-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P4cyBrNxK8wwpmtGs/zghLLlj/MmVnt73PALqTgWgcQS9+VumImHqbdBJA4gtmZ0 5g19RBai3JD/Dj7i4ANadw== 0000950168-98-003916.txt : 19981222 0000950168-98-003916.hdr.sgml : 19981222 ACCESSION NUMBER: 0000950168-98-003916 CONFORMED SUBMISSION TYPE: SC 13E3 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19981221 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: BOWLES FLUIDICS CORP CENTRAL INDEX KEY: 0000013585 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 520741762 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: SC 13E3 SEC ACT: SEC FILE NUMBER: 005-54945 FILM NUMBER: 98772741 BUSINESS ADDRESS: STREET 1: 6625 DOBBIN RD CITY: COLUMBIA STATE: MD ZIP: 21045-4707 BUSINESS PHONE: 4103810400 MAIL ADDRESS: STREET 1: 6625 DOBBIN ROAD CITY: COLUMBIA STATE: MD ZIP: 21045-4707 FORMER COMPANY: FORMER CONFORMED NAME: BOWLES ENGINEERING CORP DATE OF NAME CHANGE: 19700629 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: BOWLES FLUIDICS CORP CENTRAL INDEX KEY: 0000013585 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 520741762 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: SC 13E3 BUSINESS ADDRESS: STREET 1: 6625 DOBBIN RD CITY: COLUMBIA STATE: MD ZIP: 21045-4707 BUSINESS PHONE: 4103810400 MAIL ADDRESS: STREET 1: 6625 DOBBIN ROAD CITY: COLUMBIA STATE: MD ZIP: 21045-4707 FORMER COMPANY: FORMER CONFORMED NAME: BOWLES ENGINEERING CORP DATE OF NAME CHANGE: 19700629 SC 13E3 1 BOWLES FLUIDICS CORP SC 13E3 Securities and Exchange Commission, Washington, DC 20549 SCHEDULE 13E-3 Rule 13e-3 Transaction Statement (Pursuant to Section 13(e) of the Securities Exchange Act of 1934) BOWLES FLUIDICS CORP (Name of the Issuer) BOWLES FLUIDICS CORP (Name of Person(s) Filing Statement) Common Stock $.10 Par Value (Title of Class of Securities) ----------- (CUSIP Number of Class of Securities) Ronald D. Stouffer, President Patrick K. Arey, Esquire Bowles Fluidics Corporation Miles & Stockbridge P.C. 6625 Dobbin Road 10 Light Street, 8th Floor Columbia, Maryland 21405-4707 Baltimore, Maryland 21202-1487 Telephone: 410-381-0400 Telephone: 410-385-3485 Telecopier: 410-381-2718 Telecopier: 410-385-3700 E-Mail: rstouffer@bowlesfluidics.com E-Mail: parey@milesstockbridge.com (Name, address and telephone number of person authorized to receivenotices and communications on behalf of persons(s) filing statement) This statement is filed in connection with (check the appropriate box): a. { } The filing of solicitation materials or an information statement subject to Regulation 14A (17 CFR 240.14a-1 to 240.14b-1), Regulation 14C (17 CFR 240.14c-1 to 240.14c-101) or Rule 13e-3(c) (Sec. 240.13e-3(c)) under the Securities Exchange Act of 1934. b. { } The filing of a registration statement under the Securities Act of 1933. c. { } A tender offer. d. {X} None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: { } 1 Calculation of Filing Fee TRANSACTION VALUATION* AMOUNT OF FILING FEE $ 242,600.00 $48.52 * Fee based upon 1/50th of 1% of the anticipated purchase price of fractional shares resulting from the proposed reverse stock split.. [ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid:_______________________________________________ Form or Registration No.:______________________________________________ Filing Party:__________________________________________________________ Date Filed:____________________________________________________________ Item 1. Issuer and Class of Security Subject to the Transaction. (a) The name of the issuer is "Bowles Fluidics Corporation" (the "Company") and the address of its principal executive offices is: 6625 Dobbin Road, Columbia, Maryland 21045-4707. (b) The class of security which is the subject of the Rule 13e-3 transaction is the Company's Common Stock, $0.10 par value per share (the "Common Stock"). As of October 15, 1998, 12,684,071 shares of the Common Stock were outstanding and held of record by approximately 430 persons. (c) The Common Stock of the Company is traded in the "over-the-counter" market and is quoted on the NASD OTC Bulletin Board; symbol BOWE. The Preferred Stock is unregistered and is not publicly traded. The high and low bid and asked prices of the Common Stock over the last two fiscal years are listed below: Bid Asked ------------------------ --------------------- FY High Low High Low 1998 1st Quarter 1 3/4 1 1/4 2 1/16 1 3/8 2nd Quarter 1 3/4 1 1/16 2 1/2 1 3/8 3rd Quarter 1 3/4 1 2 1 3/8 4th Quarter 1 1/32 23/32 1 1/2 1 1/8 1997 1st Quarter 1 3/8 13/16 1 5/8 1 1/4 2nd Quarter 1 3/8 5/8 1 9/16 3/4 3rd Quarter 13/16 7/16 7/8 9/16 4th Quarter 3 1/8 3/4 3 1/2 7/8 2 Note: The above quotes represent prices between dealers and do not include retail mark-up, mark-down, or commissions. They do not represent actual transactions. (d) The Company has never paid cash dividends on its Common Stock. Payment of dividends on Common Stock is within the discretion of the Company's Board of Directors and will depend, among other factors, on earnings, capital requirements, and the operating financial condition of the Company. (e) Not applicable. (f) The Company has not purchased any of its securities since the commencement of the Company's second full fiscal year preceding the date of this Schedule. ITEM 2. IDENTITY AND BACKGROUND. This Schedule is being filed by the Company, which is the issuer of the equity securities that are the subject of the Rule 13e-3 transaction. The Company, a Maryland corporation, is a designer, manufacturer and supplier of windshield and rear window washer nozzles for passenger cars and light trucks in North America. The Company also designs and sells defroster nozzles for a limited number of these same light vehicles. The address of the Company is 6625 Dobbin Road, Columbia, Maryland 21045-4707. The controlling stockholders, directors and executive officers of the Company are:
William Ewing, III Chairman of the Board of Directors, Controlling Person Ronald D. Stouffer President, Chief Executive Officer, Director Eric W. Koehler Executive Vice President, Director John E. Searle, Jr. Director David C. Dressler Director Neil Ruddock Director James T. Parkinson, III Director, Controlling Person Frederic Ewing, II Director, Controlling Person Melvyn J. L. Clough Vice President, Operations Richard W. Hess Vice President, Automotive Products Engineering Eleanor M. Kupris Secretary and Vice President, Administration David A. Quinn Vice President, Finance and Treasurer Dharapuram N. Srinath Vice President, Advanced Engineering Arlene M. Hardy Corporate Controller
(a) - (d) The information required by this Item 2 with respect to each of the above-named persons is attached hereto as Exhibit 1, and is incorporated herein by this reference. The information disclosed in Exhibit 1 is included pursuant to General Instruction D to Schedule 13E-3. (e) During the past five years, neither the Company nor, to its knowledge, any of the controlling persons, directors and executive officers of the Company has been convicted in a criminal 3 proceeding (excluding traffic violations or similar misdemeanors) or was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining further violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. (g) Except as noted on Exhibit 1 attached hereto, all of the persons named above are citizens of the United States of America. Item 3. Past Contacts, Transactions or Negotiations. There have been no contacts or negotiations which have been entered into or which have occurred since the commencement of the Company's second full fiscal year preceding the date of this Schedule (i) between any affiliates of the Company; or (ii) between the Company or any of its affiliates and any person who is not affiliated with the Company and who would have a direct interest in such matters. Item 4. Terms of the Transaction. (a) The Company proposes, subject to stockholder approval, an amendment to the Company's Articles of Incorporation which would decrease the number of shares of Common Stock authorized and outstanding by means of a reverse stock split in the ratio of 1,000 shares of "Old Common Stock" to 1 share of "New Common Stock". As used herein, the term "Old Common Stock" refers to the Common Stock before the proposed reverse stock split and the term "New Common Stock" refers to the Common Stock following the proposed reverse stock split. The par value of the New Common Stock would be adjusted to $100 per share. Any fractional shares resulting from the reverse stock split will be purchased from holders thereof at the rate of $1,250 per share of New Common Stock (i.e., post split). (b) All holders of Common Stock will be treated identically in connection with the reverse stock split, in that all fractional shares of New common Stock will be purchased at the rate of $1,250 per share of New Common Stock. Item 5. Plans or Proposals of the Issuer or Affiliate. (a) On December 8, 1998, the Board of Directors of the Company adopted resolutions authorizing the going-private transaction that is the subject of this Schedule 13E-3. The Board of Directors authorized the submission to the vote of the stockholders of the Company an amendment to the Articles of Incorporation of the Company under which all outstanding shares of Old Common Stock will be subject to a reverse stock split at the ratio of 1,000 shares of Old Common Stock to 1 share of New Common Stock. A copy of the proposed amendment to the Company's Articles of Incorporation (the "Proposed Amendment") and the resolutions adopted by the Board of Directors is attached to this Schedule as Exhibit 2. The Company expects to submit the Proposed Amendment to the stockholders of the Company at a special meeting expected to be held at 9:30 a.m. on ________, 1999, at 6625 Dobbin Road, Columbia, Maryland. If the Proposed amendment is approved by the stockholders, as a result of the proposed reverse stock split the total authorized shares of Common Stock will be reduced from 17,000,000 shares to 17,000 shares. Any resulting fractional shares of Common Stock will be purchased from the holders thereof at the rate of $1,250 per share of New Common Stock. 4 (b) The purchase price of fractional shares of New Common Stock will be paid from available funds of the Company, which is expected to result in a use of cash in the approximate amount of $242,600 and a reduction in shareholders' equity in the same amount. (c) John E. Searle, Jr., resigned as a member of the Board of Directors of the Company effective on December 8, 1998, following the meeting of the Board of Directors on that date, resulting in a vacancy on the Board of Directors. Mr. Searle's resignation is not related to the proposed reverse stock split. (d) The Company does not expect that any material change in the present dividend rate or policy or indebtedness of the Company will occur as a result of the reverse stock split. A change in the Company's capitalization will not occur as a result of the adjustment in par value to $100 per share of New Common Stock. (e) There will be no other material change in the Company's corporate structure or business; (f) Not applicable. (g) Following the reverse stock split and purchase of resulting fractional shares of New Common Stock, it is expected that the number of shareholders of the Company's Common Stock will be reduced from approximately 430 (as of October 15, 1998) to less than 200. The number of holders of the Company's Preferred Stock will remain unchanged at approximately 18. As a result of the reduction in number of record shareholders below 300, the Company intends to suspend its obligation to file periodic reports with the Securities and Exchange Commission pursuant to section 15(d) of the Exchange Act of 1934. Item 6. Source and Amounts of Funds or Other Consideration. (a) The Company expects to spend its own funds to purchase fractional shares of the New Common Stock following the reverse stock split. The Company anticipates that as a result of the reverse stock split, there will be approximately 194.077 aggregate fractional shares of the New Common Stock to be purchased by the Company. The expected aggregate purchase price of such shares is $242,600, based upon the purchase price of $1,250 per share of New Common Stock. Such price per share was determined based upon the report of Ferris Baker Watts, Incorporated as to value of the Common Stock of the Company which report is further described in Item 9(a) to this Schedule. (b) The following is a statement of all expenses incurred or estimated to be incurred in connection with the going private transaction. The Company will be responsible for paying any or all of such expenses. Filing Fees $ 49 Legal Fees 100,000 Accounting Fees 2,000 Appraisal Fees 65,000 Solicitation Expenses 0 Printing Costs 2,000 ------------ Total $ 169,049 (c) All of the foregoing expenses and purchase price of fractional shares of New Common Stock are expected to be paid from the available funds of the Company. 5 (d) Not applicable. ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS. (a) The purpose of this Rule 13e-3 going private transaction, which is to be accomplished through the reverse stock split, is to suspend the Company's obligation to file reports under Section 15(d) of the Securities and Exchange Act of 1934. The Board of Directors believes that such action is in the best interests of the Company for the following reasons: (1) the filing of periodic reports under Section 15(d) of the Securities and Exchange Act of 1934 allows the Company's limited number of customers and competitors, all of which are concentrated in a single industry, to obtain information concerning the Company's profit margins, patent positions and operations which, in the Company's opinion, has or may have an adverse effect on the Company's performance; and (2) the out-of-pocket and internal costs to the Company associated with the preparation and filing of the periodic reports when compared to the limited number of stockholders is, in the Company's opinion, unwarranted. (b) The Company considered two alternative means to accomplish its objective of suspending its obligation to file reports under Section 15(d) of the Securities and Exchange Act of 1934. Tender Offer. The Board of Directors considered making a tender offer for shares of Common Stock in order to reduce the number of record holders of Common Stock below 300. This alternative was viewed as undependable, however, because it was not certain that the Company would sufficiently reduce the number of its record stockholders to achieve its objective of less than 300 shareholders. The costs which might be incurred in connection with such a tender offer also appeared to be potentially higher than the costs expected to be incurred in connection with the reverse stock split. Merger. The Board of Directors also considered the possibility of a "cash out" merger. However, the anticipated costs of such a merger (including the cost of obtaining the requisite shareholder approvals and purchase of Common Stock) were also expected to be higher than the costs expected to be incurred in connection with the reverse stock split. (c) The Company has structured the Rule 13e-3 transaction as a reverse stock split because it believes that this structure is the simplest and most economical means of reducing the number of record holders of the Company's Common Stock below 300, thereby achieving its goal of terminating its obligation to file periodic reports with the Securities and Exchange Commission pursuant to Section 15(d) of the Securities and Exchange Act of 1934. In addition, the Company believes that the reverse stock split and purchase of fractional shares of the New Common Stock will provide an easy and cost effective way for shareholders holding less than one share of New Common Stock (1,000 shares of Old Common Stock) to dispose of such fractional shares at a fair price without incurring brokerage commissions and other transaction costs. The Company believes that implementing the reverse stock split at this time so that it can terminate its obligation to file periodic reports with the Securities and Exchange Commission will improve its future performance. (d) As described above, upon consummation of the reverse stock split, the Company anticipates that the number of record stockholders of the Company will be reduced from 430 to less than 200 and the Company will achieve the purposes of the reverse stock split described above. The Company incurs costs related to its status as a public reporting corporation under the federal securities laws, including indirect costs as a result of, among other things, the Company personnel, including management, time expended to prepare and review various filings, furnish information to 6 stockholders, and attend to other stockholders matters. Termination of the Company's obligation to file periodic reports will eliminate the costs and expenses of such federal securities filings and reduce the amount of time devoted by management in preparing and reviewing such reports. The Company estimates that, upon termination of its obligation to file periodic reports with the Securities and Exchange Commission, it will achieve savings within a range of approximately $65,000 to $75,000 annually. Upon consummation of the reverse stock split, each 1,000 shares of Old Common Stock issued and outstanding immediately prior to the effective time of such split will be converted into one share of New Common Stock and all resulting fractional shares of New Common Stock will be purchased by the Company at the price of $1,250 per share. The following description of the federal income tax consequences of the reverse stock split is included solely for the general information of the holders of the Company's Common Stock. The federal income tax consequences for any particular stockholder may be affected by matters not discussed herein, and each stockholder should consult his or her personal tax advisor in determining the federal income tax consequences of the reverse stock split and purchase of fractional shares. For those stockholders receiving New Common Stock from consummation of the reverse stock split, there will be no direct tax consequences as a result of the reverse stock split, except for reallocation to the stockholders' per share tax basis. The purchase of fractional shares of New Common Stock by the Company will be a taxable transaction for federal income tax purposes. Each holder of fractional shares of New Common Stock purchased by the Company subsequent to the reverse stock split will recognize gain or loss upon the purchase of that stockholder's fractional share of New Common Stock equal to the difference, if any, between (i) the amount of the cash payment received for any fractional shares of New Common Stock and (ii) that stockholder's tax basis in such fractional shares of New Common Stock so long as the New Common Stock was held as a capital asset of the stockholder. Any subsequent gain or loss resulting from the disposition of New Common Stock should be treated as a capital gain or loss transaction. As indicated previously, holders of New Common Stock are urged to consult their personal tax advisors as to the tax consequences of the reverse stock split and purchase of fractional shares under federal, state, local and any other applicable laws. The cash payments due to the holders of fractional shares of New Common Stock (other than certain exempt entities and persons) will be subject to a backup withholding tax at the rate of 31% under federal income tax law unless certain requirements are met. Generally, the Company or its paying agent will be required to deduct and withhold the tax on cash payments due at the effective time of the purchase of fractional shares of New Common Stock subsequent to the reverse stock split if (i) a stockholder fails to furnish a taxpayer identification number ("TIN"; the TIN of an individual stockholder is his or her Social Security number) to the paying agent or fails to certify under penalty of perjury that such TIN is correct; (ii) the Internal Revenue Service ("IRS") notifies the Paying Agent that the TIN furnished by the stockholder is incorrect; (iii) the IRS notifies the paying agent that the stockholder has failed to report interest, dividends, or original issue discount in the past; or (iv) there has been a failure by the stockholder to certify under penalty of perjury that such stockholder is not subject to the backup withholding tax. Any amounts withheld by the paying agent in collection of the backup withholding tax will reduce the federal income tax liability of the stockholders from whom such tax was withheld. Item 8. Fairness of the Transaction. (a) The Company believes that the proposed reverse stock split and subsequent purchase of fractional shares is fair to unaffiliated stockholders of the Company. The Board of Directors of the 7 Company by unanimous vote on December 8, 1998, with no member of the Board of Directors dissenting or abstaining from such approval, adopted a resolution declaring the terms and conditions of the reverse stock split and purchase of fractional shares advisable and directing that a proposed amendment to the Articles of Incorporation of the Company be submitted to shareholders of the Company for consideration. (b) A special committee of the Board of Directors of the Company, comprised of Directors who are non-controlling persons, as described in paragraph (d) below (the "Special Committee"), recommended that the Board of Directors retain Ferris, Baker Watts, Incorporated ("Ferris, Baker Watts"), and by letter agreement dated June 23, 1998 such firm was retained, to act as its financial advisor and to render its opinion to the Company's Board of Directors as to the fairness of the fractional share purchase price, from a financial point of view, to the holders of fractional shares of the New Common Stock following the reverse stock split (herein referred to as the "Purchase Price"). The Special Committee was charged with the responsibility of recommending to the Board of Directors a fair price to pay for the fractional shares resulting from the reverse stock split of the Common Stock. It met on four occasions with a representative of Ferris, Baker Watts during which discussions occurred and information shared concerning the methodology of companies having business and markets similar to those of the Company and the application of such methodologies to the Company's financial and market position and future prospects. Based upon these deliberations, the Special Committee unanimously recommended to the Board of Directors of the Company that $1,250 per share of New Common Stock resulting from a reverse stock split would be a fair price to pay. Ferris, Baker Watts concurred in this recommendation. Ferris, Baker Watts delivered its written opinion on December 8, 1998, to the Board of Directors of the Company to the effect that, as of such date, the Purchase Price was fair, from a financial point of view, to the holders of the New Common Stock. No restrictions were imposed by the Special Committee or the Board of Directors of the Company upon Ferris, Baker Watts with respect to the investigations made or procedures followed by Ferris, Baker Watts in rendering its opinions. The full text of Ferris, Baker Watts' fairness opinion, which is summarized in response to Item 9 of this Schedule 13E-3, dated December 8, 1998, which sets forth certain assumptions made, certain procedures followed, and certain matters considered by Ferris, Baker Watts, is attached hereto as Exhibit 3. In addition to the recommendation of the Special Committee and the conclusions contained in the Ferris, Baker Watts report, the Board of Directors reviewed certain additional factors, including the historical and current market values of the Company's Common Stock. In this regard, the Company's Board of Directors noted the amount and level of transactions in shares of the Company's Common Stock during the past year and that the book value per share of the Company's Common Stock as of July 25, 1998 (the end of the third quarter of the Company's fiscal year), was $0.66. The Company's Board of Directors further considered the advantages of and benefits to the Company of not being required to file periodic reports with the Securities and Exchange Commission pursuant to ss.15(d) of the Securities and Exchange Act of 1934, the direct and indirect cost savings to be realized by the Company from not having to file such periodic reports, and the 8 benefits to be derived by the remaining Company stockholders from the transactions described in this Schedule. In reaching its determination as to the fairness of the Purchase Price, the Board of Directors of the Company did not assign any relative or specific weights to the foregoing factors. (c) Pursuant to the provisions of ss.2-604(d) of the Corporations and Associations Article of the Annotated Code of Maryland, any proposed amendment to the Articles of Incorporation of the Company must be approved by the stockholders of the Company by the affirmative vote of two thirds of all the votes entitled to be cast on the matter. Holders of Common Stock are entitled to cast one vote for each share of Common Stock. Holders of the Company's Preferred Stock are entitled to cast four votes for each share of Preferred Stock. (d) The decision to retain Ferris, Baker Watts to prepare a report concerning the fairness of the Purchase Price was initially made by the Special Committee and affirmed by the Board of Directors of the Company. The Special Committee was established by the Board of Directors of the Company on March 12, 1998, to act solely on behalf of the unaffiliated stockholders of the Company for purposes of reviewing the desirability of undertaking the "going private" transaction which is the subject of this Schedule 13E-3. The Special Committee consisted of the following persons: David C. Dressler, John E. Searle, Jr., and Neil Ruddock. For reasons unrelated to this transaction, Mr. Searle resigned from the Board of Directors of the Company effective December 8, 1998, following the meeting of the Board of Directors on that date. Mr. Ruddock joined the Special Committee on July 14, 1998, when he also joined the Board of Directors. (e) The Board of Directors of the Company unanimously approved the Proposed Amendment, which vote included all of the directors who were not employees of the Company. (f) During the 18 month period preceding the date of this Schedule 13E-3, the Company has not received any firm offers from any unaffiliated person for (a) the merger or consolidation of the Company into or with any person, (b) the sale or other transfer of all or any substantial part of the assets of the Company, or (c) securities of the Company which would enable the holder thereof to exercise control of the Company. Item 9. Reports, Opinions, Appraisals and Certain Negotiations. (a) On June 23, 1998, the Board of Directors of the Company retained the services of Ferris, Baker Watts to perform a valuation of the Company's Common Stock and render its opinion as to the fairness of the Purchase Price, from a financial point of view, to be paid to the holders of fractional shares of the New Common Stock following the reverse stock split. (b) The following information is provided with respect to the fairness opinion provided by Ferris, Baker Watts: (1) Ferris, Baker Watts performed a valuation of the Company's Common Stock and provided its opinion as to the fairness of the Purchase Price, from a financial point of view, to be paid to the holders of fractional shares of the New Common Stock following the reverse stock split. (2) Ferris, Baker Watts is a Mid-Atlantic based investment bank whose corporate finance activities are focused on small to middle market companies. Ferris, Baker Watts provides a full range of investment banking services to its clients, ranging from merger and acquisition services, public offerings, private placements and advisory services. 9 (3) The Special Committee solicited proposals from three investment bankers, interviewed two and unanimously agreed to retain the services of Ferris, Baker Watts. (4) Other than the engagement of Ferris, Baker Watts to provide the services described in Item 9(a), there are no material relationships between (i) Ferris, Baker Watts, its affiliates and/or unaffiliated representative, and (ii) the Company or its affiliates, which existed during the past two years or is materially understood to be contemplated. The fee for Ferris, Baker Watts' services is $65,000. (5) Ferris, Baker Watts provided to the Special Committee and the Board of Directors a range of values of the fractional shares of Common Stock and a recommendation to pay a price at the top of the range or at a premium to the top end of the range. The Special Committee unanimously recommended to the Board of Directors a price of $1,250 per share of New Common Stock and the Board of Directors unanimously adopted such recommendation. (6) The Company retained Ferris, Baker Watts to investigate the proposed consideration offered to shareholders and to provide an opinion as to the fairness, from a financial point of view, to the shareholders of the consideration to be paid for each share of New Common Stock. The Company requested Ferris, Baker Watts to undertake the proposed valuation because of its familiarity with companies such as the Company and its experience with companies having a market capitalization below $100,000,000. On December 8, 1998, Ferris, Baker Watts delivered an opinion (the "Fairness Opinion") to the Board of Directors of the Company which concluded that based upon and subject to the considerations set forth therein, as of such date the consideration to be received by the shareholders of the Company for fractional shares of New Common Stock pursuant to the reverse stock split was fair from a financial point of view. The Fairness Opinion was based upon economic, market and other conditions in effect as of its date. No limitations were imposed by the Board of Directors of the Company upon Ferris, Baker Watts with respect to its investigation or procedures followed in rendering the Fairness Opinion. The Fairness Opinion, which sets forth assumptions made, material reviewed, matters considered, and the limits of the review, is attached as Exhibit 3 and is incorporated into this Schedule by reference. The following is a summary of the Fairness Opinion. Stockholders of the Company are urged to read the Fairness Opinion in its entirety. Ferris, Baker Watts has consented to the inclusion of its opinion in this Schedule and Information Statement provided to shareholders of the Company and has reviewed the following summary. In connection with the Fairness Opinion, Ferris, Baker Watts reviewed, among other things: (i) the proposed reverse stock split; (ii) annual reports on form 10-K for the fiscal years ended October 25, 1997, October 26, 1996, October 28, 1995, October 29, 1994, and October 25, 1993; (iii) quarterly reports on form 10-Q for the periods ended July 25, 1998, April 25, 1998, January 24, 1998, July 26, 1997, April 26, 1997, January 26, 1997, July 27, 1996, April 27, 1996, January 27, 1996, July 29, 1995, April 29, 1995, January 28, 1995, July 30, 1994, April 30, 1994, January 29, 1994, July 31, 1993, May 1, 1993, January 30, 1993; and (iv) projected financial results for fiscal years 1998 through 2003 provided by management of the Company and approved by the Board of Directors of the Company. Ferris, Baker Watts also held discussions with management of the Company regarding its past and current business operations, financial condition and future prospects. Ferris, Baker Watts reviewed the reported price and trading activity of the Company's Common Stock, compared certain financial and 10 stock market information concerning the Company with similar information for other parts manufacturers supplying the automotive industry, the securities of which are publicly traded, and performed other studies and analyses which Ferris, Baker Watts deemed appropriate. Ferris, Baker Watts assumed and relied upon the accuracy and completeness of all financial and other information reviewed for the purposes of the Fairness Opinion, whether publicly available or provided to Ferris, Baker Watts by the Company and did not independently verify any such information or make an independent evaluation or appraisal of the assets or liabilities of the Company. The preparation of a fairness opinion involves determinations as to the appropriate and relevant methods of financial analysis and, therefore, reference should be made to the Fairness Opinion in its entirety and not to a summary description. In performing its analysis, Ferris, Baker Watts made numerous assumptions with respect to industry performance, business and economic condition and other matters, many of which are beyond the control of the Company. The analyses performed by Ferris, Baker Watts are not necessarily indicative of future results and do not purport to be appraisals or to reflect prices at which businesses may actually be sold. The following paragraphs summarize all material analyses performed by Ferris, Baker Watts. Ferris, Baker Watts considered several methods to evaluate the value of the Company, including: (i) the discounted future free cash flow of the Company, and (ii) the earnings and book multiple comparisons to publicly traded companies engaged in parts manufacturing supplying the automotive industry. Ferris, Baker Watts also considered the market value of the Company's shares of Common Stock as well as its trading history. The discounted future free cash flow analysis ascribes value only to the cash flows that can ultimately be taken out of the business. These free cash flows are then discounted to the present at the firm's weighted average cost of capital. The weighted average cost of capital can be described as the average price a company must pay to attract both debt and equity to properly capitalize its growth. These series of cash flows, when discounted to the present and after subtracting claims by debt holders and others, represent the economic value of a company to its shareholders. This method of valuation depends upon the accuracy of the financial projections. Ferris, Baker Watts assumed that such projections were reasonably prepared by the management of the Company on bases reflecting the best currently available estimates and judgments as to the Company's expected future financial performance. The earnings and book multiple comparison analysis examines the operating earnings, net income (both historical and projected), revenue and book value multiples. From these results, implied equity can be determined. From these analyses, Ferris, Baker Watts determined that (i) the consideration to be received by the shareholders for the fractional shares of New Common Stock was fair from a financial point of view, and (ii) the goal of the reverse stock split could be accomplished at minimal cost and would not have an adverse impact on the Company. The Fairness Opinion relates only to whether the consideration to be received by the holders of fractional shares of New Common Stock is fair from a financial point of view and does not constitute a recommendation to any stockholder of the Company as to how such stockholders should vote with respect to the reverse stock split. (c) Ferris, Baker Watts' opinion is attached as Exhibit 3 to this Schedule. 11 Item 10. Interest in Securities of the Issuer. (a) As of the date of this Schedule 13E-3, the record and beneficial ownership (except for beneficial ownership disclaimed as set forth in applicable footnotes) of the Company's Common Stock, the percentage of the total number of issued and outstanding Common Stock, and the number of shares of Common Stock that there is a right to acquire of the person filing this Schedule, together with any pension plan, profit or similar plan, and by each executive officer, director, and each controlling stockholder are as follows:
- ----------------------------------------------------------------------------- NAME POSITION NO. SHARES (1) PERCENTAGE (1) - ----------------------------------------------------------------------------- William Ewing, III Chairman of the Board of Directors, Controlling 437,329 (2) 3.4 Person 9,077,468 (3) 71.6 - ----------------------------------------------------------------------------- Ronald D. Stouffer President, Chief Executive Officer, Director 129,431 1.1 - ----------------------------------------------------------------------------- Eric W. Koehler Executive Vice President, Director - ----------------------------------------------------------------------------- John E. Searle, Jr. Director 20,000 .2 - ----------------------------------------------------------------------------- David C. Dressler Director 20,000 .2 - ----------------------------------------------------------------------------- James T, Parkinson, III (4) Director, Controlling Person 1,176,849 9.3 - ----------------------------------------------------------------------------- Frederic Ewing, II Director, Controlling Person 390,827 (5) 3.1 344,540 (6) 2.7 - ----------------------------------------------------------------------------- Melvyn J. L. Clough Vice President, Operations - ----------------------------------------------------------------------------- Richard W. Hess Vice President, Automotive Products Engineering 5,000 .1 - ----------------------------------------------------------------------------- Eleanor M. Kupris Secretary and Vice President, Administration 38,040 .3 - ----------------------------------------------------------------------------- David A. Quinn Vice President, Finance and Treasurer 21,000 .2 - ----------------------------------------------------------------------------- Dharapuram N. Srinath Vice President, Advanced Engineering 6,500 .1 - ----------------------------------------------------------------------------- Arlene M. Hardy Corporate Controller - -----------------------------------------------------------------------------
Notes: 1. Excludes Preferred Stock. 2. For own account, including 53,320 shares held by Mr. Ewing's children for which he holds a power of attorney. 3. Owned by trusts of which Mr. Ewing is a trustee or owned by other individuals for which he holds their powers of attorney. 4. As trustee of trusts established under the will of Arthur Choate. 5. For own account. 6. As trustee for two trusts. (b) No transactions in any shares of the Common Stock of the Company were effected during the 60 days immediately preceding the date of this Schedule 13E-3 by the Company or by any of the persons named in paragraph (a) of this Item. Item 11. Contracts, Arrangements or Understandings with Respect to the Issuer's Securities. There are no contracts, arrangements, understandings or relationships between the Company or the persons listed above and any other person in connection with the proposed reverse stock split concerning the transfer or voting of the Company's Common Stock or Preferred Stock, joint 12 ventures, loan or option arrangements, puts or calls, guaranties or the giving or withholding of proxies, consents or other authorizations. Item 12. Present Intention and Recommendation of Certain Persons with Regard to the Transaction. (a) To the knowledge of the person filing this Schedule, after making reasonable inquiry, no executive officer, director or affiliate of the Company or any person enumerated in Exhibit 1 to this Schedule presently intends to tender or sell any of the Company's Common Stock owned or held by such person, except with respect to fractional shares of New Common Stock to be purchased by the Company following the reverse stock split. Each of the persons enumerated in Exhibit 1 presently intends to vote all shares of the Common Stock held by such person and with respect to which such person holds proxies, in favor of the Proposed Amendment, as described in Item 5 of this Schedule. (b) As described in Items 7 and 8 above, all of the persons enumerated in Exhibit 1 to this Schedule who are directors of the Company and all members of the Special Committee voted in favor of the Proposed Amendment. To the knowledge of the person filing this statement, after making reasonable inquiry, except as stated in the preceding sentence, none of the persons named in Exhibit 1 to this Schedule has made a recommendation in support of or opposed to the Proposed Amendment. Item 13. Other Provisions of the Transaction. (a) Not applicable. (b) Not applicable. (c) Not applicable. Item 14. Financial Information. (a) (1) Audited financial statements for the Company's 1996 and 1997 fiscal years required to be filed with the Company's most recent annual report under sections 13 and 15(d) of the Securities Exchange Act of 1934 are attached hereto as Exhibit 4. The Company's audited financial statement for fiscal year 1998 are attached hereto as Exhibit 5. (2) Not applicable. (3) The ratios of earnings to fixed charges for the two most recent fiscal years were not determined as there were no debt instruments or fixed charges for either of these two years. (4) The book value per share as of the fiscal year ended October 25, 1997, was $0.60, and as of the end of the third fiscal quarter of 1998 (July 25, 1998), was $0.66. (b) Pro forma data disclosing the effect of the reverse stock split and buyback of fractional shares on (1) the Company's balance sheet as of the most recent fiscal year end is attached as Exhibit 6; and (2) the Company's statement of income, earnings per share amounts, and ratio of earnings to fixed charges for the most recent fiscal year end is attached as Exhibit 7. The Company's book value per share as of the fiscal year ended October 25, 1997, taking into account the effect of the reverse stock split and buyback of fractional shares was $589.41 per share of New Common Stock, and as of the end of the third fiscal quarter of 1998 (July 25, 13 1998), taking into account the effect of the reverse stock split and buyback of fractional shares, was $654.44 per share of New Common Stock. Item 15. Persons and Assets Employed, Retained or Utilized. (a) No officer, employee, class of employees or corporate asset of the Company (excluding corporate assets which are proposed to be used as consideration for purchases of securities or payment of expenses which are disclosed in Item 6 of this Schedule) has been or is proposed to be employed, availed of or utilized by the Company or affiliate in connection with the Proposed Amendment and reverse stock split described in this Schedule. (b) No person (excluding persons identified in Item 15(a) above), has been employed, retained or is to be compensated by the Company, or by any person on behalf of the Company, to make solicitations or recommendations in connection with the Proposed Amendment and reverse stock split described in this Schedule. Item 16. Additional Information. It is expected that the owners of more than the necessary two-thirds of the shares of Common Stock and Preferred Stock entitled to vote on the Proposed Amendment (including, without limitation, all shares owned by the persons listed on Exhibit 1 to this Schedule and any shares controlled by them) will vote in favor of the Proposed Amendment, and, accordingly that such amendment will receive the necessary approval from stockholders entitled to vote on the question. Upon receipt of stockholder approval, the Company expects to move quickly to implement the Proposed Amendment and the reverse stock split authorized by such amendment. Item 17. Material to be Filed as Exhibits. (a) Not applicable. (b) The report and opinion of Ferris, Baker Watts referred to in Items 8(d) or 9 of this Schedule are attached hereto as Exhibit 3. (c) Not applicable. (d) Any disclosure materials furnished to stockholders of the Company in connection with the Proposed Amendment and reverse stock split pursuant to SEC Rule 13e-3(d) (Sec. 240.13e-3(d)) are attached hereto as Exhibit 8. (e) Not applicable. (f) Not applicable. 14 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. ----------------------------------------- (Date) ----------------------------------------- (Signature) Ronald D. Stouffer, President ----------------------------------------- (Name and Title) Exhibit Index 1. Identity and Background of Directors, Executive Officers and Controlling Persons of the Company 2. Proposed Amendment to the Company's Articles of Incorporation and Resolutions adopted by the Board of Directors on December 8, 1998 3. Fairness Opinion of Ferris, Baker Watts, dated December 8, 1998 4. Audited Financial Statements for the Fiscal Years Ended October 26, 1996, and October 25, 1997, filed with the Company's most recent Annual Report under Sections 13 and 15(d) of the Securities Exchange Act of 1934 5. Audited Financial Statement for the Fiscal Year Ended October 31, 1998 6. Pro Forma Data Disclosing the Effect of the Reverse Stock Split and Buyback of Fractional Shares on the Company's Balance Sheet as of the Most Recent Fiscal Year End 7. Pro Forma Data Disclosing the Effect of the Reverse Stock Split and Buyback of Fractional Shares on the Company's Statement of Income, Earnings Per Share Amounts, and Ratio Of Earnings to Fixed Charges for the Most Recent Fiscal Year End 8. Disclosure Materials to be Furnished to Company Stockholders 15 EX-1 2 EXHIBIT 1 EXHIBIT 1 Identity and Background of Directors, Executive Officers and Controlling Persons of the Company
- ------------------------------------------------------------------------------------------- Occupation or Employment Name Position Present Occupation during Past Five Years - ------------------------------------------------------------------------------------------- William Ewing, III Chairman of the Chairman of the Board Vice President and Board of Directors, Bowles Fluidics Treasurer, 1995-1997 1996 - present, Corporation Reeves Industries, Inc. Controlling Person 6625 Dobbin Road 101 Merritt Columbia, Maryland P. O. Box 5063 Director, 1985 - 21045-4707 Norwalk, CT present Chairman of the Board Managing Director, Vacuum Instruments 1992-1994 Corp. Chemical Bank 2099 9th Ave. New York, New York Ronkonoma, NY 11779 Chairman of the Board Actronics Inc. 166 Bear Hill Road Waltham, MA 02154 - ------------------------------------------------------------------------------------------- Ronald D. Stouffer President, 1994 - President and Chief Executive Vice present Executive Officer President, 1982 to 1994 Chief Executive Bowles Fluidics Bowles Fluidics Officer, 1994 - Corporation Corporation present Director, 1978 - present - ------------------------------------------------------------------------------------------- Eric W. Koehler Executive Vice Executive Vice Vice President, President, 1997 - President Marketing, 1994 - 1997 present Bowles Fluidics Director of Marketing, Corporation 1990-1994 Director, 1997 - Bowles Fluidics present Corporation - ------------------------------------------------------------------------------------------- John E. Searle, Jr. Director Retired - ------------------------------------------------------------------------------------------- David C. Dressler Director Retired - ------------------------------------------------------------------------------------------- Neil Ruddock Director, 1998 - President, N. T. present Ruddock Co. President, National Metal Abrasives Co. 26123 Broadway Ave. Cleveland, Ohio 44146 - ------------------------------------------------------------------------------------------- James T. Director, Self Employed; Parkinson, III Controlling Person, Investment Management 1998 - present P. O. Box 2247 Middleburg, VA 20118 - ------------------------------------------------------------------------------------------- Frederic Ewing, II Director, President Controlling Person Vacuum Instrument Corp. 2099 9th Avenue Ronkonoma, NY 11779 - ------------------------------------------------------------------------------------------- Melvyn J. L. Vice President, Vice President, Engineering Manager, Clough* Operations, 1995 - Operations 1992-1995 present Bowles Fluidics A. Raymond, Inc. Corporation 3091 Research Dr. Rochester Hills, Michigan - -------------------------------------------------------------------------------------------
Exhibit 1 - 2
- ------------------------------------------------------------------------------------------- Occupation or Employment Name Position Present Occupation during Past Five Years - ------------------------------------------------------------------------------------------- Richard W. Hess Vice President, Vice President, Vice President, Automotive Products Automotive Products Engineering, 1992 - 1998, Engineering, 1998 - Engineering, 1998 - Bowles Fluidics present present Corporation Bowles Fluidics Corporation - ------------------------------------------------------------------------------------------- Eleanor M. Kupris Secretary and Vice Corporate Secretary, President, March 1992 - present Administration, Vice President, 1982 - present Administration, since 1982 - present Bowles Fluidics Corporation - ------------------------------------------------------------------------------------------- David A. Quinn Vice President, Vice President, Chief Financial Officer, Finance, and Finance and Treasurer, 1991-1993 Treasurer, 1993 - 1993 - present Bruning Paint Company present Bowles Fluidics 301 South Haven Street Corporation Baltimore, MD 21224 - ------------------------------------------------------------------------------------------- Dharapuram N. Vice President, Vice President, Vice President, Quality Srinath** Advanced Advanced Engineering, Assurance, 1995 - 1998 Engineering, 1998 - 1998 - present Director of Quality present Bowles Fluidics Assurance and Product Corporation Reliability, 1992-1995 Bowles Fluidics Corporation - ------------------------------------------------------------------------------------------- Arlene M. Hardy Corporate Corporate Controller, Controller, 1990 - 1990 - present present Bowles Fluidics Corporation - -------------------------------------------------------------------------------------------
* Citizen of the United Kingdom. ** Citizen of India. Exhibit 2 - 2 EXHIBIT 2 Proposed Amendment to the Company's Articles of Incorporation and Resolution Adopted by the Board of Directors on December 8, 1998 Article FOURTH of the Articles of Incorporation of the Corporation is hereby amended by: 1. Cancelling the first two paragraphs thereof and inserting the following in its place: FOURTH: The total number of shares of all classes of stock the Corporation has authority to issue is Three Million Seventeen Thousand (3,017,000) shares divided into Three Million (3,000,000) shares of cumulative, convertible Preferred Stock of a par value of One Dollar ($1.00) each and Seventeen Thousand (17,000) shares of Common Stock of a par value of One Hundred Dollars ($100) each. The Aggregate par value of all shares having par value of all classes is Four Million Seven Hundred Thousand Dollars ($4,700,000). 2. Cancelling the paragraph immediately following the caption "Voting Rights" and inserting the following in its place: The Common Stock shall have one (1) vote per share and the Preferred Stock shall have one-two hundred fiftieth (1/250) vote per share. Except to the extent otherwise provided in the Articles of Incorporation or provided by the laws of the State of Maryland, the Common Stock and the Preferred Stock shall vote as a single class. 3. Cancelling the paragraph following the caption "Conversion" and inserting the following in its place: The cumulative Preferred Stock of the Corporation of One Dollar ($1.00) par value, may at the option of the holder thereof, at any time dividends are current be converted into Common Stock of the Corporation of One Hundred Dollars ($100) par value upon the following terms: (1) Any holder of any of the convertible Preferred shares desiring to avail himself of the option for conversion of his stock as herein provided, shall, deliver, duly endorsed in blank, the certificate or certificates representing the stock to be converted to the Secretary of the Corporation at the Corporation Office and at the same time, notify the Secretary in writing over his signature that he desires to convert his stock into Common Stock of One Hundred Dollars ($100) par value pursuant to these provisions. (2) Upon receipt by the Secretary of a certificate or certificates representing shares of convertible Preferred Stock and a notice that the holder thereof desired to convert the same, the Exhibit 2 - 1 Corporation shall forthwith cause to be issued to the holder of the convertible Preferred shares surrendering the same, one-two hundred fiftieth (1/250) share of Common Stock for each share of convertible Preferred Stock surrendered, and shall deliver to such holder a certificate in due form for such Common Stock. Exhibit 2 - 2 EX-3 3 EXHIBIT 3 EXHIBIT 3 FAIRNESS OPINION OF FERRIS, BAKER WATTS, DATED DECEMBER 8, 1998 December 8, 1998 The Board of Directors Bowles Fluidics Corporation 6625 Dobbin Road Columbia, MD 21045 Gentlemen: Bowles Fluidics Corporation ("Bowles" or the "Company") has requested a review of the proposed transaction (the "Transaction") involving the reverse split of its common stock and the subsequent repurchase by the Company of fractional shares created through the Transaction. Specifically, you have requested a review of the financial consideration to be received by the shareholders who will have their fractional shares repurchased in the Transaction. We were retained by the Board of Directors and commenced our investigation of the Transaction on June 23, 1998. Pursuant to the Transaction, the Company will effect a one for 1,000 reverse split of its common stock. Shareholders holding fractional shares shall have their shares repurchased by the Company for $1.25 per pre-split share. In connection with the opinion, we have reviewed, among other things, (i) the proposed Transaction, (ii) historical operating results of the Company, (iii) internally prepared projections of the Company, and (iv) the historical trading performance of the Company's stock. We have held discussions with the members of the management of the Company regarding the past and current business operations as well as the future prospects of the Company. We have reviewed industry specific data regarding the valuation of publicly traded companies in the automotive supplier market as well as other such information as we consider appropriate. In rendering our opinion, we have assumed and relied upon the accuracy and completeness of all financial and other information reviewed by us for purposes of this opinion whether publicly available or provided to us by the Company or representatives of the Company, and we have not assumed any responsibility for independent verification of such information. We express no opinion as to the allocation to be received by holders of interests who may perfect dissenters' statutory fair appraisal remedies. Based upon the foregoing and based upon other such matters that we consider relevant, it is our opinion that the consideration to be received by the shareholders of the Company as a result of the Transaction is fair from a financial point of view as of the date hereof. Our opinion is necessarily based upon economic, market and other conditions as in effect on, and the information made available to us as of December 8, 1998. Our opinion is directed to Exhibit 3 - 1 the Board of Directors of the Company and does not constitute a recommendation to any stockholder of the Company as to how the stockholder should vote at the stockholder's meeting held in connection with the Transaction. It is understood that subsequent developments may affect the conclusions reached in this opinion and that we do not have any obligation to update, revise or reaffirm this opinion. Very truly yours, Ferris, Baker Watts, Incorporated Exhibit 3 - 2 EX-4 4 EXHIBIT 4 Exhibit 4 AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDING OCTOBER 26, 1996, AND OCTOBER 25, 1997, FILED WITH THE COMPANY'S MOST RECENT ANNUAL REPORT UNDER SECTIONS 13 AND 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Bowles Fluidics Corporation We have audited the accompanying consolidated balance sheets of Bowles Fluidics Corporation as of October 25, 1997, and October 26, 1996, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three fiscal years in the period ended October 25, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bowles Fluidics Corporation as of October 25, 1997, and October 26, 1996, and the results of its operations and its cash flows for each of the three fiscal years in the period ended October 25, 1997, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Baltimore, Maryland December 19, 1997 Exhibit 4 - 1 BOWLES FLUIDICS CORPORATION CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended -------------------------------------------- October 25, October 26, October 28, 1997 1996 1995 ----------- ----------- ----------- Net sales $18,842,673 $18,128,274 $16,972,876 Cost of sales 13,065,374 11,996,305 10,852,940 ---------- ---------- ---------- Gross profit 5,777,299 6,131,969 6,119,936 Selling, general and administrative expenses 3,094,769 3,643,128 2,609,911 Research and development costs 1,005,183 1,175,890 636,970 ---------- ---------- ----------- Operating income 1,677,347 1,312,951 2,873,055 Interest income 117,541 89,401 90,155 Other income (expense), net 4,555 (11,417) (30,433) ------------ ------------ ---------- Income before taxes 1,799,443 1,390,935 2,932,777 Provision for income taxes 657,420 506,629 1,148,902 ----------- ----------- ---------- Net income 1,142,023 884,306 1,783,875 Preferred stock dividends accrued (74,646) (74,645) (74,648) ------------ ----------- ----------- Income applicable to common shareholders $ 1,067,377 $ 809,661 $ 1,709,227 =========== ============ ============ Primary earnings per share $ .08 $ .06 $ .13 =========== ============ ============ Fully diluted earnings per share $ .07 $ .05 $ .11 =========== ============ ============
The accompanying notes are an integral part of these financial statements. Exhibit 4 - 2
BOWLES FLUIDICS CORPORATION CONSOLIDATED BALANCE SHEETS October 25, October 26, 1997 1996 ----------- ----------- ASSETS Current Cash and cash equivalents $ 755,525 $1,287,110 Investments available for sale 1,563,121 577,837 Accounts receivable 3,112,063 2,775,658 Inventories 2,130,615 1,986,065 Other current assets 634,037 556,525 ----------- ----------- Total current assets 8,195,361 7,183,195 ---------- ---------- Property and equipment, net 3,494,335 3,428,765 Other assets 95,005 107,892 ------------ ----------- Total assets $11,784,701 $10,719,852 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Accounts payable - trade $1,122,437 $1,104,511 Accrued expenses 1,609,807 1,389,356 Income taxes payable 48,162 40,000 ----------- ---------- Total current liabilities 2,780,406 2,533,867 Other liabilities 492,866 746,433 ----------- ---------- Total liabilities 3,273,272 3,280,300 ---------- ---------- Commitments and contingencies Stockholders' equity 8% Convertible preferred stock 933,080 933,080 Common stock 1,264,001 1,261,001 Additional paid-in capital 2,728,083 2,726,583 Retained earnings ($2,407,467 deficit eliminated at 10/29/94) Note 6 3,586,265 2,518,888 ---------- ---------- Total stockholders' equity 8,511,429 7,439,552 ---------- ---------- Total liabilities and stockholders' equity $11,784,701 $10,719,852 =========== ===========
The accompanying notes are an integral part of these financial statements. Exhibit 4 - 3 BOWLES FLUIDICS CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Preferred Stock Common Stock ------------------ ----------------- Additional Shares Shares Amount Paid-in Retained Total (000's) Amount (000's) Amount Capital Earnings ---------- -------- ------ ------- ------ ------- -------- Balance October 29, 1994 $4,907,664 933 $933,080 12,590 $1,259,001 $2,715,583 $ -- Stock options exercised 13,000 20 2,000 11,000 Preferred stock dividends (74,648) (74,648) Net income 1,783,875 1,783,875 ---------- --- ------- ----- ------- -------- --------- Balance October 28, 1995 6,629,891 933 933,080 12,610 1,261,001 2,726,583 1,709,227 Preferred stock dividends (74,645) (74,645) Net income 884,306 884,306 ---------- --- ------- ----- ------- -------- ---------- Balance October 26, 1996 7,439,552 933 933,080 12,610 1,261,001 2,726,583 2,518,888 Stock options exercised 4,500 30 3,000 1,500 Preferred stock dividends (74,646) (74,646) Net income 1,142,023 1,142,023 --------- --- ------- ----- ------- -------- --------- Balance October 25, 1997 $8,511,429 933 $933,080 12,640 $1,264,001 $2,728,083 $3,586,265 ========= === ======= ====== ========= ========= =========
The accompanying notes are an integral part of these financial statements. Exhibit 4 - 4 BOWLES FLUIDICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended ------------------------------------- October 25, October 26, October 28, 1997 1996 1995 ----------- ----------- ----------- Cash flows from operating activities: Net income $1,142,023 $ 884,306 $1,783,875 Adjustments to reconcile net income provided by operating activities: Depreciation and amortization 960,346 750,449 661,024 Deferred income taxes 5,900 (241,315) (36,500) (Gain)/Loss on disposal of assets 21,089 3,088 (2,267) Accretion of interest on investments (45,269) (31,659) (14,125) ---------- ---------- ---------- 2,084,089 1,364,869 2,392,007 --------- --------- --------- Change in operating accounts: Accounts receivable (336,405) (14,264) (844,509) Inventories (144,550) (86,719) (202,846) Other assets (86,758) (122,381) (111,535) Accounts payable 17,926 109,090 (70,656) Accrued expenses (189,549) 537,235 57,314 Income taxes payable 8,162 (71,441) (431,715) Other liabilities 156,433 428,049 63,150 --------- ---------- ----------- (574,741) 779,569 (1,540,797) --------- ---------- --------- Net cash provided by operating activities: 1,509,348 2,144,438 851,210 --------- --------- ---------- Cash flows from investing activities: Capital expenditures (1,027,780) (1,321,331) (962,597) Purchase of investments (1,540,015) (566,664) (1,143,566) Patents and trademarks (4,433) -- (32,556) Proceeds from sale of equipment 1,441 -- 31,025 Proceeds from sale of investments 600,000 700,000 962,985 ---------- ---------- ---------- Net cash used in investing activities (1,970,787) (1,187,995) (1,144,709) --------- --------- --------- Cash flows from financing activities: Principal payment of debt -- (271,669) (525,102) Preferred stock dividends (74,646) (74,645) (74,648) Proceeds from issuance of common stock 4,500 -- 13,000 ----------- ----------- ----------- Net cash used by financing activities (70,146) (346,314) (586,750) ---------- ---------- ---------- Net increase(decrease) in cash and cash equivalents (531,585) 610,129 (880,249) Cash and cash equivalents: - Beginning of period 1,287,110 676,981 1,557,230 --------- ---------- -------- - End of period $ 755,525 $1,287,110 $ 676,981 ========== ========= ========
The accompanying notes are an integral part of these financial statements. Exhibit 4 - 5 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies General. The Company and its wholly owned subsidiary, Fluid Effects Corporation, operate on a 52/53-week fiscal year which ends on the last Saturday of October. All years presented are 52 weeks. Assets and liabilities, and revenues and expenses, are recognized on the accrual basis of accounting. Cash Equivalents. Cash equivalents are highly liquid investments with original maturities of 90 days or less. Investments. Investments, which are available for sale, consist of U.S. Treasury bills with original maturities over 90 days, but not greater than 365 days, and are carried at cost plus accrued interest, which approximates market. Inventory Pricing. Inventories are carried at the lower of cost (first-in, first-out) or market. Property, Equipment and Depreciation. The cost of property and equipment is depreciated over the estimated useful life of the related assets. Depreciation is computed on the straight-line method for all assets based on the following estimated lives: Years ----- Production machinery and equipment 3-10 Office furniture and equipment 5-7 Laboratory and machine shop equipment 3-10 Leasehold improvements lease term Depreciation expense for the fiscal years ended 1997, 1996, and 1995 was $939,678, $711,282, and $612,294 respectively. Patents. Costs associated with obtaining United States patents are capitalized and amortized using the straight-line method over the life of the patent beginning with the date of issue or date of filing the application. The Company initially charges all costs associated with the acquisition of U.S. and foreign patents to expense, then capitalizes those costs related to U.S. patents upon issuance of those patents. Management reviews all of the patent costs and writes off any patents which are considered to be of no foreseeable economic benefit to the Company. The Company recognizes income from patent licenses in accordance with the respective payment terms of each license agreement. Exhibit 4 - 6 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. (continued) Income Taxes. The Company uses the asset and liability method for accounting for income taxes. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statements carrying amounts and the tax bases of existing assets and liabilities. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications. Certain 1995 and 1996 amounts have been reclassified to conform to the 1997 presentation. Concentrations of Credit Risk. Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable and cash investments. The Company's customer base includes the significant U.S. automotive manufacturers and a large number of automotive parts suppliers. The Company does not require collateral for its trade accounts receivable. However, the Company's credit evaluation process, reasonably short collection terms, and the geographical dispersion of sales transactions help to mitigate any concentration of credit risk. The Company also has cash investment policies that limit the amount of credit exposure to any one financial institution and require placement of investments in financial institutions evaluated as highly creditworthy. 2. Inventories Inventories are comprised of: 1997 1996 --------- -------- Raw material $ 620,567 $ 678,494 Work and tooling in progress 1,016,845 242,369 Finished goods 493,203 1,065,202 -------- --------- Total $2,130,615 $1,986,065 ========= ========= Exhibit 4 - 7 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Property and Equipment, net Property and Equipment, net, is comprised of:
1997 1996 --------- -------- Production machinery and equipment $4,946,390 $4,397,018 Office furniture and equipment 2,321,844 1,992,152 Laboratory and machine shop equipment 1,428,516 1,395,837 Leasehold improvements 812,120 796,928 ---------- -------- Total property and equipment 9,508,870 8,581,935 Less accumulated depreciation (6,014,535) (5,153,170) ---------- -------- Property and equipment, net $3,494,335 $3,428,765 ========= =========
4. Line of Credit In May 1996, the Company entered into a fourth amended and restated agreement with Mercantile-Safe Deposit & Trust Company to reaffirm and extend its $1,000,000 line of credit until May 8, 1997, on an unsecured basis. At the Company's request and the Bank's discretion the line of credit was extended until May 8, 1998, and may be reaffirmed each year thereafter. The interest rate is Mercantile's prime rate, floating, which was 8-1/2% as of October 25, 1997. In addition, a 3/8% annual fee is assessed on the unused portion of this credit facility. Advances on the line of credit are limited to 85% of eligible accounts receivable and 40% of finished goods inventory. No amount was outstanding on this credit line at October 25, 1997, or October 26, 1996. In addition to the maintenance of certain financial ratios, the covenants of the fourth amended loan agreement require the Company's tangible net worth to be not less than $2,000,000 as of the close of each fiscal year. 5. Debt No debt was outstanding as of October 25, 1997, and October 26, 1996. In February 1996 the unpaid balance of the then outstanding loan from Mercantile-Safe Deposit & Trust Company was paid in total. Cash paid for interest during 1997, 1996, and 1995 was $0, $6,018, and $37,586, respectively. Exhibit 4 - 8 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Stockholders' Equity The 8% convertible preferred stock of the Company at October 25, 1997, and October 26, 1996, consists of 3,000,000 authorized shares, par value $1.00 per share, with 933,080 shares issued and outstanding on both dates. The common stock of the Company at October 25, 1997, and October 26, 1996, consists of 17,000,000 authorized shares, par value $.10 per share. On October 25, 1997, the shares issued and outstanding were 12,640,011, whereas on October 26, 1996, they were 12,610,011. The Company's preferred stock provides for an annual dividend of $.08 per share from the net earnings of the Company and is cumulative only for those years in which the Company has earnings, and $1.00 per share in liquidation before any distribution can be made to holders of common stock. If any dividends payable on the preferred stock with respect to any fiscal year of the Company are not paid for any reason, the rights of the holders of the preferred stock to receive payment of such dividends shall not lapse or terminate; but unpaid dividends shall accumulate and shall be paid without interest to the holders of the preferred stock when and as authorized by the Board of Directors before any dividends shall be paid on any other class of stock. The Company's preferred stock may at the option of the holder, at any time dividends are current, be converted into common stock of the Company at the conversion rate of four shares of common for each share of preferred. Additionally, the preferred stock is redeemable at par in whole or in part at the option of the Board of Directors at any time the dividends are current after a period of 10 years subsequent to issue. At October 25, 1997, 683,080 shares have been outstanding for more than 10 years and dividends are current, and thus can be converted. The common stock has one (1) vote per share and the preferred stock has four (4) votes per share. Reserved Shares. As of and for the three fiscal years in the period ended October 25, 1997, there were 300,000 shares of common stock reserved for issuance in connection with the Company's stock option plans. None of the authorized shares of common stock are reserved for conversion of preferred stock. Under the laws of the State of Maryland, the authorization of the preferred stock in itself provides the authorization of common stock necessary for conversion. Quasi-reorganization. Effective October 29, 1994, the Board of Directors approved a quasi-reorganization which had the impact of eliminating the retained earnings deficit as an adjustment to additional paid-in capital. Exhibit 4 - 9 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Income Taxes The Company and its subsidiary file a consolidated federal income tax return and separate state income tax returns. The provision for income taxes consisted of the following:
1997 1996 1995 --------- --------- --------- Federal: Current $620,131 $678,938 $1,019,525 Deferred (6,100) (222,600) (30,100) --------- ------- -------- 614,031 456,338 989,425 ------- ------- ------- State: Current 43,189 68,791 164,377 Deferred 200 (18,500) (4,900) ---------- ------- -------- 43,389 50,291 159,477 -------- -------- --------- $657,420 $506,629 $1,148,902 ======= ======= =========
The components of the deferred tax asset and liability for 1997 and 1996 were as follows: 1997 1996
Deferred tax assets: Accrued vacation and retirement programs $ 83,600 $190,300 Non-deductible reserves 490,600 387,100 ------- ------- Total deferred tax assets 574,200 577,400 ------- ------- Deferred tax liabilities: Property and equipment (303,700) (312,800) ------- ------- Total deferred tax liabilities (303,700) (312,800) ------- ------- Net deferred tax assets $270,500 $264,600 ======= =======
Reconciliation of the provisions for income taxes at the U.S. federal statutory rate to the effective tax expense were as follows:
1997 1996 1995 -------- -------- --------- U.S. statutory income tax $611,811 $472,918 $ 997,145 State taxes, net of federal income tax benefit 28,637 33,711 105,255 Other, net 16,972 -- 46,502 -------- ------- ---------- $657,420 $506,629 $ 1,148,902 ======= ======= =========
Cash paid for income taxes was $584,000, $877,000, and $1,617,000 for 1997, 1996, and 1995, respectively. Exhibit 4 - 10 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Earnings per Share Primary earnings per share are based on the weighted average number of common shares and the effects of shares issuable under stock options based on the treasury stock method. Fully diluted earnings per share assumes that the preferred stock is converted to common stock at the beginning of the year. The number of shares used for computing primary earnings per share was 12,682,371, 12,701,898, and 12,706,408 in 1997, 1996, and 1995, respectively. The number of shares used in computing fully diluted earnings per share was 16,423,720, 16,473,390, and 16,445,005 in 1997, 1996, and 1995, respectively. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" (FAS 128), which will require companies to present basic earnings per share (EPS) and diluted earnings per share, instead of the primary and fully diluted EPS that is currently required. The new standard requires additional informational disclosures, and also makes certain modifications to the currently applicable EPS calculations defined in Accounting Principles Board Opinion No. 15. The new standard is required to be adopted by all public companies for reporting periods ending after December 15, 1997, and will require restatement of EPS for all periods reported. Under the requirements of FAS 128, the Company's EPS would be as follows:
October 25, October 26, October 28, 1997 1996 1995 ----------- ----------- ----------- Basic earnings per share $ .08 $ .06 $ .14 Diluted earnings per share .07 .05 .11
9. Commitments and Contingencies The Company leases its facilities under non-cancelable operating leases which expire in 2004 for Columbia, Maryland, and in 2000 for Southfield, Michigan. As of October 25, 1997, minimum annual aggregate rentals are as follows:
Year Ended Amount ---------- ------ 1998 $ 593,835 1999 594,831 2000 577,026 2001 561,648 2002 561,648 thereafter 842,472 ---------- Total minimum future rental payments $3,731,460 ==========
Exhibit 4 - 11 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. (continued) Rent expense under all leases for 1997, 1996, and 1995 was $644,008, $626,565, and $622,671, respectively. Management is unaware of any pending legal proceedings which would have a material adverse effect on the financial statements of the Company. 10. Employee Benefit Plans On November 1, 1990, the Company adopted a defined contribution (401k) plan covering substantially all of its employees. Contributions and costs were determined by matching 50% of employee contributions up to 4% of each covered employee's earnings. As of April 1, 1994, the Company increased its matching contribution to 50% of the employee contributions up to 6% of each covered employee's earnings. The Company's contributions to the plan were $151,314, $119,640, and $101,286 in 1997, 1996, and 1995, respectively. The Company has agreed to retirement programs for certain former officers providing for the payment of certain retirement benefits. The unfunded present value, at a discount rate of 7.5%, of these benefits accumulated as of October 25, 1997, amounts to approximately $347,000, of which $288,000 is included in other liabilities. Expenses related to these programs were $46,476 in 1997, $44,000 in 1996, and $102,000 in 1995. 11. Stock Options In May 1992, the Company adopted its key employee incentive stock option plan. Activity in the Company's incentive stock option plan was as follows:
1997 1996 1995 ------ ------ ------ Options outstanding, beginning of year 180,000 180,000 200,000 Options granted - - - Options exercised (30,000) - (20,000) Options expired (80,000) - - --------- ------------------ Options outstanding, end of year 70,000 180,000 180,000 ======== ======== ========
Options activities are at exercise prices ranging from $.15 to $.65 per share. Exhibit 4 - 12 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. (continued) Statement of Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (FAS 123) became effective for the Company in 1997. As allowed by FAS 123, the Company has elected to continue to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), in accounting for its stock option plans. FAS 123 requires the Company to present pro forma information as if the Company had accounted for stock options granted since December 15, 1995, under the fair value method of FAS 123. No pro forma information has been presented by the Company as no stock options have been issued since December 15, 1995, the effective date of FAS 123. 12. Termination of Sales Agreement During the fiscal year 1996, the Company accrued $760,000 ($465,400 net of income taxes) for the termination in May 1997 of the sales agreement with its manufacturer's representatives. The payments commenced in May 1997, and the current balance as of October 25, 1997, was $532,270, which is expected to be paid during fiscal year 1998. 13. Major Customers Over 90% of the Company's production of nozzles is incorporated in vehicles produced by General Motors, Ford, and Chrysler, each of whom typically represents over 10% of the Company's sales volume. The Company is, therefore, substantially dependent upon the North American production requirements of these three automotive companies. In addition, the Company's customers required that a QS-9000-compliant quality system be developed and registered by an independent organization. Registration deadlines were July 1997 for Chrysler and December 1997 for General Motors. In September 1996, the Company was assessed by Underwriters Laboratories Inc., received QS-9000 certification with ISO 9001 addendum as of December 20, 1996, and has maintained that certification since then. 14. New Accounting Pronouncements In 1997, the Financial Accounting Standards Board issued the following Statements of Financial Standards ("FAS"): Exhibit 4 - 13 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. (continued) o FAS No. 129, Disclosure of Information about Capital Structures This statement becomes effective for fiscal years ending after December 15, 1997, and continues the previous requirements to disclose certain information about an entity's capital structure found in previously issued Opinions and Standards. The Company currently follows the provisions for this statement. o FAS No. 131, Disclosures about Segments of an Enterprise and Relative Information This statement becomes effective for fiscal years beginning after December 15, 1997, and changes the way public companies report information about segments of their business in their financial statements and requires them to report selected segment information in their quarterly reports to stockholders. The Company intends to adopt the disclosure requirement by this statement for the year ending October 30, 1999. Exhibit 4 - 14 BOWLES FLUIDICS CORPORATION - EXHIBIT 11 CALCULATION OF EARNINGS PER SHARE A. PRIMARY EARNINGS PER SHARE
For the Fiscal Year Ended --------------------------------------- October 25, October 26, October 28, 1997 1996 1995 ---------- ----------- ----------- Calculation of net income: Net income per books $1,142,023 $ 884,306 $1,783,875 Less: Dividends on convertible preferred stock 74,646 74,645 74,648 ---------- ----------- ----------- Net income as adjusted $1,067,377 $ 809,661 $1,709,227 ========= ========= ========= Calculation of outstanding shares: Weighted average of common shares outstanding 12,633,764 12,610,011 12,593,353 Add: Assumed exercise of stock options 48,607 91,887 113,055 ------------ ------------ ----------- Number of common shares outstanding adjusted 12,682,371 12,701,898 12,706,408 ========== ========== ========== Primary earnings per common share: $ .08 $ .06 $ .13 ========= ========= =========
Exhibit 4 - 15 BOWLES FLUIDICS CORPORATION - EXHIBIT 11 CALCULATION OF EARNINGS PER SHARE (continued) B. FULLY DILUTED EARNINGS PER SHARE
For the Fiscal Year Ended --------------------------------------- October 25, October 26, October 28, 1997 1996 1995 ------------ ---------- ---------- Net income per books $1,142,023 $ 884,306 $ 1,783,875 ========= ========== ========== Weighted average of common shares outstanding 12,633,764 12,610,011 12,593,353 Add: Assumed conversion of preferred stock 3,732,320 3,732,320 3,732,320 Assumed exercise of stock options 57,636 131,059 119,332 ---------- ---------- ---------- Number of common shares outstanding adjusted 16,423,720 16,473,390 16,445,005 ========== ========== ========== Fully diluted earnings per common share $ .07 $ .05 $ .11 ========= ========= =========
Exhibit 4 - 16 EX-5 5 EXHIBIT 5 Exhibit 5 Audited Financial Statement for the Fiscal Year Ending October 31, 1998 The audited financial statement of the Company for the fiscal year ending October 31, 1998, is expected to be available shortly after January 1, 1999, and will be incorporated herein at such time. Exhibit 5 - 1 EX-6 6 EXHIBIT 6 Exhibit 6 Pro Forma Data Disclosing the Effect of the Reverse Stock Split and Buyback of Fractional Shares on the Company's Balance Sheet as of the Most Recent Fiscal Year End BOWLES FLUIDICS CORPORATION PRO FORMA CONSOLIDATED BALANCE SHEET
October 25, 1997 ------------------------------------ Reverse Split & Buyback Reported Adjustments Pro Forma ------------------------------------ ASSETS Current Cash and cash equivalents $755,525 ($242,600) $512,925 Investments available for sale 1,563,121 1,563,121 Accounts receivable 3,112,063 3,112,063 Inventories 2,130,615 2,130,615 Other current assets 634,037 634,037 ----------------------------------- Total current assets 8,195,361 (242,600) 7,952,761 ---------------------------------- Property and equipment, net 3,494,335 3,494,335 Other assets 95,005 95,005 ----------------------------------- Total assets $11,784,701 ($242,600) $11,542,101 =================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Accounts payable - trade $1,122,437 $1,122,437 Accrued expenses 1,609,807 1,609,807 Income taxes payable 48,162 48,162 ----------- ----------- Total current liabilities 2,780,406 2,780,406 Other liabilities 492,866 492,866 ----------- ----------- Total liabilities 3,273,272 3,273,272 ----------- ----------- Commitments and contingencies Stockholders' equity 8% Convertible preferred stock 933,080 933,080 Common stock 1,264,001 ($19,408) 1,244,593 Additional paid-in capital 2,728,083 (41,887) 2,686,196 Retained earnings 3,586,265 (181,305) 3,404,960 ------------------------------------ Total stockholders' equity 8,511,429 (242,600) 8,268,829 ------------------------------------ Total liabilities and stockholders' equity $11,784,701 ($242,600) $11,542,101 ==================================== Common stock book value $7,578,349 ($242,600) 7,335,749 Number of common shares outstanding 12,640,011 (12,627,565) 12,446 Per share $0.60 $589.41
Exhibit 6 - 1 BOWLES FLUIDICS CORPORATION PRO FORMA CONSOLIDATED BALANCE SHEET
July 25, 1998 ---------------------------------- Reverse Split & Buyback Reported Adjustments Pro Forma ---------------------------------- ASSETS Current Cash and cash equivalents $970,359 ($242,600) $727,759 Accounts receivable 2,821,583 2,821,583 Inventories 2,992,946 2,992,946 Other current assets 425,689 425,689 ------------------------------------ Total current assets 7,210,577 (242,600) 6,967,977 ------------------------------------ Property and equipment, net 4,312,460 4,312,460 Other assets 91,230 91,230 ------------------------------------ Total assets $11,614,267 ($242,600) $11,371,667 ==================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Accounts payable - trade $701,337 $701,337 Accrued expenses 1,088,139 1,088,139 ------------------------------------ Total current liabilities 1,789,476 1,789,476 Other liabilities 474,488 474,488 ------------------------------------ Total liabilities 2,263,964 2,263,964 Commitments and contingencies Stockholders' equity 8% Convertible preferred stock 933,080 933,080 Common stock 1,268,501 ($19,408) 1,249,093 Additional paid-in capital 2,732,832 (41,887) 2,690,945 Retained earnings 4,415,890 (181,305) 4,234,585 ------------------------------------ Total stockholders' equity 9,350,303 (242,600) 9,107,703 ------------------------------------ Total liabilities and stockholders' equity $11,614,267 ($242,600) $11,371,667 ==================================== Common stock book value $8,417,223 ($242,600) $8,174,623 Number of common shares outstanding 12,685,011 (12,672,520) 12,491 Per share $0.66 $654.44
Exhibit 6 - 2 BOWLES FLUIDICS CORPORATION NOTES TO PRO FORMA FINANCIAL STATEMENTS Reverse Split and Buyback Adjustments 1. Balance Sheets: October 25, 1997, and July 25, 1998 The pro forma balance sheets reflect the reduction in cash and cash equivalents and the decrease in stockholders' equity of $242,600 resulting from the buyback of estimated fractional common shares (194.077 shares) after the 1-for-1,000 reverse common stock split at $1,250 per share, as if the buyback occurred at October 25, 1997, and July 25, 1998, respectively. The pro forma book value per share reflects the lower common stock book value and the lower number of common shares outstanding after the split and buyback. Exhibit 6 - 3 EX-7 7 EXHIBIT 7 Exhibit 7 Pro Forma Data Disclosing the Effect of the Reverse Stock Split and Buyback of Fractional Shares on the Company's Statement of Income, Earnings Per Share Amounts, and Ratio Of Earnings to Fixed Charges for the Most Recent Fiscal Year End
BOWLES FLUIDICS CORPORATION PRO FORMA CONSOLIDATED STATEMENT OF INCOME For the Year Ended October 25, 1997 -------------------------------------- Reverse Split & Buyback Reported Adjustments Pro Forma -------------------------------------- Net Sales $18,842,673 $18,842,673 Cost of sales 13,065,374 13,065,374 ------------- -------------- Gross Profit 5,777,299 5,777,299 Selling, general and administrative expenses 3,094,769 3,094,769 Research and development costs 1,005,183 1,005,183 ------------- -------------- Operating income 1,677,347 1,677,347 Interest income 117,541 ($12,774) 104,767 Other income (expense), net 4,555 4,555 -------------------------------------- Income before income taxes 1,799,443 (12,774) 1,786,669 Provision for income taxes 657,420 (4,667) 652,753 -------------------------------------- Net income 1,142,023 (8,107) 1,133,916 Preferred stock dividends accrued (74,646) 0 (74,646) -------------------------------------- Income applicable to common shareholders $1,067,377 ($8,107) $1,059,270 ====================================== Primary earnings per share: Income applicable to common shareholders $1,067,377 ($8,107) $1,059,270 -------------------------------------- Weighted average of common shares outstanding 12,633,764 (12,621,324) 12,440 Add: Assumed exercise of stock options 48,607 (48,558) 49 -------------------------------------- Number of common shares outstanding adjusted 12,682,371 (12,669,882) 12,489 -------------------------------------- Primary earnings per share $0.08 $84.82 ============= ============== Fully diluted earnings per share: Net income $1,142,023 ($8,107) $1,133,916 -------------------------------------- Weighted average of common shares outstanding 12,633,764 (12,621,324) 12,440 Add: Assumed conversion of preferred stock 3,732,320 (3,728,588) 3,732 Assumed exercise of stock options 57,636 (57,578) 58 -------------------------------------- Number of common shares outstanding adjusted 16,423,720 (16,407,490) 16,230 -------------------------------------- Fully diluted earnings per share $0.07 $69.87 ============= ============== Ratio of earnings to fixed charges N/a N/a
Exhibit 7 - 1
BOWLES FLUIDICS CORPORATION PRO FORMA CONSOLIDATED STATEMENT OF INCOME For the Nine Months Ended July 25, 1998 ---------------------------------- Reverse Split & Buyback Reported Adjustments Pro Forma ---------------------------------- Net Sales $15,105,362 $15,105,362 Cost of sales 11,196,107 11,196,107 ----------- ----------- Gross Profit 3,909,255 3,909,255 Selling, general and administrative expenses 1,993,702 1,993,702 Research and development costs 582,743 582,743 ----------- ----------- Operating income 1,332,810 1,332,810 Interest income 52,022 ($9,580) 42,442 Other income (expense), net 23,749 23,749 ---------------------------------- Income before income taxes 1,408,581 ($9,580) 1,399,001 Provision for income taxes 521,631 (3,548) 518,083 ---------------------------------- Net income 886,950 (6,032) 880,918 Preferred stock dividends accrued (55,985) (55,985) ---------------------------------- Income applicable to common shareholders $830,965 ($6,032) $824,933 ================================== Basic earnings per share: Income applicable to common shareholders $830,965 ($6,032) $824,933 Weighted average of common shares outstanding 12,655,011 (12,642,550) 12,461 Basic earnings per share $0.07 $66.20 =========== ======== Diluted earnings per share: Net income $886,950 ($6,032) 880,918 ---------------------------------- Weighted average of common shares outstanding 12,655,011 (12,642,550) 12,461 Add: Assumed conversion of preferred stock 3,732,320 (3,728,588) 3,732 Assumed exercise of stock options 14,847 (14,832) 15 ---------------------------------- Number of common shares outstanding adjusted 16,402,178 (16,385,970) 16,208 ---------------------------------- Diluted earnings per share $0.05 $54.35 =========== =========== Ratio of earnings to fixed charges N/a N/a
Exhibit 7 - 2 BOWLES FLUIDICS CORPORATION NOTES TO PRO FORMA FINANCIAL STATEMENTS Reverse Split and Buyback Adjustments 1. Income Statements: Year Ended October 25, 1997, and Nine Months Ended July 25, 1998 The pro forma income statements reflect the reduction in interest income, net of income taxes, to give effect to the $242,600 reduction of cash and cash equivalents to acquire the estimated fractional common shares outstanding (194.077 shares) after the 1-for-1,000 reverse common stock split at $1,250 per share, as if the reverse split and buyback occurred at October 27, 1996. The pro forma primary and fully diluted earnings per share reflect the lower net income and the lower number of common shares outstanding after the reverse stock split and buyback of fractional common shares at $1,250 per share. Exhibit 7 - 3 EX-8 8 EXHIBIT 8 Exhibit 8 Disclosure Materials to be Furnished to Company Stockholders Exhibit 8 - 1 BOWLES FLUIDICS CORPORATION NOTICE AND PROXY STATEMENT NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON ________, 1999 TO THE STOCKHOLDERS: Notice is hereby given to the Stockholders that the Special Meeting of Stockholders of BOWLES FLUIDICS CORPORATION (the "Company") will be held on the ____ day of ______ 1999, at 9:30 a.m., local time, at 6625 Dobbin Road, Columbia, Maryland 21045. The Special Meeting will be held for the purpose of: (1) considering and voting upon a proposed amendment to the Articles of Incorporation of the Company which would authorize a reverse split of the Company's Common Stock, par value $0.10 per share (the "Common Stock"), in the ratio of 1,000 shares to 1 share, and (2) transacting such other business as may properly be brought before the meeting. Upon adoption of the proposed amendment to the Company's Articles of Incorporation, each 1,000 shares of Common Stock would be converted to one share of Common Stock. Any fractional shares of Common Stock resulting from the reverse stock split will be purchased from the holders thereof at the rate of $1,250 per share (i.e., post reverse split). The record of Stockholders entitled to vote at said meeting was taken at the close of business ________, 199__. Enclosed with this Notice is a proxy statement, an Information Statement describing the proposed amendment to the Articles of Incorporation, and a Proxy. Stockholders are requested to specify their choice, sign, date and return the enclosed Proxy in the enclosed envelope, postage for which has been provided. Prompt response will be appreciated. BY THE ORDER OF THE BOARD OF DIRECTORS Eleanor M. Kupris, Secretary Columbia, Maryland ________, 199__ BOWLES FLUIDICS CORPORATION PROXY STATEMENT THE ACCOMPANYING PROXY IS SOLICITED BY THE MANAGEMENT OF BOWLES FLUIDICS CORPORATION. This Proxy Statement is furnished by mail to the stockholders by the management of Bowles Fluidics Corporation (the "Company") on whose behalf this solicitation of proxies is being made for use at the Special Meeting of Stockholders to be held at ____ a.m., local time, on __________, ________, 1999, at the Company's offices, 6625 Dobbin Road, Columbia, Maryland 21045. This Proxy Statement is being mailed on or about __________, 199__, to all of the Company's stockholders of record at the close of business on __________, 199__, the "Record Date." THE EXPENSE OF THIS SOLICITATION WILL BE BORNE BY THE COMPANY. The Proxy is revocable upon your written notice to the Secretary of the Company at any time prior to the exercise of the authority granted thereby, and it shall be suspended if you are present at the meeting and elect to vote in person. On the Record Date for voting at the meeting, the Company had outstanding 12,684,071 shares of Common Stock, par value $0.10, and 933,080 shares of voting 8% Convertible Preferred Stock, par value $1.00. Each share of Preferred Stock is convertible into four shares of Common Stock at any time by the Preferred Stockholder and at the option of the Company ten years after the date of original issue if the dividends are current. The Company also had outstanding on the Record Date incentive stock options for -0- shares. The Company has never paid a dividend on the Common Stock. An $0.08/share dividend was paid on the Preferred Stock under its indenture for fiscal years 1986, 1987, 1988, 1989, and 1992. A Preferred Stock dividend related to the Company's earnings for fiscal years 1989 and 1992, aggregating $94,640, was paid on March 19, 1993, and dividends related to earnings in 1993, 1994, 1995, 1996 and 1997 in the amounts of $74,646 were paid to the holders of Preferred Stock on December 15 in each of 1993, 1994, and 1995, January 24, 1997 and January 15, 1998. The holders of Common Stock of record at the close of business on the Record Date fixed by the Board of Directors pursuant to the By-Laws will be entitled to one vote per share, for a total of 12,684,071 votes, and the holders of the Preferred Stock of record on the same day will be entitled to four votes per share, or 3,732,320 votes, for an aggregate of 16,416,391 votes on all business of the meeting including adoption of the proposed amendment to the Company's Articles of Incorporation. The presence in person or by proxy of the stockholders entitled to cast a majority of all of the votes entitled to be cast at the meeting shall constitute a quorum for the transaction of business at the meeting. The adoption of the proposed amendment to the Company's Articles of Incorporation requires a two-thirds vote of all votes entitled to be cast. PROPOSED AMENDMENT TO COMPANY'S ARTICLES OF INCORPORATION On December 8, 1998, the Board of Directors of the Company adopted a resolution authorizing the submission to the vote of the stockholders of the Company of a proposed amendment to the Articles of Incorporation of the Company (the "Proposed Amendment") under which all outstanding shares of Common Stock will be subject to a reverse stock split at the ratio of 1,000 shares to 1 share; that is, each 1,000 shares of Common Stock before the reverse stock split will become one share of Common Stock after the reverse stock split. Any fractional shares of Common Stock resulting from the reverse stock split will be purchased from the holders thereof at the rate of $1,250 per share. In determining the price to be paid for fractional shares of Common Stock following the reverse stock split, the Board relied upon the recommendation of a special committee of independent directors of the Board (the "Special Committee") and the opinion of Ferris, Baker Watts, Incorporated as to the fairness of the purchase price from a financial point of view. This fairness opinion is described in the Information Statement which accompanies this Proxy Statement and a copy of the fairness opinion is attached as Exhibit 1 to the Information Statement. The proposed reverse stock split does not include the Company's Preferred Stock. However, following the reverse stock split, the right to convert one share of Preferred Stock into four shares of Common Stock will be adjusted to take the reverse stock split into account such that each share of Preferred Stock may be converted into 1/250th share of New Common Stock. Fractional shares of Common Stock resulting from a conversion of Preferred Stock to Common Stock following the reverse stock split are not being purchased by the Company. Additional Information. The Company has prepared and filed with the Securities and Exchange Commission SEC Schedule 13E-3 in connection with the proposed reverse stock split, which sets forth certain information about the Company, the Proposed Amendment and the proposed reverse stock split. A copy of Schedule 13E-3 and other periodic reports filed with the SEC are available from: Eleanor M. Kupris, Secretary of the Company. A copy of the Proposed Amendment and the resolutions adopted by the Board is attached to the Information Statement as Exhibit 3. Additional questions regarding the Proposed Amendment may be directed to Counsel to the Company, Ronald S. Schimel, Esquire, Miles & Stockbridge P.C., 9881 Broken Land Parkway, Columbia, MD 21044, telephone: 410-381-6000. All stockholders should carefully read the entire Information Statement which accompanies this Proxy Statement for a more complete description of the Proposed Amendment, the reverse stock split, the purchase of fractional shares of Common Stock resulting from the reverse stock split and effects of such purchase. The Information Statement also contains a description of the fairness opinion of Ferris, Baker Watts, Incorporated and a copy of such opinion. PROPOSALS OF SECURITY HOLDERS Proposals of security holders intended to be presented at the Special Meeting must be received by Bowles Fluidics Corporation at its executive offices a reasonable time before the date the Proxy Statement is to be released to security holders in connection with the Special Meeting. [[[No such proposals were received before the date this Proxy Statement was released.]]] In order to qualify for inclusion of a person's proposal in a Proxy Statement, such person must be the beneficial owner of at least 1% or $1,000.00 in market value of the securities entitled to be voted at the meeting and must have held the securities for at least one year prior to the date of the meeting. MANAGEMENT IS PROVIDING WITH THIS PROXY STATEMENT, WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS SOLICITED, AN INFORMATION STATEMENT DESCRIBING THE PROPOSED AMENDMENT AND RELATED MATTERS IN ACCORDANCE WITH THE RULES OF THE SECURITIES AND EXCHANGE COMMISSION. For additional information on controlling persons, directors and officers of the Company, see page __ and Exhibit 2 of the enclosed Information Statement. OTHER BUSINESS Management does not intend to present any business for action at the meeting other than as discussed herein and does not know of any other business intended to be presented by others. INFORMATION STATEMENT A copy of the President's letter dated __________, 199__, and the Information Statement are being mailed with this Proxy Statement on __________, 199__, to each shareholder of record as of ________, 199__. Eleanor M. Kupris, Secretary __________, 199__ Bowles Fluidics Corporation 6625 Dobbin Road Columbia, Maryland 21405-4707 Telephone: 410-381-0400 PROXY BOWLES FLUIDICS CORPORATION PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS ________, 1999 The undersigned hereby appoints Eleanor M. Kupris and Howard L. Rose, jointly and severally, Proxies, with full power of substitution, to vote as designated below all shares of Common and/or Preferred Stock which the undersigned is entitled to vote in connection with the amendment to the Company's Articles of Incorporation proposed by the board of directors and on all other matters which may come before the Special Meeting of Stockholders of Bowles Fluidics Corporation to be held on ________, 1999, or any adjournment thereof, [[[including any proposal omitted from this proxy and the Proxy Statement pursuant to the proxy rules of the Securities and Exchange Commission]]]. The meeting will begin at 9:30 a.m., local time, at the Company's offices, 6625 Dobbin Road, Columbia, Maryland 21045. 1. PROPOSED AMENDMENT TO COMPANY'S ARTICLES OF INCORPORATION. [ ] FOR [ ] AGAINST [ ] ABSTAIN 2. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED, BUT IF NOT OTHERWISE MARKED, THEY WILL BE VOTED "FOR" THE ABOVE ITEMS. Please sign exactly as your name or names appear below. When signing as executor, administrator, attorney, trustee or guardian, please give your full title as such. Corporations are requested to affix seals. _____________________________________(SEAL) Signature of Stockholder - ------------------------------------------- - ------------------------------------------- Dated ___________________________ (Please sign, date and return this Proxy in the enclosed envelope.) INFORMATION STATEMENT Relating to the proposed reverse stock split of the COMMON STOCK par value $0.10 of BOWLES FLUIDICS CORPORATION 6625 Dobbin Road Columbia, Maryland 21405-4707 Telephone: 410-381-0400 THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OF ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. Bowles Fluidics Corporation 6625 Dobbin Road Columbia, Maryland 21405-4707 Telephone: 410-381-0400 Proposed Reverse Stock Split Summary The Board of Directors (the "Board") of Bowles Fluidics Corporation (the "Company") recommends to the Company's stockholders approval of an amendment to the Company's Articles of Incorporation which would authorize a reverse split of Company's Common Stock, par value $0.10 per share (the "Common Stock"). The Company proposes a reverse split of its Common Stock in the ratio of 1,000 shares of "Old Common Stock" to 1 share of "New Common Stock"; that is, each 1,000 shares of Old Common Stock would be converted to one share of New Common Stock. As used in this Information Statement, the term "Old Common Stock" refers to the Common Stock before the proposed reverse stock split and the term "New Common Stock" refers to the Common Stock following the proposed reverse stock split. The par value of the New Common Stock would be adjusted to $100 per share. Any fractional shares of Common Stock resulting from the reverse stock split will be purchased from the holders thereof at the rate of $1,250 per whole share of New Common Stock. A special meeting of the stockholders of the Company has been called by the Board, to occur at 9:30 a.m. on ________, 1999, for the purpose of considering and voting upon the proposed amendment to the Company's Articles of Incorporation which would authorize the reverse stock split and purchase of fractional shares following the reverse stock split. The meeting will be held at the Company's offices located at 6625 Dobbin Road in Columbia, Maryland. In determining the price to be paid for fractional shares of Common Stock following the reverse stock split, the Board relied upon the recommendation of a special committee of independent directors of the Board (the "Special Committee") and the opinion of Ferris, Baker Watts, Incorporated as to the fairness of the purchase price. This fairness opinion is discussed in greater detail below under the heading "Fairness of Transaction; Procedures" and a copy of the opinion is attached hereto as Exhibit 1. The proposed reverse stock split does not include the Company's Preferred Stock. However, following the reverse stock split, the right to convert one share of Preferred Stock into four shares of Common Stock will be adjusted to take the reverse stock split into account such that each share of Preferred Stock may be converted into 1/250th share of New Common Stock; similarly, holders of Preferred Stock will have 1/250th vote for each share of Preferred Stock. Additional Information. The Company has prepared and filed with the Securities and Exchange Commission SEC Schedule 13E-3 in connection with the proposed reverse stock split, which sets forth certain information about the Company and the proposed reverse stock split. A copy of Schedule 13E-3 and other periodic reports filed with the SEC are available from: Eleanor M. 1 Kupris, Secretary of the Company. Additional questions regarding the proposed amendment to the Company's Articles of Incorporation which would authorize the reverse stock split and purchase of fractional shares following the reverse stock split may be directed to Counsel to the Company, Ronald S. Schimel, Esquire, Miles & Stockbridge P.C., 9881 Broken Land Parkway, Columbia, MD 21044, telephone: 410-381-6000. Special Factors Purpose. The purpose of the reverse stock split and purchase of the resulting fractional shares is to reduce the number of record stockholders to fewer than 300, thereby allowing the Company to suspend its obligation to file periodic reports under Section 15(d) of the Securities and Exchange Act of 1934, such as SEC Forms 10-K, 10-Q and 8-K. The Board believes that such action is in the best interests of the Company because such reports allow the Company's limited number of customers and competitors who are concentrated in a single industry to obtain information concerning the Company's profit margins, patent positions and operations which, in the Company's opinion, has or may have an adverse effect on the Company's performance. In addition, the out-of-pocket and internal costs to the Company associated with the preparation and filing of these periodic reports, when compared to the limited number of stockholders is, in the Company's opinion, unwarranted. The Company incurs costs related to its status as a public reporting corporation under the federal securities laws, including indirect costs as a result of, among other things, the Company personnel, including management, expending time to prepare and review various filings, furnish information to stockholders, and attending to other related stockholders matters. Termination of the Company's obligation to file periodic reports will eliminate the costs and expenses of such federal securities filings and reduce the amount of time and attention devoted by management to such reports and activities. The Company estimates that, upon termination of its obligation to file periodic reports with the Securities and Exchange Commission, it will achieve savings within a range of approximately $65,000 to $75,000 annually. The Company determined to achieve its purpose through a reverse stock split because it believes that this structure is the simplest and most economical means of reducing the number of holders of the Company's Common Stock below 300, thereby achieving its goal of terminating its obligation to file periodic reports with the Securities and Exchange Commission. In addition, the Company believes that the reverse stock split and purchase of fractional shares of the New Common Stock will provide an easy and cost effective way for shareholders holding less than one share of New Common Stock (1,000 shares of Old Common Stock) to dispose of such shares at a fair price and without incurring brokerage commissions and other transaction costs. The Company believes that implementing the reverse stock split at this time so that it can terminate its obligation to file periodic reports with the Securities and Exchange Commission will improve its future performance. Upon consummation of the reverse stock split, the Company anticipates that the number of record stockholders of the Company will be reduced from 430 to less than 200 and the Company will achieve the purposes of the reverse stock split described above. Alternate Methods of Achieving Purpose. The Company considered two alternative means to accomplish its objective of suspending its obligation to file such periodic reports. 2 Tender Offer. The Board considered making a tender offer for shares of Common Stock in order to reduce the number of record holders of Common Stock below 300. This alternative was viewed as undependable, however, because it was not certain that the Company would sufficiently reduce the number of its record stockholders to achieve its objective of less than 300 shareholders. The costs which might be incurred in connection with such a tender offer also appeared to be considerably higher than the costs expected to be incurred in connection with the reverse stock split. Merger. The Board also considered the possibility of a "cash out" merger. However, the anticipated costs of such a merger (including cost of obtaining the requisite shareholder approvals and purchase of Common Stock) were also expected to be higher than the costs expected to be incurred in connection with the reverse stock split. Tax Treatment of Purchase of Fractional Shares. Upon consummation of the reverse stock split, each 1,000 shares of Old Common Stock issued and outstanding immediately prior to the effective time of such split will be converted into one share of New Common Stock and all resulting fractional shares of New Common Stock will be purchased by the Company at the price of $1,250 per share. The following description of the federal income tax consequences of the reverse stock split is included solely for the general information of the holders of the Company's Common Stock. The federal income tax consequences for any particular stockholder may be affected by matters not discussed herein, and each stockholder should consult his or her personal tax advisor in determining the federal, state and local income tax consequences of the reverse stock split and purchase of fractional shares. For those stockholders receiving New Common Stock from consummation of the reverse stock split, there will be no direct tax consequences as a result of the reverse stock split, except for reallocation to the stockholders' per share basis. The purchase of fractional shares of New Common Stock by the Company will be a taxable transaction for federal income tax purposes. Each holder of fractional shares of New Common Stock purchased by the Company subsequent to the reverse stock split will recognize gain or loss upon the purchase of that stockholder's fractional share of New Common Stock equal to the difference, if any, between (i) the amount of the cash payment received for any fractional shares of New Common Stock and (ii) that stockholder's tax basis in such fractional share of New Common Stock so long as the New Common Stock was held as a capital asset of the stockholder. Any subsequent gain or loss resulting from the disposition of New Common Stock should be treated as a capital gain or loss transaction. As indicated previously, holders of New Common Stock are urged to consult their personal tax advisors as to the tax consequences of the reverse stock split and purchase of fractional shares under federal, state, local and any other applicable laws. The cash payments due to the holders of fractional shares of New Common Stock (other than certain exempt entities and persons) will be subject to a backup withholding tax at the rate of 31% under federal income tax law unless certain requirements are met. Generally, the Company or its paying agent will be required to deduct and withhold the tax on cash payments due at the effective time of the purchase of fractional shares of New Common Stock subsequent to the reverse stock split if (i) a stockholder fails to furnish a taxpayer identification number ("TIN", the TIN of an individual stockholder is his or her Social Security number) to the paying agent or fails to certify under penalty of perjury that such TIN is correct; (ii) the Internal Revenue Service ("IRS") notifies the Paying Agent that the TIN furnished by the stockholder is incorrect; (iii) the IRS notifies the 3 paying agent that the stockholder has failed to report interest, dividends, or original issue discount in the past; or (iv) there has been a failure by the stockholder to certify under penalty of perjury that such stockholder is not subject to the backup withholding tax. Any amounts withheld by the paying agent in collection of the backup withholding tax will reduce the federal income tax liability of the stockholders from whom such tax was withheld. Fairness of the Transaction; Procedures The Company believes that the proposed reverse stock split and subsequent purchase of fractional shares is fair to unaffiliated stockholders of the Company. The Board by unanimous vote on December 8, 1998, adopted a resolution declaring the terms and conditions of the reverse stock split and purchase of fractional shares advisable and directing that a proposed amendment to the Articles of Incorporation of the Company be submitted to shareholders of the Company for consideration. Special Committee. The Board on March 12, 1998, established a Special Committee comprised of Directors of the Company who are not controlling persons of the Company to act solely on behalf of the unaffiliated stockholders of the Company for purposes of reviewing the desirability of undertaking the "going private" transaction which will result from the reverse stock split. The Special Committee consisted of the following persons, none of whom controls the Company: David C. Dressler, John E. Searle, Jr., and Neil Ruddock. For reasons unrelated to this transaction, Mr. Searle resigned from the Board effective December 8, 1998, following the meeting of the Board of Directors on that date. Mr. Ruddock joined the Special Committee on July 14, 1998, when he also joined the Board. The Special Committee recommended that the Board retain the investment banking firm of Ferris, Baker Watts, Incorporated ("Ferris, Baker Watts"), and by letter agreement dated June 23, 1998 such firm was retained, to act as its financial advisor and to render its opinion to the Board as to the fairness of the fractional share purchase price, from a financial point of view, to the holders of fractional shares of the New Common Stock following the reverse stock split (herein referred to as the "Purchase Price"). The Special Committee was charged with the responsibility of recommending to the Board a fair price to pay for the fractional shares resulting from the reverse stock split of the Common Stock. It met on four occasions with a representative of Ferris, Baker Watts during which discussions occurred and information shared concerning the methodology of companies having business and markets similar to those of the Company and the application of such methodologies to the Company's financial and market position and future prospects. Based upon these deliberations, the Special Committee unanimously recommended to the Board that $1,250 per share of New Common Stock resulting from a reverse stock split would be a fair price to pay. Ferris, Baker Watts concurred in this recommendation. Ferris, Baker Watts delivered its written opinion on December 8, 1998, to the Board to the effect that, as of such date, the Purchase Price was fair, from a financial point of view, to the holders of the New Common Stock. No restrictions were imposed by the Special Committee or the Board upon Ferris, Baker Watts with respect to the investigations made or procedures followed by Ferris, Baker Watts in rendering its opinions. 4 The full text of Ferris, Baker Watts' fairness opinion, which is summarized below, sets forth certain assumptions made, certain procedures followed, and certain matters considered by Ferris, Baker Watts, and is attached hereto as Exhibit 1. In addition to the recommendation of the Special Committee and the conclusions contained in the Ferris, Baker Watts report, the Board reviewed certain additional factors, including the historical and current market values of the Company's Common Stock. In this regard, the Board noted the amount and level of transactions in shares of the Company's Common Stock during the past year and that the book value per share of the Company's Common Stock as of July 25, 1998 (the end of the third quarter of the Company's fiscal year), was $0.66. The Board further considered the advantages of and benefits to the Company of not being required to file periodic reports with the Securities and Exchange Commission, the direct and indirect cost savings to be realized by the Company from not having to file such periodic reports, and the benefits to be derived by the remaining Company stockholders from the transactions described in this Information Statement. In reaching its determination as to the fairness of the Purchase Price, the Board did not assign any relative or specific weights to the foregoing factors. Number of Votes Required to Approve Proposed Amendment. Any proposed amendment to the Articles of Incorporation of the Company must be approved by the stockholders of the Company by the affirmative vote of two-thirds of all the votes entitled to be cast on the matter. Holders of Common Stock are entitled to cast one vote for each share of Common Stock. Holders of the Company's Preferred Stock are entitled to cast four votes for each share of Preferred Stock. The decision to retain Ferris, Baker Watts to prepare a report concerning the fairness of the Purchase Price was initially made by the Special Committee and affirmed by the Board. The Board unanimously approved the proposed amendment to the Articles of Incorporation of the Company as advisable, which vote included all of the Directors who were not employees of the Company. No Firm Offers to Merge or Acquire Company. During the preceding 18 months, the Company has not received any firm offers from any unaffiliated person for (a) the merger or consolidation of the Company with or into any person, (b) the sale or other transfer of all or any substantial part of the assets of the Company, or (c) securities of the Company which would enable the holder thereof to exercise control of the Company. There have been no contacts or negotiations which have been entered into or which have occurred since the commencement of the Company's second full fiscal year preceding the date of this Information Statement (i) between any affiliates of the Company; or (ii) between the Company or any of its affiliates and any person who is not affiliated with the Company and who would have a direct interest in such matters. Reports, Opinions, Appraisals and Certain Negotiations. On June 23, 1998, the Board retained the services of Ferris, Baker Watts to perform a valuation of the Company's Common Stock and render its opinion as to the fairness of the Purchase Price, from a financial point of view, to be paid to the holders of fractional shares of the New Common Stock following the reverse stock split. 5 Ferris, Baker Watts performed a valuation of the Company's Common Stock and provided its opinion as to the fairness of the Purchase Price, from a financial point of view, to be paid to the holders of fractional shares of the New Common Stock following the reverse stock split. Ferris, Baker Watts is a Mid-Atlantic based investment bank whose corporate finance activities are focused on small to middle market companies. Ferris, Baker Watts provides a full range of investment banking services to its clients, ranging from merger and acquisition services, public offerings, private placements and advisory services. The Special Committee solicited proposals from three investment bankers, interviewed two and unanimously agreed to retain the services of Ferris, Baker Watts. Other than the engagement of Ferris, Baker Watts to provide the services described above, no material relationships existed between Ferris, Baker Watts, its affiliates and/or unaffiliated representative, and the Company or its affiliates during the past two years. No such material relationships are contemplated for the future. The fee for Ferris, Baker Watts' services is $65,000. Ferris, Baker Watts provided the Special Committee and the Board with a range of values for the Common Stock and a recommendation to pay a price at the top of the range or as a premium to the top end of the range. The Special Committee unanimously recommended to the Board a price of $1,250 per share of New Common Stock and the Board unanimously adopted such recommendation. The Company retained Ferris, Baker Watts to investigate the proposed consideration offered to shareholders and to provide an opinion as to the fairness, from a financial point of view, to the shareholders of the consideration to be paid for each share of New Common Stock. The Company requested Ferris, Baker Watts to undertake the proposed valuation because of its familiarity with companies such as the Company and its experience with companies having a market capitalization below $100,000,000. Fairness Opinion. On December 8, 1998, Ferris, Baker Watts delivered an opinion (the "Fairness Opinion") to the Board which concluded that based upon and subject to the considerations set forth therein, as of such date the consideration to be received by the shareholders of the Company for fractional shares of New Common Stock pursuant to the reverse stock split was fair from a financial point of view. The Fairness Opinion was based upon economic, market and other conditions in effect as of its date. No limitations were imposed by the Board upon Ferris, Baker Watts with respect to its investigation or procedures followed in rendering the Fairness Opinion. The Fairness Opinion, which sets forth assumptions made, material reviewed, matters considered, and the limits of the review, is attached as Exhibit 1. The following is a summary of the Fairness Opinion. Stockholders of the Company are urged to read the Fairness Opinion in its entirety. Ferris, Baker Watts has consented to the inclusion of its opinion in this Information Statement provided to shareholders of the Company and has reviewed the following summary. In connection with the Fairness Opinion, Ferris, Baker Watts reviewed, among other things: o the proposed reverse stock split; o annual reports on form 10-K for the fiscal years 1993 through 1997; 6 o quarterly reports on form 10-Q for the first three quarters of the fiscal years 1993 through 1998; and o projected financial results for fiscal years 1998 through 2003 provided by management of the Company and approved by the Board. Ferris, Baker Watts also held discussions with management of the Company regarding its past and current business operations, financial condition and future prospects. Ferris, Baker Watts reviewed the reported price and trading activity of the Company's Common Stock, compared certain financial and stock market information concerning the Company with similar information for other parts manufacturers supplying the automotive industry, the securities of which are publicly traded, and performed other studies and analyses which Ferris, Baker Watts deemed appropriate. Ferris, Baker Watts assumed and relied upon the accuracy and completeness of all financial and other information reviewed for the purposes of the Fairness Opinion, whether publicly available or provided to Ferris, Baker Watts by the Company and did not independently verify any such information or make an independent evaluation or appraisal of the assets or liabilities of the Company. The preparation of a fairness opinion involves determinations as to the appropriate and relevant methods of financial analysis and, therefore, reference should be made to the Fairness Opinion in its entirety and not to a summary description. In performing its analysis, Ferris, Baker Watts made numerous assumptions with respect to industry performance, business and economic condition and other matters, many of which are beyond the control of the Company. The analyses performed by Ferris, Baker Watts are not necessarily indicative of future results and do not purport to be appraisals or to reflect prices at which businesses may actually be sold. The following paragraphs summarize all material analyses performed by Ferris, Baker Watts. Valuation Methodologies. Ferris, Baker Watts considered several methods to evaluate the value of the Company, including: (i) the discounted future free cash flow of the Company, and (ii) the earnings and book multiple comparisons to publicly traded companies engaged in parts manufacturing supplying the automotive industry. Ferris, Baker Watts also considered the market value of the Company's shares of Common Stock as well as its trading history. The discounted future free cash flow analysis ascribes value only to the cash flows that can ultimately be taken out of the business. These free cash flows are then discounted to the present at the firm's weighted average cost of capital. The weighted average cost of capital can be described as the average price a company must pay to attract both debt and equity to properly capitalize its growth. These series of cash flows, when discounted to the present and after subtracting claims by debt holders and others, represent the economic value of a company to its shareholders. This method of valuation depends upon the accuracy of the financial projections. Ferris, Baker Watts assumed that such projections were reasonably prepared by the management of the Company on bases reflecting the best currently available estimates and judgments as to the Company's expected future financial performance. The earnings and book multiple comparison analysis examines the operating earnings, net income (both historical and projected), revenue and book value multiples. From these results, implied equity can be determined. 7 From these analyses, Ferris, Baker Watts determined that (i) the consideration to be received by the shareholders for the fractional shares of New Common Stock was fair from a financial point of view, and (ii) the goal of the reverse stock split could be accomplished at minimal cost and would not have an adverse impact on the Company. The Fairness Opinion relates only to whether the consideration to be received by the holders of fractional shares of New Common Stock is fair from a financial point of view and does not constitute a recommendation to any stockholder of the Company as to how such stockholders should vote with respect to the reverse stock split. The Company The Company, a Maryland corporation, is a designer, manufacturer and supplier of windshield and rear window washer nozzles for passenger cars and light trucks in North America. The Company also designs, manufactures and sells defroster nozzles for a limited number of these same light vehicles. The address of the Company is 6625 Dobbin Road, Columbia, Maryland 21045-4707. The controlling stockholders, directors and executive officers of the Company are identified on Exhibit 2 to this statement, together with certain additional information bout such persons. On December 8, 1998, the Board adopted a resolution authorizing the submission to the vote of the stockholders of the Company of a proposed amendment to the Articles of Incorporation of the Company under which all outstanding shares of Old Common Stock will be subject to a reverse stock split at the ratio of 1,000 shares of Old Common Stock to 1 share of New Common Stock. A copy of the proposed amendment to the Company's Articles of Incorporation (the "Proposed Amendment") and the resolutions adopted by the Board is attached to this Information Statement as Exhibit 3. The Company expects to submit the Proposed Amendment to the stockholders of the Company at a special meeting expected to be held at 9:30 a.m. on ________, 1999, at 6625 Dobbin Road, Columbia, Maryland. Payment of Purchase Price; Effect on Company. The purchase price of fractional shares of New Common Stock will be paid from available funds of the Company, which is expected to result in a use of cash in the expected amount of $242,600 and a reduction in shareholders' equity in the same amount. John E. Searle, Jr., resigned as a member of the Board effective on December 8, 1998, following the meeting of the Board of Directors on that date, resulting in a vacancy on the Board. Mr. Searle's resignation is not related to the proposed reverse stock split. The Company does not expect that any material change in the present dividend rate or policy or indebtedness of the Company will occur as a result of the reverse stock split. A change in the Company's capitalization will not occur as a result of the change in par value of the New Common Stock. Certain Ownership Interests in Securities of the Company. As of October 15, 1998, the record and beneficial ownership (except for beneficial ownership disclaimed as set forth in applicable footnotes) of the Company's Common Stock, the percentage of the total number of issued and outstanding Common Stock, and the number of shares of Common Stock which such person has a 8 right to acquire, together with any pension plan, profit or similar plan, and by each executive officer, director, and each controlling stockholder are as follows:
- --------------------------------------------------------------------------- No. Shares Percentage Name Position (1) (1) - --------------------------------------------------------------------------- William Ewing, III Chairman of the Board of 437,329 (2) Directors, Controlling 9,077,468 (3) 3.4 Person 71.6 - --------------------------------------------------------------------------- Ronald D. Stouffer President, Chief Executive Officer, Director 129,431 1.1 - --------------------------------------------------------------------------- Eric W. Koehler Executive Vice President, Director - --------------------------------------------------------------------------- John E. Searle, Jr. Director 20,000 .2 - --------------------------------------------------------------------------- David C. Dressler Director 20,000 .2 - --------------------------------------------------------------------------- James T. Parkinson, Director, Controlling III (4) Person 1,176,849 9.3 - --------------------------------------------------------------------------- Frederic Ewing, II Director, Controlling 390,827 (5) 3.1 Person 344,540 (6) 2.7 - --------------------------------------------------------------------------- Melvyn J. L. Clough Vice President, Operations - --------------------------------------------------------------------------- Richard W. Hess Vice President, Automotive Products Engineering 5,000 .1 - --------------------------------------------------------------------------- Eleanor M. Kupris Secretary and Vice President, Administration 38,040 .3 - --------------------------------------------------------------------------- David A. Quinn Vice President, Finance and Treasurer 21,000 .2 - --------------------------------------------------------------------------- Dharapuram N. Srinath Vice President, Advanced Engineering 6,500 .1 - --------------------------------------------------------------------------- Arlene M. Hardy Corporate Controller - ---------------------------------------------------------------------------
Notes: 1. Excludes Preferred Stock. 2. For own account, including 53,320 shares held by Mr. Ewing's children for which he holds a power of attorney. 3. Owned by trusts of which Mr. Ewing is a trustee or owned by other individuals for which he holds their powers of attorney. 4. As trustee of trusts established under the will of Arthur Choate. 5. For own account. 6. As trustee for two trusts. No transactions in any shares of the Common Stock of the Company were effected during the 60 days immediately preceding the date of this Schedule 13E-3 by the Company or by any of the persons named in paragraph (a) of this Item. Contracts, Arrangements or Understandings with Respect to the Company's Securities. There are no contracts, arrangements, understandings or relationships between the Company or the persons listed above and any other person in connection with the proposed reverse stock split concerning the transfer or voting of the Company's Common Stock or Preferred Stock, joint ventures, loan or option arrangements, puts or calls, guaranties or the giving or withholding of proxies, consents or other authorizations. 9 The Company's Common Stock As of October 15, 1998, 12,684,071 shares of the Common Stock were outstanding and held of record by approximately 430 persons. The Common Stock of the Company is traded in the "over-the-counter" market and is quoted on the NASD OTC Bulletin Board; symbol BOWE. The Company also has outstanding shares of Preferred Stock, which are unregistered and are not publicly traded. The high and low bid and asked prices of the Common Stock over the last two fiscal years are listed below:
Bid Asked ------------------------ --------------------- FY High Low High Low 1998 1st Quarter 1 3/4 1 1/4 2 1/16 1 3/8 2nd Quarter 1 3/4 1 1/16 2 1/2 1 3/8 3rd Quarter 1 3/4 1 2 1 3/8 4th Quarter 1 1/32 23/32 1 1/2 1 1/8 1997 1st Quarter 1 3/8 13/16 1 5/8 1 1/4 2nd Quarter 1 3/8 5/8 1 9/16 3/4 3rd Quarter 13/16 7/16 7/8 9/16 4th Quarter 3 1/8 3/4 3 1/2 7/8
Note: The above quotes represent prices between dealers and do not include retail mark-up, mark-down, or commissions. They do not represent actual transactions. The Company has never paid cash dividends on its Common Stock. Payment of dividends on Common Stock is within the discretion of the Board and will depend, among other factors, on earnings, capital requirements, and the operating financial condition of the Company. The Company has not purchased any of its securities within its past two full fiscal years. Terms of the Proposed Reverse Stock Split. The Company proposes, subject to stockholder approval, an amendment to the Company's Articles of Incorporation which would decrease the number of shares of Common Stock outstanding by means of a reverse stock split in the ratio of 1,000 shares of "Old Common Stock" to 1 share of "New Common Stock". As used herein, the term "Old Common Stock" refers to the Common Stock before the proposed reverse stock split and the term "New Common Stock" refers to the Common Stock following the proposed reverse stock split. The par value of the New Common Stock would be adjusted accordingly from $0.10 per share of Old Common Stock to $100 per share of New Common Stock. If the proposed amendment to the Articles of Incorporation is approved by the stockholders, as a result of the proposed reverse stock split, the total authorized shares of Common Stock will be reduced from 17,000,000 shares to 17,000 shares. Following the reverse stock split, no fractional shares will be authorized and any fractional shares will be purchased from holders thereof at the rate of $1,250 per share of New Common Stock (i.e., post split). All holders of Common Stock will be treated identically in connection with the reverse stock split, in that all fractional shares of New Common Stock will be purchased at the rate of $1,250 per share of New Common Stock. 10 Following the reverse stock split and purchase of resulting fractional shares of New Common Stock, it is expected that the number of shareholders of the Company's Common Stock will be reduced from approximately 430 (as of October 15, 1998) to less than 200. The number of holders of the Company's Preferred Stock will remain unchanged at approximately 18. As a result of the reduction in number of shareholders below 300, the Company intends to suspend its obligation to file periodic reports with the Securities and Exchange Commission pursuant to section 15(d) of the Exchange Act of 1934. Source and Amounts of Funds or Other Consideration. The Company expects to spend its own funds to purchase fractional shares of the New Common Stock following the reverse stock split. The Company anticipates that as a result of the reverse stock split, there will be approximately 194.077 aggregate fractional shares of the New Common Stock to be purchased by the Company. The expected aggregate purchase price of such shares is $242,600 (assuming 194 aggregate shares of New Common Stock to be purchased), based upon the purchase price of $1,250 per share of New Common Stock. Such price per share was determined based upon the report of Ferris Baker Watts as to value of the Common Stock of the Company which report is further described in this Information Statement. Costs and Expenses of Transaction. The following is a statement of all expenses incurred or estimated to be incurred in connection with the going private transaction. The Company will be responsible for paying any or all of such expenses.
Filing Fees $ 49 Legal Fees 100,000 Accounting Fees 2,000 Appraisal Fees 65,000 Solicitation Expenses 0 Printing Costs 2,000 ------------ Total $ 169,049
All of the foregoing expenses and purchase price of fractional shares of New Common Stock are expected to be paid from the available funds of the Company. Present Intention and Recommendation of Certain Persons with Regard to the Transaction. Based upon inquiry by the Company, no executive officer, director or affiliate of the Company or any person enumerated in Exhibit 2 to this Information Statement presently intends to tender or sell any of the Company's Common Stock owned or held by such person, except with respect to fractional shares of New Common Stock to be purchased by the Company following the reverse stock split. Each of the persons enumerated in Exhibit 2 presently intends to vote all shares of the Common Stock held by such person and with respect to which such person holds proxies, in favor of the proposed amendment to the Articles of Incorporation of the Company, as described above. As described above, all of the persons enumerated in Exhibit 2 to this Information Statement who are directors of the Company and all members of the Special Committee voted in favor of the proposed amendment to the Company's Articles of Incorporation. Based upon inquiry by the Company, except as stated in the preceding sentence, none of the persons named in Exhibit 2 to this Information Statement has made a recommendation in support of or opposed to the proposed amendment to the Company's Articles of Incorporation. 11 Persons and Assets Employed, Retained or Utilized to Promote Reverse Stock Split. No officer, employee, class of employees or corporate asset of the Company (excluding corporate assets which are proposed to be used as consideration for purchases of securities or payment of expenses as disclosed in this Information Statement) has been or is proposed to be employed by the Company or any affiliate in connection with the proposed amendment and reverse stock split described in this Information Statement. No person has been employed, retained or is to be compensated by the Company, or by any person on behalf of the Company, to make solicitations or recommendations in connection with the proposed amendment and reverse stock split described in this Information Statement. Anticipated Approval of Proposed Amendment. It is expected that the owners of more than the necessary two-thirds of the shares of Common Stock and Preferred Stock entitled to vote on the proposed amendment to the Company's Articles of Incorporation (including, without limitation, all shares owned by the persons listed on Exhibit 2 and any shares controlled by them) will vote in favor of such amendment, and, accordingly that such amendment will receive the necessary approval from stockholders entitled to vote on the question. Upon receipt of stockholder approval, the Company expects to move quickly to implement the proposed amendment to the Company's Articles of Incorporation and the reverse stock split authorized by such amendment. Financial Information Audited financial statements for fiscal years 1996 and 1997 filed with the Company's most recent Annual Report under Sections 13 and 15(d) of the Securities Exchange Act of 1934 are attached hereto as Exhibit 4. The Company's audited financial statement for fiscal year 1998 is attached hereto as Exhibit 5. The ratio of earnings to fixed charges for the two most recent fiscal years were not determined as there were no debt instruments or fixed charges for either of these two years. The book value per share as of the fiscal year ended October 25, 1997, was $0.60, and as of the end of the third fiscal quarter of 1998 (July 25, 1998), was $0.66. Pro forma data disclosing the effect of the reverse stock split and buyback of fractional shares on (1) the Company's balance sheet as of the most recent fiscal year end is attached as Exhibit 6; and (2) the Company's statement of income, earnings per share amounts, and ratio of earnings to fixed charges for the most recent fiscal year end is attached as Exhibit 7. The Company's book value per share as of the fiscal year ended October 25, 1997, taking into account the effect of the reverse stock split and buyback of fractional shares was $589.41 per share of New Common Stock, and as of the end of the third fiscal quarter of 1998 (July 25, 1998), taking into account the effect of the reverse stock split and buyback of fractional shares, was $654.44 per share of New Common Stock. Exhibits 1. Fairness Opinion of Ferris, Baker Watts, dated December 8, 1998 2. Identity and Background of Directors, Executive Officers and Controlling Persons of the Company 3. Proposed Amendment to the Company's Articles of Incorporation and Resolutions adopted by the Board of Directors on December 8, 1998 12 4. Audited Financial Statements for the Fiscal Years Ending October 25, 1997, Filed with the Company's Most Recent Annual Report Under Sections 13 and 15(d) of the Securities Exchange Act of 1934 5. Audited Financial Statements for the Fiscal Year Ending October 31, 1998 6. Pro Forma Data Disclosing the Effect of the Reverse Stock Split and Buyback of Fractional Shares on the Company's Balance Sheet as of the Most Recent Fiscal Year End 7. Pro Forma Data Disclosing the Effect of the Reverse Stock Split and Buyback of Fractional Shares on the Company's Statement of Income, Earnings Per Share Amounts, and Ratio Of Earnings to Fixed Charges for the Most Recent Fiscal Year End 13 EXHIBIT 1 Fairness Opinion of Ferris, Baker Watts, dated December 8, 1998 December 8, 1998 The Board of Directors Bowles Fluidics Corporation 6625 Dobbin Road Columbia, MD 21045 Gentlemen: Bowles Fluidics Corporation ("Bowles" or the "Company") has requested a review of the proposed transaction (the "Transaction") involving the reverse split of its common stock and the subsequent repurchase by the Company of fractional shares created through the Transaction. Specifically, you have requested a review of the financial consideration to be received by the shareholders who will have their fractional shares repurchased in the Transaction. We were retained by the Board of Directors and commenced our investigation of the Transaction on June 23, 1998. Pursuant to the Transaction, the Company will effect a one for 1,000 reverse split of its common stock. Shareholders holding fractional shares shall have their shares repurchased by the Company for $1.25 per pre-split share. In connection with the opinion, we have reviewed, among other things, (i) the proposed Transaction, (ii) historical operating results of the Company, (iii) internally prepared projections of the Company, and (iv) the historical trading performance of the Company's stock. We have held discussions with the members of the management of the Company regarding the past and current business operations as well as the future prospects of the Company. We have reviewed industry specific data regarding the valuation of publicly traded companies in the automotive supplier market as well as other such information as we consider appropriate. In rendering our opinion, we have assumed and relied upon the accuracy and completeness of all financial and other information reviewed by us for purposes of this opinion whether publicly available or provided to us by the Company or representatives of the Company, and we have not assumed any responsibility for independent verification of such information. We express no opinion as to the allocation to be received by holders of interests who may perfect dissenters' statutory fair appraisal remedies. Based upon the foregoing and based upon other such matters that we consider relevant, it is our opinion that the consideration to be received by the shareholders of the Company as a result of the Transaction is fair from a financial point of view as of the date hereof. Exhibit 1 - 1 Our opinion is necessarily based upon economic, market and other conditions as in effect on, and the information made available to us as of December 8, 1998. Our opinion is directed to the Board of Directors of the Company and does not constitute a recommendation to any stockholder of the Company as to how the stockholder should vote at the stockholder's meeting held in connection with the Transaction. It is understood that subsequent developments may affect the conclusions reached in this opinion and that we do not have any obligation to update, revise or reaffirm this opinion. Very truly yours, Ferris, Baker Watts, Incorporated Exhibit 1 - 2 EXHIBIT 2 Identity and Background of Directors, Executive Officers and Controlling Persons of the Company
- ------------------------------------------------------------------------------------------- Occupation or Employment Name Position Present Occupation during Past Five Years - ------------------------------------------------------------------------------------------- William Ewing, III Chairman of the Board Bowles Fluidics Corporation 6625 Dobbin Road Columbia, Maryland 21045-4707 Vice President and Chairman of the Board Treasurer, 1995-1997 Vacuum Instruments Reeves Industries, Inc. Corp. 101 Merritt Chairman of the 2099 9th Ave. P. O. Box 5063 Board of Directors, Ronkonoma, NY 11779 Norwalk, CT 1996 - present, Controlling Person Chairman of the Board Managing Director, Actronics Inc. 1992-1994 Director, 1985 - 166 Bear Hill Road Chemical Bank present Waltham, MA 02154 New York, New York - ------------------------------------------------------------------------------------------- Ronald D. Stouffer President, 1994 - present Chief Executive Officer, 1994 - President and Chief Executive Vice present Executive Officer President, 1982 to 1994 Director, 1978 - Bowles Fluidics Bowles Fluidics present Corporation Corporation - ------------------------------------------------------------------------------------------- Eric W. Koehler Executive Vice Vice President, President, 1997 - Marketing, 1994 - 1997 present Executive Vice Director of Marketing, President 1990-1994 Director, 1997 - Bowles Fluidics Bowles Fluidics present Corporation Corporation - ------------------------------------------------------------------------------------------- John E. Searle, Jr. Director Retired - ------------------------------------------------------------------------------------------- David C. Dressler Director Retired - ------------------------------------------------------------------------------------------- Neil Ruddock President, N. T. Ruddock Co. President, National Metal Abrasives Co. Director, 1998 - 26123 Broadway Ave. present Cleveland, Ohio 44146 - ------------------------------------------------------------------------------------------- James T. Self Employed; Parkinson, III Director, Investment Management Controlling Person, P. O. Box 2247 1998 - present Middleburg, VA 20118 - ------------------------------------------------------------------------------------------- Frederic Ewing, II President Vacuum Instrument Corp. Director, 2099 9th Avenue Controlling Person Ronkonoma, NY 11779 - ------------------------------------------------------------------------------------------- Melvyn J. L. Engineering Manager, Clough* Vice President, 1992-1995 Vice President, Operations A. Raymond, Inc. Operations, 1995 - Bowles Fluidics 3091 Research Dr. present Corporation Rochester Hills, Michigan - -------------------------------------------------------------------------------------------
Exhibit 2 - 1
- ------------------------------------------------------------------------------------------- Occupation or Employment Name Position Present Occupation during Past Five Years - ------------------------------------------------------------------------------------------- Richard W. Hess Vice President, Automotive Products Vice President, Engineering, 1998 - Vice President, Automotive Products present Engineering, 1992 - 1998, Engineering, 1998 - Bowles Fluidics Bowles Fluidics present Corporation Corporation - ------------------------------------------------------------------------------------------- Eleanor M. Kupris Corporate Secretary, March 1992 - present Vice President, Secretary and Vice Administration, since President, 1982 - present Administration, Bowles Fluidics 1982 - present Corporation - ------------------------------------------------------------------------------------------- David A. Quinn Vice President, Chief Financial Officer, Vice President, Finance and Treasurer, 1991-1993 Finance, and 1993 - present Bruning Paint Company Treasurer, 1993 - Bowles Fluidics 301 South Haven Street present Corporation Baltimore, MD 21224 - ------------------------------------------------------------------------------------------- Dharapuram N. Vice President, Quality Srinath** Assurance, 1995 - 1998 Vice President, Director of Quality Vice President, Advanced Engineering, Assurance and Product Advanced 1998 - present Reliability, 1992-1995 Engineering, 1998 - Bowles Fluidics Bowles Fluidics present Corporation Corporation - ------------------------------------------------------------------------------------------- Arlene M. Hardy Corporate Controller, Corporate 1990 - present Controller, 1990 - Bowles Fluidics present Corporation - -------------------------------------------------------------------------------------------
* Citizen of the United Kingdom. ** Citizen of India. Exhibit 2 - 2 EXHIBIT 3 Proposed Amendment to the Company's Articles of Incorporation and Resolution Adopted by the Board of Directors on December 8, 1998 Article FOURTH of the Articles of Incorporation of the Corporation is hereby amended by: 1. Cancelling the first two paragraphs thereof and inserting the following in its place: FOURTH: The total number of shares of all classes of stock the Corporation has authority to issue is Three Million Seventeen Thousand (3,017,000) shares divided into Three Million (3,000,000) shares of cumulative, convertible Preferred Stock of a par value of One Dollar ($1.00) each and Seventeen Thousand (17,000) shares of Common Stock of a par value of One Hundred Dollars ($100) each. The Aggregate par value of all shares having par value of all classes is Four Million Seven Hundred Thousand Dollars ($4,700,000). 2. Cancelling the paragraph immediately following the caption "Voting Rights" and inserting the following in its place: The Common Stock shall have one (1) vote per share and the Preferred Stock shall have one-two hundred fiftieth (1/250) vote per share. Except to the extent otherwise provided in the Articles of Incorporation or provided by the laws of the State of Maryland, the Common Stock and the Preferred Stock shall vote as a single class. 3. Cancelling the paragraph following the caption "Conversion" and inserting the following in its place: The cumulative Preferred Stock of the Corporation of One Dollar ($1.00) par value, may at the option of the holder thereof, at any time dividends are current be converted into Common Stock of the Corporation of One Hundred Dollars ($100) par value upon the following terms: (1) Any holder of any of the convertible Preferred shares desiring to avail himself of the option for conversion of his stock as herein provided, shall, deliver, duly endorsed in blank, the certificate or certificates representing the stock to be converted to the Secretary of the Corporation at the Corporation Office and at the same time, notify the Secretary in writing over his signature that he desires to convert his stock into Common Stock of One Hundred Dollars ($100) par value pursuant to these provisions. (2) Upon receipt by the Secretary of a certificate or certificates representing shares of convertible Preferred Stock and a Exhibit 3 - 1 notice that the holder thereof desired to convert the same, the Corporation shall forthwith cause to be issued to the holder of the convertible Preferred shares surrendering the same, one-two hundred fiftieth (1/250) share of Common Stock for each share of convertible Preferred Stock surrendered, and shall deliver to such holder a certificate in due form for such Common Stock. Exhibit 3 - 2 Exhibit 4 Audited Financial Statements for the Fiscal Years Ending October 26, 1996, and October 25, 1997, Filed with the Company's Most Recent Annual Report Under Sections 13 and 15(d) of the Securities Exchange Act of 1934 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Bowles Fluidics Corporation We have audited the accompanying consolidated balance sheets of Bowles Fluidics Corporation as of October 25, 1997, and October 26, 1996, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three fiscal years in the period ended October 25, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bowles Fluidics Corporation as of October 25, 1997, and October 26, 1996, and the results of its operations and its cash flows for each of the three fiscal years in the period ended October 25, 1997, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Baltimore, Maryland December 19, 1997 Exhibit 4 - 1 BOWLES FLUIDICS CORPORATION CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended October 25, October 26, October 28, 1997 1996 1995 ---- ---- ---- Net sales $18,842,673 $18,128,274 $16,972,876 Cost of sales 13,065,374 11,996,305 10,852,940 ---------- ---------- ---------- Gross profit 5,777,299 6,131,969 6,119,936 Selling, general and administrative expenses 3,094,769 3,643,128 2,609,911 Research and development costs 1,005,183 1,175,890 636,970 ---------- ---------- ----------- Operating income 1,677,347 1,312,951 2,873,055 Interest income 117,541 89,401 90,155 Other income (expense), net 4,555 (11,417) (30,433) ------------ ------------ ------------ Income before taxes 1,799,443 1,390,935 2,932,777 Provision for income taxes 657,420 506,629 1,148,902 ----------- ----------- ---------- Net income 1,142,023 884,306 1,783,875 Preferred stock dividends accrued (74,646) (74,645) (74,648) ------------ ----------- ----------- Income applicable to common shareholders $ 1,067,377 $ 809,661 $ 1,709,227 ========= =========== ========== Primary earnings per share $ .08 $ .06 $ .13 ======== =========== =========== Fully diluted earnings per share $ .07 $ .05 $ .11 ========= =========== ===========
The accompanying notes are an integral part of these financial statements. Exhibit 4 - 2 BOWLES FLUIDICS CORPORATION CONSOLIDATED BALANCE SHEETS
October 25, October 26, 1997 1996 ---- ---- ASSETS Current Cash and cash equivalents $ 755,525 $1,287,110 Investments available for sale 1,563,121 577,837 Accounts receivable 3,112,063 2,775,658 Inventories 2,130,615 1,986,065 Other current assets 634,037 556,525 ---------- ----------- Total current assets 8,195,361 7,183,195 ---------- ---------- Property and equipment, net 3,494,335 3,428,765 Other assets 95,005 107,892 ---------- ----------- Total assets $11,784,701 $10,719,852 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Accounts payable - trade $1,122,437 $1,104,511 Accrued expenses 1,609,807 1,389,356 Income taxes payable 48,162 40,000 ---------- ---------- Total current liabilities 2,780,406 2,533,867 Other liabilities 492,866 746,433 ----------- ---------- Total liabilities 3,273,272 3,280,300 ---------- ---------- Commitments and contingencies Stockholders' equity 8% Convertible preferred stock 933,080 933,080 Common stock 1,264,001 1,261,001 Additional paid-in capital 2,728,083 2,726,583 Retained earnings ($2,407,467 deficit eliminated at 10/29/94) Note 6 3,586,265 2,518,888 ---------- ---------- Total stockholders' equity 8,511,429 7,439,552 ---------- ---------- Total liabilities and stockholders' equity $11,784,701 $10,719,852 =========== ===========
The accompanying notes are an integral part of these financial statements. Exhibit 4 - 3
BOWLES FLUIDICS CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Preferred Stock Common Stock Additional Shares Shares Amount Paid-in Retained Total (000's) Amount (000's) Capital Earnings ------------- ------ ------- ------- -------- Balance October 29, 1994 $4,907,664 933 $933,080 12,590 $1,259,001 $2,715,583 $ -- Stock options exercised 13,000 20 2,000 11,000 Preferred stock dividends (74,648) (74,648) Net income 1,783,875 1,783,875 ---------- --- ------- ----- ------- -------- --------- Balance October 28, 1995 6,629,891 933 933,080 12,610 1,261,001 2,726,583 1,709,227 Preferred stock dividends (74,645) (74,645) Net income 884,306 884,306 ---------- --- ------- ----- ------- -------- ---------- Balance October 26, 1996 7,439,552 933 933,080 12,610 1,261,001 2,726,583 2,518,888 Stock options exercised 4,500 30 3,000 1,500 Preferred stock dividends (74,646) (74,646) Net income 1,142,023 1,142,023 --------- --- ------- ----- ------- -------- --------- Balance October 25, 1997 $8,511,429 933 $933,080 12,640 $1,264,001 $2,728,083 $3,586,265 ========= === ======= ====== ========= ========= =========
The accompanying notes are an integral part of these financial statements. Exhibit 4 - 4 BOWLES FLUIDICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended October 25, October 26, October 28, 1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Net income $1,142,023 $ 884,306 $1,783,875 Adjustments to reconcile net income provided by operating activities: Depreciation and amortization 960,346 750,449 661,024 Deferred income taxes 5,900 (241,315) (36,500) (Gain)/Loss on disposal of assets 21,089 3,088 (2,267) Accretion of interest on investments (45,269) (31,659) (14,125) ---------- ---------- ---------- 2,084,089 1,364,869 2,392,007 --------- --------- --------- Change in operating accounts: Accounts receivable (336,405) (14,264) (844,509) Inventories (144,550) (86,719) (202,846) Other assets (86,758) (122,381) (111,535) Accounts payable 17,926 109,090 (70,656) Accrued expenses (189,549) 537,235 57,314 Income taxes payable 8,162 (71,441) (431,715) Other liabilities 156,433 428,049 63,150 --------- ---------- ----------- (574,741) 779,569 (1,540,797) --------- ---------- --------- Net cash provided by operating activities: 1,509,348 2,144,438 851,210 --------- --------- ---------- Cash flows from investing activities: Capital expenditures (1,027,780) (1,321,331) (962,597) Purchase of investments (1,540,015) (566,664) (1,143,566) Patents and trademarks (4,433) -- (32,556) Proceeds from sale of equipment 1,441 -- 31,025 Proceeds from sale of investments 600,000 700,000 962,985 ---------- ---------- ---------- Net cash used in investing activities (1,970,787) (1,187,995) (1,144,709) --------- --------- --------- Cash flows from financing activities: Principal payment of debt -- (271,669) (525,102) Preferred stock dividends (74,646) (74,645) (74,648) Proceeds from issuance of common -------- stock 4,500 -- 13,000 ----------- ----------- ---------- Net cash used by financing activities (70,146) (346,314) (586,750) ---------- ---------- ---------- Net increase(decrease) in cash and cash equivalents (531,585) 610,129 (880,249) Cash and cash equivalents: - Beginning of period 1,287,110 676,981 1,557,230 --------- ---------- --------- - End of period $ 755,525 $1,287,110 $ 676,981 ========== ========= ========
The accompanying notes are an integral part of these financial statements. Exhibit 4 - 5 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies General. The Company and its wholly owned subsidiary, Fluid Effects Corporation, operate on a 52/53-week fiscal year which ends on the last Saturday of October. All years presented are 52 weeks. Assets and liabilities, and revenues and expenses, are recognized on the accrual basis of accounting. Cash Equivalents. Cash equivalents are highly liquid investments with original maturities of 90 days or less. Investments. Investments, which are available for sale, consist of U.S. Treasury bills with original maturities over 90 days, but not greater than 365 days, and are carried at cost plus accrued interest, which approximates market. Inventory Pricing. Inventories are carried at the lower of cost (first-in, first-out) or market. Property, Equipment and Depreciation. The cost of property and equipment is depreciated over the estimated useful life of the related assets. Depreciation is computed on the straight-line method for all assets based on the following estimated lives: Years ----- Production machinery and equipment 3-10 Office furniture and equipment 5-7 Laboratory and machine shop equipment 3-10 Leasehold improvements lease term Depreciation expense for the fiscal years ended 1997, 1996, and 1995 was $939,678, $711,282, and $612,294 respectively. Patents. Costs associated with obtaining United States patents are capitalized and amortized using the straight-line method over the life of the patent beginning with the date of issue or date of filing the application. The Company initially charges all costs associated with the acquisition of U.S. and foreign patents to expense, then capitalizes those costs related to U.S. patents upon issuance of those patents. Management reviews all of the patent costs and writes off any patents which are considered to be of no foreseeable economic benefit to the Company. The Company recognizes income from patent licenses in accordance with the respective payment terms of each license agreement. Exhibit 4 - 6 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. (continued) Income Taxes. The Company uses the asset and liability method for accounting for income taxes. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statements carrying amounts and the tax bases of existing assets and liabilities. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications. Certain 1995 and 1996 amounts have been reclassified to conform to the 1997 presentation. Concentrations of Credit Risk. Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable and cash investments. The Company's customer base includes the significant U.S. automotive manufacturers and a large number of automotive parts suppliers. The Company does not require collateral for its trade accounts receivable. However, the Company's credit evaluation process, reasonably short collection terms, and the geographical dispersion of sales transactions help to mitigate any concentration of credit risk. The Company also has cash investment policies that limit the amount of credit exposure to any one financial institution and require placement of investments in financial institutions evaluated as highly creditworthy. 2. Inventories Inventories are comprised of:
1997 1996 --------- -------- Raw material $ 620,567 $ 678,494 Work and tooling in progress 1,016,845 242,369 Finished goods 493,203 1,065,202 -------- --------- Total $2,130,615 $1,986,065 ========= =========
Exhibit 4 - 7 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Property and Equipment, net Property and Equipment, net, is comprised of:
1997 1996 --------- -------- Production machinery and equipment $4,946,390 $4,397,018 Office furniture and equipment 2,321,844 1,992,152 Laboratory and machine shop equipment 1,428,516 1,395,837 Leasehold improvements 812,120 796,928 ---------- -------- Total property and equipment 9,508,870 8,581,935 Less accumulated depreciation (6,014,535) (5,153,170) Property and equipment, net $3,494,335 $3,428,765 ========= =========
4. Line of Credit In May 1996, the Company entered into a fourth amended and restated agreement with Mercantile-Safe Deposit & Trust Company to reaffirm and extend its $1,000,000 line of credit until May 8, 1997, on an unsecured basis. At the Company's request and the Bank's discretion the line of credit was extended until May 8, 1998, and may be reaffirmed each year thereafter. The interest rate is Mercantile's prime rate, floating, which was 8-1/2% as of October 25, 1997. In addition, a 3/8% annual fee is assessed on the unused portion of this credit facility. Advances on the line of credit are limited to 85% of eligible accounts receivable and 40% of finished goods inventory. No amount was outstanding on this credit line at October 25, 1997, or October 26, 1996. In addition to the maintenance of certain financial ratios, the covenants of the fourth amended loan agreement require the Company's tangible net worth to be not less than $2,000,000 as of the close of each fiscal year. 5. Debt No debt was outstanding as of October 25, 1997, and October 26, 1996. In February 1996 the unpaid balance of the then outstanding loan from Mercantile-Safe Deposit & Trust Company was paid in total. Cash paid for interest during 1997, 1996, and 1995 was $0, $6,018, and $37,586, respectively. Exhibit 4 - 8 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Stockholders' Equity The 8% convertible preferred stock of the Company at October 25, 1997, and October 26, 1996, consists of 3,000,000 authorized shares, par value $1.00 per share, with 933,080 shares issued and outstanding on both dates. The common stock of the Company at October 25, 1997, and October 26, 1996, consists of 17,000,000 authorized shares, par value $.10 per share. On October 25, 1997, the shares issued and outstanding were 12,640,011, whereas on October 26, 1996, they were 12,610,011. The Company's preferred stock provides for an annual dividend of $.08 per share from the net earnings of the Company and is cumulative only for those years in which the Company has earnings, and $1.00 per share in liquidation before any distribution can be made to holders of common stock. If any dividends payable on the preferred stock with respect to any fiscal year of the Company are not paid for any reason, the rights of the holders of the preferred stock to receive payment of such dividends shall not lapse or terminate; but unpaid dividends shall accumulate and shall be paid without interest to the holders of the preferred stock when and as authorized by the Board of Directors before any dividends shall be paid on any other class of stock. The Company's preferred stock may at the option of the holder, at any time dividends are current, be converted into common stock of the Company at the conversion rate of four shares of common for each share of preferred. Additionally, the preferred stock is redeemable at par in whole or in part at the option of the Board of Directors at any time the dividends are current after a period of 10 years subsequent to issue. At October 25, 1997, 683,080 shares have been outstanding for more than 10 years and dividends are current, and thus can be converted. The common stock has one (1) vote per share and the preferred stock has four (4) votes per share. Reserved Shares. As of and for the three fiscal years in the period ended October 25, 1997, there were 300,000 shares of common stock reserved for issuance in connection with the Company's stock option plans. None of the authorized shares of common stock are reserved for conversion of preferred stock. Under the laws of the State of Maryland, the authorization of the preferred stock in itself provides the authorization of common stock necessary for conversion. Quasi-reorganization. Effective October 29, 1994, the Board of Directors approved a quasi-reorganization which had the impact of eliminating the retained earnings deficit as an adjustment to additional paid-in capital. Exhibit 4 - 9 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Income Taxes The Company and its subsidiary file a consolidated federal income tax return and separate state income tax returns. The provision for income taxes consisted of the following:
1997 1996 1995 --------- --------- --------- Federal: Current $620,131 $678,938 $1,019,525 Deferred (6,100) (222,600) (30,100) --------- ------- -------- 614,031 456,338 989,425 ------- ------- ------- State: Current 43,189 68,791 164,377 Deferred 200 (18,500) (4,900) ---------- ------- -------- 43,389 50,291 159,477 -------- -------- --------- $657,420 $506,629 $1,148,902 ======= ======= =========
The components of the deferred tax asset and liability for 1997 and 1996 were as follows:
1997 1996 Deferred tax assets: Accrued vacation and retirement programs $ 83,600 $190,300 Non-deductible reserves 490,600 387,100 ------- ------- Total deferred tax assets 574,200 577,400 ------- ------- Deferred tax liabilities: Property and equipment (303,700) (312,800) ------- ------- Total deferred tax liabilities (303,700) (312,800) ------- ------- Net deferred tax assets $270,500 $264,600 ======= =======
Reconciliation of the provisions for income taxes at the U.S. federal statutory rate to the effective tax expense were as follows:
1997 1996 1995 -------- -------- --------- U.S. statutory income tax $611,811 $472,918 $ 997,145 State taxes, net of federal income tax benefit 28,637 33,711 105,255 Other, net 16,972 -- 46,502 -------- ------- ---------- $657,420 $506,629 $ 1,148,902 ======= ======= =========
Cash paid for income taxes was $584,000, $877,000, and $1,617,000 for 1997, 1996, and 1995, respectively. Exhibit 4 - 10 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Earnings per Share Primary earnings per share are based on the weighted average number of common shares and the effects of shares issuable under stock options based on the treasury stock method. Fully diluted earnings per share assumes that the preferred stock is converted to common stock at the beginning of the year. The number of shares used for computing primary earnings per share was 12,682,371, 12,701,898, and 12,706,408 in 1997, 1996, and 1995, respectively. The number of shares used in computing fully diluted earnings per share was 16,423,720, 16,473,390, and 16,445,005 in 1997, 1996, and 1995, respectively. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" (FAS 128), which will require companies to present basic earnings per share (EPS) and diluted earnings per share, instead of the primary and fully diluted EPS that is currently required. The new standard requires additional informational disclosures, and also makes certain modifications to the currently applicable EPS calculations defined in Accounting Principles Board Opinion No. 15. The new standard is required to be adopted by all public companies for reporting periods ending after December 15, 1997, and will require restatement of EPS for all periods reported. Under the requirements of FAS 128, the Company's EPS would be as follows:
October 25, October 26, October 28, 1997 1996 1995 Basic earnings per share $ .08 $ .06 $ .14 Diluted earnings per share .07 .05 .11
9. Commitments and Contingencies The Company leases its facilities under non-cancelable operating leases which expire in 2004 for Columbia, Maryland, and in 2000 for Southfield, Michigan. As of October 25, 1997, minimum annual aggregate rentals are as follows:
Year Ended Amount 1998 $ 593,835 1999 594,831 2000 577,026 2001 561,648 2002 561,648 thereafter 842,472 ------- Total minimum future rental payments $3,731,460 ==========
Exhibit 4 - 11 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. (continued) Rent expense under all leases for 1997, 1996, and 1995 was $644,008, $626,565, and $622,671, respectively. Management is unaware of any pending legal proceedings which would have a material adverse effect on the financial statements of the Company. 10. Employee Benefit Plans On November 1, 1990, the Company adopted a defined contribution (401k) plan covering substantially all of its employees. Contributions and costs were determined by matching 50% of employee contributions up to 4% of each covered employee's earnings. As of April 1, 1994, the Company increased its matching contribution to 50% of the employee contributions up to 6% of each covered employee's earnings. The Company's contributions to the plan were $151,314, $119,640, and $101,286 in 1997, 1996, and 1995, respectively. The Company has agreed to retirement programs for certain former officers providing for the payment of certain retirement benefits. The unfunded present value, at a discount rate of 7.5%, of these benefits accumulated as of October 25, 1997, amounts to approximately $347,000, of which $288,000 is included in other liabilities. Expenses related to these programs were $46,476 in 1997, $44,000 in 1996, and $102,000 in 1995. 11. Stock Options In May 1992, the Company adopted its key employee incentive stock option plan. Activity in the Company's incentive stock option plan was as follows:
1997 1996 1995 ------ ------ ------ Options outstanding, beginning of year 180,000 180,000 200,000 Options granted - - - Options exercised (30,000) - (20,000) Options expired (80,000) - - --------- ------------------ Options outstanding, end of year 70,000 180,000 180,000 ======== ======== ========
Options activities are at exercise prices ranging from $.15 to $.65 per share. Exhibit 4 - 12 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. (continued) Statement of Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (FAS 123) became effective for the Company in 1997. As allowed by FAS 123, the Company has elected to continue to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), in accounting for its stock option plans. FAS 123 requires the Company to present pro forma information as if the Company had accounted for stock options granted since December 15, 1995, under the fair value method of FAS 123. No pro forma information has been presented by the Company as no stock options have been issued since December 15, 1995, the effective date of FAS 123. 12. Termination of Sales Agreement During the fiscal year 1996, the Company accrued $760,000 ($465,400 net of income taxes) for the termination in May 1997 of the sales agreement with its manufacturer's representatives. The payments commenced in May 1997, and the current balance as of October 25, 1997, was $532,270, which is expected to be paid during fiscal year 1998. 13. Major Customers Over 90% of the Company's production of nozzles is incorporated in vehicles produced by General Motors, Ford, and Chrysler, each of whom typically represents over 10% of the Company's sales volume. The Company is, therefore, substantially dependent upon the North American production requirements of these three automotive companies. In addition, the Company's customers required that a QS-9000-compliant quality system be developed and registered by an independent organization. Registration deadlines were July 1997 for Chrysler and December 1997 for General Motors. In September 1996, the Company was assessed by Underwriters Laboratories Inc., received QS-9000 certification with ISO 9001 addendum as of December 20, 1996, and has maintained that certification since then. 14. New Accounting Pronouncements In 1997, the Financial Accounting Standards Board issued the following Statements of Financial Standards ("FAS"): Exhibit 4 - 13 BOWLES FLUIDICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. (continued) o FAS No. 129, Disclosure of Information about Capital Structures This statement becomes effective for fiscal years ending after December 15, 1997, and continues the previous requirements to disclose certain information about an entity's capital structure found in previously issued Opinions and Standards. The Company currently follows the provisions for this statement. o FAS No. 131, Disclosures about Segments of an Enterprise and Relative Information This statement becomes effective for fiscal years beginning after December 15, 1997, and changes the way public companies report information about segments of their business in their financial statements and requires them to report selected segment information in their quarterly reports to stockholders. The Company intends to adopt the disclosure requirement by this statement for the year ending October 30, 1999. Exhibit 4 - 14 BOWLES FLUIDICS CORPORATION - EXHIBIT 11 CALCULATION OF EARNINGS PER SHARE A. PRIMARY EARNINGS PER SHARE
For the Fiscal Year Ended --------------------------------------- October 25, October 26, October 28, 1997 1996 1995 ---- ---- ---- Calculation of net income: Net income per books $1,142,023 $ 884,306 $1,783,875 Less: Dividends on convertible preferred stock 74,646 74,645 74,648 ---------- ----------- ----------- Net income as adjusted $1,067,377 $ 809,661 $1,709,227 ========= ========= ========= Calculation of outstanding shares: Weighted average of common shares outstanding 12,633,764 12,610,011 12,593,353 Add: Assumed exercise of stock options 48,607 91,887 113,055 ------------ ------------ ----------- Number of common shares outstanding adjusted 12,682,371 12,701,898 12,706,408 ========== ========== ========== Primary earnings per common share: $ .08 $ .06 $ .13 ========= ========= =========
Exhibit 4 - 15 BOWLES FLUIDICS CORPORATION - EXHIBIT 11 CALCULATION OF EARNINGS PER SHARE (continued) B. FULLY DILUTED EARNINGS PER SHARE
For the Fiscal Year Ended --------------------------------------- October 25, October 26, October 28, 1997 1996 1995 ---- ---- ---- Net income per books $1,142,023 $ 884,306 $ 1,783,875 ========= ========== ========== Weighted average of common shares outstanding 12,633,764 12,610,011 12,593,353 Add: Assumed conversion of preferred stock 3,732,320 3,732,320 3,732,320 Assumed exercise of stock options 57,636 131,059 119,332 ------------ ---------- ---------- Number of common shares outstanding adjusted 16,423,720 16,473,390 16,445,005 ========== ========== ========== Fully diluted earnings per common share $ .07 $ .05 $ .11 ========= ========= =========
Exhibit 4 - 16 EXHIBIT 5 Audited Financial Statement for the Fiscal Year Ending October 31, 1998 The audited financial statement of the Company for the fiscal year ending October 31, 1998, is expected to be available shortly after January 1, 1999, and will be incorporated herein at such time. Exhibit 5 - 1 EXHIBIT 6 Pro Forma Data Disclosing the Effect of the Reverse Stock Split and Buyback of Fractional Shares on the Company's Balance Sheet as of the Most Recent Fiscal Year End BOWLES FLUIDICS CORPORATION PRO FORMA CONSOLIDATED BALANCE SHEET
October 25, 1997 ---------------------------------- Reverse Split & Buyback Reported Adjustments Pro Forma ---------------------------------- ASSETS Current Cash and cash equivalents $755,525 ($242,600) $512,925 Investments available for sale 1,563,121 1,563,121 Accounts receivable 3,112,063 3,112,063 Inventories 2,130,615 2,130,615 Other current assets 634,037 634,037 ---------------------------------- Total current assets 8,195,361 (242,600) 7,952,761 ---------------------------------- Property and equipment, net 3,494,335 3,494,335 Other assets 95,005 95,005 ---------------------------------- Total assets $11,784,701 ($242,600) $11,542,101 ================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Accounts payable - trade $1,122,437 $1,122,437 Accrued expenses 1,609,807 1,609,807 Income taxes payable 48,162 48,162 ----------- ----------- Total current liabilities 2,780,406 2,780,406 Other liabilities 492,866 492,866 ----------- ----------- Total liabilities 3,273,272 3,273,272 ----------- ----------- Commitments and contingencies Stockholders' equity 8% Convertible preferred stock 933,080 933,080 Common stock 1,264,001 ($19,408) 1,244,593 Additional paid-in capital 2,728,083 (41,887) 2,686,196 Retained earnings 3,586,265 (181,305) 3,404,960 ---------------------------------- Total stockholders' equity 8,511,429 (242,600) 8,268,829 ---------------------------------- Total liabilities and stockholders' equity $11,784,701 ($242,600) $11,542,101 ================================== Common stock book value $7,578,349 ($242,600) 7,335,749 Number of common shares outstanding 12,640,011(12,627,565) 12,446 Per share $0.60 $589.41
Exhibit 6 - 1 BOWLES FLUIDICS CORPORATION PRO FORMA CONSOLIDATED BALANCE SHEET
July 25, 1998 ---------------------------------- Reverse Split & Buyback Reported Adjustments Pro Forma ---------------------------------- ASSETS Current Cash and cash equivalents $970,359 ($242,600) $727,759 Accounts receivable 2,821,583 2,821,583 Inventories 2,992,946 2,992,946 Other current assets 425,689 425,689 ---------------------------------- Total current assets 7,210,577 (242,600) 6,967,977 ---------------------------------- Property and equipment, net 4,312,460 4,312,460 Other assets 91,230 91,230 ---------------------------------- Total assets $11,614,267 ($242,600) $11,371,667 ================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Accounts payable - trade $701,337 $701,337 Accrued expenses 1,088,139 1,088,139 ---------------------------------- Total current liabilities 1,789,476 1,789,476 Other liabilities 474,488 474,488 ---------------------------------- Total liabilities 2,263,964 2,263,964 Commitments and contingencies Stockholders' equity 8% Convertible preferred stock 933,080 933,080 Common stock 1,268,501 ($19,408) 1,249,093 Additional paid-in capital 2,732,832 (41,887) 2,690,945 Retained earnings 4,415,890 (181,305) 4,234,585 ---------------------------------- Total stockholders' equity 9,350,303 (242,600) 9,107,703 ---------------------------------- Total liabilities and stockholders' equity $11,614,267 ($242,600) $11,371,667 ================================== Common stock book value $8,417,223 ($242,600) $8,174,623 Number of common shares outstanding 12,685,011(12,672,520) 12,491 Per share $0.66 $654.44
Exhibit 6 - 2 BOWLES FLUIDICS CORPORATION NOTES TO PRO FORMA FINANCIAL STATEMENTS Reverse Split and Buyback Adjustments 1. Balance Sheets: October 25, 1997, and July 25, 1998 The pro forma balance sheets reflect the reduction in cash and cash equivalents and the decrease in stockholders' equity of $242,600 resulting from the buyback of estimated fractional common shares (194.077 shares) after the 1-for-1,000 reverse common stock split at $1,250 per share, as if the buyback occurred at October 25, 1997, and July 25, 1998, respectively. The pro forma book value per share reflects the lower common stock book value and the lower number of common shares outstanding after the split and buyback. Exhibit 6 - 3 Exhibit 7 Pro Forma Data Disclosing the Effect of the Reverse Stock Split and Buyback of Fractional Shares on the Company's Statement of Income, Earnings Per Share Amounts, and Ratio Of Earnings to Fixed Charges for the Most Recent Fiscal Year End
BOWLES FLUIDICS CORPORATION PRO FORMA CONSOLIDATED STATEMENT OF INCOME For the Year Ended October 25, 1997 -------------------------------------- Reverse Split & Buyback Reported Adjustments Pro Forma -------------------------------------- Net Sales $18,842,673 $18,842,673 Cost of sales 13,065,374 13,065,374 ------------- -------------- Gross Profit 5,777,299 5,777,299 Selling, general and administrative expenses 3,094,769 3,094,769 Research and development costs 1,005,183 1,005,183 ------------- -------------- Operating income 1,677,347 1,677,347 Interest income 117,541 ($12,774) 104,767 Other income (expense), net 4,555 4,555 -------------------------------------- Income before income taxes 1,799,443 (12,774) 1,786,669 Provision for income taxes 657,420 (4,667) 652,753 -------------------------------------- Net income 1,142,023 (8,107) 1,133,916 Preferred stock dividends accrued (74,646) 0 (74,646) -------------------------------------- Income applicable to common shareholders $1,067,377 ($8,107) $1,059,270 ====================================== Primary earnings per share: Income applicable to common shareholders $1,067,377 ($8,107) $1,059,270 -------------------------------------- Weighted average of common shares outstanding 12,633,764(12,621,324) 12,440 Add: Assumed exercise of stock options 48,607 (48,558) 49 -------------------------------------- Number of common shares outstanding adjusted 12,682,371(12,669,882) 12,489 -------------------------------------- Primary earnings per share $0.08 $84.82 ============= ============== Fully diluted earnings per share: Net income $1,142,023 ($8,107) $1,133,916 -------------------------------------- Weighted average of common shares outstanding 12,633,764(12,621,324) 12,440 Add: Assumed conversion of preferred stock 3,732,320(3,728,588) 3,732 Assumed exercise of stock options 57,636 (57,578) 58 -------------------------------------- Number of common shares outstanding adjusted 16,423,720(16,407,490) 16,230 -------------------------------------- Fully diluted earnings per share $0.07 $69.87 ============= ============== Ratio of earnings to fixed charges N/a N/a
Exhibit 7 - 1
BOWLES FLUIDICS CORPORATION PRO FORMA CONSOLIDATED STATEMENT OF INCOME For the Nine Months Ended July 25, 1998 ---------------------------------- Reverse Split & Buyback Reported Adjustments Pro Forma ---------------------------------- Net Sales $15,105,362 $15,105,362 Cost of sales 11,196,107 11,196,107 ----------- ----------- Gross Profit 3,909,255 3,909,255 Selling, general and administrative expenses 1,993,702 1,993,702 Research and development costs 582,743 582,743 ----------- ----------- Operating income 1,332,810 1,332,810 Interest income 52,022 ($9,580) 42,442 Other income (expense), net 23,749 23,749 ---------------------------------- Income before income taxes 1,408,581 ($9,580) 1,399,001 Provision for income taxes 521,631 (3,548) 518,083 ---------------------------------- Net income 886,950 (6,032) 880,918 Preferred stock dividends accrued (55,985) (55,985) ---------------------------------- Income applicable to common shareholders $830,965 ($6,032) $824,933 ================================== Basic earnings per share: Income applicable to common shareholders $830,965 ($6,032) $824,933 Weighted average of common shares outstanding 12,655,011(12,642,550) 12,461 Basic earnings per share $0.07 $66.20 =========== =========== Diluted earnings per share: Net income $886,950 ($6,032) 880,918 ---------------------------------- Weighted average of common shares outstanding 12,655,011(12,642,550) 12,461 Add: Assumed conversion of preferred stock 3,732,320(3,728,588) 3,732 Assumed exercise of stock options 14,847 (14,832) 15 ---------------------------------- Number of common shares outstanding adjusted 16,402,178(16,385,970) 16,208 ---------------------------------- Diluted earnings per share $0.05 $54.35 =========== =========== Ratio of earnings to fixed charges N/a N/a
Exhibit 7 - 2 BOWLES FLUIDICS CORPORATION NOTES TO PRO FORMA FINANCIAL STATEMENTS Reverse Split and Buyback Adjustments 1. Income Statements: Year Ended October 25, 1997, and Nine Months Ended July 25, 1998 The pro forma income statements reflect the reduction in interest income, net of income taxes, to give effect to the $242,600 reduction of cash and cash equivalents to acquire the estimated fractional common shares outstanding (194.077 shares) after the 1-for-1,000 reverse common stock split at $1,250 per share, as if the reverse split and buyback occurred at October 27, 1996. The pro forma primary and fully diluted earnings per share reflect the lower net income and the lower number of common shares outstanding after the reverse stock split and buyback of fractional common shares at $1,250 per share. Exhibit 7 - 3 -----END PRIVACY-ENHANCED MESSAGE-----