-----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, L5A4fZDHUlzJU4kF2r0WJQrJFk/liBIzT57Vh8aWcGLBPRr27JZIFphbE0FlzYtc heOkTHHt0/mahs653dkEzw== 0000026987-97-000015.txt : 19971027 0000026987-97-000015.hdr.sgml : 19971027 ACCESSION NUMBER: 0000026987-97-000015 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19971024 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/A SEC ACT: SEC FILE NUMBER: 001-08101 FILM NUMBER: 97700534 BUSINESS ADDRESS: STREET 1: 2151 ANCHOR COURT CITY: NEWBURY PARK STATE: CA ZIP: 91320 BUSINESS PHONE: 805-376-9415 MAIL ADDRESS: STREET 1: 2151 ANCHOR COURT CITY: NEWBURY PARK STATE: CA ZIP: 91320 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/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (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, 1997 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 ___________ Exact Name of Registrant as Specified in Its Charter: DDL ELECTRONICS, INC. ______________________________ DELAWARE 33-0213512 _____________________________ _____________ State or Other Jurisdiction of I.R.S. Employer Incorporation or Organization No. Identification Address of Principal Executive Offices: 2151 Anchor Court Newbury Park, CA 91320 _________________________ Registrant's Telephone Number: (805) 376-9415 _________________________ 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 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 Part III of 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 October 23, 1997 was $18,110,000. The registrant had 24,593,858 shares of Common Stock outstanding as of October 23, 1997. DOCUMENTS INCORPORATED BY REFERENCE Specified parts of the registrant's Annual Report to Stockholders for its fiscal year ended June 30, 1997 are incorporated by reference into Parts I and II hereof. Specified parts of the registrant's Proxy Statement for its 1997 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. EXHIBIT INDEX See page 24 PART I Item 1. Business The Company provides customized, integrated electronic manufacturing services ("EMS") to original equipment manufacturers ("OEMs") in the computer, telecommunications, instrumentation, medical, industrial and aerospace industries. The Company also fabricates multilayer printed circuit boards ("PCBs") for use primarily in the computer, communications and instrumentation industries. The Company's EMS operations are located in Southern California and Northern Ireland. Its PCB facilities are located in Northern Ireland. The Company entered the EMS business by acquiring its domestic EMS operations in 1985 and by organizing its European EMS operations in 1990. Since 1985, the Company has made substantial capital expenditures in its Northern Ireland EMS and PCB fabrication facilities. In fiscal 1995, the Company liquidated or sold all assets associated with its PCB and EMS operations in the United States. In fiscal 1996, the Company acquired SMTEK, Inc. ("SMTEK") as the first step toward rebuilding a domestic presence in the EMS industry. RECENT DEVELOPMENTS On May 29, 1997, the Company signed a letter of intent (the "Letter of Intent") to merge with Century Electronics Manufacturing, Inc. ("CEMI"). Pursuant to the Letter of Intent, CEMI was to provide a loan up to $3.3 million to the Company by June 1, 1997 for retirement of the Company's 10% Senior Secured Notes in the aggregate principal amount of $5,300,000 (the "Senior Notes"). However, such financing was not made available by CEMI. As a result, on June 30, 1997 the Company obtained alternate financing which enabled it to repay its Senior Notes. On September 22, 1997, the Company filed a lawsuit against CEMI in California, alleging breach of contract and fraud and seeking $5,000,000 in actual damages plus punitive damages. On October 14, 1997, CEMI filed a lawsuit of its own against the Company in Massachusetts. Refer to Item 3 herein for a further description of these legal proceedings. The Company, with the authorization of its Board of Directors, implemented a quasi-reorganization effective June 27, 1997. The quasi- reorganization, which did not require the approval of the Company's stockholders, resulted in an elimination of the accumulated deficit of $23,678,000 by a transfer from additional paid-in capital of an equivalent amount. This deficit was attributable primarily to operations which were divested or discontinued in prior years. Following a review and evaluation by management, no adjustment was made to the carrying values of the Company's assets and liabilities because such amounts were deemed to be not in excess of estimated fair values. On June 30, 1997, in order to raise the balance of the funds necessary to repay the Senior Notes, the Company borrowed $2 million from Thomas M. Wheeler, a private investor, under a promissory note bearing 8% interest. The note matures on February 1, 1999, and is secured by a pledge of the common stock of SMTEK. The Company agreed to give Mr. Wheeler two seats on its Board of Directors, which seats were filled by Mr. Wheeler and Charlene A. Gondek. The Company also agreed to acquire all of the issued and outstanding shares of Jolt Technology, Inc. ("Jolt"), a privately-held electronics manufacturing company owned by Mr. Wheeler, Ms. Gondek and a third individual, for nine million shares of the Company's common stock. Upon consummation of the Jolt acquisition, the maturity date of the $2,000,000 note payable will be extended from February 1, 1999 to October 31, 1999. The Company is currently negotiating a definitive agreement and other legal documents relating to its acquisition of Jolt. The specific terms of such documents are subject to negotiation, and the closing of the Jolt acquisition will be subject to many conditions, some of which are beyond the Company's control, including obtaining a fairness opinion and stockholder approval. There can be no assurance that the Jolt acquisition will be completed on the terms described herein, or at all. FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHICAL AREA The Company is engaged in two lines of business -- electronic manufacturing services and PCB fabrication. Information with respect to these segments' sales, operating income, identifiable assets, depreciation and amortization, and capital expenditures for each of the last three fiscal years is set forth in Note 13 to the consolidated financial statements of the 1997 Annual Report to Stockholders. Such information is incorporated herein by reference and is made a part hereof. ELECTRONIC MANUFACTURING SERVICES AND PRINTED CIRCUIT BOARD FABRICATION BUSINESSES The basis for the growth of the electronic manufacturing services industry in recent years has been the increasing reliance by OEMs on contract manufacturing specialists such as the Company for the manufacture of printed circuit board assemblies. As a result of outsourcing manufacturing services, the EMS industry in the United States grew at a compound annual rate of 20% from 1990 through 1996, according to the Institute for Interconnecting and Packaging Electronic Circuits ("IPC"). The IPC estimated the size of the United States EMS industry for 1996 in terms of sales to be $13.5 billion. The Company expects the trend toward outsourcing to continue and to result in continued growth in the EMS industry. 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--EMS Production of electronic assemblies for a customer is only performed when a firm order is received. Customer cancellations 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 the Company provides all materials, labor and equipment associated with producing the customers' product) or "consigned" (the Company provides labor and equipment only for manufacturing product). The Company's EMS operations provide turnkey electronic manufacturing services using both surface mount and through-hole interconnection technologies. The Company conducts the EMS portion of its business through its SMTEK subsidiary in Southern California, which serves customers primarily on the West Coast of the U.S., and through its DDL Electronics Limited ("DDL-E") subsidiary, which serves customers primarily in Western Europe. SMTEK and DDL-E do not fabricate any of the components or PCBs used in these processes, but from time to time they have procured PCBs from the Company's PCB fabricator, Irlandus Circuits Limited ("Irlandus"). EMS sales represented approximately 79%, 67% and 47% of the Company's consolidated sales for the fiscal years ended June 30, 1997, 1996 and 1995, respectively. Since turnkey electronic contract manufacturing may be a substitute for all or some portion of a customer's captive EMS capability, continuous communication between the Company and the customer is critical. To facilitate such communication, the Company's EMS businesses maintain customer service departments 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 IPC are defined and planned. Additionally, in- circuit test fixtures are 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 board-level or system-level assembly. Customers have increasingly required the Company and other independent providers of electronic manufacturing services to purchase some or all components directly from component manufacturers or distributors and to finance the components and materials. In establishing a turnkey relationship with an independent provider of electronic manufacturing services, a customer typically incurs costs in qualifying that EMS provider and, in some cases, its sources of component supply, refining product design 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. At the same time, the Company faces the obstacle of attracting new customers away from existing EMS providers or from performing services in-house. 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 conducts its PCB fabrication business through its Irlandus subsidiary located in Northern Ireland. The Company's fabrication facilities in Anaheim, California were shut down in fiscal year 1992 and its Beaverton, Oregon facility was sold in fiscal 1995. PCB sales represented approximately 21%, 33% and 53% of the Company's consolidated sales for the fiscal years ended June 30, 1997, 1996 and 1995, respectively, with multilayer boards constituting a substantial portion of the 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 onto the surface 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. 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, however, 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. Quality standards The International Standards Organization ("ISO") has published internationally recognized standards of workmanship and quality. Both Irlandus and DDL-E have achieved ISO 9002 certification, which the Company believes will be increasingly necessary to attract business. SMTEK attained ISO 9001 certification in April 1997. In addition, SMTEK has been certified for Mil-Q-9858A, which is the highest military quality standard, and NHB-5300.4, which is the primary quality standard for products used in the U.S. space program. EMS Facilities SMTEK conducts its operations from a 45,000 square foot facility, which is leased from an unaffiliated party through May 31, 2000. The monthly rent was approximately $29,700 during fiscal 1997 and is subject to a 4% increase each year. SMTEK has the option to extend the lease term for three renewal periods of three years each. The lease rate during the renewal periods is subject to adjustment based on changes in the Consumer Price Index for the local area. 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 1.6 million 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 required 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. Markets and Customers The Company's sales in the EMS and PCB 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 1997 1996 1995 ------------ ------------ ------------ ------------ Computer $ 4,322 8.8% $ 4,049 12.2% $ 7,115 24.1% Telecommunications 7,103 14.5 4,189 12.6 6,926 23.4 Commercial avionics 9,702 19.8 2,277 6.9 - - Space and satellites 2,065 4.2 949 2.9 - - Banking automation 8,089 16.5 3,155 9.5 2,607 7.0 Industrial controls & instrumentation 7,189 14.7 7,621 23.0 6,044 20.4 Medical 1,906 3.9 4,429 13.4 4,668 15.8 Defense 4,666 9.6 3,897 11.8 1,362 4.6 Other 3,877 8.0 2,569 7.8 1,394 4.7 ------ ----- ------ ----- ------ ----- Total $48,919 100.0% $33,136 100.0% $29,576 100.0% ====== ===== ====== ===== ====== ===== The Company markets its EMS 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 EMS and PCB fabrication customers. This includes becoming involved at an early stage in the design of PCBs for these customers' new products. The Company believes that this strategy is necessary to keep abreast of rapidly changing technological needs and to develop new EMS and PCB fabrication processes, thereby enhancing the Company's EMS and PCB 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. During fiscal 1997, the Company's EMS and PCB businesses served approximately 60 and 150 customers, respectively. The Company's five largest customers accounted for 47%, 37% and 21% of consolidated sales during fiscal years 1997, 1996 and 1995, respectively. In fiscal 1997 the Company's two largest customers accounted for approximately 18.4% and 16.5% of consolidated sales, respectively. While the loss of one of these customers could be material if not promptly replaced by a customer of similar size, it has been the Company's experience that even higher volume customers can be replaced on a timely basis with no material adverse effect on the Company. No other customer accounted for more than 10% of consolidated sales during 1997. Raw Materials and Suppliers In its EMS 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 Pentium microprocessor, to be used in the EMS 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 EMS business from time to time and have caused sales and inventory fluctuations in the Company's EMS business. The principal materials used by the Company in its PCB 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 EMS and PCB fabrication businesses operate are intensely competitive and have experienced excess production capacity during the past few years. Seasonality is not a significant factor in the EMS and PCB fabrication businesses. 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 EMS and PCBs are sensitive to economic conditions, changing technologies and other factors. The technology used in EMS 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 units. Many of the Company's competitors have also made substantial capital expenditures in recent years and operate technologically advanced EMS and fabrication facilities. Furthermore, some of the Company's customers have substantial in-house EMS 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 EMS 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 EMS, and that foreign firms, including large, technologically advanced Japanese firms, will increase their share of the United States or European market. Price competition is particularly intense in the computer market, which in fiscal year 1995 was the Company's largest market segment. 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 markets. 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, 1997, 1996 and 1995, the Company's EMS and PCB fabrication businesses had combined backlogs of $28,587,000, $17,669,000 and $9,247,000, respectively. Backlog at June 30, 1997 and 1996 includes SMTEK, the EMS business acquired by the Company in January 1996. The Company's backlog at June 30, 1995 consisted only of the backlog of the Company's European subsidiaries. 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. Environmental Regulation In the early 1970s, one of the Company's former California-based PCB operating units, Aeroscientific Corp. ("Aero Anaheim"), disposed of certain quantities of waste at the Stringfellow hazardous waste disposal site in Riverside County, California, which was subsequently designated as a Superfund site by the U.S. Environmental Protections Agency ("EPA"). Aero Anaheim's waste accounted for less than three one-hundreds of one percent of the total waste deposited at this site. Aero Anaheim, which since 1991 has been an inactive, insolvent subsidiary of the Company, established a reserve of $120,000 as its share of the estimated environmental remediation costs based on its relative contribution to the total wastes disposed at this site. The EPA contends that site owners and operators and waste generators are jointly and severally liable under federal law. Nonetheless, the Company believes that the final allocation of liability will generally be made based on relative contributions of waste. Furthermore, even if joint liability were to be imposed, the Company believes that the risk is remote that Aero Anaheim's ultimate liability in this matter would exceed its reserve, because the other generators of wastes disposed at the Stringfellow site include numerous companies with assets and equity significantly greater than Aero Anaheim. The Company believes that Aero Anaheim's reserve is adequate to cover future costs associated with this matter. The Company is aware of certain chemicals that exist in the ground at Aero Anaheim's previously leased facility in Anaheim. The Company, which was a guarantor of Aero Anaheim's facility lease, has notified the appropriate governmental agencies and is proceeding with remediation and investigative studies regarding soil and groundwater contamination. The installation of water and soil extraction wells was completed in August 1994. In May 1995, the Company retained an environmental engineering firm to begin the vapor extraction of pollutant from the soil and to perform quarterly groundwater monitoring. In April 1997, the Company ceased soil vapor extraction procedures at this site because the pollutant recovery rate had declined to and stabilized at a very low level at which vapor extraction is no longer a cost effective recovery technique. The property owner is currently conducting a soil gas study at the site which is expected to provide information as to the remaining contamination in the soil. It is not yet known whether further soil remediation work will be necessary. Investigative work to determine the full extent of potential groundwater pollution has not yet been completed. Consequently, a complete and accurate estimate of the full and potential costs cannot be determined at this time. The Company believes, however, that the resolution of these matters could require a significant cash outlay. Initial estimates from environmental engineering firms indicate that it could cost from $1,000,000 to $3,000,000 to fully clean up the site and could take as long as ten years to complete. The Company and Aero Anaheim entered into an agreement to share the costs of environmental remediation with the owner of the Anaheim property. 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 $580,000 share) with any costs above $725,000 being shared equally between the Company and the property owner. Through June 30, 1997, the Company has paid $538,000 as its share of the remediation costs (including cash placed in an escrow account for payment of expenses). At June 30, 1997, the Company has a reserve of $564,000, which represents its estimated share of future remediation costs at this site. Based on consultation with the environmental engineering firms, management believes that the Company has made adequate provision for the liability based on probable loss. It is possible, however, that the future remediation costs at this site could differ significantly from the estimates, and may exceed the amount of the reserve. Employees At June 30, 1997, the Company had approximately 500 employees. Item 2. Properties The following table lists principal plants and properties of the Company and its subsidiaries: Owned Square or Location Footage Leased ------------ ------ ------ Newbury Park, California 45,000 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 $1,300,000 at June 30, 1997. Item 3. Legal Proceedings On May 29, 1997, the Company signed a letter of intent (the "Century Letter of Intent") to merge with Century Electronics Manufacturing, Inc. ("CEMI"). Pursuant to the Century Letter of Intent, CEMI was to provide a loan of up to $3.3 million to the Company by June 1, 1997 for retirement of the Company's 10% Senior Secured Notes in the aggregate principal amount of $5,300,000 (the "Senior Notes"). However, such financing was not made available by CEMI. As a result, on June 30, 1997 the Company obtained alternate financing which enabled it to repay its Senior Notes. On September 22, 1997, the Company filed a lawsuit against CEMI in the Superior Court of Ventura County, California, alleging breach of contract and fraud and seeking $5,000,000 in actual damages plus punitive damages. CEMI has not yet answered the Company's complaint or made an appearance in the case. On October 14, 1997, however, CEMI filed a lawsuit of its own against the Company in the Superior Court of Middlesex County, Massachusetts. In the Massachusetts action, CEMI asserts that the Company failed to provide collateral acceptable to CEMI to secure CEMI's loan and that the Company engaged in unfair and deceptive acts which deprived CEMI of the opportunity to merge with a publicly traded company. CEMI's lawsuit seeks $10,000,000 plus punitive damages. The Company believes CEMI's lawsuit is without merit and plans to contest CEMI's claims vigorously. The Company's prosecution of the California action and its defense of the Massachusetts action are both subject to all of the risks, costs and uncertainties associated with litigation, including legal fees and expenses, disruption of executive schedules and focus, the possibility that the Company may be called upon to satisfy a judgment and the possibility that the Company will be unable to realize proceeds from any judgment that it may obtain. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The information set forth under the caption "Market and Dividend Information" in the Company's 1997 Annual Report to Stockholders is incorporated herein by reference and made a part hereof. Item 6. Selected Financial Data The information set forth under the caption "Five-Year Financial Summary" in the Company's 1997 Annual Report to Stockholders 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" ("MD&A") in the Company's 1997 Annual Report to Stockholders is incorporated herein by reference and made a part hereof. Certain statements made in the MD&A, in the president's letter to stockholders which appears on page 1 of the Company's 1997 Annual Report to Stockholders, and elsewhere in the notes to consolidated financial statements included in such Annual Report to Stockholders, are forward- looking in nature and reflect the Company's forecasts, current expectations and anticipated future plans. Such statements involve various risks and uncertainties that could cause actual results to differ materially from those forecast in the statements. Factors that might cause such differences would include, without limitation, the factors described as "Risk Factors" in Amendment No. 1 to the Company's Registration Statement on Form S-3 filed with the Securities and Exchange Commission on October 24, 1997 (Registration No. 333-31349). Item 8. Financial Statements and Supplementary Data Reference is made to the financial statements later in this Report under Item 14. Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant DIRECTORS AND EXECUTIVE OFFICERS Principal occupation and Year first business experience including elected a Name service on other boards Age Director -------- ------------------------------ --- -------- Class I Directors to Continue in Office Until the 1997 Annual Meeting: Melvin Foster Principal and attorney, Melvin 71 1995 Foster & Associates, Boston, Massachusetts Robert G. Wilson Director, Brandevor Enterprises, 53 1995 Ltd., Amusements International, Ltd. and Stamford Resources, Ltd. Class II Directors to Continue in Office Until the 1997 Annual Meeting: Charlene A. Gondek Director, Jolt Technology, Inc., 36 1997 a privately held electronic manufacturing services company Gregory L. Horton Chief Executive Officer, 41 1996 President and Chairman of the Board of Directors, DDL Electronics, Inc. Class III Directors to Continue in Office Until the 1998 Annual Meeting: Karen Beth Brenner President, Fortuna Advisors Inc., 44 1996 an investment advisory firm; director, Krug International Corp. and Creative Bakeries, Inc. Richard K. Vitelle Vice President-Finance and 44 1996 Administration, Chief Financial Officer, Treasurer and Secretary, DDL Electronics, Inc. Thomas M. Wheeler President, TMW Enterprises, 70 1996 Inc., an investment holding company Mr. Foster is a member of the Compensation Committee of the Board of Directors. He is an attorney and principal in Melvin Foster & Associates in Boston, Massachusetts. Mr. Wilson was appointed a Class I Director subsequent to the May 31, 1995 annual stockholders meeting. Mr. Wilson is a member of the Audit and Compensation Committees of the Board of Directors. He is also chief financial officer and a director of Brandevor Enterprises, Ltd., a Toronto Stock Exchange listed company, a director of Amusements International Ltd., an Alberta Stock Exchange listed company, and a director of Stamford Resources, Ltd., a Canadian public company. Ms. Gondek was appointed a Class II Director on June 30, 1997, and serves as a member of the Compensation Committee of the Board of Directors. Ms. Gondek is a director and shareholder of Jolt Technology, Inc. and served as president of this privately held company from 1992 to 1996. Refer to "Certain Relationships and Related Transactions" for additional information concerning Jolt Technology, Inc. Mr. Horton became the Company's President and Chief Executive Officer in January 1996, following the Company's acquisition of SMTEK, Inc. He was appointed a Class II Director in February 1996, and was appointed Chairman of the Board in July 1997. He has also served as the President and Chief Executive Officer of SMTEK, Inc. since 1986. Ms. Brenner was appointed a Class III Director of the Company in July 1996, and serves as a member of the Audit Committee and Compensation Committee. Since January 1996 she has served as president of Fortuna Advisors, Inc., the successor to Karen Beth Brenner, Registered Investment Advisor, a sole proprietorship which she operated from 1984 to 1995. Ms. Brenner is also a director of Krug International Corp. and Creative Bakeries, Inc., both Nasdaq-traded companies. Mr. Vitelle was appointed Vice President, Chief Financial Officer and Treasurer in January 1996, and was elected a Class III Director in July 1996. From 1993 to 1996, Mr. Vitelle served as Chief Financial Officer of InVitro International, a publicly held company engaged in the development and marketing of in vitro diagnostic testing systems. From 1992 to 1993, he served as Chief Financial Officer of Chapin Medical Company, a privately held distributor of critical care pharmaceutical products. From 1986 to 1992, Mr. Vitelle served as Corporate Controller of DDL Electronics, Inc. Mr. Vitelle is a certified public accountant. Mr. Wheeler was appointed a Class III Director on June 30, 1997, and serves as a member of the Audit Committee and Compensation Committee. From 1970 until 1995, Mr. Wheeler was the founder, chairman of the board and sole stockholder of Electro-Wire Products, Inc., a manufacturer of automotive electrical power distribution systems. Since 1995, Mr. Wheeler has been president of TMW Enterprises, Inc., a private investment holding company. Since 1992, he has also been a director and shareholder of Jolt Technology, Inc. Refer to "Certain Relationships and Related Transactions" for additional information concerning Jolt Technology, Inc. Bernee Strom, who was elected a Class II Director in May 1995, resigned from the Board of Directors effective June 30, 1997. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Under Section 16(a) of the Exchange Act, the directors and executive officers of the Company and persons who own more than 10% of the Company's Common Stock ("statutory insiders") are required to file reports of their ownership of the Company's Common Stock on Form 3 and any subsequent changes in that ownership on Form 4 or Form 5 with the Securities and Exchange Commission and the New York Stock Exchange. To the Company's knowledge, based solely upon its review of the copies of such reports required to be furnished to the Company during or with respect to the fiscal year ended June 30, 1997, the Company believes that all Section 16(a) filing requirements applicable to its statutory insiders during or for such fiscal year were satisfied. Item 11. Executive Compensation EXECUTIVE COMPENSATION TABLE The following table sets forth the cash compensation paid or accrued by the Company, as well as certain other compensation, for its fiscal years ended June 30, 1997, 1996 and 1995 to each of the Company's executive officers whose compensation exceeded $100,000 for the fiscal year ended June 30, 1997: Long-Term Name and Annual Compensation Compensation Principal -------------------------- Awards: Positions (1) Year Salary(2) Bonus Other Options (#) -------------- ---- ------ ----- ----- ------- Gregory S. Horton 1997 $150,000 $97,000 (3) 100,000 Chairman, President and 1996 69,000 24,000 (3) 400,000 Chief Executive Officer 1995 -0- -0- -0- Richard K. Vitelle 1997 $123,000 $37,000 (3) 200,000 VP Finance & Admin., 1996 50,000 -0- (3) 185,000 CFO and Secretary 1995 -0- -0- -0- (1) Mr. Horton joined the Company as Chief Executive Officer and President on January 12, 1996. Mr. Vitelle joined the Company as Vice President-Finance and Administration and Chief Financial Officer on January 25, 1996. (2) Amounts shown include compensation earned and received by each named executive officer, as well as amounts earned but not paid until after the end of the fiscal years indicated. (3) Total perquisites did not exceed the lesser of $50,000 or 10% of the executive's salary and bonus. OPTION GRANTS IN FISCAL YEAR ENDED JUNE 30, 1997 The following table sets forth information concerning options granted to each of the named executive officers during fiscal 1997:
Potential Realizable % of Total Value at Assumed Options Annual Rates of Stock Granted to Exercise Price Appreciation Employees or Base for Option Term Options in Fiscal Price Expiration --------------- Name Granted Year ($/Sh.) Date 5% 10% -------- ------- ---- ---- ---- ---- ---- Gregory L. Horton 100,000 5.8% $1.00 04/01/07 $ 63,000 $159,000 Richard K. Vitelle 200,000 11.5% $1.25 09/12/06 $157,000 $398,000
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND FISCAL YEAR-END OPTION VALUES The following table sets forth information concerning options held by each of the named executive officers as of June 30, 1997: Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at Shares Fiscal Year-End Fiscal Year-End Acquired on Value Exercisable/ Exercisable/ Name Exercise Realized Unexercisable(1) Unexercisable(2) ------ -------- -------- ------------- ------------- Gregory S. Horton -0- -0- 130,000/370,000 $ 6,000/$ -0- Richard K. Vitelle -0- -0- 111,666/273,334 $ -0- /$ -0- (1) All options listed in the table are exercisable at option prices equal to fair market value on the date of grant. (2) The value of unexercised in-the-money options is based upon the fair market value for the common stock on June 30, 1997 of $1.06 per share less the applicable option exercise price.
TEN-YEAR OPTION REPRICINGS Number of Exercise Length of Securities Market Price Price at Original Underlying of Stock at Time of Option Term Options Time of Repricing New Remaining Repriced or Repricing or or Exercise at Date of Amended Amendment Amendment Price Repricing or Name Date (#) ($) ($) ($) Amendment ------ ------ ------- ------ ------ ------ ------ Gregory L. Horton 10/03/96 310,000 1.25 1.75 1.25 9 yrs 9 mos Richard K. Vitelle 09/12/96 85,000 1.25 1.63 1.25 9 yrs 8 mos 09/12/96 100,000 1.25 1.75 1.25 9 yrs 9 mos
EMPLOYMENT AGREEMENTS AND EXECUTIVE SEVERANCE ARRANGEMENTS On January 12, 1996, Gregory L. Horton was appointed President and Chief Executive Officer of the Company pursuant to an employment agreement dated October 16, 1995. Mr. Horton's employment agreement provides for a base salary of $150,000, subject to annual reviews of the Compensation Committee, and annual bonus compensation ranging up to 200% of his base salary. Such bonus compensation is to be based in part on increases in the Company's revenues and profits and upon the achievement of other objectives and criteria as the Board may establish. Mr. Horton's employment is "at will." Should he voluntarily resign or be terminated for cause, Mr. Horton will not be entitled to severance pay. He is entitled to 20 months' base salary if he is terminated without cause. In May 1997, the Compensation Committee awarded Mr. Horton a cash bonus of $60,000 for the period from January 1996 to March 1997, and a cash bonus of 30% of his base salary for the period from April 1997 to March 1998. The Compensation Committee also approved a special cash incentive payment to Mr. Horton of $50,000 which he became entitled to receive when the Company repaid its 10% Senior Secured Notes in the aggregate amount of $5.3 million on June 30, 1997. Effective January 25, 1996, Richard K. Vitelle was appointed Vice President-Finance and Administration, Treasurer and Chief Financial Officer pursuant to an employment agreement with the Company. Mr. Vitelle's employment agreement was renegotiated in September 1996 to provide for a base annual salary of $125,000 and for a fiscal 1997 cash bonus of 30% of such base salary. Pursuant to the September 1996 employment agreement, Mr. Vitelle was granted a stock option covering 200,000 shares at $1.25 per share, which was the fair market value on the grant date. Mr. Vitelle's employment is "at will". If his employment is terminated by the Company for cause, then he is not entitled to severance pay. However, he is entitled to 12 months' base salary and benefits as severance if he is terminated by the Company without cause, or if he is terminated as the result of a change in control of the Company. In addition, if the principal place of Mr. Vitelle's employment is relocated to any site beyond the 35-mile radius of the Company's present headquarters, then he may resign at any time within the following 12 months, whereupon he will be entitled to 12 months' severance payments and benefits. DIRECTOR COMPENSATION Directors do not receive cash compensation for their services on the Company's Board of Directors except for reimbursement of travel expenses. Pursuant to the 1996 Non-Employee Directors Stock Option Plan (the "Directors Plan"), annually on July 1 each non-employee director is automatically granted, without further action by the Board, a stock option to purchase 30,000 shares of the Company's Common Stock. The exercise price per share of all options granted under the Director Plan is equal to 100% of the fair market value of the Common Stock at the time of grant. Under the terms of the Directors Plan, each option granted becomes exercisable six months after the grant date. Each option grant has a ten-year term. In July 1996 options covering a total of 120,000 shares were granted to four non-employee directors at an option price of $1.63 per share, and in July 1997 options covering a total of 150,000 shares were granted to five non-employee directors at an option price of $1.06 per share. REPORT OF THE COMPENSATION COMMITTEE The Compensation Committee of the Board of Directors (the "Committee") administers the Company's executive compensation programs and reviews and approves salaries of the executive officers named in the Executive Compensation Table. The Committee is also responsible for administering the Company's stock option plans (except for the non- discretionary 1996 Non-Employee Directors Stock Option Plan) and making incentive awards. The Company's executive compensation programs are designed to: - provide competitive levels of base compensation in order to attract, retain and motivate high quality employees; - tie individual total compensation to individual performance and the success of the Company; and - align the interests of the Company's executive officers with those of its stockholders. Base Salary. Base salary is targeted to be moderate yet competitive in relation to salaries commanded by those in similar positions in comparable companies. The Committee reviews management's recommendations for executives' salaries and examines survey data for executives with similar responsibilities in comparable companies to the extent such data is available. Individual salary determinations are based on experience, achievement of goals and objectives, sustained performance and comparison to peer level positions outside the Company. Incentive Compensation Program. Incentive compensation for the Company's executive officers is designed to reward such individuals for their contributions to corporate and individual objectives. In addition, the Company's three operating units maintain profit sharing plans under which operating unit managers and other key employees receive incentive cash compensation based on the performance and pre-tax profits of those operations. The Company's executive officers named above do not participate in these operating unit profit sharing plans. Stock Options. The Committee administers the Company's 1993 and 1996 Stock Incentive Plans, which are designed to align the interests of management and other key employees with those of the Company's stockholders. The number of stock options granted is related to the recipient's base compensation, level of responsibility and accomplishments. All options have been granted with an option exercise price equal to the fair market value of the Company's common stock on the date of grant. The tables above set forth information concerning options granted to named executives during fiscal 1997. Because of the Company's financial condition and the importance of conserving cash, the Company has tended to limit the level of cash remuneration paid to executive officers and to increase the level of stock option grants. Particularly during a period focused on operational and financial turnaround, the Compensation Committee believes that stock options closely align the objectives of management and the stockholders and provide a balance given the limits placed on cash remuneration. In the future, the Compensation Committee will continue to evaluate cash and stock incentive compensation alternatives to best achieve the objectives of the Company's executive compensation program. Repricing of Stock Options. In September 1996, in connection with the renegotiation of Richard Vitelle's employment agreement, and in order to retain the services of this key employee, the Compensation Committee lowered the exercise price for 185,000 options held by Mr. Vitelle to $1.25, which options were originally granted in May and June 1996 at exercise prices ranging from $1.63 to $1.75. The new exercise price was equal to the fair market value on the date of repricing. In October 1996, in order to retain the services of other key employees of the Company, the Compensation Committee lowered the exercise price of 669,000 stock options held by 25 employees from $1.75 to $1.25, the fair market value on the date of repricing. These repriced options included 310,000 options held by Gregory Horton. Compensation of Chief Executive Officer. Gregory L. Horton was appointed President and Chief Executive Officer of the Company in January 1996. Mr. Horton's cash compensation was negotiated with the Board and is described above under the caption "Employment Agreements and Executive Severance Arrangements." In May 1996, Mr. Horton was granted a stock option for 90,000 shares. These options are exercisable at $1.625, the fair market value on the grant date. The shares covered by this option become exercisable in three equal installments on January 12, 1997 and on the next two anniversaries thereof. In June 1996, as an additional incentive to Mr. Horton and in order to further align his interests directly with the interests of the stockholders, Mr. Horton was granted a stock option under the Company's 1996 Stock Incentive Plan covering 310,000 shares at an exercise price of $1.75 per share, which become exercisable in equal installments on the three anniversaries of the grant date. As indicated above, the exercise price of these options was lowered to $1.25 in October 1996. In April 1997, Mr. Horton was granted a stock option for 100,000 shares which are exercisable in full from the grant date at a price of $1.00 per share, the fair market value on the date of grant. The number of shares underlying Mr. Horton's options may change pursuant to certain anti-dilution provisions of the option agreements. Submitted by the Compensation Committee: Karen Beth Brenner, Melvin Foster, Charlene A. Gondek, Thomas M. Wheeler and Robert G. Wilson COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Mr. Wilson was appointed to the Compensation Committee in June 1995. Ms. Brenner and Mr. Foster were appointed to the Compensation Committee in July 1996. Ms. Gondek and Mr. Wheeler were appointed to the Compensation Committee effective June 30, 1997. None of these individuals were officers or employees of the Company during fiscal 1997. Mr. Wilson served as Interim Vice President of the Company from June 1995 until January 1996. There are no interlocks between the Company and other entities involving the Company's executive officers and directors who serve as executive officers or directors of other entities. STOCK PERFORMANCE GRAPH The following performance table compares the cumulative total return for the period from June 30, 1992 through June 30, 1997, from an investment of $100 in (i) the Company's Common Stock, (ii) the Dow Jones Industrials as a group, and (iii) the Dow Jones Computer Index group of companies (the Company's peer group). For each group an initial investment of $100 is assumed on June 30, 1992. The total return calculation assumes reinvestment of all dividends for the indices. The Company did not pay dividends on its Common Stock during the time frame set forth below. (stock performance graph - omitted) The data points depicted on the graph are as follows: Dow Jones Industrial Dow Jones DDL Date Average Computer Index Electronics ------- ------- ------ ------ 06/30/92 100.00 100.00 100.00 06/30/93 105.95 75.48 150.00 06/30/94 109.23 76.54 75.00 06/30/95 137.29 132.01 108.33 06/30/96 170.40 148.95 133.33 06/30/97 231.66 230.88 75.00 Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth as of October 10, 1997 except as otherwise indicated, the number of shares and percentage of outstanding Common Stock known by the Company to be beneficially owned by (i) each person who is known by the Company to own beneficially more than 5% of the Company's outstanding Common Stock, (ii) each of the Company's directors, (iii) each named executive officer and (iv) all executive officers and directors of the Company as a group. Unless otherwise noted, shares are held with sole voting and investment power. Stockholdings include, where applicable, shares held by the spouses and minor children, including shares held in trust. Shares of Common Stock Name and Address of ---------------------- Beneficial Owner* Number Percent of Class ---------------- -------- ---------------- Fortuna Investment Partners, L.P. 900,230 (1)(2) 3.7% 100 Wilshire Blvd., 15th Floor Santa Monica, CA 90401 Ronald J. Vannuki 153,500 (1)(3) ** 100 Wilshire Blvd., 15th Floor Santa Monica, CA 90401 Richard Fechtor 578,550 (1)(4) 2.4% 17 Emily Road Framington, MA 01701 Fortuna Advisors, Inc. 968,638 (1)(5) 3.9% 1300 Bristol St. #230 Newport Beach, CA 92658 Karen Beth Brenner 132,400 (1)(6)(8) ** P.O. Box 9109 Newport Beach, CA 92658 Joseph Vannuki 64,409 (1)(7) ** 100 Wilshire Blvd., 15th Floor Santa Monica, CA 90401 Melvin Foster 279,500 (8) 1.1% Charlene A. Gondek -0- (9) -- Gregory L. Horton 1,058,333 (10) 4.3% Richard K. Vitelle 166,666 (11) ** Thomas M. Wheeler -0- (9) -- Robert G. Wilson 557,727 (8) 2.3% Directors and Executive Officers as a Group (7 persons) 2,194,626 (12) 8.7% * Unless otherwise noted, the persons listed can be contacted at DDL Electronics, Inc., 2151 Anchor Court, Newbury Park, CA 91320. ** Represents less than 1% of the outstanding shares. (1) This information is based upon a Schedule 13D dated October 18, 1996, filed with the Securities and Exchange Commission, and upon information subsequently provided to the Company. Such Schedule 13D states that the beneficial owner is a member of a "group," as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), comprised of Fortuna Investment Partners, L.P., a California limited partnership; Fortuna Capital Management, Inc., general partner and discretionary investment advisor of Fortuna Investment Partners, L.P.; Ronald J. Vannuki as sole shareholder and president of Fortuna Capital Management, Inc.; Richard Fechtor as an individual; Fortuna Advisors, Inc., an investment management and advisory firm; Karen Beth Brenner with respect to shares of common stock held or beneficially owned by her and as sole shareholder and president of Fortuna Advisors, Inc.; and Joseph Vannuki as an individual. The members of this group are beneficial owners of 2,797,727 shares of the Company (11.2%) in the aggregate. (2) The Schedule 13D filed by the beneficial owner indicates that the beneficial owner has shared voting and dispositive power as to all 900,230 shares. Amount includes 39,530 shares underlying the Company's 8-1/2% convertible subordinated debentures. Mr. Vannuki is the managing director of the general partner of this limited partnership. (3) The Schedule 13D filed by the beneficial owner indicates that the beneficial owner has sole voting power and dispositive power as to 3,500 shares. Amount includes 150,000 shares underlying the Company's Series C common stock purchase warrants. (4) The Schedule 13D filed by the beneficial owner indicates that the beneficial owner has sole voting and dispositive power as to all 578,550 shares. (5) The Schedule 13D filed by the beneficial owner indicates that the beneficial owner has no voting power and shared dispositive power as to 922,143 shares. Amount includes 46,495 shares underlying the Company's 8-1/2% convertible subordinated debentures. (6) The Schedule 13D filed by the beneficial owner indicates that the beneficial owner has sole voting and dispositive power as to 27,400 shares. (7) The Schedule 13D filed by the beneficial owner indicates that the beneficial owner has sole voting and dispositive power as to 62,150 shares. Amount includes 2,259 shares underlying the Company's 8-1/2% convertible subordinated debentures. (8) Amount includes 30,000 shares underlying exercisable options and 75,000 shares underlying exercisable warrants. (9) On June 30, 1997, the Company agreed to acquire Jolt Technology, Inc. ("Jolt"), a privately held company, for nine million shares of DDL common stock, subject to the approval of the Company's stockholders. Ms. Gondek and Mr. Wheeler, who are shareholders of Jolt, will receive 1.8 million and 6.3 million shares of DDL common stock, respectively, upon consummation of this transaction. (10) Includes options for 133,333 shares that are or will be exercisable within 60 days of October 10, 1997. (11) Includes options for 161,666 shares that are or will be exercisable within 60 days of October 10, 1997. (12) Includes options for 384,999 shares that are or will be exercisable within 60 days of October 10, 1997. Item 13. Certain Relationships and Related Transactions On June 30, 1997, the Company borrowed $2 million from Thomas M. Wheeler, a private investor, under a note payable bearing 8% interest. The note matures on February 1, 1999, and is secured by a pledge of the common stock of SMTEK. The Company agreed to give Mr. Wheeler two seats on its Board of Directors, which seats were filled by Mr. Wheeler and Charlene A. Gondek. As a condition to obtaining the $2 million loan from Mr. Wheeler, the Company also agreed to acquire all of the issued and outstanding shares of Jolt Technology, Inc. ("Jolt"), a privately- held electronics manufacturing company owned by Mr. Wheeler, Ms. Gondek and a third individual, for nine million shares of the Company's common stock. The acquisition of Jolt is subject to negotiating a definitive merger agreement, obtaining a fairness opinion, and obtaining approval of the Company's stockholders. Upon consummation of the Jolt acquisition, the maturity date of the $2,000,000 note payable will be extended from February 1, 1999 to October 31, 1999. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 1997 Annual Report to Stockholders ------ (a)(1) List of Financial Statements List of data incorporated by reference: Report of KPMG Peat Marwick LLP on consolidated financial statements 12 Consolidated balance sheets as of June 30, 1997 and 1996 13 Consolidated statements of operations for the years ended June 30, 1997, 1996 and 1995 15 Consolidated statements of cash flows for the years ended June 30, 1997, 1996 and 1995 16 Consolidated statements of stockholders' equity (deficit) for the years ended June 30, 1997, 1996 and 1995 17 Notes to consolidated financial statements 18 (a)(2) Financial Statement Schedules The financial statement schedules are omitted because they are either not applicable or the information is included in the notes to consolidated financial statements. Form 10-K ------- (a)(3) List of Exhibits: Exhibit Index 24 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued) (b) Reports on Form 8-K: On June 11, 1997, a Form 8-K was filed regarding a letter of intent entered into on May 29, 1997 with Century Electronics Manufacturing, Inc. providing for the merger of Century with and into a wholly-owned subsidiary of DDL. On June 12, 1997, a Form 8-K was filed regarding the sale of 2,000,000 shares of Common Stock to a group of private investors. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on October 23, 1997. DDL ELECTRONICS, INC. /s/ Gregory L. Horton ----------------------- Gregory L. Horton Chief Executive Officer, President and Chairman of the Board of Directors 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. Signature Title Date /s/ Gregory L. Horton Chief Executive Officer, October 23, 1997 - ----------------------- President and Chairman ------------------ Gregory L. Horton of the Board /s/ Richard K. Vitelle Vice President-Finance and October 23, 1997 - ----------------------- Administration, Chief ------------------ Richard K. Vitelle Financial Officer, Treasurer, Secretary and Director /s/ Karen B. Brenner Director October 23, 1997 - ----------------------- ------------------ Karen B. Brenner Director October 23, 1997 - ----------------------- ------------------ Melvin Foster Director October 23, 1997 - ----------------------- ------------------ Charlene A. Gondek /s/ Thomas M. Wheeler Director October 23, 1997 - ----------------------- ------------------ Thomas M. Wheeler Director October 23, 1997 - ----------------------- ------------------ Robert G. Wilson EXHIBIT INDEX Exhibit Number Description - ------ ----------- 2.1 Jolt Technology Inc. Acquisition Term Sheet dated June 30, 1997 (incorporated by reference to Exhibit 2.1 filed with the Company's 1997 Annual Report on Form 10-K). 2.2 Letter of intent dated as of May 29, 1997 between the Company and Century Electronics Manufacturing, Inc. concerning a possible merger (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on June 11, 1997). 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-8, Commission File No. 33-7440). 3.2 Bylaws of the Company, amended and restated effective March 1995 (incorporated by reference to Exhibit 3-b of the Company's 1995 Annual Report on Form 10-K). 4.1 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). 4.2 Certificate of Designation, Preferences and Rights of Series B Convertible Preferred Stock of the Company (incorporated by reference to Exhibit 4.3 of the Company's Registration Statement on Form S-8, Commission File No. 33-7440). 4.3 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). 4.3.1 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). 4.4 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). 4.5 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). 4.5.1 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). 4.6 Series C Warrant Agreement dated as of July 1, 1995 between the Company and Fechtor, Detwiler & Co., Inc. covering 250,000 shares and expiring on June 30, 2000 (incorporated by reference to Exhibit 4-f of the Company's Registration Statement on Form S-3, Commission File No. 333-02969). 4.7 Series C Warrant Agreement dated as of July 1, 1995 between the Company and Fortuna Capital Management covering 100,000 shares and expiring on June 30, 2000 (incorporated by reference to Exhibit 4-g of the Company's Registration Statement on Form S-3, Commission File No. 333-02969). 4.8 Series C Warrant Agreement dated as of July 1, 1995 between the Company and Karen Brenner covering 50,000 shares and expiring on June 30, 2000 (incorporated by reference to Exhibit 4-h of the Company's Registration Statement on Form S-3, Commission File No. 333-02969). 4.9 Series C Warrant Agreement dated as of July 1, 1995 between the Company and Barry Kaplan covering 15,000 shares and expiring on June 30, 2000 (incorporated by reference to Exhibit 4-k of the Company's Registration Statement on Form S-3, Commission File No. 333-02969). 4.10 Series D Warrant Agreement dated as of July 1, 1995 between the Company and Charles Linn Haslam covering 250,000 shares and expiring on June 30, 2000 (incorporated by reference to Exhibit 4-i of the Company's Registration Statement on Form S-3, Commission File No. 333-02969). 4.11 Form of Series E Warrant dated February 29, 1996 covering an aggregate 1,500,000 shares and expiring on February 28, 2001 (incorporated by reference to Exhibit 4-n of the Company's Registration Statement on Form S-3, Commission File No. 333-02969). 4.12 Form of Warrant and Contingent Payment Agreement for Series G Warrants dated as of March 31, 1996 between the Company and each of several former officers, key employees and directors of the Company under various consulting agreements and deferred fee arrangements covering an aggregate 595,872 shares expiring on June 1, 1998 (incorporated by reference to Exhibit 4-l of the Company's Registration Statement on Form S-3, Commission File No. 333-02969). 4.13 Form of Warrant Agreement for Series H Warrants dated July 1, 1995 among the Company and each of several current or former non-employee directors covering an aggregate of 300,000 shares expiring on June 30, 2000 (incorporated by reference to Exhibit C of the Company's Proxy Statement for the fiscal 1995 Annual Stockholders Meeting). 4.14 Securities Purchase Agreement dated February 29, 1996 relating to the Company's 10% Senior Secured Notes due July 1, 1997 issued February 29, 1996 in the aggregate amount of $5,300,000 ("Securities Purchase Agreement") (incorporated by reference to Exhibit 4-m of the Company's Registration Statement on Form S-3, Commission File No. 333-02969). 4.15 Common Stock Purchase Agreement dated as of June 3, 1997 covering the sale of 2,000,000 shares of Common Stock to a group of private investors (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed on June 12, 1997). 4.16 Debt Term Sheet dated June 30, 1997 between the Company and Thomas M. Wheeler (incorporated by reference to Exhibit 4.16 filed with the Company's 1997 Annual Report on Form 10-K). 4.16.1 Secured promissory note dated June 30, 1997 in the principal amount of $2 million between the Company and Thomas M. Wheeler (incorporated by reference to Exhibit 4.16.1 filed with the Company's 1997 Annual Report on Form 10-K). 4.16.2 Collateral Security Stock Pledge Agreement dated June 30, 1997 between the Company and Thomas M. Wheeler (incorporated by reference to Exhibit 4.16.2 filed with the Company's 1997 Annual Report on Form 10-K). 10.1 1985 Stock Incentive Plan (incorporated by reference to Exhibit 4a of Registration Statement No. 33-3172). 10.2 1987 Stock Incentive Plan (incorporated by reference to Exhibit 4a of Registration Statement No. 33-18356) 10.3 1991 General Nonstatutory Stock Option Plan (incorporated by reference to Exhibit 10-cf of the Company's 1993 Annual Report on Form 10-K). 10.4 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). 10.5 1996 Stock Incentive Plan (incorporated by reference to Exhibit A of the Company's Proxy Statement for the fiscal 1995 Annual Stockholders Meeting). 10.6 1996 Non-Employee Directors Stock Option Plan (incorporated by reference to Exhibit B of the Company's Proxy Statement for the fiscal 1995 Annual Stockholders Meeting). 10.7 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). 10.8 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). 10.8.1 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). 10.9 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). 10.10 Grant Agreement dated September 16, 1987 between Irlandus Circuits Limited and the Industrial Development Board for Northern Ireland ("IDB") (incorporated by reference to Exhibit 10.13 of the Company's Registration Statement No. 33-22856). 10.10.1 Agreement dated March 10, 1992 between Irlandus Circuits Limited and the IDB amending the Grant Agreement dated September 16, 1987, between Irlandus and the IDB (incorporated by reference to Exhibit 10-br of the Company's 1992 Annual Report on Form 10-K). 10.11 Grant Agreement dated August 29, 1989, between DDL Electronics Limited and the IDB (incorporated by reference to Exhibit 10.29 of the Company's Registration Statement No. 33-39115). 10.11.1 Agreement dated May 2, 1996, between DDL Electronics Limited and the IDB amending the Grant Agreement dated August 29, 1989, between DDL Electronics and the IDB (incorporated by reference to Exhibit 10.11.1 filed with the Company's 1996 Annual Report on Form 10-K). 10.12 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). 10.13 Business Financing Agreement dated August 21, 1996 between SMTEK, Inc. and Deutsche Financial Services Corporation (incorporated by reference to Exhibit 10 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996). 10.14 Employment Agreement and Letter of Understanding and Agreement dated October 15, 1995 between the Company and Gregory L. Horton (incorporated by reference to Exhibit 99.2 filed with the Company's Current Report on Form 8-K dated January 12, 1996). 10.15 Employment Agreement dated September 12, 1996 between the Company and Richard K. Vitelle (incorporated by reference to Exhibit 10.15 filed with the Company's 1996 Annual Report on Form 10-K) 11 Statement re Computation of Per Share Earnings.* 13 Annual Report to security holders.* 21 Subsidiaries of the Registrant.* 23 Consent of KPMG Peat Marwick, LLP.* 27 Financial Data Schedule.* 99 Undertaking for Form S-8 Registration Statement.* * These exhibits are incorporated by reference to the Company's 1997 Annual Report on Form 10-K filed with the Securities and Exchange Commission on October 10, 1997. 2 12 -----END PRIVACY-ENHANCED MESSAGE-----