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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
- - - - ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended: October 3, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OR THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-4817
WHITE ELECTRONIC DESIGNS CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-0905052
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3601 E. UNIVERSITY DRIVE
PHOENIX, ARIZONA 85034
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 602/437-1520
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
Common Stock, without par value ON WHICH REGISTERED
(stated value $.10 per share) American Stock Exchange
$3.00 Senior Voting Cumulative American Stock Exchange
Convertible Preferred Stock
(par value $1.00 per share)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in PART III of this Form 10-K or any amendment to this
Form 10-K.[X]
As of December 15, 1998, the aggregate market value of the Registrant's Common
Stock and Preferred Stock held by non-affiliates (based upon the closing price
of the shares on the American Stock Exchange on December 15, 1998) was
approximately $18,900,000.
On December 15, 1998, 15,789,010 shares of the Registrant's Common Stock and
119,906 shares of the Registrant's Preferred Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement prepared in connection with the 1999
Annual Meeting of Shareholders are incorporated by reference into PART III of
this Annual Report.
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TABLE OF CONTENTS
Page
PART I
ITEM 1 BUSINESS
Forward Looking Statements and Associated Risks..................... 1
General............................................................. 1
Microelectronic Circuits and Components............................. 1
Microelectronic Segment Review...................................... 2
Display, Electromechanical and Mechanical Equipment and Components.. 3
Display and Electromechanical Segment Review........................ 3
Principal Customers................................................. 4
Research, Engineering and Development............................... 4
Regulatory Matters.................................................. 4
Employees........................................................... 5
Risk Factors........................................................ 5
ITEM 2 PROPERTIES.......................................................... 9
ITEM 3 LEGAL PROCEEDINGS................................................... 9
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................ 9
EXECUTIVE OFFICERS OF THE COMPANY................................... 9
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS..................................... 10
ITEM 6 SELECTED FINANCIAL DATA ............................................ 11
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................. 12
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................... 15
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................. 15
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ................ 16
ITEM 11 EXECUTIVE COMPENSATION.............................................. 16
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT......................................................... 16
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .................... 16
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K......................................................... 16
ITEM 15 SIGNATURES.......................................................... 21
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PART I
ITEM 1 BUSINESS
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS
Certain matters discussed in this document contain forward-looking statements.
The words "believe," "expect" and "anticipate" identify forward-looking
statements that speak only as of the date the statement is made. These
forward-looking statements are based largely on Management's expectations and
are subject to a number of risks and uncertainties, some of which cannot be
predicted or quantified and are beyond the Company's control. Potential risks
and uncertainties include those set forth in the section titled "Risk Factors",
below. In light of these risks and uncertainties, there can be no assurance that
the forward-looking statements contained in this document will prove to be
accurate. Actual results may differ materially from those in the forward-looking
statements.
GENERAL
White Electronic Designs Corporation, formerly Bowmar Instrument Corporation
("the Company"), is an Indiana corporation organized in 1951. On October 26,
1998, after the close of the Company's fiscal year, the Company completed a
merger between its wholly owned subsidiary and Electronic Designs, Inc. ("EDI"),
pursuant to which EDI became a wholly owned subsidiary of the Company. In
connection with the merger, the Company's name was changed from Bowmar
Instrument Corporation to "White Electronic Designs Corporation." The financial
information included in this Form 10-K, is that of Bowmar Instrument Corporation
only because the merger was not completed until after the close of the fiscal
year.
The Company's principal business is the design, manufacture and sale of
microelectronic and semiconductor memory products for commercial, industrial and
military markets. The Company also manufactures and sells electromechanical and
mechanical equipment and components including electromechanical display devices,
components and packages and turnkey interface systems.
EDI is a Delaware corporation, originally organized in California in 1984. EDI
designs, manufactures and markets high performance memory solutions and Active
Matrix Liquid Crystal Displays ("AMLCD") for original equipment manufacturers
("OEM") in the global commercial, industrial and military markets.
The Company's principal executive offices are located at 3601 E. University
Drive, Phoenix, Arizona 85034, 602/437-1520. The principal offices of EDI are
located at One Research Drive, Westborough, Massachusetts 01581, 508/366-5151.
MICROELECTRONIC CIRCUITS AND COMPONENTS
The products designed, manufactured and sold by the Company in its
microelectronic division include high density, solid state memory products and
microprocessor circuits in both monolithic and modular form (multichip modules)
for use in commercial, industrial and military markets in U.S. and abroad.
High Density, Solid State Memory and Microprocessor Modules
The Company designs and manufactures high density, solid state memory modules
and microprocessor microcircuits. The memory modules are designed specifically
for use in adverse environmental conditions. They are designed to provide larger
amounts of mass memory, space reduction and faster data processing speeds. They
are used in both military and commercial applications and include static RAM
modules (SRAM), electronically erasable PROM modules (EEPROM), and Flash PROM
modules. The family of microprocessor modules supports the development of highly
complex systems including application-specific analog, mixed analog-digital and
logic functions. These products are designed to serve state-of-the-art high end
industrial and military markets and are intended to be used in portable, mobile
land-based, airborne and naval applications as well as high end data
communication and data processing systems.
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Multichip Modules
The Company designs and manufactures highly reliable, compact multichip modules
(MCM's). Multichip modules are used as components in a broad spectrum of
electronic devices where circuit reliability and size reduction is important. A
multichip module is a packaging technique that places several semiconductor
chips, interconnected with a high density substrate, into a compact package.
These can be designed to perform a wide variety of electronic functions, such as
amplifiers, regulators, switches, data converters, oscillators and decoders.
They are sold to serving principally the military market, as well as the
aerospace, medical and high temperature markets.
MICROELECTRONIC SEGMENT REVIEW
The products designed, manufactured, and sold by the Company in its
microelectronic segment are sold to private industry and to the United States
and foreign governments both through the Company's sales personnel and
independent sales representatives and distributors. In a time of strong demand
for memory and microprocessor products, as at present, sources of supply of IC
(integrated circuit) die and other components may be constrained and subject to
shortages. A multichip module manufacturer's ability to compete is heavily
dependent on its ability to maintain access to steady sources of supply. To
address these needs, the Company has maintained strong relationships with
leading semiconductor fabricators in the United States and the Far East. The
Company has no specific long-term contractual arrangement with its vendors. None
of the business of the microelectronic segment is seasonal. The Company does not
provide extended payment terms to its customers. Products in the microelectronic
segment are sold under a standard one year warranty and may be returned for
repair or replacement during the warranty period.
The backlog for products was approximately $6,877,000 and $10,967,000, at the
end of fiscal years 1998 and 1997, respectively. Approximately 93% of the
segment's fiscal 1997 backlog was shipped during fiscal 1998. Approximately 79%
of the fiscal 1998 year-end backlog is expected to be shipped during fiscal
1999. The backlog after fiscal 1999 is a result of customer requirements not
capacity restraints.
The principal competition of the Company in the commercial market for the
microelectronic segment are companies which are larger than the Company, have
substantially greater financial, technical, marketing, distribution and other
resources and have a much greater presence in the overall market. These
companies manufacture memory products in monolithic form and supply modules
which incorporate these devices in products that compete with the products of
the Company. The Company, on the other hand, generally purchases memory devices
from third parties and competes based on the value that it adds to the memory
devices. The Company competes in this market on the basis of many factors,
including access to advanced semiconductor products at competitive prices,
successful and timely product introduction, design capability, lead times,
quality, product specification, pricing and customer service.
There are few competitors for the military memory market business of the
Company. Companies compete for this business on the basis of many factors,
including cost and quality systems (which allow for compliance with U.S. and
foreign military standards), longer term access to advanced semiconductor
products in die and wafer form, successful and timely product introduction,
inclusion of products on standard military drawings, design capabilities, lead
times, product specification, pricing and customer service. The Company has
recently experienced increased price competition for the memory business. Some
competitors in the industry have competed for and won contracts bidding at or
below cost. There can be no assurance that such price competition will not
continue or that the Company can compete successfully based on price alone.
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DISPLAY, ELECTROMECHANICAL AND MECHANICAL EQUIPMENT AND COMPONENTS
The products designed, manufactured and sold by the Company in its
electromechanical segment include electromechanical components and packages,
electromechanical display devices, electronic display devices, interface systems
including keyboards and related sub-systems. The Company has determined to
combine the operations of its Technologies Division with EDI's Product Display
Division. The combined operations will focus on providing a greater number of
components to our customers.
Display Products
The Company now designs and manufactures at EDI AMLCDs of 5.0", 5.5", 6.4" and
10.4" diagonal panels in display head, monitor and computer system formats.
These displays offer significant advantages over other commercially available
displays. Significant features include sunlight readability and ruggedized
construction for operating temperatures from -35 to +85 degrees Celsius. The
Company intends to develop its display product segment by offering a broad range
of products based on different sized AMLCD panels, developing a personal
computer ("PC") technology based computer system which will incorporate such
displays, as well as developing advanced display driver electronics. As with any
new products, there is no assurance that the display products developed (or to
be developed) will be commercially acceptable or profitable.
Electromechanical Components and Packages
The Company's electromechanical components and instrument packages consist of
rotating devices, including gearheads, mechanical counters, dial drives,
mechanical packages and related devices. Specific applications for these
products include controls for automatically tuning airborne radio transmitters
and receivers, controls for fuel flow in jet engines and selected automatic
flight control servomechanisms. These products are sold principally to aircraft
instrument manufacturers as information displays in aerospace and ground
equipment.
Electromechanical Display Devices
The Company also produces digital displays, which permit a more accurate readout
of information than is feasible with analog meters. These include display
devices, which respond electromagnetically to electronic input signals, thus
eliminating mechanical transmission delays. These products are sold primarily to
aircraft instrument manufacturers.
Turnkey Interface Systems
The Company designs and manufactures, to customer specification, a variety of
keyboard assemblies for commercial and military applications. The Company has
the capability of meeting demanding requirements such as backlighting to meet
night vision goggle (NVG) compatibility, adverse environments, and the
integration of displays, including LCD's, and microprocessor technology.
DISPLAY AND ELECTROMECHANICAL SEGMENT REVIEW
The customers for the products of the display and electromechanical segment
include OEMs, primarily in the aerospace industry, and agencies of the U.S.
Government. The materials, products and services used by the Company to
manufacture its products in this segment are readily available from a variety of
sources. None of the business of the display and electromechanical segment is
seasonal.
Neither the needs of the Company for a continuing allotment of goods from its
suppliers nor the requirements of its customers for the products of the
electromechanical segment require the carrying of finished goods inventory. In
its purchase of components (some of which must be ordered months in advance),
the Company has not encountered, and does not anticipate encountering any
significant difficulty. The Company does not provide extended payment terms to
its customers. Products are sold under a standard one year warranty and may be
returned for repair or replacement during the warranty period.
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The electromechanical segment backlog was approximately $5,740,000 and
$6,049,000, at the end of fiscal years 1998 and 1997, respectively.
Approximately 87% of this segment's 1997 backlog was shipped during fiscal 1998.
Approximately 63% of the fiscal 1998 year-end backlog is expected to be shipped
during fiscal 1999. The backlog after 1999 is a result of customer requirements
not capacity restraints.
The principal basis of competition among display suppliers are display
performance (e.g., brightness, color capabilities, contrast and viewing angle),
size and weight, design flexibility, power usage, durability and ruggedness.
While the primary competition for the AMLCD is currently cathode ray tube
displays, the Company's products compete with other flat panel displays
including gas plasma and electroluminescent displays. The Company believes that
price, product reliability and the ability to meet delivery schedules are key
competitive factors. The Company competes with numerous other companies in the
display and electromechanical segment, many of which have greater financial
resources, larger technical and marketing resources and in some instances more
advanced technology products than those of the Company.
PRINCIPAL CUSTOMERS
In fiscal 1998 no single customer sales accounted for 10% of the Company's
sales. The majority of the Company's sales are made to the U.S. Government or to
U.S. Government prime contractors. These contracts can be for relatively large
dollar amounts, sometimes calling for deliveries over more than one year. The
award of new contracts or the expiration of old contracts could have a
significant short-term impact on sales and operating results.
RESEARCH, ENGINEERING AND DEVELOPMENT
Current research and product development activities are directed primarily
toward the improvement of existing standard products while some projects are
focused on the development of new products or processes. The Company devotes
minimal resources to pure research and development, but emphasizes the
application of its engineering expertise to the development and refinement of
proprietary products or technologies. Expenditures by the Company on research
and product development for fiscal years 1998, 1997 and 1996 amounted to
approximately $628,000, $610,000, and $580,000. Research and product development
efforts are principally conducted by the Company utilizing its engineering
staff.
REGULATORY MATTERS
Government Contracting Regulation
Most of the Company's business in fiscal 1998 was derived from subcontracts with
prime contractors of the U.S. Government. As a U.S. Government subcontractor,
the Company is subject to Federal Government contracting regulation. Under these
regulations, the U.S. Government is entitled for three years after final payment
on certain negotiated contracts or contract modifications to examine all of the
Company's cost records with respect to such contracts to determine whether the
Company furnished complete, accurate and current cost or pricing data to the
Government in connection with the negotiation of the price of the contract or
modification. The U.S. Government also has the right after final payment to seek
a downward adjustment to the price of a contract or modification if it
determines that the contractor failed to disclose complete, accurate and current
data. Historically the Company has not experienced significant downward
adjustments.
In addition, the Federal Acquisition Regulations govern the allowability of
costs incurred by the Company in the performance of U.S. Government contracts to
the extent that such costs are included in its proposals or are allocated to its
U.S. Government contracts during performance of those contracts.
The Company's subcontracts provide that they may be terminated at the
convenience of the U.S. Government. Upon such termination, the contractor is
normally entitled to receive the purchase price for delivered items,
reimbursement for allowable costs incurred and allocable to the contract and an
allowance for profit on the allowable costs incurred or adjustment for loss if
completion of performance would have resulted in a loss. In addition, the
Company's subcontracts provide for termination for default if the Company fails
to perform or breaches a material obligation. In the event of a termination for
default, the
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customer may have the unilateral right at any time to require the Company to
return unliquidated progress payments pending final resolution of the propriety
of the termination for default. The Company may also have to pay the excess, if
any, of the cost of purchasing a substitute item from a third party. If the
customer has suffered other ascertainable damages as a result of a sustained
default, the customer could demand payment of such damages by the Company.
In connection with the Company's U.S. Government business, the Company also is
subject to Government investigations of its policies, procedures and internal
controls for compliance with procurement regulations and applicable laws. The
Company may be subject to downward contract price adjustments, refund
obligations or civil and criminal penalties. In certain circumstances in which a
contractor has not complied with the terms of a contract or with regulations or
statutes, the contractor might be debarred or suspended from obtaining future
contracts for a specified period of time. Any such suspension or debarment of
the Company would have a material adverse effect on the Company's business.
It is the Company's policy to cooperate with the Government in any
investigations of which it has knowledge, but the outcome of any such Government
investigations cannot be predicted with certainty. In the opinion of management
of the Company, it has complied in all material respects with applicable
government requirements.
Environmental Protection
Compliance with federal, state and local laws or regulations which govern the
discharge of materials into the environment has not had a material adverse
effect upon the capital expenditures, earnings or competitive position of the
Company.
EMPLOYEES
As of the end of the fiscal year, the Company employed 160 persons. Of such
employees, 76 were employed in the microelectronic segment, 86 in the
electromechanical segment. A total of 58 of the Company's employees in the
electromechanical segment were employed pursuant to collective bargaining
agreements covering workers at the Company's Technologies Division in Fort
Wayne, Indiana. This agreement which expired on November 15, 1998 was renewed
for another three year term. The Company believes its labor relations are
satisfactory.
After the completion of the merger, the Company now has approximately 256
employees.
RISK FACTORS
POST-MERGER INTEGRATION
Achieving the benefits of the merger with EDI will depend in part upon the
integration of the businesses of Bowmar and EDI in an efficient manner, and
there can be no assurance that this will occur. The successful combination of
companies in a rapidly changing high technology industry may be more difficult
to accomplish than in other industries. The combination of the two companies
will require, among other things, integration of the companies' respective
product offerings and coordination of their sales and marketing and research and
development efforts. There can be no assurance that such integration will be
accomplished smoothly or successfully. The difficulties of such integration may
be increased by the necessity of coordinating geographically separated
organizations and addressing possible differences in corporate cultures and
management philosophies. The transition to a combined company will require
substantial attention from management. The diversion of management attention and
any difficulties encountered in the transition process could have an adverse
effect on the revenues and operating results of the Company. In addition, the
process of combining the two organizations could cause the interruption of, or a
disruption in, the activities of any or all of the companies' businesses, which
could have a material adverse effect on their combined operations. There can be
no assurance that the Company will realize any of the anticipated benefits of
the merger.
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OPERATING RESULTS
Gross Margins. The Company's gross margins may vary in the future as a result of
declining selling prices. The Company has recently experienced some reductions
in gross margins of its memory products as a result of lower selling prices
necessitated by intense competition for the military memory business. See
"Dependence on Defense Industries." In addition, the selling prices of the
Company's existing products are generally expected to decline over time. In
particular, sales of commercial memory products toward the end of a product's
life cycle are typically characterized by steep declines in sales and pricing,
the precise timing of which may be difficult to predict. The Company could
experience unexpected reductions in sales of products as customers anticipate
new product purchases. See "Risk of Technology Change and Development of New
Products." These factors could give rise to obsolete or excess inventory. To the
extent that the Company is unsuccessful in managing product transitions, its
business, financial condition and results of operations could be materially
adversely affected.
The Company expects it will continue to experience pressure on gross margins in
the foreseeable future. The Company's ability to maintain or increase net
revenue will be highly dependent upon its ability to increase unit sales volumes
of existing products and to introduce and sell new products in quantities
sufficient to compensate for the anticipated declines in selling prices.
Capital Expenditures, Research and Development and Other Costs. The need for
continued significant expenditures for capital equipment purchases, research and
development and ongoing customer service and support, among other factors, will
make it difficult for the Company to reduce its operating expenses in a
particular period if the Company's net sales for a period are not met because a
substantial component of the operating expenses are fixed costs. Accordingly,
there can be no assurance that the Company will be able to be profitable or that
it will not sustain losses in future periods. Due to the foregoing factors, it
is likely that in some future quarter the Company's operating results will be
below the expectations of public market analysts and investors. In such an
event, the price of the Company Common Stock may be materially adversely
affected.
Semiconductor Business. In connection with the Company's semiconductor memory
business and flat panel display operations, a wide array of factors could cause
the Company's results of operations and gross margins to fluctuate in the future
from period to period. The primary factors that might affect the Company's
results of operations in this regard include the cyclicability of the
semiconductor market; any loss of a principal customer or any short term loss of
a customer due to product inventory accumulation by the customer; any inability
to procure required components; any adverse changes in the mix of products sold
by the Company; and the recent and current downturn of the semiconductor market
which could cause a decline in selling unit prices, diminished inventory value,
and less demand for commercial memory products as customers restrict inventory
levels. See "Downturn of Semiconductor Industry."
Reduction in Inventory Values. Reduction in value of the Company's inventories
due to unexpected price declines, as has occurred in the past in connection with
a softening of the semiconductor industry, could adversely affect the Company's
results of operations. Such declines in inventory valuation have had an adverse
effect on EDI's financial condition and results of operations in the past and
could have an adverse effect on the Company's financial condition and results of
operations in future periods.
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DEPENDENCE ON DEFENSE INDUSTRIES
Current contracts of the Company with defense related companies and revenues
generated therefrom in the aggregate account for a material portion of the
Company's overall revenues. The defense contracts tend to require memory
products to be manufactured as compliant to military specifications. Military
capital expenditure levels have been declining for some years now and depend on
factors that are outside the control of the Company. In addition, the U.S.
defense industry has been moving toward the purchase of COTS products rather
than those manufactured as compliant to specified military standards. In fiscal
1998, military related sales accounted for approximately 95% of the Company's
overall sales. Changes in military spending and the shift in military demand for
avionic-microelectronics and COTS products have had an adverse effect on the
sales and profit of the Company. Continued reductions in military spending could
adversely affect the sales and profits of the Company.
DEPENDENCE ON INTERNATIONAL SALES AND PURCHASES
The Company anticipates that international sales will continue to account for a
significant portion of the Company's net sales. In addition, the majority of the
components used by the Company in connection with products for military
applications are acquired from foreign manufacturers worldwide, particularly
countries located in Southeast Asia. As a result, a significant portion of the
Company's sales and purchases are subject to the risks of international
business, including fluctuations in foreign currencies, especially Asian
markets, trade disputes, changes in regulatory requirements, tariffs and other
barriers, the possibility of quotas, duties, taxes or other changes or
restrictions upon the importation or exportation of the products being
implemented by the United States, timing and availability of export licenses and
the general economies of these countries in which the Company transact business.
Foreign suppliers of semiconductor related materials are regularly threatened
with, or involved in, pending trade disputes and sanctions which, if realized,
could materially adversely effect the Company by closing off critical sources of
supply for the raw materials used to produce its products. Bookings of the
Company are currently below prior years' bookings, largely because of the
current Asian economic crisis, which the Company expects will continue through
calendar year 1999.
DOWNTURN OF SEMICONDUCTOR INDUSTRY
The semiconductor industry has historically been characterized by wide
fluctuations in product supply and demand. The industry is currently in the
third year of a significant downturns. The adverse effect of a continued
downturn could be significant for the Company.
Certain developments over the last several years and trends, including price
erosion in semiconductor memories and the decline of the book to bill ratio to
below parity, have created considerable uncertainty for the Company with respect
to anticipated demand for integrated circuits in the near future. These
developments have resulted in declines in the average selling prices of some of
the Company's memory products and increased availability of most memory devices
which the Company purchases for incorporation in its products. The increased
availability of memory devices has caused an increase in competition and allowed
shorter lead times to Company customers. As a result of the increased
availability of commercial memory products, there can be no assurance that new
competitors will not enter the Company's markets, or that existing competitors,
particularly those who manufacture their own semiconductor devices, will not
cause the selling prices of some of the Company products to decline to a level
at which the Company cannot economically compete. See "Operating Results." Any
such market developments could have a material adverse effect on the Company
semiconductor packaging business.
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ABSENCE OF CONTRACTUALLY ASSURED SOURCES OF SUPPLY/GENERAL LIMITATIONS ON SUPPLY
The most significant raw materials that the Company purchases in its operations
are memory devices in wafer, die and component forms and AMLCD panels. In a time
of strong demand for memory integrated circuits and other products, sources of
supply of wafers, die and other components may be constrained and subject to
shortages, and the ability of the Company to compete is heavily dependent on its
ability to maintain access to steady sources of supply. The Company does not
have specific long-term contractual arrangements with its vendors, although it
believes it has good relationships with its vendors. No assurance can be given
that existing access to the current sources of supply of the Company may not be
impaired in the future. Any such impairment could have a material adverse effect
on the Company.
RISKS OF TECHNOLOGY CHANGE AND DEVELOPMENT OF NEW PRODUCTS
The Company's future results of operations will be dependent upon its ability to
improve and market its existing products and to develop, manufacture and market
new products. There can be no assurance that the Company will be able to
continue to improve and market its existing products or develop and market new
products, or that technological developments will not cause the Company's
products or technology to become obsolete or noncompetitive.
EDI's display products have been developed exclusively based on AMLCD products
procured from Sharp Electronics Corporation ("Sharp"). Competitors in the flat
panel display business are investing substantial resources in the development
and manufacture of flat panel displays using a number of alternative
technologies. In the event these efforts result in the development of products
that offer significant advantages over Sharp's and the Company's products, and
the Company is unable to improve its technology or develop or acquire
alternative technology that is more competitive, the Company's business and
results of operations will be adversely affected.
VOLATILE MARKET PRICE FOR COMPANY STOCK
The market price for the Company's Common Stock is subject to fluctuations in
response to a number of factors, including variations in the Company's quarterly
operating results, perceptions about market conditions in the microelectronics
industry and the effect of general economic conditions, many of which are
unrelated to the Company's operating performance. In addition, the stock market
generally has experienced significant price and volume fluctuations. These
market fluctuations could have a material adverse effect on the market price or
liquidity of the Company's Common Stock.
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of federal, state and local governmental
regulations related to the storage, use, discharge and disposal of toxic,
volatile or otherwise hazardous chemicals used in its manufacturing process.
Increasing public attention has been focused on the environmental impact of
microelectronic manufacturing operations. While the use of toxic, volatile or
otherwise hazardous substances by the Company is small, there can be no
assurance that changes in environmental regulations will not impose the need for
additional capital equipment or other requirements. Any failure by the Company
to control the use of, or to adequately restrict the discharge of, hazardous
substances under present or future regulations could subject the Company to
substantial liability or could cause its manufacturing operations to be
suspended. Such liability or suspension of manufacturing operations could have a
material adverse effect on the Company's business, financial conditions and
results of operations.
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ITEM 2 PROPERTIES
The Company leases a facility under an operating lease in Phoenix, Arizona
consisting of approximately 53,000 square feet. The facility is used as the
Company's corporate offices and for all manufacturing of the microelectronic
segment. In addition, the Company owns a facility in Ft. Wayne, Indiana
consisting of a building with approximately 75,000 square feet of space used for
the manufacture of electromechanical and mechanical equipment and components,
plus approximately ten acres of vacant land adjacent to the building. All of the
Company's property is security for the Company's line of credit and term loans
with Bank One. Management considers these properties to be well maintained and
adequate for their use. The 80,000 square foot building in Acton, Massachusetts
was sold in April 1998.
In connection with the Company's merger with EDI, the Company acquired through
EDI an operating lease at One Research Drive, Westborough, Massachusetts, the
former EDI headquarters. The lease is for a 33,000 square foot facility used for
the manufacture of commercial memory and display products and will expire in
2003. The Company also acquired the lease, which will expire in 2004, for EDI's
London sales office.
ITEM 3 LEGAL PROCEEDINGS
On April 25, 1996, the U.S. Attorney's Office for the State of Arizona undertook
an investigation of certain aspects of White Microelectronics contracts with
prime contractors with the Government. The investigation centered on the
interpretation of certain Government contract specified testing requirements on
incoming material. The Company is cooperating fully with the investigation. On
March 13, 1998, the Company was notified by the U.S. Attorney's Office for the
State of Arizona that is has closed its criminal investigation of White
Microelectronics and is seeking authority to disclose the substance of its
investigation to the Civil Section of the U.S. Attorney's Office so that the
Civil Section can determine whether there is sufficient basis for initiating a
civil proceeding against White Microelectronics.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE COMPANY
The names, ages, positions and business experience of all of the executive
officers of the Company are listed below. Officers are appointed annually by the
Board of Directors at the meeting of directors immediately following the Annual
Meeting of Shareholders and serve until the next annual election or until their
successors have been elected and qualified or as otherwise provided in the
Company's By-Laws.
There are no family relationships between any of the directors and executive
officers of the Company, nor any arrangement or understanding between any such
executive officer and any other person pursuant to which he was elected as an
executive officer.
9
<PAGE> 12
<TABLE>
<CAPTION>
Name, Age & Position Business Experience During the Past Five Years
- - - -------------------- ----------------------------------------------
<S> <C>
Hamid R. Shokrgozar, 38 Appointed President and Chief Executive Officer of the Company on
President and Chief Executive Officer January 3, 1998. Served as President of White Microelectronics
since 1993. Served as Vice President Engineering with White
Microelectronics from 1988 to 1993. Elected as a Director of the
Company in February 1998. Mr. Shokrgozar also served as Vice
Chairman of American Electronic Association (AEA-Arizona). He
received his Bachelors and Masters of science degree in
Engineering from California State University Fullerton. Mr.
Shokrgozar holds a U.S. Patent for the invention of "Stacked
Silicon Die Carrier Assembly."
Joseph G. Warren, Jr., 53 Appointed Vice President Finance, Chief Financial Officer and
Vice President Finance, Treasurer, Treasurer on July 12, 1995. From 1994 to 1995 served as Vice
Chief Financial Officer, Secretary President Finance & Chief Financial Officer of Axxess
Technologies, Inc. From 1993 to 1994 served as Secretary
Treasurer and Vice President of Golden Technologies, Inc.
From 1992 to 1993 served as President of Coors Ceramicon
Designs, Ltd., and from 1985 to 1992 served as Vice
President Finance of Coors Ceramics Company.
</TABLE>
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock and $3.00 Preferred Stock are currently traded on the
American Stock Exchange under the symbols WHT and WHT.PR, respectively. Prior to
the completion of the merger on October 26, 1998, the Company's Common Stock and
$3.00 Preferred Stock were traded on the American Stock Exchange under the
symbols BOM and BOM.PR. See Note 21 to the Consolidated Financial Statements in
this Form 10-K for the high and low sales prices for each of the Common Stock
and $3.00 Preferred Stock over the last two fiscal years.
As of December 15, 1998, there were approximately 6,775 holders of record of the
Common Stock and approximately 481 holders of record of the Company's $3.00
Preferred Stock. The Company has not paid cash dividends on its Common Stock and
does not expect to do so in the foreseeable future. The Company intends to
retain all earnings to provide funds for the operation and expansion of its
business. One of the Company's credit agreements precludes the payment of cash
dividends for both preferred and Common Stock in excess of $500,000 per year.
10
<PAGE> 13
ITEM 6 SELECTED FINANCIAL DATA
(In thousands of dollars, except share and per share data)
<TABLE>
<CAPTION>
===========================================================================================================
FISCAL YEAR
OPERATIONS: 1998 1997 1996 1995 1994
- - - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 28,998 $ 27,820 $ 25,317 $ 26,869 $ 27,821
- - - -----------------------------------------------------------------------------------------------------------
Gross margin $ 8,254 $ 10,702 $ 9,530 $ 9,564 $ 9,776
- - - -----------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before
income taxes (Note 1) $ (567) $ 1,302 $ 1,290 $ 3,903 $ 2,175
- - - -----------------------------------------------------------------------------------------------------------
Weighted average number of common:
shares and equivalents-basic 6,675 6,641 6,462 6,426 6,390
shares and equivalents-fully diluted (Note 2) 8,289 8,285 8,179 8,178 8,154
- - - -----------------------------------------------------------------------------------------------------------
Income (loss) per common share:
Continuing operations - basic $ (0.14) $ 0.14 $ 0.14 $ 0.55 $ 0.28
Continuing operations - fully diluted (Note 2) $ 0.48 $ 0.27
- - - -----------------------------------------------------------------------------------------------------------
Net income per share - basic $ (0.02) $ 0.02 $ 0.14 $ 0.55 $ 0.28
Net income per share - fully diluted (Note 2) $ 0.48 $ 0.27
- - - -----------------------------------------------------------------------------------------------------------
Financial Positions (at year end):
Working capital $ 8,182 $ 9,822 $ 8,502 $ 6,889 $ 5,209
Total assets $ 14,898 $ 21,509 $ 16,538 $ 17,432 $ 13,783
Long-term debt $ 2,366 $ 4,546 $ 3,675 $ 3,992 $ 4,617
- - - -----------------------------------------------------------------------------------------------------------
</TABLE>
Note 1 - See footnote 16 of the Consolidated Financial Statement provided
elsewhere herein for discussion of discontinued operations.
Note 2 - In 1998, 1997 and 1996, fully diluted net income per share is
considered to be the same as basic net income per share since the
effect of the potentially dilutive convertible preferred is
antidilutive.
Note 3 - No dividends have been declared or paid on Bowmar common shares.
There were 6,775 holders of record of White Electronic Designs
Corporation Common Stock on December 15, 1998.
This table should be read in conjunction with the Consolidated Financial
Statements provided elsewhere herein.
11
<PAGE> 14
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
In December 1997, the Company's Board of Directors determined to implement a
series of actions to strategically reposition the Company, reduce corporate
overhead and realign management. First, the Company's Board determined to close
the Company's corporate headquarters in Phoenix, Arizona, which was accomplished
by the end of January, 1998. The Company now operates exclusively out of the new
White Electronic Designs Corporation facility located in Phoenix, Arizona. In
the first quarter of 1998, the Company expensed approximately $380,000
associated with the closing of the corporate office and the related severance
payments. Second, effective January 2, 1998, the Company's President and Chief
Executive Officer, Thomas K. Lanin, submitted his resignation, and the Company's
Board appointed Hamid Shokrgozar, the White Microelectronics division's current
president, as President and CEO of the Company. Finally, in December, 1997, the
Company's Board made a decision to sell the Technologies Division. As a
consequence thereof, a $1.3 million reserve for anticipated losses and the cost
of disposition was recorded in fiscal 1997.
Due to the merger with EDI, the Company's Board decided not to sell the
Technologies Division. As required by Emerging Issues Task Force 90-16, the
Company's historical financial information has been reclassified to reflect the
results of the Technologies Division to continuing operations. The $1.3 million
reserve was reversed during fiscal 1998, resulting in income after taxes of
$780,000.
Results of Operations 1998, 1997 & 1996
Fiscal 1998, 1997 and 1996 net sales were $28,998,000, $27,820,000 and
$25,317,000, respectively. The increase in net sales between fiscal 1998 and
1997 resulted principally from additional sales of new interface products in the
electromechanical segment. Fiscal 1998 sales in the microelectronic segment were
approximately $1.6 million lower than fiscal 1997 sales due to lower average
sales prices. The increase in net sales between fiscal 1997 and 1996 was caused
by a $600,000 increase for initial stocking orders for distributors in the
second quarter, a $1,400,000 increase in custom orders in the fourth quarter,
and new products which were introduced in the prior year in the microelectronics
division.
Gross margin, as a percentage of sales, decreased during fiscal 1998 to 28.5%
from 38.5% in fiscal 1997. Gross margins in the microelectronic segment were
approximately $6.9 million or 33.5% as compared to $9.0 million or 40.7% in
fiscal 1997. The decline is a result of the adverse effect on sales resulting
from a strong downward pricing pressure due to the competition and general
downturn in the industry as a whole. In addition, the Company increased its
inventory reserve by $500,000 in the microelectronics segment during the third
quarter of fiscal 1998 because of slow moving parts related to the lower than
anticipated business in Asia and the continuing slow down in military memory
sales. Gross margins in the electromechanical segment were approximately $1.4
million or 16.2% as compared to $1.7 million or 29.9% in 1997. The lower margins
are due to production problems associated with the introduction of new products.
Gross margin, as a percentage of sales, increased during fiscal 1997 to 38.5%
from 37.6% for fiscal 1996. Gross margins in the microelectronics division were
approximately $9.0 million or 40.7% as compared to $7.8 million or 41.6% in the
prior fiscal year. The increase in gross margin dollars was due to the increased
sales. The 0.9% decline in the gross margin percentage was a result of strong
downward pricing pressure brought about by a very competitive market. Gross
margin dollars in the electromechanical segment in fiscal 1997 were only
slightly lower than fiscal 1996, even though sales declined 13%. This was a
result of improved product mix and improved efficiency in the manufacturing
process.
Selling, general and administrative expenses for fiscal 1998 decreased $970,000
versus fiscal 1997 expenses. The decrease resulted from the savings realized
from closing the corporate office at the end of the 1998 first quarter, lower
sales cost for the electromechanical segment as a result of a reduction in
12
<PAGE> 15
expense associated with the sales department. Selling expenses were lower for
the microelectronics division because of lower commissions as a result of the
decline in sales.
Selling, general and administrative expenses in fiscal 1997 were 8.6% above 1996
expenses. The main reasons for the increase were an increase in advertising, up
$30,000, and sales commissions, up $210,000, relating to increased sales volume.
Legal expenses also increased in fiscal 1997 because of the investigation by the
U.S. Attorney's office. Selling, general and administrative payroll expense was
up $240,000 because of increased headcount to support higher sales volume.
Product development expenses for fiscal 1998 closely approximated fiscal 1997.
Product development expense in fiscal 1997 increased by $30,000 or 5.2% from
fiscal 1996. The main reason for the increase was the additional spending in the
microelectronics division on developing a microprocessor module in conjunction
with the Diehl business development alliance.
Interest expense for fiscal 1998 increased by $100,000 as compared to fiscal
1997. The increase is primarily a result of additional borrowings to finance the
Company's leasehold improvements for the microelectronics facility and financing
higher receivables, which occurred in the first six months of 1998.
Interest expense in fiscal 1997 declined by $ 105,000 as a result of both lower
rates and decreased average borrowing levels compared to fiscal 1996.
The Company incurred merger expenses of $1,005,000 relating to the EDI merger
during fiscal 1998. The costs primarily represent financial, legal, printing and
accounting service expenses. The Company anticipates that it will incur
additional expenses of approximately $2,100,000 during the first two quarters of
1999. These expenses are related to lower margins that result from the write-up
of inventories because of the allocation of the acquisition costs and severance
payments to former employees.
Other income for fiscal 1998 was $121,000 as compared to an expense of $137,000
in fiscal 1997. The income is mainly due to a tax settlement in fiscal 1998 that
resulted in income of $292,000. This income was partially offset by the
additional expenses incurred in fiscal 1998 to maintain and prepare the
Company's Acton, Massachusetts' property for sale. Other expense in fiscal 1997
consisted primarily of a one time $425,000 write-down on the Company's Acton,
Massachusetts property held for sale. This building and land were sold on April
30, 1998, for approximately $1,280,000. No additional gain or loss was realized
on the sale. The land and buildings are included in other assets at September
27, 1997. The offsetting other income is attributed to the proceeds from the
Acton leased facility until lease expiration in February 1997 and a $91,000 gain
on the sale of a stock investment by the Company.
The Company is subject to alternative minimum tax which, when combined with
state taxes, merger expenses, which are generally not deductible, and deferred
taxes resulted in a tax provision from continuing operations of $292,000,
$766,000 and $796,000 in fiscal years 1998, 1997 and 1996.
Financial Condition, Capital Resources and Liquidity
At October 3, 1998, working capital decreased to $8,182,000 from $9,822,000 at
September 27, 1997, principally as a result of a decrease in each current asset
category. However, this was largely offset by an approximate $4,300,000
reduction in current liabilities. Changes in the components of working capital
are detailed in the Company's Consolidated Statements of Cash Flows. The
Company's current ratio at fiscal year-end 1998 improved to approximately 3.7 to
1. Its total debt-to-equity ratio improved to approximately 0.6 to 1.
In fiscal 1998 and 1997, the Company generated $2,156,000 and $1,295,000
respectively of cash from operating activities. Net income in fiscal 1998,
without the effect of the reversal of reserve for loss from discontinued
operations was $1,869,000 lower than fiscal 1997. The major use of cash in
fiscal 1998 was $4,258,000 for the retirement of long term debt and payment of
the balance in the line of credit with Bank One of Arizona.
13
<PAGE> 16
On April 30, 1998, the Company sold certain land and a building in Acton,
Massachusetts for approximately $1,280,000. No significant gain or loss was
realized on the date of sale.
The Company's capital expenditure plans are principally to expand manufacturing
capacity and are expected to be financed largely through existing credit lines,
and to a lesser extent, through funds provided from operations.
The major use of funds for capital expenditures in fiscal 1997 and 1998 was for
the build out of the new 53,000 square foot microelectronics division
manufacturing facility in Phoenix, Arizona. Expenditures for building and
manufacturing area improvements totaled $1,314,000 in fiscal 1997 and $224,000
in fiscal 1998. Additional expenditures for manufacturing and office equipment
account for the remaining $266,000 of property, plant and equipment purchases in
fiscal 1998. The new building expenditures in fiscal 1997 are the main reason
for the $1,520,000 increase from 1996 in property, plant and equipment.
Other major balance sheet account changes during fiscal 1998 include the
following items: accounts receivable decreased $1,433,000 mainly because of
shipment timing differences from previous years. Net inventories decreased
$2,650,000 from year-end 1997 amounts as the Company used the inventory
purchased in late fiscal 1997. Raw materials decreased $2,011,000 as the
components were used for production. Because of the inventory buildup in fiscal
1997, inventory purchases for fiscal 1998 were $1,549,324 below fiscal 1997
purchases. The current portion of long-term debt has decreased by $871,000
because of payment of a $1,000,000 short-term loan in addition to the retirement
of the Industrial Revenue Bonds which previously carried a $90,000 current
balance. This reduction was slightly offset by a $300,000 current portion
increase because the loan for lease hold improvements was refinanced to a
shorter maturity. Accounts payable decreased $818,000 as payments were made from
the inventory purchases in late fiscal 1997. Long term debt was decreased by
$3,051,000 during fiscal 1998. The proceeds from the sale of the land and
building in Acton, Massachusetts were used to retire the Industrial Revenue
Bonds, and to pay off $950,000 of the Bank One term loan. This decrease was
partially offset by a new term loan with Bank One for $1,200,000 set up to
finance the leasehold improvements for the White facility.
During fiscal 1998 the Company executed a modification to its credit facility
with Bank One, which extended the Company's due date on its revolving line of
credit to February 28, 2000 and modified certain restrictive covenants.
Subsequent to October 3, 1998 the Company revised its credit facility with Bank
One, which reduced annual principal payments and lowered the interest rate on
the term loan.
Management also anticipates that for the near term its cash payments for Federal
income taxes will be based on rates applicable to the alternative minimum tax as
it uses its net operating loss carryforwards.
Management believes that cash generated by operations, in addition to the
Company's borrowing capability, should be sufficient to fund the Company's cash
needs for the foreseeable future.
Seasonality and Inflation
The Company's business is not seasonal in nature. Management believes that the
Company's operations have not been materially affected by inflation.
Recently Enacted Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income (SFAS 130), which establishes standard for
reporting and display of comprehensive income and its components for each period
reported. The provisions of this Statement are effective for fiscal years
beginning before December 15, 1997. Management believes that the Company
currently does not have items that would require presentation in a separate
statement of comprehensive income.
14
<PAGE> 17
In June 1997, the Financial Accounting Standards Board (FASB) also issued
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information (SFAS 131), which establishes standards
for the way public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. This statement is effective for financial
statements for periods beginning after December 15, 1997. Management believes
this statement may require expanded disclosure in the Company's future financial
statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
132, Employers Disclosure about Pensions and Other Postretirement Benefits,
which standardizes the disclosure requirements for pension and other
postretirement benefits. To the extent practicable, this statement requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis, and eliminates certain
disclosures. This Statement is effective for fiscal years beginning after
December 15, 1997. Management believes this may require expanded disclosure in
the Company's future financial statement.
YEAR 2000
Many computer systems experience problems handling dates beyond the year 1999.
Many existing computer programs only use two digits to identify a year in the
date field. As a result, computer systems and/or software used by many computers
may need to be upgraded to comply with such "Year 2000" requirements. Such
systems and programs must be modified or replaced prior to January 1, 2000 in
order to remain functional. Significant uncertainty exists in the hardware and
software industry concerning the potential effects associated with such
compliance. The Company has undertaken a company-wide review of its Year 2000
exposure. The Company has surveyed its supporting systems and has implemented a
plan to make its systems Year 2000 compliant by March 1999. All current products
are now Year 2000 compliant. The Company has also been in contact with its major
suppliers and vendors, each of which is either Year 2000 compliant or is
completing system upgrades to become compliant. The Company is currently
responding to customer inquiries with respect to the Year 2000 issue. If
modifications and conversions to address the Year 2000 issue are not completed
on a timely basis or are not fully effective, the Year 2000 problem may have a
material adverse effect on the Company. The Company expects to implement
successfully the systems and programming changes necessary to address the Year
2000 issue and does not believe the cost of such actions will have a material
adverse effect on the Company, its results of operations or financial
conditions. The Company also relies, directly and indirectly, on the external
systems of business enterprises such as customers, suppliers, creditors, and
financial organizations for accurate exchange of data. Even if the Company's
products or its internal systems are not materially affected by the Year 2000
issue, the Company could be affected through disruptions in the operations of
issue on its internal systems and business operations, and there can be no
assurance that such will not result in a material disruption of its business,
financial condition or result of operations.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 of this Annual Report for required financial statements and
supplementary data.
15
<PAGE> 18
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item for directors is set forth in the
Company's 1999 Proxy Statement under the heading "Election of Directors" and the
heading "Section 16(a) Beneficial Ownership Reporting Compliance" and is
incorporated herein by this reference as if set forth in full. The information
required by this Item for Executive Officers of the Company is set forth in Part
I of this Form 10-K as a separate item in Part I entitled "Executive Officers of
the Company."
ITEM 11 EXECUTIVE COMPENSATION
The information required by this Item is set forth in the Company's 1999 Proxy
Statement under the heading "Executive Compensation" and is incorporated herein
by this reference as if set forth in full.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth in the Company's 1999 Proxy
Statement under the heading "Principal Shareholders" and under the heading
"Election of Directors-Nominees" and is incorporated herein by this reference as
if set forth in full.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth in the Company's 1999 Proxy
Statement under the heading "Certain Transactions" and under the heading
"Compensation Committee Interlocks and Insider Participation" and is
incorporated herein by this reference as if set forth in full.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)(2) Financial Statements and Supplementary Data
Page
Consolidated Financial Statements
Report of Independent Accountants 22
Consolidated Balance Sheets as of October 3, 1998 and
September 27, 1997 23
16
<PAGE> 19
Consolidated Statements of Income for the Years
Ended October 3, 1998, September 27, 1997 and
September 28, 1996 24
Consolidated Statements of Shareholders' Equity for
the Year Ended October 3, 1998, September 27, 1997
and September 28, 1996 25
Consolidated Statements of Cash Flows for the Years
Ended October 3, 1998, September 27, 1997 and
September 28, 1996 26
Notes to Consolidated Financial Statement 27
Financial Statement Schedules for the Years Ended October 3,
1998, September 27, 1997, and September 28, 1996.
Financial statement schedules have been omitted because either
they are not required or are not applicable, or because the
information has been included in the consolidated financial
statements or notes thereto.
(a)(3)Exhibits:
2.1 Agreement and Plan of Merger, dated May 3, 1998, by and among
Bowmar Instrument Corporation, Electronic Designs, Inc. and
Bravo Acquisition Subsidiary, Inc. (incorporated herein by
reference to Exhibit 2 to the Current Report on Form 8-K filed
on May 6, 1998).
2.1A Amendment to Agreement and Plan of Merger, dated June 9, 1998
(incorporated herein by reference to Exhibit 2.1A to the
Registration Statement on Form S-4, Registration No.
333-56565).
2.1B Amendment to Agreement and Plan of Merger, dated August 24,
1998 (incorporated herein by reference to Exhibit 2.1B to the
Registration Statement on Form S-4, Registration No.
333-56565).
*3.1 Amended and Restated Articles of Incorporation of White
Electronic Designs Corporation.
*3.2 Amended and Restated Code of By-Laws of White Electronic
Designs Corporation.
4.1 Rights Agreement, dated December 6, 1996, between Bowmar
Instrument Corporation and American Stock Transfer and Trust
Company, as Rights Agent (incorporated herein by reference to
Exhibit 5C to the Current Report on Form 8-K filed on December
19, 1996).
4.1A Amendment No. 1 to Rights Agreement, effective as of May 3,
1998 (incorporated herein by reference to Exhibit 4.3 to the
Registration Statement on Form S-4, Registration No.
333-56565).
4.2 Indenture, Bowmar Instrument Corporation 13 1/2% Convertible
Subordinated Debentures due December 15, 1995 (incorporated
herein by reference to Exhibit 4.4 to the Registration
Statement on Form S-7, Registration No. 2-70025).
*4.3 Stock Certificate of White Electronic Designs Corporation
10.1 Agreement to be Bound by Registration Rights Agreements,
dated as of May
17
<PAGE> 20
3, 1998, by and between Bowmar Instrument Corporation and Electronic
Designs, Inc. (incorporated herein by reference to Exhibit 10.1 to
the Registration Statement on Form S-4, Registration No. 333-56565).
10.2 Agreement to be Bound by Severance Agreements and Employment
Agreement, dated as of May 3, 1998, by and between Bowmar Instrument
Corporation and Electronic Designs, Inc. (incorporated herein by
reference to Exhibit 10.2 to the Registration Statement on Form S-4,
Registration No. 333-56565).
**10.3 Executive Employment Agreement by and between Hamid Shokrgozar and
Bowmar Instrument Corporation (incorporated herein by reference to
Exhibit 10.4(j) to the Quarterly Report on Form 10-Q for the
quarterly period ended April 4, 1998).
**10.4 Executive Employment Agreement by and between Joseph G. Warren, Jr.
and Bowmar Instrument Corporation (incorporated herein by reference
to Exhibit 10.7 to the Quarterly Report on Form 10-Q for the
quarterly period ended January 3, 1998).
10.5 Purchase and Sales Agreement, dated December 5, 1997, concerning the
sale of the Acton, Massachusetts facility (incorporated herein by
reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q for
the quarterly period ended January 3, 1998).
10.6 Fourth Amendment to Credit Agreement, dated as of March 16, 1998, by
and between Bowmar Instrument Corporation and Bank One, Arizona, NA
(incorporated herein by reference to Exhibit 10.4(h) to the
Quarterly Report on Form 10-Q for the quarterly period ended April
4, 1998).
10.7 Promissory Note Modification Agreement, dated March 16, 1998, by and
between Bowmar Instrument Corporation and Bank One, Arizona, NA
(incorporated herein by reference to Exhibit 10.4(i) to the
Quarterly Report on Form 10-Q for the quarterly period ended April
4, 1998).
10.8 Lease, dated February 23, 1990, by and between Bowmar/Ali, Inc. as
landlord and LAU Acquisition Corporation as tenant (incorporated
herein by reference to Exhibit 10.1(bb) to the Annual Report on Form
10-K filed for the fiscal year ended September 30, 1990).
**10.9 Employment Agreement dated August 15, 1991, as amended as of August
15, 1992, and as of June 1, 1995 between Gardiner S. Dutton and
Bowmar Instrument Corporation (incorporated herein by reference to
Exhibit 10.1(ff) to the Annual Report on Form 10-K for the fiscal
year ended September 30, 1992 and Exhibit 5(b) to Form 8-K dated
June 26, 1995).
**10.10 Form of Incentive Stock Option Agreement covering incentive stock
options granted under the Corporation's now terminated 1986 Plan, as
amended October 23, 1987 (incorporated here in by reference to
Exhibit 10.2(c) to the Annual Report on Form 10-K for the fiscal
year ended September 30, 1987).
**10.11 Form of Non-Incentive Stock Option Agreement covering non-incentive
stock options granted under the Corporation's now terminated 1986
Plan, as amended October 23, 1987 (incorporated by reference to
Exhibit 10.2(c) to the Annual Report on Form 10-K for the fiscal
year ended September 30, 1987).
**10.12 Bowmar Instrument Corporation Stock Option Plan for Non-Employee
Directors as amended February 4, 1994 (incorporated herein by
reference to Exhibit B to the Corporation's definitive Proxy
Statement, prepared in connection with the
18
<PAGE> 21
1994 Annual Meeting of Shareholders).
**10.13 Non-Incentive Stock Option Agreement dated August 16, 1991, as
amended August 15, 1992, between Bowmar Instrument Corporation
and Gardiner S. Dutton (incorporated herein by reference to
Exhibit 10.1(ff) to the Annual Report on Form 10-K for the
fiscal year ended September 30, 1992).
**10.14 1994 Flexible Stock Plan (incorporated herein by reference to
Exhibit A to the Corporation's definitive Proxy Statement prepared
in connection with the 1994 Annual Meeting of Shareholders).
**10.15 Form of Agreement governing awards of restricted stock under the
Corporation's now terminated Restricted Plan (incorporated herein by
reference to the exhibit to Amendment No. 1 to the Registration
Statement of Form S-8 (No. 2-67645)).
10.16 Loan documents by and between Bank One, Arizona, NA and Bowmar
Instrument Corporation and its wholly owned subsidiary, Bowmar/ALI,
Inc. (incorporated herein by reference to exhibits 10.4a through
10.4g to the Annual Report on Form 10-K for the fiscal year ended
September 30, 1995).
10.17 Modification Agreement dated April 26, 1996, pursuant to the Loan
Agreement dated August 28, 1995 by and between Bank One, Arizona, NA
and the Registrant (incorporated herein by reference to Exhibit
10.4(b) to the Annual Report on Form 10-K for the fiscal year ended
September 28, 1996).
10.18 Second Modification Agreement dated August 9, 1996, pursuant to the
Loan Agreement dated August 28, 1995 by and between Bank One,
Arizona, NA and the Registrant (incorporated herein by reference to
Exhibit 10.4(c) to the Annual Report on Form 10-K for the fiscal
year ended September 28, 1996).
10.19 Third Modification Agreement dated March 28, 1997 pursuant to the
Loan Agreement dated August 28, 1995 by and between Bank One,
Arizona NA and the Registrant (incorporated herein by reference to
Exhibit 10.4(d) to the Form 10-Q for the quarter ended March 29,
1997).
10.20 Modification of Mortgage (Massachusetts) dated March 28, 1997 by and
between Bank One, Arizona NA and the Registrant and its wholly owned
subsidiary, Bowmar/ALI (incorporated herein by reference to Exhibit
10.4(e) to the Form 10-Q for the quarter ended March 29, 1997).
10.21 Modification of Mortgage (Indiana) dated March 28, 1997 by and
between Bank One, Arizona NA and the Registrant (incorporated herein
by reference to Exhibit 10.4(f) to the Form 10-Q for the quarter
ended March 29, 1997).
10.22 Revolving Promissory Note (RLT) dated March 28, 1997 by and between
Bank One, Arizona NA and the Registrant, for up to $1,200,000
(incorporated herein by reference to Exhibit 10.4(g) to the Form
10-Q for the quarter ended March 29, 1997).
10.23 Lease dated February 4, 1997 by and between Bowmar Instrument
Corporation as tenant and Gus Enterprises-XII, LLC as landlord
(incorporated by reference to Exhibit 10.5 to the Annual Report on
Form 10-K for the fiscal year ended September 27, 1997).
*21.1 Subsidiaries of White Electronic Designs Corporation.
*27.1 Financial Data Schedule.
- - - ----------
19
<PAGE> 22
* Filed herewith.
** Management compensatory contract, plan or arrangement.
(b) Reports on Form 8-K
Form 8-K to report change in Exchange Ratio filed August 28, 1998.
(c) See (a)(3) above.
(d) Not applicable.
20
<PAGE> 23
ITEM 15 SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
WHITE ELECTRONIC DESIGNS CORPORATION
Date: December 22, 1998 /s/Joseph G. Warren, Jr.
------------------------------ ------------------------------------
Joseph G. Warren, Jr.
Vice President Finance, Secretary,
Treasurer and Chief Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the date indicated:
/s/Norman T. Hall /s/Donald F. McGuinness
- - - ---------------------------------- ------------------------------------
Norman T. Hall Donald F. McGuinness
Director Chairman of the Board of Directors
Date: December 22, 1998 Date: December 22, 1998
------------------------------ -------------------------------
/s/Thomas M. Reahard /s/Thomas J. Toy
- - - ---------------------------------- ------------------------------------
Thomas M. Reahard Thomas J. Toy
Director Director
Date: December 22, 1998 Date: December 22, 1998
------------------------------ -------------------------------
/s/Hamid R. Shokrgozar /s/Joseph G. Warren, Jr.
- - - ---------------------------------- ------------------------------------
Hamid R. Shokrgozar Joseph G. Warren, Jr.
President, Chief Executive Officer Vice President Finance, Secretary,
and Director Treasurer and Chief Financial and
Accounting Officer
Date: December 22, 1998 Date: December 22, 1998
------------------------------ -------------------------------
/s/Edward A. White
- - - ----------------------------------
Edward A. White
Vice Chairman of the Board
and Director
Date: December 22, 1998
-----------------------------
21
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
WHITE ELECTRONIC DESIGNS CORPORATION
(formerly BOWMAR INSTRUMENT CORPORATION)
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholder's equity, and of cash flows
present fairly, in all material respects, the financial position of White
Electronic Designs Corporation and Subsidiary (formerly Bowmar Instrument
Corporation) at October 3, 1998 and September 27, 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
October 3, 1998, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Phoenix, Arizona
November 13, 1998 (except for the third
paragraph of Note 19 for which the date
is December 3, 1998.)
22
<PAGE> 25
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
(FORMERLY BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY)
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
October 3, September 27,
1998 1997
- - - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 1,069 $ 1,218
Accounts receivable, less allowance for
doubtful accounts of $79 and $43 3,007 4,476
Inventories 5,508 8,158
Prepaid expenses 344 539
Deferred income taxes 1,320 2,782
- - - -----------------------------------------------------------------------------------------------------------------------
Total Current Assets 11,248 17,173
Property, Plant and Equipment, net 2,361 2,642
Deferred Income Taxes 1,198 492
Other Assets, net 91 1,202
- - - -----------------------------------------------------------------------------------------------------------------------
Total Assets $ 14,898 $ 21,509
=======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 737 $ 1,608
Accounts payable 1,169 1,987
Accrued salaries and benefits 685 1,953
Other accrued expenses 475 503
Reserve for loss on discontinued operation 0 1,300
- - - -----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 3,066 7,351
Long Term Debt 2,366 4,546
Other Long term Liabilities 339 339
- - - -----------------------------------------------------------------------------------------------------------------------
Total Liabilities 5,771 12,236
- - - -----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (see Note 11)
- - - -----------------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Preferred stock, $1.00 par value, authorized 500,000 shares,
issued 119,906, and 119,906 shares 120 120
Common stock, $0.10 stated value, authorized 15,000,000 shares,
issued 6,719,434 and 6,718,934 shares 672 672
Treasury stock, 44,442 shares, at stated value (4) (4)
Additional paid-in capital 6,610 6,609
Retained earnings 1,729 1,876
- - - -----------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 9,127 9,273
- - - -----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 14,898 $ 21,509
=======================================================================================================================
</TABLE>
See notes to Consolidated Financial Statements.
23
<PAGE> 26
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
(FORMERLY BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except share and per share data)
<TABLE>
<CAPTION>
FISCAL YEAR
1998 1997 1996
- - - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 28,998 $ 27,820 $ 25,317
Cost of sales 20,744 17,118 15,787
- - - ------------------------------------------------------------------------------------------------------------------------
Gross margin 8,254 10,702 9,530
- - - ------------------------------------------------------------------------------------------------------------------------
Expenses:
Selling, general and administrative 6,500 7,470 6,878
Product development 628 610 580
Interest expense 517 417 522
Merger expense 1,005 0 0
Other expense (income), net (121) 137 (536)
- - - ------------------------------------------------------------------------------------------------------------------------
Total expenses 8,529 8,634 7,444
- - - ------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes (275) 2,068 2,086
Income tax expense (benefit) 292 766 796
- - - ------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (567) 1,302 1,290
- - - ------------------------------------------------------------------------------------------------------------------------
Discontinued operations (Note 16)
Reversal (Provision) for loss on disposition, net of deferred
income tax expense (benefit) of $520, ($520) and $0 780 (780) 0
- - - ------------------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations 780 (780) 0
- - - ------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 213 $ 522 $ 1,290
========================================================================================================================
Earnings per share - basic, continuing operations $ (0.14) $ 0.14 $ 0.14
Earnings per share - basic, discontinued operations $ 0.12 $ (0.12) $ 0.00
- - - ------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE - BASIC $ (0.02) $ 0.02 $ 0.14
- - - ------------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares and equivalents:
Basic 6,674,739 6,640,772 6,462,077
- - - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
For Fiscal 1998, 1997 and 1996 earnings per share assuming dilution is the same
as earnings per share basic and thus is not shown separately.
See notes to Consolidated Financial Statements.
24
<PAGE> 27
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
(FORMERLY BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
Additional Total Share-
Preferred Common Treasury Paid-in Retained holders'
Stock Stock Stock Capital Earnings Equity
- - - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995 $ 120 $ 650 $ (4) $ 6,245 $ 784 $ 7,795
================================================================================================================================
Net income 1,290 1,290
Issuance of common stock:
Exercise of options and
awards and related tax benefits
27,800 shares 3 70 73
Deferred compensation costs 15 15
Payment of preferred dividends (360) (360)
================================================================================================================================
BALANCE, SEPTEMBER 28, 1996 120 653 (4) 6,330 1,714 8,813
================================================================================================================================
Net income 522 522
Issuance of common stock:
Exercise of options and
awards and related tax
benefits 190,700 shares 19 270 289
Deferred compensation costs 9 9
Payment of preferred dividends (360) (360)
================================================================================================================================
BALANCE, SEPTEMBER 27, 1997 120 672 (4) 6,609 1,876 9,273
================================================================================================================================
Net income 213 213
Issuance of common stock:
Exercise of options and related tax
benefits, 500 shares 1 1
Payment of preferred dividends (360) (360)
================================================================================================================================
BALANCE, OCTOBER 3, 1998 $ 120 $ 672 $ (4) $ 6,610 $1,729 $ 9,127
================================================================================================================================
</TABLE>
See notes to Consolidated Financial Statements
25
<PAGE> 28
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
(FORMERLY BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
FISCAL YEAR
1998 1997 1996
- - - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 213 $ 522 $ 1,290
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 633 540 496
Allowance for doubtful accounts 36 (93) 34
Reserve for excess and obsolete inventory 566 113 66
Reserve for loss from discontinued operations (1,300) 1,300 0
Deferred income tax (benefit) expense 756 (98) 689
Net changes in balance sheet accounts:
Accounts receivable 1,433 (391) (144)
Inventories 2,084 (2,212) (705)
Prepaid expenses 195 (137) 55
Other assets (346) 462 19
Accounts payable (818) 1,055 (520)
Accrued salaries and benefits (1,268) 450 (589)
Other accrued expenses (28) (216) (382)
- - - ----------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,156 1,295 309
- - - ----------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (490) (1,802) (365)
Proceeds from sales of property, plant and equipment 1,595 0 135
- - - ----------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,105 (1,802) (230)
- - - ----------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Borrowings under (payments on) line of credit, net (2,331) 2,331 0
Borrowings of long-term debt 1,207 190 4,200
Retirement of long-term debt (1,927) (833) (4,623)
Issuance of common stock 1 289 73
Payment of preferred stock dividends (360) (360) (360)
- - - ----------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (3,410) 1,617 (710)
- - - ----------------------------------------------------------------------------------------------
Net change in cash (149) 1,110 (631)
Cash at beginning of year 1,218 108 739
- - - ----------------------------------------------------------------------------------------------
Cash at end of year $ 1,069 $ 1,218 $ 108
==============================================================================================
SUPPLEMENTAL CASH FLOWS INFORMATION:
Net cash paid for interest $ 500 $ 412 $ 511
Net cash paid for income taxes $ 120 $ 280 $ 139
Non-cash Investing and Financing Activities:
Capital lease agreements $ -- $ 235 $ --
- - - ----------------------------------------------------------------------------------------------
</TABLE>
See notes to Consolidated Financial Statements
26
<PAGE> 29
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
(FORMERLY BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
White Electronic Designs Corporation, formerly Bowmar Instrument Corporation and
its subsidiary (collectively "the Company"), designs and manufactures high
density, solid state memory modules, multichip modules, interface products, and
electromechanical components and packages. The Company's customers include both
domestic and international government contractors and commercial businesses. The
majority of the sales and earnings are generated by the memory and multichip
module product lines.
2. SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation
The consolidated financial statements include the accounts of the
Company. All significant inter-company accounts and transactions are
eliminated. Certain amounts in prior fiscal years consolidated
financial statements have been reclassified to conform to current
presentation.
b. Fiscal Year-End
The Company's fiscal year-end is the Saturday nearest September 30.
c. Cash and Cash Equivalents
The Company considers all investments with original maturities of three
months or less to be cash equivalents.
d. Inventories
Inventories are stated at the lower of cost (principally first-in,
first-out) or market.
e. Property, Plant and Equipment
Property, plant and equipment, including property under capital lease
agreements, are stated at cost. Depreciation is determined on a
straight-line basis over the estimated useful lives ranging from 5 to
33 years for buildings and improvements and 3 to 10 years for machinery
and equipment. Leasehold improvements are amortized over the lives of
the leases or estimated useful lives of the assets, whichever is less.
When assets are sold or otherwise retired, the cost and accumulated
depreciation are removed from the books and the resulting gain or loss
is included in operating results.
f. Government Contracts
Sales under government contracts are recorded when the units are
shipped and accepted by the government.
g. Sales Recognition
Sales are recognized when the Company's products are shipped. The
Company records at the time of shipments, as an offset to sales, a
reserve for estimated returned goods.
h. Income Taxes
The Company files a consolidated tax return with its wholly owned
subsidiary. Temporary differences in the recognition of taxable income
for financial reporting and income tax purposes relate primarily to the
use of different depreciation methods and useful lives for tax
purposes, the allowances for doubtful accounts, inventory obsolescence
and the timing of reporting bonus expense.
i. Newly Issued Accounting Standards
In June, 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income (SFAS 130), which
establishes standards for reporting and display of comprehensive income
and its components. This statement requires a separate statement to
report the components of comprehensive income for each period reported.
The provisions of this statement
27
<PAGE> 30
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
(FORMERLY BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
are effective for fiscal years beginning after December 15, 1997.
Management believes that the Company currently does not have items that
would require presentation of comprehensive income.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and
related Information (SFAS 131), which establishes standards for the way
the public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports issued to shareholders. This statement is
effective for financial statements for periods beginning after December
15, 1997. Management believes this may require expanded disclosure in
the Company's future financial statements.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 132, Employers Disclosure about Pensions and Other
Postretirement Benefits, which standardizes the disclosure requirements
for pension and other postretirement benefits. To the extent
practicable, this statement requires additional information on changes
in the benefit obligations and fair values of plan assets that will
facilitate financial analysis, and eliminates certain disclosures. This
Statement is effective for fiscal years beginning after December 15,
1997. Management believes this may require expanded disclosure in the
Company's future financial statement.
j. Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ
from those estimates.
k. Other Income and Expense
Fiscal 1998 Other Income includes a tax settlement of $292,000. This
was partially offset by expenses incurred on the Acton, Massachusetts
property prior to the sales date. Fiscal 1997 other expense includes a
$425,000 loss on the sale of the Acton, Massachusetts property, offset
by $288,000 of partial year rental income, gain on the sale of stock of
a former subsidiary, and miscellaneous income. Fiscal 1996 other income
includes $572,000 of full year net rental income for the Acton
property.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
October 3, 1998 September 27, 1997
- - - -----------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 1,266,000 $ 3,277,000
Work-in-process 3,342,000 4,258,000
Finished goods 900,000 623,000
- - - -----------------------------------------------------------------------
Total Inventories $ 5,508,000 $ 8,158,000
=======================================================================
</TABLE>
The inventories are net of reserve for excess and obsolete inventories of
$1,544,000 and $978,000 for fiscal 1998 and 1997 respectively.
28
<PAGE> 31
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
(FORMERLY BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. OTHER ASSETS
Other assets declined in 1998 as a result of the sale of certain land and
buildings in Acton, MA. No significant gain or loss was recognized at the time
of the sale. The building was leased under an operating lease agreement which
ended in February, 1997. Rental income during fiscal years 1998, 1997, and 1996
was $0, $233,000 and $572,000 respectively.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
October 3, 1998 September 27, 1997
- - - -----------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 123,000 $ 123,000
Buildings and improvements 961,000 956,000
Machinery and equipment 5,857,000 7,525,000
Leasehold improvements 1,516,000 316,000
- - - -----------------------------------------------------------------------------------------
Total, at cost 8,457,000 8,920,000
Less accumulated depreciation and amortization 6,096,000 6,278,000
- - - -----------------------------------------------------------------------------------------
Net Property, Plant and Equipment $2,361,000 $2,642,000
=========================================================================================
</TABLE>
At fiscal year-end 1998 and 1997, property, plant and equipment includes
approximately $609,000 and $608,000, respectively, of equipment under leases
that have been capitalized. Accumulated amortization for such equipment
approximated $567,000 and $379,000 for fiscal years 1998 and 1997, respectively.
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
October 3, 1998 September 27, 1997
- - - -----------------------------------------------------------------------------------
<S> <C> <C>
Bank One term loan $ 2,035,000 $ 3,405,000
Bank One term loan, Building 1,025,000 0
Bank One revolving line of credit 0 2,331,000
Industrial revenue bonds 0 270,000
Obligations under capital leases 43,000 148,000
- - - -----------------------------------------------------------------------------------
Sub-Total 3,103,000 6,154,000
Less current portion 737,000 1,608,000
- - - -----------------------------------------------------------------------------------
Total long term debt $ 2,366,000 $ 4,546,000
===================================================================================
</TABLE>
The financing agreement with Bank One provides for a $4.0 million revolving line
of credit which expires February 28, 2000 and bears interest at .5% over the
Bank's prime rate (on October 3, 1998 the loan rate was 8.75%); term loan with
principal amount of $2,035,000 which bears interest at the rate of 1.25% over
the bank's prime rate. The term loan's rate on October 3, 1998 was 9.5% with
principal payments of $35,000 per month with the balance due on July 31, 2000.
In addition, the Company has another term loan with Bank One with a principal
amount of $1,025,000 which bears interest at the rate of 1.00% over the bank's
prime rate. This term loan's rate at October 3, 1998 was 9.25% with principal
payments of $25,000 per month with the balance due on March 31, 2002.
The Bank One financing is collateralized by all of the assets of the Company.
The financing agreement contains certain financial covenants and precludes the
payment of cash dividends for both Preferred and Common Stock in excess of
$500,000 per year. During 1998, the Company was in violation of a certain
financial covenant which has been waived by the bank.
In December 1998, the Company signed a new financing agreement with Bank One.
Under the terms of the agreement, both term loans were combined into one with
principal payments of $29,363 per month with the balance due on November 30,
2003 with interest at 2.5% over LIBOR.
29
<PAGE> 32
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
(FORMERLY BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The new agreement also provides for a $6 million revolving line of credit that
expires on February 28, 2000.
The availability of cash under the revolving line of credit is based on eligible
accounts receivable and inventories. There is a charge of 1/4 of 1% per month on
the unused portion of the line of credit.
The aggregate maturities of the above term debt are approximately $737,000 in
1999, $1,941,000 in 2000, $300,000 in 2001 and $125,000 in 2002.
The weighted average interest rate on long term debt for fiscal 1998, 1997, and
1996 was approximately 11.00%, 9.9%, and 9.9% respectively.
7. INCOME TAXES
The provision for income taxes on continuing operations consists of the
following (in thousands of dollars):
<TABLE>
<CAPTION>
Fiscal Year
1998 1997 1996
- - - -----------------------------------------------------------------------------
<S> <C> <C> <C>
Current $ 56,000 $ 344,000 $ 107,000
Deferred 236,000 422,000 689,000
- - - -----------------------------------------------------------------------------
Income tax provision $ 292,000 $ 766,000 $ 796,000
=============================================================================
</TABLE>
Based on the Company's taxable income in recent years and projecting future
taxable income over the period in which the deferred income tax assets are
deductible, the Company believes that it is more likely than not that it will
realize the benefit of the deferred tax assets.
A reconciliation of the provision for income taxes on continuing operations
between the U.S. statutory and effective rates follows (in thousands of
dollars):
<TABLE>
<CAPTION>
Fiscal Year
1998 1997 1996
- - - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision (benefits) at statutory rate $ (94) $ 703 $ 709
State taxes, net of federal benefit 115 93 131
Non deductible merger costs 271 0 0
Adjustment related to prior years tax returns 0 (30) (44)
- - - -----------------------------------------------------------------------------------------------
Effective Tax $ 292 $ 766 $ 796
- - - -----------------------------------------------------------------------------------------------
</TABLE>
The income tax effect of loss carryforwards, tax credit carryforwards and
temporary differences between financial and tax reporting give rise to the
deferred income assets and liabilities. Deferred income taxes consisted of the
following:
<TABLE>
<CAPTION>
October 3, 1998 September 27, 1997
- - - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current:
Inventories $ 932,000 $ 646,000
Accrued salaries, benefits, interest, expenses and reserves 229,000 1,360,000
Net operating loss carryforwards 159,000 776,000
- - - -------------------------------------------------------------------------------------------------------------
Subtotal 1,320,000 2,782,000
--------- ---------
Long Term:
Property, Plant and Equipment 95,000 264,000
Net operating loss carryforwards 890,000 84,000
Alternative minimum tax credits 146,000 144,000
Other 67,000 0
- - - -------------------------------------------------------------------------------------------------------------
Subtotal 1,198,000 492,000
- - - -------------------------------------------------------------------------------------------------------------
Total $2,518,000 $3,274,000
=============================================================================================================
</TABLE>
As of October 3, 1998, the Company had federal net operating loss carryforward
for tax purposes of approximately $3,087,000 which expire from 2003 through
2005.
30
<PAGE> 33
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
(FORMERLY BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. BENEFIT PLANS
The Company has a defined benefit pension plan for union employees at its Fort
Wayne, Indiana facility pursuant to a collective bargaining agreement. Benefits
are based primarily on a benefits multiplier and years of service. The Company
funds the amount equal to the minimum funding required plus additional amounts
which may be approved by the Company from time to time. Net periodic pension
cost included the following components:
<TABLE>
<CAPTION>
Fiscal Year
1998 1997 1996
- - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost benefits earned $ 70,000 $ 84,000 $ 71,000
Interest cost 143,000 138,000 135,000
Return on plan assets (192,000) (384,000) (110,000)
Amortization of transition asset (10,000) (10,000) (10,000)
Amortization of prior service costs 15,000 15,000 (17,000)
Deferral of gain to future years 36,000 245,000 0
- - - --------------------------------------------------------------------------------
Total pension cost $ 62,000 $ 88,000 $ 69,000
================================================================================
</TABLE>
At October 3, 1998, the actuarial present value of accumulated benefit
obligations was $2,258,116 of which $2,206,392 was vested. The vested benefit
obligation is the actuarial present value of the vested benefits to which the
employee would be entitled if the employee separated immediately. Prepaid
pension cost at October 3, 1998 and September 27, 1997, was calculated as
follows:
<TABLE>
<CAPTION>
October 3, 1998 September 27, 1997
- - - ------------------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation $ 2,258,000 $ 1,955,000
Market value of plan assets 2,354,000 2,279,000
- - - -----------------------------------------------------------------------------------------
Plan assets over projected benefit obligation 96,000 324,000
Unrecognized transition assets 0 (10,000)
Unrecognized past service costs 78,000 92,000
Unrecognized net loss (gain) 13,000 (199,000)
- - - -----------------------------------------------------------------------------------------
Prepaid Pension Cost $ 187,000 $ 207,000
=========================================================================================
</TABLE>
Plan assets primarily consist of investments in mutual funds, corporate bonds
and money market funds. The weighted-average assumed discount rate was 6.5% and
the long-term rate of return on assets was 7.0%.
In addition, the Company has an Incentive Savings 401(k) Plan covering non-union
employees of the Company who have completed six months of service. The Company
matches employee contributions equal to 50% of the first 3% of a participant's
wage base. During each of the fiscal years 1998, 1997 and 1996, the Company made
contributions to the plan of approximately $63,000, $64,000, and $60,000
respectively.
9. STOCK OPTIONS AND AWARDS
The Company has adopted the disclosure only provision of Statement of Financial
Accounting Standards No. 123, Accounting for Stock Based Compensation (SFAS
123). As allowed by SFAS 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. Accordingly, since
all options are issued with exercise prices greater than or equal to the market
price on the rant date, no compensation cost has been recognized for the stock
option plans.
31
<PAGE> 34
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
(FORMERLY BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the Company's shareholder approved 1994 Flexible Stock Plan, Common Stock
is available for the grant of options, appreciation rights, restricted stock
awards, performance shares and other stock-based awards. The vesting and terms
of the options granted under this plan are determined when awarded by the Board
of Directors. At October 3,1998 there were 463,321 shares available for future
grants to directors, officers and employees at prices not less than the fair
value at the date of grant by the Board of Directors. At fiscal year-end 1998,
491,000 shares from the Company's 1994 plan are under option.
During fiscal 1995, the Board of Directors terminated the Company's shareholder
approved 1986 Stock Option Plan. At fiscal year-end 1998, 43,500 shares from the
Company's 1986 Plan remain under option.
The Company's shareholder approved Non-Qualified Stock Option Plan for Directors
provides for the issuance of options to purchase shares of Common Stock to
directors at an exercise price equal to the fair market value on the date of
issuance. At fiscal year end October 3, 1998, there were 130,274 shares
available for future grants to the directors. The options are exercisable as
early as six months after date of grant and expire in ten years. A total of
136,000 options under this Non-Qualified Plan have been issued to non-employee
directors and 132,000 options remain unexercised at October 3, 1998.
A summary of the Company's stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------------------------------------------------------------------
Fiscal Year
1998 1997 1996
- - - -----------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
Under Exercise Under Exercise Under Exercise
Option Price Option Price Option Price
- - - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance outstanding 661,500 $2.02 705,200 $2.41 582,000 $2.52
Granted 163,000 2.07 373,500 1.98 172,500 2.00
Exercised (500) 2.00 (190,700) 1.40 (27,800) 1.42
Canceled (157,500) 2.00 (226,500) 3.33 (21,500) 3.42
---------------------------------------------------------------------------
Ending balance outstanding 666,500 $2.04 661,500 $2.14 705,200 $2.41
- - - -----------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 484,375 $2.04 402,625 $2.18 426,825 $2.50
SHARES AVAILABLE FOR FUTURE GRANT 463,321 369,209 23,530
- - - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes additional information about the Company's stock
options outstanding as of October 3, 1998:
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- - - --------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted-
Shares Average Average Average
Under Exercise Remaining Exercisable Exercise
Option Price Contractual Life Shares Price
- - - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Range of exercise price:
$1.375 - $2.625 634,500 $1.97 4.5 years 452,375 $1.98
$3.125 - $3.563 32,000 $3.37 6.1 years 32,000 $3.37
- - - --------------------------------------------------------------------------------------------------------------------------
666,500 $2.04 4.6 years 484,375 $2.04
==========================================================================================================================
</TABLE>
On December 6, 1996, the Board of Directors adopted a program to permit the
repricing of 213,500 options that were granted to officers and employees in 1995
under the Company's 1994 Flexible Stock Plan. The revised exercise price is
$2.00 per share (approximately 25% over the market price on the date of the
repricing) instead of the original exercise prices which ranged from $3.125 to
$3.375 per share. In the above table these options are shown as being canceled
and new options granted.
32
<PAGE> 35
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
(FORMERLY BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
stock option plans under the fair value based method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1998,
risk free interest rate of 5.51%, no common dividend, volatility factor of the
expected market price of the Company's Common Stock of 65%, and an expected
average life of the option of 5.5 years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of the options. The pro forma
information for 1998 and 1997 follows: (In thousands except for per share
information):
<TABLE>
<CAPTION>
- - - -------------------------------------------------------------------------
Fiscal Year
1998 1997
- - - -------------------------------------------------------------------------
<S> <C> <C>
Net income $213 $522
Option compensation expense 31 245
- - - -------------------------------------------------------------------------
Pro forma net income $182 $277
=========================================================================
</TABLE>
Had the Company elected to adopt the recognition provisions of SFAS No. 123, net
income per share would have been unaffected for fiscal 1998 and been reduced by
$.03 for fiscal 1997.
During fiscal 1995, the Board of Directors terminated the Company's Restricted
Stock Award Plan under which shares of the Company's Common Stock were available
to certain officers and employees without the payment of cash consideration. The
cost of such awards at the date of grant was considered to be compensation and
was expensed over the vesting period. Amounts charged to expense in fiscal years
1997 and 1996, net of forfeitures, were $ 8,700 and $15,000, respectively. At
September 27, 1997, all of the shares previously awarded were vested.
10. FINANCIAL INSTRUMENTS
The financial position of the Company at October 3, 1998, includes certain
financial instruments which may have a fair value that is different from the
value currently reflected on the financial statements. The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments for which it is practical to estimate that value.
Cash and Cash Equivalents: Cash is invested in overnight securities, therefore
the fair value is equal to the carrying amount. The carrying amount of long term
debt is a reasonable estimate of fair value as stated rates of interest
approximate current market rates.
11. COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment under noncancelable lease
agreements some of which include renewal options of up to five years. Total rent
expense for 1998, 1997, and 1996 was $708,000, $376,000 and $356,000
respectively. Future minimum annual fixed rentals required under noncancelable
operating leases having an original term of more than one year are $769,000 in
1999, $676,000 in 2000, $653,000 in 2001, $591,000 in 2002, and $1,970,000
thereafter.
On April 25, 1996 the U.S. Attorney's Office for the State of Arizona undertook
an investigation of certain aspects of White Microelectronics contracts with
prime contractors with the Federal government. The investigation focused on the
interpretation of certain government contract specified testing requirements on
incoming material. The Company is cooperating fully with the investigation. On
March 13, 1998, the Company was notified by the U.S. Attorney's Office for the
State of Arizona that it has closed its criminal investigation of White
Microelectronics and is seeking authority to disclose the substance of its
investigation to the Civil Section of the U.S. Attorney's Office so that the
Civil Section can determine whether there is sufficient basis for initiating a
civil proceeding against White Microelectronics.
33
<PAGE> 36
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
(FORMERLY BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. PREFERRED STOCK
Preferred shareholders vote equally with common shareholders. Each share of
preferred stock has one vote, is convertible into 13.33 shares of the Company's
Common Stock (stated value $0.10 per share), and pays annual dividends totaling
$3.00, payable quarterly on March 31, June 30, September 30 and December 31 of
each year. As of October 3, 1998, the Company has approximately 1,600,000 shares
of Common Stock reserved for the conversion of preferred stock. The preferred
stock is redeemable at the option of the Company at $25.00 per share on and
after January 1, 1998, and is not subject to mandatory redemption.
13. CONCENTRATIONS OF CREDIT RISK
The Company sells its products primarily to the defense and commercial
industries in the United States. In fiscal 1998, no customer sales accounted for
10% or more of the Company's sales. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. At certain times throughout the year the Company
may maintain certain bank accounts in excess of the FDIC insured limits. As of
October 3, 1998 and September 27, 1997, there was $948,000 and $949,000 of
uninsured cash respectively. The Company regularly reviews the creditworthiness
of the financial institutions with whom it conducts business.
14. DISPOSITIONS
The Company sold a certain stock investment in February 1997. This transaction
resulted in a gain of approximately $91,000 that was recorded in other income.
On April 30, 1998, the Company sold certain land and a building in Acton,
Massachusetts for approximately $1,200,000. No significant gain or loss was
realized on the date of sale.
The Company sold the production equipment and tooling used in the ordnance
product line in May, 1996. Additionally, in June 1996, the Company sold the
inventory, production equipment, test equipment and drawings that pertained to
the rapid heat transfer sterilizer product line. These transactions resulted in
a combined gain of approximately $90,000 which was recorded as other income.
Both product lines were a part of electromechanical segment sales.
15. SHAREHOLDERS RIGHTS PLAN
On December 6, 1996, the Board of Directors adopted a shareholder rights plan to
protect shareholders against unsolicited attempts to acquire control of the
Company which do not offer what the Company believes to be an adequate price for
all shareholders. To implement the plan, the Board declared a dividend of one
common share purchase right (a "Right" or "Rights") for each outstanding share
of the Company's Common Stock and entered into a rights agreement with American
Stock Trust and Transfer, as Rights Agents (the "Rights Agreement"). If and when
the Rights become exercisable, each Right will entitle the registered holder to
purchase from the Company one share of Common Stock of the Company at a purchase
price of $20.00 (subject to adjustment pursuant to certain anti-dilution
provisions) (the "Purchase Price"). The terms of the rights are set forth in the
Rights Agreements.
Separate certificates representing the Rights will be distributed only upon an
event triggering a distribution. Pursuant to the Rights Agreement, if a person
or group (an "Acquiring Person") acquires 15% or more of the Company's
outstanding voting stock or announces a tender or exchange offer that would
result in the ownership by the Acquiring Person of 15% or more of the
outstanding voting stock, the Rights certificates will be distributed and each
holder of the rights (other than the Acquiring Person) may either exercise the
Rights to acquire Common Stock of the Company at the then Purchase Price or
convert the Rights into that
34
<PAGE> 37
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
(FORMERLY BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
number of shares of Common Stock equal to the Purchase Price times the number of
Rights held by the holder divided by 50% of the then current market price of the
Common Stock.
In the event that the Company is acquired in a merger or other transaction where
it is not the surviving corporation or where all or part of its Common Stock is
exchanged for securities, cash or property of another person, or in the event
that 50% or more of the Company's assets are sold, proper provision will be made
so that each holder of the right (other than the Acquiring Person) will have the
right to receive, upon exercise thereof, that number of shares of common stock
of the acquiring corporation which at the time of such transaction will have a
market value of two times the exercise price of the Right. Similarly, in the
event that a person acquires 15% or more of the outstanding Common Stock of the
Company, proper provision will be made so that each holder of a Right (other
than the Acquiring Person) will thereafter have the right to receive upon
exercise that number of shares of Common Stock of the Company having a market
value of two times the exercise price of the Right.
The Rights Agreement also contains an exchange option. At any time after a
person becomes an Acquiring Person, and prior to the acquisition by such
Acquiring Person of 50% or more of the outstanding Common Stock of the Company,
the Board of Directors may exchange the Rights (other than Rights owned by the
Acquiring Person, which Rights shall become void), in whole or in part, at an
exchange ratio of one share of Common Stock per Right.
Finally, the Rights are subject to redemption. At any time prior to the tenth
calendar day following the date of a public announcement that a person or group
has become an Acquiring Person, the Board of Directors of the Company may redeem
the Rights in whole, but not part, at a price of $.01 per Right.
The terms of the Rights may be amended by the Board of Directors without the
consent of the holders of the Rights, except that from and after such time as
any person becomes an Acquiring Person, no such amendment may adversely affect
the interests of the holders of the Rights. Until a Right is exercised, the
holder thereof, as such, will have no rights as a shareholder of the Company,
including, without limitation, the right to vote or to receive dividends. The
Rights cannot be bought, sold or otherwise traded separately from the Common
Stock. Certificates for Common Stock issued after the date of the Rights
Agreement carry a notation that indicates the Rights are attached. The Rights
will expire on December 5, 2006 unless extended or unless the Rights are earlier
redeemed by the Company. The Rights Agreement was amended in connection with the
EDI merger (See Note 19) to exempt from operation of the Rights Agreement the
execution of the Agreement and Plan of Merger with EDI and the transactions
contemplated thereby.
16. DISCONTINUED OPERATIONS
In December 1997 the Board of Directors decided to sell its Technologies
Division. As a result of this decision, the Company recorded, in the fourth
quarter of fiscal 1997 a reserve of $1,300,000 for estimated future losses
relating to the division.
On May 3, 1998, the Company reached a definitive agreement to merge with EDI.
One division of EDI manufactures active matrix liquid crystal displays (AMLCD).
EDI'S AMLCD products are sold mainly to aircraft instrument manufacturer.
Because of the merger, the Board of Directors has decided not to sell the
Technologies Division. Instead the Company has combined both divisions to
improve the performance of their product lines based on the complementary
products. As required by Emerging Issues Task Force 90-16, the above financial
information has been reclassified to reflect the results of the Technologies
Division in continuing operations.
35
<PAGE> 38
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
(FORMERLY BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reflects the results of the discontinued operation for the
periods presented in the Company's Consolidated Statements of Income:
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------------------------------------
Fiscal Years
- - - -----------------------------------------------------------------------------------------------
Technologies Division Operating Results 1998 1997 1996
- - - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 8,444,000 $ 5,631,000 $ 6,477,000
Gross margin $ 1,369,000 $ 1,682,000 $ 1,692,000
Product development $ 92,000 $ 130,000 $ 157,000
Operating expenses $ 1,653,000 $ 1,602,000 $ 1,505,000
Operating income (loss) $ (376,000) $ (50,000) $ 30,000
- - - -----------------------------------------------------------------------------------------------
</TABLE>
The components of net assets are as follows:
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------------------------
Technologies Division October 3, 1998 September 27, 1997
- - - --------------------------------------------------------------------------------------------------
<S> <C> <C>
Receivables,net $ 831,000 $ 1,089,000
Inventories 1,942,000 1,958,000
Other current assets 214,000 385,000
Property and equipment Intangible and other assets (net) 593,000 700,000
Accounts payable and other current liabilities (593,000) (694,000)
Long-term debt (26,000) (41,000)
- - - --------------------------------------------------------------------------------------------------
Net Assets $ 2,961,000 $ 3,397,000
==================================================================================================
</TABLE>
The approximate components of the reversal and (reserve) in fiscal 1998 and
fiscal 1997 respectively are as follows:
<TABLE>
<CAPTION>
- - - -------------------------------------------------------------------------------------------
Technologies Division Fiscal Year 1998 Fiscal Year 1997
- - - -------------------------------------------------------------------------------------------
<S> <C> <C>
Reversal (reserve) for losses during phase out $ 800,000 $ (800,000)
Reversal (reserve) for costs of disposal 300,000 (300,000)
Reversal (reserve) for loss on sale 200,000 (200,000)
- - - -------------------------------------------------------------------------------------------
Total $ 1,300,000 $(1,300,000)
===========================================================================================
</TABLE>
17. CLOSURE OF THE CORPORATE OFFICE
In an effort to reduce expenses and take advantage of the office space leased at
the White Microelectronics facility, it was decided that there was no continuing
need for the Company's corporate office. Therefore, the corporate office was
eliminated in the first quarter of fiscal 1998, which resulted in a charge in
the first quarter of fiscal 1998 of $380,000 for severance and other closing
costs.
18. EARNINGS PER SHARE
The Company has adopted the provisions of the Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128") effective January 3, 1998.
SFAS 128 requires the presentation of basic and diluted earnings per share.
Basic EPS is computed by dividing income available to common stockholders by the
weighted average number of common shares that were outstanding during the
period. Dilutive potential common shares consist of the incremental common
shares issuable upon exercise of stock options. All prior period earnings per
share amounts have been restated to comply with the SFAS 128.
36
<PAGE> 39
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
(FORMERLY BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with the disclosure requirements of SFAS 128, a reconciliation of
the numerator and denominator of basic and diluted EPS is provided as follows
(in thousands, except per Share amounts):
<TABLE>
<CAPTION>
- - - ----------------------------------------------------------------------------------------------------------------
FISCAL 1998
- - - ----------------------------------------------------------------------------------------------------------------
Income Shares Per share
(Numerator) (Denominator) Amount
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loss from continuing operations, net of tax $ (567,000)
Less: preferred stock dividends 360,000
- - - ----------------------------------------------------------------------------------------------------------------
BASIC EPS
Loss applicable to continuing operations, net of tax $ (927,000) 6,674,739 $ (0.14)
Earnings applicable to discontinued operations, net of tax 780,000 6,674,739 $ 0.12
- - - ----------------------------------------------------------------------------------------------------------------
Loss available to common stockholders (147,000) $ (0.02)
EFFECTS OF DILUTIVE SECURITIES
Common stock options 15,644
- - - ----------------------------------------------------------------------------------------------------------------
DILUTIVE EPS
Loss available to common stockholders $ (147,000) 6,690,383 $ (0.02)
- - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - - ----------------------------------------------------------------------------------------------------------------------
FISCAL 1997
- - - ----------------------------------------------------------------------------------------------------------------------
Income Shares Per share
(Numerator) (Denominator) Amount
- - - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings from continuing operations, net of Tax 1,302,000
Less: preferred stock dividends 360,000
- - - ----------------------------------------------------------------------------------------------------------------------
BASIC EPS
Earnings applicable to continuing operations, net of tax 942,000 6,640,772 $ 0.14
Loss applicable to discontinued operations, net of tax (780,000) 6,640,772 $ (0.12)
- - - ----------------------------------------------------------------------------------------------------------------------
Earnings available to common stock holders 162,000 $ 0.02
EFFECTS OF DILUTIVE SECURITIES
Common stock options 45,661
- - - ----------------------------------------------------------------------------------------------------------------------
DILUTIVE EPS
Earnings available to common stock holders 162,000 6,686,433 $ 0.02
- - - ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - - -------------------------------------------------------------------------------------------------------------------------
FISCAL 1996
- - - -------------------------------------------------------------------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
- - - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings from continuing operations, net of tax $1,290.000
Less: preferred stock dividends 360,000
- - - -------------------------------------------------------------------------------------------------------------------------
BASIC EPS
Earnings applicable to continuing operations, net of tax 930,000 6,642,077 $0.14
- - - -------------------------------------------------------------------------------------------------------------------------
Earnings available to common stock holders 930,000 $0.14
EFFECTS OF DILUTIVE SECURITIES
Common stock options 118,392
- - - -------------------------------------------------------------------------------------------------------------------------
DILUTIVE EPS
Earnings available to common stock holders 930,000 6,760,469 $0.14
- - - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The convertible preferred stock is not included in the calculation of dilutive
earnings per share, because its inclusion would be anti-dilutive.
19. SUBSEQUENT EVENTS
Effective October 26, 1998, the Company acquired EDI through a merger with a
wholly owned subsidiary of the Company. EDI manufactures and sells approximately
170 semiconductor memory products and 15 AMLCD products for a wide range of
commercial, industrial and military applications. Each share of EDI Common Stock
was exchanged for 1.275 shares of the Company's Common Stock, together with the
associated Common
37
<PAGE> 40
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
(FORMERLY BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Purchase Rights under the Company Rights agreement, subject to payment of
cash in lieu of any fractional share.
The acquisition has been accounted for as a purchase. The excess of the
aggregate purchase price over the book value of net assets acquired will be
allocated to the fair value of the assets on the purchase date. If there is any
excess of the purchase price over the fair value, it will be allocated to
goodwill.
On December 3, 1998, the Board of Directors adopted a program to permit the
repricing of certain options to employees (excluding the Chief Executive Officer
and the Chief Financial Officer) of the Company. The revised exercise price is
$1.18 per share (the market closing price on the date of repricing) instead of
the original exercise prices which ranged from $1.375-$3.375 per share.
20. OPERATIONS BY BUSINESS SEGMENTS
The Company operates in two industry segments. These segments are the
manufacture and sale of (1) electromechanical and mechanical equipment and
components, which include electromechanical display devices, electromechanical
components and packages, keyboards and related subsystems and (2)
microelectronic equipment and components, which include high density solid state
memory modules and multichip microcircuits.
A significant portion of the Company's business activity in each business
segment is conducted either directly with, or as a subcontractor to entities
having contracts with, the United States Department of Defense.
As of October 3, 1998 and September 27, 1997, the Company's receivables from
such customers were approximately $1,173,000 and $2,118,000 respectively.
Certain major customers made up at least 10% of total segment sales in fiscal
years 1998 and 1996. Sales to one customer of the microelectronic segment in
fiscal 1998, 1997 and 1996 were 10%, 9% and 10%, respectively. Sales to one
customer of the electromechanical segment in fiscal 1998 were 24%.
Sales in each business segment are to unaffiliated customers. There are no
intersegment sales. Assets identifiable to industry segments are those assets
that are used in the Company's operations and do not include general corporate
assets. General corporate assets in 1997 consist primarily of cash, furniture
and fixtures, unamortized debt issue costs and the deferred income tax assets.
General corporate assets in fiscal 1998 consist of deferred income tax assets.
A significant portion of the Company's sales activity is sales to foreign
customers. Export sales as a percent of total sales in fiscal 1998, 1997 and
1996 were 20%, 26% and 24%, respectively.
<TABLE>
<CAPTION>
Foreign Sales by Major Geographical Segment
(In thousands of dollars)
- - - -------------------------------------------------------------------------------
Fiscal 1998 Fiscal 1997 Fiscal 1996
- - - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Europe $1,960 $4,219 $4,042
Asia $3,700 $3,108 $2,151
- - - -------------------------------------------------------------------------------
Total $5,660 $7,327 $6,193
- - - -------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 41
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
(FORMERLY BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY)
OPERATIONS BY BUSINESS SEGMENTS
(In thousands of dollars)
<TABLE>
<CAPTION>
FISCAL YEAR
1998 1997 1996
- - - ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
Electromechanical $ 8,444 $ 5,631 $ 6,477
Microelectronic 20,554 22,189 18,840
- - - ---------------------------------------------------------------------------------------
Total $ 28,998 $ 27,820 $ 25,317
- - - ---------------------------------------------------------------------------------------
OPERATING INCOME (LOSS)
Electromechanical $ (376) (50) 30
Microelectronics 2,569 4,171 3,561
- - - ---------------------------------------------------------------------------------------
Operating income 2,193 4,121 3,591
General corporate expense 946 1,211 983
Reserve loss on sale of Acton, MA property 0 425 0
Reserve for loss on discontinued operations (1,300) 1,300 0
Merger costs 1,005 0 0
Interest expense 517 417 522
Provision for income taxes 812 246 796
- - - ---------------------------------------------------------------------------------------
Net income $ 213 $ 522 $ 1,290
- - - ---------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
Electromechanical $ 3,580 $ 4,132 $ 2,774
Microelectronics 8,800 11,502 8,677
General Corporate 2,518 5,875 5,087
- - - ---------------------------------------------------------------------------------------
Total $ 14,898 $ 21,509 $ 16,538
- - - ---------------------------------------------------------------------------------------
CAPITAL EXPENDITURES*
Electromechanical $ 70 $ 236 $ 21
Microelectronics 420 1,794 237
General corporate 0 7 20
- - - ---------------------------------------------------------------------------------------
Total $ 490 $ 2,037 $ 278
- - - ---------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION EXPENSE
Electromechanical $ 177 $ 176 $ 202
Microelectronics 456 335 237
General corporate 0 29 57
- - - ---------------------------------------------------------------------------------------
Total $ 633 $ 540 $ 496
- - - ---------------------------------------------------------------------------------------
</TABLE>
*Includes expenditures under capital leases
39
<PAGE> 42
21. INTERIM FINANCIAL RESULTS (UNAUDITED)
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
FISCAL 1998
Jan 3 Apr 4 Jul 4 Oct 3 Year
- - - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 7,632 $ 8,165 $ 7,198 $ 6,003 $ 28,998
- - - -----------------------------------------------------------------------------------------------------------------
Gross margin $ 2,591 $ 2,788 $ 1,550 $ 1,325 $ 8,254
- - - -----------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes $ (86) $ 911 $ (594) $ (506) $ (275)
- - - -----------------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations $ (67) $ 570 $ (659) $ (411) $ (567)
- - - -----------------------------------------------------------------------------------------------------------------
Discontinued operations
Electromechanical Division (Note 16)
Loss on disposition net of deferred
income tax expense (benefit) of $159,
$9, $352, $0, $520 $ 276 $ (14) $ 518 $ -- $ 780
- - - -----------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations $ 276 $ (14) $ 518 $ -- $ 780
- - - -----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 209 $ 556 $ (141) $ (411) $ 213
- - - -----------------------------------------------------------------------------------------------------------------
Net income per share - basic (a) $ 0.01 $ 0.07 $ (0.03) $ (0.07) $ (0.02)
- - - -----------------------------------------------------------------------------------------------------------------
Common stock market price: (b)
High 2 15/16 2 15/16 2 5/8 1 15/16
Low 1 3/4 2 3/4 1 15/16 7/8
- - - -----------------------------------------------------------------------------------------------------------------
Preferred market price: (b)
High 40 1/2 39 1/8 35 1/2 31
Low 30 1/4 34 1/4 29 22 1/2
- - - -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1997
Dec 30 Mar 29 Jun 28 Sep 27 Year
- - - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 6,488 $ 6,698 $ 6,989 $ 7,645 $ 27,820
- - - ------------------------------------------------------------------------------------------------------------------
Gross margin $ 2,579 $ 2,609 $ 2,670 $ 2,844 $ 10,702
- - - ------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes $ 714 $ 663 $ 561 $ 130 $ 2,068
- - - ------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations $ 429 $ 398 $ 351 $ 124 $ 1,302
- - - ------------------------------------------------------------------------------------------------------------------
Discontinued operations
Electromechanical Division (Note 16)
Loss on disposition net of deferred
income tax expense (benefit) of
$0, $0, $0, ($520), ($520) $ -- $ -- $ -- $ (780) $ (780)
- - - ------------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations $ -- $ -- $ -- $ (780) $ (780)
- - - ------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 429 $ 398 $ 351 $ (656) $ 522
- - - ------------------------------------------------------------------------------------------------------------------
Net income per share - basic (a) $ 0.05 $ 0.05 $ 0.04 $ (0.12) $ 0.02
- - - ------------------------------------------------------------------------------------------------------------------
Common stock market price: (b)
High 1 3/4 2 3/16 2 15/16 2 13/16
Low 1 3/8 1 5/8 1 13/16 2 1/4
- - - ------------------------------------------------------------------------------------------------------------------
Preferred market price: (b)
High 32 34 40 39 1/2
Low 28 5/8 30 1/2 31 1/2 37
==================================================================================================================
</TABLE>
(a) Earnings per share-assuming dilution is the same a earnings per share
and thus is not shown separately.
(b) Both common and preferred shares are traded on the American Stock
Exchange.
40
<PAGE> 43
Exhibit Index
Exhibits:
2.1 Agreement and Plan of Merger, dated May 3, 1998, by and among Bowmar
Instrument Corporation, Electronic Designs, Inc. and Bravo
Acquisition Subsidiary, Inc. (incorporated herein by reference to
Exhibit 2 to the Current Report on Form 8-K filed on May 6, 1998).
2.1A Amendment to Agreement and Plan of Merger, dated June 9, 1998
(incorporated herein by reference to Exhibit 2.1A to the
Registration Statement on Form S-4, Registration No. 333-56565).
2.1B Amendment to Agreement and Plan of Merger, dated August 24, 1998
(incorporated herein by reference to Exhibit 2.1B to the
Registration Statement on Form S-4, Registration No. 333-56565).
*3.1 Amended and Restated Articles of Incorporation of White Electronic
Designs Corporation.
*3.2 Amended and Restated Code of By-Laws of White Electronic Designs
Corporation.
4.1 Rights Agreement, dated December 6, 1996, between Bowmar Instrument
Corporation and American Stock Transfer and Trust Company, as Rights
Agent (incorporated herein by reference to Exhibit 5C to the Current
Report on Form 8-K filed on December 19, 1996).
4.1A Amendment No. 1 to Rights Agreement, effective as of May 3, 1998
(incorporated herein by reference to Exhibit 4.3 to the Registration
Statement on Form S-4, Registration No. 333-56565).
4.2 Indenture, Bowmar Instrument Corporation 13 1/2% Convertible
Subordinated Debentures due December 15, 1995 (incorporated herein
by reference to Exhibit 4.4 to the Registration Statement on Form
S-7, Registration No. 2-70025).
*4.3 Stock Certificate of White Electronic Designs Corporation
10.1 Agreement to be Bound by Registration Rights Agreements, dated as of
May
<PAGE> 44
3, 1998, by and between Bowmar Instrument Corporation and Electronic
Designs, Inc. (incorporated herein by reference to Exhibit 10.1 to
the Registration Statement on Form S-4, Registration No. 333-56565).
10.2 Agreement to be Bound by Severance Agreements and Employment
Agreement, dated as of May 3, 1998, by and between Bowmar Instrument
Corporation and Electronic Designs, Inc. (incorporated herein by
reference to Exhibit 10.2 to the Registration Statement on Form S-4,
Registration No. 333-56565).
**10.3 Executive Employment Agreement by and between Hamid Shokrgozar and
Bowmar Instrument Corporation (incorporated herein by reference to
Exhibit 10.4(j) to the Quarterly Report on Form 10-Q for the
quarterly period ended April 4, 1998).
**10.4 Executive Employment Agreement by and between Joseph G. Warren, Jr.
and Bowmar Instrument Corporation (incorporated herein by reference
to Exhibit 10.7 to the Quarterly Report on Form 10-Q for the
quarterly period ended January 3, 1998).
10.5 Purchase and Sales Agreement, dated December 5, 1997, concerning the
sale of the Acton, Massachusetts facility (incorporated herein by
reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q for
the quarterly period ended January 3, 1998).
10.6 Fourth Amendment to Credit Agreement, dated as of March 16, 1998, by
and between Bowmar Instrument Corporation and Bank One, Arizona, NA
(incorporated herein by reference to Exhibit 10.4(h) to the
Quarterly Report on Form 10-Q for the quarterly period ended April
4, 1998).
10.7 Promissory Note Modification Agreement, dated March 16, 1998, by and
between Bowmar Instrument Corporation and Bank One, Arizona, NA
(incorporated herein by reference to Exhibit 10.4(i) to the
Quarterly Report on Form 10-Q for the quarterly period ended April
4, 1998).
10.8 Lease, dated February 23, 1990, by and between Bowmar/Ali, Inc. as
landlord and LAU Acquisition Corporation as tenant (incorporated
herein by reference to Exhibit 10.1(bb) to the Annual Report on Form
10-K filed for the fiscal year ended September 30, 1990).
**10.9 Employment Agreement dated August 15, 1991, as amended as of August
15, 1992, and as of June 1, 1995 between Gardiner S. Dutton and
Bowmar Instrument Corporation (incorporated herein by reference to
Exhibit 10.1(ff) to the Annual Report on Form 10-K for the fiscal
year ended September 30, 1992 and Exhibit 5(b) to Form 8-K dated
June 26, 1995).
**10.10 Form of Incentive Stock Option Agreement covering incentive stock
options granted under the Corporation's now terminated 1986 Plan, as
amended October 23, 1987 (incorporated here in by reference to
Exhibit 10.2(c) to the Annual Report on Form 10-K for the fiscal
year ended September 30, 1987).
**10.11 Form of Non-Incentive Stock Option Agreement covering non-incentive
stock options granted under the Corporation's now terminated 1986
Plan, as amended October 23, 1987 (incorporated by reference to
Exhibit 10.2(c) to the Annual Report on Form 10-K for the fiscal
year ended September 30, 1987).
**10.12 Bowmar Instrument Corporation Stock Option Plan for Non-Employee
Directors as amended February 4, 1994 (incorporated herein by
reference to Exhibit B to the Corporation's definitive Proxy
Statement, prepared in connection with the
<PAGE> 45
1994 Annual Meeting of Shareholders).
**10.13 Non-Incentive Stock Option Agreement dated August 16, 1991, as
amended August 15, 1992, between Bowmar Instrument Corporation
and Gardiner S. Dutton (incorporated herein by reference to
Exhibit 10.1(ff) to the Annual Report on Form 10-K for the
fiscal year ended September 30, 1992).
**10.14 1994 Flexible Stock Plan (incorporated herein by reference to
Exhibit A to the Corporation's definitive Proxy Statement prepared
in connection with the 1994 Annual Meeting of Shareholders).
**10.15 Form of Agreement governing awards of restricted stock under the
Corporation's now terminated Restricted Plan (incorporated herein by
reference to the exhibit to Amendment No. 1 to the Registration
Statement of Form S-8 (No. 2-67645)).
10.16 Loan documents by and between Bank One, Arizona, NA and Bowmar
Instrument Corporation and its wholly owned subsidiary, Bowmar/ALI,
Inc. (incorporated herein by reference to exhibits 10.4a through
10.4g to the Annual Report on Form 10-K for the fiscal year ended
September 30, 1995).
10.17 Modification Agreement dated April 26, 1996, pursuant to the Loan
Agreement dated August 28, 1995 by and between Bank One, Arizona, NA
and the Registrant (incorporated herein by reference to Exhibit
10.4(b) to the Annual Report on Form 10-K for the fiscal year ended
September 28, 1996).
10.18 Second Modification Agreement dated August 9, 1996, pursuant to the
Loan Agreement dated August 28, 1995 by and between Bank One,
Arizona, NA and the Registrant (incorporated herein by reference to
Exhibit 10.4(c) to the Annual Report on Form 10-K for the fiscal
year ended September 28, 1996).
10.19 Third Modification Agreement dated March 28, 1997 pursuant to the
Loan Agreement dated August 28, 1995 by and between Bank One,
Arizona NA and the Registrant (incorporated herein by reference to
Exhibit 10.4(d) to the Form 10-Q for the quarter ended March 29,
1997).
10.20 Modification of Mortgage (Massachusetts) dated March 28, 1997 by and
between Bank One, Arizona NA and the Registrant and its wholly owned
subsidiary, Bowmar/ALI (incorporated herein by reference to Exhibit
10.4(e) to the Form 10-Q for the quarter ended March 29, 1997).
10.21 Modification of Mortgage (Indiana) dated March 28, 1997 by and
between Bank One, Arizona NA and the Registrant (incorporated herein
by reference to Exhibit 10.4(f) to the Form 10-Q for the quarter
ended March 29, 1997).
10.22 Revolving Promissory Note (RLT) dated March 28, 1997 by and between
Bank One, Arizona NA and the Registrant, for up to $1,200,000
(incorporated herein by reference to Exhibit 10.4(g) to the Form
10-Q for the quarter ended March 29, 1997).
10.23 Lease dated February 4, 1997 by and between Bowmar Instrument
Corporation as tenant and Gus Enterprises-XII, LLC as landlord
(incorporated by reference to Exhibit 10.5 to the Annual Report on
Form 10-K for the fiscal year ended September 27, 1997).
*21.1 Subsidiaries of White Electronic Designs Corporation.
*27.1 Financial Data Schedule.
- - - ----------
<PAGE> 46
* Filed herewith.
** Management compensatory contract, plan or arrangement.
<PAGE> 1
Exhibit 3.1*
RESTATED ARTICLES OF INCORPORATION
OF
WHITE ELECTRONIC DESIGNS CORPORATION
ARTICLE 1
IDENTIFICATION
SECTION 1.01. NAME. The name of the Corporation is White Electronic
Designs Corporation (the "Corporation").
ARTICLE 2
PURPOSE AND POWERS
SECTION 2.01. PURPOSE. The purpose for which the Corporation is formed
is the transaction of any or all lawful business for which corporations may be
incorporated under the Indiana Business Corporation Law, as amended (the "Act").
SECTION 2.02. POWERS. The Corporation shall have the same powers as an
individual to do all things necessary or convenient to carry out its business
and affairs, subject to any limitations or restrictions imposed by applicable
law or these Articles.
ARTICLE 3
PERIOD OF EXISTENCE
SECTION 3.01. PERIOD. The period during which the Corporation shall
continue is perpetual.
ARTICLE 4
REGISTERED OFFICE AND REGISTERED AGENT
SECTION 4.01. REGISTERED OFFICE AND AGENT. The name of the registered
agent and the street address of the registered office of the Corporation are as
follows:
CT Corporation System
One North Capitol Avenue
Indianapolis, Indiana 46204
ARTICLE 5
TERMS OF SHARES
SECTION 5.01. NUMBER OF SHARES. The total number of shares the
Corporation shall have authority to issue is 61,130,560 shares.
SECTION 5.02. PREFERRED STOCK. One Million (1,000,000) of the shares
that the Corporation has authority to issue constitute a separate and single
class of shares known as Preferred Stock, which may be issued in one or more
series. The Board of Directors of the Corporation is vested with authority to
determine and state the designations and the relative preferences, limitations,
voting rights, if any, and other rights of each such series by the adoption and
filing in accordance with the Act, before the issuance of any shares of such
series, of an amendment or amendments to these Articles determining the terms of
such series. All shares of Preferred Stock of the same series shall be identical
with each other in all respects.
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<PAGE> 2
SECTION 5.03. RELATIVE RIGHTS AND TERMS OF $3.00 SENIOR VOTING
CUMULATIVE CONVERTIBLE PREFERRED STOCK. One Hundred Thirty Thousand Five Hundred
Sixty (130,560) of the shares that the Corporation has authority to issue
constitute a separate and single class of shares known as $3.00 Senior Voting
Cumulative Convertible Preferred Stock, par value $1.00 per share ("Senior
Convertible Preferred Stock").
5.03.01. DIVIDENDS. The holders of the Senior Convertible
Preferred Stock shall be entitled to receive cumulative dividends when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, at the rate of $3.00 per annum, payable quarterly on March 31, June 30,
September 30 and December 31 of each year, beginning on December 31, 1992, and
accruing from October 1, 1992.
5.03.02. VOTING RIGHTS. The holders of the Senior Convertible
Preferred Stock shall be entitled to one vote per share and shall vote with the
holders of the Common Stock, without par value ("Common Stock"), as one class
except (a) as may be otherwise required by the law of the State of Indiana; and
(b) that such holders shall have the right, voting as a class, (i) to elect at
least two additional members to the Corporation's Board of Directors after the
non-payment for two years of the dividends provided for in Section 5.03.01; and
(ii) to vote on (x) any change adversely affecting the rights, privileges or
preferences of such shares; provided that a favorable vote of at least
two-thirds of the number of such outstanding shares is required to authorize
such change; and (y) the creation of any additional class of preferred stock:
(a) Senior to the Senior Convertible Preferred Stock, provided
that an affirmative vote of at least two-thirds of the Senior Convertible
Preferred Stock is required for the creation of such senior class; or
(b) Equal in preference to the Senior Convertible Preferred
Stock, provided that an affirmative vote of at least a majority of the Senior
Convertible Preferred Stock is required for the creation of such equal class.
5.03.03. PRIORITY. The Senior Convertible Preferred Stock
shall be senior to the Common Stock and senior to, or pari passu with, any other
equity security the Corporation may issue.
5.03.04. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made to the holders of any class of equity security which is junior to the
Senior Convertible Preferred Stock or to the holders of Common Stock unless the
holders of the Senior Convertible Preferred Stock shall have received an
aggregate amount equal to $25.00 per share plus all accrued and unpaid
dividends, if any.
5.03.05. CONVERSION.
(a) The holder of shares of the Senior Convertible Preferred
Stock shall have the right, at his or her option, at any time (except that, with
respect to any shares of Senior Convertible Preferred Stock which shall be
called for redemption, such right shall terminate at the close of business on
the date fixed for redemption of such shares) to convert, subject to the terms
and provisions of this Section 5.03.05, shares of Senior Convertible Preferred
Stock into 13.33 shares of Common Stock, or an initial conversion price of
$1.875 per share, as such price may be adjusted from time to time pursuant to
the provisions of Subsection 5.03.05(d) below (such price as in effect being
referred to herein as the conversion price). The number of shares of Common
Stock into which a share of Senior Convertible Preferred Stock is convertible is
calculated by dividing the conversion price in effect from time to time by
$25.00, which $25.00 represents the liquidation preference and redemption value
per share for the Senior Convertible Preferred Stock. The shares of Senior
Convertible Preferred Stock are convertible upon surrender of the shares of
Senior Convertible Preferred Stock to be converted, to the Corporation's
Transfer Agent, as appointed from time to time, at any time during usual
business hours at such Transfer Agent's offices in New York City, New York
together with a request for conversion, in a form satisfactory to the Transfer
Agent and the Corporation, duly executed, and, if so required by the
Corporation, accompanied by a written instrument or instruments of transfer in
form satisfactory to the Corporation duly executed by the registered holder or
his attorney duly authorized in writing. For purposes of the conversion thereof,
shares of Senior Convertible Preferred Stock may be aggregated.
(b) As promptly as practicable after the surrender, as herein
provided, of any shares of Senior Convertible Preferred Stock for conversion,
the Corporation shall deliver or cause to be delivered at the offices of its
Transfer Agent in New York City, New York certificates representing the number
of fully paid and nonassessable shares of Common Stock into which such shares
may be converted in accordance with the
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<PAGE> 3
provisions of this Section 5.03.05 together with (if applicable) cash in lieu of
any fraction as provided herein, and a new certificate of authorized
denominations for any unconverted portion of the shares of Senior Convertible
Preferred Stock. Such conversion shall be deemed to have been made at the close
of business on the date that such shares shall have been surrendered for
conversion, so that the rights of the holder of such shares of Senior
Convertible Preferred Stock shall cease at such time as to such surrendered
shares, and the person or persons entitled to receive the shares of Common Stock
upon conversion of such shares of Senior Convertible Preferred Stock shall be
treated for all purposes as having become the record holder or holders of such
shares of Common Stock at such time and such conversion shall be at the
conversion price in effect at such time; provided, however, that no such
surrender on any date when the stock transfer books of the Corporation shall be
closed shall be effective to constitute the person or persons entitled to
receive the shares of Common Stock upon such conversion as the record holder or
holders of such shares of Common Stock on such date, but such surrender shall be
effective to constitute the person or persons entitled to receive such shares of
Common Stock as the record holder or holders thereof for all purposes at the
close of business on the next succeeding day on which such stock transfer books
are open and such conversion shall be at the conversion price in effect at the
close of business on such next succeeding day.
If the last day for the exercise of the conversion right shall
be a day which is not a Business Day, then such conversion right may be
exercised on the next succeeding day which is a Business Day. As used herein,
the term "Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday or
Friday which is not a legal holiday for banking institutions in New York City,
New York.
(c) No adjustment in respect of accrued and unpaid dividends
shall be made upon the conversion of any shares of Senior Convertible Preferred
Stock.
(d) The conversion price shall be adjusted from time to time
as follows:
(i) In case the Corporation shall hereafter (a) pay a dividend
or make a distribution on Common Stock in shares of its Common Stock, (b)
subdivide outstanding Common Stock, (c) combine its outstanding Common Stock
into a smaller number of shares, or (d) issue any shares by reclassification of
its Common Stock, (including any such reclassification in connection with a
consolidation or merger in which the Corporation is the continuing corporation),
the conversion price in effect at the time of the record date for such dividend
or distribution or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the holder of any
shares of Senior Convertible Preferred Stock surrendered for conversion after
such date shall be entitled to receive the aggregate number and kind of shares
of Common Stock which he or she would have owned or been entitled to receive had
such shares of Senior Convertible Preferred Stock been converted immediately
prior to such time.
(ii) In case the Corporation shall hereafter issue rights or
warrants to holders of its Common Stock entitling them (for a period expiring
within 45 days after the relevant record date ("Record Date"), to subscribe for
or purchase shares of Common Stock (or securities convertible into Common Stock)
at a price per share (or having a conversion price per share) less than the
current market price of the Common Stock on the Record Date as determined
pursuant to Subsection 5.03.05(d)(vi) (the "Current Market Price"), the
conversion price shall be adjusted so that the same shall equal the price
determined by multiplying the conversion price in effect immediately prior to
the date of such issuance by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on the Record Date plus the number
of shares of Common Stock which the aggregate offering price of the total number
of shares of Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at such current market price
per share of the Common Stock, and of which the denominator shall be the number
of shares of Common Stock outstanding on such Record Date plus the number of
additional shares of Common Stock offered for subscription or purchase (or into,
which the convertible securities so offered are convertible). Such adjustment
shall be made whenever such options, rights or warrants are issued and shall
become effective immediately after the Record Date for the determination of
shareholders entitled to receive such options, rights or warrants; and to the
extent that shares of Common Stock are not delivered (or securities convertible
into Common Stock are not delivered) after the expiration of such options,
rights or warrants, the conversion price shall be readjusted to the conversion
price which would then be in effect had the adjustments made upon the issuance
of such rights or warrants been made upon the basis of delivery of only the
number of shares of Common Stock (or securities convertible into Common Stock)
actually delivered.
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<PAGE> 4
(iii) In case the Corporation shall hereafter distribute to
all holders of its Common Stock, shares of stock other than Common Stock,
evidences of its indebtedness or assets (excluding cash dividends or
distributions out of retained earnings, and dividends or distributions referred
to in Paragraph 5.03.05(d)(i) above) or rights or warrants (excluding those
referred to in paragraph 5.03.05(d)(ii) above), then in each such case the
conversion price in effect thereafter shall be determined by multiplying the
conversion price in effect immediately prior thereto by a fraction, of which the
numerator shall be the total number of shares of Common Stock outstanding
multiplied by the then current market price of the Common Stock on the Record
Date, less the then fair market value (as determined in good faith by the Board
of Directors) of said shares of stock, assets or evidences of indebtedness so
distributed or of such options, rights or warranties, and of which the
denominator shall be the total number of shares of Common Stock outstanding
multiplied by such then current market price per share of the Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the Record Date for the determination of
shareholders entitled to receive such distribution.
(iv) In the case the Corporation shall issue shares of its
Common Stock (excluding shares issued: (a) in any of the transactions described
in Paragraph 5.03.05(d)(i), (b) upon conversion of the Senior Convertible
Preferred Stock, or upon conversion or exchange of other securities convertible
into or exchangeable for Common Stock or upon exercise of rights or warrants
issued to the holders of Common Stock, (c) upon the grant or exercise of options
or upon grants of Common Stock to employees or directors, provided that the
aggregate number of shares so excluded shall not exceed 15% of the Common Stock
outstanding immediately prior to the date of such issuance, (d) to shareholders
of any corporation which merges into the Corporation in proportion to their
stock holdings of such corporation immediately prior to such merger, upon such
merger, or (e) in a bona fide public offering pursuant to a firm commitment
underwriting, but only if no adjustment is required pursuant to this Paragraph
5.03.05(d) (without regard to Paragraph 5.03.05(d)(vi) with respect to the
transaction giving rise to such rights) for a consideration per share less than
the then Current Market Price per share on the date the Corporation fixes the
offering price of such additional shares, the conversion price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the conversion price in effect immediately prior thereto by a
fraction, of which the numerator shall be the total number of shares of Common
Stock outstanding immediately prior to the issuance of such additional shares
plus the number of shares of Common Stock which the aggregate consideration
received (determined as provided in Paragraph 5.03.05(d)(vi) below) for the
issuance of such additional shares would purchase at such then Current Market
Price per share of Common Stock, and of which the denominator shall be the
number of shares of Common Stock outstanding immediately after the issuance of
such additional shares. Such adjustment shall be made successively whenever such
an issuance is made.
(v) In case the Corporation shall issue any securities
convertible into or exchangeable for its Common Stock (excluding securities
issued in transactions described in Paragraphs 5.03.05(d)(ii) and 5.03.05(d)(iv)
above, or with respect to the Senior Convertible Preferred Stock) for a
consideration per share of Common Stock initially deliverable upon conversion or
exchange of such securities (determined as provided in Paragraph 5.03.05(d)(vi)
below) less than the then Current Market Price per share in effect immediately
prior to the issuance of such securities, the conversion price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the conversion price in effect immediately prior thereto by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such securities plus the number
of shares of Common Stock which the aggregate consideration received (determined
as provided in Paragraph 5.03.05(d)(vi) below) for such securities would
purchase at such current market price per share of Common Stock, and of which
the denominator shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for such securities at the
initial conversion or exchange price or rate. Such adjustment shall be made
successively whenever such an issuance is made.
(vi) For purposes of any computation respecting consideration
received pursuant to paragraphs 5.03.05(d)(iv) and 5.03.05(d)(v) above, the
following shall apply:
(a) in the case of the issuance of shares of Common
Stock for cash, the consideration shall be the amount of such cash, provided
that in no case shall any deduction be made for any commissions, discounts or
other expenses incurred by the Corporation for any underwriting of the issue or
otherwise in connection therewith;
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<PAGE> 5
(b) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the Corporation
(irrespective of the accounting treatment thereof), whose determination shall be
conclusive, and described in a certified Board Resolution; and
(c) in the case of the issuance of securities
convertible into or exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the consideration received
by the Corporation for the issuance of such securities plus the additional
minimum consideration, if any, to be received by the Corporation upon the
conversion or exchange thereof (the consideration in each case to be determined
in the same manner as provided in clauses (a) and (b) of this Paragraph
5.03.05(d)(vi)).
(vii) The Current Market Price of the Common Stock at any date
shall be deemed to be the average of the daily closing prices for the thirty
consecutive business days commencing no more than forty-five business days
before such date. The closing price for each day shall be the last reported sale
price regular way or, in case no such reported sale takes place on such day, the
average of the closing bid and asked prices regular way, in either case on the
principal national securities exchange on which the Common Stock is admitted to
trading or listed, or if not listed or admitted to trading on any national
securities exchange, the average of the closing reported bid and asked prices as
reported by NASDAQ or any comparable system, or if the Common Stock is not
listed on NASDAQ or a comparable system, the average of the closing bid and
asked prices as furnished by two members of the National Association of
Securities Dealers, Inc, selected from time to time by the Corporation for that
purpose.
(viii) In any case in which this Subsection 5.03.05(d) shall
require that an adjustment shall become effective immediately after a Record
Date for an event, the Corporation may defer until the occurrence of such event:
(a) issuing to the holder of any Senior Convertible Preferred Stock converted
after such Record Date and before the occurrence of such event the additional
shares of Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Common Stock issuable upon
such conversion before giving effect to such adjustment and (b) paying to such
holder any amount in cash in lieu of a fractional share pursuant to Subsection
5.03.05(c); provided, however, the Corporation shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares of Common Stock, and such cash, upon the
occurrence of the event requiring such adjustment.
(ix) No adjustment in the conversion price shall be required
unless such adjustment would require an increase or decrease of at least 25
cents in such price; provided, however, that any adjustments which by reason of
this Paragraph 5.03.05(d)(ix) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
pursuant to this Subsection 5.03.05 shall be made to the nearest cent or to the
nearest one-thousandth of a share, as the case may be.
(x) Anything in this Subsection 5.03.05(d) to the contrary
notwithstanding, the Corporation shall be entitled, but shall not be required,
to make such reductions in the conversion price, in addition to those required
by this Subsection 5.03.05(d), as it in its discretion shall determine to be
advisable in order that any dividend or distribution in shares of Common Stock,
subdivision, reclassification or combination of shares of Common Stock, issuance
of rights or warrants to purchase Common Stock, or distribution of shares of
stock other than Common Stock, evidences of indebtedness or assets (other than
distributions in cash out of retained earnings) referred to hereinabove in this
Subsection 5.03.05(d), hereafter made by the Corporation to its shareholders
shall not be taxable to them.
(xi) Except as herein otherwise provided, no adjustment in the
conversion price shall be made by reason of the issuance in exchange for cash,
property, or services of Common Stock, or any securities convertible into or
exchangeable for Common Stock, or carrying the right to purchase any of the
foregoing.
(e) Whenever the conversion price is adjusted as herein
provided, the Corporation shall cause to be filed at the offices or agencies
maintained for the purpose of conversion of shares of Senior Convertible
Preferred Stock and shall cause to be mailed to the holders of Senior
Convertible Preferred Stock, at their last addresses as they shall appear upon
the register maintained by the Transfer Agent, a certificate executed by the
appropriate officers setting forth the adjusted conversion price and showing in
reasonable detail the facts upon which such adjustment is based.
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<PAGE> 6
(f) In case:
(i) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock payable otherwise than in cash or other
property out of its retained earnings or in Common Stock; or
(ii) the Corporation shall authorize the granting to the
holders of its Common Stock of rights to subscribe for or purchase any shares of
capital stock of any class or of any other rights; or
(iii) the Corporation shall authorize any reclassification of
the Common Stock (other than a subdivision or combination of its outstanding
Common Stock), or any consolidation or merger to which the Corporation is a
party and for which approval of any shareholders of the Corporation is required,
or, the sale or transfer of all or substantially all of the assets of the
Corporation; or
(iv) of the voluntary or involuntary dissolution, liquidation
or winding up of the Corporation; or
(v) the Corporation proposes to take any other action (other
than actions of the character described in Paragraph 5.03.05(d)(i)) which would
require adjustment of the conversion price pursuant to Subsection 5.03.05(d);
then the Corporation shall cause to be filed at the offices or agencies
maintained for the purpose of conversion of shares of Senior Convertible
Preferred Stock and shall cause to be mailed to the holders of Senior
Convertible Preferred Stock, at their last addresses as they shall appear upon
the record of the holders of Senior Convertible Preferred Stock at least 14 days
prior to the applicable Record Date, a notice stating (a) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights,
or, if a record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend, distribution or rights are to
be determined, or (b) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their Common Stock for securities
or other property deliverable upon such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding up.
(g) In case of any consolidation of the Corporation with, or
merger of the Corporation into, any other corporation or the merger of any other
corporation into the Corporation (other than a merger in which the Corporation
is the continuing corporation and in which no change is made in the outstanding
Common Stock), or in case of any sale or transfer of all or substantially all of
the assets of the Corporation, the holder of each share of Senior Convertible
Preferred Stock then outstanding shall have the right thereafter to convert such
shares into the kind and amount of shares of stock, other securities, cash or
other property, or any combination thereof, receivable upon such consolidation,
merger, sale or transfer by a holder of the number of shares of Common Stock
into which such shares might have been converted immediately prior to such
consolidation, merger, sale or transfer. The above provisions of this Subsection
shall similarly apply to successive consolidations, mergers, sales or transfers.
(h) The Corporation shall not be required to issue fractions
of shares of Common Stock on the conversion of shares of Senior Convertible
Preferred Stock. If any fraction of a share of Common Stock would, except for
the provisions of this Subsection, be issuable on the conversion of any shares
of Senior Convertible Preferred Stock, the Corporation shall purchase such
fraction for an amount in cash equal to the current market value of such
fraction based upon the Current Market Price of the Common Stock. For purposes
of this Subsection 5.03.05(h), the current market price on each day shall be the
last reported sales price, regular way, or, in case no such reported sale takes
place on such day, the average of the reported closing bid and asked prices,
regular way, in either case on any national securities exchange on which the
Common Stock is listed, or, if the Common Stock is not listed or admitted to
trading on any such exchange, the average of the bid and asked prices on such
day as furnished by dealers in the stock in the over-the-counter market. All
calculations under this Subsection 5.03.05(h) shall be made to the nearest cent
or to the nearest one-hundredth of a share, as the case may be. For purposes of
the conversion under this Subsection 5.03.05, shares of Senior Convertible
Preferred Stock may be aggregated.
(i) The Corporation will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issuance
upon conversion of shares of Senior Convertible Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Senior Convertible Preferred Stock.
All shares of Common Stock so issuable shall, when issued upon such conversion,
be duly and validly issued and fully paid and nonassessable.
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(j) Before taking any action which would cause an adjustment
reducing the conversion price below the then par value of the shares of Common
Stock, the Corporation will take any corporate action which may, in the opinion
of Its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of such Common Stock at such
adjusted conversion price.
If any shares of Common Stock required to be reserved for
purposes of conversion of Senior Convertible Preferred Stock hereunder, require
registration with or approval of any governmental authority under any federal or
state law, or listing upon any national securities exchange, before such shares
may be issued upon conversion, the Corporation will in good faith and as
expeditiously as possible endeavor to cause such shares to be duly registered,
approved or listed, as the case may be.
(k) The issuance of certificates for shares of Common Stock
upon the conversion of shares of Senior Convertible Preferred Stock shall be
made without charge to the converting shareholders for any tax in respect to the
issuance of such certificates, and such certificates shall be issued in the
respective names of, or in such names as may be directed by, the holders of the
shares of Senior Convertible Preferred Stock converted; provided, however, that
the Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificate in a name other than that of the holder of the shares of Senior
Convertible Preferred Stock converted, and the Corporation shall not be required
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Corporation the amount of
such tax or shall have established to the satisfaction of the Corporation that
such tax has been paid.
(l) If in any case a state of facts occurs wherein in the
opinion of the Board of Directors the other provisions of this Section 5.03.05
are not strictly applicable or if strictly applicable would not fairly protect
the conversion rights in accordance with the essential intent and principles of
such provisions, then the Board of Directors shall make an adjustment in the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such conversion rights as aforesaid, all as the
Board of Directors in Its discretion shall determine.
5.03.06. REDEMPTION.
(a) The Senior Convertible Preferred Stock is not subject to
mandatory redemption by the Corporation but is subject to optional redemption by
the Corporation at any time on or after January 1, 1998. In the event of a
redemption of any of the shares of Senior Convertible Preferred Stock, notice of
the redemption shall be given by the Corporation or its Transfer Agent to the
holders of the shares of Senior Convertible Preferred Stock to be redeemed by
mailing by first class mail a notice of such redemption not less than thirty
(30) nor more than sixty (60) days prior to the date fixed for redemption to
their last addresses as they shall appear upon the records of holders of Senior
Convertible Preferred Stock. Failure to give such notice, or any defect therein,
shall not affect the validity of the proceedings for the redemption of any other
shares of Senior Convertible Preferred Stock. The notice of redemption to each
holder of shares of Senior Convertible Preferred Stock to be redeemed shall
specify the number of shares of Senior Convertible Preferred Stock held by such
holder to be redeemed, the date fixed for redemption and the redemption price at
which the shares are to be redeemed, and shall state that payment of the
redemption price for the shares to be redeemed will be made at the offices of
it's Transfer Agent in New York City, New York upon presentation and surrender
of such shares of Senior Convertible Preferred Stock and shall also state that
the right to convert the shares to be redeemed will terminate on the date fixed
for the redemption and shall state the conversion price then in effect. The
notice of redemption to any holder of shares of Senior Convertible Preferred
Stock may but need not specify the particular shares held by such holder to be
surrendered and any failure so to specify, or any error in such specification
shall not affect the validity of such notice. The notice shall state that, in
the case of only a partial redemption of the shares of Senior Convertible
Preferred Stock represented by a stock certificate, that upon the surrender of
such stock certificate a new certificate will be issued, at no charge to the
holder, for the shares remaining unredeemed.
(b) If less than all of the outstanding shares of Senior
Convertible Preferred Stock are to be redeemed, then the Corporation shall give
to its Transfer Agent, at least sixty (60) days in advance of the date fixed for
redemption, notice of the aggregate amount of shares of Senior Convertible
Preferred Stock to be redeemed, and thereupon the Transfer Agent shall select by
lot or in such manner as it shall deem appropriate and fair in its discretion,
the stock certificate numbers and the number of shares per such stock
certificates to be redeemed and shall thereafter notify the Corporation thereof.
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(c) If the giving of the notice of redemption shall have been
completed as above provided, the shares specified in such notice must, unless
theretofore converted into shares of Common Stock pursuant to Section 5.03.05
above, be surrendered to the Transfer Agent at its offices in New York City, New
York on or before the date specified in such notice as the redemption date.
(d) Monies in the amount necessary for each redemption shall
be deposited with the Transfer Agent not later than the date fixed for
redemption. On presentation and surrender of the shares of Senior Convertible
Preferred Stock at said place of payment, the shares shall be paid and redeemed
by the Transfer Agent on behalf of the Corporation at the applicable redemption
price.
(e) Any funds which at any time shall have been deposited by
the Corporation or on its behalf with its Transfer Agent or any other depository
for the purpose of redeeming any shares of Senior Convertible Preferred Stock
which shall have been converted into Common Stock pursuant to the provisions of
Section 5.03.05, shall forthwith upon such conversion be repaid upon demand to
the Corporation by such depository.
SECTION 5.04. COMMON STOCK. All of the remaining shares that the
Corporation has authority to issue constitute a separate and single class of
shares known as Common Stock, which shall be without par value and shall not be
issued in series. All shares of Common Stock shall be identical with each other
in all respects. The holders of shares of Common Stock shall be entitled to one
vote for each share of such stock upon all matters presented to the
shareholders. Shares of Common Stock may be issued by the Corporation for such
an amount of consideration as may be fixed from time to time by the Board of
Directors.
SECTION 5.05. RECORD OWNERSHIP OF SHARES OR RIGHTS. The Corporation, to
the extent permitted by law, shall be entitled to treat the person in whose name
any share or right is registered on the books of the Corporation as the owner
thereof, for all purposes, and shall not be bound to recognize any equitable or
other claim to, or interest in, such share or right on the part of any other
person, whether or not the Corporation shall have notice thereof.
ARTICLE 6
DIRECTORS
SECTION 6.01. NUMBER AND QUALIFICATION. The number of directors of the
Corporation shall be specified, from time to time, by the Code of By-Laws (the
"By-Laws"), which number may be increased or decreased from time to time by
amendment of the By-Laws. Directors need not be shareholders of the Corporation.
ARTICLE 7
CODE OF BY-LAWS: INDEMNIFICATION;
AMENDMENTS OF ARTICLES
SECTION 7.01. CODE OF BY-LAWS. The Board of Directors of the
Corporation shall have power, without the assent or vote of the shareholders, to
make, alter, amend or repeal the By-Laws of the Corporation, but the affirmative
vote of a number of Directors equal to a majority of the number who would
constitute a full Board of Directors at the time of such action shall be
necessary to take any action for the making, alteration, amendment or repeal of
the By-Laws.
SECTION 7.02. INDEMNIFICATION. The Corporation shall indemnify a
director or officer of the Corporation who was wholly successful, on the merits
or otherwise, in the defense of any proceeding to which the director or officer
was a party because the director or officer is or was a director or officer of
the Corporation against reasonable expenses incurred by the director or officer
in connection with the proceeding. The Corporation may indemnify an individual
made a party to a proceeding because the individual is or was a director,
officer, employee or agent of the Corporation against liability if authorized in
the specific case after determination, in the manner required by Indiana Code
Section 23-1-37-12, that indemnification of the director, officer, employee or
agent, as the case may be, is permissible in the circumstances because the
director, officer, employee or agent has met the standard of conduct set forth
in Indiana Code Section 23-1-37-8. The indemnification and advancement of
expenses for directors, officers, employees and agents of the Corporation shall
apply when such persons are serving at the Corporation's request while a
director, officer, employee or agent of the Corporation, as the case may be, as
a director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, whether or not for profit, as well as in their official
capacity with the Corporation. The Corporation also may pay for or reimburse the
reasonable expenses incurred by a director,
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officer, employee or agent of the Corporation who is a party to a proceeding in
advance of final disposition of the proceeding upon compliance with the
provisions of Indiana Code Section 23-1-37-10. The Corporation also may purchase
and maintain insurance on behalf of an individual specified In Indiana Code
Section 23-1-37-14 against liability asserted against or incurred by such
individual in any of the capacities specified in such Section or arising from
the individual's status as a director, officer, employee or agent of the
Corporation, whether or not the Corporation would have power to indemnify the
individual against the same liability under the Act. All references in this
paragraph to Chapter 37 of the Act shall be deemed to include any amendment or
successor thereto. When a word or phrase used in this paragraph is defined in
Chapter 37 of the Act, such word or phrase shall have the same meaning in this
Section that it has in Chapter 37 of the Act unless the context otherwise
requires. Nothing contained in this paragraph shall limit or preclude the
exercise of any right relating to indemnification or advance of expenses to any
person who is or was a director, officer, employee or agent of the Corporation
or the ability of the Corporation otherwise to indemnify or advance expenses to
any such person by contract or in any other manner. If any word, clause or
sentence of the foregoing provisions regarding indemnification or advancement of
expenses shall be held invalid as contrary to law or public policy, it shall be
severable and the provisions remaining shall not be otherwise affected. All
references in this Section to "director," "officer," "employee" and "agent"
shall include the heirs, estate, executors, administrators and personal
representatives of such persons.
SECTION 7.03. AMENDMENTS OF ARTICLES. The Corporation reserves the
right to amend, alter, change or repeal any provision contained in these
Articles, or in any amendment hereto, or to add any provision to these Articles
or to any amendment hereto, in any manner now or hereafter prescribed or
permitted by the provisions of the Act or any amendment thereto, or by the
provisions of any other applicable statute of the State of Indiana; and all
rights conferred upon shareholders in these Articles or any amendment hereto are
granted subject to this reservation.
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Exhibit 3.2*
AMENDED AND RESTATED
CODE OF BY-LAWS
OF
WHITE ELECTRONIC DESIGNS CORPORATION
ARTICLE 1
Identification, Records, Seal and Fiscal Year
Section 1.01. Name. The name of the Corporation is White
Electronic Designs Corporation ("Corporation").
Section 1.02. Place of Keeping Corporate Books and Records.
The Corporation shall keep at its principal office a copy of (a) its Articles of
Incorporation and all amendments thereto currently in effect ("Articles"); (b)
its Code of By-Laws and all amendments thereto currently in effect ("By-Laws");
(c) resolutions adopted by the Board of Directors ("Board") with respect to one
or more classes or series of shares and fixing their relative rights,
preferences, and limitations, if shares issued pursuant to these resolutions are
outstanding; (d) minutes of all meetings of the Shareholders of the Corporation
("Shareholders") and records of all actions taken by the Shareholders without a
meeting (collectively, "Shareholders Minutes") for the prior three years; (e)
all written communications by the Corporation to the Shareholders including the
financial statements furnished by the Corporation to the Shareholders for the
prior three years; (f) a list of the names and business addresses of the current
directors of the Corporation ("Directors") and the current officers of the
Corporation ("Officers"); and (g) the most recent Annual Report of the
Corporation as filed with the Secretary of State of Indiana. The Corporation
shall also keep and maintain at its principal office, or at such other place or
places within or without the State of Indiana as may be provided, from time to
time, in these By-Laws, (a) minutes of all meetings of the Board and of each
committee, and records of all actions taken by the Board and by each committee
without a meeting; (b) Shareholders Minutes; (c) appropriate accounting records
of the Corporation; and (d) a record of the Shareholders in a form that permits
preparation of a list of the names and addresses of all the Shareholders, in
alphabetical order by class of shares, stating the number and class of shares
held by each Shareholder. All of the records of the Corporation described in
this Section shall be maintained
<PAGE> 2
in written form or in another form capable of conversion into written form
within a reasonable time.
Section 1.03. Seal. The Board may designate the design and
cause the Corporation to obtain and use a corporate seal, but the failure of the
Board to designate a seal or the absence of the impression of the corporate seal
from any document does not affect in any way the validity or effect of such
document.
Section 1.04. Fiscal Year. The fiscal year of the Corporation
shall begin at 12:01 A.M. Phoenix time on the Sunday, following the Saturday
closest to September 30 of each year and end at 12:00 midnight Phoenix time on
Saturday closest to September 30 of the next succeeding calendar year.
ARTICLE 2
Shares
Section 2.01. Certificates for Shares. Each holder of the
shares of the Corporation shall be entitled to a certificate in such form as the
Board may prescribe from time to time. However, unless the Articles provide
otherwise, the Board may authorize the issue of some or all of the shares of any
or all of the Corporation's classes or series without certificates. Within a
reasonable time after the issue or transfer of shares without certificates, the
Corporation shall send the Shareholder a written statement of the information
required on certificates by the Indiana Business Corporation Law, as amended
from time to time ("Act"), and the information required by the Indiana Uniform
Commercial Code, as in effect from time to time. A holder of such shares may
request that a certificate be provided to him by giving notice to the Secretary
of the Corporation. The certificate shall be provided in the form prescribed by
the Board.
Section 2.02. Transfer of Shares. The shares of the
Corporation shall be transferable only on the books of the Corporation upon
delivery to the Corporation of the certificate(s) representing the same or, in
the case of shares without certificates, an instrument of
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assignment in respect of the shares being transferred, in form and substance
satisfactory to the Corporation, properly endorsed by the registered holder or
by his duly authorized attorney, such endorsement or endorsements to be
witnessed by one witness or guaranteed by a bank or registered securities broker
or dealer. The requirement for such witnessing may be waived in writing upon the
form of endorsement by the President of the Corporation. Within a reasonable
time after the transfer of shares without certificates, the Corporation shall
send the Shareholder a written statement of the information required by Section
2.01 of these By-Laws.
Section 2.03. Lost, Stolen or Destroyed Certificates. The
Corporation may issue a new certificate for shares in the place of any
certificate theretofore issued and alleged to have been lost, stolen or
destroyed, but the Board may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to furnish affidavit as to such loss,
theft or destruction and to give a bond in such form and substance, and with
such surety or sureties, with fixed or open penalty, as it may direct to
indemnify the Corporation against any claim that may be made on account of the
alleged loss, theft or destruction of such certificate. A new certificate may be
issued without requiring any bond when, in the judgment of the Board, it is not
imprudent to do so.
Section 2.04. Issue and Consideration for Shares. The Board
may authorize shares to be issued for consideration consisting of any tangible
or intangible property or benefit to the Corporation, including cash, promissory
notes, services performed, contracts for services to be performed, or other
securities of the Corporation. If shares are issued for promissory notes or for
promises to render services in the future, the Corporation shall report in
writing to the Shareholders the number of shares authorized to be so issued with
or before the notice of the next Shareholders' meeting. However, as long as the
Corporation is subject to the Securities Exchange Act of 1934, as amended
("Exchange Act"), these reporting requirements shall be satisfied by complying
with the proxy disclosure provisions of the Exchange Act. The adequacy of the
consideration is to be determined by the Board, and that determination is
conclusive insofar as the adequacy of the shares relates to whether the shares
are validly issued, fully paid,
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and nonassessable. Once the Corporation receives the consideration for which the
Board authorized the issuance of the shares, the shares shall be fully paid and
nonassessable.
Section 2.05. Transfer Agents and Registrars. Whenever the
Board shall so determine, the Corporation shall maintain one or more transfer
offices or agencies, each in charge of a transfer agent designated by the Board,
where the shares of the Corporation shall be directly transferable, and also one
or more registry offices, each in charge of a registrar designated by the Board
where such shares shall be registered, and no certificate for shares of the
Corporation in respect of which a transfer agent and registrar shall have been
designated shall be valid unless countersigned by such transfer agent and
registered by such registrar. One person, firm or corporation may be authorized
by the Board to be both the transfer agent and the registrar. The Board may also
make such additional rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of the stock of
the Corporation.
Section 2.06. Fixing of Record Date to Determine Shareholders
Entitled to Receive Corporate Benefits. The Board may fix a day and hour not
exceeding fifty (50) days preceding the date fixed for payment of any dividend,
or for the delivery of evidences of rights, or for the distribution of
certificates for shares of stock upon a change of outstanding shares into a
greater or lesser number of shares, as a record time for the determination of
the shareholders entitled to receive any such dividend, rights or distribution.
ARTICLE 3
Meetings of Shareholders
Section 3.01. Place of Meetings. All meetings of Shareholders
shall be held at the principal office of the Corporation or at such other place,
within or without the State of Indiana, as may be specified in the respective
notices or waivers of notice thereof.
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Section 3.02. Annual Meeting. The annual meeting of the Shareholders
for the election of Directors, and for the transaction of such other business as
may properly come before the meeting, shall be held on the first Friday of
February of each year (if such day is a legal holiday, then on the first
following day that is not a legal holiday) or on such other date within six
months following the end of each of the Corporation's fiscal years as the Board
shall determine. Failure to hold the Annual Meeting at the designated time does
not affect the validity of any corporate action.
Section 3.03. Special Meetings. Special meetings, for any purpose or
purposes (unless otherwise prescribed by law), may be called by the Board, the
Chairman of the Board or the President, and shall be called by the Chairman of
the Board, the President or any Vice-President at the request in writing of a
majority of the Board. All requests for special meetings shall state the purpose
or purposes thereof, and the business transacted at such meeting shall be
confined to the purposes stated in the call and matters germane thereto.
Section 3.04. Record Date. The Board may fix a record date, not
exceeding seventy (70) days prior to the date of any meeting of the
Shareholders, for the purpose of determining the Shareholders entitled to notice
of and to vote at such meeting. In the absence of action by the Board fixing a
record date as herein provided, the record date shall be the fourteenth (14th)
day prior to the date of the meeting. A new record date must be fixed if a
meeting of Shareholders is adjourned to a date more than 120 days after the date
fixed for the original meeting.
Section 3.05. Notice of Meetings. A written or printed notice,
stating the place, day and hour of the meeting, and, in the case of a special
meeting or when otherwise required by any provision of the Act, the Articles or
these By-Laws, the purpose or purposes for which the meeting is called, shall be
delivered or mailed by the Secretary or by the persons calling the meeting to
each Shareholder at the time entitled to vote, at such address as appears on the
records of the Corporation, at least ten (10) and not more than sixty (60) days
before the date of the meeting. Each Shareholder who has in the manner provided
in Section 3.06 of these By-Laws
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waived notice of a Shareholders' meeting, or who personally attends a
Shareholders' meeting, or is represented thereat by a proxy duly authorized to
appear by an instrument of proxy complying with the requirements hereinafter set
forth, shall be conclusively presumed to have been given due notice of such
meeting unless such Shareholder or proxy at the beginning of the meeting objects
to the holding of, or the transaction of business at, the meeting.
Section 3.06. Waiver of Notice. Notice of any annual or special
meeting may be waived in writing by any Shareholder, before or after the date
and time of the meeting specified in the notice thereof, by a written waiver
delivered to the Corporation for inclusion in the minutes or filing with the
corporate records. A Shareholder's attendance at any meeting in person or by
proxy shall constitute a waiver of (a) notice of such meeting, unless the
Shareholder at the beginning of the meeting objects to the holding of or the
transaction of business at the meeting, and (b) consideration at such meeting of
any business that is not within the purpose or purposes described in the meeting
notice, unless the Shareholder objects to considering the matter when it is
presented.
Section 3.07. Proxies. A Shareholder entitled to vote at any meeting
may vote either in person or by proxy executed in writing by the Shareholder or
a duly authorized attorney-in-fact of such Shareholder. For purposes of this
Section, a proxy granted by telegram, telex, telecopy of other document
transmitted electronically for or by a Shareholder shall be deemed "executed in
writing by the Shareholder." The general proxy of a fiduciary shall be given the
same effect as the general proxy of any other Shareholder. No proxy shall be
valid after eleven months from the date of its execution unless a longer or
shorter time is expressly provided therein. An appointment of a proxy is
revocable by a Shareholder unless the appointment form conspicuously states that
it is irrevocable and the appointment is coupled with an interest.
Section 3.08. Voting. No shares shall be voted at any meeting: (1)
upon which any installment is due and unpaid; (2) which, in the absence of
determination of a record date in accordance with the provisions of Section
3.04, have been transferred on the books of the Corporation within ten (10) days
preceding the date of such meeting; or (3) which belong to the
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Corporation. Shares standing in the name of a corporation (other than in the
name of this Corporation) may be voted by such officer, agent, or proxy as the
Board of Directors of such corporation may appoint or as the by-laws of such
corporation may prescribe. Shares held by fiduciaries may be voted by the
fiduciaries in such manner as the instrument or order appointing such
fiduciaries may direct. In the absence of such direction or the inability of the
fiduciaries to act in accordance therewith, the following provisions shall
apply: (1) where shares are held jointly by three or more fiduciaries, such
shares shall be voted in accordance with the will of the majority; (2) where the
fiduciaries or a majority of them cannot agree, or where they are equally
divided upon the question of voting such shares, such shares shall be voted in
accordance with the direction made by any court of general equity jurisdiction
upon petition for such purpose filed by any of such fiduciaries or by any party
in interest. Shares that are pledged may, unless otherwise provided in the
agreement of pledge and notice to that effect served upon the Corporation, be
voted by the shareholder pledging the same until such shares shall have been
transferred to the pledgee on the books of the Corporation, and thereafter they
may be voted by the pledgee.
Section 3.09. Quorum. At any meeting of Shareholders, the holders of
a majority of the outstanding shares which may be voted on the business to be
transacted at such meeting, represented thereat in person or by proxy, shall
constitute a quorum, and a majority vote of such quorum shall be necessary for
the transaction of any business by the meeting, unless a greater number is
required by law, the Articles or these By-Laws. In case a quorum shall not be
present at any meeting, the holders of record of a majority of such shares so
present in person or by proxy may adjourn the meeting from time to time, without
notice, other than announcement at the meeting, unless the date of the adjourned
meeting requires that the Board fix a new record date therefore, in which case
notice of the adjourned meeting shall be given. At any such adjourned meeting at
which a quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally scheduled.
Section 3.10. Shareholder List. The Secretary shall prepare before
each meeting of Shareholders a complete list of the Shareholders entitled to
notice of such meeting, arranged in
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alphabetical order by class of shares (and each series within a class), and
showing the address of, and the number of shares entitled to vote held by, each
Shareholder ("Shareholder List"). Beginning five business days before the
meeting and continuing throughout the meeting, the Shareholder List shall be on
file at the principal office or at a place identified in the meeting notice as
the city where the meeting will be held, and shall be available for inspection
by any Shareholder entitled to vote at the meeting. On written demand, made in
good faith and for a proper purpose and describing with reasonable particularity
the Shareholder's purpose, and if the Shareholder List is directly connected
with the Shareholder's purpose, a Shareholder (or such Shareholder's agent or
attorney authorized in writing) shall be entitled to inspect and to copy the
Shareholder List, during regular business hours and at the Shareholder's
expense, during the period the Shareholder List is available for inspection. The
original stock register or transfer book, or a duplicate thereof kept at the
principal office of the Corporation, shall be the only evidence as to who are
the Shareholders entitled to examine the Shareholder List, or to notice of or to
vote at any meeting.
Section 3.11. Meeting by Telephone, etc. Any or all of the
Shareholders may participate in a meeting by or through the use of any means of
communication by which all Shareholders participating may simultaneously hear
each other during the meeting. A Shareholder participating in a meeting by this
means is deemed to be present in person at the meeting.
Section 3.12. Inspectors. The Board, the Chairman of the Board or
the President, in advance of any meeting of shareholders, may appoint one or
more inspectors to act at such meeting or any adjournment thereof. If one or
more inspectors of election are not so appointed, the officer or person acting
as chairman of any such meeting may, and on the request of any shareholder or
his proxy, shall make such appointment. In case any person appointed as
inspector shall fail to appear or to act, the vacancy may be filled by
appointment made by the Board, the Chairman of the Board or the President in
advance of the meeting, or at the meeting by the officer or person acting as
chairman. The inspector or inspectors of election shall determine the number of
shares outstanding, the voting power of each, the shares represented at
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the meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, receive votes, ballots, assents, or consents, hear and determine all
challenges and questions in any way arising in connection with the vote, count
and tabulate all votes, assents and consents, determine and announce the result,
and do such acts as may be proper to conduct the election or vote with fairness
to all shareholders. No inspector however appointed need be a Shareholder. In
the event one or more inspectors are not appointed in such manner as set forth
above, the Secretary of the Corporation shall perform the duties of the
inspectors.
ARTICLE 4
Board of Directors
Section 4.01. Duties and Number. The property and business of the
Corporation shall be managed under the direction of its Board. The number of
Directors which shall constitute the whole Board of Directors of the Corporation
and shall be no less than four nor greater than ten. The number within that
range shall be fixed from time to time by the Board of Directors.
Section 4.02. Election, Term of Office and Qualification. Directors
shall be elected at each annual meeting by the Shareholders entitled by the
Articles to elect Directors. Directors shall be elected for a term of one year
and shall hold office until their respective successors are elected and
qualified. Directors need not be residents of the State of Indiana or
Shareholders of the Corporation. No decrease in the number of Directors at any
time provided by these By-Laws shall have the effect of shortening the term of
any incumbent Director.
Section 4.03. Powers of Directors. The Board shall exercise all
of the powers of the Corporation, subject to the restrictions imposed by law,
the Articles, or these By-Laws.
Section 4.04. Annual Meeting. Unless otherwise determined by the
Board, the Chairman of the Board or the President, the Board shall meet each
year immediately after the annual meeting of the Shareholders, at the place
where such meeting of the Shareholders has
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<PAGE> 10
been held, for the purpose of organization, election of Officers, and
consideration of any other business that may properly be brought before the
meeting. No notice shall be necessary for the holding of this annual meeting. If
such meeting is not held as above provided, the election of Officers may be held
at any subsequent duly constituted meeting of the Board.
Section 4.05. Regular Board Meetings. Regular meetings of the Board
may be held at stated times or from time to time, and at such place, either
within or without the State of Indiana, as the Board may determine, without call
and without notice.
Section 4.06. Special Board Meetings. Special meetings of the Board
may be called at any time or from time to time, and shall be called on the
written request of at least two Directors, the Chairman of the Board, or the
President, by causing the Secretary or any Assistant Secretary to give to each
Director, either personally or by mail, telephone, telegraph, teletype or other
form of wire or wireless communication at least two days' notice of the date,
time and place of such meeting. Special meetings shall be held at the principal
office of the Corporation or at such other place, within or without the State of
Indiana, as shall be specified in the respective notices or waivers of notice
thereof. A Director may waive notice of any special meeting of the Board before
or after the date and time stated in the notice by a written waiver signed by
the Director and filed with the minutes or corporate records. A Director's
attendance at or participation in a special meeting waives any required notice
to the Director of the meeting unless the Director at the beginning of the
meeting (or promptly upon the Director's arrival) objects to holding the meeting
or transacting business at the meeting and does not thereafter vote for or
assent to action taken at the meeting.
Section 4.07. Meeting by Telephone, etc. Any or all of the members
of the Board or of any committee designated by the Board may participate in a
meeting of the Board or the committee, or conduct a meeting through the use of,
any means of communication by which all persons participating may simultaneously
hear each other during the meeting, and participation in a meeting using these
means constitutes presence in person at the meeting.
10
<PAGE> 11
Section 4.08. Quorum. At all meetings of the Board, the presence of
a majority of the number of Directors designated for the full Board shall be
necessary to constitute a quorum for the transaction of any business, except (a)
that for the purpose of filling of vacancies on the Board, a majority of
Directors then in office shall constitute a quorum, and (b) that a lesser number
may adjourn the meeting from time to time until a quorum is present. The
affirmative vote of a majority of the Directors present at a meeting at which a
quorum is present shall be the act of the Board, unless the act of a greater
number is required by law, the Articles or these By-Laws.
Section 4.09. Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Board or of any committee thereof
may be taken without a meeting if the action is taken by all members of the
Board or of such committee. The action must be evidenced by one (1) or more
written consents describing the action taken, signed by each member of the Board
or of the committee, and included in the minutes or filed with the corporate
records reflecting the action taken. Action taken under this Section is
effective when the last member of the Board or of the committee signs a written
consent, unless the consent specifies a different prior or subsequent effective
date.
Section 4.10. Resignations. Any Director may resign at any time by
delivering written notice to the Board, the Chairman of the Board, the
President, or the Secretary. Such resignation shall take effect when the notice
is delivered unless the notice specifies a later effective date. If the
resignation specifies a later effective date, the Board may fill the pending
vacancy before the effective date, but the new Director may not take office
until the vacancy occurs.
Section 4.11. Removal. Any Director may be removed, with or without
cause, at any meeting of the Shareholders by the affirmative vote of a majority
in number of shares of the Shareholders of record present in person or by proxy
and entitled to vote for the election of Directors, if notice of the intention
to act upon such matter shall have been given in the notice calling such
meeting. If the notice calling such meeting shall so provide, the vacancy caused
by
11
<PAGE> 12
such removal may be filled at such meeting by vote of the holders of a majority
of the outstanding shares present and entitled to vote for the election of
Directors.
Section 4.12. Vacancies. Any vacancy occurring in the Board,
including a vacancy resulting from an increase in the number of Directors, may
be filled by the Board or, if the Directors remaining in office constitute fewer
than a quorum of the Board, they may fill the vacancy by the affirmative vote of
a majority of all the Directors remaining in office. Each Director so chosen
shall hold office until the expiration of the term of the Director, if any, whom
he has been chosen to succeed, or, if none, until the expiration of the term
designated by the Board for the directorship to which he has been elected, or
until his earlier removal, resignation, death, or other incapacity.
Section 4.13. Compensation of Directors. The Board is empowered and
authorized to fix and determine the compensation of Directors for attendance at
meetings of the Board and additional compensation for such additional services
any of such Directors may perform for the Corporation.
Section 4.14. Interest of Directors in Contracts. Any contract or
other transaction between the Corporation and (a) any Director, or (b) any
corporation, unincorporated association, business trust, estate, partnership,
trust, joint venture, individual or other legal entity ("Legal Entity") (1) in
which any Director has a material financial interest or is a general partner, or
(2) of which any Director is a director, officer or trustee (collectively, a
"Conflict Transaction"), shall be valid for all purposes, if the material facts
of the Conflict Transaction and the Director's interest were disclosed or known
to the Board, a committee with authority to act thereon, or the Shareholders
entitled to vote thereon, and the Board, such committee, or such Shareholders
authorized, approved, or ratified the Conflict Transaction. A Conflict
Transaction is authorized, approved or ratified:
(a) By the Board or such committee, if it receives the affirmative
vote of a majority of the Directors who have no interest in the Conflict
Transaction,
12
<PAGE> 13
notwithstanding the fact that such majority may not constitute a quorum or
a majority of the Board or such committee or a majority of the Directors
present at the meeting, and notwithstanding the presence or vote of any
Director who does have such an interest; provided, however, that no
Conflict Transaction may be authorized, approved or ratified by a single
Director; or
(b) By such Shareholders, if it receives the vote of a majority of
the shares entitled to be counted, in which vote shares owned or voted
under the control of any Director who, or of any Legal Entity that, has an
interest in the Conflict Transaction may be counted.
This Section shall not be construed to require authorization, ratification or
approval by the Shareholders of any Conflict Transaction, or to invalidate any
Conflict Transaction that would otherwise be valid under the common and
statutory law applicable thereto.
ARTICLE 5
Committees of the Board of Directors
Section 5.01. Committees. The Board may create one or more
committees and appoint members of the Board to serve on them. Each committee may
have one or more members, who shall serve at the pleasure of the Board. The
creation of a committee and appointment of members to it must be approved by the
greater of: (a) a majority of all the Directors in office when the action is
taken; or (b) the number of Directors required by the Articles or these By-Laws
to take action under the Act.
Section 5.02. Powers of Committees. To the extent specified by the
Board, each committee may exercise the authority of the Board. No committee may,
however, (a) authorize distributions, except a committee (or an executive
officer of the Corporation designated by the Board) may authorize or approve a
reacquisition of shares or other distribution if done according to a formula or
method, or within a range, prescribed by the Board; (b) approve or propose to
13
<PAGE> 14
Shareholders action that the Act requires to be approved by Shareholders; (c)
fill vacancies on the Board or on any of its committees; (d) except to the
extent permitted by Subsection (g) of this Section 5.02, amend the Articles; (e)
adopt, amend, or repeal these By-Laws; (f) approve a plan of merger not
requiring Shareholder approval; or (g) authorize or approve the issuance or sale
or a contract for the sale of shares, or determine the designation and relative
rights, preferences, and limitations of a class or series of shares, except the
Board may authorize a committee (or an executive officer designated by the
Board) to take the action described in this Subsection (g) within limits
prescribed by the Board.
Section 5.03. Meetings; Procedure; Quorum. Sections 4.05 through
4.09 of these By-Laws dealing with meetings, action without a meeting, notice
and waiver of notice, and quorum and voting requirements of the Board shall
apply to the committees and their members as well.
ARTICLE 6
Officers
Section 6.01. Number. The Officers of the Corporation shall consist
of the Chairman of the Board, the President, one or more Vice-Presidents (if
any), the Secretary, the Treasurer, and such other officers as may be chosen by
the Board at such time and in such manner and for such terms as the Board may
prescribe. Any two or more offices may be held by the same person.
Section 6.02. Election and Term of Office. The Officers shall be
chosen by the Board. Each Officer shall hold office until his successor is
chosen and qualified, until his death, until he shall have resigned, or shall
have been removed pursuant to Section 6.04 of these By-Laws.
Section 6.03. Resignations. Any Officer may resign at any time by
delivering written notice to the Board, the Chairman of the Board, the
President, or the Secretary. Such
14
<PAGE> 15
resignation shall take effect when the notice is delivered unless the notice
specifies a later effective date. If a resignation is made effective at a later
date and the Corporation accepts the future effective date, the Board may fill
the pending vacancy before the effective date if the Board provides that the
successor does not take office until the effective date.
Section 6.04. Removal. Any Officer may be removed either with
or without cause, at any time, by the vote of a majority of the actual number
of Directors elected and qualified from time to time.
Section 6.05. Vacancies. Whenever any vacancy shall occur in any
office, the same shall be filled by the Board and the Officer so chosen shall
hold office during the remainder of the term for which his predecessor was
chosen or as otherwise provided herein.
Section 6.06. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of Shareholders and Directors, discharge all the duties
which devolve upon a presiding officer, and shall exercise and perform such
other powers and duties as these By-Laws or the Board may prescribe.
Section 6.07. President. The President shall be the Chief Executive
Officer of the Corporation and shall manage and supervise all the affairs and
personnel of the Corporation and shall discharge all the usual functions of the
chief executive officer of a corporation. The President shall have full
authority to execute proxies in behalf of the Corporation, to vote stock owned
by it in any other corporation, and to execute, with the Secretary, powers of
attorney appointing other corporations, partnerships, or individuals the agent
of the Corporation, all subject to the provisions of the Act, the Articles and
these By-Laws.
Section 6.08. Vice-Presidents. The Vice-Presidents, in the order
designated by the President or the Board, shall exercise and perform all powers
of, and perform duties incumbent upon, the President during his absence or
disability and shall exercise and perform such other powers and duties as these
By-Laws, the Board or the President may prescribe.
15
<PAGE> 16
Section 6.09. Secretary. The Secretary shall attend all meetings of
the Shareholders and of the Board, and shall keep or cause to be kept in a book
provided for the purpose a true and complete record of the proceedings of such
meetings, and shall perform a like duty, when required, for all committees
created by the Board. He shall authenticate the records of the Corporation when
necessary and shall exercise and perform such other powers and duties as these
By-laws, the Board, or the President may prescribe. He shall give all notices of
the Corporation and, in case of his absence, negligence, or refusal so to do,
any notice may be given by a person so directed by the President or by the
requisite number of Directors upon whose request the meeting is called as
provided by these By-Laws.
Section 6.10. Treasurer. The Treasurer shall keep correct and
complete records of account, showing at all times the financial condition of the
Corporation. He shall be the legal custodian of all moneys, notes, securities
and other valuables that may from time to time come into the possession of the
Corporation. He shall immediately deposit all funds of the Corporation coming
into his hands in some reliable bank or other depository to be designated by the
Board or one or more executive officers designated by the Board, and shall keep
such bank account in the name of the Corporation. He shall furnish at meetings
of the Board, or whenever requested thereby, a statement of the financial
condition of the Corporation, and shall exercise and perform such other powers
and duties as these By-laws, the Board, or the President may prescribe. The
Treasurer may be required to furnish bond in such amount as shall be determined
by the Board.
Section 6.11. Assistant Officers. The Board or the President may
from time to time appoint assistant Officers who shall serve at the pleasure of
the appointing authority and who shall exercise and perform such powers and
duties as the Officers whom they are elected to assist shall specify and
delegate to them, and such other powers and duties as these By-Laws, the Board,
or the President may prescribe. An Assistant Secretary may, in the absence or
disability of the Secretary, attest the execution of all documents by the
Corporation.
16
<PAGE> 17
Section 6.12. Delegation of Authority. In case of the absence of any
Officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may delegate the powers or duties of such Officer to any
other Officer or to any Director, for the time being.
ARTICLE 7
Negotiable Instruments, Deeds, Contracts,
Stock and Limitation of Liability
Section 7.01. Execution of Negotiable Instruments. All checks,
drafts, bills of exchange and orders for the payment of money by the Corporation
shall, unless otherwise directed by the Board, or unless otherwise required by
law, be signed by any two of the following Officers: the President, any
Vice-President, the Secretary or the Treasurer. The Board may, however,
authorize any one or more of such Officers to sign checks, drafts, bills of
exchange and orders for the payment of money by the Corporation singly and
without necessity of countersignature; and the Board may designate any other
employee or employees of the Corporation, who may, in the name of the
Corporation, execute checks, drafts, bills of exchange and orders for the
payment of money by the Corporation or in its behalf.
Section 7.02. Execution of Deeds, Contracts, Etc. All deeds, notes,
bonds and mortgages made by the Corporation and all other written contracts and
agreements, other than those executed in the ordinary course of corporate
business, to which the Corporation shall be a party shall be executed in its
name by the President, a Vice-President or by any other Officer so authorized by
the Board. When necessary or required, the Secretary shall attest the execution
thereof.
17
<PAGE> 18
Section 7.03. Ordinary Contracts and Agreements. All written
contracts and agreements into which the Corporation enters in the ordinary
course of business operations shall be executed by any Officer or by any other
employee of the Corporation designated by the President to execute such
contracts and agreements.
Section 7.04. Endorsement of Certificates for Shares. Unless
otherwise directed by the Board, any share or shares issued by any corporation
and owned by the Corporation (including reacquired shares of the Corporation)
may, for sale or transfer, be endorsed in the name of the Corporation by the
President or a Vice-President. When necessary or required, the Secretary shall
attest such endorsement.
Section 7.05. Voting of Shares Owned by Corporation. Unless
otherwise directed by the Board, any share or shares issued by any other
corporation and owned or controlled by the Corporation may be voted at any
shareholders' meeting of such other corporation by the President of the
Corporation, or in his absence by a Vice-President of the Corporation. Whenever,
in the judgment of the President, it is desirable for the Corporation to execute
a proxy or give a shareholder's consent in respect to any share or shares issued
by any other corporation and owned by the Corporation, such proxy or consent
shall be executed in the name of the Corporation by the President or a
Vice-President of the Corporation. Any person or persons designated in the
manner above stated as the proxy or proxies of the Corporation shall have full
right, power and authority to vote the share or shares issued by such other
corporation and owned by the Corporation in the same manner as such share or
shares might be voted by the Corporation.
Section 7.06. Limitation of Liability. The following provisions
apply with respect to liability on the part of a Director, a member of any
committee or of another committee appointed by the Board (an "Appointed
Committee"), Officer, employee or agent of the Corporation (collectively,
"Corporate Persons," and individually, a "Corporate Person") for any loss or
damage suffered on account of any action taken or omitted to be taken by a
Corporate Person:
18
<PAGE> 19
(a) General Limitation. No Corporate Person shall be liable for any
loss or damage if, in taking or omitting to take any action causing such
loss or damage, either (1) such Corporate Person acted (A) in good faith,
(B) with the care an ordinarily prudent person in a like position would
have exercised under similar circumstances, and (C) in a manner such
Corporate Person reasonably believed was in the best interests of the
Corporation, or (2) such Corporate Person's breach of or failure to act in
accordance with the standards of conduct set forth in Clause (a)(1) above
("Standards of Conduct") did not constitute willful misconduct or
recklessness.
(b) Reliance on Corporate Records and Other Information. Any
Corporate Person shall be fully protected, and shall be deemed to have
complied with the Standards of Conduct, in relying in good faith, with
respect to any information contained therein, upon (1) the Corporation's
records, or (2) information, opinions, reports or statements (including
financial statements and other financial data) prepared or presented by
(A) one or more other Corporate Persons whom such Corporate Person
reasonably believes to be competent in the matters presented, (B) legal
counsel, public accountants or other persons as to matters that such
Corporate Person reasonably believes are within such person's professional
or expert competence, (C) a committee or an Appointed Committee, of which
such Corporate Person is not a member, if such Corporate Person reasonably
believes such committee or Appointed Committee merits confidence, or (D)
the Board, if such Corporate Person is not a Director and reasonably
believes that the Board merits confidence.
19
<PAGE> 20
ARTICLE 8
Amendments
Section 8.01. Amendment of By-Laws. The power to make, alter, amend
or repeal these By-Laws is vested in the Board, but the affirmative vote of a
number of Directors equal to a majority of the number who would constitute a
full Board of Directors at the time of such action shall be necessary to take
any action for the making, alteration, amendment or repeal of these By-Laws.
20
<PAGE> 1
Exhibit 4.3*
COMMON STOCK COMMON STOCK
(NUMBER) (SHARES)
NB
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF INDIANA CERTAIN DEFINITIONS
CUSIP 963801 10 5
[WHITE ELECTRONIC DESIGNS, INC. LOGO]
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, WITHOUT PAR VALUE, OF
(CERTIFICATE OF STOCK)
WHITE ELECTRONIC DESIGN CORPORATION
- - - --------------------------------------------------------------------------------
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ Illegible /s/ Illegible
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
(AUTHORIZED SIGNATURE)
<PAGE> 2
The Corporation will furnish the holder of this certificate a statement of
the designations, relative rights, preferences, and limitations applicable to
each class and the variations in rights, preferences, and limitations determined
for each series (and the authority of the Board of Directors to determine
variations for future series) of the Corporation's shares on request in writing
and without charge. Such request may be made to the office of the Secretary of
the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ___________ Custodian _____________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _____________________
in common (State)
UNIF TRF MIN ACT -- ___________ Custodian (until age __)
(Cust)
___________ under Uniform Transfers
(Minor)
to Minors Act ______________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _________________________________________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
___________________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________
____________________________________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
__________________________________________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with full power of substitution in
the premises.
Dated ____________________________________
X _________________________________________________
X _________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By ____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
</TABLE>
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Company:
Bowmar Technologies
8000 Bluffton Road
Ft. Wayne, IN. 46809
Electronic Designs, Inc.
One Research Drive
Westborough, MA. 01581
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-START> SEP-28-1998
<PERIOD-END> OCT-03-1998
<CASH> 1,069
<SECURITIES> 0
<RECEIVABLES> 3,086
<ALLOWANCES> (79)
<INVENTORY> 5,508
<CURRENT-ASSETS> 11,248
<PP&E> 2,361
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,898
<CURRENT-LIABILITIES> 3,066
<BONDS> 0
0
120
<COMMON> 672
<OTHER-SE> 8,335
<TOTAL-LIABILITY-AND-EQUITY> 14,898
<SALES> 28,998
<TOTAL-REVENUES> 28,998
<CGS> 20,744
<TOTAL-COSTS> 20,744
<OTHER-EXPENSES> 8,012
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 517
<INCOME-PRETAX> (275)
<INCOME-TAX> 292
<INCOME-CONTINUING> (567)
<DISCONTINUED> 780
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 213
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> 0
</TABLE>
