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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission file number: 0-21305
ELECTRONIC DESIGNS, INC.
(Name of small business issuer in its charter)
DELAWARE 04-3298416
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
ONE RESEARCH DRIVE
WESTBOROUGH, MA 01581
(508) 366-5151
(Address, including zip code, of Registrant's principal
executive offices and Registrant's telephone number, including area code)
-----------------------------
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT: NONE.
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE
$.01 PER SHARE; REDEEMABLE WARRANTS
-----------------------------
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended during
the past 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. X Yes No
--- ---
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The Registrant's revenues for the fiscal year ended September 30, 1996 were
$58,654,000.
The aggregate market value of the voting stock held by non-affiliates of
Registrant as of November 15, 1996 was $15,402,735 based on the closing sales
price of such stock on the Nasdaq Small-Cap Market. As of November 15, 1996,
there were 6,561,896 shares of Registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held February 26, 1997 (the "Proxy Statement") to be filed
pursuant to Regulation 14A of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, which is anticipated to be filed
within 120 days after the end of Registrant's fiscal year ended September 30,
1996, are incorporated by reference into Part III hereof.
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<TABLE>
TABLE OF CONTENTS
<S> <C>
PART I............................................................................ 1
ITEM 1. DESCRIPTION OF BUSINESS............................................... 1
ITEM 2. DESCRIPTION OF PROPERTIES............................................. 6
ITEM 3. LEGAL PROCEEDINGS..................................................... 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................... 6
PART II........................................................................... 7
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............. 7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................. 8
ITEM 7. FINANCIAL STATEMENTS.................................................. 13
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.................................................. 13
PART III.......................................................................... 14
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT..................... 14
ITEM 10. EXECUTIVE COMPENSATION................................................ 14
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........ 14
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................ 14
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K................................ 15
SIGNATURES............................................................ 21
AUDITED FINANCIAL STATEMENTS.......................................... F-1
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. 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" beginning on page 12 of this Form 10-KSB.
GENERAL BACKGROUND
Electronic Designs, Inc. (formerly Crystallume)(the "Company") was
originally incorporated in California in 1984 under the name of Crystallume.
Since its inception in 1984 through October 10, 1995, the Company had been
primarily engaged in research and development related to diamond coatings using
Chemical Vapor Deposition ("CVD") technology.
Effective October 10, 1995, the Company 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. As a
result of the Acquisition, the Company has shifted its emphasis from diamond
research and development to the design, manufacture and sale of semiconductor
and flat panel display products.
On March 6, 1996, the Company was reorganized as a Delaware corporation
under the name Electronic Designs, Inc. to reflect the shift in its business
focus.
INDUSTRY BACKGROUND
Semiconductor Packaging: Worldwide demand for memory integrated circuits
("ICs") has grown significantly during the 1990's due to the proliferation of
personal computers, data communications systems and new telecommunications
systems; the introduction of memory intensive software applications; and the
increasing use of memory devices in many consumer products. The most widely used
memory devices are dynamic random access memories ("DRAMs") and static random
access memories ("SRAMs"). DRAMs are commercially available with higher
densities than SRAMs, while SRAMs do not require refresh circuitry and are
capable of higher speeds than DRAMs of the same density. SRAMs are used to take
advantage of the significantly increased performance capabilities of current
microprocessors.
SRAMs are used in a wide variety of other electronic products, including
personal computers ("PCs"), cellular base stations and telephones, and high
speed data communications networks. In military and aerospace systems, SRAMs
provide the high performance memory required by fast military processors for
pattern recognition, command, control and communications and other applications.
Memory modules are miniaturized memory subsystems which can consist of
multiple memory devices plus support chips in a single component. Standard
memory modules include modules that can be sourced from many module suppliers,
are designed to be incorporated into a wide variety of equipment, primarily use
DRAM and are typically found in desktop PCs. Standard memory modules for the PC
market include DRAM single in-line memory modules ("SIMM") used for
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main memory and SRAM cache modules. Specialty memory modules typically emulate
the next generation of IC or provide a configuration of memory used with various
microprocessors other than in PC applications. Custom memory modules are
designed and manufactured to a customer's unique specification, application and
space requirements.
While the market for memory ICs has grown rather steadily in recent years,
this market continues to display considerable volatility, particularly in the
commercial segment which has been the principal focus of the Company's
activities. No assurances can be given that such volatility, with periods of
flat or declining demand, will not continue and extend to the Company's military
memory products. Any such market developments could have a material adverse
effect on the Company's semiconductor packaging business.
Flat Panel Displays: The information display industry is undergoing
significant changes and trends which are converging to drive a growing demand
for high performance, flat, lightweight, and power efficient displays that are
capable of delivering high volumes of information. Although cathode ray tube
displays ("CRTs") currently dominate the information display market, they are
large, heavy, fragile and require substantial amounts of power to operate. There
are several flat panel display technologies currently in development or
commercially available, including liquid crystal, gas plasma and
electroluminescent and field emission displays ("FEDs"). The liquid crystal
display ("LCD") market is the largest segment of the flat panel display market
and is dominated by a small number of large suppliers primarily located in
Japan. Passive Matrix LCDs have a less complex manufacturing process and lower
cost than Active Matrix LCDs ("AMLCDs") but have a lower image quality and
response time and a limited effective temperature range. As a result of
developments in the PC industry, the price-performance and form factor of PC
components now make it possible to integrate computers and displays to make
fast, compact systems for numerous specialized applications.
Diamond Products: Diamond's properties make it the hardest and one of the
strongest materials, an excellent thermal conductor and an almost perfect
electrical insulator. Because of its unique properties, diamond is viewed as a
potentially ideal material for a wide variety of commercial and industrial
applications, including wear coatings to extend the lives of cutting tools and
machine components and electronic packaging materials to reduce the operating
temperature and increase the reliability and lifetime of electronic components.
PRODUCTS AND PRODUCT DEVELOPMENT
The Company currently manufactures and sells approximately 150 memory
products and 15 display products for a wide range of commercial, industrial and
military applications. In fiscal 1996, memory products accounted for 92% of
Company sales.
Memory products: The Company's memory products are primarily designed for
the SRAM market. The Company's memory products incorporate SRAM, DRAM and flash
memory components using existing packaging technologies such as components
suface mounted on boards, multiple bare die on laminate ("MCM-L") or ceramic
("MCM-C") or a single die in a ceramic package (military monolithics).
Commercial module products range in density from 2 Megabit ("M") to 1 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, with address widths from 1 to 32 IOs,
operating at 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 module and monolithic products based on 4M SRAM, recent
development efforts include new MCM-L and flash memory designs as well as high
density DRAMs using the Company's licensed "doubler" technology. MCM-Ls are
geared to any high end, high performance application where board space is an
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issue or surface mount devices are desired, while applications for the high
density DRAM modules would include high-end servers and workstations.
Display Products: The Company's current offering of AMLCDs includes 5.0",
5.5", 6.4", 10.4" and 14.2" 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 PC technology based
computer system incorporating the Company's displays, as well as the development
of electronic circuit boards for "smart" displays.
Diamond Products: The Company has focused its efforts on a CVD process
which can produce a thin film of diamond on substrates made of appropriate
materials in order to develop commercial products of wide application. The
advantage of the CVD process is that a diamond coating can be applied in a
controllable manner to a wide variety of useful forms. Diamond products research
and development efforts have resulted in the introduction and production of
diamond coated cutting tool inserts and tungsten carbide rotating tools of
complex geometries for machining applications.
The Company's diamond research is focused on improving tooling products and
related diamond coating processes as well as developing numerous other
applications for the Company's diamond coating process.
The Company is developing a semiconductor product incorporating diamond as
a heat spreader to enable the devices to operate at higher power or lower
temperatures. Substituting diamond for existing heat spreading materials may
result in significantly better heat removal and greatly improved semiconductor
performance and reliability in heat sensitive operations.
As with any new products, there is no assurance that the products developed
(or to be developed) by the Company will be commercially acceptable or
profitable.
PRODUCTION AND MANUFACTURING
The process of manufacturing the Company'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; and
marking. All processes are performed in the Company's facilities with the
exception of packaging which is subcontracted to manufacturers in Manila,
Philippines and California. In addition, the Company 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 the Company's products and the Company is ISO 9001
certified with respect to its memory products.
The manufacture of the Company'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 the Company's facility in
Westborough.
With respect to diamond coated tooling insert products, the Company has
achieved commercial production in limited quantities from its manufacturing
technology and is shipping orders to customers. Production capacity is not
currently a concern given the limited order flow. In the event of heightened
demand, however, there can be no assurances that the Company would have
sufficient production capacity.
MARKETING AND DISTRIBUTION
The Company's memory and display products are distributed worldwide through
a combination of independent sales representatives, distributors and
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Company employed sales personnel. The Company has area sales offices in
Westborough, Dallas, Los Angeles and London, England. 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
The Company sells memory and display products to over 500 companies
throughout the world. Customers for the Company's commercial and industrial
products include Alcatel, Bay Networks, Inc., Cabletron System, Inc., Ericsson,
LG, Ltd., Motorola, Inc., Octel Communications Corp., Siemens, and 3Com Corp.
The Company's military customers include Harris Corporation, Hughes Aircraft
Company, Lockheed Corp., Raytheon Company and Rockwell International. In fiscal
year 1996, no single customer accounted for over 10% of the Company's revenues.
Sales of the Company's memory and display products are generally made
pursuant to standard purchase orders, which are subject to rescheduling of
delivery dates and cancellation without significant penalties. The Company has
also entered into various corporate contracts, primarily with military
customers, and these contracts do not generally require minimum purchase
quantities of the Company's products. For these reasons, the Company believes
that its product backlog, while useful for scheduling production, does not
necessarily provide a reliable indicator of future revenues.
The principal source of revenue for diamond products is research and
development contracts with the U.S. government, industry consortia and
commercial organizations and, on a limited basis, from the sale of prototype and
limited distribution products.
SUPPLIERS
The most significant raw materials that the Company purchases in its
semiconductor and display products operations are memory devices in wafer, die
and component forms and AMLCD panels. To address these needs, the Company has
developed and maintains relationships with the leading semiconductor fabricators
in the United States and the Far East, including Micron Semiconductor, Inc.,
Mitsubishi Electronics America, Inc., Samsung Semiconductor, Inc. and
subsidiaries of Sharp Corporation.
In a time of strong demand for memory and other IC products, sources of
supply of 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
the Company has no specific long-term contractual arrangements with its vendors,
the Company 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
the Company's existing access to these sources of supply may not be impaired in
particular cases. Any reduction in the Company's ability to acquire memory
devices from its existing sources of supply would have a material adverse effect
on the Company.
COMPETITION
The Company's principal competitors in the commercial module market are
Integrated Device Technology, Inc. ("IDT"), Cypress Semiconductor, Inc.
("Cypress") and Smart Modular Technologies, Inc. These companies are publicly
held, larger than the Company and have substantially greater financial,
technical, marketing, distribution and other resources. They both manufacture
memory products in monolithic form and supply modules which incorporate these
devices. In addition, the Company 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. The Company competes in this market on the basis of
many factors, including access to advanced semiconductor products at competitive
prices, successful and timely product introduction, design
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capability, lead times, quality, product specification, pricing and customer
service.
The Company's principal competitors in the military memory market are
Dense-Pac Microsystems, Inc., and White Technology, a division of Bowmar, Inc.,
two companies similar in size to itself. The Company may also compete from time
to time in this market with Cypress and IDT, particularly in lower density
technology. The Company 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 the Company's AMLCD is currently CRTs, 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, the Company 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 the Company'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.
The thin film diamond industry is undergoing rapid development and
technological change. CVD diamond coating technology is being vigorously pursued
by several large, well capitalized companies in the United States, Europe and
Japan, including General Electric Company, Sumitomo Electric Industries, Ltd.,
DeBeers Industrial Diamonds, Ltd. In addition, a number of large companies that
may require CVD diamond technology as part of their core business have been
developing or are expected to develop their own processes for diamond coating
their products. AB Sandvik Coromant, Kennametal, Inc., Teledyne Firth Sterling
and Balzers have all announced diamond coated carbide cutting tools. All of the
companies discussed above have greater engineering, manufacturing, marketing and
financial capabilities than the Company. The Company's diamond products must
also compete with products made with other diamond processes and with
alternative materials. The Company faces growing competition from developers of
diamond-like substitutes. In the future, new technologies and materials may be
developed that will provide further competition.
PATENTS AND PROPRIETARY TECHNOLOGY
With respect to memory and display products, the Company does not rely on
patents, and has no patents on memory or display products. The Company has
licensed technology for a patent on foldable electronic assembly modules
whereby, in addition to an initial license fee, the Company is required to pay a
3% royalty on the sale of any products relying on the patent
In its diamond activities, the Company has been granted 23 U.S. patents and
3 European patents, has 7 additional patents pending in the U.S. and has one
foreign patent pending. The issued patents and patent applications primarily
relate to Diamond Coated Carbide (DCCTM) CVD diamond products and materials and
methods of manufacturing CVD diamond. In addition to the Company's owned
patents, the Company is the exclusive licensee of technology and patents arising
from research sponsored by the National Center for Manufacturing Science
("NCMS") regarding processes for improving the adhesion of CVD diamond to
tungsten carbide. The Company has a worldwide, royalty-free right to use the
adhesion technology for all applications, except that it is obligated to pay
NCMS a royalty equal to 2% of its sales of cutting tool inserts and round tools
utilizing the licensed technology (up to a maximum of $1,400,000 of royalties).
The Company is designated the exclusive agent for licensing use of the
technology for diamond coated inserts and is obligated to grant licenses, if
requested, to NCMS members. The prescribed license fee is
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$100,000 plus a 4% royalty and is to be shared equally between the Company and
NCMS. The Company may share technology rights with other strategic partners in
the future. To date, no such licenses have been granted.
The Company relies upon trade secrets and other non-patent proprietary
information. In addition, the Company'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 the Company 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 Company's technology or that the Company's
confidentiality, assignment and nondisclosure agreements will provide the
necessary protection.
EMPLOYEES
As of October 31, 1996, the Company employed approximately 125 persons, all
on a full time basis, including 82 in memory products, 19 in display products,
14 in diamond products and 10 in administration and finance. None of the
Company's employees is represented by a labor union or is the subject of a
collective bargaining agreement. The Company has never experienced a work
stoppage and believes that its employee relations are good. The Company believes
that its success will depend in large part on its ability to retain and attract
qualified management, technical and marketing personnel.
ITEM 2. DESCRIPTION OF PROPERTIES
In connection with the Acquisition, the Company has relocated its
headquarters to One Research Drive, Westborough, Massachusetts. The Company
leases this 33,000 square foot facility under a lease expiring in 1998, subject
to the Company's three-year renewal option. The Company's diamond operations are
located in 15,000 square feet of a building in Santa Clara, California under a
lease agreement expiring in 2001. The Company's U.S. sales offices are leased
generally for a six month term in executive suite type office buildings. The
Company's sales office in London is leased under a long-term lease expiring in
2004.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
<TABLE>
The Company's Common Stock was traded on the Nasdaq Small-Cap 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 Company's 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 Company's Common Stock was de-listed from the Nasdaq Small-Cap 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 de-listed
from the Nasdaq Small-Cap Market, the Company's shares of common stock were
quoted on Nasdaq's Bulletin Board. The following table sets forth the high and
low closing sales prices per share for the period the Common Stock was listed on
the Nasdaq Small-Cap Market and the high and low bid quotations per share for
the period the 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.
<CAPTION>
HIGH LOW
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FISCAL 1995
- - -----------
First Quarter............................................... $5.250 $3.125
Second Quarter.............................................. 5.000 2.500
Third Quarter............................................... 4.000 2.625
Fourth Quarter1............................................. 4.813 0.875
FISCAL 1996
- - -----------
First Quarter1.............................................. $4.125 $3.375
Second Quarter1............................................. 5.750 2.563
Third Quarter............................................... 6.875 3.500
Fourth Quarter.............................................. 6.000 3.500
<FN>
- - --------
1 Reflects the high and low closing sales prices and high and low bid quotations
of the Nasdaq Small-Cap Market and Bulletin Board, respectively, on a combined
basis.
</TABLE>
On November 15, 1996, the Company's Common Stock was held by 186 holders of
record.
PRICE RANGE OF REDEEMABLE WARRANTS
The Company's Redeemable Warrants were traded on the Nasdaq Small-Cap
Market under the symbol "CRYSW" from March 23, 1994 to July 5, 1995 and under
the symbol "EDIXW" from March 12, 1996 until the present time. The Company's
Redeemable Warrants were also traded on the Pacific Stock Exchange under the
symbol "CYL WS" from March 23, 1994 to August 10, 1995. On July 5, 1995 and
August 10, 1995, respectively, the Company's Redeemable Warrants were de-listed
from the Nasdaq Small-Cap Market and the Pacific Stock Exchange due to a
deficiency with respect to the net tangible asset maintenance requirements.
During the interim period that they were de-listed from the Nasdaq Small-Cap
Market, the Company's Redeemable Warrants were quoted on Nasdaq's Bulletin
Board. The following table sets forth the high and low closing sales prices per
warrant for the period the Redeemable Warrants were listed on the Nasdaq
Small-Cap Market and the high and low bid quotations per Redeemable Warrants for
the period the Redeemable Warrants were quoted on the Nasdaq Bulletin Board. The
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.
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<TABLE>
HIGH LOW
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<S> <C> <C>
FISCAL 1995
- - -----------
First Quarter............................................... $1.750 $0.938
Second Quarter.............................................. 1.438 0.563
Third Quarter............................................... 0.875 0.375
Fourth Quarter1............................................. 0.938 0.125
FISCAL 1996
- - -----------
First Quarter1.............................................. $1.000 $0.750
Second Quarter1............................................. 1.563 0.813
Third Quarter............................................... 1.625 0.875
Fourth Quarter.............................................. 1.625 0.625
<FN>
- - ----------
1 Reflects the high and low closing sales prices and high and low bid
quotations of the Nasdaq Small-Cap Market and Bulletin Board, respectively, on a
combined basis.
</TABLE>
On November 15, 1996, the Company's Redeemable Warrants were held by 18
holders of record.
DIVIDEND POLICY
The Company has never paid a dividend on its Common or Preferred Stock and
does not anticipate that it will declare or pay cash dividends on its Common or
Preferred Stock in the foreseeable future. The Company intends to retain future
earnings, if any, for use in its business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. 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" beginning on page 12 of this Form 10-KSB.
Since its inception in 1984 through October 10, 1995, Electronic Designs,
Inc. (formerly Crystallume) (the "Company") had been primarily engaged in
research and development related to diamond coatings using CVD.
Effective October 10, 1995, the Company 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. As a
result of the Acquisition, the results of operations and cash flows of EDI-MA
are included in the results of operations and cash flows of the Company from the
date of the Acquisition.
In March 1996, the Company changed its state of incorporation from
California to Delaware and changed its name to Electronic Designs, Inc.
This Management's Discussion and Analysis should be read in conjuntion with
the Consolidated Financial Statements beginning on page F-1.
RESULTS OF OPERATIONS
Revenues
Revenues increased to $58,654,000 in fiscal 1996 from $1,639,000 in fiscal
1995. This increase in revenues was due to the results of operations of EDI-MA
being included in results of operations of the Company from October 10, 1995.
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On a pro forma basis (see Note 3 to consolidated financial statements),
combined revenues of the Company and EDI-MA increased by 49% to $59,223,000 in
fiscal 1996 as compared to $39,621,000 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 the Company's military memory products, and the increased proportion
of higher density memory products.
In the first nine months of calendar 1996, the semiconductor industry has
experienced price erosion in semiconductor memories. In addition, the book to
bill ratio was below parity after being above parity for a four year period. The
effects of these developments on the Company's results to date have been:
declines in the average selling prices and the value of orders of its commercial
memory module products; a slowdown in the rate of new orders received for its
commercial memory module products; and reductions in cost and increased
availability of most memory devices which the Company purchases for
incorporation in its products.
While the increased availability of memory devices has allowed the Company
to increase its unit volumes and shorten its lead-times to its customers,
revenues from commercial memory products declined in the last quarter of fiscal
1996 from the comparative quarter of fiscal 1995 and from the third quarter of
fiscal 1996, which represented a decline from the second quarter of fiscal 1996.
The Company believes that, in the near term, it will be unable to increase
its volumes in commercial memory products sufficiently to offset declines in
selling prices and to maintain its current revenue levels in these products.
While the Company has seen substantial new demand for its flat panel display
products and continues to introduce new products, revenues from these efforts
may not be sufficient to offset declining revenues in commercial memory
products.
As a result of the increased availability of commercial memory products
there can be no assurance that new competitors will not enter the Company's
markets or that existing competitors, particularly those who manufacture their
own semiconductor devices, will not reduce selling prices of products to a level
at which the Company cannot economically compete.
The Company 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. To date, these changes have not had a
materially adverse effect on the Company's results due to increased demand
resulting from upgrading of existing military systems and the slow rate of
adoption of the COTS program.
Gross profit
Gross profit for fiscal 1996 was $16,949,000 compared to $283,000 in fiscal
1995 due to the results of operations of EDI-MA being included in results of
operations of the Company from October 10, 1995. Gross profit in fiscal 1996
included a nonrecurring charge of $1,100,000 related to the revaluation, to
their estimated fair value, of inventories acquired as part of the Acquisition.
This amount was charged to cost of revenues in the first quarter of fiscal 1996
as the acquired inventories were sold.
On a pro forma basis, combined gross profit increased to $18,329,000, or
30.9% of revenues ("gross margin"), in fiscal 1996, from $12,433,000, or 31.4%
gross margin, in the prior year. The decrease in gross margin for fiscal
9
<PAGE> 12
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 writeoffs taken as a result of
declining memory prices. Recent declines in average selling prices of the
Company's commercial memory products have generally to date followed declines in
the Company's raw material costs and thus have not had a significant impact on
the Company's gross margin.
Due to the pass-through nature of its commercial memory business, the
Company believes that, in the near term, it will continue to be able to offset
future declines in selling prices with decreases in costs of raw materials.
However, in the event of prolonged or sudden declines in selling prices, there
can be no assurance that the Company will continue to be able to maintain its
gross margins by offsetting future declines in selling prices with decreases in
its product costs.
The Company purchases its semiconductor components from a small number of
large suppliers, including foreign suppliers who are regularly the target of
threatened or pending trade disputes and sanctions which, if realized, could
impact the ability of the Company to obtain critical raw materials. The Company
has not been materially adversely affected by this situation in the past and
does not currently anticipate experiencing any material adverse impact in the
future.
The Company generally does not have specific contractual arrangements with
its suppliers. While the Company 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 the Company to compete in its targeted markets.
Operating expenses
Research and development expenses in fiscal 1996 increased 65% to
$2,579,000 from $1,563,000 in fiscal 1995. The increase reflects research and
development expenses related to memory and display products associated with the
acquired operations of EDI-MA.
Due to a reduction in headcount in, and a redirection of, diamond
development efforts, pro forma research and development expenses decreased
$790,000 or 23% to $2,679,000 in fiscal 1996 from $3,469,000 in the prior year.
Selling, general and administrative expenses were $9,087,000 in fiscal 1996
compared to $2,537,000 in fiscal 1995. This increase reflects expenses
associated with EDI-MA.
On a pro forma basis, combined selling, general and administrative expenses
decreased by $616,000 or 6% to $9,399,000 in fiscal 1996, from $10,015,000 in
the prior year. Higher commissions to outside sales representatives of
approximately $900,000 due to the increase in revenues of the Company on a pro
forma basis and increased legal and accounting fees were generally offset by
bonus and severance expenses incurred in fiscal 1995 as a result of the
Acquisition which did not recur in fiscal 1996. Savings realized from reductions
in salaries and other expenses as a result of the restructuring of the Company's
operations (as discussed below) were approximately $700,000 after the first
quarter of fiscal 1996.
The restructuring charge of $590,000 in fiscal 1996 relates primarily to
severance costs associated with restructuring activities at the Company's
diamond operations to eliminate duplicative managerial and administrative
positions and to consolidate the Company's executive offices in Westborough,
Massachusetts.
Other expenses
Interest expense increased $515,000 in fiscal 1996 to $893,000 from
$378,000 in fiscal 1995 primarily due to approximately $750,000 of interest on
10
<PAGE> 13
the $10,000,000 in bank loans incurred to finance the Acquisition, less net
repayments of $7,250,000 over the period from the Acquisition. This increase was
partially offset by reduced expense as a result of the conversion of a
$1,035,000 convertible secured note payable to a shareholder to common stock on
October 10, 1995, lower equipment financing costs and a refund in the first
quarter of fiscal 1996 of interest previously paid on an income tax assessment.
On a pro forma basis, other expense, net decreased $475,000 in fiscal 1996
to $855,000 from $1,330,000 in fiscal 1995 due to the repayments of the bank
loans noted above which 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 September 30, 1996, cash and cash equivalents were $3,290,000 as
compared to $2,045,000 at September 30, 1995.
In fiscal 1996, the Company generated $5,605,000 of cash from operating
activities as compared to a use of $4,162,000 in fiscal 1995. In fiscal 1996,
cash was generated through net income before depreciation and amortization,
inventory reductions and an increase in accounts payable. This amount was
partially offset by reductions in accrued expenses and an increase in accounts
receivable. In fiscal 1995, cash used for operating activities was primarily to
fund the net loss incurred in the year.
The Company used $8,456,000 for investing activities in fiscal 1996
primarily reflecting $8,088,000 of net cash paid for the Acquisition. The
Company used $368,000 of cash for capital equipment expenditures. In addition,
the Company acquired test equipment 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 diamond operations, in fiscal 1995.
The Company anticipates that it will continue to incur capital expenditures
to increase its test and manufacturing capacity and has obtained an equipment
line of credit from its bank to finance a portion of these capital expenditures.
The Company does not anticipate significant capital expenditures for diamond
operations in the next fiscal year. With regard to the utilization of the
Company's facilities, it is currently operating three shifts per day in its
memory test operations and two shifts per day in its memory module and flat
panel assembly operations. The Company sublets a portion of its facility in
Santa Clara, California as a result of the restructuring referred to above and
believes that its facilities are generally adequate and suitable for its
operations in the next 12 months.
In fiscal 1996, the Company generated $4,096,000 in cash from financing
activities. Long-term borrowings under a credit facility discussed below
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, the Company 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.
In connection with the Acquisition in October 1995, the Company entered
into, and in October 1996 amended and restated, a Loan and Security Agreement
(the "Agreement") with a bank. Under the terms of the Agreement, the Company is
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 (the "Revolver") and (iii) up to
$1,500,000 in the form of an equipment loan. At September 30, 1996, $2,750,000
was outstanding under the term loan and in October 1996, the Company borrowed
the additional $750,000 under the term facility. Letters of credit in the
aggregate amount of $150,000 were outstanding at September 30,
11
<PAGE> 14
1996. No loans were outstanding under the Revolver or equipment loan at
September 30, 1996.
The Company believes that it is in compliance with all material covenants
under the Agreement as of September 30, 1996. Borrowings under the Revolver are
limited to a borrowing base which is calculated on a formula which includes
domestic and foreign accounts receivable and certain inventories, less amounts
outstanding under the term loan and letters of credit. Under the terms of the
Agreement, as amended, availability under the Revolver at September 30, 1996 was
limited to $2,384,000.
The Company anticipates that the combination of its current cash balance,
accounts receivable balance, Revolver, equipment loan facility and its cash flow
from operations will be sufficient to meet the Company's liquidity requirements
for the next 12 months.
If cash generated from operations is insufficient to meet the Company's
requirements for the service of its loans, its working capital needs and its
anticipated capital expenditures, the Company may be required to raise
additional capital through the sale of additional equity securities or seek
alternative methods of financing. There can be no assurance that such additional
financing, if required, can be obtained on acceptable terms, if at all.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. 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 include the following: the cyclicality in the Company's
targeted markets, particularly for its commercial memory 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 CRT to AMLCD; dependence on
contracts with defense related companies for its memory and display products;
regulatory, political, economic and currency risks associated with international
sales which accounted for approximately 30% of net sales in fiscal 1996; risks
related to the financial condition and success of the Company's customers, the
Company'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; the recent growth and expansion of operations and
resultant strain on its limited personnel and management, manufacturing and
other resources; the Company's dependence on key personnel and ability to
attract and retain qualified management, manufacturing, quality assurance,
engineering, marketing, sales and support personnel; the possibility that
subsequent changes in ownership may limit the Company's use of net operating
loss and research and development tax credit carryforwards; uncertainty
regarding the Company's ability to integrate CVD diamond technology into its
electronic products; and market acceptance of diamond coated tool inserts.
SEASONALITY AND INFLATION
The Company's business is not seasonal in nature. Management believes that
the Company's operations have not been materially affected by inflation.
12
<PAGE> 15
RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
In March, 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." In October, 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." Both SFAS No. 121 and No. 123 are effective for fiscal years
beginning after December 15, 1995. The Company will implement these standards as
required in its next fiscal year and, at this time, the future adoption of SFAS
No. 121 and No. 123 is not expected to have a material effect on the Company's
consolidated financial position or results of operations. With respect to SFAS
No. 123, the Company intends to adopt the standard through disclosure only.
ITEM 7. FINANCIAL STATEMENTS
The index to the Company's Consolidated Financial Statements and the report
of the Company's independent accountants appear in Item 13(a)(1) of Part III of
this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
` FINANCIAL DISCLOSURE
A change in accountants was previously disclosed on a Form 8-K that was
filed with the Securities and Exchange Commission on November 2, 1995.
13
<PAGE> 16
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Information pertaining to directors and executive officers of the Company
is set forth under "Election of Directors" and "Information Regarding Nominees
and Executive Officers" in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held on February 26, 1997, and is incorporated herein by
reference.
The information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 by the directors, executive officers and beneficial owners
of more than ten percent of the Common Stock of the Company required by this
item is set forth under "Compliance Under Section 16(a) of the Securities
Exchange Act of 1934" in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on February 26, 1997, and is incorporated herein by
reference.
ITEM 10. EXECUTIVE COMPENSATION
The Information pertaining to executive compensation is set forth under
"Executive Compensation" in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held on February 26, 1997, and is incorporated herein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information pertaining to security ownership of management and certain
beneficial owners of Company Common Stock is set forth under "Security Ownership
by Management" and "Principal Shareholders" in the Company's Proxy Statement for
the Annual Meeting of Stockholders to be held on February 26, 1997, and is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information pertaining to certain relationships and related
transactions is set forth under "Certain Relationships and Related Transactions"
in the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held on February 26, 1997, and is incorporated herein by reference.
14
<PAGE> 17
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
--------------------
<TABLE>
The following financial statements of the Registrant are filed as part of this
report:
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................................ F-1
Consolidated Balance Sheet as of September 30, 1996 and 1995............................. F-2
Consolidated Statement of Operations for the years ended September 30,
1996 and 1995............................................................................ F-3
Consolidated Statement of Shareholders' Equity for the years ended
September 30, 1996 and 1995.............................................................. F-4
Consolidated Statement of Cash Flows for the years ended September 30,
1996 and 1995............................................................................ F-5
Notes to Consolidated Financial Statements............................................... F-6
</TABLE>
(a)(2) EXHIBITS
--------
The following is a complete list of exhibits filed or incorporated by reference
as part of this report:
Exhibit
Number Exhibit Title
- - ------ -------------
2.1(G) Agreement and Plan of Reorganization, dated as of
August 11, 1995, among Registrant, EDI, and CR-ED
Acquisition Corp., including all amendments thereto.
2.2(H) Agreement of Merger, dated as of October 10, 1995,
by and among Registrant, EDI, and CR-ED Acquisition
Corp.
2.3(K) Agreement of Merger dated March 6, 1996, by and
between Crystallume, a California corporation, and
Electronic Designs, Inc., a Delaware corporation
and wholly owned subsidiary of Crystallume.
2.4(J) Articles of merger of parent and subsidiary
corporations, dated as of July 27, 1996 by and
between Electronic Designs, Inc., a Delaware
corporation and Electronic Designs,Inc., a
Massachusetts corporation.
3.1(I) Registrant's Bylaws, as amended to date.
3.2(I) Registrant's Certificate of Incorporation currently
in effect.
4.1(F) Certificate of Determination, filed with Secretary
of State of California on April 19, 1995.
4.2(K) Specimen of Common Stock Certificate.
4.3(B) Form of Redeemable Warrant.
15
<PAGE> 18
4.4(B) Form of Redeemable Warrant Agreement.
4.5(F) Form of Warrant to purchase shares of Common Stock.
4.6(F) Form of Stock Certificate for 12% Series A
Convertible Preferred Stock.
4.7(G) Private Offering Summary for Units.
4.8(F) Amended and Restated Supplement to Private
Offering Summary, dated August 16, 1995.
4.9(F) Subscription Agreement for Units.
4.10(H) Addendum to Subscription Agreement.
4.11(H) Updated Subscription Agreement.
4.12(H) Form of Purchase Agreement for Shares of
Crystallume Common Stock.
4.13(A) Amended and Restated Registration Rights Agreement
dated May 7, 1993 among Registrant and certain
investors.
4.14(A) First Amendment, dated December 28, 1993, to Amended
and Restated Registration Rights Agreement among
Registrant and certain investors.
4.15(B) Second Amendment, dated February 25, 1994, to Amended
and Restated Registration Rights Agreement among
Registrant and certain investors.
4.16(B) Third Amendment, dated March 2, 1994, to Amended and
Restated Registration Rights Agreement among
Registrant and certain investors.
4.17(E) Second Amended and Restated Registration Rights
Agreement, dated July 25, 1994, among Registrant and
certain investors.
4.18(F) Third Amended and Restated Registration Rights
Agreement, dated as of April 30, 1995.
4.19(F) Revised and Restated Amendment to Third Amended and
Restated Registration Rights Agreement, dated as of
September 25, 1995.
4.20(F) Agreement respecting New York Life Insurance
Company's registration rights, dated as of October 10,
1995.
4.21(F) Agreement respecting Technology Funding Partners III,
L.P.'s registration rights, dated as of October 10,
1995.
4.22(H) Agreement respecting Silicon Valley Bank's
registration rights, dated as of October 10, 1995.
*10.1 1987 Stock Option Plan adopted by Registrant on
February 9, 1987, as amended.
*10.2 Employee Stock Purchase Plan adopted by Registrant on
March 6, 1996, as amended.
16
<PAGE> 19
*10.3(H) Electronic Designs, Inc. Amended and Restated 1986
Stock Option Plan.1
10.4(A) Lease Agreement for Bohannon Park facility, dated
November 25, 1987, as amended from time to time
through March 31, 1993 between Registrant and David
D. Bohannon Organization.
10.5(C) Industrial Lease, dated June 1, 1994, between
Registrant and the Kontrabecki Group.
10.6(H) Lease Agreement between Flanders Westborough Delaware,
Inc. and EDI, dated December 18, 1992
10.7(H) Lease Agreement between David Wallis Shaw and Stefanie
Gail Brown Shaw and E.D. Electronics Limited, dated
June 24, 1985.
10.8(A) Master Equipment Lease Agreement, dated December 5,
1990, between Registrant and Phoenix Growth Capital
Corp.
10.9(E) Master Equipment Lease Agreement, dated July 15, 1994,
between Registrant and MMC/GATX Partnership No. 1.
10.10(D) Equipment Purchase, Security and License Agreement,
dated September 26, 1994, by and between Registrant
and Applied Science and Technology, Inc.
10.11(A) Contract for Research, dated February 15, 1990,
between Registrant and the National Center for
Manufacturing Sciences, Inc., modified February 1,
1992.
10.12(A) Funded Research and Development Program Agreement,
dated February 26, 1992, between Registrant and Brush
Wellman, Inc.
10.13(A) Contract for Research, dated May 2, 1993, between
Registrant and the Regents of the University of
California (with respect to Los Alamos National
Laboratories).
10.14(A) Contract for Research, dated June 30, 1993, between
Registrant and the United States Army.
10.15(A) Warrant to purchase Series D Preferred Stock of
Registrant, dated September 30, 1988, issued in
favor of Phoenix Growth Capital Corp.
10.16(A) Purchase Agreement and Second Amendment to
Registration Rights Agreement, dated March 31, 1993,
among Registrant and certain investors.
10.17(A) Term Loan Agreement, dated as of December 15, 1993,
between Registrant and ASTeX, including form of
Secured Term Note.
10.18(B) Form of Warrants, dated March 3, 1994, issued in
favor of Private Capital Group Ltd. and in favor
of Richard Moyer to purchase an aggregate of 100,000
shares of Common Stock.
17
<PAGE> 20
10.19 Letter extending the expiration date of Warrants,
dated March 3, 1994, issued in favor of Richard
Moyer to purchase an aggregate of 50,000 shares
of Common Stock from March 2, 1997 to March 2, 1999.
10.20(E) Warrant to purchase Common Stock of Registrant, dated
August 12, 1994, issued in favor of MMC/GATX
Partnership No. 1.
10.21(H) Secured Demand Note, dated August 10, 1995, in an
aggregate principal amount of $600,000 payable by
Registrant in favor of New York Life Insurance
Company.
10.22(H) Secured Demand Note, dated August 10, 1995, in an
aggregate principal amount of $200,000 payable by
Registrant in favor of Technology Funding Partners III,
L.P.
10.23(H) First Amendment to Security Agreement, effective
August 10, 1995, by and among Registrant, New York
Life Insurance Company and Technology Funding
Partners III, L.P.
10.24(H) Second Amendment to Security Agreement, effective
August 28, 1995, by and among Registrant, New York
Life Insurance Company and Technology Funding
Partners III, L.P.
10.25(H) Security and Intercreditor Agreement, dated as of
August 10, 1995, by and among Registrant, New York
Life Insurance Company and Technology Funding
Partners III, L.P.
10.26(H) Secured Demand Note, dated August 28, 1995, in an
aggregate principal amount of $100,000 payable by
Registrant in favor of Technology Funding Partners III,
L.P.
10.27(H) Re-Assignment of Patents and Patent Applications,
dated October 5, 1995, by and between the
Registrant and New York Life Insurance Company.
10.28(H) New York Life Insurance Company's Agreement to
purchase shares of Common Stock in exchange for
cancellation of a $600,000 Secured Demand Note and
$1,035,000 Secured Promissory Note.
10.29(H) Technology Funding Partners III, L.P.'s Agreement
to purchase shares of Common stock in exchange for
cancellation of a $200,000 Secured Demand Note and
a $100,000 Secured Demand Note.
10.30(H) Dickinson Holding Corp.'s Agreement to purchase
Common Stock, including all amendments thereto.
10.31(L) Amended and Restated Loan and Security Agreement,
dated October 23, 1996, by and between Registrant
and Silicon Valley Bank.
10.32 Collateral Assignment, Patent Mortgage and Security
Agreement, dated October 23, 1996, by and between
Registrant and Silicon Valley Bank.
18
<PAGE> 21
*10.33(E) Letter Agreement regarding employment, effective October
11, 1994, between Registrant and Jeffrey R.
Osorio.
*10.34(H) Agreement of Non-disclosure, to Maintain Confidence and to
Transfer Future Inventions, dated November 17, 1994, by and
between Registrant and Jeffrey R.
Osorio.
*10.35(F) Employment Agreement, dated as of August 18, 1995, by
and between Registrant and Paul J. McIntire.
*10.36(F) Employment Agreement, dated as of October 10, 1995,
by and between Registrant and Donald F. McGuinness.
*10.37(F) Severance Agreement, dated as of December 21, 1994, by
and between EDI and Donald F. McGuinness, including
all amendments thereto.
*10.38(G) Severance Agreement, dated as of December 21, 1994, by
and between EDI and Frank D. Edwards.
*10.39(F) Severance Agreement, dated as of October 10, 1995, by
and between Registrant and Thomas A. Schultz.
10.40(H) Agreement of Non-disclosure, to Maintain Confidence
and to Transfer Future Inventions, dated February 24,
1986, by and between Registrant and Thomas A. Schultz.
*10.41(F) Severance Agreement, dated as of October 11, 1995, by
and between Registrant and John A. Herb.
10.42(H) Agreement of Non-disclosure, to Maintain Confidence and
to Transfer Future Inventions, dated July 5, 1988, by
and between Registrant and John A. Herb.
*10.43(H) Severance Agreement, dated as of October 13, 1995, by
and between Registrant and Laurie Conner.
*10.44(H) Severance Agreement, dated November 29, 1995, by and
between Registrant and Jeffrey R. Osorio.
11.1 Statement re: Computation of Per Share Earnings.
16.1(G) Letter from Arthur Andersen LLP regarding Change in
Certifying Accountant.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
24.1 Power of Attorney (See page 21)
27.1 Financial Data Schedule.
(A) Incorporated by reference to the Registrant's Registration
Statement on Form SB-2. File No. 33-62448LA (withdrawn).
(B) Incorporated by reference to the Registrant's Registration
Statement on Form SB-2. File No. 33-76186LA (effective March 22, 1994).
(C) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-QSB for the third quarter of the fiscal year ending September
30, 1994 (filed on August 15, 1994).
19
<PAGE> 22
(D) Incorporated by reference to Registrant's Current Report
on Form 8-K (filed on October 11, 1994).
(E) Incorporated by reference to Registrant's Registration
Statement on Form SB-2. File No. 33-84412LA (effective November 1, 1994).
(F) Incorporated by reference to Registrant's Current Report
on Form 8-K (filed on October 25, 1995).
(G) Incorporated by reference to Registrant's Current Report
on Form 8-K (filed on November 2, 1995).
(H) Incorporated by reference to Registrant's Annual Report
on Form 10-KSB (filed on December 18, 1995).
(I) Incorporated by reference to Registrant's Registration
Statement on Form S-3. File No. 333-3328 (effective May 16, 1996).
(J) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-QSB for the third quarter of the fiscal year ending September
30, 1996 (filed on August 12, 1996).
(K) Incorporated by reference to Registrant's Current Report
on Form 8-K/A (filed on August 23, 1996).
(L) Incorporated by reference to Registrant's Current Report
on Form 8-K (filed on October 30, 1996).
- - ---------------
* A management contract or compensatory plan required to be filed as an
exhibit to Form 10-KSB.
1 Formerly known as EDI PurchaseCo, Inc.
(b) REPORTS ON FORMS 8-K
--------------------
During the quarter ended September 30, 1996, a Report on Form 8-K/A was filed on
August 23, 1996 providing additional exhibits related to the reorganization of
the Registrant in Delaware under the name Electronic Designs, Inc.
20
<PAGE> 23
SIGNATURES
In accordance with the requirements of Section 13 or 15(e) of the
Securities Exchange Act of 1934, the Registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ELECTRONIC DESIGNS, INC.
Date: November 27, 1996 By: /s/ Donald F. McGuinness
------------------------------
Donald F. McGuinness
President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Donald F. McGuinness and Frank D. Edwards and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution, for him in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Report on Form 10-KSB and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intent and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done or by
virtue hereof.
<TABLE>
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Donald F. McGuinness Chairman of the Board, President November 27, 1996
- - ------------------------ and Chief Executive Officer
Donald F. McGuinness (Principal Executive Officer)
Frank D. Edwards Senior Vice President of November 27, 1996
- - -------------------- Finance, Chief Financial
Frank D. Edwards Officer, Treasurer, Secretary,
and Director (Principal
Financial and Accounting Officer)
/s/ Thomas A. Schultz Director November 27, 1996
- - ---------------------
Thomas A. Schultz
/s/ Thomas J. Toy Director November 27, 1996
- - --------------------
Thomas J. Toy
/s/ Norman T. Hall Director November 27, 1996
- - --------------------
Norman T. Hall
</TABLE>
21
<PAGE> 24
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, 1996 and 1995, and the
results of their operations and their cash flows for years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
October 25, 1996
F-1
<PAGE> 25
<TABLE>
ELECTRONIC DESIGNS, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
SEPTEMBER 30,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,290,000 $ 2,045,000
Accounts receivable, net of allowance for
uncollectible accounts and sales returns of
$370,000 and $10,000 at September 30, 1996
and 1995, respectively 6,356,000 588,000
Inventories 5,483,000 83,000
Prepaid expenses 143,000 84,000
------------ ------------
Total current assets 15,272,000 2,800,000
Property and equipment, net 3,843,000 2,455,000
Other assets 87,000 1,079,000
Intangible assets, net 1,861,000 -
------------ ------------
$ 21,063,000 $ 6,334,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 828,000 $ 545,000
Notes payable to shareholders - 900,000
Accounts payable 5,329,000 878,000
Accrued expenses and other liabiities 2,690,000 760,000
------------ ------------
Total current liabilities 8,847,000 3,083,000
Deferred rent 130,000 104,000
Long-term debt, net of current portion 2,939,000 648,000
Long-term note payable to shareholder - 1,035,000
------------ ------------
Total liabilites 11,916,000 4,870,000
------------ ------------
Commitments (Note 15)
Shareholders' equity:
Convertible preferred stock; $0.01 par
value; 8,000,000 shares authorized; 1,823
and 3,985 shares issued and outstanding at
September 30, 1996 and 1995, respectively - -
Common stock; $0.01 par value; 20,000,000
shares authorized; 6,341,896 and 3,595,464
shares issued and outstanding at September
30, 1996 and 1995, respectively 64,000 36,000
Additional paid in capital 26,943,000 22,096,000
Accumulated deficit (17,860,000) (20,668,000)
------------ ------------
Total shareholders' equity 9,147,000 1,464,000
------------ ------------
$ 21,063,000 $ 6,334,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 26
<TABLE>
ELECTRONIC DESIGNS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1996 1995
<S> <C> <C>
Revenues $58,654,000 $ 1,639,000
Cost of revenues 41,705,000 1,356,000
----------- -----------
Gross profit 16,949,000 283,000
Operating expenses:
Research and development 2,579,000 1,563,000
Selling, general and administrative 9,087,000 2,537,000
Restructuring 590,000 -
Amortization of intangible assets 469,000 -
----------- -----------
12,725,000 4,100,000
----------- -----------
Income (loss) from operations 4,224,000 (3,817,000)
----------- -----------
Other income (expense):
Interest income 53,000 37,000
Interest expense (893,000) (378,000)
----------- -----------
(840,000) (341,000)
----------- -----------
Income (loss) before income taxes 3,384,000 (4,158,000)
Provision for income taxes 576,000 -
----------- -----------
Net income (loss) $ 2,808,000 $(4,158,000)
=========== ===========
Net income (loss) per share $ 0.38 $ (1.29)
=========== ===========
Weighted average common shares and equivalents 9,795,000 3,226,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 27
ELECTRONIC DESIGNS, INC.
<TABLE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<CAPTION>
ADDITIONAL
CONVERTIBLE PREFERRED STOCK COMMON STOCK PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPTIAL
<S> <C> <C> <C> <C> <C>
Balance September 30, 1994 - - 3,151,466 32,000 18,558,000
Common stock issued under stock option
plan at $0.22 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
and 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 - - - - -
--------------------------------------------------------------
Balance September 30, 1995 3,985 - 3,595,464 36,000 22,096,000
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 $0.22 per share in
connection with acquisition of Electronic
Designs, Inc. - - - - 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 - - - - -
--------------------------------------------------------------
Balance September 30, 1996 1,823 $- 6,341,896 $64,000 $26,943,000
==============================================================
</TABLE>
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED SHAREHOLDERS'
DEFICIT EQUITY
<S> <C> <C>
Balance September 30, 1994 (16,510,000) 2,080,000
Common stock issued under stock option
plan at $0.22 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
and 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) (4,158,000)
----------------------------
Balance September 30, 1995 (20,668,000) 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 $0.22 per share in
connection with acquisition of Electronic
Designs, Inc. - 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 2,808,000
----------------------------
Balance September 30, 1996 $(17,860,000) $9,147,000
============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 28
<TABLE>
ELECTRONIC DESIGNS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net income (loss) $ 2,808,000 $(4,158,000)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,639,000 426,000
Noncash portion of restructuring expense 57,000 -
Common stock issued in payment of interest
and other expenses 28,000 156,000
Changes in assets and liabilities, net of
acquired amounts:
Increase in accounts receivable (281,000) (165,000)
(Increase) decrease in inventories 2,932,000 (83,000)
Decrease in prepaid expenses 22,000 3,000
(Increase) decrease in other assets 8,000 (983,000)
Increase (decrease) in accounts payable 320,000 (47,000)
Increase (decrease) in accrued expense (1,954,000) 604,000
Increase in deferred rent 26,000 85,000
----------- -----------
Net cash flows provided by (used in)
operating activities 5,605,000 (4,162,000)
----------- -----------
Cash flows from investing activities:
Capital equipment expenditures (368,000) (412,000)
Cash paid for acquisition of Electronic
Designs, Inc., net of cash acquired (8,088,000) -
----------- -----------
Net cash flows used in investing
activities (8,456,000) (412,000)
----------- -----------
Cash flows from financing activities:
Sale of common stock, net 2,275,000 11,000
Sale of stock Units, net - 3,366,000
Proceeds from issuance of long-term debt 5,500,000 -
Principal repayments on long-term debt (3,389,000) (620,000)
Proceeds from notes payable - 900,000
Repayment of notes payable to officers (290,000) -
----------- -----------
Net cash flows provided by financing
activities 4,096,000 3,657,000
----------- -----------
Net increase (decrease) in cash and cash
equivalents 1,245,000 (917,000)
Cash and cash equivalents at beginning of
year 2,045,000 2,962,000
----------- -----------
Cash and cash equivalents at end of year $ 3,290,000 $ 2,045,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 29
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, the Company acquired all
of the outstanding stock of Electronic Designs, Inc., a privately held
Massachusetts corporation ("EDI-MA")(see Note 3). In March 1996, the Company
reincorporated in Delaware and changed its name to Electronic Designs, Inc.
The Company 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 and
advanced products incorporating diamond films and coatings, for the commercial,
industrial and military markets in the U.S. and internationally.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements reflect the financial position and results
of operations of the Company and its wholly-owned subsidiaries, including the
effects of acquiring, and the results of operations of, EDI-MA since the date of
the acquisition. All intercompany balances have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
The Company 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 a
repurchase agreement with a bank and are subject to minimal credit and market
risk.
The Company 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 the Company 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, the Company held an investment in a repurchase agreement
which matures in October 1996 and is classified as held-to-maturity. At
September 30, 1996, the fair market value of this investment approximates its
amortized cost of $2,190,000.
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. Contract revenues, which consist
primarily of revenues earned under fixed price and cost-plus-fixed-fee Small
Business Innovative Research program grants and other U.S. government research
contracts, are recognized as costs are incurred.
F-6
<PAGE> 30
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations of
credit risk consist primarily of trade accounts receivable. 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, the Company maintains reserves for potential credit losses and such
losses, in the aggregate, have not exceeded management's expectations.
INVENTORIES
Inventories are valued at the lower of cost or market, cost being determined on
the basis of the first-in, first-out method. Cost includes 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 life of the related lease.
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, 1996, accumulated amortization on
intangible assets was $469,000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At September 30,1996, the Company'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
The Company 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
Net income (loss) per share represents earnings per common and common equivalent
share which is determined on the basis of the weighted average number of shares
outstanding during the respective period after giving effect to (i) all options
and warrants using the modified treasury stock method, if dilutive; and (ii) the
conversion of preferred stock using the if-converted method, if dilutive.
Primary and fully-diluted earnings per share are the same.
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 amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE> 31
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the current
period presentation. Such reclassifications had no effect on the reported net
loss.
RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets to be Disposed Of." In October 1995, the
FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation." Both SFAS
No. 121 and No. 123 are effective for fiscal years beginning after December 15,
1995. The Company will implement these standards as required in its next fiscal
year and, at this time, the future adoption of SFAS No. 121 and No. 123 is not
expected to have a material effect on the Company's consolidated financial
position or results of operations. With respect to SFAS No. 123, the Company
intends to adopt the standard through disclosure only.
3. ACQUISITION
Effective October 10, 1995, the Company 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 the Company'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 has been recorded in accordance with the purchase
method and, accordingly, the purchase price plus the Company's direct
acquisition costs of $290,000 have been 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 are included in the results of operations and cash flows of the
Company from the date of acquisition.
The following pro forma data has been prepared as if the acquisition was
completed at the beginning of the periods presented, is presented for
illustrative purposes only and is not necessarily indicative of results of
operations which would have actually been achieved had the acquisition of EDI-MA
occurred at the beginning of the periods. In addition, the pro forma data does
not include $1,100,000, relating to the revaluation of inventories acquired to
their estimated fair value, which was included in cost of revenues in the first
quarter of fiscal 1996 as the acquired inventories were sold. Only those pro
forma adjustments which are expected to have a continuing impact on the results
of operations of the combined companies have been included.
F-8
<PAGE> 32
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1996 1995
(UNAUDITED)
<S> <C> <C>
Revenues $59,223,000 $39,621,000
Cost of revenues 40,894,000 27,188,000
----------- -----------
Gross profit 18,329,000 12,433,000
Operating expenses:
Research and development 2,679,000 3,469,000
Selling, general and administrative 9,399,000 10,015,000
Restructuring 590,000 -
Amortization of intangible assets 469,000 469,000
----------- -----------
13,137,000 13,953,000
----------- -----------
Income (loss) from operations 5,192,000 (1,520,000)
Other expense, net (855,000) (1,330,000)
----------- -----------
Income (loss) before income taxes 4,337,000 (2,850,000)
Provision for income taxes 576,000 -
----------- -----------
Net income (loss) $ 3,761,000 $(2,850,000)
=========== ===========
Net income (loss) per share $ 0.48 $ (0.65)
=========== ===========
</TABLE>
<TABLE>
4. INVENTORIES
Inventories consisted of the following:
<CAPTION>
SEPTEMBER 30,
1996 1995
<S> <C> <C>
Raw materials $3,244,000 $26,000
Work-in-process 1,241,000 -
Finished goods 998,000 57,000
---------- -------
$5,483,000 $83,000
========== =======
</TABLE>
<TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<CAPTION>
USEFUL LIFE SEPTEMBER 30,
IN YEARS 1996 1995
<S> <C> <C> <C>
Machinery and equipment 2-5 $ 6,235,000 $ 4,430,000
Tooling 3 425,000 -
Furniture and fixtures 10 122,000 306,000
Leasehold improvements lease term 708,000 435,000
----------- -----------
7,490,000 5,171,000
Less - Accumulated depreciation (3,647,000) (2,716,000)
----------- -----------
$ 3,843,000 $ 2,455,000
=========== ===========
</TABLE>
F-9
<PAGE> 33
At September 30, 1996 and 1995, property and equipment held under capital leases
amounted to $2,285,000 and $3,400,000, respectively, and related accumulated
amortization on this property and equipment amounted to $568,000 and $2,200,000,
respectively. Amortization expense related to property and equipment held under
capital leases amounted to $405,000 and $270,000 during the years ended
September 30, 1996 and 1995, respectively.
<TABLE>
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consisted of the following:
<CAPTION>
SEPTEMBER 30,
1996 1995
<S> <C> <C>
Employee related $1,050,000 $552,000
Deferred revenue 750,000 -
Income taxes 353,000 -
Other 537,000 208,000
---------- --------
$2,690,000 $760,000
========== ========
</TABLE>
<TABLE>
7. BORROWINGS
Borrowings consisted of the following:
<CAPTION>
SEPTEMBER 30,
1996 1995
<S> <C> <C>
Term loan from bank $2,750,000 $ -
Note payable to equipment vendor 149,000 294,000
Capital lease obligations (see Note 15) 868,000 899,000
---------- ----------
3,767,000 1,193,000
Less - current portion of long-term debt (828,000) (545,000)
---------- ----------
Long-term debt, net of current portion $2,939,000 $ 648,000
========== ==========
Note payable to shareholders $ - $ 900,000
========== ==========
Long-term note payable to shareholder $ - $1,035,000
========== ==========
</TABLE>
TERM LOAN FROM BANK AND REVOLVING CREDIT FACILITY
In October 1995, the Company 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, the Company 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 (8.75% at September 30, 1996). The Company may repay borrowings under
the term loan at any time, however, $73,000 must be repaid on a monthly basis
through October 2000. Borrowings outstanding of $2,750,000 at September 30, 1996
rolled over to the term loan under the amended Agreement.
F-10
<PAGE> 34
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 (8.75% at September 30, 1996). The Company may repay borrowings under
the Revolver at any time, however, all outstanding borrowings must be repaid in
full on September 30, 1997. At September 30, 1996, letters of credit in the
aggregate amount of $150,000 were outstanding. No revolving loans were
outstanding at September 30, 1996. Under the terms of the Agreement, as amended,
availability under the Revolver at September 30, 1996 was limited to $2,384,000.
Borrowings under the equipment loan bear interest, payable monthly, at 1% over
the prime rate (9.25% at September 30, 1996). The Company may repay borrowings
under the equipment loan at any time, however, 1/48th of the amount outstanding
on July 23, 1997 must be repaid on a monthly basis through August 2001. No
amounts were outstanding under the equipment loan at September 30, 1996.
Borrowings under the Agreement are collateralized by a security interest in
substantially all of the assets of the Company. The Agreement also requires the
Company to comply with certain affirmative and negative covenants, including the
maintenance of specified financial ratios. Management believes that the Company
is in compliance with the covenants as of September 30, 1996.
The Company paid facility fees of $160,000 to the bank in connection with
obtaining and the subsequent renegotiation of the Agreement. The Company also
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 10).
NOTE PAYABLE TO EQUIPMENT VENDOR
In September 1994, the Company purchased a diamond deposition system for a total
purchase price of $536,000. The Company made a cash payment to the vendor of
$106,000 and financed the remaining $430,000 by issuing a note that is secured
by the equipment. The note bears interest at 13% per year, with principal and
accrued interest payable in equal monthly installments of $14,488 through August
1997.
NOTES PAYABLE TO SHAREHOLDERS
In September 1994, the Company received $1,035,000 in cash as consideration for
the issuance of a convertible secured promissory note due in September 1997, to
New York Life Insurance Company ("New York Life"). Collateral for the note,
which bore interest at 15% per year, included all unsecured assets and an
assignment of all intellectual property. During the year ended September 30,
1995, the Company issued 156 Units (see Note 9) to New York Life in payment of
interest due on this note.
In August 1995, the Company received $900,000 in cash in consideration for the
issuance of additional secured promissory notes to certain shareholders
(including New York Life) due in August 1996. These notes bore interest at 10%
per year and were secured by a shared security interest in the collateral
assigned to the $1,035,000 note held by New York Life. In consideration for the
issuance of the notes, these shareholders received warrants to purchase 90,000
shares of common stock at an exercise price of $2.00 (see Note 10).
In October 1995, the outstanding principal balances of the notes payable of
$1,935,000, plus accrued interest of $19,000, were converted into 781,725 shares
of common stock.
F-11
<PAGE> 35
8. INCOME TAXES
For the year ended September 30, 1996, the provision for income taxes of
$576,000 consisted of current Federal income taxes of $145,000 and current state
income taxes of $431,000. 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 net operating losses and to state income taxes.
For the year ended September 30, 1995, there was no provision or benefit for
income taxes. The difference between the amount of income taxes at the
applicable Federal statutory rate and the effective tax rate was primarily due
to an increase in the valuation allowance for deferred tax assets not
recognizing currently the tax benefit of the Company's net operating loss
generated given that its future realization was not sufficiently assured.
<TABLE>
The components of deferred income taxes were as follows:
<CAPTION>
SEPTEMBER 30,
1996 1995
<S> <C> <C>
DEFERRED TAX ASSETS
Accounts receivable $ 59,000 $ -
Inventories 706,000 37,000
Property and equipment 13,000 167,000
Accrued expenses and other liabilities 831,000 271,000
Tax credit carryforwards 1,572,000 859,000
Net operating loss carryforwards 5,107,000 7,238,000
----------- -----------
Total deferred tax assets 8,288,000 8,572,000
Deferred tax asset valuation allowance (7,561,000) (8,572,000)
----------- -----------
727,000 -
----------- -----------
DEFERRED TAX LIABILITIES
Intangible assets (727,000) -
----------- -----------
Total deferred tax liabilities (727,000) -
----------- -----------
Net deferred income taxes $ - $ -
=========== ===========
</TABLE>
The Company has provided a full valuation allowance against the net deferred tax
assets, since realization of these future tax benefits was not sufficiently
assured at September 30, 1996 and 1995. If the Company achieves profitability in
future periods, these deferred tax assets may be available to offset future
income tax liabilities and expense.
At September 30, 1996, for Federal income tax purposes, the Company has
approximately $12,884,000 of net operating loss carryforwards that expire at
various dates through 2010, which are available to offset future Federal taxable
income. For California income tax purposes, the Company has approximately
$1,514,000 of net operating loss carryforwards that expire at various dates
through 2000, which are available to offset future California taxable income.
The Company also has research and development tax credit carryforwards available
to offset future Federal and California income tax liabilities in the
approximate amount of $1,073,000 and $239,000, respectively, that expire at
various dates through 2007. The Company also has approximately $260,000 of
alternative minimum tax credit carryforwards which are available to offset
future Federal income tax liabilities.
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 the Company annually to offset future
taxable income or tax liabilities. As of September 30, 1996, the annual
limitation amount, calculated as defined in the Code, is approximately $700,000.
At September 30, 1996, all of the net operating loss carryforwards are subject
to this limitation and, as a result, approximately $3,000,000 of
F-12
<PAGE> 36
these carryforwards will expire unutilized. Subsequent changes in ownership
could further affect the limitation in future years.
9. PREFERRED STOCK
The Company has designated 4,126 shares of its authorized preferred stock as 12%
Series A Preferred Stock ("Series A Stock").
In September 1995, the Company 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 the convertible secured promissory note to New York Life into
156 Units (see Note 7). Each Unit consisted of one share of Series A Stock, 100
shares of common stock and a warrant to purchase 100 shares of common stock.
The holders of the Series A Stock are entitled to receive cumulative dividends,
at an annual rate of $120 per share, when and if declared by the Board of
Directors. Unpaid dividends at September 30, 1996 amounted to approximately
$235,000.
In the event of liquidation or dissolution of the Company, the holder of each
share of Series A Stock shall receive, prior to any distribution to holders of
common stock, an amount equal to $1,000 plus any accrued but unpaid dividends.
The holder of each share of Series A Stock is entitled to the number of votes
equal to the number of shares of common stock into which the Series A Stock
could be converted.
If the closing price of the Company's common stock, as traded on NASDAQ, has
been at least $4.00 per share for at least twenty consecutive days, the Company
may thereafter redeem the Series A Stock at $1,100 per share.
In October 1996, the Company called for the redemption of all Series A Stock
outstanding as of November 29, 1996. Each share of Series A Stock is convertible
at any time on or before November 29, 1996, at the option of the stockholder,
into 400 shares of common stock (subject to anti-dilution adjustments).
10. COMMON STOCK
COMMON STOCK WARRANTS
In connection with obtaining the bank borrowings described in Note 7, the
Company issued a warrant 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. The Company assigned a value of $28,000 to these warrants.
During the year ended September 30, 1995, in connection with the Unit offering,
the Company 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 the Company 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. The
Company assigned a value of $9,000 to these warrants.
In connection with the Company's initial public offering in 1994, the Company
sold 1,000,000 redeemable warrants at $0.10 per warrant. Each redeemable warrant
entitles the holder to purchase one share of common stock for $6.00 per share
and expires in March 1997. These warrants may be redeemed by the Company, at
$0.10 per share, if the Company's common stock trades at $9.00 per share for
more than twenty consecutive days.
F-13
<PAGE> 37
Also in connection with the Company's initial public offering, the Company
granted to its underwriters warrants to purchase up to (a) 100,000 shares of
common stock at $6.48 per share and (b) 100,000 additional redeemable warrants
at $0.12 per warrant. The underwriter's warrants are exercisable through March
1999.
In March 1994, warrants to purchase up to 100,000 shares of common stock at
$6.00 per share were issued to two financial and business consultants for their
services for the period September 1993 through March 1994. These warrants expire
in March 1997 and March 1999.
During the year ended September 30, 1994, warrants to purchase 44,142 shares of
common stock at an exercise price of $2.83 per share were issued in connection
with obtaining lease financing for certain equipment. These warrants expire in
August 2001.
During 1991 and 1992, warrants to purchase 17,965 shares of common stock at an
exercise price of $7.90 per share were issued in connection with obtaining lease
financing for certain equipment. These warrants expire in November 1998.
RESERVED SHARES
<TABLE>
The Company has reserved shares of authorized but unissued common stock as of
September 30,1996 for the following:
<S> <C>
Exercise of common stock warrants 1,022,293
Exercise of redeemable common stock warrants 1,100,000
Conversion of Series A Stock 729,200
Stock option and stock purchase plans 2,975,609
---------
Total shares reserved 5,827,102
=========
</TABLE>
11. STOCK OPTION AND STOCK PURCHASE PLANS
STOCK OPTION PLANS
In February 1987, the Company adopted the 1987 Stock Option Plan (the "Plan").
The Plan, as amended, allows for the issuance of up to 2,659,748 shares of the
Company's common stock. Options granted under the Plan must be granted at the
fair market value of such shares on the date of grant. Generally, options vest
over a two to five-year period and expire two to five years from the date of
grant.
<TABLE>
The following table summarizes stock option activity under the Plan:
<CAPTION>
OPTIONS OPTION
OUTSTANDING PRICES
<S> <C> <C>
Balance at September 30, 1994 469,422 $ 0.22-3.75
Granted 137,792 $ 2.58-3.75
Cancelled (41,904) $ 0.22-3.75
Exercised (45,498) $ 0.22-3.75
--------- -----------
Balance at September 30, 1995 519,812 $ 0.22-3.75
Granted 1,198,000 $ 3.38-5.13
Cancelled (59,252) $ 0.22-3.75
Exercised (85,325) $ 0.22-3.38
--------- -----------
Balance at September 30, 1996 1,573,235 $ 0.22-5.13
========= ===========
</TABLE>
F-14
<PAGE> 38
Of the total options outstanding, approximately 517,000 were fully vested as of
September 30, 1996. If not exercised, these options will expire at various dates
through September 2001. At September 30, 1996, options to purchase approximately
846,000 shares of common stock were available for future grant under the Plan.
In October 1995, fully-vested options to purchase 314,826 shares of the
Company'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. During
fiscal 1996, options for the purchase of 2,740 shares were exercised and at
September 30, 1996, 312,086 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
year ended September 30, 1996, 5,679 shares were issued under the plan at $4.09
per share.
12. RESTRUCTURING
The restructuring charge is primarily associated with the costs of severance
benefits for six employees provided in connection with restructuring activities
at the Company's diamond operations following the acquisition of EDI-MA.
Duplicate managerial and administrative positions were eliminated, occupied
space in the Santa Clara, California facility was reduced, and the corporate
offices and related functions were consolidated in Westborough, Massachusetts.
As of September 30, 1996, there were no remaining amounts accrued relative to
this restructuring.
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
During the years ended September 30, 1996 and 1995, the Company paid $893,000,
and $211,000, respectively, for interest.
During the year ended September 30, 1996, the Company paid $374,000 for income
taxes. No amounts were paid in 1995 for income taxes.
Noncash investing and financing activities include:
o 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
(see Note 7).
o 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 9) and the acquisition of EDI-MA (see Note 3).
o 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 11).
o In October 1995, the Company 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. These warrants expire
in October 1998 (see Note 7).
o During the year ended September 30, 1996, 864,800 shares of common stock
were issued in conversion of 2,162 shares of Series A convertible preferred
stock.
F-15
<PAGE> 39
o In September 1995, the Company converted $156,000 of accrued interest due
under the convertible secured note payable to shareholder into 156 Units
(see Note 7).
o In August 1995, the Company issued warrants to purchase 90,000 shares of
common stock in connection with the issuance of secured promissory notes
totaling $900,000 (see Note 7).
o The Company has acquired equipment under capital leases and vendor-provided
financing (see Notes 4 and 7).
14. RETIREMENT SAVINGS PLAN
The Company maintains defined contribution savings plans 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
$115,000 and $0 during the years ended September 30, 1996 and 1995,
respectively.
15. COMMITMENTS
<TABLE>
The Company has noncancelable operating leases for certain business equipment
and office space expiring at various dates. As of September 30, 1996, future
minimum payments for all noncancelable leases, are summarized as follows:
<CAPTION>
OPERATING CAPITAL
<C> <C> <C>
1997 $ 593,000 $ 619,000
1998 432,000 155,000
1999 314,000 111,000
2000 315,000 83,000
2001 271,000 -
Thereafter 153,000 -
---------- ---------
$2,078,000 $ 968,000
Amount representing interest ========== (100,000)
---------
Present value of minimum lease payments $ 868,000
=========
</TABLE>
Rent expense under operating leases for the years ended September 30, 1996, and
1995 was approximately $559,000 and $265,000, respectively. The Company's
building lease agreement provides for variable rent payments which the Company
expenses on a straight-line basis over the term of the lease. As of September
30, 1996, the Company had accrued $130,000 in deferred rent expense to be
amortized over the remaining term of 5 years.
Obligations under capital leases have interest rates which range from 8% to 15%
and require monthly payments which range from $9,000 to $19,000 at September 30,
1996.
16. BUSINESS SEGMENT FINANCIAL DATA
The Company designs, develops, manufactures and sells high-technology products,
classified in two principal industry segments or lines of business, Memory and
Display Products and Diamond Products. Memory and Display Products relate to
memory circuits in monolithic and modular form and active matrix liquid crystal
displays sold primarily in the commercial, industrial and military markets in
the U.S. and internationally. Diamond Products relate to developing products
incorporating diamond films and coatings.
F-16
<PAGE> 40
<TABLE>
Business segment information for the year ended September 30, 1996 is as
follows:
<CAPTION>
OPERATING IDENTIFIABLE
REVENUES INCOME (LOSS) ASSETS
<S> <C> <C> <C>
Memory and Display Products $57,476,000 $ 5,875,000 $18,597,000
Diamond Products 1,178,000 (1,651,000) 2,466,000
----------- ----------- -----------
Total consolidated $58,654,000 $ 4,224,000 $21,063,000
=========== =========== ===========
</TABLE>
Capital equipment expenditures were $284,000 and $84,000 for
the Memory and Display Products and Diamond Products segments, respectively, in
1996 and depreciation expense was $670,000 and $500,000, respectively.
In the year ended September 30,1995, the Company operated in only one segment,
Diamond Products.
Approximately $19,900,000, or 34% of total revenues, for the year ended
September 30, 1996 represent export sales to unaffiliated customers, primarily
in Europe. In the year ended September 30,1995, the Company had no significant
export sales.
<PAGE> 41
EXHIBIT INDEX
Exhibit
Number Exhibit Title Page No.
- - ------ ------------- --------
2.1(G) Agreement and Plan of Reorganization, dated as of
August 11, 1995, among Registrant, EDI, and CR-ED
Acquisition Corp., including all amendments thereto.
2.2(H) Agreement of Merger, dated as of October 10, 1995,
by and among Registrant, EDI, and CR-ED Acquisition
Corp.
2.3(K) Agreement of Merger dated March 6, 1996, by and
between Crystallume, a California corporation, and
Electronic Designs, Inc., a Delaware corporation
and wholly owned subsidiary of Crystallume.
2.4(J) Articles of merger of parent and subsidiary
corporations, dated as of July 27, 1996 by and
between Electronic Designs, Inc., a Delaware
corporation and Electronic Designs,Inc., a
Massachusetts corporation.
3.1(I) Registrant's Bylaws, as amended to date.
3.2(I) Registrant's Certificate of Incorporation currently
in effect.
4.1(F) Certificate of Determination, filed with Secretary
of State of California on April 19, 1995.
4.2(K) Specimen of Common Stock Certificate.
4.3(B) Form of Redeemable Warrant.
4.4(B) Form of Redeemable Warrant Agreement.
4.5(F) Form of Warrant to purchase shares of Common Stock.
4.6(F) Form of Stock Certificate for 12% Series A
Convertible Preferred Stock.
4.7(G) Private Offering Summary for Units.
4.8(F) Amended and Restated Supplement to Private
Offering Summary, dated August 16, 1995.
4.9(F) Subscription Agreement for Units.
4.10(H) Addendum to Subscription Agreement.
4.11(H) Updated Subscription Agreement.
4.12(H) Form of Purchase Agreement for Shares of
Crystallume Common Stock.
4.13(A) Amended and Restated Registration Rights Agreement
dated May 7, 1993 among Registrant and certain
investors.
<PAGE> 42
4.14(A) First Amendment, dated December 28, 1993, to Amended
and Restated Registration Rights Agreement among
Registrant and certain investors.
4.15(B) Second Amendment, dated February 25, 1994, to Amended
and Restated Registration Rights Agreement among
Registrant and certain investors.
4.16(B) Third Amendment, dated March 2, 1994, to Amended and
Restated Registration Rights Agreement among
Registrant and certain investors.
4.17(E) Second Amended and Restated Registration Rights
Agreement, dated July 25, 1994, among Registrant and
certain investors.
4.18(F) Third Amended and Restated Registration Rights
Agreement, dated as of April 30, 1995.
4.19(F) Revised and Restated Amendment to Third Amended and
Restated Registration Rights Agreement, dated as of
September 25, 1995.
4.20(F) Agreement respecting New York Life Insurance
Company's registration rights, dated as of October 10,
1995.
4.21(F) Agreement respecting Technology Funding Partners III,
L.P.'s registration rights, dated as of October 10,
1995.
4.22(H) Agreement respecting Silicon Valley Bank's
registration rights, dated as of October 10, 1995.
*10.1 1987 Stock Option Plan adopted by Registrant on
February 9, 1987, as amended............................... 47
*10.2 Employee Stock Purchase Plan adopted by Registrant on
March 6, 1996, as amended.................................. 53
*10.3(H) Electronic Designs, Inc. Amended and Restated 1986
Stock Option Plan.1
10.4(A) Lease Agreement for Bohannon Park facility, dated
November 25, 1987, as amended from time to time
through March 31, 1993 between Registrant and David
D. Bohannon Organization.
10.5(C) Industrial Lease, dated June 1, 1994, between
Registrant and the Kontrabecki Group.
10.6(H) Lease Agreement between Flanders Westborough Delaware,
Inc. and EDI, dated December 18, 1992
10.7(H) Lease Agreement between David Wallis Shaw and Stefanie
Gail Brown Shaw and E.D. Electronics Limited, dated
June 24, 1985.
10.8(A) Master Equipment Lease Agreement, dated December 5,
1990, between Registrant and Phoenix Growth Capital
Corp.
<PAGE> 43
10.9(E) Master Equipment Lease Agreement, dated July 15, 1994,
between Registrant and MMC/GATX Partnership No. 1.
10.10(D) Equipment Purchase, Security and License Agreement,
dated September 26, 1994, by and between Registrant
and Applied Science and Technology, Inc.
10.11(A) Contract for Research, dated February 15, 1990,
between Registrant and the National Center for
Manufacturing Sciences, Inc., modified February 1,
1992.
10.12(A) Funded Research and Development Program Agreement,
dated February 26, 1992, between Registrant and Brush
Wellman, Inc.
10.13(A) Contract for Research, dated May 2, 1993, between
Registrant and the Regents of the University of
California (with respect to Los Alamos National
Laboratories).
10.14(A) Contract for Research, dated June 30, 1993, between
Registrant and the United States Army.
10.15(A) Warrant to purchase Series D Preferred Stock of
Registrant, dated September 30, 1988, issued in
favor of Phoenix Growth Capital Corp.
10.16(A) Purchase Agreement and Second Amendment to
Registration Rights Agreement, dated March 31, 1993,
among Registrant and certain investors.
10.17(A) Term Loan Agreement, dated as of December 15, 1993,
between Registrant and ASTeX, including form of
Secured Term Note.
10.18(B) Form of Warrants, dated March 3, 1994, issued in
favor of Private Capital Group Ltd. and in favor
of Richard Moyer to purchase an aggregate of 100,000
shares of Common Stock.
10.19 Letter extending the expiration date of Warrants,
dated March 3, 1994, issued in favor of Richard
Moyer to purchase an aggregate of 50,000 shares
of Common Stock from March 2, 1997 to March 2, 1999........ 59
10.20(E) Warrant to purchase Common Stock of Registrant, dated
August 12, 1994, issued in favor of MMC/GATX
Partnership No. 1.
10.21(H) Secured Demand Note, dated August 10, 1995, in an
aggregate principal amount of $600,000 payable by
Registrant in favor of New York Life Insurance
Company.
10.22(H) Secured Demand Note, dated August 10, 1995, in an
aggregate principal amount of $200,000 payable by
Registrant in favor of Technology Funding Partners III,
L.P.
<PAGE> 44
10.23(H) First Amendment to Security Agreement, effective
August 10, 1995, by and among Registrant, New York
Life Insurance Company and Technology Funding
Partners III, L.P.
10.24(H) Second Amendment to Security Agreement, effective
August 28, 1995, by and among Registrant, New York
Life Insurance Company and Technology Funding
Partners III, L.P.
10.25(H) Security and Intercreditor Agreement, dated as of
August 10, 1995, by and among Registrant, New York
Life Insurance Company and Technology Funding
Partners III, L.P.
10.26(H) Secured Demand Note, dated August 28, 1995, in an
aggregate principal amount of $100,000 payable by
Registrant in favor of Technology Funding Partners III,
L.P.
10.27(H) Re-Assignment of Patents and Patent Applications,
dated October 5, 1995, by and between the
Registrant and New York Life Insurance Company.
10.28(H) New York Life Insurance Company's Agreement to
purchase shares of Common Stock in exchange for
cancellation of a $600,000 Secured Demand Note and
$1,035,000 Secured Promissory Note.
10.29(H) Technology Funding Partners III, L.P.'s Agreement
to purchase shares of Common stock in exchange for
cancellation of a $200,000 Secured Demand Note and
a $100,000 Secured Demand Note.
10.30(H) Dickinson Holding Corp.'s Agreement to purchase
Common Stock, including all amendments thereto.
10.31(L) Amended and Restated Loan and Security Agreement,
dated October 23, 1996, by and between Registrant
and Silicon Valley Bank.
10.32 Collateral Assignment, Patent Mortgage and Security
Agreement, dated October 23, 1996, by and between
Registrant and Silicon Valley Bank......................... 60
*10.33(E) Letter Agreement regarding employment, effective October
11, 1994, between Registrant and Jeffrey R.
Osorio.
*10.34(H) Agreement of Non-disclosure, to Maintain Confidence and to
Transfer Future Inventions, dated November 17, 1994, by and
between Registrant and Jeffrey R.
Osorio.
*10.35(F) Employment Agreement, dated as of August 18, 1995, by
and between Registrant and Paul J. McIntire.
*10.36(F) Employment Agreement, dated as of October 10, 1995,
by and between Registrant and Donald F. McGuinness.
*10.37(F) Severance Agreement, dated as of December 21, 1994, by
and between EDI and Donald F. McGuinness, including
all amendments thereto.
<PAGE> 45
*10.38(G) Severance Agreement, dated as of December 21, 1994, by
and between EDI and Frank D. Edwards.
*10.39(F) Severance Agreement, dated as of October 10, 1995, by
and between Registrant and Thomas A. Schultz.
10.40(H) Agreement of Non-disclosure, to Maintain Confidence
and to Transfer Future Inventions, dated February 24,
1986, by and between Registrant and Thomas A. Schultz.
*10.41(F) Severance Agreement, dated as of October 11, 1995, by
and between Registrant and John A. Herb.
10.42(H) Agreement of Non-disclosure, to Maintain Confidence and
to Transfer Future Inventions, dated July 5, 1988, by
and between Registrant and John A. Herb.
*10.43(H) Severance Agreement, dated as of October 13, 1995, by
and between Registrant and Laurie Conner.
*10.44(H) Severance Agreement, dated November 29, 1995, by and
between Registrant and Jeffrey R. Osorio.
11.1 Statement re: Computation of Per Share Earnings............ 65
16.1(G) Letter from Arthur Andersen LLP regarding Change in
Certifying Accountant.
21.1 Subsidiaries of the Registrant............................. 66
23.1 Consent of Price Waterhouse LLP............................ 67
24.1 Power of Attorney (See page 21)
27.1 Financial Data Schedule.................................... 68
(A) Incorporated by reference to the Registrant's Registration
Statement on Form SB-2. File No. 33-62448LA (withdrawn).
(B) Incorporated by reference to the Registrant's Registration
Statement on Form SB-2. File No. 33-76186LA (effective March 22, 1994).
(C) Incorporated by reference to the Registrant's Quarterly
Report on Form 10-QSB for the third quarter of the fiscal year ending
September 30, 1994 (filed on August 15, 1994).
(D) Incorporated by reference to Registrant's Current Report on
Form 8-K (filed on October 11, 1994).
(E) Incorporated by reference to Registrant's Registration
Statement on Form SB-2. File No. 33-84412LA (effective November 1, 1994)
(F) Incorporated by reference to Registrant's Current Report on
Form 8-K (filed on October 25, 1995).
(G) Incorporated by reference to Registrant's Current Report on
Form 8-K (filed on November 2, 1995).
(H) Incorporated by reference to Registrant's Annual Report
on Form 10-KSB (filed on December 18, 1995).
(I) Incorporated by reference to Registrant's Registration
Statement on Form S-3. File No. 333-3328 (effective May 16, 1996).
<PAGE> 46
(J) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-QSB for the third quarter of the fiscal year ending September 30,
1996 (filed on August 12, 1996).
(K) Incorporated by reference to Registrant's Current Report on
Form 8-K/A (filed on August 23, 1996).
(L) Incorporated by reference to Registrant's Current Report on
Form 8-K (filed on October 30, 1996).
- - ---------------
* A management contract or compensatory plan required to be filed as
an exhibit to Form 10-KSB.
1 Formerly known as EDI PurchaseCo, Inc.
<PAGE> 1
EXHIBIT 10.1 1987 Stock Option Plan adopted by Registrant on
February 9, 1987, as amended.
ELECTRONIC DESIGNS, INC.
1987 STOCK OPTION PLAN
----------------------
As Amended Through November 6, 1996
1. PURPOSE. This Stock Option Plan ("PLAN") is established as a
compensatory plan to provide incentives for selected persons to promote the
financial success and progress of Electronic Designs, Inc. (the "COMPANY") by
granting such persons options to purchase shares of stock of the Company.
2. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become effective on
the date that it is adopted by the Board of Directors (the "BOARD") of the
Company. This Plan shall be approved by the unanimous written consent of the
shareholders or the affirmative vote at a meeting of the holders of a majority
of the outstanding shares of the Company within twelve months before or after
the date this Plan is adopted by the Board.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan (the
"Options") may be either (a) incentive stock options ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "CODE"), or
(b) nonqualified stock options ("NQOs"), as designated at the time of grant. The
shares of stock that may be purchased upon exercise of Options granted under
this Plan (the "SHARES") are shares of the common stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan is 2,659,748 Shares, subject to
adjustment as provided in this Plan. If any Option expires or is terminated
without being exercised in whole or in part, the Shares thereby released from
such Option shall be available for future grant and purchase under this Plan. At
all times during the term of this Plan, the Company shall reserve and keep
available such number of Shares as shall be required to satisfy the requirements
of outstanding Options under this Plan.
5. ADMINISTRATION
--------------
(a) This Plan shall be administered by the Board or by a committee of
the Board appointed to administer this Plan (the "COMMITTEE"). If, at any time
after the Company registers any class of stock under the Exchange Act, all of
the directors are not Non-Employee Directors ("NON-EMPLOYEE DIRECTORS"), within
the meaning set forth in Rule 16b-3(b)(3) as promulgated by the Securities and
Exchange Commission ("SEC") under Section 16(b) of the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"), the Board shall appoint a committee
consisting of not less than two directors, each of whom is a Non-Employee
Director and at all times during which the Company is registered under the
Exchange Act, the committee shall be comprised of Non-Employee Directors and of
persons who are "Outside Directors" within the meaning of Section 162(m) of the
Code and the regulations promulgated thereunder. As used in this Plan,
references to the Committee shall mean either such Committee or the Board,
whichever is then acting. The interpretation by the Committee of any of the
provisions of this Plan or any Option granted under this Plan shall be final and
binding upon the Company and all persons having an interest in any Option or any
Shares purchased pursuant to an Option.
(b) The Committee, in its discretion, may delegate to the Chief
Executive Officer of the Company all or part of the Committee's authority and
duties with respect to Options, including the granting thereof, with respect to
recipients who are not subject to the reporting and other provisions of Section
16 of the Exchange Act and are not "covered employees" within the meaning of
Section 162(m) of the Code. The Committee may revoke or amend the terms of a
delegation at any time, but such action shall not invalidate any prior actions
of the Committee's delegate that were consistent with the terms of the Plan.
<PAGE> 2
6. ELIGIBILITY. Options may be granted only to such employees, officers,
directors, consultants and independent contractors of the Company or any Parent,
Subsidiary or Affiliate of the Company (as defined below) as the Committee shall
select from time to time in its sole discretion ("OPTIONEES"), provided that
only employees of the Company or a Parent or Subsidiary of the Company shall be
eligible to receive ISOs. An Optionee may be granted more than one Option under
this Plan. As used in this Plan, the following terms shall have the following
meanings:
(a) "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
(b) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
(c) "AFFILIATE" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
7. GRANTS TO QUALIFYING DIRECTORS
------------------------------
(a) Each member of the Board who is not also an employee of the
Company or Subsidiary (a "Qualifying Director") shall be granted on November 29,
1995, and each person who becomes a Qualifying Director after November 29, 1995
but before the date of the Company's 1996 annual meeting shall be granted, on
the date he becomes a Qualifying Director, an NQO to purchase 15,000 Shares,
becoming exercisable in three equal annual installments beginning on the first
anniversary of the grant date. Directors granted NQOs pursuant to this paragraph
(a) shall be referred to hereinafter as "Original Qualifying Directors."
(b) Each Original Qualifying Director who is elected to a three-year
term on the Board in either 1996 or 1997 shall be granted, on the fifth business
day after such election, an NQO to purchase Shares as follows: (i) if elected in
1996, an NQO for 5,000 Shares, becoming exercisable on the third anniversary of
the grant date; and (ii) if elected in 1997, an NQO for 10,000 Shares, becoming
exercisable in two equal installments on the second and third anniversaries of
the grant date.
(c) Each Qualifying Director, other than an Original Qualifying
Director, who is elected to a term on the Board, and each Original Qualifying
Director who is elected to a term on the Board after 1997, shall be granted, on
the fifth business day after such election, an NQO to purchase a number of
Shares equal to 5,000 times the number of full years in the term to which such
director was elected, becoming exercisable in annual installments of 5,000
Shares beginning on the first anniversary of the grant date.
(d) Any Director appointed to fill a vacancy on the Board shall be
granted, on the fifth business day after such appointment, an NQO to purchase
the number of Shares equal to 417 times the number of months, rounded up to the
nearest whole month, remaining until expiration of the term for which he was
appointed, becoming exercisable in annual installments of 5,000 Shares beginning
on the first anniversary of the grant date; provided that at the conclusion of
the term for which he was appointed, the option shall become fully exercisable.
(e) All NQOs granted to Qualifying Directors pursuant to this Section
7: (i) shall have an exercise price equal to the fair market value (as defined
in Section 8(b) below) of the Shares on the grant date, (ii) shall have a term
of ten years, (iii) shall provide that payment may be made pursuant to
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any combination of the methods set forth in Section 9(b); and (iv) shall cease
vesting immediately upon a Qualifying Director ceasing to serve as a Director
prior to the end of the term for which the option was granted.
8. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine whether
each Option is to be an ISO or an NQO, the number of Shares subject to the
Option, the exercise price of the Option, the periods during which the Option
may be exercised, and all other terms and conditions of the Option, subject to
the following terms and conditions:
(a) FORM OF OPTION GRANT. Each Option granted under this Plan shall be
evidenced by a written Stock Option Grant ("Grant") in such form (which need not
be the same for each Optionee) as the Committee shall from time to time approve,
which Grant shall comply with and be subject to the terms and conditions of this
Plan.
(b) EXERCISE PRICE. The exercise price of an Option shall be not less
than the fair market value of the Shares, at the time that the Option is
granted, as determined by the Committee in good faith. If a public market exists
for the shares, the fair market value shall be the average of the last reported
bid and asked prices for the Company's common stock on the last trading day
prior to the date of determination or, in the event that the Company's common
stock is listed on a stock exchange or on the Nasdaq Small-Cap or National
Market, the fair market value shall be the closing price on such exchange or
quotation system on the last trading day prior to the date of determination. In
the event that the Company's common stock is listed on more than one stock
exchange or on both a stock exchange and the Nasdaq Small-Cap or National
Market, the Committee shall determine which such exchange or quotation system
shall be used in the fair market value determination hereunder; provided,
however, that such determination may not be changed more frequently than once
per calendar year unless the Company's common stock ceases to be listed on the
exchange or quotation system so designated. The exercise price of any Option
granted to a person owning more than 10% of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary of the Company
("TEN PERCENT SHAREHOLDER") shall not be less than 110% of the fair market value
of the Shares at the time of the grant, as determined by the Committee in good
faith.
(c) EXERCISE PERIOD. Options shall be exercisable within the times or
upon the events determined by the Committee as set forth in the Grant, provided,
however, that no ISO shall be exercisable after the expiration of ten years from
the date the Option is granted, and provided further that no Option granted to a
Ten Percent Shareholder shall be exercisable after the expiration of five years
from the date the Option is granted.
(d) LIMITATIONS ON ISOS. The aggregate fair market value (determined
as of the time an Option is granted) of stock with respect to which ISOs are
exercisable for the first time by an Optionee during any calendar year (under
this Plan or under any other incentive stock option plan of the Company or any
Parent or Subsidiary of the Company) shall not exceed $100,000. If the fair
market value of stock with respect to which Options are first exercisable during
any calendar year exceeds $100,000, the Options for the amount in excess of
$100,000 that become exercisable in that year shall be granted as NQOs.
(e) DATE OF GRANT. The date of grant of an Option shall be the date on
which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee. The Grant representing the Option shall be
delivered to the Optionee within a reasonable time after the granting of the
Option.
9. EXERCISE OF OPTIONS.
-------------------
(a) NOTICE. Options may be exercised only by delivery to the Company
of a written notice and exercise agreement in a form approved by the Committee,
stating the number of Shares being purchased, the restrictions imposed on the
Shares, if any, and such representations and agreements regarding the Optionee's
investment intent and access to information as may be required by the Company to
comply with applicable securities laws, together with payment in full of the
exercise price for the number of Shares being purchased.
(b) PAYMENT. Payment for the Shares may be made (i) in cash (by
check), (ii) by surrender of shares of common stock of the Company having a fair
market value equal to the exercise price of the Option; (iii)
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by waiver of compensation due or accrued to Optionee for services rendered; (iv)
provided a public market for the Company's stock exists, through a "same day
sale" commitment from the Optionee and a broker-dealer that is a member of the
National Association of Securities Dealers, Inc. (an "NASD Dealer") whereby the
Optionee irrevocably elects to exercise the Option and to sell a portion of the
Shares so purchased to pay for the exercise price and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the exercise price
directly to the Company; (v) through a "Margin" commitment from the Optionee and
an NASD Dealer whereby the Optionee irrevocably elects to exercise the Option
and to pledge the Shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the exercise price,
and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company; or (vi) by any combination
of the foregoing where approved by the Committee in its sole discretion.
(c) WITHHOLDING TAXES. Prior to issuance of the Shares upon exercise
of an Option, the Optionee shall pay or make adequate provision for any federal
or state withholding obligations of the Company, if applicable.
(d) LIMITATIONS ON EXERCISE. Notwithstanding the exercise periods set
forth in the Grant, exercise of an Option shall always be subject to the
following limitations:
(i) An Option shall not be exercisable unless such exercise is in
compliance with the Securities Act of 1933, as amended, and all applicable state
securities laws, as they are in effect on the date of exercise.
(ii) The Committee may specify a reasonable minimum number of
Shares that may be purchased on any exercise of an Option, provided that such
minimum number will not prevent the Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
10. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an
Option shall be exercisable only by the Optionee or by Optionee's guardian or
legal representative. Except as set forth in the Grant respecting NQOs, no
Option may be sold, pledged, assigned, hypothecated, transferred or disposed of
in any manner other than by will or by the laws of descent and distribution.
11. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the rights
of a shareholder with respect to any Shares subject to an Option until the
Option has been validly exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to the date of
exercise, except as provided in this Plan. The Company shall provide to each
Optionee a copy of the annual financial statements of the Company, at such time
after the close of each fiscal year of the Company as they are released by the
Company to its shareholders.
12. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of common stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such Options shall be
proportionately adjusted, subject to any required action by the Board or
shareholders of the Company and compliance with applicable securities laws;
provided, however, that no certificate or scrip representing fractional shares
shall be issued upon exercise of any Option and any resulting fractions of a
Share shall be ignored.
13. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted
under this Plan shall confer on any Optionee any right to continue in the employ
of the Company or any Parent, Subsidiary or Affiliate of the Company or limit in
any way the right of the Company or any Parent, Subsidiary or Affiliate of the
Company to terminate the Optionee's employment at any time, with or without
cause.
14. COMPLIANCE WITH LAWS. The grant of Options and the issuance of Shares
upon exercise of any Options shall be subject to and conditioned upon compliance
with all applicable requirements of law, including, without limitation,
compliance with the Securities Act of 1933, as amended, compliance with all
applicable state securities laws and compliance with the requirements of any
stock exchange on which the Shares may be listed.
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The Company shall be under no obligation to register the Shares with the
Securities and Exchange Commission or to effect compliance with the registration
or qualification requirement of any state securities laws or stock exchange. The
Plan shall be governed by Massachusetts law except to the extent that such law
is preempted by federal law.
15. RESTRICTIONS ON SHARES. At the discretion of the Committee, the Company
may reserve to itself or its assignee(s) in the Grant (a) a right of first
refusal to purchase all Shares that an Optionee (or a subsequent transferee) may
propose to transfer to a third party and (b) a right to repurchase all vested or
all unvested Shares held by an Optionee upon the Optionee's termination of
employment or service with the Company or its Parent, Subsidiary or Affiliate of
the Company for any reason within a specified time as determined by the
Committee at the time of grant at (i) the Optionee's original purchase price
(provided that the right to repurchase at such price shall lapse at the rate of
at least 20% per year from the date of grant), (ii) the fair market value of
such Shares as determined by the Committee in good faith or (iii) a price
determined by a formula or other provision set forth in the Grant.
16. ASSUMPTION OF OPTIONS BY SUCCESSORS.
-----------------------------------
(a) In the event of (i) a merger or consolidation in which the Company
is not the surviving corporation (other than a merger or consolidation with a
wholly owned subsidiary, a reincorporation, or other transaction in which there
is no substantial change in the shareholders of the corporation and the Options
granted under this Plan are assumed by the successor corporation), (ii) a
dissolution or liquidation of the Company, (iii) the sale of substantially all
of the assets of the Company, or (iv) any other transaction, described in
Section 424(a) of the Code wherein the shareholders of the Company give up all
of their equity interest in the Company (except for the acquisition of all or
substantially all of the outstanding shares of the Company), any or all
outstanding Options may be assumed by the successor corporation, which
assumption shall be binding on all Optionees. In the alternative, the successor
corporation may substitute an equivalent option or provide substantially similar
consideration to Optionees as was provided to shareholders (after taking into
account the existing provisions of Optionee's options, such as the exercise
price and the vesting schedule). The successor corporation may also issue, in
place of outstanding shares of the Company held by Optionee as a result of the
exercise of an Option that is subject to repurchase, substantially similar
shares or other property subject to similar repurchase restrictions no less
favorable to Optionee.
(b) In the event such successor corporation, if any, refuses to assume
or substitute Options, as provided above, pursuant to a transaction described in
Subsections 16(a)(ii), (iii) or (iv) above, or there is no successor
corporation, and if the Company is ceasing to exist as a separate corporate
entity, the Options shall, notwithstanding any contrary terms in the Grant,
expire on a date at least 20 days after the Board gives written notice to
Optionees specifying the terms and conditions of such termination.
(c) In the event such successor corporation refuses to assume or
substitute Options, as provided above, pursuant to a transaction described in
Subsection 16(a)(i) above, such Options shall accelerate and become exercisable
in full at least 20 days prior to, and shall expire on (and, if the Company has
reserved to itself a right to repurchase Shares issued on exercise of Options at
the original purchase price of such Shares, such right shall terminate on), the
consummation of such transaction at such time and on such conditions as the
Board shall determine. If the fair market value of Shares with respect to which
all Options are first exercisable in such calendar year exceeds $100,000, the
Options for the amount in excess of $100,000 shall be granted as NQOs.
(d) Subject the foregoing provisions of this Section 16, in the event
of the occurrence of any transaction described in Section 16(a), any outstanding
Option shall be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
17. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
terminate or amend this Plan in any respect (including, but not limited to, any
form of Grant, agreement or instrument to be executed pursuant to this Plan);
provided, however, that the Committee shall not, without the approval of the
shareholders of the Company, increase the total number of Shares available under
this Plan (except by operation of the provisions of this Plan) or change the
class of persons eligible to receive options. In any case, no amendment of this
Plan may
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adversely affect any then outstanding Options or any unexercised portions
thereof without the written consent of the Optionee.
18. TERM OF PLAN. Options may be granted pursuant to this Plan from time to
time on or before October 27, 2005.
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EXHIBIT 10.2 Employee Stock Purchase Plan adopted by Registrant on
March 6,1996, as amended
ELECTRONIC DESIGNS, INC.
EMPLOYEE STOCK PURCHASE PLAN
As Amended Through November 6, 1996
The purpose of the Electronic Designs, Inc. Employee Stock Purchase Plan
("the Plan") is to provide eligible employees of Electronic Designs, Inc. (the
"Company") and certain of its subsidiaries with opportunities to purchase shares
of the Company's common stock, no par value (the "Common Stock"). 250,000 shares
of Common Stock in the aggregate have been approved for this purpose. The Plan
is intended to constitute an "employee stock purchase plan" within the meaning
of Section 423(b) of the Internal Revenue Code of 1986, as amended (the "Code"),
and shall be interpreted in accordance with that intent.
1. ADMINISTRATION. The Plan will be administered by the Company's Board of
Directors (the "Board") or by a committee appointed by the Board for such
purpose (the "Committee"). The Board or the Committee has authority to make
rules and regulations for the administration of the Plan, and its
interpretations and decisions with regard thereto shall be final and conclusive.
No member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
hereunder.
2. OFFERINGS. The Company will make one or more offerings to eligible
employees to purchase Common Stock under the Plan ("Offerings"). The initial
Offering will begin on the second business day after the later of (a) the
relisting of the Common Stock on the Nasdaq Small-Cap Market, and (b) the
reincorporation of the Company as a corporation in any state other than
California, and will end on September 30, 1996 (the "Initial Offering"). The
second Offering will begin on October 1, 1996 and will end on March 31, 1997.
The third offering will begin on April 1, 1997 and will end on October 31, 1997.
Thereafter, an Offering will begin on the first business day occurring on or
after each November 1 and May 1 and will end on the last business day occurring
on or before the following April 30 and October 31, respectively.
3. ELIGIBILITY. All employees of the Company (including employees who are
also directors of the Company) and all employees of each Designated Subsidiary
(as defined in Section 11) are eligible to participate in any one or more of the
Offerings under the Plan, provided that as of the first day of the applicable
Offering (the "Offering Date") they are customarily employed by the Company or a
Designated Subsidiary for more than twenty (20) hours a week and have completed
at least 6 (six) months of employment.
<PAGE> 2
4. PARTICIPATION. An employee eligible on any Offering Date may participate
in such Offering by submitting an enrollment form to his appropriate payroll
location at least ten (10) business days before the Offering Date (or by such
other deadline as shall be established for the Offering). The form will (a)
state a whole percentage to be deducted from his Compensation (as defined in
Section 11) per pay period, (b) authorize the purchase of Common Stock for him
in each Offering in accordance with the terms of the Plan and (c) specify the
exact name or names in which shares of Common Stock purchased for him are to be
issued pursuant to Section 10. An employee who does not enroll in accordance
with these procedures will be deemed to have waived his right to participate.
Unless an employee files a new enrollment form or withdraws from the Plan, his
deductions and purchases will continue at the same percentage of Compensation
for future Offerings, provided he remains eligible. Notwithstanding the
foregoing, participation in the Plan will neither be permitted nor be denied
contrary to the requirements of the Code.
5. EMPLOYEE CONTRIBUTIONS. Each eligible employee may authorize payroll
deductions at a minimum of one percent (1%) up to a maximum of ten percent (10%)
of his Compensation for each pay period. The Company will maintain book accounts
showing the amount of payroll deductions made by each participating employee for
each Offering. No interest will accrue or be paid on payroll deductions.
6. DEDUCTION CHANGES. An employee may not increase or decrease his payroll
deduction during any Offering, but may increase or decrease his payroll
deduction with respect to the next Offering (subject to the limitations of
Section 5) by filing a new enrollment form at least ten (10) business days
before the next Offering Date (or by such other deadline as shall be established
for the Offering).
7. WITHDRAWAL. An employee may withdraw from participation in the Plan by
delivering a written notice of withdrawal to his appropriate payroll location.
The employee's withdrawal will be effective as of the next business day.
Following an employee's withdrawal, the Company will promptly refund to him his
entire account balance under the Plan (after payment for any Common Stock
purchased before the effective date of withdrawal). Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Offering, but may enroll in a subsequent Offering in accordance with
Section 4.
8. GRANT OF OPTIONS. On each Offering Date, the Company will grant to each
eligible employee who is then a participant in the Plan an option ("Option") to
purchase on the last day of such Offering (the "Exercise Date"), at the Option
Price hereinafter provided for, such number of whole shares of Common Stock
reserved for the purposes of the Plan as does not exceed the number of shares
equal in value to ten percent (10%) of such employee's projected Compensation
for the period of the Offering divided by eighty five percent (85%) of the Fair
Market Value of the Common Stock (as defined in Section 11) on the Offering
Date, rounded down to the nearest whole share. The
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purchase price for each share purchased under such Option (the "Option Price")
will be 85% of the Fair Market Value of the Common Stock on the Offering Date or
the Exercise Date, whichever is less.
Notwithstanding the foregoing, no employee may be granted an option
hereunder if such employee, immediately after the option was granted, would be
treated as owning stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any
Parent or Subsidiary (as defined in Section 11). For purposes of the preceding
sentence, the attribution rules of Section 424(d) of the Code shall apply in
determining the stock ownership of an employee, and all stock which the employee
has a contractual right to purchase shall be treated as stock owned by the
employee. In addition, no employee may be granted an Option which permits his
rights to purchase stock under the Plan, and any other employee stock purchase
plan of the Company and its Parents and Subsidiaries, to accrue at a rate which
exceeds $25,000 of the fair market value of such stock (determined on the option
grant date or dates) for each calendar year in which the Option is outstanding
at any time. The purpose of the limitation in the preceding sentence is to
comply with Section 423(b)(8) of the Code.
9. EXERCISE OF OPTION AND PURCHASE OF SHARES. Each employee who continues
to be a participant in the Plan on the Exercise Date shall be deemed to have
exercised his Option on such date and shall acquire from the Company such number
of whole shares of Common Stock reserved for the purpose of the Plan as his
accumulated payroll deductions on such date will purchase at the Option Price,
subject to any other limitations contained in the Plan. Any balance remaining in
an employee's account at the end of an Offering will be refunded to the employee
promptly, except that any balance remaining in an employee's account at the end
of an Offering solely by reason of the inability to purchase a fractional share
will be carried forward to the next Offering.
10. ISSUANCE OF CERTIFICATES. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
the employee and another person of legal age as joint tenants with rights of
survivorship, or a broker authorized by the employee to be his, or their,
nominee for such purpose.
11. DEFINITIONS.
-----------
The term "Compensation" means the amount of base pay and commissions,
prior to salary reduction pursuant to either Section 125 or 401(k) of the Code,
but excluding overtime, incentive or bonus awards, allowances and reimbursements
for expenses such as relocation allowances or travel expenses, income or gains
on the exercise of Company stock options, and similar items.
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The term "Designated Subsidiary" means any present or future
Subsidiary (as defined below) that is designated from time to time by the Board
or the Committee to participate in the Plan. Subsidiaries may be so designated
either before or after the Plan is approved by the stockholders.
The term "Fair Market Value of the Common Stock" means the last
reported sale price of the Common Stock on the Nasdaq Small-Cap Market or Nasdaq
National Market (or such exchange on which the Company's Common Stock may then
be traded) on a given day or, if no sales of Common Stock were made on that day,
the sale price of the Common Stock on the next preceding day on which sales were
made.
The term "Parent" means a "parent corporation" with respect to the
Company, as defined in Section 424(e) of the Code.
The term "Subsidiary" means a "subsidiary corporation" with respect to
the Company, as defined in Section 424(f) of the Code.
12. RIGHTS ON RETIREMENT, DEATH, OR OTHER TERMINATION OF EMPLOYMENT. If a
participating employee's employment terminates for any reason before the
Exercise Date for any Offering, no payroll deduction will be taken from any pay
due and owing to the employee and the balance in his account will be paid to him
or, in the case of his death, to his designated beneficiary as if he had
withdrawn from the Plan under Section 7. An employee will be deemed to have
terminated employment, for this purpose, if the corporation that employs him,
having been a Designated Subsidiary, ceases to be a Subsidiary, or if the
employee is transferred to any corporation other than the Company or a
Designated Subsidiary.
13. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under the Plan
until such shares have been purchased by and issued to him.
14. RIGHTS NOT TRANSFERABLE. Rights under the Plan are not transferable by
a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
15. APPLICATION OF FUNDS. All funds received or held by the Company under
the Plan may be combined with other corporate funds and may be used for any
corporate purpose.
16. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a dividend
in Common Stock, the number of shares approved for the Plan, and the share
limitation set forth in Section 8, shall be increased proportionately, and such
other adjustment
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shall be made as may be deemed equitable by the Board or the Committee. In the
event of any other change affecting the Common Stock, such adjustment shall be
made as may be deemed equitable by the Board or the Committee to give proper
effect to such event.
17. AMENDMENT OF THE PLAN. The Board or the Committee may at any time, and
from time to time, amend the Plan in any respect, except that without the
approval, within twelve (12) months of such Board or Committee action, by the
holders of a majority of the shares of stock of the Company present or
represented and entitled to vote at a meeting of stockholders, no amendment
shall be made (a) increasing the number of shares approved for the Plan or (b)
changing the designation of corporations or class of corporations whose
employees are eligible to receive Options under the Plan.
18. INSUFFICIENT SHARES. If the total number of shares of Common Stock that
would otherwise be purchased on any Exercise Date plus the number of shares
purchased under previous Offerings under the Plan exceeds the maximum number of
shares issuable under the Plan, the shares then available shall be apportioned
among participants in proportion to the amount of payroll deductions accumulated
on behalf of each participant that would otherwise be used to purchase Common
Stock on such Exercise Date.
19. TERMINATION OF THE PLAN. The Plan may be terminated at any time by the
Board or the Committee. Upon termination of the Plan, all amounts in the
accounts of participating employees shall be promptly refunded.
20. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and deliver
Common Stock under the Plan is subject to listing on the Nasdaq Small-Cap Market
or National Market (or other national exchange) and obtaining all governmental
approvals required in connection with the authorization, issuance, or sale of
such stock.
The Plan shall be governed by Massachusetts law except to the extent
that such law is preempted by federal law.
21. ISSUANCE OF SHARES. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
22. TAX WITHHOLDING. Participation in the Plan is subject to any required
tax withholding on income of the participant in connection with the Plan. Each
employee agrees, by entering the Plan, that the Company and its Subsidiaries
shall have the right to deduct any such taxes from any payment of any kind
otherwise due to the employee, including shares issuable under the Plan.
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23. NOTIFICATION UPON SALE OF SHARES. Each employee agrees, by entering the
Plan, to give the Company prompt notice of any disposition of shares purchased
under the Plan where such disposition occurs within two years after the date of
grant of the Option pursuant to which such shares were purchased.
24. EFFECTIVE DATE AND APPROVAL OF SHAREHOLDERS. The Plan shall take effect
on the later of the date it is adopted by the Board and the date it is approved
by the holders of a majority of the shares of stock of the Company present or
represented and entitled to vote at a meeting of stockholders, which approval
must occur within twelve (12) months of the adoption of the Plan by the Board.
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EXHIBIT 10.19 Letter extending expiration date of warrants
April 19, 1996
Mr. Richard Moyer
274 Woodland Ave.
Summit, N. J. 07901
Dear Dick:
The warrant issued to you on March 2, 1994 to purchase 50,000 shares of
Electronic Designs, Inc. (formerly Crystallume) common stock at $6.00 per share
have been extended to March 2, 1999. The extension of two years was approved by
the Board of Directors on March 6, 1996. All other terms remain unchanged.
We appreciate your continued support. If you have any further questions, please
call me at (508) 366-5151 ext. 215.
Sincerely,
Frank D. Edwards
Sr. Vice President/CFO
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EXHIBIT 10.32 Collateral Assignment, Patent Mortgage and Security
Agreement, dated October 23, 1996, by and between
Registrant and Silicon Valley Bank.
COLLATERAL ASSIGNMENT, PATENT MORTGAGE
--------------------------------------
AND SECURITY AGREEMENT
----------------------
This Collateral Assignment, Patent Mortgage and Security Agreement is made
as of October 23, 1996, by and between ELECTRONIC DESIGNS, INC., a Delaware
corporation ("Assignor"), and SILICON VALLEY BANK, a California banking
corporation ("Assignee").
RECITALS
--------
A. Assignee has agreed to lend to Assignor certain funds (the "Loan"), and
Assignor desires to borrow such funds from Assignee pursuant to the terms of a
Loan and Security Agreement of even date herewith, as amended from time to time
(the "Loan Agreement").
B. In order to induce Assignee to make the Loan, Assignor has agreed to
assign certain intangible property to Assignee for purposes of securing the
obligations of Assignor to Assignee.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. ASSIGNMENT, PATENT MORTGAGE AND GRANT OF SECURITY INTEREST. As
collateral security for the prompt and complete payment and performance of all
of Assignor's present or future indebtedness, obligations and liabilities to
Assignee under the Loan Agreement, Assignor hereby assigns, transfers, conveys
and grants a security interest and mortgage to Assignee, as security, in and to
Assignor's entire right, title and interest in, to and under the following (all
of which shall collectively be called the "Collateral"):
a) Any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether
or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held, including without limitation
those set forth on EXHIBIT A attached hereto (collectively, the
"Copyrights");
b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
c) Any and all design rights which may be available to Assignor now or
hereafter existing, created, acquired or held;
d) All patents, patent applications and like protections including
without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same, including
without limitation the patents and patent applications set forth on
EXHIBIT B attached hereto (collectively, the "Patents");
e) Any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Assignor
connected with and symbolized by such trademarks, including without
limitation those set forth on EXHIBIT C attached hereto (collectively,
the "Trademarks");
f) Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but
not the obligation, to sue for and collect such damages for said use
or infringement of the intellectual property rights identified above;
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g) All licenses or other rights to use any of the Copyrights, Patents or
Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights;
h) All amendments, renewals and extensions of any of the Copyrights,
Trademarks or Patents; and
i) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
THE INTEREST IN THE COLLATERAL BEING ASSIGNED HEREUNDER SHALL NOT BE
CONSTRUED AS A CURRENT ASSIGNMENT, BUT AS A CONTINGENT ASSIGNMENT TO SECURE
ASSIGNOR'S OBLIGATIONS TO ASSIGNEE UNDER THE LOAN AGREEMENT.
2. AUTHORIZATION AND REQUEST. Assignor authorizes and requests that the
Register of Copyrights and the Commissioner of Patents and Trademarks record
this conditional assignment.
3. COVENANTS AND WARRANTIES. Assignor represents, warrants, covenants and
agrees as follows:
a) Assignor is now the sole owner of the Collateral, except for
non-exclusive licenses granted by Assignor to its customers in the
ordinary course of business;
b) Performance of this Assignment does not conflict with or result in a
breach of any agreement to which Assignor is party or by which
Assignor is bound, except to the extent that certain intellectual
property agreements prohibit the assignment of the rights thereunder
to a third party without the licensor's or other party's consent and
this Assignment constitutes an assignment;
c) During the term of this Assignment, Assignor will not transfer or
otherwise encumber any interest in the Collateral, except for
non-exclusive licenses granted by Assignor in the ordinary course of
business or as set forth in this Assignment;
d) To its knowledge, each of the Patents is valid and enforceable, and no
part of the Collateral has been judged invalid or unenforceable, in
whole or in part, and no claim has been made that any part of the
Collateral violates the rights of any third party;
e) Assignor shall promptly advise Assignee of any material change in the
composition of the Collateral, including but not limited to any
subsequent ownership right of the Assignor in or to any Trademark,
Patent or Copyright not specified in this Assignment;
f) Assignor shall (i) protect, defend and maintain the validity and
enforceability of the Trademarks, Patents and Copyrights, (ii) use its
best efforts to detect infringements of the Trademarks, Patents and
Copyrights and promptly advise Assignee in writing of material
infringements detected and (iii) not allow any Trademarks, Patents or
Copyrights to be abandoned, forfeited or dedicated to the public
without the written consent of Assignee, which shall not be
unreasonably withheld, unless Assignor determines that reasonable
business practices suggest that abandonment is appropriate.
g) Except as Assignor reasonably determines is not necessary or
appropriate in the management of its business, Assignor shall promptly
register the most recent version of any of Assignor's Copyrights, if
not so already registered, and shall, from time to time, execute and
file such other instruments, and take such further actions as Assignee
may reasonably request from time to time to perfect or continue the
perfection of Assignee's interest in the Collateral;
h) This Assignment creates, and in the case of after acquired Collateral,
this Assignment will create at the time Assignor first has rights in
such after acquired Collateral, in favor of Assignee a valid and
perfected first priority (except for Permitted Liens as such term is
defined in the Loan Agreement) security interest in the Collateral in
the United States securing the payment and
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performance of the obligations of Assignor to Assignee under the Loan
Agreement upon making the filings referred to in clause (i) below;
i) To its knowledge, except for, and upon, the filing with the United
States Patent and Trademark Office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the
Copyrights necessary to perfect the security interests and assignment
created hereunder, and except as has been already made or obtained, no
authorization, approval or other action by, and no notice to or filing
with, any U.S. governmental authority or U.S. regulatory body is
required either (i) for the grant by Assignor of the security interest
granted hereby or for the execution, delivery or performance of this
Assignment by Assignor in the U.S. or (ii) for the perfection in the
United States or the exercise by Assignee of its rights and remedies
hereunder;
j) All information heretofore, herein or hereafter supplied to Assignee
by or on behalf of Assignor with respect to the Collateral is accurate
and complete in all material respects.
k) Assignor shall not enter into any agreement that would materially
impair or conflict with Assignor's obligations hereunder without
Assignee's prior written consent, which consent shall not be
unreasonably withheld. Assignor shall not permit the inclusion in any
material contract to which it becomes a party of any provisions that
could or might in any way prevent the creation of a security interest
in Assignor's rights and interests in any property included within the
definition of the Collateral acquired under such contracts, except
that certain contracts may contain anti-assignment provisions that
could in effect prohibit the creation of a security interest in such
contracts.
l) Upon any executive officer of Assignor obtaining actual knowledge
thereof, Assignor will promptly notify Assignee in writing of any
event that materially adversely affects the value of any Collateral,
the ability of Assignor to dispose of any Collateral or the rights and
remedies of Assignee in relation thereto, including the levy of any
legal process against any of the Collateral.
4. ASSIGNEE'S RIGHTS. Assignee shall have the right, but not the
obligation, to take, at Assignor's sole expense, any actions that Assignor is
required under this Assignment to take but which Assignor fails to take, after
fifteen (15) days' notice to Assignor. Assignor shall reimburse and indemnify
Assignee for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this section 4.
5. INSPECTION RIGHTS. Assignor hereby grants to Assignee and its employees,
representatives and agents the right to visit, during reasonable hours upon
prior reasonable written notice to Assignor, any of Assignor's plants and
facilities that manufacture, install or store products (or that have done so
during the prior six-month period) that are sold utilizing any of the
Collateral, and to inspect the products and quality control records relating
thereto upon reasonable written notice to Assignor and as often as may be
reasonably requested.
6. Further Assurances; Attorney in Fact.
------------------------------------
a) On a continuing basis, Assignor will, except as Assignor reasonably
determines is not necessary or appropriate in the management of its
business, subject to any prior licenses, encumbrances and restrictions
and prospective licenses, make, execute, acknowledge and deliver, and
file and record in the proper filing and recording places in the
United States, all such instruments, including appropriate financing
and continuation statements and collateral agreements and filings with
the United States Patent and Trademark Office and the Register of
Copyrights, and take all such action as may reasonably be deemed
necessary or advisable, or as requested by Assignee, to perfect
Assignee's security interest in all Copyrights, Patents and Trademarks
and otherwise to carry out the intent and purposes of this Collateral
Assignment, or for assuring and confirming to Assignee the grant or
perfection of a security interest in all Collateral.
b) Assignor hereby irrevocably appoints Assignee as Assignor's
attorney-in-fact, with full authority in the place and stead of
Assignor and in the name of Assignor, from time to time in Assignee's
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discretion, to take any action and to execute any instrument which
Assignee may deem necessary or advisable to accomplish the purposes of
this Collateral Assignment, including:
i) To modify, in its sole discretion, this Collateral Assignment
without first obtaining Assignor's approval of or signature to
such modification by amending Exhibit A, Exhibit B and Exhibit C,
thereof, as appropriate, to include reference to any right, title
or interest in any Copyrights, Patents or Trademarks acquired by
Assignor after the execution hereof or to delete any reference to
any right, title or interest in any Copyrights, Patents or
Trademarks in which Assignor no longer has or claims any right,
title or interest; and
ii) To file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any
of the Collateral without the signature of Assignor where
permitted by law.
7. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default under the Assignment:
a) An Event of Default occurs under the Loan Agreement; or
b) Assignor breaches any warranty or agreement made by Assignor in this
Assignment and, as to any breach that is capable of cure, Assignor
fails to cure such breach within five (5) days of the occurrence of
such breach.
8. REMEDIES. Upon the occurrence and continuance of an Event of Default,
Assignee shall have the right to exercise all the remedies of a secured party
under the California Uniform Commercial Code, including without limitation the
right to require Assignor to assemble the Collateral and any tangible property
in which Assignee has a security interest and to make it available to Assignee
at a place designated by Assignee. Assignee shall have a nonexclusive, royalty
free license to use the Copyrights, Patents and Trademarks to the extent
reasonably necessary to permit Assignee to exercise its rights and remedies upon
the occurrence of an Event of Default. Assignor will pay any expenses (including
reasonable attorneys' fees) incurred by Assignee in connection with the exercise
of any of Assignee's rights hereunder, including without limitation any expense
incurred in disposing of the Collateral. All of Assignee's rights and remedies
with respect to the Collateral shall be cumulative.
9. INDEMNITY. Assignor agrees to defend, indemnify and hold harmless
Assignee and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Agreement, and (b) all
losses or expenses in any way suffered, incurred, or paid by Assignee as a
result of or in any way arising out of, following or consequential to
transactions between Assignee and Assignor under this Assignment which result
from any breach or failure to perform by Assignor of any representation,
warranty, covenant or agreement of Assignor contained in this Assignment;
including without limitation in each case with respect to (a) and (b) reasonable
attorneys fees and expenses, but excluding in the case of (a) and (b) all
obligations, demands, claims, liabilities, Bank Expenses and losses caused by
Bank's gross negligence or willful misconduct.
10. REASSIGNMENT. At such time as Assignor shall completely satisfy all of
the obligations secured hereunder, Assignee shall execute and deliver to
Assignor all deeds, assignments and other instruments as may be necessary or
proper to revest in Assignor full title to the property assigned hereunder,
subject to any disposition thereof which may have been made by Assignee pursuant
hereto.
11. COURSE OF DEALING. No course of dealing, nor any failure to exercise,
nor any delay in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.
12. ATTORNEYS' FEES. If any action relating to this Assignment is brought
by either party hereto against the other party, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements.
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13. AMENDMENTS. This Assignment may be amended only by a written instrument
signed by both parties hereto.
14. COUNTERPARTS. This Assignment may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
15. CALIFORNIA LAW AND JURISDICTION; JURY WAIVER. This Assignment shall be
governed by the laws of the State of California, without regard for choice of
law provisions. Assignor and Assignee consent to the exclusive jurisdiction of
any state or federal court located in Santa Clara County, California. ASSIGNOR
AND ASSIGNEE EACH WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THE LOAN AGREEMENT, THIS
ASSIGNMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment on the
day and year first above written.
Address of Assignor: ASSIGNOR:
One Research Drive ELECTRONIC DESIGNS, INC.
Westborough, MA 01581
Attn: Frank Edwards By:
---------------------------
Title:
-------------------------
Address of Assignee: ASSIGNEE:
40 William Street, Suite 350 SILICON VALLEY BANK
Wellesley, MA 02181
Attn: Jane Braun By:
---------------------------
Title:
------------------------
5
<PAGE> 1
EXHIBIT 11.1 Statement re: computation of per share earnings
<TABLE>
NET INCOME (LOSS) PER SHARE
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1996 1995
<S> <C> <C>
Net income (loss) $2,808,000 $(4,158,000)
Adjustments thereto (1) 924,000 -
---------- -----------
Adjusted net income (loss) $3,732,000 $(4,158,000)
========== ===========
Weighted average shares
outstanding 5,546,000 3,226,000
Adjustments thereto (2) 4,249,000 -
---------- -----------
Shares used in computation 9,795,000 3,226,000
========== ===========
Net income (loss) per share $ 0.38 $ (1.29)
========== ===========
<FN>
(1) In accordance with the modified treasury stock method, the proceeds
from the exercise of stock options and warrants are first used to buy
back up to 20% of the Company's common stock at the average price for
the period. Any remaining proceeds are used to retire outstanding
debt, which adjusts income for interest assumed to be saved (net of
income tax effect), and, to the extent there are proceeds remaining
after the assumed debt retirement, used to invest in commercial paper,
which further adjusts income for interest assumed to be earned (net of
income tax effect).
(2) Adjusts the weighted average number of shares outstanding for (i) all
stock options and warrants using the modified treasury stock method,
if dilutive; and (ii) the conversion of preferred stock using the
if-converted method, if dilutive.
(3) Primary and fully-diluted earnings per share are the same.
</TABLE>
<PAGE> 1
EXHIBIT 21.1 Subsidiaries of the Registrant - Electronic Designs, Inc.
------------------------------
Electronic Designs, LTD - Jamaica (Foreign Sales Corporation)
E.D. Electronics, Limited - United Kingdom (UK Sales Office)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-79916 and No. 33-80653) and in the Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 333-3328 and
No. 33-76186LA) of Electronic Designs, Inc. of our report dated October 25, 1996
on the consolidated financial statements of Electronic Designs, Inc. for the
year ended September 30, 1996 appearing on page F-1 of this Annual Report on
Form 10-KSB.
PRICE WATERHOUSE LLP
Boston, Massachusetts
November 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXRACTED FROM BALANCE SHEET
& STATEMENT OF OPERATIONS FOR THE PERIOD ENDING SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB-ANNUAL REPORT
PURSUANT TO SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED SEPTEMBER 20,
1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 3,290,000
<SECURITIES> 0
<RECEIVABLES> 6,726,000
<ALLOWANCES> 370,000
<INVENTORY> 5,483,000
<CURRENT-ASSETS> 15,272,000
<PP&E> 7,490,000
<DEPRECIATION> 3,647,000
<TOTAL-ASSETS> 21,063,000
<CURRENT-LIABILITIES> 8,847,000
<BONDS> 2,939,000
<COMMON> 64,000
0
0
<OTHER-SE> 9,083,000
<TOTAL-LIABILITY-AND-EQUITY> 21,063,000
<SALES> 58,654,000
<TOTAL-REVENUES> 58,654,000
<CGS> 41,705,000
<TOTAL-COSTS> 41,705,000
<OTHER-EXPENSES> 12,725,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 893,000
<INCOME-PRETAX> 3,384,000
<INCOME-TAX> 576,000
<INCOME-CONTINUING> 2,808,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,808,000
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
