<PAGE> 1
PRELIMINARY COPIES
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 27, 1998
REGISTRATION NO. 333-56565
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO 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 (I.R.S. Employer Identification Number)
incorporation or organization) Classification Code 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. [ ] ________
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
BOWMAR INSTRUMENT CORPORATION
3601 E. UNIVERSITY DRIVE
PHOENIX, ARIZONA 85034
(602) 437-1520
JULY , 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 "White Electronic Designs
Corporation". 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 "White Electronic Designs Corporation".
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
<PAGE> 3
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 "White Electronic Designs
Corporation".
(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
JOSEPH G. WARREN, JR.
Secretary
Phoenix, Arizona
, 1998
<PAGE> 4
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 "White Electronic Designs Corporation" 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
<PAGE> 5
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
<PAGE> 6
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 "White Electronic Designs Corporation" (the
"Combined Company").
(continued on next page)
SEE "RISK FACTORS" ON PAGES 22-31 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE EVALUATED IN CONNECTION WITH THE MERGER.
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 July , 1998.
<PAGE> 7
(continued from previous page)
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 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 "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
"White Electronic Designs Corporation" (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 ("SEC" or 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 and EDI each has retained D.F. King & Co., Inc. for this
purpose.
<PAGE> 8
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.
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY INFORMATION......................................... 1
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.......... 14
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 22
RISK FACTORS................................................ 22
THE MERGER.................................................. 32
General Description of the Merger......................... 32
Merger Consideration................................... 32
EDI Options and EDI Warrants........................... 33
Surrender and Exchange of Shares....................... 33
Management of the Combined Company........................ 34
Background of the Merger.................................. 34
Recommendation of the Bowmar Board; Reasons for the
Merger................................................. 43
Recommendation of the EDI Board; Reasons for the Merger... 44
Opinion of Bowmar's Financial Advisor..................... 46
Opinion of EDI's Financial Advisor........................ 49
Interests of Certain Persons in the Merger................ 53
Accounting Treatment...................................... 55
Resale Restrictions of Securities Issued in the Merger.... 56
Affiliates' Agreements.................................... 56
Public Trading Market..................................... 56
Appraisal Rights of Dissenting Stockholders............... 56
PROVISIONS OF MERGER AGREEMENT.............................. 60
Representations and Warranties............................ 60
Certain Covenants......................................... 60
Conditions of the Merger.................................. 63
Termination of the Merger Agreement....................... 64
Indemnification........................................... 65
OTHER AGREEMENTS............................................ 67
Voting Agreements......................................... 67
Assumption of Severance Agreements and Employment
Agreement.............................................. 67
Assumption of Registration Rights Agreements.............. 67
FEDERAL INCOME TAX CONSEQUENCES............................. 68
THE BOWMAR SPECIAL MEETING.................................. 70
General................................................... 70
The Bowmar Merger Proposal................................ 70
Proposal to Approve Amendment to Bowmar Articles to
Increase Authorized Common Stock....................... 70
Proposal to Amend Bowmar Articles to Change the
Corporation's Name..................................... 71
Voting Securities and Principal Holders................... 72
Vote Required; Voting and Revocation of Proxies........... 73
THE EDI SPECIAL MEETING..................................... 75
General................................................... 75
The EDI Merger Proposal................................... 75
Voting Securities and Principal Holders................... 75
Vote Required; Voting and Revocation of Proxies........... 77
</TABLE>
i
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INFORMATION ABOUT BOWMAR.................................... 78
General................................................... 78
Narrative Description of Business......................... 78
Electromechanical and Mechanical Equipment and
Components............................................. 79
Principal Customers....................................... 80
Research, Engineering and Development..................... 80
Regulatory Matters........................................ 80
Government Contracting Regulation...................... 80
Environmental Protection............................... 81
Employees................................................. 81
Properties................................................ 81
Legal Proceedings......................................... 81
Market Price of and Dividends on Common Equity and Related
Stockholder Matters.................................... 82
Information Regarding Directors and Executive Officers.... 82
Biographical Information............................... 82
Executive Compensation................................. 83
Employment Agreements.................................. 83
Option Grants in 1997.................................. 85
Report of the Bowmar Compensation Committee on Option
Repricing............................................. 85
Option Exercises and Fiscal Year-End Values............ 86
Report of the Bowmar Compensation Committee............ 86
Director Compensation.................................. 87
Common Stock Performance............................... 88
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 89
INFORMATION ABOUT EDI....................................... 94
General................................................... 94
Narrative Description of the Business..................... 94
Production and Manufacturing.............................. 95
Marketing and Distribution................................ 95
Customers................................................. 95
Suppliers................................................. 95
Competition............................................... 96
Patents and Proprietary Technology........................ 96
Employees................................................. 96
Description of Property................................... 97
Market Price of and Dividends on Common Equity and Related
Stockholder Matters.................................... 97
Information Regarding Directors and Executive Officers.... 98
Biographical Information............................... 98
Director Compensation.................................. 98
Executive Compensation................................. 99
Option Grants in Fiscal Year 1997...................... 99
Option Exercises and Year-End Holdings................. 100
Employment and Severance Agreements.................... 100
Certain Relationships and Related Transactions......... 101
Report of the Compensation Committee of the EDI Board
on Executive Compensation............................. 101
Compensation Committee Interlocks and Insider
Participation......................................... 103
Stockholder Return Performance Graph................... 104
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 105
THE COMBINED COMPANY........................................ 111
</TABLE>
ii
<PAGE> 11
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPARATIVE RIGHTS OF STOCKHOLDERS.......................... 112
Directors................................................. 112
Election of Directors.................................. 112
Removal of Directors................................... 113
Amendments to Articles of Incorporation................... 113
Amendments of Bylaws...................................... 113
Shares and Stockholders................................... 114
Dividends.............................................. 114
Outstanding Preferred Stock............................ 114
Appraisal Rights of Dissenting Stockholders............ 115
Preemptive Rights...................................... 115
Cumulative Voting Rights............................... 115
Stockholder Meetings...................................... 115
Notice of Stockholder Proposals........................ 115
Stockholder Action by Written Consent.................. 116
Anti-Takeover Provisions.................................. 116
State Anti-Takeover Laws.................................. 117
Limitation of Liability................................... 118
Indemnification........................................... 119
SELLING STOCKHOLDERS........................................ 121
Table of Selling Stockholders............................. 121
Plan of Distribution...................................... 121
LEGAL MATTERS............................................... 123
EXPERTS..................................................... 123
STOCKHOLDER PROPOSALS....................................... 123
INDEX TO FINANCIAL STATEMENTS............................... 124
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
</TABLE>
iii
<PAGE> 12
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, Bowmar's name will be changed to "White Electronic Designs
Corporation ". 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
1
<PAGE> 13
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."
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."
2
<PAGE> 14
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 "White Electronic Designs Corporation" (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
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."
3
<PAGE> 15
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.
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 "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
4
<PAGE> 16
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 "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
"Provisions of Merger Agreement -- Termination of the Merger Agreement."
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 "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."
5
<PAGE> 17
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."
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
6
<PAGE> 18
with Year 2000 issue. See "Cautionary Statement Regarding Forward-Looking
Statements" and "Risk Factors."
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."
FEDERAL INCOME TAX CONSEQUENCES
The Merger has been structured to qualify as a tax-free reorganization for
federal income tax purposes. Bowmar has received an opinion of its counsel,
Bryan Cave LLP, that the Merger will so qualify. Accordingly, 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). 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 "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 "Provisions of Merger Agreement -- Conditions
of the Merger -- Mutual Conditions" and "The Merger -- Public Trading Market."
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 and the market value of
EDI Common Stock on an equivalent per share basis (calculated by multiplying the
Bowmar Common Stock closing price by the Exchange Ratio for the dates indicated)
on May 1, 1998 (the last trading day prior to the date that the Merger was
publicly announced),
7
<PAGE> 19
May 4, 1998 (the date that the Merger was publicly announced), and ,
1998 (the most recent practicable date):
<TABLE>
<CAPTION>
EDI
COMMON STOCK
BOWMAR $3.00 EDI (EQUIVALENT PER
DATE COMMON STOCK PREFERRED STOCK COMMON STOCK SHARE BASIS)
---- ------------ --------------- ---------------------------- ---------------
<S> <C> <C> <C> <C>
May 1, 1998.................... $2.25 $34.00 $3.00 $3.09
May 4, 1998.................... 2.31 35.50 3.00 $3.18
, 1998...............
</TABLE>
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 $3.00
COMMON STOCK PREFERRED STOCK
------------------- -------------------
FISCAL QUARTER 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>
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
8
<PAGE> 20
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 (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.
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
9
<PAGE> 21
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 FOR THE YEAR ENDED AT AND 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 FOR THE YEAR ENDED AT AND FOR THE
SEPTEMBER 30, SIX MONTHS ENDED
------------------------------ MARCH 29,
PER SHARE DATA: 1995 1996 1997 1998
--------------- -------- -------- -------- ----------------
<S> <C> <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 EQUIVALENT PRO FORMA (USING THE EXCHANGE RATIO OF 1.375)
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED AT AND FOR THE
SEPTEMBER 30, SIX MONTHS ENDED
------------------------------ MARCH 29,
PER SHARE DATA: 1995 1996 1997 1998
--------------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C>
Book Value.............................................. $(0.22) $1.17 $1.60 $ 1.55
Cash dividend, common stock............................. -- -- -- --
Income (loss) from continuing operations: (Note 2)
Basic................................................. 0.45 $0.54 $0.52 $(0.06)
Diluted............................................... 0.41 $0.43 $0.47
</TABLE>
PRO FORMA COMBINED (USING THE EXCHANGE RATIO OF 1.375)
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED AT AND 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.......................................... $0.16 $0.85 $1.16 $ 1.13
Cash dividend, common stock......................... -- -- -- --
Income (loss) from continuing operations:
Basic............................................. $0.33 $0.39 $0.38 $(0.04)
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.
10
<PAGE> 22
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
PricewaterhouseCoopers LLP, 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 PricewaterhouseCoopers 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.
Neither Bowmar nor EDI has paid any cash dividends on shares of Common Stock for
any of the periods indicated in the selected consolidated financial information
here provided.
11
<PAGE> 23
BOWMAR INSTRUMENT CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ------------------
---------------------------------------------------- MAR. 29, APR. 4,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- -------
(UNAUDITED)
<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.
12
<PAGE> 24
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
------- ------- ------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
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
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
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 Electronic Designs, Inc., a privately held
Massachusetts corporation ("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.
13
<PAGE> 25
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. Holders of EDI options and warrants will exchange those options and
warrants for options and warrants to acquire Bowmar Common Stock based on the
1.375 Exchange Ratio. The option and warrant conversion to common stock ratio
used to calculate EDI historical per share data was also included in the
calculation of the combined pro forma per share data. Direct costs of the Merger
are estimated to be $1,500,000. Other costs of consolidation have not been
determined. Neither direct costs or other costs are included in the pro forma
combined income (loss) from continuing operations per share for the periods
presented.
14
<PAGE> 26
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
PRO FORMA COMBINED BALANCE SHEETS
AS OF APRIL 4, 1998
(UNAUDITED)
(In thousands of dollars)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL ELECTRONIC
BOWMAR DESIGNS PRO FORMA PRO FORMA
INSTRUMENT (NOTE 1) ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<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 capital.......................... 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.
15
<PAGE> 27
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 ELECTRONIC
BOWMAR DESIGNS PRO FORMA PRO FORMA
INSTRUMENT (NOTE 1) ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<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.
16
<PAGE> 28
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 ELECTRONIC
BOWMAR DESIGNS PRO FORMA PRO FORMA
INSTRUMENT (NOTE 1) ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<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.
17
<PAGE> 29
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 ELECTRONIC
BOWMAR DESIGNS PRO FORMA PRO FORMA
INSTRUMENT (NOTE 1) ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<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.
18
<PAGE> 30
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 ELECTRONIC
BOWMAR DESIGNS PRO FORMA PRO FORMA
INSTRUMENT (NOTE 1) ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<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.
19
<PAGE> 31
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 ELECTRONIC
BOWMAR DESIGNS PRO FORMA PRO FORMA
INSTRUMENT (NOTE 1) ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<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.
20
<PAGE> 32
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.
21
<PAGE> 33
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.
22
<PAGE> 34
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. The
closing price of Bowmar's Common Stock was $ on ,
1998 (the most recent practicable date prior to the mailing of this Joint Proxy
Statement/Prospectus), and the closing price of EDI's Common Stock was
$ on such date. 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
23
<PAGE> 35
and determined to recommend its approval to its stockholders. See "The
Merger -- Interests of Certain Persons in the Merger."
23.1
<PAGE> 36
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 "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
24
<PAGE> 37
memory products toward the end of a product's life cycle are typically
characterized by steep declines in sales and pricing, the precise timing of
which may be difficult to predict. The 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. 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 receipt of orders for the related product from a customer in
South Korea. 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
25
<PAGE> 38
the companies introduce new products each year in response to the evolving
market.
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. As
provided in such severance agreement, a change in control of EDI is not deemed
to have occurred if the stockholders of EDI receive as a result of a merger
stock or other securities representing a majority in voting interest of the
acquiring company's equity securities. Accordingly, the Merger will not
constitute a change in control for purposes of Mr. McGuinness' severance
agreement.
26
<PAGE> 39
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 under certain circumstances, including without
limitation by reason of a significant change in the nature or scope of his
responsibilities or duties, Mr. Edwards 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. Despite the slow rate of adoption of the COTS
program, these changes have had a negative impact on both Bowmar's and EDI's
results of operations due to lower average selling prices of these products.
There can be no assurance that the rate of adoption of the COTS program will not
accelerate in the future and have a further adverse effect on the Combined
Company's results. 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 semiconduc-
27
<PAGE> 40
tor 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 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
28
<PAGE> 41
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.
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.
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
29
<PAGE> 42
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.
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.
30
<PAGE> 43
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.
31
<PAGE> 44
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 "White Electronic
Designs Corporation" See "The Bowmar Special Meeting," "The EDI Special Meeting"
and "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.
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.
32
<PAGE> 45
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 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
33
<PAGE> 46
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
From time to time, each of the companies has considered strategic
transactions or alliances within the industries in which they operate their
businesses. Management of EDI and Bowmar were generally familiar with each other
and with each company's businesses because each company competes in the memory
markets. Because of EDI's and Bowmar's knowledge of each other's businesses,
particularly with regard to memory modules, 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 potential for a merger of the two
companies. 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,
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.
34
<PAGE> 47
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. Based on the then current market price of Bowmar Common Stock of $2.375
per share, the value of the aggregate merger consideration of this proposal was
$39,282,500. 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, 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.
35
<PAGE> 48
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 considered issues related to projected revenues, cost
savings and competitive pressures related to the proposed combination, as well
as issues related to the possible structure of such a combination. In addition,
the Bowmar Board reviewed analyses of comparable acquisitions. 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, specifically, the proposed
transaction's structure and an evaluation of EDI's financial statements. The
Bowmar Board concluded that the price contained in EDI's July 17 proposal was
too high. The Bowmar Board discussed a counterproposal and approved the making
of such counterproposal to EDI. 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
10,783,764 shares of Bowmar Common Stock, significantly fewer shares than the
16,540,000 shares contemplated by EDI's July 17, 1997 proposal. The aggregate
merger value of Bowmar's counterproposal based on the then current market price
of Bowmar Common Stock of $2.875 was $31,003,322. 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
36
<PAGE> 49
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. In keeping with EDI's strategy of considering transactions or
alliances that may enhance shareholder value, EDI, through Alliant, contacted
various other companies within EDI's industry or that had businesses or business
segments that EDI believed could yield strategic benefits to EDI as a result of
a transaction between them. Of the companies that Alliant contacted, discussions
did not proceed past an initial stage for various reasons. Two of the companies
contacted by Alliant entered into agreements to merge with another entity, and
discussions were terminated by such companies as a result. Another company did
not believe that there were possible synergies between its business and EDI's
business as it related to EDI's military customers. Two other of the companies
that Alliant contacted were addressing internal business issues such that EDI
concluded that continuing discussions with such companies was not likely to
result in identifying possible synergies that would benefit EDI. In the case of
several other of the companies contacted by Alliant, discussions failed to
proceed beyond an initial stage for one or more of the following reasons: (i)
neither EDI nor the other companies were able to agree on a basic, preliminary
structure for a transaction; (ii) neither EDI nor the other companies were able
to agree on a general valuation of their respective businesses; and (iii) either
EDI or the other companies concluded that there were insufficient identifiable
synergies that could be realized in a transaction between them.
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, the equivalent of 8,813,474 shares of Bowmar Common Stock.
The aggregate merger consideration of this Bowmar proposal based on the then
current market price of Bowmar Common Stock of $2.5625 per share was
$22,584,526. Shortly thereafter, Mr. McGuinness conveyed to Bowmar EDI's view
that the exchange ratio should be 1.5 rather than 1.25 at which rate EDI
stockholders would have received 10,576,169 shares of Bowmar Common Stock at an
aggregate merger value, based on the then current market price of Bowmar Common
Stock, of $27,101,432, a $4,516,905 difference from Bowmar's February 9
proposal.
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
37
<PAGE> 50
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 which at the time represented
9,683,134 shares of Bowmar Common Stock to EDI stockholders at an aggregate
merger value based on the then current market price of Bowmar Common Stock of
$2.9375 per share of $28,444,205.
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, 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
38
<PAGE> 51
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.
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
39
<PAGE> 52
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.
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
40
<PAGE> 53
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.
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,
including the payment of the Termination Fee in the event Bowmar terminated the
Merger Agreement in order to enter into a "Superior Proposal" with a third
party. See "Provisions of Merger Agreement -- Termination of the Merger
Agreement," "-- Certain Covenants -- Agreement Not To Solicit Other Offers." The
Bowmar Board considered each of the factors it regarded as material to the
process, including the financial analysis of the Aeroflex offer, the potential
long term strategic benefits of the Merger as compared with being acquired by
Aeroflex at the offered price and the effect of such a transaction on Bowmar's
stockholders, customers and employees. 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
41
<PAGE> 54
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 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.
42
<PAGE> 55
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.
(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
43
<PAGE> 56
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, including the possibility that expected cost savings as a result of the
Merger would not be realized, the failure of the market to respond favorably to
an announced combination and the inability to successfully integrate the two
entities. Having considered all these factors, the Bowmar Board 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.
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 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
44
<PAGE> 57
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 "-- 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 "Provisions of Merger Agreement."
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.
45
<PAGE> 58
(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 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
46
<PAGE> 59
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 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
47
<PAGE> 60
"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 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.
48
<PAGE> 61
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.
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
49
<PAGE> 62
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 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
50
<PAGE> 63
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 Partners discounted the Public Comparable Companies valuation
multiples by a total of 27%, to adjust for EDI's financial performance and for
control of a company with publicly traded securities. The financial performance
adjustment was based on three financial metrics: Last Twelve Months (LTM)
Revenue Growth, Earnings Before Interest and Tax (EBIT) Margin, and Net Income
Margin. EDI had a LTM Revenue Growth, EBIT Margin, and Net Income Margin of
- -21.57%, 3.43% and 3.55%, respectively, as compared to the Public Comparable
Companies that had a LTM Revenue Growth, EBIT Margin, and Net Income Margin of
26.68%, 10.06% and 6.21%, respectively. The difference between EDI's and the
Public Comparable Companies' LTM Revenue Growth, EBIT Margin and Net Income
Margin was -180.82%, -65.93% and -42.79%, respectively. Using the financial
performance of EDI as compared to that of the Public Comparable Companies to
make appropriate valuation adjustments, Alliant Partners adjusted EDI's Public
Comparable Companies valuation -20% for each of the three financial metrics, LTM
Revenue Growth, EBIT Margin, and Net Income Margin, for a total financial
performance adjustment of -60%.
In addition to adjusting EDI's Public Comparable Companies valuation for
financial performance, Alliant Partners adjusted EDI's valuation to account for
acquiring control of a company's publicly traded securities. The acquisition of
control of a company's publicly traded securities usually warrants an
Acquisition Premium. Alliant Partners' research indicated that the average
acquisition premiums for transactions valued under $50 million was 33%.
Adjustments for financial performance, -60%, and for control, 33%, derived
a total adjustment of 27% to the Public Comparable Companies valuation of EDI.
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.
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
51
<PAGE> 64
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 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.
Alliant Partners rendered the May 29, 1998 fairness opinion based on a
pooling-of-interests accounting method for the transaction. An earlier fairness
opinion was provided to the EDI Board of Directors on May 3, 1998, which was
based on the transaction being accounted for by the purchase accounting method.
Both opinions concluded that the Exchange Ratio was fair to the EDI shareholders
from a financial point of view.
Although the valuation methodologies and processes that were employed in
analyzing the transactions did not change from the May 3, 1998 fairness opinion
to the May 29, 1998 fairness opinion, the transaction did change accounting
structure. The May 3, 1998 fairness opinion accounted the transaction as a
purchase. In a purchase transaction the acquiror must recognize goodwill and
adjust assets according to their fair value. The amortization of goodwill is
expensed on the acquiror's income statement each year for the number of years
that the goodwill is being amortized. This results in depressed earnings for the
years that the goodwill is being amortized, relative to the same income
statement which is based on the pooling-of-interests accounting method. The
projected goodwill recognized at the time the May 3, 1998 fairness opinion was
rendered was
52
<PAGE> 65
$5.6 million, after an estimated $3 million write-off of in-process R&D (based
on analysis and discussions between Alliant Partners, the managements of EDI and
Bowmar, and preliminary transaction accounting advice from the companies'
independent public accountants). This yielded an annual goodwill expense of
$560,000, amortized over ten years.
In a purchase transaction, the recognition of goodwill impacts the balance
sheet as well as the income statement. As a result of the mark-up of assets to
their fair value and the recognition of goodwill, the book value of the Combined
Company would have increased by $7.6 million.
The change to pooling-of-interests accounting as indicated in the May 29,
1998 fairness opinion, resulted in higher earnings because goodwill was not
recognized as a result of the transaction, and consequently, was not expensed to
the Combined Company pro forma income statements. Unlike a purchase transaction,
a pooling-of-interests transaction does not increase the book value of the
target: the target's book value carries over to the acquiror's book value.
The primary difference in the analyses supporting the two opinions was
related to effects from the different accounting treatments. Other differences
that changed the valuation of EDI and Bowmar in the May 29, 1998 fairness
opinion from the May 3, 1998 fairness opinion were timing related issues such as
the changes in the market values of the Public Comparables, the fluctuation of
the stock market prices of both EDI and Bowmar between the dates of the two
opinions and the downward revision of EDI's last twelve month operating results
which were updated to include EDI's quarterly result, which became available
after the May 3, 1998 opinion.
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
53
<PAGE> 66
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. However, pursuant to Mr. McGuinness' employment
agreement, Mr. McGuinness may terminate his employment at any time and receive
his base salary and fringe benefits for a period of 18 months. As provided in
Mr. McGuinness' severance agreement, a change in control of EDI is not deemed to
have occurred if the stockholders of EDI receive as a result of a merger stock
or other securities representing a majority in voting interest of the acquiring
company's equity securities. Accordingly, the Merger will not constitute a
change in control for purposes of Mr. McGuinness' severance agreement. 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 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 "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 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 "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
54
<PAGE> 67
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 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
"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.
55
<PAGE> 68
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.
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 "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 "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.
56
<PAGE> 69
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 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
57
<PAGE> 70
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 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
58
<PAGE> 71
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
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."
59
<PAGE> 72
PROVISIONS OF MERGER AGREEMENT
Set forth below is a description of the material 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 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
60
<PAGE> 73
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:
(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
61
<PAGE> 74
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.
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
62
<PAGE> 75
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.
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
63
<PAGE> 76
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.
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.
64
<PAGE> 77
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;
(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
65
<PAGE> 78
"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
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.
66
<PAGE> 79
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. This Voting Agreement covers 1,495,866 shares of
Bowmar Common Stock held by Mr. White.
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. This Voting Agreement covers 680,477
shares of EDI Common Stock held by TFP.
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.
67
<PAGE> 80
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. The 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 (which has been received), 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. Bryan Cave has delivered its opinion that, subject to the
qualifications and limitations set forth therein, the Merger will qualify as a
tax-free reorganization.
Subject to the qualifications set forth in the Bryan Cave opinion letter it
is the opinion of Bryan Cave LLP, that the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code, and that accordingly 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 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.
68
<PAGE> 81
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.
69
<PAGE> 82
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 D.F. King & Co., Inc., 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."
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 accommo-
70
<PAGE> 83
date 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 "White Electronic Designs
Corporation". 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.
71
<PAGE> 84
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 (7 Persons)....... 1,932,991(10) 27.43%
</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.
(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.
72
<PAGE> 85
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. In the event of any vote
to adjourn the Bowmar Special Meeting in order to allow Bowmar to solicit votes
in favor of the Bowmar Merger Proposal and the Bowmar Amendment Proposals,
proxies voting against the Bowmar Merger Proposal and the Bowmar Amendment
Proposals will be voted against the motion to adjourn 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 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.
73
<PAGE> 86
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.
74
<PAGE> 87
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.
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 D.F. King & Co., Inc., 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.
<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
</TABLE>
75
<PAGE> 88
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY OWNED(1) OF CLASS(2)
---------------- --------------------- -----------
<S> <C> <C>
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.
(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.
76
<PAGE> 89
(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 EDI 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.
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."
77
<PAGE> 90
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 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
78
<PAGE> 91
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.
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.
79
<PAGE> 92
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.
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.
80
<PAGE> 93
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.
81
<PAGE> 94
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 $3.00
COMMON STOCK PREFERRED STOCK
------------- ----------------
FISCAL QUARTER 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.
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
82
<PAGE> 95
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION -----------------------
-------------------- OPTIONS/ ALL 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 Executive Officer 1996 125,000 83,758 81,500 2,631
1995 110,000 87,570 7,500 2,406
Joseph G. Warren.............................. 1997 129,966 35,163 35,000 4,804
Vice President, Chief Financial Officer..... 1996 118,750 28,524 40,000 2,206
</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
83
<PAGE> 96
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 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
84
<PAGE> 97
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.
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
% OF TOTAL EXERCISE PRICE APPRECIATION
OPTIONS OPTIONS PRICE PER FOR OPTION TERM(2)
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
85
<PAGE> 98
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, $1.5625.
Current Bowmar Compensation Committee:
Chairman - Steven P. Matteucci, Dan McGurk and Thomas M. Reahard
The following table sets forth certain information concerning the repriced
options:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES LENGTH OF
UNDERLYING MARKET PRICE ORIGINAL OPTION
OPTIONS/ OF STOCK AT EXERCISE PRICE TERM
SARS TIME OF AT TIME OF REMAINING AT
REPRICED OF REPRICING OF REPRICING OR NEW DATE OF
AMENDED AMENDMENT AMENDMENT EXERCISE REPRICING OR
NAME DATE (#) ($) ($) PRICE($) 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>
SHARES VALUE OF UNEXERCISED
ACQUIRED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ON VALUE OPTIONS AT FISCAL YEAR-END FISCAL 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
86
<PAGE> 99
formula based on any particular performance measure. The Bowmar Board and the
Bowmar Compensation Committee applied this subjective 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.
87
<PAGE> 100
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.
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>
BOWMAR AMEX S&P
MEASUREMENT PERIOD INSTRUMENT MARKET TECHNOLOGY
(FISCAL YEAR COVERED) CORPORATION VALUE SECTOR
<S> <C> <C> <C>
9/92 100 100 100
9/93 96 121 122
9/94 196 122 140
9/95 157 145 222
9/96 96 152 272
9/97 150 191 442
</TABLE>
- ---------------
* $100 invested on 9/30/92 in stock or index -- including reinvestment or
dividends. Fiscal year ending September 30.
88
<PAGE> 101
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 a $600,000 increase for initial stocking orders for distributors
in the second quarter, a $1,400,000 increase in custom orders in the fourth
quarter, and new products which were introduced in the prior year in the
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 product line, down $900,000, and
rapid heat transfer sterilizer (RHT) product line, down $250,000, and the
interface product line, down $1,600,000. The ordnance and RHT product lines were
sold in the third quarter of fiscal 1996, which contributed to the year to year
lower sales number. Interface sales were lower because of the increased
competition in the marketplace. Sales in the microelectronic segment increased
4.3%, or $775,000. As a result of the microelectronic segment shift to standard
military products, Flash and SRAM product lines sales increased by $4,900,000,
while EEPROM sales were down $4,100,000 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 brought about by a very competitive market
which Bowmar expects will continue in fiscal 1998. Gross margin
89
<PAGE> 102
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 reasons for the increase were an increase in
advertising, up $30,000, and sales commissions, up $210,000, relating to
increased sales volume. Legal expenses also increased in fiscal 1997 because of
the previously mentioned investigation by the U.S. Attorney's office. Selling,
general and administrative payroll expense was up $240,000 because of increased
headcount to support higher sales volume. The fiscal 1996 selling, general and
administrative expenses were 10.4% below 1995. The main reason for the decline
was the $575,000 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. An additional $245,000 decline was
attributed to cost cutting in the electromechanical segment. The declines in the
electro-mechanical segment were partially offset by $200,000 higher 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.
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.
90
<PAGE> 103
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.
In fiscal 1997 and 1996, Bowmar generated $1,295,000 and $309,000
respectively of cash from operating activities. Net income in fiscal 1997,
without the effect of a reverse for loss from discontinued operations, was
$12,000 higher than fiscal 1996. Cash provided from continuing operations in
fiscal 1997 was approximately $1,302,000. The major use of cash in fiscal 1997
was for inventories, which increased $2,099,000. The increase was needed to take
advantage of favorably priced buying opportunities in the second half of the
year, and to prepare for the move of the microelectronics division in October
1997. Because of the inventory increases, accounts payable balances were
$1,055,000 higher than the previous year, thereby providing a source of cash.
Bowmar's operations used approximately $1,208,000 cash in the first six
months of fiscal 1998. This was mainly caused by an increase in accounts
receivable of $1,284,000 from the year end. Sales in the second quarter occurred
closer to the end of the quarter than in previous quarters. This caused an
increase, when compared to previous quarters, where sales occurred more evenly
over the quarter. This shift was temporarily
91
<PAGE> 104
caused by customer delivery requirements. Another use of cash factor was
payments made to reduce accounts payable from year-end balances. These
reductions resulted in a $534,000 use of cash. Bowmar expects that revenue 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.
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.
The major use of funds for capital expenditures in fiscal 1997 and 1998 was
for the build out of the White Microelectronics' new 53,000 square foot
manufacturing facility in Phoenix, Arizona. Expenditures for building and
manufacturing area improvements totaled $1,314,000 in fiscal 1997 and $224,000
in fiscal 1998. Additional expenditures for manufacturing and office equipment
account for the remaining $127,000 of property, plant and equipment purchases in
the first six months of fiscal 1998. The new building expenditures in fiscal
1997 are the main reason for the $1,520,000 increase from 1996 in property,
plant and equipment.
Other major balance sheet account changes during fiscal 1998 include the
following items: Accounts receivable increased $1,284,000 mainly because of
shipment timing differences from previous quarters. These balances were
collected in the third quarter, and accounts receivable balances decreased to
fiscal year-end 1997 levels. Allowance for doubtful accounts decreased $93,000
from fiscal 1996 because of the sale of the dental sterilizer business in fiscal
1996. Without this line of business, the allowance percentage needed for the
remaining government contractor receivables is much lower since nonpayment
occurs rarely. Inventories decreased $440,000 from year-end 1997 amounts as
Bowmar used the inventory purchased in late fiscal 1997. Raw materials decreased
$1,330,000 as the components were used for production. Because of the inventory
buildup in fiscal 1997, inventory purchases for the first six months of fiscal
1998 were $840,000 below fiscal 1997 purchases. The current portion of long-term
debt has decreased by $724,000 because of payment of a $1,000,000 short-term
loan. This reduction was slightly offset by a $300,000 current portion increase
because the loan for leasehold improvements was refinanced to a shorter
maturity. Accounts payable decreased $534,000 as payments were made for the
inventory purchases of late fiscal 1997.
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.
92
<PAGE> 105
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.
93
<PAGE> 106
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 ("PC")
technology based computer system incorporating EDI's displays, as well as the
development of advanced display driver electronics.
94
<PAGE> 107
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 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
95
<PAGE> 108
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.
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
96
<PAGE> 109
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.
<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.
97
<PAGE> 110
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>
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 $250 per meeting for his services as a director and
is reimbursed for reasonable and necessary expenses incurred in attending the
meetings of the Board or any committee thereof.
Under the terms of EDI's 1987 Option Plan, as amended (the "Option Plan"),
each nonemployee director (a "Qualifying Director") is entitled to receive upon
election to the Board of Directors for each three
98
<PAGE> 111
years of service an option to purchase 15,000 shares of Common Stock at an
exercise price equal to the fair market value per share at the date of grant and
vesting in three equal installments over three years. At the present, the
Qualifying Directors are Dr. Hall and Messrs. Schultz and Toy.
EDI will indemnify each director serving on the Board in connection with
his service as a director of EDI to the fullest extent allowed by Delaware law,
EDI's Certificate of Incorporation, and EDI's By-Laws, as each may be amended
from time to time.
Executive Compensation
The following table sets forth, for each of EDI's last three fiscal years,
the annual compensation awarded to the (i) person who served as EDI's chief
executive officer during fiscal 1997, and (ii) the other most highly compensated
executive officer (other than EDI's chief executive officer) who was serving as
an executive officer at the end of fiscal 1997 and who will continue in the
capacity of an executive officer of the Combined Company (the "EDI Named
Executive Officers"). None of the EDI Named Executive Officers were employed by
EDI in fiscal year 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------------ ---------- ------------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) 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, 1996 218,836 168,750 12,000 400,000 6,108(2)
President, and Chief 1995 -- -- -- -- --
Executive Officer
Frank D. Edwards............ 1997 155,000 20,900 6,600 30,000 --
Senior Vice President of 1996 141,027 95,250 6,600 150,000 --
Finance, Chief Financial 1995 -- -- -- -- --
Officer, and 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(%) ($/SH) DATE
---- ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Frank D. Edwards................................. 30,000(1) 9.0 3.5625 08/13/02
</TABLE>
- ---------------
(1) As of September 30, 1997, no options were immediately exercisable. The
options vest with respect to 10% of the shares six months from the date of
grant with the remainder vesting monthly over a five-year period.
99
<PAGE> 112
Option Exercises and Year-End Holdings
The following table sets forth the aggregate number of options exercised in
fiscal year 1997 and the value of options held as of September 30, 1997 by the
EDI Named Executive Officers.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997 AND
FISCAL YEAR-END 1997 OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN THE MONEY
SHARES OPTIONS AT FISCAL OPTIONS AT FISCAL
ACQUIRED ON YEAR-END(#) YEAR-END($)(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.
100
<PAGE> 113
Pursuant to the agreement, in the event that Mr. Edwards' employment is
terminated under certain circumstances, 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 agreements) are
101
<PAGE> 114
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 Officer in his discretion, taking into account
individual performance and responsibilities, and in some cases,
102
<PAGE> 115
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.
103
<PAGE> 116
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.
[GRAPH]
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.
104
<PAGE> 117
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.
105
<PAGE> 118
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 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. As
a result of not having received these orders and the expectation that no
significant orders would be received from this customer for at least six months,
the related inventory was written down to its estimated realizable value. 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.
106
<PAGE> 119
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.
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.
Net income (loss). The net loss for the first six months of fiscal 1998
was $920,000 as compared to net income of $2,338,000 for the same period in
fiscal 1997 as a result of the lower gross profit in fiscal 1998 offset by the
impact of the provision for income taxes and loss from discontinued operations
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
107
<PAGE> 120
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.
Net income. Net income for fiscal 1997 was $3,776,000 as compared to
$2,808,000 for the same period in fiscal 1996 as a result of the lower provision
for income taxes and loss from discontinued operations in fiscal 1997. Reduced
operating and other expense (net) in fiscal 1997 as compared to fiscal 1996
offset the lower gross profit in fiscal 1997.
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
and the net loss for fiscal 1995 related solely to discontinued operation of
Crystallume.
Pro Forma Revenue of EDI and EDI-MA. 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 of EDI and EDI-MA. 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 of EDI and EDI-MA. 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 of EDI and EDI-MA. 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
108
<PAGE> 121
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.
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.
109
<PAGE> 122
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 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.
110
<PAGE> 123
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 "White Electronic Designs
Corporation". 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.
111
<PAGE> 124
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 is a
discussion of the material 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 on the fifth day following the
Effective Time, the three nominees designated by EDI. See "The
112
<PAGE> 125
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.
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
113
<PAGE> 126
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
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
114
<PAGE> 127
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.
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
115
<PAGE> 128
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 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
116
<PAGE> 129
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 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
117
<PAGE> 130
(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 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
118
<PAGE> 131
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.
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
119
<PAGE> 132
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 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."
120
<PAGE> 133
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 EDI SHARES OF
COMMON STOCK COMBINED COMPANY PERCENT OF ALL
BENEFICIALLY OWNED COMMON STOCK SHARES OF
AS OF MAY 27, OFFERED BY COMBINED COMPANY
NAME 1998 THIS PROSPECTUS COMMON STOCK
---- ------------------ ---------------- ----------------
<S> <C> <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 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.
121
<PAGE> 134
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 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
122
<PAGE> 135
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 PricewaterhouseCoopers LLP, 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
PricewaterhouseCoopers 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 stockholder
proposal pursuant to SEC Rule 14a-8 promulgated under the Exchange Act for
presentation to the Combined Company's 1999 Annual Meeting of Stockholders must
submit such 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. A Combined Company
stockholder proposal submitted other than pursuant to Rule 14a-8 will be timely
for purposes of Rule 14a-4(c)(l) if submitted to the Combined Company on or
before November 16, 1998.
In the event the Merger is not consummated, any Bowmar stockholder that
wishes to submit a stockholder proposal pursuant to SEC Rule 14a-8 promulgated
under the Exchange Act 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. A Bowmar stockholder
proposal submitted other than pursuant to Rule 14a-8 will be timely for purposes
of Rule 14a-4(c)(l) if submitted to Bowmar on or before November 16, 1998.
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 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.
123
<PAGE> 136
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>
124
<PAGE> 137
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> 138
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 doubtful accounts
of $43 and $136........................................ 4,476 3,992
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 and 119,948 shares.............. $ 120 $ 120
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> 139
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> 140
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> 141
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
Allowance for doubtful accounts........................... (93) 34 (24)
Reserve for excess and obsolete inventory................. 113 66 481
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....................................... (391) (144) 976
Inventories............................................... (2,212) (705) (1,035)
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 property, 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) line of credit, net.......... 2,331 0 (39)
Borrowings of long-term debt................................ 190 4,200 0
Retirement of long-term debt................................ (833) (4,623) (1,698)
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> 142
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 depreciation methods and useful lives for tax purposes, the
allowances for doubtful accounts, inventory obsolescence and the timing of
reporting bonus expense.
F-6
<PAGE> 143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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):
<TABLE>
<CAPTION>
FISCAL 1997
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Earnings from continuing operations, net of tax... $1,302,000
Less: preferred stock dividends................. 360,000
---------- --------- ------
BASIC EPS
Earnings applicable to continuing operations,
net of tax................................... 942,000 6,640,772 $ 0.14
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>
<TABLE>
<CAPTION>
FISCAL 1996
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Earnings from continuing operations, net of tax... $1,290,000
Less: preferred stock dividends................. 360,000
---------- --------- -----
BASIC EPS
Earnings applicable to continuing operations, net
of tax.......................................... 930,000 6,642,077 $0.14
---------- --------- -----
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>
F-7
<PAGE> 144
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FISCAL 1995
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>
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.
K. OTHER EXPENSE AND INCOME
Fiscal 1997 Other Expense includes a $425,000 loss on the sale of the
Acton, Massachusetts property, offset by $288,000 of partial year rental
income, gain on the sale of stock of a former subsidiary, and miscellaneous
income. Fiscal 1996 Other income includes $572,000 of full year net rental
income for the Acton property. Fiscal 1995 Other income includes $552,000
of full year net rental income for the Acton property, offset by a $319,000
write-off of goodwill associated with the Cox Sterile Products acquisition.
F-8
<PAGE> 145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-9
<PAGE> 146
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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>
F-10
<PAGE> 147
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 returns............... (1.5) (2.1) 0.0
Elimination of valuation allowance for deferred tax
assets.................................................... 0.0 .0 (582.3)
---- ---- ------
Effective Tax Rate.......................................... 37.0% 38.2% (576.4)%
==== ==== ======
</TABLE>
The income tax effect of loss carryforwards, tax credit carryforwards and
temporary differences between financial and tax reporting give rise to the
deferred income assets and liabilities. Deferred income taxes consisted of the
following:
<TABLE>
<CAPTION>
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.
F-11
<PAGE> 148
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
F-12
<PAGE> 149
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 AVERAGE
UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE
OPTION PRICE OPTION PRICE OPTION 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.
F-13
<PAGE> 150
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 WEIGHTED
SHARES AVERAGE REMAINING AVERAGE
UNDER EXERCISE CONTRACTUAL EXERCISABLE EXERCISE
OPTION PRICE LIFE SHARES PRICE
------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Range of exercise price:
$1.250 - $2.625................... 630,500 $1.99 8.46 years 370,625 $2.01
$3.125 - $3.562................... 32,000 $3.38 7.77 years 32,000 $3.38
------- ----- ---------- ------- -----
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.
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.
F-14
<PAGE> 151
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-15
<PAGE> 152
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-16
<PAGE> 153
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
FISCAL YEAR
TECHNOLOGIES DIVISION -------------------------------------
OPERATING RESULTS 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>
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) microelec-
F-17
<PAGE> 154
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tronic 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.
A significant portion of the Company's sales activity is sales to foreign
customers. Export sales as a percent of total sales in fiscal 1997, 1996, and
1995 were 26%, 24%, and 12% respectively.
FOREIGN SALES BY MAJOR GEOGRAPHICAL SEGMENT
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996 FISCAL 1995
----------- ----------- -----------
<S> <C> <C> <C>
EUROPE............................................ $4,219 $4,042 $2,278
ASIA.............................................. $3,108 $2,151 $ 824
------ ------ ------
TOTAL............................................. $7,327 $6,193 $3,102
</TABLE>
F-18
<PAGE> 155
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATIONS BY BUSINESS SEGMENTS
(In thousands of dollars)
<TABLE>
<CAPTION>
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> 156
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
====== ====== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996
-------------------------------------------
DEC 30 MAR 29 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> 157
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> 158
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> 159
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> 160
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.
F-24
<PAGE> 161
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted EPS is
provided as follows (in thousands, except per share amounts).
<TABLE>
<CAPTION>
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
operations, net of tax...... $503,000 $827,000
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.
F-25
<PAGE> 162
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
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.
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 -------------------------
OPERATING RESULTS FISCAL 1998 FISCAL 1997
--------------------- ----------- -----------
<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 liabilities.............. 1,057,000)
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> 163
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> 164
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> 165
ELECTRONIC DESIGNS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------- YEAR ENDED SEPTEMBER 30,
MARCH 29, MARCH 30, ---------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.............................. $17,310,000 $20,589,000 $42,104,000 $57,478,000 $ --
Cost of revenues...................... 12,957,000 12,249,000 26,610,000 40,644,000 --
----------- ----------- ----------- ----------- -----------
Gross profit........................ 4,353,000 8,340,000 15,494,000 16,834,000 --
----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development............ 1,288,000 978,000 2,135,000 1,846,000 --
Selling, general and
administrative.................... 3,692,000 3,914,000 7,487,000 8,561,000 --
Amortization of intangible assets... 233,000 233,000 466,000 469,000 --
----------- ----------- ----------- ----------- -----------
5,213,000 5,125,000 10,088,000 10,876,000 --
----------- ----------- ----------- ----------- -----------
Income (loss) from operations......... (860,000) 3,215,000 5,406,000 5,958,000 --
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income..................... 79,000 109,000 212,000 53,000 --
Interest expense.................... (139,000) (159,000) (321,000) (760,000) --
----------- ----------- ----------- ----------- -----------
(60,000) (50,000) (109,000) (707,000) --
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes and
discontinued operations............. (920,000) 3,165,000 5,297,000 5,251,000 --
Provision for income taxes............ -- 317,000 149,000 702,000 --
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations.......................... (920,000) 2,848,000 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........ -- 510,000 399,000 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..... -- 510,000 1,372,000 1,741,000 4,158,000
----------- ----------- ----------- ----------- -----------
Net income (loss)..................... $ (920,000) $ 2,338,000 $ 3,776,000 $ 2,808,000 $(4,158,000)
=========== =========== =========== =========== ===========
Basic earnings (loss) per share:
Income (loss) from continuing
operations........................ $ (0.13) $ 0.42 $ 0.74 $ 0.82 $ --
Loss from discontinued operations... -- (0.08) (0.20) (0.31) (1.29)
----------- ----------- ----------- ----------- -----------
Net income (loss)................... $ (0.13) $ 0.34 $ 0.54 $ 0.51 $ (1.29)
=========== =========== =========== =========== ===========
Diluted earnings (loss) per share:
Income (loss) from continuing
operations........................ $ (0.13) $ 0.37 $ 0.68 $ 0.60 $ --
Loss from discontinued operations... -- (0.07) (0.18) (0.23) (1.29)
----------- ----------- ----------- ----------- -----------
Net income (loss)................... $ (0.13) $ 0.30 $ 0.50 $ 0.37 $ (1.29)
=========== =========== =========== =========== ===========
Basic weighted average common
shares.............................. 7,070,000 6,852,000 6,948,000 5,546,000 3,226,000
=========== =========== =========== =========== ===========
Diluted weighted average common shares
and equivalents..................... 7,070,000 7,674,000 7,579,000 7,603,000 3,226,000
=========== =========== =========== =========== ===========
</TABLE>
F-29
<PAGE> 166
ELECTRONIC DESIGNS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL TREASURY STOCK
---------------- -------------------- PAID IN ACCUMULATED --------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT
------ ------- --------- -------- ----------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance September 30, 1994......... -- $ -- 3,151,466 $32,000 $18,558,000 $(16,510,000) -- $ --
Common stock issued under stock
option plans at $.22 to $3.75
per share....................... -- -- 45,498 -- 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..................... 3,829 -- 382,900 4,000 3,362,000 -- -- --
Issuance of warrants to purchase
common stock.................... -- -- -- -- 9,000 -- -- --
Conversion of accrued interest
into Units at $1,000 per Unit... 156 -- 15,600 -- 156,000 -- -- --
Net loss.......................... -- -- -- -- -- (4,158,000) -- --
------ ------- --------- ------- ----------- ------------ -------- ---------
Balance September 30, 1995......... 3,985 -- 3,595,464 36,000 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........................... -- -- 93,744 1,000 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..................... -- -- 951,111 10,000 2,170,000 -- -- --
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 -- 20,000 -- -- --
Conversion of notes and interest
payable to shareholders into
common stock at $2.50 per
share........................... -- -- 781,724 8,000 1,946,000 -- -- --
Issuance of warrants to purchase
common stock.................... -- -- -- -- 28,000 -- -- --
Exercise of warrants to purchase
common stock at $3.25 per
share........................... -- -- 5,000 -- 16,000 -- -- --
Conversion of preferred stock into
common stock.................... (2,162) -- 864,800 9,000 (9,000) -- -- --
Net income........................ -- -- -- -- -- 2,808,000 -- --
------ ------- --------- ------- ----------- ------------ -------- ---------
Balance September 30, 1996......... 1,823 -- 6,341,896 64,000 26,943,000 (17,860,000) -- --
Purchase of common stock for
treasury, at cost............... -- -- -- -- -- -- (56,650) (194,000)
Common stock issued under employee
stock option and stock purchase
plans at $0.22 to $3.75 per
share........................... -- -- 77,199 1,000 7,000 -- 21,656 75,000
Stock purchase warrant issued in
partial payment of services..... -- -- -- -- 25,000 -- -- --
Conversion of preferred stock into
common stock.................... (1,823) -- 729,200 7,000 (7,000) -- -- --
Net income........................ -- -- -- -- -- 3,776,000 -- --
------ ------- --------- ------- ----------- ------------ -------- ---------
Balance September 30, 1997......... -- -- 7,148,295 72,000 26,968,000 (14,084,000) (34,994) (119,000)
Common stock issued under employee
stock option and stock purchase
plans at $0.22 to $3.75 per
share (unaudited)............... -- -- -- -- (18,000) -- 12,382 43,000
Issuance of warrants to purchase
common stock (unaudited)........ -- -- -- -- 15,000 -- -- --
Purchase of common stock for
treasury, at cost (unaudited)... -- -- -- -- -- -- (85,404) (310,000)
Net loss (unaudited).............. -- -- -- -- -- (920,000) -- --
------ ------- --------- ------- ----------- ------------ -------- ---------
Balance March 29, 1998
(unaudited)....................... -- $ -- 7,148,295 $72,000 $26,965,000 $(15,004,000) (108,016) $(386,000)
====== ======= ========= ======= =========== ============ ======== =========
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
-------------
<S> <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............... (194,000)
Common stock issued under employee
stock option and stock purchase
plans at $0.22 to $3.75 per
share........................... 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......... 12,837,000
Common stock issued under employee
stock option and stock purchase
plans at $0.22 to $3.75 per
share (unaudited)............... 25,000
Issuance of warrants to purchase
common stock (unaudited)........ 15,000
Purchase of common stock for
treasury, at cost (unaudited)... (310,000)
Net loss (unaudited).............. (920,000)
-----------
Balance March 29, 1998
(unaudited)....................... $11,647,000
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 167
ELECTRONIC DESIGNS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
------------------------------- ---------------------------------------
MARCH 29, 1998 MARCH 30, 1997 1997 1996 1995
-------------- -------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
Cash flows from operating activities:
Net income (loss)........................... $ (920,000) $ 2,338,000 $ 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........... 689,000 883,000 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.......................... 2,643,000 463,000 (1,037,000) (281,000) (165,000)
Decrease (increase) in inventories.... 891,000 746,000 (1,445,000) 2,932,000 (83,000)
Decrease (increase) in prepaid
expenses............................ 22,000 46,000 (42,000) 22,000 3,000
(Increase) decrease in other assets... (62,000) -- 43,000 8,000 (983,000)
(Decrease) increase in accounts
payable............................. (2,861,000) (1,422,000) 394,000 320,000 (47,000)
(Decrease) increase in accrued
expenses............................ (442,000) (641,000) (356,000) (1,897,000) 604,000
Increase in deferred rent............. -- -- -- 26,000 85,000
----------- ----------- ----------- ----------- -----------
Net cash flows provided by (used in)
operating activities................ (40,000) 2,413,000 2,563,000 5,605,000 (4,162,000)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital equipment expenditures.............. (441,000) (336,000) (1,030,000) (368,000) (412,000)
Cash proceeds from the sale of discontinued
operations................................ 500,000 -- -- -- --
Cash paid for acquisition of EDI-MA , net of
cash acquired............................. -- -- -- (8,088,000) --
----------- ----------- ----------- ----------- -----------
Net cash flows provided by (used in)
investing activities................ 59,000 (336,000) (1,030,000) (8,456,000) (412,000)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Sale of common stock, net................... 25,000 4,000 83,000 2,275,000 11,000
Sale of stock Units, net.................... -- -- -- -- 3,366,000
Repurchase of common stock.................. (310,000) -- (194,000) -- --
Proceeds from issuance of long-term debt.... 150,000 750,000 1,012,000 5,500,000 --
Principal repayments on long-term debt...... (549,000) (654,000) (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................ (684,000) 100,000 (611,000) 4,096,000 3,657,000
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................. (665,000) 2,177,000 922,000 1,245,000 (917,000)
Cash and cash equivalents at beginning of
period...................................... 4,212,000 3,290,000 3,290,000 2,045,000 2,962,000
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period.... $ 3,547,000 $ 5,467,000 $ 4,212,000 $ 3,290,000 $ 2,045,000
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE> 168
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.
F-32
<PAGE> 169
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-33
<PAGE> 170
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-34
<PAGE> 171
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
<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 of $539,000 (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
F-35
<PAGE> 172
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
SEPTEMBER 30,
USEFUL LIFE -------------------------
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> 173
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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).
F-37
<PAGE> 174
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities of the term loan and equipment loan are summarized as
follows:
<TABLE>
<S> <C>
Year ending September 30,
1998.................................... $924,000
1999.................................... 941,000
2000.................................... 940,000
2001.................................... 139,000
2002.................................... 16,000
</TABLE>
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 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>
F-38
<PAGE> 175
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 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.
F-39
<PAGE> 176
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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> <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>
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.
F-40
<PAGE> 177
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
F-41
<PAGE> 178
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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).
- 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).
F-42
<PAGE> 179
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- 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>
YEAR ENDED SEPTEMBER 30, OPERATING CAPITAL
------------------------ --------- --------
<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.
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.
F-43
<PAGE> 180
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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-44
<PAGE> 181
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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-45
<PAGE> 182
APPENDICES
<TABLE>
<S> <C>
I. MERGER AGREEMENT
II. OPINION OF BOWMAR'S FINANCIAL ADVISOR
III. OPINION OF EDI'S FINANCIAL ADVISOR
IV. DELAWARE GENERAL CORPORATION LAW SECTION 262
</TABLE>
<PAGE> 183
APPENDIX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 184
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
2.20 Environmental Matters............................. 19
2.21 Labor Matters..................................... 21
2.22 Disclosure........................................ 21
</TABLE>
<PAGE> 185
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
<PAGE> 186
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
<PAGE> 187
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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>
<PAGE> 188
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 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
1
<PAGE> 189
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.
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
2
<PAGE> 190
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, 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 sufficient number of shares of Bowmar Stock for delivery upon the
exercise of EDI Options and EDI Warrants after the Effective Time.
3
<PAGE> 191
(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.
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
4
<PAGE> 192
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 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.
5
<PAGE> 193
(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 Section
1.368-1(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.
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
6
<PAGE> 194
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 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
7
<PAGE> 195
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 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 preferred stock, (the "EDI Preferred Stock"). As of May 1,
1998, (a) 7,047,380 shares of EDI Common Stock were issued and
8
<PAGE> 196
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 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").
9
<PAGE> 197
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 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.
10
<PAGE> 198
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 "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.
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.
11
<PAGE> 199
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, 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.
12
<PAGE> 200
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.
(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
13
<PAGE> 201
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.
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 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
14
<PAGE> 202
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 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
15
<PAGE> 203
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 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
16
<PAGE> 204
affect the ability of Bowmar to perform its obligations set forth herein or to
consummate the transactions contemplated hereby.
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 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
17
<PAGE> 205
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;
(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
18
<PAGE> 206
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.
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.
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
19
<PAGE> 207
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 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
20
<PAGE> 208
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 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
21
<PAGE> 209
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:
(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.
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
22
<PAGE> 210
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.
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,
23
<PAGE> 211
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,
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 promulgated under the Securities Act shall enter into an
agreement in the form attached hereto as Schedule 4.11.
24
<PAGE> 212
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 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);
25
<PAGE> 213
(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 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.
26
<PAGE> 214
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 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, 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
27
<PAGE> 215
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 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
28
<PAGE> 216
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 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 not reasonably be expected to have a
material adverse effect on the business, assets
29
<PAGE> 217
(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 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
30
<PAGE> 218
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.
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 obtained at a meeting duly convened therefor or at
any adjournment or postponement thereof;
31
<PAGE> 219
(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 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.
32
<PAGE> 220
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 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.
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
33
<PAGE> 221
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 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.
34
<PAGE> 222
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 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
35
<PAGE> 223
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 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
36
<PAGE> 224
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 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
37
<PAGE> 225
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:
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
38
<PAGE> 226
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. 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 that each person who is or may be an "affiliate" of
Bowmar within
39
<PAGE> 227
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
40
<PAGE> 228
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 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.
41
<PAGE> 229
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.
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.
42
<PAGE> 230
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:
43
<PAGE> 231
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
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.
44
<PAGE> 232
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.
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.
45
<PAGE> 233
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:
46
<PAGE> 234
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.
47
<PAGE> 235
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
BOWMAR INSTRUMENT CORPORATION
MAY 3, 1998
- --------------------------------------------------------------------------------
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.
48
<PAGE> 236
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
BOWMAR INSTRUMENT CORPORATION
MAY 3, 1998
- --------------------------------------------------------------------------------
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.
49
<PAGE> 237
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
50
<PAGE> 238
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.
51
<PAGE> 239
(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 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
52
<PAGE> 240
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 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
53
<PAGE> 241
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.
(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.
54
<PAGE> 242
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.
<TABLE>
<C> <S> <C>
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.**
</TABLE>
II-1
<PAGE> 243
<TABLE>
<C> <S> <C>
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.*
10.3 -- Executive Employment Agreement, dated May 26, 1998, between Hamid Shokrgozar and Bowmar Instrument
Corporation.**
10.4 -- Executive Employment Agreement, dated May 26, 1998, Joseph G. Warren, Jr.**
21.1 -- Subsidiaries of Bowmar Instrument Corporation.*
23.1 -- Consent of PricewaterhouseCoopers LLP**
23.2 -- Consent of PricewaterhouseCoopers LLP**
23.3 -- Consent of Bryan Cave LLP.**
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.**
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
*** To be filed by Amendment.
(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
II-2
<PAGE> 244
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.
(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-3
<PAGE> 245
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
(THE "SECURITIES ACT") THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF PHOENIX, ARIZONA, ON JULY 24, 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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ HAMID R. SHOKRGOZAR President, Chief Executive July 24, 1998
- ----------------------------------------------------- Officer and Director
HAMID R. SHOKRGOZAR
/s/ JOSEPH G. WARREN, JR. Vice President, Finance, Chief July 24, 1998
- ----------------------------------------------------- Financial Officer, Secretary,
JOSEPH G. WARREN, JR. Chief Accounting Officer,
Treasurer and Controller
/s/ THOMAS K. LANIN* Director July 24, 1998
- -----------------------------------------------------
THOMAS K. LANIN
/s/ STEVEN P. MATTEUCCI* Director July 24, 1998
- -----------------------------------------------------
STEVEN P. MATTEUCCI
/s/ DAN L. MCGURK* Director July 24, 1998
- -----------------------------------------------------
DAN L. MCGURK
/s/ THOMAS M. REAHARD* Director July 24, 1998
- -----------------------------------------------------
THOMAS M. REAHARD
/s/ EDWARD A. WHITE* Director and Chairman of the July 24, 1998
- ----------------------------------------------------- Board
EDWARD A. WHITE
*By: /s/ JOSEPH G. WARREN, JR.
- ----------------------------------------------------
JOSEPH G. WARREN, JR.
Attorney-in-fact pursuant
Power of Attorney dated June 10, 1998
</TABLE>
II-4
<PAGE> 246
EXHIBIT INDEX
<TABLE>
<C> <S> <C>
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.*
10.3 -- Executive Employment Agreement, dated May 26, 1998, between
Hamid Shokrgozar and Bowmar Instrument Corporation.**
10.4 -- Executive Employment Agreement, dated May 26, 1998, between
Joseph G. Warren, Jr. and Bowmar Instrument Corporation.**
21.1 -- Subsidiaries of Bowmar Instrument Corporation.*
23.1 -- Consent of PricewaterhouseCoopers LLP**
23.2 -- Consent of PricewaterhouseCoopers LLP**
23.3 -- Consent of Bryan Cave LLP.**
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.**
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
*** To be filed by Amendment.
<PAGE> 1
EXHIBIT 5.1
BRYAN CAVE LLP
700 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20005-3960
(202) 508-6000
FACSIMILE: (202) 508-6200
July 24, 1998
Board of Directors
Bowmar Instrument Corporation
3601 E. University Drive
Phoenix, Arizona 85034
Gentlemen:
We have acted as counsel to Bowmar Instrument Corporation, an
Indiana corporation (the "Company"), in connection with the Registration
Statement on Form S-4, No. 333-56565 (the "Registration Statement") of the
Company filed with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
merger (the "Merger") in accordance with the Agreement and Plan of Merger (the
"Merger Agreement"), dated as of May 3, 1998, and as amended, by and among the
Company, Electronic Designs, Inc., a Delaware corporation ("EDI") and Bravo
Acquisition Subsidiary, a Delaware corporation, and to the registration under
the Securities Act of (a) up to 10,000,000 shares of the common stock, stated
value $0.10 per share, of the Company (the "Common Stock"), and associated
common stock purchase rights, to be issued pursuant to the Merger to the holders
of the common stock, par value $0.01 per share, of EDI; and (b) 1,600,000 shares
of Common Stock, and associated common stock purchase rights, issuable upon the
exercise of the Common Stock Purchase Warrants to be issued by the Company in
connection with the Merger to the holders of common stock purchase warrants of
EDI (the 11,600,000 shares of Common Stock collectively referred to herein as
the "Shares").
In connection therewith, we have examined and relied as to
matters of fact upon the Registration Statement, including the Joint Proxy
Statement/Prospectus, originals or copies certified to our satisfaction of the
Amended and Restated Articles of Incorporation of the Company and the Amended
and Restated Code of By-Laws of the Company, certificates of public officials,
statements and certificates of officers of the Company, proceedings of the Board
of Directors of the Company and such other corporate records, documents,
certificates, opinions and instruments as we have deemed necessary or
appropriate in order to enable us to render the opinion expressed below.
In rendering this opinion, we have assumed the genuineness of
all signatures on all documents examined by us, the authenticity of all
documents submitted to us as originals and
<PAGE> 2
the conformity to authentic originals of all documents submitted to us as
certified or photostatted copies. We have also assumed the due authorization,
execution and delivery of all documents.
Based upon the foregoing, and in reliance thereon and subject
to the qualifications and limitations stated herein, we are of the following
opinion:
1. The Company is a corporation duly organized and validly
existing under the laws of the State of Indiana; and
2. The Shares referred to above, to the extent actually issued
pursuant to the Merger Agreement or the Common Stock Purchase Warrants, as the
case may be, will, when so issued, be duly and validly issued and will be fully
paid and non-assessable.
This opinion is not rendered with respect to any laws other
than the laws of the United States of America, the Indiana Business Corporation
Law and the Delaware General Corporation Law.
We hereby consent to the filing of this opinion as Exhibit 5.1
to the Registration Statement and to the use of our name under the caption
"Legal Matters" in the Joint Proxy Statement/Prospectus filed as a part thereof.
We also consent to your filing copies of this opinion as an exhibit to the
Registration Statement with agencies of such states as you deem necessary in the
course of complying with the laws of such states regarding the offering and sale
of the Shares. In giving this consent, we do not hereby admit that we are in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Securities and Exchange Commission relating
thereto.
Very truly yours,
BRYAN CAVE LLP
2
<PAGE> 1
EXHIBIT 8.1
July 24, 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 with 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
July 24, 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 section of the Joint Proxy Statement/Prospectus
entitled "FEDERAL INCOME TAX CONSEQUENCES", insofar as it relates to matters of
law, fairly describes the material federal income tax consequences of the
Merger and is true, correct, and complete in all material respects.
<PAGE> 3
Bowmar Instrument Corporation
July 24, 1998
Page 3
This letter is furnished to you 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 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated as of May 26, 1998,
and is entered into by and between Hamid Shokrgozar ("Executive") and Bowmar
Instrument Corporation, an Indiana corporation, including its divisions Bowmar
Technologies and White Microelectronics ("Bowmar").
WHEREAS, Bowmar desires to continue Executive's employment as the
President and Chief Executive Officer of the White Microelectronics division of
Bowmar ("White") and President and Chief Executive Officer of Bowmar, and the
Executive desires to be employed in those capacities;
WHEREAS, Bowmar desires to provide severance benefits which will best
serve its interest in retaining key employees; and
WHEREAS, Executive will report to the Bowmar Board of Directors;
NOW THEREFORE, Executive and Bowmar hereby agree that Executive will
render services to Bowmar on the following terms and conditions:
1. Employment/Director Consideration. Upon the terms and subject to the
conditions contained herein, Executive hereby agrees to provide full-time
services to Bowmar as its President and Chief Executive Officer. During the term
hereof, Executive agrees to devote his best efforts to the business of Bowmar,
and shall perform his duties in a diligent, trustworthy, business-like manner,
all for the purpose of advancing the business of Bowmar. Executive shall not
work for or receive compensation from any other entity for services performed or
to be performed by him during the term of this Agreement, except with the prior
written consent of Bowmar's Board of Directors.
<PAGE> 2
2. Duties. Executive shall perform the duties of President and Chief
Executive Officer of White, President and Chief Executive Officer of Bowmar, and
a member of the Bowmar Board of Directors in accordance with the policies and
practices of Bowmar, as they may be amended from time to time. Those duties may
be changed or modified in the discretion of Bowmar's Board of Directors.
3. Term of Agreement. This Agreement shall be effective beginning on
May 1, 1998 and shall continue until September 30, 1999, except as provided
herein. It shall thereafter renew automatically for a two-year term, unless
thirty (30) or more days prior to such renewal date either of the parties
notifies the other in writing of its intention not to renew.
4. Base Salary and Benefits. Bowmar shall pay Executive a base salary
of One Hundred Eighty Thousand Dollars ($180,000) per annum, payable in
bi-weekly installments, less applicable tax withholding and salary deductions
("Base Salary"). The Base Salary will be subject to increase on October 1, 1998
in accordance with company policy. Executive shall be entitled to participate in
the fringe benefit programs generally available to senior executives of Bowmar,
as they may be modified from time to time.
5. Incentive Compensation. Executive shall be eligible to receive
incentive compensation in accordance with the terms of the White
Microelectronics/Bowmar Bonus Plan as it may be amended.
6. Stock Options. During the term of this Agreement, Executive shall
participate in Bowmar's Employee Stock Option Plan in accordance with the terms
and conditions of the Plan, as it may be amended.
2
<PAGE> 3
7. Termination and Termination Benefits. The Executive's employment
hereunder shall terminate under the following circumstances:
(a) Termination by Bowmar For Cause. Bowmar may terminate the
employment of Executive for cause at any time upon written notice to Executive
specifying the cause for termination. For purposes of this Section, "for cause"
shall mean discharge resulting from a determination by Bowmar that the Executive
has: (i) been convicted of a criminal offense involving dishonesty, fraud,
theft, embezzlement, breach of trust or moral turpitude; (ii) performed an act
or failed to act, which, if he were prosecuted and convicted, would constitute a
crime or offense involving money or property of Bowmar; or (iii) violated the
provisions of Section 8 pertaining to confidential information; or (iv)
willfully refused to perform the duties reasonably assigned to Executive and
consistent with his status as President and Chief Executive Officer of White and
Chief Executive Officer of Bowmar.
In the event of Executive's termination by Bowmar under this
Section 7(a), Bowmar shall have no further obligation to Executive except for
any amounts earned by, or accrued for, Executive under any employee benefit
plans in which the Executive is then a participant, earned and unpaid salary,
accrued and unused vacation pay, and any rights of Executive under any bonus or
stock option agreement, which right has been earned by Executive at the time of
such termination pursuant to the terms of such plan or agreement. Executive
shall not be entitled to any further Base Salary, Incentive Compensation,
Severance Pay, fringe benefits, additional stock options, or any other
compensation or benefits, except as otherwise provided herein. A termination by
Bowmar under this Section 7(a) shall not prejudice any remedy to which Bowmar
may be entitled, either at law or in equity or under this Agreement.
3
<PAGE> 4
(b) Termination by Bowmar Without Cause. Executive's
employment under this Agreement may be terminated without cause at any time by
Bowmar upon written notice to Executive. For purposes of this Section 7(b), the
terms "terminated without cause" and "termination without cause" shall include,
without limitation, a material change in the nature or scope of Executive's
responsibilities, title, authority, reporting relationship, powers, functions or
duties as the President and Chief Executive Officer of a publicly traded
corporation: a decrease in the total annual compensation or benefits payable to
Executive other than as a result of a decrease in incentive-based compensation
payable to the Executive and to all other executive officers of Bowmar on the
basis of Bowmar's financial performance; or a requirement imposed by Bowmar that
Executive relocate to an office that is more than fifty (50) miles distant from
the office at which he is employed or the home at which he presently resides.
Upon termination without cause, Executive shall be entitled to the following
benefits:
(i) Severance Payment. Bowmar will pay
Executive a single, lump sum "Severance Payment" equal to 2.5 times the sum of
Executive's total current annual Base Salary, plus Incentive Compensation paid
for fiscal 1997 or fiscal 1998, whichever is higher, less all applicable taxes
and other withholding.
(ii) Benefit Continuation. Bowmar will continue
benefit contributions (medical, dental, disability and life) on behalf of
Executive for the greater of: (a) the remaining term of this Agreement; or (b)
twelve (12) months; provided, however, that benefits will be terminated if
Executive becomes eligible for such benefits through reemployment or otherwise.
In the event that Bowmar is unable to continue such contributions or secure
replacement coverage, then it shall pay to Executive the premium cost for such
coverage. Executive shall not participate in any other Bowmar benefit plans
except for any amounts earned by, or accrued for, Executive
4
<PAGE> 5
under any employee benefit plans in which the Executive is then a participant,
earned and unpaid salary and accrued and unused vacation pay and any rights of
Executive under any bonus or stock option agreement, which right has been earned
by Executive at the time of such termination pursuant to the terms of such plan
or agreement.
(iii) Outplacement Assistance. Bowmar will
provide executive-level outplacement services to Executive at the
outplacement provider of his choice for a period not to exceed twelve (12)
months in the maximum amount of $25,000.
(iv) Attorneys' Fees. Bowmar will reimburse
Executive for all reasonable attorneys' fees incurred in connection with
enforcing the terms of this Agreement following termination of employment in
the maximum amount of $25,000, except as otherwise provided in Section 14.
(c) Termination by Executive Without Cause. Executive may
terminate this Agreement at any time upon thirty (30) days' prior written notice
to Bowmar. In the event of such termination, Bowmar shall have no further
obligations to Executive under this Agreement except for any amounts earned by,
or accrued for, Executive under any employee benefit plans in which the
Executive is then a participant, earned and unpaid salary and accrued and unused
vacation pay and any rights of Executive under any bonus or stock option
agreement, which right has been earned by Executive at the time of such
termination pursuant to the terms of such plan or agreement. Executive shall not
after termination be entitled to Base Salary, Incentive Compensation, Severance
Pay, fringe benefits, additional stock options, or any other compensation or
benefits. Bowmar may, in its sole discretion, accept Executive's resignation and
terminate his employment prior to the expiration of the thirty (30) day notice
period and pay Executive's compensation for the notice period (or remaining term
thereof).
5
<PAGE> 6
(d) Non-Renewal Severance Payment. In the event that Bowmar
gives notice of its intention not to renew this Agreement in accordance with
Section 3, it shall, upon the termination of Executive's employment, pay
Executive in a single lump sum an amount equal to the Severance Payment set
forth in Section 7(b)(i), and provide the other benefits set forth in Sections
7(b)(ii) to (iv). Bowmar shall have no further obligations to Executive except
for any amounts earned by, or accrued for, Executive under any employee benefit
plans in which the Executive is then a participant, earned and unpaid salary and
accrued and unused vacation pay and any rights of Executive under any bonus or
stock option agreement, which right has been earned by Executive at the time of
such termination pursuant to the terms of such plan or agreement.
(e) Illness, Incapacity, or Death. In the event of illness or
incapacity of Executive, Bowmar shall continue Executive's Base Salary for a
period of ninety (90) days or such time as the Executive is eligible for
consideration for long-term disability benefits, whichever occurs last. If
Executive is unable to perform the essential elements of his job due to illness
or incapacity for a period greater than ninety (90) days, Bowmar may elect, in
its sole determination, to terminate this Agreement with no further obligation
to Executive, except for any amounts earned by, or accrued for, Executive under
any employee benefit plans in which the Executive is then a participant, earned
and unpaid salary and accrued and unused vacation pay and any rights of
Executive under any bonus or stock option agreement, which right has been earned
by Executive at the time of such termination pursuant to the terms of such plan
or agreement. If Executive should die during the term of this Agreement,
Executive's heir shall be paid by Bowmar a total amount equal to ninety (90)
days' Base Salary, be entitled to whatever rights the heir may have under
Executive's stock option plan and be granted applicable COBRA rights; Bowmar's
6
<PAGE> 7
remaining obligations hereunder shall terminate as of the end of the month in
which Executive's death occurs.
8. Confidential Information. In view of the fact that Executive's work
for Bowmar will bring him into close contact with many confidential affairs and
plans of Bowmar not readily available to the public, Executive agrees to keep
secret and retain in the strictest confidence all confidential matters of
Bowmar, including, without limitation, trade "know-how," secrets, customer and
prospect lists, pricing policies, prices, costs, operational and development
methods, and other business affairs of Bowmar (but excluding all information in
the public domain) learned by him heretofore or hereafter, and not to disclose
them to anyone outside of Bowmar, either during or after his employment with
Bowmar, except in the course of performing his duties hereunder or with Bowmar's
express written consent. Executive further agrees to deliver promptly to Bowmar,
on termination of his employment, or at any time Bowmar may so request, all
memoranda, notes, records, reports, manuals, drawings, blueprints, computer
records and other documents (and all copies thereof) relating to Bowmar's
business and all property associated therewith, which he may then possess or
have under his control. Executive acknowledges and understands that his
obligations with respect to confidential information shall survive the
termination of this Agreement.
9. Violation of Covenants. If Executive violates any of his covenants
under Section 8, Executive agrees and acknowledges that such violation or
threatened violation will cause irreparable injury to Bowmar and that Bowmar
will be entitled to injunctive relief without the necessity of proving actual
damages.
7
<PAGE> 8
10. Automobile Allowance. Bowmar shall pay an automobile allowance to
Executive in the amount of $850.00 per month, as it may be changed from time to
time, during the term of this Agreement.
11. Vacation. Bowmar will provide Executive with annual paid vacation
consistent with the policies of Bowmar applicable to senior executive staff, as
they may be changed from time-to-time.
12. Company Expenses. During the term of this Agreement, Bowmar will
reimburse Executive for reasonable authorized business expenses incurred on
behalf of Bowmar in accordance with Bowmar policies, as they may be amended.
13. Assistance with Litigation. Executive shall make himself available,
upon the request of Bowmar or its counsel, to testify or otherwise assist in
litigation, arbitration or other disputes involving Bowmar during and following
the termination of this Agreement, so long as Executive receives reimbursement
for his reasonable out-of-pocket expenses. Executive will also make himself
available to the attorneys representing Bowmar for such purposes as they
reasonably deem necessary, including but not limited to, the review of
documents, discussion of the cases and preparation for trial. This Agreement is
not intended to and shall not be construed so as to in any way limit or affect
the testimony which Executive gives in any such litigation; it is understood and
agreed Executive will at all times testify fully, truthfully and accurately,
whether in deposition, trial or otherwise.
14. Arbitration. Any dispute, controversy, or claim arising out of or
relating to this Agreement or breach thereof, or arising out of or relating in
any way to the employment of Executive or the termination thereof, shall be
submitted to arbitration in Phoenix, Arizona, in accordance with the National
Rules for the Resolution of Employment Disputes of the American
8
<PAGE> 9
Arbitration Association. Judgment upon the award rendered by the arbitrator may
be entered in any court in the State of Arizona, or in any other court of
competent jurisdiction. In reaching his or her decision, the arbitrator shall
have no authority to ignore, change, modify, add to or delete from any provision
of this Agreement, but is instead limited to interpreting this Agreement. The
fees and expenses of the arbitrator shall initially be shared equally by the
parties and the prevailing party shall be entitled to recover its fees and
expenses incurred in connection with the arbitration.
15. Governing Law. This Agreement has been entered into and shall be
interpreted in accordance with the laws of the State of Arizona.
16. Entire Agreement. This Agreement constitutes the entire agreement
between the parties respecting the employment of Executive and there are no
representations, warranties or commitments other than those set forth herein.
This Agreement may be amended or modified only by an instrument in writing
executed by both of the parties hereto. This is an integrated agreement.
17. Effect of Agreement. This Agreement shall be binding upon the
parties and their respective heirs, executors, administrators, successors and
assigns. Executive shall not assign any rights or duties under this Agreement
without the written consent of the Bowmar Board of Directors. In the event of a
merger, sale, transfer, consolidation or reorganization involving Bowmar, this
Agreement shall continue in force and become an obligation of Bowmar or
successor entity.
18. Severability. If any provision of this Agreement as applied to
either party or to any circumstances shall be adjudged by a court or arbitration
to be void, voidable or unenforceable, the same shall in no way affect any other
provision of this Agreement. In case this Agreement, or any one or more of the
provisions hereof, shall be held to be invalid, illegal or unenforceable
9
<PAGE> 10
within any governmental jurisdiction or subdivision thereof, this Agreement or
any such provision thereof shall not as a consequence thereof be deemed to be
invalid, illegal or unenforceable in any other governmental jurisdiction or
subdivision thereof.
19. Waiver. The waiver by either party of any term or condition of this
Agreement or any breach thereof shall not constitute a waiver of any other term
or condition or breach of this Agreement, nor shall it constitute a waiver of
the same term or condition in the future.
20. Notices. Any notice or communication required or permitted to be
given to the parties hereto shall be delivered personally or be sent by United
States registered or certified mail, postage prepaid and return receipt
requested, and addressed or delivered as follows, or such other address as the
party addressed may be substituted by prior written notice pursuant to this
section:
(a) If to Executive: Hamid Shokrgozar
White Microelectronics/
Bowmar Instrument Corporation
3601 E. University Drive
Phoenix, AZ 85034-7217
(b) If to Bowmar: Chairman, Board of Directors
Bowmar Instrument Corporation
3601 E. University Drive
Phoenix, Arizona 85034-7217
with a copy to: Joseph T. Clees, Esq.
Bryan Cave
2800 North Central Avenue, Ste. 2100
Phoenix, Arizona 85004-1098
21. Representations by Executive. Executive represents and warrants
that he is not a party to or bound by any agreement or covenant that would
prohibit, restrict or inhibit in any way the full performance of his duties for
Bowmar under this Agreement. Executive further acknowledges that he has been
given the opportunity to consult with legal counsel regarding this Agreement.
10
<PAGE> 11
22. Captions. Captions of this Agreement are inserted for convenience
and do not constitute a part hereof.
23. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original and all of which together shall
constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement, effective
as of the day and year first written above.
BOWMAR INSTRUMENT CORPORATION
By: /s/ EDWARD A. WHITE
------------------------------
Title: Chairman of the Board
-------------------------
HAMID SHOKRGOZAR
/s/ HAMID SHOKRGOZAR
---------------------------------
11
<PAGE> 1
EXHIBIT 10.4
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated as of May 26, 1998,
and is entered into by and between Joseph G. Warren, Jr. ("Executive") and
Bowmar Instrument Corporation, an Indiana corporation, including its divisions
Bowmar Technologies and White Microelectronics ("Bowmar").
WHEREAS, Bowmar desires to employ Executive as the Vice President
Finance, Chief Financial Officer, Secretary and Treasurer (hereinafter
collectively referred to as "Chief Financial Officer") and the Executive desires
to be employed in that capacity;
WHEREAS, Bowmar desires to provide severance benefits which will best
serve its interest in retaining key employees; and
WHEREAS, Executive will report to the Chief Executive Officer of
Bowmar.
NOW THEREFORE, Executive and Bowmar hereby agree that Executive will
render services to Bowmar on the following terms and conditions:
1. Employment. Upon the terms and subject to the conditions contained
herein, during the term of this Agreement, Executive hereby agrees to provide
full-time services to Bowmar as the Chief Financial Officer of Bowmar. During
the term hereof, Executive agrees to devote his best efforts to the business of
Bowmar, and shall perform his duties in a diligent, trustworthy, business-like
manner, all for the purpose of advancing the business of Bowmar. Executive shall
not work for or receive compensation from any other entity for services
performed or to be performed by him during the term of this Agreement, except
with the prior written consent of Bowmar's Board of Directors.
<PAGE> 2
2. Duties. Executive shall perform the duties of Chief Financial
Officer in accordance with the policies and practices of Bowmar, as they may be
amended from time to time. Those duties may be changed or modified in the
discretion of Executive's management.
3. Term of Agreement. This Agreement shall be effective beginning on
May 1, 1998 and shall continue until September 30, 1999, except as provided
herein. It shall thereafter renew automatically for a one (1) year term, unless
thirty (30) or more days prior to such renewal date, either of the parties
notifies the other in writing of its intention not to renew.
4. Base Salary and Benefits. Bowmar shall pay Executive a base salary
of One Hundred Forty Thousand Dollars ($140,000.00) per annum, payable in
semi-monthly installments, less applicable tax withholding and salary deductions
("Base Salary"). The Base Salary will be subject to increase on October 1, 1998
in accordance with company policy. Executive shall be entitled to participate in
the fringe benefit programs generally available to senior executives of Bowmar,
as they may be modified from time to time.
5. Incentive Compensation. Executive shall be eligible to receive
incentive compensation in accordance with the terms of White
Microelectronics'/Bowmar's incentive compensation plan, as it may be amended
("Incentive Compensation").
6. Stock Options. During the term of this Agreement, Executive shall
participate in Bowmar's Employee Stock Option Plan in accordance with the terms
and conditions of the Plan, as it may be amended.
7. Termination and Termination Benefits. The Executive's employment
hereunder shall terminate under the following circumstances:
(a) Termination by Bowmar For Cause. Bowmar may terminate the
employment of Executive for cause at any time upon written notice to Executive
specifying the
2
<PAGE> 3
cause for termination. For purposes of this Section, "for cause" shall mean
discharge resulting from a determination by Bowmar that the Executive has: (i)
been convicted of a criminal offense involving dishonesty, fraud, theft,
embezzlement, breach of trust or moral turpitude; (ii) performed an act or
failed to act, which, if he were prosecuted and convicted, would constitute a
crime or offense involving money or property of Bowmar; or (iii) violated the
provisions of Section 8 pertaining to confidential information; or (iv)
willfully refused to perform the duties reasonably assigned to Executive and
consistent with his status as Chief Financial Officer of Bowmar.
In the event of Executive's termination by Bowmar under this
Section 7(a), Bowmar shall have no further obligation to Executive except for
any amounts earned by, or accrued for, Executive under any employee benefit
plans in which the Executive is then a participant, earned and unpaid salary,
accrued and unused vacation pay, and any rights of Executive under any bonus or
stock option agreement, which right has been earned by Executive at the time of
such termination pursuant to the terms of such plan or agreement. Executive
shall not be entitled to any further Base Salary, Incentive Compensation,
Severance Pay, fringe benefits, additional stock options, or any other
compensation or benefits, except as otherwise provided herein. A termination by
Bowmar under this Section 7(a) shall not prejudice any remedy to which Bowmar
may be entitled, either at law or in equity or under this Agreement.
(b) Termination by Bowmar Without Cause. Executive's
employment under this Agreement may be terminated without cause at any time by
Bowmar upon written notice to Executive. For purposes of this Section 7(b), the
terms "terminated without cause" and "termination without cause" shall include,
without limitation: a material change in the nature or scope of Executive's
responsibilities, title, authority, reporting relationship, powers, functions or
3
<PAGE> 4
duties as the Chief Financial Officer of a publicly traded corporation; or a
decrease in the total annual compensation or benefits payable to Executive other
than as a result of a decrease in incentive-based compensation payable to the
Executive and to all other executive officers of Bowmar on the basis of Bowmar's
financial performance; or a requirement imposed by Bowmar that Executive
relocate to an office that is more than fifty (50) miles distant from the office
at which he is employed or the home at which he presently resides. Upon
termination without cause, Executive shall be entitled to the following
benefits:
(i) Severance Payment. Bowmar will pay Executive
a single, lump-sum payment equal to 2.5 times the sum of Executive's total
current annual Base Salary plus Incentive Compensation paid for fiscal 1997 or
fiscal 1998, whichever is higher, less all applicable taxes and other
withholding ("Severance Payment").
(ii) Benefit Continuation. Bowmar will continue
benefit contributions (medical, dental, disability and life) on behalf of
Executive for twelve (12) months or until Executive becomes otherwise eligible
for such benefits, whichever occurs first. In the event that Bowmar is unable
to continue such contributions or secure replacement coverage, then it shall
pay to Executive the premium cost for such coverage. Executive shall not
participate in any other Bowmar benefit plans except for any amounts earned
by, or accrued for, Executive under any employee benefit plans in which the
Executive is then a participant, earned and unpaid salary and accrued and
unused vacation pay and any rights of Executive under any bonus or stock
option agreement, which right has been earned by Executive at the time of such
termination pursuant to the terms of such plan or agreement.
4
<PAGE> 5
(iii) Outplacement Assistance. Bowmar will provide
executive-level outplacement services to Executive at the outplacement
provider of his choice for a period not to exceed twelve (12) months.
(iv) Attorneys' Fees. Bowmar will reimburse
Executive for all reasonable attorneys' fees incurred in connection with
enforcing the terms of this Agreement following termination of employment in
the maximum amount of $25,000 except as otherwise provided in Section 14.
(c) Termination by Executive Without Cause. Executive may
terminate this Agreement at any time upon thirty (30) days' prior written notice
to Bowmar. In the event of such termination, Bowmar shall have no further
obligations to Executive under this Agreement except for any amounts earned by,
or accrued for, Executive under any employee benefit plans in which the
Executive is then a participant, earned and unpaid salary and accrued and unused
vacation pay and any rights of Executive under any bonus or stock option
agreement, which right has been earned by Executive at the time of such
termination pursuant to the terms of such plan or agreement. Executive shall not
after termination be entitled to Base Salary, Incentive Compensation, Severance
Pay, fringe benefits, additional stock options, or any other compensation or
benefits. Bowmar may, in its sole discretion, accept Executive's resignation and
terminate his employment prior to the expiration of the thirty (30) day notice
period and pay Executive's compensation for the notice period (or remaining term
thereof).
(d) Non-Renewal Severance Payment. In the event that Bowmar
gives notice of its intention not to renew this Agreement in accordance with
Section 3, it shall, upon the termination of Executive's employment, pay
Executive in a single lump sum an amount equal to the Severance Payment set
forth in Section 7(b)(i), and provide the other benefits set forth in
5
<PAGE> 6
Sections 7(b)(ii) to (iv). Bowmar shall have no further obligations to Executive
except for any amounts earned by, or accrued for, Executive under any employee
benefit plans in which the Executive is then a participant, earned and unpaid
salary and accrued and unused vacation pay and any rights of Executive under any
bonus or stock option agreement, which right has been earned by Executive at the
time of such termination pursuant to the terms of such plan or agreement.
(e) Illness, Incapacity, or Death. In the event of illness or
incapacity of Executive, Bowmar shall continue Executive's Base Salary for a
period of ninety (90) days or such time as the Executive is eligible to apply
for benefits under Bowmar's long-term disability plan, whichever occurs last. If
Executive is unable to perform the essential elements of his job due to illness
or incapacity for a period greater than ninety (90) days, Bowmar may elect, in
its sole determination, to terminate this Agreement with no further obligation
to Executive, except for any amounts earned by, or accrued for, Executive under
any employee benefit plans in which the Executive is then a participant, earned
and unpaid salary and accrued and unused vacation pay and any rights of
Executive under any bonus or stock option agreement, which right has been earned
by Executive at the time of such termination pursuant to the terms of such plan
or agreement. If Executive should die during the term of this Agreement,
Executive's heir shall be paid by Bowmar a total amount equal to ninety (90)
days' Base Salary, be entitled to whatever rights the heir may have under
Executive's stock option plan, and be granted applicable COBRA rights; Bowmar's
remaining obligations hereunder shall terminate as of the end of the month in
which Executive's death occurs.
8. Confidential Information. In view of the fact that Executive's work
for Bowmar will bring him into close contact with many confidential affairs and
plans of Bowmar not readily available to the public, Executive agrees to keep
secret and retain in the strictest confidence all
6
<PAGE> 7
confidential matters of Bowmar, including, without limitation, trade "know-how,"
secrets, customer and prospect lists, pricing policies, prices, costs,
operational and development methods, and other business affairs of Bowmar (but
excluding all information in the public domain) learned by him heretofore or
hereafter, and not to disclose them to anyone outside of Bowmar, either during
or after his employment with Bowmar, except in the course of performing his
duties hereunder or with Bowmar's express written consent. Executive further
agrees to deliver promptly to Bowmar, on termination of his employment, or at
any time Bowmar may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, computer records and other documents (and all copies
thereof) relating to Bowmar's business and all property associated therewith,
which he may then possess or have under his control. Executive acknowledges and
understands that his obligations with respect to confidential information shall
survive the termination of this Agreement.
9. Violation of Covenants. If Executive violates any of his covenants
under Section 8, Executive agrees and acknowledges that such violation or
threatened violation will cause irreparable injury to Bowmar and that Bowmar
will be entitled to injunctive relief without the necessity of proving actual
damages.
10. Automobile Allowance. Bowmar shall pay an automobile allowance to
Executive in the amount of $850.00 per month, as it may be changed from time to
time, during the term of this Agreement.
11. Vacation. Bowmar will provide Executive with annual paid vacation
consistent with the policies of Bowmar applicable to senior executive staff, as
they may be changed from time-to-time.
7
<PAGE> 8
12. Company Expenses. During the term of this Agreement, Bowmar will
reimburse Executive for reasonable authorized business expenses incurred on
behalf of Bowmar in accordance with Bowmar policies, as they may be amended.
13. Assistance with Litigation. Executive shall make himself available,
upon the request of Bowmar or its counsel, to testify or otherwise assist in
litigation, arbitration or other disputes involving Bowmar during and following
the termination of this Agreement, so long as Executive receives reimbursement
for his reasonable out-of-pocket expenses. Executive will also make himself
available to the attorneys representing Bowmar for such purposes as they
reasonably deem necessary, including but not limited to, the review of
documents, discussion of the cases and preparation for trial. This Agreement is
not intended to and shall not be construed so as to in any way limit or affect
the testimony which Executive gives in any such litigation; it is understood and
agreed Executive will at all times testify fully, truthfully and accurately,
whether in deposition, trial or otherwise.
14. Arbitration. Any dispute, controversy, or claim arising out of or
relating to this Agreement or breach thereof, or arising out of or relating in
any way to the employment of Executive or the termination thereof, shall be
submitted to arbitration in Phoenix, Arizona, in accordance with the National
Rules for the Resolution of Employment Disputes of the American Arbitration
Association. Judgment upon the award rendered by the arbitrator may be entered
in any court in the State of Arizona, or in any other court of competent
jurisdiction. In reaching his or her decision, the arbitrator shall have no
authority to ignore, change, modify, add to or delete from any provision of this
Agreement, but is instead limited to interpreting this Agreement. The fees and
expenses of the arbitrator shall initially be shared equally by the parties and
the prevailing party shall be entitled to recover its fees and expenses incurred
in connection with the arbitration.
8
<PAGE> 9
15. Governing Law. This Agreement has been entered into and shall be
interpreted in accordance with the laws of the State of Arizona.
16. Entire Agreement. This Agreement constitutes the entire agreement
between the parties respecting the employment of Executive and there are no
representations, warranties or commitments other than those set forth herein.
This Agreement may be amended or modified only by an instrument in writing
executed by both of the parties hereto. This is an integrated agreement.
17. Effect of Agreement. This Agreement shall be binding upon the
parties and their respective heirs, executors, administrators, successors and
assigns. Executive shall not assign any rights or duties under this Agreement
without the written consent of the Bowmar Board of Directors. In the event of a
merger, sale, transfer, consolidation or reorganization involving Bowmar, this
Agreement shall continue in force and become an obligation of Bowmar or
successor entity.
18. Severability. If any provision of this Agreement as applied to
either party or to any circumstances shall be adjudged by a court or arbitration
to be void, voidable or unenforceable, the same shall in no way affect any other
provision of this Agreement. In case this Agreement, or any one or more of the
provisions hereof, shall be held to be invalid, illegal or unenforceable within
any governmental jurisdiction or subdivision thereof, this Agreement or any such
provision thereof shall not as a consequence thereof be deemed to be invalid,
illegal or unenforceable in any other governmental jurisdiction or subdivision
thereof.
19. Waiver. The waiver by either party of any term or condition of this
Agreement or any breach thereof shall not constitute a waiver of any other term
or condition or breach of this Agreement, nor shall it constitute a waiver of
the same term or condition in the future.
9
<PAGE> 10
20. Notices. Any notice or communication required or permitted to be
given to the parties hereto shall be delivered personally or be sent by United
States registered or certified mail, postage prepaid and return receipt
requested, and addressed or delivered as follows, or such other address as the
party addressed may be substituted by prior written notice pursuant to this
section:
(a) If to Executive: Joseph G. Warren, Jr.
Bowmar Instrument Corporation
3601 E. University Drive
Phoenix, Arizona 85034-7217
(or such other address as may appear
in the records of Bowmar)
(b) If to Bowmar: Chief Executive Officer
Bowmar Instrument Corporation
3601 E. University Drive
Phoenix, Arizona 850134-7217
with a copy to: Joseph T. Clees, Esq.
Bryan Cave
2800 North Central Ave., Ste. 2100
Phoenix, Arizona 85004-1098
21. Representations by Executive. Executive represents and warrants
that he is not a party to or bound by any agreement or covenant that would
prohibit, restrict or inhibit in any way the full performance of his duties for
Bowmar under this Agreement. Executive further acknowledges that he has been
given the opportunity to consult with legal counsel regarding this Agreement.
22. Captions. Captions of this Agreement are inserted for convenience
and do not constitute a part hereof.
23. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original and all of which together shall
constitute one and the same Agreement.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement, effective
as of the day and year first written above.
BOWMAR INSTRUMENT CORPORATION
By /s/ HAMID SHOKRGOZAR
----------------------------
Title: President and Chief
Executive Officer
JOSEPH G. WARREN, JR.
/s/ JOSEPH G. WARREN, JR.
------------------------------
11
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to the Registration
Statement on Form S-4 (File No. 333-56565) 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".
PricewaterhouseCoopers LLP
Phoenix, Arizona
July 24, 1998
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to the 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 PricewaterhouseCoopers LLP has
not prepared or certified such "Selected Consolidated Financial Data."
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 24, 1998
<PAGE> 1
Exhibit 23.3
CONSENT OF TAX COUNSEL
We consent to the reference in this Amendment No. 1 to the registration
statement on Form S-4 to our firm in the discussion under the caption "Federal
Income Tax Consequences," and to the inclusion of our opinion at Exhibit 8.1 of
Amendment No. 1 to the registration statement on Form S-4.
/s/ BRYAN CAVE LLP
Phoenix, Arizona
July 24, 1998
<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 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 99.5
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 Amendment No. 1 to 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 are "experts" for purposes of
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
ALLIANT PARTNERS
By: /s/ Robert Horstmeyer
------------------------
Name: Robert Horstmeyer
Title: Managing Director
July 24, 1998
