-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ULQUZCqX8v30spR+31gAxYotOdrnJUq6gLgA/9zdRoBa9w0siDcOWWTXsPr2GQl/ YJdyG23//e/hx38pMd4Zxw== 0000026987-95-000031.txt : 19951003 0000026987-95-000031.hdr.sgml : 19951003 ACCESSION NUMBER: 0000026987-95-000031 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950929 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DDL ELECTRONICS INC CENTRAL INDEX KEY: 0000026987 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 330213512 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08101 FILM NUMBER: 95577278 BUSINESS ADDRESS: STREET 1: 7320 SW HUNZIKER ROAD #300 CITY: TIGARD STATE: OR ZIP: 97223-2302 BUSINESS PHONE: 5036201789 MAIL ADDRESS: STREET 1: 7320 SW HUNZIKER ROAD #300 CITY: TIGARD STATE: OR ZIP: 97223-2302 FORMER COMPANY: FORMER CONFORMED NAME: DATA DESIGN LABORATORIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DATA DESIGN LABORATORIES DATE OF NAME CHANGE: 19880817 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended June 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________ Commission File Number 1-8101 DDL ELECTRONICS, INC. (Exact name of Registrant as specified in its Charter) Delaware 33-0213512 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7320 SW Hunziker Rd., Suite 300, Tigard, Oregon 97223-2302 (Address of Principal Executive Offices) Registrant's telephone number, including area code (503) 620-1789 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, .01 Par Value New York Stock Exchange Pacific Stock Exchange 7% Convertible Subordinated Debentures due May 15, 2001 New York Stock Exchange 8-1/2% Convertible Subordinated Debentures due August 1, 2008 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price as reported by the New York Stock Exchange on September 15, 1995: $34,637,179 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of September 15, 1995: 16,299,849 DOCUMENTS INCORPORATED BY REFERENCE The Annual Report to Stockholders for the fiscal year ended June 30, 1995, is incorporated by reference in Part I and II hereof. The Proxy Statement for the December 11, 1995 Annual Meeting of Shareholders is incorporated by reference in Part III hereof. EXHIBIT INDEX See page 24 PART I Item 1. Business DDL Electronics, Inc. ("DDL" or the "Company") is an independent provider of electronic contract manufacturing ("ECM") services and a fabricator of printed circuit boards ("PCB") for use primarily in the computer, communications, and instrumentation industries. The Company provides ECM services for manufacturers of electronic equipment and fabricates multilayer PCBs at its operations in Northern Ireland primarily for customers in Europe. The Company entered the ECM business by acquiring its domestic ECM operations in 1985 and by organizing its European ECM operations in 1990. In its PCB fabrication business, the Company manufactures PCBs ranging from simple single and double-sided boards to multilayer boards with more than 20 layers. Since the mid-1980s, the Company has increasingly focused on the fabrication of advanced multilayer PCBs. Management believes the market for these boards offers the opportunity for more attractive margins than the market for less complex, single and double-sided boards. Since 1985, the Company has made substantial capital expenditures in its Northern Ireland ECM and PCB fabrication facilities. In fiscal 1995, the Company liquidated or sold many assets associated with its United States PCB fabrication facility and its ECM operations. The Company maintains its corporate headquarters in Tigard, Oregon. The Company also has divested its non-ECM and non-PCB businesses in recent years, including its communications business, its pressure gauge and hose manufacturing operations, its emergency lighting equipment manufacturing operations and its engineering services operations. RECENT DEVELOPMENTS The Company incurred substantial operating losses in recent years that have impaired operations and positive cash flows. These losses totaled $4,970,000, $6,948,000, and $5,067,000, in the fiscal years ended June 30, 1995, 1994, and 1993, respectively. The Company realized net profits of $75,000 and $1,073,000 in 1995 and 1993, respectively, and incurred a net loss of $8,354,000 in the 1994 fiscal year. The fiscal 1995 net profit, however, included an extraordinary gain of $2,441,000 recognized as a result of the extinguishment of the Company's senior debt in fiscal year 1995, and a gain of $3,317 on a sale of assets in fiscal year 1995. The fiscal 1993 net profit included an extraordinary gains from exchanges of the Company's 7% and 8-1/2% convertible subordinated debentures ("CSDs") for equity, and a $603,000 gain from the sale of a discontinued business. The losses in the Company's ECM and PCB fabrication businesses have resulted from certain Company-specific factors, including yield and quality problems, facility underutilization, delays in meeting delivery schedules, collection problems and management turnover, as well as from excess production capacity in the industry putting extreme downward pressure on the Company's prices and production volume. As a result, the Company sold or liquidated its unprofitable United States operations and concentrated efforts on its profitable European operations. In addition to improving its operations, the Company must also increase sales volume and improve margins in order to maintain its continuing operations in a profitable position. Notwithstanding the steps that have been taken to address the Company's operating problems during the past several years, the Company has only recently realized operating profits from its continuing operations and there can be no assurance that such profits will continue. Maintaining profitability while managing the Company's working capital is required in order to ensure the Company's liquidity and the Company's cash balances are at levels required to operate its business. For management's response to these operating issues, together with other significant events and conditions occurring during the last three years, see the 1995 Annual Report to Stockholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 3 to 12 thereto. In December 1994, the Company successfully consummated an integrated plan retiring over $12,000,000 of its senior debt upon the sale of certain assets of the Company's Aeroscientifc Corp. subsidiary, located in Beaverton, Oregon, to Yamamoto Manufacturing (USA), Inc. In addition, the liens of the Company's two major senior lenders were contemporaneously eliminated. The release of liens was achieved by the Company concluding termination agreements with Sanwa Bank California ("Sanwa") which covered Sanwa's term loan to the Company, and with The Tokai Bank Ltd. ("Tokai") regarding its letter of credit issued to First Interstate Bank of Oregon, N.A. in connection with Industrial Revenue Bonds ("IRBs") issued by the State of Oregon. The January 17, 1994 Los Angeles earthquake caused major structural damage to two leased buildings in Chatsworth, California housing the Company's subsidiary, A.J. Electronics, Inc. (A.J.). In August 1994, after three months of review, the Small Business Administration Disaster Assistance Division ("SBA") denied A.J.'s request for economic financial assistance regarding damage suffered in the Los Angeles earthquake. A.J. was unable to recover from the effects of the earthquake and incurred substantial operating losses and cash outlays since the January earthquake. In its financial plan, A.J. predicted that it would not recover economically until sometime in fiscal year 1996. Management concluded, after the SBA's decision to deny A.J. assistance, that A.J. would be a substantial economic burden on the consolidated group considering the limited working capital available to the Company. On January 17, 1995, the Company sold virtually all of A.J.'s operating assets to Raven Industries, Inc., an entity unaffiliated with the Company. A program of acquisitions and mergers is being pursued in an effort to accelerate the turnaround of the Company's operating position and to improve shareholder value. Given current and anticipated market conditions, management believes that the Company must develop faster ways of rebuilding and expanding its customer base to withstand the impact of continued downsizing at major customers. No assurance can be given that the revised strategic plan will be successful. FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHICAL AREA The Company is principally engaged in two lines of business, e.g., the provision of ECM services and the fabrication of PCBs. Information for each of the Company's last three fiscal years, with respect to the amounts of revenues from sales to unaffiliated customers, operating profit or loss and identifiable assets of these segments is set forth under the caption "Selected Financial Data" appearing on pages 2 and 33 of the Company's 1995 Annual Report to Shareholders. Such information is incorporated herein by this reference and is made a part hereof. ELECTRONIC CONTRACT MANUFACTURING AND PRINTED CIRCUIT BOARD FABRICATION BUSINESSES The ECM and PCB fabrication industries and the markets in which the Company's customers compete are characterized by rapid technological change and product obsolescence. As a result, the end services provided and products made by the Company's ECM and PCB fabrication customers have relatively short product lives. The Company believes that its future success in these industries is dependent on its ability to continue to incorporate new technology into its ECM and fabrication processes, to satisfy increasing customer demands for quality and timely delivery, and to be responsive to future changes in this dynamic market. The PCB fabrication market is highly fragmented. Numerous factors, however, have caused a shift toward consolidation in the PCB fabrication industry, including extreme competition, substantial excess production capacity experienced by the industry prior to the current fiscal year, the greatly increased capital and technical requirements to service the advanced multilayer PCB fabrication market, and the inability of many PCB fabricators to keep up with the changing demands and expectations of customers on matters such as technical board characteristics, quality, and timely delivery of product. Description of Products and Services--ECM. The Company's ECM operation provides turnkey ECM services using both surface mount and through-hole interconnection technologies. Under the turnkey process, the Company procures customer-specified components from suppliers, assembles the components onto PCBs, and performs post-assembly testing. The Company conducts the ECM portion of its business through its DDL Electronics Limited ("DDL-E") subsidiary servicing customers in Western Europe. DDL-E does not fabricate any of the components or PCBs used in these processes. However, it has, in the past, procured PCBs from the Company's PCB fabricator. The ECM business represented approximately 47%, 59% and 55% of the Company's consolidated sales for the fiscal years ended June 30, 1995, 1994, and 1993, respectively. Since turnkey electronic contract manufacturing may be a substitute for all or some portion of a customer's captive ECM capability, continuous communication between the Company and the customer is critical. To facilitate such communication, the Company maintains a customer service department whose personnel work closely with the customer throughout the assembly process. The Company's engineering and service personnel coordinate with the customer on the implementation of new and re-engineered products, thereby providing the customer with feedback on such issues as ease of assembly and anticipated production lead times. Component procurement is commenced after component specifications are verified and approved sources are confirmed with the customer. Concurrently, assembly routing and procedures for conformance with the workmanship standards of the Institute for Interconnecting and Packaging Electronic Circuits ("IPC") are defined and planned. Additionally, "in-circuit" test fixturing is designed and developed. "In-circuit" tests are normally performed on all assembled circuit boards for turnkey projects. Such tests verify that components have been properly inserted and meet certain functional standards and that electrical circuits are properly completed. In addition, under protocols specified by the customer, the Company performs customized functional tests designed to ensure that the board or assembly will perform its intended function. The Company's personnel monitor all stages of the assembly process in an effort to provide flexible and rapid responses to the customer's requirements, including changes in design, order size, and delivery schedule. The materials procurement element of the Company's turnkey services consists of the planning, purchasing, expediting, and financing of the components and materials required to assemble a PCB or system-level assembly. Customers have increasingly required the Company and other independent providers of ECM services to purchase all or some components directly from component manufacturers or distributors and to finance the components and materials. In establishing a turnkey relationship with an independent provider of ECM services, a customer must incur expenses in qualifying that provider of ECM services and, in some cases, its sources of component supply, refining product design and ECM processes, and developing mutually compatible information and reporting systems. With this relationship established, the Company believes that customers experience significant difficulty in expeditiously and effectively reassigning a turnkey project to a new assembler or in taking on the project themselves. Alternatively, the Company faces the obstacle of attracting new customers away from existing ECM providers or from performing services in-house. Production of product for a customer is only performed when a firm order is received. Revenue is recognized when product is shipped. Customer cancellation of orders are infrequent and are subject to cancellation charges. More often a customer will delay shipment of orders based on its actual or anticipated needs. Customer orders are produced based on one of two production methods, either "Turnkey" (where DDL-E provides all materials, labor and equipment associated with producing the customers' product) or "Consigned" (DDL-E provides labor and equipment only for manufacturing product). Material costs customarily represents 70% of the turnkey method's sales price. In other words, a change from turnkey to consigned orders at DDL-E can result in a decline in sales volume without a reduction in profit margin. Description of Products and Services--PCB Fabrication. The Company fabricates and sells advanced, multilayer PCBs based on designs and specifications provided by the Company's customers. These specifications are developed either solely through the design efforts of the customer or through the design efforts of the customer working together with the Company's design and engineering staff. Customers submit requests for quotations on each job and the Company prepares bids based on its own cost estimates. The Company currently conducts the fabrication portion of its PCB business through its Northern Ireland, Irlandus Circuits Limited ("Irlandus") subsidiary. The Company's fabrication facilities in Anaheim, California were shut down in fiscal year 1992 and its Beaverton, Oregon facility was sold in the current fiscal year. The PCB fabrication business represented approximately 53%, 41% and 45% of DDL's consolidated sales for the fiscal years ended June 30, 1995, 1994, and 1993, respectively, with four or more layer boards constituting a substantial portion of those sales. PCBs range from simple single and double-sided boards to multilayer boards with more than 20 layers. When PCBs are joined with electronic components in the assembly process, they comprise the basic building blocks for electronic equipment. Single-sided PCBs are used in electronic games and automobile ignition systems, whereas multilayer PCBs are used in more advanced applications such as computers, office equipment, communications, instrumentation, and defense systems. PCBs consist of fine lines of a conductive material, such as copper, which are bonded to a non-conductive panel, typically rigid laminated epoxy glass. The conductive pathways in the PCBs form electrical circuits and replace wire as a means of connecting electronic components. On technologically advanced multilayer boards, conductive pathways between layers are connected with traditional plated through-holes and may incorporate surface mount technology. "Through-holes" are holes drilled entirely through the board that are plated with a conductive material and constitute the primary connection between the circuitry on the different layers of the board and the electronic components attached to the boards later. "Surface mount" boards are boards on which electrical components are soldered instead of being inserted into through-holes. Although substantially more complex and difficult to produce, surface mount boards can substantially reduce wasted space associated with through-hole technology and permit greatly increased surface and inner layer densities. Complex boards may also have "via" or "blind-via" holes that connect inner layers of multi-layer board or connect an inner layer to the outside of the board. The development of increasingly sophisticated electronic equipment, which combines higher performance and reliability with reduced size and cost, has created a demand for increased complexity, miniaturization, and density in electronic circuitry. In response to this demand, multilayer technology is advancing rapidly on many fronts, including the widespread use of surface mount technology. More sophisticated boards are being created by decreasing the width of the tracks on the board and increasing the amount of circuitry that can be placed on each layer. Fabricating advanced multilayer PCBs requires high levels of capital investment and complex, rapidly changing production processes. As the sophistication and complexity of PCBs increase, manufacturing yields typically fall. Historically, the Company relied on tactical quality procedures, in which defects are assumed to exist and quality inspectors examine product lot by lot and board by board to identify deficiencies, using automated optical inspection and electrical test equipment. This traditional approach to quality control is not adequate to produce acceptably high yields in an advanced multilayer PCB fabrication environment, as it focuses on identifying, rather than preventing, defects. In recognition of this limitation, Irlandus is striving to create a positive environment encompassing management's awareness, process understanding, and operator involvement in identifying and correcting production problems before defects occur. The International Standards Organization ("ISO") has published internationally recognized standards of workmanship and quality. Both Irlandus and DDL-E, the Company's ECM and PCB operations in Northern Ireland, have achieved ISO 9002 certification which will be increasingly necessary to attract business. ECM Facilities. DDL-E conducts its operations from a 67,000 square foot facility in Northern Ireland that was purchased in 1989. Prior to DDL-E commencing operations in the Spring of 1990, approximately 1,600,000 pounds sterling (approximately $2,700,000) was expended on auto-insertion equipment, surface mount device placement equipment, wave solder equipment, visual inspection equipment, and automated test equipment. The Company believes that this facility possesses the technology to compete effectively and that the facility is capable of supporting projected growth for up to the next two years. Fabrication Facilities. Irlandus occupies a 63,000 square foot production facility and an adjacent 9,000 square foot office and storage facility. Irlandus' existing capacity is expected to be adequate to meet anticipated order levels for the next three years. Aeroscientific stopped recognizing revenue at its 44,000 square foot Beaverton, Oregon facility when it was sold to Yamamoto in December 1994. Marketing and Customers. The Company's sales in the ECM and fabrication businesses and the percentage of its consolidated sales to the principal end-user markets it serves for the last three fiscal years were as follows (dollars in thousands): Year Ended June 30, Markets 1995 1994 1993 Computer $7,115 24.1% $23,905 49.3% $25,479 44.0% Communications 6,926 23.4 8,396 17.3 14,881 25.7 Financial 2,067 7.0 - - - - Industrial & Instrumentation 6,044 20.4 6,196 12.8 6,555 11.3 Medical 4,668 15.8 6,533 13.4 6,582 11.4 Automotive 175 .6 889 1.8 1,035 1.8 Government/ Military 1,362 4.6 1,411 2.9 1,509 2.6 Other 1,219 4.1 1,199 2.5 1,842 3.2 Total $29,576 100.0% $48,529 100.0% $57,883 100.0% The Company markets its ECM and PCB fabrication services through both a direct sales force and independent manufacturers' representatives. The Company's marketing strategy is to develop close relationships with, and to increase sales to, certain existing and new major ECM and fabrication customers. This includes becoming involved at an early stage in the design of PCBs for these customers' new products. DDL believes that this strategy is necessary to keep abreast of rapidly changing technological needs and to develop new ECM and fabrication processes, thereby enhancing the Company's ECM and fabrication capabilities and its position in the industry. As a result of this strategy, however, fluctuations experienced by one or more of these customers in demand for their products may have and have had adverse effects on the Company's sales and profitability. At the end of the fiscal year ended June 30, 1995, the Company's ECM business had approximately 16 customers, all of which were located in Western Europe, compared to 60 in fiscal 1994 and 37 in fiscal year 1993. At the end of fiscal year 1995, the Company fabricated PCBs for approximately 98 customers, substantially all of which are located in Western Europe, compared to 211 in fiscal year 1994 and 169 in fiscal year 1993. The Company's five largest customers accounted for 21%, 45% and 39% of consolidated sales during fiscal years 1995, 1994, and 1993, respectively. For all three fiscal years , no single PCB fabrication customer accounted for more than 4% of the Company's consolidated sales. The Company's largest European ECM customer accounted for approximately 8% of consolidated sales in fiscal year 1994. Dataproducts Corporation, the largest customer of the Company's former domestic ECM operation, accounted for 13% of consolidated sales in both fiscal years 1993 and 1994. No single customer of the Company's domestic PCB or ECM discontinued businesses accounted for more than 2% of consolidated sales in fiscal year 1995. Two customers of the Company's European ECM operation made combined purchases equal to or in excess of 12% and 10% of consolidated sales during fiscal years 1995 and 1994, respectively. These two customers, GE Medical Systems, a General Electric Company ("GE Medical") and DeLaRue Fortronic, LTD, ("Fortronic") comprised almost 90% of the Company's European ECM sales in fiscal year 1994. This amount dropped in fiscal year 1995 to 36%. Sales to both of these customers diminished in the latter part of fiscal year 1994. Fortronic's purchases declined due to reduced orders of its magnetic card reader products in the European market, while orders from GE Medical have been reduced as that company relocated its headquarters to the United States. Weakness in orders from these two customers continued into the first half of fiscal year 1995, but orders increased in the last half of fiscal year 1995. The decreased number of customers in both the ECM and PCB businesses reflects the impact of the Company's discontinuance of business at several of its subsidiaries. The number of European customers, however, has increased reflecting the Company's change in marketing activities to increase its customer base in smaller, higher margin entities and reduce the Company's dependency on large run volume, low margin customers. Raw Materials and Suppliers. In its ECM business, the Company uses numerous suppliers of electronic components and other materials. The Company's customers may specify the particular manufacturers and components, such as the Intel 80486 microprocessor, to be used in the ECM process. To the extent these components are not available on a timely basis or are in short supply because of allocations imposed by the component manufacturer, and the customer is unwilling to accept a substitute component, delays may occur. Such delays are experienced in the ECM business from time to time and have caused sales and inventory fluctuations at the Company's ECM business. The principal materials used by the Company in its fabrication processes are copper laminate, epoxy glass, copper alloys, gold and various chemicals, all of which are readily available to the Company from various sources. The Company believes that its sources of materials for its fabrication business are adequate for its needs and that it is not substantially dependent upon any one supplier. Industry Conditions and Competition. The markets in which the ECM and PCB fabrication businesses operate are intensely competitive and have experienced excess production capacity during the past few years. Seasonality is not a factor in the ECM and PCB fabrication businesses. There has been significant downward pressure on the prices that the Company is able to charge for its ECM and fabrication services. More recently, market conditions have improved which has resulted in an increase in product demand. While the Company believes that market conditions will continue to improve, it does not believe that prices will increase as quickly. ECM and fabrication customers are increasing their orders, but are reluctant to pay more for such services primarily due to the industry's excess capacity and price competition. Additionally, competition is principally based on price, product quality, technical capability, and the ability to deliver products on schedule. Both the price of and the demand for ECM services and PCBs are sensitive to economic conditions, changing technologies, and other factors. The technology used in the ECM services and fabrication of PCBs is widely available, and there are a large number of domestic and foreign competitors. Many of these firms are larger than the Company and have significantly greater financial, marketing, and other resources. In addition, the Company faces a competitive disadvantage against better financed competitors because the Company's current financial situation causes certain customers to be reluctant to do business with the Company's operating subsidiaries. Many of the Company's competitors have also made substantial capital expenditures in recent years and operate technologically advanced ECM and fabrication facilities. In addition, some of the Company's customers have substantial in-house ECM capability, and to a lesser extent, PCB fabrication capacity. There is a risk that when these customers are operating at less than full capacity they will use their own facilities rather than purchase from the Company. Despite this risk, management believes that the Company has not experienced a significant loss of business to in-house fabricators or assemblers. There also are risks that other customers, particularly in the ECM market, will develop their own in-house capabilities, that additional competitors will acquire the ability to produce advanced, multilayer boards in commercial quantities, or the ability to provide ECM services, and that foreign firms, including large, technologically advanced Japanese firms, will increase their share of the United States or European market. Price competition in the computer marketplace which comprises the Company's largest market is intense. This has caused price erosion and lower margins, particularly in the Company's PCB fabrication business. Significant improvement in the Company's PCB gross margins may not be achieved in the near future due to excess PCB production capacity worldwide and substantial competitive pressures in the Company's principal market. Generally, the Company's customers are reducing inventory levels and seeking lower prices from their vendors, such as the Company, to compete effectively. GENERAL Backlog. At June 30, 1995, 1994, and 1993, the Company's ECM and PCB fabrication businesses had combined backlogs of $9,247,000, $6,902,000 and $19,612,000, respectively. Backlog is comprised of orders believed to be firm for products that have scheduled shipment dates during the next 12 months. Some orders in the backlog may be canceled under certain conditions. Historically, a substantial portion of the Company's orders have been for shipment within 90 days of the placement of the order and, therefore, backlog information as of the end of a particular period is not necessarily indicative of trends in the Company's business. In addition, the timing of orders from major customers may result in significant fluctuations in the Company's backlog and operating results from period to period. Backlog at June 30, 1995 included only the Company's European subsidiaries. The increase from fiscal year 1994 reflects higher order demand from existing ECM customers and new outstanding orders from new ECM customers. The Company's European PCB backlog increased slightly from the last fiscal year. The fabrication group has and is expected to further increase sales volume, but will not increase backlog as the sales increase is expected to come from quick turn orders that are completed within a one month accounting cycle and would, therefore, not be included in the period end backlog. Backlog at June 30, 1994 had declined from previous years primarily due to the following reasons: 1. Loss of large customers and their projected orders in the Company's ECM business. Total backlog for the Company's ECM operations was $4,214,000 at fiscal year end 1994 versus $17,612,000 at fiscal year end 1993. 2. Change in customer base in both the Company's ECM and PCB units to a larger customer base with smaller, higher margin purchase orders. Many of these customers have short notice, quick turn requirements, and few orders in the Company's backlog therefore extend beyond a one to two month period. Many of last year's backlogged orders covered an eight to 12 month period. On July 1, 1993, the largest customer at the Company's domestic ECM operation in fiscal year 1993, Dataproducts Corporation, ("Dataproducts") issued a temporary stop work order on the bulk of its existing purchase orders. Dataproducts' total purchases for the year ended June 30, 1993, were approximately $7,703,000, or approximately 13% of the Company's consolidated revenues for the year and $6,322,000 or 13% of fiscal year 1994 consolidated sales. Dataproducts' order backlog as of June 30, 1993 was approximately $5,747,000 or approximately 29% of the Company's consolidated backlog at such date. Approximately $700,000 of the Dataproducts backlog was canceled as a result of the stop work order and the remaining orders were rescheduled for delivery during the first six months of fiscal year 1994. There were no Dataproducts orders in the fiscal year end 1994 backlog. Because of the Dataproducts cancellation and reschedules, the level of A.J.'s revenues were adversely affected in that year. Events of this nature can materially delay or undermine the Company's ability to complete a successful turnaround and achieve operating profitability which is critical to the Company's viability. Environmental Regulation. Federal, state, and local provisions relating to the protection of the environment affect the Company's ECM and PCB fabrication businesses. Aeroscientific has used or uses chemicals in the manufacture of their products that are classified by the Environmental Protection Agency ("EPA") as hazardous substances. In the past, some of these chemicals were either treated on site or removed from the Company's facilities and disposed of elsewhere by arrangement with the owners or operators of disposal sites. The Company's current operation treats all hazardous substances on site and reclaims, as reusable material, virtually 100% of the byproducts produced. In late 1982, Aeroscientific-Anaheim received notice from the EPA that it was regarded as a potentially responsible party ("PRP") under federal environmental laws in connection with a waste disposal site known as the "Stringfellow Superfund Site" in Riverside County, California, which is presently being considered by governmental authorities for remediation. Aeroscientific-Anaheim has been named as a third party defendant by other PRPs in a case brought in U.S. District Court for the Southern District of California in 1984, by the United States Government. The information developed during discovery and investigation thus far indicates that Aeroscientific-Anaheim supplied relatively small amounts of waste to the site as compared to the many other defendants. As part of the currently proposed Settlement Agreement, de minimis polluters would pay a fixed amount plus an amount that varies based on volume of material dumped at the site. Under these guidelines, the Company's probable liability will be $120,000. Final settlement and timing of payment are currently undeterminable, and no assurances can be given that any settlement will be achieved. The Company, however, has accrued sufficient liability reserves to cover the proposed settlement as of fiscal year end 1995. Any further remedial costs or damage awards in these cases may be significant and management believes that the Company's allocated share of such costs or damages could have a material adverse effect on the Company's business or financial condition. The actions are still in the pre-trial and discovery stages and a prediction of outcome is difficult. There is, as in the case of most environmental litigation, the theoretical possibility of joint and several liability being imposed upon Aeroscientific for damages which may be awarded. Total estimated cleanup costs for the Stringfellow site have been estimated at $600 million. The Company's possible range of liability is undeterminable, and the reliability and precision of estimated cleanup costs are subject to a myriad of factors which are not currently measurable. The Company is aware of certain chemicals that exist in the ground at its previously leased facility at 1240-1244 South Claudina Street, Anaheim, California. The Company has notified the appropriate governmental agencies and is proceeding with remediation and investigative studies regarding soil and groundwater contamination. The Company believes that it will be required to implement a continuing remedial program for the site, the cost of which is currently unknown. The installation of water and soil extraction wells was completed in August 1994. A plan for soil remediation was completed about the same time and was submitted to regulatory authorities. The full extent of potential ground water pollution could not be determined given preliminary estimates. The Company retained the services of Harding Lawson and Associates in May 1995 to begin the vapor extraction of pollutant from the soil and to perform exploratory hydro-punch testing to determine the full extent and cost of the potential ground water contamination. These processes are in their preliminary stages and a complete and accurate estimate of the full and potential costs cannot be determined at this time. The Company believes that the resolution of these matters will require a significant cash outlay. Initial estimates from Harding Lawson indicate that it could cost as much as $3,000,000 for full remediation of the site and take over ten years to complete. The Company and Aeroscientific entered into an agreement to share the costs of environmental remediation with the landlord at the Anaheim facility. Under this agreement, the Company is obligated to pay 80% of the site's total remediation costs up to $725,000 (i.e., up to the Company's share of $580,000) with any costs above $725,000 being shared equally between the Company and the landlord. To date, the Company has paid $239,000 as its share of the remediation costs. The Company anticipates that its share of the final remediation cost should approximate the amount it has presently reserved. Under the current remediation agreement, the Company is making monthly payments of approximately $18,000 through the end of the current fiscal year. Management believes that the Company has the ability to make these payments when due. From time to time the Company is also involved in other waste disposal remediation efforts and proceedings associated with its other facilities. Based on information currently available to the Company, management does not believe that the costs of such efforts and proceedings will have a material adverse effect on the Company's business or financial condition. Headquarters Operations The Company maintains its corporate headquarters in a 3,000 square foot leased building located in Tigard, Oregon. In addition to executive officers, 5 employees work in the Company's headquarters. The Company's headquarters operations include the management of the Company's operating subsidiaries on a consolidated basis, the arranging of financing for those operations and capital expenditures and the management of the remaining assets of the Company's discontinued United States operations. Employees. The Company currently employs approximately 340 persons. Item 2. Properties The following table lists principal plants and properties of the Company and its subsidiaries: Owned Square or Location Footage Leased ECM and PCB fabrication businesses: Tigard, Oregon 3,000 Leased Chatsworth, California (sublet during fiscal 1995) 48,000 Leased Craigavon, Northern Ireland 63,000 Owned Craigavon, Northern Ireland 67,000 Owned Craigavon, Northern Ireland 9,000 Owned The Northern Ireland properties are pledged as security for installment loans payable to the Industrial Development Board for Northern Ireland from which the properties were purchased. These loans had an aggregate outstanding balance of approximately $1,350,000 at June 30, 1995. The Company's Tigard, Oregon headquarters facility is leased for a two year term expiring on January 6, 1997 from an unaffiliated third party. Rent on the headquarters is paid monthly in advance. Management believes that the Tigard facilities are adequate to meet the Company's needs for the foreseeable future. Item 3. Legal Proceedings As to other litigation matters that are not specifically described under the caption "General - Environmental Regulation', Item 1 above, no material legal proceedings are presently pending to which the Company or any of its property is subject, other than ordinary routine litigation incidental to the Company's business Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Shareholders on May 31, 1995, Bernee D.L. Strom and Erven Tallman were elected as Class II directors by the shareholders, replacing former Class II directors Rockell N. Hankin and John F. Coyne. Election of Directors was the only matter proposed at the Annual Meeting of Shareholders. The results of the election are as follows: FOR WITHHELD John F. Coyne 2,743,980 42,782 Rockell N. Hankin 2,744,980 41,782 Bernee D. L. Strom 9,988,812 28,458 Erven Tallman 9,988,812 28,458 In recognition of the shareholder vote, and prior to the certification of the results by the independent inspectors of election, John F. Coyne and Rockell N. Hankin resigned from the Board of Directors immediately following the Annual Meeting of Shareholders. At a meeting of the Board, the remaining Directors accepted these resignations and elected Bernee D. L. Strom and Erven Tallman to fill the vacancies and to serve as directors pending certification of the election results. Solicitation for election of Ms. Strom and Mr. Tallman as Class II Directors was made by an opposition shareholder committee known as "Shareholders Committee to Remove a Moribund Management" ("SCRMM"). A Settlement Agreement was entered into between the departing Board members of management and SCRMM that, among other things, provided for the election, without dispute, of Ms. Strom and Mr. Tallman as Directors, required the resignation, without dispute, of William E. Cook, the acceptance and recognition by SCRMM of prior company employment and severance agreements with management, and provision for payment of proxy solicitation expenses of DDL up to $150,000 paid by the Company and a similar amount paid for SCRMM's proxy solicitation expenses. PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters The information set forth under the caption "Market Information" on page 35 of the Company's 1995 Annual Report to Shareholders is incorporated herein by reference and made a part hereof. Item 6. Selected Financial Data The information set forth under the caption "Selected Financial Data" on page 2 of the Company's 1995 Annual Report to Shareholders is incorporated herein by reference and made a part hereof. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 3 through 12 of the Company's 1995 Annual Report to Shareholders is incorporated herein by reference and made a part hereof. Item 8. Financial Statements and Supplementary Data The consolidated financial statements set forth on page 14 through 34 of the Company's 1995 Annual Report to Shareholders, and the report of independent public accountants set forth on page 13 of said Annual Report, with respect to the consolidated financial statements, are incorporated herein by reference and made a part hereof. Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure Effective June 13, 1994, Price Waterhouse was dismissed as DDL Electronic's Inc.'s independent accountants for fiscal year-end 1994. Price Waterhouse's report on the financial statements for the fiscal years 1993 and 1992 contained no adverse opinion or disclaimer of opinion, nor was it qualified or modified as to audit scopes or accounting principles, except that as follows: Price Waterhouse's report dated September 4, 1992 for the fiscal year ended June 30, 1992 included the following explanatory paragraph: "The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has few alternative financing sources, and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty." The Company's management was given approval by its Board of Directors and the Board's Audit Committee to retain another certified accountant after Price Waterhouse required an 80% increase in its annual service fees. There has never been any and continues to be no disagreements between the Company and Price Waterhouse on any matter of accounting principles or practices, financial statement disclosure or audit scope or procedure, including up until the time of Price Waterhouse's dismissal. The Company has given Price Waterhouse unlimited authority to discuss its audit practices of the Company with the Company's successor auditor. The Company retained KPMG Peat Marwick LLP as its new independent auditors effective June 13, 1994. The Company did not consult with KPMG Peat Marwick LLP on any accounting or tax matter prior to Peat Marwick's appointment. Attached to the Company's Form 8-K, filed June 13, 1994, was Price Waterhouse's letter addressed to the Commission regarding its response to Regulation S-K, Item 304. Furthermore, Price Waterhouse was informed that statements in the Company's 8-K/A, Item 4(a)(1)(iv) included the period up until the time of Price Waterhouse's dismissal. PART III Item 10. Directors and Executive Officers of the Registrant Information called for in Item 10 is omitted because the Company intends to file with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year ended June 30, 1995 a definitive Proxy Statement pursuant to Regulation 14A of the Commission. Item 11. Executive Compensation Information called for in Item 10 is omitted because the Company intends to file with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year ended June 30, 1995 a definitive Proxy Statement pursuant to Regulation 14A of the Commission. Item 12. Security Ownership of Certain Beneficial Owners and Management Information called for in Item 10 is omitted because the Company intends to file with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year ended June 30, 1995 a definitive Proxy Statement pursuant to Regulation 14A of the Commission. Item 13. Certain Relationships and Related Transactions Information called for in Item 10 is omitted because the Company intends to file with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year ended June 30, 1995 a definitive Proxy Statement pursuant to Regulation 14A of the Commission. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K Reference (Page) Form 10K 1995 Annual Report to Stockholders (a)(1) List of Financial statements: List of data incorporated by reference: Consolidated balance sheet at June 30, 1995, and 1994* 14 Consolidated statement of operations for the years ended June 30, 1995, 1994, and 1993 15 Consolidated statement of stockholders' equity for the years ended June 30, 1995, 1994, and 1993 17 Consolidated statement of cash flows for the years ended June 30, 1995, 1994, and 1993 16 Notes to consolidated financial statements 18 Report of KPMG Peat Marwick LLP on consolidated financial statements 13 * The Company utilizes a 52-53 week fiscal year ending on the Friday closest to June 30, which, for fiscal years 1995 and 1994, fell on June 30 and July 1, respectively. For 10K filing purposes, June 30, 1995, is utilized for the Company's fiscal year end. (a)(2) List of Financial statement schedules for the years ended June 30, 1995, 1994, and 1993:** Reports of KPMG Peat Marwick LLP and Price Waterhouse on financial statement schedules 14 VIII - Valuation and Qualifying Accounts and Reserves 15 IX - Short-Term Bank Borrowings None ** Schedules other than those listed are omitted since they are not applicable, not required, or the information required to be set forth therein is included in the consolidated financial statements or in the notes thereto. (a)(3) List of Exhibits: Exhibit Index 17 (b) Reports on Form 8-K: During the fourth fiscal quarter, the following reports on Form 8-K were filed: On April 11, 1995, a Form 8-K/A was filed pursuant to item 2, Acquisition or Disposition of Assets, for filing of pro forma financial information pursuant to Regulation S-X. On April 20, 1995, a Form 8-K was filed pursuant to item 5, Other Events, for a press release announcing that William E. Cook, the Company's Chairman and CEO, had exercised stock options to purchase 300,000 shares of the Company's common stock. On May 11, 1995, a Form 8-K was filed pursuant to item 5, Other Events, for a press release that announced the Company's fiscal third quarter ended March 31, 1995 operating results. On June 7, 1995, a Form 8-K was filed pursuant to item 5, Other Events, for a press release issued June 1, 1995 announcing the resignation of William E. Cook, the Company's Chairman and CEO and the results of the Company's annual meeting of shareholders on May 31, 1995 in which five new directors were added to the board replacing Mr. Cook and two existing directors. On June 21, 1995, a Form 8-K was filed pursuant to item 1, Changes in Control of Registrant, that announced the results of the Company's May 31, 1995 annual meeting of shareholders and the change in the Company's Board of Directors and management. REPORT OF INDEPENDENT AUDITORS' ON FINANCIAL STATEMENT SCHEDULES The Board of Directors DDL Electronics, Inc. Under date of August 18, 1995, we reported on the consolidated balance sheets of DDL Electronics, Inc. and subsidiaries as of June 30, 1995 and 1994, and the related consolidated statements of operations, stockholders equity, and cash flows for the years then ended, as contained in the 1995 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the Annual Report on Form 10K for the year 1995. In connection with our audit of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in Item 14(a)(2) of this Form 10K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express and opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Portland, Oregon August 18, 1995 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 pertaining to the 1975 Nonqualified Stock Option Plan, the 1980 Employee Stock Option Plan, the 1981 Incentive Stock Plan, and the 1985 and 1987 Stock Incentive Plans (No. 33-18356) and the 1991 Nonstatutory Stock Option Plan (No. 33-45102) of DDL Electronics, Inc. of our Report dated August 20, 1993, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears in this Form 10-K Price Waterhouse LLP September 28, 1995 DDL ELECTRONICS, INC. AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Balance at Charged to Balance Beginning Costs and at End of Period Expenses Deductions of Period Allowance for doubtful accounts - Year ended: June 30, 1993 $748,000 $570,000 $(373,000) $945,000 June 30, 1994 945,000 293,000 (705,000) 533,000 June 30, 1995 533,000 95,000 (446,000) 182,000 Inventory reserves - Year ended: June 30, 1993 $275,000 $780,000 $(881,000) $174,000 June 30, 1994 174,000 266,000 (56,000) 384,000 June 30, 1995 384,000 62,000 (290,000) 156,000
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, DDL Electronics, Inc. has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. DDL Electronics, Inc. By__/s/ Don A. Raig____________ Don A.Raig Date: September 28, 1995 Interim President and Chief Operating Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By___/s/ Don A. Raig_____________ Don A.Raig Date: September 28, 1995 Interim President and Chief Operating Officer and Director (Principal Financial and Accounting Officer) _/s/___Erven Tallman_______________ Erven Tallman Date: September 28, 1995 Acting Chairman, Chief Executive Officer and Director /s/___Rob Wilson____________________ Rob Wilson Date: September 28, 1995 Interim Vice President and Director /s/____Philip H. Alspach____________ Philip H. Alspach Date: September 28, 1995 Director /s/____Bernee D. L. Strom__________ Bernee D.L. Strom Date : September 28, 1995 Director /s/____Melvin Foster______________ Melvin Foster Date: September 28, 1995 Director EXHIBIT INDEX 3-a Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 4.2 of the Company's Registration Statement on Form S-8, Commission File No. 33-7440) 3-b Bylaws of the Company, amended and restated, effective March 1995 3-c Certificate of Amendment of Certificate of Incorporation of the Company to increase authorized number of common shares (incorporated by reference to Exhibit 3-c of the Company's 1990 Annual Report on Form 10-K) 3-d Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of the Company (incorporated by reference to Exhibit 4.2 of the Company's Registration Statement on Form S-8, Commission File No. 33-7440) 3-e Certificate of Designation, Preferences and Rights of Series B Convertible Preferred Stock of the Company (incorporated by reference to Exhibit 4.2 of the Company's Registration Statement on Form S-8, Commission File No. 33-7440) 4-a Indenture dated July 15, 1988, applicable to the Company's 8-1/2% Convertible Subordinated Debentures due August 1, 2008 (incorporated by reference to Exhibit 4-c of the Company's 1988 Annual Report on Form 10-K) 4-b Supplemental Indenture relating to the Company's 8-1/2% Convertible Subordinated Debentures due August 1, 2008 (incorporated by reference to Exhibit 4-b of the Company's 1991 Annual Report on Form 10-K) 4-c Indenture relating to the Company's 7% Convertible Subordinated Debentures due 2001 (incorporated by reference to Exhibit 4-c of the Company's 1991 Annual Report on Form 10-K) 4-d Rights Agreement dated as of June 10, 1989, between the Company and Bank of America, as Rights Agent (incorporated by reference to Exhibit 1 to the Company's Report on Form 8-K dated June 15, 1989) 4-e Amendment to Rights Agreement dated as of February 21, 1991, amending the Rights Agreement dated as of June 10, 1989, between the Company and Bank of America, as Rights Agent (incorporated by reference to Exhibit 4.7 of Registration Statement No. 33-39115) 10-a Intentionally not used 10-b 1980 Employee Stock Option Plan (incorporated by reference to Exhibit 1 of Registration Statement No. 2-69580) 10-c 1981 Incentive Stock Option Plan (incorporated by reference to Exhibit 4 of Registration Statement No. 2-79576) 10-d 1985 Stock Incentive Plan (incorporated by reference to Exhibit 4a of Registration Statement No. 33-3172) 10-e 1987 Stock Incentive Plan (incorporated by reference to Exhibit 4a of Registration Statement No. 33-18356) 10-f Form of Indemnity Agreement with officers and directors (incorporated by reference to Exhibit 10-o of the Company's 1987 Annual Report on Form 10-K) 10-g Consulting Agreement dated March 26, 1990, between the Company and Thomas C. Beiseker (incorporated by reference to Exhibit 10-s of the Company's 1990 Annual Report on Form 10-K) 10-h Standard Industrial Lease-Net dated August 1, 1984, among the Company, Aeroscientific Corp., and Bradmore Realty Investment Company, Ltd. (incorporated by reference to Exhibit 10-w of the Company's 1990 Annual Report on Form 10-K) 10-i Net Lease Agreement dated December 2, 1985, among the Company, Catel Telecommunications, Inc. and Phoenix Mutual life Insurance Company (incorporated by reference to Exhibit 10-x of the Company's 1990 Annual Report on Form 10-K) 10-j Agreement dated March 10, 1992, between Irlandus Circuits Limited and the Industrial Development Board for Northern Ireland amending the Grant Agreement dated September 16, 1987, between Irlandus and the Industrial Development Board (incorporated by reference to Exhibit 10-br of the Company's 1992 Annual Report on Form 10-K) 10-k Agreement dated September 10, 1991, between DDL Electronics Limited and the Industrial Development Board for Northern Ireland amending the Grant Agreement dated August 29, 1989, between DDL Electronics and the Industrial Development Board (incorporated by reference to Exhibit 10-bt of the Company's 1992 Annual Report on Form 10-K) 10-l Agreement dated November 22, 1991, between DDL Electronics Limited and the Industrial Development Board for Northern Ireland amending the Grant Agreement dated August 29, 1989, between DDL Electronics and the Industrial Development Board (incorporated by reference to Exhibit 10-bu of the Company's 1992 Annual Report on Form 10-K) 10-m Agreement dated March 9, 1992, between DDL Electronics Limited and the Industrial Development Board for Northern Ireland amending the Grant Agreement dated August 29, 1989, between DDL Electronics and the Industrial Development Board (incorporated by reference to Exhibit 10-bv of the Company's 1992 Annual Report on Form 10-K) 10-n Agreement dated June 22, 1992, between DDL Electronics Limited and the Industrial Development Board for Northern Ireland amending the Grant Agreement dated August 29, 1989, between DDL Electronics and the Industrial Development Board (incorporated by reference to Exhibit 10-bw of the Company's 1992 Annual Report on Form 10-K) 10-o Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate dated July 15, 1992, between Mark Lainer and/or Nominee and the Company's A.J. Electronics, Inc. subsidiary (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended October 2, 1992) 10-p Standard Industrial Lease - Net dated October 15, 1992, between L.N.M. Corporation-Desert Land Managing Corp. and the Company's A.J. Electronics, Inc. subsidiary (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended October 2, 1993) 10-q Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate dated October 19, 1992, between Business Ventures Corporation and the Company (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended January 1, 1993) 10-r Form of Exchange Agreement between certain holders of the Company's 7% and 8-1/2% Convertible Subordinated Debentures and the Company dated as of November 11, 1992 (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended January 1, 1993) 10-s Warrant Agreement by and between the Company and American Stock Transfer & Trust Company dated as of November 11, 1992 (incorporated by reference to Exhibit 28.2 of the Company's Current Report on Form 8-K dated January 7, 1993) 10-t Lease Modification and Termination Agreement and Promissory Note, dated April 28, 1993, between the Company and Phoenix Home Life Mutual Insurance Company (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended April 2, 1993) 10-u Form of Exchange Agreement between certain holders of the Company's 7% and 8-1/2% Convertible Subordinated Debentures and the Company dated May 14, 1993 (incorporated by reference to Exhibit 28.2 of the Company's Current Report on Form 8-K dated May 19, 1993) 10-v Amendment to Lease Modification and Termination Agreement, dated June 11, 1993, between the Company and Phoenix Home Life Mutual Insurance Company (incorporated by reference to Exhibit 10-bz of Registration Statement No 33-63618) 10-w Form of Exchange Agreement between certain holders of the Company's 7% and 8-1/2% Convertible Subordinated Debentures and the Company dated June 24, 1993 (incorporated by reference to Exhibit 10-ca of Registration Statement No. 33-63618) 10-x Stock Purchase Agreement, dated July 7, 1993, between Meret Optical Communications, Inc. and the Company (incorporated by reference to Exhibit 10-cb of Registration Statement No. 33-63618) 10-y Second Amendment to Lease among Bradmore Realty Investment Company, Ltd., the Company and the Company's Aeroscientific Corp. subsidiary, dated July 2, 1993 (incorporated by reference to Exhibit 10-cd of Registration Statement No. 33-63618) 10-z 1991 General Nonstatutory Stock Option Plan adopted on December 31, 1991 (incorporated by reference to Exhibit 10-cf of the Company's 1993 Annual Report on Form 10-K) 10-aa Form of Series B preferred Stock Purchase Agreement between the Company and the Industrial Development Board for Northern Ireland (incorporated by reference to Exhibit 10.2 to the Company's Report on Form 8-K dated October 22, 1993) 10-ab Data-Design Laboratories, Inc. 1993 Stock Incentive Plan (incorporated by reference to Exhibit 4.7 of the Company's Registration Statement on Form S-8, Commission file No. 33-74400) 10-ac Data-Design Laboratories, Inc. Non-Employee Directors Stock Option Plan (incorporated by reference to Exhibit 4.8 of the Company's Registration Statement on Form S-8, Commission File No. 33-74400) 10-ad Form of Land Registry for the Company's Northern Ireland subsidiaries dated November 4, 1993 (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report of Form 10-Q for the quarter ended September 30, 1993) 10-ae Form of Guaranty by the Company's Northern Ireland subsidiaries dated November 4, 1993 in favor of The Tokai Bank, Ltd. and First Interest Bank of Oregon (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report of Form 10-Q for the quarter ended September 30, 1993) 10-af Form of Guaranty by the Company's Northern Ireland subsidiaries dated November 4, 1993 in favor of Sanwa Bank California (incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report of Form 10-Q for the quarter ended September 30, 1993) 10-ag Form of Severance Agreement for Key Employees of the Company (incorporated by reference to the Company's 1994 Annual Report on Form 10-K) 10-ah Subscription Agreement for 760,000 shares of DDL Electronics, Inc.'s Common Stock (incorporated by reference to Exhibit 10a of the Company's Quarterly Report of Form 10Q for the quarter ended September 30, 1994) 10-ai Asset Purchase Agreement by and between Yamamoto Manufacturing USA Inc. ("Buyer") and Aeroscientific Corp. ("Seller") (incorporated by reference to Exhibit 10a of the Company's Report on Form 8K dated November 2, 1994) 10-aj Asset Purchase Agreement by and between Raven Industries, Inc., A.J. Electronics, Inc. and DDL Electronics, Inc. (incorporated by reference to Exhibit 2.1 of the Company's Report on Form 8K dated January 17, 1995) 10-ak Closing Settlement Statement executed by A.J. Electronics Inc., DDL Electronics, Inc. and Raven Industries, Inc. (incorporated by reference to Exhibit 2.2 of the Company's Report on Form 8K dated January 17, 1995) 10-al Non-Competition and Non-Disclosure Agreement between A.J. Electronics and Raven Industries, Inc. (incorporated by reference to Exhibit 2.3 of the Company's Report of Form 8K dated January 17, 1995) 10-am Payoff Agreement between Sanwa Bank California and the Company dated December 29, 1994 10-an Termination Agreement between First Interstate Bank of Oregon, N.A., the Tokai Bank Ltd. and the Company dated December 29, 1994 10-ao Employment Agreement between DDL Electronics, Inc. and William E. Cook 10-ap Settlement Agreement between DDL Electronics, Inc. and opposition shareholders committee (SCRMM) 11 Statement re: Computation of Per Share Earnings. 13 Annual Report to security holders 16 Letter from Price Waterhouse regarding dismissal as independent accountants (incorporated by reference to Exhibit 16 of the Company's 1994 Annual Report on Form 10K) 21 Subsidiaries of the Registrant 23a Consent of KPMG Peat Marwick, LLP 23b Consent of Price Waterhouse, LLP 27 Financial Schedule for electronic filers 99 Undertaking for Form S-8 Registration Statement EX-3 2 BYLAWS EXHIBIT 3B DDL Electronics, Inc. (a Delaware corporation) BYLAWS (Amended and Restated Effective March 21, 1995) ARTICLE I Offices SECTION 1.01 Registered Office. The registered office of DDL Electronics, Inc. (the "Corporation") in the State of Delaware shall be at 1209 Orange Street, City of Wilmington, County of New Castle, and the name of the registered agent in charge thereof shall be The Corporation Trust Company. SECTION 1.02 Other Offices. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board of Directors (the "Board") may from time to time determine or as the business of the Corporation may require. ARTICLE II Meetings of Stockholders SECTION 2.01 Annual Meetings. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings may be held at such time, date and place as the Board shall determine by resolution. SECTION 2.02 Special Meetings. A special meeting of the stockholders for the transaction of any proper business may be called at any time by the Board for a majority of the Board. Special meetings may not be called by any other person or persons or in any other manner. SECTION 2.03 Place of Meetings. All meetings of the stockholders shall be held at such places, within or without the State of Delaware, as may from time to time be designated by the person or persons calling the respective meeting and specified in the respective notices or waivers of notice thereof. SECTION 2.04 Notice of Meetings. Except as otherwise required by law, notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting by delivering a typewritten or printed notice thereof to him personally, or by depositing such notice in the United States mail, in a postage prepaid envelope, directed to him at his post office address furnished by him to the Secretary of the Corporation for such purpose or, if he shall not have furnished to the Secretary his address for such purpose, then at his post office address last known to the Secretary, or by transmitting a notice thereof to him at such address by telegraph, cable, or wireless. Except as otherwise expressly required by law, no publication of any notice of a meeting of the stockholders shall be required. Every notice of a meeting of the stockholders shall state the place, date and hour of the meeting, and, in the case of a special meeting, shall also state the purpose or purposes for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall have waived such notice and such notice shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, except as a stockholder who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Except as otherwise expressly required by law, notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. SECTION 2.05 Quorum. Except in the case of any meeting for the election of directors summarily ordered as provided by law, the holders of record of a majority in voting interest of the shares of stock of the Corporation entitled to be voted thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders of the Corporation or any adjournment thereof. In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat, in the absence therefrom of all the stockholders, any officer entitled to preside at, or to act as secretary of, such meeting may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called. SECTION 2.06 Voting. (a) Each stockholder shall, at each meeting of the stockholders, be entitled to vote in person or by proxy each share or fractional share of the stock of the Corporation having voting rights on the matter in question and which shall have been held by him and registered in his name on the books of the Corporation: (i) on the date fixed pursuant to Section 6.05 of these Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or (ii) if no such record date shall have been so fixed, then (a) at the close of business on the day next preceding the day on which notice of the meeting shall be given or (b) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which the meeting shall be held. (b) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants in common, tenants by entirety or otherwise or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware. (c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by his proxy appointed by an instrument in writing, subscribed by such stockholder or by his attorney thereunto authorized and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date unless said proxy shall provide for a longer period. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless he shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of the stockholders all matters, except as otherwise provided in the Certificate of Incorporation, in these Bylaws or by law, shall be decided by the vote of a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat and thereon, a quorum being present. The voting at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and it shall state the number of shares voted. SECTION 2.07 List of Stockholders. The Secretary of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting during ordinary business hours, for a period of at least ten (1O) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 2.08 Judges. If at any meeting of the stockholders a vote by written ballot shall be taken on any question, the chairman of such meeting may appoint a judge or judges to act with respect to such vote. Each judge so appointed shall first subscribe an oath faithfully to execute the duties of a judge at such meeting with strict impartiality and according to the best of his ability. Such judges shall decide upon the qualification of the voters and shall report the number of shares represented at the meeting and entitled to vote on such question shall conduct and accept the votes, and, when the voting is completed, shall ascertain and report the number of shares voted respectively for and against the question. Reports of judges shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. The judges need not be stockholders of the Corporation, and any officer of the Corporation may be a judge on any question other than a vote for or against a proposal in which he shall have a material interest. SECTION 2.09 No Action Without Meeting. No action may be taken by stockholders except at an annual or special meeting of stockholders. No action may be taken by stockholders by written consent. SECTION 2.10. Stockholder Proposals. Only stockholders of record shall be entitled to present a stockholder proposal at any meeting of the stockholders. Before a stockholder of record may present such a proposal, the stockholder of record must deliver timely notice of such proposal to the Company. To be timely, a stockholder of record's notice of a proposal to be presented at an annual meeting shall be delivered to the Secretary at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the first anniversary of the preceding year's annual meeting of stockholders; provided, however, that in the event that the date of the annual meeting is more than thirty (30) days prior to or more than sixty (60) days after such anniversary date, notice by the stockholder of record to be timely must be so delivered not earlier than the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or the tenth (10th) day following the date on which public announcement of the date of such meeting is first made. A stockholder of record's notice of a proposal to be presented at a special meeting shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the ninetieth (90th) day prior to such special meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such special meeting or the tenth (10th) day following the date on which public announcement of the date of such special meeting is first made. ARTICLE III Board of Directors SECTION 3.01 General Powers. The property, business and affairs of the Corporation shall be managed by the Board. SECTION 3.02 Number and Term of Office. The number of directors shall be four (4). Directors need not be stockholders. Each of the directors of the Corporation shall hold office until his successor shall have been duly elected and shall qualify or until he shall resign or shall have been removed in the manner hereinafter provided. SECTION 3.03 Election of Directors. The directors shall be elected annually by the stockholders of the Corporation and the persons receiving the greatest number of votes, up to the number of directors then to be elected, shall be the persons then elected. The election of directors is subject to any provisions contained in the Certificate of Incorporation relating thereto, including any provisions for a classified Board and for cumulative voting. SECTION 3.04 Resignations. Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time be not specified, it shall take effect immediately upon its receipt; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 3.05 Vacancies. Except as otherwise provided in the Certificate of Incorporation, any vacancy in the Board, whether because of death, resignation, disqualification, an increase in the number of directors, or any other cause, can be filled only by a vote of the majority of the remaining directors, although less than a quorum. Subject to further Resolution of the Board prescribing a shorter time, each director so chosen to fill a vacancy shall hold office until his successor shall have been elected and shall qualify or until he shall resign or shall have been removed in the manner hereinafter provided. SECTION 3.06 Place of Meeting, Etc. The Board may hold any of its meetings at such place or places within or without the State of Delaware as the Board may from time to time by resolution designate or as shall be designated by the person or persons calling the meeting or in the notice or a waiver of notice of any such meeting. Directors may participate in any regular or special meeting of the Board by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting of the Board can hear each other, and such participation shall constitute presence in person at such meeting. SECTION 3.07 First Meeting. The Board shall meet as soon as practicable after each annual election of directors and notice of such first meeting shall not be required. SECTION 3.08 Regular Meetings. Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day not a legal holiday. Except as provided by law, notice of regular meetings need not be given. SECTION 3.09 Special Meetings. Special meetings of the Board shall be held whenever called by the President or a majority of the authorized number of directors. Except as otherwise provided by law or by these Bylaws, notice of the time and place of each such special meeting shall be mailed to each director, addressed to him at his residence or usual place of business, at least five (5) days before the day on which the meeting is to be held, or shall be sent to him at such place by telegraph or cable or be delivered personally not less than forty-eight (48) hours before the time at which the meeting is to be held. Except where otherwise required by law or by these Bylaws, notice of the purpose of a special meeting need not be given. Notice of any meeting of the Board shall not be required to be given to any director who is present at such meeting, except a director who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 3.10 Quorum and Manner of Acting. Except as otherwise provided in these Bylaws or by law, the presence of a majority of the authorized number of directors shall be required to constitute a quorum for the transaction of business at any meeting of the Board, and all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority of the directors present. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. The directors shall act only as a Board, and the individual directors shall have no power as such. SECTION 3.11 Action by Consent. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. SECTION 3.12 Removal of Directors. Subject to the provisions of the Certificate of Incorporation, a director may be removed only with cause and by the affirmative vote of the stockholders holding a majority of the issued and outstanding shares of the Corporation, given at a special meeting of the stockholders called for the purpose. SECTION 3.13 Compensation. The directors shall receive only such compensation for their services as directors as may be allowed by resolution of the Board. The Board may also provide that the Corporation shall reimburse each such director for any expense incurred by him on account of his attendance at any meetings of the Board or Committees of the Board. Neither the payment of such compensation nor the reimbursement of such expenses shall be construed to preclude any director from serving the Corporation or its subsidiaries in any other capacity and receiving compensation therefor. SECTION 3.14 Committees. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board and except as otherwise limited by law, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Any such committee shall keep written minutes of its meetings and report the same to the Board at the next regular meeting of the Board. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. ARTICLE IV Officers SECTION 4.01 Number. The officers of the Corporation shall be a President, one or more Vice Presidents (the number thereof and their respective titles to be determined by the Board), a Secretary and a Treasurer. SECTION 4.02 Election, Term of Office and Qualifications. The officers of the Corporation, except such officers as may be appointed in accordance with Section 4.03, shall be elected annually by the Board at the first meeting thereof held after the election thereof. Each officer shall hold office until his successor shall have been duly chosen and shall qualify or until his resignation or removal in the manner hereinafter provided. SECTION 4.03 Assistants, Agents and Employees, Etc. In addition to the officers specified in Section 4.01, the Board may appoint other assistants, agents and employees as it may deem necessary or advisable, including one or more Assistant Secretaries, and one or more Assistant Treasurers, each of whom shall hold office for such period, have such authority, and perform such duties as the Board may from time to time determine. The Board may delegate to any officer of the Corporation or any committee of the Board the power to appoint, remove and prescribe the duties of any such assistants, agents or employees. SECTION 4.04 Removal. Any officer, assistant, agent or employee of the Corporation may be removed, with or without cause, at any time: (i) in the case of an officer, assistant, agent or employee appointed by the Board, only by resolution of the Board; and (ii) in the case of an officer, assistant, agent or employee, by any officer of the Corporation or committee of the Board upon whom or which such power of removal may be conferred by the Board. SECTION 4.05 Resignations. Any officer or assistant may resign at any time by giving written notice of his resignation to the Board or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein or, if the time be not specified, upon receipt thereof by the Board or the Secretary, as the case may be; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 4.06 Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or other cause, may be filled for the unexpired portion of the term thereof in the manner prescribed in these Bylaws for regular appointments or elections to such office. SECTION 4.07 The President. The President of the Corporation shall be the chief executive officer of the Corporation and shall have, subject to the control of the Board, general and active supervision and management over the business of the Corporation and over its several officers, assistants, agents and employees. SECTION 4.08 The Vice Presidents. Each Vice President shall have such powers and perform such duties as the Board may from time to time prescribe. At the request of the President, or in case of the President's absence or inability to act upon the request of the Board, a Vice President shall perform the duties of the President and when so acting, shall have all the powers of, and be subject to all the restrictions upon, the President. SECTION 4.09 The Secretary. The Secretary shall, if present, record the proceedings of all meetings of the Board, of the stockholders, and of all committees of which a secretary shall not have been appointed in one or more books provided for that purpose; he shall see that all notices are duly given in accordance with these Bylaws and as required by law; he shall be custodian of the seal of the Corporation and shall affix and attest the seal to all documents to be executed on behalf of the Corporation under its seal; and, in general, he shall perform all the duties incident to the office of Secretary and such other duties as may from time to time be assigned to him by the Board. SECTION 4.10 The Treasurer. The Treasurer shall have the general care and custody of the funds and securities of the Corporation, and shall deposit all such funds in the name of the Corporation in such banks, trust companies or other depositories as shall be selected by the Board. He shall receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever. He shall exercise general supervision over expenditures and disbursements made by officers, agents and employees of the Corporation and the preparation of such records and reports in connection therewith as may be necessary or desirable. He shall, in general, perform all other duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board. SECTION 4.11 Compensation. The compensation of the officers of the Corporation shall be fixed from time to time by the Board. None of such officers shall be prevented from receiving such compensation by reason of the fact that he is also a director of the Corporation. Nothing contained herein shall preclude any officer from serving the Corporation, or any subsidiary corporation, in any other capacity and receiving such compensation by reason of the fact that he is also a director of the Corporation. Nothing contained herein shall preclude any officer from serving the Corporation, or any subsidiary corporation, in any other capacity and receiving proper compensation therefor. ARTICLE V Contracts, Checks, Drafts, Bank Accounts, Etc. SECTION 5.01 Execution of Contracts. The Board, except as in these Bylaws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board or by these Bylaws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. SECTION 5.02 Checks, Drafts, Etc. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such officer, assistant, agent or attorney shall give such bond, if any, as the Board may require. SECTION 5.03 Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the President, any Vice President or the Treasurer (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall from time to time be determined by the Board) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation. SECTION 5.04 General and Special Bank Accounts. The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient. ARTICLE VI Shares and Their Transfer SECTION 6.01 Certificates for Stock. Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, to be in such form as the Board shall prescribe, certifying the number and class of shares of the stock of the Corporation owned by him. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the President or a Vice President, and by the Secretary or an Assistant Secretary or by the Treasurer or an Assistant Treasurer. Any of or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any such certificate, shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so canceled, except in cases provided for in Section 6.04. SECTION 6.02 Transfers of Stock. Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.03, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be so expressed in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. SECTION 6.03 Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them. SECTION 6.04 Lost, Stolen, Destroyed, and Mutilated Certificates. In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sum as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper so to do. SECTION 6.05 Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If in any case involving the determination of stockholders for any purpose other than notice of or voting at a meeting of stockholders or expressing consent to corporate action without a meeting the Board shall not fix such a record date, the record date for determining stockholders for such purpose shall be the close of business on the day on which the Board shall adopt the resolution relating thereto. A determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. ARTICLE VII Indemnification SECTION 7.01 Actions, Etc. Other Than by or in the Right of the Corporation. Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or investigation, whether civil, criminal, administrative, and whether external or internal - to the Corporation (other than an action by or in the right of the Corporation), by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or, while serving as a director or officer, is or was serving at the request of the Corporation as a director, officer, employee, trustee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, trustee, employee or agent or in any other capacity, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by law, including, but not limited to, the Delaware General Corporation Law, as the same exists or may thereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said Law permitted the Corporation to provide prior to such amendment), against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful. SECTION 7.02 Actions, Etc. by or in the Right of the Corporation. Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed judicial action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer, employee or agent of the Corporation, or, while serving as a director or officer, is or was serving at the request of the Corporation as a director, officer, employee, trustee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, trustee, employee or agent or in any other capacity, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by law, including, but not limited to, the Delaware General Corporation Law, as the same exists or may thereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said Law permitted the Corporation to provide prior to such amendment), against all expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 7.03 Determination of Right of Indemnification. Any indemnification under Section 7.01 or 7.02 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 7.01 and 7.02. Such determination shall be made (i) by the Board by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. SECTION 7.04 Indemnification Against Expenses of Successful Party. Notwithstanding the other provisions of this Article, to the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 7.01 or 7.02, or in defense of any claim, issue or matter therein, he shall be indemnified against all expenses (including attorneys' fees) incurred by him in connection therewith. SECTION 7.05 Prepaid Expenses. Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate. SECTION 7.06 Right to Indemnification Upon Application; Procedure Upon Application. Any indemnification under or advancement of expenses provided by, or granted pursuant to, this Article shall be made promptly, and in any event within ninety days, upon written request of the director or officer, employee or agent, unless with respect to applications under Section 7.02 and 7.03, a determination is reasonably and promptly made by the Board by a majority vote of quorum of disinterested directors that such director or officer, employee or agent acted in a manner set forth in such Sections as to justify the Corporation's not indemnifying the director or officer, employee or agent. In the event no quorum of disinterested directors is obtainable, the Board shall promptly direct that independent legal counsel shall decide whether the director or officer, employee or agent acted in a manner set forth in such Sections as to justify the Corporations not indemnifying or making an advance to the director or officer or, in the case of indemnification, employee or agent. The right to indemnification under or advancement of expenses provided by this Article shall be enforceable by the director, officer, employee or agent in any court of competent jurisdiction, if the Board or independent legal counsel denies the claim, in whole or in part, or if no disposition of such claim is made within ninety days. The director's, officer's, employee's or agent's expenses incurred in connection with successfully establishing his right to indemnification or advancement of expenses, in whole or in part, in any such proceeding shall also be indemnified by the Corporation. SECTION 7.07 Other Rights and Remedies. The indemnification under and advancement of expenses provided by, or granted pursuant to, this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. The right to be indemnified or to the reimbursement or advancement of expenses pursuant hereto (i) is a contract right based upon good and valuable consideration, pursuant to which the person entitled thereto may bring suit as if the provisions hereof were set forth in a separate written contract between the Corporation and the director or officer, employee or agent, (ii) is intended to be retroactive and shall be available with respect to events occurring prior to the adoption hereof, and (iii) shall continue to exist after the rescission or restrictive modification hereof with respect to events occurring prior thereto. SECTION 7.08 Insurance. Upon resolution passed by the Board, the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation, as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article. SECTION 7.09 Constituent Corporations. For the purposes of this Article, references to "the Corporation" include any constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that any person who is or was a director, officer, employee, trustee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity. SECTION 7.10 Other Enterprises, Fines, and Serving at Corporation's Request. For purposes of this Article, references to "other enterprises" shall include employee benefit plan; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee, trustee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, trustee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article. SECTION 7.11 Savings Clause. If this Article or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director, officer, employee or agent as to expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit, proceeding or investigation, whether civil, criminal or administrative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated or by any other applicable law. SECTION 7.12 Liability of Directors for Breaches of Fiduciary Duty. Notwithstanding any provision to the contrary contained in these Bylaws, to the fullest extent permitted by the Delaware General Corporation Law as the same exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. ARTICLE VIII Miscellaneous SECTION 8.01 Seal. The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words and figures showing that the Corporation was incorporated in the State of Delaware and the year of incorporation. SECTION 8.02 Waiver of Notices. Whenever notice is required to be given by these Bylaws or the Certificate of Incorporation or by law, the person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice. SECTION 8.03 Amendments. Notwithstanding any provision herein to the contrary, these Bylaws, or any of them, may be altered, amended or repealed, and new Bylaws may be made only (i) by the Board, by the affirmative vote of a majority of the number of the Board; or (ii) by the stockholders, by an affirmative vote of the stockholders holding a majority of the issued and outstanding shares of the Corporation given at any annual meeting or special meeting of the stockholders, provided that notice of such proposed amendment, modification, repeal or adoption is timely given in the manner hereinabove provided. Any Bylaws made or altered by the stockholders may be altered or repealed by either the Board or the stockholders. EX-10 3 10-AM PAYOFF AGT EXHIBIT 10-AM PAYOFF AGREEMENT THIS PAYOFF AGREEMENT (this "Agreement") is made as of this 29th day of December, 1994, by and among SANWA BANK CALIFORNIA, a California corporation ("Sanwa"), and DDL ELECTRONICS, INC., a Delaware corporation (formerly known as DATA DESIGN LABORATORIES, INC., a Delaware corporation) ("DDL"), AEROSCIENTIFIC CORP., an Oregon corporation ("Aero-Or"), AEROSCIENTIFIC CORP., a California corporation ("Aero-Cal"), A.J. ELECTRONICS, INC., a California corporation ("A.J."), DDL EUROPE LIMITED ("DDL-E"), DDL ELECTRONICS LIMITED ("DDL-Ltd."), and IRLANDUS CIRCUITS LIMITED ("Irlandus") (Aero-Or, Aero-Cal, A.J., DDL-E, DDL-Ltd., and Irlandus are collectively referred to herein as the "DDL Affiliates"). Terms not otherwise defined in this Agreement shall have the meanings ascribed to them in that certain Amended and Restated Credit Agreement dated as of June 5, 1992 between Sanwa and DDL (the "Credit Agreement"). RECITALS A. DDL and Sanwa entered into that certain Amended and Restated Credit Agreement dated as of June 5, 1992 (the "Credit Agreement"). B. To secure DDL's obligations under the Credit Agreement, DDL and the DDL Affiliates executed certain General Security Agreements dated as of June 5, 1992 in favor of Sanwa, and the DDL Affiliates executed certain Continuing Guaranties dated as of June 5, 1992 in favor of Sanwa. C. Pursuant to the terms of the Credit Agreement, DDL is indebted to Sanwa in the principal sum of $6,847,519.59 plus accrued but unpaid interest, costs and expenses, together with the other obligations set forth in the Credit Agreement (collectively, the "Outstanding Debt"). D. DDL has experienced certain operating difficulties, which it is currently attempting to resolve, but which make DDL unable to comply with certain provisions of the Credit Agreement. E. DDL has requested Sanwa to accept, and Sanwa has agreed to accept, the sum of $4,500,000.00 in full and complete satisfaction of the Outstanding Debt. NOW, THEREFORE, in consideration of the above recitals and of the mutual covenants contained herein, Sanwa, DDL and the DDL Affiliates hereby agree as follows: I. AGREEMENT FOR PART PERFORMANCE Sanwa hereby accepts payment of the sum of Four Million Five Hundred Thousand Dollars ($4,500,000.00) from DDL in full and complete satisfaction of the Outstanding Debt. II. RELEASE OF LIENS: TERMINATION OF AGREEMENTS 2.1 Release of Liens. Sanwa hereby releases any and all liens, encumbrances and other security interests (collectively, the "Security Interests") it may hold in the Collateral and Real Property Collateral of DDL and/or the DDL Affiliates. Concurrently with the execution of this Agreement, Sanwa shall deliver or cause to be delivered to DDL, in form and substance satisfactory to DDL and Sanwa, such statements terminating the Security Interests, and such other documents as DDL may reasonably deem necessary to assure itself that the Security Interests have been released and terminated, including, without limitation, the statements and documents identified on Exhibit 1 of this Agreement. 2.2 Termination of Agreements. The parties hereto agree that all outstanding agreements and understandings between Sanwa and DDL and/or the DDL Affiliates, other than this Agreement, are hereby terminated and all obligations thereunder are completely satisfied and released. Such agreements and understandings include, without limitation, those identified on Exhibit 2 of this Agreement. 2.3 Further Assurances. At DDL's and/or the DDL Affiliates' sole expense, including reasonable attorneys' fees, each party to this Agreement shall cooperate fully in the execution of any and all other documents and in the completion of any additional actions that may be necessary or appropriate to give full force and effect to the terms and intent of this Agreement, in form and substance satisfactory to DDL and Sanwa, including, without limitation, execution of all documents necessary or appropriate to release Sanwa's Security Interest in Collateral and/or Real Property Collateral located in Northern Ireland. III. MUTUAL RELEASE 3.1 Release. In consideration of this Agreement and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, DDL and the DDL Affiliates, on one hand, and Sanwa, on the other, hereby and forever mutually release and discharge one another and each of the other's successors, subsidiaries, affiliates, parent companies, employees, former employees, consultants, owners, officers, directors, shareholders, general partners, limited partners, predecessors, assigns, agents, attorneys, insurers, and representatives from any and all causes of action, actions, judgments, liens, indebtedness, damages, losses, claims, liabilities, and demands of any nature whatsoever, known or unknown, absolute or contingent, related or incidental to the Outstanding Debt other than the obligations set forth in this Agreement. 3.2 Release of Unknown Claims. It is the intention of the parties in executing this Agreement that this Agreement shall be effective as a bar to each and every claim, demand, and cause of action that the parties may have against one another related or incidental to the Outstanding Debt other than the obligations set forth in this Agreement. In furtherance of this intention, the parties hereby expressly waive any and all rights or benefits conferred by the provisions of Section 1542 of the California Civil Code, and by any similar provision of California or Federal law now in effect or in effect in the future, and expressly consent that this Agreement shall be given full force and effect according to each and all of its express terms and conditions, including those relating to unknown and unsuspected claims, demands, and causes of action, if any: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. The parties acknowledge that they may hereafter discover claims or facts in addition to or different from those which they now know or believe to exist with respect to the subject matter of this Agreement and which, if known or suspected at the time of executing this Agreement, may have materially affected this settlement. Nevertheless, the parties hereby waive any rights, claims, or causes of action that might arise as a result of such different or additional claims or facts. The parties acknowledge that they understand the significance and potential consequence of such a release of unknown claims and of the specific waiver of their rights under Section 1542. The parties intend that the claims released by them under this Agreement be construed as broadly as possible. IV. MISCELLANEOUS 4.1 Binding Effect. This Agreement shall be binding upon and inure to the benefit of DDL, the DDL Affiliates and Sanwa and their respective successors and assigns. 4.2 Governing Law: Waiver of Trial by Jury. This Agreement shall be governed by and interpreted and construed in accordance with the laws of the State of California. The parties hereto consent to the jurisdiction of any state or federal court located within Los Angeles County of the State of California. The parties hereto waive the right to trial by jury in any action, suit, proceeding or counterclaim of any kind arising out of or related to this Agreement. 4.3 Recitals. All of the recitals are incorporated herein and made a part hereof. 4.4 Warranty of Authorization. Each person whose signature appears hereon warrants and guarantees that he or she has been duly authorized and has full authority to execute this Agreement on behalf of the entity on whose behalf this Agreement is executed. 4.5 Entire Agreement. This Agreement constitutes and contains the entire agreement and understanding between the parties. This Agreement supersedes and replaces all prior negotiations and all agreements, proposed or otherwise, whether written or oral, concerning the subject matter hereof. This is a fully integrated document. In executing this Agreement, no party hereto has relied on any representation not contained within this document. Each party hereto has been represented by counsel and has relied solely on its counsel's advice as to the legal effect hereof and its own knowledge and the terms of this document. 4.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute but one and the same instrument. 4.7 Attorneys' Fees and Costs. In the event of litigation in connection with or concerning the subject matter of this Agreement or any breach of this Agreement, the prevailing party shall be entitled to recover all costs and expenses incurred by that party, including reasonable attorneys' fees and costs, in addition to any other relief to which it may be entitled. The parties further agree that the prevailing party shall be entitled to recover all costs, including reasonable attorneys' fees and costs, of collecting any costs and expenses awarded pursuant to the prior sentence. 4.8 Headings. The headings set forth herein are solely for the purpose of identification and have no legal significance. IN WITNESS WHEREOF, this Agreement is executed as of the date first written above. SANWA BANK CALIFORNIA, a California corporation By:________________________________ Its:_______________________________ DDL ELECTRONICS, INC., a Delaware corporation By:______________________________ Its: ____________________________ AEROSCIENTIFIC CORP., an Oregon corporation By:_______________________________ its:______________________________ AEROSCIENTIFIC CORP, a California corporation By:_______________________________ Its:______________________________ A.J. ELECTRONICS, INC., a California corporation By:_______________________________ Its:______________________________ DDL EUROPE LIMITED By:__________________________________ Its:_________________________________ DDL ELECTRONICS, LTD. By:__________________________________ Its:_________________________________ IRLANDUS CIRCUITS LIMITED By:__________________________________ Its:_________________________________ EXHIBIT 1 TO PAYOFF AGREEMENT Release of Liens 1. Request for Reconveyance of that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to First American Title Insurance Company ("First American") for the benefit of Sanwa, The Tokai Bank Ltd. ("Tokai") and First Interstate Bank of Oregon ("FIB") with respect to that property commonly known as 223 North Crescent Way, Anaheim, California; 2. Request for Reconveyance of that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by A.J. to First American for the benefit of Sanwa, Tokai and FIB with respect to that property commonly known as 20945 Plummer Street, Chatsworth, California; 3. Request for Reconveyance of that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to First American for the benefit of Sanwa, Tokai and FIB with respect to that property commonly known as 7915 Center Avenue, Cucamonga, California; 4. Request for Reconveyance of that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to First American for the benefit of Sanwa and Tokai with respect to that property known as Lot 11, Tract 11428, in the City of Rancho Cucamonga, California; 5. Request for Reconveyance of that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to First American for the benefit of Sanwa and Tokai with respect to that property known as Lot 13, Tract 11428, in the City of Rancho Cucamonga, California; 6. Request for Reconveyance of that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to Fidelity National Title Insurance Company for the benefit of Sanwa, Tokai and FIB with respect to that property commonly known as 21423 North 11th Avenue, Phoenix, Arizona; 7. Request for Reconveyance of that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by Aero-Or to First American for the benefit of Sanwa with respect to that property commonly known as 1270 NW 167th Place, Beaverton, Oregon; 8. Deed of Release among Irlandus, FIB, Tokai and Sanwa with respect to that property located in Northern Ireland; 9. Deed of Release among DDL, FIB, Tokai and Sanwa with respect to that property located in Northern Ireland; 10. Form UCC-3 Termination Statement terminating Sanwa's security interest in the assets of DDL under that certain Financing Statement filed in the Office of the Oregon Secretary of State on June 23, 1992 as file number R12780; 11. Form UCC-3 Termination Statement terminating Sanwa's security interest in the assets of Aero-Cal under that certain Financing Statement filed in the Office of the California Secretary of State on June 22, 1992 as file number 92134431; 12. Form UCC-3 Termination Statement terminating Sanwa's security interest in the assets of Aero-Or under that certain Financing Statement filed in the Office of the Oregon Secretary of State on June 23, 1992 as file number R12781; 13. Form UCC-2 Termination Statement terminating Sanwa's security interest in the assets of A.J. under that certain Financing Statement filed in the Office of the California Secretary of State on June 22, 1992 as file number 92134433; 14. Form UCC-2 Termination Statement terminating Sanwa's security interest in the assets of DDL under that certain Financing Statement filed in the Office of the California Secretary of State on June 22, 1992 as file number 92134429; 15. Form UCC-3 Termination Statement terminating Sanwa's security interest in the assets of DDL under that certain Financing Statement filed in the Office of the Delaware Secretary of State on June 23, 1992 as file number 9207522; 16. Notice of Assignment of Promissory Note to Omni Acquisition Corp.; 17. Notice of Assignment of Promissory Note and Deed of Trust to M. Peter Thomas and Lisa Thomas; 18. Notice of Assignment of Promissory Note and Deed of Trust to Thomas J. Gullo and Linda G. Gullo; 19. Assignment of Deed of Trust (as collateral), assigning all beneficial interest under that certain Second Deed of Trust and Assignment of Rents with Request for Notice dated May 10, 1990 executed by M. Peter Thomas and Lisa Thomas recorded as Instrument No. 90-286466 and further recorded as Instrument No. 90-375203. 20. Assignment of Deed of Trust (as collateral), assigning all beneficial interest under that certain Second Deed of Trust and Assignment of Rents with Request for Notice dated May 30, 1990 executed by Thomas J. Gullo and Linda C. Gullo recorded as Instrument No. 90-314878 and further recorded as Instrument No. 90-372668. 21. Original Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by A.J. to First American for the benefit of Sanwa, Tokai and FIB with respect to that property commonly known as 20945 Plummer Street, Chatsworth, California; 22. Original Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to First American for the benefit of Sanwa, Tokai and FIB with respect to that property commonly known as 7915 Center Avenue, Cucamonga, California; 23. Original Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to First American for the benefit of Sanwa and Tokai with respect to that property known as Lot 11, Tract 11428, in the City of Rancho Cucamonga, California; 24. Original Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to First American for the benefit of Sanwa and Tokai with respect to that property known as Lot 13, Tract 11428, in the City of Rancho Cucamonga, California; 25. Original Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by Aero-Or to First American for the benefit of Sanwa with respect to that property commonly known as 1270 NW 167th Place, Beaverton, Oregon; 26. Original Second Deed of Trust and Assignment of Rents with Request for Notice dated May 10, 1990 executed by M. Peter Thomas and Lisa Thomas recorded as Instrument No. 90-286466 and further recorded as Instrument No. 90-375203; 27. Original Second Deed of Trust and Assignment of Rents with Request for Notice dated May 30, 1990 executed by Thomas J. Gullo and Linda G. Gullo recorded as Instrument No. 90-314878 and further recorded as Instrument No. 90-372668; 28. Original Promissory Note Secured by Second Deed of Trust dated May 10, 1990 in the principal amount of $560,000 executed by M. Peter Thomas and Lisa Thomas; 29. Original Promissory Note Secured by Second Deed of Trust dated May 30, 1990 in the principal amount of $250,000 executed by Thomas J. Gullo and Linda C. Gullo; 30. Original Promissory Note dated February 28, 1992 in the principal amount of $292,536.36 executed by Omni Acquisition Corp. EXHIBIT 2 TO PAYOFF AGREEMENT Termination of Agreements 1. The Credit Agreement; 2. Pledge and Security Agreement dated as of June 5, 1992 by DDL in favor of Sanwa, Tokai and First Interstate Bank of Oregon, N.A. ("FIB"); 3. General Security Agreement dated as of June 5, 1992 by DDL in favor of Sanwa; 4. General Security Agreement dated as of June 5, 1992 by Aero- Or in favor of Sanwa; 5. General Security Agreement dated as of June 5, 1992 by AeroCal in favor of Sanwa; 6. General Security Agreement dated as of June 5, 1992 by A.J. in favor of Sanwa; 7. Continuing Guaranty dated as of June 5, 1992 by Aero-Or in favor of Sanwa; 8. Continuing Guaranty dated as of June 5, 1992 by Aero-Cal in favor of Sanwa; and 9. Continuing Guaranty dated as of June 5, 1992 by A.J. in favor of Sanwa. EX-10 4 10.AN TERMINATION AGT EXHIBIT 10-AN TERMINATION AGREEMENT THIS TERMINATION AGREEMENT (this "Agreement") is made as of the 29th day of December, 1994, by and among FIRST INTERSTATE BANK OF OREGON, N.A., TRUSTEE ("FIB"), THE TOKAI BANK, LTD., LOS ANGELES AGENCY ("Tokai"), AEROSCIENTIFIC CORP., an Oregon corporation ("Aero-Or"), DDL ELECTRONICS, INC., a Delaware corporation (formerly known as DATA DESIGN LABORATORIES, INC., a Delaware corporation) ("DDL"), AEROSCIENTIFIC CORP., a California corporation ("Aero-Cal"), A.J. ELECTRONICS, INC., a California corporation ("A.J."), DDL EUROPE LIMITED ("DDL-E"), DDL ELECTRONICS LIMITED ("DDL-Ltd."), and IRLANDUS CIRCUITS LIMITED ("Irlandus") (DDL, Aero-Cal, A.J., DDL-E, DDL-Ltd., and Irlandus are collectively referred to herein as the "Aero-Or Affiliates"). Terms not otherwise defined in this Agreement shall have the meanings ascribed to them in that certain Indenture of Trust dated as of May 1, 1986 among the State of Oregon acting through the Economic Development Commission (the "Issuer"), FIB and Aero-Or. RECITALS A. Issuer issued Adjustable Tender Economic Development Revenue Bonds (the "Bonds"), and loaned certain proceeds from the sale of the Bonds to Aero-Or pursuant to that certain Indenture of Trust dated as of May 1, 1986 (the "Indenture") among the Issuer, Aero-Or and FIB, as trustee, and that certain Loan Agreement dated as of May 1, 1986 (the "Loan Agreement") between Issuer and Aero-Or. B. For repayment of the loan made by Issuer to Aero-Or, Aero-Or agreed to pay to FIB, for the account of Issuer, an amount equal to the principal amount of the Bonds together with interest in the amount set forth in the Loan Agreement. Said repayment is secured by certain trust deeds, security agreements, and guaranties executed by Aero-Or and the Aero-Or Affiliates. C. Pursuant to a certain Reimbursement Agreement dated as of May 1, 1986, as amended (the "Reimbursement Agreement"), between Tokai and Aero-Or, Tokai issued a letter of credit dated as of May 16, 1986, as amended (the "Letter of Credit"), for the benefit of FIB as security for repayment of the Bonds. D. Aero-Or is also the guarantor of certain credit facilities extended by Sanwa Bank California ("Sanwa") to DDL. DDL, Sanwa and FIB have entered into that certain Intercreditor Agreement dated on or about June 5, 1992 (the "Intercreditor"). E. As of the date of this Agreement, Aero-Or has caused a defeasance of the Bonds pursuant to Section 8.01 of the Indenture (the "Defeasance"), by delivering to FIB (i) irrevocable instructions from Aero-Or for redemption of the Bonds on February 1, 1995; (ii) irrevocable instructions from the Issuer for redemption of the Bonds on February 1, 1995; (iii) the sum of $5,387,820.27, which constitutes all principal and interest due and payable, and thereafter to become due and payable, on the Bonds; and (iii) an unqualified opinion of nationally recognized bankruptcy counsel (which opinion is acceptable to Moody's Investors Service, Inc.) that payment of such moneys does not constitute an avoidable preference under Section 547 of the Federal Bankruptcy Code, in satisfaction of the Indenture's Available Moneys requirement. F. In connection with the Defeasance, FIB has delivered the original Letter of Credit to Tokai for cancellation, accompanied by a permanent reduction certificate and letter certificate of cancellation in form and content satisfactory to Tokai, and FIB, Tokai and Sanwa have entered into a termination letter with respect to the Intercreditor Agreement. G. As of the date of this Agreement, Aero-Or has caused to be paid to Tokai and FIB all of their fees and costs, including trustee's and attorneys' fees and expenses incurred in connection with the Bonds but separate and apart from the negotiation and preparation of documents pertaining to the Defeasance, including, without limitation, the following: (a) $14,131.26 as letter of credit fees due and payable to Tokai; (b) 5,082.25 Pounds Sterling for fees and costs of Irish counsel; and (c) other attorneys fees and costs through October 31, 1994 in the amount of $22,739.47. H. As of the date of this Agreement, Aero-Or has caused to be paid to FIB and Tokai all of FIB's and Tokai's reasonable fees and expenses, including without limitation attorneys' fees, incurred in connection with the Defeasance. I. The parties to this Agreement agree and acknowledge that the Defeasance constitutes full and complete satisfaction of all obligations arising out of or related to the Bonds. NOW, THEREFORE, in consideration of the above recitals and of the mutual covenants contained herein, Tokai, FIB, Aero-Or, and the Aero-Or Affiliates hereby agree as follows: I. RELEASE OF LIENS; TERMINATION OF AGREEMENTS 1.1 Release of Liens. In consideration of the Defeasance and receipt of the funds and documents described in the above recitals, FIB and Tokai hereby release any and all liens, encumbrances and other security interests (collectively, the "Security Interests") it may hold in the property of Aero-Or and/or the Aero-Or Affiliates. Concurrently with the execution of this Agreement, FIB and Tokai shall deliver or cause to be delivered to Aero-Or, in form and substance satisfactory to Aero-Or, FIB and Tokai, such statements terminating the Security Interests, and such other documents as Aero-Or may reasonably deem necessary to assure itself that the Security Interests have been released and terminated, including, without limitation, the statements and documents identified on Exhibit 1 of this Agreement. 1.2 Termination of Agreements. Except as set forth below, the parties hereto agree that all outstanding agreements and understandings between FIB, Tokai, Aero-Or and/or the Aero-Or Affiliates in any way arising out of or related to the Bonds, other than this Agreement, are hereby terminated and all obligations thereunder are completely satisfied and released. Such agreements and understandings include, without limitation, those identified on Exhibit 2 of this Agreement. Notwithstanding the foregoing, all indemnities, representations, warranties, covenants and agreements as to environmental issues, covenants and liability pertaining to any collateral granted by Aero-Or and/or any Aero-Or Affiliate to Tokai and/or FIB shall remain in full force and effect and be fully enforceable against such entities. 1.3 Further Assurances. At Aero-Or's and/or the Aero-Or Affiliates' sole expense, including without limitation reasonable attorneys' fees, each party to this Agreement shall cooperate fully in the execution of any and all other documents and in the completion of any additional actions that may be necessary or appropriate to give full force and effect to the terms and intent of this Agreement, in form and substance satisfactory to Aero-Or, Tokai and FIB, including, without limitation, execution of all documents necessary or appropriate to release FIB's and Tokai's Security Interest in Aero-Or's and/or the Aero-Or Affiliates' property located in Northern Ireland. II. MUTUAL RELEASE 2.1 Release. In consideration of this Agreement and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Aero-Or and the Aero-Or Affiliates, on one hand, and FIB and Tokai, on the other, hereby and forever mutually release and discharge one another and each of the other's successors, subsidiaries, affiliates, parent companies, employees, former employees, consultants, owners, officers, directors, shareholders, general partners, limited partners, predecessors, assigns, agents, attorneys, insurers, and representatives from any and all causes of action, actions, judgments, liens, indebtedness, damages, losses, claims, liabilities, and demands of any nature whatsoever, known or unknown, absolute or contingent, related or incidental to the Bonds, other than the obligations set forth in this Agreement and any and all indemnification granted in favor of FIB and/or Tokai or liability of Aero-Or and/or any of the Aero-Or Affiliates with respect to environmental issues or concerns relating to the property commonly known as 1270 NW 167th Place, Beaverton, Oregon (the "Property") and/or any of the other collateral granted by Aero-Or and/or the Aero-Or Affiliates to Tokai and/or FIB. 2.2 Release of Unknown Claims. It is the intention of the parties in executing this Agreement that this Agreement shall be effective as a bar to each and every claim, demand, and cause of action that the parties may have against one another related or incidental to the Bonds, other than the obligations set forth in this Agreement and any indemnification granted in favor of FIB and/or Tokai with respect to environmental issues or concerns relating to the Property. In furtherance of this intention, the parties hereby expressly waive any and all rights or benefits conferred by the provisions of Section 1542 of the California Civil Code, and by any similar provision of California or Federal law now in effect or in effect in the future, and expressly consent that this Agreement shall be given full force and effect according to each and all of its express terms and conditions, including those relating to unknown and unsuspected claims, demands, and causes of action, if any: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. The parties acknowledge that they may hereafter discover claims or facts in addition to or different from those which they now know or believe to exist with respect to the subject matter of this Agreement and which, if known or suspected at the time of executing this Agreement, may have materially affected this settlement. Nevertheless, the parties hereby waive any rights, claims, or causes of action that might arise as a result of such different or additional claims or facts. The parties acknowledge that they understand the significance and potential consequence of such a release of unknown claims and of the specific waiver of their rights under Section 1542. The parties intend that the claims released by them under this Agreement be construed as broadly as possible. III. MISCELLANEOUS 3.1 Binding Effect. This Agreement shall be binding upon and inure to the benefit of Aero-Or, the Aero-Or Affiliates, FIB, and Tokai and their respective successors and assigns. 3.2 Governing Law: Waiver of Trial by Jury. This Agreement shall be governed by and interpreted and construed in accordance with the laws of the State of California. The parties hereto consent to the jurisdiction of any state or federal court located within Los Angeles County of the State of California. The parties hereto waive the right to trial by jury in any action, suit, proceeding or counterclaim of any kind arising out of or related to this Agreement. 3.3 Recitals. All of the recitals are incorporated herein and made a part hereof and all parties acknowledge and agree that the recitals are true and correct. 3.4 Warranty of Authorization. Each person whose signature appears hereon warrants and guarantees that he or she has been duly authorized and has full authority to execute this Agreement on behalf of the entity on whose behalf this Agreement is executed. 3.5 Entire Agreement. This Agreement constitutes and contains the entire agreement and understanding between the parties. This Agreement supersedes and replaces all prior negotiations and all agreements, proposed or otherwise, whether written or oral, concerning the subject matter hereof. This is a fully integrated document. In executing this Agreement, no party hereto has relied on any representation not contained within this document. Each party hereto has been represented by counsel and has relied solely on its counsel's advice as to the legal effect hereof and its own knowledge and the terms of this document. 3.6 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute but one and the same instrument. 3.7 Attorneys' Fees and Costs. In the event of litigation in connection with or concerning the subject matter of this Agreement or any breach of this Agreement, the prevailing party shall be entitled to recover all costs and expenses incurred by that party, including reasonable attorneys' fees and costs, in addition to any other relief to which it may be entitled. The parties further agree that the prevailing party shall be entitled to recover all costs, including without limitation reasonable attorneys' fees and costs whether incurred before trial, at trial or in any appeal or bankruptcy proceeding, of collecting any costs and expenses awarded pursuant to the prior sentence. 3.8 Headings. The headings set forth herein are solely for the purpose of identification and have no legal significance. 3.9 Fiduciary Capacity of FIB. FIB executes this Agreement solely in its fiduciary capacity as Trustee under the Indenture and related documents. IN WITNESS WHEREOF, this Agreement is executed as of the date first written above FIRST INTERSTATE BANK OF OREGON, N.A., TRUSTEE By:______________________________ Its:______________________________ THE TOKAI BANK, LTD., LOS ANGELES - AGENCY By:______________________________ Its:______________________________ AEROSCIENTIFIC CORP., an Oregon corporation By:______________________________ Its:______________________________ DDL ELECTRONICS, INC., a Delaware corporation By:______________________________ Its:______________________________ AEROSCIENTIFIC CORP. a California corporation - By:______________________________ Its:______________________________ A.J. ELECTRONICS, INC., a California corporation By:______________________________ Its:______________________________ DDL EUROPE LIMITED By:______________________________ Its:______________________________ DDL ELECTRONICS LIMITED By:______________________________ Its:______________________________ IRLANDUS CIRCUITS LIMITED By:______________________________ Its:______________________________ EXHIBIT 1 TO TERMINATION AGREEMENT Release of Liens 1. Request for Reconveyance of that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to First American Title Insurance Company ("First American") for the benefit of Sanwa Bank California, a California corporation ("Sanwa"), Tokai and FIB with respect to that property commonly known as 223 North Crescent Way, Anaheim, California; 2. Request for Reconveyance of that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by A.J. to First American for the benefit of Sanwa, Tokai and FIB with respect to that property commonly known as 20945 Plummer Street, Chatsworth, California; 3. Request for Reconveyance of that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to First American for the benefit of Sanwa, Tokai and FIB with respect to that property commonly known as 7915 Center Avenue, Cucamonga, California; 4. Request for Reconveyance of that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to First American for the benefit of Sanwa and Tokai with respect to that property known as Lot 11, Tract 11428, in the City of Rancho Cucamonga, California; 5. Request for Reconveyance of that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to First American for the benefit of Sanwa and Tokai with respect to that property known as Lot 13, Tract 11428, in the City of Rancho Cucamonga, California; 6. Request for Reconveyance of that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to Fidelity National Title Insurance Company for the benefit of Sanwa, Tokai and FIB with respect to that property commonly known as 21423 North 11th Avenue, Phoenix, Arizona; 7. Request for Reconveyance of that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by Aero-Or to First American for the benefit of Tokai and FIB with respect to that property commonly known as 1270 NW 167th Place, Beaverton, Oregon; 8. Deed of Release among Irlandus, FIB, Tokai and Sanwa with respect to that property located in Northern Ireland; 9. Deed of Release among DDL-E, FIB, Tokai and Sanwa with respect to that property located in Northern Ireland; 10. Deed of Release among DDL-L, FIB, Tokai and Sanwa with respect to that property located in Northern Ireland; 11. Form UCC-3 Termination Statement terminating FIB'S and Tokai's security interest in the assets of DDL under that certain Financing Statement filed in the Office of the Oregon Secretary of State on June 23, 1992 as file number R12780; 12. Form UCC-3 Termination Statement terminating FIB's and Tokai's security interest in the assets of Aero-Cal under that certain Financing Statement filed in the Office of the California Secretary of State on June 22, 1992 as file number 92134431; 13. Form UCC-3 Termination Statement terminating FIB's and Tokai's security interest in the assets of Aero-Or under that certain Financing Statement filed in the Office of the Oregon Secretary of State on June 23, 1992 as file number R1278l; 14. Form UCC-2 Termination Statement terminating FIB's and Tokai's security interest in the assets of A.J. under that certain Financing Statement filed in the Office of the California Secretary of State on June 22, 1992 as file number 92134433; 15. Form UCC-2 Termination Statement terminating FIB's and Tokai's security interest in the assets of DDL under that certain Financing Statement filed in the Office of the California Secretary of State on June 22, 1992 as file number 92134429; 16. Form UCC-3 Termination Statement terminating FIB'S security interest in the assets of Aero-Or under that certain Financing Statement filed in the Official Records of the County Recorder of Washington County, Oregon on May 13, 1986 as file number 86019995; 17. Form UCC-3 Termination Statement terminating Tokai's security interest in the assets of Aero-Or under that certain Financing Statement filed in the Official Records of the County Recorder of Washington County, Oregon on May 13, 1986 as file number 86019996; 18. Form UCC-3 Termination Statement terminating Tokai's security interest in the assets of Aero-Or under that certain Financing Statement filed in the Office of the Oregon Secretary of State on May 12, 1986 as file number K44261; 19. Form UCC-3 Termination Statement terminating FIB's security interest in the assets of Aero-Or under that certain Financing Statement filed in the Office of the Oregon Secretary of State on May 12, 1986 as file number K44260; 20. Form UCC-3 Termination Statement terminating Sanwa's security interest in the assets of DDL under that certain Financing Statement filed in the Office of the Delaware Secretary of State on June 23, 1992 as file number 9207522; 21. Assignment of Deed of Trust (as collateral), assigning all beneficial interest under that certain Second Deed of Trust and Assignment of Rents with Request for Notice dated May 10, 1990 executed by M. Peter Thomas and Lisa Thomas recorded as Instrument No. 90-286466 and further recorded as Instrument No. 90-375203. 22. Assignment of Deed of Trust (as collateral), assigning all beneficial interest under that certain Second Deed of Trust and Assignment of Rents with Request for Notice dated May 30, 1990 executed by Thomas J. Gullo and Linda G. Gullo recorded as Instrument No. 90-314878 and further recorded as Instrument No. 90-372668. 23. Original Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to First American for the benefit of Sanwa, Tokai and FIB with respect to that property commonly known as 223 North Crescent Way, Anaheim, California; 24. Original Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to First American for the benefit of Sanwa, Tokai and FIB with respect to that property commonly known as 20945 Plummer Street, Chatsworth, California; 25. Original Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to First American for the benefit of Sanwa, Tokai and FIB with respect to that property commonly known as 7915 Center Avenue, Cucamonga, California; 26. Original Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to First American for the benefit of Sanwa and Tokai with respect to that property known as Lot 11, Tract 11428, in the City of Rancho Cucamonga, California; 27. Original Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to First American for the benefit of Sanwa and Tokai with respect to that property known as Lot 13, Tract 11428, in the City of Rancho Cucamonga, California; 28. Original Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by DDL to Fidelity National Title Insurance Company for the benefit of Sanwa, Tokai and FIB with respect to that property commonly known as 21423 North 11th Avenue, Phoenix, Arizona; 29. Original Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by Aero-Or to Transamerica Title Insurance Company for the benefit of FIB and Tokai with respect to that property commonly known as 1270 NW 167th Place, Beaverton, Oregon; 30. Original Second Deed of Trust and Assignment of Rents with Request for Notice dated May 10, 1990 executed by M. Peter Thomas and Lisa Thomas recorded as Instrument No.90-286466 and further recorded as Instrument No. 90-375203; 31. Original Second Deed of Trust and Assignment of Rents with Request for Notice dated May 30, 1990 executed by Thomas J. Gullo and Linda G. Gullo recorded as Instrument No. 90-314878 and further recorded as Instrument No. 90-372668; 32. Original Promissory Note Secured by Second Deed of Trust dated May 10, 1990 in the principal amount of $560,000 executed by M. Peter Thomas and Lisa Thomas; 33. Original Promissory Note Secured by Second Deed of Trust dated May 30, 1990 in the principal amount of $250,000 executed by Thomas J. Gullo and Linda G. Gullo; 34. Original Promissory Note dated February 28, 1992 in the principal amount of $292,536.36 executed by Omni Acquisition Corp. EXHIBIT 2 TO TERMINATION AGREEMENT Termination of Agreements 1. The Indenture; 2. The Loan Agreement; 3. The Reimbursement Agreement; 4. The Letter of Credit; 5. Pledge and Security Agreement dated May 1, 1986 by Aero-Or, Tokai and The Chase Manhattan Bank, N.A.; 6. Guaranty Agreement dated May 1, 1986, as amended, between DDL and Tokai; 7. Guaranty Agreement dated May 1, 1986, as amended, between DDL and FIB; 8. Pledge and Security Agreement dated June 5, 1992 by DDL in favor of Tokai, Sanwa, and FIB; 9. General Security Agreement dated as of June 5, 1992 by DDL in favor of Tokai and FIB; 10. General Security Agreement dated as of June 5, 1992 by Aero-Or in favor of Tokai and FIB; 11. General Security Agreement dated as of June 5, 1992 by AeroCal in favor of Tokai and FIB; 12. General Security Agreement dated as of June 5, 1992 by A.J. in favor of Tokai and FIB; 13. Continuing Guaranty dated as of June 5, 1992 by DDL in favor of Tokai and FIB; 14. Continuing Guaranty dated as of June 5, 1992 by Aero-Cal in favor of Tokai and FIB; and 15. Continuing Guaranty dated as of June 5, 1992 by A.J. in favor of Tokai and FIB. EX-10 5 10-AP SETTLEMENT AGT EXHIBIT 10-AP AGREEMENT This Settlement Agreement is entered into by, between, and among DDL Electronics, Inc. (hereinafter "DDL"), William E. Cook, Rockell N. Hankin, Philip H. Alspach, and John F. Coyne, all in their individual capacity as well as officers and/or directors of DDL Electronics, Inc., and Karen Beth Brenner, Richard Fechtor, Don A. Raig, Ronald J. Vannuki, Bernee D. L. Strom, Erven Tallman, Melvin Foster, and Robert G. Wilson, all in their individual capacities, as shareholders in DDL Electronics, Inc. as applicable, as proposed nominees to the DDL Electronics, Inc., board of directors, and/or as members of a shareholders' committee known as "Shareholders Committee to Remove a Moribund Management" ("SCRMM"). I. PREAMBLE. This Settlement Agreement is intended to effect an orderly transition and transfer of control to a new board of directors and management of DDL Electronics, Inc. The parties hereto agree to the procedures described herein, as well as to the mutual undertakings herein expressed, agreeing that each procedure and undertaking is conditioned on fulfillment of all others. 2. EQUITABLE JURISDICTION AND ENFORCEMENT. All parties agree that the provisions of this Settlement Agreement may not lend themselves to adequate remedies at law. Accordingly, all parties agree that this agreement, or any portion of it, shall be subject to equitable as well as legal jurisdiction and that the agreement, or any portion of it, shall be enforced by such equitable remedies or injunctive relief as a court of competent jurisdiction may direct. 3. JURISDICTION AND APPLICABLE LAW. This Settlement Agreement shall be interpreted in accordance with the laws of the State of Delaware, and jurisdiction shall rest only with a Delaware state or Federal court of competent jurisdiction, to the exclusion of any and all other jurisdictions and courts. 4. FRAMEWORK OF SETTLEMENT. The parties hereto agree to a settlement of a contest for control of the corporation, and other matters, in which the following actions will take place: (a) The May 31, 1995 Annual Meeting of Shareholders of DDL will be properly convened and a quorum declared to be present; (b) Election of two (2) Class II directors will be the first item on the agenda, and the chair of the meeting shall recognize and receive nominations from any shareholder seeking recognition from the floor at the Annual Meeting, and the casting of votes and proxies shall be conducted in accordance with the Certificate of Incorporation and Bylaws of DDL. (c) In the event that the parties' preliminary tally of votes and proxies appears to confirm the election of Bernee D. L. Strom and Erven Tallman to the to (2) positions as Class II directors, the chair of the meeting shall announce that preliminary result to the Annual Meeting, subject to subsequent certification by CT Corporation as election inspectors. (d) in the event that the preliminary tally of votes and proxies appears to confirm the election of Bernee D. L. Strom and Erven Tallman to the two (2) positions as Class II directors, the chair will announce that Rockell N. Hankin and John F. Coyne accept the apparent results of the election and that they will submit their resignations as directors, effective immediately, in order to facilitate an orderly transition and transfer of control. (e) The chair of the Annual Meeting shall announce that this Settlement Agreement has been reached by and among the parties, and that the Agreement permits the selection of a new board of directors and management team. The chair will also announce that the Chairman of the Board expects and intends to resign from all positions with the Company in the event that the new board of directors so requests. (f) If there is no further business to be brought before the Annual Meeting, the meeting shall be adjourned. (g) Within thirty (30) minutes following adjournment of the Annual Meeting, the remaining directors of DDL, William E. Cook and Philip H. Alspach, shall formally convene a meeting of the board and (1) accept the tendered resignations of Rockell N. Hankin and John F. Coyne, and (2) elect Bernee D. L. Strom and Erven Tallman as members of the board of directors to fill the vacancies created by the resignations of Hankin and Coyne. (h) Strom and Tallman shall be recognized as duly elected members of the board and invited to join the meeting then in progress. (i) With the Chairman abstaining, it is expected that the remaining members of the board shall then request the resignation of William E. Cook from all positions that he holds with the Company, and acknowledge that this direct request of the board is without "Cause" as defined in Mr. Cook's employment agreement of January 1, 1995. Mr. Cook shall then tender his resignations. (j) The board shall then approve and ratify this Agreement and acknowledge that DDL is bound by the terms hereof. The board then may, in its discretion, vote to expand the number of directors and elect persons to fill any vacancies created thereby. 5. PRIOR AGREEMENTS. All parties to this Settlement Agreement agree that the following agreements between the Company and its employees and directors shall be respected and implemented. In particular, without limitation, all parties agree to respect and implement the terms of the following agreements, which are incorporated herein as part of this Settlement Agreement: (a) Employment Agreements with William E. Cook dated January 1, 1995, and December 3, 1991 (including exhibits thereto). (b) Severance Agreement with John F. Coyne dated December 28, 1994. (c) Severance Agreement with M. Charles Van Rossen dated December 30, 1994. (d) Severance Agreement with Everett L. Norman dated April 14, 1995. 6. INDEMNIFICATION. In confirmation of their rights to indemnification under existing agreements with DDL, Messrs. Cook, Coyne, Hankin, and Alspach shall be indemnified by DDL for all matters that arose during their service with DDL to the maximum extent allowed by Delaware law including, without limitation, mandatory advancement of expenses subject to the requirements of Section 145(e) of the Delaware General Corporation Law. 7. PROXY SOLICITATION EXPENSES. The parties agree that reasonable proxy solicitation expenses have been incurred in furtherance of the interests of DDL and its shareholders. Subject to reasonable documentation and substantiation, the persons expected to be elected as new directors of the Company agree that unpaid proxy solicitation expenses incurred by DDL at the direction of present management in an amount not to exceed One Hundred and Fifty Thousand Dollars ($150,000) shall be paid by the Company. Reasonable expenses incurred by the Shareholders Committee to Remove a Moribund Management (SCRMM), also subject to reasonable documentation and substantiation, are also expected to be paid or reimbursed. Payments for expenses incurred by present management shall be made ratably, and at the same time, as payments made to reimburse expenses incurred by SCRMM. 8. MUTUAL AND RECIPROCAL RELEASES. The parties hereto acknowledge that this Settlement Agreement is intended to resolve any and all outstanding disagreements or disputes and to resolve any past claims which exist, or may exist, among them. Accordingly, the parties hereby release and forever discharge the Company and one another from any and all past claims, causes of action, or any other dispute of whatever nature, except any claim or cause of action that arises from breach of this Agreement. 9. NON-DISPARAGEMENT. All parties hereto undertake to refrain from any disparagement of the Company or any other party with respect to any matter related to or involving DDL. 10. PAYMENTS TO WILLIAM E. COOK PURSUANT TO HIS EMPLOYMENT AGREEMENT. In accordance with paragraph 5 hereof, upon his resignation pursuant to this Agreement, Mr. Cook will be owed a total sum of One Hundred and Sixty-Five Thousand Dollars ($165,000) pursuant to his employment agreement, which shall be paid by DDL in the following manner: (a) $35,000, less any normal taxes or other withholdings required by law, shall be paid within not more than seven (7) days after the effective date his resignation. (b) Thereafter, beginning July 15, 1995, and on the fifteenth day of each month thereafter, the remaining obligation shall be discharged by payments made in equal monthly installments of $10,833.33, less any normal taxes or other withholdings required by law. (c) In the event that DDL receives an anticipated tax refund, in an amount of One Million Dollars ($1,000,000) or more, all remaining payments to Mr. Cook shall be accelerated and the entire remaining obligation shall be paid in a single lump sum payment within ten (10) days of the tax refund receipt, less any normal taxes or other withholdings required by law. 11. COUNTERPART AND FACSIMILE EXECUTION. This Settlement Agreement may be executed in counterpart copies or by facsimile signature. IN WITNESS WHEREOF, the parties have entered into this Settlement Agreement this 31st day of May, 1995. DDL Electronics, Inc. ______________________________ By: William E. Cook Attest:_____________________ Chairman and Secretary Chief Executive Officer ________________________________ William E. Cook, Individual and as Director of DDL ________________________________ Rockell N. Hankin Individual and as Director of DDL John F. Coyne Individual and as Director of DDL Bernee D. L. Strom, Individual and as Prospective Director of DDL Erven Tallman, Individual and as Prospective Director of DDL Melvin Foster, Individual and as Prospective Director of DDL Don A. Raig, Individual and as Prospective Director of DDL Robert G. Wilson, Individual and as Prospective Director of DDL Richard Fechtor, Individual and as Shareholder in DDL Karen Beth Brenner, Individual and as Shareholder in DDL Ronald J. Vannuki, Individual and as Shareholder in DDL EX-10 6 10-AO EMPLOYMENT AGREEMENT EXHIBIT 10-AO EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement",) is made and entered into of the 1st day of January, 1995, by and between DDL ELECTRONICS, INC., a Delaware corporation (the "Company"), and WILLIAM E. COOK ("Cook"). BACKGROUND A. The Company has employed Cook as its Chief Executive Officer. B. Pursuant to a Resolution of the Board of Directors of the Company dated December 30, 1994, the Company is authorized and instructed to enter into this Agreement to set forth the terms and conditions of such continuing employment. C. Cook agrees to be employed by the Company pursuant to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: AGREEMENT I. EMPLOYMENT 1.1 Position. The Company hereby engages and employs Cook in the capacity of Chief Executive Officer. The Company's Board of Directors (the "Board") may provide such additional designations of title to Cook as the Board, in its discretion, may deem appropriate. Cook shall report directly to the Board and shall perform the executive duties and functions of Chief Executive Officer, subject to the reasonable limitations of authority set forth from time to time in the resolutions of the Board and applicable law. Cook shall not be required without his consent to undertake responsibilities not commensurate with his position as Chief Executive Officer, nor shall the Company unreasonably limit or restrict his authority or responsibility in the performance of those duties. 1.2 Duties. Cook's duties will include all of those generally associated with the position of Chief Executive Officer, subject to the direction of the Board. Such duties will include the full time corporate management of all of the Company's operations, with Cook's primary duties being to focus his efforts toward the objective of making the Company profitable, of seeking additional financing (as required), and developing and implementing a growth strategy for the Company through internal operations and acquisition alternatives. II. COMPENSATION AND BENEFITS 2.1 Base Salary. Cook's base salary shall be at the rate of One-Hundred Sixty-Five Thousand Dollars ($165,000) per year. This base salary will be reviewed at least annually by the Compensation Committee of the Board (the "Compensation Committee"), but shall not be adjusted down without Cook's prior written consent. 2.2 Bonus. Cook shall be eligible to participate in the Company's bonus plans as the same may be adopted from time to time. 2.3 Other Benefits. Cook shall be entitled to four (4) weeks per year of vacation time. The Company shall furnish Cook with an automobile or a car allowance of $600 per month. In addition, the Company shall provide Cook with the medical benefits that are made available at any given time to the other executives of the Company, and shall provide Cook with an annual paid medical examination. The Company shall also furnish Cook with a life insurance policy in the amount of two (2) times Cook's base salary with an optional additional amount of one (1) time base salary paid for by Cook. 2.4 Expense Reimbursement. Cook shall be reimbursed for reasonable out-of-pocket expenses in accordance with the Company's established policies applicable to all officers. III. TERMINATION AND SEVERANCE PAY 3.1 At Will. Cook and the Company acknowledge and agree that Cook's employment with the Company is expressly "at will" both during and after the term of this Agreement. This means that either party may terminate Cook's employment with or without cause. Any termination of Cook's employment is, however, subject to the terms and provisions of this Agreement as to severance pay and other obligations. 3.2 Voluntary Resignation. In the event that Cook's employment with the Company terminates as a result of his voluntary resignation, Cook shall be entitled to no severance pay. For purposes of this Agreement, the term "voluntary resignation" shall not include a resignation that is tendered by Cook pursuant to a direct request of the Board. A resignation tendered by Cook pursuant to a direct request of the Board shall, for purposes of this Agreement, be treated as an involuntary termination, and Cook's entitlement to severance pay and additional benefits in accordance with the provisions of Sections 3.3(a) and 3.3(b) below shall depend upon whether the Board's request was based on Cause (as defined in Section 3.3(c) below). 3.3 Involuntary Termination. (a) Severance Pay. In the event that Cook's employment with the Company is terminated by the Company for Cause (as defined in Section 3.3(c) below), Cook shall be entitled to no severance pay. In the event that Cook's employment with the Company is terminated other than for Cause, Cook shall be entitled to severance pay in the form of a lump-sum cash payment equal to the sum of (i) Cook's highest annual base salary rate with the Company within the three-year period ending on the date of Cook's termination, plus (ii) a "Bonus Increment. " The Bonus Increment shall equal the annualized average of all bonus and incentive compensation payments paid to Cook pursuant to Section 2.2 above during the two-year period immediately before the date of Cook's termination. Cook shall not be required or obligated to obtain other employment to mitigate the payments due him hereunder, and no compensation received by Cook from such other employment shall be an offset against the payments to be made by the Company. (b) Additional Benefits. In the event that Cook's employment with the Company is terminated by the Company other than for Cause (as defined in Section 3.3(c) below), Cook shall be entitled to continue to participate in the Company's employee benefit programs (including without limitation the car or car allowance) that had been made available to Cook pursuant to Section 2.3 above. These programs shall be continued at no cost to Cook, except to the extent that tax rules require the inclusion of the value of such benefits in Cook's income. The programs shall continue for the benefit of Cook for a period of one (1) year after the date of Cook's termination, in the same way and at the same level as immediately prior to Cook's termination. In addition, in the event that Cook's employment is terminated with the Company other than for Cause, the Company shall transfer to Cook ownership and possession (free and clear of all liens and encumbrances) of the personal computer, computerized day calendar (including all related personal information manager software), and cellular telephone in Cook's possession, custody or control immediately prior to Cook's termination. (c) Cause. For purposes of this Agreement, "Cause" shall mean (i) the willful and deliberate refusal of Cook to comply with a lawful, written instruction of the Board, which refusal is not remedied by Cook within a reasonable period of time after his receipt of written notice from the Company identifying the refusal, so long as the instruction is consistent with the scope and responsibilities of Cook's designated capacity; (ii) an act or acts of personal dishonesty by Cook that were intended to result in substantial personal enrichment of Cook at the expense of the Company; (iii) Cook's conviction of any felony involving an act of moral turpitude; or (iv) Cook's material breach of any representation or covenant contained in Section 5, 6 or 7 of this Agreement. (d) Constructive Termination. Cook's employment with the Company shall be deemed to have been involuntarily terminated by the Company in the event of a "Constructive Termination" (as defined below). Cook shall be entitled to the severance pay and additional benefits set forth in Sections 3.3(a) and 3.3(b) above if (i) Cook gives written notice of his resignation within thirty (30) days of such Constructive Termination and advises, as part of such resignation, that he is resigning because of the Constructive Termination, and (ii) the Constructive Termination was other than for Cause. For purposes of this Agreement, "Constructive Termination" shall mean (i) the material reduction or material adverse modification of Cook's authority or duties without his prior written consent (i.e., the substantial diminution or adverse modification in Cook's title, status, overall position, responsibilities, rporting relationship or general working environment); (ii) failure of Cook to be reelected as a Director of the Company (unless Cook advises that he does not desire to be nominated); (iii) failure by the Company to provide indemnification to Cook when permitted by the Company's charter documents or indemnity agreement with Cook, as the same may be amended or revised from time to time; or (iv) the purchase by one person or entity, or two or more persons or entities acting in concert, of equity securities of the Company representing more than fifty percent (50%) of the aggregate voting power of all outstanding securities of the Company. 3.4 Death. In the event of Cook's death, this Agreement shall automatically terminate and shall be of no further force and effect. Termination of Cook's employment as a result of his death shall not result in any obligation by the Company to pay severance pay or other benefits to Cook's estate or heirs. 3.5 Disability. In the event of Cook's Disability (as defined below) during the term of this Agreement for any period of at least three (3) consecutive months, the Company shall have the right, which may be exercised in its sole discretion, to terminate this Agreement. In the event the Company does elect to terminate this Agreement, Cook shall not be entitled to any severance pay at any time but shall be entitled to normal disability benefits in accordance with the policies established from time to time by the Company. For purposes of this Agreement, "Disability" shall mean the inability of Cook to perform his employment services hereunder by reason of physical or mental illness or incapacity as determined by a physician chosen by the Company and reasonably satisfactory to Cook or his legal representative. IV. TERM This Agreement shall be effective as of the date hereof and shall terminate one year after the date of Cook's employment termination. V. NONDISCLOSURE OF INFORMATION AND NON-SOLICITATION OF EMPLOYEES 5.1 Nondisclosure of Confidential Information. Except in the performance of his duties hereunder, Cook shall not disclose to any person or entity or use for his own direct or indirect benefit any Confidential Information (as defined below) pertaining to the Company obtained by Cook in the course of his employment with the Company. For purposes of this Agreement, "Confidential Information" shall include the Company's products, services, processes, suppliers, customers, customers' account executives, financial, sales and distribution information, price lists, identity and list of actual and potential customers, trade secrets, technical information, business plans and strategies to the extent that such information has not been publicly disseminated by the Company, other than through a breach hereof. 5.2 Non-Solicitation. Cook agrees that, so long as he is employed by the Company and for a period of one (1) year after termination of his employment for any reason except involuntary termination without Cause, he shall not (a) directly or indirectly solicit, induce or attempt to solicit or induce any Company employee to discontinue his or her employment with the Company, (b) usurp any opportunity of the Company that Cook became aware of during his tenure at the Company or which is made available to him on the basis of the belief that Cook is still employed by the Company, or (c) directly or indirectly solicit or induce or attempt to influence any person or business that is an account, customer or client of the Company to restrict or cancel the business of any such account, customer or client with the Company. VI. NON-COMPETITION So long as Cook is employed by the Company and for a period of one (1) year after termination of his employment for any reason except involuntary termination without Cause, Cook shall not, without the prior written consent of the Company's President, either directly or indirectly, including without limitation through a partnership, joint venture, corporation or other entity or as a consultant, director or employee, engage in the business engaged in by the Company as of the date hereof within those geographical areas in which the Company currently conducts active business operations. The parties hereto agree that both the scope and nature of the covenant and the duration and area for which the covenant not to compete set forth in this Article VI is to be effective are reasonable in light of all facts and circumstances. In the event that any provision of this Agreement, including without limitation any provision of this Article VI, shall to any extent be held invalid, unreasonable or unenforceable, in any circumstances, the parties hereto agree that the remainder of this Agreement and the application of such provision of this Agreement to other circumstances shall be valid and enforceable to the fullest extent permitted by law. If any provision, or any part thereof, is held to be unenforceable because of the scope or duration of or the area covered by such provision, the parties hereto agree that the court making such determination shall have the power, and is hereby asked by the parties, to reduce the scope, duration and/or area of such provisions (and to substitute appropriate provisions for any such unenforceable provisions) in order to make such provisions enforceable to the fullest extent permitted by law, and/or to delete specific words and phrases, and such modified provisions shall then be enforceable and shall be enforced. VII. REPRESENTATIONS AND COVENANTS OF COOK 7.1 Best Efforts. In consideration of the payments to be made hereunder, Cook agrees to devote substantially his entire business time and attention to the performance of his duties hereunder, and to serve the Company diligently and to the best of his abilities. Notwithstanding the foregoing, Cook shall have the continuing right to (a) make passive investments in the securities of any publicly-owned corporation, (b) make any other passive investments with respect to which he is not obligated or required to, and does not in fact, devote any substantial managerial efforts that interfere with his fulfillment of his duties, and (c) upon the prior approval of the disinterested Directors of the Company's Board, serve as a director or consultant for other companies or entities. 7.2 No Restrictions. Cook represents that he is under no actual or alleged restriction, limitation or other prohibition (whether as a result of his prior employment or otherwise) to perform his duties as described herein. VIII. MISCELLANEOUS 8.1 No Waiver. The waiver by either party of a breach of any provision of this Agreement shall not operate as or be construed as a waiver of any subsequent breach thereof. 8.2 Notices. Any and all notices referred to herein shall be sufficiently furnished if in writing, and sent by registered or certified mail, postage prepaid, to the respective parties at the following addresses or such other address as either party may from time to time designate in writing: To the Company: DDL Electronics, Inc. 7320 SW Hunziker Road Suite 300 Tigard, Oregon 97223-2302 Attention: Secretary To Cook: Mr. William E. Cook 14775 SW Peachtree Drive Tigard, Oregon 97224-1486 8.3 Assignment. This Agreement may not be assigned by Cook. This Agreement shall be binding upon the Company's successors and assigns. 8.4 Entire Agreement. This Agreement supersedes any and all prior written or oral agreements between Cook and the Company, and contains the entire understanding of the parties hereto with respect to the terms and conditions of Cook's employment with the Company. Nothing herein shall modify or amend that certain General Nonstatutory Stock Option Agreement, effective as of December 3, 1991, between the Company and Cook. 8.5 Governing Law. This Agreement shall be construed and enforced in accordance with the laws and decisions of the State of Delaware. 8.6 Expenses. The Company agrees to pay all fees and expenses incurred by it in connection with the preparation of this Agreement. In addition, the Company shall pay all of Cook's fees, costs and expenses (including reasonable attorney's fees) incurred in connection with entering into this Agreement and enforcing his rights hereunder. 8.7 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to constitute an original, but all of which shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written. The "Company": DDL ELECTRONICS, INC., a Delaware corporation By:________________________________________ Its. Chief Financial Officer And Secretary "Cook": ___________________________________________ William E. Cook EX-11 7 EXHIBIT 11 DDL ELECTRONICS, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE Year Ended June 30 1995 1994 1993 PRIMARY EARNINGS PER SHARE: Loss from continuing operations $(2,366,000) $(8,354,000) $(5,630,000) Income (loss) from discontinued operations - - 603,000 Extraordinary items 2,441,000 - 6,100,000 Net income (loss) $75,000 $(8,354,000) $1,073,000 Weighted average number of common shares outstanding 15,149,968 14,239,292 9,332,774 Assumed exercise of stock options net of shares assumed reacquired under treasury stock method using average market price 820,549 857,883 795,906 Average common shares and common share equivalents 15,970,517 15,097,175 10,128,680 Primary earnings (loss) per share: Continuing operations $(0.15) $(0.55) $(0.56) Discontinued operations - - 0.06 Extraordinary items 0.15 - 0.60 $(0.00) $(0.55) $ 0.10 NOTE: Calculation of primary earnings per share for fiscal 1994 includes 857,883 of exercisable stock options. Including these exercisable stock options makes primary earnings per share antidilutive. EXHIBIT 11 DDL ELECTRONICS, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Continued) Year Ended June 30 1995 1994 1993 FULLY DILUTED EARNINGS PER SHARE: Loss from continuing operations $(2,366,000) $(8,354,000) $(5,630,000) Add back net interest related to convertible subordinated debentures 134,000 135,000 274,000 Loss from continuing operations for fully diluted computation (2,232,000) (8,219,000) (5,356,000) Income (loss) from discontinued operations - - 603,000 Extraordinary items 2,441,000 - 6,100,000 Net income (loss) for fully diluted computation $ 209,000 $(8,219,000) $(1,347,000) Weighted average number of common shares outstanding 15,149,968 14,239,292 9,332,774 Assumed exercise of stock options and warrants net of shares assumed reacquired under treasury stock method using period end market price, if higher than average market price 1,008,566 852,650 1,975,203 Assumed conversion of convertible subordinated debentures 748,632 764,964 3,100,996 Average fully diluted shares 16,907,166 15,856,906 14,408,973 Fully diluted earnings (loss) per share: Continuing operations $(0.13) $(0.52) $(0.37) Discontinued operations - - 0.04 Extraordinary items 0.14 - 0.42 $ 0.01 $(0.52) $ 0.09 Note: The calculated fully diluted earnings per share are antidilutive for fiscal years 1995 and 1994. EX-13 8 Outside Cover of Annual Report DDL Logo DDL Electronics, Inc. 1995 Annual Report Cover contains a shadowed reproduction of a printed circuit board DDL ELECTRONICS, INC. AND SUBSIDIARIES FINANCIAL SUMMARY (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) June 30 1995 1994 1993 1992 1991 Sales $29,576 $ 48,529 $ 57,883 $ 58,516 $77,675 Operating Loss (4,970) (6,948) (5,067) (22,703) (15,052) Extraordinary Items 2,441 - 6,100 - 4,807 Net Income (Loss) 75 (8,354) 1,073 (22,305) (15,315) Earnings (Loss) Per Share $ .00 $ ( .55) $ .10 $ (3.34) $(2.31) CONTENTS FINANCIAL SUMMARY LETTER TO STOCKHOLDERS. . . . . . . . PAGE 1 FIVE YEAR FINANCIAL SUMMARY . . . . . PAGE 2 MANAGEMENT'S DISCUSSION AND ANALYSIS. PAGE 3-12 AUDITORS' REPORT. . . . . . . . . . . PAGE 13 FINANCIAL SECTION . . . . . . . . . . PAGE 14-34 INVESTOR INFORMATION. . . . . . . . . PAGE 35 DESCRIPTION OF BUSINESS DDL Electronics, Inc. is engaged in foreign electronic contract manufacturing and fabrication of printed circuit boards principally for the computer, communications, and instrumentation industries. The Company is one of the few suppliers of both of these services. President's Message To Our Stockholders: Dear Fellow Shareholders: We would like to share with you, our fellow shareholders, where our Company has been over the past year, where our Company stands today and where our Company is going tomorrow. During the past fiscal year, here domestically, prior management was forced to recognize that the "turnarounds" which were extensively discussed and promised in our Company's two prior year's Annual Reports were not going to become a reality. As a result, the Company's unprofitable production facility in Southern California was closed and the facility sublet, and the Company's unprofitable production facility in Beaverton, Oregon was sold. The Company used proceeds from these transactions to eliminate all of its outstanding senior debt. These two significant moves by the prior management of the Company were obviously considered too little and too late for more than seventy-five percent (75%) of the shareholders of this Company when they joined together on May 31, 1995 at the Annual Meeting of Shareholders at Rosemont, Illinois to force the resignation of prior management and Board of Directors. Since the beginning of June, your fellow shareholders, as interim executives, have been working long and hard to deal with the multiplicity of problems arising out of DDL's past. Gradual progress can be seen on a monthly basis as non-productive assets are disposed of and residual liabilities are reduced. You should anticipate that this process will continue throughout the balance of this calendar year. Our Company's state of the art facilities at DDL Electronics, Ltd. and Irlandus Circuits, Ltd., even though operating well below capacity, were profitable for both the third and fourth quarter of fiscal year 1995 and this same favorable profit picture is continuing through the first quarter of fiscal year 1996. As your fellow shareholders work daily to improve the strength of our Company's balance sheet and operating performance, we are also pursuing an aggressive strategy of business combinations and business alliances so that our Company re-establishes a profitable presence domestically while at the same time expanding our production levels and profitability in Northern Ireland. We understand and appreciate the charge from our fellow shareholders; we labor daily and diligently to fulfill that charge. We firmly believe that with a little bit of patience and luck, your and our investment in DDL Electronics, Inc. will once again rise from the ashes. /S/ Don A. Raig - --------------- DON A. RAIG, PRESIDENT and CHIEF OPERATING OFFICER DDL ELECTRONICS, INC. AND SUBSIDIARIES FIVE-YEAR FINANCIAL SUMMARY (Dollars in thousands except per share amounts and shares outstanding)
Year ended June 30 ________________________________________ 1995 1994 1993 1992 1991 OPERATING DATA Sales $ 29,576 $ 48,529 $ 57,883 $ 58,516 $77,675 Costs and expenses: Cost of goods sold 26,516 47,860 55,052 57,688 77,479 Administrative and selling expenses 6,497 7,617 7,898 9,692 15,248 Restructuring charges 1,533 - - 13,839 - ------ ------ ------ ------ ------ Total costs & Expenses 34,546 55,477 62,950 81,219 92,727 ------ ------ ------ ------ ------ Operating loss (4,970) (6,948) (5,067) (22,703) (15,052) Non-operating income (expense): Investment income 109 168 280 639 1,899 Interest expense (883) (1,110) (1,107) (1,830) (4,058) Gain on Termination of Pension Plan - - - - 3,577 Earthquake Costs - (500) - - - Gain on sale of assets 3,317 2 264 1,589 - Other income 61 34 - - - ------ ------ ------ ------ ------ Total non-operating income (expense) 2,604 (1,406) (563) 398 1,418 ------ ------ ------ ------ ------ Loss from continuing operations before income taxes (2,366) (8,354) (5,630) (22,305) (13,634) (Provision) benefit for income taxes - - - - 990 ------ ------ ------ ------ ------ Loss from continuing operations (2,366) (8,354) (5,630) (22,305) (12,644) Income (loss) from discontinued operations, less applicable income taxes - - 603 - (7,478) ------ ------ ------ ------ ------ Loss before extra- ordinary items (2,366) (8,354) (5,027) (22,305) (20,122) Extraordinary items: Gain on debt extinguishment 2,441 - 6,100 - 4,807 ------ ------ ------ ------ ------ Net income (loss) $ 75 $ (8,354) $ 1,073 $(22,305)$(15,315) ======= ======= ======= ======= ======= Earnings (loss) per share: Primary: Continuing operations $(0.15) $(0.55) $(0.56) $(3.34) $(1.91) Discontinued operations - - 0.06 - (1.12) Extraordinary items 0.15 - 0.60 - 0.72 ----- ----- ----- ----- ----- Total $ - $(0.55) $ 0.10 $(3.34) $(2.31) ===== ===== ===== ===== ===== Fully diluted: Continuing operations $(0.15) $(0.55) $(0.37) $(3.34) $(1.91) Discontinued operations - - 0.04 - (1.12) Extraordinary items 0.15 - 0.42 - 0.72 ----- ----- ----- ----- ----- Total $ - $(0.55) $ 0.09 $(3.34) $(2.31) ===== ===== ===== ===== ===== BALANCE SHEET DATA 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Current assets $ 8,876 $12,018 $20,085 $23,116 $33,717 Current liabilities 8,904 $21,277 $14,289 $16,950 $30,678 Working capital (Deficit $(28) $(9,259) $ 5,666 $ 6,166 $ 3,039 Current ratio * 1.0 0.6 1.4 1.4 1.1 Total assets $12,590 $23,258 $33,739 $46,626 $72,639 Long-term debt $ 7,030 $ 6,870 $20,393 $35,959 $28,060 Stockholders' equity (deficit) $(3,344) $(4,889) $ (943) $(6,283) $13,901 Equity (deficit) per share $(0.21) $(0.34) $(0.08) $(0.92) $2.10 Shares outstanding 16,062,979 14,468,718 11,972,880 6,863,243 6,635,243 *Current ratio below 1.0 due to classification of the Company's senior debt as current. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (NUMBERS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS) Introductory Statement DDL Electronics, Inc. (the "Company" or "DDL") is an independent provider ofelectronic contract manufacturing ("ECM") services and a fabricator of printed circuit boards("PCBs") for use primarily in the computer, communications, and instrumentation industries. Through its operating subsidiaries, the Company provides ECM services for manufacturers of electronic equipment. The Company's ECM and PCB operations are located in Northern Ireland and primarily provide services for customers in Europe. Historically, DDL was a diversified holding company with operations in the areas of ECMand PCB fabrication, broadband communications equipment, and other businesses. In the past several years, the Company focused its activities in the area of advanced ECM and PCB fabrication. During fiscal 1995 the Company sold substantially all the assets of its United States ECM and PCB operations. The sales enabled the Company to payoff senior debt thereby reducing the Company's future financing costs. The Company has incurred operating losses in recent years. These losses totaled $4,970, $6,948 and $5,067 in the fiscal years ended June 30, 1995, 1994, and 1993, respectively. Although the Company had net income for the years ended June 30, 1995 and 1993, the profits of $75 and $1,073, respectively, included a gain in fiscal 1995 of $3,317 on sales of assets and extraordinary gains of $2,441 and $6,100 in fiscal 1995 and 1993, respectively, recognized as a result of debt extinguishment. For fiscal years ended June 30, 1995, 1994 and 1993, the Company's ECM and PCB fabrication businesses incurred operating losses of $2,128, $5,745 and $3,799, respectively, prior to the allocation of general corporate expenses. General corporate expenses during these three periods amounted to $2,842, $1,703, and $2,053, respectively. As of June 30, 1995, total stockholders' deficit was $3,344. Industry-wide factors have resulted in excess production capacity, severe price competition, and collection difficulties in the markets in which the Company does business. As explained later, Company-specific factors have contributed to poor yields and less than acceptable on-time delivery performance. As a result of these conditions the Company consolidated its continuing operations into its ECM and PCB facilities in Northern Ireland. The combined European group had an operating profit in fiscal 1995 of $617, while incurring operating losses in both fiscal 1994 and 1993 of $1,206 and $1,129, respectively. The January 17, 1994 Los Angeles earthquake caused major structural damage to two leased buildings in Chatsworth, California housing the Company's subsidiary, A.J. Electronics, Inc. In August 1994, after three months of arduous review, the Small Business Administration Disaster Assistance Division ("SBA") denied A.J. Electronics, Inc.'s ("A.J.") request for economic financial assistance prompted as a result of physical damage suffered in the Los Angeles earthquake. Management estimates that costs incurred as a result of the earthquake exceeded $500, not including the impact from lost business and costs to rebuild new business. A.J. was unable to recover from the disastrous effects of the earthquake and incurred substantial operating losses and cash outlays since January 1994. A.J.'s financial plan predicted that it would not fully recover economically until sometime in fiscal 1996. Management reviewed the situation at A.J. immediately after the decision by the SBA and concluded that A.J. would be a substantial economic burden on the consolidated group without financial assistance considering the limited working capital available to the Company. As a result, management committed to a formal plan to liquidate and sell the Company's A.J. segment. The plan for disposal was reviewed and approved by DDL's Board of Directors in its September 1, 1994 Board meeting. On January 17, 1995, the Company sold virtually all of A.J.'s operating assets to Raven Industries, Inc. ("Raven") for a purchase price of approximately $663 and Raven's assumption of approximately $300 in capitalized lease obligations. Raven also assumed the sales tax obligation associated with the sale that approximated $79. A.J. entered into a non-competition agreement with Raven that prevents A.J., but not the Company nor any of its other subsidiaries, from engaging in contract manufacturing in competition with Raven. A.J. was a separate corporation and was DDL's only U.S. ECM operation. Although DDL has an ECM operation in Europe, the two ECM companies did not co-mingle significant amounts of business due to substantial geographic boundaries, industries served and/or services provided. A.J.'s expected liquidation costs were recorded as a restructuring charge as of December 31, 1994 in the amount of approximately $1,173. This amount was subsequently increased as of fiscal year end 1995 by $360 to $1,533 due to additional costs associated with the closure of A.J. and for expected lease termination expenses. Results of Operations The following table sets forth the Company's sales and other operating data as percentages of sales: Year Ended June 30 1995 1994 1993 Sales 100.0% 100.0% 100.0% Cost of goods sold 89.7 98.6 95.1 ----- ----- ----- Gross Margin 10.3 1.4 4.9 Administrative and selling expenses 21.9 15.7 13.6 Restructuring charges 5.2 - - ----- ----- ----- Operating loss (16.8) (14.3) (8.7) Investment income .4 .3 .5 Interest expense (3.0) (2.3) (1.9) Earthquake costs - (1.0) - Other income .2 .1 - Gain on sale of capital assets 11.2 - .4 ----- ----- ----- Loss from continuing operations before income taxes (8.0) (17.2) (9.7) (provision) benefit for income taxes - - - ----- ----- ----- Loss from continuing operations (8.0) (17.2) (9.7) Gain (loss) from discontinued operations, less income taxes - - 1.0 ----- ----- ----- Loss before extraordinary items (8.0) (17.2) (8.7) Gain on debt extinguishment 8.3 - 10.5 ----- ----- ----- Net income (loss) .3% (17.2)% 1.8% ===== ===== ===== Results of Operations Fiscal 1995 vs. 1994 Consolidated sales for the fiscal year ended June 30, 1995 were $29,576, a decrease of $18,953 from last year. The reduction in sales resulted from the closure of the Company's A.J. Electronics, Inc. ("A.J."), Electronic Contract Manufacturing ("ECM") operation in November 1994 and the sale of the Company's Beaverton, Oregon Aeroscientific Corp.("Oregon"), Printed Circuit Board ("PCB") facility, at the end of December 1994. Approximately $13,550 and $5,256 of decline in consolidated sales was due to the reduced business volume at A.J. and Oregon, respectively. Restating fiscal years' 1995 and 1994 sales to eliminate both A.J. and Oregon reflects a decrease in sales for the Company's continuing operations of $147. Consolidated gross margin improved by $2,391 to $3,060, or as a percentage of sales, an improvement to 10.3% in 1995 vs. 1.4% in 1994. A.J.'s continuing operations were severely damaged by the January 17, 1994 Los Angeles earthquake. After the earthquake A.J. met its existing customer commitments, but lost new business from existing customers and potential customers while the plant was being recon-structed. Because of A.J.'s substantial decline in business, cash outflow and no opportunity for relief financing, Management committed to the shutdown and liquidation and sale of A.J. in August 1994. A.J. ceased all business activities in November. The ECM industry, in general, has experienced increased customer demand as customers move away from captive or in house ECM capabilities and out source production. At the same time, the number of ECM service providers is growing, thus increasing competition, keeping margins low and forcing sudden changes in the ECM groups customer base. The Company's PCB business, in both the United States and Europe, continued to be adversely affected by underutilization of existing capacity which, together with intense competition from companies within the PCB industry have contributed to a reduction in sales. The Company's domestic PCB production, formerly performed at its Beaverton, Oregon Aeroscientific ("Oregon") facility, was particularly impacted by its underutilization. In late 1994, Oregon changed its product mix and service strategy concentrating on higher margin, quick turn or proto-type business. Oregon's operating results improved but could not improve quickly enough to take advantage of improvements in the PCB industry's market. As a result, management took the opportunity to sell its Oregon facility to a Japanese PCB company interested in acquiring a production facility in the United States. Consideration for the sale of Oregon's assets included approximately $9,200 in cash and assumption by the buyer of approximately $300 of capitalized lease obligations. Oregon retained its trade accounts receivable and trade accounts payable. The sale resulted in a gain of $3,317 net of the book value of assets sold and of certain selling costs. Proceeds from sale of Oregon's assets were used to payoff all of the Company's senior debt obligation. This included negotiating a reduction in the amount owed to one of the senior lenders, Sanwa Bank, of $2,441; that amount was recognized as an extraordinary gain in fiscal 1995 in accordance with the Financial Accounting Standards Board's, Statement of Financial Accounting Standards #15, "Accounting by Debtors and Creditors in Troubled Debt Restructuring." Sales for the combined European operations were $20,811 in fiscal 1995, $147 or .7% lower than in the prior year. Irlandus Circuits Limited (Irlandus), located in Craigavon, Northern Ireland, is a producer of high quality, high technology multi-layer rigid PCBs. Sales in U.S. dollars for the current fiscal year improved by $1,082 or 11.5% over last year (5.6% increase as stated in Northern Ireland's functional currency, the British pound sterling). In fiscal 1995, Irlandus concentrated on enhancing its quick-turn business (orders delivered in less than 15 days from date of receipt) and on increased technology capabilities. Irlandus also changed its customer mix increasing the number of new customers who rely more on quick response, low volume, high technology, high margin business. As a result Irlandus has managed to improve pricing and gross margins without substantially increasing sales volume. Sales at the Company's Northern Ireland ECM operation, DDL Electronics Limited ("DDL-E"), were $1,228 or 10.6% lower than last fiscal year (13.9% lower stated in pounds sterling). The sales decline at DDL-E reflects its change in business mix from higher "Turnkey" (where DDL-E provides all materials, labor and equipment associated with producing the customers' product) to more "Consigned" (DDL-E provides labor and equipment only for manufacturing product) business. This change in business mix represented 95%/5% turnkey to consigned in fiscal 1994 versus 83%/17% in fiscal 1995. Materials used in turnkey sales typically approximate 70% of the products selling price. Consequently, the increase in consigned business in fiscal 1995, indicates an increase in sales contribution for fiscal 1995 of approximately 10%. Weaknesses experienced in fiscal 1994's third and fourth quarters from two major customers, continued into the first half of fiscal 1995. DDL-E experienced a strong recovery in orders from these two customers in the last two quarters of fiscal 1995, and coupled with the addition of several new customers in the second half of fiscal 1995, this resulted in 70% of total current year sales being realized during the second half of the year. The Company's consolidated operating loss was lower by $1,978 than last year's loss. The fiscal 1995 operating loss includes $1,533 in restructuring charges associated with the shut down and liquidation of A.J., and approximately $1,400 of non-recurring general and administrative expenses associated with the Company's change in board and management through proxy contest, increases in expected remediation costs associated with the Company's former Anaheim facility (see Note 11 - Commitments and Contingencies - notes to the consolidated financial statement) and an increase in the reserve for costs of the Company's post-retirement non-competition and consulting program. The Company's Northern Ireland PCB and ECM businesses performed profitably for the fiscal year ended 1995. Combined European gross margin improved by $1,530 to $2,835 while the fiscal 1994 operating loss was replaced by an operating profit of $561 (excluding intercompany corporate management fees). As previously mentioned, Irlandus realized an operating profit due to the change in its operating strategy. DDL-E realized strong improvement in the second half of fiscal 1995 due to added customers and increased orders from existing customers. The current year's net loss before extraordinary item was $5,988 lower than in fiscal 1994 due to the $3,317 gain resulting from the sale of Oregon's assets, and reduced interest expense resulting from the complete payoff of the Company's senior debt in December 1994. Investment income declined in fiscal 1995 by $59 due to a lower average monthly balance of investible funds, despite a higher ending cash balance. Interest expense declined during fiscal 1995 as compared to fiscal 1994 as a result of the payoff of the Company's senior debt. Improvement in the Company's consolidated loss from continuing operations for fiscal 1995 was due to the Company's sale or liquidation of unprofitable operations, improved operating margins at the Company's continuing subsidiaries, lower debt costs resulting from payoff of the Company's senior debt and gain realized from the sale of Oregon's facility and manufacturing assets. This was offset by restructuring charges associated with the liquidation of A.J. and additional general and administrative costs recorded in the last quarter of fiscal 1995. Fiscal 1994 vs. 1993 Consolidated sales for the fiscal year ended June 30, 1994 were $48,529, a decrease of $9,354 from last year due to lower sales volume at both the Company's PCB and its ECM operations. Sales were particularly affected at the Company's A.J. operation, as a result of the January 17, 1994 Los Angeles earthquake and the cancellation of orders by A.J.'s largest customer, Dataproducts. Damage to A.J.'s facilities forced a shutdown of operations for part of January and February, and A.J. did not return to full capacity until May. The Company's ECM group experienced a decrease in sales for the fiscal year, from last fiscal year, of $3,223 or 10%. ECM sales for fiscal 1994 were $28,620 or 59% of consolidated sales as compared to fiscal 1993 sales of $31,843, 55% of consolidated sales. ECM group sales decline for the fiscal year reflects the Los Angeles earthquake's impact on A.J.'s operations as well as the impact from A.J.'s reduced sales to Dataproducts. PCB operations experienced a decline in sales of $7,371 or 26% for the year ended June 30, 1994 when compared to the prior year. Oregon's fiscal 1994 sales declined by $2,589 to $11,179, an 18.8% decline from last year. Competitive market conditions caused downward pressure on pricing and sales volume. Oregon's gross margin deficit and operating loss for fiscal 1994 were $628 and $2,379, respectively, or $1,008 and $1,018, respectively, worse than in fiscal 1993. The decline in sales and increase in operating losses were due primarily to lower bookings levels, extreme price competition and low yields on certain products. A change in Oregon's production management team generated improved yields and higher pricing margins in the third and fourth quarters, but these improvements were offset by lower sales volume. Sales for fiscal 1994 at A.J., were $17,057, a decrease of $4,280 compared to 1993. The decline in sales is a direct result of the Los Angeles earthquake, and substantially reduced sales volume to A.J.'s largest customer, Dataproducts. A.J.'s sales for the first two months of calendar 1994 were sharply curtailed while A.J. awaited reconstruction of its plant facility and realignment and replacement of damaged machinery and materials. Sales to the Company's largest customer, Dataproducts, in 1993 were $7,703. Most of these sales occurred in the second half of fiscal 1993, and represented 13.3% of the Company's consolidated sales. At the end of fiscal 1993 Dataproducts canceled a large portion of its orders to A.J., which would have been shipped in fiscal 1994, due to similar cancellations by Dataproducts' customers. Sales to Dataproducts in the first half of fiscal 1994 were $5,645 or 47.5% of A.J.'s total then year to date sales. Sales in the second half of fiscal 1994 to Dataproducts were $677 for combined 1994 sales of $6,322 or 37% of A.J.'s 1994 sales and 13% of consolidated sales. Sales to Dataproducts are down sharply from the prior fiscal year and are less than one-half of what A.J. anticipated before Dataproducts' cancellations. A.J.'s gross margin for 1994 was similarly declined over last year by $408 to a deficit of $509. A.J.'s operating loss for the first half of 1994 was an improvement over prior year's first half loss and worsened in the third and fourth quarters. Management estimates that losses recognized by A.J. in the second half of fiscal 1994 were result of capacity lost due to impact on operations from the earthquake. As a result, A.J. shows a worsening of its gross margin deficit for the year despite a reduction of its work force and reduction of operating costs. Sales in U.S. dollars at Irlandus, were $9,395 for 1994, a decline of $4,782 or 33.7%, from the same period last year. Fiscal 1994 sales at DDL-E, were $11,563, an increase of $1,057, or 10% over last year. Combined European sales for the year, as stated in dollars, were 15.1% lower than in 1993. Restating Irlandus' and DDL-E's combined sales in pounds sterling shows a decrease in 1994 of only 8.3% when compared to last year. Differences in dollar versus pounds sterling caused a sales decrease, due to the significant drop in the translation rate during 1993. The translation rate was lower and held relatively steady during 1994. Increased sales at DDL-E are due to sales to new customers and increased sales to existing customers. DDL-E's two largest customers, substantially reduced their orders reducing sales in the second half of fiscal 1994. Irlandus' and DDL-E's combined gross margin (after government grant subsidies) for 1994 were $1,305. This is $707 lower than 1993. DDL-E's gross margin was higher over this period by 88% or $483 while Irlandus' gross margin was lower by 81% or $1,190. Irlandus' decline was due to price pressures and competition in the Company's European PCB market. Restating the pound sterling translation rate for the fiscal year ended June 30, 1994 shows a decline in rate to $1.50 pound sterling from fiscal 1993's rate of $1.60 pound sterling. Reduced sales for the ECM business is coupled with a lower gross margin of approximately 2%. The PCB business, in both the United States and Europe, continued to be adversely affected by underutilization of its existing capacity which, together with intense competition have contributed to a reduction in sales and a 2% gross margin deficit for fiscal 1994. The PCB operations improved in the fiscal fourth quarter, posting a gross profit margin of 4.6% on lower sales volume. The improvement reflects the Company's change in operating strategy for the PCB group, concentrating on higher margin, quick turn and prototype business. In the current year, consolidated gross margin declined by $2,162 to $169 from fiscal 1993 and as a percent of sales to 1.4% in 1994 vs. 4.9% in 1993. The ECM groups gross margin for the year was slightly higher by $75, an 8% increase from last year, while the PCB groups gross margin declined by $2,198. ECM operations contributed $1,025 of gross margin for the current year. Although an improvement from last year, the ECM group's continued low gross margin was a direct result of costs and lost production capabilities as a result of the Los Angeles earthquake's impact on A.J.'s facilities and due to order cancellations by various customers. PCB operations incurred a gross margin deficit for the fiscal year of $356. Much of the PCB group's loss was incurred in the first half of fiscal 1994, and was the result of trying to fill the PCB facilities with low margin, complex and large volume orders. The PCB group refocused its business doing more high margin quick turn and prototype business. The consolidated operating loss for fiscal year ended June 30, 1994 was greater than in fiscal 1993 by $1,881. Lower sales during fiscal 1994 along with lower gross margin percent contributed to the decline, partially offset by reduced administrative and selling expenses of $281. Reduced operating expenses for 1994 were primarily due to the effects of a decline in the Company's foreign currency translation rate and reduced operating costs at the Company's PCB and corporate headquarters operations. Sharply lower average currency translation rate during the first half of fiscal 1994 was a significant factor in reducing Europe's operating costs. Investment income declined in 1994, after certain reclassifications, by $113, mostly due to a reduction in the Company's unallocated pension funds from a formerly terminated defined benefit plan. An average monthly balance of such funds was approximately $1,366 during fiscal 1993. This balance dropped to an average monthly balance in fiscal 1994 of approximately $463. Additionally, interest realized on funds invested in Northern Ireland for the current period showed a lower U.S. return due to the pound sterling's drop in value. There was little change in interest expense during fiscal 1994 as compared to fiscal 1993. Although the average lending rate increased by one percentage point over 1993 and interest expense grants totaling $142 recognized by the Company's Northern Ireland entities in fiscal 1993 were not available in fiscal 1994, these factors were offset by a substantial reduction in debt through exchange of convertible subordinated debentures for equity and payments against senior debt. Inflation Changes in product mix from year to year and highly competitive markets make it difficult to accurately assess the impact of inflation on profit margins. Management generally believes that business has not been affected adversely or materially by inflationary increases in costs and expenses. Liquidity and Capital Resources For the year ended June 30, 1995, cash and cash equivalents increased by $377. As illustrated in the Consolidated Statement of Cash Flows, this increase in cash included the following: 1. $264 was used for operating activities, principally to fund continued operating losses, before extraordinary gain and gain on sale of assets. Losses from operations were partially offset by a reduction in working capital. 2. Investing activities provided $9,389 from the sale of capital assets, including virtually all of the assets of the Company's Aeroscientific Corp. and A.J. Electronics, Inc. subsidiaries. Offset by capital expenditures of $547 primarily for the Company's European operations. 3. Financing activities used $8,738 of cash, due to reductions of long-term debt resulting from normal principal payments on leases, mortgages and other term debt of $1,160 and $9,659 of the $12,100 owing to the Company's senior lenders was paid off in December 1994. The remaining senior debt of $2,441 owing to Sanwa Bank, was forgiven, and a corresponding extraordinary gain was recognized for the debt forgiveness. Cash used for debt reduction was offset by $612 in additions to long-term debt, $1,267 from issuance of capital stock and $202 in proceeds from government grants. For the year ended June 30, 1994, cash and cash equivalents decreased by $228, primarily due to the following: 1. $2,710 was used for operating activities, principally to fund continued operating losses. 2. Investing activities used $670, primarily to finance capital expenditures purchased for the Company's European operations. 3. Financing activities provided $3,131 of cash. Reductions of long-term debt resulted from normal principal payments on leases, mortgages and other term debt of $1,187 payments on accrued interest associated with the Company's 7% Convertible Subordinated Debentures of $63, and $383 in principal payments on the term loan to Sanwa Bank California ("Sanwa") and the Industrial Development Bonds pursuant to a sharing arrangement for net sales proceeds from sales of certain non-operating assets, and for the sale of Catel. Such payments are required in accordance with restructured loan agreements entered into in June 1992. Additional financing proceeds include $268 received from foreign government grants (actual proceeds based on capital and non-capital grant additions as reflected by the change in the Company's grant receivable balance), $3,455 from exercise of 2,370 outstanding warrants issued in conjunction with the fiscal 1993 exchange of convertible subordinated debentures for equity, $272 from issuance of additional long term debt, and $675 from issuance of Series B preferred stock to the Industrial Development Board for Northern Ireland. For the year ended June 30, 1993, cash and cash equivalents decreased by $404,000, primarily due to the following: 1. $1,235 was used for operating activities, principally to fund continued operating losses. The decline in cash was partially offset by the reduction of a terminated pension plan's deferred asset. 2. Investing activities provided $3,250. Cash was generated from the sale of capital assets, including the A.J. Electronics facility in Chatsworth, California, land and buildings in Phoenix, Arizona, and Cucamonga, California, and various other production machinery and equipment providing $2,391 in total proceeds. Uses of cash included $727 expended on capital assets and $200 for a long-term note receivable taken as part of the sale of the Chatsworth property, less $257 received on a settlement of a long-term note receivable. Finally, the sale of Catel had a net positive impact on investing cash flows of $1,529. 3. Outflows of $2,219 were used for financing activities. Reductions of long-term debt resulted from normal principal payments on leases of $649, principal payments on other loans and accrued interest associated with the Company's 7% Convertible Subordinated Debentures of $1,500, and $1,239 in principal payments on the term loan to Sanwa and the Industrial Development Bonds pursuant to a sharing arrangement for net sales proceeds from sales of certain non-operating assets. Additional financing proceeds include $1,091 received from foreign government grants (actual proceeds based on capital and non-capital grant additions as reflected by the change in the Company's grant receivable balance). 4. Finally, the decline in the exchange rate of the Company's foreign subsidiaries' functional currency, the British Pound Sterling, from $1.91/1 pound sterling to $1.51/1 pound sterling during the periods ended June 30, 1992, and June 30, 1993, created a $200 decrease in recorded cash. In July 1993, the Company raised $3.45 million from the exercise of warrants to purchase the Company's common stock (see Note 5 to the accompanying financial statements). In October, 1993, the Company and the Industrial Development Board for Northern Ireland (the "IDB-NI") reached an agreement whereby the IDB-NI purchased 450 shares of new series B convertible preferred stock ("preferred stock") for an aggregate price of approximately $675. In April 1995, the preferred stock was converted into 340,841 shares of common stock at a conversion price of $2.02 per common share and a value of $1,530 per preferred share, or a total of $688. Funds invested by the IDB-NI were used for working capital and other needs of the Company's Northern Ireland subsidiaries (The IDB-NI has previously provided grants for the establishment and operation of Irlandus and DDL-E (see Note 11 to the accompanying financial statements for additional information regarding these grants). In October 1994 the Company privately placed 760,000 shares of its common stock with a foreign investor. The sale of stock was exempt from registration under regulation S of the Securities Act of 1933, and other available exemptions. Net proceeds from the transaction of $980 were used for general operating purposes and to assist in the payoff of the Company's senior debt. The Company currently has no working capital lines of credit or other readily available sources for future borrowing. The Company's primary source of liquidity at June 30, 1995 is its cash balances which amounted to $2,917. Approximately $2,427 of this balance is held by the Company's Northern Ireland subsidiaries, and are limited as to the timing and amount that may be expatriated. Components of working capital decreased by $4,009 during the year ended June 30, 1995. This decrease resulted principally from a $2,024 reduction in accounts receivable, a $1,566 decrease in inventories and prepaid expenses and an increase of $413 in accounts payable and other accrued costs. The Company has approximately $3,000 of accrued liability remaining from a restructuring charge taken in fiscal 1992. Primary components of this reserve consist of $2,694 reserved for certain post-retirement and non-competition consulting agreements ("Agreements") with former officers and directors of the Company and $310 reserved for remediation of the Company's former Anaheim, California PCB manufacturing facility. During fiscal 1995 amounts were added to these reserves raising the accrued Agreements reserve to $3,255 and the Anaheim remediation reserve to $810. Increase in the Agreements reserve resulted from complete and full accrual of all potential amounts owing to all possible participants covered under the plans. During fiscal 1995, the Company reached a non-binding agreement to exchange the debt of participants under the Agreements for 600,000 warrants to purchase common stock of the Company under certain defined contract rights. The initial impact of a completed transaction would be a reduction of DDL's long term debt by approximately $1,800 with the final impact of complete elimination of the entire recorded liability (if the warrants are fully exercised). While the agreement is non-binding, the company expects it will seek to consummate such a transaction in the current fiscal year. Increase in the Anaheim remediation reserve resulted from new preliminary estimates to remediate the Anaheim site to standards expected by the Orange County Water Quality Control Board. The installation of water and soil extraction wells was completed in August 1994. A plan for soil remediation was completed about the same time and was submitted to regulatory authorities. The full extent of potential ground water pollution could not be determined given preliminary estimates. The Company put out for bid the complete remediation and testing of the site and retained Harding Lawson and Associates in May of 1995 to begin the vapor extraction of pollutant from the soil and to perform exploratory hydro-punch testing to determine the full extent and potential cost of the ground water contamination. These processes are in their preliminary stages and a complete and accurate estimate of the full and potential costs cannot be determined at this time. The Company believes that the resolution of these matters will require a significant cash outlay. Initial estimates from Harding Lawson indicate that it could cost as much as $3,000 to fully clean-up the site and take over ten years to complete. The Company and Aeroscientific Corp. entered into an agreement to share the costs of environmental remediation with the landlord at the Anaheim facility. Under this agreement, the Company is obligated to pay 80% of the site's total remediation costs up to $725 (i.e., up to the Company's share of $580) with any costs above $725 being shared equally between the Company and the landlord. To date the Company has paid $239 as its share of the remediation costs. The Company anticipates that its share of the final remediation cost will be less than or equal to the amount it has presently reserved. On December 29, 1994 the Company successfully consummated an integrated plan to pay off all of the Company's senior debt. The retirement of over $12,000 in debt was completed in conjunction with the Company's sale of certain assets of its Aeroscientific Corp. Oregon ("Oregon") subsidiary to Yamamoto Manufacturing (USA), Inc. ("Yamamoto"). The termination agreements with Sanwa Bank California ("Sanwa") covering Sanwa's term loan to the Company, and The Tokai Bank Ltd. ("Tokai") for its letter of credit issued to First Interstate Bank of Oregon, N.A. ("IRB Trustee"), as trustee for the state of Oregon on the Industrial Revenue Bonds ("IRBs") issued by Oregon, eliminated all liens that the senior lender had against the Company. As described in the Company's filing with the Securities and Exchange Commission on Form 8-K, on or about January 3, 1995, consideration for the sale of Oregon's assets to Yamamoto included approximately $9,200 in cash and assumption by Yamamoto of approximately $300 of capitalized lease obligations. Oregon retained its trade accounts receivable and trade accounts payable. As part of the pay off, Sanwa accepted a cash payment of $4,500 in full and complete satisfaction of outstanding debt owed by the Company to Sanwa; such debt included approximately $6,848 of principal, approximately $93 of accrued but unpaid interest and any other accrued but unpaid costs and expenses associated with Sanwa's financing. Sanwa's payoff was accounted for in accordance with Financial Accounting Standard No. 15, "Accounting by Debtors and Creditors in Troubled Debt Restructuring" (FAS 15). Under FAS 15 the payoff resulted in an extraordinary gain of $2,441, representing the difference between Sanwa's outstanding balance and what was paid by the Company as settlement. The Company offset the full $5,300 of IRBs through defeasance and redeemed the bonds on February 1, 1995. The defeased funds, plus approximately $68 for prepaid interest, was invested in treasury securities that provided a return slightly higher than the interest charged on the defeased bonds. The Company received full return of the prepaid interest. Both Tokai and the IRB Trustee signed termination agreements that released all liens on assets owned by the Company. The Company's ECM and PCB fabrication businesses require continuing investment in plant and equipment to remain competitive. At the same time, the Company's financial position has severely restricted its recent ability to make capital investments in its facilities. Capital expenditures during fiscal 1995, 1994 and 1993 were approximately $547, $614 and $684, respectively (net of grant reimbursements of $97 and $43, in fiscal 1994 and 1993, respectively). The Company anticipates it will need to increase its capital spending in the coming years in order to stay competitive as technology improves. On December 31, 1992, holders of $4,826 principal amount of the Company's 7% CSDs and $3,183 principal amount of its 8 1/2% CSDs exchanged the CSDs for common stock and warrants to purchase common stock in the future and eliminated the interest payment due November 16, 1992, on the exchanged 7% CSDs. The exchanges resulted in the issuance of 4,704,562 shares of common stock and 2,316,889 warrants to purchase common stock. In May and June of 1993, the Company consummated additional exchanges with holders of $585 principal amount of the 7% CSDs and $111 principal amount of the 8 1/2% CSDs, resulting in the issuance of an additional 329,574 shares of common stock and 276,768 warrants, which warrants had the same characteristics as those previously issued. The Company may effect similar exchanges with holders of the remaining outstanding debentures in the future. The warrants were exercisable at $1.50 per share until July 31, 1993, after which the exercise price increased to $2.25 per share until the October 31, 1994, which was extended until August 1, 1995. More recently the Company's Board of Directors extended the exercise period to December 29, 1995, and reduced the exercise price to $1.42/share. The Company can accelerate the termination date of the warrants if the average closing market price of the Common Stock for 10 business days within any 20 business-day trading period is at least $3.00 per share. The warrants are separately tradable. Reference is made to Note 5 of Notes to Consolidated Financial Statements for a description of the accounting treatment of the exchange. In July 1993, 2,370,155 warrants were exercised, generating net cash proceeds to the Company of approximately $3,455; 223,500 warrants remain outstanding. In June 1995, the Company filed for approximately $2,300 in refunds (net of certain expenses) with the Internal Revenue Service associated with the carry back of certain net operating loss (NOL) expense items in accordance with Sec. 172(f) of the Internal Revenue Code. The Company is presently awaiting these refunds and has not recorded such amounts on the financial statements. The achievement of operating profitability is the most significant internal factor to ensure the Company's long-term viability. No assurance can be given that the Company will maintain operating profitability, or that cash generated from non-operating asset sales or other means will be adequate to fund future cash needs. In the current competitive environment, management believes that the liquidation value of its assets in a voluntary or involuntary liquidation would be insufficient to meet the Company's debt obligations. Independent Auditors' Report The Board of Directors and Shareholders DDL Electronics, Inc.: We have audited the accompanying consolidated balance sheets of DDL Electronics, Inc. and subsidiaries as of June 30, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The accompanying consolidated statements of operations, stockholders' equity (deficit), and cash flows of DDL Electronics, Inc. an subsidiaries for the year ended June 30, 1993 were audited by other auditors whose report thereon, dated August 20, 1993, expressed an unqualified opinion on those statements and included an explanatory paragraph indicating there is substantial doubt concerning the Company's ability to continue as a going concern. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1995 and 1994 consolidated financial statements referred to above present fairly, in all material respects, the financial position of DDL Electronics, Inc. and subsidiaries as of June 30, 1995 and 1994, and the results of their operations and cash flows for the year then ended in conformity with generally accepted accounting principles. As discussed in note 1 to the consolidated financial statements, in 1994 the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". /S/KPMG PEAT MARWICK LLP - ------------------------ KPMG PEAT MARWICK LLP Portland, Oregon August 18, 1995 DDL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share amount) June 30 Assets 1995 1994 Current assets: Cash and cash equivalents $ 2,917 $ 2,540 Accounts receivable (note 3) 3,600 5,600 Inventories (note 4) 2,188 3,647 Prepaid expenses 171 231 ------ ------ Total current assets 8,876 12,018 Property, equipment and improvements, at cost (notes 5 and 11): Land - 1,101 Buildings and improvements 5,217 8,670 Plant equipment 9,486 22,499 Office and other equipment 1,268 1,508 Construction in progress - 60 ------ ------ 15,971 33,838 Less: Accumulated depreciation and amortization (12,662) (23,196) ------ ------ Property, equipment and improvements, net 3,309 10,642 Other assets 405 598 ------ ------ $12,590 $23,258 ====== ====== DDL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share amount) June 30 Liabilities and Stockholders Equity (Deficit) 1995 1994 Current liabilities: Current portion of long-term debt (note 5) $ 633 $13,524 Accounts payable 5,283 5,086 Accrued payroll and employee benefits 601 994 Other accrued liabilities 2,387 1,673 ------ ------ Total current liabilities 8,904 21,277 Long-term debt (note 5) 7,030 6,870 Commitments and contingencies (note 11) Stockholders equity (deficit) (notes 5 and 8): Convertible series B preferred stock, $1 par value; 1,000,000 shares authorized; 450 shares issued and outstanding at June_30, 1994 (with liquidation preference at June 30, 1994 of $688,500 over all other classes or series of capital stock) - - Common stock, $.01 par value; 50,000,000 shares authorized; 16,062,979 and 14,468,718 shares outstanding at June 30, 1995 and 1994, respectively 161 145 Additional paid-in capital 20,983 19,646 Accumulated deficit (23,598) (23,673) Foreign currency translation adjustment (890) (1,007) ------ ------ Total stockholders deficit (3,344) (4,889) ------ ------ $12,590 $23,258 ====== ====== See accompanying notes to consolidated financial statements. DDL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Statements of Operations (In thousands except per share and share amounts) Year ended June 30 1995 1994 1993 Sales $29,576 $48,529 $57,883 Costs and expenses: Cost of goods sold 26,516 47,860 55,052 Administrative and selling expenses 6,497 7,617 7,898 Restructuring charges (note 2) 1,533 - - ------ ------ ------ 34,546 55,477 62,950 ------ ------ ------ Operating loss (4,970) (6,948) (5,067) Non-operating income (expense): Investment income 109 168 280 Interest expense (883) (1,110) (1,107) Earthquake expenses - (500) - Gain on sale of assets 3,317 2 264 Other income 61 34 - ------ ------ ------ 2,604 (1,406) (563) ------ ------ ------ Loss from continuing operations before income taxes (2,366) (8,354) (5,630) Benefit (provision) for income taxes (note 6) - - - ------ ------ ------ Loss from continuing operations (2,366) (8,354) (5,630) Gain from discontinued operations (note 10) - - 603 ------ ------ ------ Loss before extraordinary item (2,366) (8,354) (5,027) Extraordinary item - Gain on debt extinguishment (note 5) 2,441 - 6,100 ------ ------ ------ Net income (loss) $ 75 $(8,354) $ 1,073 ====== ====== ====== See accompanying notes to consolidated financial statements. Year ended June 30 1995 1994 1993 Primary income (loss) per share: Continuing operations $(0.15) $(0.55) $(0.56) Discontinued operations - - 0.06 Extraordinary item 0.15 - 0.60 ----- ----- ----- Net income (loss) $ - $(0.55) $ 0.10 ===== ===== ===== Fully diluted income (loss) per share: Continuing operations $(0.15) $(0.55) $(0.37) Discontinued operations - - 0.04 Extraordinary item 0.15 - 0.42 ----- ----- ----- Net income (loss) $ - $(0.55) $ 0.09 ===== ===== ===== Shares used in computing income (loss) per common and common equivalent share: Primary 15,970,517 15,097,175 10,128,680 Fully diluted 16,907,165 15,856,906 14,408,973 See accompanying notes to consolidated financial statements. DDL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands, except share amounts) Year ended June 30, 1995 1994 1993 Cash flows from operating activities: Net income (loss) $ 75 $(8,354) $ 1,073 adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 1,505 3,120 3,616 Gain on debt extinguishment (2,441) - (6,100) Gain on sale of property and other assets (3,317) (2) (264) Gain on disposal of discontinued operations - - (603) Value of variable stock options granted - 6 345 Net decrease in operating working capital (note 9) 4,009 2,648 96 (Increase) decrease in deposits and other assets 2 27 (424) Non-cash pension charge 42 - 1,387 Benefit of non-capital grants (139) (150) (361) Other - (5) - ------ ------ ------ Net cash used by operating activities (264) (2,710) (1,235) Cash flows from investing activities: Capital expenditures (547) (711) (727) Proceeds from disposition of capital assets 9,936 18 2,391 Additions to note receivable - - 257 Long-term notes added - - (200) Net effect from disposal of discontinued operations - - 1,529 ------ ------ ------ Net cash provided (used) by investing activities 9,389 (693) 3,250 Cash flows (used) provided by financing activities: Proceeds from long-term debt 612 272 114 Reductions of long-term debt (10,819) (1,633) (3,436) Net proceeds from exercise of stock warrants - 3,455 - Proceeds from stock option exercise 287 94 15 Issuance of series B preferred stock - 675 - Proceeds from foreign government grants 202 268 1,091 Issuance of common stock 980 - - Other - - (3) ------ ------ ------ Net cash provided (used) by financing activities (8,738) 3,131 (2,219) ------ ------ ------ Effect of exchange rate changes on cash (10) 44 (200) ------ ------ ------ Increase (decrease) in cash and cash equivalents 377 (228) (404) Cash and cash equivalents at beginning of period 2,540 2,768 3,172 ------ ------ ------ Cash and cash equivalents at end of period $ 2,917 $2,540 $ 2,768 ====== ====== ====== See accompanying notes to consolidated financial statements.
DDL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders Equity (Deficit) Years ended June_30, 1995, 1994 and 1993 (In thousands except share amounts) Common Stock Preferred stock -------------- --------------- Foreign Additional currency Total Par Par paid-in Accumulated translation stockholders' Shares value* Shares value* capital deficit adjustment equity (deficit) Bal. at June 30, 1992 6,863,244 $ 69 - $ - $ 9,138 $(16,392) $ 902 $(6,283) Net income - - - - - - 1,073 - 1,073 Sales of stock and restrict- ed stock transactions (6,000) - - - (3) - - (3) Conversion of 7% subordinated debentures 59,500 1 - - 118 - - 119 Exchanges of 7% and 8-1/2% subordinated debentures 5,034,136 50 - - 5,767 - - 5,817 Exercise of stock options 22,000 - - - 15 - - 15 Compensation expense on stock option grants - - - - 345 - - 345 Translation adjustments - - - - - - - (2,026) (2,026) ---------- ---- ---- ----- - ------ ------ ------ ------ Bal. at June 30, 1993 11,972,880 120 - - 15,380 (15,319) (1,124) (943) Net loss - - - - - (8,354) - (8,354) Exercise of warrants 2,370,148 24 - - 3,431 - - 3,455 Issuance of preferred stock - - 450 - 675 - - 675 Conversion of 7% subordinated debentures 30,500 - - - 61 - - 61 Exercise of stock options 95,190 1 - - 93 - - 94 Compensation expense on stock option grants - - - - 6 - - 6 Translation adjustments - - - - - - 117 117 ---------- ---- ---- ----- - ------ ------ ------ ------ Bal. at June 30, 1994 14,468,718 145 450 - 19,646 (23,673) (1,007) (4,889) Net income - - - - - 75 - 75 Issuance of common stock 760,000 8 - - 972 - - 980 Conversion of 7% subordinated debentures 43,000 - - - 86 - - 86 Exercise of stock options 450,447 5 - - 282 - - 287 Shares retired (27) - - - - - - - Conversion of Series B preferred stock to common 340,841 3 (450) - (3) - - - Translation adjustments - - - - - - 117 117 ---------- ---- ---- ----- - ------ ------ ------ ------ Bal. at June 30, 1995 16,062,979 $ 161 - $ - $20,983 $(23,598) $ (890) $(3,344) * Par Value numbers restated for change in par value from $.33-1/3 per share to $.01 per share. See accompanying notes to consolidated financial statements. DDL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In thousands except share amounts) Note 1 - Summary of Significant Accounting Policies BASIS OF PRESENTATION The consolidated financial statements include the accounts of DDL Electronics, Inc. ("DDL") and its subsidiaries (collectively, the "Company"). All significant intercompany transactions and accounts have been eliminated in consolidation. During 1995, the Company sold substantially all of the assets of its domestic subsidiaries. ACCOUNTING PERIOD The Company utilizes a 52-53 week fiscal year ending on the Friday closest to June 30 which, for fiscal years 1995 and 1994, fell on June_30 and July 1, respectively. In these consolidated financial statements, the fiscal year-end for all years is shown as June 30 for clarity of presentation. INVENTORIES Manufacturing inventories are stated at the lower of cost or net realizable value, with cost determined principally by use of the first-in, first-out method. PLANT, EQUIPMENT, AND IMPROVEMENTS Depreciation and amortization are computed on the straight-line and declining balance methods. The principal estimated useful lives are: buildings - 20 years; improvements - 10 years; plant, office, and other equipment - 3 to 7 years. Upon the retirement of assets, costs and the related accumulated depreciation are eliminated from the accounts and any gain or loss is included in income. Plant and equipment acquired by DDL's foreign subsidiaries are recorded net of capital grants received from the Industrial Development Board for Northern Ireland. REVENUE RECOGNITION The Company recognizes revenue upon shipment of products. (Continued) DDL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In thousands except share amounts) INCOME TAXES Effective July 1, 1993, the Company adopted, on a prospective basis, Statement of Financial Accounting Standards No._109(FAS 109), "Accounting for Income Taxes". FAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, FAS 109 generally considers all expected future events other than enactments of changes in tax law or statutorily imposed rates. Previously, the Company used the FAS 96 asset and liability approach that gave no recognition to future events other than the recovery of assets and settlement of liabilities at their carrying amounts. Under FAS 109, the Company recognizes to a greater degree the future tax benefits of expenses recognized in the financial statements. There was no cumulative effect with the adoption of FAS 109. INCOME (LOSS) PER SHARE Primary income (loss) per share is computed by dividing net income by the weighted average number of shares of common stock outstanding and common stock equivalents. The determination of common stock equivalents assumes exercise of those outstanding stock options and warrants to purchase stock that have a dilutive effect on net income per share (calculated by the treasury stock method). Fully diluted income per share includes the assumed conversion of the convertible subordinated debentures and warrants if the effect on income per share is dilutive. FOREIGN CURRENCY TRANSLATION The financial statements of DDL's Northern Ireland subsidiaries have been translated into U.S. dollars from their functional currency, British pounds sterling, in the accompanying statements in accordance with Statement of Financial Accounting Standards No. 52. Balance sheet amounts have been translated at the exchange rate on the balance sheet date and income statement amounts have been translated at average exchange rates in effect during the period. The net translation adjustment is carried as a component of stockholders' equity (deficit). CASH EQUIVALENTS For financial reporting purposes, cash equivalents consist primarily of money market instruments and bank certificates of deposit that have original maturities of three months or less. (Continued) DDL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In thousands except share amounts) CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of money market instruments and trade receivables. The Company invests its excess cash in money market instruments and certificates of deposit with high credit quality financial institutions and, by policy, limits the amount of credit exposure to any one issuer. Concentrations of credit risk with respect to trade receivables exist because the Company's electronic contract manufacturing ("ECM") and printed circuit board ("PCB") fabrication facilities rely heavily on a relatively small number of customers. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses and such losses, to date, have been within management's expectations. CHANGES IN CLASSIFICATION Certain reclassifications have been made to the fiscal 1994 and 1993 financial statements to conform with the financial statement presentation for fiscal 1995. Such reclassifications had no effect on the Company's results of operations or stockholders' equity (deficit). Note 2 - RESTRUCTURING COSTS AND PRIVISION FOR LOSS ON DISPOSAL OF ASSETS On September_1, 1994, the Company s Board of Directors approved a plan to shut-down and dispose of its A.J. Electronics, Inc. subsidiary (A.J.). In conjunction with this plan, the Company recorded restructuring liabilities, aggregating $1,173 in the second quarter and increased its estimate in the fourth quarter to $1,533, for the expenses associated with the shut down and disposal of the assets of A.J.; including asset write-downs of $552, additional bad debt write-offs of $136, lease termination costs of $211 and all other exit costs totaling $664. Substantially all of the operating assets of A.J. were sold on January_17, 1995 for a total consideration, in the form of cash and debt assumption, of approximately $1,041. During the year, the Company has made cash payments of $278 for restructuring related items resulting in a restructuring reserve at June_30, 1995 of $494. The Company has an accrued liability of approximately $3,000 remaining from a restructuring charge incurred in fiscal 1992. Primary components of this reserve consist of $2,694 reserved for certain post-retirement and non-competition consulting agreements ( Agreements ) with former officers and directors of the Company and $500 originally accrued, of which $310 remained at June_30, 1995, for remediation of the Company's former Anaheim, California PCB manufacturing facility. During fiscal 1995 amounts were added to these reserves raising the accrued Agreements reserve to $3,255 and the Anaheim remediation reserve to $810. Increase in the Agreements reserve resulted from complete and full accrual of all potential amounts owing to all possible participants covered under the plans. (Continued) DDL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In thousands except share amounts) Note 3 - ACCOUNTS RECEIVABLE The components of accounts receivable are as follows: June 30, 1995 1994 Trade receivables $ 3,511 $ 5,578 Other receivables 270 555 Less allowance for doubtful accounts (181) (533) ------ - ------ $ 3,600 $ 5,600 ====== ====== Included in other receivables at June 30, 1995, and 1994 are grants due from the Industrial Development Board for Northern Ireland ("IDB-NI") of $140 and $214, respectively (see note 11). Note 4 - INVENTORIES Inventories are comprised of the following: June 30, 1995 1994 Raw materials $ 1,634 $ 3,167 Work in process 710 864 Less reserves (156) (384) ------ - ------ $ 2,188 $ 3,647 ====== ====== DDL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In thousands except share amounts) Note 5 - FINANCING ARRANGEMENTS LONG-TERM DEBT Long-term debt consists of the following: June 30, 1995 1994 Industrial revenue bonds $ - $ 5,300 Notes payable, secured by the plant and buildings at the Northern Ireland opera- tions at variable rates (9.5% at June 30, 1995), due in 30 semiannual installments of principal and interest 1,346 1,353 Bank term loan payable - 6,848 Capitalized lease obligations (note 11) 124 880 8 1/2% Convertible Subordinated Debentures, due 2008, interest payable semi-annually convertible at holders option at a conver- sion price of $10 5/8 per share at any time prior to maturity. Redeemable by the Company at 103.4% of the principal amount during the 12 months ended July_31, 1995 and subsequent- ly at prices declining to 100% at August_1, 1998, and thereafter 1,580 1,580 7% Convertible Subordinated Debentures, due 2001, interest payable semi-annually conver- tible at holders option at a conversion price of $2.00 per share at any time prior to maturity 653 813 Post retirement non-competition and consulting program (note 7) 3,255 2,694 Other 705 926 ------ - ------ 7,663 20,394 Less current maturities 633 13,524 ------ - ------ $ 7,030 $ 6,870 ====== ====== The aggregate amounts of minimum maturities of long-term debt for the indicated fiscal years (other than capitalized lease obligations, as described in note 11) are as follows: 1996_- $568; 1997 - $112; 1998 - $120; 1999 - $269; 2000 - $106; and thereafter $6,364. (Continued) DDL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In thousands except share amounts) During the second quarter of 1995, the Company successfully consummated an integrated plan to pay off $5,300 of 4.2% industrial revenue bonds (IRB s) due 2006 and $6,941 of Sanwa bank term loan, interest at Sanwa s prime lending rate, due May_1, 1995. The retirement of this debt was completed in conjunction with the Company s sale of certain assets of its Aeroscientific Corp. Oregon subsidiary (Aero-Oregon) for proceeds of approximately $9,200 in cash and the assumption by the purchaser of approximately $300 of capitalized lease obligations. As part of the pay off, Sanwa accepted a cash payment of $4,500 in complete satisfaction of the Company s debt to Sanwa resulting in an extraordinary gain of $2,441. The sale of the Aero Oregon assets resulted in a gain of approximately $3,317. During 1993, pursuant to privately negotiated transactions, holders of $5,411 in principal of 7% Convertible Subordinated Debentures (CSDs) and $3,294 in principal of 8 1/2% CSDs exchanged the CSDs for units consisting of common stock and warrants to purchase common stock. The exchanges resulted in the issuance of 5,034,136 shares of common stock and 2,593,657 warrants to purchase common stock (see note 8). On July_31, 1993, holders of 91% of the outstanding warrants exercised such warrants generating net cash proceeds of approximately $3,445 which resulted in an extraordinary gain of approximately $6,100. During 1995, 1994 and 1993, holders of $ 86, $61 and $119, respectively, in principal of 7% CSDs exchanged such CSDs for 43,000, 30,500 and 59,500 shares, respectively, of common stock pursuant to the conversion features of the related indenture. Accrued undiscounted future interest related to the converted bonds was credited to income. (Continued) DDL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In thousands except share amounts) Note 6 - INCOME TAXES Temporary differences between financial statement carrying amounts and the tax bases of assets and liabilities that give rise to significant portions of the U.S. deferred tax assets and liabilities relate to the following: June 30, June 30, 1995 1994 Deferred tax assets: Accrued employee benefits $ 1,228 1,066 Warranty and loss reserves 780 594 Net operating loss carryforwards 19,890 20,358 Other 148 588 ------ ------ Total gross deferred tax assets 22,046 22,606 Less valuation allowance (20,846) (21,330) ------ ------ Net deferred tax assets 1,200 1,276 Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation $ (1,200) (1,259) Other - (17) ------ ------ Total gross deferred tax liabilities (1,200) (1,276) ------ ------ Net deferred tax asset $ - - ====== ====== (Continued) DDL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In thousands except share amounts) The provision (benefit) for income taxes attributable to loss from continuing operations differs from an amount computed using the statutory federal income tax rate as follows: June 30, 1995 1994 1993 Expected statutory federal tax $ (804) $(2,840) $(1,914) Change in valuation allowance 804 2,840 1,914 ------ ------ ------ $ - $ - $ - ====== ====== ====== Pretax income (loss) from foreign operations for fiscal 1995, 1994, and 1993 was $443, $(5,430), $(1,959), respectively. Income of Irlandus Circuits Limited, one of the Company's Northern Ireland subsidiaries, is sheltered by United Kingdom net operating loss carryforwards (the "NOL"). The income tax benefit from the NOL was $- 0 -, $455, and $173, in fiscal 1995, 1994, and 1993, respectively, which, in accordance with FAS No. 109, has been treated as a reduction in the provision for income taxes. At June 30, 1995, the NOL amounted to approximately $7,800 for income tax purposes. Substantially all of these net operating losses from prior years can be carried forward by Irlandus for an indefinite period of time to reduce future taxable income. In addition, future income of DDL Electronics Limited, the Company's other Northern Ireland operating company, is sheltered by an NOL which amounted to $3,200 for income tax purposes. At June 30, 1995 the Company's valuation allowance was comprised mostly of NOL carryforwards generated during prior years. The valuation allowance decreased from the end of fiscal 1994 by $484, primarily due to effects of asset sales and current operations. As of June_30, 1995, the Company has U.S. federal and state NOL carryforwards of $36,815 and $27,802, respectively, expiring in 2003 through 2010. The alternative minimum tax is imposed at a 20% rate on a corporation's alternative minimum taxable income which is determined by making statutory adjustments to a corporation's regular taxable income. Alternative minimum tax NOL carryforwards may be used to offset only 90% of a corporation's alternative minimum taxable income. The NOL carryforward for federal alternative minimum tax purposes is approximately $28,539. (Continued) DDL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In thousands except share amounts) The Company s ability to use its NOL carryforwards to offset future taxable income is subject to annual restrictions contained in the United States Internal Revenue Code of 1986, as amended (the Code). These restrictions act to limit the Company's future use of its NOL's following certain substantial stock ownership changes enumerated in the Code and referred to hereinafter as an ownership change . Utilization of NOLs incurred through July 1993 became limited due to an ownership change. NOLs incurred subsequent to July 1993 are not subject to limitation. The amount of the NOL carryforward subject to limitation is approximately $27,764. The annual limitation is approximately $1,222. No provision was made for U.S. or additional foreign taxes on undistributed earnings of the Company's foreign subsidiaries as those earnings are reinvested. It is not practicable to estimate the amount of tax that might be payable on the eventual remittance of such earnings. On remittance, the United Kingdom imposes withholding taxes that would then be available for use as a credit against the U.S. tax liability, if any, subject to certain limitations. Note 7 - EMPLOYEE BENEFIT PLANS The Company has a post-retirement non-competition and consulting program whereby key employees may, at the Company's discretion, be offered payment for their agreement not to compete with the Company and for consulting services to be rendered after retirement. In addition, the former employee must agree to be supportive of the Company and to refrain from any actions or statements that are adverse to the Company's interest. The non-competition and consulting period is typically 10 years, commencing at date of retirement. Consideration is paid in equal installments over 120 months. Future payments to retirees pursuant to this plan have been accrued with additional amounts recorded in 1995 for an added participant and to increase the reserve for director emeritus fees and contract costs. Amounts owing are included in long-term debt (see note 5). The Company and the program participants have agreed to defer payments made under the program due to the Company's deteriorating cash position. Interest at prime rate is accrued quarterly on deferred amounts. Program payments will resume at such time as the Board of Directors determines that the Company's cash position can support further payments. (Continued) DDL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In thousands except share and per share amounts) Series A Participating Junior Preferred Stock Purchase Rights - ------------------------------------------------------------- 1,000 preferred stock purchase rights, which may be exercised to purchase one-hundredth of a share of Series A Participating Junior Preferred Stock at a purchase price of $30.00, subject to adjustment, are outstanding at June_30, 1995. The rights may be exercised only after commencement or public announcement that a person (other than a person receiving prior approval from the Company) has acquired or obtained the right to acquire 20% or more of the Company's outstanding common stock. The rights, which do not have voting rights, may be redeemed by the Company at a price of $.01 per right within ten days after the announcement that a person has acquired 20% or more of the outstanding common stock of the Company and the redemption period may be extended under certain circumstances. In the event that the Company is acquired in a merger or other business combination transaction, provision shall be made so that each holder of a right shall have the right to receive that number of shares of common stock of the surviving company which at the time of the transaction would have a market value of two times the exercise price of the right. 150,000 shares of Series A Junior Participating Preferred Stock, $1.00 par value are authorized. Warrants - -------- The following warrants are outstanding at June_30, 1995: 1. 223,500 warrants to purchase common stock at $2.25 per share until August 1, 1995. In July, 1995, the Board of Directors approved a change in exercise price to $1.42 per share and extended the exercise period to December_29, 1995. The Company can accelerate the termination date of the warrants if the average closing market price of the common stock for 10 business days within any 20 business day trading period is at least $3.00 per share. The warrants are separately tradable. 2. 100,000 warrants to purchase common stock at $1.31 per share until May_24, 1997. (Continued) DDL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In thousands except share amounts) Note 9 - INFORMATION RELATING TO CONCOLIDATED STATEMENTS OF CASH FLOWS "Net cash provided (used) by operating activities" includes cash payments for interest: June 30, 1995 1994 1993 Interest paid $ 883 $1,100 $ 1,220 "Net decrease in operating working capital" is comprised of the following (changes in operating working capital accounts may not equal differences derived by comparing balance sheet accounts due to fluctuations in the exchange rate between reported balance sheet dates): June 30, 1995 1994 1993 Decrease in accounts receivable $ 2,030 $3,604 $ 2,077 (Increase) decrease in inventories 1,504 3,404 (1,423) (Increase) decrease in prepaid expenses 62 881 (574) Increase (decrease) in accounts payable 111 (4,678) 793 Increase (decrease) in accrued payroll and employee benefits (406) (178) 130 Increase (decrease) in other liabilities 708 (385) (907) ------ ------ ------ Net decrease $ 4,009 $2,648 $ 96 ====== ====== ====== Supplemental schedule of non-cash investing and financing activities: June 30, 1995 1994 1993 Capital expenditures financed by lease obligations $ 96 $ 94 $ 124 7% CSDs converted to equity 86 61 119 Market Value of equity and warrants exchanged for 7% and 8 1/2% CSDs - - 5,817 Reduction of long-term debt resulting from exchanges of CSDs - - 12,191 Conversion of preferred stock for common stock 3 - - (Continued) DDL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In thousands except share amounts) Note 10 - DISCONTINUED OPERATIONS Communications Business The Company's Catel Telecommunications, Inc. ("Catel") subsidiary, which was engaged in the manufacture of broadband telecommunications equipment for the cable television and telecommunication markets, was sold effective June 30, 1993. Operating results for this discontinued business is excluded from the Consolidated Statement of Operations to present separately the results of continuing operations. The results for this entity are summarized as follows: June 30, 1993 Net sales $ 5,374 ====== Loss from operation of discontinued subsidiary $ (769) Offset of discontinued subsidiary loss 769 Gain on disposal of discontinued operation 603 ------ $ 603 ====== Note 11 - Commitments and Contingencies Future minimum lease payments at June 30, 1995, were as follows: Capital Operating leases leases Fiscal 1996 $ 78 $ 71 Fiscal 1997 91 77 Fiscal 1998 17 53 ----- ----- Total $ 186 $ 201 ===== ===== The present value of future minimum capital lease payments at June 30, 1995, was $124. The capitalized cost of the related assets (primarily plant equipment), which are pledged as security under the leases, was $359 and $1,522 at June 30, 1995, and 1994, respectively. Accumulated amortization on assets under capital leases amounted to $237 and $767 at June 30, 1995 and 1994, respectively. (Continued) DDL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In thousands except share amounts) Rental expense for operating leases amounted to $238, $478, and $363, for fiscal 1995, 1994, and 1993, respectively. The Company's principal operating leases are renewable at the fair rental value on the expiration dates. Through June 30, 1995, the IDB-NI has reimbursed the Company for qualifying capital expenditures and for certain employment and interest costs in the aggregate amount of $6,073. Approximately $3,486 of the government grants received by the Company remain subject to repayment terms if goals as to growth and employment levels are not achieved and maintained. Federal, state, and local provisions relating to the protection of the environment affect the Company's printed circuit board fabrication operations. The Company's printed circuit board plants generate hazardous waste, some of which is treated on site and some of which is removed from the Company's facilities and disposed of elsewhere by arrangement with the owners or operators of disposal sites. The Company's Aeroscientific-Anaheim subsidiary has received notice from the United States Environmental Protection Agency that it is regarded as a potentially responsible party ("PRP") under federal environmental laws in connection with a waste disposal Site known as the "Stringfellow Superfund site" in Riverside County, California, which is presently being considered by governmental authorities for remediation. Aeroscientific has been named as a third party defendant by other PRPs in a case brought by the United States Government concerning this site. Aeroscientific has also been named as a defendant together with a large number of PRPs in a civil action filed by the residents and homeowners adjacent to the Stringfellow site. The information developed during discovery and investigation thus far indicates that Aeroscientific supplied relatively small amounts of waste to the site as compared to the many other defendants. As part of the currently proposed Settlement Agreement, small polluters would pay a fixed amount plus an amount that varies based on volume of material dumped at the site. Under these guidelines, the Company's probable liability will be $120. Final settlement and timing of payment are currently indeterminable, and no assurances can be given that any settlement will be achieved. The Company, however, has accrued a sufficient liability to cover the proposed settlement as of fiscal year end 1995. Any further remedial costs or damage awards in these cases may be significant and management believes that the Company's allocated share of such costs or damages could have a material adverse effect on the Company's business or financial condition. The actions are still in the pre-trial and discovery stages and a prediction of outcome is difficult. There is, as in the case of most environmental litigation, the theoretical possibility of joint and several liability being imposed upon Aeroscientific for damages which may be awarded. Total estimated cleanup costs for the Stringfellow site have been estimated at $600,000. The Company's possible range of liability is indeterminable, and the reliability and precision of estimated cleanup costs are subject to a myriad of factors which are not currently measurable. (Continued) DDL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In thousands except share amounts) The Company is aware of certain chemicals that exist in the ground at its previously leased facility at 1240-1244 South Claudina Street, Anaheim, California. The Company has notified the appropriate governmental agencies and is proceeding with remediation and investigative studies regarding soil and groundwater contamination. The Company believes that it will be required to implement a continuing remedial program for the site, the cost of which is currently unknown. The installation of water and soil extraction wells was completed in August 1994. A plan for soil remediation was completed about the same time and was submitted to regulatory authorities. The full extent of potential ground water pollution could not be determined given preliminary estimates. The Company retained the services of Harding Lawson and Associates in May of 1995 to begin the vapor extraction of pollutant from the soil and to perform exploratory hydro-punch testing to determine the full extent and cost of the potential ground water contamination. These processes are in their preliminary stages and a complete and accurate estimate of the full and potential costs cannot be determined at this time. The Company believes that the resolution of these matters will require a significant cash outlay. Initial estimates form Harding Lawson indicate that it could cost as much as $3,000 to fully clean-up the site and take over ten years to complete. The Company and Aeroscientific Corp. entered into an agreement to share the costs of environmental remediation with the landlord at the Anaheim facility. Under this agreement, the Company is obligated to pay 80% of the site s total remediation costs up to $725 (i.e., up to the Company s share of $580) with any costs above $725 being shared equally between the company and the landlord. To date the Company has paid $239 as its share of the remediation costs. The Company has accrued $810 in the accompanying balance sheet associated with this environmental remediation, which represents its estimated share of the future discounted remediation costs. Other than the environmental litigation described above, the Company is involved in additional litigation matters resulting from the ordinary course of business. At the current time, management believes that all such additional actions, in the aggregate, will not have a material adverse effect on the Company. DDL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In thousands except share amounts) Note 12 - BUSINESS SEGMENT AND GEOPRAPHIC INFORMATION The Company operates in one primary industry segment providing ECM and PCB fabrication services principally to the computer, communications, instrumentation, and medical equipment markets. Sales, operating income, and identifiable assets by geographic area are as follows: June 30, 1995 1994 1993 Sales: United States $ 8,765 $27,571 $33,453 Northern Ireland 20,811 20,958 24,430 ------ ------ ------ Total $29,576 $48,529 $57,883 ====== ====== ====== Income/loss from operations: United States $(2,927) $(5,979) $(4,402) Northern Ireland 561 (2,375) (1,228) ------ ------ ------ Total $(2,366) $(8,354) $(5,630) ====== ====== ====== Identifiable assets: United States $ 1,003 $12,990 $14,601 Northern Ireland 11,587 10,268 19,138 ------ ------ ------ Total $12,590 $23,258 $33,739 ====== ====== ====== Sales by A.J. Electronics to Dataproducts Corporation accounted for approximately 13.0% and 13.3% of sales in 1994 and 1993, respectively. DDL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In thousands except share and per share amounts) Note 13 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Quarters ended - ------------------------------------------------- September 30 December 31 March 31 June 30 Total Fiscal 1995 Sales $ 8,940 $ 7,654 $6,079 $ 6,903 $ 29,576 ====== ====== ====== ====== ======= Income (loss) from continuing operations (2,862) 2,145 167 (1,816) (2,366) Extraordinary item-gain on debt extinguishment - 2,441 - - 2,441 ------ ------ ------ ------ ------ Net income (loss) $(2,862) $ 4,586 $ 167 $(1,816) $ 75 ====== ====== ====== ====== ====== Income (loss) per share: Continuing operations $(0.19) $ 0.13 $0.01 $(0.11) $(0.15) Extraordinary item - 0.15 - - 0.15 ----- ----- ----- ----- ----- Total $(0.19) $ 0.28 $0.01 $(0.11) 0.00 ====== ===== ===== ===== ===== Fiscal 1994 Sales $14,249 $13,920 $11,343 $ 9,017 $48,529 ====== ====== ====== ====== ====== Net loss $(1,569) $(2,324) $(2,142) $(2,319) $(8,354) ====== ====== ====== ====== ====== Loss per share Net loss $(0.11) $(0.15) $(0.14) $(0.15) $(0.55) ===== ===== ===== ===== ===== DDL ELECTRONICS, INC. AND SUBSIDIARIES Market and Dividend Information The Company's common shares are traded on the New York Stock and Pacific Stock Exchanges (ticker symbol DDL). The high and low closing sales prices for the common stock for the last two fiscal years, as reported in the New York Stock Exchange Composite Transactions, are set forth in the following table. Fiscal 1995 Fiscal 1994 High Low High Low 1st Quarter 1-7/8 1 2-5/8 1-5/8 2nd Quarter 2-1/2 1 1-7/8 1 3rd Quarter 1-1/2 1 2 1-1/8 4th Quarter 2 1-1/8 1-3/8 3/4 There were approximately 1,567 stockholders of record at September 15, 1995. The Company's warrants are traded on the Over the Counter (OTC) Bulletin Board (ticker symbol DDLBW). The Company suspended dividend payments effective March 31, 1989. A resumption of dividend payments is not anticipated in the foreseeable future. Form 10-K Annual Report - ----------------------------------------------------------------- - --------------------------- A copy of the Form 10-K annual report filed with the Securities and Exchange Commission (without exhibits) may be obtained free of charge upon written request to DDL Electronics, Inc., Tigard, Oregon 97223. DDL ELECTRONICS, INC. AND SUBSIDIARIES DIRECTORS, CORPORATE OFFICERS, OPERATING UNITS AND OTHER INFORMATION DIRECTORS - --------- Philip H. Alspach President, Intercon, Inc. Irvine, California Melvin Foster Lawyer, Member of Massachusetts State Bar Boston, Massachusetts Audit Committee Don A. Raig Interim President and Chief Operating Officer DDL Electronics, Inc. Tigard, Oregon Bernee D. L. Strom President and CEO, USA Digital Radio Chicago, Illinois Audit Committee Erven Tallman Acting Chairman of the Board and Chief Executive Officer, DDL Electronics, Inc. Tigard, Oregon Compensation Committee Rob Wilson Interim Vice President, DDL Electronics, Inc. Tigard, Oregon Compensation Committee CORPORATE OFFICERS - ------------------ Erven Tallman Acting Chairman of the Board and Chief Executive Officer Don A. Raig Interim President and Chief Operating Officer Rob Wilson Interim Vice President C.L. Haslam Secretary OPERATING UNITS - --------------- DDL Electronics Limited Craigavon, Northern Ireland Irlandus Circuits Limited Craigavon, Northern Ireland TRANSFER AGENT AND REGISTRAR - ---------------------------- AMERICAN STOCK TRANSFER & TRUST CO. 40 Wall Street New York, New York 10005 INDEPENDENT AUDITORS - -------------------- KPMG PEAT MARWICK LLP Portland, Oregon LEGAL COUNSEL - ------------- C. L. Haslam 4620 Sedgwick Street NW Washington, DC 20016 Parker, Poe, Adams & Bernstein, LLP 2500 Charlotte Plaza Charlotte, North Carolina 28244
EX-21 9 EXHIBIT 21 DDL ELECTRONICS, INC. SUBSIDIARIES OF THE REGISTRANT All subsidiaries are 100% owned by DDL Electronics, Inc., except as otherwise indicated, and are included in the consolidated financial statements. Subsidiaries Incorporation Aeroscientific Corp. (California) (99.9% owned by DDL Electronics, Inc.) California Aeroscientific Corp. (Oregon) (100% owned by Aeroscientific Corp.(California)) Oregon A.J. Electronics, Inc. California DDL Europe Limited Northern Ireland DDL Electronics Limited (100% owned by DDL Europe Limited) Northern Ireland Irlandus Circuits Limited (100% owned by DDL Europe Limited) Northern Ireland EX-23 10 EXHIBIT 23a CONSENT OF INDEPENDENT ACCOUNTANTS The Board of Directors DDL Electronics, Inc. We consent to the incorporation by reference in the Registration Statements (Nos. 33-18356, 33-45102 and 33-74400) on Form S-8 of DDL Electronics, Inc. of our reports dated August 18, 1995 and August 19, 1994, relating to the consolidated balances sheet of DDL Electronics, Inc. and subsidiaries as of June 30, 1995 and 1994, respectively, and the related consolidated statements of operations, shareholders equity, and cash flows and related schedules for the years then ended, which reports appears in the June 30, 1995 and 1994 annual report of DDL Electronics, Inc. As discussed in note 1 to the consolidated financial statements, in 1994 the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". KPMG PEAT MARWICK Portland, Oregon September 28, 1995 EXHIBIT 23B Report of Independent Accountants on Financial Statement Schedules To the Board of Directors of DDL Electronics, Inc.: Our audits of the consolidated financial statements referred to in our report dated August 20, 1993, appearing on Page 33 of the 1995 Annual Report to Stockholders of DDL Electronics, Inc. also included an audit of the Financial Statement Schedules listed in Item 14(a)(2) of this Form 10-K as relating to the year ending June 30, 1993. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Price Waterhouse LLP Portland, Oregon August 20, 1993 EX-27 11
5 1,000 YEAR YEAR JUN-30-1995 JUN-30-1994 JUN-30-1995 JUN-30-1994 2,917 2,540 0 0 3,600 5,600 181 533 2,188 3,647 8,876 12,018 15,971 33,838 12,662 23,196 12,590 23,258 8,904 21,277 2,233 2,393 161 145 0 0 0 0 (3,505) (5,034) 12,590 23,258 29,576 48,529 29,576 48,529 26,516 47,860 31,059 55,773 0 0 0 0 883 1,110 (2,366) (8,354) 0 0 (2,366) (8,354) 0 0 2,441 0 0 0 75 (8,354) 0 (0.55) 0 (0.55)
EX-99 12 EXHIBIT 99 UNDERTAKING FOR FORM S-8 REGISTRATION STATEMENT With respect to the Registration Statement previously filed by the Company on Form S-8, the Company hereby undertakes as follows: Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding), is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. -----END PRIVACY-ENHANCED MESSAGE-----