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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
For the fiscal year ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
Commission file number: 0-21305
ELECTRONIC DESIGNS, INC.
(Name of small business issuer in its charter)
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DELAWARE 04-3298416
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(State or other jurisdiction of incorporation or organization) (I.R.S. employer
identification no.)
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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, 1997
were $42,104,000.
The aggregate market value of the voting stock held by non-affiliates of
Registrant as of November 14, 1997 was $18,568,619 based on the closing sales
price of such stock on the Nasdaq Small-Cap Market. As of November 14, 1997,
there were 7,091,852 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 25, 1998 (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,
1997, are incorporated by reference into Part III hereof.
Exhibit Index is located on Page 17
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TABLE OF CONTENTS
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PART I............................................................................................................1
ITEM 1. DESCRIPTION OF BUSINESS...............................................................................1
ITEM 2. DESCRIPTION OF PROPERTIES.............................................................................4
ITEM 3. LEGAL PROCEEDINGS.....................................................................................4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................................4
PART II...........................................................................................................5
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..............................................5
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..........................................................................................6
ITEM 7. FINANCIAL STATEMENTS.................................................................................10
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE..........................................................................................10
PART III.........................................................................................................11
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.............................................................11
ITEM 10. EXECUTIVE COMPENSATION...............................................................................11
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................11
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................................11
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K...............................................................12
SIGNATURES........................................................................................16
AUDITED FINANCIAL STATEMENTS.....................................................................F-1
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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 of this Form 10-KSB.
GENERAL BACKGROUND
Electronic Designs, Inc. (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 was 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. 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.
In May 1997, the Company announced its intention to divest its
Crystallume Diamond Products Division. This divestiture was completed in October
1997. As a result of the Acquisition and subsequent divestiture of the
Crystallume Diamond Products Division, the Company's current focus is the
design, manufacture and sale of semiconductor memory and flat panel display
products to specialty niche markets within these commodity markets.
INDUSTRY BACKGROUND
Semiconductor Memory: 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
generally capable of higher speeds than DRAMs of the same density. SRAMs are
often used to take advantage of the significantly increased performance
capabilities of current microprocessors.
SRAMs are used in a wide variety of 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 may consist of
multiple memory devices plus support chips in a single component. Standard
memory modules include modules that can be purchased 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 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.
Memory chips as a whole have accounted for about one-third of the
semiconductor market with DRAMs accounting for over 20% of the total market and
SRAMs accounting for less than 5%. In 1994, worldwide sales of
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semiconductor devices were $101.9 billion, nearly double sales of 1990. In 1995,
sales increased nearly 42% to $144.4 billion. In 1996, the semiconductor market
suffered a 10% decline in revenues, with the primary reason for this decline
being a steep drop in memory revenues. Historically, memory prices have dropped
20% annually, except during 1994 and 1995. Returning to the long-term trend,
DRAM prices dropped dramatically in 1996. In 1995, the market for SRAMs and
DRAMs was estimated to be approximately $47 billion while market estimates for
calendar 1997 estimate this market size to be approximately $25 billion. Most
industry analysts believe that the oversupply is currently working its way out
of the system and the market will return to modest growth rates in the next year
and resume double-digit growth in 1998. No assurances can be given that
volatility, with periods of flat or declining demand, will not continue. Any
such market developments could have a material adverse effect on the Company's
semiconductor packaging business.
Flat Panel Displays: The information display industry, which is over $40
billion in size, is undergoing significant changes. Trends 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,
electro-luminescent and field emission displays ("FEDs"). Liquid crystal
displays ("LCDs"), at approximately $10 billion in annual revenues, represent
the largest segment of the flat panel display market which is dominated by a
small number of large suppliers primarily located in Japan. Active Matrix LCDs
("AMLCDs"), which represent over half of the LCD market have a higher image
quality, better response time and a wider 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.
PRODUCTS AND PRODUCT DEVELOPMENT
The Company currently manufactures and sells approximately 170 memory
products and 15 AMLCD products for a wide range of commercial, industrial and
military applications. In fiscal 1997, memory products accounted for
approximately 84% of Company sales. In fiscal 1997 and 1996, the Company
incurred expenses of $2,135,000 and $1,846,000, respectively, for research and
development.
Memory products: The Company's memory products incorporate SRAM, DRAM
and flash memory components using existing packaging technologies such as
components surface mounted on boards, multiple bare die on laminate ("MCM-L") or
ceramic ("MCM-C"), boards packaged using standards established by the personal
computer memory card international association ("PCMCIA" or "PC Cards") or a
single die in a ceramic package (military monolithics). Commercial module
products range in density from 2 Megabit ("M") to one gigabit, widths from 8 to
64 inputs-outputs ("IOs"), speeds as fast as 8 nanoseconds ("ns") and in various
package options. Memory products also include military monolithic and MCM-C
products screened for operating under extreme conditions which range in density
from 256K to 16M, widths from 1 to 32 IOs, speeds as fast as 15 ns and in
various package options.
Product development has consisted of activities related to the design,
prototyping and release to production of new products. In addition to the
development of new products based on synchronous SRAM, DRAM and next generation
flash, recent development efforts have focused on development of lower current
products based on 3.3 volt memory circuits, flash and SRAM PC Cards and products
using advanced chip-scale-packaging ("CSP") with surface mount ball-grid-array
("BGA") footprints.
Display Products: The Company's current offering of AMLCDs includes
5.0", 5.5", 6.4" and 10.4" diagonal panels in display head, monitor and computer
systems formats. These displays offer significant advantages over other
commercially available displays. Significant features include sunlight
readability and ruggedized construction for operating temperatures from -35 to
+85 degrees Celsius.
Display product development is aimed at offering a broad range of
products based on different sized AMLCD panels, the development of a PC
technology based computer system incorporating the Company's displays, as well
as the development of advanced display driver electronics.
As with any new products, there is no assurance that the products
developed (or to be developed) by 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
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case of module products; extensive back end testing, which may include burn-in;
encapsulation into PC Card form factor; and marking. All processes are performed
in the Company's facilities with the exception of packaging and some testing
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.
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.
MARKETING AND DISTRIBUTION
The Company's memory and display products are distributed worldwide
through a combination of independent sales representatives, distributors and
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, Ascend Communications, Inc., Bay Networks, Inc.,
Cabletron System, Inc., Ericsson, Motorola, Inc., Octel Communications Corp.,
Samsung Electronics Co., Ltd., and 3Com Corp. The Company's military customers
include Allied Signal Corp., Harris Corporation, Hughes Aircraft Company,
Lockheed Corp., Raytheon Company and Rockwell International. In fiscal years
1997 and 1996, no single customer accounted for more than 10% of the Company's
revenues.
Sales of the Company's 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.
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, primarily in the Far East, including Mitsubishi Electronics
America, Inc., Samsung Semiconductor, Inc. and subsidiaries of Sharp
Corporation.
In a time of strong demand for memory and other IC products, sources of
supply for wafers, die and other components may be constrained and subject to
shortages, and a semiconductor packager's ability to compete is heavily
dependent on its ability to maintain access to steady sources of supply. While
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. ("Smart"). These companies are
publicly held, larger than the Company and have substantially greater financial,
technical, marketing, distribution and other resources. Smart manufactures a
broad range of memory modules in high volume while IDT and Cypress manufacture
memory products in monolithic form and supply products which incorporate these
devices. In addition, 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 capability, lead
times, quality, product specification, pricing and customer service. The
Company's principal competitor in the military memory market is White
Technology, a division of Bowmar, Inc. a company similar in size
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to itself. 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.
PATENTS AND PROPRIETARY TECHNOLOGY
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 fiscal 1997, royalties paid under this agreement were less than
$50,000.
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.
In connection with the sale of the Company's Crystallume Diamond
Products Division, in addition to cash and notes, consideration received also
included an agreement under which the Company may receive a percentage of
product and license revenues over the next five to seven years derived by the
acquiring company from intellectual property rights transferred in the
transaction.
EMPLOYEES
As of October 31, 1997, the Company employed approximately 121 persons,
all on a full time basis, including 85 in memory products, 26 in display
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
The Company's headquarters is located at One Research Drive,
Westborough, Massachusetts. The Company leases this 33,000 square foot facility
under a lease which has recently been extended until 2003. 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
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.
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FISCAL 1996 HIGH LOW
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First Quarter1......................................................... $4.125 $3.375
Second Quarter1........................................................ 5.750 2.563
Third Quarter.......................................................... 6.875 3.500
Fourth Quarter......................................................... 6.000 3.500
FISCAL 1997
First Quarter.......................................................... $5.750 $3.000
Second Quarter......................................................... 4.500 2.875
Third Quarter.......................................................... 4.063 2.625
Fourth Quarter......................................................... 5.563 2.938
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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.
On November 14, 1997, the Company's Common Stock was held by 179 holders
of record. The Company believes that there are approximately 2,850 beneficial
shareholders.
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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HIGH LOW
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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
FISCAL 1997
First Quarter.......................................................... $1.125 $0.344
Second Quarter......................................................... 0.688 0.250
Third Quarter.......................................................... 0.813 0.438
Fourth Quarter......................................................... 1.031 0.344
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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.
On November 14, 1997, the Company's Redeemable Warrants were held by 20
holders of record.
DIVIDEND POLICY
The Company has never paid a dividend and does not anticipate that it
will declare or pay cash dividends 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 9 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. 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.
In May 1997, the Company announced its intention to divest its
Crystallume Diamond Products Division ("Crystallume"). This divestiture was
completed in October 1997. As a result of the Acquisition and subsequent
divestiture of Crystallume, the Company's current focus is the design,
manufacture and sale of semiconductor memory and flat panel display products to
specialty niche markets within these commodity markets.
This Management's Discussion and Analysis should be read in conjunction
with the Consolidated Financial Statements beginning on page F-1.
RESULTS OF OPERATIONS
Revenues
Revenues decreased to $42,104,000 in fiscal 1997 from $57,478,000 in
fiscal 1996. This decrease was due to decreases in memory product revenues in
fiscal 1997 compared to fiscal 1996. Memory product revenues decreased 34% from
1996 to 1997 as a result of a decline in average selling prices, which was
approximately 50% for commercial products. Average selling prices decreased as a
result of market conditions which led to increased
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availability of memory devices and sharp declines in market prices of
semiconductor memory components. Partially offsetting the decreases in memory
product sales were increases in display product sales.
In 1996 and 1997, the semiconductor industry experienced significant
over capacity, reduced demand and price erosion in semiconductor memories. The
effects of these developments on the Company's results to date have been
declines in the average selling prices and the value of 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. The increased availability of memory devices has
caused an increase in competition and shorter lead times for its customers.
The Company believes that, in the near term, it may be unable to
increase its volumes for its existing memory products and to introduce new
products at a rate sufficient to offset declines in selling prices and,
therefore, to maintain its current revenue levels in these products. While the
Company continues to see increased demand for its flat panel display products,
revenues from this effort may not be sufficient to offset declining revenues of
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 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 had a negative effect on the Company's results due to lower average
selling prices of these products. There can be no assurance that the slow rate
of adoption of the COTS program will not accelerate in the future having a
further adverse effect on the Company's results.
Gross profit
Gross profit for fiscal 1997 was $15,494,000 compared to $16,834,000 in
fiscal 1996 primarily due to the 27% reduction in sales from 1996 to 1997. Due
to the pass-through nature of its business, the Company was able to offset
declines in selling prices with decreases in costs of raw materials. Gross
profit increased to 36.8% of revenues ("gross margin"), in fiscal 1997, from
29.3% gross margin, in the prior year. Fiscal 1996 gross margin was lower due to
inventory writeoffs taken as a result of declining memory prices and a
nonrecurring charge of $1,100,000 related to the revaluation, to their estimated
fair value, of inventories acquired as part of the Acquisition. In addition, as
a result of the rapidly declining cost of memory devices, the Company was able
to increase its gross margins on memory products in the first nine months of
1997. Due to competitive forces, the Company's gross margins have declined to
31.1% in the fourth quarter of fiscal 1997 and the Company believes that current
gross margins are more indicative of what can be expected in the future.
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.
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Operating expenses
Research and development expenses in fiscal 1997 increased 16% to
$2,135,000 from $1,846,000 in fiscal 1996. The increase reflects research and
development expenses related to new memory products such as flash memory modules
and PC Card development as well as increased expenditures related to the
Company's AMLCD products.
Selling, general and administrative expenses decreased by $1,074,000,
or 13%, to $7,487,000 in fiscal 1997, from $8,561,000 in the prior year due to
lower commissions to outside sales representatives of approximately $750,000 as
a result of the decline in revenues, decreased legal and accounting fees and
decreased incentive compensation.
Other income (expense)
Interest income increased $159,000 in fiscal 1997 to $212,000 from
$53,000 in fiscal 1996 as a result of higher average cash balances available in
fiscal 1997. Interest expense decreased $439,000 in fiscal 1997 to $321,000 from
$760,000 in fiscal 1996 primarily due to a decrease in the average outstanding
debt balance.
Provision for income taxes
The provision for income taxes for fiscal 1997 was $149,000 or 3% of
income before income taxes and discontinued operations as compared to $702,000
or 13% in fiscal 1996. The decrease in the provision for income taxes can be
attributed to an income tax benefit of $1.2 million related to the reversal of a
portion of the valuation reserve related to its deferred income tax assets
(relating primarily to net operating loss and tax credit carryforwards), offset
by an increase in current income taxes as a result of lower utilization of net
operating loss carry forwards due to certain annual limitations. The Company
expects that, in the future its net income will reflect a full tax rate of
approximately 40%, subject to any further adjustments to the valuation allowance
with respect to its deferred income tax assets.
Loss from discontinued operations
As a result of the Company's decision to divest Crystallume in May 1997,
the results of Crystallume have been retroactively separated from the Company's
ongoing operations in the consolidated statement of operations. The Company also
recorded a provision for loss on disposal of $973,000 which included provision
for operating losses during the phase out period (May 13, 1997 to the estimated
date of disposal). The Company completed the divestiture in October 1997 in the
form of a sale of assets.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, cash and cash equivalents were $4,212,000 as
compared to $3,290,000 at September 30, 1996.
In fiscal 1997, the Company generated $2,563,000 of cash from operating
activities as compared to $5,605,000 in fiscal 1996. In fiscal 1997, cash was
generated from net income before deferred income taxes, depreciation and
amortization and non-cash provision for loss on discontinued operations, offset
by increases in working capital of approximately $2.4 million, particularly as a
result of increases in inventories and accounts receivable. In fiscal 1996, cash
was generated from net income before depreciation and amortization and decreases
in working capital of approximately $1.1 million, particularly as a result of a
decrease in inventories offset by an increase in accrued expenses.
In fiscal 1997, the Company used $1,030,000 of cash for investing
activities as a result of capital equipment expenditures. The Company used
$8,456,000 for investing activities in fiscal 1996 primarily reflecting
$8,088,000 of net cash paid for the Acquisition. In addition, $368,000 of cash
was used for capital equipment expenditures in fiscal 1996. The Company also
acquired test equipment in fiscal 1996 under a financing lease of $375,000
payable over four years.
The Company anticipates that it will continue to incur capital
expenditures to increase its test and manufacturing capacity and has an
equipment line of credit from its bank to finance a portion of these capital
expenditures which it can continue to draw on through December 31, 1997. With
regard to the utilization of the
8
<PAGE> 11
Company's facilities, it is currently operating three shifts per day in its
memory test operations, two shifts per day in its flat panel assembly operations
and one shift per day in its memory module and flat panel assembly operations.
The Company believes that its facilities are generally adequate and suitable for
its operations in the next 12 months.
In fiscal 1997, the Company used $611,000 in cash for financing
activities primarily as a result of scheduled repayments of long-term borrowings
under its credit facility discussed below. On May 12, 1997, the Board of
Directors authorized the repurchase of up to 350,000 shares of the Company's
common stock. Through September 30, 1997, the Company had repurchased 56,650
shares for total consideration of $194,000 and reissued 21,656 shares under
employee stock option and purchase plans. In fiscal 1996, the Company generated
$4,096,000 in cash from financing activities. Long-term borrowings under its
credit facility generated $5,500,000, net proceeds from the sale of common stock
generated $2,275,000 and repayments of long-term debt and notes payable to
officers used $3,679,000.
In connection with the Acquisition in October 1995, the Company entered
into, and has since 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 to be available for draw down
through December 31, 1997. At September 30, 1997, $2,698,000 was outstanding
under the term loan and $262,000 was outstanding under the equipment loan.
Letters of credit in the aggregate amount of $350,000 were outstanding at
September 30, 1997. No loans were outstanding under the Revolver at September
30, 1997.
The Company is in compliance with all material covenants under the
Agreement as of September 30, 1997. 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, 1997 was limited to
$3,238,000.
The Company anticipates that the combination of its current cash
balance, accounts receivable balance, equipment loan facility and its cash flow
from operations will be sufficient to meet the Company's liquidity requirements
for at least 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 of product supply
and demand and pricing in the Company's targeted markets, particularly for its
memory products; the Company's ability to develop new products; the rapidity of
technological change and highly competitive nature of the semiconductor
packaging industry; competition from larger companies in the commercial module
market; the rapidity of the display transition from cathode ray tubes ("CRT") to
active matrix liquid crystal displays ("AMLCD"); dependence on contracts with
defense related companies for its memory and display products; the movement
toward the purchase of commercial-off-the-shelf ("COTS") products rather than
those manufactured as compliant to specified military standards; regulatory,
political, economic and currency risks associated with international sales which
accounted for approximately 30% of total revenues in fiscal 1997; 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 Company's dependence on key personnel and
ability to attract and retain qualified management, manufacturing, quality
assurance, engineering, marketing, sales and support personnel; and trends in
outsourcing.
9
<PAGE> 12
SEASONALITY AND INFLATION
The Company's business is not seasonal in nature. Management believes
that the Company's operations have not been materially affected by inflation.
RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per
Share". This Statement establishes and simplifies standards of computing and
presenting earnings per share and replaces primary and fully diluted earnings
per share with basic and diluted earnings per share. SFAS 128 will be effective
for the Company's first quarter of fiscal 1998 and requires the restatement of
all previously reported earnings per share data that are presented. Early
adoption of SFAS 128 is not permitted. Had SFAS 128 been effective for fiscal
1997, basic income from continuing operations per share and diluted income from
continuing operations per share would have been $0.74 and $0.68, respectively,
as compared to reported income from continuing operations per share of $0.59
(primary and fully diluted earnings per share are the same).
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company will implement SFAS No. 130 and No. 131 as
required in fiscal 1999 which will require the Company to report and display
certain information related to comprehensive income and operating segments.
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
None.
10
<PAGE> 13
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 25, 1998, 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 25, 1998, 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 25, 1998, 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 25,
1998, 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 25, 1998, and is incorporated herein by reference.
11
<PAGE> 14
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
The following financial statements of the Registrant are filed as part of this
report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................................................F-1
Consolidated Balance Sheet as of September 30, 1997 and 1996.............................................F-2
Consolidated Statement of Income for the years ended September 30, 1997 and 1996........................F-3
Consolidated Statement of Shareholders' Equity for the years ended September 30, 1997 and 1996...........F-4
Consolidated Statement of Cash Flows for the years ended September 30, 1997 and 1996.....................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:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
- ------ -------------
<S> <C>
2.1(E) 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(F) Agreement of Merger, dated as of October 10, 1995, by
and among Registrant, EDI, and CR-ED Acquisition Corp.
2.3(I) 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(H) 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.
2.5(L) Asset Purchase Agreement, dated as of October 1,1997,
by and between the Registrant and Advanced Refractory
Technologies, Inc. ("ART").
3.1(G) Registrant's Bylaws, as amended to date.
3.2(G) Registrant's Certificate of Incorporation currently in
effect.
4.1(I) Specimen of Common Stock Certificate.
4.2(B) Form of Redeemable Warrant.
4.3(B) Form of Redeemable Warrant Agreement.
4.4(D) Form of Warrant to purchase shares of Common Stock.
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
<S> <C>
4.5(D) Third Amended and Restated Registration Rights
Agreement, dated as of April 30, 1995.
4.6(D) Revised and Restated Amendment to Third Amended and
Restated Registration Rights Agreement, dated as of
September 25, 1995.
4.7(D) Agreement respecting New York Life Insurance Company's
registration rights, dated as of October 10, 1995.
4.8(D) Agreement respecting Technology Funding Partners III,
L.P.'s registration rights, dated as of October 10,
1995.
4.9(F) Agreement respecting Silicon Valley Bank's
registration rights, dated as of October 10, 1995.
4.10 Agreement respecting Cameron Associates' registration
rights, dated as of December 1, 1996.
*10.1(K) 1987 Stock Option Plan adopted by Registrant on
February 9, 1987, as amended.
*10.2(K) Employee Stock Purchase Plan adopted by Registrant on
March 6, 1996, as amended.
*10.3(F) Electronic Designs, Inc. Amended and Restated 1986
Stock Option Plan.1
10.4(F) Lease Agreement between Flanders Westborough Delaware,
Inc. and EDI, dated . December 18, 1992
10.5(F) Lease Agreement between David Wallis Shaw and Stefanie
Gail Brown Shaw and E.D. Electronics Limited, dated
June 24, 1985.
10.6(A) Warrant to purchase Series D Preferred Stock of
Registrant, dated September 30, 1988, issued in favor
of Phoenix Growth Capital Corp.
10.7(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
10.8(K) 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.
10.9(C) Warrant to purchase Common Stock of Registrant, dated
August 12, 1994, issued in favor of MMC/GATX
Partnership No. 1.
10.10(F) Dickinson Holding Corp.'s Agreement to purchase Common
Stock, including all amendments thereto.
10.11(J) Amended and Restated Loan and Security Agreement,
dated October 23, 1996, by and between Registrant and
Silicon Valley Bank.
10.12(K) Collateral Assignment, Patent Mortgage and Security
Agreement, dated October 23, 1996, by and between
Registrant and Silicon Valley Bank.
*10.13(D) Employment Agreement, dated as of August 18, 1995, by
and between Registrant and Paul J. McIntire.
*10.14(D) Employment Agreement, dated as of October 10, 1995, by
and between Registrant and Donald F. McGuinness.
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
<S> <C>
*10.15(D) Severance Agreement, dated as of December 21, 1994, by
and between EDI and Donald F. McGuinness, including
all amendments thereto.
*10.16(E) Severance Agreement, dated as of December 21, 1994, by
and between EDI and Frank D. Edwards.
*10.17(D) Severance Agreement, dated as of October 10, 1995, by
and between Registrant and Thomas A. Schultz.
10.18(F) Agreement of Non-disclosure, to Maintain Confidence
and to Transfer Future Inventions, dated February 24,
1986, by and between Registrant and Thomas A. Schultz.
*10.19(D) Severance Agreement, dated as of October 11, 1995, by
and between Registrant and John A. Herb.
10.20(F) Agreement of Non-disclosure, to Maintain Confidence
and to Transfer Future Inventions, dated July 5, 1988,
by and between Registrant and John A. Herb.
10.21 Warrant to purchase Common Stock of Registrant, dated
December 1, 1996, issued in favor of Cameron
Associates.
*10.22 Letter agreement with John A. Herb, dated October 21,
1997, on terms for full vesting and extension of the
expiration date of employee stock options.
10.23(L) Royalty Agreement, dated October 27, 1997, by and
between the Registrant and ART.
10.24(L) Confidentiality/ Noncompetition Agreement, dated
October 27, 1997, by and between the Registrant and
ART.
10.25(L) Security Agreement, dated October 27,1997, by and
between the Registrant and ART.
10.26 Amendment to Lease dated as of December 5, 1997, by
and between Flanders Westborough Delaware, Inc. and
Registrant.
*10.27 Registrant's Executive Incentive Plan.
11.1 Statement re: Computation of Per Share Earnings.
16.1(E) 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 )
27.1 Financial Data Schedule.
</TABLE>
(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 Registrant's Registration Statement on
Form SB-2. File No. 33-84412LA (effective November 1, 1994).
(D) Incorporated by reference to Registrant's Current Report on Form 8-K
(filed on October 25, 1995).
14
<PAGE> 17
(E) Incorporated by reference to Registrant's Current Report on Form 8-K
(filed on November 2, 1995).
(F) Incorporated by reference to Registrant's Annual Report on Form 10-KSB
(filed on December 18, 1995).
(G) Incorporated by reference to Registrant's Registration Statement on
Form S-3 File No. 333-3328 (effective May 16, 1996).
(H) 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).
(I) Incorporated by reference to Registrant's Current Report on Form 8-K/A
(filed on August 23, 1996).
(J) Incorporated by reference to Registrant's Current Report on Form 8-K
(filed on October 30, 1996).
(K) Incorporated by reference to Registrant's Annual Report on Form 10-KSB
(filed on December 2, 1996).
(L) Incorporated by reference to Registrant's Current Report on Form 8-K
(filed on November 12, 1997).
- ---------------
* A management contract or compensatory plan or arrangement 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, 1997, no reports on Form 8-K were filed.
15
<PAGE> 18
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ELECTRONIC DESIGNS, INC.
Date: December 12, 1997 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 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.
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Donald F. McGuinness Chairman of the Board December 12, 1997
- ----------------------------- and Chief Executive Officer
Donald F. McGuinness (Principal Executive Officer)
/s/ Frank D. Edwards Senior Vice President of December 12 , 1997
- -----------------------------
Frank D. Edwards Finance, Chief Financial
Officer, Treasurer, Secretary,
and Director (Principal
Financial and Accounting Officer)
/s/ Thomas A. Schultz Director December 12, 1997
- -----------------------------
Thomas A. Schultz
/s/ Thomas J. Toy Director December 12, 1997
- -----------------------------
Thomas J. Toy
/s/ Norman T. Hall Director December 12, 1997
- -----------------------------
Norman T. Hall
</TABLE>
16
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Electronic Designs, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 13(a)(1) on page 12 present fairly, in all material
respects, the financial position of Electronic Designs, Inc. and its
subsidiaries at September 30, 1997 and 1996, and the results of their operations
and their cash flows for 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 30, 1997, except as to the last
paragraph of Note 15, which is as of
December 5, 1997
F-1
<PAGE> 20
ELECTRONIC DESIGNS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,212,000 $ 3,290,000
Accounts receivable, net of allowance for uncollectible accounts
and sales returns of $242,000 and $370,000 at September 30, 1997
and 1996, respectively 7,393,000 6,356,000
Inventories 6,903,000 5,483,000
Assets of discontinued operations 1,522,000 --
Deferred income taxes 1,400,000 --
Prepaid expenses 185,000 143,000
------------ ------------
Total current assets 21,615,000 15,272,000
Property and equipment, net 2,117,000 3,843,000
Other assets 10,000 87,000
Intangible assets, net 1,395,000 1,861,000
------------ ------------
$ 25,137,000 $ 21,063,000
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,059,000 $ 828,000
Accounts payable 5,723,000 5,329,000
Accrued expenses and other liabilities 2,334,000 2,690,000
Provision for loss on disposal of discontinued operations 776,000 --
------------ ------------
Total current liabilities 9,892,000 8,847,000
Deferred income taxes 200,000 --
Deferred rent -- 130,000
Long-term debt, net of current portion 2,208,000 2,939,000
------------ ------------
Total liabilities 12,300,000 11,916,000
------------ ------------
Commitments (Note 15)
Shareholders' equity:
Convertible preferred stock; $0.01 par value; 8,000,000 shares
authorized -- --
Common stock; $0.01 par value; 20,000,000 shares authorized 72,000 64,000
Additional paid in capital 26,968,000 26,943,000
Accumulated deficit (14,084,000) (17,860,000)
Treasury stock, at cost (119,000) --
------------ ------------
Total shareholders' equity 12,837,000 9,147,000
------------ ------------
$ 25,137,000 $ 21,063,000
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 21
ELECTRONIC DESIGNS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996
<S> <C> <C>
Revenues $ 42,104,000 $ 57,478,000
Cost of revenues 26,610,000 40,644,000
------------ ------------
Gross profit 15,494,000 16,834,000
------------ ------------
Operating expenses:
Research and development 2,135,000 1,846,000
Selling, general and administrative 7,487,000 8,561,000
Amortization of intangible assets 466,000 469,000
------------ ------------
10,088,000 10,876,000
------------ ------------
Income from operations 5,406,000 5,958,000
============ ============
Other income (expense):
Interest income 212,000 53,000
Interest expense (321,000) (760,000)
------------ ------------
(109,000) (707,000)
============ ============
Income before income taxes and discontinued operations 5,297,000 5,251,000
Provision for income taxes 149,000 702,000
------------ ------------
Income from continuing operations 5,148,000 4,549,000
------------ ------------
Discontinued operations:
Loss from discontinued operations of Crystallume Diamond Products
Division through May 13, 1997, net of applicable income taxes 399,000 1,741,000
Provision for loss on disposal of Crystallume Diamond Products
Division including provision for operating losses during the
phase-out period, net of applicable income taxes 973,000 --
------------ ------------
Loss from discontinued operations 1,372,000 1,741,000
------------ ------------
Net income $ 3,776,000 $ 2,808,000
============ ============
Income from continuing operations per share $ 0.59 $ 0.56
============ ============
Net income per share $ 0.45 $ 0.38
============ ============
Weighted average common shares and equivalents 9,781,000 9,795,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 22
ELECTRONIC DESIGNS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
CONVERTIBLE PREFERRED STOCK COMMON STOCK PAID IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
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 EDI-MA -- -- -- -- 598,000
Sale of common stock, at $2.25 to $2.50 per
share, net of expenses of $145,000 -- -- 951,111 10,000 2,170,000
Issuance of common stock to underwriters for
placement of Units -- -- 40,000 -- --
Common stock issued in payment of consulting
services at $2.00 per share -- -- 10,053 -- 20,000
Conversion of notes and interest payable to
shareholders into common stock at $2.50 per
share -- -- 781,724 8,000 1,946,000
Issuance of warrants to purchase common stock -- -- -- -- 28,000
Exercise of warrants to purchase common stock
at $3.25 per share -- -- 5,000 -- 16,000
Conversion of preferred stock into common stock (2,162) -- 864,800 9,000 (9,000)
Net income -- -- -- -- --
------- --------- ---------- ------- ------------
Balance September 30, 1996 1,823 -- 6,341,896 64,000 26,943,000
Purchase of common stock for treasury, at cost
Common stock issued under employee stock
option and stock purchase plans at $0.22 to
$3.75 per share -- -- 77,199 1,000 7,000
Stock purchase warrant issued in partial payment of
services -- -- -- -- 25,000
Conversion of preferred stock into common stock (1,823) -- 729,200 7,000 (7,000)
Net income -- -- -- -- --
------- --------- ---------- ------- ------------
Balance September 30, 1997 -- $ -- 7,148,295 $72,000 $ 26,968,000
------- --------- ---------- ------- ------------
</TABLE>
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED TREASURY STOCK SHAREHOLDERS'
DEFICIT SHARES AMOUNT EQUITY
------- ------ ------ ------
<S> <C> <C> <C> <C>
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 EDI-MA -- -- -- 598,000
Sale of common stock, at $2.25 to $2.50 per
share, net of expenses of $145,000 -- -- -- 2,180,000
Issuance of common stock to underwriters for
placement of Units -- -- -- --
Common stock issued in payment of consulting
services at $2.00 per share -- -- -- 20,000
Conversion of notes and interest payable to
shareholders into common stock at $2.50 per
share -- -- -- 1,954,000
Issuance of warrants to purchase common stock -- -- -- 28,000
Exercise of warrants to purchase common stock
at $3.25 per share -- -- -- 16,000
Conversion of preferred stock into common stock -- -- -- --
Net income 2,808,000 -- -- 2,808,000
------------ ------ --------- -----------
Balance September 30, 1996 (17,860,000) -- -- 9,147,000
Purchase of common stock for treasury, at cost (56,650) (194,000) (194,000)
Common stock issued under employee stock
option and stock purchase plans at $0.22 to
$3.75 per share -- 21,656 75,000 83,000
Stock purchase warrant issued in partial payment of
services -- -- -- 25,000
Conversion of preferred stock into common stock -- -- -- --
Net income 3,776,000 -- -- 3,776,000
------------ ------ --------- -----------
Balance September 30, 1997 $(14,084,000) (34,994) $(119,000) $12,837,000
------------ ------ --------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 23
ELECTRONIC DESIGNS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,776,000 $ 2,808,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,625,000 1,639,000
Deferred income taxes (1,200,000) --
Provision for loss from discontinued operations 780,000 --
Common stock and warrant issued in payment of interest and
other expenses 25,000 28,000
Changes in assets and liabilities, net of acquired amounts:
Increase in accounts receivable (1,037,000) (281,000)
(Increase) decrease in inventories (1,445,000) 2,932,000
(Increase) decrease in prepaid expenses (42,000) 22,000
Decrease in other assets 43,000 8,000
Increase in accounts payable 394,000 320,000
Decrease in accrued expenses (356,000) (1,897,000)
Increase in deferred rent -- 26,000
----------- -----------
Net cash flows provided by operating activities 2,563,000 5,605,000
----------- -----------
Cash flows from investing activities:
Capital equipment expenditures (1,030,000) (368,000)
Cash paid for acquisition of EDI-MA , net of cash
acquired -- (8,088,000)
----------- -----------
Net cash flows used in investing activities (1,030,000) (8,456,000)
----------- -----------
Cash flows from financing activities:
Sale of common stock, net 83,000 2,275,000
Repurchase of common stock (194,000) --
Proceeds from issuance of long-term debt 1,012,000 5,500,000
Principal repayments on long-term debt (1,512,000) (3,389,000)
Repayment of notes payable to officers -- (290,000)
----------- -----------
Net cash flows (used in) provided by financing activities (611,000) 4,096,000
----------- -----------
Net increase in cash and cash equivalents 922,000 1,245,000
Cash and cash equivalents at beginning of year 3,290,000 2,045,000
----------- -----------
Cash and cash equivalents at end of year $ 4,212,000 $ 3,290,000
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 24
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. On
May 13, 1997, the Company announced the decision to divest its Crystallume
Diamond Products Division ("Crystallume") located in Santa Clara, California
(see Note 4).
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.
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. 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
repurchase agreements with a bank. All investments 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 investments in
repurchase agreements which matured in October 1996 and were classified as
held-to-maturity. The fair market value of these investments approximated their
amortized cost.
ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
Product sales to end-user customers are recognized upon the shipment of
products. Product sales to distributors are recognized upon shipment from the
distributor to the end-user customers. Approximately 30% and 34% of total
revenues for the years ended September 30, 1997 and 1996, respectively,
represent export sales to unaffiliated customers, primarily in Europe. 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. Costs include material, labor and
manufacturing overhead.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided on the
straight-line method over estimated useful lives of three to seven years.
Leasehold improvements are amortized over the shorter of the economic life or
the related lease term.
INTANGIBLE ASSETS
Intangible assets, consisting primarily of the value allocated to EDI-MA's
customer relationships and backlog at the date of acquisition, are being
amortized over the estimated period benefited of 5 years, using the
straight-line
F-6
<PAGE> 25
method. At September 30, 1997 and 1996, accumulated amortization on intangible
assets was $935,000 and $469,000, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At September 30, 1997, 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 PER SHARE
Net income 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.
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 establishes standards of
computing and presenting earnings per share and replaces primary and fully
diluted earnings per share with basic and diluted earnings per share. SFAS 128
will be effective for the Company's first quarter of fiscal 1998 and requires
the restatement of all previously reported earnings per share data that are
presented. Early adoption of SFAS 128 is not permitted. Pro forma earnings per
share under SFAS 128 would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996
<S> <C> <C>
Pro forma basic:
Income from continuing operations per share $ 0.74 $ 0.82
========== ==========
Net income per share $ 0.54 $ 0.51
========== ==========
Weighted average common shares 6,948,000 5,546,000
========== ==========
Pro forma diluted:
Income from continuing operations per share $ 0.68 $ 0.60
========== ==========
Net income per share $ 0.50 $ 0.37
========== ==========
Weighted average common shares and equivalents 7,579,000 7,603,000
========== ==========
</TABLE>
RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). The Company will implement SFAS 130 and SFAS
131 as required in fiscal 1999 which will require the Company to report and
display certain information related to comprehensive income and operating
segments.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation" ("SFAS 123"). The Company has elected to
F-7
<PAGE> 26
adopt the provisions of SFAS 123 during the year ended September 30, 1997
through disclosure only (Note 12).
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Components particularly subject to estimation include the allowance for
uncollectible accounts and sales returns, inventory reserves, the deferred tax
asset valuation allowance, the provision for loss on disposal of discontinued
operations as well as the fair values of equity instruments issued by the
Company. Actual results could differ from those estimates.
3. ACQUISITION OF EDI-MA
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 was recorded in accordance with the purchase method
and, accordingly, the purchase price plus the Company's direct acquisition costs
of $290,000 was allocated to the assets and liabilities acquired based on their
estimated fair values at the date of acquisition. The fair value of assets
acquired was $20,622,000, including cash of $2,508,000, and the liabilities
assumed totaled $8,122,000. The results of operations and cash flows of EDI-MA
have been included in the results of operations and cash flows of the Company
from the date of acquisition.
4. DISCONTINUED OPERATIONS
On May 13, 1997, the Company announced the decision to divest Crystallume. As a
consequence, the Company recorded a provision for loss on disposal of
Crystallume of $973,000, which included a provision for operating losses during
the phase out period (May 13, 1997 to the estimated date of disposal). Revenues
related to discontinued operations were $744,000 and $1,178,000 for fiscal 1997
and 1996, respectively. The losses from discontinued operations for fiscal 1997
and 1996 were recorded net of current income tax benefits of $649,000 and
$126,000, respectively. The results of Crystallume have been retroactively
separated from the Company's ongoing operations in the consolidated statement of
income and, at September 30, 1997, the assets of Crystallume, consisting
primarily of fixed assets, have been separately classified on the balance sheet
as a current asset.
On October 27, 1997, the Company sold the assets, effective as of October 1,
1997, of Crystallume pursuant to an Asset Purchase Agreement (the "Agreement") .
Under the terms of the Agreement, the assets sold include all intellectual
property, manufacturing equipment, inventories and contracts related to
Crystallume's diamond films and coating business. The buyer assumed none of the
liabilities, except that it assumed the obligation to perform under the acquired
contracts with Crystallume's customers, facility lessor and equipment lessors.
The purchase price consisted of: $500,000 in cash at closing; $625,000 payable
over three years, plus simple interest at 9.5%; and an agreement for future
payments based on product and license revenues earned by the buyer using
Crystallume intellectual property over the next five and seven years,
respectively.
F-8
<PAGE> 27
5. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 1996
<S> <C> <C>
Raw materials $3,756,000 $3,244,000
Work-in-process 1,534,000 1,241,000
Finished goods 1,613,000 998,000
---------- ----------
$6,903,000 $5,483,000
---------- ----------
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
USEFUL LIFE SEPTEMBER 30,
IN YEARS 1997 1996
<S> <C> <C> <C>
Machinery and equipment 2-5 $ 2,635,000 $ 6,235,000
Tooling 3 571,000 425,000
Furniture and fixtures 10 44,000 122,000
Leasehold improvements lease term 245,000 708,000
----------- -----------
3,495,000 7,490,000
Less - Accumulated depreciation (1,378,000) (3,647,000)
----------- -----------
$ 2,117,000 $ 3,843,000
----------- -----------
</TABLE>
At September 30, 1997 and 1996, property and equipment held under capital leases
amounted to $1,622,000 and $2,285,000, respectively, and related accumulated
amortization on this property and equipment amounted to $755,000 and $568,000,
respectively. Amortization expense related to property and equipment held under
capital leases amounted to $372,000 and $405,000 during the years ended
September 30, 1997 and 1996, respectively.
7. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 1996
<S> <C> <C>
Employee-related $ 503,000 $1,050,000
Deferred revenue 875,000 750,000
Income taxes 480,000 353,000
Other 476,000 537,000
---------- ----------
$2,334,000 $2,690,000
---------- ----------
</TABLE>
F-9
<PAGE> 28
8. BORROWINGS
Borrowings consisted of the following:
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 (8.5% at September 30, 1997). At September 30, 1997, the term loan
was no longer available for additional borrowings. 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 under the Revolver are limited to the lesser of (i) $6,000,000 less
outstanding letters of credit or (ii) the "borrowing base" less outstanding
letters of credit. The borrowing base is calculated on a formula of eligible
accounts receivable and inventory, less amounts outstanding under the term loan.
Borrowings under the Revolver bear interest, payable monthly, at 1/2% over the
prime rate (8.5% at September 30, 1997). The Company may repay borrowings under
the Revolver at any time, however, all outstanding borrowings must be repaid in
full on December 31, 1997. At September 30, 1997, letters of credit in the
aggregate amount of $350,000 were outstanding. No loans were outstanding under
the Revolver at September 30, 1997. Under the terms of the Agreement, as
amended, availability under the Revolver at September 30, 1997 was limited to
$3,238,000.
Borrowings under the equipment loan bear interest, payable monthly, at 1% over
the prime rate (9% at September 30, 1997). The equipment loan is available for
draw down through December 31, 1997. The Company may repay borrowings under the
equipment loan at any time, however, 1/48th of the amount outstanding on
December 31, 1997 must be repaid thereafter on a monthly basis through December
2001.
Borrowings under the Agreement are collateralized by a security interest in
substantially all of the assets of the Company. The Agreement also requires the
Company to comply with certain affirmative and negative covenants, including the
maintenance of specified financial ratios. The Company is in compliance with
such covenants as of September 30, 1997.
The Company paid facility fees of $160,000 to the bank in connection with
obtaining and subsequently renegotiating the Agreement. In connection with
obtaining the Agreement, the Company issued, in October 1995, a warrant to the
bank to purchase up to 276,686 shares of common stock at an exercise price of
$3.50 per share (see Note 11).
NOTE PAYABLE TO EQUIPMENT VENDOR
In September 1994, 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 was secured
by the equipment. The note was repaid in full in August 1997.
F-10
<PAGE> 29
9. INCOME TAXES
For the year ended September 30, 1997, the provision for income taxes related to
continuing operations of $149,000 consisted of current Federal income taxes of
$1,133,000, current state income taxes of $216,000 and a deferred income tax
benefit of $1,200,000. The difference between the amount of income taxes at the
applicable Federal statutory rate (34%) and the effective tax rate was primarily
attributable to the deferred tax benefit of a $1,200,000 decrease in the
valuation allowance against deferred tax assets, as discussed below, and the
actual utilization of previously reserved net operating loss carryforwards in
fiscal 1997. For the year ended September 30, 1996, the provision for income
taxes related to continuing operations of $702,000 consisted of current Federal
income taxes of $177,000 and current state income taxes of $525,000. The
difference between the amount of income taxes at the applicable Federal
statutory rate and the effective tax rate was attributable to a decrease in the
valuation allowance for deferred tax assets due to the actual utilization of
previously reserved net operating loss carryforwards partially offset by state
income taxes.
The components of deferred income taxes were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 1996
<S> <C> <C>
DEFERRED TAX ASSETS
Accounts receivable $ 41,000 $ 59,000
Inventories 429,000 706,000
Assets of discontinued business 641,000 -
Accrued expenses and other liabilities 575,000 844,000
Tax credit carryforwards 1,201,000 1,572,000
Net operating loss carryforwards 4,020,000 5,107,000
----------- -----------
Total deferred tax assets 6,907,000 8,288,000
Deferred tax asset valuation allowance (4,957,000) (7,561,000)
----------- -----------
1,950,000 727,000
----------- -----------
DEFERRED TAX LIABILITIES
Property and equipment (198,000) -
Intangible assets (552,000) (727,000)
----------- -----------
Total deferred tax liabilities (750,000) (727,000)
----------- -----------
Net deferred income taxes $ 1,200,000 $ -
=========== ===========
</TABLE>
At September 30, 1996, the Company provided a valuation allowance against the
full amount of its net deferred tax assets, since realization of these future
tax benefits was not sufficiently assured at that date. On a quarterly basis,
the Company assesses the need to provide valuation allowance against its net
deferred tax assets; such allowance is provided when realization of the net
deferred tax assets is judged not to be "more likely than not," per SFAS 109.
During the fourth quarter of fiscal 1997, the Company estimated that $1,200,000
of its net deferred tax assets are more likely than not to be realized in future
periods and, accordingly, a valuation reserve of $4,957,000 was provided for the
remaining amount of the net deferred tax assets since their realization was not
sufficiently assured. Consequently, a deferred tax benefit of $1,200,000 was
reflected in the Company's provision for income taxes for continuing operations
for the year ended September 30, 1997. The amount of deferred tax assets that
will ultimately be realized will depend upon future events which are uncertain.
At September 30, 1997, for Federal income tax purposes, the Company has
approximately $10,100,000 of net operating loss carryforwards that expire at
various dates through 2010, which are available to offset future Federal taxable
income. The Company also has research and development tax credit carryforwards
available to offset future Federal and State income tax liabilities in the
approximate amount of $1,201,000 that expire at various dates through 2007.
Ownership changes, as defined in the Internal Revenue Code (the "Code"), have
limited the amount of net operating loss and research and development tax credit
carryforwards that can be utilized by the Company annually to offset future
taxable income. As of September 30, 1997, the annual limitation amount,
calculated as defined in the Code,
F-11
<PAGE> 30
is approximately $700,000. At September 30, 1997, all of the net operating loss
carryforwards are subject to this limitation and, as a result, approximately
$3,000,000 of these carryforwards will expire unutilized.
10. CONVERTIBLE PREFERRED STOCK
In September 1995, 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 a convertible secured promissory note payable into 156 Units.
Each Unit consisted of one share of Series A Preferred Stock, 100 shares of
common stock and a warrant to purchase 100 shares of common stock. In October
1996, the Company called for the redemption of all Series A Preferred Stock
outstanding as of November 29, 1996. Each share of Series A Preferred Stock was
convertible at any time on or before November 29, 1996, at the option of the
stockholder, into 400 shares of common stock. All outstanding Series A Preferred
Stock was converted into common stock prior to November 29, 1996.
11. COMMON STOCK
TREASURY STOCK
On May 12, 1997, the Board of Directors authorized the repurchase of up to
350,000 shares of the Company's common stock. Through September 30, 1997, the
Company had repurchased 56,650 shares for total consideration of $197,000 and
reissued 21,674 shares under stock option plans.
COMMON STOCK WARRANTS
During the year ended September 30, 1997, the Company, as part of a service
agreement with an outside firm, issued warrants to purchase 45,000 shares of
common stock at an exercise price of $3.875 per share, which vest upon
achievement of specified goals. These warrants expire in December 1999. The
Company assigned a value of $90,000 to these warrants, which value is being
amortized to the income statement over the service period.
In connection with obtaining the bank borrowings described in Note 8, the
Company issued warrants in October 1995 to purchase up to 276,686 shares of
common stock at an exercise price of $3.50 per share. The warrants expire in
October 1998. The Company assigned a value of $28,000 to these warrants.
The following table summarizes warrants to purchase shares of common stock
issued prior to October 1, 1995 and outstanding at September 30, 1997:
<TABLE>
<CAPTION>
EXERCISE
EXPIRATION DATE NUMBER OF SHARES PRICE
--------------- ---------------- -----
<S> <C> <C>
March 1998 1,000,000 $6.00 (1)
August 1998 90,000 $2.00
September 1998 393,500 $3.25
November 1998 17,965 $7.90
March 1999 100,000 $6.48
March 1999 100,000 $6.00 (2)
March 1999 50,000 $6.00
August 2001 44,142 $2.83
</TABLE>
(1) Redeemable at the option of the Company, at $0.10 per share, if the
Company's common stock trades at a minimum of $9.00 per share for more than 20
consecutive days.
(2) Redeemable at the option of the Company, at $0.12 per share, if the
Company's common stock trades at a minimum of $9.00 per share for more than 20
consecutive days.
F-12
<PAGE> 31
RESERVED SHARES
The Company has reserved shares of authorized but unissued common stock as of
September 30, 1997 for the following:
<TABLE>
<CAPTION>
<S> <C>
Exercise of common stock warrants 2,117,293
Stock option and stock purchase plans 2,876,754
---------
Total shares reserved 4,994,047
=========
</TABLE>
12. STOCK OPTION AND STOCK PURCHASE PLANS
STOCK OPTION PLANS
In February 1987, 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 and must have an
expiration date no more than ten years from the date of grant. Generally,
options vest over a five-year period and expire five years from the date of
grant.
As discussed in Note 2, the Company has elected to adopt SFAS 123 through
disclosure only and, accordingly, no compensation expense was recorded by the
Company for stock-based employee compensation during fiscal 1997 or 1996.
The following table summarizes stock option activity under the Plan:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
1997 1996
------------------------------- ---------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
<S> <C> <C> <C> <C>
Outstanding balance beginning of year 1,573,235 $3.39 519,812 $2.80
Granted 333,000 $3.56 1,198,000 $3.42
Cancelled (111,335) $3.50 (59,252) $2.73
Exercised (53,922) $1.10 (85,325) $0.65
--------- ---------
Outstanding balance end of year 1,740,978 $3.49 1,573,235 $3.39
========= =========
Options available for future grant 624,000 846,000
========= =========
Weighted average fair value of option grants $2.35 $2.29
===== =====
</TABLE>
The following table summarizes information about stock options outstanding at
September 30, 1997:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE NUMBER OF AVERAGE
NUMBER OF LIFE EXERCISE OPTIONS EXERCISE
RANGE OF EXERCISE PRICES OPTIONS (YEARS) PRICE EXERCISABLE PRICE
- ------------------------ --------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.63 - $3.75 1,694,403 3.3 $3.45 795,715 $3.47
$4.00 - $5.13 46,575 3.0 $4.43 22,249 $4.43
</TABLE>
F-13
<PAGE> 32
Had compensation cost for awards of stock options been determined based on the
fair value of these options at their date of grant, consistent with the method
prescribed by SFAS 123, the Company's net income and net income per share would
have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996
<S> <C> <C>
Net income:
As reported $3,776,000 $2,808,000
========== ==========
Pro forma $2,975,000 $2,192,000
========== ==========
Net income per share:
As reported $ 0.45 $ 0.38
========== ==========
Pro forma $ 0.38 $ 0.33
========== ==========
</TABLE>
Because additional option grants are expected to be made in future years and
options vest over several years, the pro forma impact on fiscal years 1997 and
1996 is not necessarily representative of the pro forma impact on reported net
income or net income per share for future years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996
<S> <C> <C>
Expected options term (years) 5 5
Risk-free interest rate 6.3% 5.9%
Dividend yield 0.0% 0.0%
Volatility 78% 78%
</TABLE>
In October 1995, in connection with the acquisition of EDI-MA, fully-vested
options to purchase 314,826 shares of 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. Since that date, options for the purchase of
41,936 shares were exercised and at September 30, 1997, 272,890 options remained
outstanding which expire in May 2003.
STOCK PURCHASE PLANS
In November 1995, the Board of Directors adopted the 1996 Employee Stock
Purchase Plan. This plan provides for the purchase by employees of up to 250,000
shares of common stock at 85% of the fair market value on the first or last day
of the offering period (as defined in the plan), whichever is lower. During the
years ended September 30, 1997 and 1996, 5,737 shares at $2.55 and 5,679 shares
at $4.09, respectively, were issued under the plan.
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
During the years ended September 30, 1997 and 1996, the Company paid $321,000,
and $893,000, respectively, for interest.
During the years ended September 30, 1997 and 1996, the Company paid $547,000
and $374,000, respectively, for income taxes.
Noncash investing and financing activities include:
- - In December 1996, the Company, as part of a service agreement with an
outside firm, issued warrants to purchase 45,000 shares of common stock at
an exercise price of $3.875 per share (see Note 11).
- - In October 1995, notes payable to shareholders of $1,935,000, plus accrued
interest of $19,000, were converted into 781,724 shares of common stock.
F-14
<PAGE> 33
- - In October 1995, 50,053 shares of common stock were issued to underwriters
and consultants for services performed in connection with the issuance of
Units (see Note 10) and the acquisition of EDI-MA (see Note 3).
- - In October 1995, options to purchase 314,826 shares of common stock at
$0.22 per share were issued as partial consideration for the acquisition of
EDI-MA (see Notes 3 and 12).
- - In October 1995, 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 (see Notes 8 and 11).
- - During the years ended September 30, 1997 and 1996, 729,200 and 864,800
shares of common stock, respectively, were issued in conversion of 1,823
and 2,162 shares of Series A convertible preferred stock, respectively.
14. RETIREMENT SAVINGS PLAN
The Company maintains a defined contribution savings plan under section 401(k)
of the Internal Revenue Code. These plans cover substantially all employees who
meet minimum age and service requirements and allow participants to defer a
portion of their annual compensation on a pre-tax basis. Company contributions
to the plan are made at the discretion of the Board of Directors and amounted to
$117,000 and $115,000 during the years ended September 30, 1997 and 1996,
respectively.
15. COMMITMENTS
The Company has noncancelable operating leases for certain business equipment
and office space expiring at various dates. Future minimum payments for all
noncancelable leases are summarized as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
<S> <C> <C>
Year ended September 30,
1998 $186,000 $147,000
1999 55,000 111,000
2000 54,000 83,000
2001 54,000 --
2002 51,000 --
Thereafter 102,000 --
-------- --------
$502,000 $341,000
========
Amount representing interest (34,000)
--------
Present value of minimum lease payments $307,000
========
</TABLE>
Rent expense under operating leases for the years ended September 30, 1997, and
1996 was $591,000 and $559,000, respectively.
Obligations under capital leases have interest rates which range from 8.5% to
13% and require monthly payments which range from $9,000 to $14,000 at September
30, 1997.
On December 5, 1997, the Company signed an agreement to amend its existing
facility lease, effective March 1, 1998, which requires the Company to make
payments, in addition to those above, totaling $235,000, $403,000, $423,000,
$456,000, $490,000 and $210,000 in fiscal years 1998, 1999, 2000, 2001, 2002 and
2003, respectively.
F-15
<PAGE> 34
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title Page No.
- ------ ------------- --------
<S> <C> <C>
2.1(E) 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(F) Agreement of Merger, dated as of October 10, 1995, by
and among Registrant, EDI, and CR-ED Acquisition Corp.
2.3(I) 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(H) 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.
2.5(L) Asset Purchase Agreement, dated as of October 1,1997, by and between
the Registrant and Advanced Refractory Technologies, Inc. ("ART").
3.1(G) Registrant's Bylaws, as amended to date.
3.2(G) Registrant's Certificate of Incorporation currently in effect.
4.1(I) Specimen of Common Stock Certificate.
4.2(B) Form of Redeemable Warrant.
4.3(B) Form of Redeemable Warrant Agreement.
4.4(D) Form of Warrant to purchase shares of Common Stock.
4.5(D) Third Amended and Restated Registration Rights Agreement, dated
as of April 30, 1995.
4.6(D) Revised and Restated Amendment to Third Amended and Restated
Registration Rights Agreement, dated as of September 25, 1995.
4.7(D) Agreement respecting New York Life Insurance Company's
registration rights, dated as of October 10, 1995.
4.8(D) Agreement respecting Technology Funding Partners III,
L.P.'s registration rights, dated as of October 10,
1995.
4.9(F) Agreement respecting Silicon Valley Bank's registration rights, dated as of
October 10, 1995.
4.10 Agreement respecting Cameron Associates' registration
rights, dated as of December 1, 1996......................................................29
*10.1(K) 1987 Stock Option Plan adopted by Registrant on February 9, 1987, as
amended.
*10.2(K) Employee Stock Purchase Plan adopted by Registrant on March 6, 1996,
as amended.
</TABLE>
17
<PAGE> 35
<TABLE>
<CAPTION>
<S> <C>
*10.3(F) Electronic Designs, Inc. Amended and Restated 1986 Stock Option Plan.1
10.4(F) Lease Agreement between Flanders Westborough Delaware, Inc. and EDI,
dated December 18, 1992
10.5(F) Lease Agreement between David Wallis Shaw and Stefanie Gail Brown
Shaw and E.D. Electronics Limited, dated June 24, 1985.
10.6(A) Warrant to purchase Series D Preferred Stock of
Registrant, dated September 30, 1988, issued in favor
of Phoenix Growth Capital Corp.
10.7(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
10.8(K) 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.
10.9(C) Warrant to purchase Common Stock of Registrant, dated August 12, 1994,
issued in favor of MMC/GATX Partnership No. 1.
10.10(F) Dickinson Holding Corp.'s Agreement to purchase Common Stock,
including all amendments thereto.
10.11(J) Amended and Restated Loan and Security Agreement, dated
October 23, 1996, by and between Registrant and Silicon
Valley Bank.
10.12(K) Collateral Assignment, Patent Mortgage and Security Agreement, dated
October 23, 1996, by and between Registrant and Silicon Valley Bank.
*10.13(D) Employment Agreement, dated as of August 18, 1995, by
and between Registrant and Paul J. McIntire.
*10.14(D) Employment Agreement, dated as of October 10, 1995, by and between
Registrant and Donald F. McGuinness.
*10.15(D) Severance Agreement, dated as of December 21, 1994, by and between
EDI and Donald F. McGuinness, including all amendments thereto.
*10.16(E) Severance Agreement, dated as of December 21, 1994, by and between
EDI and Frank D. Edwards.
*10.17(D) Severance Agreement, dated as of October 10, 1995, by and between
Registrant and Thomas A. Schultz.
10.18(F) Agreement of Non-disclosure, to Maintain Confidence and to Transfer
Future Inventions, dated February 24, 1986, by and between Registrant
and Thomas A. Schultz.
*10.19(D) Severance Agreement, dated as of October 11, 1995, by and between
Registrant and John A. Herb.
10.20(F) Agreement of Non-disclosure, to Maintain Confidence and to Transfer
Future Inventions, dated July 5, 1988, by and between Registrant and
John A. Herb.
</TABLE>
18
<PAGE> 36
<TABLE>
<CAPTION>
<S> <C> <C>
10.21 Warrant to purchase Common Stock of Registrant, dated December 1, 1996,
issued in favor of Cameron Associates.....................................................29
*10.22 Letter agreement with John A. Herb, dated October 21,
1997, on terms for full vesting and extension of the
expiration date of employee stock options ................................................39
10.23(L) Royalty Agreement, dated October 27, 1997, by and between the
Registrant and ART.
10.24(L) Confidentiality/ Noncompetition Agreement, dated October 27, 1997,
by and between the Registrant and ART.
10.25(L) Security Agreement, dated October 27,1997, by and between the
Registrant and ART.
10.26 Amendment to Lease dated as of December 5, 1997, by and between Flanders
Westborough Delaware, Inc. and Registrant.................................................40
*10.27 Registrant's Executive Incentive Plan.....................................................44
11.1 Statement re: Computation of Per Share Earnings...........................................45
16.1(E) Letter from Arthur Andersen LLP regarding Change in Certifying
Accountant.
21.1 Subsidiaries of the Registrant............................................................46
23.1 Consent of Price Waterhouse LLP...........................................................47
24.1 Power of Attorney (See page )
27.1 Financial Data Schedule...................................................................48
</TABLE>
(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 Registrant's Registration Statement on
Form SB-2. File No. 33-84412LA (effective November 1, 1994).
(D) Incorporated by reference to Registrant's Current Report on Form 8-K
(filed on October 25, 1995).
(E) Incorporated by reference to Registrant's Current Report on Form 8-K
(filed on November 2, 1995).
(F) Incorporated by reference to Registrant's Annual Report on Form 10-KSB
(filed on December 18, 1995).
(G) Incorporated by reference to Registrant's Registration Statement on
Form S-3 File No. 333-3328 (effective May 16, 1996).
(H) 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).
(I) Incorporated by reference to Registrant's Current Report on Form 8-K/A
(filed on August 23, 1996).
(J) Incorporated by reference to Registrant's Current Report on Form 8-K
(filed on October 30, 1996).
19
<PAGE> 37
(K) Incorporated by reference to Registrant's Annual Report on Form 10-KSB
(filed on December 2, 1996).
(L) Incorporated by reference to Registrant's Current Report on Form 8-K
(filed on November 12, 1997).
- ---------------
* A management contract or compensatory plan or arrangement required to
be filed as an exhibit to Form 10-KSB.
1 Formerly known as EDI PurchaseCo, Inc.
20
<PAGE> 1
EXHIBIT 4.10
REGISTRATION RIGHTS AGREEMENT
DATED DECEMBER 1, 1996
BY AND BETWEEN
ELECTRONIC DESIGNS, INC.
AND
CAMERON ASSOCIATES
REGISTRATION RIGHTS AGREEMENT, dated as of December 1, 1996, by and
between ELECTRONIC DESIGNS, INC., a Delaware corporation (the "Company"), and
CAMERON ASSOCIATES.
WHEREAS, as consideration for Cameron Associates agreeing to provide
its professional services to advise and direct the Company's Investor Relations
program, and to provide Cameron Associates with appropriate incentives in the
performance of its services, pursuant to that certain Warrant to Purchase Shares
of Common Stock, dated December 1, 1996, by and between the Company and Cameron
Associates, the Company issued a warrant to purchase up to Forty-Five Thousand
(45,000) shares of common stock, $.01 par value per share, of the Company (the
"Common Stock") exercisable at $3.875 per share, subject to certain vesting
conditions and expiring in three years (the "Warrant").
WHEREAS, the Company and Cameron Associates deem it to be in their
respective best interests to set forth the rights of Cameron Associates in
connection with public offerings and sales of the Common Stock.
Accordingly, the Company and Cameron Associates agree as follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
"COMMISSION" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"OTHER SHARES" means at any time those shares of Common Stock which do
not constitute Primary Shares or Registrable Shares.
"PRIMARY SHARES" means at any time the authorized but unissued shares
of Common Stock or shares of Common Stock held by the Company in its treasury.
"REGISTRABLE SHARES" means at any time the shares of Common Stock held
by Cameron Associates which constitute Restricted Shares.
"RESTRICTED SHARES" means at any time the Common Stock of the Company
issued upon exercise of the Warrant and any Common Stock of the Company issued
as a dividend or other distribution with respect to, or in exchange or in
replacement of, the aforementioned Common Stock, which are held by Cameron
Associates and which have not previously been sold to the public pursuant to a
registration statement under the Securities Act or are able to be sold under
Rule 144(k).
"RULE 144" means Rule 144 promulgated under the Securities Act or any
successor rule thereto.
21
<PAGE> 2
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor Federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"TRANSFER" means any disposition of any Restricted Shares or of any
interest therein which would constitute a sale thereof within the meaning of the
Securities Act, other than any such disposition pursuant to an effective
registration statement under the Securities Act and complying with all
applicable state securities and "blue sky" laws.
SECTION 2. PIGGYBACK REGISTRATION. If the Company at any time proposes
for any reason to register Primary Shares or Other Shares under the Securities
Act (other than on Form S-4 or Form S-8 promulgated under the Securities Act or
any successor forms thereto), it shall promptly give written notice to Cameron
Associates of its intention to register the Primary Shares or Other Shares at
least 20 business days prior to the anticipated filing date of the registration
statement relating thereto. Upon the written request, given within 10 business
days after delivery of any such notice by the Company, of Cameron Associates to
include in such registration Registrable Shares (which request shall specify the
number of Registrable Shares proposed to be included in such registration), the
Company shall use commercially reasonable efforts to cause all such Registrable
Shares to be included in such registration on the same terms and conditions as
the securities otherwise being sold in such registration; provided, however,
that:
(a) if any managing underwriter for the public offering
contemplated by such registration advises the Company in writing that, in such
firm's good faith opinion, the inclusion of any or all Registrable Shares or
Other Shares proposed to be included in such registration would adversely affect
the offering and sale (including pricing) of the Primary Shares proposed to be
registered by the Company, then the number of Primary Shares, Registrable Shares
and Other Shares proposed to be included in such registration shall be included
in the following order:
(i) first, the Primary Shares;
(ii) second, the Other Shares; and
(iii) third, the Registrable Shares.
(b) if at any time after giving written notice of its
intention to register any Primary Shares or Other Shares and prior to the
effective date of such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to Cameron Associates
and, thereupon, (i) in the case of a determination not to register, the Company
shall be relieved of its obligation to register any Registrable Shares in
connection with such registration and (ii) in the case of a determination to
delay such registration, the Company shall be permitted to delay registration of
any Registrable Shares requested to be included in such registration for the
same period as the delay in registering such other securities.
SECTION 3. PREPARATION AND FILING. If and whenever the Company is under
an obligation pursuant to the provisions of this Agreement to use commercially
reasonable efforts to effect the registration of any Registrable Shares under
the Securities Act, the Company shall, as expeditiously as practicable:
(a) use commercially reasonable efforts to cause a
registration statement that registers such Registrable Shares to become and
remain effective for a period of ninety (90) days or until all of such
Registrable Shares have been disposed of (if earlier);
22
<PAGE> 3
(b) furnish to Cameron Associates such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as Cameron
Associates may reasonably request in order to facilitate the disposition of the
Registrable Shares;
(c) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
at least a period of ninety (90) days or until all of such
Registrable Shares have been disposed of (if earlier) and to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of such Registrable Shares;
(d) use reasonable commercial efforts to register or qualify
such Registrable Shares under such other securities or blue sky laws of such
jurisdictions as shall be reasonably appropriate for the distribution of the
securities covered by the registration statement registering such Registrable
Shares; provided, however, that the Company will not be required to register or
qualify generally to do business, subject itself to general taxation or consent
to general service of process in any jurisdiction where it would not otherwise
be required so to do but for this paragraph (d);
SECTION 4. EXPENSES. All expenses incurred by the Company in complying
with Section 3, including, without limitation, all registration and filing fees,
fees and expenses of complying with securities and blue sky laws, printing
expenses, and fees and expenses of the Company's counsel and accountants shall
be paid by the Company; provided, however:
(a) All underwriting discounts and selling commissions and all
stock transfer taxes applicable to the Registrable Shares shall be borne by
Cameron Associates; and
(b) If any such cost is attributable solely to Cameron
Associates and does not constitute a normal cost or expense of such
registration, such cost or expense shall be borne by Cameron Associates.
SECTION 5. INDEMNIFICATION.
(a) In connection with any registration of any Registrable
Shares under the Securities Act pursuant to this Agreement, the Company shall
indemnify and hold harmless Cameron Associates, each underwriter, broker or any
other person acting on behalf of Cameron Associates and each other person, if
any, who controls any of the foregoing persons within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several, (or actions in respect thereof) to which any of the foregoing persons
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in the registration statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein or otherwise filed with the
Commission, any amendment or supplement thereto or any document incident to
registration or qualification of any Registrable Shares, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or, with respect to any prospectus, necessary to make the statements
therein in light of the circumstances under which they were made not misleading,
or any violation by the Company of the Securities Act or state securities or
blue sky laws applicable to the Company and relating to action or inaction
required of the Company in connection with such registration or
23
<PAGE> 4
qualification under such state securities or blue sky laws; and shall reimburse
Cameron Associates, such underwriter, such broker or such other person acting on
behalf of Cameron Associates and each such controlling person for any legal or
other expenses reasonably incurred by any of them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said registration statement, preliminary prospectus,
final prospectus, amendment, supplement or document incident to registration or
qualification of any Registrable Shares in reliance upon and in conformity with
written information furnished to the Company through an instrument duly executed
by or on behalf of Cameron Associates or underwriter specifically for use in the
preparation thereof and provided, further, however, that, as to any underwriter
or any person controlling any underwriter, this indemnity does not apply to any
losses, claims, damages or liabilities arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission in any
preliminary prospectus if a copy of a prospectus was not sent or given by or on
behalf of an underwriter to such person asserting such loss, claim, damage,
liability or action at or prior to the written confirmation of the sale of the
Registrable Shares as required by the Securities Act and such untrue statement
or omission had been corrected in such prospectus.
(b) In connection with any registration of Registrable Shares
under the Securities Act pursuant to this Agreement, Cameron Associates shall
indemnify and hold harmless (in the same manner and to the same extent as set
forth in the preceding paragraph of this Section) the Company, each director of
the Company, each officer of the Company who shall sign such registration
statement, each underwriter, broker or other person acting on behalf of the
Company and each person who controls any of the foregoing persons within the
meaning of the Securities Act with respect to any statement or omission from
such registration statement, any preliminary prospectus or final prospectus
contained therein or otherwise filed with the Commission, any amendment or
supplement thereto or any document incident to registration or qualification of
any Registrable Shares, if (other than with respect to Cameron Associates'
indemnification of an underwriter) such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company or such underwriter through an instrument duly executed by or on behalf
of such seller specifically for use in connection with the preparation of such
registration statement, preliminary prospectus, final prospectus, amendment,
supplement or document; provided, however, that the maximum amount of liability
in respect of such indemnification shall be limited to an amount equal to the
net proceeds actually received by Cameron Associates from the sale of
Registrable Shares effected pursuant to such registration; and provided,
further, however, that, as to any underwriter or any person controlling any
underwriter, this indemnity does not apply to any losses, claims, damages or
liabilities arising out of or based upon any untrue statement or alleged untrue
statement or omission or alleged omission in any preliminary prospectus if a
copy of a prospectus was not sent or given by or on behalf of an underwriter to
such person asserting such loss, claim, damage, liability or action at or prior
to the written confirmation of the sale of the Registrable Shares as required by
the Securities Act and such untrue statement or omission had been corrected in
such prospectus.
(c) Promptly after receipt by an indemnified party of notice
of the commencement of any action involving a claim referred to in the preceding
paragraphs of this Section, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action. In case any such action is brought against
an indemnified party, the indemnifying party will be entitled to participate in
and to assume the defense thereof, jointly with any other
24
<PAGE> 5
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be responsible for any
legal or other expenses subsequently incurred by the latter in connection with
the defense thereof; provided, however, that if any indemnified party shall have
reasonably concluded that there may be one or more legal or equitable defenses
available to such indemnified party which are additional to or conflict with
those available to the indemnifying party, or that such claim or litigation
involves or could have an effect upon matters beyond the scope of the indemnity
agreement provided in this Section, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party
and such indemnifying party shall reimburse such indemnified party and any
person controlling such indemnified party for that portion of the fees and
expenses of any counsel retained by the indemnified party which is reasonably
related to the matters covered by the indemnity agreement provided in this
Section.
(d) If the indemnification provided for in this Section is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, claim, damage, liability or action referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amounts paid or payable by such
indemnified party as a result of such loss, claim, damage, liability or action
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions which resulted in such loss, claim,
damage or liability as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
SECTION 6. STANDBACK. Cameron Associates hereby agrees that it shall
not sell or otherwise transfer or dispose of any Registrable Shares or any other
securities of the Company for the period of time specified by an underwriter of
securities of the Company (other than to donees who agree to be similarly bound)
not to exceed one hundred eighty (180) days after the effective date of any
future registration statement filed by the Company in connection with any
underwritten public offering of the Company's Common Stock. In order to enforce
the foregoing covenant, the Company may impose legends and stock transfer
instructions with respect to the Registrable Securities held by Cameron
Associates.
SECTION 7. INFORMATION BY CAMERON ASSOCIATES. Cameron Associates shall
furnish to the Company such written information regarding Cameron Associates and
the distribution proposed by Cameron Associates as the Company may reasonably
request in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Agreement.
SECTION 8. TERMINATION. This Agreement shall terminate and be of no
further force or effect at the earlier of (i) that time when Cameron Associates
ceases to hold the Warrant or any Registrable Shares, or (ii) December 1, 2001.
SECTION 9. SUCCESSORS. This Agreement shall bind and inure to the
benefit of the Company and Cameron Associates and, to the extent that either
25
<PAGE> 6
party undergoes a merger, consolidation or change in business form, their
respective successors.
SECTION 10. ASSIGNMENT. The rights granted under this Agreement are
unique to the Company and Cameron Associates and are neither assignable nor
transferable under any circumstances or at any time.
SECTION 11. ENTIRE AGREEMENT. This Agreement contains the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior arrangements or understandings with respect hereto.
SECTION 12. NOTICES. All notices, claims, certificates, requests,
demands and other communications hereunder shall be in writing and shall be
deemed to have been duly given if personally delivered, or if sent by nationally
recognized overnight courier or by registered or certified mail, return receipt
requested and postage prepaid, addressed as follows:
if to the Company:
Electronic Designs, Inc.
One Research Drive
Westborough, MA 01581
Telephone: (508) 366-5151
Attention: Mr. Frank D. Edwards
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Telephone: (617) 570-1000
Attention: Thomas P. Storer, P.C.;
if to Cameron Associates:
Cameron Associates
424 Madison Avenue, Fifth Floor
New York, NY 10017
Telephone: (212) 644-9560
Attention: Mr. Rodney O'Connor
or to such other address as the party to whom notice is to be given may have
furnished to the other parties in writing in accordance herewith. Any such
notice or communication shall be deemed to have been received (i) in the case of
personal delivery, on the date of such delivery, (ii) in the case of nationally
recognized overnight courier, on the next business day after the date when sent,
and (iii) in the case of mailing, on the third business day following that on
which the piece of mail containing such communication is posted.
SECTION 13. MODIFICATIONS; AMENDMENTS; WAIVERS. The terms and
provisions of this Agreement may only be modified or amended by an instrument
signed by the Company and Cameron Associates.
SECTION 14. HEADINGS. The headings of the various sections of this
Agreement have been inserted for convenience of reference purposes only and
shall not be deemed to be a part of this Agreement.
SECTION 15. SEVERABILITY. It is the desire and intent of the parties
that the provisions of this Agreement be enforced to the fullest extent
permissible under the law and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any provision of this Agreement
26
<PAGE> 7
would be held in any jurisdiction to be invalid, prohibited or unenforceable for
any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 16. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts,
without giving effect to principles governing conflicts of laws.
[Remainder of Page Intentionally Left Blank]
27
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement on the date first above written.
THE COMPANY:
ELECTRONIC DESIGNS, INC.
By:________________________________________
Name (Print):
Title:
CAMERON ASSOCIATES
By:________________________________________
Name (Print):
Title:
28
<PAGE> 1
EXHIBIT 10.21
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, NOR ANY STATE SECURITIES LAW. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (a) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (b) AN OPINION
OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED, (c) RECEIPT OF A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION AND ANY APPLICABLE STATE SECURITIES
REGULATORY AGENCY OR (d) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF
THIS WARRANT.
ELECTRONIC DESIGNS, INC.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
THIS CERTIFIES THAT, for value received, Cameron Associates is entitled
to subscribe for and purchase forty-five thousand (45,000) shares (as may be
adjusted pursuant to paragraph 4 hereof) (the "Shares") of the fully paid and
nonassessable Common Stock of Electronic Designs, Inc., a Delaware corporation
(the "Company"), at the price of $3.875 per share (such price and such other
price as shall result, from time to time, from the adjustments specified in
paragraph 4 is referred to in this Warrant as the "Warrant Price"), subject to
the provisions and upon the terms and conditions set forth below. As used in
this Warrant, (a) the term "Common Stock" shall mean the Company's presently
authorized Common Stock, and any stock into or for which such Common Stock may
hereafter be converted or changed, and (b) the term "Grant Date" shall mean
December 1, 1996.
1. CONDITIONS OF EXERCISE AND TERM. A condition precedent to the
exercise of the purchase right represented by this Warrant is the achievement of
any of the following goals at a time during which Cameron Associates is retained
by the Company to provide professional services: (a) a minimum of two (2) new
recognized sell-side analysts (excluding existing firms and H.C. Wainwright)
publishing reports on the Company (a non-exhaustive sample of sell-side analysts
is attached hereto as Exhibit A); (b) a price-to-earnings ratio for the Common
Stock comparable (within ten (10) percent) to the S&P 500 market index; or (c) a
minimum of five (5) money managers holding one million (1,000,000) shares of the
Common Stock (excluding Technology Funding Partners III, L.P., New York Life
Insurance Company, Boston Capital Ventures, L.P., and any affiliates thereof).
Upon achievement of each of the above described goals, Cameron
Associates shall have the right to purchase fifteen thousand (15,000) Shares (as
may be adjusted pursuant to paragraph 4 hereof) of Common Stock pursuant to the
Warrant; provided, however, that:
(a) such right shall not vest until the anniversary of the
Grant Date immediately subsequent to the achievement of any
such goal; and
(b) the Warrant shall expire, and Cameron Associates shall
forfeit all rights, whether or not vested, to purchase Shares of Common Stock on
December 1, 1999; provided, however, that Cameron Associates shall have until
December 10, 1999, to exercise rights which first vested on December 1, 1999.
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject to
paragraph 1 hereof, the purchase right represented by this Warrant may be
exercised by Cameron Associates, in whole or in part and from time to time, by
the surrender of this Warrant (with the notice of exercise form attached
29
<PAGE> 2
hereto as Exhibit B duly executed) at the principal office of the Company and by
the payment to the Company, by check, of an amount equal to the then applicable
Warrant Price per share multiplied by the number of Shares then being purchased
(rounded to the nearest whole cent). Upon exercise of this Warrant, Cameron
Associates shall be deemed to have become the holder of record of, and shall be
treated for all purposes as the record holder of, the Shares represented thereby
(and such Shares shall be deemed to have been issued) immediately prior to the
close of business on the date or dates upon which this Warrant is exercised. In
the event of any exercise of the rights represented by this Warrant,
certificates for the Shares so purchased shall be delivered to Cameron
Associates as soon as possible and in any event within thirty (30) days after
receipt of such notice and, unless this Warrant has been fully exercised or
expired, a new Warrant representing the portion of the Shares, if any, with
respect to which this Warrant shall not then have been exercised shall also be
issued to Cameron Associates as soon as possible and in any event within such
thirty-day period.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and non-assessable, and free from all taxes, liens and
charges with respect to the issue thereof. During the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved for the purpose of the issue upon exercise
of the purchase rights evidenced by this Warrant, a sufficient number of shares
of its Common Stock to provide for the exercise of the rights represented by
this Warrant.
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number and
kind of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to the adjustment from time to time upon the occurrence
of certain events, as follows:
4.1 Reclassification, Merger, Etc.
(a) In case of any reclassification, change or
conversion of securities of the class issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination), or in
case of any merger or consolidation of the Company with or into another
corporation (other than a merger or consolidation with another corporation in
which the Company is the acquiring and the surviving corporation and which does
not result in any reclassification or change of outstanding securities issuable
upon exercise of this Warrant), the Company, or such successor or purchasing
corporation, as the case may be, shall duly execute and promptly deliver to
Cameron Associates a new Warrant or supplement hereto (in form and substance
satisfactory to Cameron Associates), so that Cameron Associates shall have the
right to receive, at a total purchase price not to exceed that payable upon the
exercise of the unexercised portion of this Warrant, and in lieu of the Shares
of Common Stock previously issuable upon exercise of this Warrant, the kind and
amount of shares of stock, other securities, money and property receivable upon
such reclassification, change, merger or consolidation by a holder of the number
of shares of Common Stock then purchasable under this Warrant. Such new Warrant
or supplement hereto shall provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
paragraph 4.
(b) The provisions of subparagraph (a) above shall
similarly apply to successive reclassifications, changes, mergers,
consolidations, transfers, amendments and waivers.
4.2 Subdivision or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide or
30
<PAGE> 3
combine its Common Stock, the Warrant Price shall be proportionately decreased
in the case of a subdivision or increased in the case of a combination.
4.3 Stock Dividends. If the Company at any time while this
Warrant is outstanding and unexpired shall (a) pay a dividend with respect to
Common Stock payable in Common Stock, or (b) make any other distribution with
respect to Common Stock (except any distribution specifically provided for in
the foregoing subparagraphs 4.1 and 4.2) of Common Stock, then the Warrant Price
shall be adjusted, from and after the date of determination of shareholders
entitled to receive such dividend or distribution, to that price determined by
multiplying the Warrant Price in effect immediately prior to such date of
determination by a fraction (a) the numerator of which shall be the total number
of shares of Common Stock outstanding immediately prior to such dividend or
distribution, and (b) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution.
4.4 Adjustment of Number of Shares. Upon each adjustment in
the Warrant Price pursuant to subparagraphs 4.2 or 4.3, the number of Shares of
Common Stock purchasable hereunder shall be adjusted, to the nearest whole
share, to the product obtained by multiplying the number of Shares purchasable
immediately prior to such adjustment in the Warrant Price by a fraction, the
numerator of which shall be the Warrant Price immediately prior to such
adjustment and the denominator of which shall be the Warrant Price immediately
thereafter.
5. NOTICE OF ADJUSTMENTS. Whenever the Warrant Price or the number and
kind of Shares purchasable hereunder shall be adjusted pursuant to paragraph 4
above, the Company shall prepare a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, and the Warrant Price and the number and kind of shares purchasable
under this Warrant after giving effect to such adjustment, and shall cause
copies of such certificate to be mailed (by first class mail, postage prepaid)
to Cameron Associates.
6. FRACTIONAL SHARES. No fractional Shares of Common Stock will be
issued in connection with any exercise hereunder, but in lieu of such fractional
Shares the Company shall make a cash payment therefor based on the fair market
value of the Common Stock on the date of exercise as reasonably determined in
good faith by the Company's Board of Directors.
7. COMPLIANCE WITH SECURITIES ACT; DISPOSITION OF WARRANT OR SHARES OF
COMMON STOCK.
7.1 Compliance with Securities Act. Cameron Associates, by
acceptance hereof, has agreed, as of the Grant Date, that Cameron Associates
will not offer, sell or otherwise dispose of this Warrant or any Shares of
Common Stock to be issued upon exercise hereof except under circumstances which
will not result in a violation of the Securities Act of 1933, as amended (the
"Act") or any applicable state securities laws. Upon exercise of this Warrant,
unless the Shares being acquired are registered under the Act and under
applicable state securities laws or an exemption from such registration is
available, Cameron Associates shall confirm in writing, by executing the form
attached hereto as Exhibit B, that the Shares of Common Stock so purchased are
being acquired for investment and not with a view toward distribution or resale.
This Warrant and all Shares issued upon exercise of this Warrant (unless
registered under the Act) shall be stamped or imprinted with a legend in
substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, NOR ANY STATE
31
<PAGE> 4
SECURITIES LAW. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT
(a) AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (b)
AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY
TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (c)
RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION AND ANY APPLICABLE STATE SECURITIES REGULATORY
AGENCY OR (d) OTHERWISE COMPLYING WITH THE PROVISIONS OF
SECTION 7 OF THE WARRANT UNDER WHICH THIS SECURITY WAS ISSUED.
7.2 Disposition of Shares. With respect to any offer, sale or
other disposition of any Shares of Common Stock acquired pursuant to the
exercise of this Warrant prior to registration of such Shares, Cameron
Associates agrees to give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of
Cameron Associates' counsel, if reasonably requested by the Company, to the
effect that such offer, sale or other disposition may be effected without
registration or qualification (under the Act as then in effect or any federal or
state law then in effect) of such Shares of Common Stock and indicating whether
or not under the Act such Shares of Common Stock to be sold or otherwise
disposed of require any restrictive legend as to applicable restrictions on
transferability in order to insure compliance with the Act. Promptly upon
receiving such written notice and reasonably satisfactory opinion, if so
requested, the Company, as promptly as practicable, shall notify Cameron
Associates that it may sell or otherwise dispose of such Shares of Common Stock,
all in accordance with the terms of the notice delivered to the Company. If a
determination has been made pursuant to this subparagraph 7.2 that the opinion
of counsel for Cameron Associates is not reasonably satisfactory to the Company,
the Company shall so notify Cameron Associates promptly after such determination
has been made. Notwithstanding the foregoing, such Shares of Common Stock may be
offered, sold or otherwise disposed of in accordance with Rule 144 under the
Act, provided that the Company shall have been furnished with such information
as the Company may reasonably request to provide a reasonable assurance that the
provisions of Rule 144 have been satisfied. The Shares of Common Stock thus
transferred (except a transfer pursuant to Rule 144) shall bear a legend as to
the applicable restrictions on transferability in order to insure compliance
with the Act, unless in the previously mentioned opinion of counsel for Cameron
Associates, such legend is not required in order to insure compliance with the
Act. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
7.3 Compliance with the Company's Insider Trading Policy. Cameron
Associates, by acceptance hereof, has agreed to comply with the Company's
written policy on insider trading, a copy of which is attached hereto as Exhibit
C, including, but not limited to, the Company's trading window.
8. RIGHTS AS SHAREHOLDERS; INFORMATION. Cameron Associates, solely by
virtue of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of Common Stock or any other securities of the Company which
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon Cameron Associates, as the
holder of this Warrant, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to receive notice of meetings, or to
receive dividends or subscription rights or otherwise until this Warrant shall
have been exercised and the Shares purchasable upon the exercise of this Warrant
shall have become deliverable, as provided herein.
9. REGISTRATION RIGHTS. The Company has granted to Cameron Associates
certain rights set forth in that certain Registration Rights
32
<PAGE> 5
Agreement, dated December 1, 1996, entered into by and between the Company and
Cameron Associates.
10. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
to Cameron Associates as follows, which representations and warranties are true
and complete on the Grant Date:
10.1 Authority. This Warrant has been duly authorized and
executed by the Company and is a valid and binding obligation of the Company
enforceable in accordance with its terms;
10.2 Certificate of Incorporation. The rights, preferences,
privileges and restrictions granted to or imposed upon the Common Stock and the
holders thereof are as set forth in the Company's Certificate of Incorporation,
a true and complete copy of which has been made available to Cameron Associates;
and
10.3 Validity of Issuance. The Shares of Common Stock issuable
upon exercise of this Warrant have been duly authorized and reserved and when
issued in accordance with the terms of the Company's Certificate of
Incorporation will be validly issued, fully paid and nonassessable.
11. CONFIDENTIALITY. Cameron Associates agrees to maintain the
confidentiality of all confidential or proprietary information of the Company
and agrees not to disclose, directly or indirectly, any confidential or
proprietary information related to the Company or use or appropriate for its own
benefit or for the benefit of any other person or entity, any confidential or
proprietary information of the Company, including without limitation, any
information relating to the Company or its customers except to the extent that:
(a) disclosure of any portion thereof is required by law; (b) the information
becomes generally available to the public other than as a result of a disclosure
by Cameron Associates; or (c) any such disclosure is authorized by the Company.
12. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an agreement in writing
signed by the party against which enforcement of the same is sought.
13. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to Cameron Associates or the Company shall be
in writing and shall be personally delivered, or shall be sent by certified or
registered mail, postage prepaid, or by a nationally recognized overnight
carrier to Cameron Associates at its address as shown on the books of the
Company or to the Company at the address indicated therefor on the signature
page of this Warrant or to such other address as the receiving party shall
hereafter notify the sending party in the manner described above.
14. BINDING EFFECT. This Warrant contains the entire agreement between
Cameron Associates and the Company regarding the purchase of the Shares
described herein. This Warrant shall be binding upon any corporation succeeding
the Company by merger or consolidation, and all of the obligations of the
Company relating to the Common Stock issuable upon the exercise or conversion of
this Warrant shall survive the exercise, conversion and termination of this
Warrant.
15. ASSIGNMENT AND TRANSFERABILITY. This Warrant is neither assignable
nor transferable and may not be sold, transferred, or otherwise disposed of by
Cameron Associates.
16. LOST WARRANT OR STOCK CERTIFICATES. The Company covenants to
Cameron Associates that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or
33
<PAGE> 6
any stock certificate and, in the case of any such loss, theft or destruction,
upon receipt of an indemnity reasonably satisfactory to the Company, or in the
case of any such mutilation upon surrender and cancellation of such Warrant or
stock certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
17. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
18. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the Commonwealth of Massachusetts without giving effect to principles governing
conflicts of laws.
[The Remainder of Page Intentionally Left Blank]
34
<PAGE> 7
Date: December 1, 1996 ELECTRONIC DESIGNS, INC.
By:____________________________________
Name (Print):__________________________
Title:_________________________________
Address: One Research Drive
Westborough, MA 01581
Attn: Mr. Frank D. Edwards
35
<PAGE> 8
ACCEPTANCE
Cameron Associates hereby acknowledges receipt of the Warrant to
Purchase Shares of Common Stock, dated December 1, 1996 (the "Warrant"),
represents that it has read and understands the terms and provisions thereof,
and accepts this Warrant subject to all the terms and conditions therein.
CAMERON ASSOCIATES
Date: December 1, 1996 By:____________________________
Name (Print):__________________
Title:_________________________
36
<PAGE> 9
EXHIBIT B
NOTICE OF EXERCISE
TO: ELECTRONIC DESIGNS, INC.
1. The undersigned (the "Purchaser") hereby elects to purchase
_________ shares of Common Stock of Electronic Designs, Inc. pursuant to the
terms of the attached Warrant, and tenders herewith $_________ in payment of the
purchase price of such shares in full. Please issue a certificate or
certificates representing said shares in the name of the Purchaser.
2. In connection with the purchase of the above-listed securities (the
"Securities"), the Purchaser represents to the Company as follows.
2.1 The Purchaser is a sophisticated investor having such
knowledge and experience that the Purchaser is capable of protecting its own
interests in connection with this transaction, is aware of the Company's
business affairs and financial condition, and has acquired sufficient
information about the Company to reach an informed and knowledgeable decision to
acquire the Securities. The Purchaser is purchasing the Securities for its own
account for investment purposes only and not with a view to, or for the resale
in connection with, any "distribution" thereof within the meaning of the
Securities Act of 1933, as amended ("Securities Act").
2.2 The Purchaser is an accredited investor within the meaning
of Regulation D promulgated by the Securities and Exchange Commission ("SEC')
under the Securities Act.
2.3 The Purchaser further understands that the Securities must
be held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from registration is otherwise available. In addition, the
Purchaser understands that the certificate evidencing the Securities will be
imprinted with the legend referred to in the Warrant under which the Securities
are being purchased.
2.4 The Purchaser is aware of the provisions of Rule 144,
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired from the issuer thereof (or from an
affiliate of such issuer), in a non-public offering subject to the satisfaction
of certain conditions. The Purchaser understands that at the time it wishes to
sell the Securities there may be no public market upon which to make such a sale
and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, the Purchaser may be precluded from selling the Securities under
Rule 144 even if the two-year minimum holding period had been satisfied.
2.5 The Purchaser further understands that in the event all of
the requirements of Rule 144 are not satisfied, registration under the
Securities Act or a registration exemption will be required; and that,
notwithstanding the fact that Rule 144 is not exclusive the Staff of the SEC has
expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
Date:___________________ ___________________________________
Signature
37
<PAGE> 10
___________________________________
Name (Print)
___________________________________
___________________________________
Address
38
<PAGE> 1
EXHIBIT 10.22
October 21, 1997
Mr. John Herb
Crystallume Division
Electronic Designs, Inc.
3506 Bassett Street
Santa Clara, CA 95050
Dear John:
This letter acknowledges your substantial assistance in completing the sale of
the Crystallume business. As a previously offered incentive, approved by the
Board of Directors on August 14, 1997, this letter confirms that Electronic
Designs, Inc. has agreed that, subject to the successful closing of a
transaction for the sale of substantially all of the assets of the Crystallume
business and your subsequent employment by the acquiring company or its
affiliate:
- All employee stock options which have been previously issued to
you will be immediately vested.
- The options will not expire as a result of the termination of your
employment with EDI but will be extended until the earlier of: two
years from the closing date; the date they would otherwise expire;
or, the termination of your employment by the acquiring company.
- As a result of the above actions, and your agreement below,
incentive stock options shall become nonqualified stock options.
In consideration of the above, you acknowledge that you, as an officer of EDI
and General Manager of the Crystallume business, have unique knowledge of the
Crystallume business and have performed a thorough review of the purchase and
sale agreement and related schedules and that there are no matters, to the best
of your knowledge, which have not been disclosed.
Please sign the attached copy of this letter to acknowledge your agreement.
Sincerely,
/s/Donald F. McGuinness /s/John Herb
-----------------------------------
Donald F. McGuinness John Herb
President and CEO
39
<PAGE> 1
EXHIBIT 10.26
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease is made as of the 5th day of December,
1997, by and between FLANDERS WESTBOROUGH DELAWARE, INC., a Delaware corporation
("Landlord"), and ELECTRONIC DESIGNS INCORPORATED, a Massachusetts corporation
("Tenant").
BACKGROUND
Reference is made to a Lease Agreement dated December 18, 1992
("Lease"), wherein Landlord leased to Tenant premises containing 33,368 rentable
square feet in the building known as One Research Drive, Westborough,
Massachusetts ("Building"), which premises and Building are more fully described
in the Lease.
Reference is further made to a First Amendment dated April 29, 1996
whereby Tenant leased two (2) additional areas in the Building for storage rooms
containing 192 rentable square feet in total.
Capitalized terms used herein but not defined shall have the meanings
assigned to such terms in the Lease.
WHEREAS, the parties desire to amend the Lease to extend the term of
the Lease on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants and conditions
herein set forth and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. The Lease is hereby amended as follows:
(a) The Expiration Date in Section 1(h) of the Reference
Data to the Lease shall be replaced with "February
28, 2003".
(b) The figure "$271,836.00" in Section 1(i) of the
Reference Data to the Lease captioned "ANNUAL FIXED
RENT", as amended by the First Amendment to Lease,
and the figure "$22,653.00" in Section 1(i) of the
Reference Data to the Lease captioned "MONTHLY FIXED
RENT", as amended by the First Amendment to Lease,
shall be replaced as follows:
<TABLE>
<CAPTION>
MONTHLY
TIME PERIOD ANNUAL FIXED RENT PER RSF FIXED RENT
----------- ----------------- ------- ----------
<S> <C> <C> <C>
March 1, 1998 -
February 29, 2000: $402,720.00 $12.00 $33,560.00
March 1, 2000 -
February 28, 2001: $436,280.04 $13.00 $36,356.67
March 1, 2001 -
February 28, 2002: $469,840.08 $14.00 $39,153.34
March 1, 2002 -
February 28, 2003: $503,400.00 $15.00 $41,950.00
</TABLE>
2. A. Landlord shall, in the manner hereinafter set forth, provide to
Tenant up to Thirty Thousand and 00/100 ($30,000.00) Dollars ("Landlord's
Contribution") towards the cost of renovations to be performed by Tenant in the
premises ("Tenant's Work"). Provided that Tenant is not in default,
40
<PAGE> 2
beyond the expiration of any applicable grace periods, of its obligations under
the Lease at the time that Tenant submits any requisition on account of
Landlord's Contribution, Landlord shall pay the cost of the work shown on each
requisition (as hereinafter defined) submitted by Tenant to Landlord within
thirty (30) days of submission thereof by Tenant to Landlord. Tenant shall
perform Tenant's Work in accordance with Sections 9 and 10 of the Lease. Without
limiting the foregoing, Tenant shall not commence Tenant's Work unless and until
(i) Landlord has approved Tenant's plans and specifications for such work and
Tenant's architect and contractors therefor, and (ii) Landlord has received
certificates of insurance satisfactory to Landlord from Tenant's contractors.
Tenant's Work shall be performed so as not to cause any conflict or labor
dispute with other work being performed in the Building. Tenant's Work may be
performed during business hours, other than painting which may be performed only
during non-business hours. However, Landlord shall have the right, upon notice
to Tenant, to require that any or all portions of Tenant's Work be performed
during non-business hours if any such work interferes, in Landlord's judgment,
with other tenants in the Building.
B. For the purposes hereof, a "requisition" shall mean AIA
Form 3702 For Application of Payment, and written documentation (including,
without limitation, invoices from Tenant's contractor, written lien waivers in a
form acceptable to Landlord, and such other documentation as Landlord's
mortgagee may reasonably request) showing in reasonable detail the costs of the
renovations to date in the premises, accompanied by certifications from Tenant,
Tenant's architect, and Tenant's contractor that the work performed to date has
been performed in accordance with applicable laws and in accordance with
Tenant's approved plans, and that the amount of the requisition in question does
not exceed the amount of the work covered by such requisition. Each requisition
shall be accompanied by evidence reasonably satisfactory to Landlord that all
work covered by previous requisitions has been fully paid by Tenant. Landlord
shall have the right, upon reasonable advance notice to Tenant, to inspect
Tenant's books and records relating to each requisition in order to verify the
amount thereof. Tenant shall submit requisition(s) no more often than monthly.
C. Notwithstanding anything to the contrary herein contained:
(i) Landlord shall have no obligation to advance funds on
account of Landlord's Contribution unless and until Landlord has received the
requisition in question, together with the certifications required by
Subparagraph B hereof, certifying that the work shown on the requisition has
been performed in accordance with applicable law and in accordance with Tenant's
plans.
(ii) Except with respect to work and/or materials previously
paid for by Tenant, as evidenced by paid invoices and written lien waivers
provided to Landlord, Landlord shall have the right to have Landlord's
Contribution paid to both Tenant and Tenant's contractor(s) and vendor(s)
jointly.
(iii) Tenant shall not be entitled to any portion of
Landlord's Contribution, and Landlord shall have no obligation to pay Landlord's
Contribution in respect of any requisition submitted after December 31, 1998.
(iv) Tenant shall have no right to any unused portion of
Landlord's Contribution.
41
<PAGE> 3
3. Section 3 of the Lease, other than the first paragraph thereof, the
last paragraph of Section 4 of the Lease, Sections 8 and 42 of the Lease and
Exhibits C and G to the Lease shall have no applicability to nor any force or
effect during the extended term of the Lease.
4. Section 43 of the Lease is hereby deleted in its entirety and of no
further force or effect.
5. In lieu of renewing the Renewal Letter of Credit, as defined in
Section 36 of the Lease, for the extended term of the Lease, Tenant shall, prior
to March 1, 1998, deposit with Landlord a security deposit in the amount of
$41,950.00 ("New Security Deposit"). The New Security Deposit shall be held by
Landlord during the extended term in accordance with the first paragraph of
Section 36, the parties hereby acknowledging that the second paragraph of said
Section 36 shall have no applicability to the New Security Deposit. The Renewal
Letter of Credit shall be returned to Tenant in accordance with said Section 36
of the Lease.
6. Tenant and Landlord each represents and warrants that it has not
dealt with any broker, agent, finder or other person in connection with the
negotiation for or the obtaining of this Second Amendment to Lease and that no
broker, agent, finder or other person brought about the transaction contemplated
by this Second Amendment to Lease, other than Codman Company, Inc. ("Codman"),
and Tenant and Landlord each agrees to indemnify and hold the other harmless
from and against any and all claims, costs (including attorneys' fees) and
liability for commissions or other compensation claimed by any other broker,
agent, finder or other person claiming a commission or other form of
compensation by virtue of having been employed or engaged by the indemnifying
party or having dealt with the indemnifying party with regard to this Second
Amendment to Lease. The provisions of this Paragraph 6 shall survive the
termination of the Lease. Landlord shall pay the brokerage commissions payable
to Codman arising out of this Second Amendment to Lease.
7. Except as expressly amended hereby, all provisions of the Lease are
hereby ratified and confirmed to be in full force and effect, including, without
limitation, all remedies reserved to Landlord therein, which remedies are
incorporated herein by reference.
8. This Second Amendment shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
As hereby amended, the Lease is ratified, confirmed and approved in all
respects.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
as of the date first written above.
Landlord:
FLANDERS WESTBOROUGH DELAWARE, INC.
By: _________________________________
(Name) (Title)
Hereunto Duly Authorized
Date Signed:______________________________
Tenant:
42
<PAGE> 4
ELECTRONIC DESIGNS INCORPORATED
By: _________________________________
(Name) (Title)
Hereunto Duly Authorized
Date Signed:______________________________
43
<PAGE> 1
EXHIBIT 10.27
ELECTRONIC DESIGNS, INC.
EXECUTIVE INCENTIVE PLAN
The purposes of the Electronic Designs, Inc. Executive Incentive Plan (the
"Plan") are to motivate the Company's key employees to improve stockholder value
by linking a portion of their cash compensation to the Company's financial
performance, to reward key employees for improving the Company's financial
performance, and to help attract and retain key employees.
The Plan is administered by the Compensation Committee (the "Committee")of
Electronic Designs, Inc.'s Board of Directors. The Committee is comprised solely
of directors who are outside directors of the Company. The Committee may
delegate its administrative authority under the Plan to the Chief Executive
Officer. The Committee selects Key Employees to receive incentive payments
("Awards"), determines the terms and amounts of Awards and takes any and all
other action it deems necessary or advisable in connection with the Plan.
Any employee of the Company whose performance the Committee determines can have
a significant effect on the success of the Company may be considered a "Key
Employee" and be eligible to become a participant in the Plan.
The Committee grants Awards based on Company and/or business unit performance
goals and formulas. Awards are typically conditioned on the achievement of
pre-established Company and/or business unit goals for revenue, profitability
and/or common stock price. Awards may be in the form of a single lump sum or a
percentage of base compensation. Awards to any Key Employee for any fiscal year
will not exceed 100% of such employee's base compensation.
Participation in the Plan does not give any Key Employee any right to remain in
the employ of the Company. To the extent any person acquires a right to receive
payments from the Company under the Plan, such rights shall be no greater than
the rights of an unsecured creditor of the Company.
44
<PAGE> 1
EXHIBIT 11.1 Statement re: computation of per share earnings
NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996
<S> <C> <C>
Income from continuing operations $5,148,000 $4,549,000
Adjustments thereto (1) 654,000 924,000
---------- ----------
Adjusted income from continuing operations $5,802,000 $5,473,000
---------- ----------
Net income $3,776,000 $2,808,000
Adjustments thereto (1) 654,000 924,000
---------- ----------
Adjusted net income $4,430,000 $3,732,000
---------- ----------
Weighted average shares
outstanding 6,948,000 5,546,000
Adjustments thereto (2) 2,833,000 4,249,000
---------- ----------
Shares used in computation 9,781,000 9,795,000
---------- ----------
Income from continuing operations per share (3) $ 0.59 $ 0.56
---------- ----------
Net income per share (3) $ 0.45 $ 0.38
---------- ----------
</TABLE>
(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. $(0.60)
45
<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)
46
<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 30,
1997, except as to the last paragraph of Note 15, which is as of December 5,
1997, appearing on page F-1 of this Form 10-KSB.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 19, 1997
47
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from balance
sheet and statement of operations for the period ending September 30, 1997 and
is qualified in its entirety by reference to such Form 10-KSB-annual report
pursuant to the securities exchange act of 1934 for the year ended September 30,
1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 4,212,000
<SECURITIES> 0
<RECEIVABLES> 7,635,000
<ALLOWANCES> 242,000
<INVENTORY> 6,903,000
<CURRENT-ASSETS> 21,615,000
<PP&E> 3,495,000
<DEPRECIATION> 1,378,000
<TOTAL-ASSETS> 25,137,000
<CURRENT-LIABILITIES> 9,892,000
<BONDS> 2,208,000
0
0
<COMMON> 72,000
<OTHER-SE> 12,765,000
<TOTAL-LIABILITY-AND-EQUITY> 25,137,000
<SALES> 42,104,000
<TOTAL-REVENUES> 42,104,000
<CGS> 26,610,000
<TOTAL-COSTS> 26,610,000
<OTHER-EXPENSES> 10,088,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 321,000
<INCOME-PRETAX> 5,297,000
<INCOME-TAX> 149,000
<INCOME-CONTINUING> 5,148,000
<DISCONTINUED> 1,372,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,776,000
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
