<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1998
Registration No. 333-___________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------------
BOWMAR INSTRUMENT CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
INDIANA 3674 35-0905052
(State or other jurisdiction of (Primary Standard Industrial Classification (I.R.S. Employer Identification
incorporation or organization) Code Number) Number)
</TABLE>
3601 E. UNIVERSITY DRIVE
PHOENIX, ARIZONA 85034
(602) 437-1520
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------------------------
JOSEPH G. WARREN, JR.
VICE PRESIDENT FINANCE AND SECRETARY
BOWMAR INSTRUMENT CORPORATION
3601 E. UNIVERSITY DRIVE
PHOENIX, ARIZONA 85034
(602) 437-1520
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
LADAWN NAEGLE, ESQ. THOMAS P. STORER, P.C.
BRYAN CAVE LLP GOODWIN, PROCTER & HOAR LLP
700 13TH STREET, N.W., SUITE 700 EXCHANGE PLACE
WASHINGTON, D.C. 20005 BOSTON, MA 02109
(202) 508-6046 (617) 570-1145
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective and all
other conditions to the merger (the "Merger") of a subsidiary of the Registrant
with and into Electronic Designs, Inc., a Delaware corporation ("EDI") pursuant
to the Agreement and Plan of Merger described in the enclosed Joint Proxy
Statement/Prospectus have been satisfied or waived.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
---------------
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED(1) BE REGISTERED UNIT PRICE FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 10,000,000 $2.0625(3) $15,000,000(3) $4,425.00
- --------------------------------------------------------------------------------------------------------------------
Common Stock Purchase Rights(2) N/A N/A
- --------------------------------------------------------------------------------------------------------------------
Common Stock Purchase Warrants 1,600,000 $2.0625(3) $ 3,300,000(3) $ 973.50
- --------------------------------------------------------------------------------------------------------------------
Total $5,398.50
====================================================================================================================
</TABLE>
(1) This Registration Statement relates to (i) the offer and sale of common
stock, stated value $.10 per share (the "Common Stock"), of the Registrant
issuable to holders of common stock, par value $.01 per share, of EDI (the "EDI
Common Stock") in the proposed Merger; (ii) the issuance of Common Stock
purchase warrants of the Registrant ("New Warrants") to holders of EDI Common
Stock purchase warrants in substitution therefor pursuant to the proposed
Merger and the offer of the Common Stock of the Registrant underlying the New
Warrants; (iii) the offer and sale from time to time after the Merger of the
Common Stock of the Registrant underlying the New Warrants upon exercise
thereof; and (iv) the offer and sale from time to time after the Merger of
Common Stock of the Registrant issued to certain EDI affiliates.
(2) Pursuant to the Rights Agreement (the "Bowmar Rights Agreement") between
the Registrant and American Stock Transfer and Trust Company, as Rights Agent,
dated as of December 6, 1996, and as amended May 3, 1998, Common Stock purchase
rights (the "Common Stock Purchase Rights") are attached to and trade with the
Common Stock. Value attributable to such Common Stock Purchase Rights, if any,
is reflected in the market price of the Common Stock.
(3) Estimated solely for purposes of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
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BOWMAR INSTRUMENT CORPORATION
3601 E. UNIVERSITY DRIVE
PHOENIX, ARIZONA 85034
(602) 437-1520
JUNE __, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
of Bowmar Instrument Corporation ("Bowmar") to be held on ___________, 1998, at
the offices of Bowmar, 3601 E. University Drive, Phoenix, Arizona 85034. The
meeting will start at 9:00 a.m. local time.
At this important meeting, you will be asked to approve three specific
proposals relating to the proposed merger (the "Merger") with Electronic
Designs, Inc. ("EDI"). Pursuant to the Agreement and Plan of Merger dated May
3, 1998, as amended, by and among Bowmar, EDI and Bowmar's wholly owned
subsidiary corporation (the "Merger Agreement"), if the Merger is approved by
the stockholders of EDI and Bowmar, EDI will become a wholly owned subsidiary
of Bowmar and Bowmar's name will be changed to "_________________". EDI
stockholders will receive 1.375 shares of the common stock of Bowmar (referred
to in the attached document as "Combined Company Common Stock" after the
Merger) for each share of the common stock of EDI held by them. The full text
of the Merger Agreement is included at the back of this document as Appendix I.
We expect the stockholders of EDI will receive approximately 59% of
the total outstanding shares of the combined company after the Merger.
Your Board has received a written opinion from Needham & Company,
Inc., its financial advisor, dated as of May 3, 1998, to the effect that, as of
such date and based upon and subject to certain matters stated therein, the
exchange ratio of 1.375 shares of the common stock of Bowmar for each share of
the common stock of EDI was fair from a financial point of view to the
stockholders of Bowmar. A copy of this opinion is attached as Appendix II to
this document.
Your Board unanimously approved the Merger Agreement and believes that
the Merger with EDI is in the best interests of Bowmar and its stockholders.
The Board unanimously recommends that you approve the Merger Agreement and the
transactions contemplated thereby, including the issuance of the Combined
Company Common Stock and other securities in the Merger pursuant to the Merger
Agreement, and that you approve amendments to Bowmar's Articles of
Incorporation to increase the authorized common stock to accommodate the Merger
and to change Bowmar's name to "___________________".
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE TAKE THE
TIME TO VOTE BY COMPLETING AND RETURNING THE ENCLOSED PROXY CARD TO US. A
POSTAGE PAID RETURN ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. IF YOU SIGN,
DATE AND RETURN YOUR PROXY CARD WITHOUT INDICATING HOW YOU WANT TO VOTE, YOUR
PROXY WILL BE COUNTED AS A VOTE IN FAVOR OF THE PROPOSALS. IF YOU FAIL TO
RETURN A PROXY CARD, OR FAIL TO VOTE AT THE MEETING OR ABSTAIN, THIS WILL HAVE
THE EFFECT OF A VOTE AGAINST THE MERGER. EVEN IF YOU PLAN TO ATTEND THE
MEETING, PLEASE COMPLETE AND RETURN YOUR PROXY.
This document provides you with detailed information about the
proposed Merger and related stock issuances. We urge you to read it carefully.
Sincerely,
HAMID R. SHOKRGOZAR
President and Chief Executive Officer
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BOWMAR INSTRUMENT CORPORATION
3601 E. UNIVERSITY DRIVE
PHOENIX, ARIZONA 85034
(602) 437-1520
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON __________, 1998
To The Stockholders of
Bowmar Instrument Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Bowmar
Instrument Corporation ("Bowmar") will be held at the offices of Bowmar, 3601
E. University Drive, Phoenix, Arizona 85034 on ________ __, 1998 at 9:00 a.m.,
local time, for the following purposes:
(1) To consider and vote upon a proposal to approve the Agreement and Plan
of Merger dated as of May 3, 1998, as amended (the "Merger Agreement"),
by and among Bowmar, Electronic Designs, Inc. ("EDI") and Bravo
Acquisition Subsidiary, Inc., a wholly owned subsidiary of Bowmar
("Acquisition Subsidiary") and the transactions contemplated by the
Merger Agreement, including the issuance of the common stock of Bowmar
(referred to in the attached document as "Combined Company Common Stock"
after the Merger) and other securities in the Merger pursuant to the
Merger Agreement. Pursuant to the Merger Agreement, Acquisition
Subsidiary will merge with and into EDI in a transaction which will
result in the survival of EDI as a wholly owned subsidiary of Bowmar
(the "Merger"). As a result of the Merger, each share of the common
stock of EDI will be converted into the right to receive 1.375 shares of
the common stock of Bowmar, together with the associated common stock
purchase rights issued under the Rights Agreement dated December 6,
1996, between Bowmar and American Stock Transfer and Trust Company, as
Rights Agent.
(2) To consider and to vote upon a proposal to amend Bowmar's Articles of
Incorporation (the "Articles") to increase the number of authorized
shares of common stock of Bowmar from 15,000,000 to 60,000,000.
(3) To consider and to vote upon a proposal to amend the Articles to change
the name of Bowmar after the Merger to "________________".
(4) To transact such other business as may properly come before the Special
Meeting (including adjournment of the Special Meeting) or any
adjournment or postponement thereof.
The Board of Directors has fixed the close of business on __________ __,
1998 as the record date for determining the stockholders entitled to receive
notice of, and to vote at, the Special Meeting or any adjournment or
postponement thereof. Each share of the common stock of Bowmar and each share
of Bowmar's preferred stock, par value $1.00 per share, will entitle the holder
to one vote at the Special Meeting.
The Joint Proxy Statement/Prospectus sets forth information, including
financial data, relating to Bowmar and EDI and describes the terms and
conditions of the proposed Merger. Please carefully review these materials
before completing the enclosed proxy card. The Joint Proxy Statement/Prospectus
forms a part of this Notice.
YOUR BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF BOWMAR VOTE
"FOR" THE ABOVE PROPOSALS SO THAT THE MERGER MAY BE COMPLETED.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING
ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE
SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE JOINT PROXY
STATEMENT/PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
Phoenix, Arizona JOSEPH G. WARREN, JR.
________ __, 1998 Secretary
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ELECTRONIC DESIGNS, INC.
ONE RESEARCH DRIVE
WESTBOROUGH, MA 01581
(508) 366-5151
[______ __], 1998
Dear Stockholder:
You are cordially invited to attend the Special Meeting of
Stockholders of Electronic Designs, Inc. (the "Company") to be held at
_________, local time, on __________, 1998, at the Westin Hotel, located at 70
Third Avenue, Waltham, Massachusetts. At the Special Meeting, you will be
asked to consider and vote upon a proposal to approve the Agreement and Plan of
Merger, dated as of May 3, 1998, as amended, by and among Bowmar Instrument
Corporation, Bravo Acquisition Subsidiary and the Company (the "Merger
Agreement"), and the transactions contemplated thereby (the "Merger").
Pursuant to the Merger, Bravo Acquisition Subsidiary will merge with
and into the Company with the Company being the surviving corporation and a
wholly owned subsidiary of Bowmar. In connection with the Merger, each share of
common stock of the Company will be converted into 1.375 shares of common stock
of Bowmar (the "Exchange Ratio"). In connection with the Merger, Bowmar's name
will be changed to "_________________." Approval of the Merger requires the
affirmative vote of the holders of at least a majority of the outstanding
shares of the Company's Common Stock.
The Board of Directors of the Company believes that the Merger and the
transactions contemplated thereby are fair to, and in the best interests of,
the Company and its stockholders. In connection with the Merger, the
investment banking firm of Alliant Partners has rendered its opinion to the
Board of Directors of the Company to the effect that, as of the date of such
opinion, and subject to the considerations and limitations set forth in such
opinion, the Exchange Ratio was fair, from a financial point of view, to the
stockholders of the Company. A copy of this opinion is attached as Appendix
III to the accompanying Joint Proxy Statement/Prospectus. The Board of
Directors of the Company has approved the Merger and the transactions
contemplated thereby and recommends that you vote in favor of the Merger and
the transactions contemplated thereby at the Special Meeting.
The accompanying Joint Proxy Statement/Prospectus provides detailed
information concerning the proposed Merger and the transactions contemplated
thereby, the reasons for the Board of Directors' recommendation of the Merger
and certain additional information, including, without limitation, the
information set forth under the heading "Risk Factors." We urge you to
carefully consider all of the information in the Joint Proxy
Statement/Prospectus.
IT IS IMPORTANT THAT YOUR SHARES OF COMMON STOCK OF THE COMPANY BE
REPRESENTED AT THE SPECIAL MEETING, REGARDLESS OF THE NUMBER OF SHARES YOU
HOLD. THEREFORE, PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY CARD AS
SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. ALL
STOCKHOLDERS ARE URGED TO VOTE TO APPROVE THE MERGER BY COMPLETING, SIGNING,
DATING AND RETURNING THE ENCLOSED PROXY CARD.
We look forward to the successful combination of the Company and
Bowmar and to your continued support as a stockholder.
Sincerely,
DONALD F. MCGUINNESS
Chairman and Chief Executive Officer
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ELECTRONIC DESIGNS, INC.
ONE RESEARCH DRIVE
WESTBOROUGH, MA 01581
(508) 366-5151
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [___________ __], 1998
To The Stockholders of
Electronic Designs, Inc.:
Notice is hereby given that a Special Meeting of Stockholders of
Electronic Designs, Inc., a Delaware corporation (the "Company"), will be held
at the Westin Hotel, located at 70 Third Avenue, Waltham, Massachusetts on
______________, 1998 at _____, local time (together with all adjournments and
postponements thereof, the "Special Meeting"), for the following purposes:
(1) To consider and vote upon a proposal (the "Merger Proposal")
to approve the Agreement and Plan of Merger, dated as of May
3, 1998, as amended, (the "Merger Agreement"), by and among
Bowmar Instrument Corporation, an Indiana corporation
("Bowmar"), Bravo Acquisition Subsidiary, a Delaware
corporation and wholly owned subsidiary of Bowmar, and the
Company, and the transactions contemplated thereby, including
without limitation, the merger of Bravo Acquisition Subsidiary
with and into the Company (the "Merger"), with the Company
being the surviving corporation and a wholly owned subsidiary
of Bowmar.
(2) To consider and act upon such other business and matters or
proposals as may properly come before the Special Meeting.
The Merger and the transactions contemplated thereby are described
more fully in the attached Joint Proxy Statement/Prospectus, which includes a
copy of the Merger Agreement as Appendix I.
The Board of Directors of the Company has fixed the close of business
on __________, 1998 as the record date for determining the stockholders of the
Company entitled to notice of and to vote at the Special Meeting. Only holders
of record of common stock of the Company at the close of business on that date
will be entitled to notice of and to vote at the Special Meeting. A list of
stockholders entitled to notice of and to vote at the Special Meeting will be
available during ordinary business hours at the Company's executive office, One
Research Drive, Westborough, Massachusetts 01581, for ten days prior to the
Special Meeting for examination by any stockholder for purposes related to the
Special Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE "FOR"
THE MERGER PROPOSAL.
YOU ARE REQUESTED TO FILL IN AND SIGN THE ENCLOSED PROXY CARD, WHICH IS
BEING SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY, AND TO MAIL IT
PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. ANY PROXY DELIVERED BY A
HOLDER OF COMMON STOCK OF THE COMPANY MAY BE REVOKED PRIOR TO THE SPECIAL
MEETING BY A WRITING DELIVERED TO THE COMPANY STATING THAT THE PROXY IS REVOKED
OR BY DELIVERY OF A LATER DATED PROXY. HOLDERS OF RECORD OF COMMON STOCK OF
THE COMPANY WHO ATTEND THE SPECIAL MEETING MAY VOTE IN PERSON, EVEN IF THEY
HAVE PREVIOUSLY DELIVERED A SIGNED PROXY.
By Order of the Board of Directors of
ELECTRONIC DESIGNS, INC.
FRANK D. EDWARDS
Secretary
Westborough, Massachusetts
_______________, 1998
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BOWMAR INSTRUMENT CORPORATION
ELECTRONIC DESIGNS, INC.
JOINT PROXY STATEMENT FOR
SPECIAL MEETINGS OF STOCKHOLDERS
TO BE HELD ON __________________, 1998
----------------------------------------------
BOWMAR INSTRUMENT CORPORATION
PROSPECTUS
10,000,000 SHARES OF BOWMAR COMMON STOCK
1,600,000 BOWMAR COMMON STOCK PURCHASE WARRANTS
This Joint Proxy Statement/Prospectus (the "Joint Proxy
Statement/Prospectus") is being furnished to the holders of common stock, par
value $.01 per share, of Electronic Designs, Inc., a Delaware corporation
("EDI"), in connection with the solicitation of proxies by the Board of
Directors of EDI (the "EDI Board") for use at the Special Meeting of
Stockholders of EDI to be held at the Westin Hotel, located at 70 Third Avenue,
Waltham, Massachusetts, on ______________, 1998, at ________ a.m., local time,
and at any and all adjournments or postponements thereof (the "EDI Special
Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to the
holders of common stock, stated value $.10 per share, and preferred stock, par
value $1.00 per share, of Bowmar Instrument Corporation, an Indiana corporation
("Bowmar"), in connection with the solicitation of proxies by the Board of
Directors of Bowmar (the "Bowmar Board") for use at the Special Meeting of
Stockholders of Bowmar to be held at the offices of Bowmar, 3601 E. University
Drive, Phoenix, Arizona 85034 on ____________, 1998, at ________ a.m. local
time, and at any and all adjournments or postponements thereof (the "Bowmar
Special Meeting").
The approximate date on which this Joint Proxy Statement/Prospectus and
the accompanying form of proxy are first being mailed to stockholders of Bowmar
and the stockholders of EDI is [_________ __], 1998.
This Joint Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of Bravo Acquisition Subsidiary, Inc., a Delaware corporation and
wholly owned subsidiary of Bowmar ("Acquisition Subsidiary"), with and into EDI
pursuant to an Agreement and Plan of Merger, dated as of May 3, 1998, as
amended, by and among Bowmar, EDI and Acquisition Subsidiary (the "Merger
Agreement"). Upon consummation of the Merger, Acquisition Subsidiary will be
merged with and into EDI, and EDI will be the surviving corporation (the
"Surviving Corporation") and a wholly owned subsidiary of Bowmar. See "The
Merger--General Description of the Merger." In connection with the Merger,
Bowmar's name will be changed to "__________________" (the "Combined Company").
Upon consummation of the Merger, each issued and outstanding share of
common stock, par value $.01 per share of EDI ("EDI Common Stock"), will be
converted into the right to receive 1.375 shares (the "Exchange Ratio") of
common stock, stated value $.10 per share, of Bowmar ("Bowmar Common Stock"
and, after the Merger, "Combined Company Common Stock"), together with the
associated Common Stock Purchase Rights (as defined herein) issued under the
Bowmar Rights Agreement (as defined herein), subject to payment of cash in lieu
of any fractional share as hereinafter provided (the "Merger Consideration").
The Exchange Ratio is subject to adjustment in the event of a stock split,
stock dividend or recapitalization after the date of the Merger Agreement and
prior to the Effective Time (as defined herein) applicable to shares of Bowmar
Common Stock or EDI Common Stock, or in the event of any issuance of Bowmar
Common Stock or other securities of Bowmar after the date of the Merger
<PAGE> 8
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Agreement and prior to the Effective Time resulting from the operation of the
Bowmar Rights Agreement. See "The Merger--Merger Consideration". The
outstanding and unexercised options (the "EDI Options") and warrants (the "EDI
Warrants") exercisable for shares of EDI Common Stock will be converted into
options ("Combined Company Options") or warrants ("Combined Company Warrants"),
respectively, exercisable for shares of Combined Company Common Stock having
substantially the same terms and conditions except that the exercise price and
the number of shares issuable upon exercise will be divided and multiplied,
respectively, by the Exchange Ratio. See "The Merger--General Description of
the Merger--EDI Options and EDI Warrants."
The Merger is intended to qualify as a reorganization under the Internal
Revenue Code of 1986, as amended. No gain or loss will be recognized by EDI
stockholders on the exchange of their shares of EDI Common Stock for shares of
Combined Company Common Stock except to the extent of cash payments received in
lieu of fractional shares of Combined Company Common Stock. See "Certain
Federal Income Tax Consequences."
Bowmar Common Stock is traded on the American Stock Exchange under the
symbol "BOM." EDI Common Stock is traded on the Nasdaq SmallCap Market under
the symbol "EDIX". On [_______, 1998], the most recent practicable date prior
to the printing of this Joint Proxy Statement/Prospectus, the closing prices of
Bowmar Common Stock, as reported by the American Stock Exchange, and EDI Common
Stock, as reported by the Nasdaq SmallCap Market, were [$____] and [$_____] per
share, respectively.
This Joint Proxy Statement/Prospectus is provided (i) for use at the EDI
Special Meeting to approve and adopt the Merger Agreement and the transactions
contemplated thereby (the "EDI Merger Proposal"), (ii) for use at the Bowmar
Special Meeting to approve (a) amendments of Bowmar's Amended and Restated
Articles of Incorporation (the "Bowmar Articles") to increase the number of
authorized shares of Bowmar Common Stock and to change the name of Bowmar to
"______________" (the "Bowmar Amendment Proposals"), and (b) the Merger
Agreement and the transactions contemplated thereby, including the issuance of
approximately 10,000,000 shares of Combined Company Common Stock as
consideration in the Merger, such number of shares of Combined Company Common
Stock being referred to as the "Merger Shares," to holders of EDI Common Stock
as of the Effective Time pursuant to the Merger Agreement, the issuance of
approximately 1,600,000 Combined Company Warrants and the issuances of other
Combined Company securities as contemplated thereby (the "Bowmar Merger
Proposal"), and (iii) as part of a Registration Statement filed with the
Securities and Exchange Commission (the "Commission") with respect to the
Merger Shares, the Combined Company Warrants, Combined Company Common Stock
underlying the Combined Company Warrants (in connection with both the issuance
of the Combined Company Warrants and the issuance from time to time following
the Merger of such underlying Combined Company Common Stock) and certain
resales of Merger Shares by certain affiliates of EDI.
Consummation of the Merger is conditioned upon, among other things,
approval of the EDI Merger Proposal by the requisite vote of the holders of EDI
Common Stock and approval of the Bowmar Merger Proposal and each of the Bowmar
Amendment Proposals by the requisite vote of the holders of Bowmar Common Stock
and the holders of Bowmar's $3.00 senior voting cumulative convertible
preferred stock, par value $1.00 per share (the "$3.00 Preferred Stock"),
voting together as a single class. Certain stockholders of Bowmar and EDI,
representing approximately 22% and 9% of the outstanding shares of Bowmar
Common Stock and EDI Common Stock, respectively, as of June 9, 1998, have
entered into Voting Agreements pursuant to which they have agreed to vote their
shares in favor of the Bowmar Merger Proposal and Bowmar Amendment Proposals,
in the case of the Bowmar stockholder, and in favor of the EDI Merger Proposal,
in the case of the EDI stockholder.
The Board of Directors of each of EDI and Bowmar have approved the Merger
and have recommended to their respective stockholders a vote to approve the
matters being submitted to a vote of the stockholders. Each of Bowmar and EDI
has engaged a professional proxy solicitor to aid in the solicitation of
proxies. Bowmar has retained [_________________] and EDI has retained
[__________] for this purpose.
SEE "RISK FACTORS" ON PAGES 16 - 25 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE EVALUATED IN CONNECTION WITH THE MERGER.
<PAGE> 9
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------------------
NO PERSON HAS BEEN AUTHORIZED BY BOWMAR OR EDI TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/
PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY BOWMAR OR EDI. ALL INFORMATION CONTAINED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS RELATING TO EDI HAS BEEN SUPPLIED BY EDI AND
ALL INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS RELATING TO
BOWMAR AND ACQUISITION SUBSIDIARY HAS BEEN SUPPLIED BY BOWMAR. THIS JOINT
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OR THE SOLICITATION
OF A PROXY, IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO DO SO. THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL NOT,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF EDI OR BOWMAR SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN OR INCORPORATED BY REFERENCE IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
-----------------------
The date of this Joint Proxy Statement/Prospectus is June ___, 1998.
<PAGE> 10
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AVAILABLE INFORMATION
Bowmar and EDI are both subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, each files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by Bowmar and EDI with the Commission can be inspected and
copied at the Public Reference Facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices located at Seven World Trade Center, Suite 1300, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such materials can also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other materials that are filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
This Web site can be accessed at http://www.sec.gov.
The Bowmar Common Stock and $3.00 Preferred Stock are traded on the
American Stock Exchange under the symbols "BOM" and "BOM.PR," respectively. The
EDI Common Stock is traded on the Nasdaq SmallCap Market under the symbol
"EDIX." Reports, proxy statements and other information regarding Bowmar and
EDI may be inspected at the offices of the American Stock Exchange, 86 Trinity
Place, New York, NY 10006-1881 and Nasdaq, 1735 K Street, NW, Washington, DC
20006, respectively. This Joint Proxy Statement/Prospectus does not contain
all of the information set forth in the Registration Statement on Form S-4 and
exhibits relating thereto, including any amendments (the "Registration
Statement"), of which this Joint Proxy Statement/Prospectus is a part, and
which Bowmar has filed with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"). Reference is made to such Registration
Statement for further information with respect to Bowmar and the securities of
Bowmar offered hereby. Statements contained herein concerning the provisions
of documents are necessarily summaries of such documents, and each statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the Commission or attached as an appendix hereto.
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TABLE OF CONTENTS
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SUMMARY INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 15
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . 16
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
General Description of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
EDI Options and EDI Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Surrender and Exchange of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Management of the Combined Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Recommendation of the Bowmar Board; Reasons for the Merger . . . . . . . . . . . . . . . . . . . 36
Recommendation of the EDI Board; Reasons for the Merger . . . . . . . . . . . . . . . . . . . . 38
Opinion of Bowmar's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Opinion of EDI's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Resale Restrictions of Securities Issued in the Merger . . . . . . . . . . . . . . . . . . . . . 48
Affiliates' Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Public Trading Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Appraisal Rights of Dissenting Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 49
CERTAIN PROVISIONS OF MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Conditions of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Termination of the Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Voting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Assumption of Severance Agreements and Employment Agreement . . . . . . . . . . . . . . . . . . 60
Assumption of Registration Rights Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 60
CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
THE BOWMAR SPECIAL MEETING 63
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
The Bowmar Merger Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Proposal to Approve Amendment to Bowmar Articles to Increase Authorized Common Stock . . . . . . 64
Proposal to Amend Bowmar Articles to Change the Corporation's Name . . . . . . . . . . . . . . . 64
Voting Securities and Principal Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Vote Required; Voting and Revocation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . 66
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THE EDI SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
The EDI Merger Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Voting Securities and Principal Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Vote Required; Voting and Revocation of Proxies . . . . . . . . . . . . . . . . . . . . . . . 70
INFORMATION ABOUT BOWMAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Narrative Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Electromechanical and Mechanical Equipment and Components . . . . . . . . . . . . . . . . . . 73
Principal Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Research, Engineering and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Government Contracting Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Market Price of and Dividends on Common Equity and Related Stockholder Matters . . . . . . . . 76
Information Regarding Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . 77
Biographical Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Option Grants in 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Report of the Bowmar Compensation Committee on Option Repricing . . . . . . . . . . . . . . 80
Option Exercises and Fiscal Year-End Values . . . . . . . . . . . . . . . . . . . . . . . . 81
Report of the Bowmar Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . 81
Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Common Stock Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . 84
INFORMATION ABOUT EDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Narrative Description of the Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Production and Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Marketing and Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Patents and Proprietary Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Market Price of and Dividends on Common Equity and Related Stockholder Matters . . . . . . . . 91
Information Regarding Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . 92
Biographical Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Option Grants in Fiscal Year 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Option Exercises and Year-End Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Employment and Severance Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . 96
Report of the Compensation Committee of the EDI Board on Executive Compensation . . . . . . 96
Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . 98
Stockholder Return Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
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Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . 101
THE COMBINED COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
COMPARATIVE RIGHTS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Amendments to Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Amendments of Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Shares and Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Outstanding Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Appraisal Rights of Dissenting Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 111
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Cumulative Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Stockholder Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Notice of Stockholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Stockholder Action by Written Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Anti-Takeover Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
State Anti-Takeover Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
SELLING STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Table of Selling Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
STOCKHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
I. Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
II. Opinion of Bowmar's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . 122
III. Opinion of EDI's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
IV. Delaware General Corporation Law Section 262 . . . . . . . . . . . . . . . . . . . . . . . 122
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SUMMARY INFORMATION SUMMARY INFORMATION
The following is a summary of certain important terms of the proposed
Merger and related information discussed elsewhere in this Joint Proxy
Statement/Prospectus. This summary does not purport to be complete and is
qualified in its entirety by reference to the more detailed information
included in this Joint Proxy Statement/Prospectus and the appendices
hereto, including, but not limited to, the Merger Agreement set forth as
Appendix I hereto. Special meetings (the "Special Meetings") of the
respective stockholders of Bowmar and EDI have been called for _________ __,
1998 for the purpose of voting on, in the case of Bowmar, (i) the Bowmar
Merger Proposal (as defined below) and (ii) the Bowmar Amendment Proposals
(as defined below), and in the case of EDI, the EDI Merger Proposal (as
defined below). See "The Bowmar Special Meeting" and "The EDI Special
Meeting." Stockholders of each of Bowmar and EDI are urged to read this
Joint Proxy Statement/Prospectus and the appendices hereto in their
entirety and to consider carefully the information set forth under the
headings, "Cautionary Statement Regarding Forward-Looking Statements" and
"Risk Factors."
THE COMPANIES
Bowmar. Bowmar is an Indiana corporation, organized in 1951, with its
principal executive offices located at 3601 E. University Drive, Phoenix,
Arizona 85034, (602) 437-1520. Bowmar's principal business is the design,
manufacture and sale of microelectronic and semiconductor memory products for
commercial, industrial and military markets, particularly for
telecommunications and data communications equipment and the design,
manufacture and sale of electromechanical and mechanical equipment and
components, including electromechanical display devices, components and
packages and turnkey interface systems. See "Information about
Bowmar--General" and "--Narrative Description of Business."
EDI. EDI is a Delaware corporation, organized in 1984, with its
principal executive offices located at One Research Drive, Westborough,
Massachusetts 01581, (508) 366-5151. EDI designs, manufactures and
markets high performance memory solutions and Active Matrix Liquid Crystal
Displays ("AMLCDs") for original equipment manufacturers ("OEMs") in the
global commercial, industrial and military markets, particularly
telecommunications, data communications and avionics. See "Information
About EDI--General" and "--Narrative Description of Business."
COMBINED COMPANY. The combination allows the Combined Company to
concentrate its resources in each location by product lines that are
specifically targeted at the military and commercial memory module markets.
The combination eliminates duplication of the product creation, manufacture
and marketing at EDI's and Bowmar's current locations. Because these
multiple product lines use many of the same chips and raw materials (a
large percentage of product cost), it affords each business the advantage
of purchasing leverage through much larger volume buying. In addition, EDI
and Bowmar believe that there may be synergies between the electronic
display business of EDI and the electromechanical display keyboard business
in Bowmar's Ft. Wayne facility as the avionic customer base is the same in
these two areas.
SUMMARY OF THE MERGER AND MERGER AGREEMENT
Subject to the satisfaction of the terms and conditions set forth in the
Merger Agreement described below, Acquisition Subsidiary, a wholly owned
subsidiary of Bowmar, will merge with and into EDI. Upon consummation of
the Merger, Acquisition Subsidiary's corporate existence will terminate and
EDI will continue as the surviving corporation, wholly owned by Bowmar. In
connection with the Merger,
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Bowmar's name will be changed to "_____________________." See "The
Merger--General Description of the Merger."
As a result of the Merger, each issued and outstanding share of EDI
Common Stock will be converted into the right to receive 1.375 shares of
Combined Company Common Stock, together with the associated common stock
purchase rights (the "Common Stock Purchase Rights") issued under the
Rights Agreement between Bowmar and American Stock Transfer and Trust
Company, as Rights Agent, dated as of December 6, 1996, and as amended as
of May 3, 1998 (the "Bowmar Rights Agreement"). No fractional shares of
Combined Company Common Stock will be issued; instead, EDI stockholders who
otherwise would be entitled to fractional shares of Combined Company Common
Stock will receive cash in lieu thereof. See "The Merger--General
Description of the Merger--Merger Consideration."
Based on the capitalization of Bowmar and EDI as of May 27, 1998, the
stockholders of EDI immediately prior to the consummation of the Merger
will own securities representing approximately 59% of the outstanding
Combined Company Common Stock following consummation of the Merger.
As a result of the Merger, EDI Options will be converted into Combined
Company Options having substantially the same terms and conditions as the
EDI Options, and the EDI Warrants will be converted into Combined Company
Warrants having substantially the same terms and conditions as the EDI
Warrants, except that the exercise price and number of shares of Combined
Company Common Stock issuable upon exercise of the Combined Company Options
and the Combined Company Warrants will be divided and multiplied,
respectively, by the Exchange Ratio. See "The Merger--General Description
of the Merger--EDI Options and EDI Warrants."
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a duly executed
Certificate of Merger with the Secretary of State of the State of
Delaware (the "Effective Time"). It is anticipated that the Effective
Time will occur as promptly as practicable after the requisite
stockholder approvals have been obtained and all other conditions to the
Merger set forth in the Merger Agreement have been satisfied or waived.
See "The Merger--General Description of Merger."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Boards of Directors of Bowmar and EDI believe that the terms of the
Merger are fair to and in the best interests of their respective stockholders
and have by the vote of the directors of each respective company approved the
Merger Agreement and the related transactions. The Bowmar Board unanimously
recommends that its stockholders approve (i) the Bowmar Amendment Proposals
(defined below in "--The Special Meetings") and (ii) the Bowmar Merger Proposal
(defined below in --"The Special Meetings"). The EDI Board recommends that its
stockholders approve the EDI Merger Proposal (defined below in "--The Special
Meetings"). See "The Merger--Background of the Merger," "--Recommendation of
the Bowmar Board; Reasons for the Merger," "--Recommendation of the EDI Board;
Reasons for the Merger" and "--Interests of Certain Persons in the Merger."
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OPINIONS OF FINANCIAL ADVISORS
BOWMAR. Needham & Company, Inc. ("Needham") has delivered its written
opinion to the Bowmar Board to the effect that, as of May 3, 1998, and
based upon and subject to certain matters stated in its opinion, the
Exchange Ratio is fair, from a financial point of view, to the stockholders
of Bowmar. The full text of the written opinion of Needham, which sets
forth assumptions made, matters considered and limitations on the review
undertaken in connection with the opinion, is attached hereto as Appendix
II and is incorporated herein by reference. BOWMAR STOCKHOLDERS ARE URGED
TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See "The
Merger--Opinion of Bowmar's Financial Advisor."
EDI. Alliant Partners ("Alliant") has delivered its written opinion to
the EDI Board to the effect that, as of May 29, 1998, and based upon and
subject to certain matters stated in its opinion, the Exchange Ratio is
fair, from a financial point of view, to EDI's stockholders. The full text
of the written opinion of Alliant, which sets forth assumptions made,
matters considered and limitations on the review undertaken in connection
with the opinion, is attached hereto as Appendix III and is incorporated
herein by reference. HOLDERS OF EDI COMMON STOCK ARE URGED TO, AND SHOULD,
READ SUCH OPINION IN ITS ENTIRETY. See "The Merger--Opinion of EDI's
Financial Advisor."
THE SPECIAL MEETINGS
The Bowmar Special Meeting will be held at the Bowmar offices at 3601 E.
University Drive, Phoenix, Arizona 85034, on ______, 1998 at 9:00 a.m.,
local time. At that meeting the stockholders of Bowmar will be asked to
vote on (i) a proposal to approve the Merger Agreement and the transactions
contemplated thereby, including the issuance of Combined Company Common
Stock, Combined Company Warrants and other Combined Company securities
pursuant to the Merger Agreement (the "Bowmar Merger Proposal"); (ii) a
proposal to amend the Bowmar Articles to increase the number of shares of
authorized Bowmar Common Stock from 15,000,000 to 60,000,000; (iii) a
proposal to amend the Bowmar Articles to change the name of Bowmar to
"____________" (together with the proposal to increase the authorized
Common Stock, the "Bowmar Amendment Proposals"); and (iv) the transaction
of such other business as may properly come before the meeting (including
adjournments thereof). The Bowmar Board has established _________, 1998
(the "Bowmar Record Date") as the record date for determining all
stockholders entitled to notice of and to vote at the Bowmar Special
Meeting. See "The Bowmar Special Meeting."
The EDI Special Meeting will be held at _________________, on _______,
1998 at ______, local time. At that meeting the stockholders of EDI will be
asked to vote on a proposal to approve the Merger Agreement and the
transactions contemplated thereby, including the Merger (the "EDI Merger
Proposal"), and the transaction of such other business as may properly come
before the meeting (including adjournments thereof). The EDI Board has
established ________, 1998 (the "EDI Record Date") as the record date for
determining all stockholders entitled to notice of and to vote at the EDI
Special Meeting. See "The EDI Special Meeting."
The presence in person or by properly executed proxy of holders of a
majority of issued and outstanding shares of the Bowmar Common Stock and
$3.00 Preferred Stock entitled to vote as of the Bowmar Record Date, and of
EDI Common Stock entitled to vote as of EDI Record Date, is necessary to
constitute a quorum at the Special Meeting for each of Bowmar and EDI,
respectively. The approval and adoption of the EDI Merger Proposal
requires the affirmative vote of the holders of a majority of the votes
entitled to be cast in respect of all outstanding shares of EDI Common
Stock. The approval of the Bowmar Amendment Proposals and the Bowmar
Merger Proposal each require the affirmative vote of the holders of a
majority of the votes entitled to be cast in respect of all
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outstanding shares of Bowmar Common Stock and $3.00 Preferred Stock, voting
together as a single class. See "The Bowmar Special Meeting--Record Date; Vote
Required" and "The EDI Special Meeting--Record Date; Vote Required."
As of the Bowmar Record Date, directors and executive officers of Bowmar
and their affiliates (as a group) were entitled to vote an aggregate of
1,533,866 shares of Bowmar Common Stock, or approximately 22.6% of the
outstanding votes entitled to be cast at the Bowmar Special Meeting (which
shares include all of those shares subject to the voting agreement
described below). All such directors and executive officers and their
affiliates have indicated their intention to vote their shares for the
approval of the Bowmar Merger Proposal and for the approval of the Bowmar
Amendment Proposals. See "The Bowmar Special Meeting--Record Date; Vote
Required."
As of the EDI Record Date, the directors and executive officers of EDI
as a group beneficially owned 762,585 shares of EDI Common Stock
representing in the aggregate approximately 10.8% of outstanding votes at
that date (which shares include all of those shares subject to the voting
agreement described below). All such directors and executive officers and
their affiliates have indicated their intention to vote their shares for
the approval of the Merger Agreement and the transactions contemplated
thereby. See "The EDI Special Meeting--Record Date; Vote Required."
Certain stockholders of Bowmar and EDI holding in the aggregate
approximately 22% and approximately 9% of the outstanding Bowmar Common
Stock and EDI Common Stock, respectively, have entered into Voting
Agreements whereby such stockholders have agreed to vote, in the case of
the EDI stockholder, to approve the EDI Merger Proposal, and in the case of
the Bowmar stockholder, to approve the Bowmar Merger Proposal and the
Bowmar Amendment Proposals. See "Other Agreements--Voting Agreements."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the EDI Board with respect to the
EDI Merger Proposal, EDI stockholders should be aware that certain members
of EDI's management and the EDI Board have certain interests in the Merger
that are in addition to, or different from, the interests of stockholders
of EDI generally. These interests arise from, among other things, certain
indemnification and insurance arrangements and other matters which the
Combined Company will assume or has agreed to provide after the Merger. In
addition, it is a condition to the Merger that subject to the consummation
of the Merger, the Bowmar Board shall appoint Donald F. McGuinness (Chief
Executive Officer of EDI and Chairman of the EDI Board), Norman T. Hall (a
director of EDI) and Thomas J. Toy (a director of EDI) to the Board of
Directors of the Combined Company (the "Combined Company Board"). Further,
it is a condition to the Merger that subject to the consummation of the
Merger, the Combined Company Board shall appoint Donald F. McGuinness as
Chairman of the Combined Company Board and Frank D. Edwards (Chief
Financial Officer and a director of EDI) to the office of Executive Vice
President of the Combined Company. See "The Merger--Interests of Certain
Persons in the Merger."
In considering the recommendation of the Bowmar Board with respect to
the Bowmar Merger Proposal and the Bowmar Amendment Proposals, Bowmar
stockholders should be aware that certain members of Bowmar's management
and the Bowmar Board have certain interests in the Merger that are in
addition to, or different from, the interests of stockholders of Bowmar
generally. These interests arise from, among other things, certain
indemnification and insurance arrangements and other matters which the
Combined Company will provide after the Merger. In addition, it is a
condition to the Merger that subject to the consummation of the Merger, the
Combined Company Board shall consist of three persons currently on the
Bowmar Board, which persons will be Hamid R. Shokrgozar, Edward A. White
and Thomas M. Reahard, and that the Combined Company Board shall appoint
Hamid R.
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Shokrgozar (President and Chief Executive Officer of Bowmar and a director of
Bowmar) to the office of President and Chief Executive Officer of the Combined
Company and Joseph G. Warren, Jr. (Vice President Finance, Chief Financial
Officer and Secretary of Bowmar) to the office of Vice President and Chief
Financial Officer of the Combined Company. See "The Merger--Interests of
Certain Persons in the Merger."
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is dependent upon the completion or waiver of
certain conditions including: (i) obtaining the approvals by both EDI
stockholders and Bowmar stockholders of each of their respective proposals;
(ii) no government order which would prevent the consummation of the Merger
has been issued; (iii) all required consents have been obtained; (iv) the
Registration Statement has been declared effective and no stop order has
issued; (v) Bowmar has received all state securities law authorizations
necessary to consummate the Merger; (vi) Bowmar and EDI have received their
respective tax counsel opinions; (vii) the shares of the Combined Company
Common Stock to be issued in connection with the Merger Consideration shall
have been approved for listing on the American Stock Exchange; (viii) each
of Bowmar's and EDI's representations and warranties made in the Merger
Agreement are true and correct as of the Effective Time; (ix) each of
Bowmar and EDI shall have performed and complied with all covenants and
agreements in the Merger Agreement in all material respects; (x) there has
not occurred any event that has had or reasonably could be expected to have
a material adverse effect on the business or condition of either Bowmar or
EDI; and (xi) Bowmar has taken all action necessary to cause EDI's director and
officer nominees to become directors and officers of Bowmar in accordance with
the provisions of the Merger Agreement. See "Certain Provisions of Merger
Agreement--Conditions of the Merger."
NO SOLICITATION
Pursuant to the Merger Agreement, subject to the fiduciary duties of
their respective directors under applicable law as so advised after
consultation with outside counsel, EDI and Bowmar have agreed not, nor to
authorize or permit its officers, directors, employees, representatives and
agents, directly or indirectly, (i) to solicit, initiate or encourage, or
make any other action designed or reasonably likely to facilitate, any
inquiries or the making of any proposal which constitutes, or would
reasonably be expected to lead to a "Takeover Proposal" (as defined below),
or (ii) to participate in any discussions or negotiations regarding any
Takeover Proposal from any person. A "Takeover Proposal" is defined with
respect to each of Bowmar and EDI, as any inquiry, proposal or offer from
any person relating to any direct or indirect acquisition or purchase of
15% or more of the assets of such party and its subsidiaries or any class
of equity securities of such party or any of its subsidiaries, any tender
offer or exchange offer that if consummated would result in any person
beneficially owning 15% or more of any class of equity securities of such
party or any of its subsidiaries, or any merger, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution
or similar transaction involving such party, other than transactions
contemplated by the Merger Agreement. See "Certain Provisions of Merger
Agreement--Certain Covenants--Agreement Not To Solicit Other Offers."
AMENDMENT AND TERMINATION
The Merger Agreement may be amended at any time prior to the Effective
Time by the mutual written consent of the parties, provided that if
stockholder approval has been obtained, no amendment may be made which by
law requires further approval by stockholders without obtaining such
further approval. See "Certain Provisions of Merger Agreement--Termination
of the Merger Agreement."
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On June 9, 1998, the Merger Agreement was amended by and among Bowmar,
EDI and Acquisition Subsidiary to facilitate the accounting treatment of
the Merger as a "pooling of interests" and to make certain other changes.
The full text of the Amendment to the Agreement and Plan of Merger is
attached hereto with the Merger Agreement at Appendix I.
The Merger Agreement may be terminated (i) at any time prior to the
Effective Time by the mutual consent of the parties, or (ii) by either
party if the Effective Time has not occurred on or before November 1, 1998,
or (iii) by either party if the requisite approvals of the respective
stockholders of either Bowmar or EDI are not obtained at the Special
Meetings, or (iv) in certain other circumstances. Termination by Bowmar or
EDI under certain circumstances will require the payment of a $500,000
termination fee. See "Certain Provisions of Merger Agreement--Termination
of the Merger Agreement."
MANAGEMENT OF THE COMBINED COMPANY
Pursuant to the Merger Agreement, the Combined Company Board will
consist of seven persons, three of whom will be selected by Bowmar from among
the members of the Bowmar Board, three of whom will be selected by EDI from
among the members of the EDI Board and one of whom will be selected by the six
as chosen. The Combined Company Board members selected by Bowmar are Hamid R.
Shokrgozar, Edward A. White and Thomas M. Reahard. The Combined Company Board
members selected by EDI are Donald F. McGuinness, Norman T. Hall and Thomas J.
Toy. In addition, after consummation of the Merger, Hamid R. Shokrgozar will
serve as the President and Chief Executive Officer, Donald F. McGuinness will
serve as Chairman of the Board, Joseph G. Warren, Jr. will serve as the Vice
President and Chief Financial Officer and Frank D. Edwards will serve as the
Executive Vice President of the Combined Company. See "The Merger--Management
of the Combined Company."
DISSENTER'S RIGHTS
Holders of EDI Common Stock are entitled to appraisal rights under
Section 262 of the Delaware General Corporation Law (the "DGCL") in
connection with the approval of the EDI Merger Proposal. A complete copy
of Section 262 of the DGCL is attached hereto as Appendix IV. See "The
Merger--Appraisal Rights of Dissenting Stockholders" and "Comparative Rights
of Stockholders--Shares and Stockholders--Appraisal Rights of Dissenting
Stockholders."
Holders of Bowmar Common Stock are not entitled to appraisal rights in
connection with the approval of the Bowmar Merger Proposal or the Bowmar
Amendment Proposals. See "Comparative Rights of Stockholders--Shares and
Stockholders--Appraisal Rights of Dissenting Stockholders."
RESTRICTIONS ON RESALE OF SECURITIES ISSUED IN THE MERGER
Shares of Combined Company Common Stock issued in the Merger will be
freely transferable, except for shares issued to persons who may be deemed
"affiliates" of EDI and Bowmar, which will be subject to certain
restrictions on resale pursuant to certain "Affiliate Agreements" and, in
the case of EDI affiliates, under Rule 145 promulgated under the Securities
Act. See "The Merger--Affiliates' Agreements," "--Accounting Treatment" and
"--Resale Restrictions of Securities Issued in the Merger." Bowmar has
agreed to file and keep effective a shelf registration statement covering
the shares of Combined Company Common Stock to be held by certain
affiliates of EDI who currently hold shares of EDI Common Stock that are
subject to resale under a registration statement on Form S-3 of EDI, which
will permit such affiliates to sell certain of their shares without regard
to the requirements of Rule 145 in open-market or similar transactions.
See "The Merger--Resale Restrictions of Securities Issued in the Merger"
and "Selling Stockholders."
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VOTING AGREEMENTS
Certain stockholders of Bowmar and EDI, who as of June 9, 1998 held in
the aggregate approximately 22% and approximately 9% of the outstanding
Bowmar Common Stock and EDI Common Stock, respectively, have entered into
Voting Agreements, providing among other things, to vote such shares in the
case of EDI, in favor of the EDI Merger Proposal and, in the case of
Bowmar, in favor of the Bowmar Merger Proposal and the Bowmar Amendment
Proposals. See "Other Agreements--Voting Agreements."
ASSUMPTION OF AGREEMENTS
Concurrent with the execution and delivery of the Merger Agreement, EDI
and Bowmar executed an Agreement To Be Bound By Severance Agreements and
Employment Agreement and an Agreement To Be Bound by Registration Rights
Agreement, pursuant to which Bowmar agreed, among other things, to be bound by
and perform EDI's obligations under the agreements referred to therein. See
"Other Agreements--Assumption of Severance Agreements and Employment Agreement"
and "--Assumption of Registration Rights Agreement."
COMPARATIVE RIGHTS OF STOCKHOLDERS
After completion of the Merger, the rights of the former holders of EDI
Common Stock will differ in certain important respects as a result of the
organizational documents of Bowmar and the fact that Bowmar is an Indiana
corporation. For example, the former holders of EDI Common Stock will
become subject to the rights and preferences of the holders of $3.00
Preferred Stock, which has priority over the Bowmar Common Stock with
respect to dividends and other distributions, including the distribution of
assets upon liquidation. In addition, the former holders of EDI Common
Stock will receive Common Stock Purchase Rights under the Bowmar Rights
Agreement. See "Comparative Rights of Stockholders."
RISK FACTORS
In considering whether to approve the proposals presented at the
respective Special Meetings of Bowmar and EDI, stockholders of Bowmar and
stockholders of EDI should carefully consider, among other things, the
following: (i) uncertainties in integrating the businesses of Bowmar and
EDI in an efficient manner and achieving cost savings, (ii) the potential
effect of stock price fluctuations on the Merger Consideration, (iii)
possible substantial fluctuations in the market price of the Combined
Company Common Stock, (iv) interests of certain persons in the Merger, (v)
potential material adverse effects on operating results of the Combined
Company, (vi) risks of rapid technological change and dependence on product
development, (vii) dependence upon key management and technical personnel,
(viii) risks in managing the combined operations of Bowmar and EDI, (ix)
dependence on defense industries, (x) dependence on international sales and
purchases, (xi) the cyclical nature of the semiconductor industry, (xii)
dependence on growth of end markets, (xiii) product price fluctuations,
(xiv) risks of competition, (xv) risks of international business, (xvi)
absence of contractually assured access to supply sources, (xvii)
regulation risks, and (xviii) risks associated with Year 2000 issue. See
"Cautionary Statement Regarding Forward-Looking Statements" and "Risk
Factors."
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ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for
accounting and financial reporting purposes under generally accepted
accounting principles ("GAAP"). Under this method, the historical basis of
the assets and liabilities of Bowmar and EDI are combined on a consolidated
basis. See "The Merger--Accounting Treatment." In connection therewith,
certain stockholders of Bowmar and EDI will enter into Affiliates'
Agreements whereby such stockholders agree not to sell or otherwise dispose
of any shares of Combined Company Common Stock until Combined Company has
publicly released statements of combined financial results covering at
least 30 days of operations after the Effective Time. See "The
Merger--Affiliates' Agreements" and "--Resale Restrictions of Securities
Issued in the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is intended that the Merger will qualify as a tax-free reorganization
for federal income tax purposes. If the Merger qualifies as a tax-free
reorganization, no gain or loss will be recognized for federal income tax
purposes by Bowmar, EDI, or their stockholders (except for any gain or loss
recognized by EDI stockholders with respect to cash payments received in
lieu of fractional shares of Combined Company Common Stock). The Merger is
conditioned upon the receipt by EDI and Bowmar of opinions from their
respective counsel that the Merger will qualify to be treated as a tax-free
reorganization for federal income tax purposes. No ruling has been sought
or will be obtained from the Internal Revenue Service (the "IRS") regarding
the federal income tax consequences of the Merger. See "Certain Federal
Income Tax Consequences." HOLDERS OF EDI COMMON STOCK, EDI OPTIONS, AND
EDI WARRANTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THE SPECIFIC TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
PUBLIC TRADING MARKET
Bowmar and EDI anticipate that the shares of Combined Company Common
Stock to be issued in connection with the Merger will be approved for
listing on the American Stock Exchange, and such approval is a condition
precedent to the effectiveness of the Merger. See "Certain Provisions of
Merger Agreement--Conditions of the Merger--Mutual Conditions" and "The
Merger--Public Trading Market."
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COMPARATIVE MARKET PRICES FOR BOWMAR AND EDI
The Bowmar Common Stock and $3.00 Preferred Stock are traded on the
American Stock Exchange under the symbols BOM and BOM.PR, respectively.
The EDI Common Stock was traded on the Nasdaq SmallCap Market under the
symbol "CRYS" from March 23, 1994 to July 5, 1995 and under the symbol
"EDIX" from March 12, 1996 until the present time. The EDI Common Stock
was also traded on the Pacific Stock Exchange under the symbol "CYL" from
March 23, 1994 to August 10, 1995. On July 5, 1995 and August 10, 1995,
respectively, the EDI Common Stock was delisted from the Nasdaq SmallCap
Market and the Pacific Stock Exchange due to a deficiency with respect to
the net tangible asset maintenance requirements. During the interim period
that it was delisted from the Nasdaq SmallCap Market, the EDI Common Stock
was quoted on Nasdaq's Bulletin Board.
The following table sets forth the closing prices for each of the Bowmar
Common Stock, $3.00 Preferred Stock and EDI Common Stock on May 1, 1998
(the last trading day prior to the date that the Merger was publicly
announced), May 4, 1998 (the date that the Merger was publicly announced),
and _________, 1998 (the most recent practicable date):
<TABLE>
<CAPTION>
Bowmar $3.00 EDI
Date Common Stock Preferred Stock Common Stock
---- ------------ --------------- ------------
<S> <C> <C> <C>
May 1, 1998 $2.25 $34.00 $3.00
May 4, 1998 2.31 35.50 3.00
______, 1998 _____ _____ _____
</TABLE>
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MARKET PRICES FOR BOWMAR
The following table sets forth the high and low sales price for each of
the Bowmar Common Stock and $3.00 Preferred Stock for the periods indicated:
<TABLE>
<CAPTION>
BOWMAR
FISCAL QUARTER COMMON STOCK $3.00 PREFERRED STOCK
ENDING HIGH LOW HIGH LOW
------ ---- --- ---- ---
<S> <C> <C> <C> <C>
FISCAL 1998
-----------
As of May 27 $ 2.44 $2.125 $35.50 $32.00
April 4 2.94 2.25 39.00 34.25
December 29 2.94 1.75 41.00 30.25
FISCAL 1997
-----------
September 27 $ 2.81 $ 2.25 $39.50 $37.00
June 28 2.94 1.81 40.00 31.50
March 29 2.19 1.63 34.00 30.50
December 30 1.75 1.75 32.00 28.63
FISCAL 1996
-----------
September 28 $ 2.06 $ 1.50 $ 33.50 $28.63
June 29 2.69 1.88 36.50 30.00
March 30 2.94 2.19 37.75 34.00
December 30 3.00 2.25 41.00 33.00
</TABLE>
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MARKET PRICES FOR EDI
The following table sets forth the high and low closing sales prices per
share for the period the EDI Common Stock was listed on the Nasdaq SmallCap
Market and the high and low bid quotations per share for the period the EDI
Common Stock was quoted on the Nasdaq Bulletin Board. The over-the-counter
market quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual transactions.
<TABLE>
<CAPTION>
EDI
COMMON STOCK
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1998
-----------
Third Quarter $3.000 $2.219
(through May 27, 1998)
Second Quarter 4.188 2.250
First Quarter 5.688 3.156
FISCAL 1997
-----------
Fourth Quarter $5.563 $2.938
Third Quarter 4.063 2.625
Second Quarter 4.500 2.875
First Quarter 5.750 3.000
FISCAL 1996
-----------
Fourth Quarter $6.000 $3.500
Third Quarter 6.875 3.500
Second Quarter (1) 5.750 2.563
First Quarter (1) 4.125 3.375
</TABLE>
- --------------------
(1) Reflects the high and low closing sales prices and high and low bid
quotations of the Nasdaq SmallCap Market and Bulletin Board, respectively,
on a combined basis.
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COMPARATIVE HISTORICAL AND COMBINED PER SHARE DATA
The following tables set forth certain share data for Bowmar and EDI on
both a historical and pro forma combined basis after giving effect to the
Merger as a pooling of interests as though it occurred on October 1, 1994. The
equivalent pro forma loss per share and stockholders' equity (deficit) is based
upon an Exchange Ratio of 1.375 provided by the Merger Agreement as discussed
in the footnotes below. The comparative historical and combined per share data
are not necessarily indicative of the results that actually would have occurred
if the Merger had been completed on October 1, 1994, or which may be expected
in the future. The combined financial information should be read in
conjunction with the historical consolidated financial statements of Bowmar and
EDI and in conjunction with the Unaudited Pro Forma Combined Financial
Statements of Bowmar and EDI included elsewhere herein. Neither Bowmar nor EDI
has ever paid cash dividends to holders of Bowmar Common Stock or EDI Common
Stock, respectively. It is anticipated that Bowmar will retain all earnings,
when attained, for use in the expansion of its business and therefore it does
not anticipate paying any cash dividends on Combined Company Common Stock in
the foreseeable future. Estimated direct costs of the Merger and other costs
of consolidation have not been determined and are not included in pro forma
combined net income (loss) per share for the periods presented. Book value per
share was calculated assuming the redemption of all shares of $3.00 Preferred
Stock at their redemption price as a reduction to shareholders' equity. This
adjusted shareholders' equity was divided by the shares of outstanding Common
Stock at the end of the period to arrive at book value per share.
Bowmar Historical
<TABLE>
<CAPTION> At and
At and for the year ended for the six months ended
Sept. 30, Sept. 28, Sept. 27, April 4,
---------------------------------- -----------------------
Per Share Data: 1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Book Value $0.74 $0.90 $0.94 $1.03
Cash dividend, common stock -- -- -- --
Income (loss) from continuing operations:
Basic $0.55 $0.14 $0.14 $0.05
Diluted (Note 1) $0.48
</TABLE>
EDI Historical
<TABLE>
<CAPTION>
At and
At and for the year ended for the six months ended
September 30, March 29,
----------------------------------------- -----------------------
Per Share Data: 1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C>
Book Value $(0.81) $1.13 $1.80 $1.65
Cash dividend, common stock -- -- -- --
Income (loss) from continuing operations: (Note 2)
Basic -- $0.82 $0.74 $(0.13)
Diluted $0.60 $0.68
</TABLE>
EDI Historical Equivalent (Using the Exchange Ratio of 1.375)
<TABLE>
<CAPTION>
At and
At and for the year ended for the six months ended
September 30, March 29,
----------------------------- ------------------------
Per Share Data: 1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C>
Book Value $(0.59) $0.82 $1.31 $1.20
Cash dividend, common stock -- -- -- --
Income (loss) from continuing operations: (Note 2)
Basic -- $0.60 $0.54 $(0.09)
Diluted $0.44 $0.49
</TABLE>
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Pro Forma Combined (Using the Exchange Ratio of 1.375)
<TABLE>
<CAPTION>
At and
At and for the year ended for the six months ended
September 30, April 4,
----------------------------- ------------------------
Per Share Data: 1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Book Value $0.16 $0.85 $1.16 $1.13
Cash dividend, common stock -- -- -- --
Income (loss) from continuing operations:
Basic $0.33 $0.39 $0.38 $(0.03)
Diluted $0.30 $0.31 $0.34
</TABLE>
Note 1 - Bowmar Historical earnings per share assumes dilution is the same as
earnings per share basic and thus is not shown separately.
Note 2 - On May 13, 1997, EDI announced its intention to divest its Crystallume
Diamond Products Division ("Crystallume"). This divestiture was completed in
October 1997. Accordingly, EDI had no results from continuing operations prior
to fiscal 1996. See accompanying Notes to Unaudited Pro Forma Combined
Financial Statements.
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SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below related to
Bowmar as of September 28, 1996 and September 27, 1997 and for the years ended
September 30, 1995, September 28, 1996 and September 27, 1997 have been derived
from Bowmar's financial statements, which have been audited by Coopers and
Lybrand, L.L.P., independent accountants, and are included elsewhere herein. The
selected historical financial data set forth below related to EDI as of
September 30, 1996 and 1997 and for the years ended September 30, 1995, 1996 and
1997 have been derived from EDI's financial statements, which have been audited
by Price Waterhouse LLP, independent accountants, and are included elsewhere
herein. The selected consolidated financial data as set forth below related to
Bowmar as of and for the years ended September 27, 1993 and October 1, 1994 and
related to EDI as of and for the years ended September 30, 1993 and 1994 have
been derived from Bowmar's and EDI's audited financial statements, respectively,
which are not included in this Prospectus.
The selected consolidated financial information for the six months
ended March 29, 1997 and April 4, 1998 for Bowmar and March 30, 1997 and March
29, 1998 for EDI has been derived from unaudited consolidated financial
statements which are included elsewhere herein. The unaudited financial
statements have been prepared by Bowmar and EDI on a basis consistent with
Bowmar's and EDI's audited financial statements and, in the opinion of each
respective company's management, include all adjustments, consisting of only
normal recurring adjustments, necessary for the fair presentation of their
results of operations and financial conditions for such periods. The results of
operations for those interim periods are not necessarily indicative of the
results to be expected for the entire year.
The selected consolidated financial data set forth below should be
read in conjunction with "Management Discussion and Analysis of Financial
Condition and Results of Operations" for each company and the companies'
respective Consolidated Financial Statements and Notes thereto included
elsewhere herein.
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BOWMAR INSTRUMENT CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Fiscal years Six months ended
(Unaudited)
------------------------------------------------------------------- ----------------------------
1993 1994 1995 1996 1997 Mar. 29, 1997 Apr. 4, 1998
------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net revenues $20,101 $27,821 $26,869 $25,317 $27,820 $13,186 $15,798
Gross profit $5,990 $9,776 $9,564 $9,530 $10,702 $5,187 $5,370
Income from
continuing operations $755 $2,175 $3,903 $1,290 $1,302 $827 $503
Net income/(loss) $755 $2,175 $3,903 $1,290 $522 $827 $765
Income from continuing
operations per common
share
Basic $0.06 $0.28 $0.55 $0.14 $0.14 $0.10 $0.05
Diluted $0.06 $0.27 $0.48 $0.14 $0.14 $0.10 $0.05
Net income/(loss)
per share
Basic $0.06 $0.28 $0.55 $0.14 $0.02 $0.10 $0.09
Diluted $0.06 $0.27 $0.48 $0.14 $0.02 $0.10 $0.09
Weighted average number of
common shares outstanding
Basic 6,122 6,390 6,426 6,462 6,641 6,611 6,674
Diluted 7,953 8,154 8,178 8,179 8,285 8,220 8,369
CONSOLIDATED BALANCE SHEET
DATA:
Cash and Cash Equivalents $136 $147 $739 $108 $1,218 $71 $11
Working Capital $3,847 $5,209 $6,889 $8,502 $9,822 $9,573 $11,961
Total assets $10,910 $13,783 $17,432 $16,538 $21,509 $17,365 $20,711
Long-term debt $5,078 $4,617 $3,992 $3,675 $4,546 $3,480 $5,765
Shareholders' equity $2,019 $4,050 $7,795 $8,813 $9,273 $9,698 $9,859
</TABLE>
1) In December 1997, Bowmar decided to sell the Technologies Division. As a
result of this decision, Bowmar recorded, in fiscal 1997, a reserve of
$1,300,000 for estimated future losses relating to the Technologies Division.
This reserve accrual resulted in a loss of $780,000 after taxes. Subsequently,
because of pooling of interests rules, Bowmar determined to retain the
Technologies Division. As required by EITF 90-16, the above financial
information has been reclassified to reflect the results of the Technologies
Division in continuing operations. For the six months ended April 4, 1998, this
reclassification resulted in a decrease to income from continuing operations
after tax of $262,000, which was offset by a $262,000 credit to the loss on
disposition of discontinued operations, which represents a true-up of the
reserve for loss on disposition.
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ELECTRONIC DESIGNS, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, MARCH 30, MARCH 29,
-------------------------------------------------------------- ---------------------
1993(1) 1994(1) 1995(1) 1996(1) 1997 1997 (1) 1998
------- ------- ------- ------- ---- -------- ----
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ - $ - $ - $ 57,478 $ 42,104 $ 20,589 $ 17,310
Gross profit - - - 16,834(2) 15,494 8,340 4,353
Income (loss) from continuing
operations - - - 4,549 5,148 2,848 (920)
Net income (loss) (3,242) (4,034) (4,158) 2,808 3,776 2,338 (920)
Income (loss) from continuing
operations per share:
- Basic $ - $ - $ - $ 0.82 $ 0.74 $ 0.42 $ (0.13)
- Diluted $ - $ - $ - $ 0.60 $ 0.68 $ 0.34 $ (0.13)
Net income (loss) per share:
- Basic $ (1.87) $ (1.62) $ (1.29) $ 0.51 $ 0.54 $ 0.37 $ (0.13)
- Diluted $ (1.87) $ (1.62) $ (1.29) $ 0.37 $ 0.50 $ 0.30 $ (0.13)
Weighted average number of shares
- Basic 1,733 2,489 3,226 5,546 6,948 6,852 7,070
- Diluted(3) 1,733 2,489 3,226 7,603 7,579 7,674 7,070
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 29,
-------------------------------------------------------------- ---------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
CONSOLIDATED BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 213 $ 2,962 $ 2,045 $ 3,290 $ 4,212 $ 3,547
Working capital (248) 1,791 (283) 6,425 11,723 9,479
Total assets 1,273 5,945 6,334 21,063 25,137 19,633
Long-term debt 2,221 2,165 1,683 2,939 2,208 1,793
Shareholders' equity (1,776) 2,080 1,464 9,147 12,837 11,647
</TABLE>
(1) On May 13, 1997, EDI announced its intention to divest its Crystallume
Diamond Products Division. Data related to the 1993, 1994, 1995,
1996 and the six months ended March 30, 1997 statements of operations have
been restated to reflect this decision. See Note 4 of the Notes to EDI
Consolidated Financial Statements.
(2) Net of non-cash charge of $1,100,000, relating to the revaluation of
inventories acquired from EDI-MA, to their estimated fair value, which was
included in cost of revenues in the first quarter of fiscal 1996.
(3) The effect of common stock equivalents in fiscal 1993, 1994, 1995 and for
the six months ended March 29, 1998 are not reflected in the diluted loss
per share calculation as their inclusion would be anti-dilutive.
16
<PAGE> 30
PRELIMINARY COPIES
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined condensed balance sheets give
effect to the Merger as if it had occurred on the dates presented. The unaudited
pro forma combined condensed statements of income (loss) from continuing
operations give effect to the Merger as if it had occurred at the beginning of
the earliest period presented. The pro forma financial information does not
purport to represent what Bowmar's financial position or results of operations
would have actually been had the Merger occurred at the beginning of the
earliest period presented or to project Bowmar's financial position or results
of operations for any future date or period. In addition, it does not
incorporate any benefits from anticipated cost savings or synergies of
operations of the combined companies. Estimated direct costs of the Merger and
other costs of consolidation have not been determined and are not included in
pro forma combined income (loss) from continuing operations per share for the
periods presented.
17
<PAGE> 31
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
PRO FORMA COMBINED BALANCE SHEETS
AS OF APRIL 4, 1998
(UNAUDITED)
(In thousands of dollars)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
BOWMAR ELECTRONIC PRO FORMA PRO FORMA
INSTRUMENT DESIGNS ADJUSTMENTS COMBINED
(NOTE 1)
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash $ 11 $ 3,547 $ 3,558
Accounts receivable, less allowance for doubtful accounts 5,760 4,750 10,510
Inventories 7,718 6,012 13,730
Prepaid expenses 438 413 851
Assets of discontinued operations - - -
Deferred income taxes 2,782 950 3,732
---------- ---------- ----------- ---------
Total Current Assets 16,709 15,672 32,381
Property, Plant and Equipment, net 2,636 2,102 4,738
Deferred Income Taxes 138 250 388
Other Assets, net 1,228 1,609 2,837
---------- ---------- ----------- ---------
Total Assets $ 20,711 $ 19,633 $ - $ 40,344
========== ========== =========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 884 $ 1,075 1,959
Accounts payable 1,453 2,862 4,315
Accrued expenses 1,541 2,087 3,628
Reserve for loss on discontinued operations 870 169 1,039
---------- ---------- ----------- ---------
Total Current Liabilities 4,748 6,193 - 10,941
Long term Debt 5,765 1,793 7,558
Other Long term Liabilities 339 - 339
---------- ---------- ----------- ---------
Total Liabilities 10,852 7,986 - 18,838
Shareholders' Equity
Preferred stock 120 - 120
Common stock 672 72 911 1,655
Treasury stock (4) (386) 386 (4)
Additional paid-in captial 6,609 26,965 (1,297) 32,277
Retained earnings (deficit) 2,462 (15,004) (12,542)
---------- ---------- ----------- ---------
Total Shareholders' Equity 9,859 11,647 - 21,506
---------- ---------- ----------- ---------
Total Liabilities and Shareholders' Equity $ 20,711 $ 19,633 $ - $ 40,344
========== ========== =========== =========
</TABLE>
Note 1: As of March 29, 1998
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
18
<PAGE> 32
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
PRO FORMA COMBINED STATEMENTS OF INCOME (LOSS)
FROM CONTINUING OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 4, 1998
(UNAUDITED)
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
==================================================================================================================================
HISTORICAL HISTORICAL
BOWMAR ELECTRONIC PRO FORMA PRO FORMA
INSTRUMENT DESIGNS ADJUSTMENTS COMBINED
(NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 15,798 $ 17,310 $ 33,108
Cost of sales 10,428 12,957 23,385
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Margin 5,370 4,353 9,723
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Selling, general and administrative 3,985 3,692 7,677
Product development 418 1,288 1,706
Interest expense 304 60 364
Other expense (income), net (161) 233 72
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 4,546 5,273 9,819
- ----------------------------------------------------------------------------------------------------------------------------------
Income/(loss) from continuing operations before income taxes 824 (920) (96)
Income tax expense 321 - 321
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME/(LOSS) AFTER TAX FROM CONTINUING OPERATIONS $ 503 $ (920) $ (417)
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings per common share from continuing operations:
Basic $ 0.05 $ (0.13) $ (0.04)
Diluted (Note 2)
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares and equivalents:
Basic 6,674,495 7,070,000 2,651,250 16,395,745
Diluted
==================================================================================================================================
</TABLE>
Note 1: For the Six Months Ended March 29, 1998
Note 2: Earnings per share assumes dilution is the same as earnings per share
basic and thus is not shown separately.
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
19
<PAGE> 33
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
PRO FORMA COMBINED STATEMENTS OF INCOME (LOSS)
FROM CONTINUING OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 29, 1997
(UNAUDITED)
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
==================================================================================================================================
HISTORICAL HISTORICAL
BOWMAR ELECTRONIC PRO FORMA PRO FORMA
INSTRUMENT DESIGNS ADJUSTMENTS COMBINED
(NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 13,186 $ 20,589 $ 33,775
Cost of sales 7,999 12,249 20,248
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Margin 5,187 8,340 13,527
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Selling, general and administrative 3,607 3,914 7,521
Product development 278 978 1,256
Interest expense 203 50 253
Other expense (income), net (278) 233 (45)
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 3,810 5,175 8,985
- ----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 1,377 3,165 4,542
Income tax expense 550 317 867
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME AFTER TAX FROM CONTINUING OPERATIONS $ 827 $ 2,848 $ 3,675
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings per common share from continuing operations:
Basic $ 0.10 $ 0.42 $ 0.22
Diluted (Note 2) $ 0.37 $ 0.20
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares and equivalents:
Basic 6,610,843 6,852,000 2,569,500 16,032,343
Diluted 7,674,000 11,097,290 18,771,290
==================================================================================================================================
</TABLE>
Note 1: For the Six Months Ended March 30, 1997
Note 2: Earnings per share for historical Bowmar assumes dilution is the same
as earnings per share basic and thus is not shown separately.
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
20
<PAGE> 34
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
PRO FORMA COMBINED STATEMENTS OF INCOME (LOSS)
FROM CONTINUING OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 27, 1997
(UNAUDITED)
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
==================================================================================================================================
HISTORICAL HISTORICAL
BOWMAR ELECTRONIC PRO FORMA PRO FORMA
INSTRUMENT DESIGNS ADJUSTMENTS COMBINED
(NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 27,820 $ 42,104 $ 69,924
Cost of sales 17,118 26,610 43,728
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Margin 10,702 15,494 26,196
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Selling, general and administrative 7,470 7,487 14,957
Product development 610 2,135 2,745
Interest expense 417 109 526
Other expense, net 137 466 603
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 8,634 10,197 18,831
- ----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 2,068 5,297 7,365
Income tax expense 766 149 915
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME AFTER TAX FROM CONTINUING OPERATIONS $ 1,302 $ 5,148 $ 6,450
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings per common share from continuing operations:
- ----------------------------------------------------------------------------------------------------------------------------------
Basic $ 0.14 $ 0.74 $ 0.38
Diluted (Note 2) $ 0.68 $ 0.34
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares and equivalents:
Basic 6,640,772 6,948,000 2,605,500 16,194,272
Diluted 7,579,000 11,126,904 18,705,904
==================================================================================================================================
</TABLE>
Note 1: For the Year Ended September 30, 1997
Note 2: Earnings per share for historical Bowmar assumes dilution is the same
as earnings per share basic and thus is not shown separately.
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
21
<PAGE> 35
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
PRO FORMA COMBINED STATEMENTS OF INCOME (LOSS)
FROM CONTINUING OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 28, 1996
(UNAUDITED)
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
==================================================================================================================================
HISTORICAL HISTORICAL
BOWMAR ELECTRONIC PRO FORMA PRO FORMA
INSTRUMENT DESIGNS ADJUSTMENTS COMBINED
(NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 25,317 $ 57,478 $ 82,795
Cost of sales 15,787 40,644 56,431
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Margin 9,530 16,834 26,364
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Selling, general and administrative 6,878 8,561 15,439
Product development 580 1,846 2,426
Interest expense 522 707 1,229
Other expense (income), net (536) 469 (67)
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 7,444 11,583 19,027
- ----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 2,086 5,251 7,337
Income tax expense 796 702 1,498
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME AFTER TAX FROM CONTINUING OPERATIONS $ 1,290 $ 4,549 $ 5,839
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings per common share from continuing operations:
Basic $ 0.14 $ 0.82 $ 0.39
Diluted (Note 2) $ 0.60 $ 0.31
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares and equivalents:
Basic 6,462,077 5,546,000 2,079,750 14,087,827
Diluted 7,603,000 11,030,501 18,633,501
==================================================================================================================================
</TABLE>
Note 1: For the Year Ended September 30, 1996
Note 2: Earnings per share for historical Bowmar assumes dilution is the same
as earnings per share basic and thus is not shown separately.
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
22
<PAGE> 36
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
PRO FORMA COMBINED STATEMENTS OF INCOME (LOSS)
FROM CONTINUING OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
==================================================================================================================================
HISTORICAL HISTORICAL
BOWMAR ELECTRONIC PRO FORMA PRO FORMA
INSTRUMENT DESIGNS ADJUSTMENTS COMBINED
(NOTE 1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 26,869 $ - $ 26,869
Cost of sales 17,305 - 17,305
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Margin 9,564 - 9,564
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Selling, general and administrative 7,676 - 7,676
Product development 812 - 812
Interest expense 723 - 723
Other expense (income), net (224) - (224)
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 8,987 - 8,987
- ----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 577 - 577
Income tax expense (benefit) (3,326) - (3,326)
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME AFTER TAX FROM CONTINUING OPERATIONS $ 3,903 $ - $ 3,903
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings per common share from continuing operations:
Basic $ 0.55 $ - $ 0.33
Diluted $ 0.48 $ - $ 0.30
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares and equivalents:
Basic 6,426,378 3,226,000 1,209,750 10,862,128
Diluted 8,177,646 3,590,000 1,346,250 13,113,896
==================================================================================================================================
</TABLE>
Note 1: On May 13, 1997, EDI announced its decision to divest its Crystallume
Diamond Products division. As a consequence, the results of Crystallume
have been classified as discontinued operations, and there were no
results from continuing operations in 1995 for EDI.
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
23
<PAGE> 37
BOWMAR INSTRUMENT CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1 - EXCHANGE RATIO
Under the Merger Agreement, each outstanding share of EDI Common Stock
will be converted into 1.375 shares of Bowmar Common Stock. This exchange ratio
was used in computing share and per share amounts in the accompanying unaudited
pro forma combined financial statements.
NOTE 2 - PRO FORMA ADJUSTMENTS
(a) Pro forma adjustments have been made to reflect the issuance of shares
in the exchange ratio stated in Note 1 above, the cancellation of EDI
treasury stock, and the change in the par value of shares of EDI Common
Stock to Bowmar Common Stock, in accordance with the Merger Agreement.
(b) For purposes of computing earnings per share, the basic and diluted
shares were adjusted using the 1.375 exchange ratio.
NOTE 3 - EXCLUSION OF DISCONTINUED OPERATIONS
The historical financial data of Bowmar and EDI shown on the unaudited
pro forma financials excludes discontinued operations.
NOTE 4 - DISCONTINUED OPERATIONS
In December 1997, the Bowmar Board decided to sell the Technologies
Division. On May 3, 1998, Bowmar reached a definitive agreement to
merge with Electronic Designs Inc. (EDI). One division of EDI manufactures
active matrix liquid crystal displays (AMLCD).
To account for the Merger as a pooling of interests, the Bowmar Board
has decided not to sell the Technologies Division. Instead, Bowmar will combine
the Technologies Division with the EDI division to improve the performance of
their products lines based on the complementary products of each. As required
by EITF 90-16, the Pro Forma Combined Financial Statements have been
reclassified to reflect the results of the Technologies Division in continuing
operations.
24
<PAGE> 38
PRELIMINARY COPIES
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Joint Proxy Statement/Prospectus,
including statements regarding the development of or current state of Bowmar's
and EDI's businesses, the markets for Bowmar's and EDI's services and products,
anticipated capital expenditures and the effects of the Merger, and other
statements contained herein regarding matters that are not historical facts,
are forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995). These statements include, among
other things, statements regarding the intent, belief or expectations of EDI
and Bowmar and their directors and officers with respect to (i) the
consummation of the Merger and the transactions contemplated thereby, (ii)
expected revenues from the sale of products by the Combined Company, including
international sales, (iii) future results from operations of the Combined
Company, (iv) selling prices of the Combined Company's products and costs
associated with raw materials, (v) competition and product development, (vi)
fluctuation of orders for the Combined Company's products, and (vii) vendor
relationships. Stockholders are cautioned that, while forward-looking
statements reflect the respective companies good faith beliefs, they are not
guarantees of future performance and involve known and unknown risks and
uncertainties, and that actual results may differ materially from those in the
forward-looking statements as a result of various factors. The accompanying
information in this section, as well as information contained elsewhere in this
Joint Proxy Statement/Prospectus, identify certain factors that could cause
such differences.
RISK FACTORS
Holders of EDI Common Stock and holders of Bowmar Common Stock and
$3.00 Preferred Stock should consider carefully all of the information
contained in this Joint Proxy Statement/Prospectus, including the following
factors:
RISKS RELATED TO THE MERGER AND THE COMBINED COMPANY
INTEGRATION OF THE COMPANIES
Bowmar and EDI have entered into the Merger Agreement with the
expectation that the Merger will result in certain benefits. Achieving the
benefits of the Merger 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 Combined 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 Combined Company will
realize any of the anticipated benefits of the Merger.
SUBSTANTIAL DILUTION OF OWNERSHIP INTEREST OF BOWMAR STOCKHOLDERS
The current stockholders of Bowmar will own approximately 41% of the
outstanding shares of Combined Company Common Stock following consummation of
the Merger. This represents substantial dilution of the ownership interest in
Bowmar of the current Bowmar stockholders.
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PRELIMINARY COPIES
EFFECT OF STOCK PRICE FLUCTUATIONS ON THE CONSIDERATION TO BE RECEIVED
BY THE HOLDERS OF EDI COMMON STOCK IN THE MERGER
The relative stock prices of the EDI Common Stock and the Bowmar
Common Stock at the Effective Date may vary significantly from the prices as of
the date of execution of the Merger Agreement or the date hereof or the date on
which stockholders vote on the Merger and the transactions contemplated
thereby. These variances may be due to changes in the business, operations and
prospects of EDI or Bowmar, market assessments of the likelihood that the
Merger will be consummated and the timing thereof, general market and economic
conditions, and other factors. The Exchange Ratio is fixed and will not be
adjusted based on changes in the relative stock prices of the Bowmar Common
Stock and the EDI Common Stock. Thus, the dollar value of the Bowmar Common
Stock to be received by the holders of EDI Common Stock will not be determined
until the Effective Time, and may be substantially more or less than the value
of the Bowmar Common Stock as of the date of execution of the Merger Agreement,
the date hereof or the date on which stockholders vote on the Merger and the
transactions contemplated thereby. See "The Merger--General Description of the
Merger--Merger Consideration." The closing price of Bowmar's Common Stock was
$2.25 on May 1, 1998 (the last trading day prior to the date that the Merger
was publicly announced) and was $2.25 on May 27, 1998. The closing price of
EDI's Common Stock was $3.00 on May 1, 1998 (the last trading day prior to the
date that the Merger was publicly announced) and was $2.219 on May 27, 1998.
See "Information about Bowmar--Market Price of and Dividends on Common Equity
and Related Stockholder Matters" and "Information about EDI--Market Price of
and Dividends on Common Equity."
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE VOLATILITY OF STOCK PRICE
After the Merger and assuming the conversion of the 7,047,380 shares
of EDI Common Stock outstanding on the EDI Record Date to shares of Combined
Company Common Stock, approximately 9,690,147 of the shares of Combined Company
Common Stock issued to EDI stockholders will be freely tradable. In addition,
on the EDI Record Date, there were [1,998,909] and [1,127,293] outstanding EDI
Options and EDI Warrants, respectively. It is anticipated that at the time of
the Merger, substantially all shares of outstanding Combined Company Common
Stock will be eligible for sale on the public market subject in certain cases
to volume and other limitations. An additional 672,500 shares of Bowmar Common
Stock subject to outstanding options to purchase Bowmar Common Stock have been
registered for sale under the Securities Act. As a result, substantial sales
of Combined Company Common Stock could occur after the Merger. Sales of a
substantial number of such shares of Combined Company Common Stock could
adversely affect or cause substantial fluctuations in the market price of
Combined Company Common Stock and impair the Combined Company's ability to
raise additional capital through the sale of its equity securities.
The market prices for the Bowmar Common Stock and the EDI Common Stock
are subject to significant fluctuations in response to a number of factors,
including variations in Bowmar's and EDI's quarterly operating results, changes
in estimates of Bowmar's and EDI's results of operations, perceptions about
market conditions in the microelectronics industry and the effect of general
economic conditions, many of which are unrelated to Bowmar's and EDI'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 Combined
Company Common Stock following the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Merger by the Bowmar Board
and EDI Board, the stockholders of each of Bowmar and EDI should be aware that
certain members of management and certain directors of Bowmar and EDI have
certain interests in the Merger that are different from, or in addition to,
those of the stockholders of Bowmar and EDI generally. Such interests,
together with other relevant factors, were considered by the respective Board
of Directors when it considered and approved the Merger Agreement and
determined to recommend its approval to its stockholders. See "The
Merger--Interests of Certain Persons in the Merger."
26
<PAGE> 40
PRELIMINARY COPIES
RISK THAT MERGER IS NOT CONSUMMATED
No assurance can be given that the Merger will be consummated. The
Merger Agreement provides for the payment by each of Bowmar and EDI to the
other of a termination fee of $500,000 if the Merger Agreement is terminated
under certain circumstances. Such payment obligations may preclude a future
pooling of interests between EDI and Bowmar in the event that this Merger is
not consummated and may have an adverse impact on the financial condition of
the company paying the fee. See "Certain Provisions of Merger Agreement--
Termination of the Merger Agreement."
RISKS TO EDI STOCKHOLDERS
Upon completion of the Merger, the rights of the former holders of EDI
Common Stock will be different in certain important respects as holders of
Combined Company Common Stock. The former holders of EDI Common Stock will
become subject to the rights and preferences of the holders of $3.00 Preferred
Stock, which will have priority over the Combined Company Common Stock. In
addition, the Bowmar Rights Agreement will continue in effect which may have a
deterrent effect with respect to takeover offers of the Combined Company. See
"Comparative Rights of Stockholders--Shares and Stockholders" and "--Anti-
Takeover Provisions."
POOLING OF INTERESTS ACCOUNTING TREATMENT
Bowmar and EDI expect that the Merger will be accounted for as a
pooling of interests, although the companies have not made such a condition to
consummation of the Merger. Bowmar has received from Coopers & Lybrand, L.L.P.
("Coopers & Lybrand"), Bowmar's independent public accountants, a letter in
which Coopers & Lybrand concurs with management's conclusion that, as of the
date of the letter, June 9, 1998, no conditions exist that would preclude
accounting for the Merger of Bowmar and EDI as pooling of interests.
RISKS RELATED TO BOWMAR, EDI AND THE COMBINED COMPANY
OPERATING RESULTS
General. Bowmar's and EDI's quarterly and annual results of
operations are affected by a variety of factors that could materially and
adversely affect revenues, gross profit and income from operations of the
Combined Company. These factors include, among others, the cyclicability of
the semiconductor market; demand for products; changes in product mix;
competitive pricing pressure; fluctuations in manufacturing yields; cost and
availability of raw materials and components; unanticipated delays or problems
in the introduction or performance of new products; the ability to introduce
new products that meet customer requirements; market acceptance of products;
product introduction by competitors; patterns of spending by customers; the
shift in military purchase to commercial off-the-shelf ("COTS") products; any
loss of principal customers or delays, cancellations or reschedulings of
orders, particularly commercial orders, due to customer financial difficulties,
product inventory accumulation by the customer or other events; availability
and extent of utilization of manufacturing capacity; product obsolescence; the
ability to develop and implement new technologies; the timing of expenditures
in anticipation of increased sales; and the level of expenditures for research
and development and sales, general and administrative functions. Any one or
more of these factors could result in the Combined Company failing to achieve
its expectations as to future revenues, gross profit and income from
operations. The Combined Company's operating results could also be affected in
any given period by business interruptions or costs associated with an
earthquake, fire, theft or other similar events outside the control of the
Combined Company, which events may not be fully covered by applicable insurance
coverages.
Gross Margins. The Combined Company's gross margins may vary in the
future as a result of declining selling prices. Each of Bowmar and EDI has
recently experienced some reductions in gross margins of their 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 Bowmar's and EDI's existing products are
generally expected to decline over time. In particular, sales of commercial
memory
27
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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 Combined 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, returns of products by
distributors, or substantial price protection credits or discounts. To the
extent that the Combined Company is unsuccessful in managing product
transitions, its business, financial condition and results of operations could
be materially adversely affected.
Bowmar and EDI expect the Combined Company will continue to experience
reduced gross margins in the foreseeable future. The Combined 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, R&D 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 Combined Company to reduce its operating expenses in
a particular period if the Combined 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 Combined 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 Combined
Company's operating results will be below the expectations of public market
analysts and investors. In such an event, the price of the Combined Company
Common Stock may be materially adversely affected.
Semiconductor Business. In connection with Bowmar's and EDI's
semiconductor memory business and EDI's flat panel display operations, a wide
array of factors could cause the Combined Company's results of operations and
gross margins to fluctuate in the future from period to period. The primary
factors that might affect the Combined 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 Combined
Company; and the recent softening 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
"--Cyclical Nature of Semiconductor Industry."
Reduction in Inventory Values. Reduction in value of the Combined
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 Combined 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
Combined Company's financial condition and results of operations in future
periods. Although none of these factors, with the exception of inventory
obsolescence for EDI, have had a material adverse effect on Bowmar's or EDI's
results of operations to date, there can be no assurance that such factors will
not have a material adverse effect on the Combined Company's future results of
operations.
RISKS OF TECHNOLOGY CHANGE AND DEVELOPMENT OF NEW PRODUCTS
The Combined Company's future results of operations will be dependent
upon its ability to improve and market its existing products and to
successfully develop, manufacture and market new products. There can be no
assurance that the Combined 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 Combined Company's products or
technology to become obsolete or noncompetitive.
The semiconductor packaging industry is characterized by rapid
technological change and is highly competitive with respect to timely product
innovation. Memory products typically have a product life of only three to
five years and Bowmar's and EDI's current memory products represent all stages
of the life cycle, as
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the companies introduce new products each year in response to the evolving
market. The Combined Company's product line will include more than ____
different memory products.
Although the majority of EDI's revenues and profits historically have
been derived from its memory product business, EDI allocates a disproportionate
amount of its research and development budget to display products. This
allocation reflects the relative mature state of the memory product business.
This research and development strategy could potentially have a materially
adverse effect on the Combined Company's future performance.
EDI's display products have been developed exclusively based on AMLCD
products procured from Sharp Electronics Corporation ("Sharp"). EDI's
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
Combined Company's products, and the Combined Company is unable to improve its
technology or develop or acquire alternative technology that is more
competitive, the Combined Company's business and results of operations will be
adversely affected. The Combined Company's success and growth in future
periods may also depend in part upon the Combined Company's ability to
successfully develop and market technology to improve display performance
(i.e., operating in varying environmental conditions, brightness, contrast and
viewing angle). There can be no assurance that the Combined Company will be
able to improve its technology or develop products intended to keep the
Combined Company competitive.
EDI and Bowmar believe that the future success of the Combined Company
depends in part on its ability to rapidly achieve market acceptance of new
products and new programs and thereafter to develop new products or product
enhancements to keep up with technological advances and to meet customer needs.
Bowmar and EDI have each experienced, and the Combined Company in the future
will experience, delays from time to time in development and introduction of
new products. There can be no assurance that the Combined Company will be
successful in developing and introducing new products in a timely manner, that
new products will gain market acceptance, that the new process technologies can
be successfully implemented, or that the Combined Company will have adequate
financial or technical resources for future product development and promotion.
DEPENDENCE ON KEY PERSONNEL
The Combined Company's future operating results will depend in part
upon the contributions of the persons who will serve in senior management
positions after the Merger and the continued contributions of key technical
personnel of both of Bowmar and EDI, some of whom would be difficult to
replace. See "The Merger--Management of the Combined Company." In addition,
the Combined Company's future success will depend in part upon its ability to
attract and retain highly qualified personnel, particularly product design
engineers. Each of Bowmar and EDI competes for such personnel with other
companies, academic institutions, government entities and other organizations.
There can be no assurance that the Combined Company will be successful in
hiring or retaining qualified personnel, or that any of Bowmar's or EDI's
personnel will remain after the Merger. Any loss of key personnel or the
inability to hire or retain qualified personnel could have a material adverse
effect on the Combined Company's business, financial condition and results of
operations.
Pursuant to the employment agreement of Mr. McGuinness, Chairman,
Chief Executive Officer and President of EDI, Mr. McGuinness may terminate his
employment at any time and receive his base salary and fringe benefits
for a period of 18 months. Pursuant to the Agreement to be Bound by Severance
Agreements and Employment Agreement, the Combined Company will assume the
foregoing obligations of EDI. Mr. McGuinness also has a severance agreement
that will be assumed by the Combined Company, but he will not be entitled to
any change of control benefits under such agreement as a result of the Merger.
In addition, Mr. Edwards, the Chief Financial Officer and Senior Vice President
of Finance of EDI, has a severance agreement with EDI that will be assumed by
the Combined Company. Pursuant to his severance agreement, if Mr. Edwards'
employment is terminated (whether by Mr. Edwards or the Combined Company),
including by reason of a significant change in the nature or scope of his
responsibilities or duties, Mr. Edwards
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will receive a lump-sum equal to his highest annual base salary received during
any calendar year and twelve months of continued life insurance and health and
medical benefits. Accordingly, if Mr. Edwards' employment is terminated
following the Merger (including by reason of his resignation), Mr. Edwards
would receive the foregoing payment and benefits. See "Other Agreements --
Assumption of Severance Agreements and Employment Agreement" and "Information
About EDI -- Information Regarding Directors and Executive Officers --
Employment and Severance Agreements."
RISK OF MANAGING GROWTH AND EXPANSION OF OPERATIONS
The Combined Company will represent a significantly expanded
operation. The Combined Company initially will continue to market all products
and services currently marketed by Bowmar and EDI independently. The ability
to manage the combined operations may depend upon an expansion of the
accounting and other internal management systems of the Combined Company and
the implementation of a variety of procedures and controls. There can be no
assurance that significant problems in these areas will not occur. Any failure
to expand these systems and implement such procedures and controls in an
efficient manner could have a material adverse effect on the Combined Company's
business, financial condition and results of operations.
DEPENDENCE ON DEFENSE INDUSTRIES
With respect to the products of both Bowmar and EDI, current contracts
with defense related companies and revenues generated therefrom in the
aggregate account for a material portion of each 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 Bowmar and EDI. 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 1996 and 1997, military
sales accounted for approximately 37% and 39%, respectively, of EDI's overall
sales. Bowmar's sales to the military industry have increased over the last
three years. In fiscal 1997, military related sales accounted for
approximately 89% of Bowmar'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 EDI and Bowmar. Continued
reductions in military spending could adversely affect the sales and profits of
the Combined Company.
DEPENDENCE ON INTERNATIONAL SALES AND PURCHASES
International sales, primarily in EDI's memory products accounted for
approximately 30% of EDI's net sales in 1997. Bowmar's international sales
represented approximately 27% of Bowmar's net sales in 1997. Bowmar and EDI
anticipate that international sales will continue to account for a substantial
portion of the net sales for the Combined Company. In addition, the majority
of the components used by Bowmar and EDI 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 Bowmar's and EDI'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 Bowmar and EDI's
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 Combined Company by
closing off critical sources of supply for the raw materials used to produce
its products. Bookings of both of EDI and Bowmar are currently below prior
years' bookings, largely because of the current Asian economic crisis, which
EDI and Bowmar expect will continue through calendar year 1998.
The Combined Company will be subject to these risks and others
involved in doing business abroad, including political and economic
instability; difficulties in accounts receivable collections; difficulties in
obtaining governmental approvals for telecommunications and other products;
risks associated with the
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potential imposition of requirements relating to the import or export of high
technology products; difficulties in managing distributors; potentially adverse
tax consequences; the burden of complying with a wide variety of complex
treaties and foreign laws, and accepting customer purchase orders governed by
foreign laws which may differ significantly from United States laws and limit
its ability to enforce its rights under such agreements and to collect damages,
if awarded. Foreign exchange risks also exist as fluctuations in currency
exchange rates could cause the products of the Combined Company to become
relatively more expensive to customers in a particular country or cause raw
materials and manufacturing services acquired from foreign sources to become
more expensive to the Combined Company, leading to a reduction in sales or
profitability. Although both Bowmar and EDI denominate foreign sales and
purchases in U.S. dollars, future international activity may result in foreign
currency denominated sales and purchases.
Bowmar and EDI also are subject to the risks associated with the
imposition of legislation and regulations relating to the import and export of
high technology products. Specifically, the Combined Company could be
adversely affected if the United States should under any circumstances choose
to impose sanctions or tariffs on Japanese or South Korean companies, given the
large quantity of Bowmar's and EDI's products acquired from Japanese and South
Korean suppliers.
Some of these factors, particularly the effects of the current Asian
market situation, have already had an adverse impact on Bowmar and EDI. There
can be no assurance that the current situation will resolve favorably to Bowmar
or EDI or that any of these factors will not have a future material adverse
effect on the business, financial condition or results of operations of the
Combined Company.
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY
Neither Bowmar nor EDI relies on patents. Both Bowmar and EDI rely
upon trade secrets and other non-patent proprietary information in the conduct
of their respective businesses. Employees of Bowmar and EDI are generally
required to enter into agreements providing for confidentiality and the
assignment of rights to inventions made by them during their employment, and
each of Bowmar and EDI routinely enters into nondisclosure agreements that are
intended to maintain the secrecy of its confidential information delivered to
third parties for research and other purposes. There can be no assurance that
disputes will not arise as to ownership of portions of the Combined Company's
technology or that the existing confidentiality, assignment and nondisclosure
agreements will provide the necessary protection for the Combined Company.
VARIABLE ORDER FLOW
Neither Bowmar nor EDI has firm long-term volume commitments for
product sales from its customers, and each of Bowmar and EDI generally enters
into individual purchase orders with its customers. Each company has
experienced cancellations of orders and fluctuations in order levels from
period to period, and it is expected that the Combined Company will continue to
experience such cancellations and fluctuations in the future. In addition, in
most instances customer purchase orders may be canceled and order volume levels
can be changed, canceled or delayed with limited or no penalties. The
replacement of reduced, canceled or delayed purchase orders with new business
cannot be assured.
CYCLICAL NATURE OF SEMICONDUCTOR INDUSTRY
The semiconductor industry has historically been characterized by wide
fluctuations in product supply and demand. From time to time, the industry has
also experienced significant downturns, often in connection with, or in
anticipation of, maturing product cycles and declines in general economic
conditions. These downturns have been characterized by diminished product
demand, production over-capacity and subsequent accelerated erosion of average
selling prices. In most cases, such downturns lasted as much as two years.
EDI and Bowmar are currently within the second year of a current downturn.
These downturns can have a significant adverse effect on the Combined Company.
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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 Bowmar and EDI
with respect to anticipated demand for integrated circuits ("ICs") in the near
future. These developments have resulted in declines in the average selling
prices of some of Bowmar's and EDI's memory products and increased availability
of most memory devices which Bowmar and EDI purchase for incorporation in their
respective products. The decline in the average selling prices of Bowmar's and
EDI's products generally have been offset by declines in raw material costs and
have not had a significant effect on gross profit. The increased availability
of memory devices has caused an increase in competition and allowed shorter
lead times to EDI and Bowmar customers. The Combined Company may be unable to
offset future declines in selling prices with decreases in costs of raw
materials and increases in its volumes to maintain its current revenue levels.
As a result of the increased availability of commercial memory products, there
can be no assurance that new competitors will not enter the Combined 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
Combined Company products to decline to a level at which the Combined Company
cannot economically compete. See "--Operating Results." Any such market
developments could have a material adverse effect on the Combined Company
semiconductor packaging business.
DEPENDENCE ON GROWTH OF END MARKETS
The success of the Combined Company will depend in large part on the
continued growth of various electronics industries that use semiconductors,
including data communications and telecommunications equipment, computers and
computer related peripherals, automotive electronics, industrial controls,
customer electronics equipment and military equipment, and the Combined
Company's ability to capture a significant portion of this commercial market.
Any decline in the demand for networking applications, mass storage,
telecommunications, cellular base stations, cellular handsets and other
personal communication devices which incorporate the Combined Company's
products could adversely affect its business, financial condition and operating
results. Certain of the Combined Company's products, are incorporated into
computer and computer-related products, which have historically been
characterized by significant fluctuations in demand. Any decline in the demand
for advanced microprocessors which utilize these products could materially and
adversely affect the Combined Company's operating results. Further, any
slowdown in the computer and related peripherals markets could also materially
and adversely affect the Combined Company's operating results. There can be no
assurance that the Combined Company will not be materially and adversely
affected by slower growth in the markets serviced by its products.
PRODUCT PRICE FLUCTUATIONS
The average selling prices of each of Bowmar's and EDI's products
historically have decreased over the products' lives and are expected to
continue to do so. To offset such decreases, each of Bowmar and EDI has relied
primarily on reduced costs of raw materials, cost reductions in the manufacture
of such products, increased unit demand to absorb fixed costs and the
introduction of new, higher priced products that incorporate advanced features.
To the extent that such cost reductions, increased unit demand or new product
introductions do not occur in a timely manner or newly introduced products do
not gain market acceptance, the business, financial condition and results of
operations of the Combined Company could be materially and adversely affected.
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COMPETITION
The principal competitors of Bowmar and EDI in the commercial market
are companies which are larger than each of EDI and Bowmar and are larger than
the Combined 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 Bowmar and EDI. Each of Bowmar and EDI, on
the other hand, generally purchases memory devices from third parties and
competes based on the value that it adds to the memory devices. Each of Bowmar
and EDI competes with a number of other semiconductor companies who manufacture
memory modules. Bowmar and EDI compete 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 is
the risk that slower demand for semiconductor devices will cause the Combined
Company's larger competitors to compete more aggressively in the SRAM module
market to sell the memory devices they manufacture.
There are a few competitors for the military memory market business of
Bowmar and EDI. 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 their products on standard military drawings, design
capabilities, lead times, product specification, pricing and customer service.
In addition to the foregoing, Bowmar 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
Combined Company can compete successfully based on price alone.
The principal bases of competition among non-PC flat panel display
suppliers are display performance (e.g. brightness, color capabilities,
contrast and viewing angle), size and weight, design flexibility, power usage,
durability and ruggedness. The primary competition for EDI's flat panel
displays currently is encountered from cathode ray tube displays ("CRTs"),
which currently dominate the information display market but are large, heavy,
fragile and require substantial amounts of power to operate. In the
industrial, military, and avionics markets, EDI's products also compete with
other flat panel displays including gas plasma and electroluminescent displays.
Two other competitive pressures EDI faces are its customers' ability to make
the display products on their own and new and existing companies following
EDI's strategy of purchasing and enhancing flat panel displays manufactured by
third parties. Because of display performance and the significant investments
previously and currently being made by a number of Japanese and Korean
companies, EDI believes that flat panel displays will displace CRTs as a leader
in the avionics display market and eventually in all display markets as the
demand grows for high performance, flat, lightweight and power efficient
displays capable of delivering high volumes of information. Bowmar's
electromechanical business faces competition from larger companies that have
greater financial resources, and that may have more advanced technology
products. This competition may make it more difficult for the Combined Company
to compete for this business.
There can be no assurance that the Combined Company will be able to
compete successfully in the future against existing or potential competitors or
that the operating results of the Combined Company will not be adversely
affected by increased price competition.
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ABSENCE OF CONTRACTUALLY ASSURED SOURCES OF SUPPLY/GENERAL LIMITATIONS
ON SUPPLY
The most significant raw materials that Bowmar and EDI purchase in
their operations are memory devices in wafer, die and component forms and
active matrix liquid crystal display ("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 Bowmar or EDI to compete is heavily dependent on its ability
to maintain access to steady sources of supply. Neither Bowmar nor EDI has
specific long-term contractual arrangements with its vendors, although each
believes it has good relationships with its vendors. No assurance can be given
that existing access to the current sources of supply of Bowmar and EDI may not
be impaired in the future. Any such impairment could have a material adverse
effect on the Combined Company.
ENVIRONMENTAL REGULATIONS
Each of Bowmar and EDI 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 Bowmar and EDI 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 Bowmar or EDI to control the use of, or to adequately restrict
the discharge of, hazardous substances under present or future regulations
could subject the Combined 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 Combined
Company's business, financial conditions and results of operations.
RISKS RELATING TO YEAR 2000 COMPLIANCE
Many existing computer software programs and operating systems were
designed such that the year 1999 is the maximum date that many computer systems
will be able to process. Each of EDI and Bowmar has undertaken an assessment
of its vulnerability to the so-called "Year 2000 issue" with respect to its
computer systems. EDI has in recent years relied almost entirely on purchased
off-the-shelf software packages for both business and engineering purposes, and
has not materially customized these packages for its purposes. The assessment
was based upon formal and informal communications with the software vendors,
literature supplied with the software, literature received in connection with
maintenance contracts, and test evaluations of the software. In addition, EDI
expects to upgrade its major systems software which will have the effect of
bringing such systems into Year 2000 compliance. As a result of the assessment
and expected upgrades, EDI believes that all of its major systems software is
or will prior to the Effective Time be Year 2000 compliant and that the Year
2000 issue is not likely to have a material impact on its operations. Bowmar
has surveyed its supporting systems and has implemented a plan to make its
systems Year 2000 compliant by March 1999. All Bowmar products are now Year
2000 compliant. Bowmar has also been in contact with major suppliers and
vendors which are either Year 2000 compliant, or are completing system upgrades
to become compliant. Bowmar does not expect any major disruption of purchases
or supplies because of the Year 2000 problem. Bowmar is also responding to
customer inquiries with respect to the Year 2000 issue. If modifications and
conversions to deal with the Year 2000 issue are not completed on a timely
basis or are not fully effective, the Year 2000 issue may have a material
adverse effect on the Combined Company's results of operations.
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THE MERGER
The following is a summary of the material terms and conditions of the
Merger Agreement, a copy of which is attached as Appendix I to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. The information
regarding the Merger Agreement in this Joint Proxy Statement/Prospectus does
not purport to be complete and is qualified in its entirety by reference to the
full text of the Merger Agreement.
GENERAL DESCRIPTION OF THE MERGER
Pursuant to the Merger Agreement, at the Effective Time, Acquisition
Subsidiary will merge with and into EDI with EDI being the surviving
corporation and a wholly owned subsidiary of Bowmar. If the Bowmar Merger
Proposal and Bowmar Amendment Proposals are approved by the stockholders of
Bowmar and the EDI Merger Proposal is approved by the stockholders of EDI, and
if the other conditions to the Merger are satisfied or waived, the Merger will
become effective upon the filing by the Surviving Corporation with the
Secretary of State of the State of Delaware of a duly executed Certificate of
Merger or at such later time as may be specified in the Certificate of Merger.
In addition, at the Effective Time, Bowmar's name will be changed to
"____________." See "The Bowmar Special Meeting," "The EDI Special Meeting"
and "Certain Provisions of Merger Agreement--Conditions of Merger."
MERGER CONSIDERATION
At the Effective Time, each of the issued and outstanding shares of
EDI Common Stock will be converted into the right to receive, and there shall
be paid and issued, in exchange for each of the EDI Shares, 1.375 shares of
Combined Company Common Stock, together with the associated Common Stock
Purchase Rights issued under the Bowmar Rights Agreement, subject to payment of
cash in lieu of any fractional share. The Exchange Ratio is subject to
appropriate adjustment in the event of a stock split, stock dividend or
recapitalization prior to the Effective Time applicable to shares of the Bowmar
Common Stock or the EDI Common Stock, or in the event of any issuance of Bowmar
Common Stock or other securities of Bowmar prior to the Effective Time
resulting from the operation of the Bowmar Rights Agreement. The shares of
Combined Company Common Stock to be issued pursuant to the Merger will be
freely transferable except by certain stockholders of EDI and Bowmar who are
deemed to be "affiliates" of EDI and Bowmar. The transferability of shares of
Combined Company Common Stock issued to such affiliates will be restricted in
accordance with the requirements related to pooling of interests and the rules
and regulations promulgated by the Commission. See "--Resale Restrictions of
Securities Issued in the Merger" and "--Affiliates Agreements."
As of the Effective Time, by virtue of the Merger, each issued and
outstanding share of the capital stock of Acquisition Subsidiary will be
converted into and become one fully paid and nonassessable share of EDI Common
Stock.
No fractional shares of Combined Company Common Stock will be issued
pursuant to the Merger nor will any fractional share interest involved entitle
the holder thereof to vote, to receive dividends or to exercise any other
rights of a stockholder of the Combined Company. In lieu thereof, any person
who would otherwise be entitled to a fractional share of Combined Company
Common Stock by virtue of the Merger shall receive an amount in cash equal to
the value of such fractional share (rounded to the nearest cent). The value of
such fractional share shall be the product of such fraction multiplied by an
amount equal to the average closing price of Bowmar Common Stock on the
American Stock Exchange for the ten trading days immediately prior to the third
trading day preceding the date on which the Effective Time occurs.
Each share of EDI Common Stock held in the treasury of EDI or by a
wholly owned subsidiary of EDI will be canceled as of the Effective Time and no
Merger Consideration will be payable with respect thereto.
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Based on the capitalization of Bowmar and EDI as of May 27, 1998, the
stockholders of EDI immediately prior to the consummation of the Merger will
own securities representing approximately 59% of the outstanding Combined
Company Common Stock following consummation of the Merger.
EDI OPTIONS AND EDI WARRANTS
At the Effective Time of the Merger, each holder of a then-outstanding
and unexercised EDI Option or EDI Warrant shall receive, by virtue of the
Merger and without any action on the part of the holder thereof, Combined
Company Options or Combined Company Warrants, respectively, exercisable for
shares of Combined Company Common Stock having the same terms and conditions as
the EDI Options and EDI Warrants, including such terms and conditions as may be
incorporated by reference into the agreements evidencing the EDI Options and
EDI Warrants, except that the exercise price and the number of shares issuable
upon exercise shall be divided and multiplied, respectively, by the Exchange
Ratio. See "--Merger Consideration."
Bowmar has agreed to use all reasonable efforts to ensure that the EDI
Options which qualified as incentive stock options under Section 422 of the
Code prior to the Effective Time continue to so qualify thereafter. Promptly
after the Effective Time, the Combined Company will file or cause to be filed
all registration statements on the appropriate form as may be necessary in
connection with the purchase and sale of Combined Company Common Stock
contemplated by the EDI Options subsequent to the Effective Time and shall
maintain the effectiveness of such registration statements for so long as any
of the options registered thereunder remain outstanding.
In addition, Bowmar has agreed to register with this Registration
Statement the offer and sale (the "Resale Shelf") from time to time after the
Effective Time of shares of Combined Company Common Stock issued to those
persons (i) whose shares of EDI Common Stock currently are subject to resale
pursuant to the EDI Registration Statement on Form S-3 (No. 333-3328) and (ii)
who currently are "affiliates" (as such term is defined in the Securities
Exchange Act) of EDI. See "Selling Stockholders." The obligations of the
Combined Company with respect to the Resale Shelf are governed by the terms and
conditions of the Third Amended and Restated Registration Rights Agreement
dated April 30, 1995 by and among EDI (as successor to Crystallume) and the
persons identified on Exhibit A thereto, as amended from time to time
thereafter, and the Agreement Respecting TFI Registration Rights dated October
10, 1995 by and between EDI (as successor to Crystallume) and Technology
Funding Partners III, L.P. In addition, the Combined Company will use its
reasonable best efforts to maintain an effective registration statement for the
Combined Company Common Stock issuable upon exercise of the Combined Company
Warrants for so long as the Combined Company Warrants are exercisable.
As soon as practicable after the Effective Time, the Combined Company
will deliver to the holders of the EDI Options and EDI Warrants appropriate
notices setting forth each such holder's rights pursuant to such holder's EDI
Options and/or EDI Warrants.
SURRENDER AND EXCHANGE OF SHARES
Following the Effective Time, each stockholder of EDI will be required
to surrender the certificates which had represented shares of EDI Common Stock
to American Stock Transfer and Trust Company (the "Exchange Agent"), together
with a duly completed and executed transmittal letter provided by the Exchange
Agent. As soon as practicable after the Effective Time, the Exchange Agent
will mail to each holder of EDI Common Stock notification of the consummation
of the Merger and instructions as to the procedure for the surrender of the
stock certificates. If any certificates are claimed to have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such certificate to be lost, stolen or destroyed, the Combined Company
shall issue or pay or cause the issuance or payment, as applicable, of the
Merger Consideration in exchange for such certificate. The Board of Directors
of the Combined Company may, in its reasonable discretion and as a condition
precedent to the issuance thereof, require the person claiming to be the owner
of such lost, stolen or destroyed certificate to give to the Combined Company
an indemnity against any claim that may be made against the Combined Company
with respect to the certificate, and to provide such other assurances and
execute such other instruments as the Exchange Agent may reasonably require.
Each holder of EDI Common
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Stock, upon surrender of a stock certificate or certificates representing such
stock, together with the transmittal letter provided by the Exchange Agent duly
completed and executed by such holder, will be entitled to receive a stock
certificate or certificates representing the number of the whole shares of
Combined Company Common Stock (together with cash in lieu of fractional shares
of Combined Company Common Stock) to which such holder is entitled.
MANAGEMENT OF THE COMBINED COMPANY
Pursuant to the Merger Agreement, the Combined Company Board will
consist of seven persons, three of whom will be selected by Bowmar from among
the members of the Bowmar Board, three of whom will be selected by EDI from
among the members of the EDI Board and one of whom will be selected by the six
so chosen. The Combined Company Board members selected by Bowmar are Hamid R.
Shokrgozar, Edward A. White and Thomas M. Reahard. The Combined Company Board
members selected by EDI are Donald F. McGuinness, Norman T. Hall and Thomas J.
Toy. In addition, after consummation of the Merger, Hamid R. Shokrgozar will
serve as the President and Chief Executive Officer, Donald F. McGuinness will
serve as Chairman of the Board, Joseph G. Warren, Jr. will serve as the Vice
President and Chief Financial Officer and Frank D. Edwards will serve as the
Executive Vice President of the Combined Company. See "--Interests of Certain
Persons in the Merger."
BACKGROUND OF THE MERGER
Management of EDI and Bowmar were generally familiar with each other's
businesses because each company competes in the memory markets. From time to
time, each of the companies has considered strategic transactions or alliances
within the industries in which they operate their businesses. Accordingly,
from time to time, EDI had considered whether it was desirable to explore a
potential strategic transaction with Bowmar. On December 15, 1996, EDI engaged
Alliant (formerly Bentley Hall Von Gehr International) to provide financial
advisory services in the event that EDI were to initiate discussions with
Bowmar concerning a potential strategic transaction. Shortly after Alliant's
engagement, Norman T. Hall, a partner with Alliant and a director of EDI, had
several conversations with Edward A. White, the founder and a director of
Bowmar, to determine whether Bowmar might have an interest in considering a
strategic transaction with EDI.
Further contacts between Bowmar's management and Mr. Hall took place
in February 1997. On or about February 8, 1997, Thomas K. Lanin, former
President and Chief Executive Officer of Bowmar, received a telephone call from
Mr. Hall, in which Mr. Hall expressed interest in exploring the possibility of
a business combination between Bowmar and EDI. Mr. Lanin spoke with Mr. Hall
several times in February by telephone to discuss the possible structure and
financial parameters of such a business combination. On February 26, 1997, at
a regular meeting of the EDI Board, Mr. Hall and Mr. McGuinness informed the
EDI Board of Mr. Hall's initial discussions with Bowmar concerning the possible
business combination transaction.
On March 5, 1997, Joseph G. Warren, Jr., Bowmar's Chief Financial
Officer, and Fred Gerard, formerly a Director of Bowmar and of Counsel with
Bowmar's outside law firm, Bryan Cave LLP, met with Mr. Hall in California to
discuss a potential business combination between Bowmar and EDI and the
strategic benefits to both companies that could be achieved by such a
transaction.
On March 10, 1997 and April 24, 1997, Bowmar and EDI, respectively,
executed nondisclosure agreements which provided in pertinent part that there
would be an exchange of confidential information between the parties for the
sole purpose of evaluating the merits of a business combination between Bowmar
and EDI. Each of Bowmar and EDI agreed to maintain as confidential and
proprietary the business information provided by the other party, and to
maintain as confidential the facts that the parties had executed the
confidentiality agreement and that discussions were occurring with respect to a
possible transaction.
On May 2, 1997, the Bowmar Board held a regular board meeting during
which Messrs. Lanin and Warren made a presentation to the Bowmar Board on their
discussions with Mr. Hall. Messrs. Lanin and Warren explained the potential
benefits of a combination with EDI, including those relating to marketing,
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product diversification and potential cost savings. After discussion, the
Bowmar Board authorized Messrs. Lanin and Warren to proceed in their
discussions with EDI with respect to a possible merger.
On May 7, 1997, the EDI Board held a regular meeting at which Mr. Hall
made a presentation to the EDI Board concerning the results of their
discussions with Bowmar's management. Following a discussion of the potential
benefits that could be achieved by a business combination transaction involving
EDI and Bowmar, the EDI Board authorized management of EDI, together with Mr.
Hall, to continue discussions with Bowmar. Immediately following the EDI Board
meeting, Messrs. Hall, McGuinness and Edwards had a conference call with
Messrs. Lanin and Warren to discuss further matters related to a possible
business combination. Thereafter, on May 29, 1997, Mr. McGuinness and Daniel
R. Doyle, Vice President and General Manager for Display Products for EDI,
visited Bowmar's Ft. Wayne, Indiana facility.
On June 12, 1997, Messrs. Warren and Lanin met with Mr. McGuinness and
Frank Edwards, Chief Financial Officer for EDI, at EDI's corporate headquarters
to discuss the possible merger of EDI and Bowmar. The group discussed possible
structures for such a merger and, in particular, who the acquiring company
would be and what the resulting ownership of the EDI and Bowmar stockholders
would be. The group also discussed potential strategic benefits of a business
combination, including anticipated cost savings, anticipated market share
increases, market capitalization increase, cash flow for commercial market
growth, and greater size and market recognition for the combined company.
On June 17, 1997, Mr. Lanin spoke with Mr. McGuinness to report that
the management of Bowmar believed that the potential strategic benefits and
synergies that might result from a combination of EDI and Bowmar were
compelling, but that the parties were in disagreement over the appropriate
valuations of the companies.
On July 3, 1997, Mr. McGuinness provided the EDI Board with an update
of the discussions to date with Bowmar and the terms of a proposal that EDI
planned to make to Bowmar.
On July 17, 1997, Bowmar received a proposal from EDI to structure a
transaction in which EDI would merge with Bowmar by exchanging all of EDI's
outstanding common stock for a total of 16,540,000 shares of Bowmar Common
Stock. The proposal also provided, among other things, that the merger would
be structured as a tax-free reorganization under the federal income tax laws,
that all options and warrants of EDI would be exchanged for options and
warrants of Bowmar, that each of the parties would provide the other with
access to information prior to the signing of definitive documents so that each
party could perform necessary due diligence on the other, and that the parties
would work in good faith towards signing a definitive agreement by August 29,
1997.
On July 18, 1997, a regular meeting of the Bowmar Board was held. At
that meeting, the Bowmar Board discussed the need to engage a financial advisor
to provide the Bowmar Board with a financial analysis of the EDI proposal and
to advise Bowmar in respect of strategic transactions. The Bowmar Board
authorized Messrs. Warren and Lanin to search for and negotiate terms with an
investment banker. On August 22, 1997, Bowmar engaged Needham as its
investment banker and financial advisor.
On July 30, 1997, Messrs. Lanin and White visited the EDI facility in
Westborough, meeting at some length with Messrs. McGuinness and Edwards to
discuss generally the potential benefits of a combination.
On August 14, 1997, the EDI Board held a regular meeting which
included a review of the status of discussions between EDI and Bowmar. At this
meeting, Mr. McGuinness reported on the status of the proposal that EDI had
made to Bowmar concerning a merger of the two companies. He indicated that
Bowmar was favorable to a potential transaction and was going to hire an
investment banker to assist them in their review of the proposal.
On October 1, 1997, the Bowmar Board held a special meeting and
invited representatives of Bowmar's outside legal counsel, Bryan Cave LLP
("Bryan Cave"), and Bowmar's financial advisor, Needham,
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to attend the meeting and to make presentations to the Bowmar Board. The Bryan
Cave representative outlined legal issues arising in connection with corporate
transactions and the duties and responsibilities of the Board in connection
with such matters. Needham presented a financial analysis of the proposed
merger.
On October 6, 1997, at a special meeting of the Bowmar Board, Needham
presented the Bowmar Board with additional information concerning the proposed
merger. The Bowmar Board authorized Mr. Lanin to take all actions and to incur
such other expenditures as he deemed necessary to further proceed with the
potential merger with EDI.
On October 9, 1997, the Bowmar Board convened and reviewed additional
issues relating to the proposed merger, including pricing matters and
structure. The Bowmar Board also approved annual employment contracts for Mr.
Lanin, Mr. Warren and Hamid Shokrgozar, then President of White
Microelectronics, a division of Bowmar.
On October 9, 1997, following the Bowmar Board meeting, EDI received a
counterproposal from Bowmar pursuant to which EDI stockholders would receive
significantly fewer shares of Bowmar Common Stock than the 16,540,000 shares
contemplated by EDI's July 17, 1997 proposal. Shortly thereafter, Mr. Hall
conveyed to Mr. Lanin EDI's view that Bowmar's counterproposal was inadequate
because of Bowmar's relative valuation of the two companies. During the
remainder of October 1997 and through November 1997, EDI and Bowmar continued
to analyze valuation and pricing matters, although no meaningful progress was
made toward agreement with respect to such matters.
On October 24, 1997, the Bowmar Board convened a regular meeting
during which Mr. Lanin presented the Bowmar Board with an update on his
continuing discussions with EDI. Mr. Lanin advised the Board that based on the
then recent discussions, a revised offer from EDI may be forthcoming.
On November 12, 1997, the EDI Board held a regular meeting at which
the EDI Board discussed the then current status of the discussions between EDI
and Bowmar. At this meeting, the EDI Board considered alternative structures
for a proposed merger pursuant to which EDI or Bowmar would be the acquiring
company. Following a report by management of its evaluation of Bowmar's
business, operations and financial condition, the EDI Board concluded that EDI
should make another proposal to Bowmar pursuant to which Bowmar would merge
with EDI by exchanging all of the outstanding shares of Bowmar Common Stock for
an aggregate of 4,200,000 shares of EDI Common Stock. On December 2, 1997,
Bowmar received a written proposal from EDI.
Two days later, on December 4, 1997, the Bowmar Board convened a
special meeting at which Mr. Lanin reported on the new proposal from EDI. Mr.
Lanin then discussed with the Bowmar Board Needham's financial analysis of
EDI's proposal. The Bowmar Board discussed EDI's proposal. The Bowmar Board
decided to reject EDI's proposal and instructed Needham to communicate such
rejection to EDI.
At the Bowmar Board meeting on December 4, 1997, Mr. Warren also
reported to the Bowmar Board that Bowmar's Technologies division in Ft. Wayne,
Indiana (the "Technologies Division") was expected to incur a $400,000 loss for
the first quarter of 1998. After some discussion, based on Mr. Lanin's
recommendations, the Bowmar Board decided to take the following actions in an
effort to reduce costs and expenses: (i) divest the Technologies Division,
(ii) consolidate the corporate office at 5080 N. 40th Street, Suite 475,
Phoenix, Arizona, with the new office and manufacturing facility of the White
Microelectronics division located at 3601 E. University Drive, Phoenix,
Arizona, and (iii) eliminate the full-time position and related salary for
Bowmar's Chairman of the Board. In addition, Mr. Lanin resigned as President
and Chief Executive Officer effective January 2, 1998, and the Bowmar Board
determined to appoint Hamid Shokrgozar, then President of the White
Microelectronics division, as President and Chief Executive Officer of Bowmar
effective upon Mr. Lanin's termination.
On December 9, 1997, Needham informed Mr. Hall of Bowmar's rejection
of EDI's December 2, 1997 proposal and that Bowmar had elected to discontinue
discussions with regard to a potential business
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combination transaction with EDI to pursue other opportunities. In its letter
to Mr. Hall, Needham stated that the terms of EDI's revised proposal were
inadequate in that they did not reflect a premium to market price and that such
a premium was appropriate for a transaction of this nature. On December 10,
1997, at a special meeting convened by the Bowmar Board, Mr. Lanin reported
that, as instructed, Needham had communicated to EDI Bowmar's rejection of
EDI's revised proposal. Mr. Warren then reported to the Bowmar Board that, in
fiscal year 1997, Bowmar would record a $1,300,000 reserve to account for the
"discontinued operation" of the Technologies Division. Bowmar then set about
to identify a purchaser for the Technologies Division, utilizing the services
of Needham in connection with the potential sale. On December 18, 1997, Bowmar
announced its plans to seek such a purchaser.
On December 20, 1997, EDI entered into a new agreement with Alliant to
render financial advisory services to EDI in connection with a possible merger,
acquisition transaction or sale of EDI. The purpose of this agreement was to
broaden the scope of Alliant's engagement to provide financial advisory
services to EDI in connection with EDI's evaluation of any strategic
alternative available to it.
Discussions between EDI and Bowmar resumed on or about January 8, 1998
after Mr. McGuinness contacted Mr. Shokrgozar. The parties determined that
they were in general agreement that the synergies that could result from a
combination of the two companies were compelling, and discussions between
management of EDI and Bowmar focused again on pricing. The parties agreed to
meet at the offices of Alliant on January 21, 1998 to further discuss the
proposed transaction and, in particular, pricing.
On January 20, 1998, Mr. McGuinness visited the White Microelectronics
facility in Phoenix, Arizona and met with Messrs. Shokrgozar and White. The
following day, Messrs. Shokrgozar, Warren, McGuinness, Hall and representatives
of Needham and Alliant met in Palo Alto, California as planned. The group
discussed various terms of a proposed merger pursuant to which the companies
would combine through the merger of EDI into Bowmar. In particular, the group
also discussed pricing and a possible exchange ratio as well as certain
corporate governance matters and strategies for the combined company. On
February 5, 1998, Mr. Shokrgozar informed the Bowmar Board of the renewed
discussions with EDI and of the discussions that had taken place in Palo Alto.
The Bowmar Board authorized Mr. Shokrgozar to proceed in further discussions
with EDI.
On February 9, 1998, EDI received a proposal from Bowmar pursuant to
which EDI stockholders would receive 1.25 shares of Bowmar Common Stock for
each share of EDI Common Stock. Shortly thereafter, Mr. McGuinness conveyed to
Bowmar EDI's view that the exchange ratio should be 1.5 rather than 1.25.
A regular meeting of the EDI Board was held on February 25, 1998. At
this meeting, Messrs. McGuinness and Hall described the progress of the
negotiations which had occurred earlier in February 1998 and the positions of
each of the parties in those negotiations. The EDI Board instructed management
and its advisors to continue negotiations and due diligence.
On March 1, 1998, Mr. Shokrgozar telephoned Mr. McGuinness and they
discussed further the range for the exchange ratio, which resulted in a
tentative agreement on an exchange ratio of 1.375.
On March 3, 1998, the Bowmar Board held a special meeting to discuss
the status of the negotiations. In particular, the Bowmar Board discussed the
proposed structure of the transaction, the tentative agreement between Messrs.
Shokrgozar and McGuinness on the 1.375 exchange ratio and certain corporate
governance issues. The Bowmar Board concluded that management of Bowmar should
continue to negotiate the terms of the transaction in accordance with
management's proposals and proceed toward definitive documentation.
On March 6, 1998, the EDI Board held a special meeting to discuss the
proposal received from Bowmar relating to the proposed merger of EDI and to
Bowmar and, in particular, the exchange ratio. The EDI Board concurred with
management's proposal of an exchange ratio of 1.375 and agreed that management
should continue discussions with Bowmar with a view to negotiating definitive
documentation for the merger,
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subject to due diligence to be performed by the companies and further review
and approval by their respective Boards of Directors.
On March 26, 1998, the EDI Board held a special meeting with its legal
and financial advisors at which Messrs. McGuinness and Edwards updated the EDI
Board on the status of the negotiations with Bowmar. At this meeting, the EDI
Board also discussed various legal issues relating to the proposed transaction
as well as the timing and process of the transaction. The EDI Board also
discussed the need for obtaining a fairness opinion in connection with the
transaction, and specifically, whether it would be appropriate for Alliant to
be asked to perform the analyses necessary to deliver such an opinion in view
of Mr. Hall's positions as a partner of Alliant and a member of the EDI Board.
Based on this discussion, the EDI Board concluded that Alliant was fully
capable of maintaining its independence during the process and that Alliant's
prior relationship with EDI as its financial advisor together with Alliant's
experience in providing financial advice to technology companies made it
appropriate and desirable that Alliant be asked to render advice to the EDI
Board with respect to the fairness of the proposed merger, from a financial
point of view, to the EDI stockholders. At the March 26, 1998 meeting, the EDI
Board also discussed appointing a special committee of independent directors to
consider the proposed transaction to eliminate any potential conflicts of
interest of any member of the EDI Board. The EDI Board discussed the merits of
establishing a special committee and the nature and scope of a special
committee's involvement in the process. The EDI Board concluded that on
balance it would be advisable to establish a special committee consisting of
individuals with no existing employment relationships with EDI that would have
the authority to assist the EDI Board in evaluating the proposed transaction.
The EDI Board then designated Thomas J. Toy and Thomas A. Schultz as the
special committee of the EDI Board (the "EDI Special Committee") to assist the
EDI Board and management in the evaluation of the merits of the proposed
transaction with Bowmar. During the negotiation process, the EDI Special
Committee received regular reports on the progress of negotiations and
discussed such progress between themselves and with management and the EDI
Board.
On March 30, 1998, Bowmar and EDI commenced a more formal legal and
business due diligence review of each other's company and business to further
analyze the costs and strategic benefits of a potential merger. As part of
this process, Mr. Edwards and representatives of Alliant visited Bowmar's
Phoenix facility on March 30 and 31, 1998. Similarly, Mr. Shokrgozar, William
Rodes, Bowmar's Controller, and representatives of Needham visited EDI's
Westborough facility and met with Messrs. McGuinness and Edwards from April 1
through April 3, 1998.
Concurrent with the due diligence process, representatives of Bowmar
and EDI began exchanging drafts of a merger agreement and conducting
negotiations regarding the terms of the definitive merger agreement.
On April 9, 1998, the EDI Board, together with EDI's financial and
legal advisors, held a special meeting to discuss the progress of negotiations
of the definitive merger agreement. At this meeting, EDI's management and its
financial and legal advisors updated the EDI Board on the status of the
negotiations. On behalf of the EDI Special Committee, Mr. Toy reported on his
visit to Bowmar's Phoenix facility on April 7, 1998, and his discussions with
Mr. Shokrgozar concerning the business and operations of Bowmar. Mr.
McGuinness also described to the EDI Board the status of Bowmar's Technologies
Division and, in particular, the financial condition and prospects for this
division. The EDI Board also discussed the status of the due diligence being
performed on Bowmar by management of EDI as well as accounting issues relevant
to the transaction. In addition, EDI's legal counsel gave a presentation to
the EDI Board on the terms of the draft merger agreement, and, in particular,
whether pooling accounting treatment was desirable and certain advantages and
disadvantages thereof, and the EDI Board discussed certain issues raised by
such terms. Finally, the EDI Special Committee reported to the EDI Board on
the procedures that the EDI Special Committee would be undertaking during its
continuing evaluation of the transaction, which included having further
discussions with management of EDI regarding due diligence and discussions with
Alliant concerning the analyses to be performed by Alliant in its evaluation of
the fairness of the transaction from a financial point of view.
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On April 14 and April 22, 1998, legal counsel for the two companies
and a representative of Alliant participated with the management of the two
companies in continued negotiations concerning the terms of the draft merger
agreement. In particular, the parties discussed such issues as the accounting
treatment of the transaction, conduct of the companies' respective businesses
prior to the Effective Time, employee benefit matters, conditions to the
parties' respective obligations to consummate the transaction, termination
events, registration rights for certain affiliates of EDI, indemnification
matters and the desirability of voting agreements to be entered into by certain
stockholders of EDI and Bowmar.
On April 24, 1998, the EDI Board convened a special meeting to discuss
the status of the negotiations of the definitive documentation. At such
meeting, EDI's legal counsel, together with Messrs. McGuinness and Edwards,
updated the EDI Board on the outcome of the discussions between management of
the two companies concerning the terms of the draft merger agreement. The EDI
Board also received an update of the due diligence being performed on Bowmar by
EDI's management. In addition, the EDI Board discussed whether there were
potential synergies that could be achieved between EDI's display business and
Bowmar's Technologies Division and whether the transaction could be accounted
for as a purchase or a pooling and the implications to EDI resulting therefrom.
After deliberation of these issues by the EDI Board, the EDI Board discussed
acceptable parameters within which such issues were authorized to be resolved
by management.
On April 28, 1998, Mr. Edwards and Daniel R. Doyle, the Vice President
and General Manager for Display Products for EDI, visited Bowmar's Ft. Wayne,
Indiana facility as part of EDI's due diligence.
On April 29 and April 30, 1998, legal counsel for the two companies
and representatives of Alliant participated in discussions regarding the terms
of the draft merger agreement. The key issues discussed included (i) whether
pooling accounting treatment was desirable and available, (ii) the appropriate
indemnification obligations to be undertaken by Bowmar for the benefit of the
officers and directors of Bowmar and EDI, (iii) the scope of the environmental
representations to be made by each of the companies, and (iv) the desirability
of obtaining voting agreements from certain stockholders of the companies.
On May 1, 1998, the EDI Board held a special meeting, together with
EDI's legal counsel and financial advisor, at which Alliant gave a presentation
concerning its preliminary evaluation of the fairness, from a financial point
of view, of the proposed transaction. In addition, the EDI Special Committee
presented the status of its review at that point in time. This involved a
review of the due diligence performed by management, a review of Bowmar's
business and operations, including the operations of the Technologies Division,
and a review of the fairness analyses performed by Alliant.
Between May 1 and over the course of the weekend of May 2 and May 3,
1998, legal counsel and the financial advisors for EDI and Bowmar participated
with management of the two companies in continued negotiations of the final
proposed terms of the transaction and the merger agreement.
On May 3, 1998, the EDI Board held a special meeting to consider the
proposed Merger Agreement and the transactions contemplated thereby. Members
of EDI's management and representatives of each of Alliant and Goodwin, Procter
& Hoar LLP, legal counsel to EDI, presented written materials (including a
substantially complete draft of the Merger Agreement) and made presentations to
the EDI Board and discussed with members of the EDI Board their views and
analyses of various aspects of the proposed Merger and the effects thereof.
Representatives of Alliant also made a presentation to the EDI Board of its
analysis of the fairness of the proposed transaction, from a financial point of
view, to the stockholders of EDI. Alliant also delivered its written opinion
to the EDI Board to the effect that, as of May 3, 1998 and based upon and
subject to the matters stated therein, the proposed Exchange Ratio was fair,
from a financial point of view, to the holders of EDI Common Stock. The EDI
Special Committee then informed the EDI Board that based on its review and
findings, it was recommending that the EDI Board approve the Merger. After
discussions, the EDI Board determined that the Merger Agreement and the
transactions contemplated thereby were fair and in the best interests of EDI
and its stockholders and authorized management of EDI to execute the Merger
Agreement. Mr. Hall, who was in favor of approving the Merger Agreement,
abstained from the final vote in view of his relationship with Alliant.
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Also on May 3, 1998, the Bowmar Board held a special meeting at its
offices in Phoenix, Arizona, to discuss the details of the proposed Merger
Agreement and the transactions contemplated thereby. Additionally,
presentations were given by management and representatives of Needham and
Bryan Cave. Needham presented its analysis of the financial aspects of the
proposed Merger and delivered its oral opinion to the Board of Directors (which
it subsequently confirmed in writing) to the effect that, based upon the facts
and circumstances as they existed at that time and subject to the various
assumptions and other considerations set forth in such opinion, as of May 3,
1998, the proposed Exchange Ratio was fair from a financial point of view to
the stockholders of Bowmar. Members of Bowmar management made a presentation
to the Board regarding the terms of the proposed Merger, the business reasons
for approving the Merger and the new revenue opportunities and areas where
costs savings could be found. During and following the presentations,
questions were asked by members of the Bowmar Board and answered regarding
financial issues, including accounting matters, the potential impact of
developments in the financial markets, personnel matters, the risks and
benefits of the proposed Merger and other matters. The Board reviewed the
proposed Merger Agreement. Additionally, the representative of Bryan Cave
discussed in detail amendments to the Bowmar Rights Agreement which would
exclude the contemplated transaction from the triggering mechanism of the
Bowmar Rights Agreement. The Bryan Cave representative responded to questions
asked by members of the Bowmar Board. Following the presentations and
discussions described above, the Bowmar Board concluded that the Merger was in
the best interests of Bowmar and its stockholders and, by a unanimous vote of
all directors, approved the Merger Agreement and transactions contemplated
thereby (including ratification of the formation of the Acquisition Subsidiary
for the purpose of merging such subsidiary with and into EDI) and authorized
the officers of Bowmar to enter into the Merger Agreement. The Bowmar Board
further approved the proposed amendments to the Bowmar Rights Agreement.
That same evening, after the conclusion of EDI's and Bowmar's
respective board meetings, EDI, Bowmar and Acquisition Subsidiary executed the
Merger Agreement and Bowmar and EDI executed the Assumption Agreements. In
addition, Bowmar and Technology Funding Partners III, L.P. executed a Voting
Agreement and EDI and Edward A. White executed a Voting Agreement. The next
morning, May 4, 1998, Bowmar and EDI issued a joint press release announcing
the Merger prior to the opening of trading on the American Stock Exchange and
the Nasdaq SmallCap Market.
Subsequent to the public announcement by EDI and Bowmar of the
execution of the Merger Agreement, on May 4, 1998, Mr. Shokrgozar received a
telephone call from Mr. John Buyko, the general manager of the microelectronic
division of Aeroflex Incorporated ("Aeroflex"). Mr. Shokrgozar and Mr. Buyko
had a prior telephone discussion about a potential meeting between Mr.
Shokrgozar and Mr. Buyko. Such a meeting was never held. Mr. Buyko advised
Mr. Shokrgozar on May 4, 1998 that Aeroflex was interested in acquiring Bowmar.
Mr. Shokrgozar advised Mr. Buyko that Bowmar was committed to merge with EDI.
Later, Michael Gorin, President of Aeroflex, and Mr. Buyko called Mr.
Shokrgozar. Mr. Shokrgozar reaffirmed his commitment to EDI and advised
Messrs. Gorin and Buyko that pursuant to the Merger Agreement, Bowmar was
obligated not to discuss any potential competing transaction with any third
party. On May 8, 1998, Mr. Shokrgozar received another telephone call from
Mr. Gorin. Mr. Gorin reiterated Aeroflex's interest in acquiring Bowmar,
stated he had a letter which he was authorized to send to Bowmar and indicated
that the letter contained an offer to purchase Bowmar through a stock for stock
acquisition at a purchase price of $3.00 per share of Bowmar Common Stock. Mr.
Shokrgozar advised Mr. Gorin that Bowmar was committed to the Merger and that
the terms of the Merger Agreement contained a no solicitation provision
pursuant to which Bowmar was bound not to solicit or encourage third party
offers. On Saturday, May 9, 1998, Mr. Shokrgozar advised Mr. McGuinness by
telephone of the occurrence of the telephone conversation of May 8, 1998. On
May 9, 1998, Mr. Shokrgozar confirmed the oral notification with a letter as
required by Section 5.8 of the Merger Agreement.
On May 12, 1998, the Bowmar Board was convened in a special meeting.
Present at the Board meeting at the special invitation of the Chairman of the
Board were representatives of Bryan Cave and Needham. At the Board meeting the
Board was advised as to all developments. Members of the Board asked questions
of legal counsel, Needham and management. The Board instructed Mr. Shokrgozar
to abstain from any further contact with Aeroflex representatives.
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On May 18, 1998, Bowmar received a letter from Aeroflex in which
Aeroflex proposed a tax-free merger with Bowmar at an exchange ratio of .24
Aeroflex common shares for each Bowmar common share and common share
equivalent. The offer was subject to Aeroflex due diligence, execution of a
definitive agreement with terms substantially similar to those in the Merger
Agreement and qualification of the transaction as a pooling of interests. On
May 18, 1998, Mr. Shokrgozar telephoned Mr. McGuinness to advise EDI of the
receipt of the offer letter and on that same day confirmed the information in
writing as required by the Merger Agreement.
At a special meeting of the Bowmar Board convened on May 19, 1998, the
Bowmar Board was advised of the Aeroflex offer letter. The terms and
conditions of the offer were discussed in detail. Present at the meeting by
special invitation of the Chairman of the Board were representatives of
Needham, a representative of Bryan Cave and representatives of Coopers &
Lybrand. Needham presented to the Bowmar Board its financial analysis of the
Aeroflex offer and discussed with the Bowmar Board the various financial
implications of the Aeroflex offer. Legal counsel reviewed with the Bowmar
Board the legal implications of the Aeroflex offer and Bowmar's contractual
obligations to EDI. The Bowmar Board concluded that it was in the best
interests of Bowmar and its stockholders to continue its current strategic
direction and thus not pursue the Aeroflex proposal. By letter dated May 20,
1998, Bowmar notified Aeroflex of the Bowmar Board's decision. Mr. Shokrgozar
notified Mr. McGuinness on the same date of this decision.
During the period from May 6, 1998 to May 16, 1998, legal counsel for
the two companies participated in the preparation of a draft joint proxy
statement/prospectus. Subsequent to the circulation of the first such draft,
management of both Bowmar and EDI conferred with respect to a variety of
issues, including potential synergies between the Technologies Division and
EDI's display business, the accounting treatment of the Merger, the
desirability of changing the name of Bowmar in connection with the Merger and
the perceived need to increase further the number of shares of authorized Bowmar
Common Stock in connection with the Merger. After consultation with the
accountants for each of Bowmar and EDI, management of each company determined to
propose to their respective Boards of Directors that certain steps be taken
which would permit the Merger to be accounted for as a "pooling of interests"
rather than as a "purchase" as had been originally contemplated.
At the special meeting of the Bowmar Board held on May 19, 1998, the
accounting issues were discussed in detail. Coopers & Lybrand advised the
Bowmar Board that alterations of equity interest in contemplation of a business
combination would preclude the business combination from being accounted for as
a pooling of interests. Coopers & Lybrand further advised that the Commission
has historically allowed alterations of equity interest to be cured prior to the
consummation of the business combination. Based on the discussions with Coopers
& Lybrand, the Bowmar Board concluded that in order to account for the Merger as
a pooling of interests, Bowmar would be required to take the following actions:
(i) reverse the decision to sell the Technologies Division; (ii) amend the
employment agreements of each of Mr. Shokrgozar and Mr. Warren to delete the
"change in control" provisions and certain other termination provisions; and
(iii) rescind the December 1997 option grants to Messrs. Shokrgozar and Warren.
Mr. Shokrgozar advised the Bowmar Board that further analysis of the EDI display
business and the Technologies Division product lines revealed potential
synergies which supported the reversal of the Technologies Division
discontinuance from a business perspective, and that he and Mr. Warren were
agreeable to the changes in their employment agreements and options if required
to accommodate pooling treatment for the transaction. The Bowmar Board asked
questions and received answers from Messrs. Shokrgozar and Warren and
representatives of Coopers & Lybrand present at the meeting concerning the
business and financial implications of a decision to structure the Merger as a
pooling of interests. The Bowmar Board concluded to proceed and authorized
Messrs. Shokrgozar and Warren to obtain further details on pooling and the
actions necessary to permit the Merger to be accounted for as a pooling position
Bowmar for pooling.
On May 29, 1998, the EDI Board held a special meeting to discuss,
among other things, the status of the preparation of the joint proxy
statement/prospectus and the accounting treatment of the Merger. At the
meeting, Alliant presented written materials and made a presentation to the EDI
Board of its analysis of the fairness of the Merger, from a financial point of
view, to the holders of EDI Common Stock in view of the potential change from
purchase to pooling accounting treatment. The EDI Board asked questions and
received answers from Alliant with respect to the fairness analyses presented by
Alliant at the meeting. Alliant also delivered its written opinion to the
effect that, as of May 29, 1998 and based upon and subject to the matters stated
therein, the Exchange Ratio was fair, from a financial point of view, to the
holders of EDI Common Stock. The EDI Board concluded that the potential
synergies that could be achieved between EDI's display business and Bowmar's
Technologies Division together with accounting for the Merger as a pooling were
more beneficial to EDI and its stockholders than discontinuing the Technologies
Division and accounting for the Merger as a purchase. The EDI Board also
reviewed the Amendment to Merger Agreement, approved the
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Amendment to Merger Agreement and authorized management to proceed with the
Merger as a pooling transaction, provided that the conditions necessary to
facilitate the treatment of the Merger as a pooling of interests could be
satisfied, including obtaining an opinion or other appropriate comfort from
Coopers & Lybrand. The EDI Board has also approved the rescission of
Mr. McGuinness' November 1997 option grant, and such option has been rescinded,
in order to account for the Merger as a pooling of interests.
On June 1, 1998, the Bowmar Board met in a special meeting. At that
meeting, Mr. Shokrgozar updated the Board on the developments during the
process of the preparation of the joint proxy statement. The Board approved in
principle the amendment of the employment agreements of each of Mr. Shokrgozar
and Mr. Warren to remove the "change in control" provisions, eliminate the
accelerated vesting and extended exercise period of options upon termination,
and to make such other changes as the Board, based on the recommendation of the
Compensation Committee, determined were necessary and desirable. The Bowmar
Board also approved the rescission of those options to purchase Bowmar Common
Stock granted to each of Mr. Shokrgozar and Mr. Warren on December 10, 1998.
The Bowmar Board also considered an Amendment to Merger Agreement which had
been prepared to facilitate the treatment of the Merger as a "pooling of
interests" and to make such other changes as had been recommended by
management. The Bowmar Board concluded that, subject to finalization of the
amended employment agreements for Messrs. Shokrgozar and Warren and obtaining
an opinion or other appropriate comfort from Coopers & Lybrand with respect to
the pooling issue, the Amendment to Merger Agreement be approved and the
decision to sell the Technologies Division be reversed. Changes to
the employment agreements were finalized on June 8, 1998 and the opinion from
Coopers & Lybrand was obtained on June 9, 1998. Accordingly, Bowmar executed
the Amendment to Merger Agreement.
On June 9, 1998, the parties entered into the formal Amendment to
Merger Agreement to reflect the parties' intent that the Merger be accounted
for as a pooling and the decision to change the name of Bowmar in connection
with the Merger.
RECOMMENDATION OF THE BOWMAR BOARD; REASONS FOR THE MERGER
The Bowmar Board has unanimously approved the Merger Agreement and has
determined that the Merger is advisable and in the best interests of Bowmar and
its stockholders. The Bowmar Board recommends unanimously that Bowmar's
stockholders vote "For" the Bowmar Merger Proposal and the Bowmar Amendment
Proposals.
In reaching its determination and recommendation, the Bowmar Board
consulted with its senior management, financial advisors and legal advisors.
The Bowmar Board considered a variety of factors in making its determination
and recommendation, including the factors described below:
(i) Prevailing Conditions in the Industries Served by
Bowmar. Since the end of the Cold War, there have been significant
reductions in U.S. military spending. In addition, in recent years,
the Department of Defense has shifted its purchases from custom memory
products to commercial off-the-shelf products. As a result of the
reductions in U.S. military spending, there has been significant
consolidation throughout the defense contractor and supplier
industries. See "Risk Factors--Dependence on Defense Industries."
The Bowmar Board believes this consolidation poses a threat to the
future viability of small niche suppliers, and that the future of
Bowmar depends on its ability to diversify into the commercial memory
market. Bowmar has recently made inroads into commercial market
applications of its products, specifically in the telecommunications
and data communications industry. This market is one that has been
targeted by the Bowmar Board for long-term growth. The Bowmar Board
concluded that the combination with EDI would accelerate Bowmar's
progress toward its goal of decreased dependence on the military
markets and would provide Bowmar with greater access to the
telecommunications and data communications industry for its products.
(ii) Prospects for the Combined Company. The Bowmar Board
considered information relating to the financial performance, business
operations and prospects of EDI and pro forma information for the
Combined Company. The Bowmar Board believes that the "complementary"
business strengths of the two organizations are significant. Bowmar's
White Microelectronics division brings a particularly strong military
market leadership, and EDI brings a strong presence in the commercial
market. The Bowmar Board concluded that this information indicated
that the Combined Company would have enhanced opportunities for
success in the lines of business targeted by Bowmar, moving more
quickly into the commercial market with a wider array of products and
greater abilities to compete successfully in both the commercial and
military markets.
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(iii) Stronger Financial Capabilities. The Bowmar Board
concluded that the Combined Company, with its greater size and the
combined resources of Bowmar and EDI, would provide a stronger base
from which to compete for customer contracts.
(iv) Structure of the Transaction. The Merger is
essentially a merger of equals, a structure which is viewed favorably
by the Bowmar Board. Each of the companies will nominate and appoint
three directors to the Board of Directors of the Combined Company,
with those six persons choosing a seventh member. The Chairman of the
Board of EDI will serve as Chairman of the Board of the Combined
Company. The President and Chief Executive Officer of Bowmar will
serve as President and Chief Executive Officer of the Combined
Company. The Bowmar Board believes the strategic short and long-term
goals of EDI are consistent with those of Bowmar. The Bowmar Board
also views as favorable the fact that the Merger will be on a tax-free
basis for federal income tax purposes. Finally, the Bowmar Board
believes the terms and conditions of the Merger Agreement are
favorable to Bowmar and its stockholders.
(v) Greater Total Market Capitalization. The Bowmar
Board believes that because the total market capitalization of the
Combined Company will be substantially greater than that of Bowmar
prior to the Merger, Bowmar stockholders will have better liquidity
and there will be greater opportunities for the Combined Company to
attract the attention of other investors.
(vi) Anticipated Synergies and Efficiencies. The Bowmar
Board believes that because the Combined Company will bring together
the creativity, innovation and engineering capabilities of Bowmar and
EDI, the combination will provide greater synergies in respect of
product development. In addition, the Bowmar Board views as favorable
the potential synergies of the Bowmar electromechanical and mechanical
products of its Technologies Division with the flat panel display
products of EDI. While expense reductions were not the primary
objective of the Merger, the Bowmar Board believes the potential
exists for efficiencies in the combined expense base, resulting in a
transaction that adds to stockholder value. The Bowmar Board believes
that the immediate cost savings include general and administrative
costs, reductions in areas such as information and accounting systems
and operating efficiencies brought about by the combined buying power.
(vii) Opinion of Needham & Company, Inc. The Bowmar Board
relied on the opinion, analyses and presentations of Needham,
described below (see "Opinion of Bowmar's Financial Advisor") to
the effect that, based upon certain assumptions and subject to certain
matters stated therein, the Exchange Ratio was fair from a financial
point of view to the stockholders of Bowmar.
(viii) Pooling Accounting Treatment. The Bowmar Board views
as favorable the fact that the Merger is expected to be accounted for
under the pooling of interests method of accounting.
The Bowmar Board recognized that there were certain substantial costs
associated with a potential merger with EDI. The Bowmar Board considered these
costs, along with the other negatives that could arise as a result of the
Merger, and concluded that they did not outweigh the advantages of the
transaction. The Bowmar Board realizes that not all of the anticipated
benefits of the Merger will be fully realized, and that Bowmar may have been
successful in its long-term strategy as an independent company. Nevertheless,
the Bowmar Board concluded that the potential benefits of the Merger with its
attendant risks were sufficiently great to overcome the potential negative
factors.
The foregoing discussion is not intended as an exhaustive discussion
of the information and factors considered by the Bowmar Board, but only a
summary of the material factors considered by the Bowmar Board. The Bowmar
Board did not assign any particular hierarchy to the factors; instead, it
considered its decision and recommendation as based on a totality of the
information and factors presented and considered by it. The individual members
of the Bowmar Board may have regarded the specific factors differently from one
another in reaching his final decisions in respect of the Merger.
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FOR THE REASONS DISCUSSED ABOVE, THE DIRECTORS OF BOWMAR HAVE
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY AND UNANIMOUSLY RECOMMEND THAT BOWMAR'S STOCKHOLDERS VOTE "FOR" THE
BOWMAR MERGER PROPOSAL AND EACH OF THE BOWMAR AMENDMENT PROPOSALS.
RECOMMENDATION OF THE EDI BOARD; REASONS FOR THE MERGER
The EDI Board has approved the Merger Agreement and has determined
that the Merger and the other transactions contemplated thereby are advisable
to and in the best interests of EDI and its stockholders. The EDI Board
recommends that EDI's stockholders vote "FOR" approval and adoption of the
Merger Agreement and the transactions contemplated thereby, including the
Merger.
In reaching its determination and recommendation, the EDI Board
consulted with EDI's management, as well as its financial advisors, legal
counsel and accountants, and considered a number of factors. The material
factors considered by the EDI Board in reaching the foregoing determination and
recommendation, all of which the EDI Board deemed favorable, are described
below.
(i) Business, Conditions and Prospects of the Combined
Company. The EDI Board reviewed information relating to the financial
performance, business operations and prospects of EDI and Bowmar and
pro forma information for the Combined Company, as well as current
industry, economic and market conditions. The EDI Board believes that
the Merger will enable EDI to achieve many of its long-range goals
much quicker and with less risk than EDI could achieve without the
Merger in light of the improved business and financial condition of
the Combined Company.
(ii) Greater Financial Flexibility and Capabilities. The
EDI Board believes that greater size, enhanced financial flexibility
and management depth and resources created from the Merger will allow
the Combined Company to pursue a more aggressive and flexible business
plan, especially in the areas of ruggedized memory products and flat
panel displays. In addition, the Combined Company, with its greater
size, would provide a stronger base from which to compete for customer
contracts.
(iii) Structure of the Transaction. The Merger has been
structured as a merger of equals, without payment of a control premium
to the stockholders of either EDI or Bowmar. The EDI Board views the
structure of the Merger as favorable in that EDI is engaging in a
strategic combination with a company having similar strategies,
backgrounds, ethics and goals. The EDI Board views as favorable the
fact that the Merger would allow EDI and its stockholders to achieve
many of the same objectives of a large acquisition (e.g., increasing
size and total market capitalization) without paying the substantial
premium typical of an acquisition transaction. Further, the EDI Board
views as favorable the fact that the Merger, because it has been
structured as a merger of equals, will allow EDI's stockholders to
fully participate in the growth of the Combined Company while
retaining, for the benefit of the Combined Company, the services of
the senior management team of EDI.
The EDI Board also views as favorable the fact that the Merger
provides stockholders of EDI with an opportunity to exchange their
existing shares of EDI stock for stock of the Combined Company on a
basis that is expected to be tax-free for federal income tax purposes
(except to the extent of any cash received in lieu of fractional
shares). See "--Certain Federal Income Tax Consequences."
In addition, the EDI Board views as favorable the terms and
conditions of the Merger Agreement, including the representations and
warranties and covenants of the parties, the conditions to the parties
respective obligations thereunder and the termination provisions set
forth therein. See "Certain Provisions of Merger Agreement."
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The EDI Board views as favorable the configuration of the
Board of Directors following the Merger. See "The Merger--Management
of the Combined Company."
(iv) Greater Total Market Capitalization. The total
market capitalization of the Combined Company would be substantially
increased as a result of the Merger. The EDI Board believes that
increased total market capitalization would provide stockholders of
EDI with enhanced liquidity and would make shares of the Combined
Company a more attractive investment to investors generally. In this
regard, the EDI Board viewed as favorable the fact that the EDI stock
currently is listed on the Nasdaq SmallCap Market while the stock of
the Combined Company will be listed on the American Stock Exchange.
(v) Enhanced Management Team. The Merger would enhance
the level of management depth and experience. Specifically, the EDI
Board considered the fact that the Merger would effectively combine
the senior management teams of EDI and Bowmar, with the Combined
Company benefiting from the expertise of both groups.
(vi) Anticipated Synergies, Cost Savings and Operational
Efficiencies. The EDI Board believes that because the Combined
Company will bring together the creativity, innovation and engineering
capabilities of Bowmar and EDI, the combination will provide greater
synergies in respect of product development. In addition, the EDI
Board views as favorable the potential synergies of the Bowmar
electromechanical and mechanical products of its Technologies Division
with the flat panel display products of EDI. While expense reductions
were not the primary objective of the Merger, the EDI Board believes
the potential exists for efficiencies in the combined expense base,
resulting in a transaction that adds to stockholder value. The EDI
Board believes that the immediate cost savings include general and
administrative costs, reductions in areas such as information and
accounting systems and operating efficiencies brought about by the
combined buying power.
(vii) Opinion of Alliant Partners. The EDI Board also
relied on the opinion, analyses and presentations of Alliant described
below under "--Opinion of EDI's Financial Advisor" to the effect that,
as of the date of such opinion and based upon and subject to certain
matters stated therein, the Exchange Ratio was fair, from a financial
point of view, to the stockholders of EDI. The EDI Board viewed the
opinion of Alliant as favorable to its determination because of
Alliant's experience in the valuation of businesses and their
securities in connection with mergers and acquisitions and in
providing advisory services and raising capital for technology
companies.
(viii) Pooling Accounting Treatment. The expectation that
the Merger will be accounted for under the pooling of interests method
of accounting.
The EDI Board also considered certain negative factors that possibly
could arise from the Merger. These factors included, among others, the
significant transaction costs involved in connection with consummating the
Merger, the substantial management time and effort required to consummate the
Merger and integrate the businesses of EDI and Bowmar and the possibility that
the integration efforts may be unsuccessful. The EDI Board also considered the
risk that the anticipated benefits of the Merger might not be fully realized as
well as the potential benefits that may be realized as a result of continuing
EDI's historical operations on a stand-alone basis. The EDI Board also
evaluated the benefits of the transaction to be received by certain officers
and directors of EDI. See "The Merger--Interests of Certain Persons in the
Merger." The EDI Board did not believe that the negative factors were
sufficient, either individually or in the aggregate, to outweigh the advantages
of the Merger.
The foregoing discussion of the information and factors considered by
the EDI Board is not intended to be exhaustive, but includes the material
factors considered by the EDI Board. The EDI Board did not assign relative
weights to the above factors or determine that any factor was of greater
importance than another. A determination of various weightings would, in the
view of the EDI Board, be impractical. Rather, the EDI
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Board viewed its position and recommendation as being based on the totality of
the information presented to and considered by it. In addition, the individual
members of the EDI Board may have given different weight to different factors.
THE EDI BOARD HAS APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND RECOMMENDS THAT
EDI STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER PROPOSAL.
OPINION OF BOWMAR'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated August 22, 1997 (the
"Engagement Letter"), Bowmar retained Needham to furnish financial advisory and
investment banking services with respect to the proposed Merger and to render
an opinion as to the fairness, from a financial point of view, of the proposed
Exchange Ratio to the stockholders of Bowmar. The amount of consideration to
be paid by Bowmar in the Merger was determined through arm's length
negotiations between Bowmar and EDI and not by Needham.
At a meeting of the Bowmar Board on May 3, 1998, Needham delivered its
oral opinion (subsequently confirmed in writing) that, as of such date and
based upon and subject to certain assumptions and other matters described in
its written opinion, the proposed Exchange Ratio is fair to the stockholders of
Bowmar from a financial point of view. See "The Merger--Background of the
Merger." NEEDHAM'S OPINION IS ADDRESSED TO THE BOWMAR BOARD, IS DIRECTED ONLY
TO THE FINANCIAL TERMS OF THE MERGER AGREEMENT AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER OF BOWMAR AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE AT THE BOWMAR SPECIAL MEETING.
The complete text of the May 3, 1998 opinion (the "Needham Opinion"),
which sets forth the assumptions made, matters considered, limitations on and
scope of the review undertaken by Needham, is attached to this Joint Proxy
Statement/Prospectus as Appendix II, and the summary of the Needham Opinion set
forth in this Joint Proxy Statement/Prospectus is qualified in its entirety by
reference to the Needham Opinion. BOWMAR STOCKHOLDERS ARE URGED TO READ THE
NEEDHAM OPINION CAREFULLY AND IN ITS ENTIRETY FOR A DESCRIPTION OF THE
PROCEDURES FOLLOWED, THE FACTORS CONSIDERED, AND THE ASSUMPTIONS MADE BY
NEEDHAM.
In arriving at its opinion, Needham, among other things, (a) reviewed
a draft of the Merger Agreement dated April 30, 1998; (b) reviewed certain
publicly available information concerning Bowmar and EDI and certain other
relevant financial and operating data of Bowmar and EDI made available from the
internal records of Bowmar and EDI; (c) reviewed the historical stock prices
and trading volumes of Bowmar Common Stock and EDI Common Stock; (d) held
discussions with members of senior management of Bowmar and EDI concerning
their current and future business prospects; (e) reviewed certain financial
forecasts and projections prepared by the respective managements of Bowmar and
EDI; (f) compared certain publicly available financial data of companies whose
securities are traded in the public markets and that Needham deemed relevant to
similar data for EDI; (g) reviewed the financial terms of certain other
business combinations that Needham deemed generally relevant; and (h) performed
and/or considered such other studies, analyses, inquiries and investigations as
Needham deemed appropriate.
Needham assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by or discussed with it
for purposes of rendering its opinion. With respect to Bowmar's and EDI's
financial forecasts provided to Needham by their respective managements,
Needham assumed that such forecasts have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of such
managements, at the time of preparation, of the future operating and financial
performance of Bowmar and EDI. Needham did not assume any responsibility for
or make or obtain any independent evaluation, appraisal or physical inspection
of the assets or liabilities of Bowmar or EDI. Needham's opinion states that
it was based on economic, monetary and market conditions existing as of the
date of such opinion. Needham expressed no opinion as to what the value of
Bowmar Common Stock will be when issued to the stockholders of EDI pursuant to
the Merger or the prices at which the Bowmar Common Stock
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will actually trade at any time. In addition, Needham was not asked to
consider, and the Needham Opinion does not address, Bowmar's underlying
business decision to engage in the Merger, the relative merits of the Merger as
compared to any alternative business strategies that might exist for Bowmar, or
the effect of any other transaction in which Bowmar might engage. No other
limitations were imposed by Bowmar on Needham with respect to the
investigations made or procedures followed by Needham in rendering the Needham
Opinion.
Based on this information, Needham performed a variety of financial
analyses of the Merger and the Exchange Ratio. The following paragraphs
summarize the material financial analyses performed by Needham in arriving at
its opinion presented to the Bowmar Board.
Contribution Analysis. Needham reviewed and analyzed the pro forma
contribution of each of Bowmar and EDI to pro forma combined operational and
financial information as of March 31, 1998 and for the twelve months ended
March 31, 1998 ("LTM"), fiscal year ended September 30, 1997 operating results,
and projected fiscal years ending September 30, 1998 and 1999 operating
results. Needham reviewed, among other things, the pro forma contributions to
revenues, net income, assets and stockholders' equity. This analysis indicated
that Bowmar would have contributed 43.9% of LTM pro forma combined revenues,
39.8% of fiscal 1997 pro forma combined revenues, 45.3% of projected fiscal
1998 pro forma combined revenues, 39.2% of projected fiscal 1999 pro forma
combined revenues, 31.0% of LTM pro forma combined net income, 20.2% of fiscal
1997 pro forma combined net income, 76.1% of projected fiscal 1998 pro forma
combined net income, and 35.3% of projected fiscal 1999 pro forma combined net
income. In addition, Bowmar would have contributed 50.0% of the pro forma
combined total assets as of March 31, 1998, and 44.2% of the pro forma combined
stockholders' equity as of March 31, 1998. Based on the Exchange Ratio,
Bowmar's stockholders will own approximately 45% of Bowmar after the Merger.
The results of the contribution analysis are not necessarily indicative of the
contributions that the respective businesses may have in the future.
Selected Company Analysis. Using publicly available information,
Needham compared selected historical and projected financial and market data
ratios for EDI to the corresponding data and ratios of certain other publicly
traded memory product companies: Aeroflex, Inc., Cypress Semiconductor
Corporation, Dense-Pac Microsystems, Inc., Integrated Device Technology, Inc.,
and Smart Modular Technologies, Inc. (the "Selected Companies"). Such data and
ratios included total market capitalization to historical and projected
revenue, price per share to historical and projected earnings per share, and
market value to historical book value.
Needham calculated multiples for the Selected Companies based on the
closing stock prices on April 29, 1998 and for EDI based on the closing price
of Bowmar Common Stock on April 30, 1998 of $2.31 and the resulting equivalent
price per share for the Bowmar Common Stock of $3.18 based upon the Exchange
Ratio of 1.375. For the Selected Companies, the multiples of total market
capitalization to LTM revenues ranged from 1.1 to 2.2 with a mean of 1.8 and a
median of 1.8, as compared with a multiple of 0.6 for EDI; the multiples of
market capitalization to projected calendar 1998 revenues ranged from 1.0 to
1.9 with a mean of 1.5 and a median of 1.6, as compared with a multiple of 0.6
for EDI; and the multiples of market capitalization to projected calendar 1999
revenues ranged from 0.8 to 1.6 with a mean of 1.3 and a median of 1.4, as
compared with a multiple of 0.4 for EDI. For the Selected Companies, the LTM
price-earnings multiples ranged from 21.1 to 30.7 with a mean of 25.9 and a
median of 25.9, as compared with a multiple of 19.3 for EDI; the projected
calendar 1998 price-earnings multiples ranged from 16.7 to 30.5 with a mean of
24.5 and a median of 26.4, as compared with a multiple of 28.9 for EDI; and the
projected calendar 1999 price-earnings multiples ranged from 13.2 to 20.3 with
a mean of 16.0 and a median of 15.2, as compared with a multiple of 6.4 for
EDI. For the Selected Companies, the multiples of market value to historical
book value ranged from 1.4 to 4.2 with a mean of 2.8 and a median of 2.9, as
compared with a multiple of 1.9 for EDI.
Selected Transaction Analysis. Needham also analyzed publicly
available financial information for 22 selected mergers and acquisitions of
companies in the electronics industry that represent transactions since January
1, 1995 with transaction values of between $10 million and $200 million (the
"Selected Transactions"). In examining the Selected Transactions, Needham
analyzed certain market price, income statement and balance
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sheet parameters of the acquired companies relative to the consideration
offered, such as premiums of the consideration offered to the target's stock
price one day and four weeks prior to the announcement date of the transaction;
aggregate transaction value as multiples of LTM sales, earnings before interest
and taxes ("EBIT"), and earnings before interest, taxes, depreciation and
amortization ("EBITDA"); and multiples of market value to LTM net income and
historical book value. In certain cases, complete financial data was not
publicly available for the Selected Transactions and only partial information
was used in such instances.
For the Selected Transactions, the one-day stock price premium ranged
from -70.4% to 98.0% with a mean of 28.5% and a median of 38.1%; and the
four-week stock price premium ranged from -86.3% to 172.7% with a mean of 49.2%
and a median of 37.4%. These compared with one-day and four-week premiums for
EDI implied by the proposed Merger of 37.5% and 18.1%, based upon the closing
prices of Bowmar Common Stock on April 29, 1998 and March 31, 1998 and the
Exchange Ratio of 1.375.
For the Selected Transactions, the multiples of transaction value to
LTM sales ranged from 0.3 to 4.0 with a mean of 1.6 and a median of 1.5; the
LTM EBIT multiples ranged from 7.2 to 26.9 with a mean of 13.3 and a median of
12.9; and the LTM EBITDA multiples ranged from 5.7 to 44.4 with a mean of 12.3
and a median of 11.6. The multiples of market value to LTM net income ranged
from 9.2 to 56.9 with a mean of 21.5 and a median of 19.0; and the multiples of
market value to book value ranged from 0.9 to 8.3 with a mean of 3.3 and a
median of 2.9.
These ratios compared with the following for EDI, calculated based on
the closing price of Bowmar Common Stock on April 30, 1998 and the Exchange
Ratio of 1.375: LTM sales multiple of 0.6, LTM EBIT multiple of 11.1, LTM
EBITDA multiple of 6.1, market value to LTM net income multiple of 19.3, and
market to book value multiple of 1.9.
No company, transaction or business used in the "Selected Company
Analysis" or "Selected Transaction Analysis" as a comparison is identical to
Bowmar, EDI or the Merger. Accordingly, these analyses are not simply
mathematical; rather, they involve complex considerations and judgments
concerning differences in the financial and operating characteristics and other
factors that could affect the acquisition, public trading or other values of
the Selected Companies, Selected Transactions, or the business segment, company
or transaction to which they are being compared.
Other Analyses. In rendering its opinion, Needham considered certain
other analyses, including, among other things, a history of trading prices and
volumes for Bowmar and EDI, and a comparison of Bowmar's and EDI's stock price
performance relative to the Standard & Poor's 500 Index.
The summary set forth above does not purport to be a complete
description of the analyses performed by Needham in connection with the
rendering of the Needham Opinion. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant
quantitative and qualitative methods of financial analyses and the application
of those methods to the particular circumstances and, therefore, such an
opinion is not readily susceptible to summary description. Accordingly,
Needham believes that its analyses must be considered as a whole and that
considering any portions of such analyses and of the factors considered,
without considering all analyses and factors, could create a misleading or
incomplete view of the process underlying its opinion. In its analyses,
Needham made numerous assumptions with respect to industry performance, general
business and economic and other matters, many of which are beyond the control
of Bowmar or EDI. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable as set forth therein.
Additionally, analyses relating to the values of business or assets do not
purport to be appraisals or necessarily reflect the prices at which businesses
or assets may actually be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. The Needham Opinion and
Needham's related analyses were only one of many factors considered by the
Bowmar Board in its evaluation of the proposed Merger and should not be viewed
as determinative of the views of the Bowmar Board or management with respect to
the Exchange Ratio or the proposed Merger.
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Pursuant to the terms of the Engagement Letter, Bowmar has paid or
agreed to pay Needham fees for financial advisory services and for rendering
the Needham Opinion aggregating $350,000, a portion of which was payable upon
the execution of the Merger Agreement. None of Needham's fee is contingent on
consummation of the Merger. Bowmar has also agreed to reimburse Needham for
its reasonable out-of-pocket expenses and to indemnify it against certain
liabilities relating to or arising out of services performed by Needham as
financial advisor to Bowmar.
Needham is a nationally recognized investment banking firm. As part
of its investment banking services, Needham is frequently engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and other purposes. Needham was retained by the Bowmar
Board to act as Bowmar's financial advisor in connection with the Merger based
on Needham's experience as a financial advisor in mergers and acquisitions as
well as Needham's familiarity with the electronics memory products industry.
In the normal course of its business, Needham may actively trade the equity
securities of Bowmar or EDI for its own account or for the account of its
customers and, therefore, may at any time hold a long or short position in such
securities.
OPINION OF EDI'S FINANCIAL ADVISOR
EDI engaged Alliant to act as its exclusive financial advisor in
connection with the evaluation of the Merger based on the terms and conditions
set forth in the Merger Agreement. Alliant, as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, corporate
restructurings, corporate partnerings, strategic alliances and valuations for
corporate or other purposes. The management of EDI and the EDI Board were
familiar with Alliant because Norman T. Hall, a director of EDI, is a Managing
Partner of Alliant and Alliant has provided financial advisory services to EDI
in the past, including in connection with EDI's merger with Crystallume in
1995. EDI also selected Alliant as its financial advisor on the basis of its
experience and expertise in transactions similar to the Merger and its
reputation as an investment banker in transactions involving technology
companies.
At the May 29, 1998 meeting of the EDI Board, Alliant delivered its
opinion that, as of such date, the Exchange Ratio was fair, from a financial
point of view, to the stockholders of EDI. See "The Merger--Background of the
Merger." The Exchange Ratio was determined pursuant to negotiations between
EDI and Bowmar with advice from Alliant and Needham, respectively. No
limitations were imposed by EDI on Alliant with respect to the investigations
made or procedures followed in rendering its opinion. The full text of
Alliant's written opinion to the EDI Board which sets forth the assumptions
made, matters considered and limitations of review by Alliant, is attached
hereto as Appendix III, and is incorporated herein by reference and should be
read carefully in its entirety. The following summary of Alliant's opinion is
qualified in its entirety by reference to the full text of the opinion,
attached as Appendix III.
In arriving at its opinion, Alliant reviewed financial and other
information that was publicly available or furnished to Alliant by EDI and
Bowmar. Alliant also reviewed certain internal financial reports and forecasts
for EDI and Bowmar prepared by their respective managements and held
discussions with members of the senior management of both EDI and Bowmar
regarding the historic and current business operations and future prospects of
the merged entities including their expectations for certain strategic benefits
of the transaction. In addition, Alliant compared certain financial data of
EDI with those of various other companies engaged in businesses Alliant
considered comparable and whose securities are traded in public markets,
analyzed the acquisition premiums paid for similar companies, reviewed the
overall risks presented by the business plan, reviewed, to the extent publicly
available, prices paid in certain other similar business transactions, analyzed
projected cash flows, reviewed the current market value of EDI, analyzed the
relative contribution of each of EDI and Bowmar to the Merger, reviewed the
Merger Agreement, discussed the tax and accounting treatment of the Merger with
EDI and EDI's legal counsel and accountants, and conducted such other financial
studies, analyses and investigations as Alliant deemed appropriate for purposes
of its opinion.
Alliant assumed, without independent verification, the accuracy,
completeness and fairness of all of the financial and other information
regarding EDI and Bowmar that has been provided to Alliant by them and
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their representatives. Alliant did not make any independent evaluation of
EDI's or Bowmar's businesses nor did Alliant review any of their corporate
records. For purposes of its opinion, Alliant assumed that the Merger will be
qualified as a tax-free reorganization under the Code for holders of EDI Common
Stock and that the Merger will be accounted for as a pooling transaction.
Set forth below is a brief summary of selected analyses presented by
Alliant to the EDI Board on May 3 and May 29, 1998 in connection with its
presentations on May 3 and May 29, 1998 and its opinion on May 29, 1998.
Alliant utilized five different methods to develop five separate
indications of value for EDI. These indicators were considered equally
important and were therefore averaged to create a range of values for EDI. The
fairness opinion rendered by Alliant on May 29, 1998 determined the Exchange
Ratio to be fair to the holders of EDI Common Stock from a financial point of
view.
Acquisition Valuation. Alliant analyzed EDI's current market value
and premium which would be paid to acquire EDI. Alliant applied a 33% control
premium to EDI's current market value to determine its acquisition price.
Relative Contribution Analysis. Alliant considered the relative
contribution of EDI and Bowmar to the Combined Company. Historical and
projected financial performance was considered, including revenue, gross
profits, operating income and net income for the income statements of both
companies, as well as balance sheet factors for each company including: cash,
working capital, total assets and book value. The analysis indicated that
EDI's income statement factors contribution for the combined entity was 66.4% in
fiscal 1997 and 36.5% in fiscal 1998. For balance sheet factors, EDI
contributed 60.9% in fiscal 1997 and 62.5 % in fiscal 1998. The relative
contribution of each firm's financial factors was considered and averaged. The
resulting contribution factors were converted in equivalent shares of Bowmar
Common Stock and valued at the average of the last ten trading days price for
the Bowmar Common Stock to derive an indicator of value based on the relative
contribution of EDI to the combined entity.
Public Comparables. Alliant reviewed and compared selected historical
and projected financial information of Bowmar to corresponding financial
information and ratios of publicly traded guideline companies that Alliant
deemed to be comparable in many respects to Bowmar. Such data and ratios
included market value, revenue, net earnings, market value to historical
revenues, market value to historical earnings and market value to projected
earnings. The companies were selected because they are companies which sell
and manufacture industrial PC's components and board products and displays.
Companies used as comparables included Aeroflex, Planar Systems, Questron
Technology, SBS Technology and WPI Group. Consideration was also given to
selecting smaller firms with revenues less than $115 million. Alliant
determined that the average multiple of revenue for the last twelve months for
the guideline companies was 1.05. Alliant determined that the average multiple
of earnings for the guideline companies was 15.76. Alliant determined that the
average stock price to the analysts' projected fiscal 1998 EPS was 12.36.
Alliant discounted these valuation multiples by an aggregate total of 27%, to
adjust for EDI's financial performance relative to the guideline companies and
for a control premium.
Related Industry M&A Transactions. Alliant compared the proposed
merger with selected comparable merger and acquisition transactions. These
companies were selected because they are companies which sell and manufacture
industrial PC components and board products and displays. These industry
transactions included the acquisition of Displays & Technologies by Pacific
Aerospace & Electronics, the acquisition of Standish Industries by Planar
Systems, the acquisition of Power Components by Questron Technology, the
acquisition of NetRam Components by Millennium Electronics, the acquisition of
Husky Computers by WPI Group, the acquisition of Advanced Logic Research by
Gateway 2000, the acquisition of Bit 3 by SBS Technologies, the acquisition of
Logical Design Group by SBS Technologies, the acquisition of Interpoint
(Microelectronics Division) by Crane, the acquisition of Best Power Technology
Inc. by General Signal Corp and the acquisition of Texas Microsystems by
Sequoia Systems. Such analysis indicated that for the selected transactions
had an average market cap to revenue multiple of 0.79 and an average market cap
to earning of 13.95.
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Discounted Cash Flow Analysis. EDI provided Alliant with a projection
of cash flows for EDI through the fiscal year 2000. These projections and a
going concern value for EDI in the fiscal year 2000 were discounted to provide
a present value for EDI. The discount factor was developed using a build-up
method which adds the risk free interest rate on long term government bonds,
the premium on common stock, the premium on small cap stocks and investor
specific risk premiums for EDI. This build up method provided a discount
factor of 31%. The going concern value was developed by capitalizing the
projected fiscal 2001 cash flow using a capitalization rate of 18%, which is
equal to the discount rate less the projected long term industry growth rate of
13% per annum.
Although not part of its valuation analyses, Alliant also analyzed the
impact of the Merger on EDI's earnings per share and book value per share. The
analysis included synergies which both EDI's and Bowmar's managements believe
they would be able to achieve. The analysis indicated that the Merger would be
accretive to EDI's earnings per share in fiscal 1998, fiscal 1999 and fiscal
2000 and would have a neutral effect on EDI s book value per share for those
periods.
While the foregoing summary describes the analyses and examinations
that Alliant deemed material to its opinion, it is not a comprehensive
description of all analyses and examinations actually performed. The
preparation of a fairness opinion necessarily is not susceptible of partial
analysis or summary description. Alliant believes that such analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses and of the factors considered, without considering all
such analyses and factors, would create an incomplete view of the analyses set
forth in its presentation to the EDI Board. In addition, Alliant may have
deemed various assumptions more or less probable than other assumptions, so
that the ranges or valuations resulting form any particular analysis should not
be taken to be Alliant's view of the actual value of EDI, Bowmar or the
Combined Company.
In performing its analyses, Alliant made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of EDI or Bowmar. The
analyses performed by Alliant are not necessarily indicative of actual values
or actual future results, which may be significantly more of less favorable
than suggested by such analyses. Such analyses were prepared solely as part of
Alliant's analysis of the fairness of the Merger to the stockholders of EDI
from a financial point of view and were provided to the EDI Board in connection
with the delivery of Alliant's opinion. The analyses do not purport to be
appraisals or to reflect the prices at which a company might actually be sold
or the prices at which any securities may trade at the present time or at any
time in the future. Alliant used in its analyses various projections of
results of operations prepared by the management of EDI and Bowmar and by
research analysts of third party brokerage firms. The projections are based on
numerous variables and assumptions that are inherently unpredictable and must
be considered not certain of occurrence as projected. Accordingly, actual
results could vary significantly from those set forth in such projections.
As described above, Alliant's opinion and presentation to the EDI
Board were among the many factors taken into consideration by the EDI Board in
making its determination to approve, and to recommend that EDI's stockholders
approve, the Merger.
For acting as EDI's financial advisor and as a finder in connection
with the Merger, EDI has agreed to pay Alliant a fee of $325,000, $100,000 of
which became due upon Alliant's delivery of its fairness opinion and the
remainder of which will become due upon consummation of the Merger. EDI has
also agreed to reimburse Alliant for its reasonable out-of-pocket expenses. In
addition, certain principals of Alliant may also own shares of common stock of
EDI and Bowmar.
The full text of Alliant's opinion, dated May 29, 1998, which sets
forth the assumptions made, general procedures followed, matters considered and
limitations on the scope of review undertaken by Alliant in rendering its
opinion, is attached as Appendix III to this Joint Proxy Statement/Prospectus
and is incorporated herein by reference. Alliant's opinion is addressed to the
EDI Board and is directed only to the fairness from a
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financial point of view, as of May 29, 1998, of the Exchange Ratio and does not
constitute a recommendation to any EDI stockholder as to how such stockholder
should vote with respect to the Merger.
As noted above, Norman T. Hall, a director of EDI who will continue as
a director of the Combined Company after the Effective Time, is a Managing
Partner of Alliant. As discussed in "The Merger--Background of the Merger," in
its decision to retain Alliant as EDI's financial advisor in connection with
the Merger, the EDI Board considered Mr. Hall's position as Managing Partner of
Alliant and concluded that Mr. Hall's relationship with Alliant would not
improperly influence Alliant in its analysis of the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the independent recommendations of the EDI Board and
the Bowmar Board with respect to the Merger, holders of EDI and Bowmar stock
should be aware that a certain EDI stockholder and certain members of the EDI
and Bowmar management teams and boards have interests in the Merger that are
different from, or in addition to, the interests of the stockholders of EDI and
Bowmar generally. The EDI Board and the Bowmar Board were aware of such
interests and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby, including the Merger.
EDI
As of May 27, 1998, the directors and executive officers of EDI owned
an aggregate of approximately 772,585 shares of EDI Common Stock and held EDI
Options to purchase an aggregate of 1,116,739 shares of EDI Common Stock at a
weighted average exercise price of approximately $2.76 and EDI Warrants to
purchase an aggregate of 35,000 shares of EDI Common Stock at a weighted
average exercise price of approximately $2.18. Pursuant to the terms of the
Merger Agreement, EDI's executive officers and directors will receive the same
consideration for their shares of EDI Common Stock as the other EDI
stockholders. Upon consummation of the Merger, all outstanding EDI Options and
EDI Warrants will be converted into Combined Company Options and Combined
Company Warrants options as described under "--General Description of the
Merger--EDI Options and EDI Warrants."
Employment Agreements. None of the members of EDI management,
including Donald F. McGuinness and Frank D. Edwards, have entered into or will
enter into any new employment arrangement in connection with the Merger, except
that (i) Mr. McGuinness' existing employment agreement and severance agreement
will be assumed by the Combined Company, (ii) Mr. Edwards' existing severance
agreement will be assumed by the Combined Company, and (iii) Mr. McGuinness
will serve as the Chairman of the Board of Directors of the Combined Company
and Mr. Edwards will serve as the Executive Vice President of the Combined
Company. Neither of Messrs. McGuinness and Edwards nor any other officer of
EDI is or will become entitled to any change in control benefits in connection
with the Merger. See "Information About Bowmar--Information Regarding
Directors and Executive Officers--Employment Agreements" and "Information About
EDI--Information regarding Directors and Executive Officers--Employment and
Severance Agreements."
Composition of the Board of the Combined Company. The Combined Company
will be governed by a seven-member board of directors upon completion of the
Merger which will include three current members of the EDI Board, three current
members of the Bowmar Board and an individual mutually agreed upon by such six
persons. See "--Management of the Combined Company." Five of the seven
directors of the Combined Company will not be employees of the Combined
Company.
EDI Options and EDI Warrants. The treatment of options and warrants
to purchase EDI Common Stock is more fully described under "--General
Description of the Merger --EDI Options and EDI Warrants." Holders of EDI
Options and EDI Warrants will automatically have their options and warrants
converted into Combined Company Options and Combined Company Warrants and the
Combined Company will assume each EDI Option and EDI Warrant subject to the
terms of EDI's stock option plans or the terms of the respective
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warrant agreements, as applicable; provided, however, that the exercise price
and the number of shares of Combined Company Common Stock issuable upon
exercise of Combined Company Options and Combined Company Warrants will be
divided and multiplied, respectively, by the Exchange Ratio. Each EDI Option
and EDI Warrant shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, stock dividend,
recapitalization, or other similar transaction with respect to the Combined
Company's Common Stock on or subsequent to the Effective Time.
Indemnification; Directors and Officers Insurance; Limitation of
Liability of EDI Directors and Officers. The Merger Agreement provides that
all rights to indemnification and limitations on liabilities existing in favor
of the current or former directors or officers of EDI or each of its
subsidiaries as provided in their respective charters or bylaws (or comparable
organizational documents) will continue for a period of six years from the
Effective Time. The Merger Agreement also provides that the Combined Company
will use its best efforts to cause the persons serving as officers and
directors of EDI immediately prior to the Effective Time to be insured for six
years from the Effective Time by directors' and officers' liability insurance
on terms and conditions that are not materially less favorable, as to coverage
and amounts, than those of EDI's existing policy with respect to acts or
omissions occurring prior to the Effective Time. In the event that the
Combined Company or any of its successors merges into another company without
being the surviving corporation or sells substantially all of its assets, the
Combined Company shall make provisions that the successors of the Combined
Company assume the obligations described in this section. See "Certain
Provisions of Merger Agreement--Indemnification."
Interests of EDI's Financial Advisor. For acting as EDI's financial
advisor and as a finder in connection with the Merger, Alliant received
$100,000 upon delivery of its fairness opinion and will receive an additional
fee of $225,000 if the Merger is consummated. Norman T. Hall, a director of
EDI who will continue as a director of the Combined Company after the Effective
Time, is a Managing Director of Alliant. See "--Opinion of EDI's Financial
Advisor."
Interests of a Significant Stockholder. Thomas J. Toy, a current
director of EDI who will continue as a director of the Combined Company after
the Effective Time, is a Group Vice President of Technology Funding Partners
III, L.P. ("TFP"). TFP is a greater than 5% stockholder of EDI. See "The EDI
Special Meeting--Voting Securities and Principal Holders." In addition, TFP and
EDI are parties to a Third Amended and Restated Registration Rights Agreement
dated as of April 30, 1995, as amended and supplemented (the "Registration
Rights Agreement"), pursuant to which EDI granted to TFP certain registration
rights with respect to securities of EDI previously issued to TFP. Pursuant to
the Registration Rights Agreement, EDI has filed a registration statement on
Form S-3 relating to the offer and sale by TFP of certain shares of EDI Common
Stock (the "TFP Resale Shares"). In connection with the execution of the
Merger Agreement, Bowmar agreed (i) to be bound by all of the obligations,
terms and conditions of the Registration Rights Agreement, and (ii) that this
Registration Statement would relate to the offer and sale from time to time
following the Effective Time of the TFP Resale Shares. See "Other
Agreements--Assumption of Registration Rights Agreements" and "Selling
Stockholders."
BOWMAR
Employment Agreements. None of the members of Bowmar management,
including Hamid R. Shokrgozar and Joseph G. Warren, Jr., have entered into or
will enter into any new employment arrangement in connection with the Merger,
except that (i) Mr. Shokrgozar's existing employment agreement was amended to
delete the provisions relating to a change in control as well as the
acceleration of stock options and the extension of the options' exercise term,
(ii) Mr. Warren's existing employment agreement was amended to delete the
provisions relating to a change in control, as well as the acceleration of
stock options and the extension of the options' exercise term and certain other
provisions, and (iii) Mr. Shokrgozar will serve as the President and Chief
Executive Officer as well as a director of the Combined Company and Mr. Warren
will serve as the Vice President and Chief Financial Officer of the Combined
Company. Neither of Mr. Shokrgozar
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nor Mr. Warren nor any other officer of Bowmar is or will become entitled to
any change in control benefits in connection with the Merger.
Composition of the Board of the Combined Company. The Combined Company
will be governed by a seven-member board of directors upon completion of the
Merger which will include three current members of the EDI Board, three current
members of the Bowmar Board and an individual mutually agreed upon by such six
persons. Five of the seven directors of the Combined Company will not be
employees of the Combined Company. See "--Management of the Combined Company."
Indemnification; Directors and Officers Insurance. As described in
"Certain Provisions of Merger Agreement--Indemnification," the Merger Agreement
provides that the Combined Company will use its best efforts to cause the
persons serving as officers and directors of Bowmar immediately prior to the
Effective Time to be insured for six years from the Effective Time by
directors' and officers' liability insurance on terms and conditions that are
no less favorable, as to coverage and amounts, than those of Bowmar's existing
policy with respect to acts or omissions occurring prior to the Effective Time.
In the event that the Combined Company or any of its successors merges into
another company without being the surviving corporation or sells substantially
all of its assets, the Combined Company shall make provisions that the
successors of the Combined Company assume the obligations described in this
section.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a "pooling of interests" for
accounting and financial reporting purposes. Under this method of accounting,
the recorded assets and liabilities of Bowmar and EDI will be carried forward
at their historical recorded costs of the separate corporations. Income of the
Combined Company will include income of Bowmar and EDI for the entire fiscal
year in which the Merger occurs. The reported income of the separate
corporations for prior periods will be combined and restated as income of the
Combined Company.
Pursuant to the Merger Agreement, EDI has agreed to use reasonable
business efforts to ensure that each person who is or may be an "affiliate" (as
defined in the rules under the Securities Act) enters into an agreement not to
transfer any shares of Combined Company Common Stock received in the Merger
until the Combined Company has published financial statements containing at
least 30 days of combined results of operations after the Effective Time.
Similarly, Bowmar has agreed, subject to certain conditions, that it will use
reasonable business efforts to ensure that each of its affiliates enter into
such agreements as well. Such restrictions on transfer are necessary to
account for the Merger as a pooling of interests. See "--Resale Restrictions
of Securities Issued in the Merger."
RESALE RESTRICTIONS OF SECURITIES ISSUED IN THE MERGER
The shares of Bowmar Common Stock to be issued to stockholders of EDI
pursuant to the Merger Agreement have been registered under the Securities Act,
thereby allowing such shares to be freely traded without restriction by persons
who will not be "affiliates" of Bowmar after the Merger or who were not
"affiliates" of EDI on the date of the EDI Special Meeting. All directors and
certain officers and stockholders of EDI may be deemed to have been
"affiliates" of EDI within the meaning of such rules. Any such person may
resell the Bowmar Common Stock received by him or her in the Merger only if
such shares are registered under the Securities Act or an exemption from
registration under the Securities Act is available. Such persons may be able
to effect resales under the safe harbor provisions of Rule 145 under the
Securities Act (or Rule 144 in the case of such persons who become affiliates
of Bowmar) or as otherwise permitted under the Securities Act. Persons who may
be deemed affiliates of EDI or Bowmar generally include individuals or entities
that control, are controlled by, or are under common control with, such party,
and may include certain officers and directors of such party as well as
principal stockholders of such party. It is recommended that any such person
obtain advice of securities counsel prior to effecting any resales.
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Pursuant to the Merger Agreement, each of Bowmar and EDI has agreed
to use reasonable efforts to ensure that each affiliate of Bowmar and EDI,
respectively, executes a written agreement to the effect that such person will
not offer or sell or otherwise dispose of any of the Combined Company Common
Stock received in the Merger (i) in violation of the Securities Act or the
rules and regulations thereunder and (ii) in any event, until the time that
financial results covering at least 30 days of post-Merger combined operations
of the Combined Company have been published within the meaning of the
accounting policies of the Commission relating to pooling of interests. See
"Certain Provisions of Merger Agreement--Conditions of the Merger and
"--Affiliates' Agreements."
AFFILIATES' AGREEMENTS
Certain stockholders of Bowmar and EDI, respectively, have agreed that
each such stockholder will not sell, transfer, exchange, pledge or otherwise
dispose of any shares of Combined Company Common Stock until the Combined
Company has publicly released financial statements covering at least 30 days of
combined operations after the Effective Time. See "--Accounting Treatment."
PUBLIC TRADING MARKET
Bowmar and EDI anticipate that the shares of the Combined Company
Common Stock to be issued in connection with the Merger will be approved for
listing on the American Stock Exchange, and such approval is a condition
precedent to the effectiveness of the Merger. See "Certain Provisions of
Merger Agreement--Conditions of the Merger--Mutual Conditions."
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
Under Indiana law, stockholders are entitled to have their shares
appraised if permitted to dissent from a plan of merger. Bowmar stockholders
are not entitled to dissenters' or appraisal rights in connection with the
Merger, however, because (i) Bowmar stockholders' approval is not required for
the Merger under Indiana law; and (ii) at the Bowmar Record Date, the Bowmar
Common Stock was registered on the American Stock Exchange.
Under the DGCL, stockholders of EDI have appraisal rights in
connection with the Merger. Stockholders who wish to seek appraisal are
advised to consult with their legal counsel regarding how to demand and perfect
such appraisal rights. In order to exercise appraisal rights, dissenting
stockholders must demand and perfect appraisal rights in accordance with the
conditions established by Section 262 of the Delaware General Corporation Law
("Section 262"). Section 262 is reprinted in its entirety as Appendix IV to
this Joint Proxy Statement/Prospectus. The following discussion is not a
complete statement of the law relating to appraisal rights and is qualified in
its entirety by reference to Appendix IV. This discussion and Appendix IV
should be reviewed carefully by any holder who wishes to exercise statutory
appraisal rights or who wishes to preserve the right to do so, as failure to
comply with the procedures set forth herein or therein will result in the loss
of appraisal rights.
A record holder of shares of EDI Common Stock who makes the demand
described below with respect to such shares, who continuously is the record
holder of such shares through the Effective Time, who otherwise complies with
the statutory requirements of Section 262 and who neither votes in favor of the
Merger Proposal nor consents thereto in writing will be entitled to an
appraisal by the Delaware Court of Chancery (the "Delaware Court") of the fair
value of his or her shares of EDI Common Stock. All references in this summary
of appraisal rights to a "stockholder" or "holders of shares of EDI Common
Stock" are to the record holder or holders of shares of EDI Common Stock.
Except as set forth herein, stockholders of EDI will not be entitled to
appraisal rights in connection with the Merger.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the case of the EDI Special Meeting, not less
than 20 days prior to the meeting, each constituent corporation
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must notify each of the holders of its stock for which appraisal rights are
available that such appraisal rights are available and include in each such
notice a copy of Section 262. This Joint Proxy Statement/Prospectus shall
constitute such notice to the record holders of EDI Common Stock.
Holders of shares of EDI Common Stock who desire to exercise their
appraisal rights must not vote in favor of the Merger Proposal and must deliver
a separate written demand for appraisal to EDI prior to the vote by the
stockholders of EDI on the Merger Proposal. A stockholder who signs and
returns a proxy without expressly directing by checking the applicable boxes on
the reverse side of the proxy card enclosed herewith that his or her shares of
EDI Common Stock be voted against the Merger Proposal or that an abstention be
registered with respect to his or her shares of EDI Common Stock in connection
with the proposal will effectively have thereby waived his or her appraisal
rights as to those shares of EDI Common Stock because, in the absence of
express contrary instructions, such shares of EDI Common Stock will be voted in
favor of the proposal. See "The EDI Special Meeting." Accordingly, a
stockholder who desires to perfect appraisal rights with respect to any of his
or her shares of EDI Common Stock must, as one of the procedural steps involved
in such perfection, either (i) refrain from executing and returning the
enclosed proxy card and from voting in person in favor of the Merger Proposal,
or (ii) check either the "Against" or the "Abstain" box next to the Merger
Proposal on such card or affirmatively vote in person against the Merger
Proposal or register in person an abstention with respect thereto. A demand
for appraisal must be executed by or on behalf of the stockholder of record and
must reasonably inform EDI of the identity of the stockholder of record and
that such record stockholder intends thereby to demand appraisal of the EDI
Common Stock. A person having a beneficial interest in shares of EDI Common
Stock that are held of record in the name of another person, such as a broker,
fiduciary or other nominee, must act promptly to cause the record holder to
follow the steps summarized herein properly and in a timely manner to perfect
appraisal rights. If the shares of EDI Common Stock are owned of record by a
person other than the beneficial owner, including a broker, fiduciary (such as
a trustee, guardian or custodian) or other nominee, such demand must be
executed by or for the record owner. If the shares of EDI Common Stock are
owned of record by more than one person, as in a joint tenancy or tenancy in
common, such demand must be executed by or for all joint owners. An authorized
agent, including an agent for two or more joint owners, may execute the demand
for appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in exercising the demand,
such person is acting as agent for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who
holds shares of EDI Common stock as a nominee for others, may exercise
appraisal rights with respect to the shares held for all or less than all
beneficial owners of shares as to which such person is the record owner. In
such case, the written demand must set forth the number of shares covered by
such demand. Where the number of shares is not expressly stated, the demand
will be presumed to cover all shares of EDI Common Stock outstanding in the
name of such record owner.
A stockholder who elects to exercise appraisal rights should mail or
deliver his or her written demand to: Electronic Designs, Inc., One Research
Drive, Westborough, MA 01581, Attention: Frank D. Edwards, Secretary.
The written demand for appraisal should specify the stockholder's name
and mailing address, the number of shares of EDI Common Stock owned, and that
the stockholder is thereby demanding appraisal of his or her shares. A proxy
or vote against the Merger Proposal will not by itself constitute such a
demand. Within ten days after the Effective Time, the surviving corporation
must provide notice of the Effective Time to all stockholders who have complied
with Section 262.
Within 120 days after the Effective Time, either the surviving
corporation or any stockholder who has complied with the required conditions of
Section 262 may file a petition in the Delaware Court, with a copy served on
the Combined Company in the case of a petition filed by a stockholder,
demanding a determination of the fair value of the shares of all dissenting
stockholders. There is no present intent on the part of Bowmar to file an
appraisal petition and stockholders seeking to exercise appraisal rights should
not assume that the Combined Company will file such a petition or that the
Combined Company will initiate any negotiations with
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respect to the fair value of such shares. Accordingly, EDI stockholders who
desire to have their shares appraised should initiate any petitions necessary
for the perfection of their appraisal rights within the time periods and in the
manner prescribed in Section 262. Within 120 days after the Effective Time,
any stockholder who has theretofore complied with the applicable provisions of
Section 262 will be entitled, upon written request, to receive from the
Combined Company a statement setting forth the aggregate number of shares of
EDI Common Stock not voting in favor of the Merger Proposal and with respect to
which demands for appraisal were received by EDI and the number of holders of
such shares. Such statement must be mailed within 120 days after the written
request therefor has been received by the Combined Company.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine which stockholders, if any, are
entitled to appraisal rights. The Delaware Court may require the stockholders
who have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings; and
if any stockholder fails to comply with such direction, the Delaware Court may
dismiss the proceedings as to such stockholder. Where proceedings are not
dismissed, the Delaware Court will appraise the shares of EDI Common Stock
owned by such stockholders, determining the fair value of such shares exclusive
of any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. In determining fair value, the
Delaware Court is to take into account all relevant factors. In Weinberger v.
UOP Inc., the Delaware Supreme Court discussed the factors that could be
considered in determining fair value in an appraisal proceeding, stating that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered, and that "fair price obviously requires consideration of all
relevant factors involving the value of a company." The Delaware Supreme Court
stated that in making this determination of fair value the court must consider
market value, asset value, dividends, earnings prospects, the nature of the
enterprise and any other factors which could be ascertained as of the date of
the Merger which throw light on future prospects of the merged corporation. In
Weinberger, the Delaware Supreme Court stated that "elements of future value,
including the nature of the enterprise, which are known or susceptible of proof
as of the date of the Merger and not the product of speculation, may be
considered." Section 262, however, provides that fair value is to be
"exclusive of any element of value arising form the accomplishment or
expectation of the merger."
Holders of shares of EDI Common Stock considering seeking appraisal
should recognize that the fair value of their shares determined under Section
262 could be more than, the same as or less than the consideration they are
entitled to receive pursuant to the Merger Agreement if they do not seek
appraisal of their shares. The cost of the appraisal proceeding may be
determined by the Delaware Court and taxed against the parties as the Delaware
Court deems equitable in the circumstances. Upon application of a dissenting
stockholder of EDI, the Delaware Court may order that all or a portion of the
expenses incurred by any dissenting stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorney's fees
and the fees and expenses of experts, be charged pro rata against the value of
all shares of stock entitled to appraisal.
Any holder of shares EDI Common Stock who has duly demanded appraisal
in compliance with Section 262 will not, after the Effective Time, be entitled
to vote for any purpose any shares subject to such demand or to receive payment
of dividends or other distributions on such shares, except for dividends or
distributions payable to stockholders of record at a date prior to the
Effective Time.
At any time within 60 days after the Effective Time, any stockholder
will have the right to withdraw such demand for appraisal and to accept the
terms offered in the Merger. After this period, the stockholder may withdraw
such demand for appraisal only with the consent of the Combined Company. If no
petition for appraisal is filed with the Delaware Court within 120 days after
the Effective Time, stockholders' rights to appraisal shall cease, and all
holders of shares of EDI Common Stock will be entitled to receive the
consideration offered pursuant to the Merger Agreement. Inasmuch as the
Combined Company has no obligation to file such a petition, and Bowmar has no
present intention to do so, any holder of shares of EDI Common Stock who
desires such a petition to be filed is advised to file it on a timely basis.
Any stockholder
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may withdraw such stockholder's demand for appraisal by delivering to the
Combined Company a written withdrawal of his or her demand for appraisal and
acceptance of the Merger, except (i) that any such attempt to withdraw made
more than 60 days after the Effective Time will require written approval of the
Combined Company and (ii) that no appraisal proceeding in the Delaware Court
shall be dismissed as to any stockholder without the approval of the Delaware
Court, and such approval may be conditioned upon such terms as the Delaware
Court deems just. See "Comparative Rights of Stockholders--Shares and
Stockholders--Appraisal Rights of Dissenting Stockholders."
CERTAIN PROVISIONS OF MERGER AGREEMENT
Set forth below is a description of certain terms and conditions of
the Merger Agreement, which description does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement, a copy of which
is attached hereto as Appendix I.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties
relating to, among other things: (i) the due organization, corporate power,
authority and standing of EDI and Bowmar and their respective subsidiaries and
similar corporate matters; (ii) the capital structure of EDI and Bowmar; (iii)
subsidiaries; (iv) the authorization, execution, delivery and enforceability of
the Merger Agreement and the Ancillary Agreements (as defined in the Merger
Agreement); (v) required governmental consents and approvals; (vi) lack of
conflicts under charters or bylaws and violations of any instruments and
required consents or approvals; (vii) certain documents filed by each of EDI
and Bowmar with the Commission and the accuracy of information contained
therein and absence of litigation; (viii) financial statements; (ix) conduct of
business in the ordinary course and the absence of certain changes or material
adverse effects; (x) compliance with laws; (xi) permits; (xii) brokers' and
finders' fees with respect to the Merger; (xiii) certain contracts and
commitments; (xiv) employee benefit plans; (xv) taxes and returns; (xvi)
receipt of fairness opinions; (xvii) inapplicability of state takeover
statutes; (xviii) intellectual property rights; (xix) certain business
relationships with affiliates; (xx) environmental matters; (xxi) labor matters;
and (xxii) the disclosure made by the parties. These representations and
warranties do not survive the Merger.
CERTAIN COVENANTS
CONDUCT OF EDI BUSINESS PRIOR TO THE MERGER
Except as expressly contemplated by the Merger Agreement, during the
period from the date of the Merger Agreement to the Effective Time, EDI will
conduct, and it will cause the EDI Subsidiaries (as defined in the Merger
Agreement) to conduct, its or their businesses in the ordinary course and
consistent with past practice, subject to the limitations contained in the
Merger Agreement, and EDI will, and it will cause the EDI Subsidiaries to, use
its or their reasonable business efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain satisfactory relationships with all persons with whom it does
business. Without limiting the generality of the foregoing, and except as
otherwise expressly provided in the Merger Agreement or as otherwise set forth
in the EDI Disclosure Letter (as defined in the Merger Agreement), after the
date of the Merger Agreement and prior to the Effective Time, neither EDI nor
any EDI Subsidiary will, without the prior written consent of Bowmar:
(i) amend or propose to amend its Certificate of
Incorporation or Bylaws in any material respect;
(ii) authorize for issuance, issue, grant, sell, pledge,
dispose of or propose to issue, grant, sell, pledge or dispose of any shares
of, or any options, warrants, commitments, subscriptions or rights of any kind
to acquire or sell any shares of, the capital stock or other securities of EDI
or any EDI Subsidiary including, but not limited to, any securities convertible
into or exchangeable for shares of stock of any class of EDI or any EDI
Subsidiary, except for the issuance of shares of EDI Common Stock pursuant to
the exercise of stock
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options or warrants outstanding on the date of the Merger Agreement in
accordance with their present terms or pursuant to EDI's employee stock
purchase plan;
(iii) split, combine or reclassify any shares of its capital
stock or declare, pay or set aside any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of its
capital stock;
(iv) (a) create, incur or assume any debt in excess of
$500,000 or obligations in respect of capital leases, except pursuant to
existing agreements and pursuant to refinancings of existing obligations on
terms that are no less favorable to EDI or the EDI Subsidiaries than the
existing terms; (b) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, indirectly, contingently or otherwise) for the
obligations of any person; (c) make any capital expenditures in excess of
$500,000 or make any loans, advances or capital contributions to, or
investments in, any other person (other than to an EDI Subsidiary and customary
travel, relocation or business advances to employees made in the ordinary
course of business consistent with past practice); (d) acquire the stock or
assets of, or merge or consolidate with, any other person; (e) voluntarily
incur any material liability or obligation (absolute, accrued, contingent or
otherwise); or (f) sell, transfer, mortgage, pledge or otherwise dispose of, or
encumber, or agree to sell, transfer, mortgage, pledge or otherwise dispose of
or encumber, any assets or properties, real, personal or mixed material to EDI
and the EDI Subsidiaries taken as a whole other than to secure debt permitted
under (a) of this paragraph (iv);
(v) increase in any manner the compensation of any of its
officers or employees, hire or solicit for employment any person who is an
employee of Bowmar, or enter into, establish, amend or terminate any
employment, consulting, retention, change in control, collective bargaining,
bonus or other incentive compensation, profit sharing, health or other welfare,
stock option or other equity, pension, retirement, vacation, severance,
deferred compensation or other compensation or benefit plan, policy, agreement,
trust, fund or arrangement with, for or in respect of, any stockholder,
officer, director, other employee, agent, consultant or affiliate other than as
required pursuant to the terms of agreements in effect on the date of the
Merger Agreement;
(vi) except as disclosed in the Merger Agreement, enter into
any lease or amend any lease of real property; or
(vii) agree to do any of the foregoing.
Furthermore, EDI covenants, represents and warrants in the Merger
Agreement that from and after the date of the Merger Agreement, unless Bowmar
otherwise expressly consents in writing, EDI will, and EDI will cause each EDI
Subsidiary to, use its or their reasonable business efforts to comply in all
material respects with all laws applicable to it or any of its properties,
assets or business and maintain in full force and effect all permits,
certificates, licenses, approvals and other authorizations necessary for, or
otherwise material to, such business.
CONDUCT OF BOWMAR BUSINESS PRIOR TO THE MERGER
Except as expressly contemplated by the Merger Agreement, during the
period from the date of the Merger Agreement to the Effective Time, Bowmar will
conduct, and it will cause each Bowmar Subsidiary (as defined in the Merger
Agreement) to conduct, its or their businesses in the ordinary course and
consistent with past practice, subject to the limitations contained in the
Merger Agreement, and Bowmar will, and it will cause each Bowmar Subsidiary to,
use its or their reasonable business efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain satisfactory relationships with all persons with whom it does
business. Without limiting the generality of the foregoing, and except as
otherwise expressly provided in the Merger Agreement or as otherwise set forth
in the Bowmar Disclosure Letter (as defined in the Merger Agreement), after the
date hereof and prior to the Effective Time, neither Bowmar nor any Bowmar
Subsidiary will, without the prior written consent of EDI:
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(i) amend or propose to amend its Articles of Incorporation
or Bylaws (or comparable governing instruments) in any material respect;
(ii) authorize for issuance, issue, grant, sell, pledge,
dispose of or propose to issue, grant, sell, pledge or dispose of any shares
of, or any options, warrants, commitments, subscriptions or rights of any kind
to acquire or sell any shares of, the capital stock or other securities of
Bowmar or any Bowmar Subsidiary including, but not limited to, any securities
convertible into or exchangeable for shares of stock of any class of Bowmar or
any Bowmar Subsidiary, except for the issuance of shares of Bowmar Stock and
related Rights pursuant to the conversion of Bowmar Preferred Stock and the
exercise of stock options outstanding on the date of the Merger Agreement in
accordance with their present terms;
(iii) split, combine or reclassify any shares of its capital
stock or declare, pay or set aside any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of its
capital stock, other than dividends payable in the ordinary course in respect
of the Bowmar Preferred Stock, which will not exceed $100,000 per quarter;
(iv) (a) create, incur or assume any debt in excess of
$500,000 or obligations in respect of capital leases, except pursuant to
existing agreements and pursuant to refinancings of existing obligations on
terms that are no less favorable to Bowmar or the Bowmar Subsidiaries than the
existing terms; (b) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, indirectly, contingently or otherwise) for the
obligations of any person; (c) make any capital expenditures in excess of
$500,000 or make any loans, advances or capital contributions to, or
investments in, any other person (other than to a Bowmar Subsidiary and
customary travel, relocation or business advances to employees made in the
ordinary course of business consistent with past practice); (d) acquire the
stock or assets of, or merge or consolidate with, any other person; (e)
voluntarily incur any material liability or obligation (absolute, accrued,
contingent or otherwise); or (f) except as set forth in the Merger Agreement,
sell, transfer, mortgage, pledge or otherwise dispose of, or encumber, or agree
to sell, transfer, mortgage, pledge or otherwise dispose of or encumber, any
assets or properties, real, personal or mixed material to Bowmar and the Bowmar
Subsidiaries taken as a whole other than to secure debt permitted under (a) of
this paragraph (iv);
(v) increase in any manner the compensation of any of its
officers or employees, hire or solicit for employment any person who is an
employee of EDI, or enter into, establish, amend or terminate any employment,
consulting, retention, change in control, collective bargaining, bonus or other
incentive compensation, profit sharing, health or other welfare, stock option
or other equity, pension, retirement, vacation, severance, deferred
compensation or other compensation or benefit plan, policy, agreement, trust,
fund or arrangement with, for or in respect of, any stockholder, officer,
director, other employee, agent, consultant or affiliate other than as required
pursuant to the terms of agreements in effect on the date of the Merger
Agreement;
(vi) except as disclosed in the Merger Agreement, enter into
any lease or amend any lease of real property; or
(vii) agree to do any of the foregoing.
Furthermore, Bowmar covenants, represents and warrants in the Merger
Agreement that from and after the date of the Merger Agreement, unless EDI
otherwise expressly consents in writing, Bowmar will, and Bowmar will cause
each Bowmar Subsidiary to use its or their reasonable business efforts to
comply in all material respects with all Laws applicable to it or any of its
properties, assets or business and maintain in full force and effect all
permits, certificates, licenses, approvals and other authorizations necessary
for, or otherwise material to, such business.
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AGREEMENT NOT TO SOLICIT OTHER OFFERS
Pursuant to the Merger Agreement, each of the parties has agreed to,
and has agreed to direct and use reasonable efforts to cause its officers,
directors, employees, representatives and agents to, immediately cease any
discussions or negotiations with any parties that may have been ongoing as of
May 3, 1998 with respect to a Takeover Proposal. Further, pursuant to the
Merger Agreement, subject to the fiduciary duties of their respective directors
under applicable law as so advised after consultation with outside counsel, EDI
and Bowmar have agreed not to, nor to authorize or permit their respective
officers, directors, employees, representatives and agents, directly or
indirectly, (i) to solicit, initiate or encourage (including by way of
furnishing of information) or take any other action designed or reasonably
likely to facilitate, any inquiries or the making of any proposal which
constitutes or would reasonably be expected to lead to, or (ii) participate in
any discussions or negotiations regarding, any inquiry, proposal or offer from
any person relating to (a) the acquisition or purchase of 15% or more of the
assets of such party and its subsidiaries or 15% or more of any class of equity
securities of such party or any of its subsidiaries, (b) any tender offer or
exchange offer that if consummated would result in any person beneficially
owning 15% or more of any class of equity securities of such party or any of
its subsidiaries, or (c) any merger, consolidation, share exchange, business
combination, recapitalization, liquidation, dissolution or similar transaction
other than transactions contemplated by the Merger Agreement. The Merger
Agreement additionally provides that if the EDI Board or Bowmar Board
determines in good faith, after consultation with legal and financial advisors,
that a Takeover Proposal may reasonably be expected to lead to a Superior
Proposal (as hereinafter defined), then such corporation may, in response to a
Takeover Proposal which was not solicited, initiated or encouraged subsequent
to the date of the Merger Agreement, and provided the other party was notified
orally and in writing within 48 hours after receipt of any request for
information or of any Takeover Proposal, furnish information and participate in
negotiations regarding such Takeover Proposal. A Superior Proposal means any
bona fide Takeover Proposal, the terms of which the Board of Directors of the
recipient party determines in its good faith judgment, after receiving advice
from a financial advisor of nationally recognized reputation, to be more
favorable from a financial point of view to such party's stockholders than the
Merger. See "--Termination of the Merger Agreement."
OTHER COVENANTS OF EDI AND BOWMAR
Pursuant to the Merger Agreement, each of the parties has agreed (i)
to give the other prompt written notice of certain matters, (ii) to give each
other certain access and information, (iii) to take all steps necessary to
obtain stockholder approval for the Merger, (iv) to use reasonable business
efforts to consummate and make effective the Merger as promptly as practicable,
(v) to consult with each other with respect to public announcements in
connection with the Merger, (vi) to comply in all material respects with the
provisions of the Exchange Act and the Securities Act and all other applicable
laws in connection with the consummation of the Merger, (vii) to make available
to each other copies of all material public reports and materials, (viii) to
execute and deliver a certificate regarding factual representations and
covenants that will serve as a basis for the tax opinions in connection with
the Merger, and (ix) to take such actions as are necessary so that any state
takeover statutes would be inapplicable to the transactions contemplated by the
Merger Agreement.
CONDITIONS OF THE MERGER
Set forth below is a description of the principal conditions of
Bowmar, EDI and Acquisition Subsidiary to consummate the Merger.
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MUTUAL CONDITIONS
The respective obligations of Bowmar, EDI and Acquisition Subsidiary
to effect the Merger shall be subject to the fulfillment or waiver of the
following conditions: (i) the Merger, the Merger Agreement and the transactions
contemplated thereby shall have been approved by the stockholders of EDI in
accordance with Delaware law, and (ii) the amendment of the Bowmar Articles as
provided in the Merger Agreement and the issuance of the Combined Company
Common Stock in the Merger and the other transactions contemplated by the
Merger Agreement shall have been approved by the stockholders of Bowmar in
accordance with Indiana law and the rules of the American Stock Exchange; (iii)
no order, statute, rule, regulation, executive order, stay, decree, judgment or
injunction shall have been enacted, entered, promulgated or enforced by any
court or other governmental authority which prohibits or prevents the
consummation of the Merger which has not been vacated or withdrawn; (iv) all
consents of any governmental authority regarding EDI or Bowmar required for the
consummation of the Merger and the transactions contemplated by the Merger
Agreement shall have been obtained or waived by Bowmar or EDI or the failure to
obtain such consents will not have a material adverse effect on the business,
assets (including, but not limited to, intangible assets), prospects, condition
(financial or otherwise), properties (including, but not limited to, intangible
properties), liabilities or the result of operations of the surviving company
or its subsidiaries taken as a whole ("Surviving Corporation Material Adverse
Effect"); (v) any waiting period applicable to the Merger under the
Hart-Scott-Rodino Act shall have expired or earlier termination shall have been
granted and no action, suit, proceeding or investigation shall have been
instituted by either the United States Department of Justice or the Federal
Trade Commission; (vi) any required consents of any person to the Merger or the
transactions contemplated thereby, including, without limitation, the consents
of the respective lenders of Bowmar and EDI, shall have been obtained and be in
full force and effect, except for those the failure of which to obtain could
not reasonably be expected to have a Surviving Corporation Material Adverse
Effect or a Bowmar Material Adverse Effect (as defined in the Merger
Agreement); (vii) the registration statement relating to the Merger shall have
been declared effective and no stop order shall have been issued and no action,
suit, proceeding or investigation for that purpose shall have been initiated or
threatened by any governmental authority; (viii) Bowmar shall have received all
state securities law authorizations necessary to consummate the transactions
contemplated by the Merger Agreement; (ix) Bowmar and EDI shall have received
from their respective tax counsel opinions regarding certain tax matters; and
(x) the shares of Bowmar Common Stock comprising consideration for the Merger
shall have been approved for quotation on the American Stock Exchange.
BOWMAR'S CONDITIONS
Bowmar's obligation to consummate the Merger is subject to the
satisfaction, unless waived, of certain other conditions, including, without
limitation, the following: (i) certain representations and warranties of EDI
made in the Merger Agreement must be true and correct in all respects as of the
Effective Time, and certain other representations and warranties made in the
Merger Agreement must be true and correct in all material respects as of the
Effective Time; (ii) EDI shall have performed and complied with all covenants
and agreements in the Merger Agreement in all material respects; (iii) there
shall not have occurred an EDI Material Adverse Effect (as defined in the
Merger Agreement); and (iv) EDI shall have delivered an officer's certificate
stating the foregoing and certifying certain other documents.
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EDI'S CONDITIONS
EDI's obligation to consummate the Merger is subject to the
satisfaction, unless waived, of certain other conditions, including, without
limitation, the following: (i) certain representations and warranties of Bowmar
made in the Merger Agreement must be true and correct in all respects as to the
Effective Time, and certain other representations and warranties made in the
Merger Agreement must be true and correct in all material respects as of the
Effective Time; (ii) Bowmar shall have performed or complied with all covenants
and agreements in the Merger Agreement in all material respects; (iii) there
shall not have occurred a Bowmar Material Adverse Effect or an Acquisition
Subsidiary Material Adverse Effect (as defined in the Merger Agreement); (iv)
Bowmar shall have delivered an officer's certificate stating the foregoing; and
(v) Bowmar shall have taken all action necessary to cause the nominees
designated by EDI to become members of the Combined Company Board and certain
officers to become officers of the Combined Company effective five days after
the Effective Time.
TERMINATION OF THE MERGER AGREEMENT
Termination Events
The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the stockholders of EDI and
the stockholders of Bowmar, by the mutual consent of EDI and Bowmar.
In addition, the Merger Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of the stockholders of
EDI and the stockholders of Bowmar, by either EDI or Bowmar if: (i) the Merger
shall not have been consummated on or prior to November 1, 1998, provided,
however, that the right to so terminate is not available to any party whose
failure to perform any of its obligations under the Merger Agreement results in
the failure of the Merger to be consummated by such time; (ii) the requisite
approval of the respective stockholders of either EDI or Bowmar are not
obtained at the Special Meetings or at any adjournments or postponements
thereof; or (iii) any governmental authority shall have issued a final
non-appealable order, decree or ruling or taken any other action enjoining,
restraining or otherwise prohibiting the consummation of the Merger.
Further, the Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the stockholders of EDI
and the stockholders of Bowmar, by Bowmar if:
(i) EDI shall have breached in any material respect any of its
representations, warranties, covenants or other agreements in the Merger
Agreement, which breach or failure to perform is incapable of being cured or
has not been cured within 30 days after the giving of written notice to EDI;
(ii) prior to the Effective Time, the Bowmar Board, after
determining in good faith (after consultation with outside counsel) that it is
necessary to do so in order to comply with its fiduciary duties to Bowmar's
stockholders under applicable law, authorizes Bowmar to enter into an agreement
with respect to a Bowmar Superior Proposal and thereby terminates the Merger
Agreement; or
(iii) if the EDI Board or any committee thereof shall have (a)
withdrawn or modified in a manner adverse to Bowmar its approval or
recommendation of the Merger and the Merger Agreement, (b) failed to reconfirm
its recommendation with fifteen business days after a written request from
Bowmar to do so, or (c) approved or recommended any Takeover Proposal with
respect to EDI.
Further, the Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the stockholders or
Bowmar and the stockholders of EDI, by EDI if:
(i) Bowmar shall have breached in any material respect any of its
representations, warranties, covenants or other agreements in the Merger
Agreement, which breach or failure to perform is incapable of being cured or
has not been cured within 30 days after the giving of written notice to Bowmar;
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(ii) prior to the Effective Time, the EDI Board, after determining
in good faith (after consultation with outside counsel) that it is necessary to
do so in order to comply with its fiduciary duties to EDI's stockholders under
applicable law, authorizes EDI to enter into an agreement with respect to an
EDI Superior Proposal and thereby terminates the Merger Agreement;
(iii) the Bowmar Board or any committee thereof shall have (a)
withdrawn or modified in a manner adverse to EDI its approval or recommendation
of the Merger and the Merger Agreement, (b) failed to reconfirm its
recommendation with fifteen business days after a written request from EDI to
do so, or (c) approved or recommended any Takeover Proposal with respect to
Bowmar; or
(iv) any person shall have acquired beneficial ownership of, or any
group shall have been formed which beneficially owns, 15% or more of the voting
power of Bowmar under the Bowmar Rights Agreement or a "Share Acquisition" or
"Distribution Date" otherwise occurs under the Bowmar Rights Agreement at any
time after the date of the Merger Agreement. See "--Bowmar's Conditions,"
"--EDI's Conditions" and "Comparative Rights of Shareholders--Anti-Takeover
Provisions."
Termination Fees
The Merger Agreement provides that if either party terminates the
Merger Agreement in order to enter into a Superior Proposal with a third party,
the terminating party must pay to the other party a termination fee of $500,000
(the "Termination Fee"). In addition, if either party's Board of Directors or
any committee thereof shall have withdrawn or adversely modified its approval
of the Merger and recommendation to its stockholders or failed to include such
recommendation in the Joint Proxy Statement/Prospectus or failed to reconfirm
its recommendation within fifteen business days after a written request to do
so or approved or recommended any Takeover Proposal, then the other party may
terminate the Merger Agreement and collect the Termination Fee from such party.
See "Risk Factors--Risk that Merger is Not Consummated."
INDEMNIFICATION
In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative, in
which any person who is now, or has been at any time prior to the date of the
Merger Agreement, or who becomes prior to the Effective Time, a director or
officer of (or a director or officer acting in a fiduciary capacity for) EDI or
Bowmar (or of a subsidiary of either of them) or, in the case of clause (ii)
below, an employee of EDI or Bowmar (or of a subsidiary of either of them) (any
such person an "Indemnified Party") is, or is threatened to be, made a party
based in whole or in part on, or arising in whole or in part out of or
pertaining to, (i) the fact that he or she is or was a director (including in
his or her capacity as a member of a committee of the Board of Directors) or
officer of (or a director or officer acting in a fiduciary capacity for) EDI or
Bowmar (or of a subsidiary of either of them), or (ii) the Merger Agreement or
any of the transactions contemplated thereby, whether in any case asserted or
arising before or after the Effective Time, the parties thereto agree to
cooperate and use their reasonable efforts to defend against and respond
thereto. EDI and Bowmar have agreed that (a) prior to the Effective Time, each
of EDI and Bowmar, respectively, will indemnify and hold harmless as and to the
fullest extent permitted by applicable law, each Indemnified Party of EDI (an
"EDI Indemnified Party") and each Indemnified Party of Bowmar (a "Bowmar
Indemnified Party"), respectively, against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorneys' fees and
expenses), judgments, fines and amounts paid in settlement (collectively
"Losses") in connection with any such threatened or actual claim, action, suit,
proceeding or investigation; and (b) from and after the Effective Time, the
Combined Company and the Surviving Corporation will indemnify and hold harmless
as and to the fullest extent permitted by applicable law, each Indemnified
Party against any Losses in connection with any such threatened or actual
claim, action, suit, proceeding or investigation (whether asserted or arising
before or after the Effective Time). The indemnifying party must pay expenses
in advance of the final disposition of any claim, action, suit, proceeding or
investigation to the Indemnified Parties claiming indemnification from such
indemnifying party pursuant to the Merger Agreement, and the indemnifying party
will be entitled to participate in the defense thereof and, to the extent that
the indemnifying party so desires, to
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assume the defense thereof with counsel selected by it. An indemnifying party
will not be liable to pay any amount in settlement effected without its prior
written consent.
Pursuant to the Merger Agreement, Bowmar and the Surviving Corporation
agree that all rights to indemnification existing in favor, and all limitations
on the personal liability, of EDI Indemnified Parties provided for in the
Certificate of Incorporation or Bylaws of EDI or any EDI Subsidiary, and of
Bowmar Indemnified Parties provided for in the Certificate of Incorporation or
Bylaws of Bowmar or any Bowmar Subsidiary, as in effect as of the date of the
Merger Agreement with respect to matters occurring prior to the Effective Time
will survive the Merger and will continue in full force and effect for a period
of not less than six (6) years from the Effective Time; provided, however, that
all rights to indemnification in respect of any claim asserted or made within
such period will continue until the final disposition of such claim. At or
prior to the Effective Time, Bowmar will purchase directors' and officers'
liability insurance coverage for Bowmar's directors and officers and EDI's
directors and officers with coverage for six (6) years following the Effective
Time in a form reasonably acceptable to EDI and of not less than the existing
coverage under, and have other terms not materially less favorable to the
insured persons than, the directors' and officers' liability insurance coverage
presently maintained by EDI, in the case of directors and officers of EDI, or
Bowmar, in the case of directors and officers of Bowmar, provided, however,
that in any event the cost of such policy will not exceed $250,000.
The indemnification described above is intended for the irrevocable
benefit of, and to grant third-party rights to, the Indemnified Parties (as
contemplated in the Merger Agreement) and will be binding on all successors and
assigns of Bowmar, the Surviving Corporation and EDI. Each of the Indemnified
Parties will be entitled to enforce the covenants contained in the Merger
Agreement. The provisions for indemnification contained in the Merger
Agreement are not intended to be exclusive and are without prejudice to any
other rights to indemnification or advancement of funds which any Indemnified
Party may otherwise have.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
Bowmar pursuant to the foregoing provisions, Bowmar has been informed that, in
the opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
OTHER AGREEMENTS
VOTING AGREEMENTS
In connection with the execution and delivery of the Merger Agreement,
EDI entered into a Voting Agreement with Edward A. White, a Bowmar
stockholder. Pursuant to such agreement, Mr. White agreed not to transfer or
otherwise dispose of any shares of capital stock of Bowmar prior to the
Effective Time of the Merger and to vote his shares of capital stock of Bowmar
in a manner so as to facilitate consummation of the Merger. In addition, Mr.
White granted to EDI an irrevocable proxy to vote his shares of capital stock
of Bowmar in favor of approval of the Merger Agreement and the Merger and any
matter necessary for consummation of the Merger.
In connection with the execution and delivery of the Merger Agreement,
Bowmar entered into a Voting Agreement with Technology Funding Partners III,
L.P. ("TFP"), an EDI stockholder. Pursuant to such agreement, TFP agreed not
to transfer or otherwise dispose of any shares of capital stock of EDI prior to
the Effective Time of the Merger and to vote its shares of capital stock of EDI
in a manner so as to facilitate consummation of the Merger. In addition, TFP
granted to Bowmar an irrevocable proxy to vote its shares of capital stock of
EDI in favor of approval of the Merger Agreement and the Merger and any matter
necessary for consummation of the Merger.
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ASSUMPTION OF SEVERANCE AGREEMENTS AND EMPLOYMENT AGREEMENT
In connection with the execution and delivery of the Merger Agreement,
EDI and Bowmar entered into an Agreement To Be Bound By Severance Agreements
and Employment Agreement. EDI has been a party to (i) a severance agreement
and an employment agreement by and between EDI and Donald F. McGuinness,
Chairman of the Board, President and Chief Executive Officer of EDI, and (ii) a
severance agreement by and between EDI and Frank D. Edwards, Senior Vice
President of Finance, Chief Financial Officer and Secretary of EDI. Pursuant
to the agreement between EDI and Bowmar, Bowmar agreed to be bound by all of
the obligations, terms and conditions of such severance and employment
agreements.
ASSUMPTION OF REGISTRATION RIGHTS AGREEMENTS
In connection with the execution and delivery of the Merger Agreement,
EDI and Bowmar entered into an Agreement To Be Bound by Registration Rights
Agreements. EDI has been a party to (i) the Registration Rights Agreement and
(ii) a registration rights agreement dated as of December 1, 1996 by and
between EDI and Cameron Associates. Pursuant to the agreement between EDI and
Bowmar, Bowmar agreed to be bound by all of the obligations, terms and
conditions of such registration rights agreements.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary represents the opinion of Bryan Cave LLP,
counsel for Bowmar, and subject to the qualifications described herein, sets
forth the material federal income tax consequences of the Merger to holders of
EDI Common Stock, EDI Options, and EDI Warrants. The summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Department
regulations promulgated thereunder, interpretive rulings of the IRS, and
pertinent judicial authorities, as of the date hereof, all of which are subject
to change at any time, possibly with retroactive effect. Any such change could
affect the continuing validity of this summary. This summary does not address
all aspects of federal income taxation that may be relevant to a particular
holder of EDI Common Stock, EDI Options, and EDI Warrants and thus, for
example, may not be applicable to holders who are not citizens or residents of
the United States, who acquired their EDI Common Stock pursuant to the exercise
of compensatory stock options, or who are entities that are otherwise subject
to special tax treatment under the Code (such as dealers in securities, banks
and other financial institutions, insurance companies, and tax-exempt
organizations). The summary is limited to the tax consequences of holders who
hold their EDI Common Stock, EDI Options, or EDI Warrants as capital assets
within the meaning of Section 1221 of the Code. Moreover, the summary does not
address the effect of any state, local or foreign tax laws. HOLDERS OF EDI
COMMON STOCK, EDI OPTIONS AND EDI WARRANTS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
No ruling has been, or will be, sought from the IRS with respect to
the federal income tax consequences of the Merger. It is a condition to the
consummation of the Merger that Bowmar receive an opinion from its counsel,
Bryan Cave LLP, and that EDI receive an opinion from its counsel, Goodwin,
Procter & Hoar LLP, substantially to the effect that, based upon certain facts,
representations and assumptions, the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code. In rendering such opinions, counsel may require and rely upon (and may
incorporate by reference), representations and covenants, including those
contained in certificates of officers of Bowmar, Acquisition Subsidiary, EDI
and others. The specific provisions of each such representation and covenant
shall be in form and substance reasonably satisfactory to such counsel.
Subject to the qualifications set forth herein and assuming that the
Merger is treated for federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code, it is the opinion of Bryan Cave LLP,
counsel to Bowmar, that the federal income tax consequences to the Merger will
be as follows:
1. No gain or loss will be recognized by holders of EDI
Common Stock who exchange their EDI Common Stock for Combined Company
Common Stock pursuant to the Merger, except that gain or loss will be
recognized on the receipt of cash in lieu of fractional shares of Combined
Company Common Stock.
2. A holder of EDI Common Stock who receives cash in
lieu of a fractional share of Combined Company Common Stock in the Merger
will be treated as having received such fractional share as part of the
Merger and then having received the cash in exchange for the fractional
share in a redemption described in Section 302(a) of the Code. As a
result, the receipt of such cash payment should result in capital gain or
loss equal to the difference between the amount of cash received and the
holder's basis in the fractional share of Combined Company Common Stock
treated as having been redeemed.
3. Each holder of EDI Common Stock who exchanges his or
her EDI Common Stock for Combined Company Common Stock pursuant to the
Merger will have an aggregate tax basis in the Combined Company Common
Stock received in the Merger equal to his or her aggregate tax
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basis in the EDI Common Stock exchanged therefor, decreased by the amount
of any tax basis allocable to any fractional share interest for which cash
is received.
4. The holding period of Combined Company Common Stock
received in the Merger will include the holding period of the EDI Common
Stock exchanged therefor.
5. No gain or loss will be recognized by holders whose
EDI Options or EDI Warrants are converted into Combined Company Options or
Combined Company Warrants pursuant to the Merger; the tax basis of the
Combined Company Options and Combined Company Warrants received will be
equal to the holder's tax basis in the EDI Options and EDI Warrants that
were converted pursuant to the Merger; and, the holding period of the
Combined Company Options and Combined Company Warrants will include the
holding period of the EDI Options and EDI Warrants that were converted
pursuant to the Merger.
6. No gain or loss will be recognized by EDI, Bowmar or
Acquisition Subsidiary as a result of the Merger.
BACKUP WITHHOLDING
To prevent "backup withholding" of federal income tax on any cash
received by a holder of EDI Common Stock in lieu of a fractional share of
Combined Company Common Stock, the holder must provide the Exchange Agent with
such holder's correct taxpayer identification number ("TIN") on a Substitute
Form W-9 and certify under penalties of perjury that the holder is not subject
to backup withholding. Substitute Form W-9 will be provided to each holder of
EDI Common Stock in the letter of transmittal to be mailed to each holder after
the Effective Time. If the correct TIN and certifications are not provided, a
$50 penalty may be imposed on a holder of EDI Common Stock by the IRS, and any
cash to be received by such holder may be subject to backup withholding at a
rate of 31%. Certain stockholders (including, among others, corporations and
certain foreign persons) are not subject to backup withholding provided they
establish their status when required to do so.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND IS NOT INTENDED TO BE A SUBSTITUTE FOR CAREFUL TAX
PLANNING. MOREOVER, THE DISCUSSION IS BASED UPON PRESENT LAW AND IT IS
IMPOSSIBLE TO PREDICT THE EFFECT, IF ANY, THAT FUTURE LEGISLATION COULD HAVE ON
THE TAX CONSEQUENCES OF THE PROPOSED TRANSACTION. HOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND
FOREIGN TAX LAWS.
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THE BOWMAR SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
Bowmar Common Stock in connection with the solicitation of proxies by the
Bowmar Board for use at the Bowmar Special Meeting and any adjournment or
postponement thereof. At the Bowmar Special Meeting, the stockholders of
Bowmar will consider and vote upon (1) the Bowmar Merger Proposal, (2) the two
Bowmar Amendment Proposals, and (3) any other business which may properly be
brought before the Bowmar Special Meeting (including adjournment of the Special
Meeting) or any adjournment or postponement thereof. Each copy of this Joint
Proxy Statement/Prospectus which is being mailed or delivered to Bowmar
stockholders is accompanied by a Bowmar proxy card and a Notice of Special
Meeting.
DATE, TIME AND PLACE
The Bowmar Special Meeting will be held at the Bowmar offices at 3601
E. University Drive, Phoenix, Arizona, on _________ __, 1998, at 9:00 a.m.,
local time.
SOLICITATION OF PROXIES
Bowmar will bear the costs of soliciting proxies. Proxies will
initially be solicited by Bowmar by mail, but directors, officers and selected
other employees of Bowmar may also solicit proxies in person or by telephone or
telegraph. Directors, executive officers and any other employees of Bowmar who
solicit proxies will not be specially compensated for such services. Brokerage
houses, nominees, fiduciaries, and other custodians will be requested to
forward soliciting materials to beneficial owners and will be reimbursed for
their reasonable out-of-pocket expenses incurred in sending proxy materials to
beneficial owners. [BOWMAR HAS ALSO ENGAGED [ ], A
PROFESSIONAL SOLICITING ORGANIZATION, TO AID IN THE SOLICITATION OF PROXIES.
BOWMAR ESTIMATES THAT THE FEE FOR SUCH SERVICES WILL NOT EXCEED $[ ] PLUS
REIMBURSABLE OUT-OF-POCKET EXPENSES.]
HOLDERS OF BOWMAR COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING BOWMAR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
THE BOWMAR MERGER PROPOSAL
The Bowmar Merger Proposal is being submitted for the approval of the
stockholders of Bowmar pursuant to the requirements of the American Stock
Exchange. Pursuant to these requirements, the issuance of Combined Company
Common Stock and other Combined Company securities pursuant to the Merger
Agreement must be approved by Bowmar stockholders. By voting in favor of this
proposal, the stockholders are approving the Merger Agreement and all the
transactions contemplated thereby, including the issuance of the shares of
Combined Company Common Stock, the Combined Company Warrants and other Combined
Company securities pursuant to the Merger.
THE BOARD OF DIRECTORS OF BOWMAR UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" THE BOWMAR MERGER PROPOSAL. SEE "THE
MERGER--BACKGROUND OF THE MERGER" AND "RECOMMENDATION OF THE BOWMAR BOARD;
REASONS FOR THE MERGER."
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PROPOSAL TO APPROVE AMENDMENT TO BOWMAR ARTICLES TO INCREASE AUTHORIZED COMMON
STOCK
Bowmar currently has authorized 15,000,000 shares of Bowmar Common
Stock, no par value. Of the 15,000,000 shares of authorized Bowmar Common
Stock, 6,674,492 shares were outstanding as of May 15, 1998 and approximately
2,700,000 shares were reserved for issuance in connection with options and
convertible securities currently outstanding. In order to accommodate the
issuance of Combined Company Common Stock as and for the Merger Consideration
pursuant to the Merger Agreement, an additional approximately 10,000,000 shares
of Combined Company Common Stock will be required, and to accommodate the
issuance of the Combined Company Common Stock upon the exercise of the EDI
Options and EDI Warrants which will be assumed by Bowmar, approximately
5,500,000 additional shares of Combined Company Common Stock are required, for
a total of approximately 15,200,000 shares of Combined Company Common Stock.
To satisfy the requirements of the Bowmar Rights Agreement, Bowmar must have
available for issuance a like number of shares of Combined Company Common
Stock. Accordingly, the Bowmar Board has concluded that an increase of
approximately 45,000,000 shares of authorized Combined Company Common Stock is
necessary and desirable. To accomplish such an increase, the Bowmar Articles
must be amended to change the authorized Bowmar Common Stock from 15,000,000
shares to 60,000,000 shares.
Except for issuances described above, the Bowmar Board has no present
plans or agreements, written or oral, with respect to the issuance of any
shares of Bowmar Common Stock before the Merger or Combined Company Common
Stock after the Merger. The additional shares for which authorization is
sought would be identical to the shares of Bowmar Common Stock now authorized.
No stockholder will have any statutory preemptive rights to purchase or
subscribe for any shares of Combined Company Common Stock that may be issued.
Although the proposal to authorize additional shares of Bowmar Common
Stock is made for the reasons stated above, the newly authorized shares would
be available for issuance by the Board of Directors without further stockholder
approval in response to an actual or threatened takeover bid pursuant to the
Bowmar Rights Plan and otherwise. The issuance of such shares could have the
effect of diluting the stock ownership of persons seeking to obtain control of
the Combined Company and, therefore, the proposed amendment may have the effect
of discouraging efforts to gain control of the Combined Company in a manner not
approved by the Board.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE AMENDMENT TO THE BOWMAR ARTICLES TO INCREASE THE AUTHORIZED
NUMBER OF SHARES OF BOWMAR COMMON STOCK FROM 15,000,000 TO 60,000,000.
PROPOSAL TO AMEND BOWMAR ARTICLES TO CHANGE THE CORPORATION'S NAME
Pursuant to the Merger Agreement, Bowmar has agreed to change the name
of the corporation as of the Effective Time in order to reflect the importance
of the combination of EDI and Bowmar. The Merger Agreement provides that at
and after the Effective Time, Bowmar's name shall be "__________________". To
accomplish this, the Bowmar Articles must be amended. The stockholders of
Bowmar are being asked to approve this amendment to the Bowmar Articles.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE AMENDMENT TO THE BOWMAR ARTICLES TO CHANGE THE NAME OF THE
CORPORATION.
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VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table sets forth the beneficial ownership of Bowmar Common
Stock as to (i) each person who is known by Bowmar to beneficially own more
than five percent of Bowmar Common Stock, (ii) each of Bowmar's directors,
(iii) each of the Bowmar executive officers who were executive officers of
Bowmar in the last fiscal year and earned in excess of $100,000 ("Bowmar Named
Executive Officers"), and (iv) all directors and executive officers of Bowmar
as a group. All such information reflects beneficial ownership as of May 15,
1998, as known by Bowmar.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME BENEFICIALLY OWNED (1) OF CLASS (2)
---- ------------------ --------
<S> <C> <C>
Thomas K. Lanin 279,000 (3) 4.03%
Steven P. Matteucci 18,000 (4) *
Dan L. McGurk 27,000 (5) *
Thomas M. Reahard 18,000 (4) *
Edward A. White 1,495,866 (6) 22.41%
Hamid Shokrgozar 57,625 (7) *
Joseph G. Warren, Jr. 37,500 (8) *
Electronic Designs, Inc. 1,495,866 (9) 22.41%
One Research Drive
Westborough, MA 01581
Directors & Executive Officers as a Group 1,932,991 (10) 27.43%
(7 Persons)
____________________
</TABLE>
* Represents less than 1% of the class.
(1) Unless otherwise noted, Bowmar believes that all persons named in the
table have sole voting and investment power with respect to all shares
of Bowmar Common Stock that are beneficially owned by them. A person
is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days upon the exercise of options or
warrants or the conversion of convertible securities.
(2) Each owner's percentage ownership is determined by assuming that
options held by such person (but not those held by any other person)
which are exercisable within 60 days have been exercised.
(3) Includes options to purchase 25,000 shares of Bowmar Common Stock
granted under Bowmar's 1986 Stock Option Plan, and options to purchase
222,000 shares of Bowmar Common Stock granted under Bowmar's 1994
Flexible Stock Plan.
(4) Includes options to purchase 18,000 shares of Bowmar Common Stock
granted under Bowmar's Non-Qualified Stock Option Plan for Directors.
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(5) Includes options to purchase 26,000 shares of Bowmar Common Stock
granted under Bowmar's Non-Qualified Stock Option Plan for Directors.
(6) Mr. White entered into a Voting Agreement with EDI in connection with
the Merger pursuant to which Mr. White has agreed to vote all shares
beneficially owned by him, and has granted an irrevocable proxy to EDI
to vote those shares pursuant to the Voting Agreement. See "Other
Agreements--Voting Agreements."
(7) Includes options to purchase 11,000 shares of Bowmar Common Stock
granted under Bowmar's 1986 Stock Option Plan and options for 46.625
shares of Bowmar Common Stock granted under Bowmar's 1994 Flexible
Stock Plan.
(8) Includes options to purchase 20,000 shares of Bowmar Common Stock
granted under Bowmar's 1994 Flexible Stock Plan.
(9) Includes only the shares subject to the Voting Agreement by and
between Edward A. White and EDI discussed in footnote 6 above and in
"Other Agreements--Voting Agreements," elsewhere in this Joint
Proxy/Prospectus. EDI disclaims beneficial ownership of these shares.
(10) Includes options as indicated in notes 3-5 and 7-8, above.
VOTE REQUIRED; VOTING AND REVOCATION OF PROXIES
RECORD DATE; VOTE REQUIRED
The Bowmar Board has fixed the close of business on __________________,
1998, as the Bowmar Record Date. On the Bowmar Record Date, [_______] shares
of Bowmar Common Stock and [_______] shares of $3.00 Preferred Stock were
outstanding and entitled to vote at the Bowmar Special Meeting and held by
approximately [____] and [____] stockholders of record, respectively. Holders
of record of Bowmar Common Stock and $3.00 Preferred Stock as of the close of
business on the Bowmar Record Date are entitled to one vote per share on any
matter voted on at the Bowmar Special Meeting. The affirmative vote of the
holders of at least a majority of the votes entitled to be cast by the holders
of the Bowmar Common Stock and the $3.00 Preferred Stock, voting together as a
single class, is required to approve the Bowmar Merger Proposal and each of the
two Bowmar Amendment Proposals.
The presence, either in person or by proxy, of the holders of a
majority of the votes entitled to be cast on the matter as of the Bowmar Record
Date is necessary to constitute a quorum at the Bowmar Special Meeting. Shares
as to which voting authority is withheld will be considered present for
purposes of determining the presence of a quorum at the Bowmar Special Meeting
but as not entitled to vote, and not voted, for purposes of the approval of the
Bowmar Merger Proposal and the Bowmar Amendment Proposals. Shares as to which
a broker indicates it has no discretion to vote and which are not voted will be
considered not present at the Bowmar Special Meeting for purposes of
determining the presence of a quorum and as unvoted for purposes of the
approval of the Bowmar Merger Proposal and the Bowmar Amendment Proposals.
Shares voted to "abstain" will be considered to be present for purposes of
establishing a quorum and will have the same effect as votes against the Bowmar
Merger Proposal and the Bowmar Amendment Proposals. Shares as to which a
broker indicates it lacks authority to vote on such proposal and which are not
voted will be considered not present for purposes of determining the existence
of a quorum and the requisite majority vote on the Bowmar Merger Proposal and
the Bowmar Amendment Proposals, which will have the same effect as votes
against the Proposals. Abstentions, but not broker non-votes will have the
effect of a vote against any proposed adjournment(s) of the Bowmar Special
Meeting.
As of the Bowmar Record Date for the Bowmar Special Meeting, directors
and executive officers of Bowmar and their affiliates (as a group) were
entitled to vote an aggregate of [__________] shares of Bowmar Common Stock, or
approximately [__]% of the outstanding votes entitled to be cast at the Bowmar
Special
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Meeting. All such directors and executive officers and their affiliates have
indicated their intention to vote their shares for the Bowmar Merger Proposal
and the Bowmar Amendment Proposals. Moreover, Edward A. White, the Chairman of
the Board of Bowmar and a greater than 20% stockholder of Bowmar, has entered
into a Voting Agreement with EDI pursuant to which Mr. White has agreed to vote
all shares of Bowmar of which he has beneficial ownership in favor of the
Bowmar Merger Proposal and the Bowmar Amendment Proposals. See "Other
Agreements--Voting Agreements."
VOTING AND REVOCATION OF PROXIES
Shares of Bowmar Common Stock and $3.00 Preferred Stock which are
represented by a proxy properly executed and received prior to the vote at the
Bowmar Special Meeting will be voted at the Bowmar Special Meeting in the
manner directed on the proxy card, unless such proxy is revoked in advance of
such vote. ANY BOWMAR STOCKHOLDER RETURNING A BLANK EXECUTED PROXY CARD WILL
BE DEEMED TO HAVE AUTHORIZED THE PROXIES TO VOTE THE SHARES COVERED BY THE
PROXY CARD (I) IN FAVOR OF THE BOWMAR MERGER PROPOSAL, (II) IN FAVOR OF THE
PROPOSAL TO APPROVE THE AMENDMENT TO THE BOWMAR ARTICLES TO INCREASE THE
AUTHORIZED BOWMAR COMMON STOCK FROM 15,000,000 SHARES TO 60,000,000 SHARES;
(III) IN FAVOR OF THE PROPOSAL TO APPROVE THE AMENDMENT TO THE BOWMAR ARTICLES
TO CHANGE THE NAME OF THE CORPORATION, AND (IV) IN THEIR DISCRETION WITH
RESPECT TO SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE BOWMAR SPECIAL
MEETING (INCLUDING ADJOURNMENT OF SUCH BOWMAR SPECIAL MEETING) OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF.
Any stockholder of Bowmar giving a proxy may revoke it at any time
prior to the vote at the Bowmar Special Meeting. Stockholders of Bowmar
wishing to revoke a proxy prior to the time it is voted may do so by delivering
to the Secretary of Bowmar at 3601 E. University Drive, Phoenix, Arizona 85034,
a written notice of revocation bearing a later date than the proxy or a later
dated proxy relating to the same shares or by attending the Bowmar Special
meeting and voting in person. Attendance at the Bowmar Special Meeting will
not in itself constitute the revocation of a proxy.
The Bowmar Board is not currently aware of any business to be brought
before the Bowmar Special Meeting other than that described herein. If,
however, other matters are properly brought before the Bowmar Special Meeting
(including, without limitation, adjournment of the Bowmar Special Meeting in
order to allow for additional solicitation of stockholder votes in order to
obtain a quorum or in order to obtain more votes in favor of the Bowmar
proposals), or any adjournment or postponement thereof, the persons appointed
as proxies will have discretionary authority to vote the shares represented by
duly executed proxies in accordance with their discretion and judgment as to
the best interest of Bowmar.
THE EDI SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
EDI Common Stock in connection with the solicitation of proxies by the EDI
Board for use at the EDI Special Meeting. At the EDI Special Meeting, the
stockholders of EDI will consider and vote upon the EDI Merger Proposal and
upon any other business which may properly be brought before the EDI Special
Meeting. Each copy of this Joint Proxy Statement/Prospectus which is being
mailed or delivered to EDI stockholders is accompanied by an EDI proxy card and
a Notice of Special Meeting.
DATE, TIME AND PLACE
The EDI Special Meeting will be held at the Westin Hotel, 70 Third
Avenue, Waltham, Massachusetts on [________], 1998 at __:__ _.m., local time.
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SOLICITATION OF PROXIES
EDI will bear its own cost of solicitation of proxies. In addition to
the use of the mails, proxies may be solicited by the directors, officers and
employees of EDI by personal interview, telephone, telegram or e-mail. Such
directors, officers and employees will not receive additional compensation for
such solicitation but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. Arrangements may also be made with brokerage firms and
other custodians, nominees and fiduciaries to forward solicitation materials to
the beneficial owners of shares of EDI Common Stock held of record by such
persons, in which case EDI will reimburse such brokerage firms, custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them
in connection therewith. [EDI HAS ALSO ENGAGED [_____________], A PROFESSIONAL
SOLICITING ORGANIZATION, TO AID IN THE SOLICITATION OF PROXIES. EDI ESTIMATES
THAT THE FEE FOR SUCH SERVICES WILL NOT EXCEED $[_______] PLUS REIMBURSABLE
OUT-OF-POCKET EXPENSES.]
THE EDI MERGER PROPOSAL
The EDI Merger Proposal is being submitted for the approval of the
stockholders of EDI pursuant to the requirements of Delaware law.
THE EDI BOARD HAS APPROVED THE EDI MERGER PROPOSAL AND RECOMMENDS THAT
STOCKHOLDERS OF EDI VOTE "FOR" APPROVAL OF THE EDI MERGER PROPOSAL. SEE "THE
MERGER--BACKGROUND OF THE MERGER" AND "--RECOMMENDATION OF THE EDI BOARD;
REASONS FOR THE MERGER."
VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table sets forth the beneficial ownership of EDI Common
Stock as to (i) each person who is known by EDI to beneficially own more than
five percent of EDI Common Stock, (ii) each of EDI's directors, (iii) each of
the EDI Named Executive Officers (as defined below), and (iv) all directors and
executive officers of EDI as a group, based on representations of directors of
EDI and other executive officers as of May 27, 1998, EDI's records, and filings
as of May 27, 1998 received by EDI on Schedules 13D and 13G under the Exchange
Act.
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<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY OWNED (1) OF CLASS (2)
----------------- ------------------ --------
<S> <C> <C>
New York Life Insurance Company 1,862,660 (3) 26.43%
51 Madison Avenue
New York, NY 10010
Thomas J. Toy 690,477 (4) 9.80%
Technology Funding Inc.
2000 Alameda de las Pulgas
San Mateo, CA 94403
Technology Funding Partners III, L.P. 680,477 (5) 9.66%
2000 Alameda de las Pulgas
San Mateo, CA 94403
Bowmar Instrument Corporation 690,477 (6) 9.80%
3601 E. University Drive
Phoenix, AZ 85034
Donald F. McGuinness 456,600 (7) 6.48%
Thomas A. Schultz 185,327 (8) 2.63%
Frank D. Edwards 170,956 (9) 2.43%
Daniel R. Doyle 120,913 (10) 1.72%
Frank Muscolino 81,293 (11) 1.15%
Norman T. Hall 66,440 (12) *
All current directors and executive
officers as a group 1,772,006 (13) 25.14%
(seven persons)
</TABLE>
- --------------------------
* Represents less than 1% of the class.
(1) Unless otherwise noted, EDI believes that all persons named in the table
above have sole voting and investment power with respect to all shares
of EDI Common Stock, as converted and adjusted, that are beneficially
owned by them, subject to the information contained in the footnotes
below and community property laws where applicable. A person is deemed
to be the beneficial owner of securities that can be acquired by such
person within 60 days upon the exercise of options or warrants or the
conversion of convertible securities.
(2) Each owner's percentage ownership is determined by assuming that
options, warrants and other convertible securities that are held by such
person (but not those held by any other person) and that are
exercisable or convertible within 60 days have been exercised or
converted.
(3) Includes 80,600 shares issuable upon exercise of EDI Warrants.
(4) Includes 10,000 shares issuable upon exercise of EDI Options. Represents
in part the shares owned by Technology Funding Partners III, L.P.
("TFP") referenced in footnote (5) below. Mr. Toy is a Group Vice
President of Technology Funding Inc. ("TFI"), which is a managing
general partner of TFP, and as such may be deemed the beneficial owner
of such shares.
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(5) Includes 35,000 shares issuable upon exercise of EDI Warrants. TFI and
Technology Funding Ltd. ("TFL") are the managing general partners of
TFP. The following individuals are executive officers of TFI and/or
general partners of TFL, and as such may be deemed beneficial owners of
the shares of EDI Common Stock held by TFP described in the table:
Charles R. Kokesh, Peter F. Bernardoni, Gregory T. George, and Thomas J.
Toy.
(6) Includes only those shares subject to the Voting Agreement by and
between Thomas J. Toy and Bowmar contemplated by the Merger Agreement.
See "Other Agreements--Voting Agreements." Bowmar disclaims beneficial
ownership of these shares.
(7) Includes 454,800 shares issuable upon exercise of EDI Options. Mr.
McGuinness is the Chairman of the Board, President, and Chief Executive
Officer of EDI.
(8) Includes 118,025 shares issuable upon exercise of EDI Options. Mr.
Schultz is a director of EDI.
(9) Includes 165,116 shares issuable upon exercise of EDI Options. 5,840
shares are held in a joint account with Mr. Edwards' wife, Carol
Edwards. Mr. Edwards is the Senior Vice President of Finance, Chief
Financial Officer, and Secretary of EDI. He also serves as a director
of EDI.
(10) Includes 118,747 shares issuable upon exercise of EDI Options. 2,166
shares are held in a joint account with Mr. Doyle's wife, Lynn Doyle.
Mr. Doyle is the Vice President and General Manager for Display
Products.
(11) Includes 81,293 shares issuable upon exercise of EDI Options. Mr.
Muscolino is the Vice President and General Manager for Federal Products
Division.
(12) Includes 26,440 shares issuable upon exercise of EDI Options. Dr. Hall
is a director of EDI.
(13) Includes 1,009,421 shares issuable upon exercise of EDI Warrants or EDI
Options.
VOTE REQUIRED; VOTING AND REVOCATION OF PROXIES
RECORD DATE; VOTE REQUIRED
Holders of EDI Common Stock are entitled to one vote per share at the
EDI Special Meeting. At the present time, it is not anticipated that any other
matters will be brought before the EDI Special Meeting for consideration and
vote by holders of shares of EDI Common Stock, including, without limitation,
any motion to adjourn such meeting. In the event of any vote to adjourn the
EDI Special Meeting in order to allow EDI to solicit votes in favor of the EDI
Merger Proposal, proxies voting against the Merger Proposal will be voted
against the motion to adjourn the EDI Special Meeting.
VOTING AND REVOCATION OF PROXIES
The approval of the EDI Merger Proposal requires the affirmative vote
of a majority of votes entitled to be cast by the holders of all outstanding
shares of EDI Common Stock at a meeting at which a quorum is present. The EDI
Board has fixed the close of business on [______], 1998 as the EDI Record Date.
As of the EDI Record Date, there were, outstanding and entitled to vote,
7,047,380 shares of EDI Common Stock held by approximately 189 stockholders of
record. As of the EDI Record Date, the directors and executive officers of EDI
as a group beneficially owned 762,585 shares of EDI Common Stock representing
in the aggregate approximately 10.8% of outstanding votes at that date.
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All shares of EDI Common Stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. IF NO INSTRUCTIONS
ARE INDICATED, SUCH SHARES OF EDI COMMON STOCK WILL BE VOTED IN FAVOR OF THE
EDI MERGER PROPOSAL. A stockholder who has given a proxy may revoke it at any
time prior to its exercise by giving written notice thereof to the Secretary of
EDI by signing and returning a later-dated proxy or by voting in person at the
EDI Special Meeting; however, mere attendance at the EDI Special Meeting will
not in and of itself have the effect of revoking the proxy.
Votes cast by proxy or in person at the EDI Special Meeting will be
tabulated by the inspector of election appointed for the meeting and will
determine whether or not a quorum is present. The presence in person or by
properly executed proxy of the holders of a majority of the issued and
outstanding shares of EDI Common Stock entitled to vote at the EDI Special
Meeting is necessary to constitute a quorum at the EDI Special Meeting.
Abstentions and broker non-votes will be treated as shares that are present at
the EDI Special Meeting for purposes of determining whether a quorum exists.
To be approved, the Merger Proposal must receive the affirmative vote of the
holders of a majority of the issued and outstanding shares of EDI Common Stock
entitled to vote thereon. Abstentions and broker non-votes will have the
effect of votes against the approval of the Merger Proposal. Holders of EDI
Common Stock will be entitled to appraisal rights in connection with the
Merger. See "The Merger--Appraisal Rights of Dissenting Stockholders."
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INFORMATION ABOUT BOWMAR
GENERAL
Bowmar was incorporated in the State of Indiana in 1951. Bowmar and
its subsidiaries (hereinafter referred to collectively as "Bowmar") manufacture
and sell microelectronic and electromechanical products. Bowmar manufactures
and sells electromechanical and mechanical equipment and components, which
include electromechanical display devices, electromechanical components and
packages, turnkey interface systems, electromechanical packages and systems and
microelectronic circuits and components, which include high density solid state
memory modules and microprocessor modules and multichip modules.
NARRATIVE DESCRIPTION OF BUSINESS
MICROELECTRONIC CIRCUITS AND COMPONENTS
The products designed, manufactured and sold by Bowmar in its
microelectronic division (also referred to as the White Microelectronics
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 the United States and abroad.
1. High Density, Solid State Memory and Microprocessor
Modules
Bowmar 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.
2. Multichip Modules
Bowmar 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 original equipment manufacturers serving
principally the military market, as well as the aerospace, medical and
high temperature markets.
The products designed, manufactured, and sold by Bowmar in its
microelectronic segment are sold to private industry and to the United States
and foreign governments both through Bowmar 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 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, Bowmar
has maintained strong relationships with leading semiconductor fabricators in
the United States and the far east. Bowmar has no specific long-term
contractual arrangement with its vendors. None of the business of the
microelectronic segment is seasonal. Bowmar does not provide extended payment
terms to its customers. Products in the microelectronic segment
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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 $10,967,000 and $9,444,000,
at the end of fiscal years 1997 and 1996, respectively. Approximately 99% of
the segment's fiscal 1996 backlog was shipped during fiscal 1997.
Approximately 93% percent of the fiscal 1997 year-end backlog is expected to be
shipped during fiscal 1998.
Management believes that the key competitive factors are product
reliability, the ability to meet delivery schedules and price. Bowmar competes
with numerous other companies, many of which have greater financial strength
and technical and marketing resources than does Bowmar. It is not possible to
predict the extent of competition which present or future activities of Bowmar
in this segment will encounter because of changing competitive conditions,
government requirements, technological developments and other factors.
ELECTROMECHANICAL AND MECHANICAL EQUIPMENT AND COMPONENTS
The products designed, manufactured and sold by Bowmar in its
electromechanical segment (also referred to as the Technologies Division)
include electromechanical components and packages, electromechanical display
devices, electronic display devices, interface systems including keyboards and
related sub-systems.
Bowmar'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.
Bowmar 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.
Bowmar designs and manufactures, to customer specification, a variety
of keyboard assemblies for commercial and military applications. Bowmar 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.
The customers for the products of the electromechanical segment
include original equipment manufacturers, primarily in the aerospace industry
and agencies of the U.S. Government. The materials, products and services
used by Bowmar to manufacture its products in the electromechanical segment are
readily available from a variety of sources. None of the business of the
electromechanical segment is seasonal.
Neither the needs of Bowmar 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),
Bowmar has not encountered, and does not anticipate encountering, any
significant difficulty. Bowmar 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.
The electromechanical segment backlog was approximately $6,049,000 and
$2,226,000, at the end of fiscal years 1997 and 1996, respectively.
Approximately 99% percent of this segment's 1996 backlog was shipped during
fiscal 1997. Approximately 87% percent of the fiscal 1997 year-end backlog is
expected to be shipped during fiscal 1998.
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Management believes that price, product reliability and the ability to
meet delivery schedules are the key competitive factors. Bowmar competes with
numerous other companies, many of which have greater financial resources,
larger technical and marketing resources and different technologies than
Bowmar. It is not possible to predict the extent of competition which present
or future activities of Bowmar in this segment will encounter because of
changing competitive conditions, government requirements, technological
developments and other factors.
PRINCIPAL CUSTOMERS
In fiscal 1997 no single customer sales accounted for 10% of Bowmar's
sales. The majority of Bowmar'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. Bowmar
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 Bowmar on research and
product development for fiscal years 1997, 1996 and 1995 amounted to
approximately $610,000, $580,000, and $812,000, respectively. Research and
product development efforts are principally conducted by Bowmar utilizing its
engineering staff.
REGULATORY MATTERS
GOVERNMENT CONTRACTING REGULATION
Most of Bowmar's business is derived from subcontracts with prime
contractors of the U.S. Government. As a U.S. Government subcontractor,
Bowmar 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 Bowmar's cost records with respect to such contracts to determine
whether Bowmar 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.
In addition, the Federal Acquisition Regulation governs the
allowability of costs incurred by Bowmar 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.
Bowmar'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, Bowmar's
subcontracts provide for termination for default if Bowmar fails to perform or
breaches a material obligation. In the event of a termination for default, the
customer may have the unilateral right at any time to require Bowmar to return
unliquidated progress payments pending final resolution of the propriety of the
termination for default. Bowmar 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 Bowmar.
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In connection with Bowmar's U.S. Government business, Bowmar also is
subject to Government investigations of its policies, procedures and internal
controls for compliance with procurement regulations and applicable laws.
Bowmar 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 Bowmar could have a material adverse effect on Bowmar's business.
It is Bowmar'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 Bowmar, 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 Bowmar.
EMPLOYEES
As of May 15, 1998, Bowmar employed 184 persons. Of such employees,
88 were employed in the microelectronic segment and 96 were employed in the
electromechanical segment. A total of 65 of Bowmar's employees in the
electromechanical segment were employed pursuant to collective bargaining
agreements covering workers at the Technologies Division. This agreement will
expire on November 15, 1998. Bowmar believes its labor relations are
satisfactory.
PROPERTIES
Bowmar leases a facility in Phoenix, Arizona consisting of
approximately 53,000 square feet. The facility is used as Bowmar's corporate
offices and for all manufacturing of the White Microelectronics division. In
addition, Bowmar owns a facility in Ft. Wayne, Indiana consisting of 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. Management considers these
properties to be well maintained and adequate for their use.
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 is
centering on the interpretation of certain Government contract specified
testing requirements on incoming material. Bowmar is cooperating fully with
the investigation. On March 13, 1998, Bowmar 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.
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MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Bowmar Common Stock and $3.00 Preferred Stock are traded on the
American Stock Exchange under the symbols BOM and BOM.PR, respectively. The
following table sets forth the high and low sales price for each of the Bowmar
Common Stock and $3.00 Preferred Stock for the periods indicated:
<TABLE>
<CAPTION>
BOWMAR
FISCAL QUARTER COMMON STOCK $3.00 PREFERRED STOCK
ENDING HIGH LOW HIGH LOW
------ ---- --- ---- ---
<S> <C> <C> <C> <C>
FISCAL 1998
-----------
As of May 27 $ 2.44 $2.125 $ 35.50 $32.00
April 4 2.94 2.25 39.00 34.25
December 29 2.94 1.75 41.00 30.25
FISCAL 1997
-----------
September 27 $ 2.81 $ 2.25 $39.50 $37.00
June 28 2.94 1.81 40.00 31.50
March 29 2.19 1.63 34.00 30.50
December 30 1.75 1.75 32.00 28.63
FISCAL 1996
-----------
September 28 $ 2.06 $ 1.50 $ 33.50 $28.63
June 29 2.69 1.88 36.50 30.00
March 30 2.94 2.19 37.75 34.00
December 30 3.00 2.25 41.00 33.00
</TABLE>
As of May 27, 1998, there were approximately 2,580 holders of record
of Bowmar Common Stock and approximately 31 holders of record of $3.00
Preferred Stock. Bowmar has not paid cash dividends on the Bowmar Common Stock
and does not expect to do so in the foreseeable future. Bowmar intends to
retain all earnings to provide funds for the operation and expansion of its
business. One of Bowmar's credit agreements precludes the payment of cash
dividends for both the Bowmar Common Stock and the $3.00 Preferred Stock in
excess of $500,000 per year.
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INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS
BIOGRAPHICAL INFORMATION
The following table and biographical descriptions set forth certain
information with respect to the directors and executive officers of Bowmar who
Bowmar expects will continue as directors and executive officers of the Combined
Company. Officers of Bowmar are appointed annually by the Board of Directors at
the meeting of directors immediately following the Annual Meeting of
Stockholders and serve until the next annual election or until their successors
have been elected and qualified or as otherwise provided in Bowmar's By-Laws.
There is no family relationship between any director or executive officer of
Bowmar.
<TABLE>
<CAPTION>
YEAR OF
DIRECTOR EXPIRATION OF
NAME OF DIRECTOR AGE SINCE CURRENT TERM
---------------- --- ----- ------------
<S> <C> <C> <C>
Hamid Shokrgozar 38 1998 1999
Edward A. White 69 1951 1999
Thomas M. Reahard 45 1995 1999
</TABLE>
Mr. Shokrgozar is the President and Chief Executive Officer of Bowmar,
a position he has held since January 1998. Mr. Shokrgozar has also served as
President of the White Microelectronics Division of Bowmar from June 1993, a
position he continues to hold. From June 1989 to June 1993, Mr. Shokrgozar was
Vice President of Engineering for the White Microelectronics Division.
Mr. White, founder of Bowmar, was President, Chief Executive Officer
and Chairman of the Bowmar Board from its incorporation in 1951 until February
1975. From June 1980 until May 1986, Mr. White served as Chairman and Chief
Executive Officer of White Technology, Inc., which was purchased by Bowmar in
1986. Mr. White also served as Chief Executive Officer of Bowmar from 1983 until
1992. He was elected Chairman of the Board in 1983.
Mr. Reahard is the founder and Chairman and Chief Executive Officer of
Symmetry Software Corporation, a computer software development company formed in
1984.
Joseph G. Warren, Jr., age 52, is the Vice President Finance,
Treasurer, Chief Financial Officer and Secretary of Bowmar. Mr. Warren was
elected Vice President Finance and Treasurer in July 1995. From 1994 until
joining Bowmar in 1995, he served as the Vice President Finance and Chief
Financial Officer of Axxess Technologies, Inc. From 1993 to 1994, Mr. Warren
served as Secretary-Treasurer and Vice President of Golden Technologies, Inc.
Prior to that, from 1992 to 1993, Mr. Warren was the President of Coors
Ceramicon Designs, Ltd. and from 1985 to 1992 he was Vice President Finance of
Coors Ceramics Company.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation
for services rendered in all capacities to Bowmar during the 1997, 1996 and 1995
fiscal years of those persons who will continue with the Combined Company as
executive officers or directors.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM COMPENSATION
COMPENSATION AWARDS
------------ ------
ALL
OPTIONS/ OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SARS COMPENSATION
- --------------------------- ---- --------- -------- ---- ------------
<S> <C> <C> <C> <C> <C>
Edward A. White 1997 121,500 13,500 0 4,549
Chairman(3) 1996 121,500 13,500 0 2,678
1995 121,500 13,500 0 2,662
Hamid Shokrgozar 1997 140,000 91,000 32,500 2,730
President, Chief 1996 125,000 83,758 81,500 2,631
Executive Officer 1995 110,000 87,570 7,500 2,406
Joseph G. Warren 1997 129,966 35,163 35,000 4,804
Vice President, Chief 1996 118,750 28,524 40,000 2,206
Financial Officer
</TABLE>
(1) Bonuses were paid in accordance with the policy established by the
Bowmar Board and the compensation committee of Bowmar (the "Bowmar
Compensation Committee").
(2) All Other Compensation includes contributions by Bowmar to its 401(k)
Plan, and payments for officer's life insurance.
(3) Since January 1998, Mr. White has been paid only for his services as
Chairman of the Board. See "--Director Compensation," below.
EMPLOYMENT AGREEMENTS
After the close of the 1997 fiscal year, Bowmar negotiated and entered
into employment agreements (the "Employment Agreements") with certain of its
officers, including Thomas K. Lanin, Joseph G. Warren, Jr. and Hamid R.
Shokrgozar. Mr. Lanin was employed as the President and Chief Executive Officer.
Mr. Warren was and is employed as the Vice President Finance, Chief Financial
Officer, Secretary and Treasurer. Each of the agreements with Mr. Lanin and Mr.
Warren are for one year and renew automatically unless terminated by either the
executive or Bowmar on 30 days prior notice of an intention not to renew, or
otherwise in accordance with the agreements. Each agreement provides for an
annual base salary and provides that each executive shall be entitled to
participate in Bowmar's incentive (bonus) compensation programs, stock option
plan and fringe benefit programs generally available to senior executives of
Bowmar. In addition, Mr. Warren's agreement originally provided for a bonus upon
the closing of the sale of the Technologies Division equal to a percentage of
the excess (if any) of the sale price over book value of the division. The
agreements originally contained termination provisions relating to a Change in
Control (as defined in the agreements) pursuant to which the executives would be
paid certain lump sum amounts and provided certain other benefits (the "Change
in Control Benefits").
In the event of termination of Mr. Lanin or Mr. Warren by Bowmar for
cause, the executive will be entitled to receive only that compensation earned
through the date of the termination as originally agreed, in the event of a
termination by Bowmar without cause, the executive will be entitled to a lump
sum severance payment equal to the executive's total base salary and incentive
compensation paid for the calendar year immediately preceding the termination,
continuing benefit contributions (or the cash equivalent) for twelve months,
executive-level out placement services, and the immediate vesting of all then
unvested stock options and a twelve month exercise period. Mr. Warren's
agreement originally provided for those severance benefits in the event he
terminated the agreement without cause prior to October 3, 1998. Both agreements
originally provided that in the event of a Change in Control, the executive
could terminate the agreement if during the twelve month period following a
Change in Control the executive was terminated or his duties
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were materially changed, the executive's annual compensation or other benefits
were reduced, Bowmar required the executive to relocate or Bowmar failed to
assume its obligations under the agreement. In such event, the executive could
receive the Change in Control Benefits. Finally, in the event Bowmar gives
notice of its intention not to renew the agreements at the end of their terms,
Bowmar is required to pay to the executive a lump sum severance amount and
provide continuing benefits (or their cash equivalent) and executive-level
outplacement services.
As previously disclosed, on December 4, 1997, Mr. Lanin submitted his
resignation to the Bowmar Board in connection with the Board's decision to sell
the Technologies Division and close the corporate offices. The Board agreed to
provide to Mr. Lanin all of the severance benefits to which he would have been
entitled under his employment agreement if Bowmar had terminated the agreement
without cause. Accordingly, in January 1998, Mr. Lanin was paid a lump sum
severance payment of $254,000 and received a continuation of benefits for twelve
months, executive-level outplacement services and the immediate vesting of his
unvested stock options (with a twelve month period within which to exercise
those options).
On February 3, 1998, Bowmar entered into an Employment Agreement with
Hamid R. Shokrgozar in connection with his assumption of the office of President
and Chief Executive Officer of Bowmar. Mr. Shokrgozar's agreement provided for a
term ending September 30, 1999 and renewing automatically for subsequent
two-year terms unless 30 days prior to a renewal date, either Bowmar or Mr.
Shokrgozar notified the other of its intention not to renew. The agreement
provides for an annual base salary of $180,000 and participation by Mr.
Shokrgozar in the fringe benefit programs of Bowmar generally available to its
senior executives. In the event of a termination for cause, Bowmar is required
to pay to Mr. Shokrgozar only those amounts earned by or accrued for his benefit
under Bowmar's plans. In the event of a termination without cause, Bowmar
originally was required to pay to Mr. Shokrgozar a lump sum severance payment
equal to up to eighteen months of his salary and to continue his benefits for a
period of at least twelve months, provide executive-level outplacement services
and to cause his options to vest immediately and be exercisable for a period of
twelve months after termination. In the event Bowmar elects not to renew the
agreement, Bowmar is required to pay Mr. Shokrgozar a lump sum equal to his
annual compensation. Like Mr. Warren's agreement, Mr. Shokrgozar's agreement
originally included special provisions in the event of a Change in Control.
Specifically, Mr. Shokrgozar's employment term would automatically extend for a
period of 18 months and during that term Mr. Shokrgozar could terminate if his
duties were materially changed, his annual compensation was decreased, he was
required to relocate or Bowmar's successor failed to assume Bowmar's obligations
under the agreement. In the event of such a termination, Mr. Shokrgozar was
entitled to a lump sum severance payment equal to 1.5 times his then current
base salary and incentive compensation as well as the continuing benefits
provided in the event of a termination without cause by Bowmar (also referred to
as "Change in Control Benefits").
After the execution of the definitive Merger Agreement, EDI and Bowmar
determined that it was in the best interests of the Combined Company and its
stockholders to have the Merger treated as a "pooling of interests" instead of
as a "purchase" for accounting purposes. Because the employment agreements with
Messrs. Shokrgozar and Warren had been entered into near and during the time of
Bowmar's renewed discussions with EDI concerning a possible merger, there was
some concern that the agreements could render Bowmar ineligible for pooling
accounting treatment for the Merger. Accordingly, the Bowmar Board authorized
the Bowmar Compensation Committee to discuss with each of Mr. Shokrgozar and Mr.
Warren amendments to their respective employment agreements to ensure the
eligibility of Bowmar for pooling in respect of the Merger. On June 1, 1998, the
employment agreements of Mr. Shokrgozar and Mr. Warren were amended to delete
the Change in Control provisions, and to delete the acceleration of vesting and
extended exercise term of options in the event of termination. Additionally, Mr.
Warren's bonus in the event of the sale of the Technologies Division and his
right to elect a severance package were eliminated. Finally, options granted on
December 10, 1997 to Messrs. Shokrgozar and Warren were rescinded on June 1,
1998. Accordingly, neither Mr. Shokrgozar nor Mr. Warren will be entitled to any
Change in Control Benefits as a result of the Merger or otherwise. If, however,
either Mr. Shokrgozar or Mr. Warren is terminated after the Merger without
cause, he will be entitled to a lump sum severance payment equal to 2.5 and 1.5
times, respectively, his annual salary and bonus.
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OPTION GRANTS IN 1997
During fiscal 1997, the Bowmar Compensation Committee and Bowmar Board
considered and adopted an option repricing program for certain outstanding stock
options granted under Bowmar's 1994 Flexible Stock Plan. In December 1996, the
program was implemented and each of the Bowmar Named Executive Officers
surrendered outstanding not-in-the-money options in return for an equal number
of options with an exercise price approximately 30% higher than the then fair
market value of Bowmar Common Stock. The new options were completely vested in
1997. Other options were granted under the 1994 Flexible Stock Plan in fiscal
year 1997 and vest over a four year period.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION
FOR OPTION TERM(2)
------------------
% OF TOTAL EXERCISE
OPTIONS OPTIONS PRICE PER
GRANTED GRANTED TO SHARE EXPIRATION
NAME (#) EMPLOYEES ($) DATE 5%($) 10%($)
- ---- --- --------- --- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Edward White.............. 0 -- -- -- -- --
Hamid R. Shokrgozar....... 25,000 7.0% 1.9375 5/2/07 30,462 77,197
7,500(1) 2.1% 2.0000 2/3/05 1,972 9,252
Joseph G. Warren, Jr...... 25,000 7.0% 1.9375 5/2/07 30,462 77,197
10,000(1) 2.8% 2.0000 7/28/05 2,629 12,236
</TABLE>
(1) These shares represent options repriced in fiscal 1997 under the option
repricing program adopted in December 1996.
(2) Total number of options granted during fiscal 1997 was 357,500. The 5% and
10% assumed annual rates of appreciation are specified in the Commission's rules
and do not represent Bowmar's estimate or projection of future stock price
growth.
REPORT OF THE BOWMAR COMPENSATION COMMITTEE ON OPTION REPRICING
During the first quarter of fiscal year 1997, the Bowmar Compensation
Committee considered the repricing of options outstanding under Bowmar's 1994
Flexible Stock Plan. The Bowmar Compensation Committee considered the fact that
a large number of the outstanding options that would be affected by a repricing
were held by Bowmar's two top executive officers, Messrs. Lanin and Warren, and
the performance and working relationship with Bowmar of these key executives. It
was agreed that the continuation of Bowmar's growth and success in 1997 were
dependent on the continued efforts of these individuals. The Bowmar Compensation
Committee believes that stock options provide meaningful long-term incentive for
key employees. Because of the significant decline in the market price of
Bowmar's stock which had occurred subsequent to the grant of these options, it
was determined that these options were not providing the incentive intended when
granted. The Bowmar Compensation Committee concluded that repricing the
outstanding options would be an appropriate means to provide these executives
with continuing incentive to work for the long-term success of Bowmar.
A number of other employees, including division executives, had also
been granted options which were similarly repriced. The repricing to $2.00 per
share as of December 6, 1996, was approximately 30% above the closing price for
that day, $1.5625.
Current Bowmar Compensation Committee:
Chairman - Steven P. Matteucci, Dan McGurk, and Thomas M. Reahard
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The following table sets forth certain information concerning the
repriced options:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING MARKET PRICE LENGTH OF
OPTIONS/ OF STOCK AT EXERCISE PRICE ORIGINAL OPTION
SARS TIME OF AT TIME OF TERM REMAINING
REPRICED OF REPRICING OF REPRICING OR NEW AT DATE OF
AMENDED AMENDMENT AMENDMENT EXERCISE REPRICING OR
NAME DATE (#) ($) ($) PRICE ($) AMENDMENT
---- ---- ---- ---- --- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Edward A. White,
Chairman............. N/A 0 N/A N/A N/A N/A
Hamid R. Shokrgozar,
President, CEO....... 12/6/96 7,500 1.5625 3.125 2.00 98 months
Joseph G. Warren, Jr.,
Vice President, CFO.. 12/6/96 10,000 1.5625 3.375 2.00 104 months
</TABLE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth certain information with respect to the
options to purchase Bowmar's Common Stock which are held by the Bowmar Named
Executive Officers:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT FISCAL
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END YEAR-END
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ($)
- ---- -------- -------- ------------------------- -----------------------------
<S> <C> <C> <C> <C>
Edward A. White........... 0 N/A 0/0 N/A
Hamid R. Shokrgozar....... 0 N/A 38,875/86,125 29,967/62,164
Joe G. Warren, Jr......... 0 N/A 20,000/55,000 13,593/39,219
</TABLE>
REPORT OF THE BOWMAR COMPENSATION COMMITTEE
The Board and the Bowmar Compensation Committee establishes the
compensation program and policy for, and determines the compensation of, the
Bowmar Named Executive Officers. The current program consists of the following
key elements: annual payments of salary and bonuses, periodic grants of
nonqualified stock options, and periodic grants of restricted stock awards. Each
element has a different purpose. Salary and bonus payments are principally
designed to reward current and past performance. Stock options and restricted
stock awards are primarily designed to provide incentives for superior long-term
future performance, and may be forfeited if the Bowmar Named Executive Officer
leaves Bowmar before the relevant vesting period.
The Bowmar Compensation Committee is responsible for determining the
timing and number, if any, of stock options to be granted to the Bowmar Named
Executive Officers. Such options are granted based upon the guidelines
established in Bowmar's Management Compensation Policy approved by the Bowmar
Board during fiscal 1997. During fiscal 1997, Mr. Lanin, the former President
and Chief Executive Officer, and Mr. Warren were granted 40,000 and 25,000
options, respectively, with an exercise price of $1.9375 (representing the
market price on the date of grant).
In determining the amount and form of executive compensation to be paid
or awarded in fiscal 1997, the Bowmar Board and the Bowmar Compensation
Committee considered overall performance rather than a formula based on any
particular performance measure. The Bowmar Board and the Bowmar Compensation
Committee applied this subjective
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standard in determining the Chief Executive Officer's compensation (Mr. Lanin
not participating as to his own compensation). The Bowmar Board and the Bowmar
Compensation Committee reviewed and accepted Mr. Lanin's recommendations
regarding the compensation of Mr. Warren and Mr. White (Mr. White not
participating as to his own compensation).
The Bowmar Compensation Committee retained, without change for fiscal
1997, other elements of executive compensation for the Bowmar Named Executive
Officers. These included health, life and disability insurance, an automobile
allowance and supplemental medical expense coverage.
Current Bowmar Compensation Committee:
Chairman-Steven P. Matteucci, Dan McGurk and Thomas M. Reahard
DIRECTOR COMPENSATION
Each of the directors of Bowmar who are not also officers are paid
$3,000 per quarter for the fiscal year, plus $500 for each Board and Committee
meeting attended by that director and related expenses. In addition, under
Bowmar's Non-Qualified Stock Option Plan for Non-Employee Directors, upon each
reelection, each of the outside directors is granted an option to acquire an
additional 4,000 shares of Bowmar Common Stock at an exercise price of 100% of
the fair market value of the Bowmar Common Stock as of the close of business on
the day immediately prior to such reelection. Under the Plan, each option vests
as to 2,000 shares six months following the date of grant and, as to the
balance, one year after such date. Since January 1998, Mr. White, who serves as
the Chairman of the Board, is paid an additional $6,000 per quarter for his
services as Chairman and certain other consulting and receives certain health
and life insurance benefits.
COMMON STOCK PERFORMANCE
The line graph which follows compares five years of yearly percentage
changes in the cumulative total stockholder return on the Bowmar Common Stock
against the cumulative total return on the AMEX Market Value Index and the AMEX
High Technology Index.
[Graph]
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COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG BOWMAR INSTRUMENT CORPORATION, THE AMEX MARKET VALUE INDEX
AND THE S & P TECHNOLOGY SECTOR INDEX
<TABLE>
<CAPTION>
9/92 9/93 9/94 9/95 9/96 9/97
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Bowmar Instrument Corporation 100 96 196 157 96 150
AMEX Market Value 100 121 122 145 152 191
S & P Technology Sector 100 122 140 222 272 442
</TABLE>
* $100 invested on 9/30/92 in stock or index -including reinvestment or
dividends. Fiscal year ending September 30.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, certain matters
discussed in this Management's Discussion and Analysis of Financial Condition
and Results of Operations contain forward-looking statements. The words
"believe", "expect" and "anticipate" identify forward-looking statements which
speak only as of the date the statement is made. These forward-looking
statements are based largely on Bowmar's expectations and are subject to a
number of risk and uncertainties, some of which cannot be predicted or
quantified and are beyond Bowmar's control. Potential risks and uncertainties
include but are not limited to such factors demand for Bowmar's products, the
ability of Bowmar to penetrate successfully the commercial market for
microelectronic products, industry competitiveness, reductions in price and
other risks of doing business generally. In light of these risks and
uncertainties, there can be no assurance that the forward-looking information
contained in this document will in fact transpire or prove to be accurate.
Actual results may differ materially from those in the forward-looking
statements. See "Cautionary Statement Regarding Forward-Looking Statements."
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Consolidated
Financial Statements.
INTRODUCTION
As previously disclosed, in December 1997, the Bowmar Board determined
to implement a series of actions expected to strategically reposition Bowmar,
reduce corporate overhead and realign management. First, the Bowmar Board
determined to close Bowmar's corporate headquarters in Phoenix, Arizona which
was accomplished by the end of January, 1998. Bowmar now operates exclusively
out of the new White Microelectronics division facility also located in Phoenix,
Arizona. Second, effective January 2, 1998, Bowmar's President and Chief
Executive Officer, Thomas K. Lanin, submitted his resignation, and the Bowmar
Board appointed Hamid Shokrgozar, the White Microelectronics division's current
president, as President and CEO of Bowmar. Finally, in December the Bowmar 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. In addition, in the first quarter of 1998, Bowmar
expensed approximately $400,000 associated with the closing of the corporate
office and the related severance payments.
Due to the merger with EDI being accounted for as a pooling of
interests, the Bowmar Board has decided not to sell the Technologies Division.
As required by EITF 90-16, Bowmar's historical financial information has been
reclassified to reflect the results of the Technologies Division in continuing
operations.
RESULTS OF OPERATIONS -- 1997, 1996 AND 1995
Fiscal 1997, 1996 and 1995 net sales were $27,820,000, $25,317,000, and
$26,869,000 respectively. The increase in net sales between fiscal 1997 and 1996
was caused by the initial stocking orders for distributors in the second
quarter, increased custom orders in the fourth quarter, and new products which
were introduced in the prior year in the microelectronic division. The decrease
in net sales from 1995 to 1996 was the result of a 26.4% decrease in sales in
the electromechanical segment. This decrease occurred in the mechanical ordnance
and rapid heat transfer sterilizer (RHT) product line, partially offset by
increased mechanical product sales. The ordnance and RHT product lines were sold
in the third quarter of fiscal 1996, which caused the sales to be somewhat
lower. Interface sales were lower because of the increased competition in the
marketplace. Sales in the microelectronic segment increased 4.3%. As a result of
the microelectronic segment shift to standard military products, Flash and SRAM
product lines sales increased significantly, while EEPROM sales were down
dramatically because of the completion of the Abrams tank orders.
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
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brought about by a very competitive market which Bowmar expects will continue in
fiscal 1998. 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.
Gross margin, as a percentage of sales, increased during fiscal 1996 to
37.6% from 35.6% in fiscal 1995. Gross margins in the microelectronic segment
were approximately $7.9 million or 41.6% as compared to $7.4 million or 40.9% in
fiscal 1995 due to improved margins in the standard military product lines.
Gross margins in the electromechanical segment were approximately $1.6 million
or 26.1%. While the gross margin dollars in the electromechanical segment were
down due to lower sales volume, the gross margin percentage increased 1.4%. The
main reason for this increase was the improved margins in the interface and RHT
products lines.
Selling, general and administrative expenses in fiscal 1997 were 8.6%
above 1996 expenses. The main reason for the increase was an increase in
advertising and sales commissions relating to the increased sales volume. Legal
expenses also increased in 1997 primarily as a result of the investigation by
the U.S. Attorney's office. The remainder of the increase in selling, general
and administrative expense was attributed to higher payroll related expenses due
to the increased number of employees. The fiscal 1996 selling, general and
administrative expenses were 10.4% below 1995. The main reason for the decline
was the $574,000 in write-offs that were incurred in 1995 related to prepaid
royalty payments on the Cox Sterile Products acquisition and post employment
benefits for a former executive of Bowmar. The remainder of the decline was
attributed to cost cutting in the electromechanical segment. This decline was
partially offset by higher costs at the microelectronic division related to
increased volume and legal expenses associated with the investigation by the
U.S. Attorney's office.
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. Product development
expense in fiscal 1996 decreased by $232,000 or 28.6% from fiscal 1995. The main
reason for the decline was the increased spending in 1995 on the RHT product
line that was not repeated in 1996.
Interest expense in fiscal 1997 declined as a result of both lower
rates and decreased average borrowing levels as compared to fiscal 1996. This
also explains the lower interest expense in fiscal 1996 as compared to fiscal
1995.
Other expense in fiscal 1997 consists primarily of a one time $425,000
write-down on Bowmar's Acton, Massachusetts property held for sale. This
building and land was sold on April 30, 1998, for approximately $1,280,000. No
significant gain or loss was realized on the sale. As of September 27, 1997, the
land and buildings are included in other assets. 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 Bowmar.
The increase in other income in fiscal 1996 as compared to fiscal 1995 was
caused by a write-off of $319,000 in 1995 related to the goodwill associated
with the Cox Sterile Products acquisition.
Bowmar is subject to the alternative minimum tax which, when combined
with state taxes, and deferred taxes resulted in a tax provision (benefit) from
continuing operations of $766,000 and $796,000 in fiscal years 1997 and 1996.
In fiscal 1995, Bowmar recorded a $3.3 million tax credit resulting
from the elimination of the valuation allowance as prescribed by the provisions
of the Statement of Financial Accounting Standards No. 109 related to Bowmar's
deferred tax assets.
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RESULTS OF OPERATIONS -- FIRST SIX MONTHS 1998 AND 1997
Sales for the first six months fiscal 1998 were $15,798,000 compared to
prior year sales for the same period of $13,186,000. The increase in sales was
primarily a result of increased sales of plastic packaged SRAM products in the
microelectronics division.
Bowmar has seen some decline in bookings affecting the fourth quarter,
which management believes is primarily a result of the current Asian economic
situation. Given the softness in the fourth quarter bookings and the current
situation in the military markets, Bowmar now believes that changes in defense
spending could have an adverse effect on Bowmar's overall results. Thus Bowmar
is continuing to pursue its goal of reduced dependency on the defense industry
by pursuing commercial business while emphasizing niche military markets where
it has a competitive advantage.
Gross margin for the first six months of fiscal 1998 increased by
$183,000 over the same period for fiscal 1997 primarily as a result of increased
sales. Because of production problems on new products and product mix in fiscal
1998 at the electromechanical division, the gross margin percentage declined
from 30.6% in fiscal 1997 to 23.4% in fiscal 1998.
Selling, general and administrative expenses increased by $378,000 for
the first six months of fiscal 1998 as compared to the same period in fiscal
1997 was due primarily to the $400,000 charge taken in the first quarter of 1998
for the reduction and relocation of its corporate headquarters.
Product development expenses were $140,000 higher for the first six
months of fiscal 1998 as compared to the same period of fiscal 1997. The
increases were a result of a commercial product development in the
microelectronics segment.
Interest expense for the first six months in fiscal 1998 increased by
$101,000 as compared to the same period of fiscal 1997. The increase is
primarily a result of additional borrowings to complete Bowmar's leasehold
improvements for the new facility and to finance increasing receivables.
Other income was lower for the first six months of fiscal 1998 by
$117,000 compared to the same period of fiscal 1997. Other income in fiscal 1998
included a tax settlement of $292,000 which was offset by the loss of rental
income as a result of the lease expiration on Bowmar's building in Acton,
Massachusetts in February 1997 combined with the additional expenses incurred in
fiscal 1998 to maintain and prepare the property for sale. Additionally, there
was a gain from the sale of a stock investment in the first six months of fiscal
1997.
The provision for income taxes decreased by $229,000 for the six months
of fiscal 1998 as compared to the same fiscal 1997 periods. The lower income
before income taxes over the first six months of fiscal 1998 resulted in a lower
income tax expense as compared to the same period of fiscal 1997.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Fiscal year-end 1997 working capital increased to $9,822,000 from
$8,502,000 at September 28, 1996. Changes in the components of working capital
are detailed in Bowmar's Consolidated Statements of Cash Flows. Bowmar's current
ratio at fiscal year-end 1997 is approximately 2.3 to 1. Its total
debt-to-equity ratio improved to approximately 1.3 to 1. As of April 4, 1998,
working capital had increased to $11,961,000 from $9,822,000 as of September 27,
1997, principally as a result of the profitability of Bowmar and reduction in
current liabilities.
Bowmar's capital expenditure plans are principally to expand
manufacturing capacity and are expected to be financed largely through leasing
arrangements and, to a lesser extent, through funds provided from operations.
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In fiscal 1997 and 1996, Bowmar generated $1,295,000 and $309,000
respectively of cash from operating activities. Bowmar's operations used
approximately $1,208,000 cash in the first six months of fiscal 1998. Bowmar
expects that revenues from operations, when combined with Bowmar's available
credit facilities, should be sufficient in management's opinion to fund Bowmar's
cash needs for the foreseeable future.
During the first six months of fiscal 1998 Bowmar executed a
modification to its credit facility with Bank One, which extended Bowmar's due
date on its revolving line of credit to February 28, 2000 and modified certain
restrictive covenants.
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.
Bowmar has reviewed the effect of the year 2000 on its various systems.
Management has devised and is implementing a plan to ensure that this problem
does not affect the operations of Bowmar. The plan consists of both modifying
existing systems and implementing new systems where there are additional factors
that would warrant a new system, it is not anticipated that the costs related to
resolving this issue will be material.
On April 30, 1998, Bowmar sold certain land and a building in Acton,
Massachusetts for approximately $1,200,000. No significant gain or loss was
realized on the sale. As of April 4, 1998, the land and buildings are included
in other assets.
SEASONALITY AND INFLATION
Bowmar's business is not seasonal in nature. Management believes that
Bowmar'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
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
are effective for fiscal years beginning after December 15, 1997. Management
believes that Bowmar currently does not have items that would require
presentation in a separate statement 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 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 Bowmar's future financial statements.
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INFORMATION ABOUT EDI
GENERAL
EDI was originally incorporated in California in 1984 under the name of
Crystallume. Since its inception in 1984 through October 10, 1995, EDI was
primarily engaged in research and development related to diamond coatings using
Chemical Vapor Deposition ("CVD") technology.
Effective October 10, 1995, EDI acquired all of the outstanding stock
of Electronic Designs, Inc., a privately held Massachusetts corporation
("EDI-MA"), in a purchase transaction (the "Acquisition"). EDI-MA manufactured
high density memory components used in commercial and military systems, and also
designed and manufactured flat panel display units suitable for avionics and
other specialty applications using active matrix liquid crystal displays. On
March 6, 1996, EDI was reorganized as a Delaware corporation under the name
Electronic Designs, Inc. to reflect the shift in its business focus.
In May 1997, EDI announced its intention to divest its Crystallume
Diamond Products Division. This divestiture was completed in October 1997. As a
result of the Acquisition and subsequent divestiture of the Crystallume Diamond
Products Division, EDI's current focus is the design, manufacture and sale of
semiconductor memory and flat panel display products to specialty niche markets
within these commodity markets.
NARRATIVE DESCRIPTION OF THE BUSINESS
PRODUCTS AND PRODUCT DEVELOPMENT
EDI currently manufactures and sells approximately 170 semiconductor
memory products and 15 AMLCD products for a wide range of commercial, industrial
and military applications. In fiscal 1997, memory products accounted for
approximately 84% of EDI's sales.
MEMORY PRODUCTS
EDI's memory products incorporate static random access memories
("SRAMs"), dynamic random access memories ("DRAMs") and flash memory components
using existing packaging technologies such as components surface mounted on
boards, multiple bare die on laminate ("MCM-L") or ceramic ("MCM-C"), boards
packaged using standards established by the personal computer memory card
international association ("PCMCIA" or "PC Cards") or a single die in a ceramic
package (military monolithics). Commercial module products range in density from
2 Megabit ("M") to one gigabit, widths from 8 to 64 inputs-outputs ("IOs"),
speeds as fast as 8 nanoseconds ("ns") and in various package options. Memory
products also include military monolithic and MCM-C products screened for
operating under extreme conditions which range in density from 256K to 16M,
widths from 1 to 32 IOs, speeds as fast as 15 ns and in various package options.
Product development has consisted of activities related to the design,
prototyping and release to production of new products. In addition to the
development of new products based on synchronous SRAM, DRAM and next generation
flash, recent development efforts have focused on development of lower current
products based on 3.3 volt memory circuits, flash and SRAM PC Cards and products
using advanced chip-scale-packaging ("CSP") with surface mount ball-grid-array
("BGA") footprints.
DISPLAY PRODUCTS
EDI's current offering of AMLCDs includes 5.0", 5.5", 6.4" and 10.4"
diagonal panels in display head, monitor and computer systems 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. Display
product development is aimed at offering a broad range of products based on
different sized AMLCD panels, the development of a personal computer
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("PC") technology based computer system incorporating EDI's displays, as well as
the development of advanced display driver electronics.
As with any new products, there is no assurance that the products
developed (or to be developed) by EDI will be commercially acceptable or
profitable.
PRODUCTION AND MANUFACTURING
The process of manufacturing EDI's memory products consists of
packaging, in the case of die and wafer products, to be assembled using ceramic
or laminate packages; surface mount assembly and lead attach, in the case of
module products; extensive back end testing, which may include burn-in;
encapsulation into PC Card form factor; and marking. All processes are performed
in EDI's facilities with the exception of packaging and some testing which is
subcontracted to manufacturers in Manila, Philippines and California. In
addition, EDI uses subcontractors from time to time to perform surface mount
assembly of products in order to provide additional capacity and flexibility.
Quality and reliability are emphasized in the design and manufacture of EDI's
products and EDI is ISO 9001 certified.
The manufacture of EDI's display products consists of lamination of
glass and filters to the purchased AMLCD panel for ruggedization and graphics
enhancement; assembly of backlighting and electronic circuitry; final system
assembly; and testing. All operations are performed in EDI's facility in
Westborough, Massachusetts.
MARKETING AND DISTRIBUTION
EDI's memory and display products are distributed worldwide through a
combination of independent sales representatives, distributors and EDI-employed
sales personnel. EDI has area sales offices in Westborough, San Jose and
Phoenix. Each of these sales offices is staffed by sales managers who have
responsibility for supervision of a number of sales representatives in each
area.
CUSTOMERS
EDI sells memory and display products to over 500 companies throughout
the world. Customers for EDI's commercial and industrial products include
Alcatel, Ascend Communications, Inc., Bay Networks, Inc., Cabletron System,
Inc., Ericsson, Motorola, Inc., Octel Communications Corp., Samsung Electronics
Co., Ltd., and 3Com Corp. EDI's military customers include Allied Signal Corp.,
Harris Corporation, Hughes Aircraft Company, Lockheed Corp., Raytheon Company
and Rockwell International. In fiscal years 1997 and 1996, no single customer
accounted for more than 10% of EDI's revenues.
Sales of EDI's products are generally made pursuant to standard
purchase orders, which are subject to rescheduling of delivery dates and
cancellation without significant penalties. EDI has also entered into various
corporate contracts, primarily with military customers, and these contracts do
not generally require minimum purchase quantities of EDI's products. For these
reasons, EDI believes that its product backlog, while useful for scheduling
production, does not necessarily provide a reliable indicator of future
revenues.
SUPPLIERS
The most significant raw materials that EDI purchases in its
semiconductor and display products operations are memory devices in wafer, die
and component forms and AMLCD panels. To address these needs, EDI has developed
and maintains relationships with the leading semiconductor fabricators,
primarily in the Far East, including Mitsubishi Electronics America, Inc.,
Samsung Semiconductor, Inc. and subsidiaries of Sharp Corporation.
In a time of strong demand for memory and other integrated circuit
products, sources of supply for wafers, die and other components may be
constrained and subject to shortages, and a semiconductor packager's ability to
compete is heavily dependent on its ability to maintain access to steady sources
of supply. While EDI has no specific long-term contractual arrangements with its
vendors, EDI believes that it has good relationships
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with these vendors and that it is an important part of their marketing and
distribution programs, and as such is an important customer to each. No
assurances, however, can be given that EDI's existing access to these sources of
supply may not be impaired in particular cases. Any reduction in EDI's ability
to acquire memory devices from its existing sources of supply would have a
material adverse effect on EDI.
COMPETITION
EDI's principal competitors in the commercial module market are
Integrated Device Technology, Inc. ("IDT"), Cypress Semiconductor, Inc.
("Cypress") and Smart Modular Technologies, Inc. ("Smart"). These companies are
publicly held, larger than EDI and have substantially greater financial,
technical, marketing, distribution and other resources. Smart manufactures a
broad range of memory modules in high volume while IDT and Cypress manufacture
memory products in monolithic form and supply products which incorporate these
devices. In addition, EDI competes with a number of smaller companies and larger
semiconductor companies who are now in the market or may in the future enter the
market. EDI 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. EDI's principal competitor in the
military memory market is White Technology, a division of Bowmar. EDI competes
in this market on the basis of many factors, including its quality system which
allows it to comply 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 its products on standard military drawings,
design capability, lead times, product specification, pricing and customer
service.
The principal bases 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 EDI's AMLCD is currently cathode ray tube
displays, its products compete with other flat panel displays including gas
plasma and electroluminescent displays. Because of display performance and the
significant investments previously and currently being made by a number of
Japanese and Korean companies, EDI believes that AMLCDs will displace CRTs as
the leader in the avionics display market and eventually in all display markets.
The present main competitive force for EDI's display products is the make or buy
scenario within its customers and new and existing companies purchasing and
enhancing AMLCDs manufactured by third parties.
PATENTS AND PROPRIETARY TECHNOLOGY
EDI does not rely on patents, and has no patents on memory or display
products. EDI has licensed technology for a patent on foldable electronic
assembly modules whereby, in addition to an initial license fee, EDI is required
to pay a 3% royalty on the sale of any products relying on the patent. In fiscal
1997, royalties paid under this agreement were less than $50,000.
EDI relies upon trade secrets and other non-patent proprietary
information. In addition, EDI's employees are generally required to enter into
agreements providing for confidentiality and the assignment of rights to
inventions made by them during their employment, and EDI routinely enters into
nondisclosure agreements that are intended to maintain the secrecy of its
confidential information delivered to third parties for research and other
purposes. There can be no assurance that disputes will not arise as to ownership
of portions of EDI's technology or that EDI's confidentiality, assignment and
nondisclosure agreements will provide the necessary protection.
In connection with the sale of EDI's Crystallume Diamond Products
Division, in addition to cash and notes, consideration received also included an
agreement under which EDI may receive a percentage of product and license
revenues over the next five to seven years derived by the acquiring company from
intellectual property rights transferred in the transaction.
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EMPLOYEES
As of May 27, 1998, EDI employed approximately 118 persons, all on a
full time basis, including 80 in memory products, 27 in display products and 11
in administration and finance. None of EDI's employees is represented by a labor
union or is the subject of a collective bargaining agreement. EDI has never
experienced a work stoppage and believes that its employee relations are good.
EDI believes that its success depends in large part on its ability to retain and
attract qualified management, technical and marketing personnel.
DESCRIPTION OF PROPERTY
EDI's headquarters is located at One Research Drive, Westborough,
Massachusetts. EDI leases this 33,000 square foot facility under a lease which
has recently been extended until 2003. The EDI's U.S. sales offices are leased
generally for a six month term in executive suite type office buildings. EDI's
sales office in London is leased under a long-term lease expiring in 2004.
MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
EDI Common Stock was traded on the Nasdaq SmallCap Market under the
symbol "CRYS" from March 23, 1994 to July 5, 1995 and under the symbol "EDIX"
from March 12, 1996 until the present time. EDI Common Stock was also traded on
the Pacific Stock Exchange under the symbol "CYL" from March 23, 1994 to August
10, 1995. On July 5, 1995 and August 10, 1995, respectively, EDI Common Stock
was delisted from the Nasdaq SmallCap Market and the Pacific Stock Exchange due
to a deficiency with respect to the net tangible asset maintenance requirements.
During the interim period that it was delisted from the Nasdaq SmallCap Market,
the EDI Common Stock was quoted on Nasdaq's Bulletin Board. The following table
sets forth the high and low closing sales prices per share for the period the
EDI Common Stock was listed on the Nasdaq SmallCap Market and the high and low
bid quotations per share for the period the EDI Common Stock was quoted on the
Nasdaq Bulletin Board. The over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
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<TABLE>
<CAPTION>
EDI
COMMON STOCK
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1998
Third Quarter
(through May 27, 1998) $3.000 $2.219
Second Quarter 4.188 2.250
First Quarter 5.688 3.156
FISCAL 1997
Fourth Quarter $5.563 $2.938
Third Quarter 4.063 2.625
Second Quarter 4.500 2.875
First Quarter 5.750 3.000
FISCAL 1996
Fourth Quarter $6.000 $3.500
Third Quarter 6.875 3.500
Second Quarter (1) 5.750 2.563
First Quarter (1) 4.125 3.375
</TABLE>
- ----------------------
(1) Reflects the high and low closing sales prices and high and low bid
quotations of the Nasdaq SmallCap Market and Bulletin Board,
respectively, on a combined basis.
On May 27, 1998, EDI Common Stock was held by 189 holders of record.
EDI believes that there are approximately 2,100 beneficial stockholders.
DIVIDEND POLICY
EDI has never paid a dividend and does not anticipate that it will
declare or pay cash dividends in the foreseeable future. EDI intends to retain
future earnings, if any, for use in its business.
INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS
BIOGRAPHICAL INFORMATION
The following table and biographical descriptions set forth certain
information with respect to the EDI directors and the executive officers who
will continue as directors and executive officers of the Combined Company. There
is no family relationship between any director or executive officer of EDI.
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE DIRECTOR SINCE YEAR OF EXPIRATION OF TERM
- ---------------- --- -------------- --------------------------
<S> <C> <C> <C>
Frank D. Edwards 44 1995 2001
Norman T. Hall 44 1995 2000
Donald F. McGuinness 65 1995 1999
Thomas J. Toy 42 1990 2001
</TABLE>
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Frank D. Edwards has been the Senior Vice President of Finance, Chief
Financial Officer, and Secretary of EDI since October 1995. Prior to joining
EDI, he was the Chief Financial Officer and Secretary of EDI-MA, where he also
had responsibility for the Memory Group's manufacturing, materials, and planning
functions. Mr. Edwards joined EDI-MA in 1986 as controller. Prior to joining
EDI-MA, he was an audit manager at Price Waterhouse LLP and spent six years in
the Boston and Montreal offices. Mr. Edwards is a member of the Canadian
Institute of Chartered Accountants and holds a Bachelor of Commerce from
Concordia University in Montreal and a diploma in public accounting from McGill
University.
Norman T. Hall has been a director of EDI since October 1995. Dr. Hall
is a partner in Alliant (formerly Bently Hall Von Gehr International). See "The
Merger--Opinion of EDI's Financial Advisor." Prior to joining Alliant, he worked
for Berkeley International Capital Corporation and Intel Corporation. Dr. Hall
was previously on the EDI Board, and is currently on the board of directors of
Atmel Corporation. Dr. Hall received his J.D. and M.B.A. from Golden Gate
University, Ph.D. and M.S. from the University of Hawaii, and S.Sc. from the
University of Alberta. He is a member of the State Bar of California.
Donald F. McGuinness has been the full-time Chairman of the Board,
President, and Chief Executive Officer of EDI since October 1995. Prior to
joining EDI, he was Chairman of the Board, President, and Chief Executive
Officer of EDI-MA, where he was employed for eight years. Prior to his tenure at
EDI-MA, he spent 17 years with Sprague Electric Company in various management
positions, most recently as Chief Operating Officer, with responsibility for
worldwide manufacturing, engineering, and marketing of all products, including
acquisitions, joint ventures, and corporate partnerships and divestitures. He
spent nine years with Texas Instruments Incorporated and four years with
Westinghouse Electric Corporation. Mr. McGuinness also serves on the board of
directors of Cabletron Systems, Inc., a local area networking company and a S&P
500 company listed on the New York Stock Exchange, and the board of directors of
Ibis Technology Corporation, a Nasdaq-listed semiconductor materials company.
Thomas J. Toy has been a director of EDI since May 1990. Mr. Toy
currently serves as Group Vice President of Technology Funding Inc. and is a
partner of Technology Funding Ltd. He has been employed by Technology Funding
Inc. since January 1987. Mr. Toy also serves on the board of directors of
Physiometrix, Inc., SRG Holdings, KOR Electronics, Thermatrix, and UT Starcom,
Inc. Mr. Toy received a B.A. in political science in 1977 and an M.M. in
Finance, Marketing, and General Management in 1979 from Northwestern University.
DIRECTOR COMPENSATION
Each director of EDI who is not otherwise an employee, consultant, or
independent contractor of EDI or a parent, subsidiary, or affiliate of EDI (an
"Outside Director") receives $250 per meeting for his services as a director and
is reimbursed for reasonable and necessary expenses incurred in attending the
meetings of the Board or any committee thereof.
Under the terms of EDI's 1987 Option Plan, as amended (the "Option
Plan"), each nonemployee director (a "Qualifying Director") is entitled to
receive upon election to the Board of Directors for each three years of service
an option to purchase 15,000 shares of Common Stock at an exercise price equal
to the fair market value per share at the date of grant and vesting in three
equal installments over three years. At the present, the Qualifying Directors
are Dr. Hall and Messrs. Schultz and Toy.
EDI will indemnify each director serving on the Board in connection with
his service as a director of EDI to the fullest extent allowed by Delaware law,
EDI's Certificate of Incorporation, and EDI's By-Laws, as each may be amended
from time to time.
EXECUTIVE COMPENSATION
The following table sets forth, for each of EDI's last three fiscal
years, the annual compensation awarded to the (i) person who served as EDI's
chief executive officer during fiscal 1997, and (ii) the other most highly
compensated executive officer (other than EDI's chief executive officer) who was
serving as an executive officer at the end of fiscal 1997 and who will continue
in the capacity of an executive officer of the
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Combined Company (the "EDI Named Executive Officers"). None of the EDI Named
Executive Officers were employed by EDI in fiscal year 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION AWARDS PAYOUTS
--------------------------------------------- ------ -------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) OPTIONS(#) COMPENSATION
--------------------------- ---- ------------------ ------------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Donald F. McGuinness.................. 1997 250,000 40,500 12,000 -- 6,108(2)
Chairman of the Board, President, 1996 218,836 168,750 12,000 400,000 6,108(2)
and Chief Executive Officer 1995 -- -- -- -- --
Frank D. Edwards...................... 1997 155,000 20,900 6,600 30,000 --
Senior Vice President of Finance, 1996 141,027 95,250 6,600 150,000 --
Chief Financial Officer, and 1995 -- -- -- -- --
Secretary
</TABLE>
- ------------------
(1) In each case, represents an automobile allowance.
(2) Term Life Insurance for Mr. McGuinness; policy has no cash-surrender
value.
OPTION GRANTS IN FISCAL YEAR 1997
The following table sets forth the options granted with respect to the
fiscal year ended September 30, 1997 to the EDI Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------
NUMBER OF PERCENT OF
SHARES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE OR
GRANTED IN FISCAL BASE PRICE EXPIRATION
NAME (#) YEAR(%) ($/SH) DATE
---- --- ------- ------ ----
<S> <C> <C> <C> <C>
Frank D. Edwards............................ 30,000(1) 9.0 3.5625 08/13/02
</TABLE>
- ------------------
(1) As of September 30, 1997, no options were immediately exercisable. The
options vest with respect to 10% of the shares six months from the date
of grant with the remainder vesting monthly over a five-year period.
OPTION EXERCISES AND YEAR-END HOLDINGS
The following table sets forth the aggregate number of options exercised
in fiscal year 1997 and the value of options held as of September 30, 1997 by
the EDI Named Executive Officers.
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AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997 AND
FISCAL YEAR-END 1997 OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN THE MONEY
SHARES OPTIONS AT FISCAL OPTIONS AT FISCAL
ACQUIRED ON YEAR-END(#) YEAR-END($)(1)
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- --- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Donald F. McGuinness............. -- -- 425,171/29,629 730,931/38,888
Frank D. Edwards................. -- -- 129,987/91,113 300,278/113,961
</TABLE>
- ------------------
(1) Based on the closing price of the EDI Common Stock as reported on the
Nasdaq SmallCap Market on September 30, 1997 of $4.6875 per share.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Donald F. McGuinness. EDI entered into an employment agreement, dated as
of October 10, 1995 and as amended as of February 25, 1998, with Mr. McGuinness,
under which EDI agreed to employ Mr. McGuinness as its Chairman of the Board,
President, and Chief Executive Officer. The original term of the agreement
expired on September 30, 1997. EDI and Mr. McGuinness have elected to continue
the term of the agreement until September 30, 1998, pursuant to a provision
thereof that provides that the term of the agreement automatically extends from
year to year in one-year extensions unless at least 90 days prior to an
anniversary of September 30 either party gives written notice to the other of
such party's intention not to extend the term of the agreement.
Effective as of December 1, 1997, EDI increased Mr. McGuinness' base
salary to $275,000 per year, which may be adjusted upwards from time to time in
the sole discretion of the EDI Board. Mr. McGuinness' options vest pro-rata over
a period of 36 months commencing from the date of grant.
Mr. McGuinness' employment under his employment agreement may be
terminated without cause by a vote of two-thirds of the members of the EDI Board
and a written notice to Mr. McGuinness. In the event of such termination, Mr.
McGuinness will receive certain benefits, including continued receipt of his
base salary and fringe benefits for a period of 18 months. Mr. McGuinness will
also be entitled to the above-described termination benefits if he terminates
his employment with cause.
The employment agreement provides that in the event that Mr. McGuinness
or EDI terminates his employment, EDI is obligated to continue to pay and
provide to Mr. McGuinness his base salary and fringe benefits for a period of
18 months.
In connection with the acquisition of EDI-MA, EDI also assumed an
executive severance agreement, dated as of December 21, 1994, and amended on
October 10, 1995, by and between Mr. McGuinness and EDI-MA. In the event EDI
experiences a change in control and certain terminating events occur thereafter,
the severance agreement requires EDI to pay Mr. McGuinness, in lieu of the
deferred compensation that would otherwise be payable to Mr. McGuinness, a lump
sum payment in the amount of one and one-half (1.5) times his highest annual
base salary received from EDI during any calendar year. Such terminating events
include termination by EDI without sufficient cause, or termination by Mr.
McGuinness following certain changes initiated by EDI.
Frank D. Edwards. In connection with the acquisition of EDI-MA, EDI
agreed to assume an executive severance agreement, dated as of December 21,
1994, by and between Mr. Edwards and EDI-MA. On February 25, 1998, EDI and Mr.
Edwards amended and restated this executive severance agreement. Pursuant to the
agreement, in the event that Mr. Edwards' employment is terminated under certain
circumstances,
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including without limitation a significant change in the nature or scope of his
responsibilities or duties, EDI is obligated to (i) pay Mr. Edwards a lump-sum
equal to his highest annual base salary received from EDI during any calendar
year, and (ii) provide to Mr. Edwards twelve months of continued life insurance
and health and medical benefits. Such terminating events include termination by
EDI without cause, or termination by Mr. Edwards following certain changes
initiated by EDI.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
New York Life Insurance Company. Effective November 30, 1996, EDI
redeemed all outstanding shares of its Series A Preferred Stock. Prior to this
redemption, on November 18, 1996, New York Life Insurance Company ("New York
Life"), a significant stockholder, converted all of its 206 shares of Series A
Preferred Stock into 82,400 shares of EDI Common Stock.
Technology Funding Partners III, L.P. On November 12, 1996, Technology
Funding Partners III, L.P., a significant stockholder and an affiliate of Mr.
Toy, converted all of its 50 shares of Series A Preferred Stock into 20,000
shares of EDI Common Stock.
Donald F. McGuinness. EDI issued an unsecured $250,000 note to Donald F.
McGuinness, the Chairman of the Board, President, and Chief Executive Officer,
in connection with EDI's acquisition of EDI-MA. This note was issued in partial
payment for Mr. McGuinness' EDI stock that was acquired by EDI on October 10,
1995. The note earned 7% interest and was repaid with interest, when due, on
January 1, 1996.
Thomas A. Schultz. Mr. Schultz, a director and EDI's former Chief
Executive Officer, received an interest free $100,000 loan from EDI on October
13, 1995 in connection with a $100,000 bonus payable to Mr. Schultz on or about
January 15, 1996. The note underlying this debt was due on demand but in no
event later than January 15, 1996. The note was satisfied in full.
EDI is a party to an employment agreement with Mr. McGuinness. Moreover, EDI has
entered into or assumed severance agreements with Messrs. McGuinness and
Edwards.
REPORT OF THE COMPENSATION COMMITTEE OF THE EDI BOARD ON EXECUTIVE
COMPENSATION
The compensation committee of the EDI Board (the "EDI Compensation
Committee") consists of Thomas J. Toy and Norman T. Hall. The EDI Compensation
Committee approves EDI's compensation policies and procedures, establishes
compensation levels for executive officers and administers EDI's stock plans.
GENERAL. The compensation arrangements of EDI reflect the philosophy of
the EDI Compensation Committee, and the EDI Board, that a significant portion of
the annual compensation of EDI's Chief Executive Officer and other executive
officers should be linked to EDI's performance. EDI's compensation programs are
designed to provide competitive financial rewards for successfully meeting EDI's
strategic and operating objectives, with the purposes of retaining personnel and
supporting a performance-oriented environment. Where applicable, the EDI
Compensation Committee takes into account employment agreements between an
executive officer and EDI. See "-- Employment Agreements."
COMPENSATION POLICIES FOR EXECUTIVE OFFICERS. The compensation of EDI's
Chief Executive Officer and other executive officers is comprised of annual
salary and cash and stock incentives based on annual and long-term performance
of EDI.
Base Salary. The annual base salary and base salary adjustments for
executive officers are determined by the EDI Compensation Committee in its
discretion and are targeted according to the salaries of executives holding
similar offices and having similar responsibilities within EDI's industry
segment. The EDI Compensation Committee also considers factors such as industry
experience and executive retention. Based upon the foregoing criteria, the base
salary for Mr. McGuinness was established pursuant to his employment agreement
as described below under "-- Employment Agreements." Generally, salary
adjustments for executive officers (whether determined annually with respect to
such officers or pursuant to employment
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agreements) are determined by evaluating the competitive marketplace (including
EDI's industry segment), the performance of EDI, the performance of the
executive officer and any change in the responsibilities assumed by the
executive officer. While many aspects of performance can be measured in
financial terms, the EDI Compensation Committee also evaluates the success of
executive officers in areas of non-financial performance, such as the
development and implementation of objectives and plans. Salary adjustments are
normally determined and made on an annual basis at the end of each fiscal year.
Cash Bonus. At the beginning of each fiscal year, the Chief Executive
Officer presents a cash bonus plan for that year to the EDI Compensation
Committee for its approval (the "Bonus Plan"). The EDI Compensation Committee
may in its sole discretion approve the Bonus Plan with or without modifications.
For Fiscal 1997, the Bonus Plan provided for annual cash bonuses ranging up to
60% of an executive officer's base salary, with executive officers becoming
entitled to receive a percentage of their bonus potential based upon the
percentage achievement of certain internal operating objectives. For the Chief
Executive Officer and Chief Financial Officer of EDI, these internal financial
objectives consist of revenue (weighted 50%) and earnings before interest and
taxes ("EBIT") (weighted 50%) targets relating to EDI as a whole. For all
executive officers other than the Chief Executive Officer and Chief Financial
Officer, these internal financial objectives consist of revenue (weighted 25%)
and EBIT (weighted 25%) targets relating to EDI as a whole and revenue
(weighted 25%) and EBIT (weighted 25%) targets relating to the specific
business segment of EDI within which such executive is employed. If the base
targets are satisfied, an executive will receive a cash bonus equal to 25% or
30% of his base salary, depending on the executive group. If additional higher
targets are satisfied, the executive will receive a proportionately greater
percentage of his base salary as a bonus up to 50% or 60% of his base salary,
depending on the executive group. If the base targets are not satisfied, an
executive will receive a proportionately smaller percentage of his base salary
as a bonus (less than 25% or 30% of his base salary, depending on the executive
group). Each year, the EDI Compensation Committee makes a determination as to
which executives will be placed within an executive group. For Fiscal 1997,
there were two executive groups, with the Chief Executive Officer being
entitled to receive up to 60% of his base salary in bonus and all other
executive officers being entitled to receive up to 50% of their respective base
salaries as bonus. Through the Bonus Plan, a significant portion of each
executive officer's annual total compensation is placed at risk in order to
provide an incentive toward sustained high performance.
For Fiscal 1997, Messrs. McGuinness and Edwards received a bonuses of
$40,500 and $20,900 as a result of the achievement of their performance targets.
For Fiscal 1997, Mr. Doyle and Mr. Muscolino, who were executives within the
liquid crystal display segment, received bonuses of $20,750 and $17,670,
respectively, as a result of the achievement of their performance targets.
Kenneth K. Buckley, the Vice President and Director of Marketing and Sales for
memory products in fiscal 1997, received a bonus of $15,640 for fiscal 1997
performance.
The Fiscal 1997 Bonus Plan also provided that the Chief Executive
Officer and the Chief Financial Officer were entitled to receive an additional
cash bonus for fiscal 1997 performance, independent of the achievement of the
financial performance targets discussed above. This additional bonus was based
solely on EDI's stock price sustaining certain levels for a thirty day period.
Upon achievement of these targets, the Chief Executive Officer could receive
either $35,000 or $40,000 and the Chief Financial Officer could receive either
$20,000 or $25,000. These bonuses were payable in lump sum only if the stock
price target was achieved in full. For example, if the lower target was
achieved, the Chief Executive Officer and the Chief Financial Officer would
receive $35,000 and $20,000, respectively, and if the higher target was
achieved, the Chief Executive Officer and the Chief Financial Officer would
receive $40,000 and $25,000, respectively. If the higher bonus was received, the
lower bonus would also be paid. In fiscal 1997, neither of the stock price
targets were achieved, and accordingly, no stock price bonuses were paid to
either the Chief Executive Officer or the Chief Financial Officer.
Equity Incentives. Equity incentive awards are designed to attract and
retain executives who can make significant contributions to EDI's success,
reward executives for such significant contributions and give executives a
longer-term incentive to increase stockholder value. The size and frequency of
equity and equity-based incentive awards are recommended to the EDI Compensation
Committee by the Chief Executive
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Officer in his discretion, taking into account individual performance and
responsibilities, and in some cases, without any specific performance measures.
The EDI Compensation Committee may, however, not approve of such recommendations
and, in addition, may impose specific performance measures on stock option
grants. The EDI Compensation Committee also may grant stock options for
executive retention purposes in amounts that the EDI Compensation Committee, in
its discretion, deems necessary and appropriate in order to retain highly
qualified executives. To ensure that high levels of performance occur over the
long-term, stock options granted to executives typically vest over a period of
five years. All outstanding options have been granted with an exercise price
equal to 100% of the fair market value of EDI Common Stock on the grant date.
Any value received by an executive officer from a stock option grant and any
increase in the value of stock received as a bonus depends entirely on increases
in the price of EDI Common Stock. Since the adoption of the 1987 Option Plan,
EDI's executive officers have all been granted options to acquire shares of EDI
Common Stock. During Fiscal 1997, Messrs. Edwards, Buckley, Doyle and Muscolino
received options to purchase 30,000, 20,000, 50,000 and 40,000 shares of EDI
Common Stock, respectively. Ten percent of each such option vested six months
from the grant date with the remainder vesting monthly over a five-year period.
Other Compensation. EDI provides executive officers and management with
an automobile allowance, health, retirement and other benefits under plans
that are generally available to EDI's employees.
Compensation of the Chief Executive Officer. Mr. McGuinness' base
salary is governed by Mr. McGuinness' employment agreement. Any increases in Mr.
McGuinness' compensation are determined by the EDI Compensation Committee based
upon the foregoing criteria. Under the terms of his employment agreement, which
expires in 1998, Mr. McGuinness is currently entitled to receive an annual base
salary of $275,000 ($250,000 for Fiscal 1997). Mr. McGuinness also received a
bonus of $40,500 based on the criteria discussed above applicable to
determinations of bonuses for executive officers. In addition, pursuant to the
terms of his employment agreement, any options granted to Mr. McGuinness under
the 1987 Stock Option Plan vest pro rata over a period of 36 months commencing
from the date of grant.
Federal Tax Regulations Limiting Deductibility of Certain Compensation.
As a result of Section 162(m) of the Code, a company's deduction of executive
compensation may be limited to the extent that a "covered employee" (i.e., the
chief executive officer or one of the four highest compensated officers who is
employed on the last day of the company's taxable year and whose compensation is
reported in the summary compensation table in the company's proxy statement)
receives compensation in excess of $1 million in such taxable year of the
company (other than performance-based compensation that otherwise meets the
requirements of Section 162(m) of the Code).
Current EDI Compensation Committee:
Thomas J. Toy and Norman T. Hall
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. McGuinness, Chief Executive Officer and President of EDI, makes
general recommendations to and reviews with the EDI Compensation Committee the
compensation of executives and management other than himself.
STOCKHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change
in the cumulative total stockholder return on the EDI Common Stock, based on the
market price of the EDI Common Stock and assuming reinvestment of dividends,
with the total return of companies within the Nasdaq U.S. Index and the
companies within the Nasdaq Electronic Components Index. The calculation of
total cumulative return assumes a $100 investment in the EDI Common Stock, the
Nasdaq U.S. Index and the Nasdaq Electronic Components Index on March 23, 1994.
The comparisons in this line graph are historical and are not intended to
forecast or be indicative of possible future performance of the EDI Common
Stock.
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[GRAPH]
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TABULAR REPRESENTATION OF DATA POINTS USED IN
PRINTED GRAPHIC
<TABLE>
<CAPTION>
Cumulative Total Return
------- -------- -------- ------- -------
3/23/94(1) 9/94 9/95 9/96 9/97
<S> <C> <C> <C> <C> <C>
ELECTRONIC DESIGNS, INC. 100 76 90 115 102
Nasdaq U.S. Index 100 96 133 158 217
Nasdaq Electronic Components Index 100 92 183 218 383
</TABLE>
- --------------------
(1) Represents the date on which EDI completed its initial public offering.
Certain Relationships and Related Transactions
Mr. McGuinness serves as a director of Cabletron Systems, Inc.
("Cabletron"), a local area networking company. Cabletron is a customer of EDI
that purchases memory products from time to time.
As discussed more fully under "The Merger--Opinion of EDI's Financial
Advisor," Mr. Hall is Managing Partner of Alliant. Alliant acted as EDI's
financial advisor in connection with the Merger and has rendered a fairness
opinion to the EDI Board, for which it received compensation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations section should be read in conjunction with the Consolidated
Financial Statements beginning on page F-27. This Management's Discussion and
Analysis of Financial Condition and Results of Operations section contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company's actual results could differ
materially from those set forth in the forward-looking statements. Certain
factors that might cause such a difference are discussed in the section
entitled "Certain Factors Affecting Future Operating Results" below.
OVERVIEW
Since its inception in 1984 through October 10, 1995, Electronic
Designs, Inc. (formerly Crystallume) ("EDI") had been primarily engaged in
research and development related to diamond coatings using CVD.
Effective October 10, 1995, EDI acquired all of the outstanding stock of
Electronic Designs, Inc., a privately held Massachusetts corporation ("EDI-MA"),
in a purchase transaction (the "Acquisition"). EDI-MA manufactured high density
memory components used in commercial and military systems, and also designed and
manufactured flat panel display units suitable for avionics and other specialty
applications using active matrix liquid crystal displays. On March 6, 1996, EDI
was reorganized as a Delaware corporation under the name Electronic Designs,
Inc. to reflect the shift in its business focus.
In May 1997, EDI announced its intention to divest its Crystallume
Diamond Products Division ("Crystallume"). This divestiture was completed in
October 1997. As a result of the Acquisition and subsequent divestiture of
Crystallume, EDI's current focus is the design, manufacture and sale of
semiconductor memory and flat panel display products to specialty niche markets
within these commodity markets. Accordingly, EDI had no results from continuing
operations prior to fiscal 1996.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations section should be read in conjunction with the
Consolidated Financial Statements.
In 1996 and 1997, the semiconductor industry experienced significant
over capacity, reduced demand and price erosion in semiconductor memories. The
effects of these developments on EDI's results to date have been declines in the
average selling prices and the value of orders received for its memory products
and reductions in cost and increased availability of most memory devices which
EDI purchases for incorporation in its products. The increased availability of
memory devices has caused an increase in competition and shorter lead times for
EDI's customers. EDI may be unable to increase its volumes for its existing and
new products at a rate sufficient to offset declines in selling prices and,
therefore, to maintain current revenue levels.
EDI derives a substantial portion of its revenues and earnings from
sales to defense contractors and subcontractors of memory products manufactured
as compliant to military specifications. Trends in the defense industry include
reductions in spending from year to year and the movement toward the purchase of
commercial off-the-shelf ("COTS") products rather than those manufactured as
compliant to specified military standards. Despite the slow rate of adoption of
the COTS program, these changes have had a negative effect on EDI's results due
to lower average selling prices of these products. There can be no assurance
that the continued reduction in spending and slow rate of adoption of the COTS
program will not accelerate in the future and have a further adverse effect on
EDI's results.
EDI has historically derived less than 10% of its revenues from Asian
customers, particularly in South Korea. Recent economic conditions and
uncertainty in that region have caused delays in the receipt of expected orders,
have had a negative effect on revenue and operating results during the first
half of fiscal 1998 and may negatively affect future revenues and operating
results in the near term.
As a result of the increased availability of commercial memory products,
there can be no assurance that new competitors will not enter EDI's markets or
that existing competitors, particularly those who manufacture their own
semiconductor devices, will not reduce selling prices of products to a level at
which EDI cannot compete.
EDI purchases its semiconductor components from a small number of large
suppliers, including U.S. subsidiaries of foreign suppliers who are regularly
the target of threatened or pending trade disputes and sanctions which, if
realized, could affect the ability of EDI to obtain critical raw materials. On
April 17, 1998, the U.S. Department of Commerce issued antidumping duties on all
Taiwan SRAM Die imported into the U.S. The imposition of this tariff could have
an adverse impact on EDI's ability to obtain SRAM die at competitive rates in
the future. EDI has not been materially adversely affected by this situation in
the past and does not
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anticipate experiencing any material adverse impact in the future. EDI generally
does not have specific contractual arrangements with its suppliers. While EDI
believes it has good relationships with its vendors, in the event that product
availability becomes more limited in the future, there is no assurance that
these sources of supply will continue under terms that permit EDI to compete
effectively in its targeted markets.
In the event of prolonged or sudden declines in selling prices, there
can be no assurance that EDI will continue to be able to maintain its gross
margins by offsetting future declines in selling prices with decreases in its
product costs.
As a result of EDI's decision in May 1997 to divest its Crystallume
Diamond Products Division, its results were retroactively separated from EDI's
ongoing operations in the consolidated statement of operations and labeled as
"discontinued operations."
RESULTS OF OPERATIONS
FIRST SIX-MONTHS OF FISCAL 1998 COMPARED TO THE FIRST SIX-MONTHS OF
FISCAL 1997
Revenues. Revenues decreased 16% to $17,310,000 in the first half of
fiscal 1998 from $20,589,000 in the same period in fiscal 1997. This decrease
was due substantially to declining average selling prices for EDI's memory
products reflecting declines in market prices of semiconductor memory
components. Partially offsetting the decrease in memory product sales was an
increase in display product sales.
Gross profit. Gross profit for the first six months of fiscal 1998 was
$4,353,000 compared to $8,340,000 in the same period of fiscal 1997. EDI
recorded a charge in fiscal 1998 of $860,000 related to lower of cost or market
provisions on certain inventory items that had been purchased in anticipation of
the receipt of orders for the related product from a customer in South Korea.
Gross profit as a percentage of revenues ("gross margin") decreased to 25% (or
30% excluding the effect of the lower of cost or market provisions) during the
first half of fiscal 1998 from 41% during the same period in the prior year.
Gross margin decreased as a result of the effect of the lower of cost or market
provisions and higher fixed manufacturing overhead costs in fiscal 1998 as a
percentage of revenues. In addition, EDI realized higher margins in EDI's
military memory products in fiscal 1997 as a result of lower costs of purchased
materials, which had not yet fully resulted in lower selling prices for these
products. The first six months of fiscal 1997 also benefited from higher gross
margins in EDI's display products. Due to competitive forces, EDI believes that
current gross margins, excluding the effect of lower of cost or market
provisions, are more indicative of what can be expected in the future than prior
year gross margins and are relatively consistent with the gross margins
experienced in the fourth quarter of fiscal 1997.
Operating expenses. Research and development expenses for the six-month
period of fiscal 1998 increased 32% to $1,288,000 from $978,000 in fiscal 1997
due primarily to increases in salaries and project costs associated with new
product development.
For the first six months of fiscal 1998, selling, general and
administrative expenses decreased $222,000 or 6% from $3,914,000 in fiscal 1997
due to lower bonuses, commissions and sales incentives that resulted from lower
revenues and operating margins in fiscal 1998.
Other income/expense. Interest income was $79,000 for the first six
months of fiscal 1998 as compared to $109,000 for the same period in the prior
year due to lower cash and cash equivalent balances in fiscal 1998. Interest
expense decreased $20,000 in the first six months of fiscal 1998, as compared to
the same period in the prior year, to $139,000 due to decreases in average
outstanding debt balances.
Provision (benefit) for income taxes. There was no provision (benefit)
for income taxes for the first six-months of fiscal 1998 as compared to
$317,000, or 10% of income before income taxes, for the same period in fiscal
1997. A tax benefit related to the pre-tax loss in 1998 was not recognized as
EDI increased its deferred tax asset valuation allowance to offset the increase
in total deferred tax assets. The effective tax rate in fiscal 1997 reflected
recognition of the income tax benefits of net operating loss and tax credit
carryforwards as they were utilized.
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Loss from discontinued operations. During the first six months of
fiscal 1998, there was no gain or loss recorded from discontinued operations
compared to a loss of $510,000 during the same period in fiscal 1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenues. Revenues decreased to $42,104,000 in fiscal 1997 from
$57,478,000 in fiscal 1996. This decrease was due to decreases in memory product
revenues in fiscal 1997 compared to fiscal 1996. Memory product revenues
decreased 34% from 1996 to 1997 as a result of a decline in average selling
prices, which was approximately 50% for commercial products. Average selling
prices decreased as a result of market conditions which led to increased
availability of memory devices and sharp declines in market prices of
semiconductor memory components. Partially offsetting the decreases in memory
product sales were increases in display product sales.
Gross profit. Gross profit for fiscal 1997 was $15,494,000 compared to
$16,834,000 in fiscal 1996 primarily due to the 27% reduction in sales from 1996
to 1997. Due to the pass-through nature of its business, EDI was able to offset
declines in selling prices with decreases in costs of raw materials. Gross
profit increased to 36.8% of revenues ("gross margin") in fiscal 1997, from
29.3% gross margin, in the prior year. Fiscal 1996 gross margin was lower due to
inventory write-offs taken as a result of declining memory prices and a
nonrecurring charge of $1,100,000 related to the revaluation, to their estimated
fair value, of inventories acquired as part of the Acquisition. In addition, as
a result of the rapidly declining cost of memory devices, EDI was able to
increase its gross margins on memory products in the first nine months of 1997.
Due to competitive forces, EDI's gross margins declined to 31.1% in the fourth
quarter of fiscal 1997.
Operating expenses. Research and development expenses in fiscal 1997
increased 16% to $2,135,000 from $1,846,000 in fiscal 1996. The increase
reflects research and development expenses related to new memory products such
as flash memory modules and PC Card development as well as increased
expenditures related to EDI's AMLCD products.
Selling, general and administrative expenses decreased by $1,074,000,
or 13%, to $7,487,000 in fiscal 1997 from $8,561,000 in the prior year due to
lower commissions to outside sales representatives of $750,000 as a result of
the decline in revenues, decreased legal and accounting fees and decreased
incentive compensation.
Other income/expense. Interest income increased $159,000 in fiscal 1997
to $212,000 from $53,000 in fiscal 1996 as a result of higher average cash
balances available in fiscal 1997. Interest expense decreased $439,000 in fiscal
1997 to $321,000 from $760,000 in fiscal 1996 primarily due to a decrease in the
average outstanding debt balance.
Provision for income taxes. The provision for income taxes for fiscal
1997 was $149,000 or 3% of income before income taxes and discontinued
operations, as compared to $702,000, or 13%, in fiscal 1996. The decrease in the
provision for income taxes can be attributed to an income tax benefit of $1.2
million related to the reversal of a portion of the valuation reserve related to
its deferred income tax assets (relating primarily to net operating loss and tax
credit carryforwards), offset by an increase in current income taxes as a result
of lower utilization of net operating loss carry forwards due to certain annual
limitations. EDI expects that in the future its net income will reflect a full
tax rate of approximately 40%, subject to any further adjustments to the
valuation allowance with respect to its deferred income tax assets.
Loss from discontinued operations. EDI recorded a provision for loss on
disposal of Crystallume of $973,000, which included a provision for operating
losses during the phase out period (May 13, 1997 to the estimated date of
disposal). Revenues related to discontinued operations were $744,000, $1,178,000
and $1,639,000 for fiscal 1997, 1996 and 1995, respectively. The losses from
discontinued operations for fiscal 1997 and 1996 were recorded net of current
income tax benefits of $649,000 and $126,000, respectively. There was no income
tax benefit in 1995. At September 30, 1997, the assets of Crystallume,
consisting primarily of fixed assets, have been separately classified on the
balance sheet as a current asset.
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FISCAL 1996 COMPARED TO FISCAL 1995
Income statement changes between fiscal 1996 and fiscal 1995 are due to
the acquisition of EDI - MA on October 10, 1995. Operating results prior to that
time were solely those of the discontinued operation of Crystallume.
Pro Forma Revenue. On a pro forma basis (see Note 3 to consolidated
financial statements), combined revenues of EDI and EDI-MA increased by 53% to
$58,047,000 in fiscal 1996 as compared to $37,982,000 in fiscal 1995. This
increase was due to increases in flat panel display and memory product revenues
in fiscal 1996 compared to fiscal 1995. In fiscal 1996, memory product revenues
increased due to higher unit volumes and average selling prices. Average selling
prices increased as a result of market conditions, the increased proportion of
commercial memory modules sold, which generally have higher selling prices
compared to EDI's military memory products, and the increased proportion of
higher density memory products.
Pro Forma Gross Profit. On a pro forma basis, combined gross profit
increased to $18,214,000 or 31.4% of revenues ("gross margin"), in fiscal 1996,
from $12,150,000 or 32.0% gross margin, in the prior year. The decrease in gross
margin for fiscal 1996 resulted from the higher mix of commercial module
products sold which traditionally have had lower gross margins as a consequence
of their higher purchased material content and from inventory write-offs taken
as a result of declining memory prices.
Pro Forma Operating Expenses. Pro forma research and development
expenses increased $40,000 or 2% to $1,946,000 in fiscal 1996 from $1,906,000 in
the prior year primarily due to increased expenditures related to EDI's display
products.
On a pro forma basis, selling, general and administrative expenses
increased by $1,395,000 or 19% to $8,873,000 in fiscal 1996, from $7,478,000 in
the prior year. This increase was primarily due to higher commissions to outside
sales representatives of approximately $900,000 due to the increase in revenues
of EDI on a pro forma basis and increased legal and accounting fees.
Pro Forma Other Expenses. On a pro forma basis, other expense, net
decreased $267,000 in fiscal 1996 to $722,000 from $989,000 in fiscal 1995 due
to the repayment of bank loans incurred to finance the Acquisition over the
period from the Acquisition. Such loans were assumed, for pro forma purposes, to
be outstanding for all of 1995 as if the Acquisition had occurred at the
beginning of fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
At March 29, 1998, cash and cash equivalents were $3,547,000,
representing a decrease of $665,000 from September 30, 1997.
In the first six months of fiscal 1998, EDI used $40,000 of cash for
operating activities, primarily due to decreases in accounts payable, accrued
expenses and other current liabilities substantially offset by decreases in
accounts receivable. For the same period in fiscal 1997, cash of $2,413,000 was
generated from operations primarily due to EDI's net income. EDI invested
$441,000 of cash in capital equipment expenditures during the first six months
of fiscal 1998 and received $500,000 related to the sale of its Crystallume
Diamond Products Division. EDI used $684,000 for financing activities in the
first six months of fiscal 1998 as a result of the regular repayments of its
loans and lease facilities and the repurchase of common stock under EDI's stock
repurchase program.
In fiscal 1997, EDI generated $2,563,000 of cash from operating
activities as compared to $5,605,000 in fiscal 1996. In fiscal 1997, cash was
generated from net income before deferred income taxes, depreciation and
amortization and non-cash provision for loss on discontinued operations, offset
by increases in working capital of approximately $2.4 million, particularly as a
result of increases in inventories and accounts receivable. In fiscal 1996, cash
was generated from net income before depreciation and amortization and decreases
in working capital of approximately $1.1 million, particularly as a result of a
decrease in inventories offset by an increase in accrued expenses. In fiscal
1995, cash used for operating activities was primarily to fund the net loss
incurred in the year.
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In fiscal 1997, EDI used $1,030,000 of cash for investing activities as
a result of capital equipment expenditures. EDI used $8,456,000 for investing
activities in fiscal 1996 primarily reflecting $8,088,000 of net cash paid for
the Acquisition. In addition, $368,000 of cash was used for capital equipment
expenditures in fiscal 1996. EDI also acquired test equipment in fiscal 1996
under a financing lease of $375,000 payable over four years. Capital additions
were primarily related to memory products in fiscal 1996 as compared to
$412,000, for discontinued diamond operations, in fiscal 1995.
In fiscal 1997, EDI used $611,000 in cash for financing activities
primarily as a result of scheduled repayments of long-term borrowings under its
credit facility discussed below. On May 12, 1997, the Board of Directors
authorized the repurchase of up to 350,000 shares of EDI's common stock. Through
March 29, 1998, EDI had repurchased 142,054 shares for total consideration of
$504,000 and reissued 34,038 shares under employee stock option and purchase
plans. In fiscal 1996, EDI generated $4,096,000 in cash from financing
activities. Long-term borrowings under its credit facility generated $5,500,000,
net proceeds from the sale of common stock generated $2,275,000 and repayments
of long-term debt and notes payable to officers used $3,679,000. In fiscal 1995,
EDI generated $3,657,000 from financing activities primarily from the sale of
stock Units and from bridge notes issued to finance the initial deposit for the
Acquisition.
Under the terms of an amended Loan and Security Agreement ("the
Agreement") with a bank, EDI was allowed to borrow (i) up to $3,500,000 in the
form of a term loan (ii) up to $6,000,000 under a revolving credit facility
(including up to $5,000,000 for letters of credit) (the "Revolver") and (iii) up
to $1,500,000 in the form of an equipment loan. The Agreement was amended on
March 23, 1998 extending the term of the Revolver to January 21, 1999 and
setting the maximum borrowing amount under the Revolver at $3,000,000. At March
29, 1998, $2,260,000 was outstanding under the term loan and $389,000 was
outstanding under the equipment loan. There were no letters of credit or amounts
outstanding under the Revolver at March 29, 1998.
Combined borrowings and letters of credit under the Revolver are
limited to a borrowing base, as amended, calculated on a formula based on total
domestic and foreign accounts receivable less amounts outstanding under the term
loan. Under the terms of the amended Agreement, availability under the Revolver
at March 29, 1998 was limited to $1,257,000.
During the first six-months of fiscal 1998, EDI obtained a commitment
for an Equipment Lease Line with a third party to lease up to $1,000,000 of
equipment through January 31, 1999. Any leases under the Equipment Lease Line
will be payable in sixty equal monthly installments, including interest at the
five year treasury bond rate plus 2% on the date of funding. EDI will have a
bargain purchase option at the end of the lease term and will account for any
equipment acquired under the Equipment Lease Line as a capital lease, thus
recording the value of the underlying equipment and a related obligation on its
balance sheet. The equipment to be financed will secure the leases. No
obligations were outstanding under the Equipment Lease Line as of March 29,
1998.
EDI anticipates that the combination of its current cash balance,
accounts receivable balance, Revolver, Equipment Lease Line and its cash flow
from operations will be sufficient to meet EDI's liquidity requirements for at
least the next 12 months.
EDI has undertaken an assessment of its vulnerability to the so-called
"Year 2000 issue" with respect to its computer systems. EDI has in recent years
relied almost entirely on purchased off-the-shelf software packages for both
business and engineering purposes, and has not materially customized these
packages for its purposes. The assessment was based upon formal and informal
communications with the software vendors, literature supplied with the software,
literature received in connection with maintenance contracts, and test
evaluations of the software. In addition, EDI expects to upgrade its major
systems software which will have the effect of bringing such systems into Year
2000 compliance. As a result of the assessment and expected upgrades, EDI
believes that all of its major systems software is or will prior to the
closing of the Merger be Year 2000 compliant and that the Year 2000 issue is
not likely to have a material impact on its operations.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations section contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of
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1995. EDI's actual results could differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
include the following: economic, regulatory, political and currency risks
associated with international sales which accounted for approximately 30% of
total revenues in fiscal 1997; the cyclicality of product supply and demand and
pricing in EDI's targeted markets, particularly for its memory products; EDI's
ability to develop new products; the rapidity of technological change and highly
competitive nature of the semiconductor packaging industry; competition from
larger companies in the commercial module market; the rapidity of the display
transition from cathode ray tubes ("CRT") to active matrix liquid crystal
displays ("AMLCD"); dependence on contracts with defense related companies for
its memory and display products; the movement toward the purchase of COTS
products rather than those manufactured as compliant to specified military
standards; risks related to the financial condition and success of EDI's
customers, EDI's customers' products and the general economy; the likelihood
that steep declines in sales, pricing and gross margins of commercial memory
products will occur toward the end of a product's life cycle; absence of firm
contractual relationships with certain key suppliers of significant raw
materials for its memory and display products; EDI's dependence on key personnel
and ability to attract and retain qualified management, manufacturing, quality
assurance, engineering, marketing, sales and support personnel; and trends in
outsourcing; and the Year 2000 issue. In addition, EDI's recent announcement of
the Merger could have an impact on EDI's ability to market its products to its
customers, possibly causing actual operating results to vary from expected
performance. There is no assurance that EDI will successfully complete the
Merger and integrate its operations with Bowmar, and failure to consummate this
Merger could have a material adverse effect on EDI's continuing operations and
cash flow.
SEASONALITY AND INFLATION
EDI's business is not seasonal in nature. Management believes that
EDI's operations have not been materially affected by inflation.
RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." EDI will implement SFAS No. 130 and No. 131 as required in
fiscal 1999 which will require EDI to report and display certain information
related to comprehensive income and operating segments.
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THE COMBINED COMPANY
GENERAL
Upon the effectiveness of the Merger, EDI will be a wholly owned
subsidiary of Bowmar and Bowmar's name will be changed to __________________.
The Combined Company will operate EDI and the current White Microelectronics
and Technologies Divisions of Bowmar. The Combined Company will be
headquartered in Phoenix, Arizona at what is now the White Microelectronics
facility. The Combined Company will operate the commercial memory and display
business from what is currently EDI's facility in Westborough, Massachusetts,
and the military memory products business from the White Microelectronics
facility.
DESCRIPTION OF THE BUSINESS
The parties expect that the Combined Company initially will continue
to manufacture and sell all of the products now manufactured and sold by each
of Bowmar and EDI. It is expected that the EDI commercial memory and display
business will provide the lead for the Combined Company's commercial memory
product business which will target the telecommunications and data
communications industry in particular. It is expected that the Combined
Company also will aggressively pursue additional military memory products
business, efforts which will be led by the White Microelectronics Division.
Finally, the parties expect to pursue potential synergies of the EDI display
business and the Bowmar Technologies Division product lines.
PRODUCTION AND MANUFACTURING
The Combined Company will continue to manufacture products in
Westborough, Massachusetts, Phoenix, Arizona and Ft. Wayne, Indiana. To the
extent appropriate and efficient, the Combined Company will utilize
subcontractors to perform certain manufacturing processes.
MARKETING AND DISTRIBUTION
The Combined Company will distribute its products worldwide through a
combination of the independent sales representatives and distributors of the
Combined Company and EDI and sales personnel employed by the Combined Company.
Sales offices of the Combined Company will be located in Phoenix, Arizona;
Westborough, Massachusetts; San Jose, California and Dallas, Texas.
MANAGEMENT
As contemplated by the Merger Agreement, the Combined Company Board
will consist of seven persons, three nominated by EDI, three nominated by
Bowmar and one chosen by the six so nominated. The Bowmar nominees will be
Hamid R. Shokrgozar, Edward A. White and Thomas M. Reahard. The EDI nominees
will be Donald F. McGuinness, Norman T. Hall and Thomas J. Toy. After
consummation of the Merger, Hamid R. Shokrgozar will serve as the President and
Chief Executive Officer of the Combined Company and Donald F. McGuinness will
serve as the Chairman of the Board. In addition, Joseph G. Warren, Jr. will
serve as Vice President and Chief Financial Officer of the Combined Company and
Frank D. Edwards will serve as Executive Vice President of the Combined
Company.
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COMPARATIVE RIGHTS OF STOCKHOLDERS
As a result of the Merger, the stockholders of EDI, whose rights are
currently governed by Delaware law and the Certificate of Incorporation (the
"EDI Certificate") and Bylaws (the "EDI Bylaws") of EDI, will become
stockholders of Bowmar, whose rights are governed by Indiana law and the
Amended and Restated Articles of Incorporation (the "Bowmar Articles") and
Amended and Restated Code of By-Laws (the "Bowmar Bylaws") of Bowmar. The
following discussion is intended only to highlight certain differences between
the rights of corporate stockholders under Delaware law and Indiana law
generally, and specifically with respect to stockholders of EDI and Bowmar.
The discussion is not a detailed comparison of the provisions of Indiana and
Delaware law, and EDI stockholders are referred to those laws for a definitive
treatment of the subject matter.
DIRECTORS
ELECTION OF DIRECTORS
Under Delaware law, directors, unless their terms are staggered, are
elected at each annual stockholder meeting. Vacancies on the board of
directors may be filled by the stockholders or directors, unless the
certificate of incorporation or a bylaw provides otherwise. The certificate of
incorporation may authorize the election of certain directors by one or more
classes or series of shares, and the certificate of incorporation, an initial
bylaw or a bylaw adopted by a vote of the stockholders may provide for
staggered terms for the directors. The certificate of incorporation or the
bylaws also may allow the stockholders or the board of directors to fix or
change the number of directors, but a corporation must have at least one
director. The EDI Board, which presently consists of five members, has been
established with staggered terms for directors. Presently, the EDI Certificate
divides the directors into three classes. Each class of directors must
consist, as nearly as possible, of one-third of the total number of directors,
with each director serving for a term of three years. Nominations to the EDI
Board of Directors may be made by the EDI Board or, subject to the satisfaction
of certain requirements, by the stockholders. The EDI Bylaws provide that a
stockholder's notice in connection with the nomination of directors is timely
received by EDI, in the case of an annual meeting, if received not less than 75
nor more than 120 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders. Under Delaware law, stockholders do
not have cumulative voting rights unless the certificate of incorporation so
provides. The EDI Certificate does not provide for cumulative voting.
The former stockholders of EDI will have rights under Indiana law in
the election of directors similar to those provided by Delaware law.
Directors, unless their terms are staggered, are elected at each annual
stockholders' meeting under Indiana law. The articles of incorporation may
authorize the election of certain directors by one or more classes or series of
shares. Vacancies on the board of directors may be filled by the directors,
unless the articles of incorporation or a bylaw approved by the stockholders
provides otherwise, or the vacant office was held by a director elected by a
voting group of stockholders in which case only such voting group is entitled
to fill the vacancy. A board of directors must consist of one or more
individuals with the number specified in or fixed in accordance with the
articles of incorporation or the bylaws. The articles of incorporation or
bylaws may establish a variable range for the size of the board of directors by
fixing a minimum and maximum number of directors. If a variable range is
established, the number of directors may be fixed or changed within the range
by the board of directors. The Bowmar Bylaws establish a variable range of six
to ten members of the Bowmar Board. Currently, the number of members of the
Bowmar Board is fixed at six. The Bowmar Articles provide that the holders of
the $3.00 Preferred Stock are entitled to elect at least two additional members
to the Bowmar Board fails to pay dividends to the holders of the $3.00
Preferred Stock as provided in the Bowmar Articles for a period of two years.
As of April 30, 1998, 119,906 shares of $3.00 Preferred Stock were outstanding.
Bowmar has paid all dividends to the $3.00 Preferred Stock holders in the last
two years. See "--Shares and Stockholders--Dividends."
Pursuant to the Merger Agreement, Bowmar will increase the number of
members of its Board of Directors to seven persons, three of whom will be
designated by Bowmar prior to the Effective Time, three of whom will be
designated by EDI prior to the Effective Time, and one of whom will be
appointed by the six directors so designated. The three directors designated
by Bowmar will appoint to the Bowmar Board, effective
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on the fifth day following the Effective Time, the three nominees designated by
EDI. See "The Merger--Management of the Combined Company." Under Indiana law,
stockholders do not have cumulative voting rights for the election of directors
unless the articles of incorporation so provide. The Bowmar Articles do not
provide for cumulative voting.
REMOVAL OF DIRECTORS
Under Delaware law, classified directors of a corporation may only be
removed for cause, by the holders of a majority of the shares entitled to vote
at an election, unless the certificate of incorporation specifically provides
that such directors can be removed without cause. The EDI Certificate provides
that, subject to the rights, if any, of any series of preferred stock to remove
any director whom the holders of such stock have the right to elect, any
director may be removed only with cause and by the affirmative vote of at least
two-thirds of the total votes entitled to be cast in the election of such
director. The EDI Certificate defines "cause" with respect to the removal of
any director as (i) conviction of a felony, (ii) declaration of unsound mind by
order of court, (iii) gross dereliction of duty, (iv) commission of any action
involving moral turpitude, or (v) commission of an action which constitutes
intentional misconduct or a knowing violation of law if such action in either
event results both in an improper substantial personal benefit and a material
injury to the corporation.
Indiana law provides that directors may be removed in any manner
provided in the articles of incorporation. In addition, the stockholders or
the directors may remove one or more directors with or without cause, unless
the articles of incorporation provide otherwise. The Bowmar Articles do not
address removal of directors. The Bowmar Bylaws provide that any director may
be removed, with or without cause, at any meeting of the stockholders by a vote
of a majority of the votes entitled to be cast. Under Indiana law, if a
director is elected by a voting group of stockholders, only the stockholders of
that voting group may participate in the vote to remove that director.
Provided that Bowmar has paid dividends on the Preferred Stock for two years,
the holders of Preferred Stock have no right, voting as a separate group, to
elect or remove directors. See "--Outstanding Preferred Stock." In addition,
if the articles of incorporation authorize cumulative voting, a director may
not be removed if the number of votes sufficient to elect the director under
cumulative voting is voted against the director's removal. If the articles of
incorporation do not authorize cumulative voting, a director may be removed
only if the number of votes cast to remove the director exceeds the number of
votes cast not to remove the director. The Bowmar Articles do not authorize
cumulative voting.
AMENDMENTS TO ARTICLES OF INCORPORATION
Under Delaware law, an amendment to the certificate of incorporation
of a corporation may be approved by a majority of the outstanding shares
entitled to vote upon the proposed amendment, unless a higher vote is required
in the certificate of incorporation. The EDI Certificate requires the
affirmative vote of two-thirds of the votes entitled to be cast or the
unanimous written consent of the stockholders to amend the certificate of
incorporation.
Indiana law provides that, unless a corporation's articles of
incorporation provide otherwise, directors may make certain relatively
technical amendments to a corporation's articles of incorporation without
stockholder approval. Otherwise, only the affirmative vote of a majority of
the votes entitled to be cast on the amendment by each voting group entitled to
vote on the amendment, may amend a Indiana corporation's articles of
incorporation. Holders of the Preferred Stock have the right, voting as a
group, to vote on an amendment that would adversely affect the rights,
privileges or preferences of the Preferred Stock, or that would create any
additional class of preferred stock senior or equal in preference to the
Preferred Stock. See "--Outstanding Preferred Stock." The Bowmar Articles
provide for amendment in accordance with Indiana law.
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AMENDMENTS OF BYLAWS
Delaware law provides that a corporation's bylaws may be amended by
the corporation's stockholders, or, if so provided in the corporation's
certificate of incorporation, the power to amend the corporation's bylaws may
also be conferred on the corporation's directors. The EDI Certificate provides
that the Bylaws of EDI may be amended or repealed by the affirmative vote of
two-thirds of the EDI Board or by the affirmative vote of two-thirds of the
outstanding shares of EDI stock entitled to vote thereon.
Indiana law provides that, unless the articles of incorporation
provide otherwise, only a corporation's board of directors may amend or repeal
the corporation's bylaws. The Bowmar Bylaws allow the directors to amend or
repeal the Bowmar Bylaws by an 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.
SHARES AND STOCKHOLDERS
DIVIDENDS
Subject to any restrictions contained in a corporation's certificate
of incorporation, Delaware law generally provides that a corporation may
declare and pay dividends out of a surplus (defined as the excess, if any, of
net assets over capital) or, when no surplus exists, out of net profits for the
fiscal year in which the dividend is declared and/or the preceding fiscal year.
Dividends may not be paid out of net profits if the capital of the corporation
is less than the amount of capital represented by the issued and outstanding
stock of all classes having a preference upon the distribution of assets. The
EDI Certificate provides that, subject to Delaware law, holders of the EDI
Common Stock shall be entitled to receive dividends out of funds legally
available therefor at such times and in such amounts as the EDI Board may
determine in its sole discretion. EDI has paid no dividends on the EDI Common
Stock. See "Information About EDI--Market Price of and Dividends on Common
Equity and Related Stockholder Matters."
Indiana law provides that, subject to any restrictions contained in a
corporation's articles of incorporation, the board of directors of a
corporation may authorize dividends and other distributions to the
corporation's stockholders, provided that no such distribution may be made if,
after giving it effect, (a) the corporation would be unable to pay its debts as
they come due in the ordinary course of business or (b) the corporation's total
assets would be less than the sum of its total liabilities plus (unless the
articles of incorporation permit otherwise) any preferential liquidation
amounts payable to stockholders whose preferential rights on dissolution are
superior to those of the stockholders receiving the distribution. Other than
the preferential rights of the holders of the $3.00 Preferred Stock with
respect to dividends (see "--Outstanding Preferred Stock"), the Bowmar Articles
contain no additional restrictions on the declaration or payment of dividends.
On December 6, 1996, the Bowmar Board declared a dividend of one common share
purchase right for each outstanding share of Bowmar Common Stock in connection
with the adoption of the Bowmar Rights Agreement. See "--Anti-Takeover
Provisions." Bowmar has paid all dividends to the holders of $3.00 Preferred
Stock. See "--Outstanding Preferred Stock" and "Information About
Bowmar--Market Price of and Dividends on Common Equity and Related Stockholder
Matters."
OUTSTANDING PREFERRED STOCK
By becoming holders of Combined Company Common Stock, the holders of
EDI Common Stock will become subject to the rights and preferences of the
holders of the $3.00 Preferred Stock. The $3.00 Preferred Stock has priority
over the Bowmar Common Stock with respect to dividends and to other
distributions, including the distribution of assets upon liquidation. Holders
of the $3.00 Preferred Stock are entitled to receive cumulative dividends as
declared by the Bowmar Board at the rate of $3.00 per share, per annum, payable
quarterly. Bowmar has paid all dividends to holders of $3.00 Preferred Stock.
No distribution upon liquidation to holders of Bowmar Common Stock may be made
until holders of the $3.00 Preferred Stock shall have received $25.00 per share
plus all accrued and unpaid dividends. Each share of $3.00 Preferred Stock is
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convertible into 13.33 shares of Bowmar Common Stock at an initial conversion
price of $1.875 per share, as such price may be adjusted in accordance with the
provisions of the Bowmar Articles.
Each share of $3.00 Preferred Stock is entitled to one vote per share.
The holders of $3.00 Preferred Stock vote with the holders of the Bowmar Common
Stock, except that holders of $3.00 Preferred Stock have the right, voting as a
separate class, (i) to elect at least two additional members to the Bowmar
Board after the nonpayment of dividends for two years, (ii) to vote on any
change adversely affecting the rights, privileges or preferences of such
shares, and (iii) to vote on the creation of any additional class of preferred
stock that is senior or equal in preference to the $3.00 Preferred Stock .
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
Under Delaware law, a stockholder of a Delaware corporation is
generally entitled to demand appraisal of and obtain payment of the fair value
of his or her shares in the event of any plan of merger or consolidation to
which the corporation, the shares of which he or she holds, is a party.
However, this right to demand appraisal does not apply to stockholders if: (1)
they are stockholders of the surviving corporation and if a vote of the
stockholders of such corporation is not necessary to authorize the merger or
consolidation; and (2) the shares held by the stockholders are of a class or
series registered on a national securities exchange, designated as a national
market system security on an inter-dealer quotation system by the National
Association of Securities Dealers, Inc. (the "NASD") or are held of record by
more than 2,000 stockholders on the date set to determine the stockholders
entitled to vote on the merger or consolidation. Notwithstanding the above,
appraisal rights are available for the shares of any class or series of stock
of a Delaware corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation to accept for their stock anything
except: (i) shares of stock of the corporation surviving or resulting from the
merger or consolidation; (ii) shares of stock of any other corporation which at
the effective date of the merger or consolidation will be listed on a national
securities exchange, designated as a national market system security on an
inter-dealer quotation system by the NASD or held of record by more than 2,000
stockholders; (iii) cash in lieu of fractional shares of the corporations
described in (i) and (ii); or (iv) any combination of the shares of stock and
cash in lieu of fractional shares described in (i), (ii) and (iii).
Holders of EDI Common Stock are entitled to appraisal rights in
connection with the Merger under Delaware law. See "The Merger--Appraisal
Rights of Dissenting Stockholders."
Under Indiana law, stockholders are entitled to have their shares
appraised if permitted to dissent from a plan of merger. However, dissenters'
rights are not available where stockholder approval is not required for the
merger or where the stockholder is not entitled to vote on the merger. Nor are
dissenter's rights available if, at the record date fixed to determine the
stockholders entitled to receive notice of and to vote at the Special Meeting,
the shares held were registered on a United States securities exchange
registered under the Exchange Act or traded on the Nasdaq National Market or
similar market. Because of the foregoing, Bowmar stockholders are not entitled
to dissenters' or appraisal rights in connection with the Merger.
PREEMPTIVE RIGHTS
Neither Delaware nor Indiana law provides for preemptive rights to
acquire a corporation's unissued stock. However, such right may be expressly
granted to the stockholders in a corporation's certificate or articles of
incorporation. Neither the EDI Certificate nor the Bowmar Articles provides
for preemptive rights.
CUMULATIVE VOTING RIGHTS
Under Delaware law, stockholders do not have cumulative voting rights
unless the certificate of incorporation so provides. The EDI Certificate does
not provide for cumulative voting.
Under Indiana law, stockholders do not have cumulative voting rights
unless the articles of incorporation so provide. The Bowmar Articles do not
provide for cumulative voting.
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STOCKHOLDER MEETINGS
NOTICE OF STOCKHOLDER PROPOSALS
The EDI Bylaws provide that any stockholder of record entitled to vote
at an annual meeting may bring a proposal to be acted upon, including a
nomination for director, if timely notice containing certain informational
requirements is given to EDI. To be timely, a stockholder's notice must be
delivered to EDI not less than 75 days nor more than 120 days prior to the
anniversary date of the immediately preceding annual meeting; provided that in
the event the annual meeting is scheduled to be held on a date more than 30
days before or more than 60 days after the anniversary date, notice must be
delivered to EDI not later than the later of the 75th day prior to the
scheduled date of the annual meeting, or the 15th day following the day on
which public announcement of the date of such annual meeting is first made by
EDI.
The Bowmar Bylaws do not address stockholder proposals.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Delaware law permits, unless otherwise provided in a corporation's
certificate of incorporation, any action required or permitted to be taken at
an annual or special meeting of stockholders to be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting and delivered to the
corporation. The EDI Certificate provides that any action required or
permitted to be taken by the stockholders at an annual or special meeting may
be effected by unanimous written consent of all of the stockholders in lieu
thereof.
Under Indiana law, action required or permitted to be taken at a
meeting of stockholders to be taken without a meeting if the action is taken by
all the stockholders entitled to vote on the action. The action must be
evidenced by one or more written consents describing the action taken, signed
by all the stockholders entitled to vote on the action, and delivered to the
corporation for inclusion in the minutes or filing with the corporation.
ANTI-TAKEOVER PROVISIONS
Delaware case law authorizes Delaware corporations to issue stock
purchase rights to its stockholders upon terms and conditions determined by the
board of directors. EDI has not issued any such rights.
Indiana law expressly authorizes an Indiana corporation to create or
issue rights entitling the holders thereof to purchase of shares or other
securities from the corporation or any successor in interest. The terms of
such rights, their form and content, and the consideration to be paid therefor,
if any, are to be determined by the board of directors of the corporation.
On December 6, 1996, the Bowmar Board declared a dividend of one
Common Stock Purchase Right for each outstanding share of Bowmar Common Stock
and entered into a stockholder rights agreement. If and when the Common Stock
Purchase Rights become exercisable, each Common Stock Purchase Right will
entitle the registered holder to purchase from Bowmar one share of Common Stock
at a purchase price of $20.00, subject to adjustment. The Common Stock
Purchase Rights expire on December 5, 2006, unless extended or earlier redeemed
by Bowmar.
Separate certificates representing the Common Stock Purchase Rights
will be distributed as soon as practicable after the "Distribution Date," which
occurs upon the earlier of 10 calendar days following public disclosure that
certain persons or groups of affiliated persons have acquired beneficial
ownership of 15% or more of the outstanding Common Stock (an "Acquiring
Person"), or 10 business days following the
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commencement of a tender offer or exchange offer that would result in certain
persons or groups of affiliated persons becoming Acquiring Persons.
In the event that (i) a person becomes an Acquiring Person and Bowmar
is acquired in a merger or other business combination in which it is not the
surviving corporation, (ii) any person consolidates or merges with Bowmar and
all or part of the Common Stock is exchanged for securities, cash or properties
of the other person, or (iii) 50% or more of Bowmar's assets or earning power
are sold, each holder of a Common Stock Purchase Right (except for Acquiring
Persons) has the right to receive, upon exercise, common stock of the acquiring
company which has a value equal to two times the exercise price of the Common
Stock Purchase Right. In the event that a person acquires 15% or more of
Bowmar's outstanding Common Stock, each holder of a Common Stock Purchase Right
has the right to receive, upon exercise, Common Stock of Bowmar which has a
value equal to two times the exercise price of the Common Stock Purchase Right.
In connection with the Merger, Bowmar amended the terms of the Common Stock
Purchase Rights to provide that, notwithstanding the activities of EDI and
certain of its stockholders in connection with the Merger, EDI and such
stockholders will not be considered Acquiring Persons and the Merger will not
be considered one of the foregoing events for purposes of triggering the
exercise of the Common Stock Purchase Rights.
The Bowmar Board may redeem the Common Stock Purchase Rights in whole,
but not in part, at any time until ten days following the date on which there
has been public disclosure that, or facts indicating that, a person has become
an Acquiring Person, at a price of $.01 per Common Stock Purchase Right (or
such other consideration deemed appropriate by the Board of Directors). The
redemption of the Common Stock Purchase Rights may be made effective at such
time on such basis with such conditions as the Board of Directors in its sole
discretion may establish.
The Common Stock Purchase Rights have certain anti-takeover effects.
The Common Stock Purchase Rights will cause substantial dilution to a person or
group that attempts to acquire, or merge with, Bowmar without conditioning the
offer on the Common Stock Purchase Rights being rendered inapplicable. The
Common Stock Purchase Rights have been rendered inapplicable for purposes of
the Merger as described above.
STATE ANTI-TAKEOVER LAWS
In general, Delaware law prevents an "Interested Stockholder" (defined
generally as a person with 15% or more of a corporation's outstanding voting
stock) from engaging in a "Business Combination" with a Delaware corporation
for three years following the date such person became an Interested
Stockholder. The term "Business Combination" includes mergers or
consolidations with an Interested Stockholder and certain other transactions
with an Interested Stockholder, including, without limitation: (i) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition to or with the
Interested Stockholder of assets (except proportionately as a stockholder of
the corporation) having an aggregate market value equal to 10% or more of the
aggregate market value of all assets of the corporation determined on a
consolidated basis or the aggregate market value of all the outstanding stock
of the corporation; (ii) any transaction which results in the issuance or
transfer by the corporation or by certain subsidiaries thereof of stock of the
corporation or such subsidiary to the Interested Stockholder, except pursuant
to a transaction which, in general, effects a pro rata distribution to all
stockholders of the corporation; (iii) any transaction involving the
corporation or certain subsidiaries thereof which has the effect, directly or
indirectly, of increasing the proportionate share of the shares of any class or
series, or securities convertible into shares of the corporation or any
subsidiary which is owned directly or indirectly by the Interested Stockholder
(except as a result of immaterial changes due to fractional share adjustments
or as a result of any purchase or redemption of any shares not caused by the
Interested Stockholder); or (iv) any receipt by the Interested Stockholder of
the benefit (except proportionately as a stockholder of such corporation) of
any loans, advances, guarantees, pledges, or other financial benefits provided
by or through the corporation or certain subsidiaries.
The three-year moratorium may be avoided if: (i) before such person
became an Interested Stockholder, the Board of Directors of the corporation
approved either the Business Combination or the
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transaction in which the Interested Stockholder became an Interested
Stockholder; or (ii) upon consummation of the transaction which resulted in the
stockholder becoming an Interested Stockholder, the stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding shares held by directors who are also officers
of the corporation and by employee stock ownership plans that do not provide
employees with the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer); or (iii)
on or following the date on which such person became an Interested Stockholder,
the Business Combination is approved by the Board of Directors of the
corporation and authorized at an annual or special meeting of stockholders (not
by written consent) by the affirmative vote of the stockholders of at least 66
2/3% of the outstanding voting stock of the corporation not owned by the
Interested Stockholder.
The Business Combination restrictions described above do not apply if,
among other things: (i) the corporation's original certificate of
incorporation contains a provision expressly electing not to be governed by the
statute; (ii) the holders of a majority of the voting stock of the corporation
approve an amendment to its certificate of incorporation or bylaws expressly
electing not to be governed by the statute (effective twelve (12) months after
the amendment's adoption), which amendment shall not be applicable to any
business combination with a person who was an Interested Stockholder at or
prior to the time of the amendment; or (iii) the corporation does not have a
class of voting stock that is (a) listed on a national securities exchange, (b)
authorized for quotation on Nasdaq or a similar quotation system; or (c) held
of record by more than 2,000 stockholders. The statute also does not apply to
certain Business Combinations with an Interested Stockholder when such
combination is proposed after the public announcement of, and before the
consummation or abandonment of, a merger or consolidation, a sale of 50% or
more of the aggregate market value of the assets of the corporation on a
consolidated basis or the aggregate market value of all outstanding shares of
the corporation, or a tender offer for 50% or more of the outstanding voting
shares of the corporation, if the triggering transaction is with or by a person
who either was not an Interested Stockholder during the previous three years or
who became an Interested Stockholder with Board of Director approval, and if
the transaction is approved or not opposed by a majority of the current
directors who were also directors prior to any person becoming an Interested
Stockholder during the previous three years.
Under Indiana law, an Indiana corporation may not engage in any
"Business Combination" with an "Interested Stockholder" (defined generally as a
person beneficially owning 10% or more of a corporation's outstanding voting
stock) for five years following the date such person became an Interested
Stockholder. The term "Business Combination" includes mergers with an
Interested Stockholder or any other corporation that is or would be after the
merger an affiliate of the Interested Stockholder, and certain other
transactions with an Interested Stockholder, including (i) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition to or with the
Interested Stockholder of assets having an aggregate market value of all assets
of the corporation determined on a consolidated basis, having an aggregate
market value of 10% of the aggregate market value of all outstanding shares of
the corporation, or representing 10% or more of the earning power or net income
of the corporation determined on a consolidated basis; (ii) the issuance of any
shares that have an aggregate market value of all outstanding shares of the
corporation; (iii) any reclassification of securities, recapitalization, merger
with a subsidiary, or other transaction under agreement or understanding with
the Interested Stockholder that has the effect of increasing the proportionate
share of the outstanding shares of the corporation (except as a result of
immaterial changes due to fractional share adjustments); or (iv) any receipt by
the Interested Stockholder of the benefit (except proportionately as a
stockholder of such corporation) of any loans, advances, guarantees, pledges,
or other financial benefits provided by or through the corporation.
The three year restriction will not apply if: (i) before the person
became an Interested Stockholder, the Board of Directors of the corporation
approved either the Business Combination or the transaction in which the
Interested Stockholder became an Interested Stockholder; (ii) the corporation's
original articles of incorporation contain a provision expressly electing not
to be governed by the statute; (iii) the holders of a majority of the voting
stock of the corporation (excluding Interested Stockholders) approve an
amendment to the articles of incorporation expressly electing not to be
governed by the statute (effective 18 months after the amendment's adoption),
which amendment shall not apply to a Business Combination with an Interested
Stockholder who was such at or prior to the effective date of the amendment; or
(iv) the corporation does not have a class of
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voting shares registered with the Securities Exchange Commission under Section
12 of the Securities Exchange Act of 1934.
LIMITATION OF LIABILITY
Delaware law permits a corporation to adopt a provision in its
certificate of incorporation eliminating or limiting the personal liability of
a director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except that such provision shall not
limit the liability of a director for: (i) any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) liability under Section 174 of the Delaware General Corporation Law
for unlawful payment of dividends or stock purchases or redemptions, or (iv)
any transaction from which the director derived an improper personal benefit.
The EDI Certificate provides that a director of EDI shall not be personally
liable to EDI or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for breach of the director's duty
of loyalty to EDI, (ii) for acts or missions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) under Section
174 of the Delaware General Corporation Law, or (iv) for any transaction from
which the director derived an improper personal benefit.
Indiana law does not provide for limitation of the personal liability
of a director, officer, employee or agent of a corporation to the corporation
or its stockholders for monetary damages. However, such a limitation may be
expressly granted in a corporation's articles of incorporation or bylaws. The
Bowmar Bylaws provide that no director, officer, employee or agent of Bowmar
shall be liable for any loss or damage suffered on account of any action taken
or omitted to be taken by such person, if either (i) such person acted in good
faith, with the care an ordinarily prudent person in a like position would have
exercised under similar circumstances, and in a manner such person reasonably
believed was in the best interests of Bowmar, or (ii) such person's breach of
or failure to act in accordance with the standards of conduct set forth in (i)
above did not constitute willful misconduct or recklessness.
INDEMNIFICATION
Under Delaware law, a corporation may indemnify any person made a
party or threatened to be made a party to any type of proceeding (other than an
action by or in the right of the corporation) because he is or was an officer,
director, employee or agent of the corporation, or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation or entity, against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such proceeding:
(i) if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, or (ii) in the case of
a criminal proceeding, he had no reasonable cause to believe that his conduct
was unlawful. A corporation may indemnify any person made a party or
threatened to be made a party to any threatened, pending or completed action or
suit brought by or in the right of the corporation because he was an officer,
director, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or other entity, against expenses actually and reasonably incurred
in connection with such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, except that there may be no such indemnification if the person
is found liable to the corporation unless, in such a case, the court determines
the person is entitled thereto. A corporation must indemnify a director,
officer, employee or agent against expenses actually and reasonably incurred by
him who successfully defends himself in a proceeding to which he was a party
because he was a director, officer, employee or agent of the corporation.
Expenses incurred by an officer or director (or other employees or agents as
deemed appropriate by the board of directors) in defending a civil or criminal
proceeding may be paid by the corporation in advance of the final disposition
of such proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation. The Delaware law
indemnification and expense advancement provisions are not exclusive of any
other rights which may be granted by the bylaws, a vote of stockholders or
disinterested directors, agreement or otherwise.
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The EDI Bylaws provide that each director, officer and employee of
EDI, whether serving or having served as such, shall be indemnified and held
harmless by EDI to the fullest extent permitted by Delaware law against any and
all liability fixed by a judgment, order, decree or award in a proceeding,
amounts reasonably paid in settlement of a proceeding and professional fees any
other expenses and disbursements reasonably incurred in or in settlement of a
proceeding, incurred in connection with any type of proceeding in which such
person is involved as a result of serving or having served (i) as a director,
officer or employee of EDI, (ii) as a director, officer or employee of any
wholly-owned subsidiary of EDI, or (iii) in any capacity with any other
corporation, organization, partnership, joint venture, trust or other entity at
the written request or direction of EDI; provided, however, that EDI shall
indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the EDI Board. Notwithstanding the foregoing, no indemnification shall be
provided to a person with respect to a matter as to which such person shall
have been adjudicated in a proceeding not to have acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of EDI and, with respect to any criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In addition, the
EDI Bylaws provide that, unless otherwise determined by the EDI Board and in
certain other circumstances, any indemnification extended to a director,
officer or employee of EDI pursuant to the EDI Bylaws shall include payment of
expenses to such director, officer or employee in advance of final disposition
of a proceeding. The provisions in respect of indemnification and the payment
of expenses incurred in defending a proceeding are not exclusive of any right
which a person may have under any statute, provision of the EDI Certificate or
EDI Bylaws, agreement, vote of stockholders or disinterested directors or
otherwise.
Under Indiana law, a corporation may indemnify an individual made a
party to a threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, whether formal or
informal, because the individual is or was a director against liability
incurred in the proceeding if: (i) the individual's conduct was in good faith,
and (ii) the individual reasonably believed (A) in the case of conduct in the
individual's official capacity with the corporation, that the individual's
conduct was in the best interests of the corporation, (B) in all other cases,
that the individual's conduct was at least not opposed to the best interests of
the corporation, and (C) in the case of a criminal proceeding, the individual
either had reason to believe the individual's conduct was lawful, or had no
reason to believe the individual's conduct was unlawful. Unless limited by its
articles of incorporation, a corporation shall indemnify a director, officer,
employee or agent who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which the director, officer, employee or agent was
a party because the director, officer, employee or agent is or was a director,
officer, employee or agent of the corporation against reasonable expenses
incurred in connection with the proceeding. A corporation may pay for or
reimburse reasonable expenses incurred by a director, officer, employee or
agent who is a party to a proceeding in advance of final disposition of the
proceeding if: (i) the individual furnishes the corporation written
affirmation of the individual's good faith belief that the individual has met
the standard of conduct for permissive indemnification set forth above; (ii)
the individual furnishes the corporation a written undertaking to repay the
advance if it is ultimately determined that the individual did not meet such
standard of conduct; and (iii) a determination is made by the board of
directors by majority vote of a quorum consisting of directors not at the time
parties to the proceeding that the facts known to them would not preclude
indemnification under Indiana law. In addition, a corporation may indemnify
and advance expenses to a director, officer, employee or agent, consistent with
public policy, that may be provided by its articles of incorporation, bylaws,
general or specific action of its board of directors or contract.
The Bowmar Articles provide that Bowmar shall indemnify a director or
officer of Bowmar 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 Bowmar against
reasonable expenses incurred by the director or officer in connection with the
proceeding. Bowmar may indemnify an individual made a party to a proceeding
because the individual is or was a director, officer, employee or agent of
Bowmar against liability if authorized in the specific case after
determination, in the manner required by Indiana law, that indemnification is
permissible in the circumstances because the individual has met the standard of
conduct for permissive indemnification under Indiana law set forth above. The
indemnification and advancement of expenses for directors, officers, employees
and agents of Bowmar shall apply when such persons are serving at Bowmar's
request while a director, officer, partner, trustee, employee or agent of
another
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corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, as well as in their official capacity with Bowmar. Bowmar may also
pay for or reimburse the reasonable expenses incurred by a director, officer,
employee or agent of Bowmar who is a party to a proceeding in advance of final
disposition of the proceeding upon compliance with Indiana law. See "The
Merger--Interests of Certain Persons in the Merger."
SELLING STOCKHOLDERS
TABLE OF SELLING STOCKHOLDERS
This Joint Proxy Statement/Prospectus also relates to the offer from
time to time following the Merger of shares of Combined Company Common Stock
by Technology Funding Partners III, L.P. and New York Life Insurance Company
(the "Registration Rights Holders"). See "The Merger--Interests of Certain
Persons in the Merger." The following table provides the number of shares of
EDI Common Stock owned by the Registration Rights Holders as of May 27, 1998,
and the number of shares of Combined Company Common Stock offered by each of
the Registration Rights Holders, to the best knowledge of Bowmar.
<TABLE>
<CAPTION>
SHARES OF
SHARES OF EDI COMBINED COMPANY PERCENT OF ALL
COMMON STOCK COMMON STOCK SHARES OF
BENEFICIALLY OWNED OFFERED BY COMBINED COMPANY
NAME AS OF MAY 27, 1998 THIS PROSPECTUS COMMON STOCK
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology Funding Partners III, L.P. . . . . . . . 680,477(1) 366,941
New York Life Insurance Company . . . . . . . . . . 1,862,660(2) 1,048,930
</TABLE>
- ----------------------------
(1) 266,866 of such shares are currently registered on a Form S-3 of EDI
(the "Form S-3"). Bowmar has agreed to register those shares in the
Registration Statement of which this Prospectus is a part. The number of
shares offered by this Prospectus reflects the number of shares of EDI
Common Stock subject to the Form S-3 for this Holder multiplied by the
Exchange Ratio.
(2) 762,858 of such shares are currently registered on the Form S-3. Bowmar
has agreed to register those shares in the Registration Statement of
which this Prospectus is a part. The number of shares offered by this
Prospectus reflects the number of shares of EDI Common Stock subject to
the Form S-3 for this Holder multiplied by the Exchange Ratio.
PLAN OF DISTRIBUTION
This Joint Proxy Statement/Prospectus also relates to the offer from
time to time following the Merger by the Registration Rights Holders of certain
shares of Combined Company Common Stock. See "The Merger--Interests of Certain
Persons in the Merger." Bowmar has registered the shares of Combined Company
Common Stock for sale pursuant to its obligations under the Registration Rights
Agreement, but registration of such shares does not necessarily mean that any
of the shares of Combined Company Common Stock will be offered or sold by the
Registration Rights Holders. The Combined Company will not receive any of the
proceeds of the sale of the shares of Combined Company Common Stock offered
hereby.
The distribution of shares of Combined Company Common Stock may be
effected from time to time in one or more underwritten transactions at a fixed
price or prices, which may be changed, or in other transactions at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. Any underwritten offering may be on
either a "best efforts" or a "firm commitment" basis. In connection with any
such underwritten offering, underwriters or agents may receive compensation in
the form of discounts, concessions or commissions from the Registration Rights
Holders and/or from purchasers of the shares of Combined Company Common Stock
for whom they may act as agents. Underwriters may sell shares of Combined
Company Common Stock to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents.
The Registration Rights Holders and any underwriters, dealers or
agents that participate in the distribution of shares of Combined Company
Common Stock may be deemed to be "underwriters" within the meaning of the
Securities Act, and any profit on the sale of shares of Combined Company Common
Stock by
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them and any discounts, commissions or concessions received by any such
underwriters, dealers or agents might be deemed to be underwriting discounts
and commissions under the Securities Act.
At a time a particular offer of shares of Combined Company Common
Stock is made by the Registration Rights Holders, a prospectus supplement, if
required, will be distributed that will set forth the names of any
underwriters, dealers or agents and any discounts, commissions and other terms
constituting compensation from the Registration Rights Holders and any other
required information.
The sale of shares of Combined Company Common Stock by the
Registration Rights Holders may also be effected from time to time by selling
shares of Combined Company Common Stock directly to purchasers or to or through
broker-dealers. In connection with any such sale, any such broker-dealer may
act as agent for the Registration Rights Holders or may purchase from the
Registration Rights Holders all or a portion of the shares of Combined Company
Common Stock as principal, and sales may be made pursuant to any of the methods
described below. Such sales may be made on the American Stock Exchange or
other exchanges on which the shares of Combined Company Common Stock are then
traded, in the over-the-counter market, in negotiated transactions or
otherwise, in each case at prices and at terms then prevailing or at prices
related to the then current market prices or at prices otherwise negotiated.
The shares of Combined Company Common Stock may also be sold in one or
more of the following transactions: (i) block transactions (which may involve
crosses) in which a broker-dealer may sell all or a portion of such shares as
agent but may position and resell all or a portion of the block as principal to
facilitate the transaction; (ii) purchases by any such broker-dealer as
principal and resale by such broker-dealer for its own account pursuant to a
prospectus supplement; (iii) a special offering, an exchange distribution or a
secondary distribution in accordance with applicable American Stock Exchange or
other stock exchange rules; (iv) ordinary brokerage transactions and
transactions in which any such broker-dealer solicits purchasers; (v) sales "at
the market" to or through a market maker or into an existing trading market, on
an exchange or otherwise, for such shares; and (vi) sales in other ways not
involving market makers or established trading markets, including direct sales
to purchasers. In effecting sales, broker-dealers engaged by the Registration
Rights Holders may arrange for other broker-dealers to participate.
Broker-dealers will receive commissions or other compensation from the
Registration Rights Holders in amounts to be negotiated immediately prior to
the sale that will not exceed those customary in the types of transactions
involved. Broker-dealers may also receive compensation from purchasers of the
shares of Combined Company Common Stock which is not expected to exceed that
customary in the types of transactions involved.
In order to comply with the securities laws of certain states, if
applicable, the shares of Combined Company Common Stock may be sold only
through registered or licensed brokers or dealers.
Until the distribution of the shares of Combined Company Common Stock
is completed, rules of the Commission may limit the ability of any underwriters
and selling group members to bid for and purchase the shares of Combined
Company Common Stock. As an exception to these rules, underwriters are
permitted to engage in certain transactions that stabilize the price of the
shares of Combined Company Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
shares of Combined Company Common Stock.
If any underwriters create a short position in the shares of Combined
Company Common Stock in connection with the offering, i.e., if they sell more
shares of Combined Company Common Stock than are set forth in the table under
"Selling Stockholders," the underwriters may reduce that short position by
purchasing shares of Combined Company Common Stock in the open market.
The lead underwriters may also impose a penalty bid on certain other
underwriters participating in the offering and selling group members. This
means that if the lead underwriters purchase shares of Combined Company Common
Stock in the open market to reduce the underwriters' short position or to
stabilize the price of the shares of Combined Company Common Stock, they may
reclaim the amount of any selling concession
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from the underwriters and selling group members who sold those shares of
Combined Company Common Stock as part of the offering.
In general, purchases of a security for the purpose of stabilization
or to reduce a short position could cause the price of the security to be
higher than it might be in the absence of such purchasers. The imposition of a
penalty bid might also have an effect on the price of a security to the extent
that it were to discourage resale of the security before the distribution is
completed.
Bowmar makes no representation or prediction as to the direction or
magnitude of any effect that the transactions described above might have on the
price of the shares of Combined Company Common Stock. In addition, Bowmar
makes no representation that underwriters will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
All expenses incident to the offering and sale of the shares of
Combined Company Common Stock (other than brokerage and underwriting
commissions and taxes of any kind and any legal, accounting and other expenses
incurred by the Registration Rights Holders) shall be paid by Bowmar. Bowmar
has agreed to indemnify the Registration Rights Holders against certain losses,
claims, damages and liabilities, including liabilities under the Securities
Act.
LEGAL MATTERS
Certain legal matters and certain tax matters with respect to the
Merger will be passed upon for Bowmar by Bryan Cave LLP, Washington, DC and for
EDI by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
EXPERTS
Bowmar's consolidated balance sheets as of September 27, 1997 and
September 28, 1996 and consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended September 27,
1997 included in this Joint Proxy Statement/Prospectus have been included
herein in reliance on the report of Coopers & Lybrand, L.L.P., independent
accountants, given upon the authority of that firm as experts in accounting and
auditing.
The consolidated financial statements of EDI as of September 30, 1997
and 1996 and for each of the three years in the period ended September 30, 1997
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
STOCKHOLDER PROPOSALS
Any Combined Company stockholder that wishes to submit a proposal for
presentation to the Combined Company's 1999 Annual Meeting of Stockholders must
submit the proposal to the Combined Company at its principal office not later
than September 1, 1998 for inclusion, if appropriate, in Combined Company's
proxy statement and form of proxy relating to such meeting.
In the event the Merger is not consummated, any Bowmar stockholder
that wishes to submit a proposal for presentation to Bowmar's 1999 Annual
Meeting of Stockholders must submit the proposal to Bowmar at its principal
office not later than September 1, 1998 for inclusion, if appropriate, in
Bowmar's proxy statement and form of proxy relating to such meeting.
In the event the Merger is not consummated, any EDI stockholder that
wishes to submit a proposal for presentation to EDI's 1999 Annual Meeting of
Stockholders must submit the proposal to EDI at its principal office not later
than September 11, 1998 for inclusion, if appropriate, in EDI's proxy statement
and form of proxy relating to such meeting. In addition, the EDI Bylaws
provide that any stockholder of record wishing to have a
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stockholder proposal considered at an annual meeting must provide written
notice of such proposal and appropriate supporting documentation, as set forth
in the EDI Bylaws, to EDI at its principal executive office not less than 75
days nor more 120 days prior to the anniversary date of the immediately
preceding annual meeting (the "Anniversary Date"); provided, however, that in
the event the annual meeting is scheduled to be held on a date more than 30
days before or more than 60 days after the Anniversary Date, notice must be so
delivered not later than the close of business on the later of (i) the 75th day
prior to the scheduled date of such annual meeting or (ii) the 15th day after
public disclosure of the date of such meeting.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants of Bowmar . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets of Bowmar as of September 27, 1997 and
September 28, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Income of Bowmar for the fiscal years ended
1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Shareholders' Equity of Bowmar as of October 1,
1994, September 30, 1995, September 28, 1996 and September 27, 1997 . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows of Bowmar for the fiscal years ended
1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements of Bowmar . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Balance Sheet (Unaudited) of Bowmar as of April 4, 1998 . . . . . . . . . . . . . . F-21
Consolidated Statements of Income (Unaudited) of Bowmar for the second
quarter of 1998 and 1997 and the first six months of 1998 and 1997 . . . . . . . . . . . . . . . F-22
Consolidated Statements of Cash Flows of Bowmar (Unaudited) for the
six months ended April 4, 1998 and March 29, 1997 . . . . . . . . . . . . . . . . . . . . . . . . F-23
Notes to Consolidated Financial Statements (Unaudited) of Bowmar . . . . . . . . . . . . . . . . F-24
Report of Independent Accountants of EDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-27
Consolidated Balance Sheet of EDI as of September 30, 1997 and 1996
and March 29, 1998 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-28
Consolidated Statement of Operations of EDI for the fiscal years ended
1997, 1996 and 1995 and for the six months ended March 29, 1998 and
March 30, 1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-29
Consolidated Statement of Shareholders' Equity of EDI for the fiscal years ended
September 30, 1995, 1996 and 1997 and for the six months ended
March 29, 1998 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-30
Consolidated Statement of Cash Flows of EDI for the fiscal years ended
September 30 1997, 1996 and 1995 and for the six months ended March 29,
1998 and March 30, 1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-31
Notes to Consolidated Financial Statements of EDI . . . . . . . . . . . . . . . . . . . . . . . . F-32
</TABLE>
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REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF BOWMAR INSTRUMENT CORPORATION
We have audited the accompanying consolidated balance sheets of Bowmar
Instrument Corporation and Subsidiary as of September 27, 1997 and September
28, 1996, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended September
27, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Bowmar
Instrument Corporation and Subsidiary as of September 27, 1997 and September
28, 1996, and the results of their operations and their cash flows for each of
the three years in the period ended September 27, 1997, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
December 2, 1997 (except for Note 17
for which the date is December 19, 1997
and paragraph (i) of Note 2, the second
paragraph of Note 4 and Note 16, for which
the date is May 28, 1998)
F-1
<PAGE> 145
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
==========================================================================================================
September 27, September 28,
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 1,218 $ 108
Accounts receivable, less allowance for 4,476 3,992
doubtful accounts of $43 and $136
Inventories 8,158 6,059
Prepaid expenses 539 402
Deferred income taxes 2,782 1,652
- ----------------------------------------------------------------------------------------------------------
Total Current Assets 17,173 12,213
Property, Plant and Equipment, net 2,642 1,122
Deferred Income Taxes 492 1,524
Other Assets, net 1,202 1,679
- ----------------------------------------------------------------------------------------------------------
Total Assets $ 21,509 $ 16,538
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 1,608 $ 556
Accounts payable 1,987 933
Accrued salaries and benefits 1,953 1,503
Other accrued expenses 503 719
Reserve for loss on discontinued operation 1,300 0
- ----------------------------------------------------------------------------------------------------------
Total Current Liabilities 7,351 3,711
Long-term Debt 4,546 3,675
Other Long-term Liabilities 339 339
- ----------------------------------------------------------------------------------------------------------
Total Liabilities $ 12,236 $ 7,725
- ----------------------------------------------------------------------------------------------------------
Commitments and Contingencies (see Note 11)
- ----------------------------------------------------------------------------------------------------------
Shareholders' Equity
Preferred stock, $1.00 par value,
authorized 500,000 shares, issued 119,906 $ 120 $ 120
and 119,948 shares
Common stock, $0.10 stated value, authorized
15,000,000 shares, issued 6,718,934 and 6,527,675 shares 672 653
Treasury stock, 44,442 shares, at stated value (4) (4)
Additional Paid-in Capital 6,609 6,330
Retained Earnings 1,876 1,714
- ----------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $ 9,273 $ 8,813
- ----------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 21,509 $ 16,538
==========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE> 146
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
========================================================================================================================
FISCAL YEAR
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $ 27,820 $ 25,317 $ 26,869
- ------------------------------------------------------------------------------------------------------------------------
Cost of sales 17,118 15,787 17,305
- ------------------------------------------------------------------------------------------------------------------------
Gross margin 10,702 9,530 9,564
- ------------------------------------------------------------------------------------------------------------------------
Expenses
Selling, general and administrative 7,470 6,878 7,676
Product development 610 580 812
Interest expense 417 522 723
Other expense (income), net 137 (536) (224)
- ------------------------------------------------------------------------------------------------------------------------
Total expenses 8,634 7,444 8,987
- ------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 2,068 2,086 577
Income tax expense (benefit) 766 796 (3,326)
- ------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 1,302 1,290 3,903
- ------------------------------------------------------------------------------------------------------------------------
Loss on disposition of discontinued operations,
Electromechanical segment, including reclassification relating
to the provision for future operating losses, net of
deferred income tax benefit of $520 (780)
- ------------------------------------------------------------------------------------------------------------------------
Loss from discontinued operations (780)
- ------------------------------------------------------------------------------------------------------------------------
Net Income $ 522 $ 1,290 $ 3,903
- ------------------------------------------------------------------------------------------------------------------------
Earnings per share - basic, continuing operations $ 0.14 $ 0.14 $ 0.55
Earnings per share - basic, discontinued operations (0.12) 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------
Net Income per common share-basic $ 0.02 $ 0.14 $ 0.55
- ------------------------------------------------------------------------------------------------------------------------
Earnings per share - diluted, continuing operations 0.48
Earnings per share - diluted, discontinued operations 0.00
- ------------------------------------------------------------------------------------------------------------------------
Net income per share - diluted $ 0.48
- ------------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares and equivalents
Primary 6,640,772 6,462,077 6,426,378
Fully diluted 8,177,646
========================================================================================================================
</TABLE>
For fiscal 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.
F-3
<PAGE> 147
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
===================================================================================================================================
Additional Retained Total Share-
Preferred Common Treasury Paid-in Earnings holders'
Stock Stock Stock Capital (Deficit) Equity
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1994 $ 120 $ 646 $ (4) $ 6,047 $ (2,759) $ 4,050
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 3,903 3,903
Issuance of common stock:
Exercise of options and
awards and related tax benefits
35,500 shares 4 158 162
Deferred compensation costs 40 40
Payment of preferred dividends (360) (360)
===================================================================================================================================
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
===================================================================================================================================
</TABLE>
See notes to Consolidated Financial Statements.
F-4
<PAGE> 148
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
===============================================================================================
FISCAL YEAR
1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 522 $ 1,290 $ 3,903
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 540 496 552
Amortization of debt issue costs 0 0 52
Reserve for loss from discontinued operations 1,300 0 0
Deferred income tax (benefit expense) (98) 689 (3,526)
Net changes in balance sheet accounts:
Account receivables (484) (110) 952
Inventories (2,099) (639) (554)
Prepaid expenses (137) 55 21
Other assets 462 19 319
Accounts payable 1,055 (520) 417
Accrued salaries and benefits 450 (589) 537
Other accrued expenses (216) (382) 350
Other 0 0 (6)
- -----------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,295 309 3,017
- -----------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of proprety, plant and equipment (1,802) (365) (454)
Proceeds from sales of property, plant and equipment 0 135 5
Net change in other assets 0 0 (41)
- -----------------------------------------------------------------------------------------------
Net cash used in investing activities (1,802) (230) (490)
- -----------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Borrowings under (payments on) notes payable, net 2,204 4,200 (1,135)
Retirement of long-term debt (516) (4,623) (602)
Issuance of common stock 289 73 162
Payment of preferred stock dividends (360) (360) (360)
- -----------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,617 (710) (1,935)
- -----------------------------------------------------------------------------------------------
Net change in cash 1,110 (631) 592
Cash at beginning of year 108 739 147
- -----------------------------------------------------------------------------------------------
Cash at end of year $ 1,218 $ 108 $ (739)
===============================================================================================
SUPPLEMENTAL CASH FLOWS INFORMATION:
Net cash paid for interest $ 412 $ 511 $ 689
Net cash paid for income taxes 280 139 164
Non-cash Investing and Financing Activities:
Capital lease agreements 235 0 88
===============================================================================================
</TABLE>
See notes to consolidated Financial Statements.
F-5
<PAGE> 149
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
The Company is a U.S. designer and manufacturer of 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 Bowmar
Instrument Corporation and its subsidiary (collectively 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. Applicable earnings are
recorded pro rata based upon total estimated earnings at completion of
the contracts; projected losses are provided for in their entirety
when identified.
g. SALES RECOGNITION
Sales are recognized when the Company's products are shipped. When
shipments are to distributors, the Company records at the time of
shipment commissions related to the sales and reserves for estimated
returned goods and future pricing adjustments.
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
F-6
<PAGE> 150
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
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 outstanding for the period. Diluted
EPS is computed giving effect to all dilutive potential 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.
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):
FISCAL 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
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
Earnings applicable to discontinued
operations, net of tax (780,000) 6,640,772 ($0.12)
- -----------------------------------------------------------------------------------------------------------
Net Earnings 162,000 $0.02
EFFECT OF DILUTIVE SECURITIES
Common stock options 45,661
Earnings from continuing operations
available to common stock holders $162,000 6,686,433 $0.02
- -----------------------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE> 151
FISCAL 1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------
Net Earnings 930,000 $0.14
EFFECT OF DILUTIVE SECURITIES
Common stock options 118,392
Earnings from continuing operations
available to common stock holders $930,000 6,760,469 $0.14
- -----------------------------------------------------------------------------------------------------------
</TABLE>
FISCAL 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings from continuing
operations, net of tax $3,903,000
Less: preferred stock dividends 360,000
- -----------------------------------------------------------------------------------------------------------
BASIC EPS
Earnings applicable to continuing
operations, net of tax 3,543,000 6,426,378 $0.55
- -----------------------------------------------------------------------------------------------------------
Net Earnings 3,543,000 $0.55
EFFECT OF DILUTIVE SECURITIES
Dividend on preferred stock 360,000
Conversion of preferred stock 1,599,467
Common stock options 151,801
Earnings from continuing operations
available to common stock holders $3,903,000 8,177,646 $0.48
- -----------------------------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE> 152
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 are effective for
fiscal years beginning after December 15, 1997. Management believes
that the Company currently does not have items that would require
presentation in a separate statement 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 statement may require
expanded disclosure in the Company s future financial statements.
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.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
SEPTEMBER 27, 1997 SEPTEMBER 28, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 3,277,000 $ 3,330,000
Work-in-process 4,258,000 2,531,000
Finished goods 623,000 198,000
- -----------------------------------------------------------------------------------------------------------
Total Inventories $ 8,158,000 $ 6,059,000
===========================================================================================================
</TABLE>
The inventories are net of reserve for excess and obsolete for $978,000 and
$865,000 for fiscal 1997 and 1996 respectively.
4. OTHER ASSETS
Other assets include $1,457,000 for certain land and buildings in Acton, MA.
and a reserve of $425,000 for the disposition of the building. The reserve of
$425,000 for the estimated loss on the disposition of the building was included
in other income and expense in fiscal 1997. The property is currently under
contract for sale pending the performance of certain actions by the Company
including environmental testing. The building was leased to the purchasers of
the Bowmar/ALI Military Systems division under an operating lease agreement
which ended February, 1997. Rental income during fiscal years 1997, 1996, and
1995 was $233,000, $572,000 and $552,000, respectively.
On April 30, 1998, the Company sold certain land and building in Acton,
Massachusetts for approximately $1,280,000. No significant gain or loss was
realized on the sale. As of April 4, 1998, the land and buildings are included
in other assets. The proceeds were used to retire the Industrial Revenue Bonds
and repay $950,000 of the Bank One term loan.
F-9
<PAGE> 153
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
SEPTEMBER 27, 1997 SEPTEMBER 28, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 123,000 $ 123,000
Buildings and improvements 956,000 935,000
Machinery and equipment 7,525,000 5,566,000
Leasehold improvements 316,000 316,000
- -----------------------------------------------------------------------------------------------------------
Total, at cost 8,920,000 6,940,000
Less accumulated depreciation
and amortization 6,278,000 5,818,000
- -----------------------------------------------------------------------------------------------------------
Net Property, Plant and Equipment $ 2,642,000 $ 1,122,000
===========================================================================================================
</TABLE>
At fiscal year-end 1997 and 1996, property, plant and equipment includes
approximately $608,000 and $467,000, respectively, of equipment under leases
that have been capitalized. Accumulated amortization for such equipment
approximated $379,000 and $344,000 for fiscal years 1997 and 1996,
respectively.
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
SEPTEMBER 27, 1997 SEPTEMBER 28, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank One term loan $ 3,405,000 $ 3,825,000
Bank One revolving line of credit 2,331,000 0
Industrial revenue bonds 270,000 360,000
Obligations under capital leases 148,000 46,000
- -----------------------------------------------------------------------------------------------------------
6,154,000 4,231,000
Less current portion 1,608,000 556,000
- -----------------------------------------------------------------------------------------------------------
Total long term debt $ 4,546,000 $ 3,675,000
===========================================================================================================
</TABLE>
The financing agreement with Bank One provides for a $4.0 million revolving
line of credit which expires February 28, 1999 and bears interest at .5% over
the Bank's prime rate (on September 27, 1997 the loan rate was 9.0%); and a
term loan in the principal amount of $3,405,000 which bears interest at the
rate of 1.25% over the bank's prime rate. The term loan's rate on September
27, 1997 was 9.75% with principal payments of $35,000 per month and the balance
due on July 31, 2000. The Bank One financing is collateralized by all of the
assets of the Company, subject to the prior lien associated with the industrial
revenue bonds and includes certain restrictions on the Company including a
limitation on cash dividends of $500,000 maximum per year. The agreement also
includes certain other restrictive covenants, the most restrictive of which is
currently a debt coverage ratio of 3 to 1.
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 Company entered
into the agreement with Bank One in November 1995 and the proceeds were used to
retire convertible subordinated debentures and certain Foothill Capital
Corporation loans.
The industrial revenue bonds are payable quarterly through September 30, 2000
at the rate of $22,500 per quarter, plus interest at the reference rate of the
Fort Wayne National Bank. The interest rate at September 27, 1997 was 6.38%.
The bonds are collateralized by real property in Acton, Massachusetts with a
net book value of $1,032,000 which is included in other assets. At September
27, 1997 the Company was not in compliance with certain covenants related to
the industrial revenue bonds. The sole holder of these bonds has consented to
the Company's noncompliance with these covenants through
F-10
<PAGE> 154
October 3, 1998, thereby effectively waiving compliance through that date. The
most restrictive covenant is that no dividends may be paid. These bonds will be
retired if the Acton facility is sold (see Note 4).
The aggregate maturities of the above term debt are approximately $1,608,000 in
1998, $1,879,000 in 1999 and $2,667,000 in 2000.
The weighted average interest rate on long term debt for fiscal 1997, 1996 and
1995 was approximately 9.9%, 9.9%, and 11.4% respectively.
7. INCOME TAXES
The provision (credit) for income taxes on continuing operations consists of
the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
FISCAL YEAR
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $ 344,000 $ 107,000 $ 200,000
Deferred 422,000 689,000 (3,526,000)
- -----------------------------------------------------------------------------------------------------------
Income tax provision (credit) $ 766,000 $ 796,000 $(3,326,000)
===========================================================================================================
</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. As a result, during fiscal
1995, the Company recorded a $3.3 million tax credit due to the elimination of
the valuation allowance related to the Company's deferred tax asset. There can
be no assurance, however, that the Company will generate a specific level of
continued earnings.
A reconciliation of the (credit) provision for income taxes on continuing
operations between the U.S. statutory and effective rates follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
FISCAL YEAR
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision at statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 4.5 6.3 5.9
Utilization of federal net operating
loss carryover 0.0 0.0 (34.0)
Adjustment related to prior years tax (1.5) (2.1) 0.0
returns
Elimination of valuation allowance for
deferred tax assets 0.0 .0 (582.3)
- -----------------------------------------------------------------------------------------------------------
Effective Tax Rate 37.0% 38.2% (576.4)%
===========================================================================================================
</TABLE>
F-11
<PAGE> 155
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>
- -----------------------------------------------------------------------------------------------------------
SEPTEMBER 27, 1997 SEPTEMBER 28, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current:
Inventories $ 646,000 $ 540,000
Accrued salaries, benefits, interest,
expenses and reserves 1,360,000 667,000
Net operating loss carryforwards 776,000 532,000
Other 0 (87,000)
- -----------------------------------------------------------------------------------------------------------
Subtotal 2,782,000 1,652,000
Long Term:
Depreciation 264,000 303,000
Net operating loss carryforwards 84,000 1,172,000
Alternative minimum tax credits 144,000 101,000
Other 0 (52,000)
- -----------------------------------------------------------------------------------------------------------
Subtotal 492,000 1,524,000
- -----------------------------------------------------------------------------------------------------------
Total $ 3,274,000 $ 3,176,000
===========================================================================================================
</TABLE>
During the fourth quarter of fiscal 1994, the Company became aware of a
potential liability with regard to certain state income taxes for taxable years
1990 through 1994 as a result of a ruling by that state's Supreme Court. There
have been no tax assessments nor has the state audited the Company's tax
returns for those years. The Company recorded an estimated liability of
approximately $176,000 in the fourth quarter of fiscal 1994.
As of September 27 1997, the Company had federal net operating loss carryovers
for tax purposes of approximately $2,663,000 which expire from 2003 through
2005. Additionally, the Company has an alternative minimum tax credit
carryforward of approximately $144,000.
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
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost benefits earned $ 84,000 $ 71,000 $ 69,000
Interest cost 138,000 135,000 130,000
Return on plan assets (384,000) (110,000) (132,000)
Amortization of transition asset (10,000) (10,000) (10,000)
Amortization of prior service costs 15,000 (17,000) 12,000
Deferral of gain to future years 245,000 0 0
- -----------------------------------------------------------------------------------------------------------
Total pension cost $ 88,000 $ 69,000 $ 69,000
===========================================================================================================
</TABLE>
F-12
<PAGE> 156
At September 27, 1997, the actuarial present value of accumulated benefit
obligations was $1,954,961 of which $1,915,726 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 September 27, 1997 and September 28, 1996, was calculated as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
SEPTEMBER 27, 1997 SEPTEMBER 28, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation $ 1,955,000 $ 1,920,000
Market value of plan assets 2,279,000 2,047,000
- -----------------------------------------------------------------------------------------------------------
Plan assets over projected benefit 324,000 127,000
obligation
Unrecognized transition assets (10,000) (19,000)
Unrecognized past service costs 92,000 107,000
Unrecognized net loss (gain) (199,000) 72,000
- -----------------------------------------------------------------------------------------------------------
Prepaid Pension Cost $ 207,000 $ 287,000
===========================================================================================================
</TABLE>
Plan assets primarily consist of investments in mutual funds, corporate bonds
and money market funds. The weighted-average assumed discount rate was 7.5%
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 1997, 1996 and 1995,
the Company made contributions to the plan of approximately $64,000, $60,000,
and $45,000 respectively.
9. STOCK OPTIONS AND AWARDS
The Company has adopted the disclosure only provisions of SFAS No. 123
"Accounting for Stock Based Compensation". Accordingly, since all options are
issued with exercise prices greater than or equal to the market price on the
grant date, no compensation cost has been recognized for the stock option
plans.
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 September 27,1997 there were 189,519 shares available for
future grants to 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 1997,
504,000 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 1997, 44,500 shares from
the Company's 1986 Plan remain under option.
The Company's shareholder approved Non-Qualified Stock Option Plan for
Directors provides for shares of Common Stock for issuance to directors, at an
exercise price equal to the fair market value on the date of issuance. At
fiscal year end September 27, 1997, there were 82,760 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 114,000 options
under this Non-Qualified Plan have been issued to non-employee directors and
remain unexercised at September 27, 1997.
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 1997: risk free interest rate varied depending on grant date,
ranging from 5.72% to 6.69%, 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.
F-13
<PAGE> 157
A summary of the Company's stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
FISCAL YEAR
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Shares Average Shares Average Shares Under Average
Under Exercise Under Exercise Option Exercise
Option Price Option Price Price
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance
outstanding 705,200 $2.41 582,000 $2.52 361,000 $1.85
Granted 373,500 1.98 172,500 2.00 257,000 3.31
Exercised (190,700) 1.40 (27,800) 1.42 (35,500) 1.48
Canceled (225,500) 3.33 (21,500) 3.42 (500) 1.69
- ---------------------------------------------------------------------------------------------------------------
Ending balance outstanding 662,500 $2.14 705,200 $2.41 582,000 $2.52
- ---------------------------------------------------------------------------------------------------------------
Exercisable at end
of year 402,625 $2.18 426,825 $2.50 309,250 $1.94
===============================================================================================================
Shares available
for future grant 272,279 23,530 88,429
===============================================================================================================
</TABLE>
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 1997 and 1996 follows (in thousands except for per share
information):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
FISCAL YEAR
1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 522 $1,290
Option compensation expense 245 47
- -------------------------------------------------------------------------------------------------------
Pro forma net income $ 277 $1,243
=======================================================================================================
</TABLE>
Had the Company elected to adopt the recognition provisions of SFAS No. 123,
net income/(loss) per share would have been reduced by $.03 and $.01 for fiscal
1997 and 1996 respectively.
The following table summarizes additional information about the Company's stock
options outstanding as of September 27, 1997:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------------------------------------------
Weighted
Weighted Average
Shares Average Remaining Weighted-Average
Under Exercise Contractual Exercisable Exercise
Option Price Life Shares Price
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Range of exercise price: 630,500 $1.99 8.46 years 370,625 $2.01
$1.250 - $2.625 32,000 $3.38 7.77 years 32,000 $3.38
$3.125 - $3.562
- ---------------------------------------------------------------------------------------------------------------
662,500 $2.14 8.43 years 402,625 $2.18
===============================================================================================================
</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.
F-14
<PAGE> 158
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
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, 1996, and 1995, net of forfeitures, were $8,700,
$15,000, and $40,000, respectively. At September 27, 1997, all of the shares
previously awarded were unrestricted.
10. FINANCIAL INSTRUMENTS
The financial position of the Company at September 27, 1997, 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. Long Term Debt. The carrying
amount of long term debt is a reasonable estimate of fair value as the 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 1997, 1996, and 1995 was $376,000, $356,000, and $399,000
respectively. Future minimum annual fixed rentals required under noncancelable
operating leases having an original term of more than one year are $651,000 in
1998, $636,000 in 1999, $543,000 in 2000, $520,000 in 2001, $458,000 in 2002,
and $2,431,000 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 is centering 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, Bowmar 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.
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. 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 1997, 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 September 27, 1997 and September 28, 1996, there was $949,000
and $0 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 which was recorded in
other income.
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
F-15
<PAGE> 159
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. The
combined net sales were $1,038,000, $2,150,000, and $448,000 and the combined
operating losses were $83,000, $991,000 and $11,000 in fiscal 1996, 1995 and
1994 respectively.
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 Corporation'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 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.
16. DISCONTINUED OPERATIONS
In December 1997, the Board of Directors decided to sell the 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.
F-16
<PAGE> 160
On May 3 1998, the Company reached a definitive agreement to merge with
Electronic Designs Inc. (EDI). One division of EDI manufactures active matrix
liquid crystal displays (AMLCD). EDI's AMLCD products are sold mainly to
aircraft instrument manufacturers. Under the terms of the agreement, each
share of EDI's common stock will be exchanged for 1.375 shares of Bowmar common
stock.
Because of the pooling of interests preference, the Board of Directors has
decided not to sell the Technologies division. Instead, the Company will
combine both divisions to improve the performance of their products lines based
on the complementary products.
As required by EITF 90-16, the above financial information has been
reclassified to reflect the results of the Technologies division in continuing
operations. The accompanying Statement of Operations have been revised to
reflect this reclassification. During the 3rd quarter of fiscal 1998 income of
approximately $800,000 will be recognized based on the reversal of the
remaining reserve.
The following table reflects the results of the discontinued operation for the
periods presented in the Company's Consolidated Financial Statements of Income:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
TECHNOLOGIES DIVISION
OPERATING RESULTS
- -------------------------------------------------------------------------------------------------------------
FISCAL YEAR
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $5,631,000 $6,477,000 $8,802,000
Gross margin $1,682,000 $1,692,000 $2,176,000
Product development $ 130,000 $ 157,000 $ 450,000
Operating expenses $1,602,000 $1,505,000 $2,703,000
Operating income/(loss) ($50,000) $30,000 ($977,000)
=============================================================================================================
</TABLE>
The components of net assets are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
TECHNOLOGIES DIVISION
SEPTEMBER 27, 1997 SEPTEMBER 28, 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Receivables, net $ 1,089,000 $ 932,000
Inventories 1,958,000 841,000
Other current assets 385,000 361,000
Property and equipment
Intangible and other assets (net) 700,000 640,000
Accounts payable and other current liabilities (694,000) (593,000)
Long-term debt (41,000) 0
- -------------------------------------------------------------------------------------------------------------
Net Assets $ 3,397,000 $ 2,181,000
=============================================================================================================
</TABLE>
The approximate components of the accrued loss recognized in fiscal 1997 are as
follows:
<TABLE>
<CAPTION>
TECHNOLOGIES DIVISION FISCAL YEAR 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Estimated loss from operations ($800,000)
Estimated costs of disposal (300,000)
Estimated loss on sale (200,000)
-----------
($1,300,000)
-----------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE> 161
The approximate components of the accrued loss which is expected to be reversed
in the third quarter of fiscal 1998 are as follows:
<TABLE>
<CAPTION>
TECHNOLOGIES DIVISION FISCAL YEAR 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Estimated loss from operations ($300,000)
Estimated costs of disposal ( 300,000)
Estimated loss on sale ( 200,000)
--------
($800,000)
--------
- -------------------------------------------------------------------------------------------------------------
</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 will be eliminated in the first quarter of fiscal 1998 which will result
in an estimated charge in the first quarter of fiscal 1998 of $340,000 for
severance and other closing costs.
18. 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
September 27, 1997 and September 28, 1996, the Company's receivables from such
customers were approximately $ 2,118,000 and $2,536,000, respectively. Certain
major customers made up at least 10% of total segment sales in fiscal years
1996 and 1995. Sales to one customer of the microelectronic segment in fiscal
1997 1996 and 1995 were 9%, 10% and 21%, respectively.
Sales for 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 consist primarily of cash, furniture and
fixtures, unamortized debt issue costs and the deferred income tax assets.
F-18
<PAGE> 162
<TABLE>
<CAPTION>
=======================================================================================================
OPERATIONS BY BUSINESS SEGMENTS
(In thousands of dollars)
=======================================================================================================
FISCAL YEAR
- -------------------------------------------------------------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
NET SALES
Electromechanical $ 5,631 $ 6,477 $ 8,802
Microelectronic 22,189 18,840 18,067
- -------------------------------------------------------------------------------------------------------
Total $ 27,820 $ 25,317 $ 26,869
=======================================================================================================
OPERATING INCOME (LOSS)
Electromechnical $ (50) $ 30 $ (977)
Microelectronics 4,171 3,561 3,680
- -------------------------------------------------------------------------------------------------------
Operating income 4,121 3,591 2,703
General corporate expense 1,211 983 1,403
Reserve for loss on sale of Acton, MA property 425 0 0
Reserve for loss on discontinued operations 1,300 0 0
Interest expense 417 522 723
Provision (credit) for income taxes 246 796 (3,326)
- -------------------------------------------------------------------------------------------------------
Net income $ 522 $ 1,290 $ 3,903
=======================================================================================================
IDENTIFIABLE ASSETS
Electromechanical $ 4,132 $ 2,774 $ 4,248
Microelectronics 11,502 8,677 6,627
General corporate 5,875 5,087 6,557
- -------------------------------------------------------------------------------------------------------
Total $ 21,509 $ 16,538 $ 17,432
=======================================================================================================
CAPITAL EXPENDITURES*
Electromechanical $ 236 $ 21 $ 249
Microelectronics 1,794 237 293
General corporate 7 20 0
- -------------------------------------------------------------------------------------------------------
Total $ 2,037 $ 278 $ 542
=======================================================================================================
DEPRECIATION AND AMORTIZATION EXPENSE
Electromechnical $ 176 $ 202 $ 218
Microelectronics 335 237 278
General corporate 29 57 56
- -------------------------------------------------------------------------------------------------------
Total $ 540 $ 496 $ 552
=======================================================================================================
</TABLE>
*Includes expenditures under capital leases
F-19
<PAGE> 163
19. INTERIM FINANCIAL RESULTS (UNAUDITED)
(In thousands of dollars, except share data)
<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 from continuing operations
before income taxes $ 714 $ 663 $ 561 $ 130 $ 2,068
- -----------------------------------------------------------------------------------------------------------------------------------
Income from continuing
operations $ 429 $ 398 $ 351 $ 124 $ 1,302
- -----------------------------------------------------------------------------------------------------------------------------------
Discontinued operations Technologies Division (Note 16)
Loss on disposition net of deferred
income tax benefit of $520 (a) $ (780) $ (780)
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
discontinued operations $ (780) $ (780)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 429 $ 398 $ 351 $ (656) $ 522
- -----------------------------------------------------------------------------------------------------------------------------------
Net income per share - basic (b) $ 0.05 $ 0.05 $ 0.04 $ (0.12) $ 0.02
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock market price: (c)
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: (c)
High 32 34 40 39 1/2
Low 28 5/8 30 1/2 31 1/2 37
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
===================================================================================================================================
Fiscal 1996
Dec 30 Mar 30 Jun 29 Sep 28 Year
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 5,979 $ 6,951 $ 5,484 $ 6,903 $ 25,317
- -----------------------------------------------------------------------------------------------------------------------------------
Gross margin $ 2,123 $ 2,489 $ 2,262 $ 2,656 $ 9,530
- -----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes $ 340 $ 517 $ 543 $ 686 $ 2,086
- -----------------------------------------------------------------------------------------------------------------------------------
Income from continuing
operations $ 204 $ 308 $ 328 $ 450 $ 1,290
- -----------------------------------------------------------------------------------------------------------------------------------
Discontinued operations Technologies Division (Note 16)
Loss on disposition net of deferred
income tax benefit of $520 (a)
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
discontinued operations
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 204 $ 308 $ 328 $ 450 $ 1,290
- -----------------------------------------------------------------------------------------------------------------------------------
Net income per share - basic (b) $ 0.02 $ 0.03 $ 0.04 $ 0.05 $ 0.14
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock market price: (c)
High 3 2 15/16 2 11/16 2 1/16
Low 2 1/4 2 3/16 1 7/8 1 1/2
- -----------------------------------------------------------------------------------------------------------------------------------
Preferred market price: (c)
High 41 37 3/4 36 1/2 33 1/2
Low 33 34 30 28 5/8
===================================================================================================================================
</TABLE>
(a) Discontinued operations loss on disposition includes a provision of
$600,000 for losses during the phase-out period.
(b) Earnings per share-assuming dilution is the same as earnings per share and
thus is not shown separately.
(c) Both common and preferred shares are traded on the American Stock Exchange.
F-20
<PAGE> 164
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
===========================================================================
April 4, 1998
===========================================================================
<S> <C>
ASSETS
Current Assets
Cash $ 11
Accounts receivable, net 5,760
Inventories 7,718
Prepaid expenses 438
Deferred income taxes 2,782
- ---------------------------------------------------------------------------
Total Current Assets 16,709
Property, Plant and Equipment, net 2,636
Deferred Income Taxes 138
Other Assets, net 1,228
- ---------------------------------------------------------------------------
Total Assets $ 20,711
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 884
Accounts payable 1,453
Accrued salaries and benefits 1,281
Accrued expenses 260
Reserve for loss on discontinued operation 870
- ---------------------------------------------------------------------------
Total Current Liabilities 4,748
Long-Term Debt 5,765
Other Long-Term Liabilities 339
- ---------------------------------------------------------------------------
Total Liabilities 10,852
- ---------------------------------------------------------------------------
Shareholders' Equity 9,859
- ---------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 20,711
===========================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-21
<PAGE> 165
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
=========================================================================================================================
Second Quarter First Six Months
------------------------- ------------------------------
1998 1997 1998 1997
=========================================================================================================================
<S> <C> <C> <C> <C>
Sales $ 8,165 $ 6,698 $ 15,798 $ 13,186
Cost of sales 5,386 4,089 10,428 7,999
- -------------------------------------------------------------------------------------------------------------------------
Gross margin 2,779 2,609 5,370 5,187
- -------------------------------------------------------------------------------------------------------------------------
Expenses:
Selling, general and administrative 1,648 1,845 3,985 3,607
Product development 239 175 418 278
Interest expense 163 98 304 203
Other income, net (182) (172) (161) (278)
- -------------------------------------------------------------------------------------------------------------------------
Total expenses 1,868 1,946 4,546 3,810
- -------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 911 663 824 1,377
Income tax expense 341 265 321 550
- -------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 570 398 503 827
- -------------------------------------------------------------------------------------------------------------------------
Discontinued Operations - Electromechanical segment
Income/(loss) on disposition of discontinued operations
including reclassification relating to the provision
for future operating losses, net of income tax expense/
(benefit) of $(9), $0, $168, $0 $ (14) $ 0 $ 262 $ 0
- -------------------------------------------------------------------------------------------------------------------------
Net Income 556 398 765 827
=========================================================================================================================
Earnings per share basic:
Continuing operations $ 0.07 $ 0.05 $ 0 .05 $ 0.10
Discontinued operations 0.00 0.00 0 .04 0.00
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE: $ 0.07 $ 0.05 $ 0 .09 $ 0.10
=========================================================================================================================
</TABLE>
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
F-22
<PAGE> 166
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
===================================================================================================
FIRST SIX MONTHS
--------------------------------
APRIL 4, MARCH 29,
1998 1997
===================================================================================================
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 765 $ 827
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 320 277
Deferred income tax expense 354 464
Net changes in balance sheet accounts:
Accounts receivable (1,284) (944)
Inventories 440 (357)
Prepaid expenses 101 34
Accounts payable (534) 763
Accrued salaries & expenses (915) (677)
Reserve for loss from discontinued operations (430) 0
Other (25) 42
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (1,208) 429
- ---------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (351) (377)
Proceeds from sale of property, plant and equipment 36 0
- ---------------------------------------------------------------------------------------------------
Net cash used in investing activities (315) (377)
- ---------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Borrowings under long-term debt 1,207 117
Retirement of long-term debt (712) (261)
Payment of dividends on preferred stock (180) (180)
Issuance of common stock 1 241
Other 0 (6)
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 316 (89)
- ---------------------------------------------------------------------------------------------------
Net change in cash (1,207) (37)
Cash at beginning of period 1,218 108
- ---------------------------------------------------------------------------------------------------
Cash at end of period $ 11 $ 71
===================================================================================================
</TABLE>
See notes to Consolidated Financial Statements
F-23
<PAGE> 167
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of April 4, 1998, and the consolidated
statements of income for the six months ended April 4, 1998 and March 29, 1997,
and the consolidated statements of cash flows for the first six months ended
April 4, 1998 and March 29, 1997, have been prepared by the Registrant without
audit. In the opinion of management, all adjustments which are of a normal
recurring nature necessary to present fairly such financial statements have
been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these consolidated financial statements
be read in conjunction with the consolidated financial statements and notes
thereto for the fiscal year ended September 27, 1997 at pages F-1 through F-20,
above. The results of operations for the above noted periods ended are not
necessarily indicative of the operating results for the full year.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
April 4, 1998
- ------------------------------------------------------------------------
<S> <C>
Raw Materials $1,947
Work-in-process 4,950
Finished Goods 821
- ------------------------------------------------------------------------
$7,718
========================================================================
</TABLE>
3. EARNINGS PER SHARE (EPS) DISCLOSURES:
Bowmar 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 outstanding for the period.
Diluted EPS is computed giving effect to all dilutive potential 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.
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).
F-24
<PAGE> 168
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
FIRST SIX MONTHS
FISCAL 1998 FISCAL 1997
- ------------------------------------------------------------------------------------------------------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing $503,000 $827,000
operations, net of tax
Less: preferred stock
dividends 180,000 180,000
- ------------------------------------------------------------------------------------------------------------------
BASIC EPS
Earnings applicable to
continuing operations, net
of tax 323,000 6,674,495 $0.05 647,000 6,610,843 $0.10
Earnings applicable to
discontinued operations, net
of tax 262,000 6,674,495 0.04
- ------------------------------------------------------------------------------------------------------------------
Net Earnings 585,000 6,674,495 0.09 647,000 6,610,843 0.10
EFFECTS OF DILUTIVE
SECURITIES
Common stock options 96,589 10,351
- ------------------------------------------------------------------------------------------------------------------
Earnings from continuing
operations available to
common stock holders $585,000 6,771,084 $0.09 $647,000 6,621,194 $0.10
==================================================================================================================
</TABLE>
The convertible preferred stock, which was convertible to 1,598,346 common
shares on April 4, 1998 and on March 29, 1997, which could potentially dilute
basic EPS in the future was not included in the computation of diluted EPS
because to do so would have been antidilutive for the periods presented.
Options to purchase 78,000 shares of common stock at prices ranging from $2.56
to $3.56 per share were outstanding during the first six months of 1998 but
were not included in the computation of diluted EPS because the option exercise
price was greater than the average market price of the common shares. These
options expire at various times through December, 2007.
4. DISCONTINUED OPERATIONS
In December, 1997 the Board of Directors decided to sell its Technologies
division. The results of operations for the six months and quarter ended March
29, 1997, have been restated to reflect this division as a discontinued
operation. Thus, this division is reflected as a discontinued operation for
all periods presented in the Company's Statement of Income. As of September 27,
1997, the Company recorded a reserve of $1,300,000 for estimated future
operating losses of the Technologies division and the estimated costs and
losses associated with the disposition.
During the first six months of fiscal 1998, the Technologies division incurred
losses of $390,000 which, combined with $40,000 of additional cost associated
with the disposition, leaves a reserve balance of $870,000 on April 4, 1998.
On May 3 1998, the Company reached a definitive agreement to merge with
Electronic Designs Inc. (EDI). One division of EDI manufactures active matrix
liquid crystal displays (AMLCD). EDI's AMLCD products are sold mainly to
aircraft instrument manufacturers. Under the terms of the agreement, each
share of EDI's common stock will be exchanged for 1.375 shares of Bowmar common
stock.
To account for the Merger as a pooling of interests, the Board of Directors has
decided not to sell the Technologies division. Instead, the Company will
combine both divisions to improve the performance of their products lines based
on the complementary products.
F-25
<PAGE> 169
As required by EITF 90-16, the above financial information has been
reclassified to reflect the results of the Technologies division in continuing
operations. For the six months ended April 4, 1998, this reclassification
resulted in a decrease to income from continuing operations after tax of
$262,000, which was offset by a $262,000 credit to the loss on disposition of
discontinued operations, which represents a true-up of the reserve for loss on
disposition. The accompanying Statement of Operations have been revised to
reflect this reclassification. During the 3rd quarter of fiscal 1998 income of
approximately $800,000 will be recognized based on the reversal of the
remaining reserve.
The following table reflects the results of the discontinued operations:
<TABLE>
<CAPTION>
SIX MONTHS
- ------------------------------------------------------------------------------------------------------------------
TECHNOLOGIES DIVISION FISCAL 1998 FISCAL 1997
OPERATING RESULTS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 4,105,000 $ 2,573,000
Gross Margin $ 626,000 $ 850,000
Product Development $ 84,000 $ 62,000
Operating Expenses $ 932,000 $ 768,000
</TABLE>
The components of net assets of discontinued operations included in the
Company's Consolidated Balance Sheet at April 4, 1998 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TECHNOLOGIES DIVISION APRIL 4, 1998
- --------------------------------------------------------------------------------
<S> <C>
Receivables, net $ 1,743,000
Inventories 2,635,000
Other current assets 317,000
Property and equipment 666,000
Accounts payable and other current (1,057,000)
liabilities
Long-term debt (27,000)
- --------------------------------------------------------------------------------
Net Assets $ 4,277,000
================================================================================
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
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 is
centering on the interpretation of certain Government contract specified
testing requirements on incoming material. Bowmar is cooperating fully with
the investigation. On March 13, 1998, Bowmar 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.
F-26
<PAGE> 170
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Electronic Designs, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Electronic
Designs, Inc. and its subsidiaries at September 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1997 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
EDI'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.
PRICE WATERHOUSE LLP
Boston, Massachusetts
October 30, 1997, except as to the last
paragraph of Note 15, which is as of December
5, 1997, and except as to the tenth and
eleventh paragraphs of Note 2, which are as of
May 28, 1998.
F-27
<PAGE> 171
ELECTRONIC DESIGNS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 29,
1996 1997 1998
-------------- -------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,290,000 $ 4,212,000 $ 3,547,000
Accounts receivable, net of allowance for uncollectible accounts
and sales returns of $213,000, $370,000 and $242,000 at
March 29, 1998 and September 30, 1997 and 1996, respectively 6,356,000 7,393,000 4,750,000
Inventories 5,483,000 6,903,000 6,012,000
Assets of discontinued operations - 1,522,000 -
Deferred income taxes - 1,400,000 950,000
Prepaid expenses 143,000 185,000 413,000
-------------- -------------- ---------------
Total current assets 15,272,000 21,615,000 15,672,000
Property and equipment, net 3,843,000 2,117,000 2,102,000
Deferred income taxes - - 250,000
Other assets 87,000 10,000 447,000
Intangible assets, net 1,861,000 1,395,000 1,162,000
-------------- -------------- ---------------
$ 21,063,000 $ 25,137,000 $ 19,633,000
============== ============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 828,000 $ 1,059,000 $ 1,075,000
Accounts payable 5,329,000 5,723,000 2,862,000
Accrued expenses and other liabilities 2,690,000 2,334,000 2,087,000
Provision for loss on disposal of discontinued operations - 776,000 169,000
-------------- -------------- ---------------
Total current liabilities 8,847,000 9,892,000 6,193,000
Deferred income taxes - 200,000 -
Deferred rent 130,000 - -
Long-term debt, net of current portion 2,939,000 2,208,000 1,793,000
-------------- -------------- ---------------
Total liabilities 11,916,000 12,300,000 7,986,000
-------------- -------------- ---------------
Commitments (Note 15)
Shareholders' equity:
Convertible preferred stock; $0.01 par value; 8,000,000 shares
authorized - - -
Common stock; $0.01 par value; 20,000,000 shares authorized 64,000 72,000 72,000
Additional paid in capital 26,943,000 26,968,000 26,965,000
Accumulated deficit (17,860,000) (14,084,000) (15,004,000)
Treasury stock, at cost - (119,000) (386,000)
-------------- -------------- ---------------
Total shareholders' equity 9,147,000 12,837,000 11,647,000
-------------- -------------- ---------------
$ 21,063,000 $ 25,137,000 $ 19,633,000
============== ============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE> 172
ELECTRONIC DESIGNS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 29, MARCH 30,
------------------------------------
1998 1997
(UNAUDITED)
<S> <C> <C>
Revenues $ 17,310,000 $ 20,589,000
Cost of revenues 12,957,000 12,249,000
------------- --------------
Gross profit 4,353,000 8,340,000
------------- --------------
Operating expenses:
Research and development 1,288,000 978,000
Selling, general and administrative 3,692,000 3,914,000
Amortization of intangible assets 233,000 233,000
------------- --------------
5,213,000 5,125,000
------------- --------------
Income (loss) from operations (860,000) 3,215,000
------------- --------------
Other income (expense):
Interest income 79,000 109,000
Interest expense (139,000) (159,000)
------------- --------------
(60,000) (50,000)
------------- --------------
Income (loss) before income taxes and discontinued
operations (920,000) 3,165,000
Provision for income taxes - 317,000
------------- --------------
Income (loss) from continuing operations (920,000) 2,848,000
------------- --------------
Discontinued operations:
Loss from discontinued operations of Crystallume Diamond Products
Division through May 13, 1997, net of applicable income taxes - 510,000
Provision for loss on disposal of Crystallume Diamond Products
Division including provision for operating losses during the
phase-out period, net of applicable income taxes - -
------------- --------------
Loss from discontinued operations - 510,000
------------- --------------
Net income (loss) $ (920,000) $ 2,338,000
============= ==============
Basic earnings (loss) per share:
Income (loss) from continuing operations $ (0.13) $ 0.42
Loss from discontinued operations - (0.08)
------------- --------------
Net income (loss) $ (0.13) $ 0.34
============= ==============
Diluted earnings (loss) per share:
Income (loss) from continuing operations $ (0.13) $ 0.37
Loss from discontinued operations - (0.07)
------------- --------------
Net income (loss) $ (0.13) $ 0.30
============= ==============
Basic weighted average common shares 7,070,000 6,852,000
============= ==============
Diluted weighted average common shares and equivalents 7,070,000 7,674,000
============= ==============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Revenues $ 42,104,000 $ 57,478,000 $ -
Cost of revenues 26,610,000 40,644,000 -
------------- ------------- -------------
Gross profit 15,494,000 16,834,000 -
------------- ------------- -------------
Operating expenses:
Research and development 2,135,000 1,846,000 -
Selling, general and administrative 7,487,000 8,561,000 -
Amortization of intangible assets 466,000 469,000 -
------------- ------------- -------------
10,088,000 10,876,000 -
------------- ------------- -------------
Income from operations 5,406,000 5,958,000 -
------------- ------------- -------------
Other income (expense):
Interest income 212,000 53,000 -
Interest expense (321,000) (760,000) -
------------- ------------- -------------
(109,000) (707,000) -
------------- ------------- -------------
Income (loss) before income taxes and discontinued
operations 5,297,000 5,251,000 -
Provision for income taxes 149,000 702,000 -
------------- ------------- -------------
Income (loss) from continuing operations 5,148,000 4,549,000 -
------------- ------------- -------------
Discontinued operations:
Loss from discontinued operations of Crystallume Diamond Products
Division through May 13, 1997, net of applicable income taxes 399,000 1,741,000 4,158,000
Provision for loss on disposal of Crystallume Diamond Products
Division including provision for operating losses during the
phase-out period, net of applicable income taxes 973,000 - -
------------- ------------- -------------
Loss from discontinued operations 1,372,000 1,741,000 4,158,000
------------- ------------- -------------
Net income (loss) $ 3,776,000 $ 2,808,000 $ (4,158,000)
============= ============= =============
Basic earnings (loss) per share:
Income (loss) from continuing operations $ 0.74 $ 0.82 $ -
Loss from discontinued operations (0.20) (0.31) (1.29)
------------- ------------- -------------
Net income (loss) $ 0.54 $ 0.51 $ (1.29)
============= ============= =============
Diluted earnings (loss) per share:
Income (loss) from continuing operations $ 0.68 $ 0.60 $ -
Loss from discontinued operations (0.18) (0.23) (1.29)
------------- ------------- -------------
Net income (loss) $ 0.50 $ 0.37 $ (1.29)
============= ============= =============
Basic weighted average common shares 6,948,000 5,546,000 3,226,000
============= ============= =============
Diluted weighted average common shares and equivalents 7,579,000 7,603,000 3,226,000
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 173
ELECTRONIC DESIGNS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balance September 30, 1994 - $ - 3,151,466 $ 32,000
Common stock issued under stock option plans at $.22 to $3.75 per share - - 45,498 -
Sale of Units, each Unit consisting of one share of Series A convertible
preferred stock, warrants to purchase 100 shares of common stock, at
$1,000 per Unit, net of expenses of $463,000 3,829 - 382,900 4,000
Issuance of warrants to purchase common stock - - - -
Conversion of accrued interest into Units at $1,000 per Unit 156 - 15,600 -
Net loss - - - -
----------- ----------- ------------ -----------
Balance September 30, 1995 3,985 - 3,595,464 36,000
Common stock issued under employee stock option and stock purchase
plans at $0.22 to $4.09 per share - - 93,744 1,000
Issuance of options to purchase 315,000 shares of common stock at $.22
per share in connection with acquisition of EDI - MA - - - -
Sale of common stock, at $2.25 to $2.50 per share, net
of expenses of $145,000 - - 951,111 10,000
Issuance of common stock to underwriters for placement of Units - - 40,000 -
Common stock issued in payment of consulting services at $2.00 per share - - 10,053 -
Conversion of notes and interest payable to shareholders into common
stock at $2.50 per share - - 781,724 8,000
Issuance of warrants to purchase common stock - - - -
Exercise of warrants to purchase common stock at $3.25 per share - - 5,000 -
Conversion of preferred stock into common stock (2,162) - 864,800 9,000
Net income - - - -
----------- ----------- ------------ -----------
Balance September 30, 1996 1,823 - 6,341,896 64,000
Purchase of common stock for treasury, at cost - - - -
Common stock issued under employee stock option and stock
purchase plans at $0.22 to $3.75 per share - - 77,199 1,000
Stock purchase warrant issued in partial payment of services - - - -
Conversion of preferred stock into common stock (1,823) - 729,200 7,000
Net income - - - -
----------- ----------- ------------ -----------
Balance September 30, 1997 - - 7,148,295 72,000
Common stock issued under employee stock option and stock
purchase plans at $0.22 to $3.75 per share (unaudited) - - - -
Issuance of warrants to purchase common stock (unaudited) - - - -
Purchase of common stock for treasury, at cost (unaudited) - - - -
Net loss (unaudited) - - - -
----------- ----------- ------------ -----------
Balance March 29, 1998 (unaudited) - $ - 7,148,295 $ 72,000
=========== =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL
PAID IN ACCUMULATED
CAPITAL DEFICIT
--------------- -----------------
<S> <C> <C>
Balance September 30, 1994 $ 18,558,000 $ (16,510,000)
Common stock issued under stock option plans at $.22 to $3.75 per share 11,000 -
Sale of Units, each Unit consisting of one share of Series A convertible
preferred stock, warrants to purchase 100 shares of common stock, at
$1,000 per Unit, net of expenses of $463,000 3,362,000 -
Issuance of warrants to purchase common stock 9,000 -
Conversion of accrued interest into Units at $1,000 per Unit 156,000 -
Net loss - (4,158,000)
--------------- -----------------
Balance September 30, 1995 22,096,000 (20,668,000)
Common stock issued under employee stock option and stock purchase
plans at $0.22 to $4.09 per share 78,000 -
Issuance of options to purchase 315,000 shares of common stock at $.22
per share in connection with acquisition of EDI - MA 598,000 -
Sale of common stock, at $2.25 to $2.50 per share, net
of expenses of $145,000 2,170,000 -
Issuance of common stock to underwriters for placement of Units - -
Common stock issued in payment of consulting services at $2.00 per share 20,000 -
Conversion of notes and interest payable to shareholders into common
stock at $2.50 per share 1,946,000 -
Issuance of warrants to purchase common stock 28,000 -
Exercise of warrants to purchase common stock at $3.25 per share 16,000 -
Conversion of preferred stock into common stock (9,000) -
Net income - 2,808,000
--------------- -----------------
Balance September 30, 1996 26,943,000 (17,860,000)
Purchase of common stock for treasury, at cost - -
Common stock issued under employee stock option and stock
purchase plans at $0.22 to $3.75 per share 7,000 -
Stock purchase warrant issued in partial payment of services 25,000 -
Conversion of preferred stock into common stock (7,000) -
Net income - 3,776,000
--------------- -----------------
Balance September 30, 1997 26,968,000 (14,084,000)
Common stock issued under employee stock option and stock
purchase plans at $0.22 to $3.75 per share (unaudited) (18,000) -
Issuance of warrants to purchase common stock (unaudited) 15,000 -
Purchase of common stock for treasury, at cost (unaudited) - -
Net loss (unaudited) - (920,000)
--------------- -----------------
Balance March 29, 1998 (unaudited) $ 26,965,000 $ (15,004,000)
=============== =================
</TABLE>
<TABLE>
<CAPTION>
TOTAL
TREASURY STOCK SHAREHOLDERS'
SHARES AMOUNT EQUITY
------------ ------------ -----------------
<S> <C> <C> <C>
Balance September 30, 1994 - $ - $ 2,080,000
Common stock issued under stock option plans at $.22 to $3.75 per share - - 11,000
Sale of Units, each Unit consisting of one share of Series A convertible
preferred stock, warrants to purchase 100 shares of common stock, at
$1,000 per Unit, net of expenses of $463,000 - - 3,366,000
Issuance of warrants to purchase common stock - - 9,000
Conversion of accrued interest into Units at $1,000 per Unit - - 156,000
Net loss - - (4,158,000)
------------ ------------ -----------------
Balance September 30, 1995 - - 1,464,000
Common stock issued under employee stock option and stock purchase
plans at $0.22 to $4.09 per share - - 79,000
Issuance of options to purchase 315,000 shares of common stock at $.22
per share in connection with acquisition of EDI - MA - - 598,000
Sale of common stock, at $2.25 to $2.50 per share, net
of expenses of $145,000 - - 2,180,000
Issuance of common stock to underwriters for placement of Units - - -
Common stock issued in payment of consulting services at $2.00 per share - - 20,000
Conversion of notes and interest payable to shareholders into common
stock at $2.50 per share - - 1,954,000
Issuance of warrants to purchase common stock - - 28,000
Exercise of warrants to purchase common stock at $3.25 per share - - 16,000
Conversion of preferred stock into common stock - - -
Net income - - 2,808,000
------------ ------------ -----------------
Balance September 30, 1996 - - 9,147,000
Purchase of common stock for treasury, at cost (56,650) (194,000) (194,000)
Common stock issued under employee stock option and stock
purchase plans at $0.22 to $3.75 per share 21,656 75,000 83,000
Stock purchase warrant issued in partial payment of services - - 25,000
Conversion of preferred stock into common stock - - -
Net income - - 3,776,000
------------ ------------ -----------------
Balance September 30, 1997 (34,994) (119,000) 12,837,000
Common stock issued under employee stock option and stock
purchase plans at $0.22 to $3.75 per share (unaudited) 12,382 43,000 25,000
Issuance of warrants to purchase common stock (unaudited) - - 15,000
Purchase of common stock for treasury, at cost (unaudited) (85,404) (310,000) (310,000)
Net loss (unaudited) - - (920,000)
------------ ------------ -----------------
Balance March 29, 1998 (unaudited) (108,016) $(386,000) $ 11,647,000
============ ============ =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 174
ELECTRONIC DESIGNS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------------
MARCH 29, 1998 MARCH 30, 1997
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net income (loss) $ (920,000) $ 2,338,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 689,000 883,000
Deferred income taxes - -
Provision for loss from discontinued operations - -
Common stock and warrant issued in payment of
interest and other expenses - -
Changes in assets and liabilities, net of acquired amounts:
Decrease (increase) in accounts receivable 2,643,000 463,000
Decrease (increase) in inventories 891,000 746,000
Decrease (increase) in prepaid expenses 22,000 46,000
(Increase) decrease in other assets (62,000) -
(Decrease) increase in accounts payable (2,861,000) (1,422,000)
(Decrease) increase in accrued expenses (442,000) (641,000)
Increase in deferred rent - -
---------------- ---------------
Net cash flows provided by (used in) operating activities (40,000) 2,413,000
---------------- ---------------
Cash flows from investing activities:
Capital equipment expenditures (441,000) (336,000)
Cash proceeds from the sale of discontinued operations 500,000 -
Cash paid for acquisition of EDI-MA , net of cash
acquired - -
---------------- ---------------
Net cash flows provided by (used in) investing activities 59,000 (336,000)
---------------- ---------------
Cash flows from financing activities:
Sale of common stock, net 25,000 4,000
Sale of stock Units, net - -
Repurchase of common stock (310,000) -
Proceeds from issuance of long-term debt 150,000 750,000
Principal repayments on long-term debt (549,000) (654,000)
Proceeds from notes payable - -
Repayment of notes payable to officers - -
---------------- ---------------
Net cash flows provided by (used in) financing activities (684,000) 100,000
---------------- ---------------
Net increase (decrease) in cash and cash equivalents (665,000) 2,177,000
Cash and cash equivalents at beginning of period 4,212,000 3,290,000
---------------- ---------------
Cash and cash equivalents at end of period $ 3,547,000 $ 5,467,000
================ ===============
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net income (loss) $ 3,776,000 $ 2,808,000 $ (4,158,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,625,000 1,639,000 426,000
Deferred income taxes (1,200,000) - -
Provision for loss from discontinued operations 780,000 - -
Common stock and warrant issued in payment of
interest and other expenses 25,000 28,000 156,000
Changes in assets and liabilities, net of acquired amounts:
Decrease (increase) in accounts receivable (1,037,000) (281,000) (165,000)
Decrease (increase) in inventories (1,445,000) 2,932,000 (83,000)
Decrease (increase) in prepaid expenses (42,000) 22,000 3,000
(Increase) decrease in other assets 43,000 8,000 (983,000)
(Decrease) increase in accounts payable 394,000 320,000 (47,000)
(Decrease) increase in accrued expenses (356,000) (1,897,000) 604,000
Increase in deferred rent - 26,000 85,000
---------------- ----------------- -----------------
Net cash flows provided by (used in) operating activities 2,563,000 5,605,000 (4,162,000)
---------------- ----------------- -----------------
Cash flows from investing activities:
Capital equipment expenditures (1,030,000) (368,000) (412,000)
Cash proceeds from the sale of discontinued operations - - -
Cash paid for acquisition of EDI-MA , net of cash
acquired - (8,088,000) -
---------------- ----------------- -----------------
Net cash flows provided by (used in) investing activities (1,030,000) (8,456,000) (412,000)
---------------- ----------------- -----------------
Cash flows from financing activities:
Sale of common stock, net 83,000 2,275,000 11,000
Sale of stock Units, net - - 3,366,000
Repurchase of common stock (194,000) - -
Proceeds from issuance of long-term debt 1,012,000 5,500,000 -
Principal repayments on long-term debt (1,512,000) (3,389,000) (620,000)
Proceeds from notes payable - - 900,000
Repayment of notes payable to officers - (290,000) -
---------------- ----------------- -----------------
Net cash flows provided by (used in) financing activities (611,000) 4,096,000 3,657,000
---------------- ----------------- -----------------
Net increase (decrease) in cash and cash equivalents 922,000 1,245,000 (917,000)
Cash and cash equivalents at beginning of period 3,290,000 2,045,000 2,962,000
---------------- ----------------- -----------------
Cash and cash equivalents at end of period $ 4,212,000 $ 3,290,000 $ 2,045,000
================ ================= =================
</TABLE>
F-31
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 175
ELECTRONIC DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Electronic Designs, Inc. (the "Company") was incorporated under the name
Crystallume on September 24, 1984 to develop advanced products incorporating
diamond films and coatings. Effective October 10, 1995, EDI acquired all of the
outstanding stock of Electronic Designs, Inc., a privately held Massachusetts
corporation ("EDI-MA")(see Note 3). In March 1996, EDI reincorporated in
Delaware and changed its name to Electronic Designs, Inc. On May 13, 1997, EDI
announced the decision to divest its Crystallume Diamond Products Division
("Crystallume") located in Santa Clara, California. The results of Crystallume
have been retroactively separated from EDI's ongoing operations in the
consolidated statement of operations (see Note 4).
EDI develops and manufactures high density memory components used in commercial
and military systems, flat panel display units suitable for avionics and other
specialty applications using active matrix liquid crystal displays.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements reflect the financial position and
results of operations of EDI and its wholly-owned subsidiaries. All
intercompany balances have been eliminated in consolidation.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements as of March 29, 1998 and for the six months
ended March 29, 1998 and March 30, 1997 are unaudited; however, in the opinion
of management, the interim financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for these interim periods (Note 16).
CASH AND CASH EQUIVALENTS
EDI considers all highly liquid investments purchased with an original maturity
of three months or less to be cash equivalents. Cash equivalents consist of
investments in money market accounts, certificates of deposit and repurchase
agreements with a bank. All investments are subject to minimal credit and
market risk.
EDI accounts for its investments in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). SFAS 115 requires EDI to classify its
investments among three categories: held-to-maturity, which are reported at
amortized cost; trading securities, which are reported at fair value, with
unrealized gains and losses included in earnings; and available-for-sale
securities, which are reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of shareholders'
equity. At September 30, 1996, EDI held investments in repurchase agreements
which matured in October 1996 and were classified as held-to-maturity. The fair
market value of these investments approximated their amortized cost.
ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
Product sales to end-user customers are recognized upon the shipment of
products. Product sales to distributors are recognized upon shipment from the
distributor to the end-user customers. Approximately 30% and 34% of total
revenues for the years ended September 30, 1997 and 1996, respectively,
represent export sales to unaffiliated customers, primarily in Europe. In
addition, approximately 39% and 37% of total revenues for the years ended
September 30, 1997 and 1996, respectively, represent sales of military
products. To minimize its risk with respect to accounts receivable, ongoing
credit evaluations of customers financial condition are performed, although
collateral is not required. In addition, EDI maintains reserves for potential
credit losses and such losses, in the aggregate, have not exceeded management's
expectations.
INVENTORIES
Inventories are valued at the lower of cost or market, cost being determined on
the basis of the first-in, first-out method. Costs include material, labor and
manufacturing overhead.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided on the
straight-line method over estimated useful lives of three to seven years.
Leasehold improvements are amortized over the shorter of the economic life or
the related lease term.
F-32
<PAGE> 176
INTANGIBLE ASSETS
Intangible assets, consisting primarily of the value allocated to EDI-MA's
customer relationships and backlog at the date of acquisition, are being
amortized over the estimated period benefited of 5 years, using the
straight-line method. At September 30, 1997 and 1996, accumulated amortization
on intangible assets was $935,000 and $469,000, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At September 30, 1997, EDI's financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable and long-term debt. The fair
values of these instruments approximate their carrying value.
INCOME TAXES
EDI accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and the
tax bases of assets and liabilities. Deferred tax assets are recognized, net
of any valuation allowance, for deductible temporary differences and net
operating loss and tax credit carryforwards.
NET INCOME (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128")
which changed the method of calculating earnings per share. SFAS No. 128
requires the presentation of "basic" earnings per share and "diluted" earnings
per share. Basic earnings per share is computed by dividing the net income
(loss) available to common shareholders by the weighted average shares of
outstanding common stock. For purposes of calculating diluted earnings per
share, the denominator includes both the weighted average shares of common
stock outstanding and dilutive common stock equivalents. EDI adopted SFAS No.
128 in the first quarter of fiscal 1998. All prior period earnings per share
amounts have been restated to comply with SFAS No. 128. The dilutive effect of
stock options, warrants and preferred stock was 342,000, 174,000 and 115,000,
597,000, 207,000 and 1,253,000, and 128,000, 18,000 and 218,000 shares for the
years ended September 30, 1997, 1996 and 1995, respectively. The effect of
common stock equivalents in fiscal 1995 is not reflected in the diluted loss
per share calculation as their inclusion would be anti-dilutive.
Options to purchase 410,690 shares of common stock at prices ranging from $3.75
to $5.13 and warrants to purchase 1,312,965 shares of common stock at prices
ranging from $3.88 to $7.90 were outstanding during the year ended September
30, 1997 and were not included in the computation of dilutive options and
warrants as the exercise prices exceeded the average market price of the common
shares during the period. Such options, which expire on various dates through
November 2001 and warrants, which expire on various dates through December
1999, were outstanding at September 30, 1997.
RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). EDI will implement SFAS 130 and SFAS 131 as
required in fiscal 1999 which will require EDI to report and display certain
information related to comprehensive income and operating segments.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation" ("SFAS 123"). EDI has elected to adopt the provisions of SFAS 123
during the year ended September 30, 1997 through disclosure only (Note 12).
USE OF ESTIMATES
The preparation of the consolidated 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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Components particularly subject to estimation include the
allowance for uncollectible accounts and sales returns, inventory reserves, the
deferred tax asset valuation allowance, the provision for loss on disposal of
discontinued operations as well as the fair values of equity instruments issued
by EDI. Actual results could differ from those estimates.
F-33
<PAGE> 177
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically assesses whether any events or changes in
circumstances have occurred that would indicate that the carrying amount of a
long-lived asset may not be recoverable. When such an event or change in
circumstance occurs, the Company evaluates whether the carrying amount of such
asset is recoverable by comparing the net book value of the asset to estimated
future undiscounted cash flows, excluding interest charges, attributable to
such asset. If it is determined that the carrying amount is not recoverable,
the Company recognizes an impairment loss equal to the excess of the carrying
amount of the asset over the estimated fair value of such asset.
3. ACQUISITION OF EDI-MA
Effective October 10, 1995, EDI acquired all of the outstanding stock of
EDI-MA, pursuant to an Agreement and Plan of Reorganization, for $13,000,000,
less certain expenses incurred by EDI-MA as a result of the transaction. The
aggregate purchase price of $12,210,000 consisted of cash consideration of
$11,322,000, notes payable of $290,000 and fully-vested options to purchase
315,000 shares of EDI's common stock at $0.22 per share that were valued at
$598,000. The cash portion of the purchase price was financed primarily through
bank borrowings and, to a lesser extent, private placements of equity
securities.
The acquisition of EDI-MA was recorded in accordance with the purchase method
and, accordingly, the purchase price plus EDI's direct acquisition costs of
$290,000 was allocated to the assets and liabilities acquired based on their
estimated fair values at the date of acquisition. The fair value of assets
acquired was $20,622,000, including cash of $2,508,000, and the liabilities
assumed totaled $8,122,000. The results of operations and cash flows of EDI-MA
have been included in the results of operations and cash flows of EDI from the
date of acquisition.
The following unaudited pro forma data has been prepared as if the acquisition
was completed at the beginning of the periods presented, is presented for
illustrative purposes only and is not necessarily indicative of results of
operations which would have actually been achieved had the acquisition of
EDI-MA occurred at the beginning of the periods. In addition, the pro forma
data does not include $1,100,000, relating to the revaluation of inventories
acquired to their estimated fair value, which was included in cost of revenues
in the first quarter of fiscal 1996 as the acquired inventories were sold.
Only those pro forma adjustments which are expected to have a continuing impact
on the results of operations of the combined companies have been included.
F-34
<PAGE> 178
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1996 1995
(UNAUDITED)
<S> <C> <C>
Revenues $ 58,047,000 $ 37,982,000
Cost of revenues 39,833,000 25,832,000
--------------------- --------------------
Gross profit 18,214,000 12,150,000
Operating expenses
Research and development 1,946,000 1,906,000
Selling, general and administrative 8,873,000 7,478,000
Amortization of intangible assets 469,000 469,000
--------------------- --------------------
11,288,000 9,853,000
--------------------- --------------------
Income from operations 6,926,000 2,297,000
Other expense, net (722,000) (989,000)
--------------------- --------------------
Income before taxes 6,204,000 1,308,000
Provision for income taxes 702,000 -
--------------------- --------------------
Income from continuing operations 5,502,000 1,308,000
Loss from discontinued operations (1,741,000) (4,158,000)
--------------------- --------------------
Net income (loss) $ 3,761,000 $ (2,850,000)
===================== ====================
Basic earnings (loss) per share:
Income from continuing operations $ 0.99 $ 0.30
===================== ====================
Net income (loss) $ 0.68 $ (0.65)
===================== ====================
Diluted earnings (loss) per share:
Income from continuing operations $ 0.72 $ 0.21
===================== ====================
Net income (loss) $ 0.49 $ (0.46)
===================== ====================
</TABLE>
4. DISCONTINUED OPERATIONS
On May 13, 1997, EDI announced the decision to divest Crystallume. As a
consequence, EDI recorded a provision for loss on disposal of Crystallume of
$973,000, which included a provision for operating losses during the phase out
period (May 13, 1997 to the estimated date of disposal).
Revenues related to discontinued operations were $744,000, $1,178,000 and
$1,639,000 for fiscal 1997, 1996 and 1995, respectively. The losses from
discontinued operations for fiscal 1997 and 1996 were recorded net of current
income tax benefits of $649,000 and $126,000, respectively. There was no income
tax benefit recorded for fiscal 1995. The results of Crystallume have been
retroactively separated from EDI's ongoing operations in the consolidated
statement of operations and, at September 30, 1997, the assets of Crystallume,
consisting primarily of fixed assets, have been separately classified on the
balance sheet as a current asset.
On October 27, 1997, EDI sold the assets, effective as of October 1, 1997, of
Crystallume pursuant to an Asset Purchase Agreement (the "Agreement") . Under
the terms of the Agreement, the assets sold include all intellectual property,
manufacturing equipment, inventories and contracts related to Crystallume's
diamond films and coating business. The buyer assumed none of the liabilities,
except that it assumed the obligation to perform under the acquired contracts
with Crystallume's customers, facility lessor and equipment lessors.
The purchase price consisted of: $500,000 in cash at closing; $625,000 payable
over three years, plus simple interest at 9.5%; and an agreement for future
payments based on product and license revenues earned by the buyer using
Crystallume intellectual property over the next five and seven years,
respectively.
F-35
<PAGE> 179
5. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 1996
<S> <C> <C>
Raw materials $ 3,756,000 $ 3,244,000
Work-in-process 1,534,000 1,241,000
Finished goods 1,613,000 998,000
--------------- ---------------
$ 6,903,000 $ 5,483,000
=============== ===============
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
USEFUL LIFE SEPTEMBER 30,
IN YEARS 1997 1996
<S> <C> <C> <C>
Machinery and equipment 2-5 $ 2,635,000 $ 6,235,000
Tooling 3 571,000 425,000
Furniture and fixtures 10 44,000 122,000
Leasehold improvements lease term 245,000 708,000
--------------- ----------------
3,495,000 7,490,000
Less - Accumulated depreciation (1,378,000) (3,647,000)
--------------- ----------------
$ 2,117,000 $ 3,843,000
=============== ================
</TABLE>
At September 30, 1997 and 1996, property and equipment held under capital
leases amounted to $1,622,000 and $2,285,000, respectively, and related
accumulated amortization on this property and equipment amounted to $755,000
and $568,000, respectively. Amortization expense related to property and
equipment held under capital leases amounted to $372,000, $405,000 and $270,000
during the years ended September 30, 1997, 1996 and 1995, respectively.
7. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 1996
<S> <C> <C>
Employee-related $ 503,000 $ 1,050,000
Deferred revenue 875,000 750,000
Income taxes 480,000 353,000
Other 476,000 537,000
-------------- ---------------
$ 2,334,000 $ 2,690,000
============== ===============
</TABLE>
F-36
<PAGE> 180
8. BORROWINGS
Borrowings consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 1996
<S> <C> <C>
Term loan from bank $ 2,698,000 $ 2,750,000
Equipment loan from bank 262,000 -
Note payable to equipment vendor - 149,000
Capital lease obligations (see Note 15) 307,000 868,000
---------------- ---------------
3,267,000 3,767,000
Less - current portion of long-term debt (1,059,000) (828,000)
---------------- ---------------
Long-term debt, net of current portion $ 2,208,000 $ 2,939,000
================ ===============
</TABLE>
TERM LOAN FROM BANK AND REVOLVING CREDIT FACILITY
In October 1995, EDI entered into, and in October 1996 amended and restated,
its Loan and Security Agreement (the "Agreement") with a bank. Under the terms
of the Agreement, EDI is allowed to borrow (i) up to $3,500,000 in the form of
a term loan (ii) up to $6,000,000 (with a $5,000,000 sublimit on letters of
credit) under a revolving credit facility (the "Revolver") and (iii) up to
$1,500,000 in the form of an equipment loan.
Borrowings under the term loan bear interest, payable monthly, at 1/2% over the
prime rate (8.5% at September 30, 1997). At September 30, 1997, the term loan
was no longer available for additional borrowings. EDI may repay borrowings
under the term loan at any time, however, $73,000 must be repaid on a monthly
basis through October 2000.
Borrowings under the Revolver are limited to the lesser of (i) $6,000,000 less
outstanding letters of credit or (ii) the "borrowing base" less outstanding
letters of credit. The borrowing base is calculated on a formula of eligible
accounts receivable and inventory, less amounts outstanding under the term
loan. Borrowings under the Revolver bear interest, payable monthly, at 1/2%
over the prime rate (8.5% at September 30, 1997). EDI may repay borrowings
under the Revolver at any time, however, all outstanding borrowings must be
repaid in full on December 31, 1997. At September 30, 1997, letters of credit
in the aggregate amount of $350,000 were outstanding. No loans were outstanding
under the Revolver at September 30, 1997. Under the terms of the Agreement, as
amended, availability under the Revolver at September 30, 1997 was limited to
$3,238,000.
Borrowings under the equipment loan bear interest, payable monthly, at 1% over
the prime rate (9% at September 30, 1997). The equipment loan is available for
draw down through December 31, 1997. EDI may repay borrowings under the
equipment loan at any time, however, 1/48th of the amount outstanding on
December 31, 1997 must be repaid thereafter on a monthly basis through December
2001.
Borrowings under the Agreement are collateralized by a security interest
in substantially all of the assets of EDI. The Agreement also requires EDI to
comply with certain affirmative and negative covenants, including the
maintenance of specified financial ratios. EDI is in compliance with such
covenants as of September 30, 1997.
EDI paid facility fees of $160,000 to the bank in connection with obtaining and
subsequently renegotiating the Agreement. In connection with obtaining the
Agreement, EDI issued, in October 1995, a warrant to the bank to purchase up to
276,686 shares of common stock at an exercise price of $3.50 per share (see
Note 11).
NOTE PAYABLE TO EQUIPMENT VENDOR
In September 1994, EDI purchased a diamond deposition system for a total
purchase price of $536,000. EDI made a cash payment to the vendor of $106,000
and financed the remaining $430,000 by issuing a note that was secured by the
equipment. The note was repaid in full in August 1997.
9. INCOME TAXES
For the year ended September 30, 1997, the provision for income taxes related
to continuing operations of $149,000 consisted of current Federal income taxes
of $1,133,000, current state income taxes of $216,000 and a deferred income tax
benefit of $1,200,000. The difference between the amount of income taxes at
the applicable Federal statutory rate (34%) and the effective tax rate was
primarily attributable to the deferred tax benefit of a $1,200,000 decrease in
the valuation allowance against deferred tax assets, as discussed below, and
the actual utilization of previously reserved net operating
F-37
<PAGE> 181
loss carryforwards in fiscal 1997. For the year ended September 30, 1996, the
provision for income taxes related to continuing operations of $702,000
consisted of current Federal income taxes of $177,000 and current state income
taxes of $525,000. The difference between the amount of income taxes at the
applicable Federal statutory rate and the effective tax rate was attributable
to a decrease in the valuation allowance for deferred tax assets due to the
actual utilization of previously reserved net operating loss carryforwards
partially offset by state income taxes. For the year ended September 30, 1995,
there was no provision or benefit for income taxes and the effective tax rate
differed from the applicable federal statutory rate primarily due to an
increase in the valuation allowance for deferred tax assets.
The components of deferred income taxes were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 1996
<S> <C> <C>
DEFERRED TAX ASSETS
Accounts receivable $ 41,000 $ 59,000
Inventories 429,000 706,000
Assets of discontinued business 641,000 -
Accrued expenses and other liabilities 575,000 844,000
Tax credit carryforwards 1,201,000 1,572,000
Net operating loss carryforwards 4,020,000 5,107,000
--------------- ----------------
Total deferred tax assets 6,907,000 8,288,000
Deferred tax asset valuation allowance (4,957,000) (7,561,000)
--------------- ----------------
1,950,000 727,000
--------------- ----------------
DEFERRED TAX LIABILITIES
Property and equipment (198,000) -
Intangible assets (552,000) (727,000)
--------------- ----------------
Total deferred tax liabilities (750,000) (727,000)
--------------- ----------------
Net deferred income taxes $ 1,200,000 $ -
=============== ================
</TABLE>
At September 30, 1996, EDI provided a valuation allowance against the full
amount of its net deferred tax assets, since realization of these future tax
benefits was not sufficiently assured at that date. On a quarterly basis, EDI
assesses the need to provide valuation allowance against its net deferred tax
assets; such allowance is provided when realization of the net deferred tax
assets is judged not to be "more likely than not," per SFAS 109. During the
fourth quarter of fiscal 1997, EDI estimated that $1,200,000 of its net
deferred tax assets are more likely than not to be realized in future periods
and, accordingly, a valuation reserve of $4,957,000 was provided for the
remaining amount of the net deferred tax assets since their realization was not
sufficiently assured. Consequently, a deferred tax benefit of $1,200,000 was
reflected in EDI's provision for income taxes for continuing operations for the
year ended September 30, 1997. The amount of deferred tax assets that will
ultimately be realized will depend upon future events which are uncertain.
At September 30, 1997, for Federal income tax purposes, EDI had approximately
$10,100,000 of net operating loss carryforwards that expire at various dates
through 2010, which are available to offset future Federal taxable income. EDI
also had research and development tax credit carryforwards available to offset
future Federal and State income tax liabilities in the approximate amount of
$1,201,000 that expire at various dates through 2007.
Ownership changes, as defined in the Internal Revenue Code (the "Code"), have
limited the amount of net operating loss and research and development tax
credit carryforwards that can be utilized by EDI annually to offset future
taxable income. As of September 30, 1997, the annual limitation amount,
calculated as defined in the Code, is approximately $700,000. At September 30,
1997, all of the net operating loss carryforwards are subject to this
limitation and, as a result, approximately $3,000,000 of these carryforwards
will expire unutilized.
10. CONVERTIBLE PREFERRED STOCK
In September 1995, EDI completed a private placement of 3,829 Units for net
proceeds of approximately $3,366,000 and converted $156,000 of accrued interest
due under a convertible secured promissory note payable into 156 Units. Each
Unit consisted of one share of Series A Preferred Stock, 100 shares of common
stock and a warrant to purchase 100 shares of common stock. In October 1996,
EDI called for the redemption of all Series A Preferred Stock outstanding as of
November 29, 1996. Each share of Series A Preferred Stock was convertible at
any time on or before November 29, 1996,
F-38
<PAGE> 182
at the option of the stockholder, into 400 shares of common stock. All
outstanding Series A Preferred Stock was converted into common stock prior to
November 29, 1996.
11. COMMON STOCK
TREASURY STOCK
On May 12, 1997, the Board of Directors authorized the repurchase of up to
350,000 shares of EDI's common stock. Through September 30, 1997, EDI had
repurchased 56,650 shares for total consideration of $197,000 and reissued
21,674 shares under stock option plans.
COMMON STOCK WARRANTS
During the year ended September 30, 1997, EDI, as part of a service agreement
with an outside firm, issued warrants to purchase 45,000 shares of common stock
at an exercise price of $3.875 per share, which vest upon achievement of
specified goals. These warrants expire in December 1999. EDI assigned a value
of $90,000 to these warrants, which value is being amortized to the income
statement over the service period.
In connection with obtaining the bank borrowings described in Note 8, EDI
issued warrants in October 1995 to purchase up to 276,686 shares of common
stock at an exercise price of $3.50 per share. The warrants expire in October
1998. EDI assigned a value of $28,000 to these warrants.
During the year ended September 30, 1995, in connection with the Unit offering,
EDI issued warrants to purchase 398,500 shares of common stock at $3.25 per
share. The warrants expire in September 1998. Approximately $40,000 of the
proceeds received from the Unit offering was assigned by EDI to the value of
these warrants. Warrants to purchase 5,000 shares of common stock were
exercised during the year ended September 30, 1996.
In consideration for the issuance of secured promissory notes to certain
shareholders in August 1995 (which have since been repaid)(see Note 7), these
shareholders received warrants to purchase 90,000 shares of common stock at an
exercise price of $2.00 per share. The warrants expire in August 1998. EDI
assigned a value of $9,000 to these warrants. The following table summarizes
warrants to purchase shares of common stock issued prior to October 1, 1994 and
outstanding at September 30, 1997:
<TABLE>
<CAPTION>
EXERCISE
EXPIRATION DATE NUMBER OF SHARES PRICE
--------------- ---------------- ---------
<S> <C> <C>
March 1998 1,000,000 $6.00 (1)
November 1998 17,965 $7.90
March 1999 100,000 $6.48
March 1999 100,000 $6.00 (2)
March 1999 50,000 $6.00
August 2001 44,142 $2.83
</TABLE>
(1) Redeemable at the option of EDI, at $0.10 per share, if EDI's common stock
trades at a minimum of $9.00 per share for more than 20 consecutive days.
(2) Redeemable at the option of EDI, at $0.12 per share, if EDI's common stock
trades at a minimum of $9.00 per share for more than 20 consecutive days.
RESERVED SHARES
EDI has reserved shares of authorized but unissued common stock as of September
30, 1997 for the following:
<TABLE>
<S> <C>
Exercise of common stock warrants 2,117,293
Stock option and stock purchase plans 2,876,754
-------------
Total shares reserved 4,994,047
=============
</TABLE>
F-39
<PAGE> 183
12. STOCK OPTION AND STOCK PURCHASE PLANS
STOCK OPTION PLANS
In February 1987, EDI adopted the 1987 Stock Option Plan (the "Plan"). The
Plan, as amended, allows for the issuance of up to 2,659,748 shares of EDI's
common stock. Options granted under the Plan must be granted at the fair
market value of such shares on the date of grant and must have an expiration
date no more than ten years from the date of grant. Generally, options vest
over a five-year period and expire five years from the date of grant.
As discussed in Note 2, EDI has elected to adopt SFAS 123 through disclosure
only and, accordingly, no compensation expense was recorded by EDI for
stock-based employee compensation during fiscal 1997 or 1996.
The following table summarizes stock option activity under the Plan:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------
1997 1996
-------------------------------- ----------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
<S> <C> <C> <C> <C>
Outstanding balance beginning of year 1,573,235 $3.39 519,812 $2.80
Granted 333,000 $3.56 1,198,000 $3.42
Cancelled (111,335) $3.50 (59,252) $2.73
Exercised (53,922) $1.10 (85,325) $0.65
----------- ------------
Outstanding balance end of year 1,740,978 $3.49 1,573,235 $3.39
=========== ============
Options available for future grant 624,000 846,000
=========== ============
Weighted average fair value of option grants $2.35 $2.29
=========== ============
</TABLE>
The following table summarizes information about stock options outstanding at
September 30, 1997:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE NUMBER OF AVERAGE
NUMBER OF CONTRACTUAL EXERCISE OPTIONS EXERCISE
RANGE OF EXERCISE PRICES OPTIONS LIFE (YEARS) PRICE EXERCISABLE PRICE
- ------------------------- ------------ ---------------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$2.63 - $3.75 1,694,403 3.3 $3.45 795,715 $3.47
$4.00 - $5.13 46,575 3.0 $4.43 22,249 $4.43
</TABLE>
F-40
<PAGE> 184
Had compensation cost for awards of stock options been determined based on the
fair value of these options at their date of grant, consistent with the method
prescribed by SFAS 123, EDI's net income and net income per share would have
been as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996
<S> <C> <C>
Net income:
As reported $ 3,776,000 $ 2,808,000
================ ===============
Pro forma $ 2,975,000 $ 2,192,000
================ ===============
Basic net income per share:
As reported $ 0.54 $ 0.51
================ ===============
Pro forma (unaudited) $ 0.43 $ 0.40
================ ===============
Diluted net income per share:
As reported $ 0.50 $ 0.37
================ ===============
Pro forma (unaudited) $ 0.39 $ 0.29
================ ===============
</TABLE>
Because additional option grants are expected to be made in future years and
options vest over several years, the pro forma impact on fiscal years 1997 and
1996 is not necessarily representative of the pro forma impact on reported net
income or net income per share for future years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996
<S> <C> <C>
Expected options term (years) 5 5
Risk-free interest rate 6.3% 5.9%
Dividend yield 0.0% 0.0%
Volatility 78% 78%
</TABLE>
In October 1995, in connection with the acquisition of EDI-MA, fully-vested
options to purchase 314,826 shares of EDI's common stock at $0.22 per share
that were valued at $598,000 were issued to employees in exchange for fully
vested options of EDI-MA. Since that date, options for the purchase of 41,936
shares were exercised and at September 30, 1997, 272,890 options remained
outstanding which expire in May 2003.
STOCK PURCHASE PLANS
In November 1995, the Board of Directors adopted the 1996 Employee Stock
Purchase Plan. This plan provides for the purchase by employees of up to
250,000 shares of common stock at 85% of the fair market value on the first or
last day of the offering period (as defined in the plan), whichever is lower.
During the years ended September 30, 1997 and 1996, 5,737 shares at $2.55 and
5,679 shares at $4.09, respectively, were issued under the plan.
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
During the years ended September 30, 1997, 1996 and 1995, EDI paid $321,000,
$893,000 and $211,000, respectively, for interest. During the years ended
September 30, 1997 and 1996, EDI paid $547,000 and $374,000, respectively, for
income taxes. No amounts were paid in 1995 for income taxes.
Noncash investing and financing activities include:
- - In December 1996, EDI, as part of a service agreement with an outside firm,
issued warrants to purchase 45,000 shares of common stock at an exercise
price of $3.875 per share (see Note 11).
F-41
<PAGE> 185
- - In October 1995, notes payable to shareholders of $1,935,000, plus accrued
interest of $19,000, were converted into 781,724 shares of common stock.
- - In October 1995, 50,053 shares of common stock were issued to underwriters
and consultants for services performed in connection with the issuance of
Units (see Note 10) and the acquisition of EDI-MA (see Note 3).
- - In October 1995, options to purchase 314,826 shares of common stock at
$0.22 per share were issued as partial consideration for the acquisition of
EDI-MA (see Notes 3 and 12).
- - In October 1995, EDI issued warrants to purchase 276,686 shares of common
stock at an exercise price of $3.50 per share in order to secure the bank
borrowings related to the acquisition of EDI-MA (see Notes 8 and 11).
- - During the years ended September 30, 1997 and 1996, 729,200 and 864,800
shares of common stock, respectively, were issued in conversion of 1,823
and 2,162 shares of Series A convertible preferred stock, respectively.
- - In September 1995, EDI converted $156,000 of accrued interest due under the
convertible secured note payable to shareholder into 156 Units (see Note
8).
- - In August 1995, EDI issued warrants to purchase 90,000 shares of common
stock in connection with the issuance of secured promissory notes totaling
$900,000 (see Note 8).
14. RETIREMENT SAVINGS PLAN
EDI maintains a defined contribution savings plan under section 401(k) of the
Internal Revenue Code. These plans cover substantially all employees who meet
minimum age and service requirements and allow participants to defer a portion
of their annual compensation on a pre-tax basis. Company contributions to the
plan are made at the discretion of the Board of Directors and amounted to
$117,000, $115,000 and $0 during the years ended September 30, 1997, 1996 and
1995, respectively.
15. COMMITMENTS
EDI has noncancelable operating leases for certain business equipment and
office space expiring at various dates. Future minimum payments for all
noncancelable leases are summarized as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
Year ended September 30,
<S> <C> <C>
1998 $ 186,000 $ 147,000
1999 55,000 111,000
2000 54,000 83,000
2001 54,000 -
2002 51,000 -
Thereafter 102,000 -
------------- ----------------
$ 502,000 $ 341,000
=============
Amount representing interest (34,000)
----------------
Present value of minimum lease payments $ 307,000
================
</TABLE>
Rent expense under operating leases for the years ended September 30, 1997,
1996 and 1995 was $591,000, $559,000 and $265,000, respectively.
Obligations under capital leases have interest rates which range from 8.5% to
13% and require monthly payments which range from $9,000 to $14,000 at
September 30, 1997.
On December 5, 1997, EDI signed an agreement to amend its existing facility
lease, effective March 1, 1998, which requires EDI to make payments, in
addition to those above, totaling $235,000, $403,000, $423,000, $456,000,
$490,000 and $210,000 in fiscal years 1998, 1999, 2000, 2001, 2002 and 2003,
respectively.
F-42
<PAGE> 186
16. NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
A. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated financial
statements as of March 29, 1998 and for the six month periods ended March 29,
1998 and March 30, 1997 contain all of the necessary adjustments (all being of
a normal and recurring nature) to fairly present the financial position,
results of operations and cash flows of EDI for the interim periods presented.
These statements do not include all of the information and footnotes required
by generally accepted accounting principles, although EDI believes that the
disclosures made are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the accompanying
audited consolidated financial statements for the three fiscal years in the
period ended September 30, 1997.
The operating results for the interim periods presented are not necessarily
indicative of the results to be expected for the full year. The six-month
period ended March 30, 1997 has been restated to reflect the Crystallume
Diamond Products Division as a discontinued operation.
B. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
MARCH 29,
1998
<S> <C>
Raw materials $ 3,131,000
Work-in-process 946,000
Finished goods 1,935,000
-------------
$ 6,012,000
=============
</TABLE>
C. SHAREHOLDERS' EQUITY
On May 12, 1997, the Board of Directors authorized the repurchase of up to
350,000 shares of EDI's common stock. During the first six months of fiscal
1998, EDI repurchased 85,404 shares for total consideration of $310,000. At
March 29, 1998, 207,946 shares remained authorized to be repurchased by EDI
under this plan.
D. BORROWINGS
LINE-OF-CREDIT
On March 23, 1998, EDI entered into Amendment No.2 to its Loan and Security
Agreement with a bank. The amendment extended the term of the Revolving Credit
Facility to January 21, 1999 and established the maximum borrowing limit under
the Revolving Credit Facility at $3,000,000. All other major provisions of the
Loan and Security Agreement remained substantially the same.
EQUIPMENT LEASE LINE
During the second quarter of fiscal 1998, EDI obtained a commitment for an
Equipment Lease Line with a third party to lease up to $1,000,000 of equipment
through January 31, 1999. Any leases under the Equipment Lease Line will be
payable in sixty equal monthly installments, including interest at the five
year treasury bond rate plus 2% on the date of funding. EDI will have a
bargain purchase option at the end of the lease term and will account for any
equipment acquired under the Equipment Lease Line as a capital lease, thus
recording the value of the underlying equipment and a related obligation on its
balance sheet. The equipment to be financed will secure the leases. No
obligations were outstanding under the Equipment Lease Line as of March 29,
1998.
E. NET INCOME (LOSS) PER SHARE
Dilutive common stock equivalents include outstanding stock options, warrants
and convertible preferred stock. The effect of stock options and warrants was
224,000 and 92,000, respectively, for the six months ended March 29, 1998 and
452,000 and 140,000, respectively, for the six months ended March 30, 1997.
The effect of the common stock equivalents in fiscal 1998 is not reflected in
the diluted loss per share calculation as their inclusion would be
anti-dilutive. In addition, the dilutive effect of 1,826 shares of convertible
preferred stock was 230,000 shares for the six months ended March 30, 1997.
F-43
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Options to purchase 556,504 shares of common stock at prices ranging from $3.63
to $5.13 and warrants to purchase 1,313,000 shares of common stock at prices
ranging from $3.88 to $7.90 were outstanding during the six month period ended
March 29, 1998 and were not included in the computation of dilutive options and
warrants as the exercise prices exceeded the average market price of the common
shares during the period. Such options, which expire on various dates through
November 2002, and 313,000 of the warrants, which expire on various dates
through December 1999, were outstanding at March 29, 1998.
F. SUBSEQUENT EVENT
On May 3, 1998, EDI, Bowmar Instrument Corporation ("Bowmar") and Bravo
Acquisition Subsidiary ("Acquisition Subsidiary"), a wholly owned subsidiary of
Bowmar, entered into an Agreement and Plan of Merger, as amended on June 9,
1998 (the "Merger Agreement") pursuant to which Acquisition Subsidiary will
merge with and into EDI (the "Merger"), with EDI being the surviving
corporation. Pursuant to the Merger Agreement, at the effective time of the
Merger, each outstanding share of common stock of EDI will be converted into
the right to receive 1.375 shares of common stock of Bowmar.
F-44
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APPENDICES
I. MERGER AGREEMENT
II. OPINION OF BOWMAR'S FINANCIAL ADVISOR
III. OPINION OF EDI'S FINANCIAL ADVISOR
IV. DELAWARE GENERAL CORPORATION LAW SECTION 262
<PAGE> 189
================================================================================
AGREEMENT AND PLAN OF MERGER
By and Among
Bowmar Instrument Corporation,
Bravo Acquisition Subsidiary, Inc.
and
Electronic Designs, Inc.
Dated as of
May 3, 1998
================================================================================
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Table of Contents
<TABLE>
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ARTICLE I TERMS AND EFFECTS OF THE MERGER...................................................................................1
1.1 The Merger.....................................................................................................1
1.2 Effective Time..................................................................................................2
1.3 Merger Consideration............................................................................................2
1.4 Stockholders' Rights upon Merger................................................................................3
1.5 Surrender and Exchange of Shares................................................................................3
1.6 Options and Warrants............................................................................................4
1.7 Certificate of Incorporation....................................................................................5
1.8 Bylaws..........................................................................................................5
1.9 Directors and Officers of Surviving Corporation.................................................................5
1.10 Statutory Effects of Merger....................................................................................5
1.11 Registration Statement; Prospectus/Proxy Statement.............................................................6
1.12 Tax-Free Reorganization........................................................................................8
1.13 Additional Actions.............................................................................................8
1.14 Authorized Shares..............................................................................................9
1.15 Indemnification................................................................................................9
1.16 Listing Application...........................................................................................11
1.17 Voting Agreements.............................................................................................11
1.18 Ancillary Assumption Agreements...............................................................................11
ARTICLE II REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF EDI........................................................12
2.1 Organization and Good Standing.................................................................................12
2.2 Capitalization.................................................................................................12
2.3 Subsidiaries...................................................................................................13
2.4 Authorization; Binding Agreement...............................................................................13
2.5 Governmental Approvals.........................................................................................14
2.6 No Violations..................................................................................................14
2.7 Securities Filings and Litigation..............................................................................14
2.8 EDI Financial Statements.......................................................................................15
2.9 Absence of Certain Changes or Events...........................................................................15
2.10 Compliance with Laws..........................................................................................16
2.11 Permits.......................................................................................................16
2.12 Finders and Investment Bankers................................................................................17
2.13 Contracts.....................................................................................................17
2.14 Employee Benefit Plans........................................................................................17
2.15 Taxes and Returns.............................................................................................18
2.16 Fairness Opinion..............................................................................................19
2.17 Takeover Statutes.............................................................................................19
2.18 Intellectual Property Rights..................................................................................19
2.19 Certain Business Relationships with Affiliates................................................................19
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2.20 Environmental Matters.........................................................................................19
2.21 Labor Matters.................................................................................................21
2.22 Disclosure....................................................................................................21
ARTICLE III REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF BOWMAR....................................................21
3.1 Organization and Good Standing.................................................................................21
3.2 Capitalization.................................................................................................22
3.3 Subsidiaries...................................................................................................22
3.4 Authorization; Binding Agreement...............................................................................23
3.5 Governmental Approvals.........................................................................................23
3.6 No Violations..................................................................................................23
3.7 Securities Filings and Litigation..............................................................................24
3.8 Bowmar Financial Statements....................................................................................25
3.9 Absence of Certain Changes or Events...........................................................................25
3.10 Compliance with Laws..........................................................................................26
3.11 Permits.......................................................................................................26
3.12 Finders and Investment Bankers................................................................................26
3.13 Contracts.....................................................................................................26
3.14 Employee Benefit Plans........................................................................................27
3.15 Taxes and Returns.............................................................................................27
3.16 Fairness Opinion..............................................................................................28
3.17 Takeover Statutes.............................................................................................28
3.18 Bowmar Rights Plan............................................................................................28
3.19 Intellectual Property Rights..................................................................................28
3.20 Certain Business Relationships with Affiliates................................................................29
3.21 Environmental Matters.........................................................................................29
3.22 Labor Matters.................................................................................................30
3.23 Disclosure....................................................................................................30
ARTICLE IV ADDITIONAL COVENANTS OF EDI.....................................................................................30
4.1 Conduct of Business of EDI and EDI Subsidiaries................................................................30
4.2 Notification of Certain Matters................................................................................32
4.3 Access and Information.........................................................................................32
4.4 Stockholder Approval...........................................................................................33
4.5 Reasonable Business Efforts....................................................................................33
4.6 Public Announcements...........................................................................................33
4.7 Compliance.....................................................................................................34
4.8 No Solicitation................................................................................................34
4.9 SEC and Stockholder Filings....................................................................................35
4.10 Tax Opinion Certification.....................................................................................35
4.11 Affiliate Agreements..........................................................................................35
4.12 Takeover Statutes.............................................................................................35
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ARTICLE V ADDITIONAL COVENANTS OF BOWMAR...................................................................................36
5.1 Conduct of Business of Bowmar and the Bowmar Subsidiaries......................................................36
5.2 Notification of Certain Matters................................................................................37
5.3 Access and Information.........................................................................................38
5.4 Shareholder Approval...........................................................................................38
5.5 Reasonable Business Efforts....................................................................................38
5.6 Public Announcements...........................................................................................39
5.7 Compliance.....................................................................................................39
5.8 No Solicitation................................................................................................39
5.9 SEC and Shareholder Filings....................................................................................40
5.10 Tax Opinion Certificates......................................................................................40
5.11 Board Representation and Officers.............................................................................40
5.12 Employee Benefit Plans........................................................................................41
5.13 Takeover Statutes.............................................................................................41
ARTICLE VI CONDITIONS......................................................................................................41
6.1 Conditions to Each Party's Obligations.........................................................................41
6.1.1 Stockholder Approval.............................................................................41
6.1.2 No Injunction or Action..........................................................................42
6.1.3 Governmental Approvals...........................................................................42
6.1.4 HSR Act..........................................................................................42
6.1.5 Required Consents................................................................................42
6.1.6 Registration Statement...........................................................................43
6.1.7 Blue Sky.........................................................................................43
6.1.8 Tax Opinion......................................................................................43
6.1.9 Listing of Bowmar Stock..........................................................................43
6.2 Conditions to Obligations of EDI...............................................................................43
6.2.1 Bowmar Representations and Warranties............................................................43
6.2.2 Performance by Bowmar............................................................................43
6.2.3 No Material Adverse Change.......................................................................44
6.2.4 Certificates and Other Deliveries................................................................44
6.2.5 Election of Nominees.............................................................................44
6.3 Conditions to Obligations of Bowmar............................................................................44
6.3.1 EDI Representations and Warranties...............................................................44
6.3.2 Performance by EDI...............................................................................45
6.3.3 No Material Adverse Change.......................................................................45
6.3.4 Certificates and Other Deliveries................................................................45
6.3.5 Affiliate Agreements.............................................................................45
ARTICLE VII TERMINATION AND ABANDONMENT....................................................................................45
7.1 Termination....................................................................................................45
7.2 Effect of Termination and Abandonment..........................................................................48
7.3 Procedure Upon Termination.....................................................................................49
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ARTICLE VIII MISCELLANEOUS.................................................................................................49
8.1 Confidentiality................................................................................................49
8.2 Amendment and Modification.....................................................................................50
8.3 Waiver of Compliance; Consents.................................................................................50
8.4 Survival of Representations and Warranties.....................................................................50
8.5 Notices........................................................................................................50
8.6 Binding Effect; Assignment.....................................................................................51
8.7 Expenses.......................................................................................................51
8.8 Governing Law..................................................................................................51
8.9 Counterparts...................................................................................................52
8.10 Interpretation................................................................................................52
8.11 Entire Agreement..............................................................................................52
8.12 Severability..................................................................................................52
8.13 Specific Performance..........................................................................................52
8.14 Third Parties.................................................................................................53
8.15 Schedules and Disclosure Letters..............................................................................53
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is made and
entered into as of May 3, 1998, by and among Bowmar Instrument Corporation, an
Indiana corporation ("Bowmar"), Bravo Acquisition Subsidiary, Inc., a Delaware
corporation and wholly owned subsidiary of Bowmar ("Acquisition Subsidiary"),
and Electronic Designs, Inc., a Delaware corporation ("EDI").
Recitals
A. The respective Boards of Directors of EDI, Acquisition
Subsidiary and Bowmar have determined that the merger (the "Merger") of
Acquisition Subsidiary with and into EDI in accordance with the laws of the
State of Delaware and the provisions of this Agreement is to the long term
benefit of the shareholders of each entity and shall provide strategic benefits
to each of Bowmar and EDI, and accordingly, the respective Boards of Directors
have approved the Merger.
B. EDI, Acquisition Subsidiary and Bowmar desire to make
certain representations, warranties and agreements in connection with, and
establish various conditions precedent to, the Merger.
C. For federal income tax purposes, it is intended that the
Merger of EDI and Acquisition Subsidiary shall qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and that this Agreement shall be, and is hereby, adopted
as a plan of reorganization for the purposes of Section 368 of the Code.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto agree as follows:
ARTICLE I
TERMS AND EFFECTS OF THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions
of this Agreement, the Merger shall be consummated in accordance with the
Delaware General Corporation Law (the "Delaware Code"). At the Effective Time
(as defined in Section 1.2, below), upon the terms and subject to the conditions
of this Agreement, Acquisition Subsidiary shall be merged with and into EDI in
accordance with the Delaware Code and the separate existence of Acquisition
Subsidiary shall thereupon cease, and EDI, as the surviving corporation in the
Merger (the "Surviving Corporation"), shall continue its corporate existence
under the laws of the State of Delaware as a wholly owned subsidiary of Bowmar.
The parties shall prepare and execute a certificate of merger (the "Certificate
of Merger") in order to comply in all respects with the requirements of the
Delaware Code and with the provisions of this Agreement.
1.2 EFFECTIVE TIME. The Merger shall become effective at the
time of the filing of the Certificate of Merger with the Secretary of State of
Delaware in accordance with the applicable provisions of the Delaware Code or at
such later time as may be specified in the
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Certificate of Merger. The Certificate of Merger shall be filed as soon as
practicable after all of the conditions set forth in this Agreement have been
satisfied or waived by the party or parties entitled to the benefit of the same.
Bowmar and EDI shall mutually determine the time of such filing and the place
where the closing of the Merger (the "Closing") shall occur. The time when the
Merger shall become effective is herein referred to as the "Effective Time" and
the date on which the Effective Time occurs is herein referred to as the
"Closing Date."
1.3 MERGER CONSIDERATION. (a) Subject to the provisions of
this Agreement and any applicable backup or other withholding requirements, each
of the issued and outstanding shares (the "EDI Shares") of common stock, par
value $.01 per share, of EDI (the "EDI Common Stock"), as of the Effective Time
shall be converted into the right to receive, and there shall be paid and issued
as hereinafter provided, in exchange for each of the EDI Shares, 1.375 shares
(the "Exchange Ratio") of the common stock of Bowmar, stated value $0.10 per
share (the "Bowmar Stock"), together with the associated common stock purchase
rights issued under the Bowmar Rights Agreement (as hereinafter defined),
subject to payment of cash in lieu of any fractional share as hereinafter
provided (the "Merger Consideration"). The Exchange Ratio shall be subject to
appropriate adjustment in the event of a stock split, stock dividend or
recapitalization after the date of this Agreement and prior to the Effective
Time applicable to shares of the Bowmar Stock or the EDI Common Stock, or in the
event of any issuance of Bowmar Stock or other securities of Bowmar after the
date of this Agreement and prior to the Effective Time resulting from the
operation of the Bowmar Rights Agreement.
(b) As of the Effective Time, by virtue of the
Merger, each issued and outstanding share of the capital stock of Acquisition
Subsidiary shall be converted into and become one fully paid and nonassessable
share of common stock, par value $.01 per share, of the Surviving Corporation.
(c) No fractional shares of Bowmar Stock shall be
issued pursuant to the Merger nor will any fractional share interest involved
entitle the holder thereof to vote, to receive dividends or to exercise any
other rights of a shareholder of Bowmar. In lieu thereof, any person who would
otherwise be entitled to a fractional share of Bowmar Stock pursuant to the
provisions hereof shall receive an amount in cash equal to the value of such
fractional share (rounded to the nearest cent). The value of such fractional
share shall be the product of such fraction multiplied by an amount equal to the
average closing price of Bowmar Stock on the American Stock Exchange for the ten
trading days immediately prior to the third trading day preceding the Closing
Date.
(d) Each share of EDI Common Stock held in the
treasury of EDI or by a wholly owned subsidiary of EDI shall be canceled as of
the Effective Time and no Merger Consideration shall be payable with respect
thereto.
1.4 STOCKHOLDERS' RIGHTS UPON MERGER. Upon consummation of the
Merger, the certificates which theretofore represented EDI Shares (the
"Certificates") shall cease to represent any rights with respect thereto and,
subject to applicable law and this Agreement, shall only represent the right to
receive the Merger Consideration payable in lieu of fractional shares of Bowmar
Stock into which the EDI Shares have been converted pursuant to this Agreement.
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1.5 SURRENDER AND EXCHANGE OF SHARES. (a) Prior to the
Closing Date, Bowmar shall appoint American Stock Transfer and Trust Company or
another agent mutually acceptable to Bowmar and EDI to act as exchange agent
(the "Exchange Agent") for the Merger. At or prior to the Effective Time, Bowmar
shall deposit, or cause to be deposited with the Exchange Agent such
certificates evidencing such number of shares of Bowmar Stock and such amount of
cash in order to enable the Exchange Agent to effect the exchange of
certificates and make the cash payments in respect of fractional shares
contemplated by Section 1.5(c) below.
(b) On the Closing Date, Bowmar shall instruct the
Exchange Agent to mail to each holder of record of a Certificate within five
business days of receiving from EDI a list of such holders of record, (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Bowmar may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing the Merger Consideration.
(c) After the Effective Time, each holder of an EDI
Share shall surrender and deliver the Certificates to the Exchange Agent
together with a duly completed and executed transmittal letter. Upon such
surrender and delivery, the holder shall receive a certificate representing the
number of whole shares of Bowmar Stock into which such holder's EDI Shares have
been converted pursuant to this Agreement, and a check representing the amount
of cash payable to such holder in lieu of any fractional share of Bowmar Stock.
Until so surrendered and exchanged, each outstanding Certificate after the
Effective Time shall be deemed for all purposes to evidence the right to receive
that number of whole shares of Bowmar Stock into which the EDI Shares have been
converted pursuant to this Agreement, subject to payment of cash in lieu of any
fractional share of Bowmar Stock; provided, however, that no dividends or other
distributions, if any, in respect of the shares of Bowmar Stock declared after
the Effective Time and payable to holders of record after the Effective Time,
shall be paid to the holders of any unsurrendered Certificates until such
Certificates and transmittal letters are surrendered and delivered as provided
herein. Subject to applicable Law, after the surrender and exchange of
Certificates, the record holders thereof will be entitled to receive any such
dividends or other distributions, without interest thereon, which theretofore
have become payable with respect to the number of shares of Bowmar Stock for
which such Certificates were exchangeable. Any such dividend or distribution
amounts with a record date after the Effective Time and a payment date prior to
both the first anniversary of the Effective Time and the surrender of such
Certificate shall be deposited (less the amount of any withholding taxes which
may be required thereon) with the Exchange Agent on the applicable payment date,
to be held by the Exchange Agent in a non-interest bearing account until the
surrender of such Certificate. Holders of any unsurrendered Certificates shall
not be entitled to vote Bowmar Stock until such Certificates are exchanged
pursuant to this Agreement.
(d) At the Effective Time, the stock transfer books
of EDI shall be closed and no transfer of EDI Shares shall be made thereafter,
other than transfers of EDI Shares that have occurred prior to the Effective
Time. In the event that, after the Effective Time,
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Certificates are presented to the Surviving Corporation, they shall be canceled
and exchanged for shares of Bowmar Stock or cash as provided in Section 1.3.
(e) In the event any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed, Bowmar shall
issue or pay or cause the issuance or payment, as applicable, of the Merger
Consideration in exchange for such Certificate. The Board of Directors of Bowmar
may, in its reasonable discretion and as a condition precedent to the issuance
thereof, require the person claiming to be the owner of such lost, stolen or
destroyed Certificate to give to Bowmar an indemnity against any claim that may
be made against Bowmar with respect to the Certificate alleged to have been
lost, stolen or destroyed, and to provide such other assurances and execute such
other instruments as the Exchange Agent may reasonably require.
(f) Upon the one-year anniversary of the Effective
Time, the Exchange Agent shall return to Bowmar the Merger Consideration in the
possession of the Exchange Agent, and its duties as Exchange Agent shall
terminate. Thereafter, each holder of a Certificate may surrender such
Certificate to Bowmar and, subject to applicable abandoned property, escheat and
similar laws, receive in exchange therefor the Merger Consideration issuable
with respect thereto pursuant to Section 1.3. Any former stockholders of EDI who
have not theretofore complied with this Article I shall thereafter only look to
Bowmar for any payment of their EDI Stock representing Bowmar Stock, as
determined pursuant to this Agreement.
(g) Neither EDI nor Bowmar nor the Exchange Agent
shall be liable to any holder of EDI Shares for any such shares of Bowmar Stock
(or dividends or distributions with respect thereto), or cash delivered to a
public official pursuant to any abandoned property, escheat or similar law,
rule, regulation, statute, order, judgment or decree.
1.6 OPTIONS AND WARRANTS. (a) At or prior to the Effective
Time, EDI shall cause all outstanding options (the "EDI Options") and warrants
(the "EDI Warrants") exercisable for shares of EDI Common Stock identified on
Schedule 1.6 attached hereto to be assumed by Bowmar. After such action has been
taken, effective at the Effective Time, Bowmar shall assume each such
then-outstanding and unexercised EDI Option or EDI Warrant and each such EDI
Option and EDI Warrant shall, by virtue of the Merger and without any action on
the part of the holder thereof, represent options or warrants, respectively,
exercisable for shares of Bowmar Stock having the same terms and conditions as
the EDI Options and EDI Warrants (including such terms and conditions as may be
incorporated by reference into the agreements evidencing EDI Options and EDI
Warrants pursuant to the plans or arrangements pursuant to which such EDI
Options and EDI Warrants were granted) except that the number of shares issuable
upon exercise shall be multiplied by the Exchange Ratio and rounded to the
nearest whole number of shares of Bowmar Stock and the exercise price per share
of EDI Stock under such option or warrant shall be equal to the exercise price
per share of EDI Stock under such EDI Option or EDI Warrant divided by the
Exchange Ratio and rounded to the nearest cent. EDI and Bowmar shall use all
reasonable efforts to ensure that the EDI Options which qualified as incentive
stock options under Section 422 of the Code prior to the Effective Time continue
to so qualify after the Effective Time. Bowmar shall take all corporate action
necessary to reserve for issuance a
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sufficient number of shares of Bowmar Stock for delivery upon the exercise of
EDI Options and EDI Warrants after the Effective Time.
(b) As soon as practicable after the Effective Time,
Bowmar shall deliver to the holders of the EDI Options and EDI Warrants
appropriate notices setting forth each such holder's rights pursuant to such
holder's EDI Options and/or EDI Warrant.
(c) Promptly after the Effective Time, Bowmar shall
file or cause to be filed all registration statements on Form S-8, or other
appropriate form, and all other registrations and qualifications as may be
necessary in connection with the sale of Bowmar Stock contemplated by such EDI
Options, including without limitation the additional listing of such shares on
the American Stock Exchange, and Bowmar shall cause such registration statements
to remain effective (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such EDI Options remain
exercisable.
1.7 CERTIFICATE OF INCORPORATION. At and after the Effective
Time, the Certificate of Incorporation of the Surviving Corporation shall be the
Certificate of Incorporation of Acquisition Subsidiary in effect at the
Effective Time (subject to any subsequent amendment). The form of Certificate of
Incorporation of Acquisition Subsidiary is set forth on Schedule 1.7 hereto.
1.8 BYLAWS. Subject to Section 5.13 below, at and after the
Effective Time, the Bylaws of Acquisition Subsidiary in effect at the Effective
Time shall be the Bylaws of the Surviving Corporation (subject to any subsequent
amendment). The form of the Bylaws of Acquisition Subsidiary is set forth on
Schedule 1.8 hereto.
1.9 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The
individuals set forth on Schedule 1.9(a) hereto shall, at and after the
Effective Time, be the directors of the Board of Directors of Surviving
Corporation, and the individuals set forth on Schedule 1.9(b) hereto shall, at
and after the Effective Time, be the officers of the Surviving Corporation;
provided, however, that the term of office for each person set forth on Schedule
1.9(a) and Schedule 1.9(b) who is a designee of EDI shall commence on the fifth
day immediately following the Effective Date.
1.10 STATUTORY EFFECTS OF MERGER. The Merger shall have all
further effects as specified in the applicable provisions of the Delaware Code.
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1.11 REGISTRATION STATEMENT; PROSPECTUS/PROXY STATEMENT.
(a) For the purposes of (i) registering (A) the
issuance of Bowmar Stock to holders of the EDI Shares in connection with the
Merger, (B) the issuance of warrants to purchase shares of Bowmar Stock to the
holders of EDI Warrants identified in Schedule 1.6 (the "New Warrants") in
connection with the Merger, (C) the offer and sale of the shares of Bowmar Stock
underlying the New Warrants in connection with the Merger and from time to time
after the Effective Time and (D) the offer and sale (the "Resale Shelf") from
time to time after the Effective Time of shares of Bowmar Stock issued to those
persons (x) whose shares of EDI Common Stock currently are subject to resale
pursuant to the EDI Registration Statement on Form S-3 (No. 333-3328) and (y)
who currently are "affiliates" (as such term is defined in the Securities
Exchange Act) of EDI, in each case with the Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act"), and complying with applicable
state securities Laws, (ii) holding the meeting of EDI stockholders to vote upon
the adoption of this Agreement and the Merger and the transactions contemplated
hereby and thereby (the "EDI Proposals"), and (iii) holding the meeting of
Bowmar's shareholders to approve the amendment of Bowmar's Articles of
Incorporation to increase the number of authorized shares of Bowmar Stock and to
approve the issuance of the Bowmar Stock in the Merger and the other
transactions contemplated hereby and thereby (the "Bowmar Proposals"), Bowmar
and EDI shall prepare and file with the SEC a registration statement on Form S-4
(such registration statement, together with any and all amendments and
supplements thereto, being herein referred to as the "Registration Statement"),
including a prospectus/joint proxy statement satisfying all requirements of
applicable state securities Laws, the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder (the
"Securities Exchange Act"). Such prospectus/joint proxy statement in the form
mailed by EDI and Bowmar to their respective stockholders, together with any and
all amendments or supplements thereto, is herein referred to as the
"Prospectus/Proxy Statement." The obligations of Bowmar with respect to the
Resale Shelf shall be governed by the terms and conditions of the Third Amended
and Restated Registration Rights Agreement dated April 30, 1995 by and among EDI
(as successor to Crystallume) and the persons identified on Exhibit A thereto,
as amended from time to time thereafter, and the Agreement Respecting TFI
Registration Rights dated October 10, 1995 by and between EDI (as successor to
Crystallume) and Technology Funding Partners III, L.P. Bowmar shall use its
reasonable best efforts to maintain an effective registration statement for the
Bowmar Stock issuable upon exercise of the New Warrants for so long as the New
Warrants are exercisable.
(b) EDI will furnish Bowmar with such information
concerning EDI and the EDI Subsidiaries as is necessary in order to cause the
Prospectus/Proxy Statement, insofar as it relates to EDI and the EDI
Subsidiaries, to comply with applicable Law. None of the information relating to
EDI and the EDI Subsidiaries supplied by EDI for inclusion in the
Prospectus/Proxy Statement will be false or misleading with respect to any
material fact or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. EDI agrees promptly to
advise Bowmar if, at any time prior to the respective meetings of the
stockholders of EDI or Bowmar referenced herein, any information provided by it
in the Prospectus/Proxy Statement is or becomes false or misleading in any
material respect and to
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provide Bowmar with the information needed to correct such. EDI will furnish
Bowmar with such supplemental information as may be necessary in order to cause
the Prospectus/Proxy Statement, insofar as it relates to EDI and the EDI
Subsidiaries, to comply with applicable Law after the mailing thereof to the
stockholders of EDI or Bowmar.
(c) Bowmar will furnish EDI with such information
concerning Bowmar and the Bowmar Subsidiaries as is necessary in order to cause
the Prospectus/Proxy Statement, insofar as it relates to Bowmar and the Bowmar
Subsidiaries, to comply with applicable Law. None of the information relating to
Bowmar and the Bowmar Subsidiaries supplied by Bowmar for inclusion in the
Prospectus/Proxy Statement will be false or misleading with respect to any
material fact or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Bowmar agrees promptly
to advise EDI if, at any time prior to the respective meetings of stockholders
of EDI or Bowmar referenced herein, any information provided by it in the
Prospectus/Proxy Statement is or becomes false or misleading in any material
respect and to provide EDI with the information needed to correct such. Bowmar
will furnish EDI with such supplemental information as may be necessary in order
to cause the Prospectus/Proxy Statement, insofar as it relates to Bowmar and the
Bowmar Subsidiaries, to comply with applicable Law after the mailing thereof to
the stockholders of EDI or Bowmar.
(d) EDI and Bowmar agree to cooperate in making any
preliminary filings of the Prospectus/Proxy Statement with the SEC, as promptly
as practicable, pursuant to Rule 14a-6 under the Securities Exchange Act.
(e) Bowmar will file the Registration Statement with
the SEC and appropriate materials with applicable state securities agencies as
promptly as practicable following the date of this Agreement and will use all
reasonable efforts to cause the Registration Statement to become effective under
the Securities Act and all such state filed materials to comply with applicable
state securities Laws as soon as reasonably practicable. EDI authorizes Bowmar
to utilize in the Registration Statement and in all such state filed materials,
the information concerning EDI and the EDI Subsidiaries provided to Bowmar in
connection with, or contained in, the Prospectus/Proxy Statement. Bowmar
promptly will advise EDI when the Registration Statement has become effective
and of any supplements or amendments thereto, and Bowmar will furnish EDI with
copies of all such documents. Except for the Prospectus/Joint Proxy or the
preliminary prospectus/joint proxy, neither Bowmar nor EDI shall distribute any
written material that might constitute a "prospectus" relating to the Merger,
the EDI Proposals or the Bowmar Proposals within the meaning of the Securities
Act or any applicable state securities Law without the prior written consent of
Bowmar. Bowmar will advise EDI, and deliver copies (if any) to EDI, promptly
after Bowmar receives notice thereof, of any request by the SEC for amendment of
the Prospectus/Proxy Statement or the Registration Statement or comments thereon
and responses thereto or requests by the SEC for additional information, or
notice of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, the issuance of any stop order, or the
suspension of the qualification of the Bowmar Stock issuable in connection with
the Merger for offering or sale in any jurisdiction.
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(f) Each of Bowmar and EDI shall use its best
efforts to timely mail the Prospectus/Proxy Statement to its stockholders. It
shall be a condition to the mailing of the Prospectus/Proxy Statement that (i)
Bowmar shall have received a "comfort" letter from Price Waterhouse LLP,
independent public accountants for EDI, of the kind contemplated by the
Statement of Auditing Standards with respect to Letters to Underwriters
promulgated by the American Institute of Certified Public Accountants (the
"AICPA Statement"), dated as of the date on which the Registration Statement
shall become effective (and Bowmar shall also receive such a letter as of the
Effective Time), each addressed to Bowmar, in form reasonably satisfactory to
Bowmar, concerning the procedures undertaken by Price Waterhouse LLP with
respect to the financial statements and information of EDI and its subsidiaries
contained in the Registration Statement and the other matters contemplated by
the AICPA Statement and otherwise customary in scope and substance for letters
delivered by independent public accountants in connection with transactions such
as those contemplated by this Agreement and (ii) EDI shall have received a
"comfort" letter from Coopers & Lybrand L.L.P., independent public accountants
for Bowmar, of the kind contemplated by the AICPA Statement, dated as of the
date on which the Registration Statement shall become effective (and EDI shall
also receive such a letter of the Effective Time), each addressed to EDI, in
form reasonably satisfactory to EDI concerning the procedures undertaken by
Coopers & Lybrand L.L.P. with respect to the financial statements and
information of Bowmar and its subsidiaries contained in the Registration
Statement and the other matters contemplated by the AICPA Statement and
otherwise customary in scope and substance for letters delivered by independent
public accountants in connection with transactions such as those contemplated by
this Agreement.
1.12 TAX-FREE REORGANIZATION. The parties intend that the
Merger qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder (the
"Code"). None of the parties will knowingly take any action that would cause the
Merger to fail to qualify as a reorganization within the meaning of Section
368(a) of the Code. Following the Effective Time, Bowmar shall use its
reasonable best efforts to conduct its business in a manner that would not
jeopardize the characterization of the Merger as a reorganization within the
meaning of Section 368(a) of the Code. Bowmar presently intends to continue, and
shall continue, for periods after the Effective Time at least one significant
historic business line of EDI, or use at least a significant portion of EDI's
historic business assets in a business, in each case within the meaning of
Treasury Regulation Section1.368-1(d).
1.13 ADDITIONAL ACTIONS. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of Acquisition Subsidiary or EDI or otherwise to
carry out this Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of Acquisition Subsidiary or EDI, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of
Acquisition Subsidiary or EDI, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Agreement.
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1.14 AUTHORIZED SHARES. On or prior to the Effective Time, the
Articles of Incorporation of Bowmar shall be amended to increase the number of
shares of Bowmar Stock that Bowmar shall be authorized to issue to 35,000,000.
1.15 INDEMNIFICATION (a) In the event of any threatened or
actual claim, action, suit, proceeding or investigation, whether civil, criminal
or administrative, in which any person who is now, or has been at any time prior
to the date hereof, or who becomes prior to the Effective Time, a director or
officer of (or a director or officer acting in a fiduciary capacity for) EDI or
Bowmar (or of a subsidiary of either of them) or, in the case of clause (ii)
below, an employee of EDI or Bowmar (or of a subsidiary of either of them) (any
such person an "Indemnified Party") is, or is threatened to be, made a party
based in whole or in part on, or arising in whole or in part out of or
pertaining to (i) the fact that he or she is or was a director (including in his
or her capacity as a member of a committee of the Board of Directors) or officer
of (or a director or officer acting in a fiduciary capacity for) EDI or Bowmar
(or of a subsidiary of either of them), or (ii) this Agreement or any of the
transactions contemplated hereby, whether in any case asserted or arising before
or after the Effective Time, the parties hereto agree to cooperate and use their
reasonable efforts to defend against and respond thereto. It is understood and
agreed that (a) prior to the Effective Time, each of EDI and Bowmar,
respectively, shall indemnify and hold harmless as and to the fullest extent
permitted by applicable law, each Indemnified Party of EDI (an "EDI Indemnified
Party") and each Indemnified Party of Bowmar (a "Bowmar Indemnified Party"),
respectively, against any losses, claims, damages, liabilities, costs, expenses
(including reasonable attorneys' fees and expenses), judgments, fines and
amounts paid in settlement (collectively "Losses") in connection with any such
threatened or actual claim, action, suit, proceeding or investigation; and (b)
from and after the Effective Time, Bowmar and the Surviving Corporation shall
indemnify and hold harmless as and to the fullest extent permitted by applicable
law, each Indemnified Party against any Losses in connection with any such
threatened or actual claim, action, suit, proceeding or investigation (whether
asserted or arising before or after the Effective Time). For the purpose of this
Section 1.15, for the period prior to the Effective Time, each of EDI and
Bowmar, and for the period from and after the Effective Time, Bowmar and the
Surviving Corporation shall be referred to as an "Indemnifying Party" with
respect to their respective indemnification obligations hereunder. The
Indemnifying Party shall promptly pay expenses in advance of the final
disposition of any claim, action, suit, proceeding or investigation to the
Indemnified Parties claiming indemnification from such Indemnifying Party
pursuant to this Section 1.15 for the period it must so indemnify to the fullest
extent permitted by law, and the Indemnifying Party shall be entitled to
participate in the defense thereof and, to the extent that the Indemnifying
Party so desires, to assume the defense thereof with counsel selected by it,
provided that the Indemnified Party shall have the right to employ separate
counsel, but the fees and expenses of such counsel shall be at the Indemnified
Party's expense unless in such claims or action there is, in the opinion of
independent counsel, a conflict concerning any material issue between the
positions of the Indemnifying Party and the Indemnified Party. In such a case,
if the Indemnified Party notifies the Indemnifying Party, in writing, that the
Indemnified Party elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
such defense of such claim or action on behalf of the Indemnified Party;
provided, however, that the Indemnifying Party shall not be required to pay the
fees and expenses of more than one separate
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counsel for all of its Indemnified Parties. An Indemnifying Party shall not be
liable to pay any amount in settlement effected without its prior written
consent (which consent shall not be unreasonably withheld). Promptly upon
learning of any claim, action, suit, proceeding or investigation for which
indemnification is available under this Section 1.15, the Indemnified Party
shall notify the Indemnifying Party in writing, provided that the failure to so
notify shall not affect the obligations of the Indemnifying Party except to the
extent such failure to notify materially prejudices such Indemnifying Party. No
settlement of any such claim, action, suit, proceeding or investigation shall be
made without the written consent of the Indemnified Parties with respect thereto
unless such Indemnified Party shall receive a full and unconditional release as
a part thereof.
(b) Bowmar and the Surviving Corporation agree that
all rights to indemnification existing in favor, and all limitations on the
personal liability, of EDI Indemnified Parties provided for in the Certificate
of Incorporation or Bylaws of EDI or any EDI Subsidiary, and of Bowmar
Indemnified Parties provided for in the Certificate of Incorporation or Bylaws
of Bowmar or any Bowmar Subsidiary, as in effect as of the date hereof with
respect to matters occurring prior to the Effective Time shall survive the
Merger and shall continue in full force and effect for a period of not less than
six (6) years from the Effective Time; provided, however, that all rights to
indemnification in respect of any claim asserted or made within such period
shall continue until the final disposition of such claim. At or prior to the
Effective Time, Bowmar shall purchase directors' and officers' liability
insurance coverage for Bowmar's directors and officers and EDI's directors and
officers with coverage for six (6) years following the Effective Time in a form
reasonably acceptable to EDI and of not less than the existing coverage under,
and have other terms not materially less favorable to the insured persons than,
the directors' and officers' liability insurance coverage presently maintained
by EDI, in the case of directors and officers of EDI, or Bowmar, in the case of
directors and officers of Bowmar, provided, however, that in any event the cost
of such policy shall not exceed $250,000.
(c) This Section 1.15 is intended for the
irrevocable benefit of, and to grant third-party rights to, the Indemnified
Parties (as contemplated by Section 8.14) and shall be binding on all successors
and assigns of Bowmar, the Surviving Corporation and EDI. Each of the
Indemnified Parties shall be entitled to enforce the covenants contained in this
Section 1.15. The provisions for indemnification contained in this Section 1.15
are not intended to be exclusive and are without prejudice to any other rights
to indemnification or advancement of funds which any Indemnified Party may
otherwise have.
(d) In the event Bowmar, the Surviving Corporation
or any of their successors or assigns (i) consolidates with or merges into any
other person or entity and shall not be the continuing or surviving corporation
or entity of such consolidation or merger or (ii) transfers or conveys all or
substantially all of its properties and assets to any person or entity, then,
and in each such case, proper provision shall be made so that the successors and
assigns of Bowmar and the Surviving Corporation assume the obligations set forth
in this Section 1.15.
1.16 LISTING APPLICATION. Each of EDI and Bowmar shall
cooperate and promptly prepare and submit to the American Stock Exchange, all
reports, applications and other documents that may be necessary or desirable to
enable all of the Bowmar Stock that will be
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outstanding or will be reserved for issuance at the Effective Time to be listed
for trading on the American Stock Exchange. Each of EDI and Bowmar shall furnish
all information about itself and its business and operation and all necessary
financial information to the other as the other may reasonably request in
connection with such listing process.
1.17 VOTING AGREEMENTS. Concurrently with the execution and
delivery of this Agreement, EDI and Bowmar shall cause those persons set forth
on Schedule 1.17(a) to execute and deliver voting and support agreements in the
form attached hereto as Schedule 1.17(b) agreeing, among other things, to vote
in favor of this Merger Agreement, the Merger and the transactions contemplated
hereby.
1.18 ANCILLARY ASSUMPTION AGREEMENTS. Concurrently with the
execution and delivery of this Agreement, EDI and Bowmar shall execute and
deliver (i) the Assignment and Assumption Agreement in the form attached hereto
as Schedule 1.18(a) pursuant to which Bowmar shall agree, among other things, to
be bound by and perform EDI's obligations under the registration rights
agreements referred to therein, subject to the terms of such Assignment and
Assumption Agreement, and (ii) the Assignment and Assumption Agreement in the
form attached hereto as Schedule 1.18(b) pursuant to which Bowmar shall agree,
among other things, to be bound by and perform EDI's obligations under the
employment and severance agreements referred to therein, subject to the terms of
such Assignment and Assumption Agreement.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND CERTAIN
COVENANTS OF EDI
EDI represents, warrants and/or covenants to and with Bowmar as
follows:
2.1 ORGANIZATION AND GOOD STANDING. EDI and each of the EDI
subsidiaries (the "EDI Subsidiary") is a corporation or partnership duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite
corporate or partnership power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. EDI and each of
the EDI Subsidiaries is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the character of the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except where the failure to be so
duly qualified or licensed and in good standing would not have a material
adverse effect on the business, assets (including, but not limited to,
intangible assets), condition (financial or otherwise), properties (including,
but not limited to, intangible properties), liabilities or the results of
operations of EDI and the EDI Subsidiaries taken as a whole ("EDI Material
Adverse Effect"). Schedule 2.1 attached hereto contains a complete and accurate
list of the jurisdictions of incorporation or organization and qualification or
license of EDI and the EDI Subsidiaries. EDI has heretofore made available to
Bowmar accurate and complete copies of the Certificate of Incorporation and
Bylaws, as currently in effect, of EDI and each EDI Subsidiary.
2.2 CAPITALIZATION. As of the date hereof, the authorized
capital stock of EDI consists of (a) 20,000,000 shares of EDI Common Stock, and
(b) 8,000,000 shares of convertible
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preferred stock, (the "EDI Preferred Stock"). As of May 1, 1998, (a) 7,047,380
shares of EDI Common Stock were issued and outstanding, (b) 100,915 shares of
EDI Common Stock were issued and held in the treasury of EDI, and (c) no shares
of the EDI Preferred Stock were issued and outstanding. No other capital stock
of EDI is authorized or issued. All issued and outstanding shares of the EDI
Common Stock are duly authorized, validly issued, fully paid and non-assessable
and were issued free of preemptive rights and in compliance with applicable
securities Laws. Except as set forth in the EDI Securities Filings (as
hereinafter defined) or on Schedule 2.2 attached hereto and as otherwise
contemplated by this Agreement, as of the date hereof there are no outstanding
rights, subscriptions, warrants, puts, calls, unsatisfied preemptive rights,
options or other agreements of any kind to which EDI is bound relating to any of
the outstanding, authorized but unissued, unauthorized or treasury shares of the
capital stock or any other security of EDI, and there is no authorized or
outstanding security of any kind convertible into or exchangeable for any such
capital stock or other security. The holders of shares of EDI Stock are not
entitled to appraisal rights under applicable Law (as hereinafter defined) or
the Certificate of Incorporation of EDI. Except as disclosed in the EDI
Securities Filings, there are, to the best knowledge of EDI, no restrictions
upon the transfer of or otherwise pertaining to the securities (including, but
not limited to, the ability to pay dividends thereon) or retained earnings of
EDI and the EDI Subsidiaries or the ownership thereof other than those, if any,
described on Schedule 2.2 attached hereto or those imposed by the Securities
Act, the Securities Exchange Act, applicable state securities Laws or applicable
corporate Law. Neither EDI nor any EDI Subsidiary beneficially owns any shares
of Bowmar Common Stock.
2.3 SUBSIDIARIES. Schedule 2.3 attached hereto sets forth the
name and jurisdiction of incorporation or organization of each EDI Subsidiary,
each of which is wholly owned by EDI except as otherwise indicated on said
Schedule 2.3. Except as set forth on Schedule 2.3 attached hereto, all of the
capital stock and other interests of the EDI Subsidiaries so held by EDI are
owned by it or an EDI Subsidiary as indicated on said Schedule 2.3, free and
clear of any claim, lien, encumbrance, security interest or agreement with
respect thereto. All of the outstanding shares of capital stock in each of the
EDI Subsidiaries directly or indirectly held by EDI are duly authorized, validly
issued, fully paid and non-assessable and were issued free of preemptive rights
and in compliance with applicable Laws. Except as set forth on Schedule 2.3
attached hereto, there are no irrevocable proxies or similar obligations with
respect to such capital stock of the EDI Subsidiaries held by EDI and no equity
securities or other interests of any of the EDI Subsidiaries are or may become
required to be issued or purchased by reason of any options, warrants, rights to
subscribe to, puts, calls or commitments of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for, shares of any
capital stock of any EDI Subsidiary, and there are no contracts, commitments,
understandings or arrangements by which any EDI Subsidiary is bound to issue
additional shares of its capital stock, or options, warrants or rights to
purchase or acquire any additional shares of its capital stock or securities
convertible into or exchangeable for such shares.
2.4 AUTHORIZATION; BINDING AGREEMENT. EDI has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the other agreements and documents referred to herein to
which EDI is or will be a party or a signatory (the "EDI Ancillary Agreements")
and the consummation of the transactions contemplated hereby and
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thereby, including, but not limited to, the Merger, have been duly and validly
authorized by EDI's Board of Directors and no other corporate proceedings on the
part of EDI or any EDI Subsidiary are necessary to authorize the execution and
delivery of this Agreement and the EDI Ancillary Agreements or to consummate the
transactions contemplated hereby or thereby (other than the adoption of this
Agreement and the approval of the Merger by the stockholders of EDI in
accordance with the Delaware Code and the Certificate of Incorporation and
Bylaws of EDI). This Agreement has been duly and validly executed and delivered
by EDI and constitutes, and upon execution and delivery thereof as contemplated
by this Agreement, the EDI Ancillary Agreements will constitute, the legal,
valid and binding agreements of EDI, enforceable against EDI in accordance with
its and their respective terms, except to the extent that enforceability thereof
may be limited by applicable bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally and by
principles of equity regarding the availability of remedies ("Enforceability
Exceptions").
2.5 GOVERNMENTAL APPROVALS. No consent, approval, waiver or
authorization of, notice to or declaration or filing with ("Consent") any nation
or government, any state or other political subdivision thereof, any entity,
authority or body exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including, without
limitation, any governmental or regulatory authority, agency, department, board,
commission, administration or instrumentality, any court, tribunal or arbitrator
and any self-regulatory organization ("Governmental Authority") on the part of
EDI or any of the EDI Subsidiaries is required in connection with the execution
or delivery by EDI of this Agreement and the EDI Ancillary Agreements or the
consummation by EDI of the transactions contemplated hereby or thereby other
than (i) the filing of the Certificate of Merger with the Secretary of State of
Delaware in accordance with the Delaware Code, (ii) filings with the SEC, state
securities laws administrators and the Nasdaq, (iii) filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder (the "HSR Act"), if required, (iv) such
filings as may be required in any jurisdiction where EDI is qualified or
authorized to do business as a foreign corporation in order to maintain such
qualification or authorization, (v) those Consents required by or related to
contracts pursuant to which EDI provides, directly or indirectly, goods or
services to any Governmental Authority, all as identified on Schedule 2.5
attached hereto; and (vi) those Consents that, if they were not obtained or
made, do not or would not have an EDI Material Adverse Effect or materially and
adversely affect the ability of EDI to perform its obligations as set forth in
this Agreement or to consummate the transactions contemplated hereby.
2.6 NO VIOLATIONS. Except as set forth on Schedule 2.6
attached hereto, the execution and delivery of this Agreement and the EDI
Ancillary Agreements, the consummation of the transactions contemplated hereby
and thereby and compliance by EDI with any of the provisions hereof or thereof
will not (i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or Bylaws or other governing instruments of EDI or
any of the EDI Subsidiaries, (ii) require any Consent under or result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration or augment the performance required) under any of the terms,
conditions or provisions of any EDI Material Contract (as hereinafter defined),
(iii) result in the creation or imposition of any lien or encumbrance of any
kind upon any of the assets of
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EDI or any EDI Subsidiary, or (iv) subject to obtaining the Consents from
Governmental Authorities referred to in Section 2.5, above, contravene any
applicable provision of any constitution, treaty, statute, law, code, rule,
regulation, ordinance, policy or order of any Governmental Authority or other
matters having the force of law including, but not limited to, any orders,
decisions, injunctions, judgments, awards and decrees of or agreements with any
court or other Governmental Authority ("Law") currently in effect to which EDI
or any EDI Subsidiary or its or any of their respective assets or properties are
subject, except in the case of clauses (ii), (iii) and (iv), above, for any
deviations from the foregoing which do not or would not have an EDI Material
Adverse Effect.
2.7 SECURITIES FILINGS AND LITIGATION. EDI has made available
to Bowmar true and complete copies of (i) its Annual Reports on Form 10-KSB for
the years ended September 30, 1997, 1996 and 1995, as filed with the SEC, (ii)
its proxy statements relating to all of the meetings of stockholders (whether
annual or special) of EDI since January 1, 1995, as filed with the SEC, and
(iii) all other reports, statements and registration statements and amendments
thereto (including, without limitation, Quarterly Reports on Form 10-QSB and
Current Reports on Form 8-K, as amended) filed by EDI with the SEC since January
1, 1995. The reports and statements set forth in clauses (i) through (iii),
above, and those subsequently provided or required to be provided pursuant to
this Section, are referred to collectively herein as the "EDI Securities
Filings." As of their respective dates, or as of the date of the last amendment
thereof, if amended after filing, none of the EDI Securities Filings (including
all schedules thereto and disclosure documents incorporated by reference
therein), contained or, as to EDI Securities Filings subsequent to the date
hereof, will contain any untrue statement of a material fact or omitted or, as
to EDI Securities Filings subsequent to the date hereof, will omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Each of the EDI Securities Filings at the time of filing or as of
the date of the last amendment thereof, if amended after filing, complied or, as
to EDI Securities Filings subsequent to the date hereof, will comply in all
material respects with the Securities Exchange Act or the Securities Act, as
applicable. EDI has timely filed all reports, statements, registration
statements and other filings required to be filed by it under the Securities
Exchange Act and the Securities Act, as applicable. Except as disclosed in the
EDI Securities Filings or on Schedule 2.7, there is no action, cause of action,
claim, demand, suit, proceeding, citation, summons, subpoena, inquiry or
investigation of any nature, civil, criminal, regulatory or otherwise, in law or
in equity, by or before any court, tribunal, arbitrator or other Governmental
Authority ("Litigation") pending or, to the knowledge of EDI, threatened against
EDI or any EDI Subsidiary, any officer, director, employee or agent thereof, in
his or her capacity as such, or as a fiduciary with respect to any EDI Benefit
Plan, as hereinafter defined, or otherwise relating to EDI or any EDI Subsidiary
or the securities of any of them, or any properties or rights of EDI or any EDI
Subsidiary or any EDI Benefit Plan which is required to be described in any EDI
Securities Filing that is not so described. No event has occurred as a
consequence of which EDI would be required to file a Current Report on Form 8-K
pursuant to the requirements of the Securities Exchange Act as to which such a
report has not been timely filed with the SEC.
2.8 EDI FINANCIAL STATEMENTS. The audited consolidated
financial statements and unaudited interim financial statements of EDI included
in the EDI Securities Filings (the
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"EDI Financial Statements") have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis (except as may be
indicated therein or in the notes thereto) and present fairly, in all material
respects, the financial position of EDI and the EDI Subsidiaries as at the dates
thereof and the results of their operations and cash flows for the periods then
ended subject, in the case of the unaudited interim financial statements, to
normal year-end audit adjustments, any other adjustments described therein and
the fact that certain information and notes have been condensed or omitted in
accordance with the Securities Exchange Act.
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
in the EDI Securities Filings filed and publicly available prior to the date of
this Agreement or in Schedule 2.9 attached hereto or as permitted by Section
4.1, since September 30, 1997, (i) there has not been any event, occurrence,
fact, condition, change, development or effect ("Event") that has had or could
reasonably be expected to have an EDI Material Adverse Effect; (ii) EDI and the
EDI Subsidiaries have operated only in the ordinary course of business and
consistent with past practice; and (iii) without limiting the generality of the
foregoing, and except as disclosed on Schedule 2.9 attached hereto, there has
not been, occurred or arisen:
(a) any declaration, payment or setting aside for
payment of any dividend (except to EDI or an EDI Subsidiary) or other
distribution or any redemption, purchase or other acquisition of any shares of
capital stock or securities of EDI by or from EDI;
(b) any employment, deferred compensation or other
salary, wage or compensation contract entered into between EDI and any EDI
employee, except for normal and customary contracts in the ordinary course of
business and consistent with past practice; or any increase in the salary, wages
or other compensation of any kind, whether current or deferred, of any EDI
employee, other than routine increases that were made in the ordinary course of
business and consistent with past practices; or any creation of any benefit plan
or amendment or modification of any benefit plan; or any election by or on
behalf of EDI made pursuant to the provisions of any benefit plan to accelerate
any payments, obligations or vesting schedules under any benefit plans;
(c) any issuance, sale or disposition by EDI of any
debenture, note, stock or other security issued by EDI, or any modification or
amendment of any right of the holder of any outstanding debenture, note, stock
or other security issued by EDI;
(d) any liability involving the borrowing of money
by EDI except in the ordinary course of business and consistent with past
practices;
(e) except for fair value received, in the ordinary
course of business and consistent with past practices, any cancellation of any
liability owed to EDI by any other person; or
(f) any amendment to the Certificate of
Incorporation or By-laws of EDI.
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2.10 COMPLIANCE WITH LAWS. The business of EDI and each EDI
Subsidiary has been operated in compliance with all Laws, except for any
instances of non-compliance which have not had and could not reasonably be
expected to have an EDI Material Adverse Effect.
2.11 PERMITS. (i) EDI and the EDI Subsidiaries have all
permits, certificates, licenses, approvals and other authorizations required in
connection with the operation of their business (collectively, "EDI Permits"),
(ii) neither EDI nor any EDI Subsidiary is in violation of any EDI Permit, and
(iii) no proceedings are pending or, to the knowledge of EDI, threatened, to
revoke or limit any EDI Permit, except, in each case, those the absence or
violation of which could not reasonably be expected to have an EDI Material
Adverse Effect.
2.12 FINDERS AND INVESTMENT BANKERS. Neither EDI nor any of its
officers or directors has entered into any contract, arrangement or
understanding with any broker, finder or other person, other than Alliant
Partners, or otherwise incurred any liability for any brokerage fees,
commissions, finders' fees or like payments in connection with the transactions
contemplated hereby.
2.13 CONTRACTS. Except as set forth in the EDI Securities
Filings or in Schedule 2.13 attached hereto, neither EDI nor any of the EDI
Subsidiaries is a party or is subject to any note, bond, mortgage, indenture,
contract, lease, license, agreement, understanding, instrument, bid or proposal
that is material to the business or operations of EDI ("EDI Material Contract").
EDI has made available to Bowmar true and accurate copies of the EDI Material
Contracts. All such EDI Material Contracts are valid and binding and are in full
force and effect and enforceable against EDI or such subsidiary in accordance
with their respective terms, subject to the Enforceability Exceptions and
assuming the due authorization of the other party or parties thereto. Except as
set forth in Schedule 2.6 attached hereto, (i) no Consent of any person is
needed in order that each such EDI Material Contract shall continue in full
force and effect in accordance with its terms without penalty, acceleration or
rights of early termination by reason of the consummation of the transactions
contemplated by this Agreement, except for Consents the absence of which would
not reasonably be expected to have a EDI Material Adverse Effect, and (ii)
neither EDI nor any EDI Subsidiary is in violation or breach of or default under
any such EDI Material Contract; nor to EDI's knowledge is any other party to any
such EDI Material Contract in violation or breach of or default under any such
EDI Material Contract in each case where such violation or breach would have an
EDI Material Adverse Effect.
2.14 EMPLOYEE BENEFIT PLANS. (a) Except as set forth in
Schedule 2.14(a) attached hereto, there are no Benefit Plans (as defined below)
maintained or contributed to by EDI or any of its ERISA Affiliates (as defined
below) ("EDI Benefit Plan"). A "Benefit Plan" shall include (i) an employee
benefit plan as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended, together with all regulations thereunder
("ERISA"), even if, because of some other provision of ERISA, such plan is not
subject to any or all of ERISA's provisions, and (ii) whether or not described
in the preceding clause, any pension, profit sharing, stock bonus, deferred or
supplemental compensation, retirement, thrift, stock purchase or stock option
plan, or any other compensation, welfare, fringe benefit or retirement plan,
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program, policy, course of conduct, understanding or arrangement of any kind
whatsoever, providing for benefits for, or the welfare of, any or all of the
current or former employees or agents of EDI or any EDI Subsidiary or their
beneficiaries or dependents; provided that Benefit Plans shall not include any
multiemployer plan, as defined in Section 3(37) of ERISA (a "Multiemployer
Plan"). An "ERISA Affiliate" is any Person if it would have ever been considered
a single employer with EDI under ERISA Section 4001(b) or part of the same
"controlled group" as EDI for purposes of ERISA Section 302(d)(8)(C). No EDI
Benefit Plan is a defined benefit pension plan subject to Title IV of ERISA or
Section 412 of the Code. Each of the EDI Benefit Plans has been maintained in
material compliance with its terms and all applicable Law, except where the
failure to do so would not be reasonably likely to result in an EDI Material
Adverse Effect. Neither EDI nor any of its ERISA Affiliates (i) contributes to,
has ever contributed to or has any outstanding liability with respect to, any
Multiemployer Plan; or (ii) except as identified on Schedule 2.14(a), currently
provides any post-employment welfare benefits except as required by the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA").
(b) Except as set forth in Schedule 2.14(b) attached hereto,
the consummation of the transactions contemplated by this Agreement will not (i)
entitle any individual to severance pay, or (ii) accelerate the time of payment
or vesting of benefits or increase the amount of compensation due to any
individual.
2.15 TAXES AND RETURNS. (a) Except as set forth on Schedule
2.15, EDI and each EDI Subsidiary has timely filed, or caused to be timely filed
all material Tax Returns (as defined below) required to be filed by it, and has
paid, collected or withheld, or caused to be paid, collected or withheld, all
material amounts of Taxes required to be paid, collected or withheld, other than
such Taxes for which adequate reserves in the EDI Financial Statements have been
established or which are being contested in good faith and with respect to which
EDI is maintaining reserves adequate for their payment. There are no claims or
assessments pending against EDI or any EDI Subsidiary for any alleged deficiency
in any Tax, and EDI has not been notified in writing of any proposed Tax claims
or assessments against EDI or any EDI Subsidiary (other than in each case,
claims or assessments for which adequate reserves in the EDI Financial
Statements have been established or which are being contested in good faith and
with respect to which EDI is maintaining reserves adequate for their payment or
are immaterial in amount). Neither EDI nor any EDI Subsidiary has any waivers or
extensions of any applicable statute of limitations to assess any material
amount of Taxes. Except as set forth on Schedule 2.15, there are no outstanding
requests by EDI or any EDI Subsidiary for any extension of time within which to
file any material Tax Return or within which to pay any material amounts of
Taxes shown to be due on any return. EDI has taken all steps to ensure it has
and, at the Effective Time, shall have full use of all tax loss carryforwards
reflected on its Form 10-KSB for the fiscal year ended September 30, 1997.
(b) To the best knowledge of EDI, there are no liens
for material amounts of Taxes on the assets of EDI or any EDI Subsidiary except
for statutory liens for current Taxes not yet due and payable.
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(c) No examination or audit of any Tax Returns of
EDI or any of the EDI Subsidiaries by any Governmental Authority is currently in
progress or, to the best knowledge of EDI, threatened or contemplated.
(d) EDI has not taken or agreed to take any action
that would prevent the Merger from constituting a tax-free reorganization under
the provisions of Section 368 of the Code.
(e) For purposes of this Agreement, the term "Tax"
shall mean any federal, state, local, foreign or provincial income, gross
receipts, property, sales, use, license, excise, franchise, employment, payroll,
alternative or added minimum, ad valorem, transfer or excise tax, or any other
tax, custom, duty, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or penalty imposed by any
Governmental Authority. The term "Tax Return" shall mean a report, return or
other information (including any attached schedules or any amendments to such
report, return or other information) required to be supplied to or filed with a
governmental entity with respect to any Tax, including an information return,
claim for refund, amended return or declaration or estimated Tax.
2.16 FAIRNESS OPINION. EDI has received the opinion of Alliant
Partners to the effect that, as of the date hereof, the Merger Consideration is
fair to the holders of EDI Stock from a financial point of view.
2.17 TAKEOVER STATUTES. Assuming Bowmar and its "associates"
and "affiliates" (as defined in Section 203 of the Delaware Code) collectively
beneficially own and have beneficially owned at all times during the three year
period prior to the date hereof less than fifteen percent (15%) of the EDI
Shares outstanding, Section 203 of the Delaware Code is, and shall be,
inapplicable to the Merger, this Agreement and the transactions contemplated
hereby and thereby. The foregoing notwithstanding, the Board of Directors of EDI
has approved the Merger and this Agreement, and such approval is sufficient to
render inapplicable to the Merger, this Agreement and the transactions
contemplated by this Agreement, the provisions of Section 203 of the Delaware
Code.
2.18 INTELLECTUAL PROPERTY RIGHTS. To the knowledge of EDI, EDI
and the EDI Subsidiaries own or possess adequate rights or licenses to use all
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights (collectively "Intellectual Property Rights") to conduct their respective
businesses as now conducted, except to the extent that the failure to possess
such rights or licenses would not have an EDI Material Adverse Effect. EDI and
the EDI Subsidiaries do not have any knowledge of any infringement by EDI or the
EDI Subsidiaries of any Intellectual Property Rights of others, and except as
set forth on Schedule 2.18, there is no claim, action or proceeding being made
or brought against, or to EDI's knowledge, being threatened against, EDI or any
EDI Subsidiary regarding any Intellectual Property Rights or other infringement;
and EDI and the EDI Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing, except for such facts and circumstances
which would not have, individually or in the aggregate, an EDI Material Adverse
Effect.
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2.19 CERTAIN BUSINESS RELATIONSHIPS WITH AFFILIATES. Except as
set forth in the EDI Securities Filings, as disclosed on Schedule 2.19 or by
virtue of the Merger, since the date of EDI's last proxy statement to its
shareholders, no event has occurred that would be required to be reported by EDI
as a Certain Relationship or Related Transaction pursuant to Item 404 of
Regulation S-K promulgated under the Securities Act.
2.20 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
2.20 hereto and except as to such matters which, individually or in the
aggregate, could not reasonably be expected to have an EDI Material Adverse
Effect, (i) neither EDI nor any EDI Subsidiary has ever generated, transported,
used, stored, treated, disposed of, or managed any Hazardous Waste (as
hereinafter defined) in a manner not in compliance with applicable Environmental
Law (as hereinafter defined); (ii) to the best knowledge of EDI, no Hazardous
Material (as hereinafter defined) has ever been or is threatened to be spilled,
released, or disposed of at any site presently or formerly owned, operated,
leased, or used by EDI or any EDI Subsidiary, or has ever come to be located in
the soil or groundwater at any such site; (iii) no Hazardous Material has ever
been transported from any site presently or formerly owned, operated, leased, or
used by EDI or any EDI Subsidiary for treatment, storage, or disposal at any
other place other than in compliance with applicable Environmental Laws; (iv)
neither EDI nor any EDI Subsidiary presently owns, operates, leases, or uses, or
previously owned, operated, leased, or used any site on which underground
storage tanks are or were located from which a release occurred; and (v) no lien
has ever been imposed by any governmental agency on any property, facility,
machinery, or equipment owned, operated, leased, or used by EDI or any EDI
Subsidiary in connection with the presence of any Hazardous Material.
(b) Except as set forth in Schedule 2.20 hereto, (i)
neither EDI nor any EDI Subsidiary has any material liability under, nor has EDI
or any EDI Subsidiary ever violated in any material respect, any Environmental
Law (as hereinafter defined); (ii) EDI and each EDI Subsidiary, any property
owned, operated, leased, or used by any of them, and any facilities and
operations thereon are presently in compliance in all material respects with all
applicable Environmental Laws; (iii) neither EDI nor any EDI Subsidiary has ever
entered into or been subject to any judgment, consent decree, compliance order,
or administrative order with respect to any environmental or health and safety
matter or received any request for information, notice, demand letter,
administrative inquiry, or formal or informal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any
Environmental Law; and (iv) neither EDI nor any EDI Subsidiary has any reason to
believe that any of the items enumerated in clause (iii) of this paragraph will
be forthcoming.
(c) Except as set forth in Schedule 2.20 hereto, and
to the best knowledge of EDI, no site owned, operated, leased, or used by EDI or
any EDI Subsidiary contains any asbestos or asbestos-containing material, any
polychlorinated biphenyls (PCBs) or equipment containing PCBs, or any urea
formaldehyde foam insulation.
(d) EDI has provided to Bowmar copies of all
material documents, records, and information in EDI's possession or control
concerning any environmental or health and safety matter relevant to EDI or any
sites formerly or currently owned, operated, leased or
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used by EDI or any EDI Subsidiary, whether generated by EDI or any EDI
Subsidiary, or others, including, without limitation, environmental audits,
environmental risk assessments, site assessments, documentation regarding
off-site disposal of Hazardous Materials, spill control plans, and reports,
correspondence, permits, licenses, approvals, consents, and other authorizations
related to environmental or health and safety matters issued by any governmental
agency. In addition, EDI has disclosed to Bowmar all sites formerly or currently
owned, operated, leased or used by EDI or any EDI Subsidiary.
(e) For purposes of this Agreement, (i) "Hazardous
Material" shall mean and include any hazardous waste, hazardous material,
hazardous substance, petroleum product, oil, toxic substance, pollutant, or
contaminant, as defined or regulated under any Environmental Law, or any other
substance which may pose a threat to the environment or to human health or
safety; (ii) "Hazardous Waste" shall mean and include any hazardous waste as
defined or regulated under any Environmental Law; and (iii) "Environmental Law"
shall mean any environmental or health and safety-related law, regulation, rule,
ordinance, or by-law at the foreign, national, state, or local level, whether
existing as of the date hereof, previously enforced, or subsequently enacted.
For the purposes of this Section 2.20, (x) "EDI" shall mean and include EDI, its
predecessors and all other entities for whose conduct EDI is or may be held
responsible under any Environmental Law; and (y) "EDI Subsidiary" shall mean and
include each respective EDI Subsidiary, its predecessors and all other entities
for whose conduct such EDI Subsidiary is or may be held responsible under any
Environmental Law.
2.21 LABOR MATTERS. Except as set forth on Schedule 2.21
hereto, neither EDI nor any EDI Subsidiary is a party to, or bound by, any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor union organization. There are no unfair labor
practice or labor arbitration proceedings pending or, to the best knowledge of
EDI, threatened against EDI or any EDI Subsidiary relating to their business. To
the best knowledge of EDI, there are no organizational efforts with respect to
the formation of a collective bargaining unit presently being made or threatened
involving employees of EDI or any EDI Subsidiary.
2.22 DISCLOSURE. Neither this Agreement nor any certificate
required to be furnished by EDI to Bowmar, the Acquisition Subsidiary or any
Bowmar Subsidiary in connection with this Agreement or the transactions
contemplated hereby contains any untrue statement of a material fact concerning
EDI or any EDI Subsidiary or omits to state a material fact concerning EDI or
any EDI Subsidiary necessary to make the statements herein or therein not
misleading in light of the circumstances in which they were made.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND
CERTAIN COVENANTS OF BOWMAR
Bowmar represents, warrants and/or covenants to and with EDI as
follows:
3.1 ORGANIZATION AND GOOD STANDING. Bowmar, Acquisition
Subsidiary and each subsidiary of Bowmar (the "Bowmar Subsidiary") is a
corporation or partnership duly organized, validly existing and in good standing
under the laws of the jurisdiction of its
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incorporation or organization and has all requisite corporate or partnership
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Bowmar and each of the Bowmar Subsidiaries is
duly qualified or licensed and in good standing to do business in each
jurisdiction in which the character of the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not have a material adverse effect on the
business, assets (including, but not limited to, intangible assets), condition
(financial or otherwise), properties (including, but not limited to, intangible
properties), liabilities or the results of operations of Bowmar and the Bowmar
Subsidiaries taken as a whole ("Bowmar Material Adverse Effect"). Schedule 3.1
hereto contains a complete and accurate list of the jurisdiction of
incorporation or organization and qualification or license of Bowmar and each
Bowmar Subsidiary. Bowmar has heretofore made available to EDI accurate and
complete copies of the Articles of Incorporation and Bylaws, as currently in
effect, of Bowmar and each Bowmar Subsidiary.
3.2 CAPITALIZATION. As of the date hereof, the authorized
capital stock of Bowmar consists of 15,000,000 shares of Bowmar Stock, and
500,000 shares of preferred stock, par value $1.00 per share ("Bowmar Preferred
Shares"). As of April 30, 1998, (a) 6,674,492 shares of Bowmar Stock were issued
and outstanding, and (b) 119,906 shares of Bowmar Preferred Shares were
outstanding. No other capital stock of Bowmar is authorized or issued. All
issued and outstanding shares of the Bowmar Stock and Bowmar Preferred Stock are
duly authorized, validly issued, fully paid and non-assessable and were issued
free of preemptive rights and in compliance with applicable securities Laws.
Except as set forth in the Bowmar Securities Filings (as hereinafter defined) or
on Schedule 3.2 attached hereto, or as otherwise contemplated by this Agreement,
as of the date hereof there are no outstanding rights, subscriptions, warrants,
puts, calls, unsatisfied preemptive rights, options or other agreements of any
kind to which Bowmar is bound relating to any of the outstanding, authorized but
unissued, unauthorized or treasury shares of the capital stock or any other
security of Bowmar, and there is no authorized or outstanding security of any
kind convertible into or exchangeable for any such capital stock or other
security. Except as disclosed in the Bowmar Securities Filings, there are, to
the best knowledge of Bowmar, no restrictions upon the transfer of or otherwise
pertaining to the securities (including, but not limited to, the ability to pay
dividends thereon) or retained earnings of Bowmar and the Bowmar Subsidiaries or
the ownership thereof other than those imposed by the Securities Act, the
Securities Exchange Act, applicable state securities Laws or applicable
corporate Law. Neither Bowmar nor any Bowmar Subsidiary beneficially owns any
shares of EDI Common Stock.
3.3 SUBSIDIARIES. Schedule 3.3 attached hereto sets forth the
name and jurisdiction of incorporation or organization of each Bowmar
Subsidiary, each of which is wholly owned by Bowmar except as otherwise
indicated on said Schedule 3.3. Except as set forth on Schedule 3.3 attached
hereto, all of the capital stock and other interests of the Bowmar Subsidiaries
so held by Bowmar are owned by it or a Bowmar Subsidiary as indicated on said
Schedule 3.3, free and clear of any claim, lien, encumbrance, security interest
or agreement with respect thereto. All of the outstanding shares of capital
stock in each of the Bowmar Subsidiaries held directly or indirectly by Bowmar
are duly authorized, validly issued, fully paid and non-assessable and were
issued free of preemptive rights and in compliance with applicable
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Laws. There are no irrevocable proxies or similar obligations with respect to
such capital stock of the Bowmar Subsidiaries held by Bowmar and no equity
securities or other interests of any of the Bowmar Subsidiaries are or may
become required to be issued or purchased by reason of any options, warrants,
rights to subscribe to, puts, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of any capital stock of any Bowmar Subsidiary, and there are no
contracts, commitments, understandings or arrangements by which any Bowmar
Subsidiary is bound to issue additional shares of its capital stock, or options,
warrants or rights to purchase or acquire any additional shares of its capital
stock or securities convertible into or exchangeable for such shares.
3.4 AUTHORIZATION; BINDING AGREEMENT. Bowmar and Acquisition
Subsidiary have all requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the other agreements and
documents referred to herein to which Bowmar or Acquisition Subsidiary is or
will be a party or a signatory (the "Bowmar Ancillary Agreements") and the
consummation of the transactions contemplated hereby and thereby, including, but
not limited to, the Merger, have been duly and validly authorized by the
respective Boards of Directors of Bowmar and Acquisition Subsidiary, as
appropriate, and no other corporate proceedings on the part of Bowmar,
Acquisition Subsidiary or any Bowmar Subsidiary are necessary to authorize the
execution and delivery of this Agreement and the Bowmar Ancillary Agreements or
to consummate the transactions contemplated hereby or thereby (other than the
requisite approval by the Bowmar shareholders of the adoption of this Agreement,
the approval of the Merger and of the Bowmar Proposals, and the requisite
approval by the sole shareholder of Acquisition Subsidiary of this Agreement and
the Merger). This Agreement has been duly and validly executed and delivered by
each of Bowmar and Acquisition Subsidiary and constitutes, and upon execution
and delivery thereof as contemplated by this Agreement, the Bowmar Ancillary
Agreements will constitute, the legal, valid and binding agreements of Bowmar
and Acquisition Subsidiary, enforceable against each of Bowmar and Acquisition
Subsidiary in accordance with its and their respective terms, subject to the
Enforceability Exceptions.
3.5 GOVERNMENTAL APPROVALS. No Consent from or with any
Governmental Authority on the part of Bowmar or any of the Bowmar Subsidiaries
is required in connection with the execution or delivery by Bowmar of this
Agreement and the Bowmar Ancillary Agreements or the consummation by Bowmar of
the transactions contemplated hereby or thereby other than (i) the filing of the
Certificate of Merger with the Secretary of State of Delaware in accordance with
the Delaware Code; (ii) filings with the SEC, state securities laws
administrators, the American Stock Exchange and applicable Indiana Governmental
Authorities, (iii) filings under the HSR Act, if required; (iv) those Consents,
if any, required by or related to contracts pursuant to which Bowmar provides,
directly or indirectly, goods or services to any Governmental Authority, all as
identified on Schedule 3.5 attached hereto; and (v) those Consents that, if they
were not obtained or made, do not or would not have a Bowmar Material Adverse
Effect or materially and adversely affect the ability of Bowmar to perform its
obligations set forth herein or to consummate the transactions contemplated
hereby.
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3.6 NO VIOLATIONS. Except as set forth on Schedule 3.6 hereto,
the execution and delivery of this Agreement and the Bowmar Ancillary
Agreements, the consummation of the transactions contemplated hereby and thereby
and compliance by Bowmar with any of the provisions hereof or thereof will not
(i) conflict with or result in any breach of any provision of the Articles of
Incorporation or Bylaws or other governing instruments of Bowmar or any of the
Bowmar Subsidiaries, (ii) require any Consent under or result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration
or augment the performance required) under any of the terms, conditions or
provisions of any Bowmar Material Contract (as hereinafter defined), (iii)
result in the creation or imposition of any lien or encumbrance of any kind upon
any of the assets of Bowmar or any Bowmar Subsidiary, or (iv) subject to
obtaining the Consents from Governmental Authorities referred to in Section 3.5,
above, contravene any Law currently in effect to which Bowmar or any Bowmar
Subsidiary or its or any of their respective assets or properties are subject,
except in the case of clauses (ii), (iii) and (iv), above, for any deviations
from the foregoing which do not or would not have a Bowmar Material Adverse
Effect.
3.7 SECURITIES FILINGS AND LITIGATION. Bowmar has made
available to EDI true and complete copies of (i) its Annual Reports on Form
10-K, as amended, for the years ended September 27, 1997, September 28, 1996 and
September 30, 1995, or periods included therein, as filed with the SEC, (ii) its
proxy statements relating to all of the meetings of shareholders (whether annual
or special) of Bowmar since January 1, 1995, as filed with the SEC, and (iii)
all other reports, statements and registration statements and amendments thereto
(including, without limitation, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as amended) filed by Bowmar with the SEC since January 1,
1995. The reports and statements set forth in clauses (i) through (iii), above,
and those subsequently provided or required to be provided pursuant to this
Section, are referred to collectively as the "Bowmar Securities Filings." As of
their respective dates, or as of the date of the last amendment thereof, if
amended after filing, none of the Bowmar Securities Filings (including all
schedules thereto and disclosure documents incorporated by reference therein),
contained or, as to Bowmar Securities Filings subsequent to the date hereof,
will contain any untrue statement of a material fact or omitted or, as to Bowmar
Securities Filings subsequent to the date hereof, will omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. Each
of the Bowmar Securities Filings at the time of filing or as of the date of the
last amendment thereof, if amended after filing, complied or, as to Bowmar
Securities Filings subsequent to the date hereof, will comply in all material
respects with the Securities Exchange Act or the Securities Act, as applicable.
Bowmar has timely filed all reports, statements, registration statements and
other filings required to be filed by it under the Securities Exchange Act and
the Securities Act, as applicable. Except as disclosed in the Bowmar Securities
Filings or on Schedule 3.7, there is no Litigation pending or, to the knowledge
of Bowmar, threatened against Bowmar or any Bowmar Subsidiary, any officer,
director, employee or agent thereof, in his or her capacity as such, or as a
fiduciary with respect to any Bowmar Benefit Plan, as hereinafter defined, or
otherwise relating to Bowmar or any Bowmar Subsidiary or the securities of any
of them, or any properties or rights of Bowmar or any Bowmar Subsidiary or any
Bowmar Benefit Plan which is required to be described in any Bowmar Securities
Filing that is not so described. No event has occurred as a consequence of which
Bowmar would be required to file a Current Report on Form 8-K pursuant
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to the requirements of the Securities Exchange Act as to which such a report has
not been timely filed with the SEC.
3.8 BOWMAR FINANCIAL STATEMENTS. The audited consolidated
financial statements and unaudited interim financial statements of Bowmar
included in the Bowmar Securities Filings (the "Bowmar Financial Statements")
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and present fairly, in all material respects, the financial
position of Bowmar and the Bowmar Subsidiaries as at the dates thereof and the
results of their operations and cash flows for the periods then ended subject,
in the case of the unaudited interim financial statements, to normal year-end
audit adjustments, any other adjustments described therein and the fact that
certain information and notes have been condensed or omitted in accordance with
the Securities Exchange Act.
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
in the Bowmar Securities Filings filed and publicly available prior to the date
of this Agreement or in Schedule 3.9 attached hereto or as permitted by Section
5.1, since September 27, 1997, (i) there has not been any event, occurrence,
fact, condition, change, development or effect ("Event") that has had or could
reasonably be expected to have a Bowmar Material Adverse Effect; (ii) Bowmar and
the Bowmar Subsidiaries have operated only in the ordinary course of business
and consistent with past practice; and (iii) without limiting the generality of
the foregoing and except as disclosed on Schedule 3.9 attached hereto, there has
not been, occurred or arisen:
(a) any declaration, payment or setting aside for
payment of any dividend (except to Bowmar or a Bowmar Subsidiary and dividends
required under the present terms of the Bowmar Preferred Stock) or other
distribution or any redemption, purchase or other acquisition of any shares of
capital stock or securities of Bowmar by or from Bowmar;
(b) any employment, deferred compensation or other
salary, wage or compensation contract entered into between Bowmar and any Bowmar
employee, except for normal and customary contracts in the ordinary course of
business and consistent with past practice; or any increase in the salary, wages
or other compensation of any kind, whether current or deferred, of any Bowmar
employee, other than routine increases that were made in the ordinary course of
business and consistent with past practices; or any creation of any benefit plan
or amendment or modification of any benefit plan; or any election by or on
behalf of Bowmar made pursuant to the provisions of any benefit plan to
accelerate any payments, obligations or vesting schedules under any benefit
plans;
(c) any issuance, sale or disposition by Bowmar of
any debenture, note, stock or other security issued by Bowmar, or any
modification or amendment of any right of the holder of any outstanding
debenture, note, stock or other security issued by Bowmar;
(d) any liability involving the borrowing of money
by Bowmar except in the ordinary course of business and consistent with past
practices;
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(e) except for fair value received, in the ordinary
course of business and consistent with past practices, any cancellation of any
liability owed to Bowmar by any other person; or
(f) any amendment to the Certificate of
Incorporation or By-laws of Bowmar.
3.10 COMPLIANCE WITH LAWS. The business of Bowmar and each of
Bowmar Subsidiary has been operated in compliance with all Laws, except for any
instances of non-compliance which have not had and could not reasonably be
expected to have a Bowmar Material Adverse Effect.
3.11 PERMITS. (i) Bowmar and the Bowmar Subsidiaries have all
permits, certificates, licenses, approvals and other authorizations required in
connection with the operation of their business (collectively, "Bowmar
Permits"), (ii) neither Bowmar nor any Bowmar Subsidiary is in violation of any
Bowmar Permit, and (iii) no proceedings are pending or, to the knowledge of
Bowmar, threatened, to revoke or limit any Bowmar Permit, except, in each case,
those the absence or violation of which could not reasonably be expected to have
a Bowmar Material Adverse Effect.
3.12 FINDERS AND INVESTMENT BANKERS. Neither Bowmar nor any of
its officers or directors has entered into any contract, arrangement or
understanding with any broker, finder or other person, other than Needham & Co.,
or otherwise incurred any liability for any brokerage fees, commissions,
finders' fees or like payments in connection with the transactions contemplated
hereby.
3.13 CONTRACTS. Except as set forth in the Bowmar Securities
Filings or in Schedule 3.13, neither Bowmar nor any Bowmar Subsidiary is a party
or is subject to any note, bond, mortgage, indenture, contract, lease, license,
agreement, understanding, instrument, bid or proposal that is material to the
business or operations of Bowmar ("Bowmar Material Contract"). Bowmar has made
available to EDI true and accurate copies of the Bowmar Material Contracts. All
such Bowmar Material Contracts are valid and binding and are in full force and
effect and enforceable against Bowmar or such subsidiary in accordance with
their respective terms, subject to the Enforceability Exceptions and assuming
the due authorization of the other party or parties thereto. Except as
referenced in Section 3.6 above, (i) no Consent of any person is needed in order
that each such Bowmar Material Contract shall continue in full force and effect
in accordance with its terms without penalty, acceleration or rights of early
termination by reason of the consummation of the transactions contemplated by
this Agreement, except for Consents the absence of which would not reasonably be
expected to have a Bowmar Material Adverse Effect, and (ii) neither Bowmar nor
any Bowmar Subsidiary is in violation or breach of or default under any such
Bowmar Material Contract, nor to Bowmar's knowledge is any other party to any
such Bowmar Material Contract in violation or breach of or default under any
such Bowmar Material Contract in each case where such violation or breach would
have Bowmar Material Adverse Effect.
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3.14 EMPLOYEE BENEFIT PLANS. (a) Except as set forth in
Schedule 3.14(a) attached hereto, there are no Benefit Plans maintained or
contributed to by Bowmar or any of its ERISA Affiliates ("Bowmar Benefit Plan").
Each of the Bowmar Benefit Plans has been maintained in material compliance with
its terms and all applicable Law, except where the failure to do so would not be
reasonably likely to result in a Bowmar Material Adverse Effect. Except as set
forth on Schedule 3.14(a) attached hereto, no Bowmar Benefit Plan is a defined
benefit pension plan subject to Title IV of ERISA or Section 412 of the Code.
Except as set forth on Schedule 3.14(a), neither Bowmar nor any of its ERISA
Affiliates (i) contributes to, has ever contributed to or has any outstanding
liability with respect to, any Multiemployer Plan; or (ii) currently provides
any post-employment welfare benefits except as required by COBRA.
(b) Except as set forth on Schedule 3.14(b) attached
hereto, the consummation of the transactions contemplated by this Agreement will
not (i) entitle any individual to severance pay; or (ii) accelerate the time of
payment or vesting of benefits or increase the amount of compensation due to any
individual.
3.15 TAXES AND RETURNS. (a) Bowmar and each Bowmar Subsidiary
has timely filed, or caused to be timely filed all material Tax Returns required
to be filed by it, and has paid, collected or withheld, or caused to be paid,
collected or withheld, all material amounts of Taxes required to be paid,
collected or withheld, other than such Taxes for which adequate reserves in the
Bowmar Financial Statements have been established or which are being contested
in good faith and with respect to which Bowmar is maintaining reserves adequate
for their payment. There are no claims or assessments pending against Bowmar or
any Bowmar Subsidiary for any alleged deficiency in any Tax, and Bowmar has not
been notified in writing of any proposed Tax claims or assessments against
Bowmar or any Bowmar Subsidiary (other than in each case, claims or assessments
for which adequate reserves in the Bowmar Financial Statements have been
established or which are being contested in good faith and with respect to which
Bowmar is maintaining reserves adequate for their payment or are immaterial in
amount). Neither Bowmar nor any Bowmar Subsidiary has any waivers or extensions
of any applicable statute of limitations to assess any material amount of Taxes.
There are no outstanding requests by Bowmar or any Bowmar Subsidiary for any
extension of time within which to file any material Tax Return or within which
to pay any material amounts of Taxes shown to be due on any return.
(b) To the best knowledge of Bowmar, there are no
liens for material amounts of Taxes on the assets of Bowmar or any Bowmar
Subsidiary except for statutory liens for current Taxes not yet due and payable.
(c) No examination or audit of any Tax Returns of
Bowmar or any of the Bowmar Subsidiaries by any Governmental Authority is
currently in progress or, to the best knowledge of Bowmar, threatened or
contemplated.
(d) Bowmar has not taken or agreed to take any
action that would prevent the Merger from constituting a tax-free reorganization
under the provisions of Section 368 of the Code.
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3.16 FAIRNESS OPINION. Bowmar received the opinion of Needham &
Co. to the effect that, as of the date hereof, the Merger Consideration is fair
to the holders of Bowmar Stock from a financial point of view.
3.17 TAKEOVER STATUTES. Assuming EDI and its "associates" and
"affiliates" (as defined in Section 23-1-43 of the Indiana Business Corporation
Law) collectively beneficially own and have owned at all times during the five
year period prior to the date hereof less than ten percent (10%) of the Bowmar
Stock outstanding, Section 23-1-43-18 of the Indiana Business Corporation Law
is, and shall be, inapplicable to the Merger, this Agreement and the
transactions contemplated hereby and thereby. The foregoing notwithstanding, the
Board of Directors of Bowmar has approved the Merger, this Agreement, and the
agreements contemplated by this Agreement, and such approval is sufficient to
render inapplicable to the Merger, this Agreement and the transactions and
agreements contemplated by this Agreement, the provisions of Section 23-1-43-18
of the Indiana Business Corporation Law.
3.18 BOWMAR RIGHTS PLAN. Under the Rights Agreement between
Bowmar and American Stock Transfer and Trust Company, dated as of December 6,
1996 (the "Bowmar Rights Agreement"), neither EDI nor any stockholder of EDI or
any Affiliate or Associate (as such terms are defined in the Bowmar Rights
Agreement) of EDI or any such stockholder of EDI, will become an "Acquiring
Person"; no "Share Acquisition Date" or "Distribution Date" (as such terms are
defined in the Bowmar Rights Agreement) will occur; and the holders of any
rights issued pursuant to the Bowmar Rights Agreement will not be entitled to
receive any benefits under the Bowmar Rights Agreement as a result of the
approval, execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby. From and after the date of this Agreement
until the Effective Time, Bowmar shall not take any action that would cause EDI
or any stockholder of EDI or any Affiliate or Associate of EDI or any such
stockholder to become an "Acquiring Person" under the Bowmar Rights Agreement,
or that would cause a "Share Acquisition Date" or "Distribution Date" to occur
or give the holders of any Rights any benefits under the Bowmar Rights
Agreement, as a result of the Merger or any of the transactions contemplated by
this Agreement.
3.19 INTELLECTUAL PROPERTY RIGHTS. To the knowledge of Bowmar,
Bowmar and the Bowmar Subsidiaries own or possess adequate rights or licenses to
use all Intellectual Property Rights to conduct their respective businesses as
now conducted, except to the extent that the failure to possess such rights or
licenses would not have a Bowmar Material Adverse Effect. Bowmar and the Bowmar
Subsidiaries do not have any knowledge of any infringement by Bowmar or the
Bowmar Subsidiaries of any Intellectual Property Rights of others, and except as
set forth on Schedule 3.19, there is no claim, action or proceeding being made
or brought against, or to Bowmar's knowledge, being threatened against, Bowmar
or any Bowmar Subsidiary regarding any Intellectual Property Rights or other
infringement; and Bowmar and the Bowmar Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing, except for such
facts and circumstances which would not have, individually or in the aggregate,
a Bowmar Material Adverse Effect.
3.20 CERTAIN BUSINESS RELATIONSHIPS WITH AFFILIATES. Except as
set forth in the Bowmar Securities Filing, as disclosed on Schedule 3.20 or by
virtue of the Merger, since the
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date of Bowmar's last proxy statement to its shareholders, no event has occurred
that would be required to be reported by Bowmar as a Certain Relationship or
Related Transaction pursuant to Item 404 of Regulation S-K promulgated under the
Securities Act.
3.21 ENVIRONMENTAL MATTERS. (a) Except as set forth in Schedule
3.21 hereto and except as to such matters which, individually or in the
aggregate, could not reasonably be expected to have a Bowmar Material Adverse
Effect, (i) neither Bowmar nor any Bowmar Subsidiary has ever generated,
transported, used, stored, treated, disposed of, or managed any Hazardous Waste
in a manner not in compliance with applicable Environmental Law; (ii) to the
best knowledge of Bowmar, no Hazardous material has ever been or is threatened
to be spilled, released, or disposed of at any site presently or formerly owned,
operated, leased, or used by Bowmar or any Bowmar Subsidiary, or has ever come
to be located in the soil or groundwater at any such site; (iii) no Hazardous
Material has ever been transported from any site presently or formerly owned,
operated, leased, or used by Bowmar or any Bowmar Subsidiary for treatment,
storage, or disposal at any other place other than in compliance with applicable
Environmental Laws; (iv) neither Bowmar nor any Bowmar Subsidiary presently
owns, operates, leases, or uses, or previously owned, operated, leased, or used
any site on which underground storage tanks are or were located from which a
release occurred; and (v) no lien has ever been imposed by any governmental
agency on any property, facility, machinery, or equipment owned, operated,
leased, or used by Bowmar or any Bowmar Subsidiary in connection with the
presence of any Hazardous Material.
(b) Except as set forth in Schedule 3.21 hereto, (i)
neither Bowmar nor any Bowmar Subsidiary has any material liability under, nor
has Bowmar or any Bowmar Subsidiary ever violated in any material respect, any
Environmental Law; (ii) Bowmar and each Bowmar Subsidiary, any property owned,
operated, leased, or used by any of them, and any facilities and operations
thereon are presently in compliance in all material respects with all applicable
Environmental Laws; (iii) neither Bowmar nor any Bowmar Subsidiary has ever
entered into or been subject to any judgment, consent decree, compliance order,
or administrative order with respect to any environmental or health and safety
matter or received any request for information, notice, demand letter,
administrative inquiry, or formal or informal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any
Environmental Law; and (iv) neither Bowmar nor any Bowmar Subsidiary has any
reason to believe that any of the items enumerated in clause (iii) of this
paragraph will be forthcoming.
(c) Except as set forth in Schedule 3.21 hereto, and
to the best knowledge of Bowmar, no site owned, operated, leased or used by
Bowmar or any Bowmar Subsidiary contains any asbestos or asbestos-containing
material, any PCBs or equipment containing PCBs, or any urea formaldehyde foam
insulation.
(d) Bowmar has provided to EDI copies of all
material documents, records, and information in Bowmar's possession or control
concerning any environmental or health and safety matter relevant to Bowmar or
any sites formerly or currently owned, operated, leased or used by Bowmar or any
Bowmar Subsidiary, whether generated by Bowmar or any Bowmar Subsidiary, or
others, including, without limitation, environmental audits, environmental risk
assessments, site assessments, documentation regarding off-site disposal of
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Hazardous Materials, spill control plans, and reports, correspondence, permits,
licenses, approvals, consents, and other authorizations related to environmental
or health and safety matters issued by any governmental agency. In addition,
Bowmar has disclosed to EDI all sites formerly or currently owned, operated,
leased or used by Bowmar or any Bowmar Subsidiary.
(e) For purposes of this Section 3.21, (i) "Bowmar"
shall mean and include Bowmar, its predecessors and all other entities for whose
conduct Bowmar is or may be held responsible under any Environmental Law and
(ii) "Bowmar Subsidiary" shall mean and include each respective Bowmar
Subsidiary, its predecessors and all other entities for whose conduct such
Bowmar Subsidiary is or may be held responsible under any Environmental Law.
3.22 LABOR MATTERS. Except as set forth on Schedule 3.22
hereto, neither Bowmar nor any Bowmar Subsidiary is a party to, or bound by, any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor union organization. There are no unfair labor
practice or labor arbitration proceedings pending or, to the best knowledge of
Bowmar, threatened against Bowmar or any Bowmar Subsidiary relating to their
business. To the best knowledge of Bowmar, there are no organizational efforts
with respect to the formation of a collective bargaining unit presently being
made or threatened involving employees of Bowmar or any Bowmar Subsidiary.
3.23 DISCLOSURE. Neither this Agreement nor any certificate
required to be furnished by Bowmar to EDI or any EDI Subsidiary in connection
with this Agreement or the transactions contemplated hereby contains any untrue
statement of a material fact concerning Bowmar, the Acquisition Subsidiary or
any Bowmar Subsidiary or omits to state a material fact concerning Bowmar, the
Acquisition Subsidiary or any Bowmar Subsidiary necessary to make the statements
herein or therein not misleading in light of the circumstances in which they
were made.
ARTICLE IV
ADDITIONAL COVENANTS OF EDI
EDI represents, covenants and agrees as follows:
4.1 CONDUCT OF BUSINESS OF EDI AND EDI SUBSIDIARIES. Except as
expressly contemplated by this Agreement, during the period from the date of
this Agreement to the Effective Time, EDI shall conduct, and it shall cause the
EDI Subsidiaries to conduct, its or their businesses in the ordinary course and
consistent with past practice, subject to the limitations contained in this
Agreement, and EDI shall, and it shall cause the EDI Subsidiaries to, use its or
their reasonable business efforts to preserve intact its business organization,
to keep available the services of its officers and employees and to maintain
satisfactory relationships with all persons with whom it does business. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in this Agreement or as otherwise set forth in the EDI Disclosure
Letter (as hereinafter defined), after the date of this Agreement and prior to
the Effective Time, neither EDI nor any EDI Subsidiary will, without the prior
written consent of Bowmar:
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(i) amend or propose to amend its Certificate of
Incorporation or Bylaws in any material respect;
(ii) authorize for issuance, issue, grant, sell,
pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any
shares of, or any options, warrants, commitments, subscriptions or rights of any
kind to acquire or sell any shares of, the capital stock or other securities of
EDI or any EDI Subsidiary including, but not limited to, any securities
convertible into or exchangeable for shares of stock of any class of EDI or any
EDI Subsidiary, except for the issuance of shares of EDI Common Stock pursuant
to the exercise of stock options or warrants outstanding on the date of this
Agreement in accordance with their present terms or pursuant to EDI's employee
stock purchase plan;
(iii) split, combine or reclassify any shares of its
capital stock or declare, pay or set aside any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock;
(iv) (a) create, incur or assume any debt in excess
of $500,000 or obligations in respect of capital leases, except pursuant to
existing agreements and pursuant to refinancings of existing obligations on
terms that are no less favorable to EDI or the EDI Subsidiaries than the
existing terms; (b) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, indirectly, contingently or otherwise) for the
obligations of any person; (c) make any capital expenditures in excess of
$500,000 or make any loans, advances or capital contributions to, or investments
in, any other person (other than to an EDI Subsidiary and customary travel,
relocation or business advances to employees made in the ordinary course of
business consistent with past practice); (d) acquire the stock or assets of, or
merge or consolidate with, any other person; (e) voluntarily incur any material
liability or obligation (absolute, accrued, contingent or otherwise); or (f)
sell, transfer, mortgage, pledge or otherwise dispose of, or encumber, or agree
to sell, transfer, mortgage, pledge or otherwise dispose of or encumber, any
assets or properties, real, personal or mixed material to EDI and the EDI
Subsidiaries taken as a whole other than to secure debt permitted under (a) of
this clause (iv);
(v) increase in any manner the compensation of any
of its officers or employees, hire or solicit for employment any person who is
an employee of Bowmar, or enter into, establish, amend or terminate any
employment, consulting, retention, change in control, collective bargaining,
bonus or other incentive compensation, profit sharing, health or other welfare,
stock option or other equity, pension, retirement, vacation, severance, deferred
compensation or other compensation or benefit plan, policy, agreement, trust,
fund or arrangement with, for or in respect of, any shareholder, officer,
director, other employee, agent, consultant or affiliate other than as required
pursuant to the terms of agreements in effect on the date of this Agreement;
(vi) except as disclosed on Schedule 4.1 attached
hereto, enter into any lease or amend any lease of real property; or
(vii) agree to do any of the foregoing.
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Furthermore, EDI covenants, represents and warrants that from and
after the date of this Agreement, unless Bowmar shall otherwise expressly
consent in writing, EDI shall, and EDI shall cause each EDI Subsidiary to, use
its or their reasonable business efforts to comply in all material respects with
all Laws applicable to it or any of its properties, assets or business and
maintain in full force and effect all EDI Permits necessary for, or otherwise
material to, such business.
4.2 NOTIFICATION OF CERTAIN MATTERS. EDI shall give prompt
written notice to Bowmar if any of the following occur after the date of this
Agreement: (i) any notice of, or other communication relating to, a default or
Event which, with notice or lapse of time or both, would become a default under
any EDI Material Contract which could reasonably be expected to have an EDI
Material Adverse Effect; (ii) receipt of any notice or other communication in
writing from any third party alleging that the Consent of such third party is or
may be required in connection with the transactions contemplated by this
Agreement, provided that such Consent would have been required to have been
disclosed in this Agreement; (iii) receipt of any material notice or other
communication from any Governmental Authority (including, but not limited to,
Nasdaq or any securities exchange) in connection with the transactions
contemplated by this Agreement; (iv) the occurrence of an Event which could
reasonably be expected to have an EDI Material Adverse Effect; (v) the
commencement or threat of any Litigation involving or affecting EDI or any EDI
Subsidiary, or any of their respective properties or assets, or, to its
knowledge, any employee, agent, director or officer, in his or her capacity as
such, of EDI or any EDI Subsidiary which, if pending on the date hereof, would
have been required to have been disclosed in this Agreement or which relates to
the consummation of the Merger or any material development in connection with
any Litigation disclosed by EDI in or pursuant to this Agreement or the EDI
Securities Filings; and (vi) the occurrence of any Event that could reasonably
be expected to cause a breach by EDI of any provision of this Agreement or an
EDI Ancillary Agreement, including such a breach that could occur if such Event
had taken place on or prior to the date of this Agreement.
4.3 ACCESS AND INFORMATION. Subject to the confidentiality
obligations of Bowmar as set forth in Section 8.1 of this Agreement, between the
date of this Agreement and the Effective Time, EDI and the EDI Subsidiary will
give, and shall direct its accountants and legal counsel to give, Bowmar, its
lenders and their respective authorized representatives (including, without
limitation, financial advisors, accountants and legal counsel) at all reasonable
times access as reasonably requested to all offices and other facilities and to
all contracts, agreements, commitments, books and records (including, but not
limited to, Tax Returns) of or pertaining to EDI and each EDI Subsidiary, will
permit the foregoing to make such reasonable inspections as they may require and
will cause its officers promptly to furnish Bowmar with (a) such financial and
operating data and other information with respect to the business and properties
of EDI and each EDI Subsidiary as Bowmar may from time to time reasonably
request, and (b) a copy of each material report, schedule and other document
filed or received by EDI or any EDI Subsidiary pursuant to the requirements of
applicable securities laws or Nasdaq. All such information shall be deemed
"Confidential Information" as such term is defined in those certain letter
agreements dated March 10, 1997 and April 24, 1997 between EDI and Bowmar (the
"Confidentiality Agreements"), except as otherwise provided in such
Confidentiality Agreements.
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4.4 STOCKHOLDER APPROVAL. As soon as practicable, EDI will
take all steps necessary to duly call, give notice of, convene and hold a
meeting of its stockholders for the purpose of approving the EDI Proposals and
for such other purposes as may be necessary or desirable in connection with
effectuating the transactions contemplated hereby. Except in the case where the
Board of Directors of EDI determines in good faith, after receiving advice of
counsel, that doing so could reasonably be expected to be a breach of the
directors' fiduciary duties under applicable Law, the Board of Directors of EDI
(i) will recommend to the stockholders of EDI that they approve the EDI
Proposals, and (ii) will use its reasonable best efforts to obtain any necessary
approval by EDI's stockholders of the EDI Proposals including, without
limitation, voting the EDI Shares held by such Directors for such adoption and
approval.
4.5 REASONABLE BUSINESS EFFORTS. Subject to the terms and
conditions herein provided, EDI agrees to use its reasonable business efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the Merger and the transactions contemplated by this
Agreement including, but not limited to (i) obtaining the Consent of EDI's
lenders and others to this Agreement and the transactions contemplated hereby,
(ii) the defending of any Litigation against EDI or any EDI Subsidiary
challenging this Agreement or the consummation of the transactions contemplated
hereby, (iii) obtaining all Consents from Governmental Authorities required for
the consummation of the Merger and the transactions contemplated thereby, and
(iv) timely making all necessary filings under the HSR Act. Upon the terms and
subject to the conditions hereof, EDI agrees to use reasonable business efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary to satisfy the other conditions of the closing set forth
herein.
4.6 PUBLIC ANNOUNCEMENTS. So long as this Agreement is in
effect, EDI shall not, and shall cause its affiliates not to, issue or cause the
publication of any press release or any other announcement with respect to the
Merger, the EDI Proposals or the transactions contemplated hereby or thereby
without the consent of Bowmar, which consent shall not be unreasonably withheld,
except where such release or announcement is required by applicable Law or
pursuant to any applicable listing agreement with, or rules or regulations of,
Nasdaq, in which case EDI, prior to making such announcement, shall consult with
Bowmar regarding the same.
4.7 COMPLIANCE. In consummating the Merger and the
transactions contemplated hereby, EDI shall comply in all material respects with
the provisions of the Securities Exchange Act and the Securities Act and shall
comply, and/or cause the EDI Subsidiaries to comply or to be in compliance, in
all material respects, with all other applicable Laws.
4.8 NO SOLICITATION. (a) EDI shall, and shall direct and use
reasonable efforts to cause its officers, directors, employees, representatives
and agents to, immediately cease any discussions or negotiations with any
parties that may be ongoing with respect to a EDI Takeover Proposal (as
hereinafter defined). EDI shall not, nor shall it permit any EDI Subsidiary to,
nor shall it authorize or permit any of its officers, directors or employees or
any investment banker,
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financial advisor, attorney, accountant or other representative retained by it
or any EDI Subsidiary to, directly or indirectly, (i) solicit, initiate or
encourage (including by way of furnishing information), or take any other action
designed or reasonably likely to facilitate, any inquiries or the making of any
proposal which constitutes, or would reasonably be expected to lead to, any EDI
Takeover Proposal or (ii) participate in any discussions or negotiations
regarding any EDI Takeover Proposal; provided, however, that if, at any time
prior to the Effective Time, the Board of Directors of EDI determines in good
faith, after consultation with legal and financial advisors, that an EDI
Takeover Proposal may reasonably be expected to lead to an EDI Superior Proposal
(as defined below), EDI may, in response to an EDI Takeover Proposal which was
not solicited, initiated or encouraged subsequent to the date hereof, and
subject to compliance with Section 4.8(b), (x) furnish information with respect
to EDI to any person pursuant to a customary confidentiality agreement (as
determined by EDI after consultation with its outside counsel) and (y)
participate in negotiations regarding such EDI Takeover Proposal. "EDI Takeover
Proposal" means any inquiry, proposal or offer from any person relating to any
direct or indirect acquisition or purchase of 15% or more of the assets of EDI
and the EDI Subsidiaries or 15% or more of any class of equity securities of EDI
or any EDI Subsidiary, any tender offer or exchange offer that if consummated
would result in any person beneficially owning 15% or more of any class of
equity securities of EDI or any EDI Subsidiaries, any merger, consolidation,
share exchange, business combination, recapitalization, liquidation, dissolution
or similar transaction involving EDI or any EDI Subsidiary, other than the
transactions contemplated by this Agreement.
(b) In addition to the obligations of EDI set forth
in paragraph (a) of this Section 4.8, EDI shall notify Bowmar orally and in
writing promptly, but in no event later than 48 hours after receipt by EDI of
any request for information or of any EDI Takeover Proposal, the material terms
and conditions of such request or EDI Takeover Proposal and the identity of the
person making such request or EDI Takeover Proposal.
(c) Nothing contained in this Section 4.8 shall
prohibit EDI from taking and disclosing to its stockholders a position
contemplated by Rule 14d-9 and Rule 14e-2 or any other applicable rule
promulgated under the Securities Exchange Act or from making any disclosure to
EDI's stockholders if, in the good faith judgment of the Board of Directors of
EDI, after consultation with outside counsel, failure so to disclose would be
inconsistent with its fiduciary duties to EDI's stockholders under applicable
law.
4.9 SEC AND STOCKHOLDER FILINGS. EDI shall send to Bowmar a
copy of all material public reports and materials as and when it sends the same
to its stockholders, the SEC or any state or foreign securities commission.
4.10 TAX OPINION CERTIFICATION. EDI shall execute and deliver a
certificate in a form satisfactory to the counsel of both EDI and Bowmar, signed
by an officer of EDI setting forth factual representations and covenants that
will serve as a basis for the tax opinions required pursuant to Section 6.1.8 of
this Agreement ("EDI Tax Opinion Certificate").
4.11 AFFILIATE AGREEMENTS. EDI shall use reasonable business
efforts to ensure that each person who is or may be an "affiliate" of EDI within
the meaning of Rule 145
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promulgated under the Securities Act shall enter into an agreement in the form
attached hereto as Schedule 4.11.
4.12 TAKEOVER STATUTES. If any "fair price," "moratorium,"
"control share acquisition" or other similar antitakeover statute or regulation
enacted under state or federal laws in the United States (each a "Takeover
Statute"), including, without limitation, Section 203 of the Delaware Code, is
or may become applicable to this Agreement, the Merger or the EDI Proposals, EDI
and the members of its Board of Directors will grant such approvals, and take
such actions as are necessary so that the transactions contemplated by this
Agreement and the EDI Proposals may be consummated as promptly as practicable on
the terms contemplated hereby and thereby and otherwise act to eliminate or
minimize the effects of any Takeover Statute on any of the transactions
contemplated hereby or thereby.
ARTICLE V
ADDITIONAL COVENANTS OF BOWMAR
Bowmar covenants and agrees as follows:
5.1 CONDUCT OF BUSINESS OF BOWMAR AND THE BOWMAR SUBSIDIARIES.
Except as expressly contemplated by this Agreement, during the period from the
date of this Agreement to the Effective Time, Bowmar shall conduct, and it shall
cause each Bowmar Subsidiary to conduct, its or their businesses in the ordinary
course and consistent with past practice, subject to the limitations contained
in this Agreement, and Bowmar shall, and it shall cause each Bowmar Subsidiary
to, use its or their reasonable business efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain satisfactory relationships with all persons with whom it does
business. Without limiting the generality of the foregoing, and except as
otherwise expressly provided in this Agreement or as otherwise set forth in the
Bowmar Disclosure Letter (as hereinafter defined), after the date hereof and
prior to the Effective Time, neither Bowmar nor any Bowmar Subsidiary will,
without the prior written consent of EDI:
(i) amend or propose to amend its Articles of
Incorporation or Bylaws (or comparable governing instruments) in any material
respect;
(ii) authorize for issuance, issue, grant, sell,
pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any
shares of, or any options, warrants, commitments, subscriptions or rights of any
kind to acquire or sell any shares of, the capital stock or other securities of
Bowmar or any Bowmar Subsidiary including, but not limited to, any securities
convertible into or exchangeable for shares of stock of any class of Bowmar or
any Bowmar Subsidiary, except for the issuance of shares of Bowmar Stock and
related Rights pursuant to the conversion of Bowmar Preferred Stock and the
exercise of stock options outstanding on the date of this Agreement in
accordance with their present terms;
(iii) split, combine or reclassify any shares of its
capital stock or declare, pay or set aside any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock, other than dividends payable in the
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ordinary course in respect of the Bowmar Preferred Stock, which shall not exceed
$100,000 per quarter;
(iv) (a) create, incur or assume any debt in excess
of $500,000 or obligations in respect of capital leases, except pursuant to
existing agreements and pursuant to refinancings of existing obligations on
terms that are no less favorable to Bowmar or the Bowmar Subsidiaries than the
existing terms; (b) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, indirectly, contingently or otherwise) for the
obligations of any person; (c) make any capital expenditures in excess of
$500,000 or make any loans, advances or capital contributions to, or investments
in, any other person (other than to a Bowmar Subsidiary and customary travel,
relocation or business advances to employees made in the ordinary course of
business consistent with past practice); (d) acquire the stock or assets of, or
merge or consolidate with, any other person; (e) voluntarily incur any material
liability or obligation (absolute, accrued, contingent or otherwise); or (f)
except as set forth on Schedule 5.1 attached hereto, sell, transfer, mortgage,
pledge or otherwise dispose of, or encumber, or agree to sell, transfer,
mortgage, pledge or otherwise dispose of or encumber, any assets or properties,
real, personal or mixed material to Bowmar and the Bowmar Subsidiaries taken as
a whole other than to secure debt permitted under (a) of this clause (iv);
(v) increase in any manner the compensation of any
of its officers or employees, hire or solicit for employment any person who is
an employee of EDI, or enter into, establish, amend or terminate any employment,
consulting, retention, change in control, collective bargaining, bonus or other
incentive compensation, profit sharing, health or other welfare, stock option or
other equity, pension, retirement, vacation, severance, deferred compensation or
other compensation or benefit plan, policy, agreement, trust, fund or
arrangement with, for or in respect of, any shareholder, officer, director,
other employee, agent, consultant or affiliate other than as required pursuant
to the terms of agreements in effect on the date of this Agreement;
(vi) except as disclosed on Schedule 5.1 attached
hereto, enter into any lease or amend any lease of real property; or
(vii) agree to do any of the foregoing.
Furthermore, Bowmar covenants, represents and warrants that from and
after the date of this Agreement, unless EDI shall otherwise expressly consent
in writing, Bowmar shall, and Bowmar shall cause each Bowmar Subsidiary to, use
its or their reasonable business efforts to comply in all material respects with
all Laws applicable to it or any of its properties, assets or business and
maintain in full force and effect all the Bowmar Permits necessary for, or
otherwise material to, such business.
5.2 NOTIFICATION OF CERTAIN MATTERS. Bowmar shall give prompt
written notice to EDI if any of the following occur after the date of this
Agreement: (i) any notice of, or other communication relating to, a default or
Event which, with notice or lapse of time or both, would become a default under
any Bowmar Material Contract which could reasonably be expected to have a Bowmar
Material Adverse Effect; (ii) receipt of any notice or other
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communication in writing from any third party alleging that the Consent of such
third party is or may be required in connection with the transactions
contemplated by this Agreement, provided that such Consent would have been
required to have been disclosed in this Agreement; (iii) receipt of any material
notice or other communication from any Governmental Authority (including, but
not limited to the American Stock Exchange or any other securities exchange) in
connection with the transactions contemplated by this Agreement; (iv) the
occurrence of an Event which could reasonably be expected to have a Bowmar
Material Adverse Effect; (v) the commencement or threat of any Litigation
involving or affecting Bowmar or any Bowmar Subsidiary or any of their
respective properties or assets, or, to its knowledge, any employee, agent,
director or officer, in his or her capacity as such, of Bowmar or any Bowmar
Subsidiary which, if pending on the date hereof, would have been required to
have been disclosed in this Agreement or which relates to the consummation of
the Merger or any material development in connection with any Litigation
disclosed by Bowmar in or pursuant to this Agreement or the Bowmar Securities
Filings; and (vi) the occurrence of any Event that could reasonably be expected
to cause a breach by Bowmar of any provision of this Agreement or a Bowmar
Ancillary Agreement, including such a breach that could occur if such Event had
taken place on or prior to the date of this Agreement.
5.3 ACCESS AND INFORMATION. Subject to the confidentiality
obligations of EDI as set forth in Section 8.1 of this Agreement, between the
date of this Agreement and the Effective Time, Bowmar and the Bowmar
Subsidiaries will give, and shall direct its accountants and legal counsel to
give EDI, and their respective authorized representatives (including, without
limitation, its lenders, financial advisors, accountants and legal counsel) at
all reasonable times access as reasonably requested to all offices and other
facilities and to all contracts, agreements, commitments, books and records
(including, but not limited to, Tax Returns) of or pertaining to Bowmar and the
Bowmar Subsidiaries, will permit the foregoing to make such reasonable
inspections as they may require and will cause its officers promptly to furnish
EDI with (a) such financial and operating data and other information with
respect to the business and properties of Bowmar and the Bowmar Subsidiaries as
EDI may from time to time reasonably request, and (b) a copy of each material
report, schedule and other document filed or received by Bowmar or any of the
Bowmar Subsidiaries pursuant to the requirements of applicable securities laws
or the American Stock Exchange. All such information shall be deemed
"Confidential Information" as such term is defined in those certain letter
agreements dated March 10, 1997 and April 24, 1997 between EDI and Bowmar (the
"Confidentiality Agreements"), except as otherwise provided in such
Confidentiality Agreements.
5.4 SHAREHOLDER APPROVAL. As soon as practicable, Bowmar will
take all steps necessary to duly call, give notice of, convene and hold a
meeting of its shareholders for the purpose of approving the Bowmar Proposals,
for such other purposes as may be necessary or desirable in connection with
effectuating the transactions contemplated hereby and for such other purposes as
Bowmar shall determine. Except in the case where the Board of Directors of
Bowmar determines in good faith, after receiving advice of counsel, that doing
so could reasonably be expected to be a breach of the directors' fiduciary
duties under applicable Law, the Board of Directors of Bowmar (i) will recommend
to the shareholders of Bowmar that they approve the Bowmar Proposals, and (ii)
will use its reasonable best efforts to obtain any
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necessary approval by Bowmar's shareholders of the Bowmar Proposals, including,
without limitation, voting the Bowmar Stock held by such Directors for such
approval.
5.5 REASONABLE BUSINESS EFFORTS. Subject to the terms and
conditions herein provided, Bowmar agrees to use its reasonable business efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the Merger and the transactions contemplated by this
Agreement including, but not limited to (i) obtaining the Consent of Bowmar's
lenders to this Agreement and the transactions contemplated hereby, (ii) the
defending of any Litigation against Bowmar or any Bowmar Subsidiary challenging
this Agreement or the consummation of the transactions contemplated hereby,
(iii) obtaining all Consents from Governmental Authorities required for the
consummation of the Merger and the transactions contemplated thereby, and (iv)
timely making all necessary filings under the HSR Act. Upon the terms and
subject to the conditions hereof, Bowmar agrees to use reasonable business
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary to satisfy the other conditions of the closing set
forth herein.
5.6 PUBLIC ANNOUNCEMENTS. So long as this Agreement is in
effect, Bowmar shall not, and shall cause its affiliates not to, issue or cause
the publication of any press release or any other announcement with respect to
the Merger, the Bowmar Proposals, the EDI Proposals, or the transactions
contemplated hereby or thereby without the consent of EDI, which consent shall
not be unreasonably withheld, except where such release or announcement is
required by applicable Law or pursuant to any applicable listing agreement with,
or rules or regulations of, the American Stock Exchange, in which case Bowmar,
prior to making such announcement, will consult with EDI regarding the same.
5.7 COMPLIANCE. In consummating the Merger and the
transactions contemplated hereby, Bowmar shall comply in all material respects
with the provisions of the Securities Exchange Act and the Securities Act and
shall comply, and/or cause the Bowmar Subsidiaries to comply or to be in
compliance, in all material respects, with all other applicable Laws.
5.8 NO SOLICITATION. (a) Bowmar shall, and shall direct and
use reasonable efforts to cause its officers, directors, employees,
representatives and agents to, immediately cease any discussions or negotiations
with any parties that may be ongoing with respect to a Bowmar Takeover Proposal
(as hereinafter defined). Bowmar shall not, nor shall it permit any Bowmar
Subsidiary to, nor shall it authorize or permit any of its officers, directors
or employees or any investment banker, financial advisor, attorney, accountant
or other representative retained by it or any Bowmar Subsidiary to, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed or reasonably likely to
facilitate, any inquiries or the making of any proposal which constitutes, or
would reasonably be expected to lead to, any Bowmar Takeover Proposal or (ii)
participate in any discussions or negotiations regarding any Bowmar Takeover
Proposal; provided, however, that if, at any time prior to the Effective Time,
the Board of Directors of Bowmar determines in good faith, after consultation
with legal and financial advisors, that a Bowmar Takeover Proposal may
reasonably be expected to lead to a Bowmar Superior Proposal (as defined below),
Bowmar may,
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in response to a Bowmar Takeover Proposal which was not solicited, initiated or
encouraged subsequent to the date hereof, and subject to compliance with Section
5.8(b), (x) furnish information with respect to Bowmar to any person pursuant to
a customary confidentiality agreement (as determined by Bowmar after
consultation with its outside counsel) and (y) participate in negotiations
regarding such Bowmar Takeover Proposal. "Bowmar Takeover Proposal" means any
inquiry, proposal or offer from any person relating to any direct or indirect
acquisition or purchase of 15% or more of the assets of Bowmar and the Bowmar
Subsidiaries or 15% or more of any class of equity securities of Bowmar or any
Bowmar Subsidiary, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 15% or more of any class of equity
securities of Bowmar or any Bowmar Subsidiary, any merger, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution or
similar transaction involving Bowmar or any Bowmar Subsidiary, other than the
transactions contemplated by this Agreement.
(b) In addition to the obligations of Bowmar set
forth in paragraph (a) of this Section 5.8, Bowmar shall notify EDI orally and
in writing promptly, but in no event later than 48 hours after receipt by Bowmar
of any request for information or of any Bowmar Takeover Proposal, the material
terms and conditions of such request or Bowmar Takeover Proposal and the
identity of the persons making such request or Bowmar Takeover Proposal.
(c) Nothing contained in this Section 5.8 shall
prohibit Bowmar from taking and disclosing to its shareholders a position
contemplated by Rule 14d-9 and Rule 14e-2 or other applicable rule promulgated
under the Securities Exchange Act or from making any disclosure to Bowmar's
shareholders if, in the good faith judgment of the Board of Directors of Bowmar,
after consultation with outside counsel, failure so to disclose would be
inconsistent with its fiduciary duties to Bowmar's shareholders under applicable
law.
5.9 SEC AND SHAREHOLDER FILINGS. Bowmar shall send to EDI a
copy of all material public reports and materials as and when it sends the same
to its shareholders, the SEC or any state or foreign securities commission.
5.10 TAX OPINION CERTIFICATES. Bowmar shall execute and deliver
a certificate in form satisfactory to the counsel of EDI and Bowmar, signed by
an officer of Bowmar setting forth factual representations and covenants that
will serve as a basis for the tax opinions required pursuant to Section 6.1.8 of
this Agreement ("Bowmar Tax Opinion Certificate").
5.11 BOARD REPRESENTATION AND OFFICERS. Bowmar's Board of
Directors will take action to cause the full Board of Directors of Bowmar (the
"Bowmar Board") at the Effective Time to consist of seven directors, three of
whom shall be designated by Bowmar, three of whom shall be designated by EDI and
one of whom shall be appointed by the six directors so designated. The three
directors designated by Bowmar will appoint to the Bowmar Board, effective on
the fifth day immediately following the Effective Time, the three nominees
designated by EDI. It is the intent of the parties that membership on the
compensation and stock option, audit and nominating committees of the Board
shall initially consist of an equal number of designees of Bowmar and designees
of EDI. The Bowmar Board will take action to cause Donald F. McGuinness to be
appointed Chairman of the Board and Hamid Shokrgozar to be
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appointed as President and Chief Executive Officer of Bowmar. At and after the
Effective Time of the Merger, the other officers of Bowmar shall be as set forth
on Schedule 5.11 hereto and the Bowmar Board will take all necessary action to
cause the individuals set forth on such Schedule 5.11 to serve at the Effective
Time in the offices set forth opposite their respective names; provided,
however, that the term of office of each individual designated by EDI, including
Donald F. McGuinness and Frank D. Edwards, shall commence on the fifth day
immediately following the Effective Date.
5.12 EMPLOYEE BENEFIT PLANS. Benefit Plans. For a period of at
least sixty (60) days after the Effective Time, Bowmar shall maintain the
Benefit Plans of EDI as are set forth on Schedule 5.12(a) and are in effect on
the date hereof. Employees of EDI may continue to receive the same benefits
under such Benefit Plans for such period and until the Board of Bowmar shall
consolidate the Benefit Plans of Bowmar and EDI; provided, however, that in any
event, (i) EDI participants shall receive full credit for years of service with
EDI or any EDI Subsidiary prior to the Merger for all purposes (except benefit
accrual) for which such service was recognized under the Benefit Plan of EDI or
such Subsidiary including recognition of service for eligibility and vesting;
(ii) such participants shall participate in the Benefit Plans of Bowmar on terms
no less favorable than those offered by Bowmar to similarly situated employees
of Bowmar; and (iii) Bowmar shall cause any and all pre-existing condition
limitations (to the extent such limitations did not apply to a pre-existing
condition under EDI's Benefit Plans) to be waived with respect to such
participants and their eligible dependents. Neither Bowmar nor the Surviving
Corporation shall treat any employee of EDI as a "new" employee for purposes of
any exclusion under any health, dental or vision plan of Bowmar or the Surviving
Corporation, as the case may be, for a pre-existing medical condition, except to
the extent such EDI employee is a "new" employee of EDI for such purposes.
5.13 TAKEOVER STATUTES. If any Takeover Statute, including
without limitation Section 23-1-43-18 of the Indiana Business Corporation Law,
is or may become applicable to the Merger or the Bowmar Proposals, Bowmar and
the members of its Board of Directors will grant such approvals, and take such
actions as are necessary so that the transactions contemplated by this Agreement
and the Bowmar Proposals may be consummated as promptly as practicable on the
terms contemplated hereby and thereby and otherwise act to eliminate or minimize
the effects of any Takeover Statute on any of the transactions contemplated
hereby or thereby.
ARTICLE VI
CONDITIONS
6.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of each party to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Closing Date of the following
conditions:
6.1.1 STOCKHOLDER APPROVAL. The EDI Proposals shall
have been approved by the requisite vote of the stockholders of EDI
in accordance with the Delaware Code and the Bowmar Proposals shall
have been approved by the requisite vote of the shareholders of
Bowmar in accordance with applicable Law
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and the rules and regulations of Nasdaq and the American Stock
Exchange, respectively.
6.1.2 NO INJUNCTION OR ACTION. No order, statute,
rule, regulation, executive order, stay, decree, judgment or
injunction shall have been enacted, entered, promulgated or enforced
by any court or other Governmental Authority which prohibits or
prevents the consummation of the Merger which has not been vacated,
dismissed or withdrawn by the Closing Date. EDI and Bowmar shall use
their reasonable best efforts to have any of the foregoing vacated,
dismissed or withdrawn by the Closing Date.
6.1.3 GOVERNMENTAL APPROVALS. All Consents of any
Governmental Authority required for the consummation of the Merger
and the transactions contemplated by this Agreement shall have been
obtained by Final Order (as hereafter defined), except as may be
waived by Bowmar and EDI or those Consents the failure of which to
obtain could not reasonably be expected to have a Surviving
Corporation Material Adverse Effect (as defined below). The term
"Final Order" with respect to any Consent of a Governmental Authority
shall mean an action by the appropriate Governmental Authority as to
which: (i) no request for stay by such Governmental Authority of the
action is pending, no such stay is in effect, and, if any deadline
for filing any such request is designated by statute or regulation,
it has passed; (ii) no petition for rehearing or reconsideration of
the action is pending before such Governmental Authority, and no
appeal or comparable administrative remedy with such or any other
Governmental Authority is pending before such Governmental Authority,
and the time for filing any such petition, appeal or administrative
remedy has passed; (iii) such Governmental Authority does not have
the action under reconsideration on its own motion and the time for
such reconsideration has passed; and (iv) no appeal to a court, or
request for stay by a court, of the Governmental Authority action is
pending or in effect, and if any deadline for filing any such appeal
or request is designated by statute or rule, it has passed.
6.1.4 HSR ACT. Any waiting period applicable to the
Merger under the HSR Act shall have expired or earlier termination
thereof shall have been granted and no action, suit, proceeding or
investigation shall have been instituted by either the United States
Department of Justice or the Federal Trade Commission to prevent the
consummation of the transactions contemplated by this Agreement or to
modify or amend such transactions in any material manner, or if any
such action, suit, proceeding or investigation shall have been
instituted, it shall have been withdrawn or a final judgment shall
have been entered against such Department or Commission, as the case
may be.
6.1.5 REQUIRED CONSENTS. Any required Consents of any
person to the Merger or the transactions contemplated hereby,
including, without limitation, the Consents of the respective lenders
of Bowmar and EDI, shall have been obtained and be in full force and
effect, except for those the failure of which to obtain could
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not reasonably be expected to have a material adverse effect on the
business, assets (including, but not limited to, intangible assets),
condition (financial or otherwise), properties (including, but not
limited to, intangible properties), liabilities or the results of
operations of the Surviving Corporation and its subsidiaries taken as
a whole ("Surviving Corporation Material Adverse Effect") or a Bowmar
Material Adverse Effect.
6.1.6 REGISTRATION STATEMENT. The Registration
Statement shall have been declared effective and no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no action, suit, proceeding or investigation for that
purpose shall have been initiated or threatened by any Governmental
Authority.
6.1.7 BLUE SKY. Bowmar shall have received all state
securities law authorizations necessary to consummate the
transactions contemplated hereby.
6.1.8 TAX OPINION. Bowmar shall have received an
opinion from Bowmar's tax counsel and EDI shall have received an
opinion from EDI's tax counsel substantially to the effect that, if
the Merger is consummated in accordance with the provisions of this
Agreement, under current Law, for federal income tax purposes, the
Merger will qualify as a reorganization within the meaning of Section
368(a) of the Code.
6.1.9 LISTING OF BOWMAR STOCK. The shares of Bowmar
Stock comprising the Merger Consideration shall have been listed on
the American Stock Exchange subject to official notice of issuance.
6.2 CONDITIONS TO OBLIGATIONS OF EDI. The obligation of EDI to
effect the Merger shall be subject to the fulfillment at or prior to the Closing
Date of the following additional conditions, any one or more of which may be
waived by EDI:
6.2.1 BOWMAR REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Bowmar contained in this Agreement
that are modified by materiality or Bowmar Material Adverse Effect
shall be true and correct in all respects and those that are not so
modified shall be true and correct in all material respects, on the
date hereof and, except for changes not prohibited by this Agreement,
as of the Closing Date as if made at the Closing Date.
6.2.2 PERFORMANCE BY BOWMAR. Bowmar shall have
performed and complied with all of the covenants and agreements in
all material respects and satisfied in all material respects all of
the conditions required by this Agreement to be performed or complied
with or satisfied by Bowmar at or prior to the Closing Date.
6.2.3 NO MATERIAL ADVERSE CHANGE. There shall not have
occurred after the date hereof any Event that has or reasonably could
be expected to have a
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Bowmar Material Adverse Effect or a Surviving Corporation Material
Adverse Effect.
6.2.4 CERTIFICATES AND OTHER DELIVERIES. Bowmar shall
have delivered to EDI (i) a certificate executed on its behalf by its
President or another authorized officer to the effect that the
conditions set forth in Subsections 6.2.1, 6.2.2 and 6.2.3, above,
have been satisfied; (ii) a certificate of existence from the
Secretary of State of the State of Indiana stating that Bowmar is a
validly existing corporation in good standing; (iii) a certificate
from the Secretary of State of the State of Delaware stating that
Acquisition Subsidiary is a validly existing corporation in good
standing; (iv) duly adopted resolutions of the Board of Directors of
each of Bowmar and the Board of Directors and stockholder of
Acquisition Subsidiary approving the execution, delivery and
performance of this Agreement, the Bowmar Ancillary Agreements and
the instruments contemplated hereby and thereby, and of the Bowmar
shareholders approving the Bowmar Proposals, each certified by its
Secretary; (v) a true and complete copy of the Articles of
Incorporation of Bowmar certified by the Secretary of State of the
State Indiana, and a true and complete copy of the Bylaws of Bowmar
certified by the Secretary thereof; (vi) a true and complete copy of
the Certificate of Incorporation of Acquisition Subsidiary certified
by the Secretary of State of the State of Delaware, and a true and
complete copy of the Bylaws of Acquisition Subsidiary certified by
the Secretary thereof; (vii) the duly executed Bowmar Tax Opinion
Certificate; (viii) the supplemental agreements referred to in
Section 1.6 hereof; and (ix) such other documents and instruments as
EDI reasonably may request.
6.2.5 ELECTION OF NOMINEES. Bowmar shall have taken
all action necessary to cause the EDI Nominees to become members of
the Board of Directors of Bowmar and the officers set forth on
Schedule 5.11 to become officers of Bowmar, in each case subject to
Section 5.11.
6.3 CONDITIONS TO OBLIGATIONS OF BOWMAR. The obligations of
Bowmar to effect the Merger shall be subject to the fulfillment at or prior to
the Closing Date of the following additional conditions, any one or more of
which may be waived by Bowmar:
6.3.1 EDI REPRESENTATIONS AND WARRANTIES. The
representations and warranties of EDI contained in this Agreement
that are modified by materiality or EDI Material Adverse Effect shall
be true and correct in all respects, and those that are not so
modified shall be true and correct in all material respects, on the
date hereof and, except for changes not prohibited by this Agreement,
as of the Closing Date as if made at the Closing Date.
6.3.2 PERFORMANCE BY EDI. EDI shall have performed and
complied with all the covenants and agreements in all material
respects and satisfied in all material respects all the conditions
required by this Agreement to be performed or complied with or
satisfied by EDI at or prior to the Closing Date.
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6.3.3 NO MATERIAL ADVERSE CHANGE. There shall have not
occurred after the date hereof any Event that has or reasonably could
be expected to have an EDI Material Adverse Effect or a Surviving
Corporation Material Adverse Effect.
6.3.4 CERTIFICATES AND OTHER DELIVERIES. EDI shall
have delivered, or caused to be delivered, to Bowmar (i) a
certificate executed on its behalf by its Chairman or another duly
authorized officer to the effect that the conditions set forth in
Subsections 6.3.1, 6.3.2 and 6.3.3, above, have been satisfied; (ii)
a certificate of good standing from the Secretary of State of the
State of Delaware stating that EDI is a validly existing corporation
in good standing; (iii) duly adopted resolutions of the Board of
Directors and stockholders of EDI approving the execution, delivery
and performance of this Agreement, the EDI Proposals, the EDI
Ancillary Agreements and the instruments contemplated hereby and
thereby, certified by the Secretary of EDI; (iv) a true and complete
copy of the Certificate of Incorporation certified by the Secretary
of State of the State of Delaware, and a true and complete copy of
the Bylaws of EDI certified by the Secretary thereof; (v) the duly
executed EDI Tax Opinion Certificate; and (vi) such other documents
and instruments as Bowmar reasonably may request.
6.3.5 AFFILIATE AGREEMENTS. Each person who is or may
be an "affiliate" of EDI within the meaning of Rule 145 of the rules
and regulations of the SEC promulgated under the Securities Act shall
have entered into an agreement in the form attached hereto as
Schedule 4.11.
ARTICLE VII
TERMINATION AND ABANDONMENT
7.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the
stockholders of EDI and the shareholders of Bowmar described herein:
(a) by mutual written consent of Bowmar and EDI;
(b) by either Bowmar or EDI if:
(i) the Merger shall not have been consummated
on or prior to November 1, 1998 (other than due to a
failure of the party seeking to terminate this Agreement
to perform its obligations required by this Agreement to
be performed at or prior to the Effective Time);
(ii) the approval of EDI's stockholders
required by Section 6.1.1 shall not have been
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obtained at a meeting duly convened therefor or at any
adjournment or postponement thereof;
(iii) the approval of Bowmar's shareholders as
required by Section 6.1.1 shall not have been obtained at
a meeting duly convened therefor or at any adjournment or
postponement thereof; or
(iv) any Governmental Authority shall have
issued an order, decree or ruling or taken any other
action permanently enjoining, restraining or otherwise
prohibiting the consummation of the Merger and such order,
decree or ruling or other action shall have become final
and nonappealable;
(c) by Bowmar, if EDI shall have breached in any
material respect any of its representations, warranties, covenants or
other agreements contained in this Agreement, which breach or failure
to perform is incapable of being cured or has not been cured within
30 days after the giving of written notice to EDI;
(d) by Bowmar, if, notwithstanding the provisions of
Section 5.8, the Board of Directors of Bowmar, after consultation
with legal and financial advisors, determines in good faith that
authorizing Bowmar to enter into an agreement with respect to a
Bowmar Superior Proposal (a "Bowmar Superior Proposal Agreement") is
necessary to comply with the directors' fiduciary duties to
stockholders under applicable law and the Board of Directors of
Bowmar authorizes or desires to authorize Bowmar to execute a Bowmar
Superior Proposal Agreement, provided that Bowmar has, prior to the
termination of this Agreement and/or the execution of such Bowmar
Superior Proposal Agreement, paid the Termination Fee (as defined in
Section 7.2(b)). For purposes of this Agreement, a "Bowmar Superior
Proposal" means any bona fide Bowmar Takeover Proposal, the terms of
which the Board of Directors of Bowmar determines in its good faith
judgment, after receiving advice from Needham & Co. or other
financial advisor of nationally recognized reputation, to be more
favorable from a financial point of view to Bowmar's stockholders
than the Merger;
(e) by Bowmar, if the Board of Directors of EDI or
any committee thereof shall have withdrawn or modified in a manner
adverse to Bowmar its approval or recommendation of the EDI
Proposals, failed to include such recommendation in the
Prospectus/Proxy Statement or failed to reconfirm its recommendation
within fifteen business days after a written
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request to do so, or approved or recommended any EDI Takeover
Proposal;
(f) by EDI, if Bowmar shall have breached in any
material respect any of its representations, warranties, covenants or
other agreements contained in this Agreement, which breach or failure
to perform is incapable of being cured or has not been cured within
30 days after the giving of written notice to Bowmar;
(g) by EDI, if, notwithstanding the provisions of
Section 4.8, the Board of Directors of EDI, after consultation with
legal and financial advisors, determines in good faith that
authorizing EDI to enter into an agreement with respect to an EDI
Superior Proposal (an "EDI Superior Proposal Agreement") is necessary
to comply with the directors' fiduciary duties to stockholders under
applicable law and the Board of Directors of EDI authorizes or
desires to authorize EDI to execute an EDI Superior Proposal
Agreement, provided that EDI has, prior to the termination of this
Agreement and/or the execution of such EDI Superior Proposal
Agreement, paid the Termination Fee. For purposes of this Agreement,
an "EDI Superior Proposal" means any bona fide EDI Takeover Proposal,
the terms of which the Board of Directors of EDI determines in its
good faith judgment, after receiving advice from Alliant Partners or
other financial advisor of nationally recognized reputation, to be
more favorable from a financial point of view to EDI's stockholders
than the Merger;
(h) by EDI, if the Board of Directors of Bowmar or
any committee thereof shall have withdrawn or modified in a manner
adverse to EDI its approval or recommendation of the Bowmar
Proposals, failed to include such recommendation in the
Prospectus/Proxy Statement or failed to reconfirm its recommendation
within fifteen business days after a written request to do so, or
approved or recommended any Bowmar Takeover Proposal; or
(i) by EDI, if any person shall become an "Acquiring
Person" under the Bowmar Rights Plan or a "Share Acquisition Date" or
"Distribution Date" otherwise occurs under the Bowmar Rights Plan at
any time from and after the date of this Agreement.
7.2 EFFECT OF TERMINATION AND ABANDONMENT. (a) In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VII, this Agreement (other than as set forth in this Section 7.2 and in
Section 7.3, Section 8.1, Section 8.7, Section 8.11 and Section 8.14) shall
become void and of no effect with no liability on the
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part of any party hereto (or of any of its directors, officers, employees,
agents, legal or financial advisors or other representatives); provided,
however, that no such termination shall relieve any party hereto from any
liability for any breach of this Agreement.
(b) In the event that EDI desires to terminate this
Agreement pursuant to Section 7.1(g), then EDI shall first pay Bowmar a fee
equal to $500,000 (the "Termination Fee"), payable by wire transfer of same day
funds. In the event that Bowmar terminates this Agreement pursuant to Section
7.1(e), then EDI shall promptly, but in no event later than two business days
after the date of such termination, pay Bowmar the Termination fee, payable by
wire transfer of same day funds. Notwithstanding anything herein to the
contrary, in no event shall EDI be required to pay the Termination fee to Bowmar
more than once. EDI acknowledges that the agreements contained in this Section
7.2(b) are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, Bowmar would not enter into this Agreement;
accordingly, if EDI fails to promptly pay the amount due pursuant to this
Section 7.2(b), and, in order to obtain such payment, Bowmar commences a suit
which results in a judgment against EDI for the Termination Fee set forth in
this paragraph (b), EDI shall also pay to Bowmar its costs and expenses
(including attorneys' fees) in connection with such suit, together with interest
on the amount of the Termination Fee at the prime rate of Citibank N.A. in
effect on the date such payment was required to be made.
(c) In the event that Bowmar desires to terminate
this Agreement pursuant to Section 7.1(d), then Bowmar shall first pay EDI the
Termination Fee, payable by wire transfer of same day funds. In the event that
EDI terminates this Agreement pursuant to Section 7.1(h), then Bowmar shall
promptly, but in no event later than two business days after the date of such
termination, pay EDI the Termination Fee, payable by wire transfer of same day
funds. Notwithstanding anything herein to the contrary, in no event shall Bowmar
be required to pay the Termination Fee to EDI more than once. Bowmar
acknowledges that the agreements contained in this Section 7.2(c) are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, EDI would not enter into this Agreement; accordingly,
if Bowmar fails to promptly pay the amount due pursuant to this Section 7.2(c),
and, in order to obtain such payment, EDI commences a suit which results in a
judgment against Bowmar for the Termination Fee set forth in this paragraph (c),
Bowmar shall also pay to EDI its costs and expenses (including attorneys' fees)
in connection with such suit, together with interest on the amount of the
Termination Fee at the prime rate of Citibank N.A. in effect on the date such
payment was required to be made.
7.3 PROCEDURE UPON TERMINATION. If this Agreement is
terminated as provided herein, each party shall use its reasonable best efforts
to redeliver all documents, work papers and other material (including any copies
thereof) of any other party relating to the transactions contemplated hereby,
whether obtained before or after the execution hereof, to the party furnishing
the same.
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ARTICLE VIII
MISCELLANEOUS
8.1 CONFIDENTIALITY. Unless (i) otherwise expressly provided
in this Agreement, (ii) required by applicable Law or any listing agreement
with, or the rules and regulations of, any applicable securities exchange or
Nasdaq, (iii) necessary to secure any required Consents as to which the other
party has been advised, or (iv) consented to in writing by Bowmar and EDI, any
information or documents furnished by either party to the other, prior to the
date hereof pursuant to confidentiality obligations or on or after the date
hereof in connection herewith, shall be kept strictly confidential by EDI,
Bowmar and their respective officers, directors, employees and agents. Prior to
any disclosure pursuant to the preceding sentence, the party intending to make
such disclosure shall consult with the other party regarding the nature and
extent of the disclosure. Nothing contained herein shall preclude disclosures to
the extent necessary to comply with accounting, SEC and other disclosure
obligations imposed by applicable Law. To the extent required by such disclosure
obligations, Bowmar or EDI, after consultation with the other party, may file
with the SEC a Report on Form 8-K pursuant to the Securities Exchange Act with
respect to the Merger, which report may include, among other things, financial
statements and pro forma financial information with respect to the other party.
In connection with any filing with the SEC of a registration statement or
amendment thereto under the Securities Act, EDI or Bowmar, after consultation
with the other party, may include a prospectus containing any information
required to be included therein with respect to the Merger, including, but not
limited to, financial statements and pro forma financial information with
respect to the other party, and thereafter distribute said prospectus. Bowmar
and EDI shall cooperate with the other and provide such information and
documents as may be required in connection with any such filings. In the event
the Merger is not consummated, each party shall return to the other any
documents furnished by the other and all copies thereof any of them may have
made and will hold in absolute confidence any information obtained from the
other party except to the extent (i) such party is required to disclose such
information by Law or such disclosure is necessary or desirable in connection
with the pursuit or defense of a claim, (ii) such information was known by such
party prior to such disclosure or was thereafter developed or obtained by such
party independent of such disclosure, or (iii) such information becomes
generally available to the public or is otherwise no longer confidential. Prior
to any disclosure of information pursuant to the exception in clause (i) of the
preceding sentence, the party intending to disclose the same shall so notify the
party which provided the same in order that such party may seek a protective
order or other appropriate remedy should it choose to do so.
8.2 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by a written agreement among EDI, Bowmar and
Acquisition Subsidiary, following action taken by their respective Boards of
Directors, but after any stockholder approval contemplated by this Agreement is
obtained, no amendment shall be made which by law requires the further approval
of stockholders, without obtaining such further approval.
8.3 WAIVER OF COMPLIANCE; CONSENTS. Any failure of EDI on the
one hand, or Bowmar on the other hand, to comply with any obligation, covenant,
agreement or condition herein may be waived by Bowmar on the one hand, or EDI on
the other hand, only by a written
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instrument signed by the party granting such waiver, but such waiver or failure
to insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits consent
by or on behalf of any party hereto, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 8.3.
8.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations, warranties, covenants and agreements of EDI and Bowmar
contained herein or in any certificates or other documents delivered prior to or
at the Closing shall survive the execution and delivery of this Agreement,
notwithstanding any investigation made or information obtained by the other
party, but shall terminate at the Effective Time, except for those contained in
Sections 1.5, 1.6, 1.11(a), 1.13, 1.15, 5.11, 5.12, 8.1, 8.3 - 8.8, 8.10 - 8.15,
and except for the agreements delivered pursuant to Section 6.3.5 hereof and the
certificates referred to in Sections 6.2.4(vii) and 6.3.4(v) hereof.
8.5 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
in person, by facsimile, receipt confirmed, or on the next business day when
sent by overnight courier or on the second succeeding business day when sent by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
(i) if to EDI, to:
Electronic Designs, Inc.
One Research Drive
Westborough, MA 01581
Attention: Donald F. McGuinness
Telecopy: (508) 366-1083
with a copy to:
Goodwin, Proctor & Hoar LLP
Exchange Place
Boston, MA 02109
Attention: Thomas P. Storer, P.C.
Telecopy: (617) 523-1231
(ii) if to Bowmar or Acquisition Subsidiary, to:
Bowmar Instrument Corporation
3601 E. University Drive
Phoenix, AZ 85034
Attention: Hamid R. Shokrgozar
Telecopy: (602) 437-1520
with a copy to:
Bryan Cave LLP
700 13th Street, N.W.
Washington, D.C. 20005
Attention: LaDawn Naegle, Esq.
Telecopy: (202) 508-6200
8.6 BINDING EFFECT; ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective
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successors and permitted assigns. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto prior to the Effective Time without the prior written consent of the
other parties hereto, except that Acquisition Subsidiary may assign to Bowmar or
any other direct wholly owned subsidiary of Bowmar any and all rights, interests
and obligations of Acquisition Subsidiary under this Agreement; provided that
any assignment by Acquisition Subsidiary of any or all of its rights, interests
and obligations under this Agreement to Bowmar shall require that the Merger
contemplated by this Agreement shall then be structured as a direct merger of
EDI with and into Bowmar or any other structure approved in writing by EDI.
8.7 EXPENSES. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs or expenses, subject to the rights of such party
contemplated under Section 7.2, above.
8.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
its rules of conflict of laws. Each of EDI, Bowmar, and Acquisition Subsidiary
hereby irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of Delaware and of the United States of
America located in the State of Delaware (the "Delaware Courts") for any
litigation arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any litigation relating thereto
except in such courts), waives any objection to the laying of venue of any such
litigation in the Delaware Courts and agrees not to plead or claim in any
Delaware Court that such litigation brought therein has been brought in any
inconvenient forum. Each of the parties hereto agrees, (a) to the extent such
party is not otherwise subject to service of process in the State of Delaware,
to appoint and maintain an agent in the State of Delaware as such party's agent
for acceptance of legal process, and (b) that service of process may also be
made on such party by prepaid certified mail with a proof of mailing receipt
validated by the United States Postal Service constituting evidence of valid
service. Service made pursuant to (a) or (b) above shall have the same legal
force and effect as if served upon such party personally within the State of
Delaware. For purposes of implementing the parties' agreement to appoint and
maintain an agent for service of process in the State of Delaware, each such
party does hereby appoint The Corporation Trust Company, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, as such agent.
8.9 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.10 INTERPRETATION. The article and section headings contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, (i) the term
"person " shall mean and include an individual, a partnership, a joint venture,
a corporation, a limited liability company, a trust, an association, an
unincorporated organization, a Governmental Authority and any other entity; (ii)
the term "affiliate," with respect to any person, shall mean and include any
person controlling, controlled by or under common control with such person; and
(iii) the term "subsidiary" of any specified person shall
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mean any corporation 50 percent or more of the outstanding voting power of
which, or any partnership, joint venture, limited liability company or other
entity 50 percent or more of the total equity interest of which, is directly or
indirectly owned by such specified person.
8.11 ENTIRE AGREEMENT. This Agreement and the documents or
instruments referred to herein including, but not limited to, the Schedules
attached hereto and the Disclosure Letters referred to herein, which Schedules
and Disclosure Letters are incorporated herein by reference, embody the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, representations,
warranties, covenants, or undertakings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and the
understandings between the parties with respect to such subject matter.
8.12 SEVERABILITY. In case any provision in this Agreement
shall be held invalid, illegal or unenforceable in a jurisdiction, such
provision shall be modified or deleted, as to the jurisdiction involved, only to
the extent necessary to render the same valid, legal and enforceable, and the
validity, legality and enforceability of the remaining provisions hereof shall
not in any way be affected or impaired thereby nor shall the validity, legality
or enforceability of such provision be affected thereby in any other
jurisdiction.
8.13 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. Accordingly, the parties further agree that each party shall
be entitled to an injunction or restraining order or other equitable remedies to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any Delaware Court, this being in addition to any other
right or remedy to which such party may be entitled under this Agreement, at law
or in equity.
8.14 THIRD PARTIES. Nothing contained in this Agreement or in
any instrument or document executed by any party in connection with the
transactions contemplated hereby shall create any rights in, or be deemed to
have been executed for the benefit of, any person or entity that is not a party
hereto or thereto, or, a successor or permitted assign of such a party; provided
however, that the parties hereto specifically acknowledge that the provisions of
Sections 1.15, 5.11 and 5.12, above, are intended to be for the benefit of, and
shall be enforceable by, the Indemnified Parties and the employees of EDI and/or
the EDI Subsidiaries affected thereby and their heirs and representatives.
8.15 SCHEDULES AND DISCLOSURE LETTERS. EDI and Bowmar
acknowledge that the Schedules to this Agreement, the EDI Disclosure Letter and
the Bowmar Disclosure Letter (i) relate to certain matters concerning the
disclosures required and transactions contemplated by this Agreement, (ii) are
qualified in their entirety by reference to specific provisions of this
Agreement, (iii) are not intended to constitute and shall not be construed as
indicating that such matter is required to be disclosed, nor shall such
disclosure be construed as an admission that such information is material with
respect to EDI or Bowmar, as the case may be, except to the extent required by
this Agreement, and (iv) disclosure of the information contained in one EDI or
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Bowmar Schedule shall be deemed as proper disclosure for all EDI or Bowmar
Schedules, as the case may be.
IN WITNESS WHEREOF, Bowmar, Acquisition Subsidiary and EDI have
caused this Agreement to be signed and delivered by their respective duly
authorized officers as of the date first above written.
BOWMAR INSTRUMENT CORPORATION
By /s/ Hamid Shokrgozar
------------------------------------
Name: Hamid Shokrgozar
Title: Chief Executive Officer
BRAVO ACQUISITION SUBSIDIARY, INC.
By /s/ Hamid Shokrgozar
------------------------------------
Name: Hamid Shokrgozar
Title: President
ELECTRONIC DESIGNS, INC.
By /s/ Donald F. McGuinness
------------------------------------
Name: Donald F. McGuinness
Title: President
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AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
This Amendment (the "Amendment") to Agreement and Plan of Merger
dated as of May 3, 1998 (the "Agreement") is made and entered into as of June 9,
1998 by and among Bowmar Instrument Corporation ("Bowmar"), Bravo Acquisition
Subsidiary, Inc. ("Acquisition Subsidiary") and Electronic Designs, Inc.
("EDI"). All capitalized terms used herein and not defined shall have the
respective meanings assigned to them in the Agreement.
RECITALS
A. Pursuant to the Agreement, Bowmar, Acquisition Subsidiary and EDI
have made certain representations, warranties and agreements in connection with
the Merger.
B. The respective Boards of Directors of Bowmar, Acquisition
Subsidiary and EDI have determined that is in the best interests of their
respective corporations and shareholders to modify certain representations,
warranties and agreements in the Agreement and, accordingly, have approved this
Amendment.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
1. Section 1.4 of the Agreement is hereby deleted in its entirety and
replaced with the following:
1.4 STOCKHOLDERS' RIGHTS UPON MERGER. Upon consummation of the
Merger, the certificates which theretofore represented EDI Shares
(other than Dissenting Shares) (the "Certificates") shall cease to
represent any rights with respect thereto and, subject to applicable
law and this Agreement, shall only represent the right to receive the
Merger Consideration payable in lieu of fractional shares of Bowmar
Stock into which the EDI Shares have been converted pursuant to this
Agreement.
2. Section 1.11(a)(iii) of the Agreement is hereby deleted in its
entirety and replaced with the following: "(iii) holding the meeting of Bowmar's
shareholders to approve the amendment of Bowmar's Articles of Incorporation to
increase the number of authorized shares of Bowmar Stock and to change Bowmar's
name, and to approve the issuance of the Bowmar Stock and other securities in
the Merger and the other transactions contemplated hereby and thereby (the
"Bowmar Proposals"),".
3. Section 1.11(e) of the Agreement is hereby amended by adding the
following as the third sentence of such Section:
<PAGE> 246
In the event the parties agree that the Merger shall be accorded
pooling of interests accounting treatment in accordance with
Accounting Principles Board Opinion No. 16, prior to the filing of
the Prospectus/Proxy Statement, it shall be a condition to such
filing that Bowmar shall have received the written opinion of the
independent certified public accountants of Bowmar that such
accountants concur with management's conclusion that, as of the date
of the letter, no conditions exist that would preclude accounting for
the Merger as pooling of interests in accordance with Accounting
Principles Board Opinion No. 16.
4. Section 1.14 of the Agreement is hereby deleted in its entirety and
replaced with the following:
1.14 AUTHORIZED SHARES. On or prior to the Effective Time, the
Articles of Incorporation of Bowmar shall be amended to increase the
number of shares of Bowmar Stock that Bowmar shall be authorized to
issue to 60,000,000.
5. A new Section 1.19 is hereby added to Article I of the Agreement as
follows:
1.19 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of EDI Common Stock held by a holder who has
demanded and perfected his demand for appraisal of his shares of EDI
Common Stock in accordance with Section 262 of the Delaware Code and
as of the Effective Time has neither effectively withdrawn nor lost
his right to such appraisal (the "Dissenting Shares"), shall not be
converted into or represent a right to receive the Merger
Consideration pursuant to Section 1.3 hereof, but the holder thereof
shall be entitled to only such rights as are granted by the Delaware
Code.
(b) Notwithstanding the provisions of subsection (a) of this
Section 1.19, if any holder of shares of EDI Common Stock who demands
appraisal of such shares under the Delaware Code shall effectively
withdraw or lose (through failure to perfect or otherwise) his right
to appraisal, then as of the Effective Time or the occurrence of such
event, whichever later occurs, such holder's shares of EDI Common
Stock shall automatically be converted into and represent only the
right to receive the Merger Consideration pursuant to Section 1.3
hereof, without any interest thereon, upon surrender of the
certificate or certificates representing such shares of EDI Common
Stock.
(c) EDI shall give Bowmar (i) prompt notice of any written
demands for appraisal or payment of the fair value of any shares of
EDI Common Stock, withdrawals of such demands, and any other
instruments served pursuant to the Delaware Code received by EDI and
(ii) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under the Delaware Code.
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<PAGE> 247
EDI shall not voluntarily make any payment with respect to any
demands for appraisal and shall not, except with the prior written
consent of Bowmar, settle or offer to settle any such demands.
6. The following sentence is hereby deleted from Section 2.2 of the
Agreement: "The holders of shares of EDI Stock are not entitled to appraisal
rights under applicable Law (as hereinafter defined) or the Certificate of
Incorporation of EDI."
Bowmar hereby waives its right to assert breach of the Agreement by
EDI based upon the inaccuracy of this representation prior to the execution of
this Amendment.
7. A new Section 1.20 is hereby added to Article I of the Agreement as
follows:
1.20 BOWMAR CHANGE OF NAME. On or prior to the Effective Time, the
Bowmar Articles shall be amended to change the corporate name of
Bowmar to such other name as may be mutually agreed upon by EDI and
Bowmar prior to the mailing to stockholders of EDI and Bowmar of the
Prospectus/Proxy Statement.
8. A new Section 4.13 is hereby added to Article IV of the Agreement as
follows
4.13 POOLING OF INTERESTS. EDI shall not take, and shall use
reasonable best efforts to ensure that none of the EDI Subsidiaries
and their respective stockholders, directors, officers or employees
takes, any action that would result in the Merger not qualifying for
pooling of interests accounting treatment in accordance with
Accounting Principles Board Opinion No. 16. In the event that the
Merger otherwise qualifies for pooling-of-interests accounting
treatment in accordance with Accounting Principles Board Opinion No.
16, EDI shall use reasonable efforts to ensure that each person who
is or may be an "affiliate" of EDI within the meaning of Rule 145
promulgated under the Securities Act shall enter into an agreement in
substance as provided in the form attached hereto as Schedule 4.13.
9. A new Section 5.14 is hereby added to Article V of the Agreement as
follows:
5.14 POOLING OF INTERESTS. Bowmar shall not take, and shall use
reasonable best efforts to ensure that none of the Bowmar
Subsidiaries and their respective stockholders, directors, officers
or employees takes, any action that would result in the Merger not
qualifying for pooling of interests accounting treatment in
accordance with Accounting Principles Board Opinion No. 16.
10. A new Section 5.15 is hereby added to Article V of the Agreement as
follows:
5.15 AFFILIATE AGREEMENTS. In the event that the Merger otherwise
qualifies for pooling of interests accounting treatment in accordance
with Accounting Principles Board Opinion No. 16, Bowmar shall use
reasonable efforts to ensure
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that each person who is or may be an "affiliate" of Bowmar within the
meaning of Rule 145 promulgated under the Securities Act shall enter
into an agreement in substance as provided in the form attached
hereto as Schedule 5.15.
11. Section 6.3.5 of the Agreement is hereby deleted in its entirety and
replaced with the following:
6.3.5. AFFILIATE AGREEMENTS. Each person who is or may be an
"affiliate" of EDI within the meaning of Rule 145 of the rules and
regulations of the SEC promulgated under the Securities Act shall
have entered into an agreement in substance as provided in the form
attached hereto as Schedule 4.11; provided, however, that the failure
to obtain such an agreement from New York Life Insurance Company
shall not be a condition to the obligations of Bowmar to effect the
Merger.
12. A new Schedule 4.13 and a new Schedule 5.15, as each is attached to
this Amendment, are hereby made a part of the Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Amendment to
the Agreement as of the date first above written.
BOWMAR INSTRUMENT CORPORATION
By: /s/ HAMID SHOKRGOZAR
------------------------------
Name: Hamid Shokrgozar
Title: Chief Executive Officer
BRAVO ACQUISITION SUBSIDIARY, INC.
By: /s/ HAMID SHOKRGOZAR
------------------------------
Name: Hamid Shokrgozar
Title: President
ELECTRONIC DESIGNS, INC.
By: /s/ DONALD F. McGUINNESS
------------------------------
Name: Donald F. McGuinness
Title: President
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<PAGE> 249
SCHEDULE 4.13
FORM OF EDI AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (this "Agreement") is made and entered into as of
___________, 1998, by and between BOWMAR INSTRUMENT CORPORATION, an Indiana
corporation ("Parent"), and the stockholder of ELECTRONIC DESIGNS, INC., a
Delaware corporation (the "Company"), identified on the signature page hereto
(the "Stockholder").
RECITALS:
A. Parent and the Company are parties to that certain Agreement and Plan
of Merger, dated as of May 3, 1998 and as amended (the "Merger Agreement"),
which provides for the acquisition of the Company by Parent by means of a merger
(the "Merger") of a wholly owned subsidiary of Parent ("Merger Sub") with and
into the Company (unless otherwise defined herein as the context otherwise
requires, capitalized terms shall have the respective meanings set forth in the
Merger Agreement);
B. Stockholder is the record holder and beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of and has the
right to vote and dispose of the number of shares of the outstanding capital
stock of Parent indicated on the signature page of this Agreement (the "Parent
Shares");
C. Stockholder has been informed and understands that because the Merger
will be accounted for using the "pooling of interests" method, and Stockholder
may be deemed to be an affiliate of Parent as the term "affiliate" (i) is
defined for purposes of paragraphs (c) and (d) of Rule 145 of the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"), or (ii) is used in and for purposes of Accounting Series, Releases 130
and 135, as amended, of the Commission, the Company Shares or Parent Shares, if
any, owned by Stockholder may only be disposed of in conformity with the
limitations described herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. Stockholder has not and will not (and
has no plan or intention to), without the prior written consent of Parent, offer
to sell, sell, hedge or otherwise dispose of (or otherwise reduce Stockholder's
interest in or Stockholder's risk relating to) any Parent Shares (or any options
or other rights or securities to acquire or convertible into shares of any such
common stock) during the period required by Accounting Principles Board Opinion
No. 16, which generally includes any time prior to such time as financial
statements covering at least thirty (30) days of the combined operations of
Parent and the Company after the
<PAGE> 250
Effective Time of the Merger have been published. The restrictions in this
paragraph apply to any transfer of any form or nature whatsoever, including
transfers pursuant to any securities law exemption. Stockholder has been advised
and understands that such restrictions are required for compliance with the
rules of the Securities and Exchange Commission relating to pooling of interests
accounting treatment. Notwithstanding the foregoing, the Stockholder will not be
prohibited by the foregoing from (i) selling or disposing of shares so long as
such sale or disposition is in accordance with the "de minimis" test set forth
in SEC Staff Accounting Bulletin No. 76, or (ii) providing for the transfer of
such shares to the Stockholder's estate or by will upon the Stockholder's death.
1.2 New Shares. Stockholder agrees that any shares of capital stock
of the Company or Parent that Stockholder purchases or with respect to which
Stockholder otherwise acquires beneficial ownership after the date of this
Agreement and prior to the Expiration Date ("New Shares") shall be subject to
the terms and conditions of this Agreement to the same extent as if they
constituted Parent Shares.
2. Reliance Upon Representations, Warranties and Covenants. Stockholder
understands that the representations, warranties and covenants of Stockholder
set forth herein will be relied upon by Parent, the Company and their respective
counsel and accounting firms.
3. Representations, Warranties and Covenants of Stockholder.
Stockholder represents, warrants and covenants as follows:
(a) Stockholder has full power and authority to execute this
Agreement, to make the representations, warranties and covenants herein
contained and to perform Stockholder's obligations hereunder.
(b) Set forth with the signatures below is the number of Company
Shares and Parent Shares, if any, owned by Stockholder, including all Company
Shares as to which Stockholder has sole or shared voting or investment power and
all rights, options and warrants to acquire the shares of capital stock of the
Company or owned or held by Stockholder.
4. Stop Transfer Instructions. Stockholder understands and agrees that
stop transfer instructions shall be given by Parent with respect to
Stockholder's Parent Shares for the purpose of facilitating enforcement of the
agreements herein, and that in Parent's discretion there may be placed on
Stockholder's certificates for such shares a legend reflecting such
restrictions.
5. Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
6. Binding Agreement. This Agreement will inure to the benefit of and be
including upon and enforceable against the parties and their successors and
assigns, including administrators, executors, representatives, heirs, legatees
and devisees of Stockholder and pledgees holding Parent Shares as collateral.
2
<PAGE> 251
7. Termination. This Agreement shall be terminated and shall be of no
further force and effect upon the termination of the Merger Agreement in
accordance with the terms thereof.
8. Waiver. No waiver by any party hereto of any condition or of any
breach of any provision of this Agreement shall be effective unless in writing
and signed by each party hereof.
9. Governing Law. This Agreement shall be governed by and
construed, interpreted and enforced in accordance with the laws
of the State of Delaware.
10. Attorneys' Fees. In the event of any legal actions or proceeding to
enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorney's fees, whether or not the proceeding results in
a final judgment.
11. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
3
<PAGE> 252
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, on the day and year first above written.
BOWMAR INSTRUMENT CORPORATION
By:
---------------------------
Name:
Title:
------------------------------
Stockholder's Name:
Address for Notice:
Company Shares beneficially owned:
Shares of Common Stock:
Shares subject to:
Options:
Warrants:
Other Rights:
Parent Shares beneficially owned:
Shares of Common Stock:
Shares subject to:
Options:
Warrants:
Other Rights:
4
<PAGE> 253
SCHEDULE 5.15
FORM OF BOWMAR AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (this "Agreement") is made and entered into as of
___________, 1998, by and between BOWMAR INSTRUMENT CORPORATION, an Indiana
corporation ("Parent"), and the stockholder of Parent identified on the
signature page hereto (the "Stockholder").
RECITALS:
A. Parent and Electronic Designs, Inc., a Delaware corporation (the
"Company") are parties to that certain Agreement and Plan of Merger, dated as of
May 3, 1998 and as amended (the "Merger Agreement"), which provides for the
acquisition of the Company by Parent by means of a merger (the "Merger") of a
wholly owned subsidiary of Parent ("Merger Sub") with and into the Company
(unless otherwise defined herein as the context otherwise requires, capitalized
terms shall have the respective meanings set forth in the Merger Agreement);
B. Stockholder is the record holder and beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of and has the
right to vote and dispose of the number of shares of the outstanding capital
stock of Parent indicated on the signature page of this Agreement (the "Parent
Shares");
C. Stockholder has been informed and understands that because the Merger
will be accounted for using the "pooling of interests" method, and Stockholder
may be deemed to be an affiliate of Parent as the term "affiliate" (i) is
defined for purposes of paragraphs (c) and (d) of Rule 145 of the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"), or (ii) is used in and for purposes of Accounting Series, Releases 130
and 135, as amended, of the Commission, the Parent Shares owned by Stockholder
may only be disposed of in conformity with the limitations described herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. Stockholder has not and will not (and
has no plan or intention to), without the prior written consent of Parent, offer
to sell, sell, hedge or otherwise dispose of (or otherwise reduce Stockholder's
interest in or Stockholder's risk relating to) any Parent Shares (or any options
or other rights or securities to acquire or convertible into shares of any such
common stock) during the period required by Accounting Principles Board Opinion
No. 16, which generally
<PAGE> 254
includes any time prior to such time as financial statements covering at least
thirty (30) days of the combined operations of Parent and the Company after the
Effective Time of the Merger have been published. The restrictions in this
paragraph apply to any transfer of any form or nature whatsoever, including
transfers pursuant to any securities law exemption. Stockholder has been advised
and understands that such restrictions are required for compliance with the
rules of the Securities and Exchange Commission relating to pooling of interests
accounting treatment. Notwithstanding the foregoing, the Stockholder will not be
prohibited by the foregoing from (i) selling or disposing of shares so long as
such sale or disposition is in accordance with the "de minimis" test set forth
in SEC Staff Accounting Bulletin No. 76, or (ii) providing for the transfer of
such shares to the Stockholder's estate or by will upon the Stockholder's death.
1.2 New Shares. Stockholder agrees that any shares of capital stock
of Parent that Stockholder purchases or with respect to which Stockholder
otherwise acquires beneficial ownership after the date of this Agreement and
prior to the Expiration Date ("New Shares") shall be subject to the terms and
conditions of this Agreement to the same extent as if they constituted Parent
Shares.
2. Reliance Upon Representations, Warranties and Covenants. Stockholder
understands that the representations, warranties and covenants of Stockholder
set forth herein will be relied upon by Parent, the Company and their respective
counsel and accounting firms.
3. Representations, Warranties and Covenants of Stockholder.
Stockholder represents, warrants and covenants as follows:
(a) Stockholder has full power and authority to execute this
Agreement, to make the representations, warranties and covenants herein
contained and to perform Stockholder's obligations hereunder.
(b) Set forth with the signatures below is the number of Parent
Shares owned by Stockholder, including all Parent Shares as to which Stockholder
has sole or shared voting or investment power and all rights, options and
warrants to acquire the shares of capital stock of Parent owned or held by
Stockholder.
4. Stop Transfer Instructions. Stockholder understands and agrees that
stop transfer instructions shall be given by Parent with respect to
Stockholder's Parent Shares for the purpose of facilitating enforcement of the
agreements herein, and that in Parent's discretion there may be placed on
Stockholder's certificates for such shares a legend reflecting such
restrictions.
5. Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
-2-
<PAGE> 255
6. Binding Agreement. This Agreement will inure to the benefit of and be
including upon and enforceable against the parties and their successors and
assigns, including administrators, executors, representatives, heirs, legatees
and devisees of Stockholder and pledgees holding Parent Shares as collateral.
7. Termination. This Agreement shall be terminated and shall be of no
further force and effect upon the termination of the Merger Agreement in
accordance with the terms thereof.
8. Waiver. No waiver by any party hereto of any condition or of any
breach of any provision of this Agreement shall be effective unless in writing
and signed by each party hereof.
9. Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Indiana.
10. Attorneys' Fees. In the event of any legal actions or proceeding to
enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorney's fees, whether or not the proceeding results in
a final judgment.
11. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
-3-
<PAGE> 256
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, on the day and year first above written.
BOWMAR INSTRUMENT
CORPORATION
By:
---------------------------
Name:
Title:
------------------------------
Stockholder's Name:
Address for Notice:
Company Shares beneficially owned:
Shares of Common Stock:
Shares subject to:
Options:
Warrants:
Other Rights:
-4-
<PAGE> 257
APPENDIX II
May 3, 1998
Board of Directors
Bowmar Instrument Corporation
3601 E. University Drive
Phoenix, Arizona 85034
Gentlemen:
We understand that Bowmar Instrument Corporation ("Bowmar"),
Electronic Designs, Inc. ("EDI") and Bravo Acquisition Subsidiary, Inc., a
wholly-owned subsidiary of Bowmar ("Acquisition Sub"), propose to enter into an
Agreement and Plan of Merger (the "Merger Agreement") whereby Acquisition Sub
will be merged with and into EDI and EDI will become a wholly-owned subsidiary
of Bowmar (the "Merger"). The terms of the Merger will be set forth more fully
in the Merger Agreement.
Pursuant to the proposed Merger Agreement, we understand that at
the Effective Time (as defined in the Merger Agreement), each share of common
stock, par value $.01 per share, of EDI will be converted into the right to
receive 1.375 shares (the "Exchange Ratio") of common stock of Bowmar, stated
value $.10 per share ("Bowmar Common Stock"), together with the associated
stock purchase rights issued under the Bowmar Rights Agreement (as defined in
the Merger Agreement).
You have asked us to advise you as to the fairness, from a financial
point of view, of the Exchange Ratio to the stockholders of Bowmar. Needham &
Company, Inc., as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and other purposes. We have acted as financial
advisor to Bowmar in connection with the Merger and will receive a fee for our
services, a portion of which is contingent on the execution of the Merger
Agreement and none of which is contingent on the consummation of the Merger. In
addition, Bowmar has agreed to indemnify us for certain liabilities arising
from our role as financial advisor and out of the rendering of this opinion.
<PAGE> 258
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
BOWMAR INSTRUMENT CORPORATION
MAY 3, 1998
PAGE 2
- --------------------------------------------------------------------------------
NEEDHAM & COMPANY, INC.
For purposes of this opinion we have, among other things: (i)
reviewed a draft of the Merger Agreement dated April 30, 1998; (ii) reviewed
certain publicly available information concerning Bowmar and EDI and certain
other relevant financial and operating data of Bowmar and EDI made available
from the internal records of Bowmar and EDI; (iii) reviewed the historical stock
prices and trading volumes of Bowmar's and EDI's common stock; (iv) held
discussions with members of senior management of Bowmar and EDI concerning their
current and future business prospects; (v) reviewed certain financial forecasts
and projections prepared by the respective managements of Bowmar and EDI; (vi)
compared certain publicly available financial data of companies whose securities
are traded in the public markets and that we deemed relevant to similar data for
Bowmar; (vii) reviewed the financial terms of certain other business
combinations that we deemed generally relevant; and (viii) performed and/or
considered such other studies, analyses, inquiries and investigations as we
deemed appropriate.
In connection with our review and in arriving at our opinion, we
have assumed and relied on the accuracy and completeness of all of the financial
and other information publicly available or furnished to or otherwise reviewed
by or discussed with us for purposes of rendering this opinion and have neither
attempted to verify independently nor assumed responsibility for verifying any
of such information. In addition, we have assumed, with your consent, that (i)
the Merger will constitute a tax-free reorganization, (ii) any material
liabilities (contingent or otherwise, known or unknown) of Bowmar and EDI are as
set forth in the consolidated financial statements of Bowmar and EDI,
respectively, and (iii) the terms set forth in the executed Merger Agreement
will not differ materially from the proposed terms provided to us in the draft
Merger Agreement dated April 30, 1998. With respect to Bowmar's and EDI's
financial forecasts provided to us by their respective managements, we have
assumed for purposes of our opinion that such forecasts have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of such managements, at the time of preparation, of the future
operating and financial performance of Bowmar and EDI. We express no opinion
with respect to such forecasts or the assumptions on which they were based. We
have not assumed any responsibility for or made or obtained any independent
evaluation, appraisal or physical inspection of the assets or liabilities of
Bowmar or EDI. Further, our opinion is based on economic, monetary and market
conditions as they exist and can be evaluated as of the date hereof. Our opinion
as expressed herein is limited to the fairness, from a financial point of view,
to the stockholders of Bowmar of the Exchange Ratio and does not address
Bowmar's underlying business decision to engage in the Merger. Our opinion does
not constitute a recommendation to any stockholder of Bowmar as to how such
stockholder should vote on the proposed Merger.
We are not expressing any opinion as to what the value of Bowmar
Common Stock will be when issued to the stockholders of EDI pursuant to the
Merger or the prices at which Bowmar Common Stock will actually trade at any
time.
<PAGE> 259
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
BOWMAR INSTRUMENT CORPORATION
MAY 3, 1998
PAGE 3
- --------------------------------------------------------------------------------
NEEDHAM & COMPANY, INC.
In the ordinary course of our business, we may actively trade the
equity securities of Bowmar or EDI for our own account or for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
This letter and the opinion expressed herein are provided at the
request and for the information of the Board of Directors of Bowmar and may not
be quoted or referred to or used for any purpose without our prior written
consent, except that this letter may be disclosed in connection with any
registration statement or proxy statement used in connection with the Merger so
long as this letter is quoted in full in such registration statement or proxy
statement.
Based upon and subject to the foregoing, it is our opinion that as
of the date hereof the Exchange Ratio is fair to the stockholders of Bowmar from
a financial point of view.
Very truly yours,
/s/ Needham & Company, Inc.
NEEDHAM & COMPANY, INC.
<PAGE> 260
APPENDIX III
ALLIANT PARTNERS
May 29, 1998
Board of Directors
Electronic Designs, Inc.
One Research Drive
Westborough, MA 01581
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Electronic Designs, Inc. ("EDI") of the merger of
EDI into an acquisition subsidiary of Bowmar Instruments Corporation ("Bowmar")
for the merger consideration of 1.375 Bowmar shares for each issued and
outstanding EDI share and for the conversion of all EDI options and warrants
exercisable for EDI stock into warrants and options exercisable for Bowmar
stock.
Alliant Partners, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
private placements, mergers and acquisitions, and corporate partnering
transactions.
In arriving at our opinion, we have reviewed financial and other information
that was publicly available or furnished to us by EDI and Bowmar. We also have
reviewed certain internal financial reports and forecasts for EDI and Bowmar
prepared by their respective managements and have held discussions with members
of the senior management of both EDI and Bowmar regarding the historic and
current business operations and future prospects of the merged entities
including the expectations for certain strategic benefits of the transaction. In
addition, we have compared certain financial data of EDI with those of various
other companies engaged in businesses we considered comparable and whose
securities are traded in public markets, analyzed the acquisition premiums paid
for similar companies, reviewed the overall risks presented by the business
plan, reviewed prices paid in certain other similar business transactions,
analyzed projected cash flows, reviewed the current market value of EDI,
analyzed the relative contribution of each firm to the merger and conducted such
other financial studies, analyses and investigations as we deemed appropriate
for purposes of this opinion.
We have assumed, without independent verification, the accuracy, completeness
and fairness of all of the financial and other information regarding EDI and
Bowmar that has been provided to us by them and their representatives. We did
not make any independent evaluation of EDI's or Bowmar's businesses nor did we
review any of their corporate records.
Based on the foregoing and such other factors as we deem relevant, we are of the
opinion as of the date hereof, that the exchange of 1.375 shares of Bowmar stock
for each issued and outstanding share of EDI stock and the conversion of EDI
options and warrants to be exercisable in Bowmar shares is fair, from a
financial point of view, to the EDI shareholders as of May 29, 1998.
Sincerely yours,
/s/ Alliant Partners
Alliant Partners
<PAGE> 261
APPENDIX IV
DELAWARE GENERAL CORPORATION LAW SECTION 262
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class
or series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Section 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this paragraph;
or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the
1
<PAGE> 262
meeting, shall notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to take
such action must do so by a separate written demand as herein provided. Within
10 days after the effective date of such merger or consolidation, the surviving
or resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in favor of
or consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
Section 228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock of
such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section; provided
that, if the notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or resulting
corporation to all such holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. Such notice may, and if given
on or after the effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or consolidation.
Any stockholder entitled to appraisal rights may, within 20 days after the date
of mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the second of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall not be more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
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<PAGE> 263
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded payment
for their shares and with whom agreements as to the value of their shares have
not been reached by the surviving or resulting corporation. If the petition
shall be filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
his demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
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(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
4
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Sections 23-1-37-9 and 23-1-37-13 of the Indiana Business
Corporation Law (the "Indiana Law"), unless a corporation is limited by it
articles of incorporation, it 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.
Sections 23-1-37-8 and 23-1-37-13 of the Indiana Law provide that a
corporation may indemnify a director, officer, employee or agent of the
corporation against liability incurred in a proceeding if authorized in the
specific case after determination in accordance with Section 23-1-37-12 of the
Indiana Law that such individual met the standard of conduct set forth in
Section 23-1-37-8 and explained below. Liability means the obligation to pay a
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to an employee benefit plan), or reasonable expenses (including
attorneys' fees) incurred with respect to the proceeding. The standard of
conduct set forth in Section 23-1-37-8 requires that an individual made a party
to a proceeding because the individual is or was a director, officer, employee,
or agent of the corporation must have acted in good faith and in a manner such
person reasonably believed to be (i) in the case of conduct in the individual's
official capacity with the corporation, in the corporation's best interests; and
(ii) in all other cases (including a director's conduct with respect to an
employee benefit plan for a purpose the director reasonably believes to be in
the participants' and beneficiaries' best interests), in (or at least not
opposed to) the best interests of the corporation. In the case of any criminal
proceeding, such individual must have had reasonable cause to believe his or her
conduct was lawful or no reasonable cause to believe his or her conduct was
unlawful.
Bowmar's Articles of Incorporation and Bylaws provide for
indemnification of directors, officers, employees and agents on generally the
same terms as permitted by the Indiana Law. Bowmar maintains insurance on behalf
of its directors and officers against liability asserted against them in their
capacities as directors or officers or arising from their status as directors or
officers of Bowmar.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
2.1 Agreement and Plan of Merger, dated May 3, 1998, between
Bowmar Instrument Corporation, Electronic Designs, Inc. and
Bravo Acquisition Subsidiary, Inc. (incorporated herein by
reference to Exhibit 2 to the Registrant's Current Report on
Form 8-K filed on May 6, 1998).
2.1A Amendment to Agreement and Plan of Merger, dated June 9,
1998.**
3.1 Amended and Restated Articles of Incorporation of Bowmar
Instrument Corporation (incorporated herein by reference to
Exhibit A to the Registrant's definitive Proxy Statement
prepared in connection with the 1993 Annual Meeting of
Shareholders).
3.2 Amended and Restated Code of By-Laws of Bowmar Instrument
Corporation.**
3.3 Form of Amendment to Amended and Restated Articles of
Incorporation of Bowmar Instrument Corporation.**
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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 Registrant's Current Report on Form 8-K
filed on December 19, 1996).
4.2 Specimen Stock Certificate of the Combined Company.*
4.3 Amendment No. 1 to Rights Agreement, effective as of May 3,
1998.**
5.1 Opinion of Bryan Cave LLP, counsel to the Registrant, as to
the legality of the securities being registered.*
8.1 Opinion of Bryan Cave LLP, with respect to certain tax
matters.**
9.1 Amended and Restated Voting Agreement, dated June 9, 1998,
between Registrant and Technology Funding Partners
Limited III L.P.**
9.2 Amended and Restated Voting Agreement, dated June 9, 1998,
between Electronic Designs, Inc. and Edward A. White.**
10.1 Agreement to be Bound by Registration Rights Agreements, dated
as of May 3, 1998, by and between Bowmar Instrument
Corporation and Electronic Designs, Inc.**
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.**
21.1 Subsidiaries of Bowmar Instrument Corporation.**
23.1 Consent of Coopers & Lybrand, L.L.P.**
23.2 Consent of Price Waterhouse, LLP**
23.3 Consent of Bryan Cave LLP (included in the legal opinion filed
as Exhibit 5.1 hereto).*
24.1 Powers of Attorney (included on the signature page to the
Registration Statement).**
27.1 Financial Data Schedule.**
99.1 Proxy Card of Bowmar Instrument Corporation.**
99.2 Proxy Card of Electronic Designs, Inc.**
99.3 Director Nominee Consents for Electronic Designs, Inc.
Nominees for Director.**
99.4 Consent of Needham & Company, Inc.**
99.5 Consent of Alliant Partners.**
- ----------
* To be filed by Amendment.
** Filed herewith.
II-2
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(b) Financial Statement Schedules.
None.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
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<PAGE> 268
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(5) That every prospectus: (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirement of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(6) The undersigned Registrant undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 269
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
(the "Securities Act") the Registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Phoenix, Arizona, on June 10, 1998.
BOWMAR INSTRUMENT CORPORATION
By: /s/ Hamid R. Shokrgozar
------------------------------
HAMID R. SHOKRGOZAR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated. Each of such persons appoints Hamid R. Shokrgozar or Joseph G.
Warren, Jr., or each of them with full power to act without the other, his true
and lawful attorneys-in-fact and agents of him and on his behalf and in his
name, place and stead, and in any and all capacities, with full and several
power of substitution, to sign and file with the proper authorities any and all
documents in connection with this registration statement, granting unto said
attorneys, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
in order to effectuate the same as fully to all intents and purposes as he might
or could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ Hamid R. Shokrgozar
- ---------------------------------------------
Hamid R. Shokrgozar President, Chief Executive Officer and June 10, 1998
Director
/s/ Joseph G. Warren, Jr.
- ---------------------------------------------
Joseph G. Warren, Jr. Vice President, Finance, Chief June 10, 1998
Financial Officer, Secretary and
Treasurer
/s/ Thomas K. Lanin
- ---------------------------------------------
Thomas K. Lanin Director June 10, 1998
/s/ Steven P. Matteucci
- ---------------------------------------------
Steven P. Matteucci Director June 10, 1998
/s/ Dan L. McGurk
- ---------------------------------------------
Dan L. McGurk Director June 10, 1998
/s/ Thomas M. Reahard
- ---------------------------------------------
Thomas M. Reahard Director June 10, 1998
/s/ Edward A. White
- ---------------------------------------------
Edward A. White Director and Chairman of the Board June 10, 1998
</TABLE>
II-5
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EXHIBIT INDEX
2.1 Agreement and Plan of Merger, dated May 3, 1998, between Bowmar
Instrument Corporation, Electronic Designs, Inc. and Bravo
Acquisition Subsidiary, Inc. (incorporated herein by reference
to Exhibit 2 to the Registrant's Current Report on Form 8-K
filed on May 6, 1998).
2.1A Amendment to Agreement and Plan of Merger, dated June 9,
1998.**
3.1 Amended and Restated Articles of Incorporation of Bowmar
Instrument Corporation (incorporated herein by reference to
Exhibit A to the Registrant's definitive Proxy Statement
prepared in connection with the 1993 Annual Meeting of
Shareholders).
3.2 Amended and Restated Code of By-Laws of Bowmar Instrument
Corporation.**
3.3 Form of Amendment to Amended and Restated Articles of
Incorporation of Bowmar Instrument 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 Registrant's Current Report on Form 8-K filed
on December 19, 1996).
4.2 Specimen Stock Certificate of the Combined Company.*
4.3 Amendment No. 1 to Rights Agreement, effective as of May 3,
1998.**
5.1 Opinion of Bryan Cave LLP, counsel to the Registrant, as to the
legality of the securities being registered.*
8.1 Opinion of Bryan Cave LLP, with respect to certain tax
matters.**
9.1 Amended and Restated Voting Agreement, dated June 9, 1998,
between Registrant and Technology Funding Partners
Limited III L.P.**
9.2 Amended and Restated Voting Agreement, dated June 9, 1998,
between Electronic Designs, Inc. and Edward A. White.**
10.1 Agreement to be Bound by Registration Rights Agreements, dated
as of May 3, 1998, by and between Bowmar Instrument
Corporation and Electronic Designs, Inc.**
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.**
21.1 Subsidiaries of Bowmar Instrument Corporation.**
23.1 Consent of Coopers & Lybrand, L.L.P.**
23.2 Consent of Price Waterhouse, LLP**
23.3 Consent of Bryan Cave LLP (included in the legal opinion filed
as Exhibit 5.1 hereto).*
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24.1 Powers of Attorney (included on the signature page to the
Registration Statement).**
27.1 Financial Data Schedule.**
99.1 Proxy Card of Bowmar Instrument Corporation.**
99.2 Proxy Card of Electronic Designs, Inc.**
99.3 Director Nominee Consents for Electronic Designs, Inc. Nominees
for Director.**
99.4 Consent of Needham & Company, Inc.**
99.5 Consent of Alliant Partners.**
- ----------
* To be filed by Amendment.
** Filed herewith.
II-7
<PAGE> 1
EXHIBIT 2.1A
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
This Amendment (the "Amendment") to Agreement and Plan of Merger
dated as of May 3, 1998 (the "Agreement") is made and entered into as of June 9,
1998 by and among Bowmar Instrument Corporation ("Bowmar"), Bravo Acquisition
Subsidiary, Inc. ("Acquisition Subsidiary") and Electronic Designs, Inc.
("EDI"). All capitalized terms used herein and not defined shall have the
respective meanings assigned to them in the Agreement.
RECITALS
A. Pursuant to the Agreement, Bowmar, Acquisition Subsidiary and EDI
have made certain representations, warranties and agreements in connection with
the Merger.
B. The respective Boards of Directors of Bowmar, Acquisition
Subsidiary and EDI have determined that is in the best interests of their
respective corporations and shareholders to modify certain representations,
warranties and agreements in the Agreement and, accordingly, have approved this
Amendment.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
1. Section 1.4 of the Agreement is hereby deleted in its entirety and
replaced with the following:
1.4 STOCKHOLDERS' RIGHTS UPON MERGER. Upon consummation of the
Merger, the certificates which theretofore represented EDI Shares
(other than Dissenting Shares) (the "Certificates") shall cease to
represent any rights with respect thereto and, subject to applicable
law and this Agreement, shall only represent the right to receive the
Merger Consideration payable in lieu of fractional shares of Bowmar
Stock into which the EDI Shares have been converted pursuant to this
Agreement.
2. Section 1.11(a)(iii) of the Agreement is hereby deleted in its
entirety and replaced with the following: "(iii) holding the meeting of Bowmar's
shareholders to approve the amendment of Bowmar's Articles of Incorporation to
increase the number of authorized shares of Bowmar Stock and to change Bowmar's
name, and to approve the issuance of the Bowmar Stock and other securities in
the Merger and the other transactions contemplated hereby and thereby (the
"Bowmar Proposals"),".
3. Section 1.11(e) of the Agreement is hereby amended by adding the
following as the third sentence of such Section:
<PAGE> 2
In the event the parties agree that the Merger shall be accorded
pooling of interests accounting treatment in accordance with
Accounting Principles Board Opinion No. 16, prior to the filing of
the Prospectus/Proxy Statement, it shall be a condition to such
filing that Bowmar shall have received the written opinion of the
independent certified public accountants of Bowmar that such
accountants concur with management's conclusion that, as of the date
of the letter, no conditions exist that would preclude accounting for
the Merger as pooling of interests in accordance with Accounting
Principles Board Opinion No. 16.
4. Section 1.14 of the Agreement is hereby deleted in its entirety and
replaced with the following:
1.14 AUTHORIZED SHARES. On or prior to the Effective Time, the
Articles of Incorporation of Bowmar shall be amended to increase the
number of shares of Bowmar Stock that Bowmar shall be authorized to
issue to 60,000,000.
5. A new Section 1.19 is hereby added to Article I of the Agreement as
follows:
1.19 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of EDI Common Stock held by a holder who has
demanded and perfected his demand for appraisal of his shares of EDI
Common Stock in accordance with Section 262 of the Delaware Code and
as of the Effective Time has neither effectively withdrawn nor lost
his right to such appraisal (the "Dissenting Shares"), shall not be
converted into or represent a right to receive the Merger
Consideration pursuant to Section 1.3 hereof, but the holder thereof
shall be entitled to only such rights as are granted by the Delaware
Code.
(b) Notwithstanding the provisions of subsection (a) of this
Section 1.19, if any holder of shares of EDI Common Stock who demands
appraisal of such shares under the Delaware Code shall effectively
withdraw or lose (through failure to perfect or otherwise) his right
to appraisal, then as of the Effective Time or the occurrence of such
event, whichever later occurs, such holder's shares of EDI Common
Stock shall automatically be converted into and represent only the
right to receive the Merger Consideration pursuant to Section 1.3
hereof, without any interest thereon, upon surrender of the
certificate or certificates representing such shares of EDI Common
Stock.
(c) EDI shall give Bowmar (i) prompt notice of any written
demands for appraisal or payment of the fair value of any shares of
EDI Common Stock, withdrawals of such demands, and any other
instruments served pursuant to the Delaware Code received by EDI and
(ii) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under the Delaware Code.
-2-
<PAGE> 3
EDI shall not voluntarily make any payment with respect to any
demands for appraisal and shall not, except with the prior written
consent of Bowmar, settle or offer to settle any such demands.
6. The following sentence is hereby deleted from Section 2.2 of the
Agreement: "The holders of shares of EDI Stock are not entitled to appraisal
rights under applicable Law (as hereinafter defined) or the Certificate of
Incorporation of EDI."
Bowmar hereby waives its right to assert breach of the Agreement by
EDI based upon the inaccuracy of this representation prior to the execution of
this Amendment.
7. A new Section 1.20 is hereby added to Article I of the Agreement as
follows:
1.20 BOWMAR CHANGE OF NAME. On or prior to the Effective Time, the
Bowmar Articles shall be amended to change the corporate name of
Bowmar to such other name as may be mutually agreed upon by EDI and
Bowmar prior to the mailing to stockholders of EDI and Bowmar of the
Prospectus/Proxy Statement.
8. A new Section 4.13 is hereby added to Article IV of the Agreement as
follows
4.13 POOLING OF INTERESTS. EDI shall not take, and shall use
reasonable best efforts to ensure that none of the EDI Subsidiaries
and their respective stockholders, directors, officers or employees
takes, any action that would result in the Merger not qualifying for
pooling of interests accounting treatment in accordance with
Accounting Principles Board Opinion No. 16. In the event that the
Merger otherwise qualifies for pooling-of-interests accounting
treatment in accordance with Accounting Principles Board Opinion No.
16, EDI shall use reasonable efforts to ensure that each person who
is or may be an "affiliate" of EDI within the meaning of Rule 145
promulgated under the Securities Act shall enter into an agreement in
substance as provided in the form attached hereto as Schedule 4.13.
9. A new Section 5.14 is hereby added to Article V of the Agreement as
follows:
5.14 POOLING OF INTERESTS. Bowmar shall not take, and shall use
reasonable best efforts to ensure that none of the Bowmar
Subsidiaries and their respective stockholders, directors, officers
or employees takes, any action that would result in the Merger not
qualifying for pooling of interests accounting treatment in
accordance with Accounting Principles Board Opinion No. 16.
10. A new Section 5.15 is hereby added to Article V of the Agreement as
follows:
5.15 AFFILIATE AGREEMENTS. In the event that the Merger otherwise
qualifies for pooling of interests accounting treatment in accordance
with Accounting Principles Board Opinion No. 16, Bowmar shall use
reasonable efforts to ensure
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<PAGE> 4
that each person who is or may be an "affiliate" of Bowmar within the
meaning of Rule 145 promulgated under the Securities Act shall enter
into an agreement in substance as provided in the form attached
hereto as Schedule 5.15.
11. Section 6.3.5 of the Agreement is hereby deleted in its entirety and
replaced with the following:
6.3.5. AFFILIATE AGREEMENTS. Each person who is or may be an
"affiliate" of EDI within the meaning of Rule 145 of the rules and
regulations of the SEC promulgated under the Securities Act shall
have entered into an agreement in substance as provided in the form
attached hereto as Schedule 4.11; provided, however, that the failure
to obtain such an agreement from New York Life Insurance Company
shall not be a condition to the obligations of Bowmar to effect the
Merger.
12. A new Schedule 4.13 and a new Schedule 5.15, as each is attached to
this Amendment, are hereby made a part of the Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Amendment to
the Agreement as of the date first above written.
BOWMAR INSTRUMENT CORPORATION
By: /s/ HAMID SHOKRGOZAR
------------------------------
Name: Hamid Shokrgozar
Title: Chief Executive Officer
BRAVO ACQUISITION SUBSIDIARY, INC.
By: /s/ HAMID SHOKRGOZAR
------------------------------
Name: Hamid Shokrgozar
Title: President
ELECTRONIC DESIGNS, INC.
By: /s/ DONALD F. McGUINNESS
------------------------------
Name: Donald F. McGuinness
Title: President
-4-
<PAGE> 5
SCHEDULE 4.13
FORM OF EDI AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (this "Agreement") is made and entered into as of
___________, 1998, by and between BOWMAR INSTRUMENT CORPORATION, an Indiana
corporation ("Parent"), and the stockholder of ELECTRONIC DESIGNS, INC., a
Delaware corporation (the "Company"), identified on the signature page hereto
(the "Stockholder").
RECITALS:
A. Parent and the Company are parties to that certain Agreement and Plan
of Merger, dated as of May 3, 1998 and as amended (the "Merger Agreement"),
which provides for the acquisition of the Company by Parent by means of a merger
(the "Merger") of a wholly owned subsidiary of Parent ("Merger Sub") with and
into the Company (unless otherwise defined herein as the context otherwise
requires, capitalized terms shall have the respective meanings set forth in the
Merger Agreement);
B. Stockholder is the record holder and beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of and has the
right to vote and dispose of the number of shares of the outstanding capital
stock of Parent indicated on the signature page of this Agreement (the "Parent
Shares");
C. Stockholder has been informed and understands that because the Merger
will be accounted for using the "pooling of interests" method, and Stockholder
may be deemed to be an affiliate of Parent as the term "affiliate" (i) is
defined for purposes of paragraphs (c) and (d) of Rule 145 of the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"), or (ii) is used in and for purposes of Accounting Series, Releases 130
and 135, as amended, of the Commission, the Company Shares or Parent Shares, if
any, owned by Stockholder may only be disposed of in conformity with the
limitations described herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. Stockholder has not and will not (and
has no plan or intention to), without the prior written consent of Parent, offer
to sell, sell, hedge or otherwise dispose of (or otherwise reduce Stockholder's
interest in or Stockholder's risk relating to) any Parent Shares (or any options
or other rights or securities to acquire or convertible into shares of any such
common stock) during the period required by Accounting Principles Board Opinion
No. 16, which generally includes any time prior to such time as financial
statements covering at least thirty (30) days of the combined operations of
Parent and the Company after the
<PAGE> 6
Effective Time of the Merger have been published. The restrictions in this
paragraph apply to any transfer of any form or nature whatsoever, including
transfers pursuant to any securities law exemption. Stockholder has been advised
and understands that such restrictions are required for compliance with the
rules of the Securities and Exchange Commission relating to pooling of interests
accounting treatment. Notwithstanding the foregoing, the Stockholder will not be
prohibited by the foregoing from (i) selling or disposing of shares so long as
such sale or disposition is in accordance with the "de minimis" test set forth
in SEC Staff Accounting Bulletin No. 76, or (ii) providing for the transfer of
such shares to the Stockholder's estate or by will upon the Stockholder's death.
1.2 New Shares. Stockholder agrees that any shares of capital stock
of the Company or Parent that Stockholder purchases or with respect to which
Stockholder otherwise acquires beneficial ownership after the date of this
Agreement and prior to the Expiration Date ("New Shares") shall be subject to
the terms and conditions of this Agreement to the same extent as if they
constituted Parent Shares.
2. Reliance Upon Representations, Warranties and Covenants. Stockholder
understands that the representations, warranties and covenants of Stockholder
set forth herein will be relied upon by Parent, the Company and their respective
counsel and accounting firms.
3. Representations, Warranties and Covenants of Stockholder.
Stockholder represents, warrants and covenants as follows:
(a) Stockholder has full power and authority to execute this
Agreement, to make the representations, warranties and covenants herein
contained and to perform Stockholder's obligations hereunder.
(b) Set forth with the signatures below is the number of Company
Shares and Parent Shares, if any, owned by Stockholder, including all Company
Shares as to which Stockholder has sole or shared voting or investment power and
all rights, options and warrants to acquire the shares of capital stock of the
Company or owned or held by Stockholder.
4. Stop Transfer Instructions. Stockholder understands and agrees that
stop transfer instructions shall be given by Parent with respect to
Stockholder's Parent Shares for the purpose of facilitating enforcement of the
agreements herein, and that in Parent's discretion there may be placed on
Stockholder's certificates for such shares a legend reflecting such
restrictions.
5. Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
6. Binding Agreement. This Agreement will inure to the benefit of and be
including upon and enforceable against the parties and their successors and
assigns, including administrators, executors, representatives, heirs, legatees
and devisees of Stockholder and pledgees holding Parent Shares as collateral.
2
<PAGE> 7
7. Termination. This Agreement shall be terminated and shall be of no
further force and effect upon the termination of the Merger Agreement in
accordance with the terms thereof.
8. Waiver. No waiver by any party hereto of any condition or of any
breach of any provision of this Agreement shall be effective unless in writing
and signed by each party hereof.
9. Governing Law. This Agreement shall be governed by and
construed, interpreted and enforced in accordance with the laws
of the State of Delaware.
10. Attorneys' Fees. In the event of any legal actions or proceeding to
enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorney's fees, whether or not the proceeding results in
a final judgment.
11. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
3
<PAGE> 8
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, on the day and year first above written.
BOWMAR INSTRUMENT CORPORATION
By:
---------------------------
Name:
Title:
------------------------------
Stockholder's Name:
Address for Notice:
Company Shares beneficially owned:
Shares of Common Stock:
Shares subject to:
Options:
Warrants:
Other Rights:
Parent Shares beneficially owned:
Shares of Common Stock:
Shares subject to:
Options:
Warrants:
Other Rights:
4
<PAGE> 9
SCHEDULE 5.15
FORM OF BOWMAR AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (this "Agreement") is made and entered into as of
___________, 1998, by and between BOWMAR INSTRUMENT CORPORATION, an Indiana
corporation ("Parent"), and the stockholder of Parent identified on the
signature page hereto (the "Stockholder").
RECITALS:
A. Parent and Electronic Designs, Inc., a Delaware corporation (the
"Company") are parties to that certain Agreement and Plan of Merger, dated as of
May 3, 1998 and as amended (the "Merger Agreement"), which provides for the
acquisition of the Company by Parent by means of a merger (the "Merger") of a
wholly owned subsidiary of Parent ("Merger Sub") with and into the Company
(unless otherwise defined herein as the context otherwise requires, capitalized
terms shall have the respective meanings set forth in the Merger Agreement);
B. Stockholder is the record holder and beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of and has the
right to vote and dispose of the number of shares of the outstanding capital
stock of Parent indicated on the signature page of this Agreement (the "Parent
Shares");
C. Stockholder has been informed and understands that because the Merger
will be accounted for using the "pooling of interests" method, and Stockholder
may be deemed to be an affiliate of Parent as the term "affiliate" (i) is
defined for purposes of paragraphs (c) and (d) of Rule 145 of the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"), or (ii) is used in and for purposes of Accounting Series, Releases 130
and 135, as amended, of the Commission, the Parent Shares owned by Stockholder
may only be disposed of in conformity with the limitations described herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. Stockholder has not and will not (and
has no plan or intention to), without the prior written consent of Parent, offer
to sell, sell, hedge or otherwise dispose of (or otherwise reduce Stockholder's
interest in or Stockholder's risk relating to) any Parent Shares (or any options
or other rights or securities to acquire or convertible into shares of any such
common stock) during the period required by Accounting Principles Board Opinion
No. 16, which generally
<PAGE> 10
includes any time prior to such time as financial statements covering at least
thirty (30) days of the combined operations of Parent and the Company after the
Effective Time of the Merger have been published. The restrictions in this
paragraph apply to any transfer of any form or nature whatsoever, including
transfers pursuant to any securities law exemption. Stockholder has been advised
and understands that such restrictions are required for compliance with the
rules of the Securities and Exchange Commission relating to pooling of interests
accounting treatment. Notwithstanding the foregoing, the Stockholder will not be
prohibited by the foregoing from (i) selling or disposing of shares so long as
such sale or disposition is in accordance with the "de minimis" test set forth
in SEC Staff Accounting Bulletin No. 76, or (ii) providing for the transfer of
such shares to the Stockholder's estate or by will upon the Stockholder's death.
1.2 New Shares. Stockholder agrees that any shares of capital stock
of Parent that Stockholder purchases or with respect to which Stockholder
otherwise acquires beneficial ownership after the date of this Agreement and
prior to the Expiration Date ("New Shares") shall be subject to the terms and
conditions of this Agreement to the same extent as if they constituted Parent
Shares.
2. Reliance Upon Representations, Warranties and Covenants. Stockholder
understands that the representations, warranties and covenants of Stockholder
set forth herein will be relied upon by Parent, the Company and their respective
counsel and accounting firms.
3. Representations, Warranties and Covenants of Stockholder.
Stockholder represents, warrants and covenants as follows:
(a) Stockholder has full power and authority to execute this
Agreement, to make the representations, warranties and covenants herein
contained and to perform Stockholder's obligations hereunder.
(b) Set forth with the signatures below is the number of Parent
Shares owned by Stockholder, including all Parent Shares as to which Stockholder
has sole or shared voting or investment power and all rights, options and
warrants to acquire the shares of capital stock of Parent owned or held by
Stockholder.
4. Stop Transfer Instructions. Stockholder understands and agrees that
stop transfer instructions shall be given by Parent with respect to
Stockholder's Parent Shares for the purpose of facilitating enforcement of the
agreements herein, and that in Parent's discretion there may be placed on
Stockholder's certificates for such shares a legend reflecting such
restrictions.
5. Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
-2-
<PAGE> 11
6. Binding Agreement. This Agreement will inure to the benefit of and be
including upon and enforceable against the parties and their successors and
assigns, including administrators, executors, representatives, heirs, legatees
and devisees of Stockholder and pledgees holding Parent Shares as collateral.
7. Termination. This Agreement shall be terminated and shall be of no
further force and effect upon the termination of the Merger Agreement in
accordance with the terms thereof.
8. Waiver. No waiver by any party hereto of any condition or of any
breach of any provision of this Agreement shall be effective unless in writing
and signed by each party hereof.
9. Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Indiana.
10. Attorneys' Fees. In the event of any legal actions or proceeding to
enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorney's fees, whether or not the proceeding results in
a final judgment.
11. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
-3-
<PAGE> 12
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, on the day and year first above written.
BOWMAR INSTRUMENT
CORPORATION
By:
---------------------------
Name:
Title:
------------------------------
Stockholder's Name:
Address for Notice:
Company Shares beneficially owned:
Shares of Common Stock:
Shares subject to:
Options:
Warrants:
Other Rights:
-4-
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CODE OF BY-LAWS
OF
BOWMAR INSTRUMENT CORPORATION
ARTICLE 1
Identification, Records, Seal and Fiscal Year
Section 1.01. Name. The name of the Corporation is Bowmar
Instrument 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
<PAGE> 2
Shareholder. All of the records of the Corporation described in this Section
shall be maintained 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
2
<PAGE> 3
certificate(s) representing the same or, in the case of shares without
certificates, an instrument of 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,
3
<PAGE> 4
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.
4
<PAGE> 5
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.
5
<PAGE> 6
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
6
<PAGE> 7
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 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
7
<PAGE> 8
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 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.
8
<PAGE> 9
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 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
9
<PAGE> 10
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 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.
10
<PAGE> 11
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 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
11
<PAGE> 12
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.
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
12
<PAGE> 13
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 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:
13
<PAGE> 14
(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, 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
14
<PAGE> 15
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 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.
15
<PAGE> 16
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 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.
16
<PAGE> 17
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.
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
17
<PAGE> 18
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.
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.
18
<PAGE> 19
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:
19
<PAGE> 20
(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.
20
<PAGE> 21
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.
21
<PAGE> 1
EXHIBIT 3.3
FORM OF
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
BOWMAR INSTRUMENT CORPORATION
-----------------------------------------
ADOPTED IN ACCORDANCE WITH THE PROVISIONS
OF SECTION 23-1-38-3 OF THE
INDIANA BUSINESS CORPORATION LAW
-----------------------------------------
I, Hamid R. Shokrgozar, President of BOWMAR INSTRUMENT CORPORATION, a
corporation organized and existing under the laws of the State of Indiana, do
hereby affirm under penalties of perjury as follows:
FIRST, that the Articles of Incorporation of said corporation be
amended to change the corporation's name to "__________________" by striking
out the whole of Section 1.01 of ARTICLE I as it now exists, and inserting in
lieu and instead thereof a new Section 1.01, which shall read as follows:
"Name. The name of the Corporation is "_________________"
(the "Corporation")."
SECOND, that the Articles of Incorporation of said corporation be
amended to increase the total number of shares the corporation is authorized to
issue from 16,130,560 shares to
<PAGE> 2
61,130,560 shares by striking out the whole of Section 5.01 of ARTICLE FIFTH as
it now exists, and inserting in lieu and instead thereof a new Section 5.01,
which shall read as follows:
"Number of Shares. The total number of shares the Corporation
shall have the authority to issue is 61,130,560 shares."
THIRD, that each of the foregoing amendments was adopted by the
corporation's Board of Directors on _______________, 1998, and by the
shareholders on _____________, 1998.
FOURTH, that the corporation's capital stock outstanding and entitled
to vote on the foregoing amendments consist of: (i) _______ shares of common
stock, stated value $.10 per share (the "Common Stock"), of which ________
shares were represented at the special meeting of shareholders, and (ii)
________ shares of $3.00 senior voting cumulative convertible preferred stock,
par value $1.00 per share (the "Preferred Stock"), of which ________ shares
were represented at the special meeting of shareholders.
FIFTH, that the foregoing amendments have been duly adopted in
accordance with the provisions of the Indiana Business Corporation Law by a
vote of _________ shares of Common Stock and ________ shares of Preferred
Stock, voting together as a single class, which vote constituted at least a
majority of the outstanding stock entitled to vote at a special meeting of
shareholders and was sufficient for approval of such amendments.
IN WITNESS WHEREOF, I have signed this certificate this _____ day of
_____, 1998.
--------------------------------------
Hamid R. Shokrgozar
President and Chief Executive Officer
2
<PAGE> 1
EXHIBIT 4.3
AMENDMENT NO. 1 TO RIGHTS AGREEMENT
Bowmar Instrument Corporation (the "Company") and the
undersigned Rights Agent hereby amend the Rights Agreement dated as of December
6, 1996 (the "Rights Agreement") by and between the Company and American Stock
Transfer and Trust Company, as Rights Agent, in accordance with Section 27 of
the Rights Agreement.
1. Section 1(a) of the Rights Agreement is hereby amended and
restated to read as follows (inserted language is bolded):
(a) "Acquiring Person" shall mean any Person (other than
any Exempt Person), who or which, together with all Affiliates
and Associates (as such terms are hereinafter defined) of such
Person, is the Beneficial Owner (as such term is hereinafter
defined) of 15% or more of the Common Shares then outstanding;
provided, however, that the term "Acquiring Person" shall not
include (i) a Person who is the Beneficial Owner of 15% or
more of the Common Shares then outstanding solely as a result
of a reduction in the number of Common Shares outstanding,
unless subsequent to such reduction such Person or any
Affiliate or Associate of such Person shall become the
Beneficial Owner of any additional Common Shares other than as
a result of a result of a stock dividend, stock split or
similar transaction effected by the Corporation in which all
stockholders are treated equally, or (ii) a Person who is the
Beneficial Owner of 15% or more of the Common Shares then
outstanding but who acquired Beneficial Ownership of Common
Shares without any plan or intention to seek control of the
Corporation, if such Person promptly enters into a firm
commitment to divest, and thereafter promptly divests (without
exercising or retaining any power, including voting, with
respect to such Shares), sufficient Common Shares (or
securities convertible into or exercisable for Common Shares)
so that such Person ceases to be the Beneficial Owner of 15%
or more of the then outstanding Common Shares, or (iii) Mr.
Edward A. White or any other Person who becomes a Beneficial
Owner of the Common Shares owned by Mr. White by will or by
the laws of descent and distribution, or (iv) any other Person
who acquires such a Beneficial Interest in a similar fashion
but any Person acquiring such a Beneficial Interest in any
other fashion shall be deemed an Acquiring Person if such
Beneficial Interest equals or exceeds 15% of the Common Shares
then outstanding. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT
TO THE CONTRARY, NEITHER ECHO NOR ANY STOCKHOLDER OF ECHO OR
ANY AFFILIATE OR ASSOCIATE OF ECHO OR ANY SUCH STOCKHOLDER OF
ECHO SHALL BE DEEMED TO BE AN "ACQUIRING PERSON" BY VIRTUE OF
THE APPROVAL, EXECUTION OR DELIVERY OF THE AGREEMENT AND PLAN
OF MERGER BY AND AMONG THE CORPORATION, ACQUISITION SUBSIDIARY
AND ECHO DATED MAY 3, 1998 (THE "MERGER AGREEMENT") OR THE
EXECUTION, DELIVERY AND PERFORMANCE OF AGREEMENTS OR THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING, WITHOUT LIMITATION, THE VOTING AGREEMENT BY AND
BETWEEN ECHO AND THE STOCKHOLDER OF THE COMPANY SIGNATORY
THERETO
<PAGE> 2
(THE "VOTING AGREEMENT"); PROVIDED, HOWEVER, THAT ANY
STOCKHOLDER OF ECHO OR ANY AFFILIATE OR ASSOCIATE THEREOF WHO,
AS OF THE EFFECTIVE TIME (AS DEFINED IN THE MERGER AGREEMENT),
IS THE BENEFICIAL OWNER OF 15% OR MORE OF THE THEN OUTSTANDING
COMMON SHARES (WHICH SHALL ACCOUNT FOR AND INCLUDE ALL COMMON
SHARES TO BE ISSUED TO STOCKHOLDERS OF ECHO PURSUANT TO THE
MERGER AGREEMENT) (THE PERCENTAGE OF BENEFICIAL OWNERSHIP OF
SUCH STOCKHOLDER BEING REFERRED TO HEREIN AS THE
"GRANDFATHERED PERCENTAGE") SHALL NOT BE DEEMED AN ACQUIRING
PERSON FROM AND AFTER THE EFFECTIVE TIME UNLESS SUCH
STOCKHOLDER BECOMES THE BENEFICIAL OWNER OF ANY ADDITIONAL
COMMON SHARES; AND PROVIDED FURTHER, HOWEVER, THAT IN THE
EVENT SUCH STOCKHOLDER SHALL SELL, TRANSFER, OR OTHERWISE
DISPOSE OF ANY OUTSTANDING COMMON SHARES AT ANY TIME AFTER THE
EFFECTIVE TIME, THE GRANDFATHERED PERCENTAGE APPLICABLE TO
SUCH STOCKHOLDER SHALL, SUBSEQUENT TO SUCH SALE, TRANSFER OR
DISPOSITION, MEAN THE LESSER OF (I) THE GRANDFATHERED
PERCENTAGE APPLICABLE TO SUCH STOCKHOLDER AS IN EFFECT
IMMEDIATELY PRIOR TO SUCH SALE, TRANSFER OR DISPOSITION OR
(II) THE PERCENTAGE OF OUTSTANDING COMMON SHARES THAT SUCH
STOCKHOLDER BENEFICIALLY OWNS IMMEDIATELY FOLLOWING SUCH SALE,
TRANSFER OR DISPOSITION. NOTWITHSTANDING THE FOREGOING, THE
GRANDFATHERED PERCENTAGE APPLICABLE TO ANY SUCH STOCKHOLDER
SHALL BE 15% IN THE EVENT THAT AT ANY TIME AFTER THE EFFECTIVE
TIME SUCH STOCKHOLDER BECOMES THE BENEFICIAL OWNER OF LESS
THAN 15% OF THE COMMON SHARES OUTSTANDING AT SUCH TIME.
2. Section 1(g) of the Rights Agreement be amended and restated
to read as follows (inserted language is bolded):
(g) "Distribution Date" shall mean the earlier of (i) the
Close of Business on the tenth calendar day after a Share
Acquisition Date or (ii) the Close of Business on the tenth
Business Day (or such later date as may be determined by
action of the Board of Directors prior to such time as any
Person becomes an Acquiring Person) after the date of the
commencement by any Person (other than any Exempt Person) or
of the first public announcement of the intention of any
Person (other than any Exempt Person) to commence a tender or
exchange offer, the consummation of which would result in any
Person becoming the Beneficial Owner of Common Shares
aggregating 15% or more of the then outstanding Common Shares
(including any such date which is after the date of this
Agreement and prior to the issuance of the Rights).
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY
HEREIN, A "DISTRIBUTION DATE" SHALL NOT BE DEEMED TO OCCUR BY
VIRTUE OF THE APPROVAL, EXECUTION OR DELIVERY OF THE MERGER
AGREEMENT, THE VOTING AGREEMENT OR THE EXECUTION, DELIVERY AND
PERFORMANCE OF THE AGREEMENTS OR THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY.
3. Except as otherwise expressly provided herein, or unless the
context otherwise requires, all terms used herein have the meanings assigned to
them in the Rights Agreement. The Rights Agent and the Company hereby waive
any notice requirement under the Rights Agreement pertaining to the matters
covered by this Amendment No. 1. This Amendment No. 1 may be
<PAGE> 3
executed in any number of counterparts, each of which shall be deemed an
original, but all of which counterparts shall together constitute one document.
4. This Amendment No. 1 is effective May 3, 1998.
RIGHTS AGENT
AMERICAN STOCK TRANSFER AND TRUST
COMPANY
By: /s/ Carolyn B. O'Neill
------------------------------------
Name: Carolyn B. O'Neill
----------------------------------
Title: Vice President
---------------------------------
Agreed to by:
BOWMAR INSTRUMENT CORPORATION
By: /s/ Hamid Shokrgozar
--------------------------------
Name: Hamid Shokrgozar
------------------------------
Title: President & CEO
-----------------------------
<PAGE> 1
EXHIBIT 8.1
June 10, 1998
Bowmar Instrument Corporation
3601 E. University Drive
Phoenix, Arizona 85034
To the Board of Directors:
This opinion is furnished to you pursuant to Section 6.1.8 of
the Agreement and Plan of Merger dated as of May 3, 1998, and as amended (the
"Merger Agreement"), by and among Bowmar Instrument Corporation ("Bowmar"), an
Indiana corporation, Bravo Acquisition Subsidiary, Inc. ("Acquisition
Subsidiary"), a Delaware corporation and a wholly owned subsidiary of Bowmar,
and Electronic Designs, Inc. ("EDI"), a Delaware corporation ("EDI").
Capitalized terms not defined herein are defined as set forth in the Merger
Agreement.
Upon consummation of the Merger of Acquisition Subsidiary with
and into EDI as provided in the Merger Agreement, Acquisition Subsidiary's
separate existence will terminate and EDI will continue as the Surviving
Corporation and as a wholly-owned subsidiary of Bowmar. As a result of the
Merger, (1) each issued and outstanding share of EDI Common Stock will be
converted into the right to receive the Merger Consideration, (2) each share of
EDI Common Stock that is held as a treasury share by EDI or any wholly owned
subsidiary of EDI, if any, will be canceled and retired and shall cease to
exist and no Merger Consideration shall be delivered will respect thereto, and
(3) all shares of common stock of Acquisition Subsidiary issued and outstanding
immediately prior to the Merger shall be converted into and become one fully
paid and nonassessable share of common stock of the Surviving Corporation.
We have examined and are familiar with originals and copies,
certified or otherwise identified to our satisfaction, of the Merger Agreement,
the registration statement on Form S-4 that is to be filed with the Securities
and Exchange Commission on the date hereof (the "Registration Statement"), the
certificates executed by officers of each of Bowmar and EDI, dated the date
hereof, and attached hereto (the "Tax Certificates"), and such other documents
as we have deemed necessary or appropriate in order to enable us to render this
opinion. In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, and the conformity to original documents of all
documents submitted to us as copies or drafts.
<PAGE> 2
Bowmar Instrument Corporation
June 10, 1998
Page 2
In rendering our opinion, we have assumed that the Merger will
be consummated in the manner described in the Merger Agreement. We have also
assumed the accuracy of the facts concerning the Merger that have come to our
attention during our engagement, and the accuracy of certain representations
made by Bowmar and EDI in connection with the issuance of our opinion,
including the representations contained in the Merger Agreement and the Tax
Certificates. Our opinion is expressly conditioned on, among other things, the
accuracy as of the date hereof, and the continuing accuracy, of all of such
facts, information, covenants, statements and representations through and as of
the effective date of the Merger. Any material change in the facts referred
to, set forth, or assumed herein, in the Merger Agreement, in the Registration
Statement, or in the Tax Certificates could affect the conclusions stated
herein.
In rendering our opinion, we have considered the applicable
provisions of the Internal Revenue Code of 1986 (the "Code"), Treasury
Department regulations promulgated thereunder, pertinent judicial authorities,
interpretative rulings of the Internal Revenue Service and such other
authorities as we have considered relevant. It should be noted that statutes,
regulations, judicial decisions and administrative interpretations are subject
to change at any time, possibly with retroactive effect. A change in the
authorities or the facts, information, covenants, statements, representations,
or assumptions upon which our opinion is based could affect our conclusions.
This opinion is expressed as of the date hereof, and we are under no obligation
to supplement or revise our opinion to reflect any changes (including any
changes that have retroactive effect) in applicable statutes, regulations,
judicial decisions or administrative interpretations, or any changes that would
cause any statement, representation or assumption herein to no longer be true
or correct.
Based solely upon and subject to the foregoing, we are of the
opinion that under present law for federal income tax purposes the Merger will
constitute a reorganization within the meaning of section 368(a) of the Code.
We also confirm that the sections of the Joint Proxy Statement and Prospectus
entitled "THE MERGER - Certain Federal Income Tax Consequences", and "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES", insofar as they relate to matters of law,
fairly describe the material federal income tax consequences of the Merger and
are true, correct, and complete in all material respects.
<PAGE> 3
Bowmar Instrument Corporation
June 10, 1998
Page 3
This letter is furnished to you solely for use in connection
with the Merger and is not to be used, circulated, quoted, or otherwise
referred to for any other purpose without our express written permission.
Sincerely,
/s/ Bryan Cave LLP
BRYAN CAVE LLP
<PAGE> 1
EXHIBIT 9.1
AMENDED AND RESTATED VOTING AGREEMENT
This Amended and Restated Voting Agreement (the "Agreement") is made and
entered into as of June 9, 1998, by and between Bowmar Instrument Corporation,
an Indiana corporation ("Bowmar"), and the undersigned stockholder (the
"Stockholder") of Electronic Designs, Inc., a Delaware corporation (the
"Company").
RECITALS
A. Concurrently with the execution of this Agreement, Bowmar, the
Company and Acquisition Subsidiary, a Delaware corporation and a wholly owned
subsidiary of Bowmar ("Sub"), have entered into an Agreement and Plan of Merger,
as amended June 9, 1998 (the "Merger Agreement") which provides for the merger
(the "Merger") of Sub with and into the Company. Pursuant to the Merger, shares
of common stock of the Company will be converted into common stock of Bowmar on
the basis described in the Merger Agreement.
B. The Stockholder is the record holder and beneficial owner (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of such number of shares of the outstanding common stock,
stated value $.10 per share, of the Company as is indicated on the final page of
this Agreement (the "Shares").
C. Bowmar desires the Stockholder to agree, and the Stockholder is
willing to agree, not to transfer or otherwise dispose of any of the Shares, or
any other shares of capital stock of the Company acquired hereunder and prior to
the Expiration Date (as defined in Section 1.1 below, except as otherwise
permitted hereby), and to vote the Shares and any other such shares of capital
stock of the Company in a manner so as to facilitate consummation of the Merger,
as provided herein.
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. Other than as provided herein, until
the Expiration Date, Stockholder shall not hereafter (a) sell, tender, transfer,
pledge, encumber, assign or otherwise dispose of any of the Shares or New Shares
(as defined in Section 1.2 below), (b) deposit any Shares or New Shares into a
voting trust or enter into a voting agreement or arrangement with respect to
such Shares or New Shares or grant any proxy or power of attorney with respect
thereto, (c) enter into any contract, option or other arrangement or undertaking
with respect to the direct or indirect sale, transfer, pledge, encumbrance,
assignment or other disposition of any Shares or New Shares, or (d) take any
action that would make any representation or warranty of Stockholder contained
herein untrue or incorrect or have the effect of preventing or disabling
Stockholder from performing Stockholder's obligations under this Agreement. As
used herein, the term "Expiration Date" shall mean the earlier to occur of (i)
the
2
<PAGE> 2
Effective Time (as defined in the Merger Agreement); and (ii) such date and time
as the Merger Agreement shall be terminated pursuant to Article VII thereof.
1.2 Additional Purchases. Stockholder agrees that any shares of
capital stock of the Company that Stockholder purchases or with respect to which
Stockholder otherwise acquires beneficial ownership after the execution of this
Agreement and prior to the Expiration Date ("New Shares") shall be subject to
the terms and conditions of this Agreement to the same extent as if they
constituted Shares.
2. Agreement to Vote Shares. At every meeting of the stockholders of the
Company called with respect to any of the following matters, and at every
adjournment thereof, and on every action or approval by written consent of the
stockholders of the Company with respect to any of the following matters,
Stockholder shall vote the Shares and any New Shares: (i) in favor of approval
of the Merger Agreement and the Merger and any matter necessary for consummation
of the Merger; and (ii) in favor of any other matter necessary for consummation
of the transactions contemplated by the Merger Agreement which is considered at
any such meeting of stockholders or in such consent, and in connection therewith
to execute any documents which are necessary or appropriate in order to
effectuate the foregoing or, at the request of Bowmar, to permit Bowmar to vote
such Shares and New Shares directly.
3. Irrevocable Proxy. By execution of this Agreement, Stockholder does
hereby appoint and constitute Bowmar, until the Expiration Date, with full power
of substitution and resubstitution, as Stockholder's true and lawful attorney
and irrevocable proxy, to the full extent of the undersigned's rights with
respect to the Shares and any New Shares, to vote each of such Shares and New
Shares solely with respect to the matters set forth in Section 2 hereof.
Stockholder intends this proxy to be irrevocable and coupled with an interest
hereafter until the Expiration Date and hereby revokes any proxy previously
granted by Stockholder with respect to the Shares.
4. Representations, Warranties and Covenants of Stockholder.
Stockholder hereby represents, warrants and covenants to Bowmar as follows:
4.1 Due Authority. Stockholder has full power, corporate or
otherwise, and authority to execute and deliver this Agreement and to perform
its obligations hereunder. This Agreement has been duly executed and delivered
by or on behalf of Stockholder and constitutes a legal, valid and binding
obligation of Stockholder, enforceable against Stockholder in accordance with
its terms.
4.2 No Conflict; Consents. (a) The execution and delivery of this
Agreement by Stockholder do not, and the performance by Stockholder of the
obligations under this Agreement and the compliance by Stockholder with any
provisions hereof do not and will not, (i) conflict with or violate any law,
statute, rule, regulation, order, writ, judgment or decree applicable to
Stockholder or the Shares, (ii) conflict with or violate Stockholder's charter,
bylaws, partnership agreement or other organizational documents, if applicable,
or (iii) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would
3
<PAGE> 3
become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the Shares pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Stockholder is a party or by which Stockholder
or the Shares are bound.
(b) The execution and delivery of this Agreement by Stockholder do
not, and the performance of this Agreement by Stockholder will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority by Stockholder except for
applicable requirements, if any, of the Exchange Act, and except where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, could not prevent or delay the performance
by Stockholder of his or her obligations under this Agreement in any material
respect.
4.3 Ownership of Shares. Stockholder (i) is the beneficial owner of
the Shares, which at the date hereof are, and at all times up until the
Expiration Date will be, free and clear of any liens, claims, options, charges,
proxies or voting restrictions or other encumbrances and (ii) does not
beneficially own any shares of capital stock of the Company other than the
Shares.
4.4 No Solicitations. Hereafter until the Expiration Date,
Stockholder shall not, nor, to the extent applicable to Stockholder, shall it
permit any of its affiliates to, nor shall it authorize any partner, officer,
director, advisor or representative of, Stockholder or any of its affiliates to,
(i) solicit, initiate or knowingly encourage the submission of, any inquiries,
proposals or offers from any person relating to an EDI Takeover Proposal, (ii)
enter into any agreement with respect to an EDI Takeover Proposal, (iii) solicit
proxies or become a "participant" in a "solicitation" (as such terms are defined
in Regulation 14A under the Exchange Act) with respect to an EDI Takeover
Proposal or otherwise encourage or assist any party in taking or planning any
action that would compete with, restrain or otherwise serve to interfere with or
inhibit the timely consummation of the Merger in accordance with the terms of
the Merger Agreement, (iv) initiate a stockholders' vote or action by consent of
the Company's stockholders with respect to an EDI Takeover Proposal, or (v)
become a member of a "group" (as such term is used in Section 13(d) of the
Exchange Act) with respect to any voting securities of the Company that takes
any action in support of an EDI Takeover Proposal.
5. No Limitation on Discretion as Director. Notwithstanding anything
herein to the contrary, the covenants and agreements set forth herein shall not
prevent Stockholder or its representatives or designees who are serving on the
Board of Directors of the Company from exercising its or their duties and
obligations as a Director of the Company or otherwise taking any action, subject
to the applicable provisions of the Merger Agreement, while acting in such
capacity as a director of the Company.
6. Additional Documents. Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Bowmar to carry out the intent of the Agreement.
4
<PAGE> 4
7. Consent and Waiver. Stockholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreements to which Stockholder is a party or pursuant to any rights
Stockholder may have.
8. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
9. Miscellaneous.
9.1 Severability. If any term or other provision of this Agreement
is determined to be invalid, illegal or incapable of being enforced by any rule
of law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
9.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
party without the prior written consent of the other.
9.3 Amendments and Modifications. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
9.4 Specific Performance; Injunctive Relief. The parties hereto
agree that irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to
specific relief hereunder, including, without limitation, an injunction or
injunctions to prevent and enjoin breaches of the provisions of this Agreement
and to enforce specifically the terms and provisions hereof, in any state or
federal court in the State of Delaware, in addition to any other remedy to which
they may be entitled at law or in equity. Any requirements for the securing or
posting of any bond with respect to any such remedy are hereby waived.
9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by cable, telegram or facsimile (with confirmation of receipt), or sent
by mail (registered or certified mail, postage prepaid, return receipt
requested) or overnight courier (prepaid) to the respective parties as follows:
5
<PAGE> 5
If to Bowmar: Bowmar Instrument Corporation
3601 East University Drive
Phoenix, AZ 85034
Attention: Hamid Shokrgozar
with a copy to:Bryan Cave LLP
700 Thirteenth Street, N.W.
Washington, DC 20005
Attention: LaDawn Naegle, Esq.
If to the Stockholder: To the address for notice set
forth on the last page hereof
with a copy to:Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attention: Thomas P. Storer, P.C.
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective upon receipt.
9.6 Governing Law; Jurisdiction and Venue. This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State of
Delaware without regard to its rules of conflict of laws. The parties hereto
hereby irrevocably and unconditionally consent to and submit to the exclusive
jurisdiction of the courts of the State of Delaware and of the United States of
America located in such state (the "Delaware Courts") for any litigation arising
out of or relating to this Agreement and the transactions contemplated hereby
(and agree not to commence any litigation relating thereto except in such
courts), waive any objection to the laying of venue of any such litigation in
the Delaware Courts and agree not to plead or claim in any Delaware Court that
such litigation brought therein has been brought in any inconvenient forum.
9.7 Entire Agreement. This Agreement contains the entire
understanding of the parties in respect of the subject matter hereof, and
supersedes all prior negotiations and understandings between the parties with
respect to such subject matter.
9.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
9.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction of interpretation of this
Agreement.
9.10 No Agreement Until Executed. Irrespective of negotiations among
the parties or the exchanging of drafts of this Agreement, this Agreement shall
not constitute or be deemed to evidence a contract, agreement, arrangement or
understanding between the parties
6
<PAGE> 6
hereto unless and until (i) the Board of Directors of the Company has approved,
for purposes of Section 203 of the Delaware General Corporation Law and any
applicable provision of the Company's Articles of Incorporation, the possible
acquisition of the Shares by Bowmar pursuant to this Agreement, (ii) the Merger
Agreement is executed by all parties thereto, and (iii) this Agreement is
executed by all parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the date and year first above written.
BOWMAR INSTRUMENT CORPORATION
By: /s/ Hamid Shokrgozar
---------------------
Name: Hamid Shokrgozar
Title: President and Chief Executive Officer
STOCKHOLDER:
TECHNOLOGY FUNDING PARTNERS III, L.P.
By: Technology Funding Inc., its
Managing General Partner
By: /s/ Thomas J. Toy
-----------------
Name: Thomas J. Toy
Title: Vice President
Stockholder's Address for Notice:
2000 Alameda de las Puglas, Suite 250
San Mateo, California 94403
Shares beneficially owned:
680,477 shares of Common Stock of
Electronic Designs, Inc.
7
<PAGE> 1
EXHIBIT 9.2
AMENDED AND RESTATED VOTING AGREEMENT
This Amended and Restated Voting Agreement (the "Agreement") is made and
entered into as of June 9, 1998, by and between Electronic Designs, Inc., a
Delaware corporation ("EDI"), and the undersigned stockholder (the
"Stockholder") of Bowmar Instrument Corporation, an Indiana corporation (the
"Company").
RECITALS
A. Concurrently with the execution of this Agreement, EDI, the Company
and Acquisition Subsidiary, a Delaware corporation and a wholly owned subsidiary
of the Company ("Sub"), have entered into an Agreement and Plan of Merger, as
amended June 9, 1998, (the "Merger Agreement") which provides for the merger
(the "Merger") of Sub with and into EDI. Pursuant to the Merger, shares of
common stock of EDI will be converted into common stock of the Company on the
basis described in the Merger Agreement.
B. The Stockholder is the record holder and beneficial owner (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of such number of shares of the outstanding common stock,
stated value $.10 per share, of the Company as is indicated on the final page of
this Agreement (the "Shares").
C. EDI desires the Stockholder to agree, and the Stockholder is willing
to agree, not to transfer or otherwise dispose of any of the Shares, or any
other shares of capital stock of the Company acquired hereunder and prior to the
Expiration Date (as defined in Section 1.1 below, except as otherwise permitted
hereby), and to vote the Shares and any other such shares of capital stock of
the Company in a manner so as to facilitate consummation of the Merger, as
provided herein.
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. Other than as provided herein, until
the Expiration Date, Stockholder shall not hereafter (a) sell, tender, transfer,
pledge, encumber, assign or otherwise dispose of any of the Shares or New Shares
(as defined in Section 1.2 below), (b) deposit any Shares or New Shares into a
voting trust or enter into a voting agreement or arrangement with respect to
such Shares or New Shares or grant any proxy or power of attorney with respect
thereto, (c) enter into any contract, option or other arrangement or undertaking
with respect to the direct or indirect sale, transfer, pledge, encumbrance,
assignment or other disposition of any Shares or New Shares, or (d) take any
action that would make any representation or warranty of Stockholder contained
herein untrue or incorrect or have the effect of preventing or disabling
Stockholder from performing Stockholder's obligations under this Agreement. As
used herein, the term "Expiration Date" shall mean the earlier to occur of (i)
the
2
<PAGE> 2
Effective Time (as defined in the Merger Agreement); and (ii) such date and time
as the Merger Agreement shall be terminated pursuant to Article VII thereof.
1.2 Additional Purchases. Stockholder agrees that any shares of
capital stock of the Company that Stockholder purchases or with respect to which
Stockholder otherwise acquires beneficial ownership after the execution of this
Agreement and prior to the Expiration Date ("New Shares") shall be subject to
the terms and conditions of this Agreement to the same extent as if they
constituted Shares.
2. Agreement to Vote Shares. At every meeting of the stockholders of the
Company called with respect to any of the following matters, and at every
adjournment thereof, and on every action or approval by written consent of the
stockholders of the Company with respect to any of the following matters,
Stockholder shall vote the Shares and any New Shares: (i) in favor of approval
of the Merger Agreement and the Merger and any matter necessary for consummation
of the Merger and (ii) in favor of any other matter necessary for consummation
of the transactions contemplated by the Merger Agreement which is considered at
any such meeting of stockholders or in such consent, and in connection therewith
to execute any documents which are necessary or appropriate in order to
effectuate the foregoing or, at the request of EDI, to permit EDI to vote such
Shares and New Shares directly.
3. Irrevocable Proxy. By execution of this Agreement, Stockholder does
hereby appoint and constitute EDI, until the Expiration Date, with full power of
substitution and resubstitution, as Stockholder's true and lawful attorney and
irrevocable proxy, to the full extent of the undersigned's rights with respect
to the Shares and any New Shares, to vote each of such Shares and New Shares
solely with respect to the matters set forth in Section 2 hereof. Stockholder
intends this proxy to be irrevocable and coupled with an interest hereafter
until the Expiration Date and hereby revokes any proxy previously granted by
Stockholder with respect to the Shares.
4. Representations, Warranties and Covenants of Stockholder.
Stockholder hereby represents, warrants and covenants to EDI as follows:
4.1 Due Authority. Stockholder has full power, corporate or
otherwise, and authority to execute and deliver this Agreement and to perform
his obligations hereunder. This Agreement has been duly executed and delivered
by or on behalf of Stockholder and constitutes a legal, valid and binding
obligation of Stockholder, enforceable against Stockholder in accordance with
its terms.
4.2 No Conflict; Consents. (a) The execution and delivery of this
Agreement by Stockholder do not, and the performance by Stockholder of the
obligations under this Agreement and the compliance by Stockholder with any
provisions hereof do not and will not, (i) conflict with or violate any law,
statute, rule, regulation, order, writ, judgment or decree applicable to
Stockholder or the Shares, (ii) conflict with or violate Stockholder's charter,
bylaws, partnership agreement or other organizational documents, if applicable,
or (iii) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would
3
<PAGE> 3
become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the Shares pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Stockholder is a party or by which Stockholder
or the Shares are bound.
(b) The execution and delivery of this Agreement by Stockholder do
not, and the performance of this Agreement by Stockholder will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority by Stockholder except for
applicable requirements, if any, of the Exchange Act, and except where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, could not prevent or delay the performance
by Stockholder of his or her obligations under this Agreement in any material
respect.
4.3 Ownership of Shares. Stockholder (i) is the beneficial owner of
the Shares, which at the date hereof are, and at all times up until the
Expiration Date will be, free and clear of any liens, claims, options, charges,
proxies or voting restrictions or other encumbrances, except as set forth on
Schedule A attached hereto, and (ii) does not beneficially own any shares of
capital stock of the Company other than the Shares.
4.4 No Solicitations. Hereafter until the Expiration Date,
Stockholder shall not, nor, to the extent applicable to Stockholder, shall it
permit any of its affiliates to, nor shall it authorize any partner, officer,
director, advisor or representative of, Stockholder or any of its affiliates to,
(i) solicit, initiate or knowingly encourage the submission of, any inquiries,
proposals or offers from any person relating to a Bowmar Takeover Proposal, (ii)
enter into any agreement with respect to a Bowmar Takeover Proposal, (iii)
solicit proxies or become a "participant" in a "solicitation" (as such terms are
defined in Regulation 14A under the Exchange Act) with respect to a Bowmar
Takeover Proposal or otherwise encourage or assist any party in taking or
planning any action that would compete with, restrain or otherwise serve to
interfere with or inhibit the timely consummation of the Merger in accordance
with the terms of the Merger Agreement, (iv) initiate a stockholders' vote or
action by consent of the Company's stockholders with respect to a Bowmar
Takeover Proposal, or (v) become a member of a "group" (as such term is used in
Section 13(d) of the Exchange Act) with respect to any voting securities of the
Company that takes any action in support of a Bowmar Takeover Proposal.
5. No Limitation on Discretion as Director. Notwithstanding anything
herein to the contrary, the covenants and agreements set forth herein shall not
prevent Stockholder or his representatives or designees who are serving on the
Board of Directors of the Company from exercising his or their duties and
obligations as a Director of the Company or otherwise taking any action, subject
to the applicable provisions of the Merger Agreement, while acting in such
capacity as a director of the Company.
6. Additional Documents. Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of EDI to carry out the intent of the Agreement.
4
<PAGE> 4
7. Consent and Waiver. Stockholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreements to which Stockholder is a party or pursuant to any rights
Stockholder may have.
8. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
9. Miscellaneous.
9.1 Severability. If any term or other provision of this Agreement
is determined to be invalid, illegal or incapable of being enforced by any rule
of law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
9.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
party without the prior written consent of the other.
9.3 Amendments and Modifications. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
9.4 Specific Performance; Injunctive Relief. The parties hereto
agree that irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to
specific relief hereunder, including, without limitation, an injunction or
injunctions to prevent and enjoin breaches of the provisions of this Agreement
and to enforce specifically the terms and provisions hereof, in any state or
federal court in the State of Delaware, in addition to any other remedy to which
they may be entitled at law or in equity. Any requirements for the securing or
posting of any bond with respect to any such remedy are hereby waived.
9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by cable, telegram or facsimile (with confirmation of receipt), or sent
by mail (registered or certified mail, postage prepaid, return receipt
requested) or overnight courier (prepaid) to the respective parties as follows:
5
<PAGE> 5
If to EDI: Electronic Designs, Inc.
One Research Drive
Westborough, MA
Attention: Donald F. McGuinness
with a copy to:Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attention: Thomas P. Storer, P.C.
If to the Stockholder: To the address for notice set forth on the
last page hereof
with a copy to:Bryan Cave LLP
700 Thirteenth Street, N.W.
Washington, DC 20005
Attention: LaDawn Naegle, Esq.
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective upon receipt.
9.6 Governing Law; Jurisdiction and Venue. This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State of
Delaware without regard to its rules of conflict of laws. The parties hereto
hereby irrevocably and unconditionally consent to and submit to the exclusive
jurisdiction of the courts of the State of Delaware and of the United States of
America located in such state (the "Delaware Courts") for any litigation arising
out of or relating to this Agreement and the transactions contemplated hereby
(and agree not to commence any litigation relating thereto except in such
courts), waive any objection to the laying of venue of any such litigation in
the Delaware Courts and agree not to plead or claim in any Delaware Court that
such litigation brought therein has been brought in any inconvenient forum.
9.7 Entire Agreement. This Agreement contains the entire
understanding of the parties in respect of the subject matter hereof, and
supersedes all prior negotiations and understandings between the parties with
respect to such subject matter.
9.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
9.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction of interpretation of this
Agreement.
9.10 No Agreement Until Executed. Irrespective of negotiations among
the parties or the exchanging of drafts of this Agreement, this Agreement shall
not constitute or be deemed to evidence a contract, agreement, arrangement or
understanding between the parties
6
<PAGE> 6
hereto unless and until (i) the Board of Directors of the Company has approved,
for purposes of Section 23-1-43-18 of the Indiana Business Corporation Law and
any applicable provision of the Company's Articles of Incorporation, the
possible acquisition of the Shares by EDI pursuant to this Agreement, (ii) the
Merger Agreement is executed by all parties thereto, and (iii) this Agreement is
executed by all parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the date and year first above written.
ELECTRONIC DESIGNS, INC.
By: /s/ Donald F. McGuiness
-------------------------
Name: Donald F. McGuiness
Title: President
STOCKHOLDER:
By: /s/ Edward A. White
-------------------------
Edward A. White
Stockholder's Address for Notice:
3601 E. University Drive
Phoenix, AZ 85134
Shares beneficially owned:
1,495,866 shares of Common Stock of Bowmar
Instrument Corporation
7
<PAGE> 1
EXHIBIT 10.1
AGREEMENT TO BE BOUND BY
REGISTRATION RIGHTS AGREEMENTS
THIS AGREEMENT TO BE BOUND BY REGISTRATION RIGHTS AGREEMENTS (this
"Agreement") is made as of the 3rd day of May, 1998, by Bowmar Instrument
Corporation, an Indiana corporation ("Bowmar"), and Electronic Designs, Inc., a
Delaware Corporation ("EDI").
RECITALS
WHEREAS, EDI is party to the following agreements which obligate EDI
to provide certain registration rights to the parties listed therein: (i) that
certain Third Amended and Restated Registration Rights Agreement, dated as of
April 30, 1995, by and between EDI (as successor to Crystallume) and the
parties named therein, as amended or supplemented from time to time (including
without limitation by (a) that certain Revised and Restated Registration Rights
Agreement, dated as of September 25, 1995, (b) that certain Agreement
Respecting NYL Registration Rights, dated as of October 10, 1995, (c) that
certain Agreement Respecting TFI Registration Rights, dated as of October 10,
1995 and (d) that certain Agreement Respecting Registration Rights (respecting
Silicon Valley Bank), dated as of October 10, 1995, and (e) that certain
Purchase Agreement for Shares of Crystallume Common Stock, dated as of
September 27, 1995, as amended, (collectively, the "Third Amended Agreement"))
and (ii) that certain Registration Rights Agreement by and between EDI and
Cameron Associates, dated as of December 1, 1996, as amended from time to time
(the "Cameron Agreement" and, together with the Third Amended Agreement, the
"Registration Rights Agreements");
WHEREAS, Bowmar and EDI are parties to that certain Agreement and Plan
of Merger, dated as of May 3, 1998, by and among Bowmar, EDI and Acquisition
Subsidiary (the "Merger Agreement"), pursuant to which Acquisition Subsidiary
will merge with and into EDI (the "Merger"). Unless otherwise defined herein,
capitalized terms shall have the respective meanings set forth in the Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Agreement to Be Bound by Registration Rights Agreements.
Effective immediately upon the Effective Time of the Merger, Bowmar agrees to
be bound by all of the obligations, terms and conditions of the Registration
Rights Agreements and any and all references to EDI contained therein shall be
deemed to be references to Bowmar, as the context so requires with regard to
the obligations of EDI thereunder.
<PAGE> 2
2. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have hereunto each caused this
Agreement to be executed as of the day and year first above written.
BOWMAR INSTRUMENT CORPORATION
By: /s/ Hamid Shokrgozar
-----------------------------------
Name: Hamid Shokrgozar
Title: President & CEO
ELECTRONIC DESIGNS, INC.
By: /s/ Donald F. McGuinness
-----------------------------------
Name: Donald F. McGuinness
Title: Chief Executive Officer
<PAGE> 1
EXHIBIT 10.2
AGREEMENT TO BE BOUND BY
SEVERANCE AGREEMENTS AND EMPLOYMENT AGREEMENT
THIS AGREEMENT TO BE BOUND BY SEVERANCE AGREEMENTS AND EMPLOYMENT
AGREEMENT (this "Agreement") is made as of the 3rd day of May, 1998, by Bowmar
Instrument Corporation, an Indiana corporation ("Bowmar"), and Electronic
Designs, Inc., a Delaware Corporation ("EDI").
RECITALS
WHEREAS, EDI is party to (i) that certain Severance Agreement, dated
as of December 21, 1994, by and between EDI and Donald F. McGuinness, as
amended, and (ii) that certain Severance Agreement, dated as of December 21,
1994, by and between EDI and Frank D. Edwards, as amended (together, the
"Severance Agreements");
WHEREAS, EDI is party to that certain Employment Agreement, dated as
of October 10, 1995, by and between EDI and Donald F. McGuinness, as amended
(the "Employment Agreement");
WHEREAS, Bowmar and EDI are parties to that certain Agreement and Plan
of Merger, dated as of May 3, 1998, by and among Bowmar, EDI and Acquisition
Subsidiary (the "Merger Agreement"), pursuant to which Acquisition Subsidiary
will merge with and into EDI (the "Merger"). Unless otherwise defined herein,
capitalized terms shall have the respective meanings set forth in the Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Agreement to Be Bound by Severance Agreements. Effective
immediately upon the Effective Time of the Merger, Bowmar agrees to be bound by
all of the obligations, terms and conditions of the Severance Agreements and
any and all references to EDI contained therein shall be deemed to be
references to Bowmar, as the context so requires with regard to the obligations
of EDI thereunder.
2. Agreement to Be Bound by Employment Agreement. Effective
immediately upon the Effective Time of the Merger, Bowmar agrees to be bound by
all of the obligations, terms and conditions of the Employment Agreement and
any and all references to EDI contained therein shall be deemed to be
references to Bowmar, as the context so requires with regard to the obligations
of EDI thereunder.
<PAGE> 2
3. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have hereunto each caused this
Agreement to be executed as of the day and year first above written.
BOWMAR INSTRUMENT CORPORATION
By: /s/ Hamid Shokrgozar
--------------------------------
Name: Hamid Shokrgozar
Title: President & CEO
ELECTRONIC DESIGNS, INC.
By: /s/ Donald F. McGuinness
--------------------------------
Name: Donald F. McGuinness
Title: Chief Executive Officer
2
<PAGE> 1
EXHIBIT 21.1
SUSIDIARIES
OF
BOWMAR INSTRUMENT CORPORATION
Bowmar/ALI, Inc.
Bravo Acquisition Subsidiary, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4 (File
No. 333-_____) of our report dated December 2, 1997 (except for Note 17 for
which the date is December 19, 1997 and paragraph (i) of Note 2, the second
paragraph of Note 4 and Note 16, for which the date is May 28, 1998) on our
audit of the consolidated financial statements of Bowmar Instrument Corporation
and Subsidiary. We also consent to the references to our firm under the
captions "Experts" and "Selected Financial Data".
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
June 1, 1998
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Bowmar Instrument Corporation of our
report dated October 30, 1997, except as to the last paragraph of Note 15,
which is as of December 5, 1997, and except as to the tenth and eleventh
paragraphs of Note 2, which are as of May 28, 1998, relating to the
consolidated financial statements of Electronic Designs, Inc., which appears in
such Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Consolidated Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Consolidated Financial Data."
PRICE WATERHOUSE LLP
Boston, Massachusetts
June 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> SEP-27-1997 SEP-27-1997
<PERIOD-START> SEP-29-1996 SEP-28-1997
<PERIOD-END> SEP-27-1997 APR-04-1998
<CASH> 1,218 11
<SECURITIES> 0 0
<RECEIVABLES> 4,519 5,803
<ALLOWANCES> 43 43
<INVENTORY> 8,158 7,718
<CURRENT-ASSETS> 17,173 16,709
<PP&E> 2,642 2,636
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 21,509 20,711
<CURRENT-LIABILITIES> 7,351 4,748
<BONDS> 0 0
0 0
120 120
<COMMON> 672 672
<OTHER-SE> 8,481 9,068
<TOTAL-LIABILITY-AND-EQUITY> 21,509 20,711
<SALES> 27,820 15,798
<TOTAL-REVENUES> 27,820 15,798
<CGS> 17,118 10,428
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 8,217 4,242
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 417 304
<INCOME-PRETAX> 2,068 824
<INCOME-TAX> 766 321
<INCOME-CONTINUING> 1,302 503
<DISCONTINUED> (780) 262
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 522 765
<EPS-PRIMARY> 0.02 0.09
<EPS-DILUTED> 0.02 0.09
</TABLE>
<PAGE> 1
EXHIBIT 99.1
BOWMAR INSTRUMENT CORPORATION
3601 E. UNIVERSITY DRIVE
PHOENIX, ARIZONA 85034
(602) 437-1520
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF STOCKHOLDERS,
[ ], 1998
--------------- ----
The undersigned hereby appoints Hamid R. Shokrgozar and Joseph
G. Warren, Jr., and each of them, with full power of substitution, the true and
lawful attorneys in fact, agents and proxies of the undersigned to vote at the
Special Meeting of Stockholders of Bowmar Instrument Corporation (the
"Company"), to be held on [__________ ___], 1998, commencing at [__:__]
[a.m./p.m.]. local time, at [_____________________________________], and at any
and all adjournments thereof, according to the number of votes which the
undersigned would possess if personally present, for the purpose of considering
and taking action upon the following, as more fully set forth in the Joint
Proxy Statement/Prospectus of the Company and Electronic Designs, Inc. ("EDI")
dated [__________ ___], 1998.
1. Approval of the Agreement and Plan of Merger, dated
as of May 3, 1998, as amended (the "Merger Agreement"), by and among the
Company, EDI and Bravo Acquisition Subsidiary, Inc., a Delaware corporation and
a wholly owned subsidiary of the Company, and the transactions contemplated by
the Merger Agreement, including, without limitation, the issuance of common
stock of the Company (referred to in the Joint Proxy Statement/Prospectus as
"Combined Company Common Stock" after the merger) and other securities in the
merger pursuant to the Merger Agreement.
/ / FOR / / AGAINST / / ABSTAIN
2. Approval of an amendment to the Company's Amended and
Restated Articles of Incorporation (the "Articles") to increase the number of
authorized shares of common stock of the Company from 15,000,000 to 60,000,000.
/ / FOR / / AGAINST / / ABSTAIN
3. Approval of an amendment to the Articles to change
the name of the Company after the merger to "________________".
/ / FOR / / AGAINST / / ABSTAIN
4. In their discretion with respect to such other
business as properly may come before the Special Meeting (including, without
limitation, adjournment of such Meeting in order to allow for additional
solicitation of stockholder votes in order to obtain a quorum or in order to
obtain more votes in favor of the Merger Agreement) or any adjournments or
postponements thereof.
<PAGE> 2
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" EACH OF THE ABOVE PROPOSALS.
The undersigned hereby acknowledges receipt of Notice of said Special
Meeting dated __________, 1998.
Dated: , 1998
-----------------------------
-----------------------------------------
Signature
-----------------------------------------
Signature if held jointly
Please sign exactly as name(s) appear on
this proxy card. When shares are held by
joint tenants, both should sign. When
signing as attorney-in-fact, executor,
administrator, personal representative,
trustee or guardian, please give full
title as such. If a corporation, please
sign in full corporate name by President
or other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
PLEASE MARK, DATE, SIGN AND PROMPTLY RETURN
THIS PROXY CARD USING THE ENCLOSED ENVELOPE.
<PAGE> 1
EXHIBIT 99.2
================================================================================
PROXY
ELECTRONIC DESIGNS, INC.
ONE RESEARCH DRIVE, WESTBOROUGH, MA 01851
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON ____________, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Donald F. McGuinness and
Frank D. Edwards, and each of them, as Proxies of the undersigned, with full
power of substitution, to vote all shares of Common Stock of Electronic
Designs, Inc. (the "Company") held of record by the undersigned as of the
close of business on ____________, 1998, on behalf of the undersigned at the
Special Meeting of Stockholders (the "Special Meeting") to be held at the
Westin Hotel, 70 Third Avenue, Waltham, Massachusetts, ____ local time, on
____________, 1998, and at any adjournments or postponements thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1. IN THEIR DISCRETION, THE PROXIES ARE EACH
AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
SPECIAL MEETING AND ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF. A STOCKHOLDER
WISHING TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS NEED
ONLY SIGN AND DATE THIS PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
SEE REVERSE SIDE
================================================================================
================================================================================
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1.
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of May 3, 1998, as amended, by and among the Company,
Bowmar Instrument Corporation ("Bowmar"), and Bravo Acquisition Subsidiary,
Inc. ("Acquisition Subsidiary"), and the transactions contemplated thereby
including the merger of Acquisition Subsidiary with and into the Company, with
the Company being the surviving corporation and a wholly-owned subsidiary of
Bowmar.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To consider and act upon any other matters that may properly be
brought before the Special Meeting and at any adjournments or postponements
thereof.
The undersigned hereby acknowledge(s) receipt of a copy of the
accompanying Notice of Special Meeting of Stockholders and the Joint Proxy
Statement/Prospectus with respect thereto and hereby revoke(s) any proxy or
proxies heretofore given. This proxy may be revoked at any time before it is
exercised.
Dated: NOTE: Please sign exactly as name appears
--------------------------- hereon. Joint owners should each
sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title
as such.
- ---------------------------------
Signature
- ---------------------------------
Signature
================================================================================
<PAGE> 1
EXHIBIT 99.3
CONSENT TO SERVE AS A DIRECTOR
In connection with the Effective Time of the Merger (as such term is defined in
that certain Agreement and Plan of Merger, dated as of May 3, 1998, as amended
(the "Merger Agreement"), by and among Bowmar Instrument Corporation (the
"Company"), Electronic Designs, Inc. and Bravo Acquisition Subsidiary, Inc.), I
hereby agree to serve as a director of the Company as provided in the Merger
Agreement. I also consent to the inclusion of the references to me in the
Company's Registration Statement on Form S-4 and any prospectus included
therein as a person who has agreed to serve as a director of the Company.
/s/ Donald F. McGuinness
----------------------------
Donald F. McGuinness
<PAGE> 2
CONSENT TO SERVE AS A DIRECTOR
In connection with the Effective Time of the Merger (as such term is defined in
that certain Agreement and Plan of Merger, dated as of May 3, 1998, as amended
(the "Merger Agreement"), by and among Bowmar Instrument Corporation (the
"Company"), Electronic Designs, Inc. and Bravo Acquisition Subsidiary, Inc.), I
hereby agree to serve as a director of the Company as provided in the Merger
Agreement. I also consent to the inclusion of the references to me in the
Company's Registration Statement on Form S-4 and any prospectus included
therein as a person who has agreed to serve as a director of the Company.
/s/ Norman T. Hall
----------------------
Norman T. Hall
<PAGE> 3
CONSENT TO SERVE AS A DIRECTOR
In connection with the Effective Time of the Merger (as such term is defined in
that certain Agreement and Plan of Merger, dated as of May 3, 1998, as amended
(the "Merger Agreement"), by and among Bowmar Instrument Corporation (the
"Company"), Electronic Designs, Inc. and Bravo Acquisition Subsidiary, Inc.), I
hereby agree to serve as a director of the Company as provided in the Merger
Agreement. I also consent to the inclusion of the references to me in the
Company's Registration Statement on Form S-4 and any prospectus included
therein as a person who has agreed to serve as a director of the Company.
/s/ Thomas J. Toy
---------------------
Thomas J. Toy
<PAGE> 1
EXHIBIT 99.4
CONSENT OF NEEDHAM & COMPANY, INC.
We hereby consent to the inclusion in the Joint Proxy
Statement/Prospectus of Bowmar Instrument Corporation and Electronic Designs,
Inc. forming part of this Registration Statement on Form S-4 of our opinion
dated May 3, 1998 to the Board of Directors of Bowmar Instrument Corporation
attached as Appendix II to such Joint Proxy Statement/Prospectus and to the
references to our opinion under the captions "Summary--Opinions of Financial
Advisors" and "The Merger--Background of the Merger" and "--Opinion of Bowmar's
Financial Advisor." In giving such consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 and the rules and regulations of the Securities and
Exchange Commission thereunder, nor do we thereby admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "experts" as used in the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
/s/ Needham & Company, Inc.
Needham & Company, Inc.
June 9, 1998
<PAGE> 1
EXHIBIT 99.5
The Board of Directors
Electronic Designs, Inc.
One Research Drive
Westborough, MA 01581
Members of the Board:
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of Electronic Designs, Inc. ("EDI") as an Annex to the Joint Proxy
Statement/Prospectus of EDI and Bowmar Instrument Corporation ("Bowmar"), which
forms a part of the Registration Statement on Form S-4, relating to the proposed
merger transaction involving EDI and Bowmar and references thereto in such Joint
Proxy Statement/Prospectus. In giving such consent, we do not admit that we come
within the category of persons whose consent is required under, and we do not
admit that we are "experts" for purposes of, the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
ALLIANT PARTNERS
By: /s/ Norman T. Hall
-----------------------
Name: Norman T. Hall
Title: Managing Partner
June 9, 1998
