Securities and Exchange Commission,
Washington, DC 20549
SCHEDULE 13E-3
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
BOWLES FLUIDICS CORP
(Name of the Issuer)
BOWLES FLUIDICS CORP
(Name of Person(s) Filing Statement)
Common Stock $.10 Par Value
(Title of Class of Securities)
-----------
(CUSIP Number of Class of Securities)
Ronald D. Stouffer, President Patrick K. Arey, Esquire
Bowles Fluidics Corporation Miles & Stockbridge P.C.
6625 Dobbin Road 10 Light Street, 8th Floor
Columbia, Maryland 21405-4707 Baltimore, Maryland 21202-1487
Telephone: 410-381-0400 Telephone: 410-385-3485
Telecopier: 410-381-2718 Telecopier: 410-385-3700
E-Mail: [email protected] E-Mail: [email protected]
(Name, address and telephone number of person authorized to receivenotices and
communications on behalf of persons(s) filing statement)
This statement is filed in connection with (check the appropriate box):
a. { } The filing of solicitation materials or an information statement
subject to Regulation 14A (17 CFR 240.14a-1 to 240.14b-1),
Regulation 14C (17 CFR 240.14c-1 to 240.14c-101) or Rule 13e-3(c)
(Sec. 240.13e-3(c)) under the Securities Exchange Act of 1934.
b. { } The filing of a registration statement under the Securities Act
of 1933.
c. { } A tender offer.
d. {X} None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: { }
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Calculation of Filing Fee
TRANSACTION VALUATION* AMOUNT OF FILING FEE
$ 242,600.00 $48.52
* Fee based upon 1/50th of 1% of the anticipated purchase price of
fractional shares resulting from the proposed reverse stock split..
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid:_______________________________________________
Form or Registration No.:______________________________________________
Filing Party:__________________________________________________________
Date Filed:____________________________________________________________
Item 1. Issuer and Class of Security Subject to the Transaction.
(a) The name of the issuer is "Bowles Fluidics Corporation" (the "Company")
and the address of its principal executive offices is: 6625 Dobbin Road,
Columbia, Maryland 21045-4707.
(b) The class of security which is the subject of the Rule 13e-3 transaction
is the Company's Common Stock, $0.10 par value per share (the "Common Stock").
As of October 15, 1998, 12,684,071 shares of the Common Stock were outstanding
and held of record by approximately 430 persons.
(c) The Common Stock of the Company is traded in the "over-the-counter"
market and is quoted on the NASD OTC Bulletin Board; symbol BOWE. The Preferred
Stock is unregistered and is not publicly traded.
The high and low bid and asked prices of the Common Stock over the last two
fiscal years are listed below:
Bid Asked
------------------------ ---------------------
FY High Low High Low
1998 1st Quarter 1 3/4 1 1/4 2 1/16 1 3/8
2nd Quarter 1 3/4 1 1/16 2 1/2 1 3/8
3rd Quarter 1 3/4 1 2 1 3/8
4th Quarter 1 1/32 23/32 1 1/2 1 1/8
1997 1st Quarter 1 3/8 13/16 1 5/8 1 1/4
2nd Quarter 1 3/8 5/8 1 9/16 3/4
3rd Quarter 13/16 7/16 7/8 9/16
4th Quarter 3 1/8 3/4 3 1/2 7/8
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Note: The above quotes represent prices between dealers and do not include
retail mark-up, mark-down, or commissions. They do not represent actual
transactions.
(d) The Company has never paid cash dividends on its Common Stock. Payment of
dividends on Common Stock is within the discretion of the Company's Board of
Directors and will depend, among other factors, on earnings, capital
requirements, and the operating financial condition of the Company.
(e) Not applicable.
(f) The Company has not purchased any of its securities since the
commencement of the Company's second full fiscal year preceding the date of this
Schedule.
ITEM 2. IDENTITY AND BACKGROUND.
This Schedule is being filed by the Company, which is the issuer of the
equity securities that are the subject of the Rule 13e-3 transaction. The
Company, a Maryland corporation, is a designer, manufacturer and supplier of
windshield and rear window washer nozzles for passenger cars and light trucks in
North America. The Company also designs and sells defroster nozzles for a
limited number of these same light vehicles. The address of the Company is 6625
Dobbin Road, Columbia, Maryland 21045-4707.
The controlling stockholders, directors and executive officers of the Company
are:
<TABLE>
<CAPTION>
<S> <C>
William Ewing, III Chairman of the Board of Directors, Controlling Person
Ronald D. Stouffer President, Chief Executive Officer, Director
Eric W. Koehler Executive Vice President, Director
John E. Searle, Jr. Director
David C. Dressler Director
Neil Ruddock Director
James T. Parkinson, III Director, Controlling Person
Frederic Ewing, II Director, Controlling Person
Melvyn J. L. Clough Vice President, Operations
Richard W. Hess Vice President, Automotive Products Engineering
Eleanor M. Kupris Secretary and Vice President, Administration
David A. Quinn Vice President, Finance and Treasurer
Dharapuram N. Srinath Vice President, Advanced Engineering
Arlene M. Hardy Corporate Controller
</TABLE>
(a) - (d) The information required by this Item 2 with respect to each of the
above-named persons is attached hereto as Exhibit 1, and is incorporated herein
by this reference. The information disclosed in Exhibit 1 is included pursuant
to General Instruction D to Schedule 13E-3.
(e) During the past five years, neither the Company nor, to its knowledge,
any of the controlling persons, directors and executive officers of the Company
has been convicted in a criminal
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proceeding (excluding traffic violations or similar misdemeanors) or was a party
to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining further violations of, or prohibiting activities
subject to, federal or state securities laws or finding any violation of such
laws.
(g) Except as noted on Exhibit 1 attached hereto, all of the persons named
above are citizens of the United States of America.
Item 3. Past Contacts, Transactions or Negotiations.
There have been no contacts or negotiations which have been entered into or
which have occurred since the commencement of the Company's second full fiscal
year preceding the date of this Schedule (i) between any affiliates of the
Company; or (ii) between the Company or any of its affiliates and any person who
is not affiliated with the Company and who would have a direct interest in such
matters.
Item 4. Terms of the Transaction.
(a) The Company proposes, subject to stockholder approval, an amendment to
the Company's Articles of Incorporation which would decrease the number of
shares of Common Stock authorized and outstanding by means of a reverse stock
split in the ratio of 1,000 shares of "Old Common Stock" to 1 share of "New
Common Stock". As used herein, the term "Old Common Stock" refers to the Common
Stock before the proposed reverse stock split and the term "New Common Stock"
refers to the Common Stock following the proposed reverse stock split. The par
value of the New Common Stock would be adjusted to $100 per share.
Any fractional shares resulting from the reverse stock split will be
purchased from holders thereof at the rate of $1,250 per share of New Common
Stock (i.e., post split).
(b) All holders of Common Stock will be treated identically in connection
with the reverse stock split, in that all fractional shares of New common Stock
will be purchased at the rate of $1,250 per share of New Common Stock.
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a) On December 8, 1998, the Board of Directors of the Company adopted
resolutions authorizing the going-private transaction that is the subject of
this Schedule 13E-3. The Board of Directors authorized the submission to the
vote of the stockholders of the Company an amendment to the Articles of
Incorporation of the Company under which all outstanding shares of Old Common
Stock will be subject to a reverse stock split at the ratio of 1,000 shares of
Old Common Stock to 1 share of New Common Stock. A copy of the proposed
amendment to the Company's Articles of Incorporation (the "Proposed Amendment")
and the resolutions adopted by the Board of Directors is attached to this
Schedule as Exhibit 2.
The Company expects to submit the Proposed Amendment to the stockholders of
the Company at a special meeting expected to be held at 9:30 a.m. on ________,
1999, at 6625 Dobbin Road, Columbia, Maryland.
If the Proposed amendment is approved by the stockholders, as a result of the
proposed reverse stock split the total authorized shares of Common Stock will be
reduced from 17,000,000 shares to 17,000 shares. Any resulting fractional shares
of Common Stock will be purchased from the holders thereof at the rate of $1,250
per share of New Common Stock.
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(b) The purchase price of fractional shares of New Common Stock will be paid
from available funds of the Company, which is expected to result in a use of
cash in the approximate amount of $242,600 and a reduction in shareholders'
equity in the same amount.
(c) John E. Searle, Jr., resigned as a member of the Board of Directors of
the Company effective on December 8, 1998, following the meeting of the Board of
Directors on that date, resulting in a vacancy on the Board of Directors. Mr.
Searle's resignation is not related to the proposed reverse stock split.
(d) The Company does not expect that any material change in the present
dividend rate or policy or indebtedness of the Company will occur as a result of
the reverse stock split. A change in the Company's capitalization will not occur
as a result of the adjustment in par value to $100 per share of New Common
Stock.
(e) There will be no other material change in the Company's corporate
structure or business;
(f) Not applicable.
(g) Following the reverse stock split and purchase of resulting fractional
shares of New Common Stock, it is expected that the number of shareholders of
the Company's Common Stock will be reduced from approximately 430 (as of October
15, 1998) to less than 200. The number of holders of the Company's Preferred
Stock will remain unchanged at approximately 18. As a result of the reduction in
number of record shareholders below 300, the Company intends to suspend its
obligation to file periodic reports with the Securities and Exchange Commission
pursuant to section 15(d) of the Exchange Act of 1934.
Item 6. Source and Amounts of Funds or Other Consideration.
(a) The Company expects to spend its own funds to purchase fractional shares
of the New Common Stock following the reverse stock split. The Company
anticipates that as a result of the reverse stock split, there will be
approximately 194.077 aggregate fractional shares of the New Common Stock to be
purchased by the Company. The expected aggregate purchase price of such shares
is $242,600, based upon the purchase price of $1,250 per share of New Common
Stock. Such price per share was determined based upon the report of Ferris Baker
Watts, Incorporated as to value of the Common Stock of the Company which report
is further described in Item 9(a) to this Schedule.
(b) The following is a statement of all expenses incurred or estimated to be
incurred in connection with the going private transaction. The Company will be
responsible for paying any or all of such expenses.
Filing Fees $ 49
Legal Fees 100,000
Accounting Fees 2,000
Appraisal Fees 65,000
Solicitation Expenses 0
Printing Costs 2,000
------------
Total $ 169,049
(c) All of the foregoing expenses and purchase price of fractional shares of
New Common Stock are expected to be paid from the available funds of the
Company.
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(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) The purpose of this Rule 13e-3 going private transaction, which is to be
accomplished through the reverse stock split, is to suspend the Company's
obligation to file reports under Section 15(d) of the Securities and Exchange
Act of 1934. The Board of Directors believes that such action is in the best
interests of the Company for the following reasons: (1) the filing of periodic
reports under Section 15(d) of the Securities and Exchange Act of 1934 allows
the Company's limited number of customers and competitors, all of which are
concentrated in a single industry, to obtain information concerning the
Company's profit margins, patent positions and operations which, in the
Company's opinion, has or may have an adverse effect on the Company's
performance; and (2) the out-of-pocket and internal costs to the Company
associated with the preparation and filing of the periodic reports when compared
to the limited number of stockholders is, in the Company's opinion, unwarranted.
(b) The Company considered two alternative means to accomplish its objective
of suspending its obligation to file reports under Section 15(d) of the
Securities and Exchange Act of 1934.
Tender Offer. The Board of Directors considered making a tender offer for
shares of Common Stock in order to reduce the number of record holders of
Common Stock below 300. This alternative was viewed as undependable, however,
because it was not certain that the Company would sufficiently reduce the
number of its record stockholders to achieve its objective of less than 300
shareholders. The costs which might be incurred in connection with such a
tender offer also appeared to be potentially higher than the costs expected
to be incurred in connection with the reverse stock split.
Merger. The Board of Directors also considered the possibility of a "cash
out" merger. However, the anticipated costs of such a merger (including the
cost of obtaining the requisite shareholder approvals and purchase of Common
Stock) were also expected to be higher than the costs expected to be incurred
in connection with the reverse stock split.
(c) The Company has structured the Rule 13e-3 transaction as a reverse stock
split because it believes that this structure is the simplest and most
economical means of reducing the number of record holders of the Company's
Common Stock below 300, thereby achieving its goal of terminating its obligation
to file periodic reports with the Securities and Exchange Commission pursuant to
Section 15(d) of the Securities and Exchange Act of 1934. In addition, the
Company believes that the reverse stock split and purchase of fractional shares
of the New Common Stock will provide an easy and cost effective way for
shareholders holding less than one share of New Common Stock (1,000 shares of
Old Common Stock) to dispose of such fractional shares at a fair price without
incurring brokerage commissions and other transaction costs. The Company
believes that implementing the reverse stock split at this time so that it can
terminate its obligation to file periodic reports with the Securities and
Exchange Commission will improve its future performance.
(d) As described above, upon consummation of the reverse stock split, the
Company anticipates that the number of record stockholders of the Company will
be reduced from 430 to less than 200 and the Company will achieve the purposes
of the reverse stock split described above. The Company incurs costs related to
its status as a public reporting corporation under the federal securities laws,
including indirect costs as a result of, among other things, the Company
personnel, including management, time expended to prepare and review various
filings, furnish information to
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stockholders, and attend to other stockholders matters. Termination of the
Company's obligation to file periodic reports will eliminate the costs and
expenses of such federal securities filings and reduce the amount of time
devoted by management in preparing and reviewing such reports. The Company
estimates that, upon termination of its obligation to file periodic reports with
the Securities and Exchange Commission, it will achieve savings within a range
of approximately $65,000 to $75,000 annually.
Upon consummation of the reverse stock split, each 1,000 shares of Old Common
Stock issued and outstanding immediately prior to the effective time of such
split will be converted into one share of New Common Stock and all resulting
fractional shares of New Common Stock will be purchased by the Company at the
price of $1,250 per share. The following description of the federal income tax
consequences of the reverse stock split is included solely for the general
information of the holders of the Company's Common Stock. The federal income tax
consequences for any particular stockholder may be affected by matters not
discussed herein, and each stockholder should consult his or her personal tax
advisor in determining the federal income tax consequences of the reverse stock
split and purchase of fractional shares. For those stockholders receiving New
Common Stock from consummation of the reverse stock split, there will be no
direct tax consequences as a result of the reverse stock split, except for
reallocation to the stockholders' per share tax basis. The purchase of
fractional shares of New Common Stock by the Company will be a taxable
transaction for federal income tax purposes. Each holder of fractional shares of
New Common Stock purchased by the Company subsequent to the reverse stock split
will recognize gain or loss upon the purchase of that stockholder's fractional
share of New Common Stock equal to the difference, if any, between (i) the
amount of the cash payment received for any fractional shares of New Common
Stock and (ii) that stockholder's tax basis in such fractional shares of New
Common Stock so long as the New Common Stock was held as a capital asset of the
stockholder. Any subsequent gain or loss resulting from the disposition of New
Common Stock should be treated as a capital gain or loss transaction. As
indicated previously, holders of New Common Stock are urged to consult their
personal tax advisors as to the tax consequences of the reverse stock split and
purchase of fractional shares under federal, state, local and any other
applicable laws.
The cash payments due to the holders of fractional shares of New Common Stock
(other than certain exempt entities and persons) will be subject to a backup
withholding tax at the rate of 31% under federal income tax law unless certain
requirements are met. Generally, the Company or its paying agent will be
required to deduct and withhold the tax on cash payments due at the effective
time of the purchase of fractional shares of New Common Stock subsequent to the
reverse stock split if (i) a stockholder fails to furnish a taxpayer
identification number ("TIN"; the TIN of an individual stockholder is his or her
Social Security number) to the paying agent or fails to certify under penalty of
perjury that such TIN is correct; (ii) the Internal Revenue Service ("IRS")
notifies the Paying Agent that the TIN furnished by the stockholder is
incorrect; (iii) the IRS notifies the paying agent that the stockholder has
failed to report interest, dividends, or original issue discount in the past; or
(iv) there has been a failure by the stockholder to certify under penalty of
perjury that such stockholder is not subject to the backup withholding tax. Any
amounts withheld by the paying agent in collection of the backup withholding tax
will reduce the federal income tax liability of the stockholders from whom such
tax was withheld.
Item 8. Fairness of the Transaction.
(a) The Company believes that the proposed reverse stock split and subsequent
purchase of fractional shares is fair to unaffiliated stockholders of the
Company. The Board of Directors of the
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Company by unanimous vote on December 8, 1998, with no member of the Board of
Directors dissenting or abstaining from such approval, adopted a resolution
declaring the terms and conditions of the reverse stock split and purchase of
fractional shares advisable and directing that a proposed amendment to the
Articles of Incorporation of the Company be submitted to shareholders of the
Company for consideration.
(b) A special committee of the Board of Directors of the Company, comprised
of Directors who are non-controlling persons, as described in paragraph (d)
below (the "Special Committee"), recommended that the Board of Directors retain
Ferris, Baker Watts, Incorporated ("Ferris, Baker Watts"), and by letter
agreement dated June 23, 1998 such firm was retained, to act as its financial
advisor and to render its opinion to the Company's Board of Directors as to the
fairness of the fractional share purchase price, from a financial point of view,
to the holders of fractional shares of the New Common Stock following the
reverse stock split (herein referred to as the "Purchase Price").
The Special Committee was charged with the responsibility of recommending to
the Board of Directors a fair price to pay for the fractional shares resulting
from the reverse stock split of the Common Stock. It met on four occasions with
a representative of Ferris, Baker Watts during which discussions occurred and
information shared concerning the methodology of companies having business and
markets similar to those of the Company and the application of such
methodologies to the Company's financial and market position and future
prospects. Based upon these deliberations, the Special Committee unanimously
recommended to the Board of Directors of the Company that $1,250 per share of
New Common Stock resulting from a reverse stock split would be a fair price to
pay. Ferris, Baker Watts concurred in this recommendation.
Ferris, Baker Watts delivered its written opinion on December 8, 1998, to the
Board of Directors of the Company to the effect that, as of such date, the
Purchase Price was fair, from a financial point of view, to the holders of the
New Common Stock. No restrictions were imposed by the Special Committee or the
Board of Directors of the Company upon Ferris, Baker Watts with respect to the
investigations made or procedures followed by Ferris, Baker Watts in rendering
its opinions.
The full text of Ferris, Baker Watts' fairness opinion, which is summarized
in response to Item 9 of this Schedule 13E-3, dated December 8, 1998, which sets
forth certain assumptions made, certain procedures followed, and certain matters
considered by Ferris, Baker Watts, is attached hereto as Exhibit 3.
In addition to the recommendation of the Special Committee and the
conclusions contained in the Ferris, Baker Watts report, the Board of Directors
reviewed certain additional factors, including the historical and current market
values of the Company's Common Stock. In this regard, the Company's Board of
Directors noted the amount and level of transactions in shares of the Company's
Common Stock during the past year and that the book value per share of the
Company's Common Stock as of July 25, 1998 (the end of the third quarter of the
Company's fiscal year), was $0.66.
The Company's Board of Directors further considered the advantages of and
benefits to the Company of not being required to file periodic reports with the
Securities and Exchange Commission pursuant to ss.15(d) of the Securities and
Exchange Act of 1934, the direct and indirect cost savings to be realized by the
Company from not having to file such periodic reports, and the
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benefits to be derived by the remaining Company stockholders from the
transactions described in this Schedule.
In reaching its determination as to the fairness of the Purchase Price, the
Board of Directors of the Company did not assign any relative or specific
weights to the foregoing factors.
(c) Pursuant to the provisions of ss.2-604(d) of the Corporations and
Associations Article of the Annotated Code of Maryland, any proposed amendment
to the Articles of Incorporation of the Company must be approved by the
stockholders of the Company by the affirmative vote of two thirds of all the
votes entitled to be cast on the matter. Holders of Common Stock are entitled to
cast one vote for each share of Common Stock. Holders of the Company's Preferred
Stock are entitled to cast four votes for each share of Preferred Stock.
(d) The decision to retain Ferris, Baker Watts to prepare a report concerning
the fairness of the Purchase Price was initially made by the Special Committee
and affirmed by the Board of Directors of the Company. The Special Committee was
established by the Board of Directors of the Company on March 12, 1998, to act
solely on behalf of the unaffiliated stockholders of the Company for purposes of
reviewing the desirability of undertaking the "going private" transaction which
is the subject of this Schedule 13E-3. The Special Committee consisted of the
following persons: David C. Dressler, John E. Searle, Jr., and Neil Ruddock. For
reasons unrelated to this transaction, Mr. Searle resigned from the Board of
Directors of the Company effective December 8, 1998, following the meeting of
the Board of Directors on that date. Mr. Ruddock joined the Special Committee on
July 14, 1998, when he also joined the Board of Directors.
(e) The Board of Directors of the Company unanimously approved the Proposed
Amendment, which vote included all of the directors who were not employees of
the Company.
(f) During the 18 month period preceding the date of this Schedule 13E-3, the
Company has not received any firm offers from any unaffiliated person for (a)
the merger or consolidation of the Company into or with any person, (b) the sale
or other transfer of all or any substantial part of the assets of the Company,
or (c) securities of the Company which would enable the holder thereof to
exercise control of the Company.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a) On June 23, 1998, the Board of Directors of the Company retained the
services of Ferris, Baker Watts to perform a valuation of the Company's Common
Stock and render its opinion as to the fairness of the Purchase Price, from a
financial point of view, to be paid to the holders of fractional shares of the
New Common Stock following the reverse stock split.
(b) The following information is provided with respect to the fairness
opinion provided by Ferris, Baker Watts:
(1) Ferris, Baker Watts performed a valuation of the Company's Common
Stock and provided its opinion as to the fairness of the Purchase Price, from
a financial point of view, to be paid to the holders of fractional shares of
the New Common Stock following the reverse stock split.
(2) Ferris, Baker Watts is a Mid-Atlantic based investment bank whose
corporate finance activities are focused on small to middle market companies.
Ferris, Baker Watts provides a full range of investment banking services to
its clients, ranging from merger and acquisition services, public offerings,
private placements and advisory services.
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(3) The Special Committee solicited proposals from three investment
bankers, interviewed two and unanimously agreed to retain the services of
Ferris, Baker Watts.
(4) Other than the engagement of Ferris, Baker Watts to provide the
services described in Item 9(a), there are no material relationships between
(i) Ferris, Baker Watts, its affiliates and/or unaffiliated representative,
and (ii) the Company or its affiliates, which existed during the past two
years or is materially understood to be contemplated. The fee for Ferris,
Baker Watts' services is $65,000.
(5) Ferris, Baker Watts provided to the Special Committee and the Board of
Directors a range of values of the fractional shares of Common Stock and a
recommendation to pay a price at the top of the range or at a premium to the
top end of the range. The Special Committee unanimously recommended to the
Board of Directors a price of $1,250 per share of New Common Stock and the
Board of Directors unanimously adopted such recommendation.
(6) The Company retained Ferris, Baker Watts to investigate the proposed
consideration offered to shareholders and to provide an opinion as to the
fairness, from a financial point of view, to the shareholders of the
consideration to be paid for each share of New Common Stock. The Company
requested Ferris, Baker Watts to undertake the proposed valuation because of
its familiarity with companies such as the Company and its experience with
companies having a market capitalization below $100,000,000.
On December 8, 1998, Ferris, Baker Watts delivered an opinion (the
"Fairness Opinion") to the Board of Directors of the Company which concluded
that based upon and subject to the considerations set forth therein, as of
such date the consideration to be received by the shareholders of the Company
for fractional shares of New Common Stock pursuant to the reverse stock split
was fair from a financial point of view. The Fairness Opinion was based upon
economic, market and other conditions in effect as of its date. No
limitations were imposed by the Board of Directors of the Company upon
Ferris, Baker Watts with respect to its investigation or procedures followed
in rendering the Fairness Opinion. The Fairness Opinion, which sets forth
assumptions made, material reviewed, matters considered, and the limits of
the review, is attached as Exhibit 3 and is incorporated into this Schedule
by reference.
The following is a summary of the Fairness Opinion. Stockholders of the
Company are urged to read the Fairness Opinion in its entirety. Ferris, Baker
Watts has consented to the inclusion of its opinion in this Schedule and
Information Statement provided to shareholders of the Company and has
reviewed the following summary.
In connection with the Fairness Opinion, Ferris, Baker Watts reviewed,
among other things: (i) the proposed reverse stock split; (ii) annual reports
on form 10-K for the fiscal years ended October 25, 1997, October 26, 1996,
October 28, 1995, October 29, 1994, and October 25, 1993; (iii) quarterly
reports on form 10-Q for the periods ended July 25, 1998, April 25, 1998,
January 24, 1998, July 26, 1997, April 26, 1997, January 26, 1997, July 27,
1996, April 27, 1996, January 27, 1996, July 29, 1995, April 29, 1995,
January 28, 1995, July 30, 1994, April 30, 1994, January 29, 1994, July 31,
1993, May 1, 1993, January 30, 1993; and (iv) projected financial results for
fiscal years 1998 through 2003 provided by management of the Company and
approved by the Board of Directors of the Company. Ferris, Baker Watts also
held discussions with management of the Company regarding its past and
current business operations, financial condition and future prospects.
Ferris, Baker Watts reviewed the reported price and trading activity of the
Company's Common Stock, compared certain financial and
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stock market information concerning the Company with similar information for
other parts manufacturers supplying the automotive industry, the securities
of which are publicly traded, and performed other studies and analyses which
Ferris, Baker Watts deemed appropriate.
Ferris, Baker Watts assumed and relied upon the accuracy and completeness
of all financial and other information reviewed for the purposes of the
Fairness Opinion, whether publicly available or provided to Ferris, Baker
Watts by the Company and did not independently verify any such information or
make an independent evaluation or appraisal of the assets or liabilities of
the Company.
The preparation of a fairness opinion involves determinations as to the
appropriate and relevant methods of financial analysis and, therefore,
reference should be made to the Fairness Opinion in its entirety and not to a
summary description. In performing its analysis, Ferris, Baker Watts made
numerous assumptions with respect to industry performance, business and
economic condition and other matters, many of which are beyond the control of
the Company. The analyses performed by Ferris, Baker Watts are not
necessarily indicative of future results and do not purport to be appraisals
or to reflect prices at which businesses may actually be sold. The following
paragraphs summarize all material analyses performed by Ferris, Baker Watts.
Ferris, Baker Watts considered several methods to evaluate the value of
the Company, including: (i) the discounted future free cash flow of the
Company, and (ii) the earnings and book multiple comparisons to publicly
traded companies engaged in parts manufacturing supplying the automotive
industry. Ferris, Baker Watts also considered the market value of the
Company's shares of Common Stock as well as its trading history.
The discounted future free cash flow analysis ascribes value only to the
cash flows that can ultimately be taken out of the business. These free cash
flows are then discounted to the present at the firm's weighted average cost
of capital. The weighted average cost of capital can be described as the
average price a company must pay to attract both debt and equity to properly
capitalize its growth. These series of cash flows, when discounted to the
present and after subtracting claims by debt holders and others, represent
the economic value of a company to its shareholders. This method of valuation
depends upon the accuracy of the financial projections. Ferris, Baker Watts
assumed that such projections were reasonably prepared by the management of
the Company on bases reflecting the best currently available estimates and
judgments as to the Company's expected future financial performance.
The earnings and book multiple comparison analysis examines the operating
earnings, net income (both historical and projected), revenue and book value
multiples. From these results, implied equity can be determined.
From these analyses, Ferris, Baker Watts determined that (i) the
consideration to be received by the shareholders for the fractional shares of
New Common Stock was fair from a financial point of view, and (ii) the goal
of the reverse stock split could be accomplished at minimal cost and would
not have an adverse impact on the Company.
The Fairness Opinion relates only to whether the consideration to be
received by the holders of fractional shares of New Common Stock is fair from
a financial point of view and does not constitute a recommendation to any
stockholder of the Company as to how such stockholders should vote with
respect to the reverse stock split.
(c) Ferris, Baker Watts' opinion is attached as Exhibit 3 to this Schedule.
11
<PAGE>
Item 10. Interest in Securities of the Issuer.
(a) As of the date of this Schedule 13E-3, the record and beneficial
ownership (except for beneficial ownership disclaimed as set forth in applicable
footnotes) of the Company's Common Stock, the percentage of the total number of
issued and outstanding Common Stock, and the number of shares of Common Stock
that there is a right to acquire of the person filing this Schedule, together
with any pension plan, profit or similar plan, and by each executive officer,
director, and each controlling stockholder are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
NAME POSITION NO. SHARES (1) PERCENTAGE (1)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
William Ewing, III Chairman of the Board of
Directors, Controlling 437,329 (2) 3.4
Person 9,077,468 (3) 71.6
- -----------------------------------------------------------------------------
Ronald D. Stouffer President, Chief Executive
Officer, Director 129,431 1.1
- -----------------------------------------------------------------------------
Eric W. Koehler Executive Vice President,
Director
- -----------------------------------------------------------------------------
John E. Searle, Jr. Director 20,000 .2
- -----------------------------------------------------------------------------
David C. Dressler Director 20,000 .2
- -----------------------------------------------------------------------------
James T, Parkinson,
III (4) Director, Controlling Person 1,176,849 9.3
- -----------------------------------------------------------------------------
Frederic Ewing, II Director, Controlling Person 390,827 (5) 3.1
344,540 (6) 2.7
- -----------------------------------------------------------------------------
Melvyn J. L. Clough Vice President, Operations
- -----------------------------------------------------------------------------
Richard W. Hess Vice President, Automotive
Products Engineering 5,000 .1
- -----------------------------------------------------------------------------
Eleanor M. Kupris Secretary and Vice
President, Administration 38,040 .3
- -----------------------------------------------------------------------------
David A. Quinn Vice President, Finance and
Treasurer 21,000 .2
- -----------------------------------------------------------------------------
Dharapuram N. Srinath Vice President, Advanced
Engineering 6,500 .1
- -----------------------------------------------------------------------------
Arlene M. Hardy Corporate Controller
- -----------------------------------------------------------------------------
</TABLE>
Notes:
1. Excludes Preferred Stock.
2. For own account, including 53,320 shares held by Mr. Ewing's
children for which he holds a power of attorney.
3. Owned by trusts of which Mr. Ewing is a trustee or owned by other
individuals for which he holds their powers of attorney.
4. As trustee of trusts established under the will of Arthur Choate.
5. For own account.
6. As trustee for two trusts.
(b) No transactions in any shares of the Common Stock of the Company were
effected during the 60 days immediately preceding the date of this Schedule
13E-3 by the Company or by any of the persons named in paragraph (a) of this
Item.
Item 11. Contracts, Arrangements or Understandings with Respect to the Issuer's
Securities.
There are no contracts, arrangements, understandings or relationships between
the Company or the persons listed above and any other person in connection with
the proposed reverse stock split concerning the transfer or voting of the
Company's Common Stock or Preferred Stock, joint
12
<PAGE>
ventures, loan or option arrangements, puts or calls, guaranties or the giving
or withholding of proxies, consents or other authorizations.
Item 12. Present Intention and Recommendation of Certain Persons with Regard to
the Transaction.
(a) To the knowledge of the person filing this Schedule, after making
reasonable inquiry, no executive officer, director or affiliate of the Company
or any person enumerated in Exhibit 1 to this Schedule presently intends to
tender or sell any of the Company's Common Stock owned or held by such person,
except with respect to fractional shares of New Common Stock to be purchased by
the Company following the reverse stock split. Each of the persons enumerated in
Exhibit 1 presently intends to vote all shares of the Common Stock held by such
person and with respect to which such person holds proxies, in favor of the
Proposed Amendment, as described in Item 5 of this Schedule.
(b) As described in Items 7 and 8 above, all of the persons enumerated in
Exhibit 1 to this Schedule who are directors of the Company and all members of
the Special Committee voted in favor of the Proposed Amendment. To the knowledge
of the person filing this statement, after making reasonable inquiry, except as
stated in the preceding sentence, none of the persons named in Exhibit 1 to this
Schedule has made a recommendation in support of or opposed to the Proposed
Amendment.
Item 13. Other Provisions of the Transaction.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
Item 14. Financial Information.
(a) (1) Audited financial statements for the Company's 1996 and 1997 fiscal
years required to be filed with the Company's most recent annual report under
sections 13 and 15(d) of the Securities Exchange Act of 1934 are attached hereto
as Exhibit 4. The Company's audited financial statement for fiscal year 1998 are
attached hereto as Exhibit 5.
(2) Not applicable.
(3) The ratios of earnings to fixed charges for the two most recent fiscal
years were not determined as there were no debt instruments or fixed charges
for either of these two years.
(4) The book value per share as of the fiscal year ended October 25, 1997,
was $0.60, and as of the end of the third fiscal quarter of 1998 (July 25,
1998), was $0.66.
(b) Pro forma data disclosing the effect of the reverse stock split and
buyback of fractional shares on (1) the Company's balance sheet as of the
most recent fiscal year end is attached as Exhibit 6; and (2) the Company's
statement of income, earnings per share amounts, and ratio of earnings to
fixed charges for the most recent fiscal year end is attached as Exhibit 7.
The Company's book value per share as of the fiscal year ended October 25,
1997, taking into account the effect of the reverse stock split and buyback
of fractional shares was $589.41 per share of New Common Stock, and as of the
end of the third fiscal quarter of 1998 (July 25,
13
<PAGE>
1998), taking into account the effect of the reverse stock split and buyback
of fractional shares, was $654.44 per share of New Common Stock.
Item 15. Persons and Assets Employed, Retained or Utilized.
(a) No officer, employee, class of employees or corporate asset of the
Company (excluding corporate assets which are proposed to be used as
consideration for purchases of securities or payment of expenses which are
disclosed in Item 6 of this Schedule) has been or is proposed to be employed,
availed of or utilized by the Company or affiliate in connection with the
Proposed Amendment and reverse stock split described in this Schedule.
(b) No person (excluding persons identified in Item 15(a) above), has been
employed, retained or is to be compensated by the Company, or by any person on
behalf of the Company, to make solicitations or recommendations in connection
with the Proposed Amendment and reverse stock split described in this Schedule.
Item 16. Additional Information.
It is expected that the owners of more than the necessary two-thirds of the
shares of Common Stock and Preferred Stock entitled to vote on the Proposed
Amendment (including, without limitation, all shares owned by the persons listed
on Exhibit 1 to this Schedule and any shares controlled by them) will vote in
favor of the Proposed Amendment, and, accordingly that such amendment will
receive the necessary approval from stockholders entitled to vote on the
question. Upon receipt of stockholder approval, the Company expects to move
quickly to implement the Proposed Amendment and the reverse stock split
authorized by such amendment.
Item 17. Material to be Filed as Exhibits.
(a) Not applicable.
(b) The report and opinion of Ferris, Baker Watts referred to in Items 8(d)
or 9 of this Schedule are attached hereto as Exhibit 3.
(c) Not applicable.
(d) Any disclosure materials furnished to stockholders of the Company in
connection with the Proposed Amendment and reverse stock split pursuant to SEC
Rule 13e-3(d) (Sec. 240.13e-3(d)) are attached hereto as Exhibit 8.
(e) Not applicable.
(f) Not applicable.
14
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
-----------------------------------------
(Date)
-----------------------------------------
(Signature)
Ronald D. Stouffer, President
-----------------------------------------
(Name and Title)
Exhibit Index
1. Identity and Background of Directors, Executive Officers and Controlling
Persons of the Company
2. Proposed Amendment to the Company's Articles of Incorporation and
Resolutions adopted by the Board of Directors on December 8, 1998
3. Fairness Opinion of Ferris, Baker Watts, dated December 8, 1998
4. Audited Financial Statements for the Fiscal Years Ended October
26, 1996, and October 25, 1997, filed with the Company's most recent
Annual Report under Sections 13 and 15(d) of the Securities Exchange Act
of 1934
5. Audited Financial Statement for the Fiscal Year Ended October 31,
1998
6. Pro Forma Data Disclosing the Effect of the Reverse Stock Split and
Buyback of Fractional Shares on the Company's Balance Sheet as of the Most
Recent Fiscal Year End
7. Pro Forma Data Disclosing the Effect of the Reverse Stock Split and
Buyback of Fractional Shares on the Company's Statement of Income,
Earnings Per Share Amounts, and Ratio Of Earnings to Fixed Charges for the
Most Recent Fiscal Year End
8. Disclosure Materials to be Furnished to Company Stockholders
15
EXHIBIT 1
Identity and Background of Directors, Executive Officers
and Controlling Persons of the Company
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Occupation or Employment
Name Position Present Occupation during Past Five Years
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William Ewing, III Chairman of the Chairman of the Board Vice President and
Board of Directors, Bowles Fluidics Treasurer, 1995-1997
1996 - present, Corporation Reeves Industries, Inc.
Controlling Person 6625 Dobbin Road 101 Merritt
Columbia, Maryland P. O. Box 5063
Director, 1985 - 21045-4707 Norwalk, CT
present
Chairman of the Board Managing Director,
Vacuum Instruments 1992-1994
Corp. Chemical Bank
2099 9th Ave. New York, New York
Ronkonoma, NY 11779
Chairman of the Board
Actronics Inc.
166 Bear Hill Road
Waltham, MA 02154
- -------------------------------------------------------------------------------------------
Ronald D. Stouffer President, 1994 - President and Chief Executive Vice
present Executive Officer President, 1982 to 1994
Chief Executive Bowles Fluidics Bowles Fluidics
Officer, 1994 - Corporation Corporation
present
Director, 1978 -
present
- -------------------------------------------------------------------------------------------
Eric W. Koehler Executive Vice Executive Vice Vice President,
President, 1997 - President Marketing, 1994 - 1997
present Bowles Fluidics Director of Marketing,
Corporation 1990-1994
Director, 1997 - Bowles Fluidics
present Corporation
- -------------------------------------------------------------------------------------------
John E. Searle, Jr. Director Retired
- -------------------------------------------------------------------------------------------
David C. Dressler Director Retired
- -------------------------------------------------------------------------------------------
Neil Ruddock Director, 1998 - President, N. T.
present Ruddock Co.
President, National
Metal Abrasives Co.
26123 Broadway Ave.
Cleveland, Ohio 44146
- -------------------------------------------------------------------------------------------
James T. Director, Self Employed;
Parkinson, III Controlling Person, Investment Management
1998 - present P. O. Box 2247
Middleburg, VA 20118
- -------------------------------------------------------------------------------------------
Frederic Ewing, II Director, President
Controlling Person Vacuum Instrument Corp.
2099 9th Avenue
Ronkonoma, NY 11779
- -------------------------------------------------------------------------------------------
Melvyn J. L. Vice President, Vice President, Engineering Manager,
Clough* Operations, 1995 - Operations 1992-1995
present Bowles Fluidics A. Raymond, Inc.
Corporation 3091 Research Dr.
Rochester Hills, Michigan
- -------------------------------------------------------------------------------------------
</TABLE>
Exhibit 1 - 2
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Occupation or Employment
Name Position Present Occupation during Past Five Years
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard W. Hess Vice President, Vice President, Vice President,
Automotive Products Automotive Products Engineering, 1992 - 1998,
Engineering, 1998 - Engineering, 1998 - Bowles Fluidics
present present Corporation
Bowles Fluidics
Corporation
- -------------------------------------------------------------------------------------------
Eleanor M. Kupris Secretary and Vice Corporate Secretary,
President, March 1992 - present
Administration, Vice President,
1982 - present Administration, since
1982 - present
Bowles Fluidics
Corporation
- -------------------------------------------------------------------------------------------
David A. Quinn Vice President, Vice President, Chief Financial Officer,
Finance, and Finance and Treasurer, 1991-1993
Treasurer, 1993 - 1993 - present Bruning Paint Company
present Bowles Fluidics 301 South Haven Street
Corporation Baltimore, MD 21224
- -------------------------------------------------------------------------------------------
Dharapuram N. Vice President, Vice President, Vice President, Quality
Srinath** Advanced Advanced Engineering, Assurance, 1995 - 1998
Engineering, 1998 - 1998 - present Director of Quality
present Bowles Fluidics Assurance and Product
Corporation Reliability, 1992-1995
Bowles Fluidics
Corporation
- -------------------------------------------------------------------------------------------
Arlene M. Hardy Corporate Corporate Controller,
Controller, 1990 - 1990 - present
present Bowles Fluidics
Corporation
- -------------------------------------------------------------------------------------------
</TABLE>
* Citizen of the United Kingdom.
** Citizen of India.
Exhibit 2 - 2
<PAGE>
EXHIBIT 2
Proposed Amendment to the Company's Articles of Incorporation and
Resolution Adopted by the Board of Directors on December 8, 1998
Article FOURTH of the Articles of Incorporation of the Corporation is hereby
amended by:
1. Cancelling the first two paragraphs thereof and inserting the following in
its place:
FOURTH: The total number of shares of all classes of stock the Corporation
has authority to issue is Three Million Seventeen Thousand (3,017,000)
shares divided into Three Million (3,000,000) shares of cumulative,
convertible Preferred Stock of a par value of One Dollar ($1.00) each and
Seventeen Thousand (17,000) shares of Common Stock of a par value of One
Hundred Dollars ($100) each.
The Aggregate par value of all shares having par value of all classes is
Four Million Seven Hundred Thousand Dollars ($4,700,000).
2. Cancelling the paragraph immediately following the caption "Voting Rights"
and inserting the following in its place:
The Common Stock shall have one (1) vote per share and the Preferred Stock
shall have one-two hundred fiftieth (1/250) vote per share. Except to the
extent otherwise provided in the Articles of Incorporation or provided by
the laws of the State of Maryland, the Common Stock and the Preferred
Stock shall vote as a single class.
3. Cancelling the paragraph following the caption "Conversion" and inserting
the following in its place:
The cumulative Preferred Stock of the Corporation of One Dollar ($1.00)
par value, may at the option of the holder thereof, at any time dividends
are current be converted into Common Stock of the Corporation of One
Hundred Dollars ($100) par value upon the following terms:
(1) Any holder of any of the convertible Preferred shares
desiring to avail himself of the option for conversion of his stock
as herein provided, shall, deliver, duly endorsed in blank, the
certificate or certificates representing the stock to be converted
to the Secretary of the Corporation at the Corporation Office and at
the same time, notify the Secretary in writing over his signature
that he desires to convert his stock into Common Stock of One
Hundred Dollars ($100) par value pursuant to these provisions.
(2) Upon receipt by the Secretary of a certificate or
certificates representing shares of convertible Preferred Stock and
a notice that the holder thereof desired to convert the same, the
Exhibit 2 - 1
<PAGE>
Corporation shall forthwith cause to be issued to the holder of the
convertible Preferred shares surrendering the same, one-two hundred
fiftieth (1/250) share of Common Stock for each share of convertible
Preferred Stock surrendered, and shall deliver to such holder a
certificate in due form for such Common Stock.
Exhibit 2 - 2
EXHIBIT 3
FAIRNESS OPINION OF FERRIS, BAKER WATTS, DATED DECEMBER 8, 1998
December 8, 1998
The Board of Directors
Bowles Fluidics Corporation
6625 Dobbin Road
Columbia, MD 21045
Gentlemen:
Bowles Fluidics Corporation ("Bowles" or the "Company") has requested a
review of the proposed transaction (the "Transaction") involving the reverse
split of its common stock and the subsequent repurchase by the Company of
fractional shares created through the Transaction. Specifically, you have
requested a review of the financial consideration to be received by the
shareholders who will have their fractional shares repurchased in the
Transaction. We were retained by the Board of Directors and commenced our
investigation of the Transaction on June 23, 1998.
Pursuant to the Transaction, the Company will effect a one for 1,000
reverse split of its common stock. Shareholders holding fractional shares shall
have their shares repurchased by the Company for $1.25 per pre-split share.
In connection with the opinion, we have reviewed, among other things, (i)
the proposed Transaction, (ii) historical operating results of the Company,
(iii) internally prepared projections of the Company, and (iv) the historical
trading performance of the Company's stock. We have held discussions with the
members of the management of the Company regarding the past and current business
operations as well as the future prospects of the Company. We have reviewed
industry specific data regarding the valuation of publicly traded companies in
the automotive supplier market as well as other such information as we consider
appropriate.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information reviewed by us for purposes
of this opinion whether publicly available or provided to us by the Company or
representatives of the Company, and we have not assumed any responsibility for
independent verification of such information. We express no opinion as to the
allocation to be received by holders of interests who may perfect dissenters'
statutory fair appraisal remedies. Based upon the foregoing and based upon other
such matters that we consider relevant, it is our opinion that the consideration
to be received by the shareholders of the Company as a result of the Transaction
is fair from a financial point of view as of the date hereof.
Our opinion is necessarily based upon economic, market and other
conditions as in effect on, and the information made available to us as of
December 8, 1998. Our opinion is directed to
Exhibit 3 - 1
<PAGE>
the Board of Directors of the Company and does not constitute a recommendation
to any stockholder of the Company as to how the stockholder should vote at the
stockholder's meeting held in connection with the Transaction. It is understood
that subsequent developments may affect the conclusions reached in this opinion
and that we do not have any obligation to update, revise or reaffirm this
opinion.
Very truly yours,
Ferris, Baker Watts, Incorporated
Exhibit 3 - 2
Exhibit 4
AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDING OCTOBER 26, 1996,
AND OCTOBER 25, 1997, FILED WITH THE COMPANY'S MOST RECENT ANNUAL REPORT
UNDER SECTIONS 13 AND 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Bowles Fluidics Corporation
We have audited the accompanying consolidated balance sheets of Bowles
Fluidics Corporation as of October 25, 1997, and October 26, 1996, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three fiscal years in the period ended October 25,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bowles
Fluidics Corporation as of October 25, 1997, and October 26, 1996, and the
results of its operations and its cash flows for each of the three fiscal years
in the period ended October 25, 1997, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Baltimore, Maryland
December 19, 1997
Exhibit 4 - 1
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended
--------------------------------------------
October 25, October 26, October 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $18,842,673 $18,128,274 $16,972,876
Cost of sales 13,065,374 11,996,305 10,852,940
---------- ---------- ----------
Gross profit 5,777,299 6,131,969 6,119,936
Selling, general and
administrative expenses 3,094,769 3,643,128 2,609,911
Research and development
costs 1,005,183 1,175,890 636,970
---------- ---------- -----------
Operating income 1,677,347 1,312,951 2,873,055
Interest income 117,541 89,401 90,155
Other income (expense), net 4,555 (11,417) (30,433)
------------ ------------ ----------
Income before taxes 1,799,443 1,390,935 2,932,777
Provision for income taxes 657,420 506,629 1,148,902
----------- ----------- ----------
Net income 1,142,023 884,306 1,783,875
Preferred stock dividends
accrued (74,646) (74,645) (74,648)
------------ ----------- -----------
Income applicable to common
shareholders $ 1,067,377 $ 809,661 $ 1,709,227
=========== ============ ============
Primary earnings per share $ .08 $ .06 $ .13
=========== ============ ============
Fully diluted earnings per
share $ .07 $ .05 $ .11
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Exhibit 4 - 2
<PAGE>
<TABLE>
<CAPTION>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED BALANCE SHEETS
October 25, October 26,
1997 1996
----------- -----------
ASSETS
<S> <C> <C>
Current
Cash and cash equivalents $ 755,525 $1,287,110
Investments available for sale 1,563,121 577,837
Accounts receivable 3,112,063 2,775,658
Inventories 2,130,615 1,986,065
Other current assets 634,037 556,525
----------- -----------
Total current assets 8,195,361 7,183,195
---------- ----------
Property and equipment, net 3,494,335 3,428,765
Other assets 95,005 107,892
------------ -----------
Total assets $11,784,701 $10,719,852
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable - trade $1,122,437 $1,104,511
Accrued expenses 1,609,807 1,389,356
Income taxes payable 48,162 40,000
----------- ----------
Total current liabilities 2,780,406 2,533,867
Other liabilities 492,866 746,433
----------- ----------
Total liabilities 3,273,272 3,280,300
---------- ----------
Commitments and contingencies
Stockholders' equity
8% Convertible preferred stock 933,080 933,080
Common stock 1,264,001 1,261,001
Additional paid-in capital 2,728,083 2,726,583
Retained earnings
($2,407,467 deficit eliminated at
10/29/94) Note 6 3,586,265 2,518,888
---------- ----------
Total stockholders' equity 8,511,429 7,439,552
---------- ----------
Total liabilities and stockholders' equity $11,784,701 $10,719,852
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Exhibit 4 - 3
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------ ----------------- Additional
Shares Shares Amount Paid-in Retained
Total (000's) Amount (000's) Amount Capital Earnings
---------- -------- ------ ------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance October 29, 1994 $4,907,664 933 $933,080 12,590 $1,259,001 $2,715,583 $ --
Stock options exercised 13,000 20 2,000 11,000
Preferred stock dividends (74,648) (74,648)
Net income 1,783,875 1,783,875
---------- --- ------- ----- ------- -------- ---------
Balance October 28, 1995 6,629,891 933 933,080 12,610 1,261,001 2,726,583 1,709,227
Preferred stock dividends (74,645) (74,645)
Net income 884,306 884,306
---------- --- ------- ----- ------- -------- ----------
Balance October 26, 1996 7,439,552 933 933,080 12,610 1,261,001 2,726,583 2,518,888
Stock options exercised 4,500 30 3,000 1,500
Preferred stock dividends (74,646) (74,646)
Net income 1,142,023 1,142,023
--------- --- ------- ----- ------- -------- ---------
Balance October 25, 1997 $8,511,429 933 $933,080 12,640 $1,264,001 $2,728,083 $3,586,265
========= === ======= ====== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Exhibit 4 - 4
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
-------------------------------------
October 25, October 26, October 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,142,023 $ 884,306 $1,783,875
Adjustments to reconcile net
income provided by operating
activities:
Depreciation and amortization 960,346 750,449 661,024
Deferred income taxes 5,900 (241,315) (36,500)
(Gain)/Loss on disposal of assets 21,089 3,088 (2,267)
Accretion of interest on
investments (45,269) (31,659) (14,125)
---------- ---------- ----------
2,084,089 1,364,869 2,392,007
--------- --------- ---------
Change in operating accounts:
Accounts receivable (336,405) (14,264) (844,509)
Inventories (144,550) (86,719) (202,846)
Other assets (86,758) (122,381) (111,535)
Accounts payable 17,926 109,090 (70,656)
Accrued expenses (189,549) 537,235 57,314
Income taxes payable 8,162 (71,441) (431,715)
Other liabilities 156,433 428,049 63,150
--------- ---------- -----------
(574,741) 779,569 (1,540,797)
--------- ---------- ---------
Net cash provided by operating
activities: 1,509,348 2,144,438 851,210
--------- --------- ----------
Cash flows from investing activities:
Capital expenditures (1,027,780) (1,321,331) (962,597)
Purchase of investments (1,540,015) (566,664) (1,143,566)
Patents and trademarks (4,433) -- (32,556)
Proceeds from sale of equipment 1,441 -- 31,025
Proceeds from sale of investments 600,000 700,000 962,985
---------- ---------- ----------
Net cash used in investing activities (1,970,787) (1,187,995) (1,144,709)
--------- --------- ---------
Cash flows from financing activities:
Principal payment of debt -- (271,669) (525,102)
Preferred stock dividends (74,646) (74,645) (74,648)
Proceeds from issuance of common
stock 4,500 -- 13,000
----------- ----------- -----------
Net cash used by financing activities (70,146) (346,314) (586,750)
---------- ---------- ----------
Net increase(decrease) in cash and cash
equivalents (531,585) 610,129 (880,249)
Cash and cash equivalents:
- Beginning of period 1,287,110 676,981 1,557,230
--------- ---------- --------
- End of period $ 755,525 $1,287,110 $ 676,981
========== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Exhibit 4 - 5
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
General. The Company and its wholly owned subsidiary, Fluid Effects
Corporation, operate on a 52/53-week fiscal year which ends on the last
Saturday of October. All years presented are 52 weeks. Assets and
liabilities, and revenues and expenses, are recognized on the accrual basis
of accounting.
Cash Equivalents. Cash equivalents are highly liquid investments with
original maturities of 90 days or less.
Investments. Investments, which are available for sale, consist of U.S.
Treasury bills with original maturities over 90 days, but not greater than
365 days, and are carried at cost plus accrued interest, which approximates
market.
Inventory Pricing. Inventories are carried at the lower of cost (first-in,
first-out) or market.
Property, Equipment and Depreciation. The cost of property and equipment is
depreciated over the estimated useful life of the related assets.
Depreciation is computed on the straight-line method for all assets based on
the following estimated lives:
Years
-----
Production machinery and equipment 3-10
Office furniture and equipment 5-7
Laboratory and machine shop equipment 3-10
Leasehold improvements lease term
Depreciation expense for the fiscal years ended 1997, 1996, and 1995 was
$939,678, $711,282, and $612,294 respectively.
Patents. Costs associated with obtaining United States patents are
capitalized and amortized using the straight-line method over the life of the
patent beginning with the date of issue or date of filing the application.
The Company initially charges all costs associated with the acquisition of
U.S. and foreign patents to expense, then capitalizes those costs related to
U.S. patents upon issuance of those patents.
Management reviews all of the patent costs and writes off any patents
which are considered to be of no foreseeable economic benefit to the Company.
The Company recognizes income from patent licenses in accordance with the
respective payment terms of each license agreement.
Exhibit 4 - 6
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. (continued)
Income Taxes. The Company uses the asset and liability method for accounting
for income taxes. Under this method, deferred income taxes are recognized for
the tax consequences of temporary differences by applying enacted statutory
tax rates applicable to future years to differences between the financial
statements carrying amounts and the tax bases of existing assets and
liabilities.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassifications. Certain 1995 and 1996 amounts have been reclassified to
conform to the 1997 presentation.
Concentrations of Credit Risk. Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of
accounts receivable and cash investments. The Company's customer base
includes the significant U.S. automotive manufacturers and a large number of
automotive parts suppliers. The Company does not require collateral for its
trade accounts receivable. However, the Company's credit evaluation process,
reasonably short collection terms, and the geographical dispersion of sales
transactions help to mitigate any concentration of credit risk. The Company
also has cash investment policies that limit the amount of credit exposure to
any one financial institution and require placement of investments in
financial institutions evaluated as highly creditworthy.
2. Inventories
Inventories are comprised of:
1997 1996
--------- --------
Raw material $ 620,567 $ 678,494
Work and tooling in progress 1,016,845 242,369
Finished goods 493,203 1,065,202
-------- ---------
Total $2,130,615 $1,986,065
========= =========
Exhibit 4 - 7
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Property and Equipment, net
Property and Equipment, net, is comprised of:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Production machinery and equipment $4,946,390 $4,397,018
Office furniture and equipment 2,321,844 1,992,152
Laboratory and machine shop equipment 1,428,516 1,395,837
Leasehold improvements 812,120 796,928
---------- --------
Total property and equipment 9,508,870 8,581,935
Less accumulated depreciation (6,014,535) (5,153,170)
---------- --------
Property and equipment, net $3,494,335 $3,428,765
========= =========
</TABLE>
4. Line of Credit
In May 1996, the Company entered into a fourth amended and restated
agreement with Mercantile-Safe Deposit & Trust Company to reaffirm and extend
its $1,000,000 line of credit until May 8, 1997, on an unsecured basis. At
the Company's request and the Bank's discretion the line of credit was
extended until May 8, 1998, and may be reaffirmed each year thereafter. The
interest rate is Mercantile's prime rate, floating, which was 8-1/2% as of
October 25, 1997. In addition, a 3/8% annual fee is assessed on the unused
portion of this credit facility. Advances on the line of credit are limited
to 85% of eligible accounts receivable and 40% of finished goods inventory.
No amount was outstanding on this credit line at October 25, 1997, or October
26, 1996.
In addition to the maintenance of certain financial ratios, the covenants
of the fourth amended loan agreement require the Company's tangible net worth
to be not less than $2,000,000 as of the close of each fiscal year.
5. Debt
No debt was outstanding as of October 25, 1997, and October 26, 1996. In
February 1996 the unpaid balance of the then outstanding loan from
Mercantile-Safe Deposit & Trust Company was paid in total.
Cash paid for interest during 1997, 1996, and 1995 was $0, $6,018, and
$37,586, respectively.
Exhibit 4 - 8
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Stockholders' Equity
The 8% convertible preferred stock of the Company at October 25, 1997, and
October 26, 1996, consists of 3,000,000 authorized shares, par value $1.00
per share, with 933,080 shares issued and outstanding on both dates.
The common stock of the Company at October 25, 1997, and October 26, 1996,
consists of 17,000,000 authorized shares, par value $.10 per share. On
October 25, 1997, the shares issued and outstanding were 12,640,011, whereas
on October 26, 1996, they were 12,610,011.
The Company's preferred stock provides for an annual dividend of $.08 per
share from the net earnings of the Company and is cumulative only for those
years in which the Company has earnings, and $1.00 per share in liquidation
before any distribution can be made to holders of common stock. If any
dividends payable on the preferred stock with respect to any fiscal year of
the Company are not paid for any reason, the rights of the holders of the
preferred stock to receive payment of such dividends shall not lapse or
terminate; but unpaid dividends shall accumulate and shall be paid without
interest to the holders of the preferred stock when and as authorized by the
Board of Directors before any dividends shall be paid on any other class of
stock.
The Company's preferred stock may at the option of the holder, at any time
dividends are current, be converted into common stock of the Company at the
conversion rate of four shares of common for each share of preferred.
Additionally, the preferred stock is redeemable at par in whole or in part at
the option of the Board of Directors at any time the dividends are current
after a period of 10 years subsequent to issue. At October 25, 1997, 683,080
shares have been outstanding for more than 10 years and dividends are
current, and thus can be converted. The common stock has one (1) vote per
share and the preferred stock has four (4) votes per share.
Reserved Shares. As of and for the three fiscal years in the period ended
October 25, 1997, there were 300,000 shares of common stock reserved for
issuance in connection with the Company's stock option plans. None of the
authorized shares of common stock are reserved for conversion of preferred
stock. Under the laws of the State of Maryland, the authorization of the
preferred stock in itself provides the authorization of common stock
necessary for conversion.
Quasi-reorganization. Effective October 29, 1994, the Board of Directors
approved a quasi-reorganization which had the impact of eliminating the
retained earnings deficit as an adjustment to additional paid-in capital.
Exhibit 4 - 9
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Income Taxes
The Company and its subsidiary file a consolidated federal income tax
return and separate state income tax returns. The provision for income taxes
consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal:
Current $620,131 $678,938 $1,019,525
Deferred (6,100) (222,600) (30,100)
--------- ------- --------
614,031 456,338 989,425
------- ------- -------
State:
Current 43,189 68,791 164,377
Deferred 200 (18,500) (4,900)
---------- ------- --------
43,389 50,291 159,477
-------- -------- ---------
$657,420 $506,629 $1,148,902
======= ======= =========
</TABLE>
The components of the deferred tax asset and liability for 1997 and 1996
were as follows: 1997 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Deferred tax assets:
Accrued vacation and retirement programs $ 83,600 $190,300
Non-deductible reserves 490,600 387,100
------- -------
Total deferred tax assets 574,200 577,400
------- -------
Deferred tax liabilities:
Property and equipment (303,700) (312,800)
------- -------
Total deferred tax liabilities (303,700) (312,800)
------- -------
Net deferred tax assets $270,500 $264,600
======= =======
</TABLE>
Reconciliation of the provisions for income taxes at the U.S. federal
statutory rate to the effective tax expense were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
U.S. statutory income tax $611,811 $472,918 $ 997,145
State taxes, net of federal
income tax benefit 28,637 33,711 105,255
Other, net 16,972 -- 46,502
-------- ------- ----------
$657,420 $506,629 $ 1,148,902
======= ======= =========
</TABLE>
Cash paid for income taxes was $584,000, $877,000, and $1,617,000 for
1997, 1996, and 1995, respectively.
Exhibit 4 - 10
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Earnings per Share
Primary earnings per share are based on the weighted average number of
common shares and the effects of shares issuable under stock options based
on the treasury stock method. Fully diluted earnings per share assumes that
the preferred stock is converted to common stock at the beginning of the
year.
The number of shares used for computing primary earnings per share was
12,682,371, 12,701,898, and 12,706,408 in 1997, 1996, and 1995,
respectively. The number of shares used in computing fully diluted earnings
per share was 16,423,720, 16,473,390, and 16,445,005 in 1997, 1996, and
1995, respectively.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" (FAS 128), which will require
companies to present basic earnings per share (EPS) and diluted earnings
per share, instead of the primary and fully diluted EPS that is currently
required. The new standard requires additional informational disclosures,
and also makes certain modifications to the currently applicable EPS
calculations defined in Accounting Principles Board Opinion No. 15. The new
standard is required to be adopted by all public companies for reporting
periods ending after December 15, 1997, and will require restatement of EPS
for all periods reported. Under the requirements of FAS 128, the Company's
EPS would be as follows:
<TABLE>
<CAPTION>
October 25, October 26, October 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Basic earnings per share $ .08 $ .06 $ .14
Diluted earnings per share .07 .05 .11
</TABLE>
9. Commitments and Contingencies
The Company leases its facilities under non-cancelable operating leases
which expire in 2004 for Columbia, Maryland, and in 2000 for Southfield,
Michigan. As of October 25, 1997, minimum annual aggregate rentals are as
follows:
<TABLE>
<CAPTION>
Year Ended Amount
---------- ------
<S> <C>
1998 $ 593,835
1999 594,831
2000 577,026
2001 561,648
2002 561,648
thereafter 842,472
----------
Total minimum future rental payments $3,731,460
==========
</TABLE>
Exhibit 4 - 11
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. (continued)
Rent expense under all leases for 1997, 1996, and 1995 was $644,008,
$626,565, and $622,671, respectively.
Management is unaware of any pending legal proceedings which would have a
material adverse effect on the financial statements of the Company.
10. Employee Benefit Plans
On November 1, 1990, the Company adopted a defined contribution (401k)
plan covering substantially all of its employees. Contributions and costs
were determined by matching 50% of employee contributions up to 4% of each
covered employee's earnings. As of April 1, 1994, the Company increased its
matching contribution to 50% of the employee contributions up to 6% of each
covered employee's earnings. The Company's contributions to the plan were
$151,314, $119,640, and $101,286 in 1997, 1996, and 1995, respectively.
The Company has agreed to retirement programs for certain former officers
providing for the payment of certain retirement benefits. The unfunded
present value, at a discount rate of 7.5%, of these benefits accumulated as
of October 25, 1997, amounts to approximately $347,000, of which $288,000
is included in other liabilities. Expenses related to these programs were
$46,476 in 1997, $44,000 in 1996, and $102,000 in 1995.
11. Stock Options
In May 1992, the Company adopted its key employee incentive stock option
plan. Activity in the Company's incentive stock option plan was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Options outstanding, beginning of year 180,000 180,000 200,000
Options granted - - -
Options exercised (30,000) - (20,000)
Options expired (80,000) - -
--------- ------------------
Options outstanding, end of year 70,000 180,000 180,000
======== ======== ========
</TABLE>
Options activities are at exercise prices ranging from $.15 to $.65 per
share.
Exhibit 4 - 12
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. (continued)
Statement of Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (FAS 123) became effective for the Company in 1997. As
allowed by FAS 123, the Company has elected to continue to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), in accounting for its stock option plans. FAS 123
requires the Company to present pro forma information as if the Company had
accounted for stock options granted since December 15, 1995, under the fair
value method of FAS 123. No pro forma information has been presented by the
Company as no stock options have been issued since December 15, 1995, the
effective date of FAS 123.
12. Termination of Sales Agreement
During the fiscal year 1996, the Company accrued $760,000 ($465,400 net
of income taxes) for the termination in May 1997 of the sales agreement
with its manufacturer's representatives. The payments commenced in May
1997, and the current balance as of October 25, 1997, was $532,270, which
is expected to be paid during fiscal year 1998.
13. Major Customers
Over 90% of the Company's production of nozzles is incorporated in
vehicles produced by General Motors, Ford, and Chrysler, each of whom
typically represents over 10% of the Company's sales volume. The Company
is, therefore, substantially dependent upon the North American production
requirements of these three automotive companies. In addition, the
Company's customers required that a QS-9000-compliant quality system be
developed and registered by an independent organization. Registration
deadlines were July 1997 for Chrysler and December 1997 for General Motors.
In September 1996, the Company was assessed by Underwriters Laboratories
Inc., received QS-9000 certification with ISO 9001 addendum as of December
20, 1996, and has maintained that certification since then.
14. New Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued the following
Statements of Financial Standards ("FAS"):
Exhibit 4 - 13
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. (continued)
o FAS No. 129, Disclosure of Information about Capital Structures
This statement becomes effective for fiscal years ending after December
15, 1997, and continues the previous requirements to disclose certain
information about an entity's capital structure found in previously
issued Opinions and Standards. The Company currently follows the
provisions for this statement.
o FAS No. 131, Disclosures about Segments of an Enterprise and Relative
Information
This statement becomes effective for fiscal years beginning after
December 15, 1997, and changes the way public companies report
information about segments of their business in their financial
statements and requires them to report selected segment information in
their quarterly reports to stockholders. The Company intends to adopt the
disclosure requirement by this statement for the year ending October 30,
1999.
Exhibit 4 - 14
<PAGE>
BOWLES FLUIDICS CORPORATION - EXHIBIT 11
CALCULATION OF EARNINGS PER SHARE
A. PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Fiscal Year Ended
---------------------------------------
October 25, October 26, October 28,
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Calculation of net income:
Net income per books $1,142,023 $ 884,306 $1,783,875
Less: Dividends on convertible
preferred stock 74,646 74,645 74,648
---------- ----------- -----------
Net income as adjusted $1,067,377 $ 809,661 $1,709,227
========= ========= =========
Calculation of outstanding shares:
Weighted average of common
shares outstanding 12,633,764 12,610,011 12,593,353
Add: Assumed exercise of stock
options 48,607 91,887 113,055
------------ ------------ -----------
Number of common shares
outstanding adjusted 12,682,371 12,701,898 12,706,408
========== ========== ==========
Primary earnings per common share: $ .08 $ .06 $ .13
========= ========= =========
</TABLE>
Exhibit 4 - 15
<PAGE>
BOWLES FLUIDICS CORPORATION - EXHIBIT 11
CALCULATION OF EARNINGS PER SHARE (continued)
B. FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Fiscal Year Ended
---------------------------------------
October 25, October 26, October 28,
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
Net income per books $1,142,023 $ 884,306 $ 1,783,875
========= ========== ==========
Weighted average of common
shares outstanding 12,633,764 12,610,011 12,593,353
Add: Assumed conversion of
preferred stock 3,732,320 3,732,320 3,732,320
Assumed exercise of
stock options 57,636 131,059 119,332
---------- ---------- ----------
Number of common shares
outstanding adjusted 16,423,720 16,473,390 16,445,005
========== ========== ==========
Fully diluted earnings per common
share $ .07 $ .05 $ .11
========= ========= =========
</TABLE>
Exhibit 4 - 16
Exhibit 5
Audited Financial Statement for the Fiscal Year Ending October 31, 1998
The audited financial statement of the Company for the fiscal year
ending October 31, 1998, is expected to be available shortly after
January 1, 1999, and will be incorporated herein at such time.
Exhibit 5 - 1
Exhibit 6
Pro Forma Data Disclosing the Effect of the Reverse Stock Split and Buyback
of Fractional Shares on the Company's Balance Sheet
as of the Most Recent Fiscal Year End
BOWLES FLUIDICS CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
October 25, 1997
------------------------------------
Reverse
Split
& Buyback
Reported Adjustments Pro Forma
------------------------------------
ASSETS
<S> <C> <C> <C>
Current
Cash and cash equivalents $755,525 ($242,600) $512,925
Investments available for sale 1,563,121 1,563,121
Accounts receivable 3,112,063 3,112,063
Inventories 2,130,615 2,130,615
Other current assets 634,037 634,037
-----------------------------------
Total current assets 8,195,361 (242,600) 7,952,761
----------------------------------
Property and equipment, net 3,494,335 3,494,335
Other assets 95,005 95,005
-----------------------------------
Total assets $11,784,701 ($242,600) $11,542,101
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable - trade $1,122,437 $1,122,437
Accrued expenses 1,609,807 1,609,807
Income taxes payable 48,162 48,162
----------- -----------
Total current liabilities 2,780,406 2,780,406
Other liabilities 492,866 492,866
----------- -----------
Total liabilities 3,273,272 3,273,272
----------- -----------
Commitments and contingencies
Stockholders' equity
8% Convertible preferred stock 933,080 933,080
Common stock 1,264,001 ($19,408) 1,244,593
Additional paid-in capital 2,728,083 (41,887) 2,686,196
Retained earnings 3,586,265 (181,305) 3,404,960
------------------------------------
Total stockholders' equity 8,511,429 (242,600) 8,268,829
------------------------------------
Total liabilities and stockholders'
equity $11,784,701 ($242,600) $11,542,101
====================================
Common stock book value $7,578,349 ($242,600) 7,335,749
Number of common shares outstanding 12,640,011 (12,627,565) 12,446
Per share $0.60 $589.41
</TABLE>
Exhibit 6 - 1
<PAGE>
BOWLES FLUIDICS CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
July 25, 1998
----------------------------------
Reverse
Split
& Buyback
Reported Adjustments Pro Forma
----------------------------------
ASSETS
<S> <C> <C> <C>
Current
Cash and cash equivalents $970,359 ($242,600) $727,759
Accounts receivable 2,821,583 2,821,583
Inventories 2,992,946 2,992,946
Other current assets 425,689 425,689
------------------------------------
Total current assets 7,210,577 (242,600) 6,967,977
------------------------------------
Property and equipment, net 4,312,460 4,312,460
Other assets 91,230 91,230
------------------------------------
Total assets $11,614,267 ($242,600) $11,371,667
====================================
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current
Accounts payable - trade $701,337 $701,337
Accrued expenses 1,088,139 1,088,139
------------------------------------
Total current liabilities 1,789,476 1,789,476
Other liabilities 474,488 474,488
------------------------------------
Total liabilities 2,263,964 2,263,964
Commitments and contingencies
Stockholders' equity
8% Convertible preferred stock 933,080 933,080
Common stock 1,268,501 ($19,408) 1,249,093
Additional paid-in capital 2,732,832 (41,887) 2,690,945
Retained earnings 4,415,890 (181,305) 4,234,585
------------------------------------
Total stockholders' equity 9,350,303 (242,600) 9,107,703
------------------------------------
Total liabilities and stockholders'
equity $11,614,267 ($242,600) $11,371,667
====================================
Common stock book value $8,417,223 ($242,600) $8,174,623
Number of common shares outstanding 12,685,011 (12,672,520) 12,491
Per share $0.66 $654.44
</TABLE>
Exhibit 6 - 2
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS
Reverse Split and Buyback Adjustments
1. Balance Sheets: October 25, 1997, and July 25, 1998
The pro forma balance sheets reflect the reduction in cash and cash
equivalents and the decrease in stockholders' equity of $242,600 resulting
from the buyback of estimated fractional common shares (194.077 shares) after
the 1-for-1,000 reverse common stock split at $1,250 per share, as if the
buyback occurred at October 25, 1997, and July 25, 1998, respectively.
The pro forma book value per share reflects the lower common stock book value
and the lower number of common shares outstanding after the split and
buyback.
Exhibit 6 - 3
Exhibit 7
Pro Forma Data Disclosing the Effect of the Reverse Stock Split and Buyback of
Fractional Shares on the Company's Statement of Income, Earnings Per Share
Amounts, and Ratio Of Earnings to Fixed Charges for the Most Recent Fiscal Year
End
<TABLE>
<CAPTION>
BOWLES FLUIDICS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended October 25, 1997
--------------------------------------
Reverse Split
& Buyback
Reported Adjustments Pro Forma
--------------------------------------
<S> <C> <C>
Net Sales $18,842,673 $18,842,673
Cost of sales 13,065,374 13,065,374
------------- --------------
Gross Profit 5,777,299 5,777,299
Selling, general and
administrative expenses 3,094,769 3,094,769
Research and development
costs 1,005,183 1,005,183
------------- --------------
Operating income 1,677,347 1,677,347
Interest income 117,541 ($12,774) 104,767
Other income (expense),
net 4,555 4,555
--------------------------------------
Income before income taxes 1,799,443 (12,774) 1,786,669
Provision for income taxes 657,420 (4,667) 652,753
--------------------------------------
Net income 1,142,023 (8,107) 1,133,916
Preferred stock dividends
accrued (74,646) 0 (74,646)
--------------------------------------
Income applicable to common
shareholders $1,067,377 ($8,107) $1,059,270
======================================
Primary earnings per share:
Income applicable to
common shareholders $1,067,377 ($8,107) $1,059,270
--------------------------------------
Weighted average of
common shares outstanding 12,633,764 (12,621,324) 12,440
Add: Assumed exercise of
stock options 48,607 (48,558) 49
--------------------------------------
Number of common shares
outstanding adjusted 12,682,371 (12,669,882) 12,489
--------------------------------------
Primary earnings per share $0.08 $84.82
============= ==============
Fully diluted earnings per share:
Net income $1,142,023 ($8,107) $1,133,916
--------------------------------------
Weighted average of common
shares outstanding 12,633,764 (12,621,324) 12,440
Add: Assumed conversion of
preferred stock 3,732,320 (3,728,588) 3,732
Assumed exercise of
stock options 57,636 (57,578) 58
--------------------------------------
Number of common shares
outstanding adjusted 16,423,720 (16,407,490) 16,230
--------------------------------------
Fully diluted earnings per share $0.07 $69.87
============= ==============
Ratio of earnings to fixed
charges N/a N/a
</TABLE>
Exhibit 7 - 1
<PAGE>
<TABLE>
<CAPTION>
BOWLES FLUIDICS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended July
25, 1998
----------------------------------
Reverse Split
& Buyback
Reported Adjustments Pro Forma
----------------------------------
<S> <C> <C>
Net Sales $15,105,362 $15,105,362
Cost of sales 11,196,107 11,196,107
----------- -----------
Gross Profit 3,909,255 3,909,255
Selling, general and
administrative expenses 1,993,702 1,993,702
Research and development
costs 582,743 582,743
----------- -----------
Operating income 1,332,810 1,332,810
Interest income 52,022 ($9,580) 42,442
Other income (expense), net 23,749 23,749
----------------------------------
Income before income taxes 1,408,581 ($9,580) 1,399,001
Provision for income taxes 521,631 (3,548) 518,083
----------------------------------
Net income 886,950 (6,032) 880,918
Preferred stock dividends
accrued (55,985) (55,985)
----------------------------------
Income applicable to common
shareholders $830,965 ($6,032) $824,933
==================================
Basic earnings per share:
Income applicable to common
shareholders $830,965 ($6,032) $824,933
Weighted average of common
shares outstanding 12,655,011 (12,642,550) 12,461
Basic earnings per share $0.07 $66.20
=========== ========
Diluted earnings per share:
Net income $886,950 ($6,032) 880,918
----------------------------------
Weighted average of common
shares outstanding 12,655,011 (12,642,550) 12,461
Add: Assumed conversion of
preferred stock 3,732,320 (3,728,588) 3,732
Assumed exercise of
stock options 14,847 (14,832) 15
----------------------------------
Number of common shares
outstanding adjusted 16,402,178 (16,385,970) 16,208
----------------------------------
Diluted earnings per share $0.05 $54.35
=========== ===========
Ratio of earnings to fixed charges N/a N/a
</TABLE>
Exhibit 7 - 2
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS
Reverse Split and Buyback Adjustments
1. Income Statements: Year Ended October 25, 1997, and Nine Months Ended July
25, 1998
The pro forma income statements reflect the reduction in interest income, net
of income taxes, to give effect to the $242,600 reduction of cash and cash
equivalents to acquire the estimated fractional common shares outstanding
(194.077 shares) after the 1-for-1,000 reverse common stock split at $1,250
per share, as if the reverse split and buyback occurred at October 27, 1996.
The pro forma primary and fully diluted earnings per share reflect the lower
net income and the lower number of common shares outstanding after the
reverse stock split and buyback of fractional common shares at $1,250 per
share.
Exhibit 7 - 3
Exhibit 8
Disclosure Materials to be Furnished to Company Stockholders
Exhibit 8 - 1
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTICE AND PROXY STATEMENT
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
________, 1999
TO THE STOCKHOLDERS:
Notice is hereby given to the Stockholders that the Special Meeting of
Stockholders of BOWLES FLUIDICS CORPORATION (the "Company") will be held on the
____ day of ______ 1999, at 9:30 a.m., local time, at 6625 Dobbin Road,
Columbia, Maryland 21045.
The Special Meeting will be held for the purpose of:
(1) considering and voting upon a proposed amendment to the Articles of
Incorporation of the Company which would authorize a reverse split of
the Company's Common Stock, par value $0.10 per share (the "Common
Stock"), in the ratio of 1,000 shares to 1 share, and
(2) transacting such other business as may properly be brought before the
meeting.
Upon adoption of the proposed amendment to the Company's Articles of
Incorporation, each 1,000 shares of Common Stock would be converted to one share
of Common Stock. Any fractional shares of Common Stock resulting from the
reverse stock split will be purchased from the holders thereof at the rate of
$1,250 per share (i.e., post reverse split).
The record of Stockholders entitled to vote at said meeting was taken at the
close of business ________, 199__.
Enclosed with this Notice is a proxy statement, an Information Statement
describing the proposed amendment to the Articles of Incorporation, and a Proxy.
Stockholders are requested to specify their choice, sign, date and return the
enclosed Proxy in the enclosed envelope, postage for which has been provided.
Prompt response will be appreciated.
BY THE ORDER OF THE BOARD OF DIRECTORS
Eleanor M. Kupris, Secretary
Columbia, Maryland
________, 199__
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BOWLES FLUIDICS CORPORATION
PROXY STATEMENT
THE ACCOMPANYING PROXY IS SOLICITED BY THE MANAGEMENT OF BOWLES FLUIDICS
CORPORATION.
This Proxy Statement is furnished by mail to the stockholders by the
management of Bowles Fluidics Corporation (the "Company") on whose behalf this
solicitation of proxies is being made for use at the Special Meeting of
Stockholders to be held at ____ a.m., local time, on __________, ________, 1999,
at the Company's offices, 6625 Dobbin Road, Columbia, Maryland 21045. This Proxy
Statement is being mailed on or about __________, 199__, to all of the Company's
stockholders of record at the close of business on __________, 199__, the
"Record Date."
THE EXPENSE OF THIS SOLICITATION WILL BE BORNE BY THE COMPANY.
The Proxy is revocable upon your written notice to the Secretary of the
Company at any time prior to the exercise of the authority granted thereby, and
it shall be suspended if you are present at the meeting and elect to vote in
person.
On the Record Date for voting at the meeting, the Company had outstanding
12,684,071 shares of Common Stock, par value $0.10, and 933,080 shares of voting
8% Convertible Preferred Stock, par value $1.00. Each share of Preferred Stock
is convertible into four shares of Common Stock at any time by the Preferred
Stockholder and at the option of the Company ten years after the date of
original issue if the dividends are current. The Company also had outstanding on
the Record Date incentive stock options for -0- shares. The Company has never
paid a dividend on the Common Stock. An $0.08/share dividend was paid on the
Preferred Stock under its indenture for fiscal years 1986, 1987, 1988, 1989, and
1992. A Preferred Stock dividend related to the Company's earnings for fiscal
years 1989 and 1992, aggregating $94,640, was paid on March 19, 1993, and
dividends related to earnings in 1993, 1994, 1995, 1996 and 1997 in the amounts
of $74,646 were paid to the holders of Preferred Stock on December 15 in each of
1993, 1994, and 1995, January 24, 1997 and January 15, 1998.
The holders of Common Stock of record at the close of business on the Record
Date fixed by the Board of Directors pursuant to the By-Laws will be entitled to
one vote per share, for a total of 12,684,071 votes, and the holders of the
Preferred Stock of record on the same day will be entitled to four votes per
share, or 3,732,320 votes, for an aggregate of 16,416,391 votes on all business
of the meeting including adoption of the proposed amendment to the Company's
Articles of Incorporation. The presence in person or by proxy of the
stockholders entitled to cast a majority of all of the votes entitled to be cast
at the meeting shall constitute a quorum for the transaction of business at the
meeting. The adoption of the proposed amendment to the Company's Articles of
Incorporation requires a two-thirds vote of all votes entitled to be cast.
PROPOSED AMENDMENT TO COMPANY'S ARTICLES OF INCORPORATION
On December 8, 1998, the Board of Directors of the Company adopted a
resolution authorizing the submission to the vote of the stockholders of the
Company of a proposed amendment to the Articles of Incorporation of the Company
(the "Proposed Amendment") under which all outstanding shares of Common Stock
will be subject to a reverse stock split at the ratio of 1,000 shares to 1
share; that is, each 1,000 shares of Common Stock before the reverse stock split
will become one share of Common Stock after the reverse stock split. Any
fractional shares
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of Common Stock resulting from the reverse stock split will be purchased from
the holders thereof at the rate of $1,250 per share.
In determining the price to be paid for fractional shares of Common Stock
following the reverse stock split, the Board relied upon the recommendation of a
special committee of independent directors of the Board (the "Special
Committee") and the opinion of Ferris, Baker Watts, Incorporated as to the
fairness of the purchase price from a financial point of view. This fairness
opinion is described in the Information Statement which accompanies this Proxy
Statement and a copy of the fairness opinion is attached as Exhibit 1 to the
Information Statement.
The proposed reverse stock split does not include the Company's Preferred
Stock. However, following the reverse stock split, the right to convert one
share of Preferred Stock into four shares of Common Stock will be adjusted to
take the reverse stock split into account such that each share of Preferred
Stock may be converted into 1/250th share of New Common Stock. Fractional shares
of Common Stock resulting from a conversion of Preferred Stock to Common Stock
following the reverse stock split are not being purchased by the Company.
Additional Information. The Company has prepared and filed with the
Securities and Exchange Commission SEC Schedule 13E-3 in connection with the
proposed reverse stock split, which sets forth certain information about the
Company, the Proposed Amendment and the proposed reverse stock split. A copy of
Schedule 13E-3 and other periodic reports filed with the SEC are available from:
Eleanor M. Kupris, Secretary of the Company. A copy of the Proposed Amendment
and the resolutions adopted by the Board is attached to the Information
Statement as Exhibit 3. Additional questions regarding the Proposed Amendment
may be directed to Counsel to the Company, Ronald S. Schimel, Esquire, Miles &
Stockbridge P.C., 9881 Broken Land Parkway, Columbia, MD 21044, telephone:
410-381-6000.
All stockholders should carefully read the entire Information Statement which
accompanies this Proxy Statement for a more complete description of the Proposed
Amendment, the reverse stock split, the purchase of fractional shares of Common
Stock resulting from the reverse stock split and effects of such purchase. The
Information Statement also contains a description of the fairness opinion of
Ferris, Baker Watts, Incorporated and a copy of such opinion.
PROPOSALS OF SECURITY HOLDERS
Proposals of security holders intended to be presented at the Special Meeting
must be received by Bowles Fluidics Corporation at its executive offices a
reasonable time before the date the Proxy Statement is to be released to
security holders in connection with the Special Meeting. [[[No such proposals
were received before the date this Proxy Statement was released.]]]
In order to qualify for inclusion of a person's proposal in a Proxy
Statement, such person must be the beneficial owner of at least 1% or $1,000.00
in market value of the securities entitled to be voted at the meeting and must
have held the securities for at least one year prior to the date of the meeting.
MANAGEMENT IS PROVIDING WITH THIS PROXY STATEMENT, WITHOUT CHARGE TO EACH PERSON
WHOSE PROXY IS SOLICITED, AN INFORMATION STATEMENT DESCRIBING THE PROPOSED
AMENDMENT AND RELATED MATTERS IN
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ACCORDANCE WITH THE RULES OF THE SECURITIES AND EXCHANGE COMMISSION.
For additional information on controlling persons, directors and officers of
the Company, see page __ and Exhibit 2 of the enclosed Information Statement.
OTHER BUSINESS
Management does not intend to present any business for action at the meeting
other than as discussed herein and does not know of any other business intended
to be presented by others.
INFORMATION STATEMENT
A copy of the President's letter dated __________, 199__, and the Information
Statement are being mailed with this Proxy Statement on __________, 199__, to
each shareholder of record as of ________, 199__.
Eleanor M. Kupris, Secretary
__________, 199__
Bowles Fluidics Corporation
6625 Dobbin Road
Columbia, Maryland 21405-4707
Telephone: 410-381-0400
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PROXY
BOWLES FLUIDICS CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
________, 1999
The undersigned hereby appoints Eleanor M. Kupris and Howard L. Rose, jointly
and severally, Proxies, with full power of substitution, to vote as designated
below all shares of Common and/or Preferred Stock which the undersigned is
entitled to vote in connection with the amendment to the Company's Articles of
Incorporation proposed by the board of directors and on all other matters which
may come before the Special Meeting of Stockholders of Bowles Fluidics
Corporation to be held on ________, 1999, or any adjournment thereof,
[[[including any proposal omitted from this proxy and the Proxy Statement
pursuant to the proxy rules of the Securities and Exchange Commission]]]. The
meeting will begin at 9:30 a.m., local time, at the Company's offices, 6625
Dobbin Road, Columbia, Maryland 21045.
1. PROPOSED AMENDMENT TO COMPANY'S ARTICLES OF INCORPORATION.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NOT
OTHERWISE MARKED, THEY WILL BE VOTED "FOR" THE ABOVE ITEMS.
Please sign exactly as your name or names appear below. When signing as
executor, administrator, attorney, trustee or guardian, please give your full
title as such. Corporations are requested to affix seals.
_____________________________________(SEAL)
Signature of Stockholder
- -------------------------------------------
- -------------------------------------------
Dated ___________________________
(Please sign, date and return this Proxy in the enclosed envelope.)
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INFORMATION STATEMENT
Relating to the proposed reverse stock split of the
COMMON STOCK
par value $0.10
of
BOWLES FLUIDICS CORPORATION
6625 Dobbin Road
Columbia, Maryland 21405-4707
Telephone: 410-381-0400
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OF ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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Bowles Fluidics Corporation
6625 Dobbin Road
Columbia, Maryland 21405-4707
Telephone: 410-381-0400
Proposed Reverse Stock Split
Summary
The Board of Directors (the "Board") of Bowles Fluidics Corporation (the
"Company") recommends to the Company's stockholders approval of an amendment to
the Company's Articles of Incorporation which would authorize a reverse split of
Company's Common Stock, par value $0.10 per share (the "Common Stock"). The
Company proposes a reverse split of its Common Stock in the ratio of 1,000
shares of "Old Common Stock" to 1 share of "New Common Stock"; that is, each
1,000 shares of Old Common Stock would be converted to one share of New Common
Stock. As used in this Information Statement, the term "Old Common Stock" refers
to the Common Stock before the proposed reverse stock split and the term "New
Common Stock" refers to the Common Stock following the proposed reverse stock
split. The par value of the New Common Stock would be adjusted to $100 per
share.
Any fractional shares of Common Stock resulting from the reverse stock split
will be purchased from the holders thereof at the rate of $1,250 per whole share
of New Common Stock.
A special meeting of the stockholders of the Company has been called by the
Board, to occur at 9:30 a.m. on ________, 1999, for the purpose of considering
and voting upon the proposed amendment to the Company's Articles of
Incorporation which would authorize the reverse stock split and purchase of
fractional shares following the reverse stock split. The meeting will be held at
the Company's offices located at 6625 Dobbin Road in Columbia, Maryland.
In determining the price to be paid for fractional shares of Common Stock
following the reverse stock split, the Board relied upon the recommendation of a
special committee of independent directors of the Board (the "Special
Committee") and the opinion of Ferris, Baker Watts, Incorporated as to the
fairness of the purchase price. This fairness opinion is discussed in greater
detail below under the heading "Fairness of Transaction; Procedures" and a copy
of the opinion is attached hereto as Exhibit 1.
The proposed reverse stock split does not include the Company's Preferred
Stock. However, following the reverse stock split, the right to convert one
share of Preferred Stock into four shares of Common Stock will be adjusted to
take the reverse stock split into account such that each share of Preferred
Stock may be converted into 1/250th share of New Common Stock; similarly,
holders of Preferred Stock will have 1/250th vote for each share of Preferred
Stock.
Additional Information. The Company has prepared and filed with the
Securities and Exchange Commission SEC Schedule 13E-3 in connection with the
proposed reverse stock split, which sets forth certain information about the
Company and the proposed reverse stock split. A copy of Schedule 13E-3 and other
periodic reports filed with the SEC are available from: Eleanor M.
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Kupris, Secretary of the Company. Additional questions regarding the proposed
amendment to the Company's Articles of Incorporation which would authorize the
reverse stock split and purchase of fractional shares following the reverse
stock split may be directed to Counsel to the Company, Ronald S. Schimel,
Esquire, Miles & Stockbridge P.C., 9881 Broken Land Parkway, Columbia, MD 21044,
telephone: 410-381-6000.
Special Factors
Purpose. The purpose of the reverse stock split and purchase of the resulting
fractional shares is to reduce the number of record stockholders to fewer than
300, thereby allowing the Company to suspend its obligation to file periodic
reports under Section 15(d) of the Securities and Exchange Act of 1934, such as
SEC Forms 10-K, 10-Q and 8-K. The Board believes that such action is in the best
interests of the Company because such reports allow the Company's limited number
of customers and competitors who are concentrated in a single industry to obtain
information concerning the Company's profit margins, patent positions and
operations which, in the Company's opinion, has or may have an adverse effect on
the Company's performance. In addition, the out-of-pocket and internal costs to
the Company associated with the preparation and filing of these periodic
reports, when compared to the limited number of stockholders is, in the
Company's opinion, unwarranted.
The Company incurs costs related to its status as a public reporting
corporation under the federal securities laws, including indirect costs as a
result of, among other things, the Company personnel, including management,
expending time to prepare and review various filings, furnish information to
stockholders, and attending to other related stockholders matters. Termination
of the Company's obligation to file periodic reports will eliminate the costs
and expenses of such federal securities filings and reduce the amount of time
and attention devoted by management to such reports and activities. The Company
estimates that, upon termination of its obligation to file periodic reports with
the Securities and Exchange Commission, it will achieve savings within a range
of approximately $65,000 to $75,000 annually.
The Company determined to achieve its purpose through a reverse stock split
because it believes that this structure is the simplest and most economical
means of reducing the number of holders of the Company's Common Stock below 300,
thereby achieving its goal of terminating its obligation to file periodic
reports with the Securities and Exchange Commission. In addition, the Company
believes that the reverse stock split and purchase of fractional shares of the
New Common Stock will provide an easy and cost effective way for shareholders
holding less than one share of New Common Stock (1,000 shares of Old Common
Stock) to dispose of such shares at a fair price and without incurring brokerage
commissions and other transaction costs. The Company believes that implementing
the reverse stock split at this time so that it can terminate its obligation to
file periodic reports with the Securities and Exchange Commission will improve
its future performance.
Upon consummation of the reverse stock split, the Company anticipates that
the number of record stockholders of the Company will be reduced from 430 to
less than 200 and the Company will achieve the purposes of the reverse stock
split described above.
Alternate Methods of Achieving Purpose. The Company considered two
alternative means to accomplish its objective of suspending its obligation to
file such periodic reports.
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Tender Offer. The Board considered making a tender offer for shares of
Common Stock in order to reduce the number of record holders of Common Stock
below 300. This alternative was viewed as undependable, however, because it
was not certain that the Company would sufficiently reduce the number of its
record stockholders to achieve its objective of less than 300 shareholders.
The costs which might be incurred in connection with such a tender offer also
appeared to be considerably higher than the costs expected to be incurred in
connection with the reverse stock split.
Merger. The Board also considered the possibility of a "cash out" merger.
However, the anticipated costs of such a merger (including cost of obtaining
the requisite shareholder approvals and purchase of Common Stock) were also
expected to be higher than the costs expected to be incurred in connection
with the reverse stock split.
Tax Treatment of Purchase of Fractional Shares. Upon consummation of the
reverse stock split, each 1,000 shares of Old Common Stock issued and
outstanding immediately prior to the effective time of such split will be
converted into one share of New Common Stock and all resulting fractional shares
of New Common Stock will be purchased by the Company at the price of $1,250 per
share. The following description of the federal income tax consequences of the
reverse stock split is included solely for the general information of the
holders of the Company's Common Stock. The federal income tax consequences for
any particular stockholder may be affected by matters not discussed herein, and
each stockholder should consult his or her personal tax advisor in determining
the federal, state and local income tax consequences of the reverse stock split
and purchase of fractional shares.
For those stockholders receiving New Common Stock from consummation of the
reverse stock split, there will be no direct tax consequences as a result of the
reverse stock split, except for reallocation to the stockholders' per share
basis.
The purchase of fractional shares of New Common Stock by the Company will be
a taxable transaction for federal income tax purposes. Each holder of fractional
shares of New Common Stock purchased by the Company subsequent to the reverse
stock split will recognize gain or loss upon the purchase of that stockholder's
fractional share of New Common Stock equal to the difference, if any, between
(i) the amount of the cash payment received for any fractional shares of New
Common Stock and (ii) that stockholder's tax basis in such fractional share of
New Common Stock so long as the New Common Stock was held as a capital asset of
the stockholder. Any subsequent gain or loss resulting from the disposition of
New Common Stock should be treated as a capital gain or loss transaction. As
indicated previously, holders of New Common Stock are urged to consult their
personal tax advisors as to the tax consequences of the reverse stock split and
purchase of fractional shares under federal, state, local and any other
applicable laws.
The cash payments due to the holders of fractional shares of New Common Stock
(other than certain exempt entities and persons) will be subject to a backup
withholding tax at the rate of 31% under federal income tax law unless certain
requirements are met. Generally, the Company or its paying agent will be
required to deduct and withhold the tax on cash payments due at the effective
time of the purchase of fractional shares of New Common Stock subsequent to the
reverse stock split if (i) a stockholder fails to furnish a taxpayer
identification number ("TIN", the TIN of an individual stockholder is his or her
Social Security number) to the paying agent or fails to certify under penalty of
perjury that such TIN is correct; (ii) the Internal Revenue Service ("IRS")
notifies the Paying Agent that the TIN furnished by the stockholder is
incorrect; (iii) the IRS notifies the
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paying agent that the stockholder has failed to report interest, dividends, or
original issue discount in the past; or (iv) there has been a failure by the
stockholder to certify under penalty of perjury that such stockholder is not
subject to the backup withholding tax. Any amounts withheld by the paying agent
in collection of the backup withholding tax will reduce the federal income tax
liability of the stockholders from whom such tax was withheld.
Fairness of the Transaction; Procedures
The Company believes that the proposed reverse stock split and subsequent
purchase of fractional shares is fair to unaffiliated stockholders of the
Company. The Board by unanimous vote on December 8, 1998, adopted a resolution
declaring the terms and conditions of the reverse stock split and purchase of
fractional shares advisable and directing that a proposed amendment to the
Articles of Incorporation of the Company be submitted to shareholders of the
Company for consideration.
Special Committee. The Board on March 12, 1998, established a Special
Committee comprised of Directors of the Company who are not controlling persons
of the Company to act solely on behalf of the unaffiliated stockholders of the
Company for purposes of reviewing the desirability of undertaking the "going
private" transaction which will result from the reverse stock split. The Special
Committee consisted of the following persons, none of whom controls the Company:
David C. Dressler, John E. Searle, Jr., and Neil Ruddock. For reasons unrelated
to this transaction, Mr. Searle resigned from the Board effective December 8,
1998, following the meeting of the Board of Directors on that date. Mr. Ruddock
joined the Special Committee on July 14, 1998, when he also joined the Board.
The Special Committee recommended that the Board retain the investment
banking firm of Ferris, Baker Watts, Incorporated ("Ferris, Baker Watts"), and
by letter agreement dated June 23, 1998 such firm was retained, to act as its
financial advisor and to render its opinion to the Board as to the fairness of
the fractional share purchase price, from a financial point of view, to the
holders of fractional shares of the New Common Stock following the reverse stock
split (herein referred to as the "Purchase Price").
The Special Committee was charged with the responsibility of recommending to
the Board a fair price to pay for the fractional shares resulting from the
reverse stock split of the Common Stock. It met on four occasions with a
representative of Ferris, Baker Watts during which discussions occurred and
information shared concerning the methodology of companies having business and
markets similar to those of the Company and the application of such
methodologies to the Company's financial and market position and future
prospects. Based upon these deliberations, the Special Committee unanimously
recommended to the Board that $1,250 per share of New Common Stock resulting
from a reverse stock split would be a fair price to pay. Ferris, Baker Watts
concurred in this recommendation.
Ferris, Baker Watts delivered its written opinion on December 8, 1998, to the
Board to the effect that, as of such date, the Purchase Price was fair, from a
financial point of view, to the holders of the New Common Stock. No restrictions
were imposed by the Special Committee or the Board upon Ferris, Baker Watts with
respect to the investigations made or procedures followed by Ferris, Baker Watts
in rendering its opinions.
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The full text of Ferris, Baker Watts' fairness opinion, which is summarized
below, sets forth certain assumptions made, certain procedures followed, and
certain matters considered by Ferris, Baker Watts, and is attached hereto as
Exhibit 1.
In addition to the recommendation of the Special Committee and the
conclusions contained in the Ferris, Baker Watts report, the Board reviewed
certain additional factors, including the historical and current market values
of the Company's Common Stock. In this regard, the Board noted the amount and
level of transactions in shares of the Company's Common Stock during the past
year and that the book value per share of the Company's Common Stock as of July
25, 1998 (the end of the third quarter of the Company's fiscal year), was $0.66.
The Board further considered the advantages of and benefits to the Company of
not being required to file periodic reports with the Securities and Exchange
Commission, the direct and indirect cost savings to be realized by the Company
from not having to file such periodic reports, and the benefits to be derived by
the remaining Company stockholders from the transactions described in this
Information Statement.
In reaching its determination as to the fairness of the Purchase Price, the
Board did not assign any relative or specific weights to the foregoing factors.
Number of Votes Required to Approve Proposed Amendment. Any proposed
amendment to the Articles of Incorporation of the Company must be approved by
the stockholders of the Company by the affirmative vote of two-thirds of all the
votes entitled to be cast on the matter. Holders of Common Stock are entitled to
cast one vote for each share of Common Stock. Holders of the Company's Preferred
Stock are entitled to cast four votes for each share of Preferred Stock.
The decision to retain Ferris, Baker Watts to prepare a report concerning the
fairness of the Purchase Price was initially made by the Special Committee and
affirmed by the Board.
The Board unanimously approved the proposed amendment to the Articles of
Incorporation of the Company as advisable, which vote included all of the
Directors who were not employees of the Company.
No Firm Offers to Merge or Acquire Company. During the preceding 18 months,
the Company has not received any firm offers from any unaffiliated person for
(a) the merger or consolidation of the Company with or into any person, (b) the
sale or other transfer of all or any substantial part of the assets of the
Company, or (c) securities of the Company which would enable the holder thereof
to exercise control of the Company.
There have been no contacts or negotiations which have been entered into or
which have occurred since the commencement of the Company's second full fiscal
year preceding the date of this Information Statement (i) between any affiliates
of the Company; or (ii) between the Company or any of its affiliates and any
person who is not affiliated with the Company and who would have a direct
interest in such matters.
Reports, Opinions, Appraisals and Certain Negotiations. On June 23, 1998, the
Board retained the services of Ferris, Baker Watts to perform a valuation of the
Company's Common Stock and render its opinion as to the fairness of the Purchase
Price, from a financial point of view, to be paid to the holders of fractional
shares of the New Common Stock following the reverse stock split.
5
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Ferris, Baker Watts performed a valuation of the Company's Common Stock and
provided its opinion as to the fairness of the Purchase Price, from a financial
point of view, to be paid to the holders of fractional shares of the New Common
Stock following the reverse stock split.
Ferris, Baker Watts is a Mid-Atlantic based investment bank whose corporate
finance activities are focused on small to middle market companies. Ferris,
Baker Watts provides a full range of investment banking services to its clients,
ranging from merger and acquisition services, public offerings, private
placements and advisory services.
The Special Committee solicited proposals from three investment bankers,
interviewed two and unanimously agreed to retain the services of Ferris, Baker
Watts.
Other than the engagement of Ferris, Baker Watts to provide the services
described above, no material relationships existed between Ferris, Baker Watts,
its affiliates and/or unaffiliated representative, and the Company or its
affiliates during the past two years. No such material relationships are
contemplated for the future. The fee for Ferris, Baker Watts' services is
$65,000.
Ferris, Baker Watts provided the Special Committee and the Board with a range
of values for the Common Stock and a recommendation to pay a price at the top of
the range or as a premium to the top end of the range. The Special Committee
unanimously recommended to the Board a price of $1,250 per share of New Common
Stock and the Board unanimously adopted such recommendation.
The Company retained Ferris, Baker Watts to investigate the proposed
consideration offered to shareholders and to provide an opinion as to the
fairness, from a financial point of view, to the shareholders of the
consideration to be paid for each share of New Common Stock. The Company
requested Ferris, Baker Watts to undertake the proposed valuation because of its
familiarity with companies such as the Company and its experience with companies
having a market capitalization below $100,000,000.
Fairness Opinion. On December 8, 1998, Ferris, Baker Watts delivered an
opinion (the "Fairness Opinion") to the Board which concluded that based upon
and subject to the considerations set forth therein, as of such date the
consideration to be received by the shareholders of the Company for fractional
shares of New Common Stock pursuant to the reverse stock split was fair from a
financial point of view. The Fairness Opinion was based upon economic, market
and other conditions in effect as of its date. No limitations were imposed by
the Board upon Ferris, Baker Watts with respect to its investigation or
procedures followed in rendering the Fairness Opinion. The Fairness Opinion,
which sets forth assumptions made, material reviewed, matters considered, and
the limits of the review, is attached as Exhibit 1.
The following is a summary of the Fairness Opinion. Stockholders of the
Company are urged to read the Fairness Opinion in its entirety. Ferris, Baker
Watts has consented to the inclusion of its opinion in this Information
Statement provided to shareholders of the Company and has reviewed the following
summary.
In connection with the Fairness Opinion, Ferris, Baker Watts reviewed, among
other things:
o the proposed reverse stock split;
o annual reports on form 10-K for the fiscal years 1993 through
1997;
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o quarterly reports on form 10-Q for the first three quarters of the
fiscal years 1993 through 1998; and
o projected financial results for fiscal years 1998 through 2003
provided by management of the Company and approved by the Board.
Ferris, Baker Watts also held discussions with management of the Company
regarding its past and current business operations, financial condition and
future prospects. Ferris, Baker Watts reviewed the reported price and trading
activity of the Company's Common Stock, compared certain financial and stock
market information concerning the Company with similar information for other
parts manufacturers supplying the automotive industry, the securities of which
are publicly traded, and performed other studies and analyses which Ferris,
Baker Watts deemed appropriate.
Ferris, Baker Watts assumed and relied upon the accuracy and completeness of
all financial and other information reviewed for the purposes of the Fairness
Opinion, whether publicly available or provided to Ferris, Baker Watts by the
Company and did not independently verify any such information or make an
independent evaluation or appraisal of the assets or liabilities of the Company.
The preparation of a fairness opinion involves determinations as to the
appropriate and relevant methods of financial analysis and, therefore, reference
should be made to the Fairness Opinion in its entirety and not to a summary
description. In performing its analysis, Ferris, Baker Watts made numerous
assumptions with respect to industry performance, business and economic
condition and other matters, many of which are beyond the control of the
Company. The analyses performed by Ferris, Baker Watts are not necessarily
indicative of future results and do not purport to be appraisals or to reflect
prices at which businesses may actually be sold. The following paragraphs
summarize all material analyses performed by Ferris, Baker Watts.
Valuation Methodologies. Ferris, Baker Watts considered several methods to
evaluate the value of the Company, including: (i) the discounted future free
cash flow of the Company, and (ii) the earnings and book multiple comparisons to
publicly traded companies engaged in parts manufacturing supplying the
automotive industry. Ferris, Baker Watts also considered the market value of the
Company's shares of Common Stock as well as its trading history.
The discounted future free cash flow analysis ascribes value only to the cash
flows that can ultimately be taken out of the business. These free cash flows
are then discounted to the present at the firm's weighted average cost of
capital. The weighted average cost of capital can be described as the average
price a company must pay to attract both debt and equity to properly capitalize
its growth. These series of cash flows, when discounted to the present and after
subtracting claims by debt holders and others, represent the economic value of a
company to its shareholders. This method of valuation depends upon the accuracy
of the financial projections. Ferris, Baker Watts assumed that such projections
were reasonably prepared by the management of the Company on bases reflecting
the best currently available estimates and judgments as to the Company's
expected future financial performance.
The earnings and book multiple comparison analysis examines the operating
earnings, net income (both historical and projected), revenue and book value
multiples. From these results, implied equity can be determined.
7
<PAGE>
From these analyses, Ferris, Baker Watts determined that (i) the
consideration to be received by the shareholders for the fractional shares of
New Common Stock was fair from a financial point of view, and (ii) the goal of
the reverse stock split could be accomplished at minimal cost and would not have
an adverse impact on the Company.
The Fairness Opinion relates only to whether the consideration to be received
by the holders of fractional shares of New Common Stock is fair from a financial
point of view and does not constitute a recommendation to any stockholder of the
Company as to how such stockholders should vote with respect to the reverse
stock split.
The Company
The Company, a Maryland corporation, is a designer, manufacturer and supplier
of windshield and rear window washer nozzles for passenger cars and light trucks
in North America. The Company also designs, manufactures and sells defroster
nozzles for a limited number of these same light vehicles. The address of the
Company is 6625 Dobbin Road, Columbia, Maryland 21045-4707.
The controlling stockholders, directors and executive officers of the Company
are identified on Exhibit 2 to this statement, together with certain additional
information bout such persons.
On December 8, 1998, the Board adopted a resolution authorizing the
submission to the vote of the stockholders of the Company of a proposed
amendment to the Articles of Incorporation of the Company under which all
outstanding shares of Old Common Stock will be subject to a reverse stock split
at the ratio of 1,000 shares of Old Common Stock to 1 share of New Common Stock.
A copy of the proposed amendment to the Company's Articles of Incorporation (the
"Proposed Amendment") and the resolutions adopted by the Board is attached to
this Information Statement as Exhibit 3.
The Company expects to submit the Proposed Amendment to the stockholders of
the Company at a special meeting expected to be held at 9:30 a.m. on ________,
1999, at 6625 Dobbin Road, Columbia, Maryland.
Payment of Purchase Price; Effect on Company. The purchase price of
fractional shares of New Common Stock will be paid from available funds of the
Company, which is expected to result in a use of cash in the expected amount of
$242,600 and a reduction in shareholders' equity in the same amount.
John E. Searle, Jr., resigned as a member of the Board effective on December
8, 1998, following the meeting of the Board of Directors on that date, resulting
in a vacancy on the Board. Mr. Searle's resignation is not related to the
proposed reverse stock split.
The Company does not expect that any material change in the present dividend
rate or policy or indebtedness of the Company will occur as a result of the
reverse stock split. A change in the Company's capitalization will not occur as
a result of the change in par value of the New Common Stock.
Certain Ownership Interests in Securities of the Company. As of October 15,
1998, the record and beneficial ownership (except for beneficial ownership
disclaimed as set forth in applicable footnotes) of the Company's Common Stock,
the percentage of the total number of issued and outstanding Common Stock, and
the number of shares of Common Stock which such person has a
8
<PAGE>
right to acquire, together with any pension plan, profit or similar plan, and by
each executive officer, director, and each controlling stockholder are as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
No. Shares Percentage
Name Position (1) (1)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
William Ewing, III Chairman of the Board of 437,329 (2)
Directors, Controlling 9,077,468 (3) 3.4
Person 71.6
- ---------------------------------------------------------------------------
Ronald D. Stouffer President, Chief
Executive Officer,
Director 129,431 1.1
- ---------------------------------------------------------------------------
Eric W. Koehler Executive Vice President,
Director
- ---------------------------------------------------------------------------
John E. Searle, Jr. Director 20,000 .2
- ---------------------------------------------------------------------------
David C. Dressler Director 20,000 .2
- ---------------------------------------------------------------------------
James T. Parkinson, Director, Controlling
III (4) Person 1,176,849 9.3
- ---------------------------------------------------------------------------
Frederic Ewing, II Director, Controlling 390,827 (5) 3.1
Person 344,540 (6) 2.7
- ---------------------------------------------------------------------------
Melvyn J. L. Clough Vice President, Operations
- ---------------------------------------------------------------------------
Richard W. Hess Vice President,
Automotive Products
Engineering 5,000 .1
- ---------------------------------------------------------------------------
Eleanor M. Kupris Secretary and Vice
President, Administration 38,040 .3
- ---------------------------------------------------------------------------
David A. Quinn Vice President, Finance
and Treasurer 21,000 .2
- ---------------------------------------------------------------------------
Dharapuram N. Srinath Vice President, Advanced
Engineering 6,500 .1
- ---------------------------------------------------------------------------
Arlene M. Hardy Corporate Controller
- ---------------------------------------------------------------------------
</TABLE>
Notes:
1. Excludes Preferred Stock.
2. For own account, including 53,320 shares held by Mr. Ewing's
children for which he holds a power of attorney.
3. Owned by trusts of which Mr. Ewing is a trustee or owned by other
individuals for which he holds their powers of attorney.
4. As trustee of trusts established under the will of Arthur Choate.
5. For own account.
6. As trustee for two trusts.
No transactions in any shares of the Common Stock of the Company were
effected during the 60 days immediately preceding the date of this Schedule
13E-3 by the Company or by any of the persons named in paragraph (a) of
this Item.
Contracts, Arrangements or Understandings with Respect to the Company's
Securities. There are no contracts, arrangements, understandings or
relationships between the Company or the persons listed above and any other
person in connection with the proposed reverse stock split concerning the
transfer or voting of the Company's Common Stock or Preferred Stock, joint
ventures, loan or option arrangements, puts or calls, guaranties or the giving
or withholding of proxies, consents or other authorizations.
9
<PAGE>
The Company's Common Stock
As of October 15, 1998, 12,684,071 shares of the Common Stock were
outstanding and held of record by approximately 430 persons. The Common Stock of
the Company is traded in the "over-the-counter" market and is quoted on the NASD
OTC Bulletin Board; symbol BOWE. The Company also has outstanding shares of
Preferred Stock, which are unregistered and are not publicly traded.
The high and low bid and asked prices of the Common Stock over the last two
fiscal years are listed below:
<TABLE>
<CAPTION>
Bid Asked
------------------------ ---------------------
FY High Low High Low
<S> <C> <C> <C> <C> <C>
1998 1st Quarter 1 3/4 1 1/4 2 1/16 1 3/8
2nd Quarter 1 3/4 1 1/16 2 1/2 1 3/8
3rd Quarter 1 3/4 1 2 1 3/8
4th Quarter 1 1/32 23/32 1 1/2 1 1/8
1997 1st Quarter 1 3/8 13/16 1 5/8 1 1/4
2nd Quarter 1 3/8 5/8 1 9/16 3/4
3rd Quarter 13/16 7/16 7/8 9/16
4th Quarter 3 1/8 3/4 3 1/2 7/8
</TABLE>
Note: The above quotes represent prices between dealers and do not
include retail mark-up, mark-down, or commissions. They do not represent
actual transactions.
The Company has never paid cash dividends on its Common Stock. Payment of
dividends on Common Stock is within the discretion of the Board and will depend,
among other factors, on earnings, capital requirements, and the operating
financial condition of the Company.
The Company has not purchased any of its securities within its past two full
fiscal years.
Terms of the Proposed Reverse Stock Split. The Company proposes, subject to
stockholder approval, an amendment to the Company's Articles of Incorporation
which would decrease the number of shares of Common Stock outstanding by means
of a reverse stock split in the ratio of 1,000 shares of "Old Common Stock" to 1
share of "New Common Stock". As used herein, the term "Old Common Stock" refers
to the Common Stock before the proposed reverse stock split and the term "New
Common Stock" refers to the Common Stock following the proposed reverse stock
split. The par value of the New Common Stock would be adjusted accordingly from
$0.10 per share of Old Common Stock to $100 per share of New Common Stock. If
the proposed amendment to the Articles of Incorporation is approved by the
stockholders, as a result of the proposed reverse stock split, the total
authorized shares of Common Stock will be reduced from 17,000,000 shares to
17,000 shares.
Following the reverse stock split, no fractional shares will be authorized
and any fractional shares will be purchased from holders thereof at the rate of
$1,250 per share of New Common Stock (i.e., post split). All holders of Common
Stock will be treated identically in connection with the reverse stock split, in
that all fractional shares of New Common Stock will be purchased at the rate of
$1,250 per share of New Common Stock.
10
<PAGE>
Following the reverse stock split and purchase of resulting fractional shares
of New Common Stock, it is expected that the number of shareholders of the
Company's Common Stock will be reduced from approximately 430 (as of October 15,
1998) to less than 200. The number of holders of the Company's Preferred Stock
will remain unchanged at approximately 18. As a result of the reduction in
number of shareholders below 300, the Company intends to suspend its obligation
to file periodic reports with the Securities and Exchange Commission pursuant to
section 15(d) of the Exchange Act of 1934.
Source and Amounts of Funds or Other Consideration. The Company expects to
spend its own funds to purchase fractional shares of the New Common Stock
following the reverse stock split. The Company anticipates that as a result of
the reverse stock split, there will be approximately 194.077 aggregate
fractional shares of the New Common Stock to be purchased by the Company. The
expected aggregate purchase price of such shares is $242,600 (assuming 194
aggregate shares of New Common Stock to be purchased), based upon the purchase
price of $1,250 per share of New Common Stock. Such price per share was
determined based upon the report of Ferris Baker Watts as to value of the Common
Stock of the Company which report is further described in this Information
Statement.
Costs and Expenses of Transaction. The following is a statement of all
expenses incurred or estimated to be incurred in connection with the going
private transaction. The Company will be responsible for paying any or all of
such expenses.
<TABLE>
<CAPTION>
<S> <C>
Filing Fees $ 49
Legal Fees 100,000
Accounting Fees 2,000
Appraisal Fees 65,000
Solicitation Expenses 0
Printing Costs 2,000
------------
Total $ 169,049
</TABLE>
All of the foregoing expenses and purchase price of fractional shares of New
Common Stock are expected to be paid from the available funds of the Company.
Present Intention and Recommendation of Certain Persons with Regard to the
Transaction. Based upon inquiry by the Company, no executive officer, director
or affiliate of the Company or any person enumerated in Exhibit 2 to this
Information Statement presently intends to tender or sell any of the Company's
Common Stock owned or held by such person, except with respect to fractional
shares of New Common Stock to be purchased by the Company following the reverse
stock split. Each of the persons enumerated in Exhibit 2 presently intends to
vote all shares of the Common Stock held by such person and with respect to
which such person holds proxies, in favor of the proposed amendment to the
Articles of Incorporation of the Company, as described above.
As described above, all of the persons enumerated in Exhibit 2 to this
Information Statement who are directors of the Company and all members of the
Special Committee voted in favor of the proposed amendment to the Company's
Articles of Incorporation. Based upon inquiry by the Company, except as stated
in the preceding sentence, none of the persons named in Exhibit 2 to this
Information Statement has made a recommendation in support of or opposed to the
proposed amendment to the Company's Articles of Incorporation.
11
<PAGE>
Persons and Assets Employed, Retained or Utilized to Promote Reverse Stock
Split. No officer, employee, class of employees or corporate asset of the
Company (excluding corporate assets which are proposed to be used as
consideration for purchases of securities or payment of expenses as disclosed in
this Information Statement) has been or is proposed to be employed by the
Company or any affiliate in connection with the proposed amendment and reverse
stock split described in this Information Statement.
No person has been employed, retained or is to be compensated by the Company,
or by any person on behalf of the Company, to make solicitations or
recommendations in connection with the proposed amendment and reverse stock
split described in this Information Statement.
Anticipated Approval of Proposed Amendment. It is expected that the owners of
more than the necessary two-thirds of the shares of Common Stock and Preferred
Stock entitled to vote on the proposed amendment to the Company's Articles of
Incorporation (including, without limitation, all shares owned by the persons
listed on Exhibit 2 and any shares controlled by them) will vote in favor of
such amendment, and, accordingly that such amendment will receive the necessary
approval from stockholders entitled to vote on the question. Upon receipt of
stockholder approval, the Company expects to move quickly to implement the
proposed amendment to the Company's Articles of Incorporation and the reverse
stock split authorized by such amendment.
Financial Information
Audited financial statements for fiscal years 1996 and 1997 filed with the
Company's most recent Annual Report under Sections 13 and 15(d) of the
Securities Exchange Act of 1934 are attached hereto as Exhibit 4. The Company's
audited financial statement for fiscal year 1998 is attached hereto as Exhibit
5.
The ratio of earnings to fixed charges for the two most recent fiscal years
were not determined as there were no debt instruments or fixed charges for
either of these two years.
The book value per share as of the fiscal year ended October 25, 1997, was
$0.60, and as of the end of the third fiscal quarter of 1998 (July 25, 1998),
was $0.66.
Pro forma data disclosing the effect of the reverse stock split and buyback
of fractional shares on (1) the Company's balance sheet as of the most recent
fiscal year end is attached as Exhibit 6; and (2) the Company's statement of
income, earnings per share amounts, and ratio of earnings to fixed charges for
the most recent fiscal year end is attached as Exhibit 7.
The Company's book value per share as of the fiscal year ended October 25,
1997, taking into account the effect of the reverse stock split and buyback of
fractional shares was $589.41 per share of New Common Stock, and as of the end
of the third fiscal quarter of 1998 (July 25, 1998), taking into account the
effect of the reverse stock split and buyback of fractional shares, was $654.44
per share of New Common Stock.
Exhibits
1. Fairness Opinion of Ferris, Baker Watts, dated December 8, 1998
2. Identity and Background of Directors, Executive Officers and
Controlling Persons of the Company
3. Proposed Amendment to the Company's Articles of Incorporation and
Resolutions adopted by the Board of Directors on December 8, 1998
12
<PAGE>
4. Audited Financial Statements for the Fiscal Years Ending October 25, 1997,
Filed with the Company's Most Recent Annual Report Under Sections 13 and
15(d) of the Securities Exchange Act of 1934
5. Audited Financial Statements for the Fiscal Year Ending October 31, 1998
6. Pro Forma Data Disclosing the Effect of the Reverse Stock Split and
Buyback of Fractional Shares on the Company's Balance Sheet as of the Most
Recent Fiscal Year End
7. Pro Forma Data Disclosing the Effect of the Reverse Stock Split and
Buyback of Fractional Shares on the Company's Statement of Income,
Earnings Per Share Amounts, and Ratio Of Earnings to Fixed Charges for the
Most Recent Fiscal Year End
13
<PAGE>
EXHIBIT 1
Fairness Opinion of Ferris, Baker Watts, dated December 8, 1998
December 8, 1998
The Board of Directors
Bowles Fluidics Corporation
6625 Dobbin Road
Columbia, MD 21045
Gentlemen:
Bowles Fluidics Corporation ("Bowles" or the "Company") has requested a
review of the proposed transaction (the "Transaction") involving the reverse
split of its common stock and the subsequent repurchase by the Company of
fractional shares created through the Transaction. Specifically, you have
requested a review of the financial consideration to be received by the
shareholders who will have their fractional shares repurchased in the
Transaction. We were retained by the Board of Directors and commenced our
investigation of the Transaction on June 23, 1998.
Pursuant to the Transaction, the Company will effect a one for 1,000
reverse split of its common stock. Shareholders holding fractional shares shall
have their shares repurchased by the Company for $1.25 per pre-split share.
In connection with the opinion, we have reviewed, among other things, (i)
the proposed Transaction, (ii) historical operating results of the Company,
(iii) internally prepared projections of the Company, and (iv) the historical
trading performance of the Company's stock. We have held discussions with the
members of the management of the Company regarding the past and current business
operations as well as the future prospects of the Company. We have reviewed
industry specific data regarding the valuation of publicly traded companies in
the automotive supplier market as well as other such information as we consider
appropriate.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information reviewed by us for purposes
of this opinion whether publicly available or provided to us by the Company or
representatives of the Company, and we have not assumed any responsibility for
independent verification of such information. We express no opinion as to the
allocation to be received by holders of interests who may perfect dissenters'
statutory fair appraisal remedies. Based upon the foregoing and based upon other
such matters that we consider relevant, it is our opinion that the consideration
to be received by the shareholders of the Company as a result of the Transaction
is fair from a financial point of view as of the date hereof.
Exhibit 1 - 1
<PAGE>
Our opinion is necessarily based upon economic, market and other
conditions as in effect on, and the information made available to us as of
December 8, 1998. Our opinion is directed to the Board of Directors of the
Company and does not constitute a recommendation to any stockholder of the
Company as to how the stockholder should vote at the stockholder's meeting held
in connection with the Transaction. It is understood that subsequent
developments may affect the conclusions reached in this opinion and that we do
not have any obligation to update, revise or reaffirm this opinion.
Very truly yours,
Ferris, Baker Watts, Incorporated
Exhibit 1 - 2
<PAGE>
EXHIBIT 2
Identity and Background of Directors, Executive Officers
and Controlling Persons of the Company
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Occupation or Employment
Name Position Present Occupation during Past Five Years
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William Ewing, III Chairman of the Board
Bowles Fluidics
Corporation
6625 Dobbin Road
Columbia, Maryland
21045-4707
Vice President and
Chairman of the Board Treasurer, 1995-1997
Vacuum Instruments Reeves Industries, Inc.
Corp. 101 Merritt
Chairman of the 2099 9th Ave. P. O. Box 5063
Board of Directors, Ronkonoma, NY 11779 Norwalk, CT
1996 - present,
Controlling Person Chairman of the Board Managing Director,
Actronics Inc. 1992-1994
Director, 1985 - 166 Bear Hill Road Chemical Bank
present Waltham, MA 02154 New York, New York
- -------------------------------------------------------------------------------------------
Ronald D. Stouffer President, 1994 -
present
Chief Executive
Officer, 1994 - President and Chief Executive Vice
present Executive Officer President, 1982 to 1994
Director, 1978 - Bowles Fluidics Bowles Fluidics
present Corporation Corporation
- -------------------------------------------------------------------------------------------
Eric W. Koehler Executive Vice Vice President,
President, 1997 - Marketing, 1994 - 1997
present Executive Vice Director of Marketing,
President 1990-1994
Director, 1997 - Bowles Fluidics Bowles Fluidics
present Corporation Corporation
- -------------------------------------------------------------------------------------------
John E. Searle, Jr. Director Retired
- -------------------------------------------------------------------------------------------
David C. Dressler Director Retired
- -------------------------------------------------------------------------------------------
Neil Ruddock President, N. T.
Ruddock Co.
President, National
Metal Abrasives Co.
Director, 1998 - 26123 Broadway Ave.
present Cleveland, Ohio 44146
- -------------------------------------------------------------------------------------------
James T. Self Employed;
Parkinson, III Director, Investment Management
Controlling Person, P. O. Box 2247
1998 - present Middleburg, VA 20118
- -------------------------------------------------------------------------------------------
Frederic Ewing, II President
Vacuum Instrument Corp.
Director, 2099 9th Avenue
Controlling Person Ronkonoma, NY 11779
- -------------------------------------------------------------------------------------------
Melvyn J. L. Engineering Manager,
Clough* Vice President, 1992-1995
Vice President, Operations A. Raymond, Inc.
Operations, 1995 - Bowles Fluidics 3091 Research Dr.
present Corporation Rochester Hills, Michigan
- -------------------------------------------------------------------------------------------
</TABLE>
Exhibit 2 - 1
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Occupation or Employment
Name Position Present Occupation during Past Five Years
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard W. Hess Vice President,
Automotive Products
Vice President, Engineering, 1998 - Vice President,
Automotive Products present Engineering, 1992 - 1998,
Engineering, 1998 - Bowles Fluidics Bowles Fluidics
present Corporation Corporation
- -------------------------------------------------------------------------------------------
Eleanor M. Kupris Corporate Secretary,
March 1992 - present
Vice President,
Secretary and Vice Administration, since
President, 1982 - present
Administration, Bowles Fluidics
1982 - present Corporation
- -------------------------------------------------------------------------------------------
David A. Quinn Vice President, Chief Financial Officer,
Vice President, Finance and Treasurer, 1991-1993
Finance, and 1993 - present Bruning Paint Company
Treasurer, 1993 - Bowles Fluidics 301 South Haven Street
present Corporation Baltimore, MD 21224
- -------------------------------------------------------------------------------------------
Dharapuram N. Vice President, Quality
Srinath** Assurance, 1995 - 1998
Vice President, Director of Quality
Vice President, Advanced Engineering, Assurance and Product
Advanced 1998 - present Reliability, 1992-1995
Engineering, 1998 - Bowles Fluidics Bowles Fluidics
present Corporation Corporation
- -------------------------------------------------------------------------------------------
Arlene M. Hardy Corporate Controller,
Corporate 1990 - present
Controller, 1990 - Bowles Fluidics
present Corporation
- -------------------------------------------------------------------------------------------
</TABLE>
* Citizen of the United Kingdom.
** Citizen of India.
Exhibit 2 - 2
<PAGE>
EXHIBIT 3
Proposed Amendment to the Company's Articles of Incorporation and
Resolution Adopted by the Board of Directors on December 8, 1998
Article FOURTH of the Articles of Incorporation of the Corporation is hereby
amended by:
1. Cancelling the first two paragraphs thereof and inserting the following in
its place:
FOURTH: The total number of shares of all classes of stock the Corporation
has authority to issue is Three Million Seventeen Thousand (3,017,000)
shares divided into Three Million (3,000,000) shares of cumulative,
convertible Preferred Stock of a par value of One Dollar ($1.00) each and
Seventeen Thousand (17,000) shares of Common Stock of a par value of One
Hundred Dollars ($100) each.
The Aggregate par value of all shares having par value of all classes is
Four Million Seven Hundred Thousand Dollars ($4,700,000).
2. Cancelling the paragraph immediately following the caption "Voting Rights"
and inserting the following in its place:
The Common Stock shall have one (1) vote per share and the Preferred Stock
shall have one-two hundred fiftieth (1/250) vote per share. Except to the
extent otherwise provided in the Articles of Incorporation or provided by
the laws of the State of Maryland, the Common Stock and the Preferred
Stock shall vote as a single class.
3. Cancelling the paragraph following the caption "Conversion" and inserting
the following in its place:
The cumulative Preferred Stock of the Corporation of One Dollar ($1.00)
par value, may at the option of the holder thereof, at any time dividends
are current be converted into Common Stock of the Corporation of One
Hundred Dollars ($100) par value upon the following terms:
(1) Any holder of any of the convertible Preferred shares
desiring to avail himself of the option for conversion of his stock
as herein provided, shall, deliver, duly endorsed in blank, the
certificate or certificates representing the stock to be converted
to the Secretary of the Corporation at the Corporation Office and at
the same time, notify the Secretary in writing over his signature
that he desires to convert his stock into Common Stock of One
Hundred Dollars ($100) par value pursuant to these provisions.
(2) Upon receipt by the Secretary of a certificate or
certificates representing shares of convertible Preferred Stock and
a
Exhibit 3 - 1
<PAGE>
notice that the holder thereof desired to convert the same, the
Corporation shall forthwith cause to be issued to the holder of the
convertible Preferred shares surrendering the same, one-two hundred
fiftieth (1/250) share of Common Stock for each share of convertible
Preferred Stock surrendered, and shall deliver to such holder a
certificate in due form for such Common Stock.
Exhibit 3 - 2
<PAGE>
Exhibit 4
Audited Financial Statements for the Fiscal Years Ending October 26, 1996,
and October 25, 1997, Filed with the Company's Most Recent Annual Report
Under Sections 13 and 15(d) of the Securities Exchange Act of 1934
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Bowles Fluidics Corporation
We have audited the accompanying consolidated balance sheets of Bowles
Fluidics Corporation as of October 25, 1997, and October 26, 1996, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three fiscal years in the period ended October 25,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bowles
Fluidics Corporation as of October 25, 1997, and October 26, 1996, and the
results of its operations and its cash flows for each of the three fiscal years
in the period ended October 25, 1997, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Baltimore, Maryland
December 19, 1997
Exhibit 4 - 1
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended
October 25, October 26, October 28,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $18,842,673 $18,128,274 $16,972,876
Cost of sales 13,065,374 11,996,305 10,852,940
---------- ---------- ----------
Gross profit 5,777,299 6,131,969 6,119,936
Selling, general and
administrative expenses 3,094,769 3,643,128 2,609,911
Research and development
costs 1,005,183 1,175,890 636,970
---------- ---------- -----------
Operating income 1,677,347 1,312,951 2,873,055
Interest income 117,541 89,401 90,155
Other income (expense), net 4,555 (11,417) (30,433)
------------ ------------ ------------
Income before taxes 1,799,443 1,390,935 2,932,777
Provision for income taxes 657,420 506,629 1,148,902
----------- ----------- ----------
Net income 1,142,023 884,306 1,783,875
Preferred stock dividends
accrued (74,646) (74,645) (74,648)
------------ ----------- -----------
Income applicable to common
shareholders $ 1,067,377 $ 809,661 $ 1,709,227
========= =========== ==========
Primary earnings per share $ .08 $ .06 $ .13
======== =========== ===========
Fully diluted earnings per
share $ .07 $ .05 $ .11
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Exhibit 4 - 2
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 25, October 26,
1997 1996
---- ----
ASSETS
<S> <C> <C>
Current
Cash and cash equivalents $ 755,525 $1,287,110
Investments available for sale 1,563,121 577,837
Accounts receivable 3,112,063 2,775,658
Inventories 2,130,615 1,986,065
Other current assets 634,037 556,525
---------- -----------
Total current assets 8,195,361 7,183,195
---------- ----------
Property and equipment, net 3,494,335 3,428,765
Other assets 95,005 107,892
---------- -----------
Total assets $11,784,701 $10,719,852
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable - trade $1,122,437 $1,104,511
Accrued expenses 1,609,807 1,389,356
Income taxes payable 48,162 40,000
---------- ----------
Total current liabilities 2,780,406 2,533,867
Other liabilities 492,866 746,433
----------- ----------
Total liabilities 3,273,272 3,280,300
---------- ----------
Commitments and contingencies
Stockholders' equity
8% Convertible preferred stock 933,080 933,080
Common stock 1,264,001 1,261,001
Additional paid-in capital 2,728,083 2,726,583
Retained earnings
($2,407,467 deficit eliminated at
10/29/94) Note 6 3,586,265 2,518,888
---------- ----------
Total stockholders' equity 8,511,429 7,439,552
---------- ----------
Total liabilities and stockholders' equity $11,784,701 $10,719,852
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Exhibit 4 - 3
<PAGE>
<TABLE>
<CAPTION>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Preferred Stock Common Stock Additional
Shares Shares Amount Paid-in Retained
Total (000's) Amount (000's) Capital Earnings
------------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance October 29, 1994 $4,907,664 933 $933,080 12,590 $1,259,001 $2,715,583 $ --
Stock options exercised 13,000 20 2,000 11,000
Preferred stock dividends (74,648) (74,648)
Net income 1,783,875 1,783,875
---------- --- ------- ----- ------- -------- ---------
Balance October 28, 1995 6,629,891 933 933,080 12,610 1,261,001 2,726,583 1,709,227
Preferred stock dividends (74,645) (74,645)
Net income 884,306 884,306
---------- --- ------- ----- ------- -------- ----------
Balance October 26, 1996 7,439,552 933 933,080 12,610 1,261,001 2,726,583 2,518,888
Stock options exercised 4,500 30 3,000 1,500
Preferred stock dividends (74,646) (74,646)
Net income 1,142,023 1,142,023
--------- --- ------- ----- ------- -------- ---------
Balance October 25, 1997 $8,511,429 933 $933,080 12,640 $1,264,001 $2,728,083 $3,586,265
========= === ======= ====== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Exhibit 4 - 4
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
October 25, October 26, October 28,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,142,023 $ 884,306 $1,783,875
Adjustments to reconcile net
income
provided by operating activities:
Depreciation and amortization 960,346 750,449 661,024
Deferred income taxes 5,900 (241,315) (36,500)
(Gain)/Loss on disposal of
assets 21,089 3,088 (2,267)
Accretion of interest on
investments (45,269) (31,659) (14,125)
---------- ---------- ----------
2,084,089 1,364,869 2,392,007
--------- --------- ---------
Change in operating accounts:
Accounts receivable (336,405) (14,264) (844,509)
Inventories (144,550) (86,719) (202,846)
Other assets (86,758) (122,381) (111,535)
Accounts payable 17,926 109,090 (70,656)
Accrued expenses (189,549) 537,235 57,314
Income taxes payable 8,162 (71,441) (431,715)
Other liabilities 156,433 428,049 63,150
--------- ---------- -----------
(574,741) 779,569 (1,540,797)
--------- ---------- ---------
Net cash provided by operating
activities: 1,509,348 2,144,438 851,210
--------- --------- ----------
Cash flows from investing activities:
Capital expenditures (1,027,780) (1,321,331) (962,597)
Purchase of investments (1,540,015) (566,664) (1,143,566)
Patents and trademarks (4,433) -- (32,556)
Proceeds from sale of equipment 1,441 -- 31,025
Proceeds from sale of investments 600,000 700,000 962,985
---------- ---------- ----------
Net cash used in investing activities (1,970,787) (1,187,995) (1,144,709)
--------- --------- ---------
Cash flows from financing activities:
Principal payment of debt -- (271,669) (525,102)
Preferred stock dividends (74,646) (74,645) (74,648)
Proceeds from issuance of common --------
stock 4,500 -- 13,000
----------- ----------- ----------
Net cash used by financing activities (70,146) (346,314) (586,750)
---------- ---------- ----------
Net increase(decrease) in cash and cash
equivalents (531,585) 610,129 (880,249)
Cash and cash equivalents:
- Beginning of period 1,287,110 676,981 1,557,230
--------- ---------- ---------
- End of period $ 755,525 $1,287,110 $ 676,981
========== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Exhibit 4 - 5
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
General. The Company and its wholly owned subsidiary, Fluid Effects
Corporation, operate on a 52/53-week fiscal year which ends on the last
Saturday of October. All years presented are 52 weeks. Assets and
liabilities, and revenues and expenses, are recognized on the accrual basis
of accounting.
Cash Equivalents. Cash equivalents are highly liquid investments with
original maturities of 90 days or less.
Investments. Investments, which are available for sale, consist of U.S.
Treasury bills with original maturities over 90 days, but not greater than
365 days, and are carried at cost plus accrued interest, which approximates
market.
Inventory Pricing. Inventories are carried at the lower of cost (first-in,
first-out) or market.
Property, Equipment and Depreciation. The cost of property and equipment is
depreciated over the estimated useful life of the related assets.
Depreciation is computed on the straight-line method for all assets based on
the following estimated lives:
Years
-----
Production machinery and equipment 3-10
Office furniture and equipment 5-7
Laboratory and machine shop equipment 3-10
Leasehold improvements lease term
Depreciation expense for the fiscal years ended 1997, 1996, and 1995 was
$939,678, $711,282, and $612,294 respectively.
Patents. Costs associated with obtaining United States patents are
capitalized and amortized using the straight-line method over the life of the
patent beginning with the date of issue or date of filing the application.
The Company initially charges all costs associated with the acquisition of
U.S. and foreign patents to expense, then capitalizes those costs related to
U.S. patents upon issuance of those patents.
Management reviews all of the patent costs and writes off any patents
which are considered to be of no foreseeable economic benefit to the Company.
The Company recognizes income from patent licenses in accordance with the
respective payment terms of each license agreement.
Exhibit 4 - 6
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. (continued)
Income Taxes. The Company uses the asset and liability method for accounting
for income taxes. Under this method, deferred income taxes are recognized for
the tax consequences of temporary differences by applying enacted statutory
tax rates applicable to future years to differences between the financial
statements carrying amounts and the tax bases of existing assets and
liabilities.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassifications. Certain 1995 and 1996 amounts have been reclassified to
conform to the 1997 presentation.
Concentrations of Credit Risk. Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of
accounts receivable and cash investments. The Company's customer base
includes the significant U.S. automotive manufacturers and a large number of
automotive parts suppliers. The Company does not require collateral for its
trade accounts receivable. However, the Company's credit evaluation process,
reasonably short collection terms, and the geographical dispersion of sales
transactions help to mitigate any concentration of credit risk. The Company
also has cash investment policies that limit the amount of credit exposure to
any one financial institution and require placement of investments in
financial institutions evaluated as highly creditworthy.
2. Inventories
Inventories are comprised of:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Raw material $ 620,567 $ 678,494
Work and tooling in progress 1,016,845 242,369
Finished goods 493,203 1,065,202
-------- ---------
Total $2,130,615 $1,986,065
========= =========
</TABLE>
Exhibit 4 - 7
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Property and Equipment, net
Property and Equipment, net, is comprised of:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Production machinery and equipment $4,946,390 $4,397,018
Office furniture and equipment 2,321,844 1,992,152
Laboratory and machine shop equipment 1,428,516 1,395,837
Leasehold improvements 812,120 796,928
---------- --------
Total property and equipment 9,508,870 8,581,935
Less accumulated depreciation (6,014,535) (5,153,170)
Property and equipment, net $3,494,335 $3,428,765
========= =========
</TABLE>
4. Line of Credit
In May 1996, the Company entered into a fourth amended and restated
agreement with Mercantile-Safe Deposit & Trust Company to reaffirm and extend
its $1,000,000 line of credit until May 8, 1997, on an unsecured basis. At
the Company's request and the Bank's discretion the line of credit was
extended until May 8, 1998, and may be reaffirmed each year thereafter. The
interest rate is Mercantile's prime rate, floating, which was 8-1/2% as of
October 25, 1997. In addition, a 3/8% annual fee is assessed on the unused
portion of this credit facility. Advances on the line of credit are limited
to 85% of eligible accounts receivable and 40% of finished goods inventory.
No amount was outstanding on this credit line at October 25, 1997, or October
26, 1996.
In addition to the maintenance of certain financial ratios, the covenants
of the fourth amended loan agreement require the Company's tangible net worth
to be not less than $2,000,000 as of the close of each fiscal year.
5. Debt
No debt was outstanding as of October 25, 1997, and October 26, 1996. In
February 1996 the unpaid balance of the then outstanding loan from
Mercantile-Safe Deposit & Trust Company was paid in total.
Cash paid for interest during 1997, 1996, and 1995 was $0, $6,018, and
$37,586, respectively.
Exhibit 4 - 8
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Stockholders' Equity
The 8% convertible preferred stock of the Company at October 25, 1997, and
October 26, 1996, consists of 3,000,000 authorized shares, par value $1.00
per share, with 933,080 shares issued and outstanding on both dates.
The common stock of the Company at October 25, 1997, and October 26, 1996,
consists of 17,000,000 authorized shares, par value $.10 per share. On
October 25, 1997, the shares issued and outstanding were 12,640,011, whereas
on October 26, 1996, they were 12,610,011.
The Company's preferred stock provides for an annual dividend of $.08 per
share from the net earnings of the Company and is cumulative only for those
years in which the Company has earnings, and $1.00 per share in liquidation
before any distribution can be made to holders of common stock. If any
dividends payable on the preferred stock with respect to any fiscal year of
the Company are not paid for any reason, the rights of the holders of the
preferred stock to receive payment of such dividends shall not lapse or
terminate; but unpaid dividends shall accumulate and shall be paid without
interest to the holders of the preferred stock when and as authorized by the
Board of Directors before any dividends shall be paid on any other class of
stock.
The Company's preferred stock may at the option of the holder, at any time
dividends are current, be converted into common stock of the Company at the
conversion rate of four shares of common for each share of preferred.
Additionally, the preferred stock is redeemable at par in whole or in part at
the option of the Board of Directors at any time the dividends are current
after a period of 10 years subsequent to issue. At October 25, 1997, 683,080
shares have been outstanding for more than 10 years and dividends are
current, and thus can be converted. The common stock has one (1) vote per
share and the preferred stock has four (4) votes per share.
Reserved Shares. As of and for the three fiscal years in the period ended
October 25, 1997, there were 300,000 shares of common stock reserved for
issuance in connection with the Company's stock option plans. None of the
authorized shares of common stock are reserved for conversion of preferred
stock. Under the laws of the State of Maryland, the authorization of the
preferred stock in itself provides the authorization of common stock
necessary for conversion.
Quasi-reorganization. Effective October 29, 1994, the Board of Directors
approved a quasi-reorganization which had the impact of eliminating the
retained earnings deficit as an adjustment to additional paid-in capital.
Exhibit 4 - 9
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Income Taxes
The Company and its subsidiary file a consolidated federal income tax
return and separate state income tax returns. The provision for income taxes
consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal:
Current $620,131 $678,938 $1,019,525
Deferred (6,100) (222,600) (30,100)
--------- ------- --------
614,031 456,338 989,425
------- ------- -------
State:
Current 43,189 68,791 164,377
Deferred 200 (18,500) (4,900)
---------- ------- --------
43,389 50,291 159,477
-------- -------- ---------
$657,420 $506,629 $1,148,902
======= ======= =========
</TABLE>
The components of the deferred tax asset and liability for 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets:
Accrued vacation and retirement programs $ 83,600 $190,300
Non-deductible reserves 490,600 387,100
------- -------
Total deferred tax assets 574,200 577,400
------- -------
Deferred tax liabilities:
Property and equipment (303,700) (312,800)
------- -------
Total deferred tax liabilities (303,700) (312,800)
------- -------
Net deferred tax assets $270,500 $264,600
======= =======
</TABLE>
Reconciliation of the provisions for income taxes at the U.S. federal
statutory rate to the effective tax expense were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
U.S. statutory income tax $611,811 $472,918 $ 997,145
State taxes, net of federal
income tax benefit 28,637 33,711 105,255
Other, net 16,972 -- 46,502
-------- ------- ----------
$657,420 $506,629 $ 1,148,902
======= ======= =========
</TABLE>
Cash paid for income taxes was $584,000, $877,000, and $1,617,000 for
1997, 1996, and 1995, respectively.
Exhibit 4 - 10
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Earnings per Share
Primary earnings per share are based on the weighted average number of
common shares and the effects of shares issuable under stock options based
on the treasury stock method. Fully diluted earnings per share assumes that
the preferred stock is converted to common stock at the beginning of the
year.
The number of shares used for computing primary earnings per share was
12,682,371, 12,701,898, and 12,706,408 in 1997, 1996, and 1995,
respectively. The number of shares used in computing fully diluted earnings
per share was 16,423,720, 16,473,390, and 16,445,005 in 1997, 1996, and
1995, respectively.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" (FAS 128), which will require
companies to present basic earnings per share (EPS) and diluted earnings
per share, instead of the primary and fully diluted EPS that is currently
required. The new standard requires additional informational disclosures,
and also makes certain modifications to the currently applicable EPS
calculations defined in Accounting Principles Board Opinion No. 15. The new
standard is required to be adopted by all public companies for reporting
periods ending after December 15, 1997, and will require restatement of EPS
for all periods reported. Under the requirements of FAS 128, the Company's
EPS would be as follows:
<TABLE>
<CAPTION>
October 25, October 26, October 28,
1997 1996 1995
<S> <C> <C> <C>
Basic earnings per share $ .08 $ .06 $ .14
Diluted earnings per share .07 .05 .11
</TABLE>
9. Commitments and Contingencies
The Company leases its facilities under non-cancelable operating leases
which expire in 2004 for Columbia, Maryland, and in 2000 for Southfield,
Michigan. As of October 25, 1997, minimum annual aggregate rentals are as
follows:
<TABLE>
<CAPTION>
Year Ended Amount
<S> <C>
1998 $ 593,835
1999 594,831
2000 577,026
2001 561,648
2002 561,648
thereafter 842,472
-------
Total minimum future rental payments $3,731,460
==========
</TABLE>
Exhibit 4 - 11
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. (continued)
Rent expense under all leases for 1997, 1996, and 1995 was $644,008,
$626,565, and $622,671, respectively.
Management is unaware of any pending legal proceedings which would have a
material adverse effect on the financial statements of the Company.
10. Employee Benefit Plans
On November 1, 1990, the Company adopted a defined contribution (401k)
plan covering substantially all of its employees. Contributions and costs
were determined by matching 50% of employee contributions up to 4% of each
covered employee's earnings. As of April 1, 1994, the Company increased its
matching contribution to 50% of the employee contributions up to 6% of each
covered employee's earnings. The Company's contributions to the plan were
$151,314, $119,640, and $101,286 in 1997, 1996, and 1995, respectively.
The Company has agreed to retirement programs for certain former officers
providing for the payment of certain retirement benefits. The unfunded
present value, at a discount rate of 7.5%, of these benefits accumulated as
of October 25, 1997, amounts to approximately $347,000, of which $288,000
is included in other liabilities. Expenses related to these programs were
$46,476 in 1997, $44,000 in 1996, and $102,000 in 1995.
11. Stock Options
In May 1992, the Company adopted its key employee incentive stock option
plan. Activity in the Company's incentive stock option plan was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Options outstanding, beginning of year 180,000 180,000 200,000
Options granted - - -
Options exercised (30,000) - (20,000)
Options expired (80,000) - -
--------- ------------------
Options outstanding, end of year 70,000 180,000 180,000
======== ======== ========
</TABLE>
Options activities are at exercise prices ranging from $.15 to $.65 per
share.
Exhibit 4 - 12
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. (continued)
Statement of Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (FAS 123) became effective for the Company in 1997. As
allowed by FAS 123, the Company has elected to continue to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), in accounting for its stock option plans. FAS 123
requires the Company to present pro forma information as if the Company had
accounted for stock options granted since December 15, 1995, under the fair
value method of FAS 123. No pro forma information has been presented by the
Company as no stock options have been issued since December 15, 1995, the
effective date of FAS 123.
12. Termination of Sales Agreement
During the fiscal year 1996, the Company accrued $760,000 ($465,400 net
of income taxes) for the termination in May 1997 of the sales agreement
with its manufacturer's representatives. The payments commenced in May
1997, and the current balance as of October 25, 1997, was $532,270, which
is expected to be paid during fiscal year 1998.
13. Major Customers
Over 90% of the Company's production of nozzles is incorporated in
vehicles produced by General Motors, Ford, and Chrysler, each of whom
typically represents over 10% of the Company's sales volume. The Company
is, therefore, substantially dependent upon the North American production
requirements of these three automotive companies. In addition, the
Company's customers required that a QS-9000-compliant quality system be
developed and registered by an independent organization. Registration
deadlines were July 1997 for Chrysler and December 1997 for General Motors.
In September 1996, the Company was assessed by Underwriters Laboratories
Inc., received QS-9000 certification with ISO 9001 addendum as of December
20, 1996, and has maintained that certification since then.
14. New Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued the following
Statements of Financial Standards ("FAS"):
Exhibit 4 - 13
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. (continued)
o FAS No. 129, Disclosure of Information about Capital Structures
This statement becomes effective for fiscal years ending after December
15, 1997, and continues the previous requirements to disclose certain
information about an entity's capital structure found in previously
issued Opinions and Standards. The Company currently follows the
provisions for this statement.
o FAS No. 131, Disclosures about Segments of an Enterprise and Relative
Information
This statement becomes effective for fiscal years beginning after
December 15, 1997, and changes the way public companies report
information about segments of their business in their financial
statements and requires them to report selected segment information in
their quarterly reports to stockholders. The Company intends to adopt the
disclosure requirement by this statement for the year ending October 30,
1999.
Exhibit 4 - 14
<PAGE>
BOWLES FLUIDICS CORPORATION - EXHIBIT 11
CALCULATION OF EARNINGS PER SHARE
A. PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Fiscal Year Ended
---------------------------------------
October 25, October 26, October 28,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Calculation of net income:
Net income per books $1,142,023 $ 884,306 $1,783,875
Less: Dividends on convertible
preferred stock 74,646 74,645 74,648
---------- ----------- -----------
Net income as adjusted $1,067,377 $ 809,661 $1,709,227
========= ========= =========
Calculation of outstanding shares:
Weighted average of common
shares outstanding 12,633,764 12,610,011 12,593,353
Add: Assumed exercise of stock
options 48,607 91,887 113,055
------------ ------------ -----------
Number of common shares
outstanding adjusted 12,682,371 12,701,898 12,706,408
========== ========== ==========
Primary earnings per common share: $ .08 $ .06 $ .13
========= ========= =========
</TABLE>
Exhibit 4 - 15
<PAGE>
BOWLES FLUIDICS CORPORATION - EXHIBIT 11
CALCULATION OF EARNINGS PER SHARE (continued)
B. FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Fiscal Year Ended
---------------------------------------
October 25, October 26, October 28,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income per books $1,142,023 $ 884,306 $ 1,783,875
========= ========== ==========
Weighted average of common
shares outstanding 12,633,764 12,610,011 12,593,353
Add: Assumed conversion of
preferred stock 3,732,320 3,732,320 3,732,320
Assumed exercise of
stock options 57,636 131,059 119,332
------------ ---------- ----------
Number of common shares
outstanding adjusted 16,423,720 16,473,390 16,445,005
========== ========== ==========
Fully diluted earnings per common
share $ .07 $ .05 $ .11
========= ========= =========
</TABLE>
Exhibit 4 - 16
<PAGE>
EXHIBIT 5
Audited Financial Statement for the Fiscal Year Ending October 31, 1998
The audited financial statement of the Company for the fiscal year
ending October 31, 1998, is expected to be available shortly after
January 1, 1999, and will be incorporated herein at such time.
Exhibit 5 - 1
<PAGE>
EXHIBIT 6
Pro Forma Data Disclosing the Effect of the Reverse Stock Split and Buyback
of Fractional Shares on the Company's Balance Sheet
as of the Most Recent Fiscal Year End
BOWLES FLUIDICS CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
October 25, 1997
----------------------------------
Reverse Split
& Buyback
Reported Adjustments Pro Forma
----------------------------------
ASSETS
<S> <C> <C> <C>
Current
Cash and cash equivalents $755,525 ($242,600) $512,925
Investments available for
sale 1,563,121 1,563,121
Accounts receivable 3,112,063 3,112,063
Inventories 2,130,615 2,130,615
Other current assets 634,037 634,037
----------------------------------
Total current assets 8,195,361 (242,600) 7,952,761
----------------------------------
Property and equipment, net 3,494,335 3,494,335
Other assets 95,005 95,005
----------------------------------
Total assets $11,784,701 ($242,600) $11,542,101
==================================
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current
Accounts payable - trade $1,122,437 $1,122,437
Accrued expenses 1,609,807 1,609,807
Income taxes payable 48,162 48,162
----------- -----------
Total current liabilities 2,780,406 2,780,406
Other liabilities 492,866 492,866
----------- -----------
Total liabilities 3,273,272 3,273,272
----------- -----------
Commitments and contingencies
Stockholders' equity
8% Convertible preferred stock 933,080 933,080
Common stock 1,264,001 ($19,408) 1,244,593
Additional paid-in capital 2,728,083 (41,887) 2,686,196
Retained earnings 3,586,265 (181,305) 3,404,960
----------------------------------
Total stockholders' equity 8,511,429 (242,600) 8,268,829
----------------------------------
Total liabilities and
stockholders' equity $11,784,701 ($242,600) $11,542,101
==================================
Common stock book value $7,578,349 ($242,600) 7,335,749
Number of common shares
outstanding 12,640,011(12,627,565) 12,446
Per share $0.60 $589.41
</TABLE>
Exhibit 6 - 1
<PAGE>
BOWLES FLUIDICS CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
July 25, 1998
----------------------------------
Reverse Split
& Buyback
Reported Adjustments Pro Forma
----------------------------------
ASSETS
Current
<S> <C> <C> <C>
Cash and cash equivalents $970,359 ($242,600) $727,759
Accounts receivable 2,821,583 2,821,583
Inventories 2,992,946 2,992,946
Other current assets 425,689 425,689
----------------------------------
Total current assets 7,210,577 (242,600) 6,967,977
----------------------------------
Property and equipment, net 4,312,460 4,312,460
Other assets 91,230 91,230
----------------------------------
Total assets $11,614,267 ($242,600) $11,371,667
==================================
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current
Accounts payable - trade $701,337 $701,337
Accrued expenses 1,088,139 1,088,139
----------------------------------
Total current liabilities 1,789,476 1,789,476
Other liabilities 474,488 474,488
----------------------------------
Total liabilities 2,263,964 2,263,964
Commitments and contingencies
Stockholders' equity
8% Convertible preferred
stock 933,080 933,080
Common stock 1,268,501 ($19,408) 1,249,093
Additional paid-in capital 2,732,832 (41,887) 2,690,945
Retained earnings 4,415,890 (181,305) 4,234,585
----------------------------------
Total stockholders' equity 9,350,303 (242,600) 9,107,703
----------------------------------
Total liabilities and
stockholders' equity $11,614,267 ($242,600) $11,371,667
==================================
Common stock book value $8,417,223 ($242,600) $8,174,623
Number of common shares
outstanding 12,685,011(12,672,520) 12,491
Per share $0.66 $654.44
</TABLE>
Exhibit 6 - 2
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS
Reverse Split and Buyback Adjustments
1. Balance Sheets: October 25, 1997, and July 25, 1998
The pro forma balance sheets reflect the reduction in cash and cash
equivalents and the decrease in stockholders' equity of $242,600 resulting
from the buyback of estimated fractional common shares (194.077 shares) after
the 1-for-1,000 reverse common stock split at $1,250 per share, as if the
buyback occurred at October 25, 1997, and July 25, 1998, respectively.
The pro forma book value per share reflects the lower common stock book value
and the lower number of common shares outstanding after the split and
buyback.
Exhibit 6 - 3
<PAGE>
Exhibit 7
Pro Forma Data Disclosing the Effect of the Reverse Stock Split and Buyback of
Fractional Shares on the Company's Statement of Income, Earnings Per Share
Amounts, and Ratio Of Earnings to Fixed Charges for the Most Recent Fiscal Year
End
<TABLE>
<CAPTION>
BOWLES FLUIDICS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended October 25, 1997
--------------------------------------
Reverse Split
& Buyback
Reported Adjustments Pro Forma
--------------------------------------
<S> <C> <C>
Net Sales $18,842,673 $18,842,673
Cost of sales 13,065,374 13,065,374
------------- --------------
Gross Profit 5,777,299 5,777,299
Selling, general and
administrative
expenses 3,094,769 3,094,769
Research and development
costs 1,005,183 1,005,183
------------- --------------
Operating income 1,677,347 1,677,347
Interest income 117,541 ($12,774) 104,767
Other income (expense),
net 4,555 4,555
--------------------------------------
Income before income taxes 1,799,443 (12,774) 1,786,669
Provision for income
taxes 657,420 (4,667) 652,753
--------------------------------------
Net income 1,142,023 (8,107) 1,133,916
Preferred stock
dividends
accrued (74,646) 0 (74,646)
--------------------------------------
Income applicable to common
shareholders $1,067,377 ($8,107) $1,059,270
======================================
Primary earnings per share:
Income applicable to
common
shareholders $1,067,377 ($8,107) $1,059,270
--------------------------------------
Weighted average of
common
shares outstanding 12,633,764(12,621,324) 12,440
Add: Assumed exercise
of
stock options 48,607 (48,558) 49
--------------------------------------
Number of common shares
outstanding adjusted 12,682,371(12,669,882) 12,489
--------------------------------------
Primary earnings
per share $0.08 $84.82
============= ==============
Fully diluted earnings per share:
Net income $1,142,023 ($8,107) $1,133,916
--------------------------------------
Weighted average of
common
shares outstanding 12,633,764(12,621,324) 12,440
Add: Assumed conversion
of
preferred
stock 3,732,320(3,728,588) 3,732
Assumed
exercise of
stock options 57,636 (57,578) 58
--------------------------------------
Number of common shares
outstanding adjusted 16,423,720(16,407,490) 16,230
--------------------------------------
Fully diluted earnings
per share $0.07 $69.87
============= ==============
Ratio of earnings to fixed
charges N/a N/a
</TABLE>
Exhibit 7 - 1
<PAGE>
<TABLE>
<CAPTION>
BOWLES FLUIDICS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended July
25, 1998
----------------------------------
Reverse
Split
& Buyback
Reported Adjustments Pro Forma
----------------------------------
<S> <C> <C>
Net Sales $15,105,362 $15,105,362
Cost of sales 11,196,107 11,196,107
----------- -----------
Gross Profit 3,909,255 3,909,255
Selling, general and
administrative
expenses 1,993,702 1,993,702
Research and
development
costs 582,743 582,743
----------- -----------
Operating income 1,332,810 1,332,810
Interest income 52,022 ($9,580) 42,442
Other income
(expense), net 23,749 23,749
----------------------------------
Income before income taxes 1,408,581 ($9,580) 1,399,001
Provision for income
taxes 521,631 (3,548) 518,083
----------------------------------
Net income 886,950 (6,032) 880,918
Preferred stock
dividends
accrued (55,985) (55,985)
----------------------------------
Income applicable to
common
shareholders $830,965 ($6,032) $824,933
==================================
Basic earnings per share:
Income applicable to
common
shareholders $830,965 ($6,032) $824,933
Weighted average of
common
shares outstanding 12,655,011(12,642,550) 12,461
Basic earnings
per share $0.07 $66.20
=========== ===========
Diluted earnings per
share:
Net income $886,950 ($6,032) 880,918
----------------------------------
Weighted average of
common
shares outstanding 12,655,011(12,642,550) 12,461
Add: Assumed
conversion of
preferred
stock 3,732,320(3,728,588) 3,732
Assumed
exercise of
stock options 14,847 (14,832) 15
----------------------------------
Number of common shares
outstanding adjusted 16,402,178(16,385,970) 16,208
----------------------------------
Diluted earnings per
share $0.05 $54.35
=========== ===========
Ratio of earnings to
fixed charges N/a N/a
</TABLE>
Exhibit 7 - 2
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS
Reverse Split and Buyback Adjustments
1. Income Statements: Year Ended October 25, 1997, and Nine Months Ended July
25, 1998
The pro forma income statements reflect the reduction in interest income, net
of income taxes, to give effect to the $242,600 reduction of cash and cash
equivalents to acquire the estimated fractional common shares outstanding
(194.077 shares) after the 1-for-1,000 reverse common stock split at $1,250
per share, as if the reverse split and buyback occurred at October 27, 1996.
The pro forma primary and fully diluted earnings per share reflect the lower
net income and the lower number of common shares outstanding after the
reverse stock split and buyback of fractional common shares at $1,250 per
share.
Exhibit 7 - 3
