SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
Solicitation/Recommendation Statement under Section 14(d)(4) of the
Securities Exchange Act of 1934
WHITE ELECTRONIC DESIGNS CORPORATION
(Name of Subject Company)
WHITE ELECTRONIC DESIGNS CORPORATION
(Name of Person(s) Filing Statement)
Common Stock,
stated value $0.10 per share
(Title of Class of Securities)
963801105
(CUSIP Number of Class of Securities)
Brian Kahn
Chairman of the Board of Directors
Gerald R. Dinkel
President and Chief Executive Officer
White Electronic Designs Corporation
3601 East University Drive
Phoenix, Arizona 85034
(602) 437-1520
(Name, address and telephone number of person
authorized to receive notices and communications on
behalf of the person(s) filing statement)
With copies to:
Bradley L. Finkelstein, Esq.
Nathaniel P. Gallon, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
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¨
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Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.
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TABLE OF CONTENTS
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Item 1.
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Subject Company Information.
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Name and Address
. The name of the subject company is White Electronic Designs Corporation, an Indiana corporation (“
White Electronic Designs
” or the “
Company
”). The address of the Company’s
principal executive office is 3601 E. University Drive, Phoenix, Arizona, 85034, and the Company’s telephone number at that location is (602) 437-1520.
Securities
. This Solicitation/Recommendation Statement on Schedule 14D-9 (this “
Schedule
” or “
Statement
”) relates to the common stock, stated value $0.10 per
share, of the Company (the “
Shares
” or the “
Common Stock
”). As of March 26, 2010, there were 23,638,277 shares of Common Stock issued and outstanding, 1,180,196 shares of Common Stock issuable upon or otherwise
deliverable in connection with the exercise of outstanding options, and 30,000 shares of Common Stock subject to restricted stock units (“
RSUs
”).
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Item 2.
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Identity and Background of Filing Person.
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Name and Address
. The Company is the person filing this Statement. The information about the Company’s address and telephone number in Item 1, under the heading “Name and
Address,” is incorporated herein by reference. The Company’s website address is www.whiteedc.com. The information on the Company’s website should not be considered a part of this Statement.
Tender Offer and Merger
. This Statement relates to the tender offer by Rabbit Acquisition Corp., an Indiana corporation
(“
Purchaser
”) and a wholly owned subsidiary of Microsemi Corporation, a Delaware corporation (“
Parent
” or “
Microsemi
”), disclosed in the Tender Offer Statement on Schedule TO (together with the
exhibits thereto, as amended, the “
Schedule TO
”), filed by Purchaser and Parent with the Securities and Exchange Commission (the “
SEC
”) on March 31, 2010, and pursuant to which Purchaser is offering to
purchase all outstanding Shares at a price of $7.00 per Share, net to the selling shareholder in cash, without interest and less any required withholding taxes (the “
Offer Price
”), upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated March 31, 2010 (the “
Offer to Purchase
”), and the related Letter of Transmittal (which, together with the Offer to Purchase, as each may be amended or supplemented from time to time,
constitute the “
Offer
”). The Offer to Purchase and Letter of Transmittal are being mailed with this Statement and are filed as Exhibits (a)(1) and (a)(2) hereto, respectively, and are incorporated herein by reference.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of March 29, 2010 (as such agreement may be amended from
time to time, the “
Merger Agreement
”), among Parent, Purchaser and the Company. The Merger Agreement provides, among other things, that following the successful consummation of the Offer and subject to the satisfaction or waiver of
the conditions set forth in the Merger Agreement and in accordance with the relevant portions of the Indiana Business Corporation Law (the “
IBCL
”), Purchaser will merge with and into the Company (the “
Merger
”).
Following the consummation of the Merger, the Company will continue as the surviving corporation and a wholly owned subsidiary of Parent. As of the effective time of the Merger (the “
Effective Time
”), each Share that is not validly
tendered pursuant to the Offer will be converted into the right to receive cash in an amount equal to the Offer Price (other than Shares that are held by the Company, Parent, or any of their wholly owned subsidiaries), without interest and less any
required withholding taxes. A copy of the Merger Agreement is filed as Exhibit (e)(1) hereto and is incorporated herein by reference. The Merger Agreement is summarized in Section 11 of the Offer to Purchase.
The Merger Agreement governs the contractual rights among the Company, Parent and Purchaser in relation to the Offer and the Merger. The
Merger Agreement has been included as an exhibit to this Schedule 14D-9 to provide the Company’s shareholders with information regarding the terms of the Merger Agreement and is not intended to modify or supplement any factual disclosures
about the Company or Parent in the Company’s or Parent’s public reports filed with the SEC. In particular, the summary of the Merger Agreement contained in the Offer to Purchase and the assertions embodied in the representations and
warranties contained in the Merger Agreement are qualified by information in confidential disclosure schedules provided by the Company in
1
connection with the signing of the Merger Agreement. These disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth
in the Merger Agreement. Moreover, certain representations and warranties in the Merger Agreement were used for the purpose of allocating risk between the Company, Parent and Purchaser, rather than establishing matters of fact. Accordingly, the
representations and warranties in the Merger Agreement may not constitute the actual state of facts about the Company, Parent or Purchaser.
According to the Offer to Purchase, the Purchaser’s and Parent’s principal executive offices are located at 2381 Morse Avenue, Irvine, California, 92614, and the telephone number of their
principal executive offices is (949) 221-7100.
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Item 3.
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Past Contracts, Transactions, Negotiations and Agreements.
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Certain contracts, agreements, arrangements or understandings between the Company or its affiliates and certain of its executive officers or directors are, except as described below, described in the
Information Statement pursuant to Section 14(f) of the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”) and Rule 14f-1 thereunder (the “
Information Statement
”) that is attached hereto as
Annex I and is incorporated herein by reference. Except as set forth in this Item 3, Item 4 below or Annex I attached hereto, or as otherwise incorporated herein by reference, to the knowledge of the Company, there are no
material agreements, arrangements or understandings, and no potential or actual conflicts of interest, between the Company or its affiliates and (i) the Company’s executive officers, directors or affiliates or (ii) Purchaser, Parent
or their respective executive officers, directors or affiliates.
(a) Arrangements with Executive Officers and Directors
of the Company.
Interests of Certain Persons
. Certain members of management and the Company’s Board
of Directors (the “
Board
” or the “
Board of Directors
”) may be deemed to have interests in the transactions contemplated by the Merger Agreement that are different from or in addition to the interests of Company
shareholders generally. These interests may create potential conflicts of interest. The Board was aware of these interests and considered them, among other matters, in approving the Merger Agreement and the transactions contemplated thereby. As
described below, consummation of the Offer will constitute a change in control of the Company for the purposes of determining the entitlements due to executive officers and directors of the Company relating to certain severance and other benefits.
Consideration Payable Pursuant to the Offer
Consideration for Shares.
If the Company’s directors and executive officers were to tender any Shares they own for purchase pursuant to the Offer, they would receive the same cash
consideration on the same terms and conditions as the other shareholders of the Company. As of March 26, 2010, the Company’s directors and executive officers (and affiliates and affiliated investment entities) owned 5,749,035 Shares in the
aggregate (excluding Company Stock Options (as defined below), RSUs (as defined below) and Restricted Stock (as defined below)). If the directors and executive officers (and affiliates and affiliated investment entities) were to tender all of their
Shares for purchase pursuant to the Offer and those Shares were accepted for purchase and purchased by Purchaser, the directors and executive officers (including their affiliates and affiliated investment entities) would receive an aggregate of
approximately $40.2 million in cash. The beneficial ownership of each director and executive officer is further described in the Information Statement under the heading “Principal Shareholders and Security Ownership by Management.”
Consideration for Options
. As of March 26, 2010, the Company’s directors and executive officers held options to
purchase 470,675 Shares in the aggregate, of which 299,844 were vested and exercisable as of that date, with exercise prices ranging from $3.83 to $10.63 and an aggregate weighted average exercise price of $6.16 per Share. Pursuant to, and as
further described in, the Merger Agreement, each outstanding option to
2
purchase Common Stock granted under any of the Company’s equity plans or assumed by the Company in a prior acquisition (each, a “
Company Stock Option
”) outstanding
immediately prior to the Effective Time that is held by a Continuing Employee (as defined in the Merger Agreement) or Continuing Service Provider (as defined in the Merger Agreement) (a “
Continuing Option
”) will be assumed by Parent
at the Effective Time. Each Continuing Option assumed by Parent will continue to have, and be subject to, the same terms and conditions of such option immediately prior to the Effective Time, except that (i) each Continuing Option will be
exercisable for a number of shares of common stock of Parent (“
Parent Common Stock
”) determined by multiplying the number of Shares subject to such stock options as of immediately before the Effective Time by a quotient determined
by dividing (a) the Offer Price by (b) the average closing price of Parent Common Stock on the Nasdaq Stock Market LLC (the “
Nasdaq
”) for the five trading days immediately preceding (but not including) the Effective Time
(the “
Exchange Ratio
”), (rounded down to the nearest whole share) and (ii) the per share exercise price for the Parent Common Stock issuable upon exercise of the assumed Continuing Options will equal the quotient determined by
dividing the per share exercise price for such Continuing Option outstanding immediately prior to the Effective Time by the Exchange Ratio (rounded up to the nearest whole cent).
Each Company Stock Option that is outstanding immediately prior to the Effective Time that is not a Continuing Option (a
“
Terminating Option
”) will be cancelled at the Effective Time. Each Terminating Option that is vested and exercisable at the Effective Time (after giving effect to any accelerated vesting occurring in connection with the
Transactions and/or the holder’s termination of employment on or prior to the Effective Time) will be automatically converted into the right to receive, as soon as practicable after the Effective Time, an amount in cash determined by
multiplying the excess, if any, of the Offer Price over the applicable exercise price of such option by the number of Shares subject to such Terminating Option, less all applicable deductions and withholdings required by law. Terminating Options
that are not vested and exercisable at the Effective Time will be automatically cancelled for no consideration at the Effective Time.
Consideration for Restricted Stock Units
. As of March 26, 2010, the Company’s executive officers held outstanding Company restricted stock units (“
RSUs
”) covering 25,000 Shares in the aggregate (no directors
hold RSUs). Pursuant to, and as further described in, the Merger Agreement, each outstanding Company RSU (as defined in the Merger Agreement) that is held by a Continuing Employee or Continuing Service Provider (a “
Continuing RSU
”)
will be assumed by Parent as of the Effective Time. Each Continuing RSU assumed by Parent will continue to have and generally be subject to, the same terms and conditions of such RSU immediately prior to Parent’s assumption, except each Company
RSU shall cover a number of shares of Parent Common Stock equal to the product of the number of Shares that would be issuable under the Company RSU immediately prior to the Effective Time multiplied by the Exchange Ratio, rounded down to the nearest
whole number of shares of Parent Common Stock. Each Company RSU (or any portion thereof) that vests and becomes settable by its terms at the Effective Time will not be assumed but will instead be converted into the right to receive, in exchange for
the cancellation of such Company RSU (or portion thereof), an amount in cash, without interest, equal to the Offer Price multiplied by the number of Shares subject to such Company RSU (or settable portion thereof) immediately prior to the Effective
Time. Any such payment will be subject to all applicable federal, state and local tax withholding requirements.
Each Company
RSU that is outstanding immediately prior to the Effective Time that is not a Continuing RSU (a “
Terminating RSU
”) will be cancelled at the Effective Time. Each holder of a Terminating RSU that is vested at the Effective Time (after
giving effect to any accelerated vesting occurring in connection with the Transactions and/or the holder’s termination of employment on or prior to the Effective Time) shall be eligible to receive as soon as practicable after the Effective Time
(or such later time if necessary to avoid the imposition of additional tax) an amount in cash, without interest, equal to the Offer Price multiplied by the number of Shares subject to such Terminating RSU, less all applicable deductions and
withholdings required by law. Terminating RSUs that are not vested at the Effective Time will automatically be cancelled for no consideration at the Effective Time.
3
Consideration for Restricted Stock.
As of March 26, 2010, the Company’s
directors held 125,000 shares of Company Restricted Stock (as defined in the Merger Agreement) (no executive officers hold shares of Company Restricted Stock). Each share of Company Restricted Stock will be fully accelerated on the Acceptance Date
(as defined in Section 2.1(g) of the Merger Agreement) and at the Effective Time will be cancelled and converted automatically into the right to receive an amount of cash, without interest, equal to the Offer Price, in accordance with the terms of
the Merger Agreement.
Compensation Arrangements
Melvin Keating Compensation Arrangement
The Company entered into a
compensation arrangement with Melvin Keating, a director of the Company, on March 29, 2010 (the “
Keating Arrangement
”). Pursuant to the terms of the Keating Arrangement, and as compensation for Mr. Keating’s continued
services to the Company which are instrumental to the completion of the Merger, Mr. Keating will receive a payment of $250,000, less the sum of all daily fees paid to Mr. Keating by the Company through the Effective Time (the
“
Keating Payment
”). The Company is paying Mr. Keating a daily fee of $1,250 for his work on the transactions contemplated by the Merger Agreement. Payment of the Keating Payment is contingent on Mr. Keating’s continued
service to the Company at the same level of service he is performing as of March 29, 2010, through the Acceptance Date. The Keating Payment, if earned, will be paid within 10 business days of the Effective Time.
Leslie Striedel Compensation Arrangement
The Company has agreed to pay Leslie Striedel, the Company’s Vice President of Finance, a payment of $50,000 (the “
Striedel Payment
”) in consideration of Ms. Striedel’s
significant efforts on behalf of the Company in connection with the transactions contemplated by the Merger Agreement. The payment of the Striedel Payment is contingent on the completion of the Merger and upon Ms. Striedel’s continued high
level of performance and her continued employment with the Company through the Effective Time.
Employment Agreements
The Company has entered into employment agreements with each of the following executive officers: Gerald R. Dinkel, President and Chief
Executive Officer of the Company (such agreement dated August 12, 2009) and Dan Tarantine, Executive V.P., Sales & Marketing of the Company (such agreement dated January 21, 2009).
Gerald R. Dinkel Employment Agreement
Pursuant to the terms of Mr. Dinkel’s employment agreement (the “
Dinkel Agreement
”), Mr. Dinkel receives an annual base salary of $385,000, subject to annual review by the
Board and/or the Board’s Compensation Committee (the “
Committee
”). Mr. Dinkel will also participate in an annual bonus program beginning in fiscal 2010 and each subsequent fiscal year thereafter and he is entitled to
participate in all benefit programs generally available to the Company’s employees or executive officers. The Company will also use commercially reasonable efforts to obtain additional long-term disability coverage for Mr. Dinkel,
provide life insurance coverage for Mr. Dinkel, provide Mr. Dinkel with a car allowance and reimburse Mr. Dinkel for relocation expenses.
Under the terms of the Dinkel Agreement, Mr. Dinkel has agreed that during the term of his employment and for a term of up to two years following his termination of employment, he will not compete
against the Company (unless he agrees to forego any remaining severance payments), solicit any employee of the Company to perform services for any other entity or attempt to induce any employee to leave the Company’s employment, or induce or
solicit any customer to do business with a competing business or eliminate its business with the Company.
4
Mr. Dinkel’s employment may be terminated for any reason, with the benefits due to
him dependent on the circumstances of the termination, as discussed below. Upon Mr. Dinkel’s termination for any reason, the Company will pay Mr. Dinkel any accrued but unused vacation, earned but unpaid base salary accrued
through his termination date, and any unreimbursed expenses. In addition, except if Mr. Dinkel is terminated for Cause (as defined in the Dinkel Agreement) or if Mr. Dinkel terminates his employment for any reason other than voluntarily,
he will receive any unpaid bonus from a prior completed fiscal year (all such benefits described in this paragraph referred to as the “
Accrued Benefits
”). The Accrued Benefits will be provided to Mr. Dinkel without him having
to provide a release of claims to the Company. Mr. Dinkel will also continue to be entitled to receive indemnification and coverage under the Company’s directors and officers’ liability insurance policy and his vested employee awards
and benefits.
Cause, Disability, Death or Voluntary Termination other than for Good Reason
Mr. Dinkel may voluntarily terminate his employment (other than for Good Reason (as defined in the Dinkel Agreement)), provided that he
provides the Company with at least four weeks’ notice prior to his termination. If Mr. Dinkel terminates his employment without providing the proper notice or fails to fulfill his principal job responsibilities during the notice period,
the Company may deem that his employment was terminated for Cause. Upon Mr. Dinkel’s termination by the Company for Cause, his voluntary resignation other than for Good Reason, or his termination as a result of his death or Disability (as
defined in the Dinkel Agreement), Mr. Dinkel (or his estate, as applicable) will receive the Accrued Benefits. If Mr. Dinkel’s employment is terminated due to his death or Disability, all vested stock options granted on or after
August 12, 2009 will remain exercisable for one year.
Termination Without Cause or for Good Reason
If the Company terminates Mr. Dinkel’s employment without Cause or if he terminates his employment for Good Reason, he will receive
the Accrued Benefits. In addition, subject to Mr. Dinkel signing a general release and waiver in favor of the Company and subject to his continued compliance with the provisions of the Dinkel Agreement (including provisions as to
non-competition and non-solicitation), Mr. Dinkel will be entitled to receive the following:
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•
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Continuation of his base salary for a period of 24 months following the date of his termination;
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•
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Company payment of his life insurance premiums for a period of 18 months; and
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•
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All unvested stock options, unvested restricted stock units and any other unvested equity-based awards or grants previously granted to Mr. Dinkel
will become fully vested and exercisable or paid in accordance with their terms and all stock options granted on or after August 12, 2009 will remain fully exercisable until the 10
th
anniversary of the option’s grant date.
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Change in Control
Upon the occurrence of a Change in Control (as defined in the Dinkel Agreement), all unvested stock options, unvested restricted stock units and any other unvested equity-based awards or grants previously granted to Mr. Dinkel will
become fully vested and will be exercisable or paid in accordance with the terms of any applicable grant or award agreement and plans governing such awards or grants. The successful consummation of the Offer will constitute a Change in Control under
the Dinkel Agreement.
Dan Tarantine Employment Agreement
Pursuant to the terms of Mr. Tarantine’s employment agreement (the “
Tarantine Agreement
”), Mr. Tarantine
receives an annual base salary of $268,800, subject to review by the Board and/or the Committee from time to time. Mr. Tarantine may be eligible to participate in any annual bonus program that may be established and approved from time to
time by the Board based on criteria established by the Board and he is
5
entitled to participate in all benefit programs generally available to the Company’s employees. The Company will provide Mr. Tarantine with a car allowance and reimburse him for
his reasonable business expenses.
Under the terms of the Tarantine Agreement, Mr. Tarantine has agreed that during the
term of his employment and for a term of one year following his termination of employment, he will not solicit any employee of the Company to perform services for any other entity or attempt to induce any Company employee to leave the Company’s
employment.
Under the terms of the Tarantine Agreement, Mr. Tarantine’s employment may be terminated for any reason,
with the benefits due to him dependent on the circumstances of the termination, as discussed below.
Cause, Disability,
Death or Voluntary Termination other than for Good Reason
Mr. Tarantine may voluntarily terminate his employment
(other than for Good Reason (as defined in the Tarantine Agreement)), provided that he provides the Company with at least four weeks’ notice prior to his termination. If Mr. Tarantine terminates his employment without providing the proper
notice or fails to fulfill his principal job responsibilities during the notice period, the Company may deem that his employment was terminated for Cause (as defined in the Tarantine Agreement). Upon Mr. Tarantine’s termination by the
Company for Cause, his voluntary resignation other than for Good Reason, or his termination as a result of his death or Disability (as defined in the Tarantine Agreement), Mr. Tarantine (or his estate, as applicable) will receive any accrued
but unused vacation and earned but unpaid base salary accrued through his termination date.
Termination Without Cause or
for Good Reason
If the Company terminates Mr. Tarantine’s employment without Cause or if he terminates his
employment for Good Reason, he will receive any accrued but unused vacation and earned but unpaid base salary accrued through his termination date. In addition, subject to Mr. Tarantine signing a general release and waiver in favor of the
Company and subject to his continued compliance with the provisions of the Tarantine Agreement (including provisions as to non-solicitation), Mr. Tarantine will be entitled to receive the following:
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Continuation of his base salary for a period of 12 months following the date of his termination;
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•
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Company payment of his COBRA continuation premiums until the earlier of the date that Mr. Tarantine receives group health benefits from another
employer or 12 months after the date of termination; and
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•
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All unvested stock options, unvested restricted stock units and any other unvested equity-based awards or grants previously granted to
Mr. Tarantine will become fully vested and exercisable or paid in accordance with their terms and all stock options granted on or after January 21, 2009 will remain fully exercisable until the 10
th
anniversary of the option’s grant date.
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Change in Control
Upon the occurrence of a Change in Control (as defined in the Tarantine Agreement), all unvested stock options, unvested restricted stock units and any other unvested equity-based awards or grants
previously granted to Mr. Tarantine will become fully vested and will be exercisable or paid in accordance with the terms of any applicable grant or award agreement and plans governing such awards or grants. The successful consummation of the
Offer will constitute a Change in Control under the Tarantine Agreement.
Termination Without Cause or for Good Reason in
Connection with a Change in Control
If the Company terminates Mr. Tarantine’s employment without Cause or if he
terminates his employment for Good Reason, and in either event such termination occurs within one year following a Change in Control, he will receive any accrued but unused vacation and earned but unpaid base salary accrued through his termination
6
date. In addition, subject to Mr. Tarantine signing a general release and waiver in favor of the Company and subject to his continued compliance with the provisions of the Tarantine
Agreement (including provisions as to non-solicitation), Mr. Tarantine will be entitled to receive the following:
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Continuation of his base salary for a period of 18 months following the date of his termination;
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•
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Company payment of his COBRA continuation premiums until the earlier of the date that Mr. Tarantine receives group health benefits from another
employer or 18 months after the date of termination; and
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•
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All unvested stock options, unvested restricted stock units and any other unvested equity-based awards or grants previously granted to
Mr. Tarantine will become fully vested and exercisable or paid in accordance with their terms and all stock options granted on or after January 21, 2009 will remain fully exercisable until the 10
th
anniversary of the option’s grant date.
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Change in Control Agreements
On January 5, 2009, the Company entered into Change in Control Agreements with each of the following: Bjarne Heggli, Vice President, Business Development, Karen Kock, Vice President, Corporate Human
Resources, and Leslie Striedel, Vice President, Finance (each agreement referred to as a “
Change in Control Agreement
” and together, the “
Change in Control Agreements
”). The term of the Change in Control Agreements
began on January 5, 2009 and the Change in Control Agreements will continue in effect during each of Mr. Heggli’s, Ms. Kock’s and Ms. Striedel’s continued employment with the Company.
Change in Control
Upon the occurrence of a Change in Control (as defined in the applicable Change in Control Agreement), all unvested stock options, unvested restricted stock units and any other unvested equity-based awards or grants previously granted to
Mr. Heggli, Ms. Kock or Ms. Striedel will become fully vested and will be exercisable or paid in accordance with the terms of any applicable grant or award agreement and plans governing such awards or grants. The successful
consummation of the Offer will constitute a Change in Control under the Change in Control Agreements.
Termination Without
Cause or for Good Reason
If the Company terminates Mr. Heggli’s, Ms. Kock’s or
Ms. Striedel’s employment without Cause (as defined in the Change in Control Agreements) or if he or she terminates his or her employment for Good Reason (as defined in the Change in Control Agreements), at, or within the 12 month period
following a Change in Control, and subject to the execution of a release as requested by the Company, Mr. Heggli, Ms. Kock and Ms. Striedel will each be entitled to receive the following:
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•
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A lump sum severance payment equal to 15 months (or, in the case of Mr. Heggli, nine months) of annual base salary and 100% of the annual bonus paid in
the calendar year immediately preceding the calendar year in which the Change in Control occurs (or if greater, in the calendar year before that immediately preceding year); and
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•
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Company payment of COBRA continuation premiums for a period of up to 15 months (or, in the case of Mr. Heggli, up to nine months) following the
termination.
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7
Potential Payments upon Termination In Connection with a Change in Control
The following table sets forth the approximate payments and/or benefits that would be owed to each of the Company’s executive officers
or other individuals listed below upon the Acceptance Date (or the Effective Time as indicated below), or upon a termination of employment in connection with the Offer (either a voluntary resignation by the executive officer or another individual
listed below for Good Reason or a termination by the Company other than for Cause), assuming that the Offer is completed at the Offer Price of $7.00 per share of Common Stock and the termination of employment took place on March 31, 2010.
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Name
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Benefit Type
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Payment Upon the
Acceptance Date
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Payment in the Case of
Termination of
Employment in Connection
with the Offer
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Gerald Dinkel
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Severance(1)
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—
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$
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770,000
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Value of Continued Employee Benefits(2)
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—
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$
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25,000
|
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Value of Equity Award Acceleration(3)
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$
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491,672
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—
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Total Value:
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$
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491,672
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$
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795,000
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Dan Tarantine
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Severance(1)
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—
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$
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403,200
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Value of Continued Employee Benefits(4)
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—
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$
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7,562
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Value of Equity Award Acceleration(3)
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$
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175,000
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—
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Total Value:
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$
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175,000
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$
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410,762
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Bjarne Heggli
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Severance(5)
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—
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$
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159,050
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Value of Continued Employee Benefits(6)
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—
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$
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3,781
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Value of Equity Award Acceleration(3)
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$
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4,263
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—
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Total Value:
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$
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4,263
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$
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162,831
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Karen Kock
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Severance(5)
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—
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$
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198,100
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Value of Continued Employee Benefits(7)
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|
—
|
|
$
|
19,763
|
|
|
|
Value of Equity Award Acceleration(3)
|
|
$
|
51,658
|
|
|
—
|
|
|
|
Total Value:
|
|
$
|
51,658
|
|
$
|
217,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leslie Striedel
|
|
Severance(5)
|
|
|
—
|
|
$
|
251,825
|
|
|
|
Success Bonus(8), (9)
|
|
$
|
50,000
|
|
|
—
|
|
|
|
Value of Continued Employee Benefits(7)
|
|
|
—
|
|
$
|
18,636
|
|
|
|
Value of Equity Award Acceleration(3)
|
|
$
|
4,263
|
|
|
—
|
|
|
|
Total Value:
|
|
$
|
54,263
|
|
$
|
270,461
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents cash payments to which the applicable executive officer is entitled pursuant to his Employment Agreement representing amounts attributable to base salary, as
outlined and described above.
|
|
(2)
|
Includes the portion of the executive’s life insurance premiums pursuant to his Employment Agreement, as outlined and described above.
|
|
(3)
|
Represents the value of equity awards that would accelerate upon the expiration of the Offer. The value of the acceleration of such awards was calculated based on the
Offer Price multiplied by the number of unvested equity awards that would be accelerated under the terms of the executive officer’s respective employment agreement or the individual’s Change in Control Agreement, net of the exercise price,
if any. Assumes that no additional equity awards were granted between the expiration of the offer and the termination of employment so that all equity awards would have fully vested prior to any termination of employment.
|
|
(4)
|
Includes Company paid COBRA premiums for a period of 18 months, as outlined and described above.
|
|
(5)
|
Represents cash payments to which the individual is entitled pursuant to his or her Change in Control Agreement representing amounts attributable to base salary and
bonus, as outlined and described above.
|
|
(6)
|
Includes Company paid COBRA premiums for a period of nine months, as outlined and described above.
|
8
|
(7)
|
Includes Company paid COBRA premiums for a period of 15 months, as outlined and described above.
|
|
(8)
|
Represents cash payment to which the applicable executive officer is entitled as of the Effective Time (and not the Acceptance Date) pursuant to her success bonus
arrangement, as outlined and described above.
|
|
(9)
|
Assumes Striedel Payment was earned and paid prior to termination of employment.
|
Indemnification and Insurance
Under Indiana law, a corporation may
indemnify an individual made a party to a threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, whether formal or informal, because the individual is or was a director against
liability incurred in the proceeding if: (i) the individual’s conduct was in good faith, and (ii) the individual reasonably believed (A) in the case of conduct in the individual’s official capacity with the corporation, that
the individual’s conduct was in the best interests of the corporation, (B) in all other cases, that the individual’s conduct was at least not opposed to the best interests of the corporation, and (C) in the case of a criminal
proceeding, the individual either had reasonable cause to believe the individual’s conduct was lawful, or had no reasonable cause to believe the individual’s conduct was unlawful. Unless limited by its articles of incorporation, a
corporation shall indemnify a director or officer who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the director or officer was a party because the director or officer is or was a director or officer of
the corporation against reasonable expenses incurred in connection with the proceeding. A corporation may indemnify a director, officer, employee or agent against liability incurred in a proceeding if a determination has been made that
indemnification is permissible because the above standard of conduct has been met. The determination may be made by (i) a majority vote of a quorum of the board consisting of directors not a party to the proceeding, (ii) if a quorum cannot
be obtained, by a majority of a committee of the board consisting of at least two directors who are not a party to the proceeding, (iii) by special legal counsel, or (iv) by a shareholder vote. A corporation may pay for or reimburse reasonable
expenses incurred by a director, officer, employee or agent who is a party to a proceeding in advance of final disposition of the proceeding if: (i) the individual furnishes the corporation written affirmation of the individual’s good
faith belief that the individual has met the standard of conduct for permissive indemnification set forth above; (ii) the individual furnishes the corporation a written undertaking to repay the advance if it is ultimately determined that the
individual did not meet such standard of conduct; and (iii) a determination is made that the facts known to those making the determination would not preclude indemnification under Indiana law. The determination must be made in the same manner
as the determination for permissible indemnification. In addition, a corporation may indemnify and advance expenses to a director, officer, employee or agent, consistent with public policy, that may be provided by its articles of incorporation,
bylaws, general or specific action of its board of directors or contract.
Indiana law further provides that a corporation may
purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee, or agent of the corporation, or who, while a director, officer, employee, or agent of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, member, manager, trustee, employee or agent of another foreign or domestic corporation, partnership, limited liability company, joint venture, trust, employee benefit plan, or other enterprise, against
liability asserted against or incurred by the individual in that capacity or arising from the individual’s status as a director, officer, member, manager, employee, or agent, whether or not the corporation would have power to indemnify the
individual against the same liability under Indiana law.
The Company’s Amended and Restated Articles of Incorporation
provide that the Company shall indemnify a director or officer of the Company who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the director or officer was a party because the director or officer is or
was a director or officer of the Company against reasonable expenses incurred by the director or officer in connection with the proceeding. The Company may indemnify an individual made a party to a proceeding because the individual is or was a
director, officer, employee or agent of the Company against liability if authorized in the specific case after determination, in the manner required by Indiana law, that indemnification is permissible in the circumstances because the individual has
met the standard of conduct for permissive indemnification under Indiana law set forth above. The indemnification and advancement of expenses for directors, officers, employees and agents of the
9
Company shall apply when such persons are serving at the Company’s request while a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, as well as in their official capacity with the Company. The Company may also pay for or reimburse the reasonable expenses incurred by a director, officer, employee or
agent of the Company who is a party to a proceeding in advance of final disposition of the proceeding upon compliance with Indiana law.
Pursuant to such authority, on March 29, 2010, the Company entered into agreements to indemnify its directors and officers. With certain exceptions, these agreements provide for indemnification for
expenses, including, among other things, attorneys’ fees, judgments, fines and settlement amounts, incurred by any of these individuals in proceedings resulting from the fact that the individual is or was a director or an officer of the
Company. The agreements also provide for the advancement of expenses to the individuals in connection with any such proceedings. This description of the indemnification agreements entered into between the Company and its directors and officers is
qualified in its entirety by reference to the form of indemnification agreement filed as Exhibit (e)(27) hereto, which is incorporated herein by reference.
Parent agreed, pursuant to the Merger Agreement, from and after the Effective Time, to cause the surviving corporation in the Merger (the “
Surviving Corporation
”) to fulfill and honor in
all respects the obligations of the Company pursuant to any indemnification, exculpation or advance of expense or similar agreement by the Company or any of its subsidiaries in favor of any present and former director, officer, employee, fiduciary
or agent of the Company and any of its subsidiaries (and all other indemnification agreements of the Company that are on terms substantially similar to the indemnification agreements) and any indemnification, exculpation or advancement of expenses
provisions under the articles of incorporations or bylaws (or comparable organizational documents) as in effect immediately prior to the Acceptance Time; provided, that, such obligations shall be subject to any limitation imposed from time to time
under applicable law.
Prior to the Effective Time, the Company shall, and for six years after the Effective Time, Parent
shall, and shall cause the Surviving Corporation to, provide officers’ and directors’ liability, fiduciary liability and similar insurance in respect of acts or omissions occurring prior to the Effective Time covering each person who is as
of the date of the Merger Agreement or was prior to the Effective Time an officer or director of the Company or any of its subsidiaries and each person who is now or was prior to the Effective Time an officer or director of the Company or any of its
subsidiaries who served as a fiduciary under or with respect to any employee benefit plan of the Company or any of its Subsidiaries (within the meaning of Section 3(3) of ERISA) covered as of the date of the Merger Agreement by the
Company’s director and officer insurance policies on terms with respect to coverage and amount no less favorable than those of such policy in effect on the date of the Merger Agreement as well as covering claims brought against each such person
under ERISA; provided, that, in satisfying this obligation, the Surviving Corporation shall not be obligated to pay annual premiums in the aggregate in excess of 200% of the amount per annum the Company paid in its last full fiscal year, which
amount the Company has disclosed to Parent prior to the date of the Merger Agreement. Notwithstanding the foregoing, at any time Parent or the Surviving Corporation may, and prior to the date upon which Purchaser first accepts and pays for Shares in
the Offer, the Company may, with the prior written consent of Parent (which shall not be unreasonably withheld, delayed or conditioned), purchase a “tail” directors’ and officers’ liability insurance policy, covering the same
persons and providing the same terms with respect to coverage and premium amount as aforesaid, and that by its terms shall provide coverage until the sixth annual anniversary of the Effective Time, and upon the purchase of such insurance
Parent’s and the Surviving Corporation’s obligations pursuant to this paragraph shall be deemed satisfied for so long as such insurance is in full force and effect and covers the matters that would otherwise be covered pursuant to this
paragraph.
Parent agreed, pursuant to the Merger Agreement, that in the event that Parent, the Surviving Corporation or any
of its successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its
properties and other assets to any person, then, and in each such case, to the extent necessary, proper
10
provision shall be made so that the successors and assigns of Parent or the Surviving Corporation, shall assume the obligations set forth in the Merger Agreement.
Representation on the Company’s Board of Directors
. The Merger Agreement provides that, subject to compliance with applicable
law, upon acceptance for payment of any Shares pursuant to the Offer, Purchaser will be entitled to designate up to such number of directors, rounded up to the next whole number, on the Company’s Board as will give Purchaser representation on
the Board that is equal to the product of (i) the total number of directors on the Company’s Board (giving effect to the directors elected pursuant to this sentence) and (ii) the percentage that the aggregate number of Shares
beneficially owned by Purchaser or any affiliate of Purchaser following such purchase (including Shares accepted for payment) bears to the total number of Shares outstanding, and the Company will, promptly take all actions reasonably necessary to
cause Purchaser’s designees to be elected as directors of the Company, including, at Parent’s election, by increasing the size of the Company’s Board or seeking and accepting the resignations of incumbent directors, or both.
At such time, the Company shall also take all necessary action to cause persons designated by Purchaser to constitute the
same percentage (rounded up if necessary) as persons designated by Purchaser constitute of the Company’s Board of (i) each committee of the Company’s Board, (ii) the board of directors of each of its subsidiaries, and
(iii) each committee of each such board. The Company will promptly take all action required to effect any such election or appointment, including all actions required pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder, and will include with the Schedule 14D-9 such information with respect to the Company and its officers and directors as is required under Section 14(f) and Rule 14f-1 to fulfill such obligations. Parent or Purchaser will supply to
the Company any information with respect to either of them and their nominees, officers, directors and affiliates required by such Section 14(f) and Rule 14f-1.
In the event that Purchaser’s designees are elected or appointed to the Board pursuant to the provisions of the Merger Agreement described in the two immediately preceding paragraphs, then, until the
Effective Time, the Company shall cause the Board to maintain at least two Independent Directors. For purposes of the Merger Agreement, an “Independent Director” shall mean a member of the Board as of the date of the Merger Agreement who
is selected by the current directors and who is independent for purposes of the continued listing requirements of Nasdaq. If any Independent Director is unable to serve due to death, disability or other reason, the remaining Independent Director(s)
shall be entitled to elect or designate another individual to fill such vacancy who shall be deemed to be an Independent Director for purposes of the Merger Agreement or, if no Independent Directors then remain, the other directors shall designate
two persons to fill such vacancies who are not employees, officers, directors or affiliates of the Company, Parent or Purchaser, and such persons shall be deemed to be Independent Directors for purposes of the Merger Agreement.
The Merger Agreement also provides that, following the election or appointment of Purchaser’s designees as directors pursuant to the
Merger Agreement and prior to the Effective Time or termination of the Merger Agreement by the Company, the approval of a majority of the Independent Directors shall be required to authorize (i) any amendment or termination of the Merger
Agreement on behalf of the Company, (ii) any extension by the Company of the time for the performance of any of the obligations of Parent or Purchaser under the Merger Agreement, or any waiver of compliance with any of the agreements or
conditions contained in the Merger Agreement for the benefit of the Company, (iii) any amendment of the articles of incorporation or bylaws of the Company that would adversely affect the ability of the Company to consummate the Offer or the
Merger and (iv) and any other determination with respect to any action to be taken or not taken by or on behalf of the Company or the Company board relating to the Merger Agreement or the transactions contemplated thereby that is reasonably
likely to adversely impact the holders of the Shares. Such authorization shall constitute the authorization of the Board and no other action on the part of the Company, including any action by any other director of the Company, shall be required to
authorize such action.
(b) Arrangements with Parent or Purchaser.
Merger Agreement
. The summary of the Merger Agreement contained in Section 11 of the Offer to Purchase filed as Exhibit (a)(1) to
the Schedule TO and the description of the conditions of the Offer contained in
11
Section 15 of the Offer to Purchase are incorporated herein by reference. Such summary and description are qualified in their entirety by reference to the Merger Agreement, which is filed as
Exhibit (e)(1) hereto and incorporated herein by reference to provide information regarding its terms.
Confidentiality
Agreement
. Parent and the Company entered into a confidentiality agreement, dated February 15, 2010 (the “
Confidentiality Agreement
”), in connection with the consideration of a possible negotiated acquisition of the Company
by Purchaser. Under the Confidentiality Agreement, Purchaser agreed, subject to certain customary exceptions, to keep all non-public, confidential and proprietary information furnished by the Company or its representatives to Purchaser or its
representatives, to abide by certain standstill restrictions involving the Company’s securities until at least August 15, 2011, and not to solicit the Company’s officers, directors or employees until February 15, 2011. This
summary of the Confidentiality Agreement does not purport to be complete and is qualified in its entirety by reference to the Confidentiality Agreement, which is filed as Exhibit (e)(3) hereto and is incorporated herein by reference.
Exclusivity Agreement
. Parent and the Company entered into an exclusivity agreement, dated as of March 16, 2010 (the
“
Exclusivity Agreement
”), in connection with the consideration of a possible negotiated transaction involving Parent and the Company. Under the Exclusivity Agreement, the Company agreed not to solicit, encourage, initiate, seek,
entertain, discuss, facilitate, negotiate or accept alternative proposals for the acquisition or certain other strategic transactions involving the Company before March 31, 2010. This summary of the Exclusivity Agreement does not purport to be
complete and is qualified in its entirety by reference to the Exclusivity Agreement, which is filed as Exhibit (e)(4) hereto and incorporated herein by reference.
Support Agreement
. Concurrently with entering into the Merger Agreement, Parent and Purchaser entered into a Support Agreement dated March 29, 2010 (the “
Support Agreement
”) with
Gerald R. Dinkel, Jack A. Henry, Brian R. Kahn, Melvin L. Keating, Kenneth J. Krieg, Paul D. Quadros and Thomas J. Toy (each a “Shareholder”). Collectively, the Shareholders directly or indirectly own 5,691,035 Shares, representing
approximately 24% of the Shares outstanding on the date of the Merger Agreement.
The Support Agreement provides that if any
of the Shares owned by the Shareholder (the “Subject Shares”) have not been previously accepted for payment and paid for by Purchaser pursuant to the Offer, then each Shareholder agrees to vote, or cause his Subject Shares to be voted, (i)
in favor of the approval of the Merger Agreement and the transactions contemplated thereby, (ii) against (A) any agreement or arrangement related to any Acquisition Proposal, (B) any liquidation, dissolution, recapitalization, extraordinary dividend
or other significant corporate reorganization of the Company or any of its subsidiaries, or (C) any other proposal or transaction the approval of which is intended or could reasonably be expected to impede, interfere with, prevent, postpone,
discourage, frustrate or materially delay the Offer or the Merger and (iii) in favor of any other matter necessary for consummation of the transactions contemplated by the Merger Agreement, which is considered at any meeting of shareholders, and in
connection therewith to execute any documents reasonably requested by Parent which are necessary or appropriate in order to effectuate the foregoing. Each Shareholder also agrees that he will not, directly or indirectly: (a) transfer or consent to
or permit any such transfer of any or all of his Subject Shares, or any interest therein, or create, agree to create or voluntarily permit to exist any lien, other than any restrictions imposed by applicable law or pursuant to the Support Agreement,
on any such Subject Shares, (b) enter into any contract with respect to any transfer of such Subject Shares or any interest therein, (c) grant or permit the grant of any proxy, power of attorney or other authorization in or with respect to such
Subject Shares, (d) deposit or permit the deposit of such Subject Shares into a voting trust or enter into a voting agreement or arrangement with respect to such Subject Shares, or (e) take, agree to take or voluntarily permit any other action that
would in any way restrict, limit or interfere with the performance of its obligations under the Support Agreement or the transactions contemplated thereby or otherwise make any representation or warranty of each Shareholder therein untrue or
incorrect; provided, however, that the Shareholder may determine, in his sole discretion, to tender the Subject Shares in the Offer, but is under no obligation to do so.
The Support Agreements will terminate automatically, without any notice or other action by any person, upon the earlier of (i) the termination of the Merger Agreement in accordance with its terms and (ii)
the Effective Time.
12
|
Item 4.
|
The Solicitation or Recommendation
|
(a) Solicitation/Recommendation.
After careful consideration,
including a thorough review of the Offer with White Electronic Designs’ legal and financial advisors, at a meeting held on March 29, 2010, the Board unanimously (i) determined that the Merger Agreement and the transactions
contemplated thereby, including each of the Offer and the Merger, are advisable and in the best interests of and fair to White Electronic Designs and its shareholders, (ii) adopted and authorized the Merger Agreement, the Offer and the Merger
(such adoption having been made in accordance with the IBCL), and (iii) recommended that the holders of Shares accept the Offer and tender Shares pursuant to the Offer, and to the extent required by applicable law, approve the Merger Agreement,
the Offer and the Merger.
Accordingly, and for the other reasons described in more detail below, the Board of Directors
unanimously recommends that the Company’s shareholders accept the Offer and tender their Shares pursuant to the Offer.
A letter to shareholders communicating the Board of Directors’ recommendation and the press release issued by the Company announcing the execution of the Merger Agreement are filed as Exhibits (a)(4) and (a)(5) hereto, respectively,
and are incorporated herein by reference.
(b) Background.
White Electronic Designs’s Board of Directors and management regularly review the Company’s business plan and strategic
opportunities and associated risks, including the Company’s operating plan and the possibility of strategic alternatives, including pursuing strategic relationships, divestitures and acquisitions.
In September 2008, the Company established a Strategic Alternatives Committee of its Board of Directors, comprised of Tom Toy and Paul
Quadros, to evaluate a range of strategic alternatives for the Company, including the Company continuing as an independent public company, merging with or acquiring another public or private defense electronics company, or being acquired by a
strategic or financial investor. The Committee engaged Jefferies & Company, Inc. (“
Jefferies
”) to act as financial advisor in connection with its review. Brian Kahn, the Company’s current Chairman of the Board, was
added to the Committee in February 2009 in connection with his appointment to the Board. The Company solicited a broad universe of domestic and international industry participants and private equity sources, including Microsemi through Jefferies in
or around May 2009. After a deliberate and careful process, in June 2009, the Board determined, based upon the recommendation of the Strategic Alternatives Committee, that in light of the alternatives identified by the process, the Company and its
shareholders would likely realize the most long-term value by hiring a new CEO to execute the Company’s stand-alone strategy and focus on its core defense electronics market. As a result of this decision, the Company terminated the engagement
of Jefferies. On August 12, 2009, the Company announced that Gerald Dinkel was appointed as President and Chief Executive Officer.
Throughout the last year, the Company continued to implement its stand-alone strategy, which included closing sales transactions relating to discontinued assets in its Hillsboro, Oregon Display Systems
Division and its commercial microelectronics division in Phoenix, Arizona, and more recently asset sales in Columbus, Ohio’s Interface Electronics Division and the electromechanical business in Ft. Wayne, Indiana. The Company reallocated all
available resources to its more profitable and growing defense electronics business.
On January 12, 2010, Mr. Kahn
attended an investment conference in New York City arranged by Needham & Company, LLC (“
Needham
”). At the conference, as a part of a series of one-on-one meetings arranged for executives, Mr. Kahn was introduced to James
Peterson, Microsemi’s President and Chief Executive Officer, and Steve Litchfield, Microsemi’s Executive Vice President and Chief Strategy Officer. At that meeting, the parties discussed their respective businesses, as well as White
Electronic Designs’ business strategy of seeking potential acquisitions or collaborating with parties with experience in radiofrequency (RF) technologies. The parties
13
further discussed Microsemi’s expertise in RF and the potential for the companies to partner, or for White Electronic Designs to potentially acquire non-core assets from Microsemi. Microsemi
suggested continuing with further discussions with the management of its defense business.
Following that meeting, on
January 19, 2010, Mr. Kahn held a conference call with members of Microsemi’s management, consisting of Messrs. Litchfield and Peterson, Bel Lazar, Microsemi’s Senior Vice President, Operations, and Ralph Brandi, Microsemi’s
Executive Vice President, Chief Operating Office and President – High Reliability, to discuss their respective business capabilities. Microsemi concluded that meeting by suggesting that the parties sign a nondisclosure agreement and hold a
further meeting in Phoenix, Arizona with White Electronic Designs’s business development and sales personnel.
On
January 22, 2010, the Chief Executive Officer of another party in the aerospace and defense business, referred to herein as Party A, contacted Mr. Kahn. Party A had been previously contacted as part of White Electronic Designs review of
strategic alternatives in 2008-2009 and had executed a nondisclosure and standstill agreement with White Electronic Designs in February 2009, and Party A’s CEO and Mr. Kahn had met on previous occasions. The CEO of Party A indicated that
Party A had recently unsuccessfully concluded talks to acquire another company.
From January 22 through January 26, 2010,
representatives of Jefferies had several discussions with Party A regarding the Company.
On January 25, 2010,
Microsemi and White Electronic Designs executed a nondisclosure agreement in order to facilitate commercial discussions between the parties.
On January 26, 2010, Party A sent a letter to White Electronic Designs containing a nonbinding proposal for a stock-for-stock acquisition of White Electronic Designs, subject to due diligence and
negotiation of definitive transaction documentation.
On January 27, 2010, the Company’s Board of Directors held a
telephonic meeting. A representative of Wilson Sonsini Goodrich & Rosati, Professional Corporation (“WSGR”) and representatives of Jefferies also attended the meeting. At the meeting, the representative from WSGR reviewed with the
Board its fiduciary obligations in connection with receipt of an unsolicited acquisition proposal. The Board then reviewed and discussed in detail the proposal from Party A. The Board concluded that in order to properly evaluate Party A’s
proposal and the proposed stock consideration, it needed additional information concerning Party A.
On January 29, 2010,
White Electronic Designs sent a letter to Party A, acknowledging receipt of Party A’s proposal and proposing meetings in February so that the Company could better understand Party A and its business and financial condition.
On January 30, 2010, the Company discussed re-engaging Jefferies as its financial advisor in connection with the evaluation of the
proposal from Party A, and Jefferies sent a proposed engagement letter to White Electronic Designs.
On February 1, 2010,
in preparation for meetings with Party A, Jefferies, on behalf of White Electronic Designs, sent a due diligence request to Party A.
On February 2, 2010, Microsemi’s business development and defense management personnel and representatives of Microsemi’s financial advisor visited White Electronic Designs’s Phoenix headquarters. B.J. Heggli, the
Company’s Vice President Business Development, led the Microsemi personnel on a facilities tour and, together with Mr. Kahn, provided an overview of White Electronic Designs’s strategy and products.
On February 3, 2010, the Company and Party A signed a new nondisclosure agreement in preparation for the Company’s meetings with
Party A.
14
On February 5, 2010, Microsemi sent a letter to the Company containing a nonbinding proposal
for a cash acquisition of White Electronic Designs by Microsemi with a valuation range of between $138 million and $155 million.
From February 10 to February 12, 2010, all of the members of the Company’s Board and representatives of Jefferies attended due diligence sessions at Party A’s facilities.
On February 15, 2010, the White Electronic Designs Board held a telephonic meeting in which representatives of Jefferies
participated. At the meeting, the Board discussed the proposals from Microsemi and Party A and the results of the Company’s due diligence investigation of Party A. At the meeting, the Board also determined that director Mel Keating would
supervise, on behalf of the Board, continued discussions with the two parties to determine if either party would be capable of executing a transaction on terms favorable to White Electronic Designs.
On February 18, 2010, Microsemi and White Electronic Designs executed a new disclosure and standstill agreement to facilitate
acquisition discussions between the parties.
On February 23, 2010, Mr. Kahn met with representatives of another
defense electronics company, Party B, to discuss ways in which Party B and White Electronic Designs might collaborate. The following day, a representative of Party B contacted Mr. Kahn to request a visit to White Electronic Designs’s
facilities in Phoenix in March.
Also on February 23, 2010, the Company and Microsemi arranged for Microsemi to visit the
Company in Phoenix to conduct preliminary due diligence. The Company provided additional information to Microsemi on February 25 and March 2, 2010.
On March 3 and 4, 2010, representatives of Microsemi, including Messrs. Litchfield and Lazar and Ken Chin, President and General Manager of Microsemi’s Power Management Group, and a
representative of Microsemi’s financial advisor, Needham, met with the Company at the Company’s headquarters in Phoenix, including with members of management, Mr. Keating, Mr. Kahn and representatives of Jefferies.
On March 8, 2010, the Company’s Board held a regularly scheduled meeting in Phoenix in connection with White Electronic
Designs’s annual meeting of shareholders. In addition to the regular scheduled business, operational and financial updates, the Board discussed the status of the discussions with Microsemi, Party A and Party B.
On March 8, 2010, Party B toured the Company’s Phoenix facility.
On March 10 and 11, 2010, Party A conducted due diligence in Phoenix with representatives of Jefferies as well as Party A’s financial
advisor.
On March 11, 2010, the Company signed a nondisclosure agreement with Party B.
On March 12, 2010, Party A informed the Company that it intended to submit a “final” merger proposal on March 22.
On March 14, 2010, Microsemi informed the Company that it was submitting a nonbinding proposal for a transaction valued
at $165 million. Microsemi indicated that its willingness to proceed negotiating definitive documentation for a transaction was conditioned on the Company agreeing to a 15 day exclusive negotiation period. Microsemi indicated that its proposal would
expire on March 15, 2010 if White Electronic Designs did not agree to proceed exclusively.
15
On March 14, 2010, following receipt of the Microsemi proposal, Mr. Kahn contacted
Party A to indicate that the Company had received a proposal from another party which was conditioned on exclusivity, and that the Company’s Board had scheduled a meeting on March 15 to consider that proposal, and therefore indicated that
if Party A intended to make a proposal, it would be advisable for it to do so before that meeting. The Chief Executive Officer of Party A indicated that Party A intended to submit a proposal by the end of that day, March 13, 2010.
On March 14, 2010, Mr. Kahn again contacted Party A’s Chief Executive Officer to inform him that the Company had yet to
receive a proposal from Party A. Party A’s CEO responded by indicating that a proposal would be delivered by the end of the day on March 14, 2010 and before the White Electronic Designs Board meeting scheduled for March 15, 2010.
Also on March 14, 2010, Microsemi delivered in writing its nonbinding proposal which had been outlined orally on
March 13.
On March 15, 2010, at 7:00 a.m. Phoenix time, the White Electronic Designs Board held a telephonic
meeting with representatives of WSGR and Jefferies present. The Board began the meeting by discussing and evaluating the proposal received from Microsemi. During the meeting, Party A submitted a nonbinding proposal, indicated by Party A as its
“best and final” proposal, for a cash and stock transaction. The proposal from Party A had a “face”, or nominal, value, using Party A’s closing price on March 12, 2010 higher than the $6.96 proposal from Microsemi.
Although delivered on March 15, 2010 the Party A proposal stated that it was valid until 8:00 pm Eastern Time on March 14, 2010 and was conditioned on the Company agreeing to a 45 day exclusive negotiation period. The Board adjourned the
meeting and reconvened at 2:00 p.m. that day. The Board also instructed Jefferies to contact several other potentially interested parties, including some parties that had been contacted in connection with the Strategic Alternatives Committee
process, and who were identified as having a potential current interest and capability of pursuing an acquisition of the Company, to inquire if such parties had an interest in acquiring the Company prior to the execution of any exclusivity
agreement.
When the Board reconvened later that day, representatives of WSGR reviewed the Board’s fiduciary duties in
the context of evaluating the proposals, including relevant parts of Indiana law based on discussions with Indiana counsel. The Board extensively deliberated on the merits and risks of the two proposals. Representatives of Jefferies provided their
observations regarding the proposals and the parties. The Board noted that although the Party A proposal indicated a higher face, or nominal, value based on Party A’s then current stock price, there were significant uncertainties related to the
transaction and the Party A stock that constituted the majority of the consideration offered by Party A. Among other things, the Board observed that (a) a shareholder vote would be required from Party A’s shareholders, (b) the
transaction with Party A would take longer to complete due to the need to register Party A’s securities with the SEC, (c) Party A’s stock was relatively thinly traded and its trading price had increased dramatically recently,
(d) Party A did not have experience completing a public company acquisition of comparable size and scope, (e) Party A’s business model was unproven and faced potential regulatory issues, (f) Party A’s board of directors and
CEO would control the combined entity following closing and, contrary to Party A’s earlier proposal, only a minority of the outstanding stock of the combined entity would be held by former White Electronic Designs shareholders and
(g) Party A’s current proposal was at a lower value than its prior proposal, raising concern that it might again lower its proposal if there was adverse trading activity in the two companies’ stocks during later negotiations. In
addition, the Board observed that Microsemi’s request for a 15 day exclusive negotiation period relative to Party A’s 45 day period potentially indicated that Microsemi was further along in its due diligence effort and therefore more
likely to complete a definitive agreement at all or in a short time period. The Board also noted that Microsemi’s all-cash offer was fully financed with no financing contingencies and was proposed as a tender offer. Accordingly, the Board
authorized the Company to execute the Microsemi exclusivity agreement and proceed with further negotiations with respect to the Microsemi proposal.
Following the Board meeting and after minor revisions to the Microsemi proposal, and following an indication from Jefferies that none of the parties it contacted had indicated an immediate interest in
pursuing a transaction, White Electronic Designs executed the exclusivity arrangement with Microsemi on March 16, 2010.
16
On March 15, 2010, after the Company had entered into the exclusivity arrangement with
Microsemi, Party B contacted the Company. The Company informed Party B that it was not currently in a position to respond.
During early March, the Company and Jefferies negotiated the terms of a new engagement letter, and on March 19, 2010, the Company executed the engagement letter which was effective as of March 15, 2010.
Between March 15 and March 29, 2010, Microsemi performed additional financial, operational and legal due diligence on the Company,
including documents provided in an electronic data room and meetings in Phoenix on March 17 and 18, 2010. In addition, on March 19, 2010, Microsemi delivered a proposed merger agreement to White Electronic Designs, and on March 24,
2010, a proposed support agreement. The parties negotiated the terms of the definitive agreements on a daily basis through March 29, 2010.
On March 29, 2010, the Board of Directors held a telephonic meeting with representatives of WSGR and Jefferies present, as well as representatives of Baker & Daniels (“B&D”),
Indiana counsel to the Company. At the meeting, Mr. Kahn provided an update on the status of the negotiations, including an outstanding issue concerning the scope of the support agreements proposed by Microsemi. Next, a representative of WSGR
and a representative of B&D reviewed with the Board its fiduciary duties, including in connection with approval of an acquisition transaction and relevant provisions of Indiana law. After discussion, a representative of WSGR reviewed in detail
the proposed merger agreement and support agreement, including, among other things, provisions relating to the Board’s recommendation and ability to entertain alternative proposals and termination rights and fees, and the process for completion
of a transaction. Next, Mr. Keating recused himself and the Board considered and approved the compensation arrangement for Mr. Keating’s role in assisting with the negotiations of a transaction (See “Compensation
Arrangements” under Item 3 above for additional information). Mr. Keating rejoined the meeting and the Board considered and approved indemnification agreements for the Company’s directors and officers (See “Compensation
Arrangements” under Item 3 above for additional information). Next, representatives of Jefferies joined the meeting then reviewed the financial aspects of the Merger, including the per share consideration proposed to be paid to the shareholders
of White Electronic Designs and the various valuation metrics used by Jefferies in connection with its analysis. (See “Opinion of White Electronic Designs’ Financial Advisor” under Item 4(d) below for additional information). A
representative of WSGR then reviewed with the Board and the Compensation Committee the proposed resolutions with respect to approval of the transaction and related matters. The meeting was adjourned pending resolution of the support agreements and
certain other matters. After further negotiation of the support agreements and remaining issues with Microsemi, the Board resumed the meeting, at which time Jefferies delivered its opinion to the Board to the effect that, as of March 29, 2010 and
based upon and subject to the various considerations and assumptions set forth therein, the consideration of $7.00 per share in cash to be received by the holders of Shares pursuant to the Offer and the Merger was fair, from a financial point of
view, to those holders. Following discussion, the Board unanimously approved the Merger Agreement and the transactions contemplated by the Merger Agreement, and recommended that shareholders accept the Offer and if necessary, adopt the Merger
Agreement. Following such approval, the Compensation Committee of the Board considered, and unanimously approved, certain compensation arrangements of the Company’s service providers as “employment compensation, severance or other employee
benefit arrangement” within the meaning of Rule 14d-10(d)(1) under the Exchange Act, for purposes of establishing the “non-exclusive safe harbor” with respect to such compensation arrangements pursuant to Rule 14d-10(d)(2) under the
Exchange Act.
Following the Board meeting, also on March 29, 2010, Microsemi, Purchaser and White Electronic Designs
executed and delivered the Merger Agreement. In addition, Microsemi, Purchaser and members of the Company’s Board of Directors executed and delivered the support agreements,
White Electronic Designs and Microsemi issued a joint press release announcing the transaction on March 30, 2010.
On March 31, 2010, the Purchaser commenced the Offer.
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(c) Reasons for Recommendation.
In evaluating the Merger Agreement and the other transactions contemplated thereby, including the Offer and the Merger, the Board of
Directors consulted with the Company’s senior management and legal counsel and financial advisors, and considered a number of factors in recommending that the Company’s shareholders accept the Offer and tender their Shares pursuant to the
Offer, including the following:
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1.
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Operating and Financial Condition and Prospects of the Company
. The Board of Directors’ knowledge and familiarity with the Company’s operations,
business, financial condition, results of operations and the Company’s financial prospects if the Company was to remain independent. The Board of Directors discussed and deliberated at length concerning the Company’s historical financial
performance, and current financial plan and prospects, including the potential benefits inherent in, as well as the risks associated with, the Company remaining as an independent company and executing upon and achieving the Company’s business
plans. The Board also considered the potential for volatility in defense spending and the fact that some of the Company’s competitors have broader product portfolios and substantially greater resources, and the impact of this competitive
environment on the Company’s ability to price its products and retain and expand its portion of the total available market.
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2.
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Available Alternatives; Results of Discussions with Third Parties
.
The Board considered the possible alternatives to the acquisition by Parent (including
the possibility of being acquired by another company, or continuing to operate the Company as an independent entity, and the desirability and perceived risks of those alternatives), the range of potential benefits to the Company’s shareholders
of these alternatives and the timing and the likelihood of accomplishing the goals of such alternatives, as well as the Board’s assessment that none of these alternatives were reasonably likely to present superior opportunities for the Company
to create greater value for the Company’s shareholders, taking into account risks of execution as well as business, competitive, industry and market risks. The Board also considered the results of the process that the Board had conducted, with
the assistance of the Company management and its financial and legal advisors, to evaluate strategic alternatives and the results of discussions with third parties regarding business combination and change of control transactions. The Board of
Directors also considered the ability of other bidders to make, and the likelihood that other bidders would make, a proposal to acquire the Company at a higher price.
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3.
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Analysis and Presentation of Management
. The analyses and presentations by senior management of the Company regarding the business, operations, sales, management
and competitive position of the Company and discussions regarding profitability under various scenarios.
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4.
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Historical Trading Prices
. The historical market prices, volatility and trading information with respect to the Common Stock, including the fact that the Offer
represents a premium of approximately 28% over the closing price per share of the Shares on March 26, 2010, the last full trading day prior to the meeting of the Board of Directors to consider and approve the Merger Agreement, a premium of
approximately 30.3% to the average closing price per share of the Shares during the one month period prior to March 26, 2010, and a premium of approximately 37.2% to the average closing price per share of the Shares during the three month
period prior to and including March 26, 2010.
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5.
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Opinion of Jefferies & Company.
The opinion of Jefferies, dated as of and rendered orally to the Board of Directors on March 29, 2010, and
subsequently confirmed in writing to the effect that as of such date and based upon and subject to the various assumptions made, procedures followed, matters considered and limitations on the review undertaken set forth therein, the consideration of
$7.00 per share in cash to be received by holders of Shares pursuant to the Offer and Merger (together, the “
Transaction
”) was fair from a financial point of view to such holders. The full text of Jefferies’ written opinion,
dated March 29, 2010, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken, is attached hereto as Annex II and is incorporated herein by reference.
Jefferies provided its opinion
for the information and assistance of the Board of Directors in connection with its consideration of the Merger Agreement. Jefferies’ opinion is not a recommendation as to whether or not any holder of Shares should
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18
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tender such Shares in
connection with the Offer or how any holder of Shares should vote at any shareholder’s meeting held in connection with the Merger or whether to take any other
action with respect to the Offer or the Merger.
For a further discussion of Jefferies’ opinion, see “Opinion of White Electronic Designs’ Financial Advisor” below.
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6.
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Terms of the Merger Agreement
. The provisions of the Merger Agreement, including the respective representations, warranties and covenants and termination rights
of the parties and termination fees and expense fees payable by the Company, including without limitation:
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(a)
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Cash Tender Offer
. The Merger Agreement provides for a prompt cash tender offer for all Shares to be followed by a merger for the same consideration, thereby
enabling the Company’s shareholders, at the earliest possible time, to obtain the benefits of the transaction in exchange for their Shares.
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(b)
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No Financing Condition
. Parent’s obligations under the Offer are not subject to any financing condition, Parent’s representations in the Merger
Agreement that it has and will have sufficient funds available to it to consummate the Offer and the Merger, and Parent’s financial strength.
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(c)
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Ability to Respond to Certain Unsolicited Acquisition Proposals
. The provisions in the Merger Agreement that provide for the ability of the Board to respond to
any unsolicited bona fide acquisition proposal made after the date of the Merger Agreement that did not arise from a breach of the Merger Agreement if the Board (A) determines in good faith (after consultation with outside legal counsel and a
financial advisor of nationally recognized reputation) that such proposal is, or is reasonably likely to lead to, a Superior Proposal (as defined in the Merger Agreement), (B) first obtains from the person making the acquisition proposal an
executed confidentiality and standstill agreement not less restrictive to such person than those contained in the Confidentiality Agreement with Parent, (C) determines in good faith (after consultation with outside legal counsel and a financial
advisor of nationally recognized reputation) that failure to take such action would reasonably be expected to result in a breach by the Board of its fiduciary duties under applicable law and (D) notifies Parent in writing at least two
(2) business days prior to taking such action that it intends to take such action and the basis under the Merger Agreement therefor. In addition, the provisions in the Merger Agreement provide that the Board may determine to not enforce any
confidentiality, standstill or similar agreement to which the Company is a party for the sole purpose of allowing the other party to such agreement to submit an acquisition proposal, to the extent the Board determines in good faith (after
consultation with outside legal counsel and a financial advisor of nationally recognized reputation) that failure to take such action would reasonably be expected to result in a breach by the Board of its fiduciary duties under applicable law.
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(d)
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Change of Recommendation; Fiduciary Termination Right
. In the event the Company receives a Superior Proposal made after the date of the Merger
Agreement that did not arise from a breach of the Merger Agreement, the Board may, prior to the Acceptance Date, fail to make, withdraw, modify, amend or qualify the approval or recommendation by the Board of the Merger Agreement, the Offer or the
Merger, fail to recommend against acceptance of any tender offer or exchange offer other than the Offer, approve or recommend any alternative acquisition proposal and terminate the Merger Agreement, if the Board has concluded in good faith, after
consultation with its outside legal counsel, that, in light of the receipt of such Superior Proposal, that failure to so terminate the Merger Agreement would reasonably be expected to result in a breach by the Board of its fiduciary duties under
applicable Law. In order for the Board to take such action, it must first provide Parent with four business days’ prior notice of such action, engage in good faith negotiations during such four business days with Parent to negotiate a
counterproposal to the Superior Proposal and after such four business days, determine in good faith that the alternative acquisition proposal constitutes a Superior Proposal (taking into account any counterproposals by Parent). In order for the
Board to terminate the Merger Agreement following a change in
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recommendation for a Superior Proposal, it must simultaneously enter into an acquisition agreement with respect to such Superior Proposal and pay Parent a termination fee of $6.6 million in cash.
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(e)
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Conditions to Consummation of the Offer and the Merger; Likelihood of Closing
. The reasonable likelihood of the consummation of the transactions contemplated by
the Merger Agreement and that Parent’s obligations to purchase Shares in the Offer and to close the Merger are subject to limited conditions.
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(f)
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Certainty of Value
. The form of consideration to be paid to the shareholders in the Offer and the Merger and the certainty of the value of cash consideration
compared to stock or other forms of consideration.
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(g)
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Merger Option
. The Board considered that Purchaser had been granted a “top-up option” to purchase from the Company, under certain circumstances
following consummation of the Offer, at a price per share equal to the Offer Price, up to a number of additional Shares sufficient to cause Purchaser to own one Share more than 90% of the sum of the Shares then outstanding plus the total number of
Shares that are issuable within 10 business days after the issuance of the Top-Up shares upon the conversion of any convertible securities or upon the exercise of any options, warrants or rights, and that this could permit Purchaser to consummate
the Merger more quickly as a short-form merger under Indiana law.
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7.
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Failure to Close; Public Announcement
. The possibility that the transactions contemplated by the Merger Agreement may not be consummated, and the effect of
public announcement of the Merger Agreement, including effects on the Company’s sales, operating results and stock price, and the Company’s ability to attract and retain key management.
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8.
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Business Reputation of Parent
. The business reputation and capabilities of Parent and its management and the substantial financial resources of Parent and, by
extension, Purchaser, which the Board of Directors believed supported the conclusion that a transaction with Parent and Purchaser could be completed relatively quickly and in an orderly manner. The Board of Directors also considered the impact of
the Offer and the Merger on the Company’s employees, business partners and customers.
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9.
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Economic Climate
. The current regional, national and international economic climate and prospects for defense spending.
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10.
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Termination and Expense Fee
. The termination fee of $6.6 million that could become payable pursuant to the Merger Agreement under certain circumstances,
including if White Electronic Designs terminates the Merger Agreement to accept a Superior Proposal or if Parent terminates the Merger Agreement because the White Electronic Designs Board changes its recommendation with respect to the Offer or the
Merger. The expense fee of up to $2.5 million to reimburse Parent for its costs and expenses if the Merger Agreement is terminated due to a breach of a Company representation that permits Parent not to close the Offer or the occurrence of a Company
Material Adverse Effect (as defined in the Merger Agreement). That the expense fee will not be payable if the Merger Agreement is terminated under circumstances where Parent will receive a termination fee. The Board considered that the termination
fee could have the effect of deterring third parties who might be interested in exploring an acquisition of the Company but was of the view that the payment of the termination fee was comparable to termination fees in transactions of a similar size,
was reasonable and would not likely deter competing bids. In addition, the Board recognized that the provisions in the Merger Agreement relating to termination fees and non-solicitation of acquisition proposals as well as the expense fees were
insisted upon by Parent as a condition to entering into the Merger Agreement and that the termination fee would not likely be required to be paid unless the Company entered into, or intended to enter into, a definitive agreement with respect to a
Superior Proposal.
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The foregoing discussion of information and factors considered and given weight by the Board
of Directors is not intended to be exhaustive, but is believed to include all of the material factors considered by the Board of
20
Directors. In view of the variety of factors considered in connection with its evaluation of the Offer and the Merger, the Board of Directors did not find it practicable to, and did not, quantify
or otherwise assign relative weights to the specific factors considered in reaching its determinations and recommendations. In addition, individual members of the Board of Directors may have given different weights to different factors. In arriving
at their respective recommendations, the directors of White Electronic Designs were aware of the interests of executive officers and directors of White Electronic Designs as described under “Past Contracts, Transactions, Negotiations and
Agreements” in Item 3 hereof.
(d) Opinion of White Electronic Designs’ Financial Advisor.
The Company retained Jefferies to provide it with financial advisory services and a financial opinion in connection
with a possible merger, sale or other strategic business combination. The Company selected Jefferies to act as its financial advisor based on Jefferies’ qualifications, expertise and reputation and its knowledge of the business and affairs of
the Company. At the meeting of the Company’s Board of Directors on March 29, 2010, Jefferies rendered its oral opinion, subsequently confirmed in writing, to the effect that as of March 29, 2010, and based upon and subject to the
various considerations set forth in the opinion, the consideration of $7.00 per share in cash to be received by holders of Shares pursuant to the Transaction was fair from a financial point of view to such holders.
The full text of the written opinion of Jefferies, dated March 29, 2010, is attached hereto as Annex II. The opinion sets forth,
among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Jefferies in rendering its opinion. The Company encourages you to read the entire opinion carefully and in its
entirety. Jefferies’ opinion is directed to the Company’s Board of Directors and addresses only the fairness from a financial point of view of the consideration to be received by holders of Shares pursuant to the Merger Agreement as of the
date of the opinion. It does not address any other aspects of the Offer or the Merger and does not constitute a recommendation as to whether or not any holder of Shares should tender their Shares in the Offer or how the any holder of Shares should
vote at any shareholder’s meeting held in connection with the Merger or whether to take any other action with respect to the Offer or the Merger. The summary of the opinion of Jefferies set forth below is qualified in its entirety by reference
to the full text of the opinion.
In arriving at its opinion, Jefferies, among other things:
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reviewed a draft dated March 28, 2010 of the Merger Agreement,
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•
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reviewed certain publicly available financial and other information about White Electronic Designs,
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•
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reviewed certain information furnished to Jefferies by White Electronic Designs’ management, including financial forecasts and analyses, relating
to the business, operations and prospects of White Electronic Designs,
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•
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held discussions with members of senior management of White Electronic Designs and the Board of Directors concerning the matters described in the prior
two bullet points, including the risks and uncertainties of achieving the financial forecasts described in the prior bullet,
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•
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reviewed the share trading price history and valuation multiples for the Common Stock and compared them with those of certain publicly traded companies
that Jefferies deemed relevant,
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•
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compared the proposed financial terms of the Transaction with the financial terms of certain other transactions that Jefferies deemed relevant, and
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•
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conducted such other financial studies, analyses and investigations as Jefferies deemed appropriate.
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In Jefferies’ review and analysis and in rendering its opinion, Jefferies assumed and relied upon, but did not assume any
responsibility to independently investigate or verify, the accuracy and completeness of all financial and other information that was supplied or otherwise made available by White Electronic Designs to it or that
21
was publicly available (including, without limitation, the information described above), or that was otherwise reviewed by it. In its review, Jefferies relied on assurances of the management of
White Electronic Designs that management was not aware of any facts or circumstances that would make such information inaccurate or misleading. In its review, Jefferies did not obtain any independent evaluation or appraisal of any of the assets or
liabilities of, nor did Jefferies conduct a physical inspection of any of the properties or facilities of, White Electronic Designs. Jefferies was not furnished with any such evaluations or appraisals of such physical inspections and did not assume
any responsibility to obtain any such evaluations or appraisals.
With respect to the financial forecasts provided to and
examined by Jefferies, Jefferies’ opinion noted that projecting future results of any company is inherently subject to uncertainty. White Electronic Designs informed Jefferies, however, and Jefferies assumed, that such financial forecasts were
reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of White Electronic Designs as to the future financial performance of White Electronic Designs. In that regard, White
Electronic Designs instructed Jefferies to consider the risks and uncertainties of achieving White Electronic Designs’ financial forecasts and the possibility that such forecasts would not be realized. Jefferies expressed no opinion as to White
Electronic Designs’ financial forecasts or the assumptions on which they were made.
Jefferies’ opinion was based on
economic, monetary, regulatory, market and other conditions existing and which could be evaluated as of the date of its opinion. Jefferies expressly disclaimed any undertaking or obligation to advise any person of any change in any fact or matter
affecting Jefferies’ opinion of which Jefferies became aware after the date of its opinion.
Jefferies made no
independent investigation of any legal or accounting matters affecting White Electronic Designs, and Jefferies assumed the correctness in all respects material to Jefferies’ analysis of all legal and accounting advice given to White Electronic
Designs and the Board of Directors, including, without limitation, advice as to the legal, accounting and tax consequences of the terms of, and transactions contemplated by, the Merger Agreement to White Electronic Designs and its shareholders. In
addition, in preparing its opinion, Jefferies did not take into account any tax consequences of the transaction to any holder of Shares. In rendering its opinion, Jefferies assumed that the final form of the Merger Agreement would be substantially
similar to the last drafts reviewed by it. Jefferies also assumed that in the course of obtaining the necessary regulatory or third party approvals, consents and releases for the Transaction, no delay, limitation, restriction or condition would be
imposed that would have an adverse effect on White Electronic Designs, Microsemi or the contemplated benefits of the Transaction.
Jefferies’ opinion was for the use and benefit of the Board of Directors in its consideration of the Transaction, and Jefferies’ opinion did not address the relative merits of the transactions contemplated by the Merger Agreement
as compared to any alternative transaction or opportunity that might be available to White Electronic Designs, nor did it address the underlying business decision by White Electronic Designs to engage in the Transaction or the terms of the Merger
Agreement or the documents referred to therein. Jefferies’ opinion does not constitute a recommendation as to whether any holder of Shares should tender such shares pursuant to the Offer or how any holder of Shares should vote on the Merger or
any matter relating thereto. In addition, Jefferies was not asked to address, and its opinion did not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of White
Electronic Designs, other than the holders of Shares. Jefferies expressed no opinion as to the price at which Shares will trade at any time. Jefferies did not express any view or opinion as to the fairness, financial or otherwise, of the amount or
nature of any compensation to be received by any of White Electronic Designs’ officers, directors or employees, or any class of such persons, in connection with the Transaction relative to the consideration to be received by holders of Shares.
Jefferies’ opinion was authorized by the Fairness Committee of Jefferies & Company, Inc.
In preparing its
opinion, Jefferies performed a variety of financial and comparative analyses. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant quantitative and qualitative methods of
financial analysis and the applications of those methods to the particular circumstances and, therefore, is not necessarily susceptible to partial analysis or
22
summary description. Jefferies believes that its analyses must be considered as a whole. Considering any portion of Jefferies’ analyses or the factors considered by Jefferies, without
considering all analyses and factors, could create a misleading or incomplete view of the process underlying the conclusion expressed in Jefferies’ opinion. In addition, Jefferies may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than other assumptions, so that the range of valuations resulting from any particular analysis described below should not be taken to be Jefferies’ view of White Electronic
Designs’ actual value. Accordingly, the conclusions reached by Jefferies are based on all analyses and factors taken as a whole and also on the application of Jefferies’ own experience and judgment.
In performing its analyses, Jefferies made numerous assumptions with respect to industry performance, general business, economic, monetary,
regulatory, market and other conditions and other matters, many of which are beyond White Electronic Designs’ and Jefferies’ control. The analyses performed by Jefferies are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the per share value of Shares do not purport to be appraisals or to reflect the prices at which Shares may actually be
sold. The analyses performed were prepared solely as part of Jefferies’ analysis of the fairness, from a financial point of view, of the consideration of $7.00 per share in cash to be received by holders of Shares pursuant to the Transaction,
and were provided to the Board of Directors in connection with the delivery of Jefferies’ opinion.
The following is a
summary of the material financial and comparative analyses performed by Jefferies in connection with Jefferies’ delivery of its opinion. The financial analyses summarized below include information presented in tabular format. In order to fully
understand Jefferies’ financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data described below without
considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Jefferies’ financial analyses.
Transaction Overview
Based upon the approximately 23.7 million Shares that were outstanding as of March 26, 2010 on a fully diluted basis (calculated using the treasury stock method), Jefferies noted that the consideration of $7.00 per share implied
an equity value of approximately $166 million. Net of approximately $65.4 million of cash and cash equivalents (as of December 31, 2009), Jefferies noted that the consideration implied an enterprise value of approximately $100.6 million.
Jefferies also noted that the consideration of $7.00 per Share represented:
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a premium of 28.0% over the closing price per Share on March 26, 2010 of $5.47,
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a premium of 78.1% over the lowest intra-day trading price per Share on April 1, 2009 of $3.93, which was the lowest trading price of the Common
Stock during the 52-week period ending March 26, 2010, and
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a premium of 21.7% over the highest intra-day trading price per Share on February 1, 2010 of $5.75, which was the highest trading price of the
Common Stock during the 52-week period ending March 26, 2010.
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Historical Trading Analysis
Jefferies reviewed the price trading history of the Shares for the two-year period ending March 26, 2010 on a stand-alone basis and also
in relation to the NASDAQ Composite, the Standard & Poor’s 500 Index, and a composite index consisting of the following enterprise companies in the defense electronics market, which are referred to as the “White Electronic Designs
Selected Comparable Companies”:
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CPI International, Inc.,
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EMS Technologies, Inc., and
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This analysis showed that during the two-year period ending March 26, 2010, the trading price of the Shares rose 24.3%, the NASDAQ Composite Index rose 3.0%, the Standard & Poor’s 500
Index declined 13.6%, and the composite index consisting of the White Electronic Designs Selected Comparable Companies declined 8.4%.
Comparable Public Company Analysis
Using publicly available information and information provided by
White Electronic Designs’ management, Jefferies analyzed the trading multiples of White Electronic Designs and the corresponding trading multiples of the White Electronic Designs Selected Comparable Companies. In its analysis, Jefferies derived
and compared multiples for White Electronic Designs and the White Electronic Designs Selected Comparable Companies, calculated as follows:
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the enterprise value divided by latest twelve months, or LTM, earnings before interest, taxes, depreciation and amortization, or EBITDA, which is
referred to as “Enterprise Value/LTM EBITDA,” and
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the enterprise value divided by estimated EBITDA for calendar year 2010, which is referred to as “Enterprise Value/2010E EBITDA.”
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This analysis indicated the following:
Comparable Public Company Multiples
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Benchmark
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High
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Low
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Median
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Enterprise Value/LTM EBITDA
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8.3x
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6.5x
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7.4x
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Enterprise Value/2010E EBITDA
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6.9x
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5.2x
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6.4x
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Using a reference
range of 7.5x to 8.5x White Electronic Designs’ LTM EBITDA, Jefferies determined an implied enterprise value for White Electronic Designs, then added cash and cash equivalents to determine an implied equity value. After accounting for the
vesting of in-the-money stock options (using the treasury stock method), this analysis indicated a range of implied values per Share of approximately $5.17 to $5.48 using LTM EBITDA, compared to the consideration of $7.00 per Share.
Using a reference range of 6.0x to 7.0x White Electronic Designs’ calendar year 2010E EBITDA, Jefferies determined an implied
enterprise value for White Electronic Designs, then added cash and cash equivalents to determine an implied equity value. After accounting for the vesting of in-the-money stock options (using the treasury stock method), this analysis indicated a
range of implied values per Share of approximately $5.68 to $6.16 using calendar year 2010E EBITDA, compared to the consideration of $7.00 per Share.
No company utilized in the comparable company analysis is identical to White Electronic Designs. In evaluating the selected companies, Jefferies made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and other matters, many of which are beyond White Electronic Designs’ and Jefferies’ control. Mathematical analysis, such as determining the mean or median, is not in
itself a meaningful method of using comparable company data.
24
Selected Comparable Transactions Analysis
Using publicly available information and other information, Jefferies examined the following nine transactions involving companies providing
services and products to the defense electronics market with enterprise values between $28.0 million and $425.0 million and announced since July 8, 2004. The transactions considered and the month and year each transaction was announced were as
follows:
|
|
|
|
|
|
|
Date Announced
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|
Acquiror
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Target
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March 2010
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Smiths Interconnect, Inc.
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Interconnect Devices, Inc.
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|
|
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December 2009
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Crane Co.
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Merrimac Industries Inc.
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April 2009
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Microsemi Corp.
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Endwave Defense Systems
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May 2008
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Cobham Plc
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M/A - COM, Inc.
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April 2008
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Anaren, Inc.
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M.S. Kennedy Corp.
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March 2008
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TriQuint Semiconductor, Inc.
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WJ Communications Inc.
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February 2006
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GE Fanuc Embedded Systems, Inc.
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Condor Engineering, Inc.
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February 2006
|
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Sirenza Microdevices Inc.
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Premier Devices Inc.
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|
|
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July 2004
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Teledyne Technologies, Inc.
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Celeritek Defense Systems
|
Using publicly
available estimates and other information for each of these transactions, Jefferies reviewed the enterprise value as a multiple of the target company’s LTM EBITDA immediately preceding announcement of the transaction, which is referred to below
as “Enterprise Value/LTM EBITDA.”
This analysis indicated the following:
Selected Comparable Transactions Multiples
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Benchmark
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High
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|
Low
|
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Median
|
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Enterprise Value/LTM EBITDA
|
|
10.3x
|
|
6.0x
|
|
8.3x
|
Using a reference
range of 7.0x to 9.5x White Electronic Designs’ LTM EBITDA, Jefferies determined an implied enterprise value for White Electronic Designs, then added cash and cash equivalents to determine an implied equity value. After accounting for the
vesting of in-the-money stock options (using the treasury stock method), this analysis indicated a range of implied values per Share of approximately $5.01 to $5.80, compared to the consideration of $7.00 per Share.
No transaction utilized as a comparison in the comparable transaction analysis is identical to the Transaction. In evaluating the
Transaction, Jefferies made numerous judgments and assumptions with regard to industry performance, general business, economic, market, and financial conditions and other matters, many of which are beyond White Electronic Designs’ and
Jefferies’ control. Mathematical analysis, such as determining the average or the median, is not in itself a meaningful method of using comparable transaction data.
Discounted Cash Flow Analysis
Jefferies performed a discounted cash
flow analysis to estimate the present value of the free cash flows of White Electronic Designs through the calendar year ending December 31, 2014 using White Electronic Designs management’s financial projections, discount rates ranging
from 15.0% to 17.0%, and perpetual growth rates of free cash flow after calendar year 2014 ranging from 2.0% to 3.0%. To determine the implied total equity value for White Electronic Designs, Jefferies added cash and cash equivalents to the implied
enterprise value for White
25
Electronic Designs. After accounting for the vesting of in-the-money stock options, this analysis indicated a range of implied values per Share of approximately $6.51 to $7.04, compared to the
consideration of $7.00 per Share.
Jefferies also performed a discounted cash flow analysis to estimate the present value of
the free cash flows of White Electronic Designs through the calendar year ending December 31, 2014 using White Electronic Designs management’s financial projections, discount rates ranging from 15.0% to 17.0%, and EBITDA exit multiples
ranging from 7.0x to 8.0x. To determine the implied total equity value for White Electronic Designs, Jefferies added cash and cash equivalents to the implied enterprise value for White Electronic Designs. After accounting for the vesting of
in-the-money stock options, this analysis indicated a range of implied values per Share of approximately $8.56 to $9.40, compared to the consideration of $7.00 per Share.
As described above, White Electronic Designs instructed Jefferies to consider the risks and uncertainties of achieving White Electronic Designs’ financial forecasts and the possibility that such
forecasts would not be realized. In this regard, Jefferies performed a sensitivity analysis with respect to the discounted cash flow analyses to illustrate the effect of different assumptions for changes in projected annual revenue growth and
projected annual EBIT margins from such forecasts. For purposes of this analysis, Jefferies assumed a discount rate of 16.0%, a perpetuity growth rate of 2.5% and an exit multiple of 7.5x. The sensitivity adjustments to the projected annual revenue
growth rates for fiscal year 2011 ranged from approximately 11% to 44%. In the years following fiscal year 2011, Jefferies assumed consistent revenue growth with White Electronic Designs’ projections for fiscal year 2012 through fiscal year
2015. The sensitivity adjustments to the projected annual EBIT margin for fiscal year 2011 ranged from 7.3% to 18.0%. Jefferies assumed fiscal year 2012 margin improvement of 3.45% per White Electronic Designs projections in all cases and held
constant across projected periods after fiscal year 2012. This sensitivity analysis resulted in a range of implied present values of $4.15 to $6.76 per Share using the perpetuity growth rate method and a range of implied present values of $5.43 to
$8.98 per Share using the exit multiple method.
Premiums Paid Analysis
Using publicly available information, Jefferies analyzed the premiums offered in all merger and acquisition transactions announced over the
past five years having an enterprise value under $500 million.
For each of these transactions, Jefferies calculated the
premium represented by the offer price over the target company’s closing share price one day and four weeks prior to the transaction’s announcement. This analysis indicated the following median premiums for those time periods prior to
announcement:
|
|
|
|
|
|
|
|
|
|
|
|
Time Period Prior to Announcement
|
|
25th Percentile
Premium
|
|
|
Median
Premium
|
|
|
75th Percentile
Premium
|
|
|
1 day
|
|
17.0
|
%
|
|
31.2
|
%
|
|
54.8
|
%
|
|
4 weeks
|
|
19.4
|
%
|
|
35.0
|
%
|
|
57.5
|
%
|
Using a
reference range of 19.4% to 57.5% premium for the 4-weeks prior to March 25, 2010, which was the date one day prior to the date of Jefferies’ analysis, Jefferies performed a premiums paid analysis using the closing prices per Share for the
periods 1-day and 4-weeks prior to March 25, 2010. This analysis indicated a range of median implied value per Share of approximately $6.24 to $8.25, compared to the consideration of $7.00 per Share.
Jefferies’ opinion was one of many factors taken into consideration by the Board of Directors in making its determination to approve
the Transaction and should not be considered determinative of the views of the Board of Directors or management with respect to the Transaction or the consideration.
Jefferies was selected by the Board of Directors based on Jefferies’ qualifications, expertise and reputation. Jefferies is an internationally recognized investment banking and advisory firm.
Jefferies, as part of its
26
investment banking business, is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements, financial restructurings and other financial services.
In the ordinary course of business, Jefferies and its affiliates may trade or hold securities of White Electronic Designs or Microsemi and/or their respective affiliates for its own account and for the accounts of its customers and,
accordingly, may at any time hold long or short positions in those securities.
Jefferies has, in the past, provided financial
advisory and financing services to White Electronic Designs and may continue to do so and may receive fees for the rendering of such services. In addition, Jefferies may seek to, in the future, provide financial advisory and financing services to
White Electronic Designs , Microsemi or entities that are affiliated with White Electronic Designs or Microsemi, for which it would expect to receive compensation.
(e) Intent to Tender.
To the Company’s knowledge, after making
reasonable inquiry, each of White Electronic Designs’ executive officers and directors currently intends to tender or cause to be tendered for purchase pursuant to the Offer any Shares owned of record or beneficially owned by such director or
executive officer, subject to restrictions on transfer (including with respect to restricted stock over which they do not have dispositive authority) and other than any tender that would give rise to liability under Section 16(b) of the
Exchange Act.
|
Item 5.
|
Person/Assets, Retained, Employed, Compensated Or Used.
|
Except as set forth below, neither the Company nor any person acting on its behalf has employed, retained or agreed to compensate any person to make solicitations or recommendations to the shareholders of
the Company concerning the Offer or the Merger.
Jefferies & Company.
The Board of Directors selected
Jefferies as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the Offer and the Merger. Pursuant to a letter agreement, dated March 15,
2010, the Company engaged Jefferies to act as its financial advisor in connection with the possible sale of White Electronic Designs. Pursuant to this letter agreement, the Company has agreed to pay Jefferies a fee for its services, a portion of
which was paid upon delivery of Jefferies’ opinion and a significant portion of which is payable contingent upon consummation of the Transaction. In addition, the Company has agreed to reimburse Jefferies for expenses incurred. The Company also
has agreed to indemnify Jefferies against liabilities arising out of or in connection with the services rendered and to be rendered by it under its engagement.
|
Item 6.
|
Interest in Securities of the Subject Company.
|
Other than as set forth below, no transactions in the Shares have been effected during the past 60 days by the Company or, to the Company’s knowledge, by any of the Company’s directors,
executive officers, affiliates or subsidiaries, except for the following:
(a) Each of the directors of the Company, each in
their capacity as shareholders, entered into the Support Agreement. The summary of the Support Agreement contained in Item 3(b) above is incorporated herein by reference. Such summary does not purport to be complete and is qualified in its
entirety by reference to the Support Agreement, which has been filed as Exhibit (e)(2) hereto and incorporated herein by reference.
27
(b) the transactions listed below.
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Date of
Transaction
|
|
Nature of Transaction
|
|
Number of
Shares
|
|
Price/share
|
|
Jack A. Henry
|
|
3/9/2010
|
|
Received grant of a restricted stock award to vest 33.3%, 33.3% and 33.4% on 3/09/2011, 3/09/2012 and 3/09/2013, respectively
|
|
7,500
|
|
$
|
0.00
|
|
Brian R. Kahn
|
|
3/9/2010
|
|
Received grant of a restricted stock award to vest 33.3%, 33.3% and 33.4% on 3/09/2011, 3/09/2012 and 3/09/2013, respectively
|
|
7,500
|
|
$
|
0.00
|
|
Brian R. Kahn(1)
|
|
2/10/2010
|
|
Open market purchase(2)
|
|
3,986
|
|
$
|
4.88
|
|
Brian R. Kahn(1)
|
|
2/10/2010
|
|
Open market purchase(2)
|
|
1,100
|
|
$
|
4.89
|
|
Brian R. Kahn(1)
|
|
2/10/2010
|
|
Open market purchase(2)
|
|
1,604
|
|
$
|
4.90
|
|
Brian R. Kahn(1)
|
|
2/10/2010
|
|
Open market purchase(2)
|
|
1,700
|
|
$
|
4.91
|
|
Brian R. Kahn(1)
|
|
2/9/2010
|
|
Open market purchase(2)
|
|
2,457
|
|
$
|
4.85
|
|
Brian R. Kahn(1)
|
|
2/9/2010
|
|
Open market purchase(2)
|
|
1,450
|
|
$
|
4.89
|
|
Brian R. Kahn(1)
|
|
2/9/2010
|
|
Open market purchase(2)
|
|
400
|
|
$
|
4.90
|
|
Brian R. Kahn(1)
|
|
2/9/2010
|
|
Open market purchase(2)
|
|
1,084
|
|
$
|
4.91
|
|
Brian R. Kahn(1)
|
|
2/9/2010
|
|
Open market purchase(2)
|
|
9
|
|
$
|
4.92
|
|
Brian R. Kahn(1)
|
|
2/5/2010
|
|
Open market purchase(2)
|
|
3,057
|
|
$
|
4.85
|
|
Brian R. Kahn(1)
|
|
1/29/2010
|
|
Open market purchase(2)
|
|
13,196
|
|
$
|
4.85
|
|
Brian R. Kahn(1)
|
|
1/29/2010
|
|
Open market purchase(2)
|
|
300
|
|
$
|
4.8575
|
|
Brian R. Kahn(1)
|
|
1/29/2010
|
|
Open market purchase(2)
|
|
25,948
|
|
$
|
4.86
|
|
Melvin L Keating
|
|
3/9/2010
|
|
Received grant of a restricted stock award to vest 33.3%, 33.3% and 33.4% on 3/09/2011, 3/09/2012 and 3/09/2013, respectively
|
|
7,500
|
|
$
|
0.00
|
|
Kenneth J. Krieg
|
|
3/9/2010
|
|
Received grant of a restricted stock award to vest 33.3%, 33.3% and 33.4% on 3/09/2011, 3/09/2012 and 3/09/2013, respectively
|
|
7,500
|
|
$
|
0.00
|
|
Paul D. Quadros
|
|
3/9/2010
|
|
Received grant of a restricted stock award to vest 33.3%, 33.3% and 33.4% on 3/09/2011, 3/09/2012 and 3/09/2013, respectively
|
|
7,500
|
|
$
|
0.00
|
|
Thomas J. Toy
|
|
3/9/2010
|
|
Received grant of a restricted stock award to vest 33.3%, 33.3% and 33.4% on 3/09/2011, 3/09/2012 and 3/09/2013, respectively
|
|
7,500
|
|
$
|
0.00
|
|
(1)
|
The securities are owned directly by Desert Equity LP, a Delaware limited partnership (“Desert Equity”). Desert Equity is controlled by its sole general
partner, Desert Management LLC, a Delaware limited liability company (“Desert Management”). Brian R. Kahn is the sole member and manager of Desert Management. Accordingly, Mr. Kahn may be deemed to indirectly beneficially own the
securities directly owned by Desert Equity. Mr. Kahn disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein.
|
|
(2)
|
The Company has been advised that these open market purchases were made pursuant to a Rule 10b5-1 plan.
|
|
Item 7.
|
Purposes of the Transaction and Plans or Proposals.
|
(a) Except as indicated in Items 2, 3 and 4 of this Schedule, no negotiations are being undertaken or are underway by the Company in response to the Offer, which relate to a tender offer or other
acquisition of the Company’s securities by the Company, any subsidiary of the Company or any other person.
(b) Except as
indicated in Items 2, 3 and 4 of this Schedule, no negotiations are being undertaken or are underway by the Company in response to the Offer, which relate to, or would result in, (i) an extraordinary transaction, such as a merger,
reorganization or liquidation, involving the Company or any subsidiary of the Company, (ii) a purchase, sale or transfer of a material amount of assets by the Company or any subsidiary of the
28
Company, or (iii) any material change in the present dividend rate or policy, or indebtedness or capitalization of the Company.
(c) Except as indicated in Items 2, 3 and 4 of this Schedule, there are no transactions, board resolutions, agreements in principle or
signed contracts in response to the Offer that relate to or would result in one or more of the matters referred to in this Item 7.
|
Item 8.
|
Additional Information.
|
Section 14(f) Information Statement
. The Information Statement attached as Annex I hereto is being furnished in connection with the possible designation by Purchaser, pursuant to the terms of the Merger Agreement, of
certain persons to be elected to the Board of Directors other than at a meeting of the Company’s shareholders.
Shareholder Approval
. The Company has represented in the Merger Agreement that the execution and delivery of the Merger Agreement by the Company and the consummation by the Company of the transactions contemplated by the Merger
Agreement have been duly and validly authorized by all necessary corporate action on the part of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize the Merger Agreement or to consummate the
transactions so contemplated, other than, with respect to the Merger, the approval of the Merger Agreement by the holders of at least a majority of the outstanding Shares prior to the consummation of the Merger (unless the Merger is consummated
pursuant to the short-form merger provisions of the IBCL). According to the Company’s Articles of Incorporation, the Shares are the only securities of the Company outstanding that entitle the holders thereof to voting rights. If following the
purchase of Shares by Purchaser pursuant to the Offer, Purchaser and its affiliates own more than a majority of the outstanding Shares, Purchaser will be able to effect the Merger without the affirmative vote of any other shareholder of the Company.
Top-Up Option
. Pursuant to the Merger Agreement, the Company has granted to Purchaser an irrevocable option,
exercisable only in accordance with the terms and conditions set forth in the Merger Agreement, to purchase up to that number of Shares equal to the lowest number of Shares that, when added to the number of Shares collectively owned by Parent or
Purchaser at the time of exercise, shall constitute one Share more than 90% of the sum of (i) the then outstanding Shares plus (ii) a number equal to the number of Shares issuable upon the conversion of any convertible securities or upon
the exercise of any options, warrants or rights, including RSUs and Stock Options, in each case, which are convertible or exercisable prior to the date that is ten business days after such exercise and the issuance of the Top-Up Option Shares, at a
purchase price per Top-Up Option Share equal to the price per Share payable in the Offer. The Top-Up Option shall not be exercisable for Shares in excess of the number of Shares authorized and unissued or held in the treasury of the Company (giving
effect to the Shares issuable pursuant to all then outstanding Stock Options, RSUs and any other rights to acquire Shares as if such shares were outstanding)
Conditions to Offer
. The Offer is conditioned upon, among other things, (i) satisfaction of the Minimum Condition (as defined below) and (ii) the expiration or termination of any applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the receipt of any other required consents or approvals of any governmental authority of competent jurisdiction, the absence of which would reasonably be expected
to dilute materially the anticipated benefits to Parent of the transaction. The term “Minimum Condition” generally requires that there has been validly tendered and not withdrawn prior to the expiration date for the Offer (as it may have
been extended or re-extended pursuant to the Merger Agreement, the “
Expiration Date
”) at least that number of Shares that when added to any Shares already owned by Parent or any of its controlled subsidiaries, if any, equals 50.1%
of the sum of the then outstanding Shares plus (without duplication) a number equal to the number of Shares issuable upon the conversion of any convertible securities or upon the exercise of any options, warrants or rights with an exercise price
below the price per Share payable in the Offer, including the Company’s outstanding restricted stock units and options to purchase one or more Shares in each case, which are convertible or exercisable on or prior to the later of (i) September
30, 2010 and (ii) the Outside Date, as the same may be extended pursuant to the terms of the Merger Agreement.
29
Based upon the foregoing definition and solely by way of example, as of March 26, 2010,
assuming that no Shares were issued by the Company after March 26, 2010 and that the Expiration Date is not extended, the Minimum Condition would be satisfied if approximately 12.2 million Shares were validly tendered and not withdrawn in the Offer.
The conditions to the offer provided in the Merger Agreement are summarized in Section 15 of the Offer to Purchase.
Short-Form Merger.
Under Section 23-1-40-4 of the IBCL, if Purchaser acquires, pursuant to the Offer or otherwise, at least 90% of the Company’s outstanding Shares, Purchaser will be able to effect the Merger, and is
required to do so under the Merger Agreement, without a vote of the Company’s shareholders. In such event, Parent and Purchaser anticipate that they will take all necessary and appropriate action to cause the Merger to become effective as soon
as reasonably practicable after such acquisition, without a meeting of the Company’s shareholders. However, if Purchaser does not acquire at least 90% of the outstanding Shares pursuant to the Offer, including through any subsequent offering
period or exercise of the Top-Up Option, a vote at a meeting of the Company’s shareholders would be required under Indiana law, and a longer period of time would be required to effect the Merger. Pursuant to the Merger Agreement, the Company
has agreed to convene a meeting of its shareholders as soon as practicable following the consummation of the Offer to consider and vote on the Merger, if a shareholders’ vote is required.
State Takeover Statutes.
Control Share Acquisitions Statute
Section 23-1-42 of the IBCL (the
“Control Share Acquisitions Statute”), with some exceptions, provides that a person proposing to acquire or acquiring voting shares of an “issuing public corporation” may lose the power to vote unless either the
corporation’s articles of incorporation or bylaws in existence before such acquisitions provide that the Control Share Acquisitions Statute does not apply to the corporation or, if properly and timely requested by the acquiring person, the
disinterested shareholders agree to grant voting rights to the acquired shares. “Issuing public corporation” is defined to include a corporation:
|
|
•
|
|
having at least 100 shareholders;
|
|
|
•
|
|
having its principal place of business or its principal office in Indiana or owning or controlling assets within Indiana having a fair market value of
more than $1 million; and
|
|
|
•
|
|
either having more than 1,000 shareholders resident in Indiana or having Indiana residents comprising more than 10% of its shareholders or owning 10%
or more of its shares of record or beneficially.
|
Prior to adopting resolutions adopting the Offer and the
Merger, and prior to the execution of the Support Agreement and the Merger Agreement, the Company’s Board amended the Company’s Bylaws to provide that the Control Share Acquisitions Statute shall not apply to control share acquisitions of
shares of any class of the Company’s stock on or after March 29, 2010. Accordingly, the Control Share Acquisitions Statute is inapplicable to the Company and the Support Agreement and Merger Agreement.
Business Combinations Statute
Section 23-1-43 of the IBCL (the “Business Combinations Statute”) provides that a corporation may not engage in any “business combination” (defined to include mergers and other
transactions) with any “interested shareholder” (defined to include any person beneficially owning 10% or more of the voting power of the outstanding shares of the corporation) for a period of five years following the interested
shareholder’s share acquisition date, unless the business combination or the purchase of shares made by the interested shareholder is approved by the board of directors of the corporation before the interested shareholder’s share
acquisition date.
30
On March 29, 2010, prior to the execution of the Support Agreement and the Merger Agreement,
the Company’s Board unanimously approved in advance for purposes of the Business Combinations Statute the business combination contemplated by the Merger Agreement and Parent’s and Purchaser’s acquisition of beneficial ownership
pursuant to the Support Agreement. Accordingly, the Business Combinations Statute is inapplicable to the Support Agreement, the Offer and the Merger.
Takeover Offers Statute
Section 23-2-3.1 of the IBCL (the “Takeover
Offers Statute”) provides that a person shall not make a takeover offer (defined to include a tender offer for more than 10% of any class of outstanding equity securities of an Indiana corporation with more than 75 shareholders, with its
principal place of business in Indiana and with substantial assets in Indiana) unless certain conditions are satisfied. Because the Company’s principal place of business is not in Indiana, the purchase of Shares in the Offer is not subject to
the Takeover Offers Statute.
A number of other states have adopted laws and regulations applicable to attempts to acquire
securities of corporations which are incorporated, or have substantial assets, shareholders, principal executive offices or principal places of business or whose business operations otherwise have substantial economic effects in such states. If any
government official or third party seeks to apply any state takeover law to the Offer or the Merger, Parent will take such action as then appears desirable, which action may include challenging the applicability or validity of such statute in
appropriate court proceedings. If it is asserted that one or more state takeover statutes is applicable to the Offer or any such merger or other business combination and an appropriate court does not determine that it is inapplicable or invalid as
applied to the Offer or the Merger, Parent might be required to file certain information with, or to receive approvals from, the relevant state authorities or holders of Shares, and we may be unable to accept for payment or pay for Shares tendered
pursuant to the Offer, or be delayed in continuing or consummating the Offer or the Merger. In such case, Purchaser may not be obligated to accept for payment or pay for any tendered Shares.
Antitrust
. Under the HSR Act, and the related rules and regulations that have been issued by the Federal Trade Commission (the
“
FTC
”), certain acquisition transactions may not be consummated until certain information and documentary material has been furnished for review by the FTC and the Antitrust Division of the Department of Justice (the
“
Antitrust Division
”) and certain waiting period requirements have been satisfied. These requirements apply to Purchaser’s acquisition of the Shares in the Offer and the Merger.
Under the HSR Act, the purchase of Shares in the Offer may not be completed until the expiration of a 15 calendar day waiting period,
which begins when Parent has filed a Premerger Notification and Report Form under the HSR Act with the FTC and the Antitrust Division, unless the FTC and Antitrust Division grant early termination of such waiting period. If the 15 calendar day
waiting period expires on a federal holiday or weekend day, the waiting period is automatically extended until 11:59 p.m. the next business day. The Company must file a Premerger Notification and Report Form ten days after Parent files its Premerger
Notification and Report Form. If within the 15 calendar day waiting period either the FTC or the Antitrust Division requests additional information or documentary material from Parent, the waiting period with respect to the Offer and the Merger
would be extended for an additional period of ten calendar days following the date of Parent’s substantial compliance with that request. Only one extension of the waiting period pursuant to a request for additional information is authorized by
the HSR Act rules. After that time, the waiting period may be extended only by court order. The FTC or the Antitrust Division may terminate the additional ten calendar day waiting period before its expiration. In practice, complying with a request
for additional information and documentary material can take a significant period of time.
The FTC and the Antitrust Division
may scrutinize the legality under the antitrust laws of proposed transactions such as Purchaser’s acquisition of Shares in the Offer and the Merger. At any time before or after the purchase of Shares by Purchaser, the FTC or the Antitrust
Division could take any action under the antitrust laws that it either considers necessary or desirable in the public interest, including seeking to enjoin the purchase of
31
Shares in the Offer and the Merger, the divestiture of Shares purchased in the Offer or the divestiture of substantial assets of Parent, the Company or any of their respective subsidiaries or
affiliates. Private parties as well as state attorneys general also may bring legal actions under the antitrust laws under certain circumstances.
Dissenter Rights
.
No dissenters’ rights are available in connection with the Offer.
Holders of Shares currently have no dissenters’ rights. Chapter 23-1-44 of the IBCL provides
that, so long as the Shares are a “covered security” under Section 18(b)(1)(A) or (B) of the Securities Act of 1933, as amended (defined to include securities listed, or authorized for listing, on the New York Stock Exchange
(“NYSE”), the American Stock Exchange (“AMEX”), Nasdaq or a national securities exchange or tier or segment thereof that has listing standards that the SEC determines are substantially similar to the listing standards applicable
to securities listed on the NYSE, AMEX or Nasdaq), shareholders will not be entitled to exercise dissenters’ rights with respect to the Merger. However, if the Shares are not a covered security on the record date for any shareholders’
meeting called to vote on the Merger (if any such vote is required), holders of Shares at the Effective Time of the Merger will have certain rights under Indiana law to dissent and demand payment of the fair value of their Shares. Dissenters’
rights will not be available for a merger effected pursuant to Indiana’s short-form merger provisions (where Purchaser acquires more than 90% of the outstanding Shares). To obtain fair value, a dissenting shareholder must notify the Company in
writing of his or her intent to dissent, not vote in favor of the Merger and comply with other requirements under Indiana law. Fair value means the value of Shares immediately before the effectuation of the Merger, excluding any appreciation or
depreciation in anticipation of the Merger unless that exclusion would be inequitable. Fair value could be more or less than the merger consideration.
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this Statement contain
forward-looking statements based on current expectations or beliefs, as well as a number of assumptions about future events, and these statements are subject to factors and uncertainties that could cause actual results to differ materially from
those described in the forward-looking statements. These forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, and include words such as “believes,”
“plans,” “anticipates,” “projects,” “estimates,” “expects,” “intends,” “strategy,” “future,” “opportunity,” “may,” “will,”
“should,” “could,” “potential,” “or similar expressions. Such forward-looking statements include the ability of the Company, Parent and Purchaser to complete the transactions contemplated by the Merger Agreement,
including the parties’ ability to satisfy the conditions set forth in the Merger Agreement, the possibility of any termination of the Merger Agreement, and possible benefits of the Merger. These forward-looking statements are based on current
expectations and assumptions regarding future events and business performance and involve known and unknown risks, uncertainties and other factors that may cause industry trends or actual results, level of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. These factors include those set forth in the Company’s filings with the Securities and Exchange Commission,
which are available without charge at www.sec.gov. Any provisions of the Private Securities Litigation Reform Act of 1995 that may be referenced in the Company’s filings with the Securities and Exchange Commission are not applicable to any
forward-looking statements made in connection with the Offer. Further risks and uncertainties associated with the Offer include: the risk that the Company’s customers may delay or refrain from purchasing the Company’s services due to
uncertainties about the Company’s future; the risk that key employees may pursue other employment opportunities due to concerns as to their employment security; and the risk that litigation matters are commenced, which might result in
significant costs. All forward-looking statements are qualified by these cautionary statements and are made only as of the date they are made, and readers are cautioned not to place undue reliance upon these forward-looking statements.
32
|
Item 9.
|
Materials to be Filed as Exhibits. The following exhibits are filed herewith:
|
|
|
|
|
|
Exhibit
Number
|
|
Description
|
|
(a)(1)
|
|
Offer to Purchase, dated March 31, 2010 (incorporated by reference to Exhibit (a)(1)(A) to the Schedule TO filed with the SEC by Rabbit Acquisition Corp. and Microsemi
Corporation on March 31, 2010).
|
|
|
|
|
(a)(2)
|
|
Form of Letter of Transmittal (incorporated by reference to Exhibit (a)(1)(B) to the Schedule TO filed with the SEC by Rabbit Acquisition Corp. and Microsemi Corporation on
March 31, 2010).
|
|
|
|
|
(a)(3)
|
|
Information Statement pursuant to Section 14(f) of the Securities Exchange Act of 1934, as amended, and Rule 14f-1 thereunder (attached hereto as Annex I).
|
|
|
|
|
(a)(4)
|
|
Letter dated April 1, 2010, to shareholders of White Electronic Designs Corporation.*
|
|
|
|
|
(a)(5)
|
|
Press Release issued by Microsemi Corporation on March 30, 2010 (incorporated by reference to the pre-commencement Schedule 14D-9 filed with the Commission by White Electronic
Designs Corporation on March 30, 2010).
|
|
|
|
|
(e)(1)
|
|
Agreement and Plan of Merger dated March 29, 2010 by and among Microsemi Corporation, Rabbit Acquisition Corp. and White Electronic Designs Corporation (incorporated by
reference to Exhibit 2.1 to the Form 8-K filed with the Commission on March 30, 2010).
|
|
|
|
|
(e)(2)
|
|
Support Agreement dated March 29, 2010 by and among Microsemi Corporation, Rabbit Acquisition Corp. and certain shareholders of White Electronic Designs Corporation listed on
Annex I thereto (incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the Commission on March 30, 2010).
|
|
|
|
|
(e)(3)
|
|
Confidentiality Agreement, dated as of February 15, 2010, between Microsemi Corporation and White Electronic Designs Corporation.*
|
|
|
|
|
(e)(4)
|
|
Amended and Restated Articles of Incorporation of White Electronic Designs Corporation (incorporated by reference to Appendix A to the Company’s definitive Proxy Statement
prepared in connection with the 2009 Annual Meeting of Shareholders, filed with the Commission on April 9, 2009).
|
|
|
|
|
(e)(5)
|
|
Amended and Restated By-Laws of White Electronic Designs Corporation dated July 27, 2009 (incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the
Commission on July 31, 2009).
|
|
|
|
|
(e)(6)
|
|
White Electronic Designs Corporation 1994 Flexible Stock Plan (incorporated by reference to Exhibit 99 to the Registration Statement on Form S-8, filed with the Commission
on May 9, 2001, Registration No. 333-60544).
|
|
|
|
|
(e)(7)
|
|
Amendment to the Bowmar Instrument Corporation 1994 Flexible Stock Plan, effective May 7, 2001 (incorporated by reference to Appendix A to the Company’s definitive
Proxy Statement prepared in connection with the 2001 Annual Meeting of Shareholders).
|
|
|
|
|
(e)(8)
|
|
White Electronic Designs Corporation 2001 Director Stock Plan (incorporated by reference to Exhibit 99 to Form S-8, filed with the Commission on May 9, 2001,
Registration No. 333-60536).
|
|
|
|
|
(e)(9)
|
|
Amendment to Bowmar Instrument Corporation Stock Option Plan for Non-Employee Directors (incorporated by reference to Appendix D to the Company’s definitive Proxy
Statement in connection with the 2001 Annual Meeting of Shareholders).
|
|
|
|
|
(e)(10)
|
|
White Electronic Designs Corporation Stock Option Plan for Non-Employee Directors (incorporated by reference to Exhibit 99 to Form S-8, filed with the Commission on
May 9, 2001, Registration No. 333-60548).
|
33
|
|
|
|
|
Exhibit
Number
|
|
Description
|
|
|
|
|
(e)(11)
|
|
White Electronic Designs Corporation 2000 Broad Based Employee Stock Option Plan (incorporated by reference to Exhibit 99 to Form S-8, filed with the Commission on
May 9, 2001, Registration No. 333-60542).
|
|
|
|
|
(e)(12)
|
|
White Electronic Designs Corporation 2006 Director Restricted Stock Plan, effective March 24, 2006 (incorporated by reference to Appendix A to the Company’s
definitive Proxy Statement prepared in connection with the 2006 Annual Meeting of Shareholders).
|
|
|
|
|
(e)(13)
|
|
First Amendment to 2006 Director Restricted Stock Plan, effective August 24, 2006 (incorporated by reference to Exhibit 99.1 to the Form 8-K filed with the
Commission on August 30, 2006).
|
|
|
|
|
(e)(14)
|
|
Form of Restricted Stock Agreement to 2006 Director Restricted Stock Plan, effective August 24, 2006 (incorporated by reference to Exhibit 99.2 to the Form 8-K
filed with the Commission on August 30, 2006).
|
|
|
|
|
(e)(15)
|
|
Form of Restricted Stock Units Award Agreement under the 1994 Flexible Stock Plan (incorporated by reference to Exhibit 10.19 to Form 10-K, filed with the Commission on
December 13, 2007).
|
|
|
|
|
(e)(16)
|
|
Form of Performance Share Award Agreement under the 1994 Flexible Stock Plan (incorporated by reference to Exhibit 10.20 to Form 10-K, filed with the Commission on
December 13, 2007).
|
|
|
|
|
(e)(17)
|
|
Employment Agreement dated January 21, 2009, between White Electronic Designs Corporation and Dan V. Tarantine (incorporated by reference to Exhibit 10.25 to
Form 10-K/A, filed with the Commission on January 26, 2009).
|
|
|
|
|
(e)(18)
|
|
Employment Agreement dated August 12, 2009, by and between White Electronic Designs Corporation and Gerald R. Dinkel (incorporated by reference to Exhibit 10.1 to the
Form 8-K filed with the Commission on August 13, 2009).
|
|
|
|
|
(e)(19)
|
|
Shareholder Agreement dated February 4, 2009, by and among White Electronic Designs Corporation, Wynnefield Partners Small Cap Value, L.P. (and its affiliates), Caiman
Partners, L.P. (and its affiliates), Kahn Capital Management LLC, Jack A. Henry, Paul D. Quadros, Thomas M. Reahard, Thomas J. Toy and Edward A. White (incorporated by reference to Exhibit 10.1 to Form 8-K, filed with the Commission on
February 11, 2009).
|
|
|
|
|
(e)(20)
|
|
Amendment No. 1 to Shareholder Agreement dated August 13, 2009, by and among White Electronic Designs Corporation, Wynnefield Partners Small Cap Value, L.P. (and its
affiliates), Caiman Partners, L.P. (and its affiliates), Kahn Capital Management LLC, Jack A. Henry, Paul D. Quadros, Thomas R. Reahard, Thomas J. Toy and Edward A. White (incorporated by reference to Exhibit 10.1 to the Form 8-K filed
with the Commission on August 14, 2009).
|
|
|
|
|
(e)(21)
|
|
Amendment No. 2 to Shareholder Agreement dated November 16, 2009, by and among White Electronic Designs Corporation, Wynnefield Partners Small Cap Value, L.P. (and its
affiliates), Caiman Partners, L.P. (and its affiliates), Kahn Capital Management LLC, Jack A. Henry, Paul D. Quadros, Thomas R. Reahard, Thomas J. Toy and Edward A. White (incorporated by reference to Exhibit 10.1 to the Form 8-K filed
with the Commission on November 17, 2009).
|
|
|
|
|
(e)(22)
|
|
Severance Agreement dated June 16, 2009 by and between Edward A. White and White Electronic Designs Corporation (incorporated by reference to Exhibit 10.1 to the
Form 8-K filed with the Commission on June 17, 2009).
|
|
|
|
|
(e)(23)
|
|
Change in Control Agreement between Bjarne Heggli and White Electronic Designs Corporation dated January 7, 2009.*
|
|
|
|
|
(e)(24)
|
|
Change in Control Agreement between Karen Kock and White Electronic Designs Corporation dated January 6, 2009.*
|
34
|
|
|
|
|
Exhibit
Number
|
|
Description
|
|
|
|
|
(e)(25)
|
|
Change in Control Agreement between Leslie Striedel and White Electronic Designs Corporation dated January 6, 2009.*
|
|
|
|
|
(e)(26)
|
|
Success Bonus Agreement between Melvin L. Keating and White Electronic Designs Corporation dated March 29, 2010.*
|
|
|
|
|
(e)(27)
|
|
Form of Indemnification Agreement between White Electronic Designs Corporation and its directors and certain of its officers dated March 29, 2010.*
|
|
|
|
|
Annex I
|
|
Information Statement pursuant to Section 14(f) of the Securities Exchange Act of 1934, as amended, and Rule 14f-1 thereunder.
|
|
|
|
|
Annex II
|
|
Opinion of Jefferies & Company, Inc., dated March 29, 2010.
|
* Filed herewith
35
SIGNATURES
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.
|
|
|
|
|
WHITE ELECTRONIC DESIGNS CORPORATION
|
|
|
|
|
By:
|
|
/s/ B
RIAN
R.
K
AHN
|
|
|
|
Brian R. Kahn
|
|
|
|
Chairman of the Board
|
Dated:
April 1, 2010
36
INDEX TO EXHIBITS
|
|
|
|
|
Exhibit
Number
|
|
Description
|
|
(a)(1)
|
|
Offer to Purchase, dated March 31, 2010 (incorporated by reference to Exhibit (a)(1)(A) to the Schedule TO filed with the SEC by Rabbit Acquisition Corp. and Microsemi
Corporation on March 31, 2010).
|
|
|
|
|
(a)(2)
|
|
Form of Letter of Transmittal (incorporated by reference to Exhibit (a)(1)(B) to the Schedule TO filed with the SEC by Rabbit Acquisition Corp. and Microsemi Corporation on
March 31, 2010).
|
|
|
|
|
(a)(3)
|
|
Information Statement pursuant to Section 14(f) of the Securities Exchange Act of 1934, as amended, and Rule 14f-1 thereunder (attached hereto as Annex I).
|
|
|
|
|
(a)(4)
|
|
Letter dated April 1, 2010 to shareholders of White Electronic Designs Corporation.*
|
|
|
|
|
(a)(5)
|
|
Press Release issued by Microsemi Corporation on March 30, 2010 (incorporated by reference to the pre-commencement Schedule 14D-9 filed with the Commisson by White Electronic
Designs Corporation on March 30, 2010).
|
|
|
|
|
(e)(1)
|
|
Agreement and Plan of Merger dated March 29, 2010 by and among Microsemi Corporation, Rabbit Acquisition Corp. and White Electronic Designs Corporation (incorporated by
reference to Exhibit 2.1 to the Form 8-K filed with the Commission on March 30, 2010).
|
|
|
|
|
(e)(2)
|
|
Support Agreement dated March 29, 2010 by and among Microsemi Corporation, Rabbit Acquisition Corp. and certain shareholders of White Electronic Designs Corporation listed on
Annex I thereto (incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the Commission on March 30, 2010).
|
|
|
|
|
(e)(3)
|
|
Confidentiality Agreement, dated as of February 15, 2010, between Microsemi Corporation and White Electronic Designs
Corporation.*
|
|
|
|
|
(e)(4)
|
|
Amended and Restated Articles of Incorporation of White Electronic Designs Corporation (incorporated by reference to Appendix A to the Company’s definitive Proxy Statement
prepared in connection with the 2009 Annual Meeting of Shareholders, filed with the Commission on April 9, 2009).
|
|
|
|
|
(e)(5)
|
|
Amended and Restated By-Laws of White Electronic Designs Corporation dated July 27, 2009 (incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the
Commission on July 31, 2009).
|
|
|
|
|
(e)(6)
|
|
White Electronic Designs Corporation 1994 Flexible Stock Plan (incorporated by reference to Exhibit 99 to the Registration Statement on Form S-8, filed with the Commission
on May 9, 2001, Registration No. 333-60544).
|
|
|
|
|
(e)(7)
|
|
Amendment to the Bowmar Instrument Corporation 1994 Flexible Stock Plan, effective May 7, 2001 (incorporated by reference to Appendix A to the Company’s definitive
Proxy Statement prepared in connection with the 2001 Annual Meeting of Shareholders).
|
|
|
|
|
(e)(8)
|
|
White Electronic Designs Corporation 2001 Director Stock Plan (incorporated by reference to Exhibit 99 to Form S-8, filed with the Commission on May 9, 2001,
Registration No. 333-60536).
|
|
|
|
|
(e)(9)
|
|
Amendment to Bowmar Instrument Corporation Stock Option Plan for Non-Employee Directors (incorporated by reference to Appendix D to the Company’s definitive Proxy
Statement in connection with the 2001 Annual Meeting of Shareholders).
|
|
|
|
|
(e)(10)
|
|
White Electronic Designs Corporation Stock Option Plan for Non-Employee Directors (incorporated by reference to Exhibit 99 to Form S-8, filed with the Commission on
May 9, 2001, Registration No. 333-60548).
|
37
|
|
|
|
|
Exhibit
Number
|
|
Description
|
|
|
|
|
(e)(11)
|
|
White Electronic Designs Corporation 2000 Broad Based Employee Stock Option Plan (incorporated by reference to Exhibit 99 to Form S-8, filed with the Commission on
May 9, 2001, Registration No. 333-60542).
|
|
|
|
|
(e)(12)
|
|
White Electronic Designs Corporation 2006 Director Restricted Stock Plan, effective March 24, 2006 (incorporated by reference to Appendix A to the Company’s
definitive Proxy Statement prepared in connection with the 2006 Annual Meeting of Shareholders).
|
|
|
|
|
(e)(13)
|
|
First Amendment to 2006 Director Restricted Stock Plan, effective August 24, 2006 (incorporated by reference to Exhibit 99.1 to the Form 8-K filed with the
Commission on August 30, 2006).
|
|
|
|
|
(e)(14)
|
|
Form of Restricted Stock Agreement to 2006 Director Restricted Stock Plan, effective August 24, 2006 (incorporated by reference to Exhibit 99.2 to the Form 8-K
filed with the Commission on August 30, 2006).
|
|
|
|
|
(e)(15)
|
|
Form of Restricted Stock Units Award Agreement under the 1994 Flexible Stock Plan (incorporated by reference to Exhibit 10.19 to Form 10-K, filed with the Commission on
December 13, 2007).
|
|
|
|
|
(e)(16)
|
|
Form of Performance Share Award Agreement under the 1994 Flexible Stock Plan (incorporated by reference to Exhibit 10.20 to Form 10-K, filed with the Commission on
December 13, 2007).
|
|
|
|
|
(e)(17)
|
|
Employment Agreement dated January 21, 2009, between White Electronic Designs Corporation and Dan V. Tarantine (incorporated by reference to Exhibit 10.25 to
Form 10-K/A, filed with the Commission on January 26, 2009).
|
|
|
|
|
(e)(18)
|
|
Employment Agreement dated August 12, 2009, by and between White Electronic Designs Corporation and Gerald R. Dinkel (incorporated by reference to Exhibit 10.1 to the
Form 8-K filed with the Commission on August 13, 2009).
|
|
|
|
|
(e)(19)
|
|
Shareholder Agreement dated February 4, 2009, by and among White Electronic Designs Corporation, Wynnefield Partners Small Cap Value, L.P. (and its affiliates), Caiman
Partners, L.P. (and its affiliates), Kahn Capital Management LLC, Jack A. Henry, Paul D. Quadros, Thomas M. Reahard, Thomas J. Toy and Edward A. White (incorporated by reference to Exhibit 10.1 to Form 8-K, filed with the Commission on
February 11, 2009).
|
|
|
|
|
(e)(20)
|
|
Amendment No. 1 to Shareholder Agreement dated August 13, 2009, by and among White Electronic Designs Corporation, Wynnefield Partners Small Cap Value, L.P. (and its
affiliates), Caiman Partners, L.P. (and its affiliates), Kahn Capital Management LLC, Jack A. Henry, Paul D. Quadros, Thomas R. Reahard, Thomas J. Toy and Edward A. White (incorporated by reference to Exhibit 10.1 to the Form 8-K filed
with the Commission on August 14, 2009).
|
|
|
|
|
(e)(21)
|
|
Amendment No. 2 to Shareholder Agreement dated November 16, 2009, by and among White Electronic Designs Corporation, Wynnefield Partners Small Cap Value, L.P. (and its
affiliates), Caiman Partners, L.P. (and its affiliates), Kahn Capital Management LLC, Jack A. Henry, Paul D. Quadros, Thomas R. Reahard, Thomas J. Toy and Edward A. White (incorporated by reference to Exhibit 10.1 to the Form 8-K filed
with the Commission on November 17, 2009).
|
|
|
|
|
(e)(22)
|
|
Severance Agreement dated June 16, 2009 by and between Edward A. White and White Electronic Designs Corporation (incorporated by reference to Exhibit 10.1 to the
Form 8-K filed with the Commission on June 17, 2009).
|
|
|
|
|
(e)(23)
|
|
Change in Control Agreement between Bjarne Heggli and White Electronic Designs Corporation dated January 7, 2009.*
|
|
|
|
|
(e)(24)
|
|
Change in Control Agreement between Karen Kock and White Electronic Designs Corporation dated January 6, 2009.*
|
38
|
|
|
|
|
Exhibit
Number
|
|
Description
|
|
|
|
|
(e)(25)
|
|
Change in Control Agreement between Leslie Striedel and White Electronic Designs Corporation dated January 6, 2009.*
|
|
|
|
|
(e)(26)
|
|
Success Bonus Agreement between Melvin L. Keating and White Electronic Designs Corporation dated March 29, 2010.*
|
|
|
|
|
(e)(27)
|
|
Form of Indemnification Agreement between White Electronic Designs Corporation and its directors and certain of its officers dated March 29, 2010.*
|
|
|
|
|
Annex I
|
|
Information Statement pursuant to Section 14(f) of the Securities Exchange Act of 1934, as amended, and Rule 14f-1 thereunder.
|
|
|
|
|
Annex II
|
|
Opinion of Jefferies & Company, Inc., dated March 29, 2010.
|
39
Annex I
White Electronic Designs Corporation
3601 East University Drive
Phoenix, Arizona 85034
(602) 437-1520
Information Statement Pursuant to Section 14(f) of the Securities Exchange Act of 1934 and Rule 14f-1 thereunder
This Information Statement is being mailed on or about April 1, 2010 as part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the “
Schedule 14D-9
”) to holders of
shares of common stock, stated value $0.10 (the “
Shares
” or the “
Common Stock
”), of White Electronic Designs Corporation, an Indiana corporation (“
White Electronic Designs
”, the
“
Corporation
”, the “
Company
”, “
we
”, “
our
” or “
us
”). Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the
Schedule 14D-9. You are receiving this Information Statement in connection with the possible appointment of persons designated by Microsemi Corporation, a Delaware corporation (“
Parent
” or “
Microsemi
”), to the
board of directors of the Company (the “
Board
” or the “
Board of Directors
”). Such designation is to be made pursuant to an Agreement and Plan of Merger, dated as of March 29, 2010 (the “
Merger
Agreement
”), by and among Parent, Rabbit Acquisition Corp., an Indiana corporation and wholly owned subsidiary of Parent (the “
Purchaser
”), and the Company.
This Information Statement is required by Section 14(f) of the Securities Exchange Act of 1934, as amended (the “
Exchange
Act
”), and Rule 14f-1 thereunder. This Information Statement supplements certain information in the Solicitation/Recommendation Statement filed on Schedule 14D-9 to which this Information Statement is attached as Annex I. YOU
ARE URGED TO READ THIS INFORMATION STATEMENT CAREFULLY. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
Pursuant to the Merger Agreement, on March 29, 2010, Purchaser commenced a cash tender offer to purchase all outstanding Shares at a price of $7.00 per Share, net to the selling shareholder in cash,
without interest and less any required withholding taxes, upon the terms and subject to the conditions set forth in the Offer to Purchase dated March 31, 2010 (the “
Offer to Purchase
”) and the related Letter of Transmittal
(which, together with the Offer to Purchase, as each may be amended or supplemented from time to time, constitute the “
Offer
”). Copies of the Offer to Purchase and the Letter of Transmittal have been mailed to shareholders of the
Company and are filed as exhibits to the Tender Offer Statement on Schedule TO filed by Purchaser and Parent with the Securities and Exchange Commission (the “
SEC
”) on March 31, 2010. The Offer is scheduled to expire at
12:00 midnight, New York City time on April 27, 2010 (unless the Offer is extended), at which time, if all conditions to the Offer set forth in the Merger Agreement have been satisfied or waived, the Purchaser will purchase all Shares validly
tendered pursuant to the Offer and not withdrawn. Following the successful completion of the Offer, and upon approval by a shareholder vote, if required, Purchaser will be merged with and into the Company (the “
Merger
”). The Offer,
the Merger and the Merger Agreement are more fully described in the Schedule 14D-9 to which this Information Statement is attached as Annex I, which Schedule 14D-9 was filed by the Company with the SEC on April 1, 2010, and which is
being mailed to shareholders of the Company along with this Information Statement.
The information contained in this
Information Statement concerning Parent, Purchaser and the Purchaser Designees (as defined below) has been furnished to the Company by either Parent or Purchaser, and the Company assumes no responsibility for the accuracy or completeness of such
information.
I-1
PURCHASER DESIGNEES TO THE BOARD OF DIRECTORS
The Merger Agreement provides that, subject to compliance with applicable law, upon acceptance for payment of any Shares pursuant to the
Offer, Purchaser will be entitled to designate that number of directors, rounded up to the next whole number, on the Company’s Board that is equal to the product of (i) the total number of directors on the Company’s Board (giving
effect to the directors elected pursuant to this sentence) and (ii) the percentage that the aggregate number of Shares beneficially owned by Parent, Purchaser and any other affiliates of Purchaser (including Shares accepted for payment) bears
to the total number of Shares outstanding, and the Company will, promptly take all actions reasonably necessary to cause Purchaser’s designees to be elected as directors of the Company, including, at Parent’s election, by increasing the
size of the Company’s Board or seeking and accepting the resignations of incumbent directors, or both. At such time, the Company shall also take all necessary action to cause persons designated by Purchaser to constitute the same percentage
(rounded up, if necessary) as persons designated by Purchaser constitute to the Company’s Board of (i) each committee of the Company Board, (ii) the board of directors of each of its subsidiaries, and (iii) each committee of each
such board. The Company will promptly take all action required to effect any such election or appointment, including all actions required pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, and will include with
the Schedule 14D-9 such information with respect to the Company and its officers and directors as is required under Section 14(f) and Rule 14f-1 to fulfill such obligations.
Parent has informed the Company that it will choose the Purchaser Designees from the list of persons set forth in the following table. The
following table, prepared from information furnished to the Company by Parent, sets forth, with respect to each individual who may be designated by Parent as a Parent Designee, the name, age of the individual as of March 26, 2010, present
principal occupation and employment history during the past five years. Each individual set forth in the table below is a citizen of the United States. Parent has informed the Company that each such individual has consented to act as a director of
the Company, if so appointed or elected. If necessary, Parent may choose additional or other Purchaser Designees, subject to the requirements of Rule 14f-1 under the Exchange Act. Unless otherwise indicated below, the business address of each
such person is 2381 Morse Avenue, Irvine, California 92614.
I-2
None of the individuals listed below has, during the past five years, (i) been
convicted in a criminal proceeding or (ii) been a party to any judicial or administrative proceeding that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, U.S.
federal or state securities laws, or a finding of any violation of U.S. federal or state securities laws.
|
|
|
|
|
|
|
Name of Parent Designee
|
|
Age
|
|
Present Principal Occupation or Employment;
Material Positions Held During the Past Five
Years
|
|
John Hohener
|
|
54
|
|
John Hohener has been serving as Executive Vice President since 2010; Chief Financial Officer and Secretary since 2008; Vice President of Finance, Treasurer and Chief Accounting
Officer since 2007; Vice President of Finance from 2006 to 2007; Executive Vice President and Chief Financial Officer of Biolase Technology, Inc., a medical technology company based in Irvine, California, from 2004 to 2006. Officer of Microsemi
since 2006.
|
|
Steve Litchfield
|
|
40
|
|
Steve Litchfield has been serving as Executive Vice President, Chief Strategy Officer since 2009; Executive Vice President-Analog Mixed Signal Group from 2006 to 2009; Vice
President-Corporate Marketing & Business Development from 2003 to 2006; Director of Business Development from 2001 to 2003. Officer of Microsemi since 2003.
|
|
John Holtrust
|
|
59
|
|
John Holtrust has been serving as Senior Vice President of Human Resources since 2005; Vice President of Human Resources from 2000 to 2005. Officer of Microsemi since
2000.
|
|
Kenneth Chin
|
|
54
|
|
Ken Chin has been serving, since October 2008, as the President and General Manager of Microsemi Corp. -- Power Management Group. Prior to that time, and since 2004 Ken, was the
President and COO of Babcock, Inc., which he joined as an engineer in 1985.
|
It is expected that the Purchaser
Designees may assume office at any time following the purchase by Purchaser of a majority of outstanding Shares pursuant to the Offer, which purchase cannot be earlier than April 27, 2010, and that, upon assuming office, the Purchaser Designees
will thereafter constitute at least a majority of the Board.
I-3
GENERAL INFORMATION CONCERNING THE COMPANY
The Common Stock is the only class of voting securities of the Company outstanding that is entitled to vote at a meeting of the shareholders
of the Company. Each Share entitles its record holder to one vote on all matters submitted to a vote of the Company’s shareholders. As of March 26, 2010, there were 23,638,277 Shares issued and outstanding, not including shares held
in treasury by the Company and its subsidiaries.
The Company Board of Directors
The Board is comprised of seven members. Certain information regarding the members of the Board as of September 30, 2009, is set forth below,
including with respect to each director of the Company, the name and age of the director as of September 30, 2009, present position with the Company or principal occupation, and employment history during the past five years. As indicated above, some
of the current directors may resign following the purchase of Shares by Purchaser pursuant to the Offer. Each director is a U.S. citizen and there are no family relationships among any of our directors, officers or key employees.
|
|
|
|
|
|
|
|
|
Name of Director
|
|
Age
|
|
Position/Principal Occupation During Past Five Years
|
|
Director
Since
|
|
Gerald R. Dinkel
|
|
63
|
|
Gerald R. Dinkel has been our President and Chief Executive Officer since August 2009. Prior to joining the Corporation, he served as a strategic advisor to multiple firms
in the global aerospace and defense market and was a member of the Board of Senior Advisors for Renaissance Strategic Advisors, a Washington, DC-based defense/space/aerospace consulting firm. From 2000 to 2007, he served as chief executive officer
of Cubic Corporation’s (“
Cubic
”) defense-related businesses. Prior to Cubic, Mr. Dinkel had a long career at Westinghouse Electronic Systems, where he played key roles on a variety of programs, most notably the F-16 radar
and the Longbow Apache weapon system, and held general management positions for Missile Systems and Logistics Systems and Services. Mr. Dinkel holds a Bachelor of Science in Electrical Engineering from Rose-Hulman Institute of
Technology.
|
|
2009
|
|
|
|
|
|
|
Jack A. Henry
(1)(2)(3)
|
|
66
|
|
Jack A. Henry has served on our Board since January 2004 and currently serves as the Chairman of our Audit Committee. He began his career with Arthur Andersen in 1966, and
in 2000 retired as the managing partner of the Phoenix office. He then formed Sierra Blanca Ventures LLC, a private investment and advisory firm. He currently serves on the boards of directors of Grand Canyon University, IA Global, Inc. and several
private companies. He has previously served on the boards of directors of four other public-reporting companies. Additionally, he serves as President of the Arizona Chapter of the National Association of Corporate Directors. Mr. Henry holds a
Bachelor’s degree in Business Administration and a Master’s degree in Business Administration from the University of Michigan.
|
|
2004
|
I-4
|
|
|
|
|
|
|
|
|
Name of Director
|
|
Age
|
|
Position/Principal Occupation During Past Five Years
|
|
Director
Since
|
|
Brian R. Kahn
(2)(3)
|
|
36
|
|
Brian R. Kahn joined our Board in February 2009, began serving as Chairman of the Board in July 2009 and is a member of the Corporate Governance and Nominating and
Compensation Committees. He founded and has served as the investment manager of Caiman Partners L.P. (“
Caiman
”) and the managing member of the general partner of Caiman’s general partner, Caiman Capital GP, L.P., since their
inception in August 2003. He founded and has served as the investment manager of Kahn Capital Management, LLC (“
KCM
”) since 1998. Caiman and KCM focus on public and private market investments in consumer, manufacturing and defense
industries. Additionally, he serves as director of a private company. Mr. Kahn graduated cum laude and holds a Bachelor of Arts degree in Economics from Harvard University.
|
|
2009
|
|
|
|
|
|
|
Melvin L. Keating
(1)
|
|
63
|
|
Melvin L. Keating joined our Board in February 2009 and is currently a member of the Audit Committee. He served as the President and Chief Executive Officer of Alliance
Semiconductor Corp., a worldwide manufacturer and seller of semiconductors, from December 2005 to September 2008 and a Special Consultant to Alliance from October 2005 to December 2005. From April 2004 to September 2005, he served as Executive Vice
President, Chief Financial Officer and Treasurer of Quovadx Inc., a healthcare software company. He was employed as a strategy consultant for Warburg Pincus Equity Partners (“
Warburg
”), from 1997 to 2004, providing acquisition and
investment target analysis and transactional advice while also serving on the board of directors and chairing the audit committee of Price Legacy, a public REIT principally owned by Warburg. He is currently a director of LCC International Inc.,
(“
LCC
”) and serves on LCC’s audit and compensation committees and as chairperson of its finance committee. Mr. Keating holds a Bachelor of Arts degree in History of Art from Rutgers University, and a Master’s of
Science degree in Accounting and Master’s of Business Administration degree in Finance from the Wharton School at the University of Pennsylvania.
|
|
2009
|
|
|
|
|
|
|
Kenneth J. Krieg
|
|
48
|
|
The Honorable Kenneth J. Krieg joined our Board in November 2009 and is currently a member of the Compensation Committee. He currently heads McLean, VA-based Samford Global
Strategies, a consulting practice focused on helping clients lead and manage through periods of strategic change. He also serves on the board of directors of several private companies and is a Distinguished Fellow at the Center for Naval Analyses.
Previously, he served as the Undersecretary of Defense for Acquisition, Technology and Logistics (“
USD (AT&L)
”) from 2005 to 2007, with overall responsibility for the Department of Defense’s (the “
DoD
”)
procurement, research and development, and other major functions. Prior to his appointment as USD (AT&L), he served as Special Assistant to the Secretary of Defense and Director of Program Analysis & Evaluation, leading an organization that
advises the Secretary of Defense on defense systems, programs and investment alternatives. Before joining the DoD, he was Vice President and General Manager of the Office and Consumer Papers Division of International Paper Company. Mr. Krieg
holds a Bachelor of Arts degree in history from Davidson College and a Master’s degree in Public Policy from the Kennedy School of Government at Harvard University.
|
|
2009
|
I-5
|
|
|
|
|
|
|
|
|
Name of Director
|
|
Age
|
|
Position/Principal Occupation During Past Five Years
|
|
Director
Since
|
|
Paul D. Quadros
(1)(2)
|
|
63
|
|
Paul D. Quadros has served on our Board since January 2004 and currently serves as the Chairman of the Compensation Committee and is a member of the Audit Committee. Since
2001, he has been Managing Partner of Tenex Greenhouse Ventures, an early-stage venture capital fund. He is a co-founder and former Chairman of the board of directors of two Nasdaq-listed companies, Corautus Genetics and Cardiac Science. He was also
a co-founder of GenStar Therapeutics, which was listed on the American Stock Exchange. He served as President, Chief Executive Officer and Chief Financial Officer of GenStar from 1995 to 1998 and as Chairman and Chief Financial Officer from 1998 to
2003. He also serves as a director of several private companies. Mr. Quadros holds a Bachelor of Arts degree in Finance from California State University, Fullerton and a Master’s degree in Business Administration from the UCLA Anderson
School of Management.
|
|
2004
|
|
|
|
|
|
|
Thomas J. Toy
(3)
|
|
54
|
|
Thomas J. Toy has served on our Board since October 1998, and currently serves as the Chairman of our Corporate Governance and Nominating Committee. He is Managing Director
of PacRim Venture Partners, a venture capital firm he co-founded in 1999, and a partner at SmartForest Ventures, also a venture capital firm. Previously, he was a partner at Technology Funding, a venture capital firm he worked for from 1987 to 1999.
He also serves as Chairman of the board of directors of UTStarcom, Inc., a Nasdaq-listed manufacturer of wireless communications equipment, a director of Solarfun Power Holdings Co., Ltd., a Nasdaq-listed producer of solar energy cells and modules,
as well as a director of several private companies. Mr. Toy holds a Bachelor of Arts degree and a Master’s degree in Management from Northwestern University.
|
|
1998
|
|
(1)
|
Member of Audit Committee
|
|
(2)
|
Member of Compensation Committee
|
|
(3)
|
Member of Nominating and Governance Committees
|
Executive Officers
Certain information regarding our executive officers as of September 30, 2009, is set forth
below, including with respect to each executive officer of the Company, the name and age of the officer as of September 30, 2009, present position with the Company and employment history during the past five years.
|
|
|
|
|
|
|
Name of Officer
|
|
Age
|
|
Position/Principal Occupation During Past Five Years
|
|
Gerald R. Dinkel
|
|
63
|
|
See description of Mr. Dinkel’s position and principal occupation during the past five years under the section above captioned
“the Company Board of Directors.”
|
|
Dan Tarantine
|
|
56
|
|
Dan Tarantine has been our Executive Vice President since 2009. Prior to becoming Executive Vice President, Mr. Tarantine served as our Senior Vice President of Sales and as our
Senior Vice President of Sales and Marketing. He has been with the Company since 1987.
|
I-6
CORPORATE GOVERNANCE
Board Structure and Committee Composition
The Board of Directors is
composed of seven directors and maintains the following three standing committees: (1) the Audit Committee; (2) the Compensation Committee; and (3) the Corporate Governance and Nominating Committee.
The membership and the function of each of the standing committees is described below. The Board may from time to time establish a new
committee or dissolve an existing committee depending on the circumstances.
|
|
|
|
|
|
|
|
|
Name of Director
|
|
Audit
Committee
|
|
Compensation
Committee
|
|
Corporate
Governance
and
Nominating
Committee
|
|
Non-Employee Directors
|
|
|
|
|
|
|
|
Jack A. Henry
|
|
X (chair)
|
|
X
|
|
X
|
|
Brian R. Kahn
|
|
|
|
X
|
|
X
|
|
Melvin L. Keating
|
|
X
|
|
|
|
|
|
Kenneth J. Krieg
|
|
|
|
|
|
|
|
Paul D. Quadros
|
|
X
|
|
X (chair)
|
|
|
|
Thomas J. Toy
|
|
|
|
|
|
X (chair)
|
|
Employee Directors
|
|
|
|
|
|
|
|
Gerald R. Dinkel
|
|
|
|
|
|
|
The Board of Directors held 13 meetings during fiscal 2009. The Audit Committee held four
meetings, the Compensation Committee held thirteen meetings and our Corporate Governance and Nominating Committee held five meetings in fiscal 2009. Each then director attended at least 75% of all Board and applicable Committee meetings. We
encourage, but do not require, the Board members to attend the annual meeting of shareholders. All of our then directors attended our 2009 annual meeting of shareholders.
Director Independence
The Board has determined that each of the following
directors is independent, according to the applicable rules of the Securities and Exchange Commission (“
SEC
”) and the listing standards of the Nasdaq Stock Market LLC, which constitutes a majority of the Board of Directors:
Jack A. Henry; Brian R. Kahn; Melvin L. Keating; Kenneth J. Krieg; Paul D. Quadros; and Thomas J. Toy. In making its independence determinations, the Board specifically considered the following types of transactions
that were not required to be disclosed under Item 404(a) of Regulation S-K: (i) engagements with two large law firms that each had a law partner who is related to a current director (although each related law partner did not perform
any services for the Corporation and did not receive any compensation from the Corporation) and (ii) significant ownership of the Common Stock by the Chairman of the Board and other investments by current directors.
Audit Committee
During
fiscal 2009, the Audit Committee consisted of Jack A. Henry (Chairman), Paul D. Quadros, Thomas J. Toy and Melvin L. Keating. Melvin L. Keating joined the Audit Committee in February 2009 and replaced Thomas J. Toy, who
served until that time. The Audit Committee met four times during fiscal 2009. The Board has determined that each member of the Audit Committee is independent as defined under applicable the Nasdaq Stock Market LLC listing standards and SEC rules
and regulations, and each member also possesses the financial literacy requirements as set forth under Nasdaq Stock Market LLC listing standards. In addition, Jack A. Henry and Paul D. Quadros serve as the Audit Committee financial
experts, as defined by SEC regulations, and possess the other financial sophistication requirements expected of such financial experts under Nasdaq Stock Market LLC listing standards.
I-7
The Audit Committee is responsible for reviewing the accounting principles, policies and
practices followed by the Corporation in accounting for and reporting its financial results of operations, and for selecting and meeting with the Corporation’s independent registered public accounting firm. In particular, the Audit Committee
serves to assist the Board in its oversight of (i) the integrity of the Corporation’s financial statements, accounting and financial reporting, (ii) the Corporation’s compliance with legal and regulatory requirements,
(iii) the qualifications and independence of the Corporation’s independent auditor, (iv) the performance of the Corporation’s internal reporting and audit functions and (v) the Corporation’s disclosure controls and
procedures and system of internal controls regarding finance, accounting, legal compliance and ethics. The Audit Committee operates under a written Audit Committee Charter adopted by the Board. A copy of the Charter is available on our website at
www.whiteedc.com.
Compensation Committee
During fiscal 2009, the Compensation Committee consisted of Paul D. Quadros (Chairman), Brian R. Kahn, Thomas M. Reahard and Jack A. Henry. Mr. Kahn joined in February 2009.
Mr. Reahard resigned from the Board and the Compensation Committee in August 2009. On January 6, 2010 Mr. Henry was replaced on the Compensation Committee by Kenneth J. Krieg. The Compensation Committee met 13 times during fiscal 2009. The
higher activity level was primarily due to the negotiation surrounding the hiring of the CEO. The Compensation Committee is responsible for reviewing the compensation arrangements in effect for the Corporation’s executive officers and for
administering all of the Corporation’s stock plans. The Compensation Committee also reviews the performance of the Corporation’s executive management in achieving corporate goals and objectives and seeks to ensure that executive management
members are compensated appropriately in a manner consistent with the Corporation’s business strategies, competitive practices and the requirements of applicable regulatory authorities. The Compensation Committee has the authority to retain and
terminate any compensation consultant to be used to assist in the evaluation of the compensation of the Named Executive Officers. Such consultants have been engaged in prior years; however, no consultant was utilized during fiscal 2009. The Board
has determined that each member of the Compensation Committee is independent as defined under applicable Nasdaq Stock Market LLC listing standards and SEC rules and regulations. The Compensation Committee operates under a written Charter which is
available on our website at www.whiteedc.com.
Compensation Committee Interlocks and Insider Participation
None of the members of our Compensation Committee were officers or employees of the Corporation at any time during or prior to the 2009
fiscal year nor did any member of our Compensation Committee have a relationship requiring disclosure by the Corporation under Item 404 of Regulation S-K. During fiscal 2009, no current executive officer of the Corporation served as a
member of the board of directors or compensation committee of any other entity that has or has had one or more executive officers serving as a member of our Board or Compensation Committee.
Corporate Governance and Nominating Committee
During fiscal 2009, the Corporate Governance and Nominating Committee consisted of Thomas J. Toy (Chairman), Brian R. Kahn, Thomas M. Reahard, Jack A. Henry and Edward A. White.
Mr. Kahn joined in February 2009 and Mr. Henry replaced Mr. White in July 2009. Mr. White resigned from the Board in June 2009 and Mr. Reahard resigned from the Board in August 2009. The Corporate Governance and Nominating
Committee met five times during fiscal year 2009. The Board has determined that each of the members of the Corporate Governance and Nominating Committee is independent as defined under applicable Nasdaq Stock Market LLC listing standards and SEC
rules and regulations. The Corporate Governance and Nominating Committee is responsible for (i) identifying qualified individuals to become members of the Board and recommending Board nominees and nominees for each of the Board’s
committees, (ii) recommending to the Board corporate governance principles and practices, and (iii) leading the Board in an annual review of its performance and the performance of the Board’s committees. The Corporate Governance and
Nominating Committee operates under a written Charter which is available on our website at www.whiteedc.com.
I-8
Consideration of Director Nominees
Shareholder Recommendations
The Corporate Governance and Nominating Committee will consider director nominee recommendations by shareholders, provided the names of such nominees, accompanied by relevant biographical information, are
properly submitted in writing to the Secretary of the Corporation at the address listed below and otherwise comply with Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended. A shareholder proposal submitted other than
pursuant to Rule 14a-8 will be timely if submitted to the Corporation prior to December 12, 2010. If a proposal is not submitted timely, the proxy holders named in the Corporation’s proxy statement for the 2011 annual meeting of
shareholders will use discretionary authority to vote as the Board recommends with respect to any such proposal subsequently raised at that meeting. The Secretary will forward all director nominee recommendations to the Corporate Governance and
Nominating Committee for its review.
White Electronic Designs Corporation
3601 East University Drive
Phoenix, AZ 85034
Attn: Secretary
Director Qualifications and Identifying and Evaluating Nominees for Directors
To be considered by the Corporate Governance and Nominating Committee, each nominee, whether submitted by a shareholder or the Corporate Governance and Nominating Committee, must have a strong
professional or other background with a reputation for integrity and responsibility. Each nominee must have experience relevant to the Company’s business in such areas (among others) as manufacturing, microelectronics technology, military,
research and development, finance or product marketing. The nominee must be able to commit sufficient time to prepare appropriately for, attend and participate in all Board and applicable Board committee meetings, as well as the annual meeting of
shareholders, and must not have any conflicts of interest with the Company. The Corporate Governance and Nominating Committee will also require a certain number of director nominees to be independent as defined under the NASDAQ listing standards,
and that at least one member of the Audit Committee be a financial expert. The Corporate Governance and Nominating Committee will seek recommendations from outside legal, accounting and other advisors in order to locate qualified nominees. All
nominees, whether submitted by a shareholder or the Corporate Governance and Nominating Committee, will be evaluated in the same manner by the Corporate Governance and Nominating Committee, based upon their qualifications, experience, interpersonal
and other relevant skills.
Executive Sessions
Executive sessions of independent directors are held regularly and chaired by Brian Kahn. Any non-employee director can request that additional executive sessions be scheduled.
I-9
Compensation of Directors
Non-Employee Directors
During fiscal 2009, each of the directors of the Corporation who were not also officers of the Corporation were paid (i) $8,000 per quarter, (ii) meeting fees ranging from $500 to $1,250 per
meeting depending on length and (iii) reimbursements for related travel expenses. Additional retainers were paid to directors acting as Chairman, Vice Chairman, Lead Director, committee chairs and committee members.
As Vice Chairman of the Board and a member of the Compensation and Corporate Governance and Nominating Committees, Mr. White received
an additional $7,000 per quarter. Effective March 2009 and until his resignation from the Board in June 2009, as Chairman of the Board and a member of the Compensation and Corporate Governance and Nominating Committees, Mr. White received an
additional $45,000 per quarter.
Effective March 2009, as a member of the Compensation and Corporate Governance and Nominating
Committees, Mr. Kahn received an additional $500 per quarter. Effective July 2009, Mr. Kahn was elected Chairman of the Board and, while still serving as a member of the Compensation and Corporate Governance and Nominating Committees,
began receiving an additional $12,000 per quarter.
As Lead Director and a member of the Compensation and Corporate Governance
and Nominating Committees, Mr. Reahard received an additional $3,000 per quarter. Effective July 2009 and until his resignation from the Board in August 2009, Mr. Reahard received an additional $500 per quarter as a member of the Corporate
Governance and Nominating Committee.
As Audit Committee Chairman, Mr. Henry received an additional $3,750 per quarter.
Effective July 2009 upon joining the Compensation Committee, Mr. Henry received an additional $4,250 per quarter as Audit Committee Chairman and a member of the Compensation Committee.
As Compensation Committee Chairman and a member of the Audit Committee, Mr. Quadros received an additional $3,000 per quarter.
As Corporate Governance and Nominating Committee Chairman and a member of the Audit Committee, Mr. Toy received an
additional $1,000 per quarter. Effective July 2009, Mr. Toy received an additional $1,500 per quarter as Corporate Governance and Nominating Committee Chairman. Prior to July 2009, the Corporate Governance and Nominating Committee Chairman
received no additional compensation.
As a member of the Audit Committee, Mr. Keating received an additional $1,000 per
quarter. In addition, in connection with the Merger, Mr. Keating will be entitled to receive a cash payment of $250,000 pursuant to the Keating Arrangement as more fully described under the heading “Compensation Arrangements” in
Item 3 of the Schedule 14D-9 to which this Information Statement is attached as Annex I.
I-10
COMPENSATION OF DIRECTORS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name(1)
|
|
Fees Earned
or Paid in
Cash
($)(2)
|
|
Stock
Awards
($)(3)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
All Other
Compensation
|
|
Total
($)
|
|
Jack A. Henry
|
|
78,250
|
|
38,614
|
|
—
|
|
—
|
|
—
|
|
—
|
|
116,864
|
|
Brian R. Kahn
|
|
48,500
|
|
17,238
|
|
—
|
|
—
|
|
—
|
|
—
|
|
65,738
|
|
Melvin L. Keating
|
|
40,250
|
|
17,238
|
|
—
|
|
—
|
|
—
|
|
—
|
|
57,488
|
|
Paul D. Quadros
|
|
98,250
|
|
38,614
|
|
—
|
|
—
|
|
—
|
|
—
|
|
136,864
|
|
Thomas M. Reahard
|
|
68,000
|
|
18,911
|
|
—
|
|
—
|
|
—
|
|
—
|
|
86,911
|
|
Thomas J. Toy
|
|
81,250
|
|
38,614
|
|
—
|
|
—
|
|
—
|
|
—
|
|
119,864
|
|
Edward A. White(4)
|
|
325,650
|
|
81,235
|
|
—
|
|
—
|
|
—
|
|
—
|
|
406,885
|
|
(1)
|
Gerald R. Dinkel is a Named Executive Officer and his compensation is set forth below in the Summary Compensation Table. Mr. Dinkel did not receive any
additional compensation in connection with his service as a director.
|
|
(2)
|
This column includes quarterly retainer, board and committee meeting fees paid during fiscal 2009.
|
|
(3)
|
This column reflects the compensation cost recognized for financial statement reporting purposes for the fiscal year ended September 30, 2009 of restricted stock
awards issued pursuant to the 2006 Director Restricted Stock Plan, including amounts from stock awards granted prior to fiscal 2009. For stock awards, fair value is calculated using the closing price on the grant date as if these awards were vested
on the grant date. This fair value is then expensed over the vesting period. The amounts shown disregard estimated forfeitures related to service-based vesting conditions. Mr. Reahard forfeited 15,000 restricted stock units
(“
RSUs
”) during the fiscal year. Messrs. Kahn and Keating each received a grant of 15,000 RSUs on February 9, 2009 upon election to the Board, the grant date fair value of which was $60,150 for each grant. The grant date
fair value of the 7,500 shares granted on May 7, 2009 to each non-employee director re-elected on that date was $33,000 for each grant. For information regarding the number of stock awards held by each non-employee director as of
September 30, 2009, see the column “Restricted Stock Outstanding” in the table below. These amounts reflect our accounting expense for these awards, and do not correspond to the actual value that may be recognized by the non-employee
directors.
|
|
(4)
|
Fees earned or paid in cash to Mr. White included $175,400 representing a repurchase of options, certain remaining Board retainer fees and other transition
expenses in connection with his severance agreement. Compensation expense associated with stock awards granted to Mr. White includes approximately $51,000 resulting from the accelerated vesting of 15,000 RSUs pursuant to his severance
agreement.
|
Each of the below non-employee directors owned the following number of stock options and restricted
shares as of September 30, 2009.
|
|
|
|
|
|
|
|
|
Stock
Options
Outstanding
|
|
Restricted
Stock Units
Outstanding
|
|
Jack A. Henry
|
|
45,000
|
|
15,000
|
|
Brian R. Kahn
|
|
—
|
|
22,500
|
|
Melvin L. Keating
|
|
—
|
|
22,500
|
|
Paul D. Quadros
|
|
45,000
|
|
15,000
|
|
Thomas M. Reahard
|
|
95,000
|
|
—
|
|
Thomas J. Toy
|
|
78,200
|
|
15,000
|
Under the White
Electronic Designs Corporation 2006 Director Restricted Stock Plan, each of the non-employee directors receives a grant of 15,000 shares upon being elected to the Board and an annual grant of
I-11
7,500 shares at the annual meeting of shareholders that vest ratably over a three-year period. The Company values these shares using the intrinsic method. The 30,000 shares granted on
February 9, 2009 were valued at $4.01 per share and the 52,500 shares granted on May 7, 2009 were valued at $4.40 per share, the closing prices of our stock on the respective grant dates. The 37,500 shares granted on March 6, 2008
were valued at $4.00 per share and the 37,500 shares granted on March 7, 2007 were valued at $6.76 per share, the closing prices of our stock on those respective grant dates.
Equity Compensation Plan Information
The following table provides
information as of September 30, 2009, with respect to the shares of the Company’s common stock subject to outstanding stock options and restricted stock awards and the total additional shares available for issuance under the Company’s
existing equity compensation plans:
|
|
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of
Securities to
be Issued
Upon
Exercise of
Outstanding
Options
and
Restricted
Stock
(a)
|
|
Weighted
Average
Exercise
Price of
Outstanding
Options and
Restricted
Stock
(b)
|
|
Number of
Securities
Remaining
Available for
Future
Issuance
Under
Equity
Compensation
Plans
(Excluding
Securities
Reflected in
Column (a))
(C)
|
|
Equity compensation plans approved by security holders(1)
|
|
1,461,501
|
|
$
|
4.62
|
|
385,374
|
|
Equity compensation plans not approved by security holders(2)
|
|
450,711
|
|
$
|
4.50
|
|
333,788
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
1,912,212
|
|
$
|
4.59
|
|
719,162
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Equity compensation plans approved by security holders include the 1994 Flexible Stock Plan, as amended, the 2001 Director Stock Plan, the Amendment to the
Company’s Stock Plan for Non-Employee Directors and the 2006 Director Restricted Stock Plan.
|
|
(2)
|
Equity Compensation Plans not approved by security holders include the following plans:
|
Shokrgozar Plan
—During fiscal 2000, the Board approved an independent grant to Mr. Shokrgozar, our former Chief
Executive Officer and Chairman of the Board, for a nonqualified stock option to purchase up to 125,000 shares of common stock at an exercise price of $2.75 per share, vesting over four years. At September 30, 2009, 125,000 shares from this
independent option right were still under option.
2000 Broad Based Non-Qualified Stock Plan
—During fiscal
2001, the Board approved the 2000 Broad Based Non-Qualified Stock Plan, which provides for the issuance of options to purchase shares of Common Stock at an exercise price equal to the fair market value at the date of grant. As of September 30,
2009, 333,788 shares were available for grant and 314,202 granted options were unexercised.
IDS Plan
—The
Company assumed the IDS Stock Option Plan and 169,000 warrants with the acquisition of IDS in January 2003. As of September 30, 2009, 11,509 granted options were unexercised and there were no shares available for grant. In addition, all
warrants have been exercised.
Employee Benefit Plans
Defined Benefit Plan
The Company has a non-contributory pension
plan for eligible union employees at its Fort Wayne, Indiana facility pursuant to a collective bargaining agreement. Benefits are based primarily on a benefits multiplier and years of service. The Company funds an amount equal to the minimum funding
required plus additional amounts
I-12
which may be approved by the Company from time to time. Contributions to the plan in fiscal years 2009 and 2008 were $0.5 million and $0.1 million, respectively. No contributions were made to the
plan in fiscal year 2007.
The expected long-term rate of return on plan assets is updated annually taking into consideration
the related asset allocation, historical returns on the types of assets held in the plan, and the current economic environment. Based on these factors, the Company expects its plan assets to earn a long-term rate of return of 7.00%. Actual
year-by-year returns can deviate substantially from the long-term expected return assumption. However, over time it is expected that the amount of overperformance will equal the amount of underperformance. Changes in the mix of plan assets could
impact the amount of recorded pension income or expense, the funded status of the plan and the need for future cash contributions. The discount rate used to calculate the expected present value of future benefit obligations as of September 30,
2009 was 5.67%. The Company periodically reviews the plan asset mix, benchmark discount rate, expected rate of return and other actuarial assumptions and adjusts them as deemed necessary.
The Company recognizes the funded status of its defined benefit postretirement plan as an asset or liability in its statement of financial
position and recognizes changes in that funded status in comprehensive income in the year in which the changes occur. The funded status of a defined benefit pension plan is measured as the difference between plan assets at fair value and the
plan’s projected benefit obligation.
Based on the projected benefit obligations of the Company’s defined benefit
pension plan at September 30, 2009, the aggregate funded status of the Company’s defined benefit pension plan was $0.4 million underfunded.
The following table shows a reconciliation of changes in the plan’s benefit obligation and plan assets for the fiscal years ended September 30, 2009 and September 27, 2008, and a
reconciliation of the funded status with amounts recognized in the Consolidated Balance Sheets as of September 30, 2009 and September 27, 2008 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2009
|
|
|
September 27,
2008
|
|
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
3,207
|
|
|
$
|
3,298
|
|
|
Service cost
|
|
|
54
|
|
|
|
51
|
|
|
Interest cost
|
|
|
236
|
|
|
|
206
|
|
|
Amendments
|
|
|
—
|
|
|
|
114
|
|
|
Actuarial gain (loss)
|
|
|
648
|
|
|
|
(259
|
)
|
|
Benefits paid
|
|
|
(238
|
)
|
|
|
(203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
3,907
|
|
|
$
|
3,207
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
2,567
|
|
|
$
|
3,027
|
|
|
Actual return on plan assets
|
|
|
595
|
|
|
|
(362
|
)
|
|
Employer contributions prior to measurement date
|
|
|
549
|
|
|
|
105
|
|
|
Benefits paid
|
|
|
(238
|
)
|
|
|
(203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
3,473
|
|
|
$
|
2,567
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status
|
|
$
|
(434
|
)
|
|
$
|
(640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in the Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities
|
|
$
|
(434
|
)
|
|
$
|
(640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
355
|
|
|
$
|
126
|
|
|
Prior service cost
|
|
|
225
|
|
|
|
274
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (before tax)
|
|
$
|
580
|
|
|
$
|
400
|
|
|
|
|
|
|
|
|
|
|
|
I-13
The accumulated benefit obligation for the defined benefit pension plan was $3.9 million at
September 30, 2009 and $3.2 million at September 27, 2008.
The components of net periodic benefit cost and other
amounts recognized in other accumulated comprehensive loss are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
64
|
|
|
$
|
61
|
|
|
$
|
81
|
|
|
Interest cost
|
|
|
236
|
|
|
|
206
|
|
|
|
189
|
|
|
Expected return on plan assets
|
|
|
(186
|
)
|
|
|
(209
|
)
|
|
|
(194
|
)
|
|
Amortization of prior service cost
|
|
|
49
|
|
|
|
49
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
163
|
|
|
$
|
107
|
|
|
$
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in minimum liability included in accumulated other comprehensive loss
|
|
$
|
—
|
|
|
$
|
126
|
|
|
$
|
(58
|
)
|
During the 2008/2009 plan
year, the plan’s total unrecognized net loss increased by $0.2 million. The variance between the actual and expected return on plan assets during the 2008/2009 plan year decreased the total unrecognized net loss by $0.4 million. Because the
total unrecognized net gain or loss is less than the greater of 10% of the projected benefit obligation or 10% of the plan assets, no amortization is necessary. As of November 22, 2008 the average expected future working lifetime of active plan
participants was 8 years. Actual results for plan year 2009/2010 will depend on the 2009/2010 actuarial valuation of the plan.
The Company’s weighted-average assumptions used to determine net periodic benefit cost for the fiscal years ended September 30, 2009, September 27, 2008 and September 29, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Discount Rate
|
|
7.31
|
%
|
|
6.11
|
%
|
|
5.89
|
%
|
|
Expected return on plan assets
|
|
7.00
|
%
|
|
7.00
|
%
|
|
7.00
|
%
|
The change in
unrecognized net gain/loss is one measure of the degree to which important assumptions have coincided with actual experience. During the 2008/2009 plan year, the unrecognized net loss increased by 7.1% of the November 22, 2008 projected benefit
obligation. The Company changes important assumptions whenever changing conditions warrant. The discount rate is typically changed at least annually and the expected long-term rate of return on plan assets will typically be revised every three to
five years. Other material assumptions include the rates of employee termination and rates of participant mortality.
The
discount rate was determined by projecting the plan’s expected future benefit payments as defined for the projected benefit obligation, discounting those expected payments using a theoretical zero-coupon spot yield curve derived from a universe
of high-quality bonds as of the measurement date, and solving for the single equivalent discount rate that resulted in the same projected benefit obligation. A 1% increase/decrease in the discount rate would have decreased/increased the net periodic
benefit cost for 2008/2009 by $11,000 and decreased/increased the year-end projected benefit obligation by $345,000.
The
expected return on plan assets was determined based on historical and expected future returns of the various asset classes, using the target allocations described below. Each 1% increase/decrease in the expected rate of return assumption would have
decreased/increased the net periodic benefit cost for 2008/2009 by $27,000.
I-14
The expected long-term rate of return on pension assets is selected by taking into account
the expected duration of the Projected Benefit Obligation (“
PBO
”) for the plan, and the asset mix of the plan. The rate of return is the rate to be earned over the period until the benefits represented by the current PBO are paid.
The expected return on plan assets is based on the Company’s expectation of historical long-term average rates of return on the different asset classes held in the pension fund. This is reflective of the current and projected asset mix of the
funds and considers the historical returns earned on our asset allocation and the duration of the plan liabilities. Thus, the Company has taken a historical approach to the development of the expected return on asset assumption. The Company believes
that fundamental changes in the markets cannot be predicted over the long-term. Rather, historical returns, realized across numerous economic cycles, should be representative of the market return expectations applicable to the funding of a long-term
benefit obligation.
The Company’s pension plan asset allocations at September 30, 2009 and September 27, 2008
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Cash and cash equivalents
|
|
$
|
—
|
|
$
|
103
|
|
Fixed income mutual funds
|
|
|
1,530
|
|
|
1,092
|
|
Equity mutual funds
|
|
|
1,943
|
|
|
1,365
|
|
Other
|
|
|
—
|
|
|
7
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,473
|
|
$
|
2,567
|
|
|
|
|
|
|
|
|
In determining the asset allocation, our investment
manager recognizes the Company’s desire for funding and expense stability, the long-term nature of the pension obligation and current and projected cash needs for retiree benefit payments. Based on the Company’s criteria, it determined the
Company’s present target asset allocation to be approximately 50%-70% in equity securities and 30%-50% in debt securities. The pension fund is actively managed within the target asset allocation ranges.
The plan’s investment policy includes a mandate to diversify assets and invest in a variety of asset classes to achieve that goal. The
plan’s assets are currently invested in a variety of funds representing most standard equity and debt security classes. While no significant changes in the asset allocation are expected during the upcoming year, the Company may make changes at
any time.
As of September 30, 2009 and September 27, 2008, the Company’s pension plan assets did not hold any
direct investment in the Company’s common stock.
The following estimated future benefit payments, including future
benefit accrual, which reflect expected future service, as appropriate, are expected to be paid (in thousands):
|
|
|
|
|
|
Period
|
|
Pension
Benefits
|
|
2010
|
|
$
|
240
|
|
2011
|
|
$
|
245
|
|
2012
|
|
$
|
267
|
|
2013
|
|
$
|
263
|
|
2014
|
|
$
|
289
|
|
2015-2019
|
|
$
|
1,577
|
The Company expects
to contribute approximately $0.3 million to the plan during fiscal 2010. Funding requirements for subsequent years are uncertain and will significantly depend on whether the plan’s actuary changes any assumptions used to calculate plan funding
levels, the actual return on plan assets, changes in the
I-15
employee groups covered by the plan, and any legislative or regulatory changes affecting plan funding requirements. While the current market conditions could have an adverse effect on our plan
investments, any additional required contribution is not expected to have a material effect on our consolidated financial statements and we expect to fund such contributions from our cash balances and operating cash flows. For tax planning,
financial planning, cash flow management or cost reduction purposes, the Company may increase, accelerate, decrease or delay contributions to the plan to the extent permitted by law.
401(k) Plan
The Company has an Incentive Savings 401(k) Plan covering its non-union employees who have completed six months of service. During fiscal 2009, the Company matched employee contributions equal to 50% of the first 6% of the
participants’ wage base. During fiscal 2009, 2008 and 2007, the Company made contributions to the plan of approximately $309,000, $464,000 and $474,000, respectively.
Stock Option Plans
Executives and other key employees have been granted options to purchase common shares under stock option plans adopted during the period 1987 through 2001. The option exercise price equals the fair
market value of the Company’s common stock on the date of the grant. Options generally vest ratably over a four-year period and have a maximum term of ten years.
The Company elected to adopt the alternative transition method for calculating the tax effects of stock-based compensation. The alternative transition method includes simplified methods to establish the
beginning balance of the additional paid-in-capital pool (“
APIC pool
”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash
Flows of the tax effects of employee stock-based compensation awards that were outstanding upon adoption.
A summary of the
Company’s stock option activity and related information is as follows (in thousands, except for weighted average amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
Shares
Under
Option
|
|
|
Weighted
Average
Exercise
Price
|
|
Shares
Under
Option
|
|
|
Weighted
Average
Exercise
Price
|
|
Shares
Under
Option
|
|
|
Weighted
Average
Exercise
Price
|
|
Beginning balance outstanding
|
|
2,051
|
|
|
$
|
4.84
|
|
2,198
|
|
|
$
|
4.86
|
|
2,235
|
|
|
$
|
4.80
|
|
Granted
|
|
200
|
|
|
$
|
4.05
|
|
210
|
|
|
$
|
6.51
|
|
32
|
|
|
$
|
5.64
|
|
Exercised
|
|
(339
|
)
|
|
$
|
1.63
|
|
(82
|
)
|
|
$
|
3.57
|
|
(43
|
)
|
|
$
|
2.17
|
|
Canceled
|
|
(80
|
)
|
|
$
|
6.40
|
|
—
|
|
|
$
|
—
|
|
—
|
|
|
$
|
—
|
|
Expired
|
|
(102
|
)
|
|
$
|
6.97
|
|
(209
|
)
|
|
$
|
7.13
|
|
(9
|
)
|
|
$
|
5.93
|
|
Forfeited
|
|
(38
|
)
|
|
$
|
4.91
|
|
(66
|
)
|
|
$
|
4.94
|
|
(17
|
)
|
|
$
|
5.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance outstanding
|
|
1,692
|
|
|
$
|
5.19
|
|
2,051
|
|
|
$
|
4.84
|
|
2,198
|
|
|
$
|
4.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at year end
|
|
1,471
|
|
|
$
|
5.35
|
|
1,952
|
|
|
$
|
4.85
|
|
2,028
|
|
|
$
|
4.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares available for future grant
|
|
682
|
|
|
|
|
|
723
|
|
|
|
|
|
868
|
|
|
|
|
|
Weighted average fair value of all options granted during the year
|
|
|
|
|
$
|
1.44
|
|
|
|
|
$
|
1.06
|
|
|
|
|
$
|
2.96
|
I-16
The following table summarizes significant ranges of outstanding and exercisable options as
of September 30, 2009 (in thousands, except years and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life (in
Years)
|
|
Weighted
Average
Exercise
Price
per
Share
|
|
Aggregate
Intrinsic
Value
|
|
Number
Exercisable
|
|
Weighted
Average
Remaining
Contractual
Life (in
Years)
|
|
Weighted
Average
Exercise
Price per
Share
|
|
Aggregate
Intrinsic
Value
|
|
$1.6001 - $3.2000
|
|
280
|
|
0.12
|
|
$
|
2.75
|
|
|
|
|
280
|
|
|
|
$
|
2.75
|
|
|
|
|
$3.2001 - $4.8000
|
|
665
|
|
4.71
|
|
$
|
4.02
|
|
|
|
|
444
|
|
|
|
$
|
3.96
|
|
|
|
|
$4.8001 - $6.4000
|
|
157
|
|
3.68
|
|
$
|
5.85
|
|
|
|
|
157
|
|
|
|
$
|
5.85
|
|
|
|
|
$6.4001 - $8.0000
|
|
483
|
|
3.49
|
|
$
|
6.97
|
|
|
|
|
483
|
|
|
|
$
|
6.97
|
|
|
|
|
$8.0001 - $9.6000
|
|
40
|
|
2.54
|
|
$
|
8.66
|
|
|
|
|
40
|
|
|
|
$
|
8.66
|
|
|
|
|
$9.6001 - $11.2000
|
|
65
|
|
0.85
|
|
$
|
10.59
|
|
|
|
|
65
|
|
|
|
$
|
10.59
|
|
|
|
|
$11.2001 - $12.8000
|
|
2
|
|
3.91
|
|
$
|
12.19
|
|
|
|
|
2
|
|
|
|
$
|
12.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
1,692
|
|
3.30
|
|
$
|
5.19
|
|
$
|
932
|
|
1,471
|
|
2.36
|
|
$
|
5.35
|
|
$
|
820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the preceding table
represents the total pretax intrinsic value, based on the Company’s closing stock price of $4.62 on September 30, 2009, the last day of trading in the fiscal year, which would have been received by the option holders had all option holders
exercised their in-the-money options as of that date. The total number of in-the-money options exercisable as of September 30, 2009 was 656,019.
Restricted Stock
Effective March 24, 2006, the White
Electronic Designs Corporation 2006 Director Restricted Stock Plan (the “
2006 Plan
”) was approved by the shareholders. Under the 2006 Plan, new directors are granted an initial grant of 15,000 shares. Under the 2006 Plan,
non-employee directors receive an annual grant of 7,500 shares in connection with the Annual Meeting of Shareholders. All grants vest ratably over a three-year period. The Company values these shares at fair value. On February 9, 2009, the
Company granted 15,000 shares each to our new directors Brian Kahn and Melvin Keating at $4.01 per share. In connection with the grants issued at the Annual Meeting of Shareholders, the 52,500 shares granted on May 7, 2009 were valued at $4.40
per share and the 37,500 shares granted each on March 6, 2008 and March 7, 2007 were valued at $4.00 and $6.76 per share, respectively, the closing prices of the stock on the respective dates of grant.
In addition, on December 12, 2007, the Company’s compensation committee (the “
Compensation Committee
”) determined
and approved an equity incentive program for certain executive officers, namely: Hamid Shokrgozar, former President, Chairman and Chief Executive Officer; Dan Tarantine, Executive Vice President, Sales and Marketing; and Roger Derse, Vice President,
Chief Financial Officer, Secretary and Treasurer (the “
Executive Officers
”), consisting of two types of equity compensation, restricted stock units (“
RSUs
”) and performance shares (discussed separately under
“Performance Shares” below) (the “
Equity Incentive Program
”).
As part of the Equity Incentive
Program, the Board of Directors granted and approved 50,000 RSUs for Mr. Shokrgozar and 25,000 RSUs for Mr. Derse. The RSUs vest over a two-year period, with 50% of each RSU award vesting on the first-year anniversary of the date of grant
and the remaining 50% of each RSU award vesting upon the second-year anniversary of the date of grant. The Company values these shares at fair value. The 75,000 shares granted on December 12, 2007 were valued at $4.64, the closing price of the
stock on the date of grant. Pursuant to the severance agreement between the Company and Mr. Shokrgozar (discussed separately below under “
Severance Agreement
”), 100% of Mr. Shokrgozar’s RSUs were vested as of
September 27, 2008.
In fiscal 2009, the Compensation Committee granted and approved 50,000 RSUs for each of
Messrs. Derse and Tarantine. The RSUs will vest over a two-year period, with 50% of each RSU award vesting on the first-year
I-17
anniversary of the date of grant and the remaining 50% of each RSU award vesting upon the end of the second-year anniversary of the date of grant. Upon a “Change In Control” of the
Company (as such term is defined in each of their respective employment agreements), each RSU award will automatically and fully vest. In addition, given the similar positions of responsibility, on December 12, 2008, Mr. Tarantine was
granted an additional 25,000 RSUs to match Mr. Derse’s earlier award, of which 50% immediately vested. The remaining 50% will vest on the first-year anniversary of the date of grant. The Company values these shares at fair value. The
100,000 shares granted on December 10, 2008 were valued at $3.27 per share and the 25,000 shares granted on December 12, 2008 were valued at $3.39 per share, the closing prices of the stock on the respective dates of grant.
On June 16, 2009, the Company accepted the resignation of its founder and former Chairman of the Board, Edward A. White. As part
of his severance and release agreement, Mr. White’s 15,000 unvested RSUs previously granted immediately accelerated and became fully vested. These 15,000 shares were valued at $4.74 per share, the closing price of the stock on
June 16, 2009, resulting in an incremental expense of approximately $51,000.
Performance Shares
As mentioned above, on December 12, 2007, the Compensation Committee granted and approved certain performance
share awards. The performance share awards vest over a two-year period, subject to certain performance criteria of the Company. If the Company achieved an annual EBITDA amount that was 20% greater than the fiscal year 2008 base case set by the
Compensation Committee, based on a fiscal year 2008 forecast approved by the Board of Directors (the “
Performance Share Target
”), then each Executive Officer would vest in an award as follows:
(i) Mr. Shokrgozar—100,000 performance shares, (ii) Mr. Derse—25,000 performance shares, and (iii) Mr. Tarantine—10,000 performance shares. If the Company achieved 90% of the Performance Share Target,
then 50% of such performance share awards applicable to each Executive Officer would vest.
Under this Equity Incentive
Program, in the event that no performance shares vested in fiscal 2008, the Executive Officers have the same opportunity to achieve the performance criteria in fiscal 2009; provided, however, if the Company achieved 90% of the Performance Share
Target in fiscal 2008 and 50% of such performance share awards were vested, then the Company must achieve 100% of the Performance Share Target in fiscal 2009 to vest in the remaining 50% of each performance share award to each Executive Officer.
Upon a “Change in Control” of the Company (as such term is defined in the 1994 Plan), each performance share award will automatically and fully vest regardless of the achievement of the Performance Share Target. The Company valued these
shares at fair value. The 135,000 shares granted on December 12, 2007 were valued at $4.64 per share, the closing price of the stock on the date of grant.
The Company did not achieve 90% of the Performance Share Target in fiscal 2008. Pursuant to the severance agreement between the Company and Mr. Shokrgozar (discussed separately below under
“
Severance Agreement
”) 50% of Mr. Shokrgozar’s performance shares were vested as of September 27, 2008. Additionally, in January 2009, the 35,000 performance shares granted to Mr. Derse and Mr. Tarantine on
December 12, 2007 were cancelled due to significant changes in the business and senior management. A new performance share grant was approved on January 21, 2009 for fiscal year 2009 by the Compensation Committee. If the Company achieved
the approved annual EBITDA amount in fiscal 2009, then Messrs. Derse and Tarantine would each receive 18,750 performance shares. If the Company achieved 90% of the approved annual EBITDA, then 12,500 shares would be awarded to each of
Messrs. Derse and Tarantine. If the Company achieved 110% of the approved annual EBITDA, then 25,000 shares would be awarded to each. Upon a “Change in Control” of the Company (as such term is defined in each of their respective
employment agreements) each performance share award would be automatically granted and fully vested regardless of the achievement of the EBITDA target. The 37,500 shares granted on January 21, 2009 were valued at $3.80 per share, the closing
price of the stock on the date of grant. The Company did not achieve any of the performance targets set for fiscal years 2008 or 2009. All performance share awards were forfeited and none remained outstanding as of September 30, 2009.
I-18
Severance Agreement
On August 28, 2008, the Company accepted the resignation of Mr. Shokrgozar, from his positions as the Company’s Chairman of
the Board, President and Chief Executive Officer and as a member of the Company’s Board of Directors. The Company also entered into a Severance Agreement and Release of Claims with Mr. Shokrgozar on August 28, 2008 (the
“
Severance Agreement
”) that governed the terms of his departure and that provided, in exchange for a general release by Mr. Shokrgozar, for the following:
|
|
•
|
|
The Company paid Mr. Shokrgozar a lump-sum $1,600,000 severance payment, plus any accrued and unused vacation pay less required withholdings;
|
|
|
•
|
|
The Company shall pay for eighteen (18) months of the Company’s portion of Mr. Shokrgozar’s COBRA premium. Following such period,
until December 13, 2010, the Company shall pay Mr. Shokrgozar an amount equal to the Company’s portion of Mr. Shokrgozar’s COBRA premium in order for Mr. Shokrgozar to secure health insurance of his choice; provided
that such payments shall cease if, during the COBRA period or thereafter, Mr. Shokrgozar is then covered by reasonably equivalent or superior health insurance provided by any subsequent employer. In addition, the Company shall continue to
provide Mr. Shokrgozar with up to $4,000 per year for unreimbursed medical expenses and with the auto allowance and the disability and life benefits he was receiving from the Company as of the termination date until December 13, 2010;
|
|
|
•
|
|
The Company reimbursed Mr. Shokrgozar for reasonable attorneys’ fees incurred in connection with the Severance Agreement, in the maximum
amount of $50,000 and the Company will provide outplacement services for Mr. Shokrgozar for a period not to exceed 18 months in the maximum amount of $50,000;
|
|
|
•
|
|
The Company and Mr. Shokrgozar agreed to the following concerning outstanding grants of stock options, RSUs and performance shares:
|
|
|
•
|
|
The following vested stock options: (i) 125,000 shares granted on November 10, 1999; (ii) 125,000 shares granted on November 10,
1999; (iii) 150,000 shares granted on May 16, 2001 and (iv) 150,000 shares granted on December 15, 2004 will terminate, if not exercised, on their respective expiration dates (i.e., November 10, 2009, November 10, 2009,
May 16, 2011, and December 15, 2014, respectively);
|
|
|
•
|
|
The vested stock options to acquire 150,000 shares granted on December 3, 1998 terminated, as they were not exercised on the 90th day following
the termination date;
|
|
|
•
|
|
The vested stock options to acquire 150,000 shares granted on November 30, 2000 terminated on August 28, 2008;
|
|
|
•
|
|
The Company granted to Mr. Shokrgozar an option to acquire 150,000 shares of the Company’s Common Stock at an exercise price of $7.25 per
share, an expiration date of November 30, 2010, and with such other terms as are contained in the Company’s standard form of option agreement;
|
|
|
•
|
|
The 50,000 shares of restricted stock granted to Mr. Shokrgozar pursuant to that certain Restricted Stock Units Award Agreement dated
December 12, 2007 vested on September 5, 2008;
|
|
|
•
|
|
One-half (50,000 shares) of the performance shares granted to Mr. Shokrgozar pursuant to that certain Performance Share Award Agreement dated
December 12, 2007 vested on September 5, 2008;
|
|
|
•
|
|
One-half (50,000 shares) of the performance shares granted to Mr. Shokrgozar pursuant to that certain Performance Share Award Agreement dated
December 12, 2007 were forfeited as the Company’s EBITDA for the fiscal year ended in 2009 did not equal or exceed $9,960,000; and
|
|
|
•
|
|
Any other unvested right to receive Company stock terminated on August 28, 2008.
|
I-19
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP BY MANAGEMENT
The following table sets forth the beneficial ownership of the Corporation’s Common Stock for (i) each of the Corporation’s
current directors; (ii) each of the Corporation’s Named Executive Officers; (iii) each beneficial owner of more than five percent of the Common Stock; and (iv) all current directors and executive officers of the Corporation as a
group. All such information reflects beneficial ownership as of March 26, 2010, as known by the Corporation. On such date, the number of shares of Common Stock outstanding was approximately 23,638,277, not including shares of Common Stock held
in treasury by the Corporation and its subsidiaries.
|
|
|
|
|
|
|
|
|
Name and Address of Beneficial Owner(1)
|
|
Amount and
Nature of
Beneficial
Ownership(2)
|
|
|
Percent of Class(3)
|
|
|
Gerald R. Dinkel
|
|
37,502
|
(4)
|
|
*
|
|
|
Jack A. Henry
|
|
86,000
|
(5)
|
|
*
|
|
|
Brian R. Kahn**
|
|
5,507,535
|
(6)
|
|
23.3
|
%
|
|
Melvin L. Keating
|
|
40,000
|
(7)
|
|
*
|
|
|
Kenneth J. Krieg
|
|
22,500
|
|
|
*
|
|
|
Paul D. Quadros
|
|
82,500
|
(8)
|
|
*
|
|
|
Dan Tarantine
|
|
163,000
|
(9)
|
|
*
|
|
|
Thomas J. Toy
|
|
118,175
|
(10)
|
|
*
|
|
|
All executive officers and directors as a group (8 persons)
|
|
6,057,212
|
|
|
25.6
|
%
|
|
Signia Capital Management LLC
|
|
1,541,536
|
(11)
|
|
6.5
|
%
|
|
Wynnefield Partners Small Cap Value LP (and affiliates)
|
|
1,051,109
|
(12)
|
|
4.4
|
%
|
|
*
|
Represents less than 1% of the class
|
|
**
|
Subject to Rule 10b5-1 Plan.
|
|
(1)
|
Unless otherwise noted, the address of each listed shareholder is 3601 East University Drive, Phoenix, Arizona 85034.
|
|
(2)
|
Unless otherwise noted, the Corporation believes that all persons named in the table have sole voting and investment power with respect to all shares of the Common
Stock that are beneficially owned by them. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days after March 26, 2010 upon the exercise of options or other such rights.
|
|
(3)
|
Each owner’s percentage ownership is determined by assuming that options held by such person (but not those held by any other person), which are exercisable within
60 days after March 26, 2010 have been exercised.
|
|
(4)
|
Shares beneficially owned by Mr. Dinkel include the following options that are currently exercisable or that will become exercisable within 60 days after March 26,
2010: options to purchase 37,502 shares of Common Stock granted under the Corporation’s 1994 Employee Stock Option Plan.
|
|
(5)
|
Shares beneficially owned by Mr. Henry include the following options that are currently exercisable or that will become exercisable within 60 days after March 26, 2010:
options to purchase 45,000 shares of Common Stock granted under the Corporation’s 2001 Directors Stock Option Plan. It also includes 22,500 shares of restricted stock granted under the Corporation’s 2006 Director Restricted Stock Plan.
|
|
(6)
|
Of the 5,507,535 shares beneficially owned by Mr. Kahn, 4,673,835 shares are owned directly by Desert Equity LP (indirectly by Desert Management LLC) and 803,700 shares
are held in the name of Caiman Partners L.P., all of which Mr. Kahn has sole voting power over. Shares beneficially owned by Mr. Kahn also include 30,000 shares of restricted stock granted under the Corporation’s 2006 Director Restricted Stock
Plan.
|
|
(7)
|
Shares beneficially owned by Mr. Keating include 30,000 shares of restricted stock granted under the Corporation’s 2006 Director Restricted Stock Plan.
|
|
(8)
|
Shares beneficially owned by Mr. Quadros include the following options that are currently exercisable or that will become exercisable within 60 days after March 26,
2010: options to purchase 45,000 shares of Common Stock granted under the Corporation’s 2001 Directors Stock Option Plan. It also includes 22,500 shares of restricted stock granted under the Corporation’s 2006 Director Restricted Stock
Plan.
|
I-20
|
(9)
|
Shares beneficially owned by Mr. Tarantine include the following options that are currently exercisable or that will become exercisable within 60 days after March 26,
2010: options to purchase 105,000 shares of Common Stock granted under the Corporation’s 1994 Employee Stock Option Plan.
|
|
(10)
|
Shares beneficially owned by Mr. Toy include the following options that are currently exercisable or that will become exercisable within 60 days after March 26, 2010:
options to purchase 75,675 shares of Common Stock granted under the Corporation’s 2001 Directors Stock Option Plan. It also includes 22,500 shares of restricted stock granted under the Corporation’s 2006 Director Restricted Stock Plan.
|
|
(11)
|
Shares beneficially owned by Signia Capital Management LLC were determined based solely on our review of a Schedule 13G/A filed February 4, 2010 with the SEC. Signia
Capital Management LLC is located at 108 N Washington St, Suite 305, Spokane, WA 99201.
|
|
(12)
|
Shares beneficially owned by Wynnefield Partners Small Cap Value LP (and affiliates) were determined based solely on our review of a Schedule 13G/A filed February 12,
2010 with the SEC. Wynnefield Partners Small Cap Value LP is located at 450 Seventh Avenue, Suite 509, New York, NY 10123.
|
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Corporation’s directors, officers and persons who own more than ten percent of a registered class of the Corporation’s equity securities to file with the SEC initial reports of
beneficial ownership and reports of changes in beneficial ownership of any equity securities of the Corporation.
To the
Corporation’s knowledge, based solely on review of the copies of such reports furnished to the Corporation, all officers, directors and beneficial owners of greater than ten percent of the Corporation’s equity securities, made all required
filings under Section 16(a) on a timely basis, except for the following: one Form 4 filed on September 2, 2009 for stock options that were awarded to Gerald R. Dinkel on August 12, 2009 and one Form 3 filed on
September 2, 2009 to report Gerald R. Dinkel becoming an officer of the Corporation on August 12, 2009.
TRANSACTIONS WITH RELATED PERSONS
The Corporation has established policies and other procedures regarding
approval of transactions between the Corporation and any employee, officer, director, and certain of their family members and other related persons, including those required to be reported under Item 404 of Regulation S-K. These policies
and procedures are generally not in writing, but are evidenced by long standing principles set forth in our Code of Ethics and Business Conduct or adhered to by our Board. As set forth in the Audit Committee Charter, as and to the extent required
under applicable federal securities laws and related rules and regulations, and/or the NASDAQ listing standards, related party transactions are to be reviewed and approved, if appropriate, by the Audit Committee. Generally speaking, we enter into
such transactions only on terms that we believe are at least as favorable to the Corporation as those that we could obtain from an unrelated third party.
During the prior fiscal year, the Corporation was not involved in any transactions with related persons, which includes our directors, executive officers or shareholders known to us to beneficially own
more than five percent of our outstanding common stock requiring disclosure under applicable securities regulations.
Agreements with
Directors and Executive Officers
We have entered into indemnification agreements with each of our directors and executive
officers. These agreements and our Articles of Incorporation and Bylaws require us to indemnify our directors and executive officers to the fullest extent permitted under Indiana law. See heading “Indemnification and Insurance” of the
Schedule 14D-9, which information is incorporated herein by reference.
I-21
We have also entered into employment and severance agreements with our executive officers as
more fully described under the “
Employment Agreements
” and “
Employment and Severance Agreements
” sections of this Information Statement. See also Item 3 of the Schedule 14D-9, which information is incorporated
herein by reference.
EXECUTIVE COMPENSATION
The following discussion and analysis relates to the compensation paid during the 2009 fiscal year to the executive officers named in the
Summary Compensation Table.
Compensation Discussion and Analysis
Overview and Compensation Philosophy
Our philosophy is to provide compensation to our Named Executive Officers (as such term is defined in our definitive proxy statement as filed with the Securities and Exchange Commission on
Schedule 14A on January 26, 2010) in such a manner as to retain the best available personnel for positions of substantial responsibility within the Corporation, to provide incentives which reward performance and longevity and to promote
the success of our business. As a goal, our Compensation Committee, with the assistance of a compensation consultant (as discussed further below in this Compensation Discussion and Analysis), has developed a compensation target of cash compensation
to be in the 50th to 60th percentile and equity incentives to be in the 50th percentile as measured against public electronics companies within a specified revenue range (our “
peer group
”). Our peer group is discussed in more detail
below in this Compensation Discussion and Analysis under the heading “Benchmarking and Compensation Evaluation.”
Role of the Compensation Committee
The Compensation Committee administers our executive compensation
program and is comprised of three non-employee, independent members of the Board, each of whom is an “outside director” as defined by Section 162(m) of the Code.
The scope of authority of the Compensation Committee is to set salaries and bonuses of the Named Executive Officers and to award equity
grants and other compensation to them as appropriate. The Compensation Committee has the authority to review and recommend compensation policies, review and approve compensation of our Named Executive Officers and administer our stock plans,
including reviewing and approving equity-based awards to our Named Executive Officers.
Our Compensation Committee has the
authority to retain and terminate any compensation consultant to be used by us to assist in the evaluation of the compensation of the Named Executive Officers and has the sole authority to approve the fees and other retention terms of any consultant
it hires. Our Compensation Committee also has authority to obtain advice and assistance from internal or external legal, accounting or other advisors.
Role of Management in Executive Compensation Decisions
During fiscal 2009, Roger A. Derse
1
, Senior
Vice President, Chief Financial Officer, Secretary and Treasurer, and Dan Tarantine, Executive Vice President, presided over the Interim Office of the President until the hiring of our new CEO, Gerald R. Dinkel, on August 12, 2009.
While consideration of executive compensation is an interactive process involving multiple parties, the principal role of
Corporation management in decisions involving executive compensation is primarily to support
|
1
|
Mr. Derse resigned from his position as Senior Vice President and Chief Financial Officer of the Company, effective as of February 22, 2010. The terms
of Mr. Derse’s separation from the Company are described in more detail on the Form 8-K filed with the SEC on February 22, 2010.
|
I-22
the activities of the Compensation Committee. For fiscal 2009, Mr. Derse facilitated the coordination of human resource management, accounting and legal input to reach informed decisions.
Messrs. Derse and Tarantine were also primarily responsible for developing a proposed annual business plan and presenting the plan to the Board. This annual plan, as approved by the Board, forms the basis for measurement of the performance of
management in both our cash and performance share incentive plans. Messrs. Derse and Tarantine were also involved in making proposals to the Compensation Committee concerning potential changes in the compensation of senior management and
potential changes in our overall compensation programs. The Compensation Committee considers, but is not bound to and does not always accept, management’s recommendations with respect to compensation. The Compensation Committee does not
delegate its authority to Corporation management.
Messrs. Derse and Tarantine attended some of the Compensation
Committee meetings, but the Compensation Committee also regularly holds executive sessions not attended by any members of management.
Executive Compensation Components
The primary components of our executive compensation program are base
salaries, bonus compensation based upon incentive goals and objectives, equity incentives, change in control and severance packages, and fringe benefits. Our compensation program is designed to balance the Corporation’s short-term and long-term
performance goals.
Base Salary
The base salaries for our Named Executive Officers are, in general, established on the basis of skills, accomplishments, the scope of their job and prevailing market conditions. The salary for each Named
Executive Officer is determined by evaluating the responsibilities of the position held and the experience and performance of the individual, with reference to the competitive marketplace for the executive talent, including a comparison to our peer
group, as established from time to time with the assistance of compensation consultants.
The Compensation Committee reviews
executive salaries annually. Generally speaking, specific individual performance criteria are not established by the Compensation Committee for each Named Executive Officer and none were established for fiscal 2009. Rather, each Named Executive
Officer is evaluated based on general individual performance over the past year, the scope of each officer’s duties and responsibilities, experience and expertise.
For fiscal 2009, the base salary for Mr. Tarantine and Mr. Derse were each increased by $20,000 to $256,000 and $240,500, respectively. As a result of the additional duties taken on in
connection with their appointment to the Interim Office of the President, effective September 5, 2008, Mr. Tarantine and Mr. Derse each received an additional $5,000 per month while acting in this capacity. In addition, they each
received a one-time bonus of $60,000 when our new CEO (principle executive officer) was hired and commenced employment. In connection with his employment agreement, Mr. Dinkel’s salary was set at $385,000 effective August 12 2009.
Each Named Executive Officer’s base salary for fiscal 2009 is set forth in the “Salary” column of the Summary Compensation Table.
For fiscal 2010, the Compensation Committee established the salaries using the criteria described above. Mr. Tarantine’s annual salary will be $268,800 and Mr. Derse’s will be
$252,525. Mr. Dinkel’s salary will remain at $385,000.
Benchmarking and Compensation Evaluation
In making its determinations with respect to executive compensation, the Compensation Committee has periodically
engaged the services of a compensation consultant to provide the Corporation input on trends in executive compensation, an outside perspective on our compensation practices and assistance with our peer
I-23
group benchmarking analysis. The Compensation Committee does not believe a formal annual peer group assessment by an independent third party is necessary unless factors indicate significant
changes in executive compensation have taken place.
In fiscal 2007, the Compensation Committee retained Compensia, Inc., an
independent compensation consultant, to assist the Corporation in developing a long term compensation program for its senior executives and evaluate total executive compensation for fiscal 2007. A peer group, consisting of 14 public electronics
companies with revenues similar to the Corporation’s, was selected. More specifically, the peer group included the following companies: (i) California Micro Devices Corporation, (ii) Catalyst Semiconductor, Inc., (iii) DDI
Corporation, (iv) Integrated Silicon Solution, Inc., (v) IntriCon Corporation, (vi) LaBarge, Inc., (vii) MIPS Technologies, Inc., (viii) Netlist, Inc., (ix) Planar Systems, Inc., (x) Staktek Holdings, Inc.,
(xi) STEC, Inc., (xii) Techwell, Inc., (xiii) Titan Global Holdings, Inc., and (xiv) Video Display Corporation. The peer group may change from year to year depending on changes in the marketplace and our business focus, but no
changes were made to this peer group in either fiscal 2008 or 2009.
In fiscal 2007, the compensation of each Named Executive
Officer was benchmarked to the peer group, as well as an analysis of each component of compensation. The benchmarking data indicated that our compensation is more weighted to base pay and less to incentive pay and equity as compared to the peer
group. As part of the Compensation Committee’s evaluation for 2009, the base salaries of the Messrs. Derse and Tarantine were increased by $20,000 each; to move towards our target for cash and equity incentives to be in the 50th percentile
as measured against our peer group, the Compensation Committee implemented the incentive plans as described below. As discussed above, certain adjustments were made to the cash compensation of Messrs. Derse and Tarantine to reflect, in part,
increased duties in connection with the departure of our former CEO.
In determining the compensation for Mr. Dinkel, the
Compensation Committee reviewed the data for the CEO position in our peer group and targeted the midpoint as the basis for his base salary. Stock ownership levels of the peer group for non-owner CEOs were also benchmarked and the initial option
grant was considered an appropriate initial long-term incentive.
Executive Incentive Plans for Fiscal 2009
Cash Incentive Bonus Awards
. For fiscal 2009, the Compensation Committee approved a cash incentive bonus award for our
Named Executive Officers. If the approved Earnings Before Interest, Taxes, Depreciation and Amortization (“
EBITDA
”) amount of $10,513,000 would have been attained, the cash bonus awards for Messrs. Tarantine and Derse would
have been approximately 20% of their base salary. If 90% of this EBITDA amount would have been attained, then the cash bonus awards for Messrs. Tarantine and Derse would have been approximately 10% of their base salary. If 110% of this EBITDA
amount would have been attained, then the cash bonus awards for Messrs. Tarantine and Derse would have been approximately 30% of their base salary. None of the approved EBITDA target amounts were met.
However, due to (i) the above average individual performances of Messrs. Derse and Tarantine, particularly in light of the crucial
role they played in expanded positions after the departure of our former CEO and (ii) the Board determination that paying discretionary year-end bonuses would likely serve as a great retention tool with respect to Messrs. Derse and
Tarantine, the Board, upon recommendation from the Compensation Committee, deemed it in the best interests of the Corporation and its shareholders to pay these executive officers year-end discretionary bonuses. The Board also considered that certain
factors which were beyond Messrs. Derse’s and Tarantine’s control, including certain corporate and organizational restructuring that occurred in 2009, made it more difficult than anticipated to achieve the EBITDA targets set for the
2009 cash bonus program. After considering the year-end cash bonuses awarded in 2008 and the potential for cash bonuses had the 2009 EBITDA targets been achieved, the Compensation Committee approved a 2009 discretionary year-end cash bonus of
$30,000 for Mr. Derse and $20,000 for Mr. Tarantine.
I-24
Equity Incentive Awards
. We currently utilize various forms of equity awards for the
Named Executive Officers, consisting of RSUs, performance shares and stock options.
In fiscal 2008, the Board of Directors
granted and approved 25,000 RSUs for Mr. Derse. The RSUs vest over a two-year period, with 50% of each RSU award vesting on the first-year anniversary of the date of grant and the remaining 50% of each RSU award vesting upon the end of the
second-year anniversary of the date of grant. Upon a “Change in Control” of the Corporation (as such term is defined in his employment agreement) each RSU award will automatically and fully vest.
In fiscal 2009, the Compensation Committee granted and approved 50,000 RSUs for each of Messrs. Derse and Tarantine. The RSUs vest over
a two-year period, with 50% of each RSU award vesting on the first-year anniversary of the date of grant and the remaining 50% of each RSU award vesting upon the end of the second-year anniversary of the date of grant. Upon a “Change in
Control” of the Corporation (as such term is defined in each of their respective employment agreements) each RSU award will automatically and fully vest. In addition, given the similar positions of responsibility, Mr. Tarantine was granted
an additional 25,000 RSUs to match Mr. Derse’s earlier award, of which 50% immediately vested. The remaining 50% will vest on the first-year anniversary of the date of grant.
The performance share awards granted in fiscal 2008 were cancelled in fiscal 2009 due to significant changes in the business and senior
management. In fiscal 2009, a new performance share plan was approved by the Compensation Committee and 18,750 performance shares were awarded. If we would have achieved the approved annual EBITDA amount of $10,513,000, then Messrs. Derse and
Tarantine would have received all 18,750 performance shares. If we would have achieved 90% of the annual EBITDA, then 12,500 shares would have been awarded to each of Messrs. Derse and Tarantine. If we would have achieved 110% of the annual
EBITDA, then 25,000 shares would have been awarded to each of Messrs. Derse and Tarantine. Upon a “Change in Control” of the Corporation (as such term is defined in each of their respective employment agreements) each performance
share award would have automatically granted and fully vested regardless of the achievement of the EBITDA Target. As mentioned above, none of the approved EBITDA target amounts were met in fiscal 2009 and the 18,750 performance shares were
forfeited.
In connection with the hiring of Gerald R. Dinkel and as part of his employment agreement, he was awarded
200,000 stock options which will vest in 48 equal monthly installments over a four-year period. The options were awarded at $4.05 per share, the closing price of our common stock on the date of grant.
Difficulty in achieving performance targets
. As noted above, our performance targets for our cash bonus incentive awards and equity
incentive awards for fiscal 2009 were based on EBITDA targets set by the Compensation Committee. The EBITDA targets in fiscal 2009 were not met, in part due to the restructuring of the Corporation’s operational structure which resulted in
discontinued operations. The Compensation Committee intended to set the fiscal 2009 EBITDA targets at challenging levels to motivate high business performance and support attainment of longer-term financial objectives in light of our newly
restructured business. The Compensation Committee set these performance targets based on historic and estimated performance levels of the Corporation and, at the time they were set, the Compensation Committee believed that the EBITDA targets were
attainable but challenging enough to require management to produce robust results to obtain them. Ultimately, in hindsight, the operational restructuring and discontinued operations that occurred at the Corporation in 2009 made it very difficult to
estimate appropriate target levels.
Employment Agreements
As a means of (i) providing certain assurances and motivation for current management, (ii) retaining effective management of the
Corporation, and (iii) limiting distractions of management and the Board, the Compensation Committee negotiated, and the Board approved, new employment agreements with Messrs. Derse and Tarantine in January 2009. The Compensation Committee
also intended these new employment agreements
I-25
to align executive and shareholder interests by enabling executives to consider corporate transactions that are in the best interests of the shareholders and other constituents of the Corporation
without undue concern over whether the transactions may jeopardize the executives’ own employment. These agreements generally entail accelerated vesting of equity incentives and cash compensation. These agreements are discussed in more detail
in the section entitled “Employment and Severance Agreements”. The potential payment that may arise from these change in control arrangements are discussed in the section entitled “Employment and Severance Agreements.”
On August 12, 2009, Gerald R. Dinkel and the Corporation entered into an Employment Agreement (the
“
Employment Agreement
”) to appoint him as President and CEO of the Corporation. Mr. Dinkel was also appointed as a member of the Board. The Employment Agreement outlines the cash and equity compensation in connection with his
employment and is discussed in more detail in the section entitled “Employment and Severance Agreements.” The potential payments that may arise from change in control arrangements or termination of employment under this Employment
Agreement are discussed in the section entitled “Employment and Severance Agreements.”
Other Compensation
The Named Executive Officers receive no benefits from the Corporation under defined pension or defined contribution
plans other than the tax-qualified 401(k) Plan. During fiscal year 2009, Messrs. Dinkel, Derse and Tarantine received a car allowance. The Named Executive Officers participate in benefit programs designed for all full time employees including
medical, disability and life insurance.
Tax Deductibility of Executive Compensation
In fiscal 2009, the Compensation Committee considered the potential impact of Section 162(m) of the Code. Section 162(m) disallows
a tax deduction for any publicly-held corporation for individual compensation exceeding $1,000,000 in any taxable year for any of the Named Executive Officers named in a proxy statement, unless such compensation meets certain specifications under
the Code. The Compensation Committee has studied the impact of Section 162(m) and believes that the compensation of our Named Executive Officers to date meets the requirements and is deductible for tax purposes. It is the Compensation
Committee’s policy to qualify, to the extent reasonable, the Named Executive Officers’ compensation for deductibility under applicable tax law. However, if circumstances warrant, the Corporation may, in the future, pay compensation to the
Named Executive Officers that may not be deductible.
I-26
COMPENSATION COMMITTEE REPORT
The information contained in this report shall not be deemed to be “soliciting material” or “filed” with the SEC or
subject to the liabilities of Section 18 of the Exchange Act, except to the extent that White Electronic Designs specifically incorporates it by reference into a document filed under the Securities Act or the Exchange Act.
The White Electronic Designs Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis
section of White Electronic Designs’ 2009 Proxy Statement filed with the Securities and Exchange Commission on January 26, 2010. Based on such review and discussion, the Committee recommended to the Board, and the Board has approved, that the
Compensation Discussion and Analysis, updated as appropriate, be included in this Information Statement.
COMPENSATION
COMMITTEE
Paul D. Quadros, Chairman
Jack A. Henry
Brian R. Kahn
Summary Compensation Table
The following tables set forth information concerning compensation earned by, or paid for, services provided to us for the periods indicated to all persons serving as our principal executive officer or as
principal financial officer during fiscal year 2009 (the “
Named Executive Officers
”). For most of the fiscal year, the Corporation had only two executive officers. Roger A. Derse and Dan Tarantine served in the Interim Office
of the President following the resignation of our former President and CEO. Gerald R. Dinkel joined the Corporation effective August 12, 2009 as our new President and CEO.
I-27
SUMMARY COMPENSATION TABLE
|
|
|
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|
|
|
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|
|
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|
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|
|
|
|
|
Name and Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)(1)
|
|
Option
Awards
($)(1)
|
|
Non-
Equity
Incentive
Plan
Compensation
($)
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
All
Other
Compensation(2)
|
|
Total
($)
|
|
Gerald R. Dinkel
,
|
|
2009
|
|
41,462
|
|
—
|
|
—
|
|
9,598
|
|
—
|
|
—
|
|
7,499
|
|
58,559
|
|
President and Chief
Executive Officer(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger A. Derse
,
|
|
2009
|
|
295,144
|
|
90,000
|
|
66,777
|
|
25,199
|
|
—
|
|
—
|
|
16,641
|
|
493,761
|
|
Senior Vice President, Chief Financial Officer, Secretary and Treasurer
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
|
|
|
|
Dan Tarantine
,
|
|
2009
|
|
310,671
|
|
80,000
|
|
19,156
|
|
—
|
|
—
|
|
—
|
|
17,395
|
|
527,222
|
|
Executive Vice President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
These columns reflect compensation cost recognized for financial statement reporting purposes for the fiscal year ended September 30, 2009 from stock and option
awards issued and thus includes amounts from outstanding stock and option awards granted in and prior to fiscal 2009. Assumptions used in the calculation of these amounts are included in the notes to our audited consolidated financial statements for
the fiscal year ended September 30, 2009 as included in our Annual Report on Form 10-K filed with the SEC on December 11, 2009. In fiscal 2009, Mr. Dinkel was granted 200,000 options, Mr. Derse was granted 50,000 RSUs and
18,750 performance shares, and Mr. Tarantine was granted 75,000 RSUs and 18,750 performance shares. Mr. Derse forfeited 43,750 performance shares and Mr. Tarantine forfeited 28,750 performance shares during fiscal 2009. The amounts
shown disregard estimated forfeitures related to service and performance-based vesting conditions. These amounts reflect our accounting expense for these awards, and do not correspond to the actual value that may be recognized by the Named Executive
Officers.
|
|
(2)
|
Amounts in this column consist of: (i) our contributions under our 401(k) plan as follows: Mr. Derse—$5,502 and Mr. Tarantine—$6,200;
(ii) life insurance premiums as follows: Mr. Dinkel—$510, Mr. Derse—$939 and Mr. Tarantine—$995; (iii) car allowances as follows: Mr. Dinkel—$1,731, Mr. Derse—$10,200 and
Mr. Tarantine—$10,200; and (iv) reimbursement for Mr. Dinkel’s relocation expenses of $5,258.
|
|
(3)
|
As Mr. Dinkel joined the Corporation on August 12, 2009, amounts reflect his compensation from that date forward.
|
Employment and Severance Agreements
On January 21, 2009, the Corporation entered into new employment agreements with Mr. Tarantine, our Executive Vice President and Mr. Derse, our Chief Financial Officer (both or either herein may be referred to as the
“
Executive
”). There is no definitive term of employment under the agreement and the Executive’s employment may be terminated by either party at any time, subject to certain notice requirements and the termination payments and
terms described below. The agreement provides for an annual base salary of $256,000 for Mr. Tarantine and $240,500 for Mr. Derse, which will be reviewed by the Board of the Corporation and/or its Compensation Committee from time to time.
The agreement also provides that the Executive may be eligible to participate in any annual bonus program that may be established and approved by the Board, all savings and retirement plans, practices, policies and programs of the Corporation which
are made generally available to all other employees of the Corporation, a car allowance of $850 per month, at least five weeks of paid vacation time
I-28
and reimbursement for all reasonable business expenses. In the event of a termination for cause, disability, death or voluntarily resignation other than for good reason, the Corporation is
required to pay the Executive only his accrued but unused vacation and base salary to the date of termination. In the event of a termination without cause (or a resignation for good reason), the Corporation is required to pay (i) any accrued
but unused vacation, (ii) base salary through date of termination, (iii) the continuation of base salary for twelve months and (iv) Executive’s COBRA continuation premiums for up to twelve months. The agreement also provides that
all unvested stock options, unvested RSUs and any other unvested equity-based awards or grants previously granted shall become fully vested. Additionally, all stock options, both vested and unvested, will remain fully exercisable until the tenth
anniversary of the grant date of such option. The payments and benefits provided in the event of termination without cause are subject to and conditioned upon the Executive executing a general release and waiver and the Executive’s compliance
with the Restrictive Covenants (as defined in the agreement). The agreement also includes special provisions in the event of a “Change in Control” (as defined in the agreement). Specifically, all unvested stock options, unvested RSUs and
any other unvested equity-based awards or grants previously granted shall become fully vested. In the event the Corporation terminates Executive’s employment without “Cause” (as defined in the agreement) or the Executive terminates
his employment with “Good Reason” (as defined in the agreement) within one year following a Change in Control, the Executive will be entitled to (i) any accrued but unused vacation, (ii) base salary through date of termination,
(iii) the continuation of base salary for eighteen months and (iv) Executive’s COBRA continuation premiums for up to eighteen months. Additionally, all stock options, both vested and unvested, will remain fully exercisable until the
tenth anniversary of the grant date of such option. The employment agreements also contain other customary provisions, including provisions relating to non-solicitation, confidentiality, non-disclosure, non-disparagement and compliance with
Section 409A of the Internal Revenue Code. The employment agreements constitute the entire agreement among the parties with respect to the Executive’s employment and supersede and are in full substitution for any and all prior
understandings or agreements with respect to the Executive’s employment.
On August 12, 2009, Gerald R. Dinkel
and the Corporation entered into the Employment Agreement to appoint him as President and CEO of the Corporation. Mr. Dinkel was also appointed as a member of the Board. Under the terms of the Employment Agreement, Mr. Dinkel will receive
an annual salary of $385,000, as adjusted from time to time, and was awarded an option to purchase 200,000 shares of the Corporation’s common stock pursuant to the Corporation’s 1994 Flexible Stock Plan. The shares will vest in 48 equal
monthly installments over a four-year period. Additionally, pursuant to the Employment Agreement, Mr. Dinkel will participate in an annual bonus program beginning in fiscal 2010 and each subsequent fiscal year thereafter. The Corporation will
also reimburse Mr. Dinkel for costs and expenses equaling up to $125,000 related to acquiring, establishing and maintaining a residence in the Phoenix metropolitan area, including any travel expenses. He will also be provided with a car
allowance of $1,250 per month. Mr. Dinkel will receive five weeks paid vacation time and will be reimbursed for all reasonable business expenses in accordance with the Corporation’s normal and customary polices. In addition, the Employment
Agreement also provides that Mr. Dinkel will be entitled to participate in all savings and retirement plans, practices, policies and programs of the Corporation which are made generally available to all other employees of the Corporation;
except that Mr. Dinkel will also be provided with (i) commercially available term life insurance as follows: (A) under the existing group life insurance plan he will be eligible for coverage in an approximate amount of $600,000; and
(B) the Corporation will use commercially reasonable efforts to obtain coverage under an individual policy in an approximate amount of $170,000; and (ii) under the existing long-term disability plan, Mr. Dinkel is entitled to 60% of
his base salary, subject to a maximum payout of $12,500 per month and an age-reduction schedule, but the Corporation will use commercially reasonable efforts to obtain additional long-term disability coverage (above and beyond coverage applicable to
other employees) to provide Mr. Dinkel with long-term disability coverage equal to 60% of $385,000 (on an annualized basis). Mr. Dinkel’s employment may be terminated by either party at any time, subject to certain notice requirements
and termination payments and terms. In the event Mr. Dinkel’s employment is terminated for any reason, the Corporation shall pay Mr. Dinkel for: (i) any accrued but unused vacation, (ii) annual base salary through the date
of termination and (iii) any unreimbursed expenses. In the event Mr. Dinkel is terminated without “Cause” (as defined in the Employment Agreement) or Mr. Dinkel terminates his employment for “Good Reason” (as
defined in the Employment Agreement), then (i) Mr. Dinkel shall be
I-29
entitled to the continuation of his annual salary for twenty-four months following the date of termination, (ii) the Corporation shall pay Mr. Dinkel’s life insurance premiums for
eighteen months after the end of the month of the date of termination, (iii) all unvested stock options, unvested restricted stock units and any other unvested equity-based awards or grants previously granted to Mr. Dinkel will become
fully vested and will be fully exercisable, and (iv) all stock options (both unvested and vested) granted to Mr. Dinkel will remain fully exercisable until the tenth anniversary of the grant date of the options. The termination payments
and benefits discussed above are subject to and conditioned upon Mr. Dinkel (i) formally resigning in writing from the Board and as an officer and director of any subsidiary of the Corporation, (ii) executing a general release and
waiver and (iii) complying with certain restrictive covenants in the Employment Agreement. The Employment Agreement also contains other customary provisions, including provisions relating to non-solicitation, non-compete, confidentiality
non-disparagement and compliance with Section 409A of the Internal Revenue Code. In addition, pursuant to the terms of the Employment Agreement, upon the occurrence of a Change in Control (as defined in the Employment Agreement), all unvested
stock options, unvested restricted stock units and any other unvested equity-based awards will become fully vested and will be exercisable.
I-30
Grants of Plan-Based Awards
In fiscal 2009, Mr. Dinkel was granted 200,000 options, Mr. Derse was granted 50,000 RSUs and 18,750 performance shares and
Mr. Tarantine was granted 75,000 RSUs and 18,750 performance shares. However, as previously discussed in
Equity Incentive Awards
, Messrs. Derse’s and Tarantine’s performance shares granted in fiscal 2009 were forfeited in
fiscal 2009.
GRANTS OF PLAN-BASED AWARDS FOR FISCAL 2009
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|
|
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards(1)
|
|
Estimated Future Payouts
Under Equity Incentive
Plan Awards(2)
|
|
|
All Other
Stock
Awards:
Number
of
Shares of
Stock
or
Units
(#)(3)
|
|
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
|
|
Exercise
of Base
Price of
Option
Awards
($/Sh)
|
|
Grant
Date Fair
Value
of
Stock
and
Option
Awards
($)(4)
|
|
Name
|
|
Grant
Date
|
|
Threshold
($)
|
|
|
Target
($)
|
|
|
Maximum
($)
|
|
Threshold
(#)
|
|
|
Target
(#)
|
|
|
Maximum
(#)
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|
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|
|
Gerald R. Dinkel
,
|
|
8/12/2009
|
|
—
|
|
|
—
|
|
|
|
—
|
|
—
|
|
|
—
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|
|
—
|
|
|
|
|
200,000
|
|
$
|
4.05
|
|
$
|
287,940
|
|
President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
|
|
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|
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|
|
Roger A. Derse
,
|
|
—
|
|
(5
|
)
|
|
(5
|
)
|
|
$
|
30,000
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
Senior Vice President, Chief Financial Officer, Secretary and Treasurer
|
|
1/21/2009
|
|
—
|
|
|
—
|
|
|
|
—
|
|
(6
|
)
|
|
(6
|
)
|
|
18,750
|
(6)
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12/10/2008
|
|
—
|
|
|
—
|
|
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
|
50,000
|
|
—
|
|
|
—
|
|
$
|
163,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dan Tarantine,
|
|
—
|
|
(5
|
)
|
|
(5
|
)
|
|
$
|
20,000
|
|
(6
|
)
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
Executive Vice President
|
|
1/21/2009
|
|
—
|
|
|
—
|
|
|
|
—
|
|
—
|
|
|
—
|
|
|
18,750
|
(6)
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12/10/2008
|
|
—
|
|
|
—
|
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
50,000
|
|
—
|
|
|
—
|
|
$
|
163,500
|
|
|
12/12/2008
|
|
—
|
|
|
—
|
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,000
|
|
—
|
|
|
—
|
|
$
|
84,750
|
|
(1)
|
Reflects cash incentive bonuses payable under our executive incentive plan. A description of our executive incentive plan is set forth in “Executive
Compensation—Compensation Discussion and Analysis” above.
|
|
(2)
|
Reflects performance share awards granted in connection with our executive incentive plan. As discussed above in the section “Executive
Compensation—Compensation Discussion and Analysis,” the performance share awards granted in fiscal 2009 were forfeited in fiscal 2009.
|
|
(3)
|
Reflects RSUs granted in connection with our executive incentive plan. A description of our executive incentive plan is set forth above in the “Executive
Compensation—Compensation Discussion and Analysis” section.
|
|
(4)
|
Reflects the grant date fair value computed in accordance with FAS 123(R). The assumptions used to determine such values are described in Note 2 to the consolidated
financial statements in the Corporation’s Annual Report on Form 10-K for the fiscal year ended September 30, 2009.
|
|
(5)
|
Cash incentive bonuses can be earned by Messrs. Dinkel, Derse and Tarantine under our incentive bonus plan based on certain minimum approved EBITDA amounts. The
minimum EBITDA amounts were not met in fiscal 2009. However, due to the individual performances of Messrs. Derse and Tarantine and the determination that it was in the best interests of the Corporation to retain such officers, the Compensation
Committee approved a discretionary cash bonus of $30,000 for Mr. Derse and $20,000 for Mr. Tarantine.
|
|
(6)
|
The performance share awards granted in fiscal 2009 were forfeited in fiscal 2009 due to the specific financial targets not being met.
|
I-31
Outstanding Equity Awards
OUTSTANDING EQUITY AWARDS AT 2009 FISCAL YEAR-END
|
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|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Grant
Date
|
|
Number of
Securities
Underlying
Unexercised
Options
#
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable(1)
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
Option
Exercise
Price
($)
|
|
Option
Exercise
Date
|
|
Number of
Shares or
Units
of Stock
That Have
Not
Vested
(#)(2)
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
|
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
(#)
|
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested
($)
|
|
Gerald R. Dinkel
,
|
|
8/12/2009
|
|
—
|
|
—
|
|
—
|
|
4.05
|
|
8/12/2019
|
|
—
|
|
—
|
|
200,000
|
|
$
|
4.05
|
|
President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger A. Derse
,
|
|
05/26/2004
|
|
50,000
|
|
—
|
|
—
|
|
6.38
|
|
05/26/2014
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
Senior Vice President, Chief Financial Officer, Secretary and Treasurer
|
|
12/15/2004
|
|
10,000
|
|
—
|
|
—
|
|
6.45
|
|
12/15/2014
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
09/12/2006
|
|
30,000
|
|
10,000
|
|
—
|
|
4.70
|
|
09/12/2016
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
12/12/2007
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
12,500
|
|
57,750
|
|
—
|
|
|
—
|
|
|
12/10/2008
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
50,000
|
|
231,000
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dan Tarantine
,
|
|
11/10/1999
|
|
7,000
|
|
—
|
|
—
|
|
2.75
|
|
11/10/2009
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
Executive Vice President
|
|
11/10/2000
|
|
15,000
|
|
—
|
|
—
|
|
10.625
|
|
11/10/2010
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
05/16/2001
|
|
40,000
|
|
—
|
|
—
|
|
3.83
|
|
05/16/2011
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
12/15/2004
|
|
50,000
|
|
—
|
|
—
|
|
6.45
|
|
05/15/2014
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
12/10/2008
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
50,000
|
|
231,000
|
|
—
|
|
|
—
|
|
|
12/12/2008
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
12,500
|
|
57,750
|
|
—
|
|
|
—
|
|
(1)
|
Options generally vest pro-rata over a four-year period. Mr. Dinkel’s options vest ratably over 48 months. Mr. Derse’s options vest at the rate of
25% after the first year and ratably thereafter for 36 months.
|
|
(2)
|
Mr. Derse’s RSUs vest over two years, with 50% vesting on the first-year anniversary of the date of grant and the remaining 50% vesting on the second-year
anniversary of the date of grant. Mr. Tarantine’s grant of 50,000 RSUs on 12/10/08 vest over two years, with 50% vesting on the first-year anniversary of the date of grant and the remaining 50% vesting on the second-year anniversary of the
date of grant. Mr. Tarantine’s grant of 25,000 RSUs on 12/12/08 vest over two years, with 50% vesting on the date of grant and the remaining 50% vesting upon the first-year anniversary of the date of grant.
|
I-32
Option Exercises and Stock Vested Table
The following table shows the number of shares acquired by the exercise of stock options and the vesting of restricted stock and performance
shares by each of the Named Executive Officers during fiscal 2009, along with the value realized on such exercises or at the time of such vesting as calculated based on the difference between the market price of our stock at exercise or vesting and
the option exercise or grant price.
OPTION EXERCISES AND STOCK VESTED TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
Number of
Shares
Acquired on
Exercise
(#)
|
|
Value
Realized on
Exercise
($)(1)
|
|
Number of
Shares
Acquired on
Vesting
(#)
|
|
Value
Realized on
Vesting
($)
|
|
Gerald R. Dinkel
,
|
|
—
|
|
—
|
|
—
|
|
—
|
|
President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger A. Derse
,
2
|
|
—
|
|
—
|
|
12,500
|
|
42,375
|
|
Senior Vice President, Chief Financial Officer, Secretary and Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dan Tarantine
,
|
|
63,000
|
|
168,135
|
|
12,500
|
|
42,375
|
|
Executive Vice President
|
|
|
|
|
|
|
|
|
|
(1)
|
If the officer executed a same-day-sale transaction, the value realized equals the difference between the per share exercise price of the option and the per share sales
price upon sale, multiplied by the number of shares for which the option was exercised. If the employee executed an exercise and hold transaction, the value realized equals the difference between the per share exercise price of the option and the
fair market value of a share of our common stock on such date of exercise, multiplied by the number of shares for which the option was exercised.
|
Change-in-Control Arrangements and Potential Payments Upon Termination or Change in Control
The tables below estimate certain payments that will be made to each of Messrs. Dinkel, Derse and Tarantine upon a termination of employment or change in control of the Corporation in the various
circumstances listed. The table for each of these Named Executive Officers should be read together with the description of that officer’s employment agreement in the section entitled “Employment and Severance Agreements”. Unless noted
otherwise in the individual table, the major assumptions that are used in creating the tables are set forth directly below.
Date of Termination
. The tables assume that any triggering event (i.e., termination, resignation, change in control, death or disability) took place on September 30, 2009 with base salaries and incentive plans in effect on this
date being used for purposes of any severance payout calculation.
Price per Share of Common Stock
. Calculations
requiring a per share stock price are made on the basis of the closing price of $4.62 per share of our common stock on the NASDAQ Global Market on September 30, 2009.
Change in Control
. No cash payment will be made solely because of a change in control. For each Named Executive Officer, the cash
payments described require a double trigger of both a change in control and a
|
2
|
Mr. Derse resigned from his position as Senior Vice President and Chief Financial Officer of the Company, effective as of February 22, 2010. The terms of Mr.
Derse’s separation from the Company are described in more detail on the Form 8-K filed with the SEC on February 22, 2010.
|
I-33
termination without cause (or resignation with good reason). Messrs. Dinkel, Derse and Tarantine will receive the cash payments set forth below if such termination without cause (or
resignation with good reason) occurs within one year of the effective date of a change in control.
Equity Acceleration
upon a Change in Control
. All unvested stock options or other equity awards of Messrs. Dinkel, Derse and Tarantine vest automatically upon a change in control if they are employed by us on the date of the change in control. For purposes of
the table under the heading “Change in Control,” it is assumed that all outstanding options (and other equity, as applicable) are accelerated upon a change in control.
Medical and Other Benefits
. The tables below do not include any amounts payable on termination that are generally available to all
employees on a non-discriminatory basis. As described in the section entitled “Employment and Severance Agreements”, Messrs. Derse and Tarantine are entitled to the continuation of medical benefits for a period of eighteen months upon
a termination without cause or resignation within one year following a change in control.
Retirement
. The tables do
not include specific treatment of a normal retirement.
The following table describes the potential payments upon termination
or a change in control of the Corporation for
Gerald R. Dinkel
, our President and Chief Executive Officer.
|
|
|
|
|
|
|
|
|
|
|
Executive Benefits and Payments Upon Termination
|
|
Termination
Without
Cause
($)(1)
|
|
Termination
Following a
Change in
Control
($)(2)
|
|
Change in
Control
($)(2)
|
|
Termination
for Cause,
Disability,
Death or
Voluntary
Other Than
for
Good
Reason
($)(3)
|
|
Cash Compensation:
|
|
|
|
|
|
|
|
|
|
Base salary
|
|
770,000
|
|
—
|
|
—
|
|
—
|
|
Accrued, but unused vacation
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Life insurance
|
|
1,872
|
|
|
|
|
|
|
|
Long-term Incentives:
|
|
|
|
|
|
|
|
|
|
Acceleration of unvested stock options
|
|
111,625
|
|
111,625
|
|
111,625
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
883,497
|
|
111,625
|
|
111,625
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Mr. Dinkel’s severance payments following a termination without cause will include any accrued but unused vacation, base salary through the date of
termination (to the extent not theretofore paid) and any unreimbursed expenses. In addition, Mr. Dinkel would be entitled to the continuation of his base salary for 24 months and the payment of his life insurance premiums for 18 months
following the date of termination. The dollar value of Mr. Dinkel’s accrued but unused vacation was $0 and his annual base salary was $385,000 as of September 30, 2009. The monthly cost to the Corporation for Mr. Dinkel’s
life insurance premiums is $104. All unvested stock options, unvested RSUs and any other unvested equity-based awards or grants would become fully vested and exercisable per the terms of the awards. The amount shown represents the incremental
difference between the market value and the cost of unvested options for which vesting might be accelerated.
|
|
(2)
|
Upon the occurrence of a change in control or termination following a change in control of the Corporation, all of Mr. Dinkel’s unvested stock options,
unvested RSUs and any other unvested equity-based awards or grants previously granted will become fully vested and exercisable per the terms of the awards. The amount shown represents the incremental difference between the market value and the cost
of unvested options, restricted stock and performance shares for which vesting might be accelerated.
|
|
(3)
|
Mr. Dinkel’s severance payments following a termination for cause, voluntarily for other than good reason or as a result of death or disability will include
any accrued but unused vacation, base salary through the date of termination (to the extent not theretofore paid) and any unreimbursed expenses. The dollar value of Mr. Dinkel’s accrued but unused vacation was $0 as of September 30,
2009.
|
I-34
The following table describes the potential payments upon a change in
control of the Corporation for
Roger A. Derse
3
, our Senior Vice President, Chief Financial Officer, Secretary and Treasurer.
|
|
|
|
|
|
|
|
|
|
|
Executive Benefits and Payments Upon Termination
|
|
Termination
Without
Cause
($)(1)
|
|
Termination
Following a
Change in
Control
($)(2)
|
|
Change in
Control
($)(3)
|
|
Termination
for Cause,
Disability,
Death or
Voluntary
Other Than
for
Good
Reason
($)(4)
|
|
Cash Compensation:
|
|
|
|
|
|
|
|
|
|
Base salary
|
|
240,500
|
|
360,000
|
|
—
|
|
—
|
|
Accrued, but unused vacation
|
|
22,266
|
|
22,266
|
|
—
|
|
42,203
|
|
Medical Benefits
|
|
10,404
|
|
15,606
|
|
—
|
|
—
|
|
Long-term Incentives:
|
|
|
|
|
|
|
|
|
|
Acceleration of unvested stock options
|
|
288,750
|
|
—
|
|
288,750
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
561,920
|
|
398,622
|
|
288,750
|
|
22,266
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Mr. Derse’s severance payments following a termination without cause will include any accrued but unused vacation, base salary through the date of termination
(to the extent not theretofore paid), the continuation of base salary for 12 months, COBRA continuation premiums up to 12 months (if he elects to continue the Corporation’s group health plans pursuant to his rights under COBRA), and the
immediate vesting of all unvested stock options, unvested RSUs and any other unvested equity-based awards or grants previously granted. The dollar value of Mr. Derse’s accrued but unused vacation as of September 30, 2009 was $22,266
and the monthly cost to the Corporation to furnish Mr. Derse with medical benefits is $867. The amount shown for the acceleration of unvested stock options and restricted stock represents the incremental difference between the market value and
the cost of unvested options and restricted stock for which vesting might be accelerated.
|
|
(2)
|
Mr. Derse’s severance payments following a termination without cause or for good reason within one year following a change in control of the Corporation will
include any accrued but unused vacation, base salary through the date of termination (to the extent not theretofore paid), the continuation of base salary for 18 months and COBRA continuation premiums up to 18 months (if he elects to continue the
Corporation’s group health plans pursuant to his rights under COBRA). The dollar value of Mr. Derse’s accrued but unused vacation as of September 30, 2009 was $22,266 and the monthly cost to the Corporation to furnish
Mr. Derse with medical benefits is $867.
|
|
(3)
|
Upon the occurrence of a change in control of the Corporation, all of Mr. Derse’s unvested stock options, unvested RSUs and any other unvested equity-based
awards or grants previously granted will fully vest. The amount shown represents the incremental difference between the market value and the cost of unvested options and restricted stock for which vesting might be accelerated.
|
|
(4)
|
Mr. Derse’s severance payments following a termination for cause, voluntarily for other than good reason or as a result of death or disability will include
any accrued but unused vacation and base salary through the date of termination (to the extent not theretofore paid). The dollar value of Mr. Derse’s accrued but unused vacation as of September 30, 2009 was $22,266.
|
|
3
|
Mr. Derse resigned from his position as Senior Vice President and Chief Financial Officer of the Company, effective as of February 22, 2010. The terms
of Mr. Derse’s separation from the Company are described in more detail on the Form 8-K filed with the SEC on February 22, 2010.
|
I-35
The following table describes the potential payments upon a change in control of the
Corporation for
Dan Tarantine
, our Executive Vice President.
|
|
|
|
|
|
|
|
|
|
|
Executive Benefits and Payments Upon Termination
|
|
Termination
Without
Cause
($)(1)
|
|
Termination
Following a
Change in
Control
($)(2)
|
|
Change in
Control
($)(3)
|
|
Termination
for Cause,
Disability,
Death or
Voluntary
Other Than
for
Good
Reason
($)(4)
|
|
Cash Compensation:
|
|
|
|
|
|
|
|
|
|
Base salary
|
|
256,000
|
|
384,000
|
|
—
|
|
—
|
|
Accrued, but unused vacation
|
|
42,203
|
|
42,203
|
|
—
|
|
42,203
|
|
Medical Benefits
|
|
3,960
|
|
5,940
|
|
—
|
|
—
|
|
Long-term Incentives:
|
|
|
|
|
|
|
|
|
|
Acceleration of unvested stock options
|
|
288,750
|
|
—
|
|
288,750
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
590,913
|
|
432,143
|
|
288,750
|
|
42,203
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Mr. Tarantine’s severance payments following a termination without cause will include any accrued but unused vacation, base salary through the date of
termination (to the extent not theretofore paid), the continuation of base salary for 12 months, COBRA continuation premiums up to 12 months (if he elects to continue the Corporation’s group health plans pursuant to his rights under COBRA), and
the immediate vesting of all unvested stock options, unvested RSUs and any other unvested equity-based awards or grants previously granted. The dollar value of Mr. Tarantine’s accrued but unused vacation as of September 30, 2009 was
$42,203 and the monthly cost to the Corporation to furnish Mr. Tarantine with medical benefits is $330. The amount shown for the acceleration of unvested stock options and restricted stock represents the incremental difference between the
market value and the cost of unvested options and restricted stock for which vesting might be accelerated.
|
|
(2)
|
Mr. Tarantine’s severance payments following a termination without cause or for good reason within one year following a change in control of the Corporation
will include any accrued but unused vacation, base salary through the date of termination (to the extent not theretofore paid), the continuation of base salary for 18 months and COBRA continuation premiums up to 18 months (if he elects to continue
the Corporation’s group health plans pursuant to his rights under COBRA). The dollar value of Mr. Tarantine’s accrued but unused vacation as of September 30, 2009 was $42,203 and the monthly cost to the Corporation to furnish
Mr. Tarantine with medical benefits is $330.
|
|
(3)
|
Upon the occurrence of a change in control of the Corporation, all of Mr. Tarantine’s unvested stock options, unvested RSUs and any other unvested
equity-based awards or grants previously granted will fully vest. The amount shown represents the incremental difference between the market value and the cost of unvested options and restricted stock for which vesting might be accelerated.
|
|
(4)
|
Mr. Tarantine’s severance payments following a termination for cause, voluntarily for other than good reason or as a result of death or disability will
include any accrued but unused vacation and base salary through the date of termination (to the extent not theretofore paid). The dollar value of Mr. Tarantine’s accrued but unused vacation as of September 30, 2009 was $42,203.
|
I-36
Shareholder Communications with the Board
The Board allows shareholders to send communications directly to the Board through its Corporate Governance and Nominating Committee, which
is chaired by an independent director. All such communications, except those related to shareholder proposals discussed above, must be sent to the Chairman of the Corporate Governance and Nominating Committee at the Corporation’s offices at
3601 East University Drive, Phoenix, Arizona 85034.
I-37
Annex II
March 29, 2010
The Board of Directors
White Electronic Designs Corporation
3601 E. University Drive
Phoenix, AZ 85034
Members of the Board:
We
understand that White Electronic Designs Corporation (the “Company”), Microsemi Corporation (“Parent”), and Rabbit Acquisition Corp., a wholly-owned subsidiary of Parent (“Purchaser”), propose to enter into an Agreement
and Plan of Merger (the “Merger Agreement”) pursuant to which (i) Purchaser would make a cash tender offer (the “Tender Offer”) to purchase all of the issued and outstanding shares of the common stock, no par value, of the
Company (the “Common Stock”) for $7.00 per share, net to the holder thereof in cash (the “Consideration”), and (ii) following the consummation of the Tender Offer, Purchaser would merge with and into the Company, with the
Company surviving the merger as a wholly owned subsidiary of Parent (the “Merger”). Pursuant to the terms of the Merger Agreement, each share of Common Stock that is not tendered and accepted pursuant to the Tender Offer, other than shares
of Common Stock that are owned by the Company, Parent, Purchaser or by any direct or indirect wholly owned subsidiary of the Company or Parent immediately prior to the effective time of the merger, all of which shares will be canceled, or as to
which dissenters’ rights have been properly exercised, would be converted into the right to receive the Consideration. The Tender Offer and the Merger, taken together, are referred to as the “Transaction.” The terms and conditions of
the Transaction are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the
Consideration to be received by the holders of shares of Common Stock pursuant to the Transaction is fair, from a financial point of view, to such holders.
In arriving at our opinion, we have, among other things:
|
|
(i)
|
reviewed a draft dated March 28, 2010 of the Merger Agreement;
|
|
|
(ii)
|
reviewed certain publicly available financial and other information about the Company;
|
|
|
(iii)
|
reviewed certain information furnished to us by the Company’s management, including financial forecasts and analyses, relating to the business, operations and
prospects of the Company;
|
|
|
(iv)
|
held discussions with members of senior management and the Board of Directors of the Company concerning the matters described in clauses (ii) and (iii) above,
including the risks and uncertainties of achieving the financial forecasts described in clause (iii) above;
|
|
|
(v)
|
reviewed the share trading price history and valuation multiples for the Common Stock and compared them with those of certain publicly traded companies that we deemed
relevant;
|
|
|
(vi)
|
compared the proposed financial terms of the Transaction with the financial terms of certain other transactions that we deemed relevant; and
|
II-1
|
|
(vii)
|
conducted such other financial studies, analyses and investigations as we deemed appropriate.
|
In our review and analysis and in rendering this opinion, we have assumed and relied upon, but have not assumed any responsibility to
independently investigate or verify, the accuracy and completeness of all financial and other information that was supplied or otherwise made available by the Company or that was publicly available to us (including, without limitation, the
information described above), or that was otherwise reviewed by us. We have relied on assurances of the management of the Company that it is not aware of any facts or circumstances that would make such information inaccurate or misleading. In our
review, we did not obtain any independent evaluation or appraisal of any of the assets or liabilities of, nor did we conduct a physical inspection of any of the properties or facilities of, the Company, nor have we been furnished with any such
evaluations or appraisals of such physical inspections, nor do we assume any responsibility to obtain any such evaluations or appraisals.
With respect to the financial forecasts provided to and examined by us, we note that projecting future results of any company is inherently subject to uncertainty. The Company has informed us, however,
and we have assumed, that such financial forecasts were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of the Company as to the future financial performance of the Company.
In that regard, you have instructed us to consider the risks and uncertainties of achieving the Company’s financial forecasts and the possibility that such forecasts will not be realized. We express no opinion as to the Company’s
financial forecasts or the assumptions on which they are made.
Our opinion is based on economic, monetary, regulatory, market
and other conditions existing and which can be evaluated as of the date hereof. We expressly disclaim any undertaking or obligation to advise any person of any change in any fact or matter affecting our opinion of which we become aware after the
date hereof.
We have made no independent investigation of any legal or accounting matters affecting the Company, and we have
assumed the correctness in all respects material to our analysis of all legal and accounting advice given to the Company and its Board of Directors, including, without limitation, advice as to the legal, accounting and tax consequences of the terms
of, and transactions contemplated by, the Merger Agreement to the Company and its stockholders. In addition, in preparing this opinion, we have not taken into account any tax consequences of the Transaction to any holder of shares of Common Stock.
We have assumed that the final form of the Merger Agreement will be substantially similar to the last draft reviewed by us. We have also assumed that in the course of obtaining the necessary regulatory or third party approvals, consents and releases
for the Transaction, no delay, limitation, restriction or condition will be imposed that would have an adverse effect on the Company, Parent or the contemplated benefits of the Transaction.
It is understood that our opinion is for the use and benefit of the Board of Directors of the Company in its consideration of the
Transaction, and our opinion does not address the relative merits of the transactions contemplated by the Merger Agreement as compared to any alternative transaction or opportunity that might be available to the Company, nor does it address the
underlying business decision by the Company to engage in the Transaction or the terms of the Merger Agreement or the documents referred to therein. Our opinion does not constitute a recommendation as to whether any holder of shares of Common Stock
should tender such shares pursuant to the Tender Offer or how any holder of shares of Common Stock should vote on the Merger or any matter related thereto. In addition, you have not asked us to address, and this opinion does not address, the
fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of the Company, other than the holders of shares of Common Stock. We express no opinion as to the price at which shares of Common
Stock will trade at any time. Furthermore, we do not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation to be received by any of the Company’s officers, directors or employees, or
any class of such persons, in connection with the Transaction relative to the Consideration to be received by holders of shares of Common Stock. Our opinion has been authorized by the Fairness Committee of Jefferies & Company, Inc.
We have been engaged by the Company to act as financial advisor to the Company in connection with the Transaction and will
receive a fee for our services, a portion of which is payable upon delivery of this opinion
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and a significant portion of which is payable contingent upon consummation of the Transaction. We also will be reimbursed for expenses incurred. The Company has agreed to indemnify us against
liabilities arising out of or in connection with the services rendered and to be rendered by us under such engagement. We have, in the past, provided financial advisory and financing services to the Company and may continue to do so and may receive
fees for the rendering of such services. In the ordinary course of our business, we and our affiliates may trade or hold securities of the Company or Parent and/or their respective affiliates for our own account and for the accounts of our customers
and, accordingly, may at any time hold long or short positions in those securities. In addition, we may seek to, in the future, provide financial advisory and financing services to the Company, Parent or entities that are affiliated with the Company
or Parent, for which we would expect to receive compensation. Except as otherwise expressly provided in our engagement letter with the Company, our opinion may not be used or referred to by the Company, or quoted or disclosed to any person in any
matter, without our prior written consent.
Based upon and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Consideration to be received by the holders of shares of Common Stock pursuant to the Transaction is fair, from a financial point of view, to such holders.
Very truly yours,
/s/ JEFFERIES & COMPANY, INC.
JEFFERIES & COMPANY, INC.
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White Electronic Designs Corp. (MM) (NASDAQ:WEDC)
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