<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: January 2, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________to_________________
Commission File Number 1-4817
WHITE ELECTRONIC DESIGNS CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-0905052
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3601 EAST UNIVERSITY DRIVE
PHOENIX, ARIZONA 85034
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 602/437-1520
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
At February 11, 1999, 15,803,510 shares of the Registrant's Common Stock were
outstanding.
<PAGE> 2
WHITE ELECTRONIC DESIGNS CORPORATION
AND
SUBSIDIARY
INDEX
<TABLE>
<S> <C> <C>
PART I FINANCIAL INFORMATION................................................................... 2-9
Item 1. Financial Statements
Consolidated Balance Sheets
January 2, 1999, (Unaudited) and
September 30, 1998.................................................... 2
Consolidated Statements of Operations
First Quarter Ended
January 2, 1999 and December 28, 1997, (Unaudited).................... 3
Statement of Shareholders' Equity
First Quarter Ended January 2, 1999 (Unaudited)....................... 4
Consolidated Statements of Cash Flow
First Quarter Ended January 2, 1999 and
December 28, 1997, (Unaudited)........................................ 5
Notes to Consolidated Financial
Statements (Unaudited)................................................ 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations......................................................... 8
PART II OTHER INFORMATION.......................................................................
Item 4. Submission of Matters to Vote of Security Holders....................... 10
Item 6. Exhibits and Reports on Form 8-K........................................ 10
</TABLE>
1
<PAGE> 3
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands of dollars)
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------------------------------------------------
January 2, September 30,
1999 1998
- - - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 715 $ 2,756
Accounts receivable, less allowance for
doubtful accounts of $277 and $320 7,894 3,584
Inventories 10,189 6,191
Prepaid expenses 574 109
Deferred income taxes 1,369 1,200
- - - --------------------------------------------------------------------------------------------------------------------------
Total Current Assets 20,741 13,840
Property, plant and equipment, net 7,385 2,066
Deferred income taxes 3,247 -
Goodwill and intangibles 2,012 929
Other assets, net 539 1,100
- - - --------------------------------------------------------------------------------------------------------------------------
Total Assets $ 33,924 $ 17,935
- - - --------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long term debt $ 450 $ 2,332
Accounts payable 3,391 3,503
Accrued salaries and benefits 2,096 503
Accrued expenses 2,663 2,295
- - - --------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 8,600 8,633
Long term debt 4,489 -
Other long term liabilities 391 -
- - - --------------------------------------------------------------------------------------------------------------------------
Total Liabilities 13,480 8,633
- - - --------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 20,444 9,302
- - - --------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 33,924 $ 17,935
- - - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to Consolidated Financial Statements.
2
<PAGE> 4
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(In thousands of dollars, except share and per share data)
<TABLE>
<CAPTION>
- - - -------------------------------------------------------------------------------------------------------------------------
Three months ended
January 2, December 28,
1999 1997
- - - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 12,301 $ 9,410
Cost of revenues 10,159 6,607
- - - -------------------------------------------------------------------------------------------------------------------------
Gross profit 2,142 2,803
Operating expenses:
Research and development 885 638
Selling, general and administrative 2,115 1,770
Merger expenses 752 -
Amortization of intangible assets 165 117
Interest expense 87 24
- - - -------------------------------------------------------------------------------------------------------------------------
Total expenses 4,004 2,549
- - - -------------------------------------------------------------------------------------------------------------------------
(Loss) income before income taxes (1,862) 254
(Benefit) Provision of income taxes (744) 100
- - - -------------------------------------------------------------------------------------------------------------------------
Net (loss) income from operations $ (1,118) $ 154
- - - -------------------------------------------------------------------------------------------------------------------------
Basic net (loss) income per share $ (0.09) $ 0.02
Basic weighted average common shares and equivalents 13,996,266 9,040,000
- - - -------------------------------------------------------------------------------------------------------------------------
Diluted net (loss) income per share $ (0.09) $ 0.02
Diluted weighted average common shares and equivalents (Note 1) 13,996,266 9,898,000
- - - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 1 - The effect of common stock equivalents in fiscal 1999 is not reflected
in the diluted loss per share calculation as their inclusion would be
anti-dilutive.
See Notes to Consolidated Financial Statements
3
<PAGE> 5
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE QUARTER ENDED JANUARY 2, 1999
(UNAUDITED)
(In thousands of dollars)
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------------------------------------------------------------------------
Additional Total Share-
Preferred Common Treasury Paid-in Retained holders'
Stock Stock Stock Capital Earnings Equity
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1998 $ - $ 72 $ (186) $ 26,998 $ (17,582) $ 9,302
Net loss (1,118) (1,118)
Issuance of Stock Warrants 8 8
Merger (Note 2) 120 1,511 182 10,529 - 12,342
Payment of preferred dividends (90) (90)
- - - -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 2, 1999 $ 120 $ 1,583 $ (4) $ 37,535 $ (18,790) $ 20,444
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to Consolidated Financial Statements
4
<PAGE> 6
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands of dollars)
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------------------------------
QUARTER ENDED
JANUARY 2, DECEMBER 28,
1999 1997
- - - -----------------------------------------------------------------------------------------
<S> <C> <C>
- - - -----------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES $(816) $(1,298)
- - - -----------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (939) (155)
Cash acquired in acquisition 224 --
Proceeds from sales of property, plant and equipment -- 500
- - - -----------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (715) 345
- - - -----------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Borrowings under line of credit, net 1,858 --
Borrowings of long-term debt 47 --
Retirement of long-term debt (2,333) (277)
Issuance of common stock 8 25
Repurchase of common stock -- (243)
Payment of preferred stock dividends (90) --
- - - -----------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (510) (495)
- - - -----------------------------------------------------------------------------------------
Net change in cash (2,041) (1,448)
Cash at beginning of year 2,756 4,212
- - - -----------------------------------------------------------------------------------------
Cash at end of period $ 715 $ 2,764
- - - -----------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOWS INFORMATION:
Net cash paid for interest $ 58 $ 32
Net cash paid for income taxes $ -- $ --
NON-CASH INVESTING AND FINANCING ACTIVITIES
Capital lease agreements $ -- $ --
Details of Acqusition (Note 2):
Fair value of assets acquired $ 18,074 $ --
Fair value of liabilities assumed (5,330) --
- - - -----------------------------------------------------------------------------------------
Net assets acquired 12,744 --
Acquisition costs (650) --
- - - -----------------------------------------------------------------------------------------
Stock issued in connection with the merger $ 12,094 $ --
- - - -----------------------------------------------------------------------------------------
</TABLE>
See notes to Consolidated Financial Statements.
5
<PAGE> 7
WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of January 2, 1999, the consolidated
statements of income for the first quarter ended January 2, 1999 and December
28, 1997, and the consolidated statements of cash flows for the first quarter
ended January 2, 1999 and December 28, 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 financial statements and notes thereto included
in the Registrant's Annual Report on Form 10-K for the fiscal year ended October
3, 1998. The results of operations for the above noted quarter ended January 2,
1999, are not necessarily indicative of the operating results for the full year.
For further information, refer to White Electronic Designs Corporation's
(formerly Bowmar Instrument Corporation) Annual Report on Form 10-K for the year
ended October 3, 1998 and White Electronic Designs Corporation's (formerly
Electronic Designs, Incorporated) 1998 consolidated financial statements and
footnotes thereto in the Company's Form 8-K/A filed on January 11, 1999.
2. ACQUISITION
On October 26, 1998, Bowmar Instrument Corporation ("Bowmar") merged with
Electronic Designs, Incorporated ("EDI"). In connection with the merger, Bowmar
changed its name to White Electronic Designs Corporation (the "Company"). While
Bowmar was the legal acquirer, the merger was accounted for as a reverse
acquisition purchase whereby EDI was deemed to have acquired Bowmar for
financial reporting purposes. Consistent with the reverse acquisition purchase
accounting treatment, the historical financial statements presented for periods
prior to the merger date are the financial statements of EDI, not the previously
reported consolidated financial statements of Bowmar. The operations of Bowmar
have been included in the financial statements from the date of the merger.
The average market value of the Bowmar Common Stock and Preferred Stock for a
reasonable period of time before and after the announcement of the merger
determined the purchase price for accounting purposes. The average market value
of Bowmar stocks used to record the purchase was $1.26 per share for common
stock with 6,674,992 shares outstanding and $26.94 per share for preferred stock
with 119,906 shares outstanding at the merger date. The aggregate value of the
stocks and stock options outstanding used to record the purchase were
$11,633,000 and $461,000 respectively. In addition, direct expenses of the
purchase of $650,000 consisting of legal, accounting and other fees were
included in the purchase price recorded.
The Company recorded costs in excess of net assets acquired of $4,075,000, which
will be amortized over various periods ranging from 3 months to 15 years on a
straight line basis.
6
<PAGE> 8
The following unaudited pro forma information shows the results of operations of
EDI and Bowmar for the three months ended January 2, 1999 and December 28, 1997,
assuming the companies had combined as of October 1, 1997.
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------
FIRST QUARTER
1999 1998
- - - ---------------------------------------------------------------------------
<S> <C> <C>
Revenue $ 12,433 $ 17,043
Net (loss) income $ (752) $ (59)
Basic earnings (loss) per share $ (0.05) $ (0.01)
- - - ---------------------------------------------------------------------------
</TABLE>
This pro forma information does not purport to be indicative of the results that
actually would have been obtained if the companies had been combined during the
periods presented and is not intended to be a projection of future results.
3. EARNINGS (LOSS) PER SHARE
The Company has adopted the provisions of the Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128") effective January 2, 1999.
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 potential dilutive common shares that were
outstanding during the period. Potential dilutive 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.
The computation of net earnings (loss) per share is based on the weighted
average number of shares of common stock outstanding during the periods
presented. The weighted average shares outstanding for the first three months of
fiscal 1999, were adjusted to reflect the 1.275 exchange ratio in the conversion
of EDI common stock in connection with the merger.
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 shares and per share amounts).
<TABLE>
<CAPTION>
- - - ---------------------------------- ---------------------------------------------------------------------------------
FIRST QUARTER ENDED
JANUARY 2, 1999 DECEMBER 28, 1997
- - - ---------------------------------- ----------------------------------------- ---------------------------------------
Per Per
Loss Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- - - ---------------------------------- ------------- --------------- ----------- ------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
(Loss) Earnings, net of tax $(1,118,000) $154,000
Less:preferred stock dividends 90,000
- - - ---------------------------------- ------------- --------------- ----------- ------------- --------------- ---------
BASIC EPS
(Loss) Earnings, net of tax $(1,208,000) 13,996,266 $(0.09) $154,000 9,040,000 $0.02
- - - ---------------------------------- ------------- --------------- ----------- ------------- --------------- ---------
Effect of Dilutive Securities
Common stock options 609,000
Stock purchase warrants 249,000
- - - ---------------------------------- ------------- --------------- ----------- ------------- --------------- ---------
DILUTED EPS
(Loss) Earnings available to
common stock holders $(1,208,000) 13,996,266 $(0.09) $154,000 9,898,000 $0.02
- - - ---------------------------------- ------------- --------------- ----------- ------------- --------------- ---------
</TABLE>
During the quarter ended January 2, 1999, the convertible preferred stock and
the common stock options were not included in the computation of diluted EPS
because their inclusion would have been antidilutive.
7
<PAGE> 9
5. INVENTORIES
Inventories consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
- - - -------------------- -------------------- ----------------------
JANUARY 2, 1999 SEPTEMBER 30, 1998
- - - -------------------- -------------------- ----------------------
<S> <C> <C>
Raw materials $ 4,357 $ 4,193
Work-in-process 3,432 265
Finished goods 2,400 1,733
- - - --------------------- -------------------- ----------------------
Total Inventories $10,189 $ 6,191
- - - --------------------- -------------------- ----------------------
</TABLE>
Included in net inventory is nonrecurring inventory revaluation expenses of
$1,490,000 taken during the first quarter of fiscal 1999 in connection with the
merger.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
On October 26, 1998, Bowmar Instrument Corporation ("Bowmar") merged with
Electronic Designs, Inc. ("EDI"). In connection with the merger, Bowmar changed
its name to White Electronic Designs Corporation (the "Company"). While Bowmar
was the legal acquirer, the merger was accounted for as a reverse acquisition
purchase whereby EDI was deemed to have acquired Bowmar for financial reporting
purposes. Consistent with the reverse acquisition purchase accounting treatment,
the historical financial statements presented for periods prior to the merger
date are the financial statements of EDI, not the previously reported
consolidated financial statements of Bowmar. The operations of Bowmar have been
included in the financial statements from the date of the merger.
RESULTS OF OPERATION
NET SALES
Sales for the first quarter ended January 2, 1999 were $12,301,000 compared to
prior year sales for the first quarter of $9,410,000. The increase is due to the
financial presentation for the 1998 first quarter of only EDI's results. If the
sales of Bowmar had been included in the first quarter of 1998 results, combined
sales would have been $17,043,000. The primary reasons for the decline in
combined sales are the lower average sales prices decrease and the decreased
demand in the military memory market brought on by the conversion to
commercial-off-the-shelf (COTS) parts.
GROSS MARGIN
Gross margins for the quarter ended January 2, 1999 decreased by $661,000 from
the same period of fiscal 1998. The lower gross margin is primarily attributable
to the nonrecurring inventory revaluation expenses of $1,490,000 taken in
connection with the merger.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the first quarter ended January 2, 1999
were up $247,000 as compared to the first quarter in the prior year. The
inclusion of Bowmar's research and development expense in the first quarter of
fiscal 1998 would have resulted in an overall increase of
8
<PAGE> 10
$68,000 in the first quarter of fiscal 1999. The increase is primarily due to
the reclassification of engineering expenses to research and development which
is consistent with EDI accounting policies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the 1999 first quarter
increased $345,000 versus the same period in fiscal 1998. The inclusion of
Bowmar's selling, general and administrative expenses in the first quarter of
fiscal 1998 would have resulted in a decrease of $2,004,000. The decrease is a
result of the savings realized from the closure of Bowmar's corporate office at
the end of the fiscal 1998 first quarter. In addition, sales costs and
commissions are lower as a result of reorganization in the sales departments and
lower commissions following a decline in sales. Finally, the Company is just
beginning to realize savings in selling, general and administrative expenses due
to efficiencies resulting from the merger.
INTEREST EXPENSE
Interest expense in the first quarter of fiscal 1999 increased $63,000 compared
to interest expense for the same period in fiscal 1998. The increase was due to
the inclusion of Bowmar's debt in the 1999 results.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets increased by $48,000 for the first quarter of
fiscal 1999 as compared to the same period in fiscal 1998. Intangible assets
increased $1,247,000 as a result of the merger. These assets are being amortized
over four and five years using the straight line method.
FINANCIAL CONDITION AND LIQUIDITY
In the first quarter of fiscal 1999 working capital increased to $12,141,000
from $5,207,000, principally as a result of the increase in current assets due
to the merger.
The Company's operations used approximately $816,000 cash in the first quarter
of fiscal 1999. This mainly represents the net loss for the period.
Cash flows used from financing activities primarily resulted from the retirement
of long term debt of $2,333,000.
During the first quarter of 1999 the Company executed a modification to its
credit facility with Bank One. These modifications increased the revolving line
of credit and modified certain restrictive covenants.
Management believes that cash generated by operations, in addition to the
Company's borrowing capability, should be sufficient to fund the Company's cash
needs for the foreseeable future.
Certain matters discussed in this document contain forward-looking statements.
The words "believe," "expect" and "anticipate" identify forward-looking
statements that speak only as of the date the statement is made. These
forward-looking statements are based largely on Management's expectations and
are subject to a number of risks and uncertainties, some of which cannot be
predicted or quantified and are beyond the Company's control. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
statements contained in this document will prove to be accurate. Actual results
may differ materially from those in the forward- looking statements.
9
<PAGE> 11
PART II
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 23, 1998, there was a special meeting of the shareholders of Bowmar
Instrument Corporation, called to consider and vote upon the following
proposals:
(a) A proposal to approve the Agreement and Plan of Merger by and among
Bowmar Instrument Corporation, Electronic Designs, Inc. and Bravo
Acquisition Subsidiary, a wholly owned subsidiary of Bowmar, and the
transactions contemplated by the Merger Agreement;
(b) A proposal to amend Bowmar's Amended and Restated 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.
(c) A proposal to amend the Articles to change the name of Bowmar after the
Merger to "White Electronic Designs Corporation."
The number of votes cast for, against or abstained for each proposal is as
follows:
<TABLE>
<CAPTION>
Proposal For Against Abstain
-------- --- ------- -------
<S> <C> <C> <C>
a) - Merger Agreement 3,919,397 252,946 41,365
b) - Increase Number of
Authorized Shares 3,438,039 689,564 121,103
c) - Name Change of Merged
Company 3,867,616 299,424 81,666
</TABLE>
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS.
3.1 Amended and Restated Articles of Incorporation (incorporated herein by
reference to Exhibit 3.1 to Annual Report on Form 10-K filed December 24, 1998).
3.2 Amended and Restated Code of By-laws (incorporated herein by reference
to Exhibit 3.2 to Annual Report on Form 10-K filed December 24, 1998).
4.1 Rights Agreement, dated as of December 6, 1996 between the Registrant
and American Stock Transfer and Trust Corporation (incorporated herein by
reference to Exhibit 5C to the Current Report on Form 8-K filed December 19,
1996).
4.1A Amendment No. 1 to Rights Agreement, effective as of May 3, 1998
(incorporated herein by reference to Exhibit 4.3 to the Registration Statement
on Form S-4, Registration No. 333-56565).
10.1 Modification Agreement dated November 1, 1998 pursuant to the Loan
Agreement dated August 28, 1995 by and between Bank One, Arizona, N.A. and the
Registrant.
10.2 Unconditional Guarantee of Payment by Electronic Designs Inc. to Bank
One, Arizona N.A.
10
<PAGE> 12
Dated November 1, 1998.
27 Financial Data Schedule
B. REPORTS ON FORM 8-K.
Form 8-K filed November 10, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
WHITE ELECTRONIC DESIGNS CORPORATION
/S/ Joseph G. Warren, Jr.
_____________________________________
Joseph G. Warren, Jr.
Vice President Finance
Dated: February 15, 1999
11
<PAGE> 13
Index to Exhibits
-----------------
Exhibit No. Description
- - - ----------- -----------
3.1 Amended and Restated Articles of Incorporation (incorporated herein by
reference to Exhibit 3.1 to Annual Report on Form 10-K filed December
24, 1998).
3.2 Amended and Restated Code of By-laws (incorporated herein by reference
to Exhibit 3.2 to Annual Report on Form 10-K filed December 24, 1998).
4.1 Rights Agreement, dated as of December 6, 1996 between the Registrant
and American Stock Transfer and Trust Corporation (incorporated herein
by reference to Exhibit 5C to the Current Report on Form 8-K filed
December 19, 1996).
4.1A Amendment No. 1 to Rights Agreement, effective as of May 3, 1998
(incorporated herein by reference to Exhibit 4.3 to the Registration
Statement on Form S-4, Registration No. 333-56565).
10.1 Modification Agreement dated November 1, 1998 pursuant to the Loan
Agreement dated August 28, 1995 by and between Bank One, Arizona, N.A.
and the Registrant.
10.2 Unconditional Guarantee of Payment by Electronic Designs Inc. to Bank
One, Arizona N.A.
Dated November 1, 1998.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
FIFTH MODIFICATION AGREEMENT
DATE: November 1, 1998
PARTIES: Borrower: WHITE ELECTRONIC DESIGNS CORPORATION,
an Indiana corporation, formerly known as Bowmar
Instrument Corporation
Lender: BANK ONE, ARIZONA, NA,
a national banking association
RECITALS:
A. Pursuant to that Loan Agreement dated August 28, 1995 (the "Loan
Agreement"), as amended by the modification documents described below, Lender
has extended to Borrower the following credit facilities (the "Loans"):
1. A revolving line of credit (the "RLC") in the principal
amount of $4,000,000.00, evidenced by the Revolving Promissory Note,
dated August 28, 1995 ("RLC Note"). The unpaid principal of the RLC as
of November 1, 1998 was $0.00.
2. A term loan (the "Term Loan") in the principal amount of
$4,200,000.00, evidenced by the Promissory Note (Term Note), dated
August 28, 1995 ("Term Note"). The unpaid principal of the Term Note as
of the date hereof is $2,000,000.00.
3. A revolving line of credit/term loan (the "RLT") in the
principal amount of $1,200,000.00, evidenced by the Revolving
Promissory Note (RLT) dated March 28, 1997 (the "RLT Note"). The unpaid
principal balance of the RLT as of the date hereof is $999,599.00.
B. The Loans are secured by, among other things, the following:
1. Mortgage, Security Agreement, Assignment of Rents and
Fixture Filing, dated August 28, 1995 (the "Indiana Mortgage"), by
Borrower, as debtor, in favor of Lender, as secured party, covering
real property located in Wayne County, Indiana.
2. Security Agreement dated August 28, 1995 (the "Security
Agreement"), by Borrower, as debtor, in favor of Lender, as secured
party, covering the personal property described therein.
<PAGE> 2
The agreements, documents, and instruments securing the Loans are referred to
individually and collectively as the "Security Documents."
C. Lender and Borrower have previously executed a Modification
Agreement dated April 26, 1996, a Second Modification dated August 9, 1996, a
Third Modification Agreement dated March 28, 1997, a Modification of Mortgage
(Indiana) dated March 28, 1997, a Fourth Amendment to Credit Agreement dated
March 16, 1998, and a Promissory Note Modification dated March 16, 1998
(collectively, the "Modifications"), modifying the terms of the Loans, the RLC
Note, the Term Note, the RLT Note, the Loan Agreement and/or the Security
Documents. The RLC Note, the Term Note and the RLT Note are sometimes referred
to individually and collectively as the "Note." The Note, the Loan Agreement,
the Security Documents, any arbitration resolution, any environmental
certification and indemnity agreement, and all other agreements, documents, and
instruments evidencing, securing, or otherwise relating to the Loans, as
modified by the Modifications, are sometimes referred to individually and
collectively as the "Loan Documents." Hereinafter, "Note," "Loan Agreement," and
each "Security Document," shall mean such document as modified in the
Modifications.
D. Borrower has requested that Lender modify certain provisions in the
Loan Documents as provided herein. Lender is willing to extend to Borrower such
additional loan and so modify the Loan Documents, subject to the terms and
conditions herein.
AGREEMENT:
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Borrower and Lender agree as follows:
SECTION 1. ACCURACY OF RECITALS.
Borrower acknowledges the accuracy of the Recitals.
SECTION 2. MODIFICATION OF LOAN DOCUMENTS; OTHER AGREEMENTS.
2.1 The RLT is hereby refinanced and consolidated into the Term Loan
and the Term Loan is hereby modified, all in accordance with the terms and
provisions of this Agreement and the Loan Agreement and the Term Note, as
modified by this Agreement. Hereinafter, the RLT and Borrower's obligations
thereunder shall be evidenced by the Term Note and the provisions of the Loan
Agreement and the other Loan Documents relating to the Term Loan, as modified by
this Agreement. The outstanding principal balance of the Term Loan, as modified
by this Agreement, is $2,974,599.42. There are no undisbursed proceeds available
under the Term Loan.
2.2 Paragraphs A, B, C and D on pages 1 and 2 of the Term Note and the
definitions on page 2 of the Term Note are hereby deleted and replaced in their
entirety with the provisions set forth below:
-2-
<PAGE> 3
A. Except as otherwise provided herein, the unpaid principal
balance of this Note shall accrue at a rate per annum which shall from
time to time be equal to the Fixed Rate. The interest rate on this Note
is subject to fluctuation based upon the LIBOR Rate of interest in
effect from time to time. Each change in the rate to be charged on this
Note shall become effective without notice on the commencement of each
Interest Period based upon the LIBOR Rate then in effect.
B. Notwithstanding any provision of this Note or the Loan
Agreement to the contrary, Holder shall be entitled to fund and
maintain its funding of all or any part of this Note in any manner it
sees fit; provided, however, for the purpose of this Note, all
determinations thereunder shall be made as if Holder had actually
funded and maintained the outstanding principal balance of this Note
through the purchase of deposits having a maturity corresponding to the
last day of the Interest Period and bearing an interest rate equal to
the Fixed Rate for such Interest Period.
C. Commencing on December 1, 1998, and on the first day of
each month thereafter, principal and interest shall be due and payable
in successive monthly installments each in the sum of (i) the principal
amount of $29,362.85, plus (ii) all accrued interest.
D. The entire unpaid principal balance, all accrued and unpaid
interest and all other amounts due and payable hereunder shall be due
and payable in full on the Maturity Date.
As used in this Note:
"Business Day" means any day other than a Saturday, Sunday or
a day on which banking institutions are generally authorized or
obligated by law or executive order to close in the City of London,
England.
"Fixed Rate" means the rate per annum equal to the sum of (i)
two and one-half percent (2.5%) per annum, and (ii) the LIBOR Rate.
"Interest Period" means each consecutive one month period (the
first of which shall commence on November 1, 1998) effective as of the
first day of each Interest Period and ending on the last day of each
Interest Period, providing that if any Interest Period is scheduled to
end on a date for which there is no numerical equivalent to the date on
which the Interest Period commenced, then it shall end instead on the
last day of such calender month.
"LIBOR Rate" means, with respect to each Interest Period, the
offered rate for U.S. Dollar deposits of not less than $1,000,000.00 as
of 11:00 A.M. City of London, England time two Business Days prior to
the first date of such Interest Period as shown on the display
designated as "British Bankers Assoc. Interest
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<PAGE> 4
Settlement Rates" on the Telerate System ("Telerate"), Page 3750 or
Page 3740, or such other page or pages as may replace such pages on
Telerate for the purpose of displaying such rate; provided, however,
that if such rate is not available on Telerate then such offered rate
shall be otherwise independently determined by Holder from an
alternate, substantially similar independent source available to Holder
or shall be calculated by Holder by a substantially similar methodology
as that theretofore used to determine such offered rate in Telerate.
"Maturity Date" means November 30, 2003.
2.3 The portion of the Term Note commencing with the last carry-over
paragraph on page 3 of the Note, that commences with "Maker may prepay . . .,"
through the nonindented paragraph on page 4 of the Note, that commences with
"The maturity date and . . .," is hereby deleted and replaced in its entirety
with the following:
Maker may prepay all or any portion of this Note, provided
that if Maker makes any such prepayment other than on the last day of
the Interest Period, Maker with such prepayment, shall pay all accrued
interest on the principal amount prepaid, and on demand, shall
reimburse Holder and hold Holder harmless from all losses and expenses
incurred by Holder as a result of such prepayment, including, without
limitation, any losses and expenses arising from the liquidation or
reemployment of deposits acquired to fund or maintain the principal
amount prepaid. Such reimbursement shall be calculated as though Holder
funded the principal amount prepaid through the purchase of U.S. Dollar
deposits in the London, England interbank market having a maturity
corresponding to such Interest Period and bearing an interest rate
equal to the Fixed Rate for such Interest Period, whether in fact that
is the case or not. Holder's determination of the amount of such
reimbursement shall be conclusive in the absence of manifest error.
2.4 The face amount of the RLC Note is hereby increased to
$6,000,000.00. All references in the RLC Note to the amount of $4,000,000.00 are
hereby modified to refer to the amount of $6,000,000.00.
2.5 Recital A on page 1 of the Loan Agreement is hereby amended in its
entirety to read as follows:
A. Borrower has applied to Lender for a revolving line of
credit facility (the "RLC") in the principal amount of SIX MILLION AND
NO/100 DOLLARS ($6,000,000.00) for the purpose of providing working
capital financing for Borrower's business.
2.6 All references in the Loan Agreement to the RLT are hereby deleted
in their entirety. In that regard, Recital C on page 1 of the Loan Agreement and
Article 4 of the Loan Agreement are hereby deleted their entirety.
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<PAGE> 5
2.7 The following definitions are either added to Section 1.1 of the
Loan Agreement or are set forth in Section 1.1 of the Loan Agreement and are
hereby amended in their entirety to read as follows:
"Accounts Receivable" means, as of any date, accounts
receivable of Borrower and EDI.
"Borrowing Base" means an amount equal to:
(a) Eighty percent (80%) of the outstanding amount of
all Eligible Accounts Receivable of Borrower and EDI, as
determined in accordance with GAAP; plus
(b) The lesser of (i) forty percent (40%) of the
lower of cost or market value on an inventory line item basis
the Net Eligible Inventory of Borrower and EDI, as determined
in accordance with GAAP, and (ii) $2,000,000.00.
"Collateral" means all property of Borrower and EDI subject to
the Security Documents.
"Debt Coverage Ratio" means the ratio of EBIDA to the sum of
CMLTD plus interest expense.
"EBIDA" means the sum of Borrower's aggregate net income or
loss for a period, plus interest expense, depreciation expense and
amortization expense recognized in the computation of Borrower's
aggregate net income or loss for such period, as determined in
accordance with GAAP.
"EBIT" means the sum of Borrower's aggregate net income or
loss for a period, plus interest expense, and tax expense recognized in
the computation of Borrower's aggregate net income or loss for such
period, as determined in accordance with GAAP
"EDI" means Electronic Designs, Inc., a Delaware corporation,
a wholly owned subsidiary of Borrower.
"Gross Eligible Inventory" means all finished goods and raw
materials of Bowmar Technologies, White Microelectronics and EDI that
are not in any case subject to any prior Lien.
"Net Eligible Inventory" means Gross Eligible Inventory less
the sum of (i) the sum of all accounts payable or trade payables of
Borrower and EDI aged
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<PAGE> 6
forty-five (45) days from the invoice/statement date for such accounts,
(ii) the sum of all work in process of Borrower and EDI.
"NITDA" means the Net Income for the prior twelve (12) month
period, plus all amounts deducted or deductible for taxes, plus all
expenses incurred in connection with the merger of EDI with a
subsidiary of Borrower, to the extent such expenses are included in the
calculation of Net Income.
"RLC Commitment" means the sum of SIX MILLION AND NO/100
DOLLARS ($6,000,000.00).
"Term Maturity Date" means November 30, 2003.
"Total Funded Debt" means the sum of (i) CMLTD, (ii)
Borrower's long term debt, (iii) the outstanding balance of the RLC,
and (iv) capital lease obligations.
2.8 Section 2.2 of the Loan Agreement is hereby amended in its entirety
to read as follows:
2.2 Revolving Line. Subject to the terms and conditions set
forth in this Loan Agreement, the RLC shall be a revolving line of
credit, against which RLC Advances may be made to Borrower, repaid by
Borrower, and new RLC Advances made to Borrower, as Borrower may
request, provided that (i) no RLC Advance shall be made if an Event of
Default shall be continuing, or if any event has occurred which, with
the giving of notice or passage of time, or both, would constitute an
Event of Default, (ii) no RLC Advance shall be made that would cause
the outstanding principal balance of the RLC to exceed the lesser of
(A) the RLC Commitment, or (B) the Borrowing Base, and (iii) no RLC
Advance shall be made on or after the RLC Maturity Date.
2.9 Section 2.5 of the Loan Agreement is hereby amended in its entirety
to read as follows:
2.5 Excess Balance Repayment. There shall be due and payable
from Borrower to Lender, and Borrower shall immediately repay to
Lender, without notice or demand, from time to time, any amount by
which the outstanding principal balance of the RLC exceeds the lesser
of (i) the RLC Commitment, or (ii) the Borrowing Base.
2.10 Section 3.2 of the Loan Agreement is hereby amended in its
entirety to read as follows:
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<PAGE> 7
3.2 Term Note. The Term Loan shall be evidenced by the Term
Note, and shall bear interest and be payable to Lender upon the terms
and conditions contained therein.
2.11 Section 6.1 of the Loan Agreement is hereby amended in its
entirety to read as follows:
6.1 Security. So long as the Loans are outstanding, Borrower
shall cause the Loans and Borrower's obligations under this Loan
Agreement to be secured at all times by one or more valid and effective
security agreements (severally and collectively, the "Security
Agreement"), duly executed and delivered by or on behalf of Borrower,
granting Lender a valid and enforceable security interest in all of the
kinds and categories of personal property described in the Security
Agreement, including without limitation its Accounts Receivable,
inventory and equipment, wherever located, in, to, or under which
Borrower or EDI now has or hereafter acquires any right, title, or
interest, whether present, future, or contingent, and in Borrower's and
EDI's expectancy to acquire such property, subject to no prior Liens
except for Permitted Liens.
2.12 Section 9.1(b) of the Loan Agreement is hereby amended in its
entirety to read as follows:
(b) Annual Statements of Borrower and EDI. As soon as
available and in any event within ninety (90) days after the close of
each fiscal year of Borrower, audited financial statements of Borrower,
including its balance sheet as of the close of such fiscal year and
statements of income of Borrower for such fiscal year, prepared on a
consolidated and consolidating basis with EDI and in each case setting
forth in comparative form the figures for the preceding fiscal year,
all in reasonable detail and accompanied by an unqualified opinion
thereon of independent public accountants of recognized national
standing selected by Borrower and acceptable to Lender, to the effect
that such financial statements have been prepared in accordance with
GAAP (except for changes in which such accountants concur) and that the
examination of such accounts in connection with such financial
statements has been made in accordance with generally accepted auditing
standards and, accordingly, includes such tests of the accounting
records and such other auditing procedures as were considered necessary
in the circumstances.
2.13 Section 9.1(e) of the Loan Agreement is hereby amended in its
entirety to read as follows:
(e) Agings of Accounts. Within thirty (30) days after the end
of each month, agings and listings of all Accounts Receivable, all
inventory, and all accounts payable of Borrower and EDI, in such level
of detail as Lender shall reasonably
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<PAGE> 8
require. Lender shall have the right, at Borrower's expense, to inspect
Borrower's and EDI's Accounts Receivable, inventory and accounts
payable.
2.14 Section 9.1(h) of the Loan Agreement is hereby amended in its
entirety to read as follows:
(h) Other Information. (i) As soon as available, copies of
each annual report, proxy or financial statement or other report or
communication which Borrower may make available to stockholders or
debenture holders, as such, and copies of all annual, regular, and
periodic and special reports and registration statements sent to the
SEC or any securities exchange, and (ii) such other information
concerning the business, properties or financial condition of Borrower
and EDI as Lender shall reasonably request.
2.15 Section 10.8 of the Loan Agreement is hereby amended in its
entirety to read as follows:
10.8 Financial Covenants. It will not permit:
(a) The ratio of Total Funded Debt to EBIDA to be
greater than 3.0 to 1.0 at the end of any fiscal year end of
Borrower, commencing with the fiscal year ending September 30,
1999.
(b) The ratio of EBIT to interest expense of Borrower
to be greater than 1.5 to 1.0 at the end of any quarterly
accounting period of Borrower. The foregoing ratio of EBIT to
interest expense shall initially be calculated on an
annualized basis for the three (3) calendar quarters ending
March 31, 1999, June 30, 1999 and September 30, 1999.
Commencing with the calendar quarter ending December 31, 1999,
the ratio of EBIT to interest expense shall be calculated on a
rolling four-quarter basis.
(c) Its Tangible Net Worth to be less than
$20,000,000.00 at the end of any quarterly accounting period
of Borrower, commencing with the quarterly accounting period
ending December 31, 1998.
(d) Its Owner's Equity Percentage to be less than
forty percent (40%) at the end of any quarterly accounting
period of Borrower.
(e) Commencing with the period covered by the March
31, 1999 financial statements, its Debt Coverage Ratio to be
less than 1.5 to 1.0 at the end of any quarterly accounting
period of
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<PAGE> 9
Borrower. The foregoing Debt Coverage Ratio shall initially be
calculated on an annualized basis for the three (3) calendar
quarters ending March 31, 1999, June 30, 1999 and September
30, 1999. Commencing with the calendar quarter ending December
31, 1999, the Debt Coverage Ratio shall be calculated on a
rolling four-quarter basis.
2.16 The following new Section 10.9 is hereby added to Article 10 of
the Loan Agreement:
10.9 Repurchase of Preferred Stock. Borrower shall not
repurchase its preferred stock unless (i) the funds used for such
purchase are from operations and not from borrowed funds, and (ii)
Borrower remains in compliance with all Financial Covenants.
2.17 Sections 11.1(d), (e), (f), (g), (h), (i), (j), (k), (m), (n), or
(o) are hereby amended by inserting therein, after the word "Borrower" in each
instance, the words "or EDI."
2.18 The Borrowing Base Certificate attached to the Loan Agreement as
Exhibit "1" is hereby replaced in its entirety with the Borrowing Base
Certificate attached hereto as Exhibit "1".
2.19 The following new Section 2(g) is hereby added to Section 2:
(g) The full and timely payment of all amounts now or
hereafter due and payable by Debtor to Secured Party under any interest
rate swap, cap, collar or similar transaction, or any master agreement
for such transactions, now or hereafter in effect between Debtor and
Secured Party, whether such amounts are due and payable on the date(s)
scheduled therefor, or otherwise.
2.20 Each of the Loan Documents is modified to provide that it shall be
a default or an event of default thereunder if Borrower shall fail to comply
with any of the covenants of Borrower herein or if any representation or
warranty by Borrower herein is materially incomplete, incorrect, or misleading
as of the date hereof.
2.21 Each reference in the Loan Documents to any of the Loan Documents
is hereby amended to be a reference to such document as modified herein and in
any modification of mortgage executed in connection herewith.
SECTION 3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL.
The Loan Documents are ratified and affirmed by Borrower and shall
remain in full force and effect as modified herein. Any property or rights to or
interests in property granted as security in the Loan Documents shall remain as
security for the Loans and the obligations of Borrower in the Loan Documents.
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<PAGE> 10
SECTION 4. BORROWER REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Lender:
4.1 No default or event of default under any of the Loan Documents as
modified herein, nor any event, that, with the giving of notice or the passage
of time or both, would be a default or an event of default under the Loan
Documents as modified herein has occurred and is continuing.
4.2 There has been no material adverse change in the financial
condition of Borrower or any other person whose financial statement has been
delivered to Lender in connection with the Loans from the most recent financial
statement received by Lender.
4.3 Each and all representations and warranties of Borrower in the Loan
Documents are accurate on the date hereof.
4.4 Borrower has no claims, counterclaims, defenses, or set-offs with
respect to the Loans or the Loan Documents as modified herein.
4.5 The Loan Documents as modified herein are the legal, valid, and
binding obligation of Borrower, enforceable against Borrower in accordance with
their terms.
4.6 Borrower is validly existing under the laws of the State of its
formation or organization and has the requisite power and authority to execute
and deliver this Agreement and to perform the Loan Documents as modified herein.
The execution and delivery of this Agreement and the performance of the Loan
Documents as modified herein have been duly authorized by all requisite action
by or on behalf of Borrower. This Agreement has been duly executed and delivered
on behalf of Borrower.
SECTION 5. BORROWER COVENANTS.
Borrower covenants with Lender:
5.1 Borrower shall execute, deliver, and provide to Lender such
additional agreements, documents, and instruments as reasonably required by
Lender to effectuate the intent of this Agreement.
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<PAGE> 11
5.2 Borrower fully, finally, and absolutely and forever releases and
discharges Lender and its present and former directors, shareholders, officers,
employees, agents, representatives, successors and assigns, and their separate
and respective heirs, personal representatives, successors and assigns, from any
and all actions, causes of action, claims, debts, damages, demands, liabilities,
obligations, and suits, of whatever kind or nature, in law or equity of
Borrower, whether now known or unknown to Borrower, and whether contingent or
matured, (i) in respect of the Loans, the Loan Documents, or the actions or
omissions of Lender in respect of the Loans or the Loan Documents and (ii)
arising from events occurring prior to the date of this Agreement.
SECTION 6. CONDITIONS PRECEDENT.
The agreements of Lender and the modifications contained herein shall
not be binding upon Lender until Lender has executed and delivered this
Agreement and Lender has received, at Borrower's expense, all of the following,
all of which shall be in form and content satisfactory to Lender and shall be
subject to approval by Lender:
6.1 An original of this Agreement fully executed by the Borrower;
6.2 An original Agreement Concerning Year 2000 Compliance fully
executed by Borrower;
6.3 Such UCC Financing Statement Change Forms fully executed by
Borrower as Lender shall require to reflect the name change of Borrower;
6.4 An original Unconditional Guarantee of Payment fully executed by
Electronic Designs, Inc., a Delaware corporation ("EDI");
6.5 An original Security Agreement and related UCC-1 financing
statements fully executed by EDI;
6.6 If Borrower or EDI a corporation, limited liability company,
partnership or trust, such resolutions or authorizations and such other
documents as Lender may require relating to the existence and good standing of
that corporation, partnership or trust, and the authority of any person
executing this Agreement or other documents on behalf of that corporation,
limited liability company, partnership or trust; and
6.7 Payment of all the internal and external costs and expenses
incurred by Lender in connection with this Agreement (including, without
limitation, a documentation fee in the amount of $300.00 and outside attorneys,
appraisal, appraisal review, processing, title, filing and recording costs,
expenses, and fees).
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<PAGE> 12
SECTION 7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION,
OR WAIVER.
The Loan Documents as modified herein contain the complete
understanding and agreement of Borrower and Lender in respect of the Loans and
supersede all prior representations, warranties, agreements, arrangements,
understandings, and negotiations. No provision of the Loan Documents as modified
herein may be changed, discharged, supplemented, terminated, or waived except in
a writing signed by the parties thereto.
SECTION 8. BINDING EFFECT.
The Loan Documents as modified herein shall be binding upon and shall
inure to the benefit of Borrower and Lender and their successors and assigns and
the executors, legal administrators, personal representatives, heirs, devisees,
and beneficiaries of Borrower, provided, however, Borrower may not assign any of
its right or delegate any of its obligation under the Loan Documents and any
purported assignment or delegation shall be void.
SECTION 9. CHOICE OF LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Arizona, without giving effect to conflicts of law
principles.
SECTION 10. COUNTERPART EXECUTION.
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<PAGE> 13
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same document. Signature pages may be detached from the counterparts and
attached to a single copy of this Agreement to physically form one document.
DATED as of the date first above stated.
WHITE ELECTRONIC DESIGNS
CORPORATION, an Indiana corporation, formerly
known as Bowmar Instrument Corporation
By: /s/
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
BORROWER
BANK ONE, ARIZONA, NA, a national banking
association
By: /s/
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
LENDER
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<PAGE> 1
EXHIBIT 10.2
UNCONDITIONAL GUARANTEE OF PAYMENT
TO: BANK ONE, ARIZONA, NA, a national banking association
1. FOR VALUABLE CONSIDERATION, the undersigned (hereinafter called
"Guarantor"), whose address is set forth after Guarantor's signature below,
jointly and severally, and unconditionally, guarantees and promises to pay to
BANK ONE, ARIZONA, NA, a national banking association (hereinafter called
"Lender"), or order, upon demand, in lawful money of the United States, (i) that
Revolving Promissory Note dated August 28, 1995, as modified by modification
agreements dated April 26, 1996, August 9, 1996, March 28, 1997, March 16, 1998
and of even date herewith, made by WHITE ELECTRONIC DESIGNS CORPORATION, an
Indiana corporation, formerly known as Bowmar Instrument Corporation
(hereinafter called "Borrower"), in favor of Lender in the original face amount
of FOUR MILLION AND NO/100 DOLLARS ($4,000,000.00) (the "RLC Note") and that
Promissory Note dated August 28, 1995, as modified by modification agreements
dated April 26, 1996, August 9, 1996, March 28, 1997, March 16, 1998 and of even
date herewith, made by Borrower in favor of Lender in the face amount of FOUR
MILLION TWO HUNDRED THOUSAND AND NO/100 DOLLARS ($4,200,000.00) (the "Term
Note") (the RLC Note and the Term Note are hereinafter severally and
collectively called the "Note"), principal and interest and all other sums
payable thereunder, or at the election of Lender any one or more installments
thereof, in the event that Borrower fails to punctually pay any one or more
installments of the Note (principal and/or interest), or any other sum payable
thereunder at the time and in the manner provided therein; and (ii) all other
indebtedness of Borrower to Lender arising under or in connection with the Note,
any loan agreement between Borrower and Lender executed and delivered in
connection with the Note and any deed of trust or other security document or
instrument given in connection therewith (the indebtedness evidenced by the Note
together with all other indebtedness specified above is hereinafter collectively
called the "Indebtedness").
2. The obligations of Guarantor hereunder are joint and several if
Guarantor is more than one person or entity, are separate and independent of the
obligations of Borrower and of any other guarantor, and a separate action or
actions may be brought and prosecuted against Guarantor whether action is
brought against Borrower or any other guarantor or whether Borrower or any other
guarantor is joined in any action or actions. The obligations of Guarantor
hereunder shall survive and continue in full force and effect until payment in
full of the Indebtedness is actually received by Lender and the period of time
has expired during which any payment made by Borrower or Guarantor to Lender may
be determined to be a Preferential Payment (defined below), notwithstanding any
release or termination of Borrower's or any other guarantor's liability by
express or implied agreement with Lender or by operation of law and
notwithstanding that the Indebtedness or any part thereof is deemed to have been
paid or discharged by operation of law or by some act or agreement of Lender.
For purposes of this Guarantee, the Indebtedness shall be deemed to be paid only
to the extent that Lender actually receives immediately available funds and to
the extent of any credit bid by Lender at any foreclosure or trustee's sale of
any security for the Indebtedness.
<PAGE> 2
3. Guarantor agrees that to the extent Borrower or Guarantor makes any
payment to Lender in connection with the Indebtedness, and all or any part of
such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid by Lender or paid over to a
trustee, receiver or any other entity, whether under any bankruptcy act or
otherwise (any such payment is hereinafter referred to as a "Preferential
Payment"), then this Guarantee shall continue to be effective or shall be
reinstated, as the case may be, and, to the extent of such payment or repayment
by Lender, the Indebtedness or part thereof intended to be satisfied by such
Preferential Payment shall be revived and continued in full force and effect as
if said Preferential Payment had not been made.
4. Guarantor is providing this Guarantee at the instance and request of
Borrower to induce Lender to extend or continue financial accommodations to
Borrower. Guarantor hereby represents and warrants that Guarantor is and will
continue to be fully informed about all aspects of the financial condition and
business affairs of Borrower that Guarantor deems relevant to the obligations of
Guarantor hereunder and hereby waives and fully discharges Lender from any and
all obligations to communicate to Guarantor any information whatsoever regarding
Borrower or Borrower's financial condition or business affairs.
5. Guarantor authorizes Lender, without notice or demand and without
affecting Guarantor's liability hereunder, from time to time, to: (a) renew,
modify, compromise, extend, accelerate or otherwise change the time for payment
of, or otherwise change the terms of the Indebtedness or any part thereof,
including increasing or decreasing the rate of interest thereon; (b) release,
substitute or add any one or more endorsers, Guarantor or other guarantors; (c)
take and hold security for the payment of this Guarantee or the Indebtedness,
and enforce, exchange, substitute, subordinate, waive or release any such
security; (d) proceed against such security and direct the order or manner of
sale of such security as Lender in its discretion may determine; and (e) apply
any and all payments from Borrower, Guarantor or any other guarantor, or
recoveries from such security, in such order or manner as Lender in its
discretion may determine.
6. Guarantor waives and agrees not to assert: (a) any right to require
Lender to proceed against Borrower or any other guarantor, to proceed against or
exhaust any security for the Indebtedness, to pursue any other remedy available
to Lender, or to pursue any remedy in any particular order or manner; (b) the
benefit of any statute of limitations affecting Guarantor's liability hereunder
or the enforcement hereof; (c) demand, diligence, presentment for payment,
protest and demand, and notice of extension, dishonor, protest, demand,
nonpayment and acceptance of this Guarantee; (d) notice of the existence,
creation or incurring of new or additional indebtedness of Borrower to Lender;
(e) the benefits of any statutory provision limiting the liability of a surety,
including without limitation the provisions of A.R.S. Sections 12-1641, et seq.;
(f) any defense arising by reason of any disability or other defense of Borrower
or by reason of the cessation from any cause whatsoever (other than payment in
full) of the liability of Borrower for the Indebtedness; and (g) the benefits of
any statutory provision limiting the right of Lender to recover a deficiency
judgment, or to otherwise proceed against any person or entity obligated for
payment of the Indebtedness, after any foreclosure or trustee's sale of any
security for the Indebtedness, including without limitation the benefits, if
any, to Guarantor of A.R.S. Section 33-814. Guarantor hereby
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<PAGE> 3
expressly consents to any impairment of collateral, including, but not limited
to, failure to perfect a security interest and release collateral and any such
impairment or release shall not affect Guarantor's obligations hereunder. Until
payment in full of the Indebtedness, Guarantor shall have no right of
subrogation and hereby waives any right to enforce any remedy which Lender now
has, or may hereafter have, against Borrower, and waives any benefit of, and any
right to participate in, any security now or hereafter held by Lender.
7. All existing and future indebtedness of Borrower to Guarantor is
hereby subordinated to the Indebtedness and such indebtedness of Borrower to
Guarantor, if Lender so requests, shall be collected, enforced and received by
Guarantor as trustee for Lender and shall be paid over to Lender on account of
the Indebtedness, but without reducing or affecting in any manner the liability
of Guarantor under the other provisions of this Guarantee.
8. In addition to all liens upon, and rights of setoff against, the
monies, securities or other property of Guarantor given to Lender by law, Lender
shall have a lien and a right of setoff against, and Guarantor hereby grants to
Lender a security interest in, all monies, securities and other property of
Guarantor now and hereafter in the possession of or on deposit with Lender,
whether held in a general or special account or deposit, or for safekeeping or
otherwise; every such lien and right of setoff may be exercised upon Borrower's
default in the payment of the Indebtedness or upon the occurrence of any event
of default under this Guarantee or any other document or instrument executed and
delivered in connection with the Indebtedness. No lien or right of setoff shall
be deemed to have been waived by any act or conduct on the part of Lender, by
any neglect to exercise such right of setoff or to enforce such lien, or by any
delay in so doing.
9. If Borrower is a corporation, limited liability company, partnership
or trust, it is not necessary for Lender to inquire into the powers of Borrower
or the officers, directors, members, managers, partners, trustees or agents
acting or purporting to act on its behalf, and any of the Indebtedness made or
created in reliance upon the professed exercise of such powers shall be
guaranteed hereunder.
10. Guarantor agrees to deliver to Lender financial statements, income
tax returns and other financial information in form and level of detail, and
containing certifications, as and to the extent required pursuant to the Loan
Agreement between Borrower and Lender, of even date herewith (the "Loan
Agreement").
11. All financial statements, income tax returns and other financial
information previously or hereafter given to Lender by or on behalf of Guarantor
are and shall be true, complete and correct as of the date thereof.
12. Guarantor agrees to pay all attorneys' fees and all other costs and
expenses which may be incurred by Lender in enforcing this Guarantee or in
collecting all or any part of the Indebtedness.
-3-
<PAGE> 4
13. This Guarantee sets forth the entire agreement of Guarantor and
Lender with respect to the subject matter hereof and supersedes all prior oral
and written agreements and representations by Lender to Guarantor. No
modification or waiver of any provision of this Guarantee or any right of Lender
hereunder and no release of Guarantor from any obligation hereunder shall be
effective unless in a writing executed by an authorized officer of Lender. There
are no conditions, oral or otherwise, on the effectiveness of this Guarantee.
14. This Guarantee shall inure to the benefit of Lender and its
successors and assigns and shall be binding upon Guarantor and its heirs,
personal representatives, successors and assigns. Lender may assign this
Guarantee in whole or in part without notice.
15. Guarantor shall not, without Lender's prior written consent, enter
into any merger or consolidation (if Guarantor is other than a natural person)
or, except in the ordinary course of business, sell, lease or otherwise transfer
or dispose of a material portion of Guarantor's assets.
16. Guarantor represents and warrants to Lender that: (a) (if Guarantor
is not a natural person) it is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization; (b) Guarantor
has full capacity and authority to execute, deliver and perform this Guarantee,
and the execution, delivery and performance of this Guarantee will not (i)
violate any law or regulation, (ii) (if Guarantor is not a natural person)
violate any provision of Guarantor's organizational documents, (iii) violate or
constitute (with due notice or lapse of time or both) a default under any
indenture, agreement, license or other instrument to which Guarantor is a party
or by which Guarantor or any of Guarantor's properties may be bound, (iv)
violate any order of any court, tribunal or governmental agency binding on
Guarantor or any of Guarantor's properties, (v) result in the creation or
imposition of any lien of any nature whatsoever on any of Guarantor's properties
or assets, (vi) render Guarantor insolvent under generally accepted accounting
principles, (vii) leave Guarantor with remaining assets which constitute
unreasonably small capital given the nature of its business, or (viii) result in
the incurrence of debts (whether matured or unmatured, liquidated or
unliquidated, absolute, fixed or contingent) beyond Guarantor's ability to pay
them when and as they become due; (c) no approval or consent of, or filing or
registration with, any federal, state or local regulatory authority is required
in connection with the execution, delivery and performance of this Guarantee;
and (d) this Guarantee constitutes the legal, valid and binding obligation of
Guarantor, enforceable against Guarantor in accordance with its terms. These
representations and warranties shall survive the execution of this Guarantee. As
used in this paragraph, "insolvent" means the present fair saleable value of
assets is less than the probable amount required to be paid on existing debts
when and as they mature.
17. This Guarantee shall be governed by and construed according to the
laws of the State of Arizona.
18. Arbitration. Lender and Guarantor agree that upon the written
demand of either party, whether made before or after the institution of any
legal proceedings, but prior to the rendering of any judgment in that
proceeding, all disputes, claims and controversies between them, whether
individual, joint, or class in nature, arising from this Guarantee, the Note,
any other agreements,
-4-
<PAGE> 5
documents or instruments executed or delivered in connection with, or otherwise
relating to, this Guarantee or the Indebtedness (together with this Guarantee
and the Note, the "Related Documents") or otherwise, including without
limitation contract disputes and tort claims, shall be resolved by binding
arbitration pursuant to the Commercial Rules of the American Arbitration
Association ("AAA"). Any arbitration proceeding held pursuant to this
arbitration provision shall be conducted in the city nearest the Borrower's
address having an AAA regional office, or at any other place selected by mutual
agreement of the parties. No act to take or dispose of any of the property,
interests in property, and rights to property securing any or all of the
obligations arising under or in connection with this Guarantee, the Indebtedness
or any other Related Document (the "Collateral") shall constitute a waiver of
this arbitration agreement or be prohibited by this arbitration agreement. This
arbitration provision shall not limit the right of either party during any
dispute, claim or controversy to seek, use, and employ ancillary, or preliminary
rights and/or remedies, judicial or otherwise, for the purposes of realizing
upon, preserving, protecting, foreclosing upon or proceeding under forcible
entry and detainer for possession of, any real or personal property, and any
such action shall not be deemed an election of remedies. Such remedies include,
without limitation, obtaining injunctive relief or a temporary restraining
order, invoking a power of sale under any deed of trust or mortgage, obtaining a
writ of attachment or imposition of a receivership, or exercising any rights
relating to personal property, including exercising the right of set-off or
taking or disposing of such property with or without judicial process pursuant
to the Uniform Commercial Code. Any disputes, claims or controversies concerning
the lawfulness or reasonableness of an act, or exercise of any right or remedy
concerning any Collateral including any claim to rescind, reform or otherwise
modify any agreement relating to the Collateral, shall also be arbitrated;
provided, however that no arbitrator shall have the right or the power to enjoin
or restrain any act of either party. Judgment upon any award rendered by any
arbitrator may be entered in any court having jurisdiction. The statute of
limitations, estoppel, waiver, laches and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable in
any arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of any action for these purposes. The Federal
Arbitration Act (Title 9 of the United States Code) shall apply to the
construction, interpretation, and enforcement of this arbitration provision.
-5-
<PAGE> 6
19. JURY WAIVER. THE UNDERSIGNED AND LENDER (BY ITS ACCEPTANCE HEREOF)
HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT
TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE UNDERSIGNED AND LENDER ARISING
OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT OR ANY OTHER RELATED DOCUMENT OR
ANY RELATIONSHIP BETWEEN THE UNDERSIGNED AND LENDER. THIS PROVISION IS A
MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN
THE OTHER RELATED DOCUMENTS.
IN WITNESS WHEREOF these presents are executed as of the 1st day of
November, 1998.
GUARANTOR:
ELECTRONIC DESIGNS, INC., a Delaware
corporation
By: /s/Hamid R. Shokrgozqar
--------------------------
Name:
--------------------------
Title:
--------------------------
Address: 1 Research Drive
Westborough, Massachusetts 01581
-6-
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<FISCAL-YEAR-END> OCT-02-1999
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