cash and cash equivalents in the statement of cash flows do not include investments in listed securities,
investments with an initial maturity date exceeding three months and without an early exit clause, or bank
accounts restricted in use, other than restrictions due to regulations applied in a specific country or sector
of activities (exchange controls, etc.).
Bank overdrafts are considered as financing and are also excluded from cash and cash equivalents.
F-82
k)
In accordance with local legislation and historical practices of each country, the Group participates in
employee benefit plans.
For defined contribution plans, the Group expenses contributions as and when they are due. As the Group
is not liable for any legal or constructive obligations under the plans beyond the contributions paid, no
provision is made. Provisions for defined benefit plans and other long-term employee benefits are
determined as follows:
•
using the Projected Unit Credit Method (with projected final salary), each period of service gives
rise to an additional unit of benefit entitlement and each unit is measured separately to calculate
the final obligation. Actuarial assumptions such as mortality rates, rates of employee turnover and
projection of future salary levels are used to calculate the obligation;
•
using the "corridor" method, whereby actuarial gains and losses are recognised when the
cumulative unrecognised amount thereof at the beginning of the period exceeds a "corridor". The
corridor is 10 percent of the greater of the present value of the obligation and the fair value of the
assets at the beginning of the period. The corridor is calculated and applied separately for each
plan.
The net cumulative unrecognised actuarial gain or loss at the beginning of the period in excess of the
corridor is amortised on a straight-line basis over the expected remaining working lives of the employees
in the plan.
The expense resulting from the change and other post-retirement obligations is recorded in income from
operating activities or in other financial income (loss) depending upon the nature of the underlying
obligation.
The Group applies the corridor method to recognize in the profit or loss actuarial gains and losses over
the expected average remaining working lives of employees in the plan and accordingly, decided not to
adopt the Amendment to IAS 19 Employee Benefits – Actuarial Gains and Losses, Group Plans and
Disclosures as at 1 January 2006, whereby all actuarial gains and losses arising from defined benefit plans
would be recognised directly in equity immediately.
l)
Provisions for restructuring
Provisions for restructuring costs are recorded when the restructuring programs have been finalized,
approved by Group management and have been announced, resulting in an obligation of the Group to
third parties.
Such costs primarily relate to severance payments, early retirement, costs for notice periods not worked,
re-training costs of terminated employees, and other costs linked to the shut-down of facilities. Write-offs
of fixed assets, inventories and other assets directly linked to restructuring measures are also included in
restructuring costs.
m)
Deferred taxation
Deferred income taxes are computed under the balance sheet liability method for all temporary
differences arising between tax bases of assets and liabilities and their reported amounts, including the
reversal of entries recorded in individual accounts of subsidiaries solely for tax purposes. All amounts
resulting from changes to the tax rate are recorded in the year in which the tax rate change is substantially
enacted.
Deferred income tax assets are recorded in the consolidated balance sheet when it is probable that the tax
benefit will be realized in the future.
Deferred tax assets and liabilities are not discounted and are calculated based on the most recently voted
tax rate applicable to the following fiscal year.
F-83
To assess the ability of the Group to recover tax assets, the following elements have been taken into
account:
•
forecasts of future tax results;
•
analysis of income or loss in recent years, excluding non-recurring items;
•
historical data concerning recent years' tax results.
n)
Revenue recognition
In general, the Group recognizes revenue from the sale of goods and equipment when a contractual
arrangement with its customer exists, delivery has occurred, the amount of revenue can be measured
reliably and it is probable that the economic benefits associated with the transaction will flow to the
Group. Accruals for estimated returns are recorded at the same time based on contract terms and prior
claims experience.
In arrangements where the customer specifies final acceptance of the goods, equipment, services or
software, revenue is generally deferred until all the acceptance criteria have been met.
Revenue from training and consulting services is recognized when the services are performed.
For product sales made through resellers and distributors, revenue is recognized at the time of shipment to
the distributors.
The Group accrues for warranty costs, sales returns and other allowances based on contract terms and its
historical experience.
o)
Share based payments
A management equity programme allows certain key members of Group management to acquire shares in
the Company and to receive options. The fair value of options granted is recognized as an employee
expense with a corresponding increase in equity. The fair value is measured at grant date and spread over
the period during which the employees become unconditionally entitled to the options. The fair value of
the options granted is measured using a valuation model, taking into account the terms and conditions
upon which the options were granted. The amount recognized as an expense is adjusted to reflect the
actual number of share options that vest.
p)
Financial instruments
The Group considers that the disclosures set out in note 19 'Financial debt' are compliant with the
financial instruments disclosure requirements set out in IFRS 7 Financial Instruments which became
mandatory for the Group's 2007 financial statements.
q)
The preparation of consolidated financial statements in accordance with International Financial Reporting
Standards implies that the Group makes a certain number of estimates and assumptions that are
considered realistic and reasonable. However, subsequent facts and circumstances could lead to changes
in these estimates or assumptions, which would affect the value of the Group's assets, liabilities,
stockholders equity and net income.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised and in any future periods affected.
i)
Inventories and work in progress are measured at the lower of cost or net realizable value. Cost is
primarily calculated on a weighted average price basis. Reserves for inventories and work in progress are
calculated based on an analysis of foreseeable changes in demand, technology or the market, in order to
F-84
determine obsolete or excess inventories and work in progress. Reserves amounted to EUR 5,012,000 at
31 December 2007 (2006: EUR 4,162,000).
ii)
The amount of the allowance reflects both the customers' ability to honor their debts and the age of the
debts in question. A higher default rate than estimated or the deterioration of our major customers' credit
worthiness could have an adverse impact on future results. Allowances for doubtful customer receivables
were EUR 1,505,000 at 31 December 2007 (2006: EUR 1,254,000).
iii)
Intangible assets
The Group has intangible assets acquired for cash, through business combinations, or capitalised
development costs.
Timely impairment tests are carried out in the event of indications of reduction in value of intangible
assets held. Possible impairments are based on discounted future cash flows and/or fair values of the
assets concerned. A change in the market conditions or the cash flows initially estimated can therefore
lead to a review and a change in the impairment loss previously recorded.
Intangible assets, net were EUR 6,061,000 at 31 December 2007 (2006: EUR 2,530,000). No impairment
loss was recorded at 31 December 2007 and 2006.
iv)
When events or changes in market conditions indicate that tangible or intangible assets may be impaired,
such assets are reviewed in detail to determine whether their carrying value is lower than their
recoverable value, which could lead to recording an impairment loss (recoverable value is the higher of its
value in use and its fair value less costs to sell) (see note 2 (e)). Value in use is estimated by calculating
the present value of the future cash flows expected to be derived from the asset. Fair value less costs to
sell is based on the most reliable information available (market statistics, recent transactions, etc.). No
impairment loss was recorded at 31 December 2007 and 2006.
v)
Provisions are recorded for warranties given to customers on products or for expected losses and for
penalties incurred in the event of failure to meet contractual obligations. These provisions are calculated
subsequent changes to the provisions are recorded in cost of sales. Costs and penalties that will be
effectively paid can differ considerably from the amounts initially reserved and could therefore have a
significant impact on future results.
Provisions for contractual obligations represent EUR 4,834,000 at 31 December 2007 (2006:
EUR 6,088,000) (see note 20).
vi)
Deferred taxes
Deferred tax assets relate to tax loss carry forwards and to deductible temporary differences between
reported amounts and the tax bases of assets and liabilities. The assets relating to the tax loss carry
forwards are recognized if it is probable that the Group will dispose of future taxable profits against
which these tax losses can be set off.
At 31 December 2007, deferred tax assets were EUR 9,819,000 (2006: EUR 9,180,000) (see note 9c).
Evaluation of the Group's capacity to utilize tax loss carry forwards relies on significant judgment. The
Group analyses the positive and negative elements to conclude as to the probability of utilization in the
future of these tax loss carry forwards, which also consider the factors indicated in note 2(m). This
analysis is carried out regularly in each tax jurisdiction where significant deferred tax assets are recorded.
F-85
If future taxable results are considerably different from those forecasts that support recording deferred tax
assets, the Group will be obliged to revise downwards or upwards the amount of the deferred tax assets,
which would have a significant balance sheet and net income impact.
vii)
As indicated in note 2(k), the Group participates in defined contribution and defined benefit plans for
employees. All these obligations are measured based on actuarial calculations relying upon assumptions,
such as the discount rate, return on plan assets, future salary increases, employee turnover and mortality
tables.
These assumptions are updated annually. The assumptions adopted for 2007 and how they have been
determined are detailed in note 18.
3
Acquisitions of subsidiaries
a)
The Group made no acquisitions of subsidiaries during the year ended 31 December 2007 and 2006.
The acquisition of the Saft Power Systems business of Alcatel on 25 January 2005, after allocation of the
purchase price of EUR 34,459,000 to the fair values of the assets acquired and the liabilities assumed,
gave rise to a negative goodwill of EUR 1,986,000. This negative goodwill was recognised in income for
the year ended 31 December 2005.
b)
Group entities
At 31 December 2007 and 2006, the Group held 100% ownership interest in the following subsidiaries:
Country of incorporation
PSS Holdings (France)................................................. France
SPS S.A.S. .................................................................. France
Harmer & Simmons S.A.S........................................... France
AEG PSS GMBH......................................................... Germany
AEG SVS PSS Sörnewitz GMBH ............................... Germany
SPS Ltd ........................................................................ United Kingdom
RD Power Ltd .............................................................. United Kingdom
Harmer & Simmons Holdings Ltd. .............................. United Kingdom
Harmer & Simmons Ltd............................................... United Kingdom
PSS Finance Company Ltd. ......................................... United Kingdom
SPS BV ........................................................................ Netherlands
SPS Iberica SL ............................................................. Spain
SPS Spa........................................................................ Italy
SPS SRL ...................................................................... Romania
SPS Pte Ltd. ................................................................. Singapore
Harmer & Simmons SDN BHD................................... Malaysia
SPS SDN BHD ............................................................ Malaysia
SPS USA Inc................................................................ USA
SPS Inc......................................................................... Canada
Harmer & Simmons LLC............................................. Russia
Harmer & Simmons Co. Ltd ........................................ China
Harmer & Simmons PSS PLC ..................................... India
F-86
4
Information by business segment and by geographical area
The Group operates principally in the electrical power supply business segment through the production,
distribution and marketing of AC and DC electrical power systems, converters, uninterruptible power
systems, power controllers and power conversion products.
Geographical segments
The Group operates geographically on a regional basis and regional management is responsible for all the
business activities of the Group in the countries comprising that region.
Consolidated net sales, operating profit (loss), net property, plant and equipment and total assets are
presented by geographical region below:
2007
Revenues...................
Operating
profit/(loss) ...............
Property, plant and
equipment .................
Total assets................
France
Germany
EUR 1,000
EUR 1,000
104,283
91,486
62,201
56,622
(46,653)
267,939
(13,880)
1,827
3,444
250
6,284
(2,075)
6,949
101,532
12,042
80,192
2,008
91,846
2,682
36,696
–
(111,738)
23,681
198,528
Rest of
Europe
Pacific,
Elimination
Total
Asia, North
America
EUR 1,000 EUR 1,000 EUR 1,000 EUR 1,000
2006
Revenues...................
Operating
profit/(loss) ...............
Property, plant and
equipment .................
Total assets................
France
Germany
Rest of
Europe
Pacific,
Elimination
Total
Asia, North
America
EUR 1,000 EUR 1,000 EUR 1,000 EUR 1,000
EUR 1,000
EUR 1,000
115,596
77,522
61,049
40,719
(47,678)
247,208
757
2,425
4,615
(6,624)
(1,058)
115
7,908
91,749
12,265
55,012
3,530
73,622
2,716
23,875
–
(73,046)
26,419
171,212
Revenues are attributed to geographical regions based on the location of the manufacturing facility and/or
the marketing company.
F-87
Revenues and operating profit/(loss) by the principal business units: Converters and PPSG (Protect Power
Solutions Group) before shared costs, the holding company and consolidation adjustments are provided
below:
2007
Shared
Costs
PSS
Holding
Adjustments
Total
EUR 1,000
Protect
Power
Solutions
Group
EUR 1,000
EUR 1,000
EUR 1,000
EUR 1,000
EUR 1,000
49,903
227,703
–
–
(9,667)
267,939
390
4,908
(5,234)
(1,376)
(763)
(2,075)
Converters
Shared
Costs
PSS
Holding
Adjustments
Total
EUR 1,000
Protect
Power
Solutions
Group
EUR 1,000
EUR 1,000
EUR 1,000
EUR 1,000
EUR 1,000
60,202
198,275
–
–
(11,269)
247,208
6,289
3,131
(5,054)
(1,318)
(2,933)
115
Converters
Revenues...................
Operating
profit/(loss.................
2006
Revenues...................
Operating
profit/(loss.................
5
2007
EUR 1,000
Research and development costs...................................................................
Less:..............................................................................................................
2006
EUR 1,000
11,229
(2,654)
11,594
(1,431)
8,575
10,163
Commencing 2006, the Group has implemented procedures and processes to permit the monitoring and
capitalisation of costs on projects designed to develop new marketable products which meet the
capitalisation criteria as set out in IAS 38 "Intangible Assets". Consequently, only costs incurred on
projects relating to the development of new products launched from 2006 are capitalised.
With effect from 1 January 2006, the Company has also implemented a research and development
funding scheme within the Group. All intellectual property rights are held by the Company and
subsidiaries pay a funding royalty contribution based on 2.5% or 5% of sales, less intercompany
purchases, depending on whether the development project is in-house, as is the case with power controls
and convertors, or purchased from third parties as is the case with telecoms and batteries.
The research and development expense presented above comprises total costs for the year of
EUR 11,229,000. EUR 2,654,000 has been subtracted from this amount. This represents the net of
EUR 3,087,000 of projects capitalized during 2007 less amortization of EUR 207,000 and less the writeoff of previously capitalized projects with a net book value of EUR 226,000 (see note 10).
F-88
6
Other income (expense), net, consists of the following:
2006
EUR 1,000
2007
EUR 1,000
Net gain on sale of fixed assets.....................................................................
7
2007
EUR 1,000
Restructuring costs (see note 20) ..................................................................
Net loss on sale of fixed assets......................................................................
Other
8
6
–
2006
EUR 1,000
(2,472)
(57)
(259)
(3,154)
–
–
(2,788)
(3,154)
Financial expense, net
Financial income (expense), net, consists of the following:
2007
EUR 1,000
Interest income..............................................................................................
Interest expense.............................................................................................
Exchange (loss)/gain.....................................................................................
Invoice finance facility fees ..........................................................................
Pensions expense – interest, net....................................................................
Bank charges.................................................................................................
9
Income tax
a)
Analysis of income
2006
EUR 1,000
179
(2,205)
(833)
(395)
(892)
(447)
191
(1,749)
(1,496)
(342)
(892)
(516)
(4,593)
(4,804)
The income tax charge consists of the following:
2007
EUR 1,000
Current income tax benefit............................................................................
Deferred income tax benefit/(charge) ...........................................................
2006
EUR 1,000
1,674
1,552
408
(676)
3,226
(268)
F-89
b)
Effective income tax rate
The effective income tax rate can be analysed as follows:
2007
EUR 1,000
2006
EUR 1,000
Loss before taxes ..........................................................................................
Weighted average income tax rate ................................................................
(6,668)
37.03%
(4,698)
29.71%
Expected tax benefit....................................................................................
Impact of:
Tax effect of unrecognized tax loss carry forwards..............................
•
Tax effect of recognition of previously unrecognized tax loss carry
•
forwards................................................................................................
Tax effect of unrecognized temporary differences ...............................
•
Tax exemption (Malaysia)....................................................................
•
Non-deductible items............................................................................
•
Tax credits ............................................................................................
•
Other .....................................................................................................
•
2,469
1,396
(4,042)
(1,947)
5,500
(481)
58
(112)
–
(166)
270
(254)
246
(157)
193
(15)
3,226
(268)
2007
EUR 1,000
2006
EUR 1,000
Actual income tax benefit/(charge)............................................................
c)
Deferred tax balances
At 31 December 2007, net deferred tax assets were as follows:
Deferred tax assets recognizable.....................................................................
Of which not recognized.................................................................................
23,937
(14,118)
25,465
(16,285)
Net deferred tax assets recognized..................................................................
Deferred tax liabilities.....................................................................................
9,819
(3,646)
9,180
(4,539)
Net deferred tax assets..................................................................................
6,173
4,641
F-90
Analysis of deferred tax by temporary differences:
intangible assets ...........................................
31 Dec. 2006
Impact on
net income
EUR 1,000
EUR 1,000
Rate and
translation
differences
EUR 1,000
31 Dec. 2007
EUR 1,000
3,146
(442)
–
2,704
(3,938)
2,773
–
(1,165)
2,464
(1,039)
(7)
1,418
differences, gross ........................................
1,672
(1,472)
1,292
(931)
(7)
–
2,957
(2,403)
differences, net ............................................
200
361
(7)
554
Tax loss carry forwards.................................
Tax loss carry forwards not recognized ........
19,252
(14,811)
(1,905)
3,096
(13)
–
17,334
(11,715)
forwards, net................................................
4,441
1,191
(13)
5,619
4,641
1,552
(20)
6,173
Change during the period:
31 Dec. 2006
EUR 1,000
Impact on
net income
EUR 1,000
Translation 31 Dec. 2007
adjustments
EUR 1,000
EUR 1,000
9,180
(4,539)
659
893
(20)
–
9,819
(3,646)
4,641
1,552
(20)
6,173
The Group carries out an analysis of its deferred taxes in each country by applying to each subsidiary or
tax grouping the national tax regulations, particularly those relating to tax loss carried forwards. Deferred
tax assets primarily relate to tax loss carry forwards, accrued pension and retirement obligations and other
non-deductible reserves.
In assessing deferred tax assets, management considers whether it is probable that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the periods in which the deferred
tax assets are deductible, management believes it is probable that the Company will realize the benefits of
these deductible differences at 31 December 2007. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future taxable income during the
carry forward period are reduced.
F-91
d)
Deferred tax asset on losses carried forward
Recognized
EUR 1,000
2008 .......................................................................................
2009 .......................................................................................
2010 ......................................................................................
2011 .......................................................................................
2012 and thereafter ................................................................
10
Unrecognized
Total
EUR 1,000
EUR 1,000
–
–
–
–
5,619
424
1,080
1,068
1,018
8,125
424
1,080
1,068
1,018
13,744
5,619
11,715
17,334
Intangible assets
Gross value:
As at 1 January 2006 ............................
•
Additions ..............................................
•
•
Disposals...............................................
•
Other changes .......................................
•
Software
Patents and
licenses
EUR 1,000
EUR 1,000
Capitalised
development
costs
EUR 1,000
Total
EUR 1,000
440
399
–
(41)
10
794
–
–
–
–
–
–
1,431
–
–
1,234
399
1,431
(41)
10
•
•
•
•
•
As at 1 January 2007 ..
Additions ..............................................
Disposals...............................................
Other changes .......................................
808
388
–
(167)
1,206
794
–
–
–
–
1,431
–
3,087
(227)
–
3,033
388
3,087
(394)
1,206
•
As at 31 December 2007 .....................
2,235
794
4,291
7,320
As at 1 January 2006 ............................
•
•
Disposals...............................................
•
(108)
(216)
31
(93)
(100)
–
–
(17)
–
(201)
(333)
31
•
•
•
•
As at 1 January 2007 ..........................
Disposals...............................................
Other changes .......................................
(293)
(605)
148
5
(193)
(100)
–
2
(17)
(207)
1
–
(503)
(912)
149
7
•
As at 31 December 2007 .....................
(745)
(291)
(223)
(1,259)
2007 ..............................................................
1,490
503
4,068
6,061
2006 ..............................................................
515
601
1,414
2,530
F-92
EUR 1,179,000 of other changes to the gross value of software in 2007 relates to a transfer from assets in
progress to intangible assets during the year.
11
Buildings
EUR 1,000
EUR 1,000
Plant,
equipment
and tools
EUR 1,000
2,086
–
–
(1)
17,428
325
(15)
168
7,662
2,981
(1,332)
15
1,956
1,177
(164)
(211)
29,132
4,483
(1,511)
(29)
(19)
(58)
7
(13)
(83)
Balance as at 1 January 2007...
Additions ....................................
Disposals ....................................
Other changes .............................
changes .......................................
2,066
–
–
–
17,848
50
(34)
5
9,333
2,573
(3,017)
19
2,745
292
(110)
(1,147)
31,992
2,915
(3,161)
(1,123)
(20)
(67)
(41)
(36)
(164)
2,046
17,802
8,867
1,744
30,459
(9)
(9)
–
1
(952)
(828)
4
(116)
(2,306)
(1,877)
1,179
(38)
(317)
(249)
35
(92)
(3,584)
(2,963)
1,218
(245)
–
7
(2)
(4)
1
Land
Gross value:
Balance as at 1 January 2006......
•
Additions ....................................
•
Disposals ....................................
•
Other changes .............................
•
•
changes .......................................
•
•
•
•
•
Balance as at 1 January 2006......
•
Depreciation charge....................
•
Disposals ....................................
•
Other charges..............................
•
•
changes .......................................
Other
Total
EUR 1,000
EUR 1,000
•
•
•
•
•
Balance as at 1 January 2007...
Depreciation charge....................
Disposals ....................................
Other changes .............................
changes .......................................
(17)
(9)
–
(1)
(1,885)
(900)
6
(4)
(3,044)
(1,683)
1,663
(165)
(627)
(303)
50
80
(5,573)
(2,895)
1,719
(90)
2
19
23
17
61
•
Balance as at 31 Dec. 2007 .......
(25)
(2,764)
(3,206)
(783)
(6,778)
2007 ....................................................
2,021
15,038
5,661
961
23,681
2006 ....................................................
2,049
15,963
6,289
2,118
26,419
Property, plant and equipment held under capital lease arrangements are limited to the Group's premises
in Spain and represent less than 10% of the cost of the Group's total property, plant and equipment at
31 December 2007.
F-93
12
Other non-current financial assets consist mainly of deposits.
13
Inventories, net
Inventories consist of the following:
2007
EUR 1,000
2006
EUR 1,000
Raw materials .................................................................................................
Work in progress.............................................................................................
Finished products ............................................................................................
22,934
13,284
10,035
21,596
11,609
10,509
Inventory, gross.............................................................................................
46,253
43,714
Reserve for slow-moving and obsolete inventories ........................................
(5,012)
(4,162)
41,241
39,552
14
Trade receivables and related accounts, net
Trade receivables and related accounts, net, consist of the following:
2007
EUR 1,000
Trade accounts receivable...............................................................................
Allowance for doubtful accounts ....................................................................
2006
EUR 1,000
81,795
(1,505)
76,150
(1,254)
80,290
74,896
At 31 December 2007 EUR 28,197,000 (2006: EUR 20,124,000) of accounts receivable were pledged as
security for outstanding balances under lending facilities (see note 19).
15
Other current assets
Other current assets consist of the following:
2007
EUR 1,000
VAT and other taxes recoverable....................................................................
Social security charges recoverable ................................................................
Prepaid expenses.............................................................................................
Other debtors...................................................................................................
Deposits ..........................................................................................................
Non-trade receivables .....................................................................................
Unpaid share capital subscription ...................................................................
Other ...............................................................................................................
2006
EUR 1,000
1,577
423
447
228
388
877
–
431
1,624
490
292
203
249
626
12
182
4,371
3,678
F-94
16
Common
stock
Additional
paid-in
capital
Currency
translation
adjustments
EUR 1,000
EUR 1,000
EUR 1,000
40
–
–
–
40
(40)
–
–
–
(40)
182
20
10
5
–
–
–
18,067
1,980
990
465
–
–
–
–
–
–
–
–
764
–
–
–
–
–
39
–
3,303
18,249
2,000
1,000
470
39
764
3,303
Deferred share-based payments ..........
Total recognised income and
expense ...............................................
217
–
21,502
–
764
–
3,342
230
25,825
230
–
–
656
(4,957)
(4,301)
Total recognised income and
expense ...............................................
217
–
21,502
–
1,420
–
(1,385)
77
21,754
77
–
–
(1,009)
(3,442)
(4,451)
217
21,502
411
(4,750)
17,380
On incorporation.................................
Subsequent cancellation of ordinary
shares ..................................................
Issuance of :
•
18,248,712 ordinary A shares....
•
2,000,000 ordinary B shares ....
•
1,000,000 ordinary C shares ....
Other capital increases........................
Translation adjustments ......................
Net income..........................................
a)
Retained
earnings/
(accumulated
deficit)
EUR 1,000
Total
EUR 1,000
Capital stock and additional paid-in capital
At 31 December 2007 and 2006, the capital stock consisted of:
18.248,712 ordinary A shares of nominal value EUR 0.01 ....
2.470,000 ordinary B shares of nominal value EUR 0.01 ....
1.000,000 ordinary C shares of nominal value EUR 0.01 ....
Common
stock
Additional
paid-in
capital
Total
EUR 1,000
EUR 1,000
EUR 1,000
182
25
10
18,067
2,445
990
18,249
2,470
1,000
217
21,502
21,719
The holders of 'A' 'B' and 'C' ordinary shares are entitled to receive dividends, if declared, by the General
Meeting of Stockholders and are entitled to one vote per share at meetings of the Company.
F-95
b)
Capital increase program for management with subscription stock option plan
Under a capital program for members of management of the Group, approved by the Supervisory Board,
470,000 ordinary 'B' shares were issued in 2005 at a price of EUR 1.00 per share (see note 17).
17
On 25 January 2005, the Group established the Saft Management Equity Program which entitled key
management personnel to purchase shares in the Company. During 2005, 470,000 Ordinary B shares were
purchased at an issue price of EUR 1.00. In addition, a non-qualified stock option agreement was entered
into by the key management personnel to enable them to purchase additional Ordinary B shares. Total
options granted amounted to 1,773,616 with an exercise price of EUR 1.00. One third of the options
granted are deemed to have vested annually at the end of each of the three years ending 25 January 2008.
The vesting may be accelerated if certain performance targets are achieved. The options under certain
circumstances can vest immediately and can only be exercised in the event of a change in control. The
amount recognised as an expense is adjusted to reflect the actual number of share options that vest.
The fair value of services received in return for share options granted are measured by reference to the
fair value of share options granted. The estimate of the fair value of the services received is measured
based on the Black-Scholes formula. The contractual life of the option is ten years.
Fair value of share options and assumptions
Fair value at measurement date..................................................
Share price .................................................................................
Exercise price.............................................................................
Expected volatility .....................................................................
Expected dividends ....................................................................
Risk-free interest rate.................................................................
Marketability discount ...............................................................
EUR 0.39
EUR 1
EUR 1
25%
nil
2.407%
50%
The marketability discount is due to the fact that no public market exists for the equity securities, highly
concentrated ownership, low prospects of liquidity and the fact that the options may only be exercised in
the event of change of control.
The share options are granted under a service condition and a non-market performance condition. Such
conditions are not taken into account in the grant date fair value measurement of the services rendered.
There are no market conditions associated with the share option grants.
The number and weighted average exercise price of share options at 31 December 2007 is as follows:
2007
Weighted average Number of
options
exercise price
2006
Number of
options
EUR
Outstanding at the beginning of the year and at the end of
the year ......................................................................................
1
1,773,616
1,773,616
No options were forfeited, exercised or granted during the year.
Share options granted during 2005 and recognised for the year ended 31 December 2007 amounted to
EUR 77,000 (2006: EUR 230,000) and were recorded as compensation expense in selling, general and
administrative expenses. Share options remaining to vest and to be recognised in 2008 amount to
EUR 2,000.
F-96
18
In accordance with the laws and customs of each country, the Group provides pension and retirement
benefits to its employees. In France, the Group employees benefit from a retirement indemnity plan. In
other countries, the plans depend upon local legislation, the business and the historical practice of the
subsidiary concerned.
Over and above state pension plans, the plans can be defined contribution plans or defined benefit plans.
In the latter case, the plans are wholly or partially funded by assets solely to support such plans.
a)
State plans
In certain countries, and more particularly in France and Italy, the Group participates in state plans for
which contributions expensed correspond to the contributions due to the state organizations. State plans
are considered to be defined contribution plans.
b)
Defined contribution plans
The benefits paid out depend solely on the amount of contributions paid into the plan and the investment
returns arising from the contributions. The Group's obligation is limited to the amount of contributions
that are expensed.
With effect from January 2005, employees of the UK business of Saft Power Systems, who were
previously covered by the Alcatel UK defined benefit plan, are covered by a new defined contribution
scheme. All past service costs and liabilities under the former defined benefit plan have been retained by
Alcatel.
c)
Defined benefit plans
Independent actuaries calculate annually the Group's obligation in respect of these plans, using the
projected unit credit method. Actuarial assumptions comprise mortality, rates of employee turnover,
projection of future salary levels and revaluation of future benefits. Future estimated benefits are
discounted using discount rates appropriate to each country. These plans have differing characteristics:
•
Perpetual annuity: the retirees benefit from the receipt of a pension during their retirement. These
plans are to be found primarily in Germany and the Netherlands.
•
Lump-sum payments on the employee's retirement or departure: these plans are to be found
primarily in France and Italy.
For retirement plans, actuarial gains and losses are recognised as income or expense in accordance with
"the corridor" method: net cumulative actuarial gains and losses exceeding the greater of 10% of the
present value of the defined benefit obligations and 10% of the fair value of the plan assets are amortized
as income or expense over the expected average remaining working lives of the employees participating
in those plans.
To determine actuarial valuations, actuaries for the Group have determined general assumptions on a
country-by-country basis and specific assumptions (rate of employee turnover, salary increases) company
by company. The principal assumptions for 2007 by the main geographical segments are as follows:
Discount
rate
%
France ............................................................................................................
Germany ........................................................................................................
5.25
5.50
Future
salary
increases
%
3.00
2.00
F-97
Components of net periodic cost for the year ended 31 December is as follows:
2007
EUR 1,000
2006
EUR 1,000
308
892
(20)
–
89
(54)
5
209
892
(18)
(29)
(67)
–
(5)
1,220
982
Service cost ....................................................................................................
Interest cost ...................................................................................................
Expected return on plan assets .......................................................................
Amortization of prior service cost..................................................................
Amortization of recognized actuarial (gain)/loss ...........................................
Contributions by plan participants .................................................................
Other
The change in the benefit obligation and the net amount recognized and recorded in the consolidated
balance sheet is as follows:
2007
EUR 1,000
2006
EUR 1,000
Benefit obligation as at 1 January ..................................................................
Service cost ....................................................................................................
Interest cost ...................................................................................................
Actuarial loss/(gain).......................................................................................
Benefits paid ..................................................................................................
Other ..............................................................................................................
22,701
308
933
(3,432)
(805)
(183)
22,046
209
892
(85)
(610)
249
Benefit obligation as at 31 December .........................................................
19,522
22,701
The reduction in the benefit obligation at 31 December 2007 is due to the change in actuarial assumptions
in Germany where the discount rate used at 31 December 2007 was 5.5% compared to 4.34% at 31
December 2006.
Reconciliation of funded status at 31 December:
2007
EUR
2006
EUR 1,000
Fair value of plan assets.................................................................................
Benefit obligations .........................................................................................
(473)
19,522
(421)
22,701
Funded status (plan assets less benefit obligations) .......................................
Unrecognised net actuarial gain/(loss) ...........................................................
19,049
3,104
22,280
(411)
Accrued liability as at 31 December ..........................................................
22,153
21,869
As at 31 December 2007, unrecognised actuarial gains in Germany in excess of the greater of either 10%
of the present value of the defined benefit obligation or 10% of the fair value of any plan assets amount to
EUR 1,604,700. This amount will be amortised to net periodic cost over the expected average remaining
working lives of the employees participating in the plan with effect from 1 January 2008.
F-98
19
Financial debt
Financial debt as at 31 December consists of the following:
2007
EUR 1,000
Unsecured convertible subordinated note issued to Alcatel, bearing
interest at 7% due 25 January 2011 ...............................................................
Purchase price, resident amount due to Alcatel .............................................
Invoice finance facility, secured by trade accounts receivable ......................
Obligations under capital leases.....................................................................
Bank loans and overdrafts..............................................................................
Accrued interest .............................................................................................
Long-term debt - non-current portion ............................................................
Long-term debt - current portion ...................................................................
Short-term debt ..............................................................................................
2006
EUR 1,000
14,989
243
22,001
484
10,825
529
14,989
243
17,626
689
1,569
455
49,071
35,571
15,976
484
32,611
15,471
207
19,893
49,071
35,571
Under the terms of the Share Sale and Purchase Agreement dated 25 January 2005, the Company has
issued a note instrument to Alcatel for EUR 14,000,000. The instrument is a fixed rate subordinated
unsecured convertible note, bearing interest at a fixed annual rate of 7%, payable semi-annually and
maturing on 25 January 2011. Interest due at 25 July 2005 and 25 July 2006 amounting to EUR 989,000
has been capitalised. Interest accrued and unpaid at 31 December 2007 amounted to EUR 460,000 (2006:
EUR 455,000).
Alcatel has the right to convert the total outstanding amount of the loan, excluding accrued and unpaid
interest, into Ordinary C shares up to the maturity date of the loan instrument. The number of shares
issued in the event of conversion is determined by the principal amount of the note outstanding at the date
of conversion divided by a conversion price which is set at EUR 4.61. The conversion price would be
adjusted in the event of, among others, distributions of dividends, options or warrants at less than fair
market value to Company stockholders or of the Company's assets. Alcatel has no right to participate in
capital increases of the Company.
The balance of EUR 243,000 due to Alcatel represents the residual outstanding debt balance based on the
initial estimated debt balance on closing at 25 January 2005.
In 2006 and 2007, the Group entered into financing agreements which provided for trade receivable
financing facilities in France and Spain, up to a maximum of EUR 30,600,000. This amount does not
include the EUR 3,000,000 trade receivable financing facility already existing in Italy. At 31 December
2007, an amount of EUR 28,197,000 invoices were pledged (2006: EUR 20,124,000). After deduction of
a reserve for default losses of EUR 6,196,000 (2006: EUR 2,498,000), the net amount financed amounted
to EUR 22,001,000 at 31 December 2007 (2006: EUR 17,626,000). Fixed and variable fees (other than
financial interests) related to these financing programs in 2007 amounted to EUR 135,000 (2006:
EUR 94,000).
On 2 July 2007, the Group entered into a secured short-term bridge facility agreement with a financial
institution. The agreement provides a maximum facility of EUR 15,000,000 bearing interest at Libor plus
1.25%. Interest accrued and unpaid at 31 December 2007 amounted to EUR 69,000. The facility is
secured by a pledge on the shares of Power Supply Systems Holdings France SAS and on the shares of
AEG Power Supply Systems GmbH. As at 31 December 2007, the Group has utilised EUR 10,000,000 of
the available facility. The facility matures on 30 June 2008. At 18 April 2008, the Group has repaid EUR
6,500,000 of the utilised facility.
F-99
The various debt agreements contain restrictions on working capital, payments of cash dividends outside
the Group, restrict liens on assets and the sale of subsidiaries.
The aggregate maturities of long-term financial debt for each of the five years subsequent to 31 December
2007 are EUR 482,000 in 2008, EUR nil in 2009, EUR nil in 2010 and EUR14,989,000 in 2011 and
beyond.
The capital lease obligation in respect of the premises in Spain has the following scheduled principal
repayments:
2006
EUR 1,000
2007
EUR 1,000
Capital lease short-term financial debt...........................................................
484
207
2008 ...............................................................................................................
–
482
Capital lease long-term financial debt............................................................
–
482
484
689
a)
Debt analysis by rate
2007
EUR 1,000
Total fixed rate debt .......................................................................................
Total floating rate debt...................................................................................
2006
EUR 1,000
14,989
34,082
14,989
20,582
49,071
35,571
The Group does not use hedging instruments and all of the Group's debt was denominated in euros at 31
December 2007 and 2006.
b)
Fair value
The fair value of the Group's debt is determined for each loan by discounting the future cash flows using
a discount rate corresponding to bond yields at the end of the year, adjusted by the Group's credit rate
risk. The fair value of debt and bank overdrafts at floating interest rates approximates the net carrying
amounts.
c)
Market-related exposures
The Group has a centralized treasury management in order to minimise the Group's exposure to market
risks, including interest rate risk, foreign exchange risk and counterparty risk. At 31 December 2007 and
2006, the Group did not use derivative financial instruments.
Firm commercial contracts or other firm commitments are not hedged. Due to the diversity of its
customer base and their diverse geographical locations, Group management considers that the credit risk
relating to customers is limited and that there is no risk of significant credit concentration.
F-100
20
Provisions
Provisions can be specified as follows:
(a) Provisions for restructuring
expenses...................................
(b) Provisions for customer
liabilities ..................................
(c) Provisions for estimated
additional purchase
consideration............................
(d) Provisions for long-service
awards......................................
(e) Other ........................................
a)
31 Dec.
2006
Charged to
expense
Utilisation
EUR 1,000
EUR 1,000
3,827
EUR 1,000
Reclassification and
other
EUR 1,000
31 Dec.
2007
EUR 1,000
2,472
(3,485)
20
2,834
6,088
913
(2,154)
(13)
4,834
2,813
–
(623)
–
2,190
642
135
–
51
(89)
–
–
–
553
186
13,505
3,436
(6,351)
7
10,597
Provisions for restructuring expenses
At 31 December 2007, provisions for restructuring expenses consisted primarily of employee severance
costs in Germany. During the year ended 31 December 2007, charges of EUR 635,000, EUR 441,000 and
EUR 1,310,000 were taken in Germany, Romania and France to cover the costs associated with
restructuring part of the operations. The restructuring costs mainly include employee termination benefits.
b)
Provisions for customer liabilities
Customer liabilities primarily relate to warranties, anticipated contract losses and penalties and disputes
relating to commercial contracts.
c)
Provision for estimated additional purchase consideration
This provision relates to the estimated additional purchase consideration with respect to the acquisition of
the SPS Group. Alcatel requested an additional payment of EUR 2,813,000 which has been reduced by
EUR 623,000 during the year as a result of an Italian court claim in respect of the insolvency proceedings
of the Tecnosistemi Group. Alcatel guaranteed any payment for this claim under the Share Sale and
Purchase Agreement. Ripplewood Holdings contests the remainder of the Alcatel request and has filed a
counter claim under the terms of the Share Sale and Purchase Agreement amounting to EUR 5,839,000.
This contingent gain has not been recorded. No decision has yet been reached between the parties in
respect of the items in dispute.
d)
Provision for long-service awards
Long-service awards are granted to French employees on retirement based on their length of service,
grade and salary and determined by an independent actuarial calculation.
F-101
21
Accounts due to/from and transactions with related parties
Included in trade accounts receivable and accounts payable and related accounts were the following
amounts due to Ripplewood Group or Alcatel Group companies at 31 December:
2007
EUR 1,000
Due from Alcatel Group ..............................................................................
Due to Ripplewood Group ...........................................................................
Due to Alcatel Group ...................................................................................
Due to Alcatel Group, loan note and interest (note 19)................................
8,262
(382)
(283)
(15,762)
2006
EUR 1,000
10,796
(375)
(22)
(15,683)
Transactions with related parties during the period were as follows:
Ripplewood
2006
2007
EUR 1,000
EUR 1,000
Sale of goods and services...........................
Purchase of goods and services ...................
Fees and expenses billed..............................
Interest on loan note from Alcatel ...............
–
–
(507)
–
–
–
(510)
–
Alcatel
2006
2007
EUR 1,000
EUR 1,000
44,578
–
(1,007)
(1,049)
57,589
(809)
(1,670)
(1,030)
The sale of goods and services to Alcatel are mainly based on a three-year contract ending 25 January
2008 and are at market conditions. The Company has negotiated revenues and volumes for calendar year
2008 that are similar to those of 2005 - 2007 when the supply agreement was in place.
The Company also has related-party relationships with its Management Board and the Supervisory Board.
The Board remuneration, including the share-based payments during 2007 and 2006 are as follows:
2007
EUR 1,000
Management Board.........................................................................................
963
2006
EUR 1,000
1,258
The remuneration of the Supervisory Board is included in the management fees charged by Ripplewood
and amounts to EUR 507,000 and EUR 500,000 respectively in 2007 and 2006.
22
Other current liabilities
Other current liabilities consist of the following:
2007
EUR 1,000
Accrued wages and salaries ............................................................................
Accrued social security charges......................................................................
VAT payable...................................................................................................
Other accrued taxes.........................................................................................
Customer credit balances ................................................................................
Accrued other non-trade payables...................................................................
Other ...............................................................................................................
2006
EUR 1,000
11,343
3,866
1,669
782
1,095
5,803
1,350
7,720
3,819
1,157
721
743
5,326
88
25,908
19,574
F-102
23
Net cash used in operating activities before changes in working capital, interest and taxes
2007
EUR 1,000
Net/(loss) income ...........................................................................................
Adjustments:
•
•
Net (loss)/gain on disposal of assets ......................................................
•
•
•
Provisions ..............................................................................................
•
•
Taxes......................................................................................................
•
Share-based payment .............................................................................
•
Net cash used in operating activities before
24
2006
EUR 1,000
(3,442)
(4,957)
2,895
912
57
227
284
(2,908)
2,026
(3,226)
77
2,964
333
(6)
454
434
(1,800)
1,558
268
230
344
4,435
(3,098)
(522)
Operating working capital
31 Dec. 2006
Cash flow
EUR 1,000
EUR 1,000
Translation 31 Dec. 2007
adjustments
EUR 1,000 EUR 1,000
Inventories, net.................................................
Trade receivables and related accounts, net.....
Advances and progress payments ....................
Customer deposits and advances......................
Trade payables and related accounts................
39,552
74,896
97
(1,795)
(51,640)
2,078
6,037
1,130
(19,350)
3,252
(389)
(643)
–
38
785
41,241
80,290
1,227
(21,107)
(47,603)
Operating working capital, net .....................
61,110
(6,853)
(209)
54,048
F-103
25
Contractual obligations and disclosure related to off-balance sheet commitments
a)
The following table presents minimum payments that the Group will have to make in the future under
contracts and firm commitments. Amounts related to capital lease obligations are fully reflected in the
consolidated balance sheet.
2007
Less than
1 year
EUR 1,000
1 - 3 years
4 - 5 years
Total
EUR 1,000
EUR 1,000
EUR 1,000
2,384
44,661
2,603
4
148
–
5,135
44,665
47,045
2,607
148
49,800
2006
Less than
1 year
EUR 1,000
1 - 3 years
4 - 5 years
Total
EUR 1,000
EUR 1,000
EUR 1,000
2,813
9,737
3,349
58
829
–
6,991
9,795
12,550
3,407
829
16,786
Rental expense under operating leases amounted to EUR 4,564,000 in 2007 (2006: EUR 4,628,000).
b)
Other commitments
Less than
1 year
EUR 1,000
1 - 3 years
4 - 5 years
Total
EUR 1,000
EUR 1,000
EUR 1,000
2007 .............................................................
6,695
13,710
1,613
22,018
2006 .............................................................
7,758
4,916
260
12,934
The unconditional purchase obligations are due to the requirement to place firm commitments for
components required in the construction of PPSG products. A significant portion of the purchase
obligations are funded by the commitments on customer contracts.
F-104
26
Payroll and numbers of staff
a)
Payroll costs
2007
EUR 1,000
Wages and salaries (including social security and pension costs) ..................
b)
2006
EUR 1,000
76,048
71,557
2007
2006
Staff numbers by geographical location
France ............................................................................................................
Germany ........................................................................................................
Rest of Europe ...............................................................................................
Asia Pacific ....................................................................................................
North America ...............................................................................................
478
439
140
336
46
460
405
391
328
53
1,439
1,637
The reduction in staff numbers in Rest of Europe is due to the closure of the Romanian facility (see note
1).
27
Contingencies
Management of the Group believes that any legal proceedings incidental to the conduct of its business,
including employee related actions, are adequately reserved against in the consolidated financial
statements or will not result in any significant costs to the Group in the future.
28
Subsequent events
There were no significant events, whether favourable or unfavourable, that have occurred subsequent to
the balance sheet date. As indicated in note 1 above, the Company has changed its name to 3W Power
Holdings B.V.
F-105
Company balance sheet as at 31 December 2007
2007
EUR 1,000
EUR 1,000
Fixed assets
Intangible fixed assets...................................
Tangible fixed assets.....................................
Loans receivable - related parties.................. 29
Participating interests in group companies ... 29
2006
EUR 1,000
EUR 1,000
1,413
10
10,732
26,580
4,068
5
17,858
22,482
38,735
44,413
Current assets
Receivables from group companies ..............
Other receivables ..........................................
Cash and cash equivalents ............................
Common stock ..............................................
Additional paid-in capital .............................
Deferred share-based payments ....................
Currency translation adjustments..................
Retained earnings..........................................
763
132
1,143
1,850
305
806
30
30
31
30
30
2,961
2,038
47,374
40,773
217
21,502
269
1,420
(1,654)
217
21,502
346
411
(5,096)
17,380
21,754
Non-current liabilities................................. 32
25,522
15,449
Current liabilities ........................................ 33
4,472
3,570
47,374
40,773
F-106
Company income statement for the year ended 31 December 2007
2007
EUR 1,000
2006
EUR 1,000
Share in results from participating interests, after taxation.............................
Other results after taxation..............................................................................
(4,552)
1,110
(5,132)
175
Net loss ...........................................................................................................
(3,442)
(4,957)
F-107
Notes for the 2007 company financial statements
General
The consolidated financial statements are part of the 2007 financial statements of 3W Power Holdings
B.V. (formerly Power Supply Systems Holdings (The Netherlands) B.V.).
3W Power Holdings B.V. (formerly Power Supply Systems Holdings (The Netherlands) B.V.) was
incorporated in the Netherlands on 24 September 2004 initially as Prima Pharm Benelux B.V., with an
issued share capital of EUR 40,000. The Company changed its name on 24 January 2005 into Power
Supply Systems Holdings (The Netherlands) B.V. No significant activity from operations occurred during
the period from 24 September 2004, date of incorporation, to 24 January 2005. On January 2005, the
Company acquired the former Saft Power Systems business of Alcatel. The company name was finally
changed as 3W Power Holdings B.V. on 18 January 2008.
The ultimate parent company of 3W Power Holdings B.V. is Ripplewood Holdings LLC, a private equity
fund incorporated in the United States of America.
The Company holds and owns various companies that are engaged in the design, development,
manufacture, marketing, sale and distribution of AC and DC power systems, converters, power modules,
battery chargers, uninterruptible power systems (UPS), power controllers and power conversion products.
There are manufacturing operations in France, Germany and Malaysia.
Accounting principles
The accounting principles and measurement basis of the Company's statutory accounts are similar to
those applied with respect to the consolidated financial statements (see Note 1 to the consolidated
financial statements). The parent company financial statements have been prepared in conformity with
generally accepted accounting principles in the Netherlands ("Dutch GAAP"), whereas the consolidated
financial statements have been prepared in accordance with International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board ("IASB") and its interpretations as
endorsed by the EU.
Principles for the valuation of assets and liabilities and the determination of the result
The principles for the valuation of assets and liabilities and the determination of the result are the same as
those applied to the consolidated financial statements, with the exception of the following:
Result from participating interests
The share in the result of participating interests consists of the share of 3W Power Holdings B.V. in the
result of these participating interests.
Results on transactions, where the transfer of assets and liabilities between 3W Power Holdings B.V. and
its participating interests and mutually between participating interests themselves, are not recorded if not
recognised. An amount of EUR 4,552,000 loss (2006: EUR 5,132,000 loss) of share in results from
participating interests relates to group companies.
29
Financial fixed assets
2007
EUR 1,000
Participating interests in group companies ....................................................
Loans receivable - related parties...................................................................
2006
EUR 1,000
22,482
17,858
26,580
10,732
40,340
37,312
F-108
The movements of the financial fixed assets can be shown as follows:
Participating
interests in
group
companies
EUR 1,000
Loans
receivable related
parties
EUR 1,000
Total
EUR 1,000
Balance as at 1 January 2007 ............................................
Changes:
Payment/(repayment)...................................................
•
New incorporations......................................................
•
Exchange differences...................................................
•
Result from participating interests...............................
•
26,580
10,732
37,312
–
1,463
(1,009)
(4,552)
7,126
–
–
–
7,126
1,463
(1,009)
(4,552)
Balance as at 31 December 2007.......................................
22,482
17,858
40,340
The Company is a holding company. For details regarding acquisitions of subsidiaries reference is made
to note 3 of the consolidated financial statements.
30
For details regarding stockholder's equity reference is made to note 16 of the consolidated financial
statements.
31
For details regarding share-based payments reference is made to note 17 of the consolidated financial
statements.
32
Non-current liabilities
2007
EUR 1,000
Financial debts ...............................................................................................
Other financial debts ......................................................................................
33
2006
EUR 1,000
14,989
10,533
14,989
460
25,522
15,449
Current liabilities
2007
EUR 1,000
Other accounts ...............................................................................................
Accounts payable to suppliers and trade creditors .........................................
Provision ........................................................................................................
Accruals related to acquisition fees................................................................
2006
EUR 1,000
300
1,501
481
2,190
367
390
2,813
–
4,472
3,570
F-109
34
Contingencies and subsequent events
For details regarding contingencies and subsequent events reference is made to notes 27 and 28 of the
consolidated financial statements.
F-110
Other information
Provisions in the articles of association governing the appropriation of profit
According to article 25 of the Company's articles of association, the profit is at the disposal of the General
Meeting of Stockholders, which can allocate the profit wholly or partly to the general or specific reserve
funds.
The Company can only make payments to the stockholders and other parties entitled to the distributable
profit for the amount the stockholders' equity is greater than the paid-up and called-up part of the capital
plus the legally required reserves.
Proposal for profit appropriation
The General Meeting of Stockholders will be asked to approve the following appropriation of the 2007
loss: an amount of EUR 3,442,000 to be added to the other reserves. The result after taxes for 2007 is
included under the retained earnings item in the stockholder's equity.
Subsequent events
Except for outsourcing of the Group manufacturing referred to in note 28 above, there were no significant
events, whether favourable or unfavourable, that have occurred subsequently to the balance sheet date.
Subsidiaries
3W Power Holdings B.V. (formerly Power Supply Systems Holdings (The Netherlands) B.V.) has
subsidiaries as detailed in note 3 of the consolidated financial statements.
Auditor's report
The auditor's report is set forth on the following pages.
F-111
Auditor's report
Report on the financial statements
We have audited the accompanying 2007 financial statements of 3W Power Holdings B.V. (formerly
Power Supply Systems Holdings (The Netherlands) B.V.), Amsterdam. The financial statements consist
of the consolidated financial statements and the company financial statements. The consolidated financial
statements comprise the consolidated balance sheet as at 31 December 2007, the consolidated income
statement, statement of recognised income and expense and cash flow statement for the year then ended,
and a summary of significant accounting policies and other explanatory notes. The company financial
statements comprise the company balance sheet as at 31 December 2007, the company income statement
for the year then ended and the notes.
Management's responsibility
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with International Financial Reporting Standards as adopted by the European Union and with
Part 9 of Book 2 of the Netherlands Civil Code, and for the preparation of the Directors' Report in
This responsibility includes: designing, implementing and maintaining internal control relevant to the
preparation and fair presentation of the financial statements that are free from material misstatement,
whether due to fraud or error; selecting and applying appropriate accounting policies; and making
accounting estimates that are reasonable in the circumstances.
Auditor's responsibility
Our responsibility is to express an opinion on the financial statements based on our audit. We conducted
our audit in accordance with Dutch law. This law requires that we comply with ethical requirements and
plan and perform our audit to obtain reasonable assurance whether the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the Company's
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company's internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion with respect to the consolidated financial statements
In our opinion, the consolidated financial statements give a true and fair view of the financial position of
3W Power Holdings B.V. as at 31 December 2007 and of the result and the cash flows for the year then
ended in accordance with International Financial Reporting Standards as adopted by the European Union
and with the Part 9 of Book 2 of the Netherlands Civil Code.
F-112
Opinion with respect to the company financial statements
In our opinion, the company financial statements give a true and fair view of the financial position of 3W
Power Holdings B.V. as at 31 December 2007 and of the result for the year then ended in accordance with
Part 9 of Book 2 of the Netherlands Civil Code.
Report on other legal and regulatory requirements
Pursuant to the legal requirement under 2:393 sub 5 part e of the Netherlands Civil Code, we report, to the
extent of our competence, that the Directors' Report is consistent with the financial statements as required
by 2:391 sub 4 of the Netherlands Civil Code.
Amstelveen, 2 October 2008
KPMG ACCOUNTANTS N.V.
R.W.G. van Teeffelen RA
F-113
Annex A
SHARE PURCHASE AGREEMENT
by and among
Ripplewood Power Systems I L.L.C.,
Ripplewood Power Systems II L.L.C.,
and each of the other Persons listed on Schedule A,
AEG Power Solutions B.V.,
and
Germany1 Acquisition Limited, as Purchaser
Dated as of July 23rd, 2009
TABLE OF CONTENTS
Page
1.
ORGANIZATION OF HOLDCO; SALE AND PURCHASE;
CANCELLATION OF OPTIONS...................................................................... A-3
1.1
Organization of Holdco; Holdco Contribution ....................................... A-3
1.2
Sale and Purchase of the Holdco Shares................................................. A-3
1.3
Cancellation of Holdco Options.............................................................. A-3
1.4
Aggregate Consideration ........................................................................ A-3
1.5
Closing .................................................................................................... A-3
1.6
Consideration Adjustments..................................................................... A-7
1.7
Stakeholder Expense Trust Account..................................................... A-11
1.8
Earnout.................................................................................................. A-11
1.9
Applicable Financial Definitions. ......................................................... A-18
1.10 No Fractional Shares............................................................................. A-22
1.11 Governance Arrangements.................................................................... A-23
2.
REPRESENTATIONS AND WARRANTIES OF THE AEG
STAKEHOLDERS ........................................................................................... A-23
2.1
Representations Regarding the AEG Stakeholders............................... A-23
2.2
No Conflicts; Consents and Approvals, etc. ......................................... A-25
2.3
Corporate Status of AEG ...................................................................... A-25
2.4
Capitalization ........................................................................................ A-25
2.5
Subsidiaries. .......................................................................................... A-26
2.6
Financial Statements ............................................................................. A-26
2.7
Absence of Undisclosed Liabilities ...................................................... A-27
2.8
Real Property; Assets............................................................................ A-27
2.9
Tangible Assets..................................................................................... A-27
2.10 Contracts ............................................................................................... A-28
2.11 Employee-Related Matters.................................................................... A-29
2.12 Intellectual Property.............................................................................. A-31
2.13 Governmental Authorizations; Compliance with Law ......................... A-31
2.14 Litigation............................................................................................... A-31
2.15 Taxes ..................................................................................................... A-32
2.16 Absence of Changes.............................................................................. A-32
2.17 Environmental Matters.......................................................................... A-34
2.18 Products................................................................................................. A-34
2.19 Product Warranty .................................................................................. A-35
2.20 Product Liability ................................................................................... A-35
2.21 Customers, Distributors and Suppliers. ................................................ A-35
2.22 Affiliate Transactions............................................................................ A-35
2.23 Brokers.................................................................................................. A-35
i
2.24
2.25
2.26
2.27
Inventory ............................................................................................... A-36
Accounts Receivable............................................................................. A-36
Insurance ............................................................................................... A-36
Guaranties ............................................................................................. A-36
3.
STAKEHOLDERS CONCERNING HOLDCO .............................................. A-36
3.1
Corporate Status and Authority ............................................................ A-36
3.2
No Conflicts, Consents and Approvals, etc. ......................................... A-37
3.3
Capitalization ........................................................................................ A-37
3.4
Litigation............................................................................................... A-37
4.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER ......... A-37
4.1
Corporate Status and Authority ............................................................ A-38
4.2
Board of Directors Approval ................................................................ A-38
4.3
Purchaser Shareholder Approval .......................................................... A-38
4.4
No Conflicts; Consents and Approvals, etc. ......................................... A-39
4.5
Capitalization. ....................................................................................... A-39
4.6
Financial Statements ............................................................................. A-40
4.7
Absence of Undisclosed Liabilities ...................................................... A-40
4.8
Trust Account........................................................................................ A-40
4.9
Governmental Authorizations; Compliance with Law ......................... A-41
4.10 Litigation............................................................................................... A-41
4.11 Absence of Changes.............................................................................. A-41
4.12 Purchase for Investment........................................................................ A-43
4.13 Brokers.................................................................................................. A-43
5.
COVENANTS. ................................................................................................. A-43
5.1
Conduct of Business, etc....................................................................... A-43
5.2
Access and Information ........................................................................ A-44
5.3
Proxy Statement; Purchaser Shareholder Approval.............................. A-44
5.4
Notifications; Supplements to Disclosures. .......................................... A-45
5.5
No Solicitation. ..................................................................................... A-46
5.6
Contact with Customers and Suppliers ................................................. A-46
5.7
Publicity ................................................................................................ A-46
5.8
Commercially Reasonable Efforts. ....................................................... A-47
5.9
Cash Shortfall Amount ......................................................................... A-48
5.10 Third Party Consents............................................................................. A-48
5.11 Further Assurances................................................................................ A-48
5.12 Employee-Related Matters.................................................................... A-49
5.13 Indemnification of Directors and Officers............................................ A-49
5.14 Tax Matters. .......................................................................................... A-50
5.15 Securities Act ........................................................................................ A-51
ii
5.16
5.17
5.18
5.19
5.20
5.21
5.22
Euronext Listing.................................................................................... A-51
Dutch Required Actions........................................................................ A-51
Uses of Cash. ........................................................................................ A-52
Covenant Not to Compete..................................................................... A-52
No Interference ..................................................................................... A-53
Patent Assignments............................................................................... A-53
Tax Indemnity....................................................................................... A-53
6.
CONDITIONS PRECEDENT. ......................................................................... A-55
6.1
General.................................................................................................. A-55
6.2
Conditions to Obligations of the AEG Stakeholders and the
Purchaser............................................................................................... A-55
6.3
Conditions to Obligations of the AEG Stakeholders. ........................... A-56
6.4
Conditions to Obligations of the Purchaser. ......................................... A-57
6.5
Frustration of Conditions ...................................................................... A-58
7.
Indemnification. ................................................................................................ A-58
7.1
Indemnification by the Sellers .............................................................. A-58
7.2
Claims ................................................................................................... A-58
7.3
Manner of Payment............................................................................... A-58
8.
GENERAL PROVISIONS. .............................................................................. A-59
8.1
Survival ................................................................................................. A-59
8.2
Modification; Waiver............................................................................ A-59
8.3
Entire Agreement .................................................................................. A-59
8.4
Certain Limitations ............................................................................... A-59
8.5
Termination........................................................................................... A-60
8.6
Expenses. .............................................................................................. A-61
8.7
Post-Closing Access.............................................................................. A-62
8.8
Notices .................................................................................................. A-62
8.9
Assignment ........................................................................................... A-65
8.10 No Third Party Beneficiaries ................................................................ A-65
8.11 Counterparts.......................................................................................... A-65
8.12 Interpretation......................................................................................... A-65
8.13 Governing Law ..................................................................................... A-66
8.14 Specific Performance ............................................................................ A-66
8.15 Dispute Resolution................................................................................ A-66
8.16 Waiver of Punitive and Other Damages; Waiver of Jury Trial. ........... A-68
8.17 Stakeholders’ Representative................................................................ A-68
8.18 Certain Definitions................................................................................ A-69
iii
This SHARE PURCHASE AGREEMENT, dated as of July 23rd, 2009 (this
“Agreement”), is made by and among Ripplewood Power Systems I L.L.C. and
Ripplewood Power Systems II L.L.C., each a Delaware limited liability company (the
“Ripplewood Entities”) and the Persons listed on Schedule A hereto (together with the
Ripplewood Entities, the “AEG Stakeholders”), AEG Power Solutions B.V., a besloten
vennootschap met beperkte aansprakelijkheid organized under the laws of the
Netherlands (formerly named Power Supply Systems Holdings (The Netherlands) B.V.)
(“AEG”), and Germany1 Acquisition Limited, a Guernsey limited liability company (the
“Purchaser”).
WHEREAS, the Ripplewood Entities own all of the issued and outstanding
ordinary A shares in the capital of AEG, nominal value €0.01 per share (the “Class A
Shares”), and 400,000 of the issued and outstanding ordinary B shares in the capital of
AEG, nominal value €0.01 per share (the “Class B Shares”);
WHEREAS, other AEG Stakeholders own the remaining Class B Shares and all
of the issued and outstanding ordinary C shares in the capital of AEG, nominal value
€0.01 per share (the “Class C Shares” and, together with the Class A Shares and Class B
Shares, the “AEG Shares”);
WHEREAS, the individuals listed on Schedule A hereto as “Management
Stakeholders” (the “Management Stakeholders”) own collectively 470,000 of the issued
and outstanding Class B Shares and 319,920 of the outstanding Options, and each of the
Management Stakeholders owns the number of Class B Shares and Options set forth
opposite such Management Stakeholder’s name in Section 2.4 of the Disclosure Letter;
WHEREAS, the board of directors of the Purchaser has approved this Agreement
and the transactions contemplated hereby, and deems it fair, advisable and in the best
interests of the Purchaser and its stockholders to consummate this Agreement and the
transactions contemplated hereby;
WHEREAS, to induce the AEG Stakeholders and AEG to enter into this
Agreement, certain beneficiary shareholders of the Purchaser who through Euroclear
S.A./N.V., its Affiliates and other functional intermediaries beneficially collectively own,
on the date hereof, in excess of 70.1% of the outstanding and issued shares of the
Purchaser and whose names are listed on Section 4.3 of the Purchaser Disclosure Letter
have, simultaneously with the execution and delivery of this Agreement, either (A)
entered into irrevocable undertakings (“Undertakings”) with the Purchaser, under which
each of such Purchaser shareholders has (i) agreed to vote its Purchaser Shares in favor of
the Purchaser Shareholder Approval and against any alternative “business combination”
within the meaning of the Purchaser’s Organizational Documents and (ii) agreed not to
Transfer its Purchaser Shares prior to the Purchaser Shareholder Approval unless the
transferee thereof delivers a substantially similar Undertaking or (B) agreed to similar
A-1
arrangements to vote in favor of the Purchaser Shareholder Approval or agreed to
limiting its rights to seek to redeem its shares in connection with the transaction or
otherwise given assurances that it will not seek to redeem such shares.
WHEREAS, prior to the Closing, (i) the Stakeholders’ Representative will
incorporate or acquire a besloten vennootschap met beperkte aansprakelijkheid
(“Holdco”) organized under the laws of the Netherlands, (ii) each Seller shall contribute
all of its AEG Shares to Holdco in exchange for identical shares in Holdco (“Holdco
Shares”) and each AEG Option that has not been exercised, cancelled or rendered
unexercisable shall be converted into an identical Holdco Option (such options, the
“Holdco Options”, and such exchange together with such contribution of shares, the
“Holdco Contribution”), (iii) Holdco will file with the United States Internal Revenue
Service a Form 8832 electing to disregard AEG as an entity separate from Holdco for
United States Federal income tax purposes, such election to be effective as of the date
following the Holdco Contribution, and (iv) for United States Federal income tax
purposes, it is intended that the Holdco Contribution and the election to disregard AEG
for United States Federal income tax purposes, taken together, qualify as a reorganization
within the meaning of Section 368(a)(1)(F) of the Code;
WHEREAS, prior to the Closing, in connection with the Sale Transaction, (i) the
Purchaser will incorporate or acquire a besloten vennootschap met beperkte
aansprakelijkheid (“Mergerco”) organized under the laws of the Netherlands as a whollyowned first-tier Subsidiary of the Purchaser no later than the date prior to the Closing and
(ii) the Purchaser will file with the United States Internal Revenue Service a Form 8832
electing to disregard Mergerco as an entity separate from the Purchaser for United States
Federal income tax purposes, such election to be effective as of the date Mergerco is
incorporated or acquired by the Purchaser and to be continuously effective from such
date through the date of the Merger;
WHEREAS, the Sellers wish to sell and transfer the Holdco Shares they obtain in
the Holdco Contribution to the Purchaser, and the Purchaser wishes to purchase and
acquire the Holdco Shares;
WHEREAS, immediately after the Closing, the Purchaser will cause Holdco to
merge with and into Mergerco (the “Merger”) upon the terms and subject to the
conditions set forth in the merger proposal pursuant to Article 2:312 of the Netherlands
Civil Code attached hereto as Exhibit A (the “Merger Proposal”) whereupon the separate
existence of Holdco shall cease and AEG shall thereafter be a wholly-owned first-tier
Subsidiary of Mergerco; and
WHEREAS, for United States Federal income tax purposes, it is intended that the
Sale Transaction be integrated with the Merger and that the Sale Transaction and the
Merger, taken together, qualify as a reorganization within the meaning of Section 368(a)
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of the Code and that this Agreement together with the Merger Proposal constitute “a plan
of reorganization” for United States Federal income tax purposes (it being understood
that the AEG Stakeholders and their advisors have made their own assessment of the
United States Federal income tax treatment of the transactions contemplated hereby and
the Purchaser did not participate in and shall have no responsibility for such assessment).
NOW, THEREFORE, the parties hereto agree as follows:
1.
ORGANIZATION OF HOLDCO; SALE AND PURCHASE;
CANCELLATION OF OPTIONS
1.1
Organization of Holdco; Holdco Contribution. Prior to the Closing, (a)
the Stakeholders’ Representative shall acquire Holdco or incorporate Holdco under the
laws of the Netherlands as a wholly-owned first-tier Subsidiary of the Stakeholders'
Representative, for the sole purpose of effectuating the transactions contemplated by this
Agreement, and (b) the Holdco Contribution shall occur. For the avoidance of doubt,
immediately subsequent to the Holdco Contribution, the capitalization of Holdco will be
identical to the capitalization of AEG immediately prior to the Holdco Contribution.
1.2
Sale and Purchase of the Holdco Shares. Subject to the terms and
conditions of this Agreement, at the Closing, the Sellers shall sell all of the Holdco
Shares, and the Purchaser shall purchase such Holdco Shares (the “Sale Transaction”).
Immediately after the Closing, the Purchaser will cause the Merger upon the terms and
subject to the conditions set forth in the Merger Proposal.
1.3
Cancellation of Holdco Options. Effective as of the Closing, all of the
Holdco Options then outstanding and not theretofore exercised, cancelled or rendered
unexercisable shall be cancelled and converted into the right to receive payments in
accordance with the terms of this Agreement.
1.4
Aggregate Consideration. At the Closing, as consideration for the Sale
Transaction and to fund the payments in respect of the Holdco Options cancelled
pursuant to Section 1.3, the Purchaser shall pay in accordance with Section 1.5 an
aggregate amount equal to the sum of (A) the Share Consideration, plus (B) the sum of
(x) the Base Cash Consideration plus (y) the Estimated Cash Consideration Adjustment
(which may be a positive or negative number) (such sum of (x) and (y), as may be
modified and reduced by the issuance of the Promissory Note pursuant to Section 5.9, the
“Estimated Cash Consideration”). Such amounts shall be subject to adjustment following
the Closing as hereinafter provided. In addition, the Purchaser shall be obligated under
Section 1.8 to pay the Earnout Consideration in accordance therewith.
1.5
Closing. Except for the execution of the Transfer Deed, as defined
hereunder, the closing of the Sale Transaction (the “Closing”) shall take place at the
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offices of Debevoise & Plimpton LLP, Tower 42, Old Broad Street, London ECN 1HQ,
at 10:00 A.M., London time, on the date that is three (3) business days after the
conditions set forth in Section 6 have been satisfied or waived (other than conditions that
by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of
such conditions) or at such other date and time as the Purchaser and the Stakeholders’
Representative shall have mutually agreed to in writing. The date on which the Closing
shall occur is hereinafter referred to as the “Closing Date.” At the Closing:
(a)
in connection with the execution of the notarial deed of transfer
before a civil law notary of NautaDutilh N.V., or any of his deputies (the
“Notary”), whereby the Holdco Shares shall be transferred by the Sellers to the
Purchaser with such transfer acknowledged by Holdco and approved by the
respective corporate body of Holdco as may be provided for in Holdco’s Articles
of Association (the “Transfer Deed”), the Purchaser shall pay the Estimated Cash
Consideration to the bank account in the name of Kwaliteitsrekening Notarissen
Amsterdam NautaDutilh N.V. with ABN AMRO Bank N.V., account number
45.24.77.999 with reference to file number 82034307;
(b)
each of the Sellers, the Purchaser and Holdco shall execute or have
executed the Transfer Deed before the Notary;
(c)
(i) the Notary shall be instructed to release to each of the Sellers in
respect of their Holdco Shares an amount of cash and (ii) the Purchaser shall allot
and issue (by way of registration in the Purchaser share register) to each of the
Sellers in respect of their Holdco Shares a number of Purchaser Consideration
Shares (of which 50% shall be Class A Purchaser Consideration Shares and 50%
shall be Class B Purchaser Consideration Shares) equal to the product of (x) the
number of Holdco Shares beneficially owned by such Seller (which shall equal
the number of AEG Shares beneficially owned by such Seller immediately prior
to the Holdco Contribution, as set forth on Section 2.4 of the Disclosure Letter (as
such section may be updated prior to the Closing)), multiplied by (y) the cash and
share components, respectively, of the Per Share Closing Date Consideration;
provided that the share portion of each such payment shall be reduced by the
number of shares payable in respect of such Seller to the Escrow Agent pursuant
to Section 1.5(f) for the account of the Tax Escrow Fund and to the Persons
designated by the Stakeholders’ Representative for certain expenses pursuant to
Section 1.5(h), and provided further, that the cash portion of each such payment
shall be (A) reduced by the amounts payable in respect of such Seller to the
Escrow Agent pursuant to Section 1.5(e) for the account of the Adjustment
Escrow Fund and Section 1.5(f) for the account of the Tax Escrow Fund, to the
Expense Agent pursuant to Section 1.5(g) and to Persons designated by the
Stakeholders’ Representative for certain expenses pursuant to Section 1.5(h) and
(B) subject to reduction for applicable employment and withholding Taxes
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relating to such Seller (it being understood that the amount of any such reduction
shall be paid to AEG or the appropriate Subsidiary for application as appropriate);
(d)
(i) the Notary shall be instructed to release to AEG, and AEG or
the appropriate Subsidiary shall deliver to each Option Holder in respect of all
Holdco Options held by such Option Holder an amount of cash and (ii) the
Purchaser shall allot and issue (by way of registration in the Purchaser share
register) to each Option Holder in respect of all Holdco Options held by such
Option Holder a number of Purchaser Consideration Shares (of which 50% shall
be Class A Purchaser Consideration Shares and 50% shall be Class B Purchaser
Consideration Shares) equal to the product of (x) the number of Holdco Shares
covered by Holdco Options held by such Option Holder (which shall equal the
number of AEG Shares covered by AEG Options held by such Option Holder
immediately prior to the Holdco Contribution, as set forth on Section 2.4 of the
Disclosure Letter (as such section may be updated prior to the Closing)),
multiplied by (y) the cash and share components, respectively, of the Per Share
Closing Date Consideration; provided that the share portion of each such payment
shall be reduced by the number of shares payable in respect of such Seller to the
Escrow Agent pursuant to Section 1.5(f) for the account of the Tax Escrow Fund
and to the Persons designated by the Stakeholders’ Representative for certain
expenses pursuant to Section 1.5(h), and provided further, that the cash portion of
each such payment shall be (A) reduced by the aggregate exercise price payable
under all such Holdco Options; (B) reduced by the amounts payable in respect of
such Option Holder to the Escrow Agent pursuant to Section 1.5(e) for the
account of the Adjustment Escrow Fund and Section 1.5(f) for the account of the
Tax Escrow Fund, to the Expense Agent pursuant to Section 1.5(g) and to Persons
designated by the Stakeholders’ Representative for certain expenses pursuant to
Section 1.5(h), and (C) subject to reduction for applicable employment and
withholding Taxes relating to such Option Holder;
(e)
the Notary shall be instructed to deposit with the Escrow Agent in
the Adjustment Escrow Fund, in accordance with the terms of the Escrow
Agreement, €5,000,000 as escrow for payments to be made under Section
1.6(e)(ii) and 1.6(h), and to deduct from the cash otherwise payable to each Seller
and each Option Holder pursuant to Sections 1.5(c) and 1.5(d), each such Seller’s
and each such Option Holder’s Relevant Stakeholder Percentage of such amount;
(f)
(i) the Notary shall be instructed to deposit with the Escrow Agent
in the Tax Escrow Fund €5,000,000 and to deduct from the cash otherwise
payable to each Seller and each Option Holder pursuant to Sections 1.5(c) and
1.5(d) each such Seller’s and each such Option Holder’s Relevant Stakeholder
Percentage of such amount and (ii) the Purchaser shall allot and issue (by way of
registration in the Purchaser share register) to the Escrow Agent for the account of
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the Tax Escrow Fund 500,000 Purchaser Consideration Shares and shall deduct
from the Purchaser Consideration Shares otherwise allotted to each Seller and
each Option Holder pursuant to Sections 1.5(c) and 1.5(d) each such Seller’s and
each such Option Holder’s Relevant Stakeholder Percentage of such number of
Purchaser Consideration Shares, both in accordance with the terms of the Tax
Escrow Agreement as escrow for payments to be made under Section 5.22;
(g)
the Notary shall be instructed to release to a third party, as may be
designated by the Stakeholders’ Representative upon the Closing Date (the
“Expense Agent”), €1,500,000 for deposit in the Stakeholder Expense Trust
Account, and to deduct from the cash otherwise payable to each Seller and each
Option Holder pursuant to Sections 1.5(c) and 1.5(d), each such Seller’s and each
such Option Holder’s Relevant Stakeholder Percentage of €1,500,000;
(h)
if so directed by the Stakeholders’ Representative, (x) the Notary
shall release to such Persons as may be designated by the Stakeholders’
Representative and deduct from the cash otherwise payable to each Seller and
each Option Holder pursuant to Sections 1.5(c) and 1.5(d) and (y) the Purchaser
shall allot and issue (by way of registration in the Purchaser share register) to such
Persons as may be designated by the Stakeholders’ Representative and reduce the
shares otherwise payable to each Seller and each Option Holder pursuant to
Sections 1.5(c) and 1.5(d), each Seller’s and each Option Holder’s Relevant
Stakeholder Percentage of any fees, costs and expenses incurred by AEG and its
Affiliates in connection with this Agreement and the transactions contemplated
hereby that have been approved by the Stakeholders’ Representative and have not
been elsewhere provided for; and
(i)
the Purchaser shall allot and issue (by way of registration in the
Purchaser share register), in accordance with the terms of the Escrow Agreement,
the Earnout Shares in the name of the Escrow Agent for the account of the
Earnout Escrow Fund to be held by the Escrow Agent pending payment or
application in accordance with Section 1.8. The Escrow Agent shall not vote any
Earnout Shares held by it.
Amounts of cash to be released by the Notary pursuant to this Section 1.5 shall be
released, immediately following the execution of the Transfer Deed, in the manner and
under the terms set forth in the notary letter to be entered into prior to the Closing among
the Notary and the parties hereto, by wire transfer on the Closing Date of immediately
available funds to such accounts as may be designated by the Stakeholders’
Representative no later than three (3) business days prior to the Closing Date.
Immediately following the execution of the Transfer Deed, the Purchaser shall (i) register
all the Purchaser Consideration Shares issuable as Share Consideration (other than any
shares escrowed pursuant to Section 5.22) in the Purchaser’s share register in the names
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of the respective Sellers and Option Holders entitled to receive such shares and/or their
designees, all shares escrowed pursuant to Section 5.22 in the Purchaser’s share register
in the name of the Escrow Agent for the account of the Tax Escrow Fund and the Earnout
Shares in the Purchaser’s share register in the name of the Escrow Agent for the account
of the Earnout Escrow Fund, and (ii) deliver a certified copy of the Purchaser share
register to the Stakeholders’ Representative and the Escrow Agent, reflecting the issuance
of such Purchaser Consideration Shares and Earnout Shares, and issue letters of allotment
in respect of such issuance. All actions to be taken and all documents to be executed and
delivered by the parties at the Closing (other than the Transfer Deed) will be deemed to
have been taken and executed simultaneously, and no such action will be deemed taken
nor any such document deemed executed or delivered until all such actions have been
taken and all such documents have been executed and delivered.
1.6
Consideration Adjustments.
(a) Not less than three (3) business days prior to the Closing, the
Stakeholders’ Representative shall deliver to the Purchaser the AEG Stakeholders’ good
faith estimate of (i) the Closing Date Net Cash, (ii) the Working Capital Adjustment and
(iii) the Cash Consideration Adjustment (such estimate, the “Estimated Cash
Consideration Adjustment” and, collectively, the “Adjustment Elements”), as prepared by
the AEG Stakeholders, and in relation to which KPMG Paris shall have been engaged by
the Parties to perform agreed-upon procedures, in each case together with reasonably
detailed back-up data to support such estimates, and calculated in accordance with the
Accounting Standards and the provisions of this Agreement. The AEG Stakeholders'
estimates of the Adjustment Elements shall be accompanied by a report of KPMG Paris
describing the factual findings resulting from the performance of such agreed upon
procedures on such estimates. If such report identifies any material variance from the
provisions of this Agreement or the Company's accounting records, Purchaser shall be
entitled, based on such variance, to object to the Estimated Cash Consideration
Adjustment, in which event the parties shall negotiate in good faith in an effort to agree
upon revisions to the Estimated Cash Consideration Adjustment or other appropriate
changes to the arrangements herein regarding the Adjustment Elements that address the
issues raised by the variance identified in the KPMG report, and the Closing shall be
delayed until the parties have so agreed.
(b) As soon as reasonably practicable following the Closing Date, and no later
than ninety (90) days after the Closing Date, the Stakeholders’ Representative shall
prepare and deliver to the Purchaser a statement setting forth the Stakeholders’
Representative’s calculation of each of the Adjustment Elements, together with
reasonably detailed back-up data including working papers to support such calculations,
and calculated in accordance with the Accounting Standards and the provisions of this
Agreement (the “Closing Date Statement”) together with the closing balance sheet of
AEG as of the Closing Date audited by KPMG Paris (the “Closing Balance Sheet”), in a
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manner consistent with the audits performed with respect to the AEG Audited Financial
Statements and with the same scope and materiality level as a year end audit, and such
audited Closing Balance Sheet will serve as the basis for the calculation of the
Adjustment Elements in the Closing Date Statement. The Purchaser shall use reasonable
best efforts to cause the AEG Companies to provide the Stakeholders’ Representative as
well as KPMG Paris with access to the AEG Companies’ employees, books and records
to the extent reasonably related to the Stakeholders’ Representative’s preparation of the
Closing Date Statement and the Closing Balance Sheet. The Stakeholders’
Representative shall cause KPMG Paris to deliver the Closing Balance Sheet to the
Purchaser and to make available during normal business hours, on advance notice, to the
Purchaser the employees of KPMG Paris who audited the Closing Balance Sheet.
(c) If in accordance herewith the Purchaser disagrees with any aspect of the
Closing Date Statement or the calculation of any of the Adjustment Elements or the
Closing Balance Sheet, the Purchaser shall deliver to the Stakeholders’ Representative a
reasonably detailed written notice of any such disagreement within forty-five (45) days
after its receipt of the later of the Closing Date Statement and the Closing Balance Sheet.
For the avoidance of doubt, it is expressly agreed that no objection may be raised and no
adjustment may be proposed by the Purchaser to any entry or item contained in the
Closing Date Statement or the calculation of any of the Adjustment Elements or the
Closing Balance Sheet except on the grounds that such item or entry has not been
calculated in accordance with the Accounting Standards and the provisions of this
Agreement. If no notice of disagreement of the Purchaser is received by the
Stakeholders’ Representative on or prior to the close of business on the last day of such
forty-five (45) day period, the Closing Date Statement and the calculation of the
Adjustment Elements set forth therein shall be deemed accepted by the Purchaser and
finalized. If any such notice of disagreement is timely provided, the Purchaser and the
Stakeholders’ Representative shall use their commercially reasonable efforts for a period
of thirty (30) days (or such longer period as they may mutually agree) to resolve any such
disagreements. If, at the end of such period, the parties are unable to resolve any such
disagreements, then an internationally recognized independent accounting firm mutually
selected by the Purchaser and the Stakeholders’ Representative (the “Independent
Accounting Firm”) shall resolve any remaining disagreements. If the Stakeholders’
Representative and the Purchaser are unable to agree upon the Independent Accounting
Firm within a further period of ten (10) days the Independent Accounting firm will be
determined by the President of the International Chamber of Commerce, Paris, France.
Each party agrees to execute in connection with the resolution of such disagreements, if
requested by the Independent Accounting Firm, a reasonable and customary engagement
letter. All fees and expenses relating to the work to be performed by the Independent
Accounting Firm pursuant to this Section 1.6 shall be paid by the Purchaser and the
Stakeholders’ Representative (on behalf of the AEG Stakeholders) in proportions inverse
to the relative extent to which they prevail on matters relating to this Section 1.6 resolved
by the Independent Accounting Firm, which proportionate allocation shall be determined
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by the Independent Accounting Firm. The Independent Accounting Firm shall act as an
expert and not as an arbitrator to determine, based solely on presentations by the
Stakeholders’ Representative and the Purchaser, and not by independent investigation of
the underlying facts, only those issues and amounts still in dispute and shall be limited to
those adjustments, if any, that need be made for the calculation of the Adjustment
Elements to comply with the provisions of this Agreement. The Stakeholders’
Representative and the Purchaser shall cooperate with the Independent Accounting Firm
during the term of such engagement. In resolving any such matters in dispute with
respect to any item or entry as to which both the Stakeholders’ Representative and the
Purchaser have assigned values, the Independent Accounting Firm may not assign a value
to any item or entry in dispute greater than the greatest value or less than the smallest
value for such item or entry assigned by the Stakeholders’ Representative, on the one
hand, or by the Purchaser, on the other hand. The Independent Accounting Firm’s
determination shall be based solely on presentations (including work papers) by the
Stakeholders’ Representative and the Purchaser or by their respective representatives
which are in accordance with the guidelines and procedures set forth in this Agreement
(i.e., not on the basis of an independent investigation of the underlying facts). The
Independent Accounting Firm’s determination under this Section 1.6 shall be requested to
be made within thirty (30) days of the conclusion of the presentation of evidence by the
parties and to be set forth in a written statement delivered to the Stakeholders’
Representative and the Purchaser. In absence of manifest error such determination shall
be final, binding and conclusive for all purposes of this Agreement and not subject to any
further recourse by any party pursuant to any provision hereof.
(d) For purposes of this Agreement, the “Final Cash Consideration
Adjustment” shall mean the Cash Consideration Adjustment as finally determined in
accordance with this Section 1.6, which may be a positive or negative number.
(e) Upon the determination of the Final Cash Consideration Adjustment,
subject to Sections 1.6(h) and 1.6(i):
(i)
if the Final Cash Consideration Adjustment is greater than the
Estimated Cash Consideration Adjustment, the Purchaser shall pay or shall cause
AEG to pay the amount by which the Final Cash Consideration Adjustment
exceeds the Estimated Cash Consideration Adjustment, together with any interest
payable thereon pursuant to Section 1.6(g), in cash to the Stakeholders’
Representative who shall deliver such payment to the Sellers and Option Holders,
pro rata in accordance with each Seller’s and Option Holder’s Relevant
Stakeholder Percentage; or
(ii)
if the Final Cash Consideration Adjustment is less than the
Estimated Cash Consideration Adjustment, the Stakeholders’ Representative shall
instruct the Escrow Agent to pay from the Adjustment Escrow Fund the amount
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by which the Estimated Cash Consideration Adjustment exceeds the Final Cash
Consideration Adjustment, together with any interest payable thereon pursuant to
Section 1.6(g), in cash to the Purchaser.
(f) Any payments made to the Sellers or the Option Holders pursuant to this
Section 1.6 shall be subject to reduction for applicable employment and withholding
Taxes (it being understood that the amount of any such reduction shall be paid to AEG or
the appropriate subsidiary for application as appropriate).
(g) All payments under Section 1.6(e) shall be made, together with interest on
such amount from the Closing Date to the date of payment at an interest rate equal to the
three (3) month Euro Inter-Bank Offered Rate (EURIBOR), as displayed on the
appropriate page of the Reuters screen on the Closing Date, plus 2.00%, by wire transfer
of immediately available funds to such accounts as may be designated, at least three (3)
business days prior to the date on which such payment is to be made, by the recipient of
such payment.
(h) The Purchaser’s and AEG’s sole and exclusive recourse for any amounts
due under Sections 1.6(e)(ii) and this Section 1.6(h) shall be limited to the payment to
them of the funds on deposit with the Escrow Agent in the Adjustment Escrow Fund
pursuant to Section 1.5(e) and any interest actually earned thereon (such amount, the
“Maximum Final Adjustment”).
(i) The AEG Stakeholders’ sole and exclusive recourse for any amounts due
under Sections 1.6(e)(i) and this Section 1.6(i) shall be limited to the payment to them of
an amount equal to the Maximum Final Adjustment.
(j) Following all payments and distributions required by this Section 1.6, the
parties shall instruct the Escrow Agent to deliver to the Sellers and Option Holders any
portion of the cash (and any interest thereon) deposited with the Escrow Agent in the
Adjustment Escrow Fund under Section 1.5(e) which is not distributed to the Purchaser
or AEG hereunder.
(k) Notwithstanding anything in this Section 1.6 or Section 1.4 to the
contrary, any payment of the Estimated Cash Consideration Adjustment under Section
1.4 or any payment under 1.6(e)(i) that would, but for this Section 1.6(k), be made in
cash shall instead be made in the form of Purchaser Consideration Shares (of which 50%
shall be Class A Purchaser Consideration Shares and 50% shall be Class B Purchaser
Consideration Shares, each of which shall, for purposes of determining the number of
such shares required to replace any amount of cash, be valued at €10 per share) if and to
the extent making such payment in cash would have caused the total consideration paid to
the Sellers in the form of Purchaser Consideration Shares to be less than 41% of the total
consideration paid to the Sellers. For purposes of determining the percentage of the total
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consideration paid to Sellers in Purchaser Consideration Shares (i) the Purchaser
Consideration Shares shall be valued at the Signing Date Share Price, (ii) any contingent
consideration shall be disregarded until fixed and (iii) the face amount of any Promissory
Note shall be treated as a cash payment. If an adjustment is made to the form of
consideration payable to the Sellers under this Section 1.6(k), an equivalent adjustment
shall be made to the form of consideration payable to the Option Holders. In any event,
the maximum amount of Purchaser Consideration Shares so issued shall at no time
exceed 2,500,000.
1.7
Stakeholder Expense Trust Account. The Stakeholders’ Representative
shall be entitled to direct the Expense Agent to pay (or reimburse to any AEG
Stakeholder or the Stakeholders’ Representative that has previously paid) from the
Stakeholder Expense Trust Account (i) any expenses incurred by AEG and its Affiliates
that have been approved by the Stakeholders’ Representative and not been elsewhere
provided for and/or (ii) any reasonable out-of-pocket expenses incurred by the
Stakeholders’ Representative in connection with the performance of its rights and
obligations under this Agreement. Upon the Stakeholders’ Representative’s
determination that all such expenses have been paid or reimbursed and that no additional
payment or reimbursement of such expenses will be necessary, the Stakeholders’
Representative shall direct the Expense Agent to pay to each of the Sellers and Option
Holders any amount remaining in the Stakeholder Expense Trust Account, pro rata in
accordance with such Seller’s or Option Holder’s Relevant Stakeholder Percentage. Any
payments made to the Sellers or the Option Holders pursuant to this Section 1.7 shall be
subject to reduction for applicable employment and withholding Taxes (it being
understood that the amount of any such reduction shall be paid to AEG or the appropriate
subsidiary for application as appropriate).
1.8
Earnout.
(a) Earnout Payments; Release of Earnout Shares. As further consideration
for the Sale Transaction and as further payment in respect of the Holdco Options:
(i)
If Adjusted EBITDA in respect of the 2009 Earnout Period is less
than 90% of Targeted Adjusted EBITDA for such Earnout Period, no amount of
Earnout Consideration shall be payable in respect of the 2009 Earnout Period and
the Purchaser and the Stakeholders’ Representative shall instruct the Escrow
Agent to release from the Earnout Escrow Fund to the Purchaser a number of
Earnout Shares, which shall all be Purchaser Shares received on conversion of
Class A Purchaser Consideration Shares, equal to 36% of the original number of
Earnout Shares (as adjusted by Section 1.8(d)). Such instruction shall be given no
later than five (5) business days after the Earnout Certificate setting forth
Adjusted EBITDA for the 2009 Earnout Period is finalized in accordance with
Sections 1.8(b) and 1.8(c).
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(ii)
If Adjusted EBITDA in respect of the 2009 Earnout Period is equal
to or greater than 90% of Targeted Adjusted EBITDA for the 2009 Earnout
Period, the Purchaser and the Stakeholders’ Representative shall instruct the
Escrow Agent to release from the Earnout Escrow Fund to the Sellers and Option
Holders, subject to Section 1.10, a number of Earnout Shares, which shall all be
Purchaser Shares received on conversion of Class A Purchaser Consideration
Shares, equal to 36% of the original number of Earnout Shares (as adjusted by
Section 1.8(d)), in each case, on a pro rata basis in accordance with such Seller’s
or Option Holder’s Relevant Stakeholder Percentage, free and clear of offsets or
deductions. Such instruction shall be given no later than five (5) business days
after the applicable Earnout Certificate setting forth Adjusted EBITDA for such
Earnout Period is finalized in accordance with Sections 1.8(b) and 1.8(c).
(iii) If Adjusted EBITDA in respect of the 2009 Earnout Period
exceeds 90% of Targeted Adjusted EBITDA for the 2009 Earnout Period, the
Purchaser shall pay the Sellers and Option Holders an amount equal to €9,000,000
multiplied by the lesser of (x) 1 and (y) a fraction, the numerator of which is the
amount by which Adjusted EBITDA in respect of the 2009 Earnout Period
exceeds 90% of Targeted Adjusted EBITDA for such period and the denominator
of which is 10% of Targeted Adjusted EBITDA for such period (such payment
under this subparagraph (iii), the “2009 Cash Earnout Payment”), together with
any interest payable thereon pursuant to Section 1.8(a)(xii), on a pro rata basis in
accordance with such Seller’s or Option Holder’s Relevant Stakeholder
Percentage, free and clear of offsets or deductions (other than any applicable
withholding obligations). Such payment shall be made no later than five (5)
business days after the Earnout Certificate setting forth Adjusted EBITDA for the
2009 Earnout Period is finalized in accordance with Sections 1.8(b) and 1.8(c).
(iv)
If Adjusted EBITDA in respect of the 2010 Earnout Period is less
Class A Purchaser Consideration Shares and/or Class B Purchaser Consideration
Section 1.8(d)). Such instruction shall be given no later than five (5) business
days after the Earnout Certificate setting forth Adjusted EBITDA for the 2010
(v)
If Adjusted EBITDA in respect of the 2010 Earnout Period is equal
Period, (x) the Purchaser shall pay the Sellers and Option Holders an additional
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€8,500,000, together with any interest payable thereon pursuant to Section
1.8(a)(xii), and (y) the Purchaser and the Stakeholders’ Representative shall
instruct the Escrow Agent to release from the Earnout Escrow Fund to the Sellers
and Option Holders, subject to Section 1.10, a number of Earnout Shares, which
shall all be Purchaser Shares received on conversion of Class A Purchaser
Consideration Shares and/or Class B Purchaser Consideration Shares, equal to
34% of the original number of Earnout Shares (as adjusted by Section 1.8(d)), in
each case, on a pro rata basis in accordance with such Seller’s or Option Holder’s
Relevant Stakeholder Percentage, free and clear of offsets or deductions (other
than any applicable withholding obligations). Such payment shall be made and
such instruction shall be given no later than five (5) business days after the
applicable Earnout Certificate setting forth Adjusted EBITDA for such Earnout
Period is finalized in accordance with Sections 1.8(b) and 1.8(c).
(vi)
If (i) Adjusted EBITDA in respect of the 2009 Earnout Period is
equal to or greater than 90% of Targeted Adjusted EBITDA for the 2009 Earnout
Period and (ii) Adjusted EBITDA in respect of the 2010 Earnout Period exceeds
100% of Targeted Adjusted EBITDA for the 2010 Earnout Period the Purchaser
shall pay the Sellers and Option Holders an additional amount equal to (A) the
amount by which €9,000,000 exceeds the 2009 Cash Earnout Payment, if any,
multiplied by (B) the lesser of (x) 1 and (y) a fraction, the numerator of which is
the amount by which Adjusted EBITDA in respect of the 2010 Earnout Period
exceeds 100% of Targeted Adjusted EBITDA for such period and the
denominator of which is 10% of Targeted Adjusted EBITDA for such period
(such payment under this subparagraph (vi), the “2010 Catch-up Payment”),
together with any interest payable thereon pursuant to Section 1.8(a)(xii), on a pro
rata basis in accordance with such Seller’s or Option Holder’s Relevant
Stakeholder Percentage, free and clear of offsets or deductions (other than any
applicable withholding obligations). Such payment shall be made no later than
five (5) business days after the Earnout Certificate setting forth Adjusted
EBITDA for the 2010 Earnout Period is finalized in accordance with Sections
1.8(b) and 1.8(c).
(vii) If Adjusted EBITDA in respect of the 2011 Earnout Period is less
Class A Purchaser Consideration Shares and/or Class B Purchaser Consideration
Section 1.8(d)). Such instruction shall be given no later than five (5) business
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days after the Earnout Certificate setting forth Adjusted EBITDA for the 2011
(viii) If Adjusted EBITDA in respect of the 2011 Earnout Period is equal
Period, (x) the Purchaser shall pay the Sellers and Option Holders an additional
€7,500,000, together with any interest payable thereon pursuant to Section
1.8(a)(xii), and (y) the Purchaser and the Stakeholders’ Representative shall
instruct the Escrow Agent to release from the Earnout Escrow Fund to the Sellers
and Option Holders, subject to Section 1.10, a number of Earnout Shares, which
shall all be Purchaser Shares received on conversion of Class A Purchaser
Consideration Shares and/or Class B Purchaser Consideration Shares, equal to
30% of the original number of Earnout Shares (as adjusted by Section 1.8(d)), in
each case, on a pro rata basis in accordance with such Seller’s or Option Holder’s
Relevant Stakeholder Percentage, free and clear of offsets or deductions (other
than any applicable withholding obligations). Such payment shall be made and
such instruction shall be given no later than five (5) business days after the
applicable Earnout Certificate setting forth Adjusted EBITDA for such Earnout
Period is finalized in accordance with Sections 1.8(b) and 1.8(c).
(ix)
If (i) Adjusted EBITDA in respect of the 2009 Earnout Period is
equal to or greater than 90% of Targeted Adjusted EBITDA for the 2009 Earnout
Period and (ii) Adjusted EBITDA in respect of the 2011 Earnout Period exceeds
100% of Targeted Adjusted EBITDA for the 2011 Earnout Period the Purchaser
shall pay the Sellers and Option Holders an additional amount equal to (A) the
amount by which €9,000,000 exceeds the sum of the 2009 Cash Earnout Payment,
if any, and the 2010 Catch-up Payment, if any, multiplied by (B) the lesser of (x)
1 and (y) a fraction, the numerator of which is the amount by which Adjusted
EBITDA in respect of the 2011 Earnout Period exceeds 100% of Targeted
Adjusted EBITDA for such period and the denominator of which is 10% of
Targeted Adjusted EBITDA for such period, together with any interest payable
thereon pursuant to Section 1.8(a)(xii), on a pro rata basis in accordance with
such Seller’s or Option Holder’s Relevant Stakeholder Percentage, free and clear
of offsets or deductions (other than any applicable withholding obligations). Such
payment shall be made no later than five (5) business days after the Earnout
Certificate setting forth Adjusted EBITDA for the 2011 Earnout Period is
finalized in accordance with Sections 1.8(b) and 1.8(c).
(x)
If, following the finalization of the Earnout Certificate setting forth
Adjusted EBITDA for the 2011 Earnout Period and the making of all payments
and distributions of Earnout Shares required to be made under subparagraphs (i)
through (ix) above the Escrow Agent continues to hold any Earnout Shares, the
Purchaser and the Stakeholders’ Representative shall instruct the Escrow Agent to
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release from the Earnout Escrow Fund to the Purchaser all remaining Earnout
Shares.
(xi)
The cash payments made to the Sellers or the Option Holders
pursuant to this Section 1.8 shall be subject to reduction for any applicable
employment and withholding Taxes in respect of any payment pursuant to this
Section 1.8 (it being understood that the amount of any such reduction shall be
paid to AEG or the appropriate Subsidiary for application as appropriate).
(xii) All cash payments under this Section 1.8 shall be made, together
with interest on such amount from the date that is five (5) business days after the
Purchaser delivers the Earnout Certificate to the Purchaser pursuant to Section
1.8(b) at an interest rate equal to the three (3) month Euro Inter-Bank Offered
Rate (EURIBOR), as displayed on the appropriate page of the Reuters screen on
the Closing Date, plus 2.00%, in cash by wire transfer of immediately available
funds to such accounts as may be designated, at least three (3) business days prior
to the date on which such payment is to be made, by the recipient of such
payment.
(xiii) Illustrations of the determination of Adjusted EBITDA and the
determination of the amounts payable under this Section 1.8 are set forth on
Exhibit B.
(b) Earnout Certificate. As promptly as practicable, but no later than ninety
(90) days after December 31, 2009, December 31, 2010 or December 31, 2011, as the
case may be, the Purchaser shall deliver to the Stakeholders’ Representative (i) a
certificate setting forth in reasonable detail the Purchaser’s calculation of Adjusted
EBITDA for the fiscal year ending on such date (respectively, the “2009 Earnout Period”,
the “2010 Earnout Period” and the “2011 Earnout Period”), prepared in accordance with
the principles and procedures set forth on Exhibit B (an “Earnout Certificate”) and (ii)
audited consolidated financial statements of the Purchaser and its consolidated
Subsidiaries, if any, for such Earnout Period, prepared in accordance with IFRS applied
in a manner consistent with the application of IFRS in the preparation of the AEG
Audited Financial Statements for the year ended December 31, 2008.
(c) Dispute Resolution. If in accordance herewith the Stakeholders’
Representative disagrees with any aspect of an Earnout Certificate and the calculation of
Adjusted EBITDA for the applicable Earnout Period or believes that the Purchaser is not
in compliance with Sections 1.8(e) or 1.8(f), the Stakeholders’ Representative shall
deliver to the Purchaser a reasonably detailed written notice of any such disagreement or
belief within forty-five (45) days after its receipt of such Earnout Certificate. For the
avoidance of doubt, it is expressly agreed that no objection may be raised to an item
contained in the Earnout Certificate or the calculation of Adjusted EBITDA for the
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applicable Earnout Period except on the grounds that such item has not been calculated in
accordance with the principles and procedures set forth in Exhibit B. If no notice of
disagreement is received by the Purchaser on or prior to the close of business on the last
day of such forty-five (45) day period, the Earnout Certificate and the calculation of
Adjusted EBITDA for the applicable Earnout Period shall be deemed accepted by the
Stakeholders’ Representative and finalized. If any such notice of disagreement is timely
provided or if the Stakeholders’ Representative believes that the Purchaser is not in
compliance with its agreements in Sections 1.8(e) and 1.8(f), the Purchaser and the
Stakeholders’ Representative shall use their commercially reasonable efforts for a period
of thirty (30) days following the Purchaser’s receipt of such disagreement notice or
providing written notice of such belief (or such longer period as they may mutually
agree) to resolve any such disagreements. If, at the end of such period, the parties are
unable to resolve any such disagreements, then the Independent Accounting Firm,
determined in accordance with Section 1.6(c), shall resolve any remaining disagreements.
Each party agrees to execute in connection with the resolution of such disagreements, if
requested by the Independent Accounting Firm, a reasonable and customary engagement
letter. All fees and expenses relating to the work to be performed by the Independent
Accounting Firm pursuant to this Section 1.8 shall be paid by the Purchaser and the
Stakeholders’ Representative (on behalf of the AEG Stakeholders) in proportions inverse
to the relative extent to which they prevail on those matters included in the notice of
disagreement which are not resolved by negotiation between the parties and so are
referred to the Independent Accounting Firm for determination, which proportionate
allocation shall be determined by the Independent Accounting Firm. The Independent
Accounting Firm shall act as an expert and not as an arbitrator to determine, based solely
on presentations by the Stakeholders’ Representative and the Purchaser, and not by
independent review, only those issues and amounts still in dispute and shall be limited to
those items, if any, that need be made for the calculation of Adjusted EBITDA for the
applicable Earnout Period to comply with the provisions of this Agreement. The
Stakeholders’ Representative and the Purchaser shall cooperate with the Independent
Accounting Firm during the term of such engagement. In resolving any such matters in
dispute with respect to any item as to which both the Stakeholders’ Representative and
the Purchaser have assigned values, the Independent Accounting Firm may not assign a
value to any item in dispute greater than the greatest value or less than the smallest value
for such item assigned by the Stakeholders’ Representative, on the one hand, or by the
Purchaser, on the other hand. The Independent Accounting Firm’s determination shall be
based solely on presentations (including work papers) by the Stakeholders’
Representative and the Purchaser or by their respective representatives which are in
accordance with the guidelines and procedures set forth in this Agreement (i.e., not on the
basis of an independent review). The Independent Accounting Firm’s determination
under this Section 1.8 shall be requested to be made within thirty (30) days of the
conclusion of the presentation of evidence by the parties and to be set forth in a written
statement delivered to the Stakeholders’ Representative and the Purchaser. In absence of
manifest error such determination shall be final, binding and conclusive for all purposes
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of this Agreement and not subject to any further recourse by any party pursuant to any
provision hereof.
(d) Certain Adjustments. If, between the Closing Date and the date of a
payment of Earnout Consideration pursuant to this Section 1.8, the Purchaser Shares shall
have been increased, decreased, changed into or exchanged for a different number of
shares or different class, in each case, by reason of any reclassification, recapitalization,
stock split, split-up, combination or exchange of shares or a stock dividend or dividend
payable in any other securities shall be declared with a record date within such period, or
any similar event shall have occurred, and if for any reason the number of Earnout Shares
held by the Escrow Agent that have, as of such date, converted into Purchaser Shares was
not proportionately increased as a result of such event or action, the Purchaser shall
deposit with the Escrow Agent for the account of the Earnout Escrow Fund additional
Purchaser Shares sufficient to maintain the percentage interest in the Purchaser
represented by the Earnout Shares. For the avoidance of doubt, this Section 1.8(d) is not
intended to require any adjustment to the Earnout Shares in the event that the Purchaser
issues Purchaser Shares in an acquisition of a Person unaffiliated with the Purchaser or
AEG or otherwise for value.
(e) Protective Provisions. To protect the integrity of the business
understanding regarding the Earnout Consideration, the Purchaser shall:
(i)
cause AEG and its Subsidiaries to conduct their Business during
the Earnout Period in a manner materially consistent with past practice;
(ii)
refrain, and cause AEG and its Subsidiaries to refrain, from taking
any action which could reasonably be expected to adversely affect in a material
way the opportunity of the Sellers and Option Holders to receive all the Earnout
Shares; and
(iii) cause AEG and its Subsidiaries to maintain their books and records
in accordance with past practice, prepare quarterly unaudited and annual audited
financial statements in accordance with IFRS applied in a manner consistent with
past practice, maintain the same fiscal years as prior to the Closing and maintain
the same revenue recognition practices as in the 2008 Management Accounts;
except where the actions in clauses (i), (ii) or (iii) above shall have been approved by the
Ripplewood Board Designees.
(f) Change of Control, etc. The Purchaser shall not take any action or cause
Mergerco, AEG or any of its Subsidiaries to effect any merger (other than the Merger),
consolidation, sale, disposition or other transfer of all or substantially all the assets or
outstanding equity interests in the Purchaser or any of its Subsidiaries in one or a series of
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related transactions or any recapitalization of the Purchaser and its Subsidiaries or any
similar transaction with respect to the Purchaser or any of its Subsidiaries or their
respective Businesses (a “Change of Control Transaction”) during any Earnout Period,
unless (x) the Purchaser has obtained the prior written consent of the Stakeholders’
Representative thereto or (y) prior thereto the Purchaser and the Stakeholders’
Representative have instructed the Escrow Agent to release, and the Escrow Agent shall
have released from the Earnout Escrow Fund, and the Purchaser shall have paid to the
Sellers and Option Holders (A) if prior to December 31, 2009, all of the Earnout Shares
and €25,000,000, (B) if after December 31, 2009 and prior to December 31, 2010, the
sum of (x) a number of Earnout Shares equal to 64% of the original number Earnout
Shares (as adjusted by Section 1.8(d)), (y) €16,000,000 and (z) if Adjusted EBITDA in
respect of the 2009 Earnout Period is equal to or greater than 90% of Targeted Adjusted
EBITDA for the 2009 Earnout Period, €9,000,000 minus the 2009 Cash Earnout
Payment, if any, and (C) if after December 31, 2010 and prior to December 31, 2011, the
sum of (x) a number of Earnout Shares equal to 30% of the original number Earnout
Shares (as adjusted by Section 1.8(d)), (y) €7,500,000 and (z) if Adjusted EBITDA in
respect of the 2009 Earnout Period is equal to or greater than 90% of Targeted Adjusted
EBITDA for the 2009 Earnout Period, €9,000,000 minus the sum of the 2009 Cash
Earnout Payment, if any, and the 2010 Catch-up Payment, if any.
1.9
Applicable Financial Definitions.
“Accounting Standards” means (i) accounting principles and rules of
practice as set forth in Exhibit C, including the policies, procedures, judgments,
methodologies and estimates consistent therewith, and (ii) where the accounting
treatment set out in (i) does not deal with a matter, applying the policies,
procedures, judgments, methodologies and estimates which were used in
preparing the AEG Audited Financial Statements for the year ended December
31, 2008 insofar as it results in a treatment which complies with IFRS and (iii)
where the accounting treatments set out in (i) and (ii) do not deal with the matter,
applying a manner of accounting in accordance with IFRS as in effect on
December 31, 2008.
“Adjusted Current Assets” means the sum of the following line items in
the Closing Balance Sheet (which follow the same classification as in the AEG
Audited Financial Statements for the year ended December 31, 2008), subject to
the principles, exceptions and exclusions set for in the Accounting Standards,
including Part II of Exhibit C: (i) Trade Receivables and Related Accounts, (ii)
Inventories, (iii) Advances and Progress Payments, (iv) Other Current Assets and
(v) current income Tax assets. For the avoidance of doubt, Adjusted Current
Assets will not include cash and cash equivalents.
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“Adjusted Current Liabilities” means the sum of the following line items
in the Closing Balance Sheet (which follow the same classification as in the AEG
Audited Financial Statements for the year ended December 31, 2008), subject to
the principles, exceptions and exclusions set for below and in the Accounting
Standards, including Part II of Exhibit C: (i) Trade Payables and Related
Accounts, (ii) Provisions, (iii) Customers’ Deposits and Advances, (iv) Other
Current Liabilities and (v) current income Tax Liabilities. Within Provisions, the
Provision for accrued restructuring expenses (see note 22a to the AEG Audited
Financial Statements for the year ended December 31, 2008) will equal
€4,800,000. This commercially agreed amount of €4,800,000 encompasses
restructuring provisions in the meaning of IAS 37 as well as provisions for
redundancies and the provision for the German old age part-time scheme
(Altersteilzeit) and any other programs or accrued charges or provisions of the
type that were characterized as provision for accrued restructuring expenses in the
AEG Audited Financial Statements. Notwithstanding the foregoing, within
Provisions the amount of severance and other change of control payments
triggered by the transactions contemplated hereby shall be accrued. In addition,
within Provisions the full amount of the stay bonuses payable to Gladwyn De
Vidts, Marios Michaelides and Michael Julian shall be accrued. For the
avoidance of doubt, Adjusted Current Liabilities will not include (a) the current
portion of any long-term Indebtedness, (b) any short-term Indebtedness, and (c)
any liabilities relating to the Covered German Taxes.
“Adjusted EBITDA” means, for any period, for AEG’s Industrial Power
Solutions Group, the EBIT of such group for such period, extracted from and
determined in a manner consistent with AEG’s management reporting for the year
ended December 31, 2008 as shown in Exhibit B, plus the amounts, to the extent
deducted in arriving at EBIT, of such group’s charges for depreciation and
amortization for such period. For the avoidance of doubt, in determining EBIT
and Adjusted EBITDA, the following shall apply:
(i)
No effect shall be given to accounting adjustments occasioned by
the transactions contemplated hereby, including any purchase accounting
adjustments;
(ii)
Payments or charges made or taken in connection with the
transactions contemplated hereby, including exchanges or settlements of options
or payments or charges caused or required in whole or in part by the change of
control, shall not be taken into account;
(iii) Any gains and losses on hedging obligations or other derivative
instruments entered into for the purpose of hedging interest rate risk (if any) and
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any costs associated with surety, bonding or like arrangements, if any, shall be
treated as interest and excluded from EBIT;
(iv)
Extraordinary non-recurring gains and losses are not included in
(v)
Restructuring charges, including severance pay are not included in
EBIT;
EBIT;
(vi)
Headquarters and parent company expenses (including public
company expenses, corporate overhead and allocations thereof, management and
consulting fees to shareholders) as reported in the column “shared” in AEG’s
management reporting for the year ended December 31, 2008 as shown in Exhibit
B are not included in EBIT; and
(vii) Costs and expenses associated with management equity, stock
option or like plans and arrangements are not included in EBIT.
“Adjustment Elements” has the meaning set forth in Section 1.6(b).
“Advances and Progress Payments” means the balance of such items
derived from AEG’s general ledger and calculated in a manner consistent with the
Accounting Standards.
“Cash Consideration Adjustment” means the sum of Closing Date Net
Cash and the Working Capital Adjustment.
“Closing Balance Sheet” has the meaning set forth in Section 1.6(b).
“Closing Date Net Cash” means the amount, determined as of the Closing
but without giving effect to the transactions contemplated hereby, by which the
cash and cash equivalents of AEG and its Subsidiaries (determined without regard
to any restrictions on the use thereof) exceed the sum of (i) the Indebtedness of
AEG and its Subsidiaries; (it being understood that for purposes of this definition
the interest-free loans to an AEG Subsidiary from the Ministry of Education of
Spain shall be valued at a discount of 40% to the aggregate principal amounts
thereof) plus (ii) €8,376,000 (representing 50% of the funded status of pension
and other post-retirement obligations (less actuarial gains) of the AEG Companies
as of December 31, 2008). For purposes of determining Closing Date Net Cash,
the cash and equivalents of AEG and its Subsidiaries shall be reduced by those
fees, costs and expenses of AEG and its Affiliates being paid by AEG in
connection with the consummation of the transactions contemplated hereby.
Closing Date Net Cash shall be a positive number if cash and cash equivalents
exceed the sum of (i) and (ii), and negative if the reverse is the case. The items to
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be taken into account (but not the figures) and the calculation of Closing Date Net
Cash are shown on Exhibit D.
“Closing Date Statement” has the meaning set forth in Section 1.6(b).
“Closing Date Working Capital” means Adjusted Current Assets minus
Adjusted Current Liabilities, as of the Closing but without giving effect to the
transactions contemplated hereby. For purposes of determining Closing Date
Working Capital, fees, costs and expenses of AEG and its Affiliates that are not
being paid in connection with the consummation of the transactions contemplated
hereby shall be reflected in Adjusted Current Liabilities. The items to be taken
into account (but not the figures) and the calculation of Closing Date Working
Capital are shown on Exhibit E, which shows how the components of the
definition of Adjusted Current Assets and Adjusted Current Liabilities shall be
obtained from the AEG Audited Financial Statements, and how these shall be
grouped into “Closing Date Working Capital”.
“Covered German Taxes” means German taxes in the meaning of Sec. 3
Para 1 to 4 of the German General Tax Code (Abgabenordnung), less any related
post-Closing tax benefits, payable by AEG or any Subsidiary of AEG organized
in Germany (i) for taxable years 2004 - 2007 imposed as a result of the current
audit by the German tax authority and (ii) for the 2008 taxable year and the
portion of the 2009 taxable year ending before the Closing Date (to the extent
attributable to issues raised in the current audit by the German tax authority).
“Customers’ Deposits and Advances” means the balance of such items
derived from AEG’s general ledger and calculated in a manner consistent with the
Accounting Standards.
“EBIT” means earnings before interest and taxes.
“Estimated Cash Consideration Adjustment” has the meaning set forth in
Section 1.6(a).
“Intercompany Indebtedness” means, with respect to the AEG Companies,
all outstanding Indebtedness owed by any AEG Company to any other AEG
Company.
“Inventories” means the balance of such items derived from AEG’s
general ledger and includes raw materials, work in progress and finished goods;
provided that inventory shall be calculated net of a reserve for slow moving and
obsolete inventory, using the same method of calculation as in the Accounting
Standards.
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“Maximum Final Adjustment” has the meaning set forth in Section 1.6(h).
“Other Current Assets” means the balance of such items derived from
AEG’S general ledger and calculated in a manner consistent with the Accounting
Standards.
“Other Current Liabilities” means the balance of such items derived from
AEG’s general ledger and calculated in a manner consistent with the Accounting
Standards.
“Provisions” means the balance of such items derived from AEG’s general
ledger and calculated in a manner consistent with the Accounting Standards;
provided that this definition shall exclude any balances for accrued restructuring.
“Target Working Capital” means €33,243,000.
“Trade Payables and Related Accounts” means the balance of such items
derived from AEG’s general ledger and represents those cash obligations
expected to be paid in less than one year and otherwise not reported in any other
balance sheet account, excluding (i) any amounts due to affiliates of the
Ripplewood Entities, (ii) any amounts due to the AEG management board, and
any expenses related to the transactions contemplated hereby.
“Trade Receivables and Related Accounts” means the balance of such
items derived from AEG’s general ledger that represents all obligations due the
AEG Companies for goods and services recognized as revenue as of the Closing
Date; provided that accounts receivables shall be calculated net of an allowance
for doubtful accounts, using the same method of calculation as in the Accounting
Standards.
“Working Capital Adjustment” means the difference of Closing Date
Working Capital and Target Working Capital. The Working Capital Adjustment
shall be positive if Closing Date Working Capital exceeds Target Working
Capital and negative if Target Working Capital exceeds Closing Date Working
Capital.
1.10 No Fractional Shares. Notwithstanding anything in this Agreement to the
contrary, no fraction of a Purchaser Share will be issued in connection with the Sale
Transaction (including any payment of the Earnout Consideration under Section 1.8) or
the other transactions contemplated hereby, and in lieu thereof any Seller or Option
Holder who would otherwise have been entitled to receive or required to surrender, as the
case may be, a fraction of a Purchaser Share shall be paid or pay, as the case may be
(without interest), cash in an amount equal to the product obtained by multiplying (i) such
fractional share interest by (ii) €10.
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1.11
Governance Arrangements.
(a) The Purchaser shall propose to its shareholders to elect the following
persons as sole members of the board of directors: (i) Tim Collins and Leonhard Fischer,
(the “Ripplewood Board Designees”), (ii) Roland Berger, Keith Corbin and Mark
Wössner, and (iii) Bruce Brock and Robert Huljak, as executive members. Each of the
Ripplewood Board Designees shall receive the benefit of a customary indemnification
agreement. Each of the Ripplewood Board Designees shall be appointed to serve on the
board of directors of the Purchaser for a two (2) year term commencing on the Closing
Date, pursuant to appointment letters, in the form attached hereto as Exhibit F
(“Appointment Letter”).
(b) Effective as of the Closing, the directors and officers of the AEG
Companies listed in Section 1.11(b) of the Disclosure Letter shall have resigned from
office.
2.
STAKEHOLDERS. Except as set forth in the disclosure letter delivered to the Purchaser
on the date hereof and constituting an integral part of this Agreement (the “Disclosure
Letter”), provided that the disclosure of any matter in any Section of the Disclosure
Letter shall be deemed to be a disclosure for all purposes of this Agreement so long as the
relevance of such matter is for such other purposes reasonably apparent, each of the AEG
Stakeholders represents and warrants (x) severally and not jointly, and solely with respect
to itself to the Purchaser, as set forth in Section 2.1, and (y) with respect to AEG and its
Subsidiaries to the Purchaser, as set forth in Sections 2.2 through 2.26.
2.1
Representations Regarding the AEG Stakeholders.
(a) Each AEG Stakeholder (other than any Management Stakeholder that is a
natural person) is a legal entity of the type indicated in Section 2.1(a) of the Disclosure
Letter, duly organized, validly existing and in good standing under the laws of the
jurisdiction indicated in Section 2.1(a) of the Disclosure Letter, has all requisite corporate
or similar power and authority to execute and deliver this Agreement and perform its
obligations hereunder. Each Management Stakeholder that is a natural person has full
capacity to execute and deliver this Agreement and perform his obligations hereunder.
(b) The execution and delivery of this Agreement by each of the AEG
Stakeholders and the performance of such AEG Stakeholder’s obligations hereunder has
been duly authorized and approved by all necessary action on the part of such AEG
Stakeholder. This Agreement has been duly executed and delivered by each of the AEG
Stakeholders and constitutes the valid and binding obligation of such AEG Stakeholder,
enforceable against such AEG Stakeholder in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and
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other similar laws relating to or affecting creditors generally, and subject to general
principles of equity, in each case as now or hereafter in effect. The execution and
delivery of this Agreement by each of the AEG Stakeholders and the performance of its
obligations hereunder will not result in (i) in the case of any AEG Stakeholder that is not
a natural person, any conflict with such AEG Stakeholder’s Organizational Documents,
(ii) subject to obtaining the consents referred to in Section 2.1(d), any breach or violation
of or default under any law, statute, regulation, judgment, order, decree or Permit
applicable to such AEG Stakeholder or any mortgage, lease, agreement, deed of trust,
indenture or any other instrument to which such AEG Stakeholder is a party or by which
it or its properties or assets are bound, or (iii) the creation or imposition of any Liens on
the Holdco Shares being sold by such AEG Stakeholder, other than Liens created by or
resulting from this Agreement, the Shareholders Agreements or the actions of the
Purchaser or any of its Affiliates, except in the case of clause (ii) above for such
breaches, violations or defaults as would not, individually or in the aggregate, be material
to such Person or to the transactions contemplated hereby.
(c) As of the date hereof and immediately prior to the Holdco Contribution,
each AEG Stakeholder is and at the time of the Holdco Contribution shall be (i) the
record and beneficial owner of (and shall have made all payments due in respect of) all
the AEG Shares and (ii) the owner of the AEG Options, in each case as set forth opposite
such AEG Stakeholder’s name in Section 2.4 of the Disclosure Letter, free and clear of
all Liens, other than Liens created by or resulting from this Agreement, the Shareholders
Agreements or the actions of the Purchaser or any of its Affiliates, Liens being released,
waived or otherwise terminated at or prior to the Closing or restrictions on transfer under
applicable securities laws. As of immediately following the Holdco Contribution, each
AEG Stakeholder and each Management Stakeholder shall be the record and beneficial
owner of a number of Holdco shares and Holdco Options, if any, equal to the number of
AEG Shares and AEG Options held by such AEG Stakeholder immediately prior to the
Holdco Contribution (as set forth on Section 2.4 of the Disclosure Letter (as such section
may be updated prior to the Closing)), in each case, free and clear of all Liens. As of
consummation of the Holdco Contribution, each Seller’s contribution of its AEG Shares
to Holdco shall have been effective to transfer title to such shares from such Seller to
Holdco.
(d) No consent, approval or authorization of or filing with any third party or
any Governmental Authority is required on the part of any AEG Stakeholder in
connection with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby except (i) filings required, if any, with respect to the
Competition Laws of the jurisdictions set forth in Section 2.1(d) of the Disclosure Letter
(the “Foreign Competition Laws”) and (ii) filings, consents or approvals which, if not
made or obtained, would not, individually or in the aggregate, reasonably be expected to
be material to AEG and its Subsidiaries taken as a whole, to any of the Material
Subsidiaries or to the transactions contemplated hereby.
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2.2
No Conflicts; Consents and Approvals, etc.
(a) The execution and delivery of this Agreement by the AEG Stakeholders
and the performance of the AEG Stakeholders’ obligations hereunder will not result in (i)
subject to obtaining the consents referred to in Section 2.2(b) below, any breach or
violation of or default under (x) any law, statute, regulation, judgment, order, decree or
Permit applicable to any of the AEG Companies, (y) any Material Contract or (z) the
Organizational Documents of any of the AEG Companies, or (ii) the creation or
imposition of any Liens on the assets of any of the AEG Companies (other than Liens
created by actions of the Purchaser or any of its Affiliates), except in the case of
subclauses (x) and (y) of clause (i) above and in the case of clause (ii) above, for such
breaches, violations or defaults as would not, individually or in the aggregate, reasonably
be expected to be material to AEG and its Subsidiaries taken as a whole or to the
transactions contemplated hereby.
(b) No consent, approval or authorization of or filing with any third party or
any Governmental Authority is required on the part of any of the AEG Companies in
connection with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except (i) filings required, if any, with respect to the
Foreign Competition Laws and (ii) consents, approvals, authorizations or filings which, if
not made or obtained, would not, individually or in the aggregate, reasonably be expected
to be material to AEG and its Subsidiaries taken as a whole, to any of the Material
Subsidiaries or to the transactions contemplated hereby.
2.3
Corporate Status of AEG. AEG is an entity duly incorporated and validly
existing under the laws of the Netherlands and has all requisite power and authority to
conduct its business and to own or lease its properties, as now conducted, owned or
leased. AEG is duly qualified to do business in each jurisdiction in which the failure to
be so qualified would reasonably be expected to be material to AEG and its Subsidiaries
taken as a whole, to any of the Material Subsidiaries or to the transactions contemplated
hereby.
2.4
Capitalization. Section 2.4 of the Disclosure Letter sets forth all of the
issued and outstanding AEG Shares, AEG Options and all other outstanding equity
interests of AEG and the record owner of each, as of the date hereof and immediately
prior to the Holdco Contribution. All such issued and outstanding AEG Shares and AEG
Options have been duly authorized and validly issued and are fully paid and
non-assessable. Section 2.4 of the Disclosure Letter sets forth the name of each holder of
an AEG Option, the number of, or if applicable the formula for determining the number
of, Class B Shares covered by the AEG Options held thereby, and the grant date, exercise
price and vesting status of such AEG Options, as of the date hereof and immediately prior
to the Holdco Contribution. Except for such AEG Options, there are no outstanding
options, warrants, subscriptions, preemptive rights, conversion or other rights,
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commitments or agreements of any kind (other than this Agreement) for the purchase or
acquisition from, or the sale or issuance by, any AEG Stakeholder of any AEG Shares or
AEG Options or other equity interests in AEG.
2.5
Subsidiaries.
(a) Each Subsidiary of AEG and its respective jurisdiction of organization is
identified in Section 2.5 of the Disclosure Letter. Each Subsidiary of AEG (i) is a
corporation or other entity, duly organized and validly existing and in good standing
under the laws of its jurisdiction of organization, (ii) has all requisite power and authority
to own, lease and operate its properties and carry on its business as presently conducted
and (iii) is duly qualified and in good standing in all jurisdictions where the nature or
conduct of its business as presently conducted requires such qualification, except in the
case of clauses (ii) and (iii), where the failure to have such power and authority or to be
so qualified and in good standing would not reasonably be expected, individually or in
the aggregate, to be material to AEG and its Subsidiaries taken as a whole, to any of the
Material Subsidiaries or to the transactions contemplated hereby.
(b) All shares of capital stock or other equity interests, as applicable, of each
Subsidiary of AEG, have been duly authorized and validly issued, are fully paid and
non-assessable, and are owned beneficially and of record by an AEG Company, free and
clear of all Liens other than Liens being released, waived or otherwise terminated at or
prior to the Closing or restrictions on transfer under applicable securities laws.
(c) There are no outstanding options, warrants, subscriptions, preemptive
rights, conversion or other rights, commitments or agreements of any kind (other than
this Agreement) for the purchase or acquisition from, or the sale or issuance by, any AEG
Stakeholder, or any AEG Company of any shares of capital stock or other equity interests
of any Subsidiaries, and no authorization therefor has been given.
(d) None of the AEG Companies has any Subsidiaries or equity interest in any
Person other than the AEG Companies.
2.6
Financial Statements. AEG has made available to the Purchaser a
complete and correct copy of the French versions of the audited consolidated balance
sheets and related audited consolidated statements of income and cash flows of AEG for
the years ended December 31, 2008, December 31, 2007 and December 31, 2006 (the
“AEG Audited Financial Statements”). The AEG Audited Financial Statements present
fairly in all material respects the financial condition and results of operations of the AEG
Companies on a consolidated basis as of and for the periods ended on the dates indicated
and have been prepared in accordance with IFRS.
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2.7
Absence of Undisclosed Liabilities. None of the AEG Companies has any
debts, liabilities, commitments or obligations of any kind whatsoever (“Liabilities”)
whether known or unknown, absolute, accrued or contingent, that would be required by
IFRS to be set forth on a consolidated balance sheet of AEG, other than (i) Liabilities
reflected or reserved against in the AEG Audited Financial Statements, (ii) Liabilities that
will be reflected on the Closing Date Statement, (iii) Liabilities incurred in the ordinary
course of business consistent with past practice since December 31, 2008, (iv) Liabilities
under the agreements, contracts, leases and licenses to which the AEG Companies are
party, including, without limitation, the Material Contracts, Leases and Licenses, and (v)
Liabilities that would not reasonably be expected, individually or in the aggregate, to be
material to AEG and its Subsidiaries taken as a whole or to any of the Material
Subsidiaries.
2.8
Real Property; Assets.
(a) Section 2.8 of the Disclosure Letter lists all real property and interests in
real property owned by the AEG Companies (each, an “Owned Real Property”). The
AEG Companies have good, valid and marketable fee simple title to all Owned Real
Property, free and clear of all Liens of any nature except for Permitted Liens. Section 2.8
of the Disclosure Letter lists all material items of real property that are leased by any of
the AEG Companies (the “Leased Real Property”). Each of the AEG Companies has
valid leasehold interests in the Leased Real Property leased by it as set forth in
Section 2.8 of the Disclosure Letter, in each case free and clear of all Liens, except for
Permitted Liens.
(b) Each lease pursuant to which any of the AEG Companies leases any
Leased Real Property (the “Leases”) is in full force and effect. There exists no default or
event of default (or any event that with notice or lapse of time or both would become a
default) on the part of the AEG Companies under any Leases, except for any such default
or event of default as would not, individually or in the aggregate, be material to AEG and
its Subsidiaries taken as a whole or to the transactions contemplated hereby. None of the
AEG Companies has received any written notice of any default under any Lease nor any
other written termination notice with respect thereto.
(c) The AEG Companies have legal ownership of, or in the case of leased
property and assets have valid leasehold interests in, all of their respective material
tangible personal property and assets included in the audited consolidated balance sheet
of AEG as of December 31, 2008, except for properties and assets disposed of in the
ordinary course of business since December 31, 2008, in each case, free and clear of all
Liens, except for Permitted Liens.
2.9
Tangible Assets. The AEG Companies own or lease all buildings,
machinery, equipment and other material tangible assets necessary for the conduct of
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their business as presently conducted. Each such tangible asset is in operating condition
and repair (subject to normal wear and tear), and is suitable for the purposes for which it
is presently used.
2.10 Contracts. Section 2.10 of the Disclosure Letter lists all contracts of the
following types to which any of the AEG Companies is a party or by which any of the
AEG Companies or any of their respective properties or assets is bound (other than real
property leases, labor or employment-related agreements and intellectual property
licenses, which are provided for in Sections 2.8, 2.11 and 2.12 of the Disclosure Letter,
respectively):
(i)
contracts that require, or would reasonably be expected to require,
the AEG Companies to pay €1,000,000 or more per annum and are not terminable
by the AEG Companies upon notice of ninety (90) days or less for a cost less than
€1,000,000 (other than product warranty obligations in the ordinary course of
business);
(ii)
mortgages, indentures, security agreements, notes, loan or credit
agreements, or guarantees of indebtedness of third parties, in each case involving
an outstanding amount of indebtedness in excess of €1,000,000;
(iii)
joint venture, partnership and development agreements;
(iv)
acquisition or divestiture agreements relating to the acquisition or
sale of any business, or of any capital stock or other equity interests in any
Person, by any AEG Company (other than such transactions solely among AEG
Companies);
(v)
all contracts to which AEG or any of its Subsidiaries is a party, or
by which they are bound, that contain a covenant restricting the ability of AEG or
any of its Subsidiaries (or which, following the Closing, would restrict the ability
of the Purchaser or any of its Subsidiaries) to compete in any business or with any
person or in any geographic area;
(vi)
all confidentiality agreements (other than in the ordinary course of
the Business as presently conducted), agreements by AEG or any of its
Subsidiaries not to acquire assets or securities of a third party or agreements by a
third party not to acquire assets or securities of AEG or any of its Subsidiaries,
except in each case as were entered into with prospective purchasers of AEG and
its Subsidiaries;
(vii) all joint venture, profit sharing, partnership or other similar
agreements involving co-investment with a third party to which AEG or any of its
Subsidiaries is a party;
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(viii) any contract with a Governmental Authority (other than ordinary
course contracts with Governmental Authorities as a customer) which imposes
any material obligation or restriction on AEG or its Subsidiaries;
(ix)
all leases, subleases, licenses or other contracts pursuant to which
AEG or any of its Subsidiaries use or hold any material property;
(x)
all material outsourcing contracts;
(xi)
all contracts with investment bankers, financial advisors, attorneys,
accountants or other advisors retained by AEG or any of its Subsidiaries;
(xii) all contracts providing for the indemnification by AEG or any of
its Subsidiaries of any person (other than standard indemnification in the ordinary
course of business); and
(xiii) any derivative instrument or swap agreement used to hedge against
interest rate, currency or other risks of the AEG Companies.
AEG has made available to the Purchaser copies of all of the contracts listed in
Section 2.10 of the Disclosure Letter (the “Material Contracts”). Each Material Contract
is a valid and binding agreement of the AEG Company that is party thereto enforceable in
accordance with its terms and is in full force and effect, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors generally, and subject to general principles of
equity, in each case as now or hereafter in effect. None of the AEG Companies nor, to
Stakeholders’ Knowledge, any other Person is in default under any of the Material
Contracts, except for such defaults as would not, individually or in the aggregate, be
material to AEG and its Subsidiaries taken as a whole, to any of the Material Subsidiaries
or to the transactions contemplated hereby.
2.11
Employee-Related Matters.
2.11.1 Employees. Section 2.11.1 of the Disclosure Letter contains a true and
complete list of the employees of the AEG Companies (i) whose base gross annual
compensation exceeds €100,000 or (ii) who are party to agreements with any AEG
Company that provide for a termination payment greater than the minimum payment
provided by applicable law, statute, rule, regulation or applicable Collective Bargaining
Agreements.
2.11.2 Collective Bargaining Agreements. AEG has made available to the
Purchaser a true and complete list identifying each collective bargaining agreement,
union contract and similar instrument in the relevant jurisdictions in effect and applicable
to employees of the AEG Companies (the “Collective Bargaining Agreements”).
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2.11.3 Labor. No labor strike, material labor dispute, or concerted work stoppage
is currently pending or to a Stakeholder’s Knowledge threatened with respect to any of
the AEG Companies. To a Stakeholder's Knowledge there is not currently nor has there
been since January 1, 2004 (i) any application or complaint filed by any employee or
union with any governmental body against or affecting any of the AEG Companies that
involves a value at stake in excess of €150,000 or (ii) any charge or complaint by any
employee against or affecting any of the AEG Companies alleging harassment,
discrimination or other employment conduct which could give rise to liability in excess
of €150,000. Each of the AEG Companies is in compliance with all applicable labor
laws in connection with the employment of its employees, except for such
non-compliance that would not reasonably be expected, individually or in the aggregate,
to be material to AEG and its Subsidiaries taken as a whole or to any of the Material
Subsidiaries (including by way of materially affecting its workforce) or to the
2.11.4 Employee Benefit Plans and Related Matters.
(a) Benefit Plans. Section 2.11.4(a) of the Disclosure Letter lists each
material Plan that is maintained or sponsored by any of the AEG Companies and under
which any current or former officer, director or employee of any of the AEG Companies,
or the beneficiaries or dependents of any such person, is eligible to participate (“AEG
Benefit Plans”).
(b) Compliance; Liability. Each AEG Benefit Plan has been operated and
administered in accordance with its terms and with applicable law, except for any failure
to do so as would not, individually or in the aggregate, be material to AEG and its
Subsidiaries taken as a whole or to the transactions contemplated hereby. All
contributions required to have been made by any of the AEG Companies under any AEG
Benefit Plan have been made in all material respects by the due date therefor (including
any extensions). There is no pending or, to the Stakeholders’ Knowledge, threatened
material legal action, suit or claim relating to AEG Benefit Plans (other than routine
claims for benefits).
(c) Tax Qualification. Each AEG Benefit Plan that is required to be
registered or qualified under applicable law has been so registered or qualified and has
been maintained in good standing with applicable governmental authorities, and all
documents which are required to be filed with any regulatory authority in connection
with any AEG Benefit Plan have been so filed, and all tax clearances and approvals
necessary to obtain favorable tax treatment for the AEG Companies and/or the
participants in the AEG Benefit Plan have been obtained and not withdrawn, and, to the
Stakeholders’ Knowledge, no act or omission has occurred which has or could prejudice
any such tax clearance and/or approval.
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2.12 Intellectual Property. The AEG Companies own or have the right to use
all material trademarks, copyrights, trade names, service marks, domain names and
patents used by any of the AEG Companies (the “Intellectual Property”) without being
subject to any restrictive covenant which would materially impair the AEG Companies'
ability to use and license such Intellectual Property as currently done in the course of the
business. None of the AEG Companies has received any written notice or claim that it is
infringing on the intellectual property rights of any Person, and, to the Stakeholders’
Knowledge, there is no infringement by any Person of the Intellectual Property.
Section 2.12 of the Disclosure Letter sets forth a complete and correct list, as of the date
hereof, of all material licenses to which the AEG Companies are party, except for
licenses in respect of off-the-shelf software and licenses to customers and carriers in the
ordinary course of business, pursuant to which (x) such AEG Company permits any
Person to use any of the Intellectual Property, or (y) any Person permits such AEG
Company to use any Intellectual Property not owned by such AEG Company
(collectively, “Licenses”). None of the AEG Companies is in default under any License
(nor, to the Stakeholders’ Knowledge, is any other party thereto), and each License is in
full force and effect as to the AEG Companies party thereto, and to the Stakeholders’
Knowledge, as to each other party thereto, except for such defaults and failures to be so
in full force and effect as would not, individually or in the aggregate, be material to AEG
and its Subsidiaries taken as a whole, to any of the Material Subsidiaries or to the
2.13 Governmental Authorizations; Compliance with Law. Each of the AEG
Companies holds all Permits necessary for the operation of its business as currently
conducted, with such exceptions as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Each of the AEG Companies
is in compliance with each law, statute, rule, regulation, judgment, order or decree
applicable to it or the conduct of its Business, with such exceptions as would not,
individually or in the aggregate, be material to AEG and its Subsidiaries taken as a whole
or to the transactions contemplated hereby. None of the AEG Companies has received
any notice of any violation of any law, statute, rule, regulation, judgment, order, decree or
Permit applicable to it or to any of its properties, except for such notices as would not,
individually or in the aggregate, be material to AEG and its Subsidiaries taken as a whole
or to the transactions contemplated hereby. This Section 2.13 does not relate to employee
benefits matters which are instead the subject of Section 2.11, Tax matters which are
instead the subject of Section 2.15 or environmental matters which are instead the subject
of Section 2.17.
2.14 Litigation. Section 2.14 of the Disclosure Letter lists all civil, criminal,
judicial or administrative actions or proceedings pending or, to the Stakeholders’
Knowledge, threatened against any AEG Company or any of their respective assets with
an amount claimed in excess of €250,000. Other than the foregoing listed items, there are
no civil, criminal, judicial or administrative actions or proceedings pending or, to
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Stakeholders’ Knowledge, threatened against any AEG Company or any of their
respective assets that (i) involve a value at stake in excess of €250,000, (ii) have a
reasonable likelihood of being resolved in a manner that would reasonably be expected to
impose a material liability on the AEG Companies, or (iii) question the validity of this
Agreement or any action taken or to be taken by the AEG Stakeholders or any of the
AEG Companies in connection herewith. There are no outstanding orders, judgments,
warrants, decrees or injunctions against any of the AEG Companies issued by any
Governmental Authority that would reasonably be expected to impose a material liability
on the AEG Companies.
2.15 Taxes. Except as specifically reflected or reserved against in the AEG
Audited Financial Statements, (i) each material Tax Return required to have been filed by
any of the AEG Companies has been filed timely, (ii) all such Tax Returns are correct
and complete in all material respects, (iii) all amounts shown as due on such Tax Returns
have been paid timely, (iii) all material employment and withholding Taxes required to
have been paid timely or withheld by or on behalf of any of the AEG Companies have
been paid or properly set aside in accounts for such purpose, (iv) no written agreement or
other document extending, or having the effect of extending, the period of assessment or
collection of any material Taxes payable by any of the AEG Companies is in effect as of
the date hereof, (v) none of the AEG Companies is, as of the date hereof, the beneficiary
of any extension of time (other than an automatic extension of time not requiring the
consent of any competent taxing authority) within which to file any material Tax Return
not previously filed, and (vi) as of the date hereof, there are no pending audits,
examinations, investigations or other proceedings in respect of material Taxes payable by
any of the AEG Companies except as disclosed in Section 2.15 of the Disclosure
Schedule. No written claim that could give rise to material Taxes has been made within
the previous five (5) years by a taxing authority in a jurisdiction where AEG or any of its
Subsidiaries does not file Tax Returns that AEG or any of its Subsidiaries is or may be
subject to taxation in that jurisdiction.
2.16 Absence of Changes. Since December 31, 2008, other than in connection
with the transactions contemplated by this Agreement, as consented to by the Purchaser
or as reflected in the Disclosure Letter, the AEG Companies have conducted the Business
in the ordinary course consistent with past practice, and none of the AEG Companies has
(other than in the ordinary course of business consistent with past practice):
(a)
suffered any event, development or state of circumstances that has
had or would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
(b)
issued, split, combined, reclassified or sold, granted, purchased or
redeemed any shares of its share capital, securities convertible into its share
capital or other equity interests or any warrants or other rights to acquire shares of
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its share capital or other equity interests or made or declared any dividends or
other distributions to shareholders;
(c)
incurred new Indebtedness outside the ordinary course of the
Business as presently conducted or in excess of €2,000,000 in the aggregate;
(d)
mortgaged, pledged or subjected to any Lien any of its material
properties or assets, except for Permitted Liens;
(e)
except as required by IFRS, made any material change in its
accounting principles or the methods by which such principles are applied for
financial reporting purposes;
(f)
increased the compensation of any officer or employee of the AEG
Companies’ headquarters and strategic business units whose base gross annual
compensation without giving effect to such increase exceeds €100,000, other
than (i) to comply with applicable law, (ii) as may be required to satisfy
contractual obligations or AEG Benefit Plan in effect as of the date hereof;
(g)
loaned money to any officer of the AEG Companies;
(h)
except as required by a Material Contract, disposed of or agreed to
dispose of any properties or assets (other than inventory) in an aggregate amount
in excess of €1,000,000 or acquired or agreed to acquire assets or properties in an
aggregate amount in excess of €1,000,000, other than as otherwise contemplated
or permitted by this Agreement;
(i)
acquired (including by merger, consolidation or acquisition of
stock or assets) any Person or any division or material portion of the assets
thereof;
(j)
made any capital expenditure in excess of €1,000,000;
(k)
entered into, terminated or modified any Material Contract or any
contract outside the ordinary course of the Business or providing for payments by
AEG Companies in excess of €1,000,000 annually;
(l)
transferred, assigned or granted any Licenses;
(m)
liquidated, dissolved or wound up any of the AEG Companies or
organized any new Subsidiary;
(n)
settled or compromised any action, claim or suit other than such
actions, claims or suits in which the amount paid in settlement or compromise
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(including the cost to any AEG Company of complying with any other provision
of such settlement or compromise) is less than €100,000 or would not reasonably
be expected to impose any material non-monetary obligation on any of the AEG
Companies after the Closing Date;
(o)
amended the Organizational Documents of any of the AEG
Companies, other than as required by applicable law, statute, rule, regulation
judgment, order or decree; or
(p)
entered into any agreement, arrangement or understanding to do
any of the foregoing.
2.17 Environmental Matters. To the Stakeholders’ Knowledge, each of the
AEG Companies has complied and is in compliance with all Environmental Laws, except
where the failure to do so would not, individually or in the aggregate, be material to AEG
and its Subsidiaries taken as a whole or to the transactions contemplated hereby. Without
limiting the generality of the foregoing, each of the AEG Companies has obtained, has
complied and is in compliance with all Permits that are required pursuant to
Environmental Laws for the occupation of its facilities and the operation of its business,
except, where the failure to do so would not, individually or in the aggregate, be material
to AEG and its Subsidiaries taken as a whole or to the transactions contemplated hereby.
None of the AEG Companies has received any written notice, report or other information
regarding any actual or alleged material violation of Environmental Laws, or any material
liabilities or potential material liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), including any material investigatory, remedial or corrective
obligations, relating to any of them or their facilities arising under Environmental Laws.
There is no action, claim, suit, proceeding, review or investigation pending or, to the
Stakeholders’ Knowledge, threatened against the AEG Companies with respect to any
matters relating to or arising out of any Environmental Laws that have a reasonable
likelihood of being resolved in a manner that would reasonably be expected to impose a
material liability on the AEG Companies. For purposes of this Section 2.17,
“Environmental Laws” means all federal, state, local and foreign statutes, regulations,
ordinances and similar provisions having the force or effect of law, as well as all judicial
and administrative orders and determinations relating to pollution or protection of the
environment, including all those relating to the presence, use, production, generation,
handling, transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation.
2.18 Products. Since December 31, 2007, each of the products manufactured,
produced, developed, shipped or sold by the AEG Companies and any services rendered
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by the AEG Companies is, and at all times up to and including the sale thereof by AEG,
has been in compliance in all material respects with each applicable law, statute, rule,
regulation, judgment, order or decree, except as would not, individually or in the
aggregate, be material to AEG and its Subsidiaries taken as a whole, to any of the
Material Subsidiaries or to the transactions contemplated hereby.
2.19 Product Warranty. The products manufactured, sold, leased, or delivered
by the AEG Companies have been in material conformity with all applicable contractual
commitments and all express and implied warranties, and none of the AEG Companies
has any material Liability for replacement or repair thereof or other damages in
connection therewith, subject to the reserve for product warranty claims set forth on the
face of the most recent balance sheet included in the AEG Audited Financial Statements
as adjusted for the passage of time through the Closing Date consistent with past practice
and in accordance with IFRS. The product warranty reserves reflected in the AEG
Audited Financial Statements were prepared consistent with past practice and in
accordance with IFRS.
2.20 Product Liability. None of the AEG Companies has any Liabilities arising
out of any injury to individuals or property as a result of the ownership, possession, or
use of any product manufactured, sold, leased, or delivered by the AEG Companies
involving a value at stake in excess of €250,000.
2.21
Customers, Distributors and Suppliers.
(a) Section 2.21(a) of the Disclosure Letter lists (i) the ten (10) largest
customers (including distributors) of the AEG Companies, determined on the basis of
sales revenues, for the fiscal year ended December 31, 2008, and (ii) the ten (10) largest
suppliers of the AEG Companies, determined on the basis of cost of items purchased for
the fiscal year ended December 31, 2008.
(b) There are no Material Contracts that provide that any supplier will be the
exclusive supplier of any AEG Company. There are no Material Contracts that require
any AEG Company or any of its Subsidiaries to purchase the entire output of a supplier.
2.22 Affiliate Transactions. Except for the Shareholders Agreements, none of
the AEG Companies is party to any agreement, arrangement or commitment with (i) any
of its directors or officers, other than any agreements, arrangements and commitments
relating to their employment or service in the capacity as directors or officers, including
any agreements with respect to the compensation and benefits of its directors and
officers, or (ii) any Affiliate of any AEG Stakeholder.
2.23 Brokers. All negotiations relating to this Agreement and the transactions
contemplated hereby or thereby have been and will be carried out without the
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intervention of any Person acting on behalf of the AEG Stakeholders in such manner as
to give rise to any valid claim against the Purchaser or any of the AEG Companies for
any brokerage or finder’s commission, fee or similar compensation, other than Sagent
Advisors Inc., whose fees and expenses will be paid by AEG or the AEG Stakeholders.
2.24 Inventory. The inventory of AEG Companies consists of raw materials
and supplies, manufactured and purchased parts, goods in process, and finished goods, all
of which are merchantable and fit for the purpose for which it was procured or
manufactured, and no material portion of which is slow-moving, obsolete, damaged, or
defective, subject to the reserve for inventory write-down set forth on the face of the most
recent balance sheet included in the AEG Audited Financial Statements as adjusted for
the passage of time through the Closing Date consistent with past practice and in
accordance with IFRS. The inventory held by the AEG Companies is owned free of all
Liens, except for Permitted Liens.
2.25 Accounts Receivable. AEG has provided the Purchaser with a true,
correct and complete aging summary of the AEG Companies’ accounts receivable as of
May 31, 2009. Such accounts receivable represent sales of goods or services made in the
ordinary course of the conduct of Business.
2.26 Insurance. Section 2.26 of the Disclosure Letter contains a list of all
material insurance policies which are owned by the AEG Companies and which name
AEG or any of its Subsidiaries as an insured, including without limitation, self-insurance
programs and those which pertain to the AEG Companies’ assets, employees or
operations. All such insurance policies are in full force and effect and none of the AEG
Companies have received notice of cancellation of any such insurance policies.
2.27 Guaranties. None of the AEG Companies is a guarantor or otherwise is
liable for any Liabilities (including Indebtedness) of any Person (other than the AEG
Companies).
3.
STAKEHOLDERS CONCERNING HOLDCO. As of the Closing, the AEG
Stakeholders represent and warrant to the Purchaser as follows:
3.1
Corporate Status and Authority. Holdco shall be a besloten vennootschap
met beperkte aansprakelijkheid duly organized and validly existing under the laws of
Netherlands. Prior to the Closing, Holdco will not have conducted any operations and
will have no assets or liabilities, other than the acquisition and ownership of all the
outstanding AEG Shares and the issuance of the outstanding Holdco Shares and Holdco
Options. Holdco shall be duly qualified to do business in each jurisdiction in which the
failure to be so qualified would reasonably be expected to be material to Holdco or to the
transactions contemplated hereby
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3.2
No Conflicts, Consents and Approvals, etc.
(a) The performance of the AEG Stakeholders’ obligations hereunder shall
not result in any conflict with the Organizational Documents of Holdco, any breach or
violation of or default under any law, statute, regulation, judgment, order, decree or
Permit to which Holdco is a party or by which it or its assets or properties are bound,
except for such breaches, violations or defaults as would not, individually or in the
aggregate, reasonably be expected to be material to Holdco or to the transactions
contemplated hereby.
governmental authority is required on the part of Holdco in connection with the
consummation of the Holdco Contribution or the other transactions contemplated hereby,
except (i) filings required, if any, with respect to the Foreign Competition Laws and (ii)
consents, approvals, authorizations or filings which, if not made or obtained, would not,
individually or in the aggregate, reasonably be expected to be material to Holdco or to the
3.3
Capitalization. Holdco shall have issued and outstanding an identical
number and type of Holdco Shares and Holdco Options as AEG Shares and AEG Options
issued and outstanding immediately prior to the Holdco Contribution. All such issued
and outstanding Holdco Shares and Holdco Options shall be duly authorized and validly
issued and fully paid and non-assessable. Except for such Holdco Options, there shall be
no outstanding options, warrants, subscriptions, preemptive rights, conversion or other
rights, commitments or agreements of any kind (other than this Agreement) for the
purchase or acquisition from, or the sale or issuance by, any AEG Stakeholder of any
Holdco Shares or Holdco Options or other equity interests in Holdco. As of immediately
following the Holdco Contribution, Holdco shall be the sole record and beneficial owner
of all the AEG shares, free and clear of all Liens.
3.4
Litigation. There shall not be any civil, criminal, judicial or administrative
actions or proceedings pending or, to the AEG Stakeholders’ Knowledge, threatened
against Holdco, which (i) would reasonably be expected to impose a material liability on
Holdco or (ii) question any action taken or to be taken by it in connection herewith.
4.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
Except as set forth in the disclosure letter delivered to the AEG Stakeholders on the date
hereof and constituting an integral part of this Agreement (the “Purchaser Disclosure
Letter”), and provided that the disclosure of any matter in any Section of the Purchaser
Disclosure Letter shall be deemed to be a disclosure for all purposes of this Agreement so
long as the relevance of such matter is for such other purposes reasonably apparent, the
Purchaser represents and warrants to the AEG Stakeholders as follows:
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4.1
Corporate Status and Authority. The Purchaser is a limited liability
company duly organized, validly existing and in good standing under the laws of
Guernsey and has the power and authority to execute and deliver this Agreement and
perform its obligations hereunder and in connection herewith. The execution, delivery
and performance of this Agreement and the transactions contemplated hereby have been
duly authorized by the board of directors of the Purchaser, which constitutes all necessary
action for such authorization, except for the Purchaser Shareholder Approval. This
Agreement has been duly executed and delivered by the Purchaser and constitutes the
valid and binding obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms, except as limited by laws affecting the enforcement of
creditors’ rights generally or by general equitable principles. The Sale Transaction is a
“business combination” within the meaning of the Purchaser’s Organizational
Documents.
4.2
Board of Directors Approval. The board of directors of the Purchaser has,
as of the date of this Agreement, unanimously (i) approved this Agreement and the
transactions contemplated hereby, (ii) determined that the Sale Transaction and the other
transactions contemplated hereby are fair, advisable and in the best interests of the
shareholders of the Purchaser, (iii) determined that the fair market value of AEG is equal
to at least 80% of the balance of the Trust Account (as of the date hereof), less deferred
underwriting commissions, taxes paid or reserved for the Trust Account, and fees and
expenses relating to the Trust Account, (iv) resolved to recommend to the Purchaser’s
shareholders the Purchaser Shareholder Approval and (v) resolved to allot and issue,
conditioned upon Purchaser Shareholder Approval being obtained, such number of
Purchaser Consideration Shares as is necessary to satisfy the terms of this Agreement.
4.3
Purchaser Shareholder Approval. The only votes of any class or series of
the Purchaser’s share capital necessary to approve this Agreement and the transactions
contemplated hereby are (i) the approval and adoption by the holders of a majority of the
Purchaser Public Shares present in person or represented by proxy at the Shareholder
Meeting of this Agreement and the transactions contemplated hereby, (ii) the affirmative
vote by the holders of a majority of the Purchaser Shares present in person or represented
by proxy at the Shareholder Meeting to increase the share capital of the Purchaser by the
creation of a sufficient number of Class A Purchaser Consideration Shares and Class B
Purchaser Consideration Shares to satisfy the terms of this Agreement, (iii) the
affirmative vote by the holders of a majority of the Purchaser Shares present in person or
represented by proxy at the Shareholder Meeting to authorize the waiver of the obligation
on the AEG Stakeholders to make a general offer for the purposes of Rule 9 of the UK
Takeover Code, and (iv) the affirmative vote by the holders of a majority of the Purchaser
Shares present in person or represented by proxy at the Shareholder Meeting to cause the
Purchaser’s board of directors to include the individuals listed in Section 1.11(a)
(collectively, the “Purchaser Shareholder Approval”); provided, however, that the
Purchaser may not consummate the transactions contemplated by this Agreement if the
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holders of 30% or more of the Purchaser Public Shares shall have validly exercised their
Purchaser Conversion Rights. The required quorum of the Shareholder Meeting shall be
holders of at least a majority of the Purchaser Public Shares present in person or
represented by proxy.
4.4
No Conflicts; Consents and Approvals, etc.
(a) The execution, delivery and performance of this Agreement by the
Purchaser will not result in (i) any conflict with the Organizational Documents of the
Purchaser, (ii) any breach or violation of or default under any law, statute, regulation,
judgment, order, decree or Permit or any mortgage, lease, agreement, deed of trust,
indenture or any other instrument to which the Purchaser is a party or by which it or its
assets or properties are bound or (iii) the creation or imposition of any Lien, except for
such breaches, violations or defaults and such Liens as would not, individually or in the
aggregate, be material to the Purchaser or to the transactions contemplated hereby.
Governmental Authority is required on the part of the Purchaser in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except filings required with respect to the Foreign Competition
Laws or which have been made or obtained.
4.5
Capitalization.
(a) The authorized share capital of the Purchaser consists of an unlimited
number of Purchaser Shares, of which 31,250,000 shares are issued and outstanding. All
Purchaser Shares in issue have been validly issued. All Purchaser Consideration Shares
(including all Earnout Shares) issued or to be issued in connection with this Agreement
and the transactions contemplated hereby shall be validly issued and be outstanding as of
the Closing and the Purchaser Shares to be issued on conversion thereof shall be validly
issued and outstanding upon such conversion and, subject to obtaining applicable listing
approval, the Purchaser Shares created on such conversion shall be eligible for immediate
listing on Euronext and any other stock exchange on which Purchaser Shares are listed.
The rights, terms and provisions of the Purchaser Consideration Shares may not, in
accordance with Article 35 of the Purchaser’s Articles of Incorporation, be amended in a
manner that is adverse to such shares relative to other shares in the share capital of the
Purchaser without an affirmative vote of the particular class of Purchaser Consideration
Shares.
(b) Except for the Purchaser Warrants, there are no outstanding options,
warrants, subscriptions, preemptive rights, conversion or other rights, commitments or
agreements of any kind (other than this Agreement) for the purchase or acquisition from,
or the sale or issuance by, the Purchaser of any Purchaser Shares or other equity interests
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in the Purchaser. No Purchaser Warrants are exercisable until consummation of the Sale
Transaction. The Purchaser Warrants are exercisable for 31,000,000 Purchaser Shares at
an exercise price of €7.50 per share.
(c) Except (i) for the rights of holders of the Purchaser Public Shares who
vote against the Purchaser Shareholder Approval and, prior to the date of the Shareholder
Meeting, elect to exercise their redemption rights to convert their Purchaser Shares into
cash held in the Trust Account following the consummation of the Sale Transaction
(“Purchaser Conversion Rights”), (ii) for the Purchaser Founding Shares listed in Section
4.5(c) of the Purchaser Disclosure Letter and (iii) as provided under this Agreement,
there are not any outstanding contractual obligations of the Purchaser to repurchase,
redeem or otherwise acquire any capital stock or other equity interests in the Purchaser.
(d) The Purchaser Shares are listed on Euronext. There is no action or
proceeding pending or, to the Purchaser’s knowledge, threatened against the Purchaser by
Euronext with respect to any intention by such entity to prohibit or terminate the
quotation of such securities thereon.
(e) The Purchaser does not have, and immediately prior to the Closing will
not have, any Subsidiaries other than Mergerco.
4.6
Financial Statements. The Purchaser has made available to the
Stakeholders’ Representative a complete and correct copy of the audited balance sheet
and related audited statements of income and cash flows of the Purchaser for the year
ended December 31, 2008 (the “Purchaser Audited Financial Statements”), which
presents fairly in all material respects the financial condition and results of operations of
the Purchaser as of and for the period indicated and has been prepared in accordance with
IFRS.
4.7
Absence of Undisclosed Liabilities. The Purchaser does not have any
Liabilities, whether known or unknown, absolute, accrued or contingent, that would be
required by IFRS to be set forth on the Purchaser’s balance sheet, other than (i) Liabilities
reflected or reserved against in the Purchaser Audited Financial Statements, (ii)
Liabilities incurred in the ordinary course of business consistent with past practice since
December 31, 2008, (iii) Purchaser Transaction Expenses and (iv) Liabilities that would
not reasonably be expected, individually or in the aggregate, to have a Purchaser Material
Adverse Effect.
4.8
Trust Account. As of the date hereof and immediately prior to the
Closing, the Purchaser has and will have no less than €250,000,000 (the “Trust Fund”)
invested in a trust account (the “Trust Account”) held in trust by Deutsche Bank
International Limited, Guernsey, maintained by Carey Commercial Limited acting as
trustee (the “Trustee”) pursuant to the Investment Trust Agreement, dated July 2, 2008,
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as described in the Purchaser’s Organizational Documents. Immediately prior to the
execution of the Transfer Deed, the Trustee shall release as promptly as practicable to the
Notary the Trust Fund (less deferred underwriting commissions and the Conversion
Amount), which Trust Fund will be free of any Liens except for the statutory lien under
Guernsey trust law in favor of the Trustee, but in any event not more than the Estimated
Cash Consideration. As of the Closing Date, the obligations of the Purchaser to dissolve
or liquidate within the time specified in the Purchaser’s Organizational Documents shall
terminate, and effective as of the Closing Date, the Purchaser shall have no obligation
whatsoever to dissolve and liquidate the assets of the Purchaser by reason of the
consummation of the Sale Transaction and the other transactions contemplated hereby.
No holder of Purchaser Shares shall be entitled to receive any amount from the Trust
Account except to the extent such holder voted against the Purchaser Shareholder
Approval and validly exercised, contemporaneous with such vote, its Purchaser
Conversion Rights. No creditor of the Purchaser (other than the Trustee, the Sellers and
Option Holders) has, or would reasonably be expect to have, a claim against any funds in
the Trust Account.
4.9
Governmental Authorizations; Compliance with Law. The Purchaser
holds all Permits necessary for the operation of its business as currently conducted, with
such exceptions as would not, individually or in the aggregate, reasonably be expected to
have a Purchaser Material Adverse Effect. The Purchaser is in compliance with each
law, statute, rule, regulation, judgment, order or decree applicable to it or the conduct of
its business, with such exceptions as would not, individually or in the aggregate,
reasonably be expected to have a Purchaser Material Adverse Effect. The Purchaser has
not received any notice of any violation of any law, statute, rule, regulation, judgment,
order, decree or Permit applicable to it or to any of its properties, except for such notices
as would not, individually or in the aggregate, reasonably be expected to have a
Purchaser Material Adverse Effect.
4.10 Litigation. Section 4.10 of the Purchaser Disclosure Letter lists all civil,
criminal, judicial or administrative actions or proceedings pending or, to the Purchaser’s
knowledge, threatened against the Purchaser or any of its assets with an amount claimed
in excess of €250,000. Other than the foregoing listed items, there are no civil, criminal,
judicial or administrative actions or proceedings involving the Purchaser that are pending
or, to the Purchaser’s knowledge, threatened, which (i) would reasonably be expected to
have a Purchaser Material Adverse Effect or impose a material liability on the Purchaser
or, as of the Closing, any of the AEG Companies or (ii) question the validity of this
Agreement or any action taken or to be taken by it in connection herewith.
4.11 Absence of Changes. Since the date on which the Purchaser was first
formed or any other date specifically referred to, the Purchaser has not and will not have
prior to the Closing:
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(a)
suffered any event, development or state of circumstances that has
had or would reasonably be expected to have, individually or in the aggregate, a
Purchaser Material Adverse Effect;
(b)
issued, split, combined, reclassified or sold or granted or purchased
or redeemed any shares of its share capital, securities convertible into its share
capital or other equity interests or any warrants or other rights to acquire shares of
its share capital or other equity interests except as described in the offering
circular dated July 2, 2008;
(c)
mortgaged, pledged or subjected to any Lien any of its material
properties or assets (including any cash in the Trust Fund) except in favor of the
Trustee;
(d)
incurred any indebtedness for borrowed money or any capitalized
lease obligations, or guaranteed any indebtedness for borrowed money or
capitalized lease obligation of any other Person;
(e)
officers;
increased the compensation of or loaned money to any of its
(f)
spent any cash in the Trust Fund or spent any other cash other than
for payment of Liabilities in the ordinary course of business or in connection with
the transactions contemplated hereby;
(g)
acquired (including by merger, consolidation or acquisition of
stock or assets) any Person or any division or material portion of the assets
thereof;
(h)
organized any new Subsidiary;
(i)
settled or compromised any action, claim or suit other than such
actions, claims or suits in which the amount paid in settlement or compromise
(including the cost of complying with any other provision of such settlement or
compromise) is less than €100,000 and which, after the Closing Date, would not
impose any material liability or non-monetary obligation on the Purchaser or any
of the AEG Companies;
(j)
since July 20, 2008, amended the Purchaser’s Organizational
Documents, other than as required by applicable law, statute, rule, regulation
judgment, order or decree; or
(k)
entered into any agreement, arrangement or understanding to do
any of the foregoing.
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4.12 Purchase for Investment. The Purchaser is acquiring the Holdco Shares
for investment for its own account and not with a view toward any resale or distribution
thereof except in compliance with the Securities Act of 1933, as amended. The Purchaser
is a sophisticated investor and capable of evaluating the merits and the risks of acquiring
the Holdco Shares. The Purchaser acknowledges that: (a) the Holdco Shares are
“restricted securities” (as defined under the rules and regulations promulgated under the
Securities Act of 1933, as amended); (b) the Holdco Shares have not been issued or sold
pursuant to any registration statement or similar filing, listing, prospectus or document, or
pursuant to any delivery requirements under the laws of any Governmental Authority or
the rules, regulations or guidelines of any stock exchange or quotation system; and (c) the
Purchaser (together with its Affiliates and representatives) has conducted such due
diligence and has made its own independent examination, investigation, analysis and
evaluation of the AEG Companies as it considers necessary or advisable to enable it to
make its decision regarding the acquisition of the Holdco Shares, which, for the
avoidance of doubt shall not prejudice any claims the Purchaser may have under or in
connection with this Agreement against the AEG Stakeholders.
4.13 Brokers. All negotiations relating to this Agreement and the transactions
contemplated hereby have been and will be carried out without the intervention of any
Person acting on behalf of the Purchaser in such manner as to give rise to any valid claim
against any of the AEG Companies, the AEG Stakeholders or any of their respective
Affiliates for any brokerage or finder’s commission, fee or similar compensation.
Section 4.13 of the Purchaser Disclosure Letter lists all of the Purchaser’s obligations to
pay brokerage or finder’s commissions, fees or similar compensation in connection with
the Sale Transaction or the other transactions contemplated hereby.
5.
COVENANTS.
5.1
Conduct of Business, etc.
(a) From the date hereof until the Closing, except for entering into and
performing under this Agreement and except (i) as set forth in Section 5.1(a) of the
Disclosure Letter, (ii) as a result of the consummation of the transactions contemplated
hereby or (iii) as otherwise consented to by the Purchaser in writing, such consent not to
be unreasonably withheld, AEG shall, and shall cause its Subsidiaries to, conduct the
Business in the ordinary course in substantially the same manner in which it previously
has been conducted and not to take any action that would (x) cause a breach of clauses
(b) through (p), inclusive, of Section 2.16, (y) increase or decrease Adjusted Current
Assets or Adjusted Current Liabilities in a manner not consistent with past practice or (z)
transfer any assets or Liabilities of or relating to Harmer & Simmons (France) SAS
(“H&S”) to or from any other AEG Company except for transfers (A) on arm’s-length
terms or (B) in transactions consistent with past practice, provided that the aggregate
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amount of transfers permitted under this clause (B) shall not exceed €200,000 in any
calendar month.
(b) From the date hereof until the Closing, except for entering into and
performing under this Agreement and except (i) as set forth in Section 5.1(b) of the
Disclosure Letter, (ii) as a result of the consummation of the transactions contemplated
hereby or (iii) as otherwise consented to by the Stakeholders’ Representative in writing,
such consent not to be unreasonably withheld, the Purchaser shall not take any action that
would cause a breach of clauses (b) through (k), inclusive, of Section 4.11.
5.2
Access and Information. From the date hereof until the Closing, the AEG
Stakeholders shall cause the AEG Companies to give to the Purchaser and its employees,
officers and representatives reasonable access at all reasonable times upon reasonable
notice to the properties, books and records of the AEG Companies and to furnish such
information and documents in their possession relating to the AEG Companies as the
Purchaser may reasonably request, provided that the Purchaser shall not be entitled to any
such access, information or documents that would interfere unreasonably with the
conduct of the business of the AEG Companies or that could, in the good faith opinion of
the Stakeholders’ Representative, violate any contractual obligation or result in the loss
of attorney-client privilege with respect to any such information or documents. All such
information and documents obtained by the Purchaser shall be subject to the terms of the
Confidentiality Agreement, dated September 25, 2008 (the “Confidentiality Agreement”),
between the Purchaser and AEG. The Purchaser hereby agrees that the provisions of the
Confidentiality Agreement shall apply to any properties, books, records, data, documents
and other information relating to the AEG Stakeholders or any of their respective
Affiliates provided to the Purchaser or its Affiliates or any of their respective advisers or
employees pursuant to this Agreement whether before or after the Closing.
5.3
Proxy Statement; Purchaser Shareholder Approval.
(a) The Purchaser shall as promptly as practicable following the date of this
Agreement prepare and cause to be delivered to the holders of Purchaser Shares a proxy
statement (together with all amendments thereof or supplements thereto, the “Proxy
Statement”) relating to a shareholder meeting (the “Shareholder Meeting”) to be held by
the Purchaser to obtain the Purchaser Shareholder Approval. The Purchaser shall duly
call, give notice of, convene and hold the Shareholder Meeting not more than 21 days
after mailing of the Proxy Statement to holders of the Purchaser Shares (without
adjournment) and solicit proxies as promptly as reasonably practicable in accordance
with applicable law for the purpose of seeking the Purchaser Shareholder Approval. The
Purchaser shall give the Stakeholders’ Representative and its counsel a reasonable
opportunity to review and comment on the Proxy Statement and any other materials to be
presented to the Purchaser shareholders or prospective investors in the Purchaser prior to
the Closing (“Marketing Materials”) (and any amendments or supplements to the Proxy
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Statement or Marketing Materials) and will give due consideration to any changes thereto
reasonably requested by the Stakeholders’ Representative. Notwithstanding any other
provision herein to the contrary, no amendment or supplement to the Proxy Statement
and Marketing Materials shall be made without the approval of the Stakeholders’
Representative. AEG and the AEG Stakeholders agree to reasonably cooperate with the
Purchaser in its preparation of the Proxy Statement.
(b) The Purchaser shall cause the Proxy Statement and Marketing Materials to
comply in all material respects with all of the requirements of applicable law and shall
use all commercially reasonable efforts to seek to ensure that neither the Proxy Statement
nor Marketing Materials will contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made, not
misleading.
(c) AEG and the AEG Stakeholders will use their commercially reasonable
efforts to seek to ensure that none of the information regarding the AEG Companies
supplied by AEG, the AEG Stakeholders or their representatives expressly for inclusion
in the Proxy Statement or Marketing Materials (including any information included in the
AEG Audited Financial Statements) will contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in order to
make the statements therein in light of the circumstances under which they were made,
not misleading.
(d) The Purchaser, through its board of directors, shall recommend to its
shareholders in the Proxy Statement that they vote in favor of the Purchaser Shareholder
Approval and shall not withdraw or modify such recommendation, provided, however,
that nothing herein shall be deemed to restrict the board of directors from complying with
its fiduciary obligations. The Purchaser shall use its commercially reasonable efforts to
obtain the Purchaser Shareholder Approval, including, without limitation, voting any
proxies provided to it under the Undertakings in favor of the Purchaser Shareholder
Approval and enforcing such Undertakings.
5.4
Notifications; Supplements to Disclosures.
(a) From the date hereof until the Closing, each AEG Stakeholder shall
promptly notify the Purchaser in writing if such AEG Stakeholder becomes aware that
(i) any representation or warranty made by it contained in this Agreement is untrue or
inaccurate in any material respect, (ii) it has breached in any material respect any
covenant under this Agreement or (iii) any Material Adverse Effect has occurred.
(b) From the date hereof until the Closing, the Purchaser shall promptly notify
the Stakeholders’ Representative in writing (i) if the Purchaser becomes aware that any
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representation or warranty made by it contained in this Agreement is untrue or inaccurate
in any material respect or (ii) the Purchaser has breached in any material respect any
covenant under this Agreement. The Purchaser shall immediately notify the
Stakeholders’ Representative if it becomes aware of any pending or threatened breach of
any of the Undertakings.
5.5
No Solicitation.
(a) Each of the AEG Stakeholders and AEG shall not, and shall cause their
respective Affiliates, employees, agents and representatives not to, directly or indirectly,
solicit or enter into discussions or transactions with, or encourage, or provide any
information to, any Person (other than the Purchaser and its representatives) concerning
any sale of the AEG Shares or Holdco Shares, a significant portion of the AEG
Companies’ assets or any of the AEG Companies.
(b) The Purchaser shall not, and shall cause its Affiliates, employees, agents
and representatives not to, directly or indirectly, solicit or enter into discussions or
transactions with, or encourage, or provide any information to, any Person (other than
AEG, the AEG Stakeholders and their representatives) concerning any “business
combination” (as such term is defined in the Purchaser’s Organizational Documents) or
similar transaction.
5.6
Contact with Customers and Suppliers. Neither the Purchaser nor any of
its Affiliates, nor any of their respective agents, employees, directors or officers shall
contact or communicate with any employees, customers, distributors, suppliers or
licensors of any of the AEG Companies in connection with the transactions contemplated
hereby except with the prior written consent of the Stakeholders’ Representative, which
consent shall not be unreasonably withheld but may be conditioned upon an officer of
such AEG Company, as applicable, being present at any such meeting or conference,
among other conditions as may be reasonably required by the Stakeholders’
Representative. To the extent of any conflict between this Section 5.6 and the relevant
provisions of the Confidentiality Agreement, this Section 5.6 shall prevail.
5.7
Publicity. No press release or public statement related to this Agreement,
or the transactions contemplated hereby, shall be issued or made without the joint
approval of the Stakeholders’ Representative and the Purchaser, unless required by law
(in the reasonable opinion of counsel) in which case the Stakeholders’ Representative and
the Purchaser shall have the right to review such press release or announcement prior to
publication to the extent permitted by applicable law.
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5.8
Commercially Reasonable Efforts.
(a) Each of the parties shall use all commercially reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable under applicable
laws, statutes, treaties, conventions, rules, regulations, judgments, orders and decrees to
consummate and make effective, in the most expeditious manner practicable, the
transactions provided for in this Agreement, including, but not limited to, (i) preparing
and filing as soon as practicable (but in no event later than ten (10) business days after
the date of this Agreement in respect of any such filings required in connection with the
Foreign Competition Laws) of all forms, registrations and notices required to be filed to
consummate the transactions contemplated by this Agreement and the taking of such
actions as are necessary to obtain any requisite approvals, consents, judgments, orders,
decrees, exemptions or waivers by, or to avoid an action or proceeding by, any third party
or Governmental Authority relating to antitrust, merger and acquisition, competition or
restraint on trade matters, including, as the case may be filings pursuant to the Foreign
Competition Laws with the applicable governmental authorities, (ii) causing the
satisfaction of all conditions set forth in Section 6.2.1 (including the acceleration and
prompt termination of any waiting or review period under any of the Foreign
Competition Laws), (iii) defending all lawsuits or other legal, regulatory or other
proceedings to which it is a party challenging or affecting this Agreement or the
consummation of the transactions contemplated by this Agreement, in each case until the
issuance of a final, non-appealable judgment, injunction, order, decree or settlement and
(iv) seeking to have lifted or rescinded any injunction or restraining order or other order,
judgment, decree or settlement which may adversely affect the ability of the parties to
consummate the transactions contemplated by this Agreement, in each case until the
issuance of a final, non-appealable judgment, injunction, order, decree or settlement.
(b) Each party shall furnish all information required to be included in any
application or other filing to be made pursuant to the rules and regulations of any
Governmental Authority in connection with the transactions contemplated by this
Agreement. The Purchaser and the Stakeholders’ Representative shall have the right to
review in advance, and to the extent reasonably practicable shall consult the other on, all
the information relating to the other (in the case of the Purchaser, AEG) and each of their
respective Subsidiaries and Affiliates that appears in any filing made with, or written
materials submitted to, any third party or any Governmental Authority in connection with
the transactions contemplated hereby.
(c) Each party shall (i) subject to Section 5.8(d), respond as promptly as
reasonably practicable under the circumstances to any inquiries received from any
Governmental Authority relating to a Foreign Competition Law (ii) not extend any
waiting or review period under any Foreign Competition Law (except with the prior
written consent of the other) and (iii) not enter into any agreement with any
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Governmental Authority not to consummate the transactions contemplated by this
Agreement.
(d) In connection with and without limiting the foregoing, each party shall,
subject to applicable law, statute, treaty, convention, rule, regulation, judgment, order and
decree and except as prohibited by any applicable Governmental Authority: (i) promptly
notify the other of any written communication to such party from any Governmental
Authority, and permit the other to review in advance (and to consider any comments
made by the other in relation to) any proposed written communication to any of the
foregoing, (ii) not agree to participate or participate in any substantive meeting or
discussion with any Governmental Authority in respect of any filings, investigation or
inquiry concerning this Agreement or the transactions contemplated hereby unless first
consulting with the other in advance and, to the extent permitted by such Governmental
Authority, providing the other the opportunity to attend and participate in such meeting or
discussion, and (iii) furnish the other with copies of all correspondence, filings, and
written communications (and memoranda setting forth the substance thereof) between
such party or any its Affiliates and their respective representatives on the one hand, and
any Governmental Authority or members or their respective staffs on the other hand, with
respect to this Agreement and the transactions contemplated hereby.
5.9
Cash Shortfall Amount. In the event there is a Cash Shortfall Amount, the
Purchaser shall issue a promissory note payable to the Stakeholders Representative for
the benefit of the Sellers and Option Holders in an amount equal to the lesser of the Cash
Shortfall Amount and €25,000,000 and, in such event, the cash included in the Estimated
Cash Consideration shall be reduced by the amount of such promissory note. A form of
such promissory note is attached hereto as Exhibit G (the “Promissory Note”).
5.10 Third Party Consents. The AEG Stakeholders shall, and shall cause the
AEG Companies to, (i) reasonably cooperate (at the Purchaser’s expense) with the
Purchaser to obtain any consents required from third parties in connection with the
consummation of the transactions contemplated by this Agreement pursuant to the
Material Contracts and (ii) use their best efforts to obtain any consent required under the
Material Contract listed in Section 5.10 of the Disclosure Letter to extend the AEG
Companies’ rights thereunder until January 1, 2019; provided, that such cooperation and
efforts shall not require any expenditure of funds by any AEG Stakeholder or any of its
Affiliates or the incurrence of any liability by any AEG Company prior to the Closing or
result in any diminution in any payments to any Seller or Option Holder under this
Agreement and the Stakeholders’ Representative shall consent in writing prior to Closing
to any contemplated expenditure of funds by an AEG Company at or following the
Closing.
5.11 Further Assurances. At any time and from time to time (including,
without limitation, after the Closing), the parties hereto agree to (a) furnish upon request
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to each other such further assurances, information, documents, instruments of transfer or
assignment, files and books and records as may be reasonably requested, (b) promptly
execute, acknowledge, and deliver any such further assurances, documents, instruments
of transfer or assignment, files and books and records as may be reasonably requested,
and (c) do all such further acts and things as any other party hereto may reasonably
request for the purpose of carrying out the intent of this Agreement and the documents
referred to herein.
5.12 Employee-Related Matters. From and after the Closing, the Purchaser
shall, or shall cause one of the AEG Companies or another Subsidiary of the Purchaser,
to honor, pay, perform, and satisfy any and all liabilities, obligations and responsibilities
to or in respect of each employee of the AEG Companies arising under the terms of or in
connection with any AEG Benefit Plan, employment agreement, works agreement or
Collective Bargaining Agreement maintained by any AEG Company.
5.13
Indemnification of Directors and Officers.
(a) From and for a period of one (1) year after the Closing, (i) without
limiting any additional rights that any employee, officer or director may have under any
employment agreement or Plan or under the Organizational Documents of any AEG
Company, the Purchaser shall, and shall cause the AEG Companies, to the fullest extent
permitted under applicable law as in effect from time to time, to indemnify and hold
harmless each present and former director and officer of the AEG Companies
(collectively, the “Indemnified D&O Parties”) against any and all costs or expenses
(including travel expenses and reasonable attorneys’ fees and disbursements), judgments,
fines, losses, claims, damages, liabilities, fees and amounts paid in defense or settlement
or otherwise in connection with any claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative, arising out of or pertaining to the
fact that such Indemnified D&O Party is or was a director or officer of any of the AEG
Companies at or prior to the Closing Date or arising out of actions taken (or failed to be
taken) by them at the request of any of the AEG Companies, including any and all such
costs, expenses, judgments, fines, losses, claims, damages, liabilities, fees and amounts
arising out of or relating to this Agreement or the transactions contemplated hereby, prior
to the first year anniversary of the Closing Date; (ii) the Purchaser or the relevant AEG
Company shall advance expenses to an Indemnified D&O Party, as incurred, to the
fullest extent permitted under applicable law as in effect from time to time and within ten
(10) business days of receipt of a request from such Indemnified D&O Party in
connection with the foregoing; and (iii) no AEG Company shall settle, compromise or
consent to the entry of any judgment in any actual or threatened claim, demand, action
suit, proceeding, inquiry, or investigation in respect of which indemnification has been or
could be sought by such Indemnified D&O Party hereunder unless such settlement,
compromise or judgment includes an unconditional release of such Indemnified D&O
Party from all liability arising out of such claim, demand, action suit, proceeding, inquiry
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or investigation. Neither the Purchaser nor any AEG Company shall have any obligation
hereunder to any Indemnified D&O Party when and if a court of competent jurisdiction
shall ultimately determine (and such determination shall have become final and
non-appealable) that the indemnification of such Indemnified D&O Party in the manner
contemplated hereby is prohibited by applicable law or to the extent arising from such
Indemnified D&O Party’s fraud, gross negligence or willful misconduct.
(b) From and for a period of two (2) years after the Closing, the
Organizational Documents of the Purchaser, Mergerco and the AEG Companies shall
contain provisions providing for the indemnification, advancement of expenses and
exculpation of the present or former directors and officers of such Persons to the fullest
extent of applicable law.
(c) If the Purchaser, the AEG Companies or any of their respective successors
or assigns (i) shall merge or consolidate with or merge into any other corporation or
entity and shall not be the surviving or continuing corporation or entity of such
consolidation or merger or (ii) shall Transfer all or substantially all of their respective
properties and assets as an entity in one or a series of related transactions to any
individual, corporation or other entity, then in each such case, proper provisions shall be
made so that the successors or assigns of the Purchaser or the AEG Companies shall
assume all of the obligations set forth in this Section 5.13.
5.14
Tax Matters.
(a) The Purchaser shall not (and shall cause Holdco and the AEG Companies
not to) make an election under Section 338 of the Code with respect to Holdco or any
AEG Company.
(b) After Closing, the Purchaser shall (and shall cause AEG to) use its best
efforts to maintain level the operations of AEG at all times during the taxable year of
AEG in which the Closing occurs, and shall not (and shall cause AEG not to) take any
position or action inconsistent therewith.
(c) Without the prior written consent of the Stakeholders’ Representative
which must not be unreasonably withheld, during the two-year period beginning with the
Closing Date, the Purchaser will not undertake any corporate transaction (including a
migration to another jurisdiction) which could reasonably be expected to cause any of the
AEG Stakeholders or any of their direct or indirect stockholders, partners, members or
equityholders to recognize any gain or loss in the shares of the Purchaser (or any
successor thereof) for United States Federal income tax purposes, provided, however, that
the Purchaser may effect one or both of the migrations described in Appendix 5.14(c)
without obtaining the prior written consent of the Stakeholders’ Representative or
violating the terms of this Section 5.14(c).
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(d) The Purchaser will (x) cause Mergerco to be a wholly-owned first-tier
Subsidiary of the Purchaser prior to the Merger and continuously through the completion
of the Merger and (y) file with the Internal Revenue Service a Form 8832 electing to
disregard Mergerco as an entity separate from the Purchaser for United States Federal
income tax purposes, such election to be effective no later than the date Mergerco is
organized or acquired by the Purchaser and shall be continuously effective from such
date through the date of the Merger. The Purchaser will not, prior to the Closing and at
any time thereafter through the completion of the Merger, take any position or action or
make any US tax election with respect to Mergerco inconsistent with such election or
such treatment.
(e) The Purchaser shall not take any position for United States Federal income
tax purposes inconsistent with the treatment of (i) the Sale Transaction and the Merger,
taken together, as a reorganization within the meaning of Section 368(a) of the Code or
(ii) the Holdco Contribution and the election to disregard AEG for United States Federal
income tax purposes, taken together, as a reorganization within the meaning of Section
368(a)(1)(F) of the Code. The Purchaser shall not (and shall cause its Subsidiaries not to)
take any action for United States Federal income tax purposes inconsistent with the
election to treat AEG as a disregarded entity for such purposes.
5.15 Securities Act. The Purchaser shall not offer to sell or otherwise dispose
of the Holdco Shares so acquired by it in violation of any of the registration requirements
of the Securities Act of 1933, as amended, or the applicable securities laws of any other
jurisdiction.
5.16 Euronext Listing. The Purchaser shall, at its expense, cause (including,
without limitation, by making all necessary filings and taking all necessary corporate and
other actions to cause) the Purchaser Shares to be issued after conversion of the Purchaser
Consideration Shares and the Earnout Shares to be authorized for listing on Euronext and
any other stock exchange on which Purchaser Shares are listed and for such listings to be
maintained and such shares freely tradable.
5.17 Dutch Required Actions. In connection with the Merger, the Purchaser
shall cause Mergerco and the Stakeholders' Representative shall cause Holdco to, as soon
as practicable after the date hereof, (a) make all necessary filings with the Dutch Trade
Registry as required by Article 2:314 of the Netherlands Civil Code (such filings and any
such other filing required in connection with the Merger, the “Dutch Trade Filings”), and
(b) publish in a daily newspaper with national coverage in the Netherlands, a notice of the
occurrence of the Dutch Trade Filings, as required by Article 2:314(3) of the Netherlands
Civil Code (the “Dutch Merger Publication”). On the Closing Date and as soon as
practicable after the execution of the Transfer Deed, the Purchaser as the sole shareholder
of Mergerco and Holdco, shall adopt the necessary resolutions to implement the Merger,
recorded by two notarial deeds, provided that at least one (1) calendar month shall have
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passed after the publication of the Dutch Merger Publication and confirmation shall have
been received by the respective courts stating that no creditor of either Mergerco or
Holdco objected to the Merger. On the Closing Date, and as soon as practicable after the
adoption of the resolutions referred to in the previous sentence, the Purchaser shall cause
Mergerco and Holdco to execute the notarial deed effecting the Merger (the “Merger
Deed”) in accordance with the Merger Proposal.
5.18
Uses of Cash.
(a) From and after the date hereof, the Purchaser and its Subsidiaries, if any,
shall hold and reserve their available cash in anticipation of their cash needs at, following
and in connection with the Closing. In furtherance of the foregoing, the Purchaser shall
not make any distribution or other payment to its shareholders or sponsors other than the
payments contemplated by Section 1 hereof, any Conversion Amount payable to the
Purchaser shareholders and any of the Purchaser Transaction Expenses.
(b) Immediately prior to (and determined without giving effect to) the
Closing, the Purchaser shall have on deposit an amount in immediately available cash not
less than the sum of €250,000,000 plus an amount to satisfy all unpaid Purchaser
Transaction Fees. The Purchaser has agreed with Deutsche Bank and the Purchaser’s
founding shareholders that such founding shareholders shall sell any number of their
Purchaser Shares as may be necessary to cover any of the Purchaser’s fees, costs and
expenses that are not covered by the amount available to the Purchaser in excess of
€250,000,000 and provide the proceeds resulting from such sale to the Purchaser, for no
additional consideration, to compensate the Purchaser for such fees, costs and expenses.
5.19 Covenant Not to Compete. For a period of two (2) years from and after
the Closing Date, none of the Ripplewood Entities, the Ripplewood Funds nor any of
their controlled Affiliates will engage, directly or indirectly, in any business that any of
the AEG Companies conducts as of the Closing Date in any geographic area in which any
of the AEG Companies conducts

i PROXY STATEMENT FOR ANNUAL GENERAL MEETING

Transcription

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