As filed with the Securities and Exchange Commission on November 21, 2008

Registration No. 333-      

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

FLOW INTERNATIONAL CORPORATION

(Exact name of Registrant as specified in its charter)

 

 

23500 64^th Avenue South

Kent, WA 98032

(253) 850-3500

 

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

Flow International Corporation

23500 64^th Avenue South

Kent, WA 98032

(253) 850-3500

 

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after the effective date of this Registration Statement and the satisfaction or waiver of all other conditions under the merger agreement described herein.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box, and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

CALCULATION OF REGISTRATION FEE

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission acting pursuant to said Section 8(a) may determine.

 

 

SUBJECT TO COMPLETION, DATED [           ], 2008

 

MERGER PROPOSAL — YOUR VOTE IS IMPORTANT

 

To OMAX Shareholders:

 

The boards of directors of Flow International Corporation and OMAX Corporation have each unanimously approved Flow’s acquisition of OMAX pursuant to the Agreement and Plan of Merger, dated September 9, 2008, by and among Flow, OMAX, Orange Acquisition Corporation, a wholly-owned subsidiary of Flow, certain shareholders of OMAX, and John B. Cheung, Inc. as Shareholders’ Representative through a merger transaction, as amended by the First Amendment to Agreement and Plan of Merger, dated November 10, 2008.

 

If the merger agreement and its amendment are approved and the merger is subsequently completed, each share of OMAX common stock outstanding immediately prior to the effective time of the merger, other than dissenting shares, will be canceled and automatically converted into the right to receive a per share portion of the merger consideration which is comprised of cash, Flow common stock, par value $0.01 per share, and additional cash and/or shares of Flow common stock on a contingent basis, as discussed below. Options to purchase shares of OMAX common stock will become vested and will exercise with the consent of the optionholder, and will be exchanged for the right to receive the merger consideration discussed below, reduced by any applicable payroll, income tax, or other withholding taxes, loans, etc.

 

The total amount of cash to be paid by Flow at closing is approximately $71,000,000, subject to adjustments (which adjustments include an employee retention pool of approximately $3,300,000, legal counsel fees of $7,000,000, transaction expenses, and other adjustments) and an escrow, and including a promissory note as described below. The total number of shares to be issued by Flow at closing will reflect a market value of $4,000,000.

 

At the third anniversary of the closing of the merger, each share of OMAX common stock may be entitled to receive additional cash or Flow common stock as more fully described in the merger agreement as amended, contingent upon Flow common stock trading at an average share price of at least $7.00 for the six months ending thirty-six months after the closing. This additional consideration is referred to as the contingent consideration, and ranges on a straight-line basis from $5,000,000 if the average share price is equal to $7.00, to a maximum of $52,000,000 if the average share price is $14.00 or more. If Flow chooses to distribute Flow common stock in lieu of cash as contingent consideration, the number of shares distributed will be based on the average share price described above, or, if an interim election is made as described below, on the basis of the interim average share price.

 

OMAX shareholders may, under certain circumstances, make an election on an interim basis with respect to the contingent consideration. If, between the last day of the sixth full month after the closing and the last day of the thirty-fifth full month after the closing, the average daily closing share price of Flow common stock for the trailing six-month period quoted on NASDAQ is equal to or greater than $7.00, former OMAX shareholders may make a one-time election to receive contingent consideration on the basis of the interim average share price instead of the average share price calculated on the thirty-sixth month after closing, all as more fully described in the merger agreement as amended.

 

As of November 10, 2008, there were 4,741,128 shares and options for 1,499,350 shares of OMAX common stock outstanding, which would result in a per share cash consideration of approximately $[     ] and a per share stock consideration of approximately [          ] shares of Flow common stock based on the share price of Flow common stock as of [          ], 2008, not including the contingent consideration.

 

Flow common stock is traded on the NASDAQ Global Market under the symbol “FLOW.” On [          ], 2008, the closing sale price of a share of Flow common stock was $[     ].

 

The merger cannot be completed unless OMAX shareholders approve the adoption of the merger agreement as amended at its special meeting of shareholders. More detailed information about Flow, OMAX and the proposed merger is contained in this proxy statement/prospectus. We encourage you to carefully read this proxy statement/prospectus before voting, including the section entitled “Risk Factors” beginning on page 15.

 

The OMAX board of directors unanimously recommends that OMAX shareholders vote “FOR” the adoption of the merger agreement as amended.

 

The date, time and place of the special meeting of shareholders are as follows:

[          ], 2008

8:00 a.m. Pacific Standard Time (PST)

21409 72^nd Avenue South

Kent, Washington 98032

 

Your vote is very important. Whether or not you plan to attend OMAX’s special meeting of shareholders, please take the time to vote by completing and mailing the enclosed proxy card.

 

Sincerely,

 

Dr. John Cheung

Chairman

OMAX Corporation

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION OR THE SECURITIES OF FLOW TO BE ISSUED PURSUANT TO THE MERGER, OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

This proxy statement/prospectus is dated [          ], 2008, and is first being mailed to OMAX shareholders on or about [          ], 2008.

 

ADDITIONAL INFORMATION

 

This proxy statement/prospectus incorporates important business and financial information about Flow International Corporation and OMAX Corporation that is not included in or delivered with this proxy statement/prospectus. With respect to Flow, certain important business and financial information about Flow has been filed with the Securities and Exchange Commission, which we refer to as the SEC, but has not been included in or delivered with this proxy statement/prospectus. For a listing of documents incorporated by reference into this proxy statement/prospectus, please see the section entitled “Where You Can Find More Information” beginning on page 106 of this proxy statement/prospectus.

 

Flow will provide you with copies of information relating to Flow, without charge, upon written or oral request to:

 

FLOW INTERNATIONAL CORPORATION

23500 64^th Avenue South

Kent, WA 98032

Attention: Investor Relations

Telephone: (253) 850-3500

 

PLEASE REQUEST DOCUMENTS FROM FLOW NO LATER THAN [          ], 2008. UPON REQUEST, FLOW WILL MAIL ANY DOCUMENTS TO YOU BY FIRST CLASS MAIL BY THE NEXT BUSINESS DAY.

 

In addition, you may obtain copies of this information from Flow’s website, http://www.flowcorp.com, or by sending an email to info@flowcorp.com. Information contained on Flow’s website does not constitute part of this proxy statement/prospectus.

 

OMAX will provide you with copies of information relating to OMAX, without charge, upon written or oral request to:

 

OMAX CORPORATION

21409 72^nd Avenue South

Kent, WA 98032

Attention: Investor Relations

Telephone: (253) 872-2300

 

PLEASE REQUEST DOCUMENTS FROM OMAX NO LATER THAN [          ], 2008. UPON REQUEST, OMAX WILL MAIL ANY DOCUMENTS TO YOU BY FIRST CLASS MAIL BY THE NEXT BUSINESS DAY.

 

In addition, you may obtain copies of this information from OMAX’s website, http://www.omax.com, or by sending an email to omax@omax.com. Information contained on OMAX’s website does not constitute part of this proxy statement/prospectus.

 

You should rely only on the information contained in, or incorporated by reference into, this proxy statement/prospectus in deciding how to vote on each of the proposals. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated [          ], 2008. You should not assume that the information contained in, or incorporated by reference into, this proxy statement/prospectus is accurate as of any date other than that date.

 

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this proxy statement/prospectus regarding Flow and Orange Acquisition Corporation has been provided by Flow and Orange Acquisition Corporation and information contained in this proxy statement/prospectus regarding OMAX has been provided by OMAX.

 

 

OMAX CORPORATION

21409 72nd Avenue South

Kent, WA 98032

(253) 872-2300

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held [           ], 2008

Dear Shareholders of OMAX Corporation:

 

You are cordially invited to a special meeting of shareholders of OMAX Corporation at its headquarters located at 21409 72^nd Avenue South, Kent, WA 98032, on [          ], 2008, at 8:00 a.m. Pacific Standard Time (PST). Only shareholders of record who hold shares of OMAX Corporation common stock at the close of business on [          ], 2008, the record date for the special meeting, are entitled to notice of and to vote at the special meeting and any adjournments or postponements of the special meeting.

 

At the special meeting, you will be asked to consider and vote upon and approve the following proposals:

 

1. Adoption of the Agreement and Plan of Merger, dated as of September 9, 2008, by and among Flow International Corporation, Orange Acquisition Corporation, a wholly-owned subsidiary of Flow International Corporation, and OMAX Corporation, as amended by the First Amendment to Agreement and Plan of Merger, dated as of November 10, 2008.

 

2. Adjournment or postponement of the Special Meeting to a later date or dates, if necessary, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the adoption of the merger agreement as amended, which we refer to as the adjournment proposal.

 

No other business will be conducted at the special meeting. These proposals are described more fully in this proxy statement/prospectus. Please give your careful attention to all of the information included in, or incorporated by reference into, this proxy statement/prospectus.

 

OMAX Corporation’s board of directors has unanimously approved the adoption of the merger agreement as amended, and recommends that OMAX shareholders vote “FOR” adoption of the merger agreement as amended and “FOR” the proposal to grant discretionary authority to OMAX management to vote shareholder shares to adjourn or postpone the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to approve the adoption of the merger agreement as amended.

 

Holders of OMAX common stock have the right to dissent from the merger and assert dissenters’ rights provided the proper procedures of Chapter 23B.13 of the Washington Business Corporation Act are followed. A copy of 23B.13 of the Washington Business Corporation Act is attached as Annex C to the proxy statement/prospectus that accompanies this notice.

 

This proxy statement/prospectus contains detailed information about OMAX, Flow International Corporation, and the proposed merger. We urge you to carefully read this proxy statement/prospectus in its entirety. In particular, see the section entitled “Risk Factors” beginning on page 15 of this proxy statement/prospectus for a discussion of the risks related to the merger. For specific instructions on how to vote your shares, please refer to the section of this proxy statement/prospectus entitled “The Special Meeting of OMAX Shareholders” beginning on page 55.

 

Whether or not you plan to attend the special meeting, please vote as soon as possible so that your shares are represented at the meeting. If you do not vote, it may make it more difficult for OMAX Corporation to adopt the merger agreement and make it more difficult for OMAX to achieve a quorum at the special meeting.

 

By Order of the Board of Directors,

 

James M. O’Connor
Secretary
Kent, Washington

 

[          ], 2008

 

Table of Contents

 

 

The following are some questions that you, as a shareholder of OMAX, may have regarding the merger and the special meeting of OMAX shareholders and brief answers to such questions. Flow and OMAX urge you to read carefully the entirety of this proxy statement/prospectus because the information in this section does not provide all the information that may be important to you with respect to the adoption of the merger agreement or the issuance of Flow common stock in connection with the merger. Additional information is also contained in the annexes to this proxy statement/prospectus.

 

 

 

 

 

 

 

James O’Connor, Secretary

OMAX Corporation

21409 72^nd Ave. South

Kent, WA 98032

Telephone: (800) 838-0343 or (253) 872-2300

 

SUMMARY OF THE MERGER

 

The Companies

 

Structure of the Merger (See page 39)

 

Consideration in the Merger (See page 39)

 

Treatment of OMAX Options (See page 40)

 

Recommendation of Board of Directors to OMAX Shareholders (See page 55)

 

No Review by an OMAX Financial Advisor

 

Risk Factors (See page 15)

 

Vote Required by OMAX Shareholders (See page 56)

 

Share Ownership of OMAX’s Directors and Executive Officers

 

Interests of OMAX’s Directors and Executive Officers in the Merger (See page 31)

 

Regulatory Filings and Approvals Must be Obtained (See page 35)

 

Flow will List Shares of Flow Common Stock Issued to OMAX Shareholders on the NASDAQ Global Market (See page 36)

 

Restrictions on the Ability to Sell Flow Common Stock (See page 36)

 

Dissenters’ Rights (See page 36)

 

Differences between the Rights of Flow Shareholders and OMAX Shareholders (See page 97)

 

Accounting Treatment of the Merger (See page 35)

 

U.S. Federal Income Tax Consequences of the Merger (See page 33)

 

Conditions to Completion of the Merger (See page 49)

	•	valid adoption of the merger agreement by the shareholders of OMAX;

	•	the SEC shall have declared Flow’s registration statement, of which this proxy statement/prospectus is a part, effective, and the shares of Flow common stock to be issued pursuant to the merger shall have been authorized for listing on the NASDAQ Global Market;
	•	all consents, (including third party consents), notices and approvals required to be obtained or provided prior to the consummation of the merger shall have been obtained, satisfied or filed; and
	•	no law, regulation or order shall have been enacted or issued by a governmental entity which has the effect of making the merger illegal or otherwise prohibiting completion of the merger.

	•	the representations and warranties of the parties shall be true and correct on the date of the merger agreement and as of the closing of the merger to the extent specified in the merger agreement;
	•	the parties shall have performed or complied in all material respects with all agreements and covenants required by the merger agreement to be performed or complied with by it prior to the completion of the merger; and
	•	the parties and BNY Mellon Shareowner Services (or other appointed escrow agent) shall have executed the relevant escrow agreements.

	•	OMAX shall not have suffered a continuing “material adverse effect” since the date of the merger agreement.
	•	there shall be no pending suit, action or proceeding asserted by any governmental entity (1) challenging or seeking to restrain or prohibit the merger or any of the other transactions contemplated by the merger agreement the effect of which would be to cause the merger to be illegal or otherwise prohibit consummation of the merger or (2) seeking to require Flow or OMAX to agree to any action which is reasonably likely to have a material adverse effect on Flow or OMAX as specified in the merger agreement.
	•	Flow shall have received the resignations of the officers and directors of OMAX and certain designated subsidiaries.
	•	Prior to closing, certain OMAX employees shall have executed offer and employment agreements with Flow and shall have in place all required certifications, clearances and authorizations for the specified positions.
	•	Certain designated individuals shall have executed noncompetition agreements with Flow.
	•	Certain designated agreements shall have been terminated or amended.
	•	Flow shall have received legal opinions with respect to the transaction.
	•	Certain intellectual property rights of OMAX shall have been assigned to Flow.
	•	OMAX shall have delivered certain specified financial statements and OMAX’s minute books.
	•	Not more than 5% of the holders of OMAX shares outstanding on the record date for the vote of the merger shall have exercised dissenter’s rights.
	•	OMAX shall have amended the change of control provisions in its option agreements and holders of OMAX options shall have provided written consent to the exercise of their option.
	•	OMAX shall have delivered to Flow all necessary certificates and other documents customary for transactions of this type.
	•	Any agreements entered into between Flow, OMAX and OMAX’s shareholders shall be in full force and effect.

 

Prohibition from Soliciting Other Offers (See page 48)

	•	solicit, encourage, initiate, or participate in any negotiations, inquiries, or discussions with respect to any offer or proposal to acquire all or any significant part of OMAX, its business, assets, or capital shares, whether by merger, consolidation, other business combination, purchase of capital stock purchase of assets, license (but excluding non-exclusive licenses entered into in the ordinary course of business), lease, tender or exchange offer, or otherwise, which we refer to as a restricted transaction, as defined in the merger agreement;
	•	disclose, in connection with a restricted transaction, any nonpublic information to any person other than Flow or Flow’s representatives concerning OMAX’s business or properties or afford to any person other than Flow or Flow’s representatives access to its properties, books, or records, except as required by law or in accordance with a governmental request for information;
	•	enter into or execute any agreement relating to a restricted transaction; or
	•	make or authorize any public statement, recommendation, or solicitation in support of any restricted transaction or any offer or proposal relating to a restricted transaction other than with respect to the merger with Flow.

	•	withdraw (or amend or modify in a manner adverse to Flow), or publicly propose to withdraw (or amend or modify in a manner adverse to Flow), the approval, recommendation, or declaration of advisability by the board of directors of OMAX of the merger; or recommend, adopt, or approve, or propose publicly to recommend, adopt, or approve, any acquisition proposal; or
	•	approve or recommend, or publicly propose to approve or recommend, or allow OMAX or any of its subsidiaries to execute or enter into, any letter of intent, merger agreement, option agreement, joint venture agreement, partnership agreement, or other similar agreement, (A) constituting or related to any acquisition proposal or (B) requiring it to abandon, terminate, or fail to consummate the merger.

 

Termination of the Merger Agreement (See page 51)

 

SELECTED FINANCIAL DATA OF FLOW

		Three Months
		Ended
		July 31,				Year Ended April 30,
		2008				2008				2007(3)				2006(1)(3)				2005(1)(2)				2004(1)(2)
		(Unaudited)
		(In thousands, except per share amounts)
Statement of Operations Data:
Sales		$	57,065			$	244,259			$	213,435			$	202,658			$	169,289			$	128,488
Income (Loss) From Continuing Operations			1,533				21,911				4,022				7,047				(12,772	)			(10,557	)
Net Income (Loss)			1,603				22,354				3,755				6,677				(21,197	)			(11,274	)
Basic Income (Loss) Per Share from Continuing Operations			0.04				0.59				0.11				0.20				(0.72	)			(0.68	)
Basic Income (Loss) Per Share			0.04				0.60				0.10				0.19				(1.19	)			(0.73	)
Diluted Income (Loss) Per Share from Continuing Operations			0.04				0.58				0.11				0.19				(0.72	)			(0.68	)
Diluted Income (Loss) Per Share			0.04				0.59				0.10				0.18				(1.19	)			(0.73	)

		July 31,				April 30,
		2008				2008				2007				2006				2005				2004
		(Unaudited)
		(In thousands)
Balance Sheet Data:
Working Capital		$	57,678			$	56,126			$	43,108			$	41,857			$	6,154			$	(8,757	)
Total Assets			148,802				151,155				123,172				119,301				118,467				129,272
Short-Term Debt			2,321				2,095				7,188				3,247				13,443				48,727
Long-Term Obligations, net			2,344				2,333				2,779				3,774				5,704				38,081
Shareholders’ Equity (Deficit)			87,982				86,064				61,224				56,557				29,464				(8,217	)

(1)		Our consolidated statements of operations for fiscal years 2007 through 2004 have been recast to reflect the results of operations of our CIS Technical Solutions division as discontinued operations.
(2)		Our consolidated statements of operations for fiscal years 2005 and 2004 have been recast to give effect to the sale of the Avure Business and present the results for the Avure Business as discontinued operations.
(3)		As described in Note 20 to the referenced Annual Report on Form 10-K for the year ended April 30, 2008, we restated our financial statements for the years 2006 and 2005 to reflect the following: (i) an increase of $280,000 to fiscal year 2006 provision for income taxes and taxes payable and other accrued taxes, an increase in product warranty expense of $208,000 which increased the cost of goods sold. The effect of these errors resulted in a decrease of $733,000 or $0.02 per basic and dilutive income per share of net income in fiscal year 2006 and an increase of $85,000 or $0 per basic and dilutive income per share of net income in fiscal year 2007.

 

SELECTED FINANCIAL DATA OF OMAX

		Six Months
		Ended				Year Ended December 31,
		June 30, 2008				2007				2006(1)				2005(1)
		(Unaudited)
		(In thousands)
Statement of Income Data:
Sales		$	30,421			$	62,672			$	53,531			$	37,514
Net Income			210				1,328				2,838				2,054

		Six Months
		Ended				Year Ended December 31,
		June 30, 2008				2007				2006
		(Unaudited)
		(In thousands)
Balance Sheet Data:
Working Capital		$	9,273			$	8,189			$	7,255
Total Assets			27,502				25,625				19,638
Short-Term Debt			5,476				5,107				3,360
Shareholders’ Equity			10,076				9,736				8,409

(1)		As described in Note 3 to our December 31, 2007 Financial Statements included elsewhere in this proxy statement/prospectus, we have restated our financial statements for the years 2006 and 2005 to reflect the following: (i) the retroactive recognition of state sales and income taxes in the amount of $183,000 and $180,000 in 2006 and 2005, respectively, (ii) an adjustment to our warranty reserves of $278,000 and $90,000 in 2006 and 2005, respectively, (iii) the income tax effect of these changes as well as changes in the calculation of deferred tax assets and liabilities as of December 31, 2006 and 2005 related to the IC-DISC, and (iv) a $385,000 adjustment for inventory in transit as of December 31, 2006.

 

SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL DATA

		Year Ended				Three Months Ended
		April 30, 2008				July 31, 2008
		(Unaudited)
		(In thousands, except per share amounts)
Statement of Operations Data:
Sales		$	308,244			$	73,008
(Loss) Income from Continuing Operations			(8,701	)(1)			667
Net (Loss) Income			(8,258	)(1)			737
Basic and Diluted (Loss) Income per Share from Continuing Operations			(0.22	)(1)			0.02
Basic and Diluted (Loss) Net Income per Share			(0.21	)(1)			0.02

		As of July 31, 2008
		(Unaudited)
		(In thousands)
Balance Sheet Data:
Working Capital		$	42,207
Goodwill			12,086
Total Assets			212,035
Short-Term Debt			20,181
Long-Term Obligations, net			50,956
Shareholders’ Equity			58,902

(1)		Includes $29,000,000 of expense directly attributable to the acquisition of OMAX including (i) $7,000,000 of OMAX legal expenses required to be paid to OMAX litigation counsel at closing by Flow, and (ii) $22,000,000 of the purchase price attributable to the settlement of the litigation between OMAX and Flow. For a detailed description of the allocation of purchase price and pro forma adjustments to the historical Flow and OMAX historical financial results, refer to the Unaudited Pro Forma Condensed Combined Financial Statements beginning on page 86 of this proxy statement/prospectus.

 

COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA

	•	the historical and unaudited pro forma combined net income (loss) per share and net tangible book value per data of Flow; and
	•	the historical and unaudited equivalent pro forma combined net income (loss) per share and net tangible book value per data of OMAX.

		Year Ended				Three Months Ended
		April 30, 2008				July 31, 2008
Flow historical data:
Net Income per Share — Basic		$	0.60			$	0.04
Net Income per Share — Dilutive			0.59				0.04
Book Value per Share(1)			2.29				2.34

		Year Ended				Three Months Ended
		March 31, 2008				June 30, 2008
OMAX historical data:
Book Value per Share(1)			2.12				2.13

		Year Ended				Three Months Ended
		April 30, 2008				July 31, 2008
Pro forma combined data:
Net Loss per Share — Basic and Dilutive(2)		$	(0.21	)(4)		$	0.02
Book Value per Share(1)							1.53
Pro forma combined equivalent data:
Net Loss per Share — Basic and Dilutive(3)		$	(18.28	)(4)		$	1.74
Book Value per Share(1)							133.16

(1)		The historical book value per share is computed by dividing total stockholders’ equity by the total number of shares of Flow or OMAX common stock outstanding at the end of the period. The pro forma combined book value per share is computed by dividing the pro forma combined shareholders’ equity by the pro forma combined number of shares of Flow common stock outstanding at July 31, 2008.
(2)		Shares used to calculate unaudited pro forma combined basic and diluted net loss per share are based on the sum of the following:

a.		The number of Flow weighted average shares used in computing historical net loss per share, basic and diluted;
b.		The number of Flow common shares issued to the former OMAX shareholders as consideration for the assumed merger.

(3)		The pro forma combined equivalent data is calculated by multiplying the pro forma combined data amounts by the exchange ratio of 87.03 shares of Flow for each share of OMAX common stock. The exchange ratio has been calculated as $4,000,000 (the total value of Flow common stock issued to OMAX at closing) divided by Flow’s closing share price on May 1, 2007.
(4)		Includes $29,000,000 of expense directly attributable to the acquisition of OMAX including (i) $7,000,000 of OMAX legal expenses required to be paid to OMAX litigation counsel at closing by Flow, and (ii) $22,000,000 of the purchase price attributable to the settlement of the litigation between OMAX and Flow.

 

COMPARATIVE PER SHARE MARKET PRICE DATA

		Flow Common Stock
September 8, 2008			5.58
November 10, 2008			2.82

		Flow Common Stock
		High				Low
Year Ending April 30, 2009
Third Quarter (through November 10, 2008)			4.10				2.81
Second Quarter			10.19				2.86
First Quarter			11.40				5.05
Year Ended April 30, 2008
Fourth Quarter			10.48				7.20
Third Quarter			10.32				7.03
Second Quarter			10.92				7.52
First Quarter			13.83				9.14
Year Ended April 30, 2007
Fourth Quarter			12.97				10.43
Third Quarter			12.41				9.75
Second Quarter			14.68				10.60
First Quarter			16.74				12.53

 

Dividends

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

If the merger is completed, OMAX and Flow will operate as a combined company in a market environment that is difficult to predict and that involves significant risks, many of which will be beyond the combined company’s control. In addition to information regarding OMAX and Flow contained in, or incorporated by reference into, this proxy statement/prospectus, you should carefully consider the risks described below before voting your shares. Additional risks and uncertainties not presently known to us or that we do not currently believe are important to an investor, if they materialize, also may adversely affect the merger, OMAX, Flow and the combined company. A discussion of additional risks and uncertainties regarding OMAX and Flow can be found in the information which is incorporated by reference in this proxy statement/prospectus and referred to in the section entitled “Where You Can Find More Information” beginning on page 106 of this proxy statement/prospectus. If any of the events, contingencies, circumstances or conditions described in the following risks actually occurs, our respective businesses, financial condition or our results of operations could be seriously harmed. If that happens, the trading price of Flow common stock could decline and you may lose part or all of the value of any Flow shares held by you.

 

Flow’s proposed merger with OMAX may fail to close or there could be substantial delays and costs before the merger is completed.

 

On December 4, 2007, Flow entered into an option agreement that provides Flow with a period of exclusivity to negotiate the acquisition of OMAX. The transaction is subject to due diligence, the terms of the definitive agreement and other customary closing conditions, including approval of the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, or the HSR Act.

 

The proposed transaction was reviewed by the FTC pursuant to the HSR Act and related rules. On July 10, 2008, the FTC accepted a proposed consent order to remedy competitive concerns about the proposed transaction alleged in the FTC’s simultaneously issued complaint. Following a 30-day public comment period, the FTC approved the issuance of a final consent order, which allows the merger to be consummated subject to certain conditions. In general terms, the conditions require Flow, following the merger, to license to other abrasive waterjet companies on a royalty-free basis OMAX patents 5,508,596 and 5,892,345, which relate to controllers used in waterjet cutting systems. The licenses do not transfer technology or any other patented equipment or processes owned by Flow or OMAX, do not apply to any intellectual property outside of the United States, and expire in five years. No further review by the FTC is warranted unless Flow fails to fulfill its post-merger obligations or fails to close on the merger within twelve months from the FTC’s acceptance of the consent order (accepted July 10, 2008). Flow intends to comply in full with the consent order, however, there can be no assurance that Flow will be able to fulfill its post-merger obligations or that the closing of the merger will occur on time.

 

If the proposed merger with OMAX is not closed, the continuation of the litigation could be time consuming and costly.

 

If the proposed transaction is consummated, the patent litigation between the parties, OMAX Corporation v. Flow International Corporation, United States District Court, Western Division at Seattle, Case No. CV04-2334, will be terminated without any additional amounts being paid in settlement. If the transaction is not closed, the litigation may continue, which could be time consuming and costly.

 

Flow’s proposed merger with OMAX may result in dilution to Flow’s existing shareholders.

 

Under the merger agreement, shares of Flow common stock worth $4,000,000 will be issued at closing and, three years after closing (or earlier pursuant to a permitted interim election described below), if Flow elects to pay the contingent consideration in stock, additional shares of common stock worth up to $52,000,000 based on the Average Share Price for the six months ending thirty-six months after closing. The additional shares issued in connection with the merger with OMAX will have a dilutive impact on the number of Flow’s shares outstanding and may also adversely affect the prevailing market price of Flow’s common stock.

Flow may not be able to successfully integrate OMAX into its existing business.

 

If the transaction is closed, there will be a significant risk relating to integration. The integration of OMAX will be a time-consuming and expensive process and may disrupt the combined company’s operations if it is not completed in a timely and efficient manner. If this integration effort is not successful, the combined company’s results of operations could be harmed, employee morale could decline, key employees could leave, and customers could cancel existing orders or choose not to place new ones. In addition, the combined company may not achieve anticipated synergies or other benefits of the merger. If the anticipated benefits of the merger are not realized or do not meet the expectations of financial or industry analysts, the market price of Flow’s common stock may decline.

 

Flow may assume unknown liabilities in the merger with OMAX that could harm Flow’s financial condition and operating results.

 

The due diligence that Flow has and will be able to perform before the proposed merger may be limited and may not be sufficient to identify before the closing all possible breaches of representations and warranties. As a result, Flow may, among other things, assume unknown liabilities not disclosed by the seller or uncovered during pre-merger due diligence. These obligations and liabilities could harm Flow’s financial condition and operating results. Flow’s rights to indemnification for breaches of representations and warranties will, except in certain limited circumstances, be limited to a maximum of $8.45 million.

 

Flow may incur significant indebtedness following the merger, which could adversely affect Flow’s liquidity.

 

In order to finance a portion of the cash consideration, Flow will incur additional indebtedness. As a result of this indebtedness, demands on Flow’s cash resources will increase, which could affect Flow’s liquidity and, therefore, could have important effects on an investment in its common stock. For example, while the impact of this increased indebtedness is expected to be addressed by the combined cash flows of Flow and OMAX, the increased level of indebtedness could nonetheless create competitive disadvantages for Flow compared to other companies with lower debt levels.

 

General customer uncertainty related to the merger could harm Flow, OMAX and the combined company.

 

Flow’s and OMAX’s customers may, in response to the announcement of the proposed merger, or due to concerns about the completion of the proposed merger, delay or defer purchasing decisions. Alternatively, customers may purchase a competitor’s product because of such uncertainty. Further, customer concerns about changes or delays in Flow’s, OMAX’s or the combined company’s product roadmap may negatively affect customer purchasing decisions. Customers could also be reluctant to purchase the products and services of OMAX or Flow due to uncertainty about the direction of their technology, products and services, and willingness to support and service existing products. In addition, customers, distributors, resellers, and others may also seek to change existing agreements with OMAX or Flow as a result of the proposed merger or not support or promote OMAX’s or Flow’s technology, products and services due to uncertainty created by the proposed merger. If Flow’s or OMAX’s customers delay or defer purchasing decisions, or choose to purchase from a competitor, the revenues of Flow and OMAX, respectively, and the revenues of the combined company, could materially decline or any anticipated increases in revenue could be lower than expected.

 

The announcement and pendency of the merger could cause disruptions in the businesses of Flow and OMAX, which could have an adverse effect on their respective business and financial results, and consequently on the combined company.

 

Flow and OMAX have operated independently and, until the completion of the merger, will continue to operate independently. Uncertainty about the effect of the merger on employees, customers and distributors may have an adverse effect on Flow and OMAX and consequently on the combined company. These uncertainties may impair Flow’s and OMAX’s ability to retain and motivate key personnel and could cause customers, distributors, suppliers and others with whom each company deals to seek to change existing business relationships which may materially

and adversely affect their respective businesses. Due to the limited termination rights agreed to by the parties in the merger agreement, Flow and OMAX may be obligated to consummate the merger in spite of the adverse effects resulting from the disruption of Flow’s and OMAX’s ongoing businesses. Furthermore, this disruption could adversely affect the combined company’s ability to maintain relationships with customers, distributors, suppliers and employees after the merger or to achieve the anticipated benefits of the merger. Each of these events could adversely affect Flow and OMAX in the near term and the combined company if the merger is completed.

 

Integrating Flow and OMAX may divert management’s attention away from the combined company’s operations.

 

Successful integration of Flow’s and OMAX’s operations, products and personnel may place a significant burden on the combined company’s management and internal resources. Challenges of integration include the combined company’s ability to incorporate acquired products and business technology into its existing product lines, including consolidating technology with duplicative functionality or designed on a different technological architecture and provide for interoperability, and its ability to sell the acquired products through Flow’s existing or acquired sales channels. Flow may also experience difficulty in effectively integrating the different cultures and practices of OMAX. Further, the difficulties of integrating OMAX could disrupt the combined company’s ongoing business, distract its management focus from other opportunities and challenges, and increase the combined company’s expenses and working capital requirements. The diversion of management attention and any difficulties encountered in the transition and integration process could harm the combined company’s business, financial condition and operating results.

 

If Flow and OMAX fail to retain key employees, the benefits of the merger could be diminished.

 

The successful combination of Flow and OMAX will depend, in part, on the retention of key personnel. There can be no assurance that the combined company will be able to retain its key management and scientific personnel. Any failure to retain such key employees could harm the business of the combined company.

 

The value of the shares of OMAX common stock may be affected by factors different from or in addition to those affecting the shares of Flow common stock.

 

Upon completion of the merger, holders of OMAX common stock will become holders of Flow common stock and will have different rights from the shares of OMAX common stock. For a comparison of the different rights, see the section entitled “Comparative Rights of Flow Shareholders and OMAX Shareholders” beginning on page 97 of this proxy statement/prospectus. In addition, an investment in Flow common stock has different risks than an investment in OMAX common stock. Former holders of OMAX common stock will be subject to risks associated with Flow upon exchange of their shares of OMAX common stock for Flow common stock that are different from or in addition to the risks associated with OMAX.

 

OMAX officers and directors may have interests that are different from, or in addition to, those of OMAX shareholders generally.

 

The officers and directors of OMAX have interests in the merger that are different from, or are in addition to, those of OMAX shareholders generally. These interests include an OMAX director being nominated for election to the Flow board of directors following the merger, the adoption of new employment agreements for certain OMAX executives in connection with the merger and/or the provision and continuation of indemnification and insurance arrangements for current directors of OMAX following the consummation of the merger. Additionally, several of OMAX’s officers and directors will be eligible to participate in the employee retention pool. You should consider these differing interests when making your voting decision.

 

If the general shortage of credit continues to develop, Flow’s sales may decrease.

 

Flow’s customers typically finance the purchase of Flow’s systems. If they are unable to obtain credit or cannot find financing on acceptable terms, Flow’s sales may decrease, which would reduce Flow’s revenues, profitability and cash flow.

Flow is experiencing increased competition in its markets, and the failure to complete effectively could have an adverse effect on Flow’s business, financial condition, and results of operations.

 

Flow is facing increased competition in a number of its served markets as a result of the entry of new competitors, some of which have greater financial resources or lower production costs than Flow does. In order to compete effectively, Flow must retain its relationships with existing customers, establish relationships with new customers, continually develop new products and services designed to maintain its leadership technology position and penetrate new markets. Flow’s failure to compete effectively may reduce its revenues, profitability and cash flow, and pricing pressures may adversely impact its profitability.

 

Cyclical economic conditions may adversely affect Flow’s financial condition and results of operations or Flow’s growth rate could decline if the markets into which it sells its products decline or do not grow as anticipated.

 

Flow’s products are sold in industries and end-user applications that have historically experienced periodic downturns, such as automotive, aerospace, paper, job shops and stone and tile. Cyclical weaknesses in the industries that Flow serves have led and could continue to lead to a reduced demand for its products and adversely affect its financial condition and results of operations. Any competitive pricing pressures, slowdown in capital investments or other downturn in these industries could adversely affect Flow’s financial condition and results of operations in any given period. Additionally, visibility into Flow’s markets is limited. Flow’s quarterly sales and operating results depend substantially on the volume and timing of orders received during the quarter, which are difficult to forecast. Any decline in Flow’s customers’ markets would likely result in diminished demand for Flow’s products and services and would adversely affect its growth rate and profitability.

 

If Flow is unable to complete the upgrades to its information technology systems that are currently in process, or its upgrades are unsuccessfully implemented, Flow’s future success may be negatively impacted.

 

In order to maintain its leadership position in the market and efficiently process increased business volume, Flow is making a significant multi-year upgrade to its computer hardware, software and its Enterprise Resource Planning, or ERP, system. Should Flow be unable to continue to fund this upgrade, or should the ERP system upgrade be unsuccessful or take longer to implement than anticipated, Flow’s ability to grow the business and its financial results could be adversely impacted.

 

International economic, political, legal and business factors could negatively affect Flow’s results of operations, cash flows and financial condition.

 

In 2008, approximately 55% of Flow’s sales were derived outside the U.S. Since its growth strategy depends in part on Flow’s ability to further penetrate markets outside the U.S., Flow expects to continue to increase its sales outside the U.S., particularly in emerging markets. In addition, two of its manufacturing operations and many of its suppliers are located outside the U.S. Flow’s international business is subject to risks that are customarily encountered in non-U.S. operations, including:

 

 

 

Any of these risks could negatively affect Flow’s results of operations, cash flows, financial condition and overall growth.

 

Changes in Flow’s tax rates or exposure to additional income tax liabilities could affect its profitability. In addition, audits by tax authorities could result in additional tax payments for prior periods.

 

Flow is subject to income taxes in the U.S. and in various foreign jurisdictions. Domestic and international tax liabilities are subject to the allocation of income among various tax jurisdictions. Flow’s effective tax rate can be affected by changes in the mix of earnings in countries with differing statutory tax rates (including as a result of business acquisitions and dispositions), changes in the valuation of deferred tax assets and liabilities, accruals related to unrecognized tax benefits, the results of audits and examinations of previously filed tax returns and changes in tax laws. Any of these factors may adversely affect Flow’s tax rate and decrease its profitability. The amount of income taxes Flow pays is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. tax authorities. If these audits result in assessments different from Flow’s unrecognized tax benefits, Flow’s future results may include unfavorable adjustments to its tax liabilities.

 

Flow may not be able to retain or hire key personnel.

 

To operate successfully and manage potential future growth, Flow must attract and retain qualified managerial, sales, technical and other personnel. Flow faces competition for and cannot assure that it will be able to attract and retain such qualified personnel. If Flow loses key personnel or is unable to hire and retain additional qualified personnel, Flow’s business, financial condition and operating results could be adversely affected.

 

Flow’s inability to protect its intellectual property rights, or Flow’s possible infringement on the proprietary rights of others, and related litigation could be time consuming and costly.

 

Flow defends its intellectual property rights because unauthorized copying and sale of Flow’s proprietary equipment and consumables represents a potential loss of revenue to Flow. From time to time Flow also receive notices from others claiming Flow infringes their intellectual property rights. The number of these claims may grow in the future, and responding to these claims may require Flow to stop selling or to redesign affected products, or to pay damages. A portion of the cash consideration payable to OMAX shareholders at closing will be used to satisfy OMAX’s fees and expenses of legal counsel in relation to OMAX’s patent infringement suit filed against Flow in November 2004.

 

Foreign currency exchange rates and commodity prices may adversely affect Flow’s results of operations and financial condition.

 

Flow is exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates and commodity prices. Flow has substantial assets, liabilities, revenues and expenses denominated in currencies other than the U.S. dollar, and to prepare its consolidated financial statements, Flow must translate these items into U.S. dollars at the applicable exchange rates. In addition, Flow is a large buyer of steel, as well as other commodities required for the manufacture of products. As a result, changes in currency exchange rates and commodity prices may have an adverse effect on Flow’s results of operations and financial condition.

 

If Flow cannot obtain sufficient quantities of materials, components and equipment required for its manufacturing activities at competitive prices and quality and on a timely basis, or if its manufacturing capacity does not meet demand, Flow’s business and financial results will suffer.

 

Flow purchases materials, components and equipment from third parties for use in its manufacturing operations. Some of Flow’s businesses purchase their requirements of certain of these items from sole or limited source suppliers. If Flow cannot obtain sufficient quantities of materials, components and equipment at competitive prices and quality and on a timely basis, Flow may not be able to produce sufficient quantities of product to satisfy

market demand, product shipments may be delayed or Flow’s material or manufacturing costs may increase. In addition, because Flow cannot always immediately adapt its cost structures to changing market conditions, its manufacturing capacity may at times exceed its production requirements or fall short of its production requirements. Any or all of these problems could result in the loss of customers, provide an opportunity for competing products to gain market acceptance and otherwise adversely affect Flow’s business and financial results.

 

If Flow cannot develop technological advancements to its products through continued research and development, Flow’s financial results may be adversely affected.

 

In order to maintain its position in the market, Flow needs to continue investment in research and development to improve its products and technologies and introduce new products and technologies. If Flow is unable to make such investment, if Flow’s research and development efforts do not lead to new and/or improved products or technologies, or if Flow experiences delays in the development or acceptance of new and/or improved products, Flow’s financial condition and results of operations could be adversely affected.

 

Flow’s reputation and its ability to do business may be impaired by improper conduct by any of its employees, agents or business partners.

 

Flow cannot provide assurance that its internal controls will always protect it from reckless or criminal acts committed by its employees, agents or business partners that would violate U.S. and/or non-U.S. laws, including the laws governing payments to government officials, competition, money laundering and data privacy. Any such improper actions could subject Flow to civil or criminal investigations in the U.S. and in other jurisdictions, could lead to substantial civil or criminal, monetary and non-monetary penalties against Flow or its subsidiaries, and could damage Flow’s reputation.

 

The price of Flow’s common stock may be volatile.

 

The market price of Flow’s common stock may be influenced by many factors, many of which are beyond its control, including those described above under “Risk Related to our Industry and Business” and the following:

 

 

In the past, Flow’s operating results have fluctuated significantly from quarter to quarter and may continue to do so in the future due to the factors above and others that are disclosed elsewhere in this proxy statement/prospectus. Flow’s operating results may in some future quarter fall below the expectations of securities analysts and investors. In this event, the trading price of Flow’s common stock could decline significantly. In addition, factors within Flow’s control, such as its ability to deliver equipment in a timely fashion, have caused its operating results to fluctuate in the past and may affect Flow similarly in the future.

 

The factors listed above may affect both Flow’s quarter-to-quarter operating results as well as its long-term success. Given the fluctuations in its operating results, you should not rely on quarter-to-quarter comparisons of Flow’s results of operations as an indication of Flow’s future performance or to determine any trend in Flow’s performance. Fluctuations in its quarterly operating results could cause the market price of and demand for Flow’s common stock to fluctuate substantially.

 

Flow has outstanding options, and restricted stock units that have the potential to dilute the return of Flow’s existing common shareholders and cause the price of Flow’s common stock to decline.

 

Flow has granted stock options to its employees and other individuals. At November 10, 2008, Flow had options outstanding to purchase 855,810 shares of its common stock, at exercise prices ranging from $5.71 to

$12.13 per share. In addition, Flow has compensation plans with certain employees which granted those employees common stocks or restricted stock units totaling 499,528 shares as of November 10, 2008.

 

Washington law and Flow’s charter documents may make an acquisition of Flow more difficult.

 

Provisions in Washington law and in Flow articles of incorporation, bylaws, and rights plan could make it more difficult for a third-party to acquire us, even if doing so would benefit Flow shareholders. These provisions:

 

 

The amount and value of any stock consideration may vary.

 

You will not know the precise value of the Flow common stock you will receive in the merger when you vote on the merger, and since the number of shares of Flow common stock to be exchanged for each share of OMAX common stock has not yet been fixed and may vary depending on the market value of Flow stock during the ten-day trading period prior to the merger and then, if Flow elects to pay the contingent consideration in Flow common stock, for the six-month period ending thirty-six months after the closing of the merger, you will not know the value of the Flow common stock to be received by OMAX shareholders as contingent consideration, if any, prior to voting on the merger.

 

OMAX shareholders will be taxed on their gain in connection with the merger.

 

You generally will recognize capital gain or loss in an amount equal to the difference between the amount of cash received and the value of the Flow shares received at the time you receive such shares over your tax basis for your OMAX shares surrendered in the exchange. See “Proposal One — The Merger — Material U.S. Federal Income Tax Consequences” beginning on page 33.

 

The per share merger consideration will be affected by the exercise of stock options by option holders prior to the effective time of the merger.

 

The per share merger consideration will be affected by the exercise of stock options by option holders prior to the effective time of the merger, and all option holders who exercise their stock options prior to the effective time of the merger will reduce the consideration paid to each shareholder in the merger. As of November 10, 2008, there were options for approximately 1,499,350 shares outstanding at this time and all option holders are expected to exercise their options prior to the merger.

 

OMAX shareholders may not receive any contingent consideration.

 

Payment of contingent consideration in relation to the merger will depend on the average trading price of Flow common stock during the period between the last day of the sixth full month after the closing and the last day of the thirty-fifth full month after closing. If the average share price as of the second anniversary of the closing of the

merger is below the requisite threshold price, the former OMAX shareholders will not be entitled to any contingent consideration. See “Agreements Related to the Merger — Merger Consideration” beginning on page 39.

 

The market price of shares of Flow common stock may be affected by factors that are different from those affecting the value of shares of OMAX common stock.

 

Some of Flow’s current businesses and markets differ from those of OMAX and, accordingly, the results of operations of Flow after the merger may be affected by factors different from those currently affecting the results of operations of OMAX. For a discussion of the businesses of Flow and OMAX and of certain factors to consider in connection with those businesses, see “Information Regarding OMAX’s Business,” beginning on page 58, and the documents incorporated by reference into this document and referred to under “Where You Can Find More Information” beginning on page 106.

 

The OMAX board of directors and management have periodically reviewed and discussed OMAX’s business performance and strategic direction, including OMAX’s short and long term prospects in the context of developments in the machine tool industry and the competitive landscape in the markets in which OMAX operates. The OMAX board of directors and management have also, at times, discussed various potential strategic alternatives involving possible transactions, acquisitions or other business combinations. In this regard, the management of OMAX has from time to time received communications from and communicated informally with representatives of several possible strategic partners regarding industry trends and issues, their respective companies’ strategic directions and the potential benefits and issues arising from potential business combinations or other strategic transactions. In particular, Dr. John Cheung, President & CEO, had very preliminary discussions with two international equipment manufacturers, in addition to preliminary discussions with the prior CEOs of Flow, several times over the past four years. The discussions with the other two possible strategic partners indicated that while the suitor companies were potentially interested in a transaction with OMAX, they were unable to make a business and economic evaluation of the OMAX/Flow patent litigation and therefore were not discussing pricing multiples that were of particular interest to Dr. Cheung or the OMAX shareholders, and these discussions did not result in any substantive negotiations with those companies. As a result of these preliminary discussions, it was clear to Dr. Cheung and the OMAX board of directors that the difficulties in evaluating the OMAX/Flow patent litigation precluded any substantive negotiations with otherwise interested parties at a price that would be of interest to OMAX shareholders. Similarly, Dr. Cheung’s conversations with Flow’s CEOs prior to April 2007 were not able to focus on the realistic possibility of a transaction because of the substantive issues raised by the allegations of patent infringement raised in the ongoing OMAX/Flow patent litigation.

 

In late August 2007, Mr. Charles Brown, the new president and CEO of Flow, contacted Dr. Cheung, president and CEO of OMAX, and arranged a meeting of the two CEOs. At this initial meeting of the two CEOs, they discussed the growing market for the water jet product and the new international competition which was entering the market. They also discussed the advantages of combining the two businesses in order to better compete in the expanding national and international cutting tool markets. Dr. Cheung noted his concerns regarding the turbulent history between the two companies, as manifested by their intense competitive rivalry and the ongoing patent infringement action initiated by OMAX. Mr. Brown stated that one of the first actions he was taking as CEO was to promote his own principle-based culture, which he expressed as being very compatible with OMAX’s own culture as described by Dr. Cheung. The two CEOs briefly discussed a possible transaction and then, during two more meetings within the next two weeks, the CEOs discussed possible pricing for a merger transaction. Their initial discussions indicated that both parties were in a general range of agreement based on possible multiples of revenues and earnings, a recognition of the potential of both companies and an understanding, albeit not agreement, regarding the effect of the OMAX/Flow patent litigation on pricing. Mr. Brown noted that while there would be potential anti-trust issues that might apply to a possible transaction, he had briefly discussed those issues with Flow counsel and he believed anti-trust issues would not be a fundamental barrier to a transaction. At the conclusion of

this meeting Messrs. Cheung and Brown agreed that there appeared to be a basis for additional meetings to further discuss and possibly generally structure a potential transaction.

 

Following the meetings between Dr. Cheung and Mr. Brown, Dr. Cheung and Dr. Olsen and Mr. O’Connor, the other two senior officers and members of the OMAX board of directors, had several discussions regarding OMAX’s current business plan and options and the possibility of a transaction combining OMAX and Flow. All three director/officers had substantial long standing knowledge regarding Flow because of their prior affiliation with Flow and its predecessor companies, the intense competition between the two companies, the proximity of their operations in Kent, Washington and the publicly available information from Flow’s SEC filings. These officers/directors also discussed the possible structure for a merger of the two companies. Of particular concern to all three officers was the past history of animosity and competition between the two companies and their different cultures. Dr. Cheung noted the apparent sincerity of Mr. Brown’s intent to break with that past antagonism between the two companies (a history that Mr. Brown did not share, given his only recent entry to the industry), and to offer instead a transaction which would illustrate the opportunity from joining together the two strongest companies in the industry. OMAX’s directors agreed that further discussions between the CEOs made sense for the companies, and for all parties interested in OMAX’s success, including its employees, shareholders, clients, vendors and other associates.

 

The two CEOs met again on September 12, 2007. At this meeting the two CEOs talked frankly about possible pricing and although Mr. Brown was considering a possible price of $110 million plus a $30 million earn-out as the top range of an offer, based on the preliminary financial and other information available to Flow; and Dr. Cheung was considering $120 million plus a $30 to $40 million earn-out as the low end of what he believed reasonable, both CEOs recognized that they were in the same general range of agreement. At this meeting Dr. Cheung stressed the importance that he and the other OMAX executive officers and directors placed on the need for Flow to pay a substantial fee if OMAX provided due diligence material to Flow, one of its major competitors, and then Flow subsequently terminated discussions regarding a final transaction. OMAX management was very concerned about the effect that the appearance of agreeing to sell OMAX to a larger competitor would have on OMAX’s employees, distributors and customer base even though Mr. Brown had clearly stated his intent to maintain the existence of the OMAX product, employees, and distribution system following a transaction. Mr. Brown stated that he could not provide for such payments in excess of a $6 million walk-away fee on signing a letter of intent or option, together with another $3 million payable following clearance of the possible anti-trust issues. Following further negotiations, Mr. Brown and Dr. Cheung agreed on a $110 million price at an initial closing of the transaction, $75 million of which would be in cash and the rest in Flow stock, and with earn-out potential remaining. Negotiations regarding the payment in stock were resolved with a preliminary agreement that they would both consider pricing for the payment in Flow stock to be reasonable on the basis of a deemed $12.00 valuation for Flow shares that would be issued at closing. Therefore a payment of 3,750,000 shares of Flow common stock, to be paid at closing, appeared to be a reasonable basis for valuing Flow shares to be issued at closing. At this meeting, the CEOs agreed that further discussions would be necessary to determine the basis for the earn-out although there was a general agreement that a goal of additional Flow shares that could have a value of approximately $30 million, if the combined companies met their expectations, would be appropriate. At this time discussions centered on an earn-out based upon potential EBITDA goals for either OMAX as a subsidiary or for the combined companies. They tentatively agreed that their mutual expectations were that the market value of the stock of the combined companies should increase to $15.00 a share within two years following the closing of a transaction.

 

Following this meeting the executives of both companies initiated discussions between the companies’ management and legal counsel regarding the terms pursuant to which OMAX would provide additional due diligence materials to Flow and its independent advisors and further discussions regarding the general terms of a merger transaction. OMAX consulted with its legal advisers regarding the possible anti-trust issues that would have to be considered and resolved with respect to a merger with Flow. Both companies determined that it appeared reasonable to proceed with further merger negotiations on the basis that any meaningful determination regarding the Federal Trade Commission’s potential approval or opposition to a transaction could only be ascertained following the completion of an initial letter of intent or similar written agreement between the companies and submission of the transaction to the FTC for their review.

On September 14, 2007, Mr. Brown advised Dr. Cheung by email that he had reviewed a summary of the terms the two CEOs had tentatively approved with the Flow board of directors and indicated that the Flow board seemed favorably inclined toward the terms set forth in the summary. Mr. Brown noted that the next steps would be to: (i) initiate a fairly extensive due diligence review in view of their understanding that an irrevocable payment of $6 million would be paid upon the execution of an option or letter of intent; (ii) agree to put the patent litigation on hold while the two companies continued to negotiate a transaction; (iii) prepare and agree upon a letter of intent or option agreement summarizing the transaction; and (iv) have legal counsel pursue a clearance for the Hart-Scott-Rodino issues. Following this exchange and additional discussions by OMAX officers/directors, both companies agreed to proceed with the due diligence process and then to the drafting and execution of a letter of intent or option agreement. Mr. Brown also expressed his agreement in principle to Dr. Cheung’s concern that, in general, following the closing of a transaction, Flow would maintain OMAX’s employees and would generally work to maintain both OMAX’s product and its distribution network. As one element of this agreement, Dr. Cheung requested and Mr. Brown agreed that Flow would work with OMAX executives to create a bonus retention program, funded from the merger consideration at the closing of the proposed transaction, to retain OMAX employees.

 

On September 26, 2007, the OMAX board of directors had an informal meeting with OMAX’s outside accounting firm and discussed the various structural alternatives for a transaction and the possible tax aspects and ramifications of the various alternatives. The board and accountants also discussed some secondary possible transaction matters such as the outstanding employee options. The board members agreed to pursue additional negotiations for a possible transaction with Flow subject to there being strict limitations and safeguards regarding the disclosure of due diligence information to Flow.

 

Management and company counsel for both companies negotiated and drafted during the entire month of October. Restrictions were also established for the access to summaries of specified categories of due diligence documents and information.

 

Following the execution and delivery of the Nondisclosure Agreement and the Agreement on Confidentiality of Settlement Communications on October 24, 2007, OMAX made available to Flow and/or its independent advisors, copies of the three categories of information which OMAX agreed to provide prior to the execution of an option agreement or letter of intent setting forth the terms of the proposed transaction.

 

During November 2, 2007, a number of meetings and further negotiations occurred between OMAX and its counsel and Flow and its counsel which were necessary to complete the details of an exclusive option agreement.

 

On November 14, 2007, Jim O’Connor and Charles Brown, John Leness, University of Washington economist Keith Leffler, and outside counsel met in Flow’s booth at the Fabtech trade show in Chicago to discuss strategy for addressing possible competition issues that might arise from a possible merger of the two companies.

 

OMAX management became concerned in mid-November that a lower market price for the Flow common stock, which had fallen from around $9.00 a share during the middle of September, 2007 to approximately $7.75 on November 13, 2007, had altered the economics with respect to both the fixed number of shares to be paid at closing and the intended value of the contingent shares, since the September discussions had assumed a market value of approximately $12.00 for the closing of the transaction and an achievable market value of approximately $15.00 for the combined companies with two years following a $12.00 value closing. On November 15, Dr. Cheung expressed the OMAX board’s concerns regarding Flow’s stock price to Mr. Brown and requested a floor for the stock consideration to be received by OMAX shareholders at closing and at the time of the calculation of the earn-out.

 

A revised version of the option agreement, that included a dollar floor value, tentatively set at $33,750,000, with respect to the market value of Flow’s stock to be conveyed at closing and also with respect to the calculation of the contingent payment or earn-out, was circulated by both parties on during mid-November 2007. This revised draft also included a requirement that certain major OMAX shareholders, intended to include shareholders with a majority vote, would vote for a definitive merger agreement following acceptance of a negotiated agreement by the boards of both companies and the execution of a definitive agreement. The revised draft also noted, in accordance with a suggestion that Mr. Brown had previously made to Dr. Cheung, that the Flow board of directors would be expanded following closing of the transaction so that Dr. Cheung could be added.

On November 26, 2007, Dr. Cheung and Mr. O’Connor, following a meeting with OMAX’s independent accountant regarding various tax aspects of the transaction and the issue of tax policy differences, had a meeting with Flow and its counsel and a third party independent accounting firm. The parties discussed the effect of the possible state tax policy differences on the purchase terms set forth in the proposed option agreement and agreed that a separate escrow would be established to cover the possibility of certain state tax issues, to the extent such matters were not otherwise concluded by the time of a transaction closing.

 

During late November 2007, the OMAX board of directors determined unanimously that, based upon: (i) their understanding of the industry and the strategic possibilities with respect to the industry; (ii) their depth of knowledge regarding both OMAX and its competitor, Flow; (iii) current market conditions; (iv) information they had previously received from an independent consultant at the time the board had considered a possible offer to repurchase a limited amount of OMAX stock from shareholders; and (v) the uncertainty any independent investment banker would have for evaluating the patent litigation and its substantial effect on the value of OMAX; that it would not be necessary to retain an investment banker or other advisor to participate in structuring the terms of the proposed merger or to market OMAX, and that, given the substance of the initial discussions with Flow, the board would likely not seek a fairness opinion regarding the terms of the proposed transaction as negotiated by Dr. Cheung.

 

On November 30, 2007, Mr. O’Connor and OMAX’s legal counsel met with Doug Fletcher, Flow’s CFO, John Leness, Flow’s general counsel and Flow’s counsel, to finalize the terms of the option agreement.

 

A special telephonic meeting of the OMAX board of directors was held on December 1, 2007 for a final review of the letter option agreement and the terms of the transaction. The board of directors discussed the proposed transaction and its ramifications on OMAX, its shareholders, employees, distributors, vendors and customers, and following such discussion, unanimously approved a motion to proceed with the negotiation of the final option agreement.

 

On December 4, 2007, the definitive option agreement was executed by the CEO of each company.

 

A joint press release was issued on December 5, 2007 stating that Flow and OMAX had signed the option agreement contemplating the merger of the two companies.

 

On December 11, 2007, counsel to Flow distributed a revised draft merger agreement reflecting the terms of the proposed merger agreement as set forth in the Option Agreement.

 

Dr. Cheung and Mr. O’Connor met with counsel on December 18, 2007 to review their issues and concerns regarding the draft merger agreement which had been circulated by Flow on December 11, 2007, and to discuss the proposed structure of the merger and the effect of the merger and the publicity regarding the proposed merger on OMAX and its operations, tax situation, employees, distributors, clients, vendors and shareholders. OMAX counsel and Mr. O’Connor sent revised drafts of the merger agreement to Flow and its counsel reflecting those modifications requested by OMAX.

 

On December 19, 2007, Mr. O’Connor and OMAX counsel met with Mr. Doug Fletcher and Flow’s counsel and discussed the proposed merger agreement and OMAX’s proposed changes. At the termination of that meeting, there appeared to be a relatively limited number of items that were still to be negotiated, although these items were material to resolution of a definitive merger agreement.

 

On March 18, 2008, Mr. O’Connor and OMAX’s counsel met with Mr. Fletcher and Flow’s counsel and accountants to discuss those open items remaining to be resolved for a definitive merger agreement. The parties also discussed the need for OMAX financial information which would be compliant for SEC registration and reporting purposes. It was decided that a weekly telephone or in person conference should be scheduled to coordinate finalization of the definitive merger agreement, preparation of the SEC filing materials and the required financial statements.

 

On March 20, 2008, Mr. O’Connor, Mr. Leness and outside counsel met with the FTC regarding possible settlement issues, including licensing OMAX patents.

On March 27, 2008, Dr. Cheung and Mr. Brown met and discussed the final substantive issues remaining to finalize the merger agreement and discussed potential scheduling for closing the transaction. The two CEOs also discussed proposed operations of the joint companies following closing of the proposed merger and OMAX’s concern that public announcements regarding the transaction emphasize the intent by both companies to continue to support OMAX’s employees, product lines and distributor system.

 

On April 22, 2008, the OMAX financial team discussed with the Flow financial team the audited OMAX financial statements that would be required to be included in the S-4 registration statement to be filed with the SEC, including re-audits for the calendar years ended 2005 and 2006, and the need for OMAX to retain an accounting firm that was authorized to prepare financial statements for an SEC filing. Following this meeting, the OMAX board of directors authorized Peterson Sullivan LLP to expand its services to include both the audit of calendar 2007 financial results, along with the re-audit for 2005 and 2006.

 

On April 29, 2008, Mr. O’Connor met with Flow’s investment bankers to discuss matters posed by them in connection with their review of the proposed transaction. The OMAX board of directors again discussed and unanimously concurred in their prior decision that a fairness opinion from an investment banker or similar expert retained by OMAX was not essential to the OMAX board’s conclusion that the proposed transaction was fair to the OMAX shareholders.

 

On April 30, 2008, the CFOs met and discussed the open issues that remained with respect to the merger agreement and generally reached agreement on the outstanding issues.

 

On May 5, 2008, OMAX was provided with a copy of a revised draft merger agreement which had been provided to the Flow board of directors for their preliminary review. With the exception of the language regarding the payment to be made to option holders, net of their exercise price for their options, the draft was materially in accordance with the discussions between the officers of both OMAX and Flow.

 

On May 12, 2008 during the regularly scheduled conference call with the CFOs of both companies, the parties discussed the current situation of the audited financial statements and the anticipated schedule for completion of the merger agreement and other outstanding issues that would occur following the approval of the transaction by the FTC. The parties discussed additional due diligence that would be undertaken by Flow before the final merger agreement could be finalized.

 

On June 9, 2008, the regularly scheduled conference call between the CFOs of both companies and certain advisors discussed primarily the consent agreement that had been reached with the FTC staff and the press release that would be issued by Flow upon approval by the FTC of a consent agreement and authorization to proceed with the merger. The parties discussed the need for further due diligence by Flow and its representatives and discussed the terms of the supplemental confidentiality agreement.

 

On June 13, 2008, the CEOs of both companies conferred and agreed upon language for the supplemental confidentiality agreement which would allow certain Flow officers to review confidential due diligence material which OMAX had previously made available solely to Flow’s independent advisors. Also on June 13, 2008, counsel to Flow provided a draft escrow agreement for an employee retention pool, which OMAX directors had determined to fund with certain consideration to be paid by Flow at closing of the merger and which would otherwise go to shareholders. The pool was to be funded in order to provide an incentive for OMAX employees to stay with OMAX following the closing of the merger, so as to assist the OMAX shareholders in the realization of the contingent consideration.

 

On July 10, 2008, the FTC approved a consent order resolving a complaint it filed the same day charging that Flow’s acquisition of OMAX would be anticompetitive and in violation of the federal antitrust laws. The consent order provided that the merger could proceed so long as Flow granted a royalty-free license to two OMAX patents relating to the controllers used in the water jet cutting systems. Flow issued a press release the same day announcing the FTC consent order and noting that Flow and OMAX could now focus on the definitive merger agreement and related SEC filings. Flow’s CEO also noted the prospects for dynamic growth supported by even better products and customer service, particularly including the OMAX product line and independent distribution network.

On July 15, 2008, the OMAX board of directors met, together with Mr. Charles Bracken, an observer representing OMAX’s second largest shareholder. The board reviewed OMAX’s current marketing, sales, operations and financial situation and then authorized Dr. Cheung and Mr. O’Connor as a committee to finalize the merger agreement with Flow and authorized such officers to prepare and execute all documents necessary to proceed with the merger transaction. The board also approved and ratified the actions of Mr. O’Connor, as Plan Administrator for OMAX’s option plan, in authorizing the exercise by employees of certain of their OMAX stock options for notes payable to OMAX.

 

On July 28, 2008, Mr. Brown and Dr. Cheung met and discussed and tentatively agreed upon modifications to the stock consideration structure, as originally contemplated in the Option Agreement, including the targets for the contingent payments, the terms of the escrow agreement to be established at closing and certain indemnification provisions set forth in the then existing draft merger agreement in view of the current economic conditions of the market and the current market value for Flow’s common stock. Those changes primarily addressed:

 

a) the cash to be immediately remitted at closing to OMAX shareholders was increased by $3.75 million, by decreasing the total escrowed funds at closing to $9.45 million (from the previous $13.2 million) and merging the two escrows into one. The two earlier escrows had been subject to a $1.0 million deductible for one of the escrow, but no deductible for the other special escrow; with unspent escrowed funds available for distribution on the first and second annual anniversary of the closing, respectively. This was modified to a single deductible of $500,000 for the one surviving escrow; which will be available for release to OMAX shareholders, eighteen months following the closing, if the funds have not been otherwise been utilized by Flow for undisclosed liabilities;

 

b) the value of Flow shares to be remitted at closing was reduced by $3.75 million, to $30,000,000 (the threshold price now set at $8.00 for 3,750,000 shares from the earlier setting of $9.00 per Flow share);

 

c) a decrease in the trigger price for the contingent shares issuable two years following the closing, to $12.00 (previously $13, when no additional shares are issuable) to $14.00 (previously $15, when 1,733,334 additional shares were issuable), with a linear change in shares issuable for a change in the market price for Flow shares between $12 to $14. The trigger pricing could still be set at $13 to $15 for a determination of contingent Flow shares issuable, presuming the closing price of Flow shares was at or above $9.00.

 

On August 15, 2008, OMAX circulated drafts of the disclosure schedules to Flow and counsel to Flow for their review. OMAX agreed that the information in the schedules, some of which had previously not been authorized for dissemination to Flow employees as due diligence material, could be reviewed by those Flow officers working directly on the merger negotiations and documents.

 

On August 19, 2008, the CFOs of both companies met for lunch and discussed issues and opportunities with respect to the eventual operational integration of Flow and OMAX. The CFOs also discussed the basics of an appropriate press release that would be issued upon the signing of the merger agreement.

 

On August 29 and 30, 2008, Flow provided a new merger agreement with minor revisions that had been discussed by the parties and also circulated draft employment and non-competition agreements to OMAX officers Cheung, Olsen and O’Connor who are to have written employment agreements with Flow following the merger.

 

On September 5, 2008, the CFOs and their advisors met at the offices of Flow’s counsel to address certain final issues and questions regarding the merger agreement and draft disclosure schedules and certain issues raised by those documents including the tax aspects of the option exercise. The participants discussed certain structural and timing matters with respect to the execution of the merger agreements and the proposed OMAX employee retention pool.

 

On September 8, 2008, counsel to OMAX circulated OMAX’s definitive disclosure schedules which would be attached to the merger agreement and counsel to Flow circulated the definitive merger agreement.

 

On September 8, 2008, the OMAX board of directors, together with board observer Charles Bracken from The B-L Holding Company, met as a board and discussed the definitive merger agreement and related merger matters. Following a thorough discussion, the board of directors unanimously approved the merger agreement. The board of

directors also approved certain possible aspects of the proposed exercises of stock options by employees in connection with the closing.

 

On September 9, 2008, the Flow board of directors met with Dr. Cheung in Chicago at a scheduled Flow board meeting. Following a final review of the merger agreement, the merger agreement was executed by Dr. Cheung and Mr. Brown as CEOs of both companies.

 

On October 30, 2008, Mr. Brown requested a meeting with Dr. Cheung, where the two CEOs discussed the highly unusual and detrimental economic situation affecting the U.S. and world economies. The CEOs discussed the broad decline in the equity security markets and the difficulty many businesses were experiencing in spite of the rescue attempts by the U.S. government, as well as the potential effects of this material economic decline on both Flow and OMAX. Dr. Cheung and Mr. Brown discussed the necessity and appropriateness of amending the merger agreement in view of this severe economic situation. The CEOs also considered in their analysis that short term economic prospects for manufacturing both in the U.S. and globally would have a negative impact on any alternatives they might consider. Dr. Cheung noted that any amendment would need to permit OMAX shareholders the continued opportunity to potentially realize the same maximum value for their shares, including through future contingent payments.

 

On October 30-31, 2008, Mr. Brown and Dr. Cheung met and discussed and tentatively agreed upon modifications to the consideration structure of the merger agreement, including changes in both the cash and Flow shares due OMAX shareholders at closing, the targets for the contingent payments, the time period to meet those targets and the terms of the escrow agreement to be established at closing. Those changes primarily addressed:

 

a) the cash to be paid at closing to OMAX shareholders, which was decreased $4.0 million to $71.0 million. Also, the amount of escrow to be held for possible indemnification for undisclosed liabilities during a period ending eighteen months after closing, was decreased by $1.0 million to $8.45 million;

 

b) the market value of Flow shares to be remitted at closing was reduced by $26 million, from $30.0 million to $4.0 million, with the number of shares issuable to be determined at closing, based upon the market price of Flow shares prior to closing;

 

c) the value of contingent consideration available to OMAX shareholders was increased by $26.0 million to $52.0 million and the right to individually exercise for such contingent consideration was provided to each previous OMAX shareholder, pro rata to their former holdings in all of the OMAX shares converted at closing. Under the proposed amendment, and so long as the average daily closing share price of Flow’s common stock for the trailing six month period quoted on the NASDAQ Global Market is equal to or greater than $7.00 at the time of election, then a former OMAX shareholder may elect to obtain their pro rata share of such contingent consideration, on a monthly basis on or before the three year anniversary of the closing. Electing former OMAX shareholders receive, as of the time of their election, their pro rata interest in:

 

i) an additional $5,000,000; and

 

ii) if the trailing six-month period quoted on the NASDAQ Global Market is greater than $7.00, then the pro rata interest of an amount between $5.0 million and $52.0 million, derived on a straight line interpolation basis of the trailing six-month period quote for Flow on the NASDAQ Global Market, between $7.01 and $14.00 at the time of the election, but not later than three years from the date of closing.

 

The parties considered that this revised transaction would still provide significant opportunity for the OMAX shareholders to realize the basic original objectives in value over time for their OMAX shares. This would be accomplished by doubling the value of contingent consideration from $26 million to $52 million and by expanding the window in which the contingent consideration could be realized from two to three years. Additionally, OMAX shareholders were afforded the opportunity to make an individual election to exercise for their pro rata contingent consideration, as in effect at the time of an interim election, depending upon their own individual investment objectives and determinations.

On November 5, 2008, the OMAX board of directors, together with board observer Charles Bracken from The B-L Holding Company, met as a board and discussed the proposed amendment and related merger matters. Following a thorough discussion, the board of directors approved the amendment to the merger agreement.

 

OMAX’s Reasons for the Merger

 

OMAX’s board of directors, at its meeting held on September 8, 2008, and as further supplemented by its meeting on November 5, 2008, gave final consideration to the merger agreement, as amended, and determined it to be fair, and in the best interests of OMAX and its shareholders, customers, distributors, vendors and employees, particularly in light of the most recent substantial and serious reversal in financial and manufacturing markets. Listed below are the material factors that OMAX’s board of directors considered in its decision. The OMAX’s board of directors did not assign any specific or relative weight to the factors listed below and considered all of the factors as a whole in reaching its conclusion to approve the merger agreement.

 

 

 

The OMAX board of directors also considered the following matters associated with the merger in connection with its deliberations of the proposed transaction, including:

 

 

Flow’s Reasons for the Merger

 

Flow’s board of directors met numerous times to consider the proposed merger. Flow’s board gave its final approval for the execution of the merger agreement at a meeting held September 9, 2008, and approved the amendment to the merger agreement at a meeting held November 7, 2008. As it evaluated the merger, Flow’s Board considered a number of factors, including, but not limited to, the following:

 

 

 

Flow’s board also reviewed the financial terms of the transaction in detail and with its advisors, concluding that the merger is in the best interests of Flow’s shareholders.

 

The OMAX board of directors considered and evaluated the factors described above, which are not intended to be exhaustive, and other considerations and unanimously determined that the merger agreement as amended and the transactions contemplated by it were in the best interests of OMAX and its shareholders. Accordingly, the OMAX board of directors unanimously approved the merger agreement and recommends that OMAX shareholders vote “FOR” approval of the merger agreement.

 

In considering the recommendation of OMAX’s board of directors in favor of the proposal to adopt the merger agreement, OMAX shareholders should be aware that directors and executive officers of OMAX have interests in, and will receive benefits from, the merger that are different from, or in addition to, those of OMAX shareholders generally. The OMAX board of directors was aware of these interests during its deliberations on the merits of the merger and in making its decision to recommend to OMAX shareholders that they approve the adoption of the merger agreement.

 

Employee Retention Pool

 

In conjunction with its approval of the merger agreement, the OMAX board of directors has also approved the withholding of approximately $3,300,000 of the cash consideration payable at closing, to be set aside as a employee retention pool. This amount will be held in escrow for six months, and then paid to those OMAX employees who have remained as employees with OMAX or Flow for the entire six month period and/or who did not voluntarily terminate their employment. Payments will be made pursuant to a schedule to be provided to Flow by OMAX prior to the closing of the merger. Any remainder of this employee retention pool (after all appropriate payments are made to employees) will be paid to the OMAX shareholders simultaneous with the release of the escrow amount and will not be subject to claims for indemnification.

 

The executive officers named below will be eligible to participate in the employee retention pool as follows:

 

Employment Agreements

 

Employment Agreement with John B. Cheung.  The employment agreement between Flow and Dr. Cheung will commence upon the closing of the merger. Dr. Cheung will be employed as the President of OMAX, with the responsibility to lead Flow’s segment for Flow standard systems. He will also serve as a board member on the Flow board for OMAX. Dr. Cheung will receive a base salary of $270,000 per year and will be entitled to participate in the Flow Fiscal 2009 Annual Cash Incentive Plan for Management Employees, or CIP. Dr. Cheung will also be entitled to participate in Flow’s benefit plans and programs.

 

If the employment agreement with Dr. Cheung is terminated by death, total disability, for cause, or by resignation without good reason, Dr. Cheung will receive his base salary through the effective date of termination, the amount of any bonus or other cash compensation earned by Dr. Cheung, and any accrued, but unused vacation pay. If the employment agreement is terminated by him with good reason or by Flow without cause, Dr. Cheung, in addition to the compensation described above, will receive twelve months of his base salary following the effective date of termination and reimbursement for the cost of continued health insurance premiums.

 

Employment Agreement with John H. Olsen.  The employment agreement between Flow and Dr. Olsen will commence upon the closing of the merger. Dr. Olsen will be employed as the VP, Global Technology and Product Development of Flow, with the responsibility to manage development of technology relating to pumps, cutting systems and software. Dr. Olsen will receive a base salary of $240,000 per year and will be entitled to participate in the Flow CIP. Dr. Olsen will be entitled to participate in Flow’s benefit plans and programs.

 

If the employment agreement with Dr. Olsen is terminated by death, total disability, for cause, or by resignation without good reason, Dr. Olsen will receive his base salary through the effective date of termination, the amount of any bonus or other cash compensation earned by Dr. Olsen, and any accrued, but unused vacation pay. If the employment agreement is terminated by him with good reason or by Flow without cause, Dr. Olsen, in addition to the compensation described above, will receive twelve months of his base salary following the effective date of termination and reimbursement for the cost of continued health insurance premiums.

 

Employment Agreement with James M. O’Connor.  The employment agreement between Flow and Mr. O’Connor will commence upon the closing of the merger. Mr. O’Connor will be employed as the VP, Global Technical Services of Flow, with the responsibility to develop and manage Flow’s technical services function. Mr. O’Connor will receive a base salary of $210,000 per year and will be entitled to participate in the CIP. Mr. O’Connor will also be entitled to participate in Flow’s benefit plans and programs.

 

If the employment agreement with Mr. O’Connor is terminated by death, total disability, for cause, or by resignation without good reason, Mr. O’Connor will receive his base salary through the effective date of termination, the amount of any bonus or other cash compensation earned by Mr. O’Connor, and any accrued, but unused vacation pay. If the employment agreement is terminated by him with good reason or by Flow without cause, Mr. O’Connor, in addition to the compensation described above, will receive twelve months of his base salary following the effective date of termination and reimbursement for the cost of continued health insurance premiums.

 

Agreement to pay Bonus to James M. O’Connor.  Mr. O’Connor will also receive a $90,000 cash bonus in connection with the closing of the merger to compensate Mr. O’Connor for his substantial contributions in connection with the merger.

 

Stock Options and Related Loans

 

All outstanding OMAX stock options granted under or pursuant to OMAX’s 1993 and 2005 Stock Option Plans will be exercisable immediately prior to a change of control of OMAX. At the effective time of the merger, each share of OMAX stock issued upon the exercise of options, as well as every other outstanding share of OMAX stock, will be converted into the right to receive the merger consideration. OMAX currently intends that loans will be available to employees with outstanding options to assist them in exercising such options. Any such loans will be secured by the OMAX shares issued upon the exercise of the options and will be payable from the merger proceeds payable to the holder of such share. OMAX executive officers will be eligible to obtain such loans.

Continued Director and Officer Indemnification

 

Following the merger, OMAX will continue to indemnify the former directors, and officers of OMAX in accordance with the present indemnification provisions of OMAX by-laws, discussed in further detail below.

 

Summary of Awards of Directors and Executive Officers of OMAX

 

The following table identifies, for each OMAX director and executive officer, as of November 10, 2008, (i) the aggregate number of shares of OMAX common stock issuable upon the exercise of vested options, (ii) the aggregate number of shares of OMAX common stock issuable upon the exercise of options subject to accelerated vesting upon the occurrence of a change of control, and (iii) the weighted average exercise price of all outstanding options.

 

 

Material United States Federal Income Tax Consequences of the Merger to OMAX Shareholders

 

This section describes the anticipated material United States federal income tax consequences of the merger to “U.S. holders” (as defined below) of OMAX common stock. This summary is based upon the provisions of the Code, applicable current and proposed United States Treasury Regulations, judicial authorities and administrative ruling and practice, all as in effect as of the date of this statement and all of which are subject to change, possibly on a retroactive basis.

 

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of OMAX common stock that is for United States federal income tax purposes: (i) a citizen or resident of the United States; (ii) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any state thereof or the District of Columbia; (iii) a trust if it (a) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (b) has valid election in effect under applicable United States Treasury Regulations to be treated as a United States person; or (iv) an estate the income of which is subject to United States federal income tax regardless of its source.

 

Holders of OMAX common stock who are not U.S. holders may have different tax consequences than those described below and are urged to consult their own tax advisors regarding the tax treatment to them under United States and non-United States tax laws.

 

The United States federal income tax consequences to a partner in an entity treated as a partnership for United States federal income tax purposes that holds OMAX common stock generally will depend on the status of the partner and the activities of the partnership. Partners in a partnership holding OMAX common stock should consult their own tax advisors.

 

This discussion assumes that a U.S. holder holds OMAX common stock as a capital asset within the meaning of Section 1221 of the Code. This discussion does not address all aspects of United States federal income taxation that may be relevant to a U.S. holder in light of its personal circumstances or to U.S. holders subject to special treatment under the United States federal income tax laws (for example, insurance companies, dealers or brokers in securities or currencies, traders in securities who elect mark-to-market accounting, tax-exempt organizations, financial institutions, mutual funds, partnerships or other pass-through entities (and persons holding OMAX

common stock through a partnership or other pass-through entity), United States expatriates and shareholders subject to alternative minimum tax, U.S. holders who hold OMAX common stock as part of a hedging, “straddle,” conversion or other integrated transaction, or a person whose functional currency for United States federal income tax purposes is not the U.S. dollar. In addition, the discussion does not address any aspects of foreign, state, local, estate or gift taxation that may be applicable to a U.S. holder.

 

Holders of OMAX common stock are strongly urged to consult with their own tax advisors as to the tax consequences of the merger on their particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local or foreign and other tax laws and of changes in those laws.

 

Neither Flow nor OMAX intends to request any ruling from the Internal Revenue Service as to the United States federal income tax consequences of the merger. Consequently, no assurance can be given that the Internal Revenue Service will not assert, or that a court would not sustain, a position contrary to any of those set forth below.

 

Tax Consequences of the Merger Generally

 

The merger will not qualify as a reorganization within the meaning of Section 368(a) of the Code. Generally, a U.S. holder who exchanges its shares of OMAX common stock for cash and shares of Flow common stock in the merger will be subject to capital gain or loss equal to the difference between (i) the fair market value of the merger consideration it receives (including the value of contingent rights to receive additional cash and shares of Flow common stock after the closing) and (ii) its tax basis in the OMAX common stock, generally will be recognized.

 

Any capital gain or loss generally will be long-term capital gain or loss if the U.S. holder held the shares of OMAX common stock for more than one year at the time the merger is completed. Long-term capital gain of an individual generally is subject to a maximum U.S. federal income tax rate of 15%. Any capital gain or loss generally will be short-term capital gain or loss if the U.S. holder held the shares of OMAX common stock for one year or less at the time the merger is completed. Short-term capital gain of an individual generally is subject to U.S. federal income tax at a maximum individual tax rate of 35%. The deductibility of capital losses is subject to limitations.

 

For a U.S. holder who acquired different blocks of OMAX common stock at different times and at different prices, realized gain or loss generally must be calculated separately for each identifiable block of shares exchanged in the merger. A U.S. holder’s tax basis in the shares of Flow common stock received in the merger will equal the fair market value of such shares received. The holding period for the shares of Flow common stock received in the merger will not include the holding period for the shares of OMAX common stock surrendered in the merger.

 

Installment Reporting of Gain

 

Because U.S. holders will have rights to receive payments of additional merger consideration both 18 months and up to 36 months after the closing, the exchange of shares of OMAX common stock for cash and shares of Flow common stock will constitute an “installment sale” for federal income tax purposes. Consequently, for a U.S. holder who recognizes gain on the exchange of its shares of OMAX common stock in the merger, its gain will be reported under the installment method of Section 453 of the Code (i.e., gradually over time as payments are received), unless the U.S. holder affirmatively elects out of the installment method of reporting. For a U.S. holder who recognizes loss on the exchange of its shares of OMAX common stock in the merger, the installment method of reporting is not available, and its entire loss will be recognized in the year of the closing.

 

The installment sale rules are complex and dependent upon the specific factual circumstances to each U.S. holder. Consequently, each U.S. holder that may be subject to these rules should consult its tax advisor as to the application of these rules to the particular facts relevant to such U.S. holder, including the determination of whether such U.S. holder should or should not elect out of the installment method of reporting.

 

Ordinary Income on Exchange of Certain ISO Shares

 

For a U.S. holder who owns shares of OMAX common stock pursuant to the exercise of an “incentive stock option” within the meaning of Section 422 of the Code (“ISO shares”), the merger could result in significantly different tax consequences with respect to those ISO shares. If the closing occurs either (i) within 2 years from the date of the granting of the incentive stock option to the U.S. holder, or (ii) within 1 year after the transfer of such ISO

shares to the U.S. holder, then the U.S. holder’s exchange of such ISO shares pursuant to the merger will constitute a “disqualifying disposition” of such ISO shares.

 

A U.S. holder who makes a disqualifying disposition of ISO shares must generally treat the income attributable to the transfer of such ISO shares to the U.S. holder on the exercise of the incentive stock option as compensation income received in the taxable year in which the disqualifying disposition occurs. Ordinary income triggered by a disqualifying disposition of ISO shares cannot be reported on the installment method. Consequently, the lesser of (i) the difference between (a) the fair market value of the ISO shares at the time of the transfer to the U.S. holder on account of the exercise of the incentive stock option and (b) the exercise price paid for the ISO shares by the U.S. holder, or (ii) the difference between (a) the amount realized on disposition of the ISO shares and (b) the U.S. holder’s adjusted tax basis in such ISO shares, will constitute compensation income to the U.S. holder in the year of the closing. If alternative (a) applies, the U.S. holder’s ordinary income realized on the disposition of the ISO shares will be added to its ISO stock basis to determine the capital gain that must be recognized on the disqualifying disposition. Although OMAX will not withhold income or employment taxes with respect to a U.S. holder’s ordinary income triggered by the disqualifying disposition of ISO shares, it must report the amount of such ordinary income on the U.S. holder’s Form W-2, even if such U.S. holder is no longer an employee of OMAX.

 

Circular 230 Statement.  To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed within.

 

Flow will account for the merger using the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations,” with Flow treated as the acquiring entity. Accordingly, consideration paid by Flow will be allocated to OMAX’s assets and liabilities based upon their estimated fair values as of the date of the closing of the merger. The results of operations of OMAX will be included in Flow’s results of operations from the date of the closing of the merger.

 

The allocated purchase price at the closing of the merger excludes the fair value of the contingent consideration described above as this is not allocable to the assets and liabilities acquired until the contingency has been resolved beyond a reasonable doubt. When the contingency has been resolved and it has been determined whether any additional shares or cash will be issued or are issuable or the outcome is determined beyond a reasonable doubt, the fair value associated with this contingent consideration will be recorded as an adjustment to goodwill.

 

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or HSR Act, and related rules, the merger may not be consummated unless certain filings have been submitted to the Federal Trade Commission, or the FTC, and the Antitrust Division of the U.S. Department of Justice, or the DOJ.

 

The proposed transaction was reviewed by the FTC pursuant to the HSR Act and related rules. On July 10, 2008, the FTC accepted a proposed consent order to remedy competitive concerns about the proposed transaction alleged in the FTC’s simultaneously issued Complaint. Following a 30-day public comment period, the FTC approved the issuance of a final consent order, which allows the merger to be consummated subject to certain conditions. In general terms, the conditions require Flow, following the merger, to license to other abrasive waterjet companies, on a royalty-free basis, OMAX patents 5,508,596 and 5,892,345, which relate to controllers used in waterjet cutting systems. The licenses do not transfer technology or any other patented equipment or processes owned by Flow or OMAX, do not apply to any intellectual property outside of the United States, and expire in five years. No further review by the FTC is warranted unless Flow fails to fulfill its post-merger obligations or fails to close on the merger within twelve months from the FTC’s acceptance of the consent order (accepted July 10, 2008). Flow intends to comply in full with the consent order.

 

The FTC and the DOJ frequently scrutinize the legality under the antitrust laws of transactions like the merger. At any time before or after the completion of the merger, the FTC or the DOJ could take any action under the

antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger or seeking the divestiture of substantial assets of Flow and OMAX. In addition, certain private parties, as well as state attorneys general and other antitrust authorities, may challenge the transaction under antitrust laws under certain circumstances.

 

While Flow and OMAX believe that the completion of the merger will not violate any antitrust laws, there can be no assurance that a challenge to the merger on antitrust grounds will not be made, or, if such a challenge is made, what the result will be. Flow and OMAX have each agreed to use their reasonable efforts to resolve any objections to the merger that may be asserted by any governmental entity and undertake any reasonable actions required to lawfully complete the merger. However, Flow and OMAX agreed that nothing contained in the merger agreement requires Flow or OMAX or any of their subsidiaries or affiliates to agree to any action of divestiture which is reasonably likely to have a material adverse effect on the condition (financial or otherwise), business, assets, liabilities or results of operations of either Flow (or any of its subsidiaries) or OMAX (or any of its subsidiaries), taken individually or in the aggregate, or is not conditioned on the completion of the merger.

 

The shares of Flow common stock to be issued in connection with the merger will be registered under the Securities Act and will be freely transferable, except for shares of Flow common stock issued to any person who is deemed to be an “affiliate” of OMAX prior to the merger. Persons who may be deemed “affiliates” of OMAX prior to the merger include individuals or entities that control, are controlled by, or are under common control with OMAX prior to the merger, and may include officers and directors, as well as principal stockholders of OMAX prior to the merger.

 

Persons who may be deemed to be affiliates of OMAX prior to the merger may not sell any of the shares of Flow common stock received by them in connection with the merger except pursuant to:

 

 

Flow’s registration statement on Form S-4, of which this proxy statement/prospectus forms a part, does not cover the resale of shares of Flow common stock to be received in connection with the merger by persons who may be deemed to be affiliates of OMAX prior to the merger.

 

Flow will use its reasonable efforts to cause the shares of Flow common stock to be issued, and those required to be reserved for issuance, in connection with the merger to be authorized for listing on the NASDAQ Global Market before the completion of the merger, subject to official notice of issuance.

 

Flow stockholders are not entitled to dissenters’ rights in connection with the merger under the Washington Business Corporations Act (the “WBCA”).

 

The following is a brief summary of the rights of holders of OMAX common stock to dissent from the merger and receive cash equal to the fair value of their OMAX common stock instead of receiving shares of Flow common stock. This summary is not exhaustive, and you should read the applicable sections of chapter 23B.13 of the WBCA, which is attached to this proxy statement/prospectus as Annex C.

 

If you are contemplating the possibility of dissenting from the merger, you should carefully review the text of Annex C, particularly the procedural steps required to perfect dissenters’ rights, which are complex. You should also consult your legal counsel. If you do not fully and precisely satisfy the procedural requirements of the WBCA, you will lose your dissenters’ rights.

Requirements for exercising dissenters’ rights

 

To exercise dissenters’ rights, you must:

 

 

If you do not satisfy each of these requirements, you cannot exercise dissenters’ rights and will be bound by the terms of the merger agreement.

 

Submitting a proxy card that does not direct how the OMAX common stock represented by that proxy is to be voted will constitute a vote in favor of the merger and a waiver of your statutory dissenters’ rights. In addition, voting against the proposal to approve the merger will not satisfy the notice requirement referred to above. You must file the written notice of the intent to exercise dissenters’ rights with OMAX at:

 

OMAX Corporation

21409 72nd Avenue South

Kent, WA 98032

Attn: James O’Connor, Secretary

 

Appraisal procedure

 

Within 10 days after the proposed merger has been approved, OMAX will send written notice to all shareholders who have given written notice under the dissenters’ rights provisions and have not voted in favor of the merger as described above. The notice will contain:

 

 

If you wish to assert dissenters’ rights, you must demand payment and deposit your OMAX certificates within 30 days after the notice is given. If you fail to make demand for payment and deposit your OMAX certificates within the 30-day period, you will lose the right to receive fair value for your shares under the dissenters’ rights provisions, even if you filed a timely notice of intent to demand payment.

 

Except as provided below, within 30 days of the later of the effective time of the merger or OMAX’s receipt of a valid demand for payment, OMAX will remit to each dissenting shareholder who complied with the requirements of the WBCA the amount OMAX estimates to be the fair value of the shareholder’s OMAX common stock, plus accrued interest. OMAX will include the following information with the payment:

 

 

For dissenting shareholders who were not the beneficial owner of the shares of OMAX common stock before September 10, 2008, the date on which the proposed merger was first publicly announced, OMAX may withhold

payment and instead send a statement setting forth its estimate of the fair value of their shares and offering to pay such amount, with interest, as a final settlement of the dissenting shareholder’s demand for payment.

 

If you are dissatisfied with your payment or offer, you may, within 30 days of the payment or offer for payment, notify OMAX in writing of and demand payment of your estimate of fair value of your shares and the amount of interest due. If any dissenting shareholder’s demand for payment is not settled within 60 days after receipt by OMAX of his or her payment demand, section 23B.13.300 of the WBCA requires that OMAX commence a proceeding in King County Superior Court and petition the court to determine the fair value of the shares and accrued interest, naming all the dissenting shareholders whose demands remain unsettled as parties to the proceeding.

 

The court may appoint one or more appraisers to receive evidence and make recommendations to the court as to the amount of the fair value of the shares. The fair value of the shares as determined by the court is binding on all dissenting shareholders and may be less than, equal to or greater than the market price of the Flow common stock to be issued to nondissenting shareholders for their OMAX common stock if the merger is consummated. If the court determines that the fair value of the shares is in excess of any amount remitted by OMAX, then the court will enter a judgment for cash in favor of the dissenting shareholders in an amount by which the value determined by the court, plus interest, exceeds the amount previously remitted.

 

The court will determine the costs and expenses of the court proceeding and assess them against OMAX, except that the court may assess part or all of the costs against any dissenting shareholders whose actions in demanding supplemental payments are found by the court to be arbitrary, vexatious or not in good faith. If the court finds that OMAX did not substantially comply with the relevant provisions of sections 23B.13.200 through 23B.13.280 of the WBCA, the court may also assess against OMAX any fees and expenses of attorneys or experts that the court deems equitable. The court may also assess those fees and expenses against any party if the court finds that the party has acted arbitrarily, vexatiously or not in good faith in bringing the proceedings. The court may award, in its discretion, fees and expenses of an attorney for the dissenting shareholders out of the amount awarded to the shareholders, if it finds the services of the attorney were of substantial benefit to the other dissenting shareholders and that those fees should not be assessed against OMAX.

 

A shareholder of record may assert dissenters’ rights as to fewer than all of the shares registered in the shareholder’s name only if he or she dissents with respect to all shares beneficially owned by any one person and notifies OMAX in writing of the name and address of each person on whose behalf he or she asserts dissenters’ rights. The rights of the partial dissenting shareholder are determined as if the shares as to which he or she dissents and his or her other shares were registered in the names of different shareholders. Beneficial owners of OMAX common stock who desire to exercise dissenters’ rights themselves must obtain and submit the registered owner’s written consent at or before the time they file the notice of intent to demand fair value.

 

For purposes of the WBCA, “fair value” means the value of OMAX common stock immediately before the effective time of the merger, excluding any appreciation or depreciation in anticipation of the merger, unless that exclusion would be inequitable. Under section 23B.13.020 of the WBCA, a OMAX shareholder has no right, at law or in equity, to set aside the approval and adoption of the merger or the consummation of the merger except if the approval, adoption or consummation fails to comply with the procedural requirements of chapter 23B.13 of the WBCA, Revised Code of Washington sections 25.10.900 through 25.10.955, OMAX’s articles of incorporation or bylaws, or was fraudulent with respect to that shareholder or OMAX.

 

The following is a summary of the material provisions of the merger agreement, as amended. This summary is qualified in its entirety by reference to the merger agreement and the amendment to the merger agreement, copies of which are attached as Annexes A and B, respectively, to this proxy statement/prospectus, and which are incorporated into this proxy statement/prospectus by reference. You should read the merger agreement and the amendment to the merger agreement in their entirety, as they are the legal documents governing the merger, and their provisions are not easily summarized.

 

Structure of the Merger

 

The merger agreement provides for the merger of Orange Acquisition Corporation, a newly formed, wholly-owned subsidiary of Flow, with and into OMAX. OMAX will survive the merger as a wholly-owned subsidiary of Flow.

 

Merger Consideration

 

Upon completion of the merger, each share of OMAX common stock outstanding immediately prior to the effective time of the merger, other than dissenting shares, will be canceled and automatically converted into the right to receive a per share portion of the merger consideration which is comprised of cash, Flow common stock, par value $0.01 per share, and additional cash and/or shares of Flow common stock on a contingent basis, as discussed below. The total amount of cash to be paid by Flow at closing is approximately $71,000,000, subject to adjustments (which adjustments include an employee retention pool of approximately $3,300,000, legal counsel fees of $7,000,000, transaction expenses, and other adjustments) and an escrow, and including a promissory note as described below. At closing, Flow is to issue common stock having a value of $4,000,000. The total number of shares to be issued by Flow is approximately [     ], based on the share price of Flow common stock as of [     ], 2008. At the third anniversary of the closing of the merger (or earlier pursuant to a permitted interim election as described below), each share of OMAX common stock will be entitled to receive additional cash as more fully described in the merger agreement, contingent upon the Flow common stock trading at an average share price of at least $7.00 for the six months ending thirty-six months after the closing. This additional consideration is referred to as the contingent consideration and is described more fully below.

 

Flow may at its option distribute Flow common stock in lieu of cash as contingent consideration, in which case the number of shares distributed will be based on the average share price described above, or, if an interim election is made as described below, on the basis of the interim average share price.

 

If, between the last day of the sixth (6^th) full month after the closing of the merger and ending on the last day of the thirty-fifth (35^th) full month after the closing of the merger, the average daily closing share price of Flow common stock for the trailing six-month period quoted on the NASDAQ Global Market is equal to or greater than $7.00, which we refer to as the interim average share price, the former OMAX shareholders may elect to receive contingent consideration on the basis of the interim average share price instead of the average share price described earlier. Flow will publish the interim average share price on its website. This interim election can only be made once, any interim election is permanent and may not be revoked, and any interim election will also be subject to the terms and conditions of the Escrow Agreement. Any interim election will be reported to Flow on a form attached to this proxy statement/prospectus as Annex F. The election may only be made during the first fifteen days of the month following the sixth (6^th) full calendar month after the closing of the merger, and each consecutive calendar month period thereafter, through the first fifteen days of the thirty-sixth (36^th) month after the closing, with reference to the interim average share price occurring during the prior six months then elapsed. For example, if the closing of the merger occurs on January 15, 2009, and the interim average share price for the 6 months beginning February 1, 2009 and ending July 31, 2009 is $7.50, then an election can be made on a $7.50 basis between August 1, 2009 and August 15, 2009.

 

The per share stock exchange ratio in the merger will be adjusted to reflect fully the effect of any stock split, reverse stock split, subdivision, stock dividend (including any dividend or distribution of securities convertible into

Flow common stock or OMAX common stock), reorganization, recapitalization, reclassification, combination or exchange of shares, or other like change with respect to Flow common stock (including any amendment to Flow’s certificate of incorporation that disproportionately affects the Flow common stock to be delivered to the holders of OMAX common stock pursuant to the merger agreement in comparison to the effect such amendment has on the Flow common stock outstanding immediately prior to such amendment) or OMAX common stock having a record date on or after the date of the merger agreement and prior to the effective time of the merger.

 

Each holder of OMAX common stock who is entitled to demand and properly demands appraisal of such shares and who complies with Chapter 23B.13 of the Washington Business Corporation Act shall not receive the merger consideration but instead shall receive the consideration that may be due to the holder under Chapter 13. However, if such holder fails to perfect, withdraws, or loses such holder’s right to payment or appraisal, the shares will be converted into the right to receive the merger consideration, cash in lieu of any fractional share, and any dividends or other distributions to which recipients of the merger consideration are entitled. OMAX has agreed to give Flow prompt notice of any demands for appraisal, to give Flow the right to control all negotiations and proceedings with respect to such demands, and to not settle or offer to settle any appraisal claims or voluntarily make any payments in respect of appraisal claims without Flow’s prior consent.

 

The aggregate number of shares of Flow common stock to be issued to OMAX shareholders (including former optionholders who become OMAX shareholders prior to closing) in connection with the merger will equal approximately [     ] million shares, based on Flow’s closing stock price as of [     ], 2008, assuming that Flow elects to pay the contingent consideration in cash. The aggregate number of shares of Flow common stock issued at closing shall reflect a value of $4,000,000. Thus, the actual number of shares of Flow common stock issuable will vary depending upon the average daily closing price per share of Flow common stock during the ten trading days ending two business days prior to the closing of the merger. The contingent consideration, which may be issuable 36 months after closing (or earlier pursuant to a permitted interim election as described herein), will equal up to $52,000,000, which Flow may elect to pay in Flow common stock, based on the average share price described earlier. The aggregate amount of cash to be paid by Flow to the OMAX shareholders in the merger at closing will equal approximately $71,000,000, subject to adjustment (which adjustments include an employee retention pool of approximately $3,300,000, legal counsel fees of $7,000,000, transaction expenses, and other adjustments) and an escrow.

 

Treatment of OMAX Stock Options and Stock-Based Awards

 

OMAX stock options are outstanding under the OMAX Corporation 1993 Stock Option Plan and the OMAX Corporation 2005 Stock Option Plan (individually, the “1993 Plan” and the “2005 Plan,” and collectively, the “Plans”). Flow will not be assuming any of the OMAX options at the effective time of the merger. Options to purchase shares of OMAX common stock outstanding prior to the effective time of the merger, with the consent of the option holder, will become vested and exercisable, and the OMAX stock issued upon exercise of the OMAX option will be exchanged for the right to receive the merger consideration described above, reduced by any applicable payroll, income tax, or other withholding taxes, loans, etc. No payment will be made with respect to an option until such time as the holder consents in writing as above. In order to satisfy regulatory guidance regarding compliance with section 409A of the Internal Revenue Code, certain outstanding OMAX options may, with the consent of the holders of such options, be amended prior to the effective time to provide that such options can be exercised only immediately prior to a change in control.

 

In order to facilitate the exercise of OMAX options immediately prior to the effective time of the merger, OMAX, in its discretion, may offer holders of OMAX options loans for the purpose of funding the exercise of such options. Any such loans will be secured by the shares of OMAX stock issued upon exercise of the options, and will be repaid no later than the time as of which the merger consideration with respect to such shares is released from escrow.

 

As of November 10, 2008, options to purchase approximately 1,499,350 shares of OMAX common stock were outstanding under OMAX’s stock option plans. The aggregate amount of the exercise price received by OMAX for the exercise of any stock options will be added to the merger consideration paid to OMAX shareholders.

Escrow

 

At the closing, an amount equal to $8,450,000, composed of an unsecured promissory note accruing simple interest at two percent per annum, will not be distributed to or made available for holders of OMAX common stock or options but rather will be allocated to the escrow amount as further described below. Flow will deposit this consideration with The Bank of New York Mellon Trust Company or other bank or trust company as Flow may choose in its discretion, as escrow agent.

 

The total consideration withheld will not be distributed to or made available for holders of OMAX common stock or options but rather will be deposited by Flow with, and held by, The Bank of New York Mellon Trust Company or other bank or trust company as Flow may choose in its discretion, as escrow agent, in an escrow fund in accordance with an escrow agreement, as further described in the merger agreement. This escrow will fund payments related to net working capital as required by the merger agreement and will be the sole and exclusive remedy to secure claims by Flow or the surviving corporation for indemnification, in accordance with and subject to the terms of the merger agreement. The release of the escrow funds will promptly occur 18 months after the closing of the transaction, and will be subject to the terms of the merger agreement and of the escrow agreement. Interest accruing to the escrow amounts will become part of the escrowed funds and, for purposes of distribution, such interest will be distributed after the principal amount.

 

Other Adjustments

 

The aggregate amount of cash to be paid by Flow to the OMAX shareholders in the merger at closing will equal approximately $71,000,000, subject to certain adjustments. Such adjustments include: $3,300,000 to be paid by Flow to the Employee Retention Pool, as described below; fees of legal counsel, including $7,000,000 to be paid to OMAX’s patent litigation counsel; adjustments based on OMAX’s net working capital at the time of the merger; and other transaction expenses.

 

Employee Retention Pool

 

At the closing, an amount equal to approximately $3,300,000 of the $71,000,000 cash consideration to be paid by Flow is to be paid into an escrow for the Employee Retention Pool, described below, to encourage employees to stay with OMAX or Flow for at least six months following the closing.

 

Fractional Shares

 

Flow will not issue any fractional shares of common stock in connection with the merger. Instead, each holder of OMAX common stock who would otherwise be entitled to receive a fraction of a share of Flow common stock (after aggregating all fractional shares of Flow common stock that would otherwise be received by such OMAX stockholder) will be entitled to receive cash, without interest, in an amount equal to such fraction multiplied by the average closing price of one share of Flow common stock for the ten most recent trading days that Flow common stock has traded, ending on the trading day two business days prior to the date the merger is completed.

 

Exchange of Shares of OMAX Common Stock for Shares of Flow Common Stock

 

Promptly following completion of the merger, BNY Mellon Shareowner Services, the exchange agent for the merger, will mail to each record holder of OMAX common stock a letter of transmittal and instructions for surrendering the record holder’s OMAX stock certificates in exchange for the merger consideration and cash in lieu of any fractional share. Only those holders of OMAX common stock who properly surrender their OMAX stock certificates shares in accordance with the exchange agent’s instructions will receive:

 

 

 

The surrendered OMAX stock certificates will be canceled at the effective time of the merger. After the effective time of the merger, outstanding shares of OMAX common stock that have not been surrendered will represent only the right to receive each of the items, as the case may be, enumerated above. Following the completion of the merger, OMAX will not register any transfers of OMAX common stock on its stock transfer books. Holders of OMAX common stock should not send in their OMAX stock certificates until they receive a letter of transmittal from BNY Mellon Shareowner Services with instructions for the surrender of OMAX stock certificates.

 

Distributions with Respect to Unexchanged Shares

 

Holders of OMAX common stock are not entitled to receive any dividends, payment in lieu of any fractional share, or other distributions on Flow common stock until the merger is completed. After the merger is completed, holders of OMAX common stock will be entitled to dividends, payment in lieu of any fractional share, and other distributions declared or made after the closing of the merger with respect to the number of whole shares of Flow common stock which they are entitled to receive upon exchange of their OMAX common stock, but they will not be paid any dividends, payment in lieu of any fractional shares, or other distributions on the Flow common stock until they surrender their OMAX stock certificates shares to the exchange agent in accordance with the exchange agent instructions. After surrender of the certificates, such holders will receive any such dividends, payments in lieu of any fractional share, or other distributions to which they are entitled as cash without interest.

 

Transfers of Ownership and Lost Stock Certificates

 

If shares of Flow common stock are to be issued in a name other than that in which the OMAX stock certificates shares surrendered in exchange for such Flow common stock are registered, it will be a condition of the issuance thereof that the certificates shares so surrendered will be properly endorsed and otherwise in proper form for transfer and that the persons requesting such exchange will have paid to Flow (or any agent designated by it) any transfer fees or other taxes required by reason of the issuance of shares of Flow common stock in connection with the merger in any name other than that of the registered holder of the OMAX stock certificates shares surrendered, or established to the satisfaction of Flow (or any agent designated by it) that such tax has been paid or is not payable.

 

In the event any OMAX stock certificates have been lost, stolen, or destroyed, the exchange agent shall issue in exchange for such lost, stolen, or destroyed certificates, upon the making of an affidavit of that fact by the holder thereof, such shares of Flow common stock, cash for a fractional share, and any dividends or distributions payable pursuant to the merger agreement; provided, however, that the exchange agent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificates to deliver a bond at the holder’s expense in such sum as it may reasonably direct as indemnity against any claim that may be made against Flow, OMAX, or the exchange agent with respect to the certificates alleged to have been lost, stolen, or destroyed.

 

Termination of the Exchange Fund

 

At any time after the one year anniversary of the closing date of the merger, Flow may require the exchange agent to return to Flow all share certificates and cash held by the exchange agent for delivery and payment to former stockholders of OMAX pursuant to the merger agreement. Thereafter, former stockholders of OMAX who have not properly surrendered their OMAX stock certificates may look only to Flow for any merger consideration and any cash payment related to any dividends or distributions to which they may be entitled upon surrender of their shares of OMAX common stock.

Representations and Warranties

 

The merger agreement contains representations and warranties made by OMAX regarding aspects of its business, financial condition, subsidiaries and structure, as well as other facts pertinent to the merger. The merger agreement contains representations and warranties made by Flow regarding aspects of its structure as well as other facts pertinent to the merger. The assertions embodied in the representations and warranties contained in the merger agreement are qualified by information in confidential disclosure letters provided by Flow and OMAX to each other in connection with the signing of the merger agreement. These disclosure letters contain information that modifies, qualifies, and creates exceptions to the representations and warranties set forth in the merger agreement. Moreover, certain representations and warranties in the merger agreement were used for the purpose of allocating risk between Flow and OMAX rather than establishing matters as facts. In addition, information concerning the subject matter of these representations and warranties may have changed since the execution of the merger agreement. Accordingly, you should not rely on the representations and warranties in the merger agreement as characterizations of the actual state of facts about Flow or OMAX.

 

These representations and warranties of Flow, Orange Acquisition Corporation and OMAX in the merger agreement relate to the following subject matters:

 

 

OMAX made additional representations and warranties relating to the following subject matters:

 

 

 

Flow made additional representations and warranties relating to the following subject matters:

 

 

OMAX’s major shareholders made additional representations and warranties relating to the following subject matters:

 

 

Generally, the representations and warranties contained in the merger agreement will survive the closing of the merger and be in effect until 18 months after the closing of the transaction. In some instances, certain representations and warranties will survive for a longer period of time. In addition, the representations and warranties form the basis of certain conditions to Flow’s and OMAX’s obligations to complete the merger.

 

Covenants of OMAX

 

Except as contemplated by the merger agreement, OMAX has agreed that, until completion of the merger or termination of the merger agreement, it will, as required by law or unless Flow otherwise consents in writing,

(1) carry on its business in the ordinary course consistent with past practice, in substantially the same manner as previously conducted, (2) continue to observe its obligations to comply with the requirements of all applicable laws and regulations, and (3) use commercially reasonable efforts to:

 

 

Under the merger agreement, OMAX also agreed that, until the earlier of the completion of the merger or termination of the merger agreement, or unless Flow consents in writing or except as permitted by the merger agreement or required by applicable law, OMAX will conduct its businesses in compliance with restrictions relating to the following:

 

 

 

Under the merger agreement, OMAX also makes covenants related to the following:

 

 

In addition, OMAX made the following covenants:

 

 

 

Covenants of Flow

 

Under the merger agreement, Flow has agreed that, in the event of becoming aware of the occurrence or threatened or pending occurrence of an event that would cause or constitute a breach of the merger agreement, Flow will give detailed notice to OMAX and will use commercially reasonable efforts to prevent or remedy the breach. In addition, Flow has agreed to use commercially reasonable best efforts in good faith to effect the merger and related transactions and to fulfill conditions to closing the merger.

 

Other Covenants

 

The merger agreement contains a number of other covenants by Flow and OMAX, including:

 

 

Indemnification of Officers and Directors

 

The merger agreement provides that OMAX will maintain its existing indemnification provisions with respect to present and former directors, officers, employees, and agents of OMAX and all other persons who may presently serve or have served at OMAX’s request as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise for all expenses, judgments, fines, and amounts paid in settlement by reason of actions or omissions or alleged actions or omissions occurring at or before the merger to the fullest extent permitted or required under applicable law and OMAX’s articles of incorporation and bylaws, for a period of five years after the date of the closing of the merger, as well as any rights to indemnification and advancement of expenses provided in employment agreements or indemnification agreements between OMAX and any of the individuals mentioned above.

 

Employee Benefits

 

Flow has agreed that, prior to closing, Flow will present offers of continued employment to certain employees of OMAX. OMAX will use commercially reasonable efforts to assist Flow in recruiting employees. Prior to closing, OMAX will terminate or amend, at the request of Flow, certain employee benefit plans, policies, and arrangements as set forth in the merger agreement. In addition, Flow has agreed to set aside cash in an employee retention pool for the purposes of paying retention bonuses for certain OMAX employees selected by OMAX after consultation with Flow. Such bonus amounts will be subject to the fulfillment of requirements established by OMAX. Any amounts of such employee retention pool not used will be distributed to former holders of OMAX common stock on a pro rata basis.

 

Non-Solicitation by OMAX

 

From the date of the merger agreement until the earlier of the termination of the merger agreement or the effective time of the merger, OMAX has agreed that neither it, nor any of its subsidiaries, nor any of its officers and directors or the officers and directors of its subsidiaries will, and that it will use its reasonable efforts to cause its employees, agents and representatives, and those of its subsidiaries, not to, directly or indirectly:

 

 

If OMAX is contacted by any third party expressing an interest in discussing a restricted transaction, OMAX will promptly, but in no event later than 24 hours following OMAX’s knowledge of such contact, notify Flow in writing of such contact and the identity of the party so contacting OMAX and any information conveyed to OMAX by such third party in connection with such contact or relating to such restricted transaction, and will promptly, but in no event later than 24 hours, advise Flow of any material modification or proposed modification thereto.

 

OMAX has agreed that neither its board of directors nor any committee of the board of directors will directly or indirectly:

 

 

 

The “acquisition proposal” with respect to OMAX means any inquiry, proposal, or offer from any third party related to, or that could reasonably be expected to lead to a restricted transaction.

 

Conditions to Completion of Merger

 

The respective obligations of Flow and OMAX to complete the merger are subject to the satisfaction or waiver or to the extent permitted by applicable law, the written waiver at or before the closing, of each of the following conditions:

 

 

The obligations of Flow and Orange Acquisition Corporation to consummate the merger are further subject to the satisfaction or waiver at or before the closing of each of the following conditions:

 

 

 

The obligations of OMAX to consummate the merger are further subject to the satisfaction or waiver at or before the closing of each of the following conditions:

 

 

 

Indemnification

 

The merger agreement provides that OMAX shareholders will defend, indemnify, and hold Flow and the surviving corporation harmless, in an aggregate amount up to the amount of the escrow amount (with certain exceptions), for any losses, damages, liabilities, claims, judgments, settlements, fines, costs, or expenses that are incurred by Flow or the surviving corporation by reason of:

 

 

The availability of the escrow amount, as more fully described in the merger agreement and above, to indemnify Flow will be determined without regard to any right to indemnification to which any holder of any interest in the escrow amount may have in his or her capacity as an officer, director, employee, agent, or any other capacity of OMAX and no such holder will be entitled to any indemnification from OMAX or the surviving corporation for amounts paid hereunder. Any payment to Flow in accordance with this provision of the merger agreement will be treated for tax purposes as an adjustment to the consideration for the OMAX common shares.

 

Termination of the Merger Agreement

 

The merger agreement may be terminated and the merger and associated transactions abandoned at any time before the closing:

 

 

 

Shareholders’ Representative

 

By virtue of their approval of the merger and related transactions, the OMAX shareholders will be deemed to have appointed John B. Cheung, Inc., a personal holding company of John B. Cheung, as shareholders’ representative and as agent and attorney-in-fact for each holder of OMAX common stock (except such shareholders, if any, demanding appraisal rights) for all matters relating to the merger agreement, including to give and receive notices and communications; to bind the holders of OMAX common stock to the terms of the escrow agreements; to authorize delivery of cash from the escrow amount in satisfaction of claims by Flow or the surviving corporation; to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims; and to take all actions necessary or appropriate in the judgment of the shareholders’ representative for the accomplishment of the foregoing.

 

The shareholders’ representative may be changed by the holders of a majority interest of the escrow amount, (the former OMAX shareholders), from time to time upon not less than 30 days’ prior written notice to Flow, provided that holders of a majority interest of the escrow amount agree to such removal of John B. Cheung, Inc. and any successors thereto and to the identity of the substituted agent. A shareholders’ representative may resign at any time upon giving at least 30 days’ written notice to the holders of interest in the escrow account, except that no such resignation will become effective until the appointment of a successor shareholders’ representative. Upon resignation of a shareholders’ representative or a successor shareholders’ representative thereto, the holders of a majority interest of the escrow amount will agree on a successor shareholders’ representative thereto within 30 days after receiving such notice. If holders of a majority interest of the Escrow Amount fail to agree upon a successor shareholders’ representative within such time, the resigning shareholders’ representative will have the right to appoint a successor shareholders’ representative, or if a shareholders’ representative is not designated within 45 days after receipt of the initial notice, Flow will designate a successor shareholders’ representative. Any successor shareholders’ representative will execute and deliver an instrument accepting such appointment and, without further acts, will be vested with all the rights, powers, and duties of the predecessor shareholders’ representative as if originally named as shareholders’ representative and thereafter the resigning shareholders’ representative will be discharged from any further duties and liability under the merger agreement. No bond will be required of any shareholders’ representative, and no shareholders’ representative will receive compensation for his or her services. Notices or communications to or from the shareholders’ representative will constitute notice to or from each of the holders of interest of the Escrow Amounts for all matters relating to the merger agreement.

 

The shareholders’ representative will not be liable for any act done or omitted hereunder as the shareholders’ representative while acting in good faith. Holders of OMAX common stock on whose behalf the Escrow Amounts are contributed will severally indemnify the shareholders’ representative and hold the shareholders’ representative harmless against all loss, liability, or expense incurred without bad faith or willful misconduct on the part of such shareholders’ representative and arising out of or in connection with the acceptance or administration of such shareholders’ representative’s duties hereunder, including the reasonable fees and expenses of any legal counsel retained by the shareholders’ representative. The shareholders’ representative will be entitled to the advance and reimbursement of costs and expenses incurred by or on behalf of the shareholders’ representative in the performance of their duties hereunder, including the reasonable fees and expenses of any legal counsel retained by the shareholders’ representative, in accordance with the terms of the escrow agreements.

A decision, act, consent, or instruction of the shareholders’ representative relating to the merger agreement will constitute a decision of the holders of OMAX common stock and will be final, binding, and conclusive upon each such holder. Flow, and all other persons entitled to indemnification under the Escrow Agreements or any other document or agreement entered into in connection herewith or therewith may rely upon any such decision, act, consent, or instruction of the shareholders’ representative as being the decision, act, consent, or instruction of the holders of OMAX common stock. Flow and all other indemnified persons are relieved, under the merger agreement, from any liability to any person for any acts done by them in accordance with such decision, act, consent, or instruction of the shareholders’ representative.

 

As an inducement to Flow to enter into the merger agreement, on September 9, 2008, John B. Cheung, John H. Olsen, James M. O’Connor, each of whom is a director or executive officer of OMAX, Puget Partners, a Limited Partnership, or Puget Partners, and The B-L Holding Company, each entered into voting agreements with Flow. Pursuant to these voting agreements, as further described below, these OMAX directors and executive officers and major shareholders agreed to vote their shares of OMAX stock in favor of the adoption of the merger agreement and against any other acquisition proposal. As of November 10, 2008, these shareholders beneficially owned an aggregate of approximately 2,866,946 outstanding shares of OMAX common stock, representing a majority of the outstanding shares of OMAX.

 

Voting Shares.  From September 9, 2008, until the termination of the voting agreements, each of the OMAX directors and executive officers listed above agreed, subject to the terms and conditions of the voting agreements, to vote any shares of OMAX common stock beneficially owned by such shareholder at the time of OMAX’s special meeting:

 

 

Grant of Proxy.  In connection with the voting agreements, each of the OMAX directors and executive officers listed above, Puget Partners and The B-L Holding Company granted an irrevocable proxy to certain designees of Flow to vote any shares of OMAX common stock beneficially owned by such shareholder at the time of OMAX’s shareholder meeting in the manner described above.

 

Termination.  The voting agreements automatically terminate upon the earliest to occur of:

 

 

This summary of the voting agreements is not intended to be complete and is qualified in all respects by the actual agreements, a copy of the forms of which are attached to this proxy statement/prospectus as Annex E.

 

OMAX will use all reasonable efforts to deliver or cause to be delivered to Flow affiliate agreements executed by all persons who may be deemed to be, in OMAX’s reasonable judgment, affiliates of OMAX within the meaning of Rule 145 promulgated under the Securities Act as of the date of the merger agreement. These agreements will generally provide that such affiliates will not sell, transfer or otherwise dispose of the shares of Flow common stock

issued to that affiliate in the merger other than in compliance with Rule 145 promulgated under the Securities Act of 1933, unless such sale, transfer or disposition is made pursuant to an effective registration statement or the affiliate delivers to Flow a written opinion from counsel that is reasonably acceptable to Flow, that the sale, transfer or disposition is otherwise exempt from registration under the Securities Act. Additionally, the affiliate agreements will provide that Flow may place legends on the stock certificates and place stop transfer orders with its transfer agent to ensure compliance with Rule 145.

 

If OMAX fails to receive a sufficient number of votes to approve the adoption of the merger agreement, as amended, OMAX may propose to adjourn or postpone OMAX’s special meeting, whether or not a quorum is present, for a period of not more than 30 days for the purpose of soliciting additional proxies to approve the adoption of the merger agreement as amended. OMAX currently does not intend to propose adjournment or postponement at OMAX’s special meeting if there are sufficient votes to approve adoption of the merger agreement as amended. If approval of the proposal to adjourn or postpone OMAX’s special meeting for the purpose of soliciting additional proxies is submitted to OMAX’s shareholders for approval, such approval requires the affirmative vote of a majority of the votes cast at the OMAX special meeting by the holders of shares of OMAX common stock present or represented by proxy and entitled to vote thereon.

 

Board Recommendation

 

OMAX’s board of directors unanimously recommends that OMAX’s shareholders vote “FOR” the proposal to adjourn or postpone OMAX’s special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the proposal regarding the adoption of the merger agreement as amended.

 

OMAX is furnishing this proxy statement to OMAX shareholders in connection with the solicitation of proxies by the OMAX board of directors for use at the special meeting of OMAX shareholders, including any adjournment or postponement of the special meeting.

 

The special meeting of OMAX shareholders will be held at OMAX Corporation, 21409 72nd Avenue South, Kent, Washington on [          ], 2008, at 8 a.m. local time.

 

The purpose of the OMAX special meeting, including any adjournment or postponement thereof, is to ask OMAX shareholders to consider and vote upon and approve the adoption of the merger agreement as amended. In addition, OMAX shareholders may be asked to consider and vote upon a proposal to grant OMAX management the discretionary authority to adjourn or postpone the special meeting to a date not later than [          ], 2008, in order to enable the OMAX board of directors to solicit additional proxies in favor of the adoption of the merger agreement as amended, if necessary. At this time, the OMAX board of directors is unaware of any matters, other than as set forth in the preceding sentence, that may be presented for action at the special meeting.

 

A copy of the merger agreement, dated as of September 9, 2008, by and among OMAX, Flow and Orange Acquisition Corporation, a wholly-owned subsidiary of Flow International Corporation, is attached to this proxy statement/prospectus as Annex A. A copy of the first amendment to the merger agreement, dated as of November 10, 2008, is attached to this proxy statement/prospectus as Annex B. OMAX shareholders are encouraged to read the merger agreement and the amendment in their entirety.

 

THE MATTERS TO BE CONSIDERED AT THE OMAX SPECIAL MEETING ARE OF GREAT IMPORTANCE TO OMAX SHAREHOLDERS. ACCORDINGLY, OMAX SHAREHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED PRE-ADDRESSED POSTAGE-PAID ENVELOPE.

 

After careful consideration, the OMAX board of directors has unanimously determined it advisable and in the best interests of OMAX and its shareholders that OMAX proceed with the adoption of the merger agreement as amended and that the merger is fair to OMAX and its shareholders.

 

The OMAX board of directors unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement as amended and “FOR” the proposal to grant discretionary authority to OMAX management to vote your shares to adjourn or postpone the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to approve the adoption of the merger agreement as amended.

 

If your submitted proxy card does not specify how you want to vote your shares, your shares will be voted “FOR” the adoption of the merger agreement as amended and “FOR” the grant of discretionary authority to OMAX management to adjourn or postpone the special meeting, if necessary, to solicit additional proxies.

 

OMAX shareholders of record as of the close of business [          ], 2008, and other persons holding valid proxies for the special meeting are entitled to attend the OMAX special meeting.

 

Shareholders Entitled to Vote.  Only holders of OMAX common stock at the close of business on [          ], 2008, the record date for the OMAX special meeting, are entitled to notice of and to vote at the OMAX special meeting. On the record date, approximately [          ] shares of OMAX common stock were issued and outstanding and there were approximately [    ] holders of record. OMAX shareholders on the record date are each entitled to one vote per share of OMAX common stock on the proposal to adopt the merger agreement as amended.

 

Shareholders of record may vote by mail or by attending the special meeting and voting in person. If you choose to vote by mail, simply mark the enclosed proxy card, date and sign it, and return it in the postage paid envelope provided. Alternatively, you may transmit your proxy by following the instructions on the proxy card.

 

Any shareholder executing a proxy may revoke it at any time before it is voted by:

 

 

Attendance at the special meeting will not, in and of itself, constitute revocation of a proxy.

 

Each proxy returned to OMAX (and not revoked) by a holder of OMAX common stock will be voted in accordance with the instructions indicated thereon. If no instructions are indicated, the proxy will be voted “FOR” approval of the merger agreement and “FOR” the proposal to adjourn the special meeting to another time or place if necessary to permit further solicitation of proxies on the proposal to approve the merger agreement.

 

At this time, the OMAX board of directors is unaware of any matters, other than as set forth above, that may be presented for action at the special meeting. If other matters are properly presented, however, the persons named as proxies will vote in accordance with their judgment with respect to such matters.

 

OMAX’s bylaws provide that a majority of the outstanding shares, represented in person or by proxy, constitutes a quorum for a meeting of shareholders and a quorum must be present before any action may be taken at such meeting. A meeting of shareholders may be adjourned if a quorum is not present or represented at such meeting by a majority of shares present in person or represented by proxy at such meeting. When a special meeting is adjourned to another time or place, notice need not be given. At the adjourned special meeting, OMAX may transact any business which might have been transacted at the original special meeting if a quorum is then present.

 

James M. O’Connor, the Secretary of OMAX, will act as inspector of elections at the special meeting and will ascertain whether a quorum is present, tabulate the votes and determine the voting results on all matters presented to the OMAX shareholders at the special meeting. If a quorum is not present, OMAX expects that the OMAX special meeting will be adjourned to allow additional time to obtain additional proxies or votes, and at any subsequent reconvening of the OMAX special meeting, all proxies will be voted in the same manner as the proxies would have been voted at the original convening of the special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the reconvening of the OMAX special meeting.

 

In order for the proposal to approve the adoption of the merger agreement as amended to be approved, the holders of a majority of the shares of OMAX common stock issued and outstanding and entitled to vote on the record date must vote to approve the proposal to adopt the merger agreement as amended. In order for the proposal to grant discretionary authority to OMAX management to adjourn or postpone the special meeting in order to enable the OMAX board of directors to solicit additional proxies in favor of the adoption of the merger agreement as

amended, to be approved, the holders of a majority of the votes cast at the special meeting must vote to approve such proposal.

 

Abstentions and failures to vote, while counted in determining whether a quorum is present, will have the same effect as a vote against the proposal to adopt the merger agreement as amended. Abstentions and failures to vote will also have the same effect as a vote against the proposal to grant discretionary authority to OMAX management to adjourn the special meeting to solicit additional proxies.

 

The directors and executive officers of OMAX, together with The B-L Holding Company, collectively own approximately [     ]% of the outstanding shares of OMAX common stock as of the record date for the special meeting, and have entered into irrevocable voting agreements and proxies with Flow pursuant to which they have agreed to vote all of their shares in favor of the merger agreement. See “Proposal One — The Merger — Voting Agreements” on page 53.

 

You may revoke your proxy at any time before the proxy is voted at the OMAX special meeting by:

 

 

Simply attending the OMAX special meeting will not revoke a proxy.

 

The OMAX board of directors is not aware of any other business to be brought before the OMAX special meeting or any adjournment or postponement of the special meeting. If, however, other matters are properly brought before the OMAX special meeting (including any proposal to adjourn the special meeting) or an adjournment or postponement thereof, the persons appointed as proxies will have discretionary authority to vote the shares of OMAX common stock represented by duly executed proxies in accordance with their discretion and judgment.

 

OMAX and Flow will share expenses incurred in connection with the filing and printing this proxy statement/prospectus. OMAX will be responsible for any fees incurred in connection with the solicitation of proxies for the OMAX special meeting. In addition to solicitation by mail, the directors, officers, employees and agents of OMAX may solicit proxies from OMAX shareholders by telephone, fax, internet or other electronic means or in person. OMAX estimates that the total expenditures in connection with its proxy solicitation will be less than $10,000. OMAX also may use several of its regular employees, who will not be specially compensated, to solicit proxies from OMAX shareholders, either personally or by mail, telephone, internet or facsimile.

 

Overview

 

OMAX Corporation is a Washington corporation, based in Kent, Washington, and is a leading provider of precision-engineered, computer-controlled, two-axis abrasivejet systems for use in the general machining shop environment.

 

OMAX was incorporated in Washington in 1993 as Auburn Machine Tool, Inc. OMAX was first established to commercialize a new patented motion control technology, described as “Compute First — Move Later,” which is particularly useful in abrasive-jet machining. OMAX management believes this motion control software, embedded in the OMAX IntelliMax^® Software Suite, represents an important element to its product offerings. OMAX has over 1,800 abrasive-jet systems installed in over forty countries throughout the world.

 

The founders of OMAX are Dr. John Cheung and Dr. John Olsen, both leading experts in the field of waterjet technology. During his previous tenure at Flow Industries, Inc., the original parent company of Flow International Corporation, Dr. Cheung was a leading research scientist in the development of the abrasive-jet process and later COO. While also previously at Flow’s parent, Dr. Olsen (as one of the founders of Flow) developed the first high-pressure intensifier pump in the early 1970’s and was instrumental in the development of the more efficient crankshaft high-pressure water pump. Dr. Olsen was also the primary developer of the OMAX JetMachining^® Center, which is discussed in depth under “Products and Services” below.

 

Since its inception in 1993, OMAX has primarily focused upon engineering, marketing, sales and service of a standardized line of abrasive-jet systems, referred to as OMAX JetMachining^® Centers. Abrasive-jet differs from waterjet in its most common usage for cutting and machining harder materials, such as metals and stone, which cannot be cut with waterjet alone. The injection of an abrasive media, such as garnet, into a high velocity water-jet stream creates a very erosive abrasive-jet, impinging, at approximately the speed of sound, against the material to be cut. Almost any solid material can be cut using an abrasive-jet, with the amount of machining time typically dependent on the hardness of the material being machined, i.e. harder materials, such as hardened tool steel, requiring more time.

 

As a cutting tool, the liquid-state abrasive-jet possesses unique attributes when compared with more traditional cutting tools, such as mills, lathes, drills and combinations thereof. Traditional cutting tools typically feature a solid tool rotated during forward motion, in which cutting passes are made and surface area is gradually shaved or ground off, often in multiple passes. The solid tool does not change shape, other than perhaps becoming progressively less sharp, until eventual replacement. Setting machine tool speeds for forward motion and tool rotation generally may not require much variation.

 

By contrast, the abrasive-jet “tool” — in a liquid rather than solid state — is always changing shape and direction during the cutting process. The behavior is controllable, by constantly adjusting the traverse speed (for example, slower speeds present less trailback) and, more recently, by changing the angle of attack of the jet itself (presenting one straight jet wall side by angling the jet to compensate for taper). But traditional machine tool controllers, where speed and/or angular inputs were often manual, had proved impractical to accommodate the abrasive-jet’s unique need for near constant and minute changes in speed (to thousands of points per inch).

 

OMAX founders solved this challenge by incorporating mathematical models of the abrasive-jet process embedded in software, which could operate on any microprocessor, such as a PC, to program and store a complex path of motion control instructions for later delivery to the machine tool motor controllers. Rather than inputting speeds, the operator inputs one or more values designating one or more qualities of result desired (if more than one quality is desired), along with inputs for material, thickness and machine setup parameters. The embedded software then executes a model of the process, storing the resultant motion program. Referred to as “Compute First — Move Later,” this patented process proved to be an enabling technology for significantly improving the utility of abrasive-jet machine tools, now both much more user friendly and markedly faster and more precise cutting tools for manufacturing close tolerance parts. Coupled with pioneering work in the design and manufacture of direct drive (crank driven) ultra-high pressure pumps, OMAX commenced the development of a variety of X-Y table sizes,

pump horsepower options and accessories, rapidly overtaking most competitors, to become the leading manufacturer of precision abrasive-jet X-Y machine tools.

 

OMAX’s management believes it has benefited from the singular focus on standardized abrasive-jet systems and related accessories, so as not to dilute the product engineering efforts towards specially engineered solutions for a very few clients’ requirements. From its headquarters (and only facility) in Washington state, OMAX sells primarily (and in its international markets outside of North America, almost exclusively), through the largest network of indirect machine tool distributors in the abrasive-jet industry, assisted by OMAX field sales personnel. As management believes that OMAX’s product strengths are best illustrated in a live demonstration format, its marketing efforts heavily emphasize presence at local trade shows and open houses throughout the world, coordinating closely with its network of distributors to determine proper local venues.

 

To maintain flexibility in product demand, OMAX has also developed a network of subcontract manufacturers, responsible for component production to OMAX’s engineering specifications, except for critical elements of either the proprietary ultra-high pressure pumps or its proprietary OMAX IntelliMax^® software, for which OMAX may maintain in-house responsibility. Finally, through either its distributors (particularly outside the United States) or its own field and customer support staff, OMAX emphasizes continuing customer service, for after-market sales of spares and consumables, accessories and field services.

 

Unless otherwise specified, current information reported in this proxy statement/prospectus is as of, or for the year ended December 31, 2007.

 

Business Segments and Sales Outside the United States

 

OMAX operates its business in one reportable segment. For the year ended December 31, 2007, 66%, or $41.2 million, of total consolidated sales were to customers in the United States. For the year ended December 31, 2007, 34%, or $21.5 million, of total consolidated sales were to customers outside the United States, including $12.3 million of sales from Europe.

 

For further discussion on OMAX’s results of operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations for OMAX” on page 64 of this proxy statement/prospectus.

 

Products and Services

 

OMAX’s mission is to provide the highest value customer-driven abrasivejet cutting solutions, with strong after-market support. OMAX strives to improve its customers’ profitability through the development of innovative products and services that expand its customers’ markets and increase their productivity.

 

Since its inception, OMAX has primarily focused on engineering, marketing, selling and servicing a standardized line of abrasive-jet systems, referred to as OMAX JetMachining^® Centers. OMAX’s management believes OMAX has benefited from the singular focus on standard abrasive-jet systems and related accessories, so as not to dilute the product engineering efforts towards specially engineered solutions for a very few clients’ requirements.

 

By 2005, OMAX had engineered a family of modular abrasive-jet systems, in which different sized X-Y tables, from approximately 2 ft. by 2 ft. upwards to 6 ft. by 12 ft. could be combined with different size horsepower direct drive pumps, operating to 55,000 psi, all featuring the same patented OMAX controller system and OMAX abrasive-jet feed system, together with a range of modular accessories which could be added on at any time. A key element of the OMAX product line to date has been its adaptability, with any pump or accessory which can be retrofit to any previous OMAX JetMachining^® Center ever made, as OMAX engineering efforts have continued to expand the market opportunities for abrasive-jet technology. Presently, OMAX offers seven standard table sizes, including one modular design which may be added to in six (6) foot intervals in the X-axis (over the standard 12 foot length). Three of the present seven table sizes were added in 2007.

Parts and Services

 

OMAX vigorously pursues a continuous stream of updates to OMAX IntelliMax^® Software Suite, particularly seeking to increase both cutting speeds and precision, while also improving user friendliness of its OMAX JetMachining^® Center (per active client input), including those systems already in the field. Unique within the abrasive-jet industry, OMAX has historically provided these software updates free for life to the original equipment owners, providing the OMAX client with a continuous competitive renewal. That emphasis on continuous process model improvement, as embedded in the OMAX IntelliMax^® software, has enabled OMAX clients to enjoy cumulative improvements in cutting speeds in excess of 30% to 40%, (or more) over our history, along with increasing part accuracy, depending upon the part design and material. Moreover, this could be achieved by OMAX clients without the need for any hardware improvements to increase pump pressure, water flow or abrasive used. For the same hydraulic horsepower delivered at the nozzle, the OMAX JetMachining^® Center typically cuts both significantly faster and more precisely than competitive abrasive-jet equipment, just by maintaining software updates and more efficiently utilizing the abrasive-jet. We have also emphasized advanced user education, through classes, onsite training (both for fee) and periodic free engineering sessions at local trade shows and open houses. We believe this has generally enabled our clients to improve their own competitiveness, keeping their OMAX equipment busy and in increasing use of consumables, spare parts and services.

 

Marketing and Customers

 

OMAX markets its standardized line of OMAX JetMachining^® Centers, in over forty countries throughout the world, primarily through local independent distribution. In the United States, that sales channel is typically characterized as independent machine tool distributors, which entities often represent other machine tool lines, in addition to OMAX. Outside of the United States (and particularly for the next largest geographic market in Europe), OMAX’s distributors tend to be owner/users of OMAX JetMachining^® Centers, in a job shop environment, and often focus only on OMAX equipment sales and job shop services using one or more OMAX JetMachining^® Centers. Within North America, OMAX sales personnel may also be engaged in direct sales to the end user, where a geographic territory is not served by an independent distributor/agent.

 

In educating the marketplace of the value of OMAX technology over more traditional cutting technologies and also other waterjet competitors, OMAX has emphasized live local demonstration of the OMAX JetMachining^® Center, ideally cutting a potential client’s own specific requirements as test parts. This is accomplished through a network of demonstration models at distributor facilities and at local trade shows.

 

Given the job shop experience of OMAX’s international user/distributors, OMAX has been able to rely on the technical personnel within those international user/distributors to provide local after-market parts and service support, in the local language. For the United States, a select group of domestic distributors are also responsible for local after-market service; with OMAX otherwise providing domestic technical field service support directly to the end users.

 

OMAX has established strong relationships with a diverse set of customers. For the year ended December 31, 2007, one distributor accounted for $6.7 million of OMAX’s sales. OMAX’s relationship with this distributor has terminated. No other customer accounted for more than 10% of its revenue.

 

OMAX’s sales are affected by worldwide economic changes. However, OMAX believes that its ability to gain market share in the machine cutting tool market due to the productivity enhancing nature of its ultrahigh-pressure technology and the diversity of its markets, along with the relatively early adoption phase of its technology, enable it to absorb cyclical downturns with less impact than conventional machine tool manufacturers.

 

Competition in Our Markets

 

OMAX’s major markets — both domestic and foreign — are highly competitive, with its products competing against other waterjet competitors as well as technologies such as lasers, saws, plasma, shears, routers, drills, and abrasive blasting techniques. Most of its waterjet competitors provide only portions of a waterjet system such as pumps or control systems. Other competitors integrate components from a variety of suppliers to provide a complete solution.

OMAX competes primarily in the mid-tier segment of the abrasive-jet cutting market. It competes in these markets through product quality and superior service reliability, value, service and technology.

 

Abrasive-jet technology provides manufacturers with an alternative to traditional cutting methods, which utilize lasers, wire EDM, saws, knives, shears, plasma, routers and drills. Many of the companies that provide these competing methods are larger and more established than OMAX.

 

Abrasive-jet cutting systems offer manufacturers many advantages over traditional cutting machines including an ability to cut or machine virtually any material, in any direction, with improved manufacturing times, and with minimal impact on the material being cut. These factors, in addition to the elimination of secondary processing in many circumstances, enhance the manufacturing productivity of its systems.

 

In addition to pumps and systems, OMAX sells spare parts and consumables. It believes that its practice of delivering free software upgrades that enhance system performance encourages client loyalty and increased use of spares and consumables. OMAX faces competition from numerous other companies who sell non-proprietary replacement parts for its machines, primarily at a lower price.

 

Raw Materials

 

OMAX depends on the availability of raw materials, parts and subassemblies from its suppliers and subcontractors. Principal materials used to manufacture its OMAX JetMachining^® Centers and related accessories and spares are metals, and plastics, typically in sheets, bar stock, castings, forgings and tubing. It also purchases many electrical and electronic components, fabricated metal parts, high-pressure fluid hoses, ball screws, seals and other items integral to its products. Suppliers are competitively selected based on cost, quality, and delivery. OMAX’s suppliers’ ability to provide timely and quality raw materials, components, kits and subassemblies affects its production schedules and contract profitability. It maintains an extensive qualification and performance surveillance system to control risk associated with this reliance on the supply chain. Most significant raw materials it uses are available through multiple sources.

 

OMAX’s strategic sourcing initiatives seek to find ways of mitigating the inflationary pressures of the marketplace. In recent years, these inflationary pressures have affected the market for raw materials. The weakening dollar is also causing OMAX’s supply chain to feel abnormal cost pressures. These factors may force it to renegotiate with its suppliers and customers to avoid a significant impact to its margins and results of operations. These macro-economic pressures may increase operating costs with consequential risk to its cash flow and profitability. As all of OMAX’s supply contracts are currently denominated in U.S. dollars, it currently does not have any currency risk.

 

Intellectual Property

 

OMAX has a number of patents related to its processes and products both domestically and internationally. Two such patents, OMAX’s U.S. Patents 5,508,596 and 5,892,345, are subject to an Agreement Containing Consent Order dated July 10, 2008, between Flow and the Federal Trade Commission (“FTC”), with respect to the proposed merger. Under the consent decree negotiated with the FTC, Flow will be required, post-merger, to license to other abrasive waterjet companies, on a royalty free basis, licenses to use these two OMAX patents, which relate to the controllers used in waterjet cutting systems. The licenses will not include any transfer of technology, do not cover any other patented equipment or processes owned by Flow or OMAX, and do not apply to any intellectual property outside of the United States.

 

OMAX believes that other no single patent or group of patents is of material importance to its business as a whole. OMAX also relies on non-patented proprietary trade secrets and knowledge, confidentiality agreements, creative product development and continuing technological advancement to maintain a technological lead on its competitors.

 

Product Development

 

OMAX is committed to maintaining its technology lead through product development. OMAX has made a substantial investment in engineering and research to remain the leader in precision abrasive-jet machining

equipment. OMAX’s successes include revolutionizing the abrasive-jet industry with the first patented PC-based controller for abrasive-jet machining, the most precise X-Y table, and the easiest to maintain direct drive pump technology. The OMAX Research and Development Team includes senior scientists and engineers that have been crucial in all aspects of the development of the OMAX product line.

 

Research and engineering expenses include personnel costs and other expenses and are centered at its sole office/headquarters facilities in Kent, Washington. For its research and engineering activities, OMAX has maintained a near constant expenditure level approximating 6.5% of revenues during each of the years ended December 31, 2007, 2006, and 2005. During the year ended December 31, 2007, OMAX expensed $4.1 million related to product research and development as compared to $3.4 million for 2006 and $2.3 million for 2005.

 

Besides its focus on frequent updates to its industry leading OMAX IntelliMax^® Software Suite, the investment in research and engineering activities has benefited with four new table designs, in different sizes over the past two years, (out of the seven total table sizes now offered by OMAX), expanding the list of accessories for which OMAX has maintained compatibility back to its original system designs, and value engineering (cost reduction) to maintain margins in the face of rising costs of purchased components. Among the emphasis in new product design, OMAX is now fielding a new motion drive system, referred to as “encoder feedback, traction drive,” which is offering the opportunity for increasing mechanical accuracy of the table, while simultaneously permitting modular design expansion.

 

Backlog

 

OMAX’s backlog as of December 31, 2007 was $1.9 million. Backlog includes firm orders for which written authorizations have been accepted and revenue has not yet been recognized. Generally its products can be shipped within a four to eight week period. The unit sales price for most of its system products ranges from $90,000 to $300,000.

 

Seasonal Variation in Business

 

Generally, the highest volume of sales occurs in the second half of the calendar year which is influenced by the timing of customer capital budget authorizations and the focus on year-end tax benefits.

 

Working Capital Practices

 

There are no special or unusual practices relating to OMAX’s working capital items.

 

Property

 

OMAX occupied approximately 73,472 square feet of floor space in Kent, Washington, on December 31, 2007, for manufacturing, warehousing, engineering, administration and other productive uses. It believes that its principal properties are adequate for its present needs and expect them to remain adequate for the immediate future.

 

Employees

 

OMAX had approximately 180 full time employees as of December 31, 2007. All employees are located in the United States.

 

Legal Proceedings

 

At any time, OMAX may be involved in certain legal proceedings. Its policy is to routinely assess the likelihood of any adverse judgments or outcomes related to legal matters, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after thoughtful analysis of each known issue and an analysis of historical experience. It records reserves related to certain legal matters for which it is probable that a loss has been incurred and the range of such loss can be estimated. Management discloses the facts regarding material matters assessed as reasonably possible and potential exposure, if determinable. Costs incurred with defending claims are expensed as incurred. As of December 31, 2007, OMAX

has not recorded any reserves in this regard, as there are no such legal matters for which it is probable that a loss has been incurred and the range of such loss can be estimated.

 

On November 18, 2004, in Case No. CV04-2334, OMAX filed suit in federal court in Seattle Washington, against Flow alleging patent infringement, seeking damage awards in excess of $100 million and seeking a declaration that certain Flow patents are invalid, unenforceable and non-infringed. Flow, in its answer, counterclaimed, seeking a declaration that the patents owned by OMAX are invalid and unenforceable and that OMAX otherwise infringes on Flow’s patents, in which Flow sought unspecified damages and an injunction prohibiting OMAX from continuing its alleged patent infringement.

 

The patents-in-suit include the OMAX Patent Nos. 5,508,596 entitled “Motion Control with Precomputation” and its continuation patent 5,892,345 and Flow Patent Nos. 6,766,216, entitled “Method and System for Automated Software Control of Waterjet Orientation Parameters” and its continuation patent 6,996,452. Flow manufactures waterjet equipment that competes with OMAX’s equipment. Both the OMAX and the Flow patents are directed at the software that controls operation of the waterjet equipment.

 

OMAX has and continues to vigorously pursue its claims and defend against Flow’s counterclaims; however, the outcome of either the suit or countersuit cannot be estimated. The litigation is currently stayed (but may restart) through at least January 16, 2009, pending the possible outcome of a vote of the shareholders of OMAX, as further described in this proxy statement/prospectus, which may lead to the merger of the parties.

 

In this “Management’s Discussion and Analysis of Financial Condition and Result of Operations for OMAX,” references to “we,” “us” and “our” are references to OMAX Corporation.

 

Current Events

 

On September 9, 2008, OMAX and Flow executed the definitive merger agreement (and related supporting agreements). On November 10, 2008, the parties executed an amendment to the merger agreement. Each document is further described in this proxy statement/prospectus. Presuming the effectiveness of this registration statement (or amendments thereto), OMAX will call a Special Meeting so that the OMAX shareholders may vote on this merger proposal.

 

Six Months Ended June 30, 2008 compared to Six Months Ended June 30, 2007

 

Changes in Financial Condition and Cash Flows

 

Cash Flow Changes

 

We used $55,000 of cash from operating activities during the six months ended June 30, 2008 compared to $728,000 during the six months ended June 30, 2007. Changes in our working capital resulted in a lower use of cash in the current period compared to the comparative prior period primarily due to an increase in cash collected from customers as well as a comparative decrease in cash expended for prepaid expenses and income taxes, along with a modest increase in accounts payable. Increases in revenue and gross margin were offset by increases in operating expenses related to the contemplated merger with Flow and to fund investments in sales and marketing resources as well as research and engineering efforts, which are necessary to support the planned new product introductions.

 

Cash used in investing activities was $458,000 for the six months ended June 30, 2008 compared to $258,000 in the prior year comparative period due to the timing of investments in machining equipment and trade show booth upgrades.

 

Cash generated by financing activities was $174,000 for the six months ended June 30, 2008 compared to $705,000 in the prior year comparative period due primarily to lower net borrowings under our short-term debt agreement during the six months ended June 30, 2008 compared to the six months ended June 30, 2007 as offset by a higher repayment of capital lease obligations, pursuant to such lease terms.

 

Working Capital

 

Net receivables are comprised of trade accounts and longer duration but still short term receivables under special terms of agreement. At June 30, 2008, the net receivables of $11.6 million had decreased by $1.3 million, from the balance outstanding at December 31, 2007 of $12.9 million. The decrease in net receivables stemmed from the slowing pace of sales in the first half of 2008 versus the closing six months of calendar year 2007.

 

Our inventory increased approximately 44% from 2007 year end levels, to $11.2 million at June 30, 2008 versus $7.8 million at December 31, 2007. The increase was due to lower than forecasted domestic sales growth for the first half of 2008 and the impact of introducing new table designs to the market place.

 

Liquidity and Capital Resources

 

There have been no material changes in our liquidity and capital resources since December 31, 2007.

 

We believe that our cash from operations along with existing credit facilities at June 30, 2008 are adequate to fund our operations for at least the next twelve months.

 

Off-Balance Sheet Arrangements

 

We had no special purpose entities or off-balance sheet financing arrangements as of June 30, 2008.

Contractual Obligations

 

During the six months ended June 30, 2008, there were no material changes outside the ordinary course of business in our contractual obligations and minimum commercial commitments as reported in “Tabular Disclosure of Contractual Obligations” found on page 72 of this proxy statement/prospectus.

 

Critical Accounting Estimates and Judgments

 

There are no material changes in our critical accounting estimates as disclosed in “Critical Accounting Estimates” found on page 72 of this proxy statement/prospectus, except that we adopted FIN 48 as of January 1, 2008, and added “Uncertain Tax Positions” as a critical accounting policy.

 

Uncertain Tax Positions

 

We account for uncertain tax positions in accordance with FIN 48. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and judgments regarding our income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations change over time. As such, changes in our subjective assumptions and judgments can materially affect amounts recognized in the consolidated balance sheets and statements of income. See Note 8 to the unaudited condensed consolidated financial statements, “Income Taxes,” for additional detail on the adoption of FIN 48.

 

Results of Operations

 

Comparison of Six Month Periods Ending June 30, 2008 and 2007

 

Sales