-----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, TcZPo/k0FJufJDaw0981Df3J4fDzJVT4oooOzM1HmbhcVHM9lepYwSCYkOI2mz/t J4ZtvZgPsaO+Nq41b6yHsA== 0000950144-96-000245.txt : 20030212 0000950144-96-000245.hdr.sgml : 20030212 19960129173352 ACCESSION NUMBER: 0000950144-96-000245 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960129 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960129 DATE AS OF CHANGE: 19960131 SROS: NYSE 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08101 FILM NUMBER: 96508496 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 8-K 1 DDL ELECTRONICS FORM 8-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): January 12, 1996 ---------------- DDL ELECTRONICS, INC. -------------------------------------------------- (Exact name of Registrant as Specified in Charter) Delaware 1-8101 33-0213512 - ---------------------------- ------------ ------------------- (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 2151 Anchor Court, Newbury, California 91320 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (805) 376-2596 -------------- 7320 SW Hunziker Road, Suite 300, Tigard, Oregon 97006 - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) ================================================================================ 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On January 12, 1996, DDL Electronics, Inc. (the "Company") acquired 100% of the issued and outstanding capital stock of SMTEK, Inc., a California corporation ("SMTEK"), pursuant to an Agreement for Purchase of Shares dated October 6, 1995 (the "Agreement") between the Company, as buyer, and the shareholders of SMTEK who include George Brimhall, Lynn Stratford, Stratford Freedom Trust, Stratford Investments, Thomas F. Clark, Leland Buttle, Bayview Construction, Stuart Siegel and Gregory L. Horton, as sellers (collectively, the "Sellers"). In exchange for their SMTEK stock, the Sellers, not including Mr. Horton, received $6,798,738 in the aggregate from the Company. Mr. Horton received 1,000,000 unregistered shares of the Company's common stock, par value $.01 per share ("Common Stock"), in exchange for his SMTEK stock. The amount of consideration paid by the Company was determined on the basis of SMTEK as a going concern including its customer base and business backlog, by a comparison with the valuations placed upon other companies in the industry in recent business combinations, and by strategic considerations. In a separate agreement with the Company, Mr. Horton has agreed to become the President of the Company. In addition, the Company's principal corporate office has been relocated from Tigard, Oregon to SMTEK's corporate offices at 2151 Anchor Court, Newbury, California 91320. Telephone No. (805) 376-2595. The acquisition of SMTEK has been financed by short-term, bridge loans in an aggregate principal amount of $7.0 million arranged by Rickel & Associates, Inc. The bridge loans include $1.0 million in aggregate prinicpal amount of 10% Senior Bridge Notes executed on November 10, 1995, and $6.0 million in aggregate principal amount of unsecured loans bearing interest at 10% that were advanced by Rickel & Associates, Inc. to the Company on January 5 and 12, 1996. The Company expects to consummate longer term financing, and to retire the $7.0 million in bridge loans, though the issuance and private placement of its 10% Senior Secured Notes in aggregate principal amount of $5 million due in 1997 (the "Notes") that are to be issued pursuant to a Securities Purchase Agreement among the Company and the various purchasers of the Notes and placed by Rickel & Associates, Inc., and through the issuance and private placement of its 10% Cumulative Convertible Debentures in an aggregate principal amount not to exceed $5 million due in 1997 (the "Debentures") and placed by Intercontinental Holding Company, Ltd. The Notes are to be secured by warrants to purchase shares of Common Stock and by shares of Common Stock pledged by Rickel & Associates, Inc. The Debentures are to be convertible into shares of Common Stock. Neither the placement of the Notes nor the placement of the Debentures have been consummated and the terms and conditions thereof are still being negotiated between the parties. The Company will file an amendment to this report on Form 8-K setting forth the details of the Notes and the Debentures following completion their placement. 1 3 SMTEK will continue its present operations as an operating subsidiary of the Company. SMTEK is a nine-year old private manufacturing concern based in Southern California that specializes in full production implementation of circuit boards, from analysis and design to complex manufacture of the product, ready for market. Areas of particular specialization include: (i) mechanical thermal engineering analysis and design of printed circuit boards; (ii) full procurement of all materials, components and up-screening; (iii) a state-of-the-art production facility featuring computer integration and robotics; and (iv) full in-circuit and functional testing capabilities. The acquisition of SMTEK is expected to be an important step in the expansion of the technical capabilities and marketing force of the Company in Europe and the United States. The SMTEK acquisition will bring to the Company a fully automated robotic assembly line, mechanical engineer program managers, and a team with experience in printed wiring board and mechanical design technology. SMTEK also has substantial experience in the design and production of printed circuit boards to be used in wireless communication products. For additional information concerning the transaction, reference is made to the Agreement and to a press release issued as of January 12, 1996, copies of which are attached as exhibits hereto. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Business Acquired. It is impractical to provide the required financial statements for SMTEK at the time of the filing of this report on Form 8-K. Such required financial statements will be filed as an amendment to this report on Form 8-K on or before March 27, 1996. (b) Pro Forma Financial Information. It is impractical to provide the required pro forma financial information for the Company at the time of the filing of this report on Form 8-K. Such pro forma financial information will be filed as an amendment to this report on Form 8-K on or before March 27, 1996. (c) Exhibits.
Exhibit Number Description - -------------------------- --------------------------------------------------------------------- 99.1 Agreement for Purchase of Shares dated October 6, 1995 between DDL Electronics, Inc., as buyer, and the shareholders of SMTEK. 99.2 Employment Agreement and Letter of Understanding and Agreement dated October 15, 1995 between DDL Electronics, Inc. and Gregory L. Horton.
2 4
Exhibit Number Description - -------------------------- ---------------------------------------------------------------------------- 99.3 Note Purchase Agreement dated as of November 10, 1995 among DDL Electronics, Inc. and the various purchasers of 10% Senior Bridge Notes. 99.4 Press Release dated January 12, 1996.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. DDL ELECTRONICS, INC. Date: January 29, 1996 By: /s/ Gregory L. Horton ----------------------------------- Gregory L. Horton President 3 EX-99.1 2 AGREEMENT FOR PURCHASE OF SHARES, DATED 10-6-95 1 EXHIBIT 99.1 AGREEMENT FOR PURCHASE OF SHARES THIS AGREEMENT is made and entered into this 6th day of October, 1995, by and between DDL ELECTRONICS, INC., a Delaware corporation (herein called "Buyer") and George Brimhall, Lynn Stratford, Stratford Freedom Trust, Stratford Investments, Thomas F. Clark, Leland Buttle, Bayview Construction, Stuart Siegel and Gregory L. Horton (herein collectively called "Sellers"): THIS AGREEMENT is made and entered into with reference to the following: RECITALS WHEREAS, Sellers collectively own all of the issued and outstanding shares of capital stock of SMTEK, INC., a California corporation, hereinafter referred to as "SMTEK"; and WHEREAS, Buyer wishes to acquire one-hundred (100%) percent of the issued and outstanding shares of the capital stock of SMTEK, together with all of the voting rights pertaining thereto, and Sellers desire to sell same to Buyer, subject to the terms and conditions hereinafter set forth; and WHEREAS, Buyer and Sellers have agreed upon an enterprise value for SMTEK of $8.0 million for the purchase of shares for cash, NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I AGREEMENT FOR PURCHASE AND SALE OF STOCK 1.01 PURCHASE AND SALE OF CAPITAL STOCK OF SMTEK. Sellers agree to deliver, or cause to be delivered on the First Closing Date, as herein specified, to the Escrow Agent and subject to the terms and conditions hereinafter presented, the shares set forth and described in Schedule I, which is incorporated herein and an integral part of this Agreement, comprising one-hundred percent (100%) of the issued and outstanding capital stock of SMTEK. Upon fulfillment of the conditions to the Second Closing, also as herein specified and subject to the terms and conditions hereinafter presented, the Escrow Agent shall deliver the shares comprising one-hundred percent (100%) of the issued and outstanding stock of SMTEK to Buyer, and the purchase and sale of the capital stock of SMTEK shall have been fully consummated. - ------------------------------------------------------------------------------- Agreement for Purchase of Shares Page 1. 2 1.02 CONSIDERATION TO SELLERS OTHER THAN HORTON. Upon the terms and subject to the conditions of this Agreement, at the Second Closing (as hereinafter defined) the Buyer shall pay to the Sellers, not including Horton, whose stock shall be subject to a separate agreement, in immediately available funds in United States currency an amount equal to Six Million, Seven Hundred Ninety-Eight Thousand, and Seven Hundred and Thirty-Eight U.S. Dollars ($6,798,738). The consideration shall be paid to each Seller at the Second Closing in accordance with the allocations set forth in Schedule I. Payment of the consideration to the Sellers other than Horton shall not be deferred, delayed or postponed, or any other manner adversely affected, by the inability of Buyer and Seller to reach an agreement as to the terms and conditions of the transfer of the Horton shares in SMTEK. 1.03 CONSIDERATION TO HORTON. The consideration to be paid to Horton for his Stock shall be One-Million (1,000,000) unregistered shares of DDL Electronics, Inc. Common Stock, to be delivered in accordance with, and subject to, the terms of a separate agreement which shall be completed not later than the Closing Date. Agreement between Horton and the Buyer as to the delivery of the consideration for the purchase of his stock shall not be a condition subsequent to Horton's agreement and obligation to sell such stock to the Buyers pursuant to this Agreement; in the event that Horton and Buyer are unable to agree on the terms of such delivery, both parties consent to the binding resolution of the matter through arbitration. The Sellers, individually and collectively, consent and agree to this separate agreement between the Buyer and Horton concerning the purchase of his shares of SMTEK stock, and neither the terms nor the status of this separate agreement shall provide a ground for the challenge of this Agreement or a defense to the specific enforcement thereof. ARTICLE II FIRST CLOSING AND ESCROW 2.01 REMOVAL OF CONTINGENCIES. Within twenty (20) days of execution of this Agreement, Buyer must either terminate this Agreement or provide written notification to the Sellers that all contingencies to the purchase of shares contemplated herein have been removed, other than those specified in Article VI hereto and, further, that Buyer is satisfied with its due diligence investigation of SMTEK as of that date and is unaware of any fact or circumstance constituting a breach of any representation or warrant by Sellers which would prevent the closing. Failure of Buyer to provide the written notification of the removal of all contingencies required by this Section 2.01 shall result automatically, and without further action by the parties, in the termination of this Agreement. 2.02 TIME AND PLACE OF FIRST CLOSING. Upon the terms and subject to the conditions contained in this Agreement, the First Closing of the transactions contemplated by this Agreement (the "First Closing") will take place at the offices of Strome, Susskind Securities L.P. at 100 Wilshire Boulevard, Fifteenth Floor, Santa Monica, California, at 10:00 a.m. (local time), - ------------------------------------------------------------------------------- Agreement for Purchase of Shares Page 2. 3 not more than two (2) business days following the date of notification of the removal of contingencies, or on the first business day following the date on which all of the conditions set forth in Article VI to each party's obligations hereunder have been satisfied or waived; or at such other place or time or both as the parties mutually may agree in writing. The date on which the First Closing actually occurs is hereinafter referred to as the "First Closing Date." 2.03 DELIVERIES BY THE SELLERS. At the First Closing, the Sellers will deliver the following to the Escrow Agent: (a) Stock certificates representing the Shares accompanied by stock powers duly executed in blank or duly executed instruments of transfer and any other documents necessary to transfer to the Buyer at the Second Closing Date good title to the Shares, free and clear of any voting trust or any other restrictions upon the exercise by the Buyer of all rights, powers and incidents of unrestricted ownership. (b) The opinion, certificates and other documents contemplated by Article VI, together with duplicate originals to the Buyer. (c) The resignations, signed but undated, of those members of the Board of Directors and those officers of SMTEK who will not continue after the Second Closing Date to be directors or officers of SMTEK. 2.03 DELIVERIES BY THE BUYER. At the First Closing, the Buyer will deliver the following to the Escrow Agent: (a) One Million U.S. Dollars ($1,000,000) in immediately available funds. (b) The opinion, certificates and other documents contemplated by Article V, together with duplicate originals to the Sellers.. 2.04 DUTY OF ESCROW AGENT. Upon receipt of the items specified, the Escrow Agent shall hold the items in escrow in accordance with the terms and conditions set forth in the Escrow Agency Agreement. Under no circumstances shall the Escrow Agent release any of the items delivered into its care at the First Closing until all conditions to the Second Closing shall have been satisfied, or until one of the parties shall have failed to fulfill the conditions to the Second Closing and the Escrow has made the required findings and issued the required certificate prescribed in Section 3.05. ARTICLE III SECOND CLOSING AND DUTY OF ESCROW AGENT - ------------------------------------------------------------------------------- Agreement for Purchase of Shares Page 3. 4 3.01 TIME AND PLACE OF SECOND CLOSING. Upon the terms and subject to the conditions contained in this Agreement, the Second Closing of the transactions contemplated by this Agreement (the "Second Closing") will take place at the offices of Strome, Susskind Securities L.P. at 100 Wilshire Boulevard, Fifteenth Floor, Santa Monica, California, at 10:00 a.m. (local time) not more than forty-five (45) days following the First Closing Date, unless the forty-fifth day falls upon a weekend or holiday, in which case the Second Closing shall take place on the first business day following the expiration of the forty-five (45) days, or at such other place or time or both as the parties mutually may agree in writing. The date on which the Second Closing actually occurs is hereinafter referred to as the "Second Closing Date." 3.02 DELIVERIES BY THE SELLERS. At the Second Closing, the Sellers will deliver the following to the Escrow Agent: (a) The stock books and minute books of SMTEK. (b) Written certification addressed to Buyer that the opinion, certificates and other documents contemplated by Article VI, are accurate and correct as of the Second Closing Date. 3.03 DELIVERIES BY THE BUYER. At the Second Closing, the Buyer will deliver the following to the Escrow Agent: (a) The balance of the Purchase Price in immediately available funds. 3.04 DUTY OF ESCROW AGENT WHEN ALL CONDITIONS TO THE SECOND CLOSING ARE SATISFIED. Upon receipt of the items specified in Sections 3.02 and 3.03, the Escrow Agent shall declare the conditions to Closing to have been satisfied and deliver the shares and certificates representing the shares to Buyer together with the other items specified in Sections 2.02 and 3.02 above, and the purchase price to the Sellers in accordance with the amounts due to each respective Seller. 3.05 DUTY OF ESCROW AGENT WHEN ALL CONDITIONS TO THE SECOND CLOSING ARE NOT SATISFIED. In the event that either party fails to meet the conditions specified in Section 3.02 or Section 3.03, respectively, Escrow Agent shall provide written certification that one of the parties was ready, willing and able to perform but that the other party was not. In such event, the Escrow Agent shall take one of the following actions: 3.05.1 IF SELLERS FAIL TO PERFORM -- If Buyer is ready, willing and able to perform all of the conditions of the Second Closing, and Sellers fail to deliver to the Escrow Agent the records required in Sections 6.06.1 and 6.06.2, Escrow Agent shall release and deliver the escrowed stock and stock certificates to the Sellers only, and in no other circumstances, upon delivery by Sellers to Buyer of Five Million U.S. Dollars ($5,000,000) in unrestricted and immediately available funds, in accordance with Buyer's instructions; or - ------------------------------------------------------------------------------- Agreement for Purchase of Shares Page 4. 5 3.05.2 IF BUYER FAILS TO PERFORM -- If Sellers are ready, willing and able to perform all of the conditions of the Second Closing, and Buyer fails to deliver to the Escrow Agent the balance of the purchase price for the shares, the Escrow Agent shall release and deliver the escrowed stock and stock certificates to the Sellers, together with the One Million U.S. Dollars ($1,000,000) received into escrow at the First Closing. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS Subject to the limitations set forth in Section 4.l5(a) and Section 4.l5(b), Sellers represent and warrant to Buyer as follows: 4.01 CORPORATE STATUS. SMTEK is a duly organized corporation and in good standing under the laws of the State of California and has qualified to transact business in all other states requiring qualification therein. SMTEK has corporate power to own all of its properties and assets and to carry on its business as it is now being conducted. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated herein will not, violate any provision of any charter, by-law, mortgage, lien, lease, agreement, covenant, instrument, order, judgment or decree to which SMTEK is a party or by which SMTEK is bound; and will not violate any other restriction of any kind or character to which SMTEK is subject, including restrictions upon the assignment of contracts; nor cause the acceleration of the payment of any obligation. The corporate minute book of SMTEK is complete, including therein the Articles of Incorporation and By-Laws with any amendment thereto, and the meetings of directors referred to therein were duly called and held, and the minutes thereof represent all minutes of "directors" meetings heretofore held, and the signatures appearing on all documents contained therein are the true signatures of the persons purporting to have signed the same. 4.02 FINANCIAL STATEMENTS. Sellers have heretofore delivered to Buyer the audited financial statements covering the business and the operations for SMTEK dated March 31, 1995, and said financial statements fairly represent the financial position of SMTEK as of the date thereof and the results of operations for the period covered by said statements. Sellers will deliver unaudited financial statements for the period ended August 31, 1995, together with a certificate from management as to the accuracy thereof. In the event that SMTEK's auditors, or any other certified public accounting firm, conduct a review of the unaudited financial statements for the period beginning April 1, 1995 and ending August 31, 1995, the financial statements prepared as a result of such review shall be the ones considered to have been delivered to Buyer pursuant to this section and shall carry the certificate of management. 4.03 TITLE TO PROPERTIES. SMTEK has good and marketable title to its properties and assets (including, without limitation, the assets reflected in the above described balance sheet, except as subsequently sold or otherwise disposed of in the ordinary course of business), free and - ------------------------------------------------------------------------------- Agreement for Purchase of Shares Page 5. 6 clear of all claims, rights, restrictions, conditions, covenants, easements, liens and encumbrances except the lien of property taxes not yet due and equipment which is leased and described in Schedule III attached hereto and made a part of this Agreement. 4.03.1 MATERIALS SUPPLIED AND OWNED BY CUSTOMERS. SMTEK expressly excludes from its property and assets and makes no such representations with respect to any production materials or inventory which may be located on SMTEK premises but which is owned and supplied by customers. 4.04 TAXES AND TAX RETURNS. (a) SMTEK has timely filed or caused to be timely filed all federal, state and local tax returns for income taxes, sales taxes, withholding and all payroll taxes, property taxes, and all other taxes of every kind whatsoever required by law to have been filed, and all such tax returns are complete and accurate. For the purpose of the preceding sentence, a return shall be deemed to be timely filed if it is filed after the date due but within any period allowed in an extension granted by the taxing authority. (b) SMTEK has paid or caused to be paid all taxes which have become due, whether pursuant to said returns or pursuant to any assessments or otherwise, and there is no further liability (whether or not disclosed on such returns or assessments) for any such taxes, and no interest or penalties accrued or accruing with respect thereto, except as may be set forth in the financial statements referred to in Section 3.02 above. (c) The amounts set up as provisions for taxes on the financial statements as of March 31, 1995, and the unaudited financial statements as of August 31, 1995, are sufficient for the payment of all unpaid federal, state, county and local taxes of SMTEK accrued for or applicable to the period ended on such date, and for all years and periods prior thereto and for which SMTEK may be liable in its own right or as transferee of the assets of, or as successor to, any other corporation, association, partnership, joint venture or other entity. 4.05 CAPITALIZATION AND RIGHTS TO STOCK. Aside from the capital stock of SMTEK which is issued and outstanding in the names of Sellers as described herein, there are outstanding no options, warrants or other rights to acquire any unissued shares of the stock of SMTEK. 4.06 LITIGATION. There are no actions, suits or proceedings pending against SMTEK either in court or before any administrative board, agency or commission including, without limitation, environmental matters, actions by employees, or product liability claims. Sellers have no notice or knowledge that any such action, suit or proceeding is threatened. 4.08 EQUIPMENT. All equipment used by SMTEK is in good repair and operating condition and conforms to all applicable ordinances and regulations. - ------------------------------------------------------------------------------- Agreement for Purchase of Shares Page 6. 7 4.09 MATERIAL CONTRACTS. The full, true and complete schedule of all leases and material contracts is attached hereto marked Schedule III and by this reference made a part hereof. For the purpose of this section, a material contract is defined to be any contract involving a commitment in excess of $10,000 but excluding, however, insurance policies and group insurance policies of which SMTEK is a party. With respect to insurance policies and group insurance policies to which SMTEK is a party, as well as all material contracts together with all amendments and statements thereto, upon the request of Buyer, Sellers will make such policies and contracts available to Buyer or its duly authorized representative prior to closing date as hereinafter specified. There are no material defaults, nor are there any obligations of SMTEK to be performed under said material contracts other than those set forth in the written agreements. 4.10 INDEBTEDNESS AND CONTINGENT LIABILITIES. SMTEK does not have any liabilities except as reflected on its financial statements heretofore delivered to Buyer and except as incurred in the ordinary course of business since the date of said financial statements or disclosed otherwise herein. All liabilities of SMTEK as of the date hereof or incurred hereafter can be prepaid in full, without penalty, by SMTEK at any time. SMTEK is not directly or indirectly liable upon or with respect to (by discount, repurchase agreement, or otherwise), or obligated in any other way to provide funds in respect of, or to guarantee or assume any debt or obligation of any corporation, association, partnership, joint venture or other entity, except endorsements made in the ordinary course of business in connection with the deposit of items for collection. 4.11 INDEBTEDNESS OF SMTEK TO CERTAIN PERSONS. SMTEK is not and on the Closing Date will not be indebted to any of its shareholders, or to any officers or directors of SMTEK or to their respective spouses and/or children in any amount whatsoever other than for payment of salaries and compensation for services rendered, other than those obligations set forth in Schedule II which is attached hereto and made a part of this Agreement. 4.12 OWNERSHIP OF STOCK. Each of the Sellers is the lawful owner and holder of the number of shares of the capital stock of SMTEK set forth in Schedule I and has valid and marketable title thereto, free and clear of any claims, liens, restrictions or encumbrances of or by others, including any claims which might arise under community property laws, and each of said Sellers has the absolute and unrestricted right, power, authority and capacity to sell, assign and transfer his shares as herein provided, without prior consent of any other party. 4.13 VOTING TRUSTS. Any voting trust or other arrangement which may have existed with respect to the power to vote the shares of capital stock of SMTEK, or any other restriction upon the power of the owner and holder of the shares, has been terminated or revoked and the shares shall be conveyed to the Buyer free of any restriction or limitation. 4.14 PENSION AND PROFIT-SHARING PLAN. There is not presently in existence to which SMTEK is a party any profit sharing, pension or bonus plans for any of SMTEK's officers, directors or employees. - ------------------------------------------------------------------------------- Agreement for Purchase of Shares Page 7. 8 4.15 INDEMNIFICATION. (a) Horton hereby indemnifies, to the extent of the consideration received for his SMTEK, Inc. capital stock, Buyer against any loss incurred by Buyer by reason of the incorrectness or breach of any of the representations or warranties set forth in this Article IV, and against all costs, liability, and expense (including, but not limited to attorney's fees) reasonably incurred by Buyer in defending any claim, action or proceedings arising by reason of the incorrectness or breach of any of the representations or warranties set forth in this Article IV, provided, however, that Buyer shall not incur substantial expense in defending any such claim until after it has afforded Horton notice and a reasonable opportunity himself to defend against such claim. Buyer shall not, however, be precluded from being separately represented in connection with any defense provided by Horton and shall be indemnified against the costs and expense of such representation. (b) Each Seller, to the extent of his or its knowledge following due and diligent inquiry and to the extent of the consideration received for his or its SMTEK, Inc. capital stock, hereby indemnifies Buyer against any loss incurred by Buyer by reason of the incorrectness or breach of any of the representations or warranties set forth in this Article IV, and against all costs, liability, and expense (including but not limited to attorneys' fees) reasonably incurred by Buyer in defending any claim, action or proceedings arising by reason of the incorrectness or breach of any of the representations or warranties set forth in this Article IV, provided, however, that Buyer shall not incur substantial expense in defending any such claim until after it has afforded each Seller notice and a reasonable opportunity themselves to defend against such claim. Buyer shall not, however, be precluded from being separately represented in connection with any defense provided by one or more Sellers and shall be indemnified against the costs and expense of such representation. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER 5.01 CORPORATE STATUS. Buyer is a corporation duly organized and in good standing under the laws of the State of Delaware. Upon compliance with applicable securities laws and regulations, the execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby will not, violate any provision of any charter, by-law, mortgage, lien, lease, agreement, instrument, order, judgment or decree to which Buyer is a party or by which Buyer is bound, and it will not violate any other restriction of any kind or character to which Buyer is subject. Buyer's Executive Committee of the Board of Directors has authorized negotiations with respect to the purchase of stock by Buyer reflected herein, which is subject to approval by Buyer's Board of Directors. 5.02 APPROVAL BY BOARD OF DIRECTORS. Buyer agrees that it will, prior to the Closing - ------------------------------------------------------------------------------- Agreement for Purchase of Shares Page 8. 9 and in sufficient time to prepare the certificate called for in Section 6.03.1, call a special meeting of its Board of Directors within twenty (20) days after the execution of this Agreement for the purpose of submitting this Agreement to said directors for their approval or rejection. 5.03 FINANCIAL STATEMENTS. Buyer has heretofore delivered to Sellers the audited financial statements covering the business and the operations of Buyer dated June 30, 1995, and said financial statements fairly represent the financial position of the Buyer as of the date thereof and the result of operations for the period covered by said statements. Buyer will deliver a copy of the Company's Form 10-K as filed with the Securities and Exchange Commission, together with unaudited financial statements for the period ended August 31, 1995. 5.04 TITLE TO PROPERTIES. Buyer has good and marketable title to its properties and assets (including, without limitation, the assets reflected in the above described financial statements, except for obligations presented in the financial statements or as subsequently sold or otherwise disposed of in the ordinary course of business), free and clear of all claims, rights, restrictions, conditions, covenants, easements, liens and encumbrances, except the lien of property taxes not yet due, property and equipment which are subject to leases, and property and equipment which is subject to the terms and conditions of agreements with the Industrial Development Board for Northern Ireland as set forth in the Company's financial statements and public filings. 5.05 TAXES AND TAX RETURNS. (a) Buyer has timely filed or caused to be timely filed all federal, state and local tax returns for income taxes, sales taxes, withholding and all payroll taxes, property taxes, and all other taxes of every kind whatsoever required by law to have been filed, and all such tax returns are complete and accurate. For the purpose of the preceding sentence, a return shall be deemed to be timely filed if it is filed after the date due but within any period allowed in an extension granted by any taxing authority. (b) Buyer has paid or caused to be paid all taxes which have become due, whether pursuant to said returns or pursuant to any assessments or otherwise, and there is no further liability (whether or not disclosed on such returns or assessments) for any such taxes, and no interest or penalties accrued or accruing with respect thereto, except as may be set forth in the balance sheet and statements of operations referred to in Section 4.05(a) above. (c) The amounts set up as provisions for taxes on the balance sheet as of June 30, 1995, are sufficient for the payment of all unpaid federal, state, county and local taxes of Buyer accrued for or applicable to the period ended on such date and all years and periods prior thereto and for which Buyer may be liable in its own right or as transferee of the assets of, or as successor to any other corporation, association, partnership, joint venture or other entity. 5.06 LITIGATION. There are no material actions, suits or proceedings pending against - ------------------------------------------------------------------------------- Agreement for Purchase of Shares Page 9. 10 Buyer either in court or before any administrative board, agency or commission other than those listed in Schedule IV attached hereto. ARTICLE VI CLOSINGS, DELIVERY OF DOCUMENTS AND OTHER CONDITIONS PRECEDENT TO CLOSING, AND ESCROW 6.01 TIME AND PLACE OF FIRST CLOSING. The "First Closing" will take place at the offices of Strome, Susskind Securities L.P. at 100 Wilshire Boulevard, Fifteenth Floor, Santa Monica, California, on the First Closing Date as defined in Section 2.01. 6.02 DELIVERY OF DOCUMENTS BY SELLERS. On the First Closing Date, Sellers shall deliver the following: 6.02.1 Sellers shall deliver to the Escrow Agent their shares of capital stock which are the subject of this Agreement, duly endorsed for transfer, with signature guaranteed thereon; 6.02.2 Sellers shall deliver to Buyer at the Closing a certificate that the representations and warranties set forth in Article IV hereof are true and correct in all respects at and as of the First Closing Date; 6.02.3 Sellers shall deliver to Buyer a supplement to Exhibit "A" attached hereto dated as at the First Closing Date indicating thereon any material additional contracts not referred to on Exhibit "A" together with copies of all contracts between SMTEK and third parties referred to in said supplement and Exhibit "A." 6.02.4 Sellers shall deliver to Buyer the opinion, speaking and dated as of the First Closing Date, and automatically excluding any item from the opinion as to which the Agreement permits exclusion, of , Esq., as legal counsel to the Sellers in form and substance satisfactory to Buyer and Buyer's counsel, Charles Linn Haslam, Esq., to the effect that: (a) SMTEK is duly organized, validly existing and in good standing under the laws of the State of California and has all requisite power to own, lease and operate its properties and to carry on its business as then being conducted. (b) The issued and outstanding capital stock of SMTEK is as set forth herein; that all of the issued and outstanding shares are validly issued, fully paid and nonassessable, and that the Sellers are the owners of record of the stock which is the subject matter of the agreement. - ------------------------------------------------------------------------------- Agreement for Purchase of Shares Page 10. 11 (c) Sellers have good and marketable title to their shares of capital stock sold herein with full right and power to transfer and sell said shares to Buyer, free and clear of all liens, encumbrances, restrictions, voting trusts, and claims. (d) There are no outstanding subscriptions, warrants or options for the purchase of shares of said capital stock or any securities convertible into or exchangeable for shares of said capital stock or any other commitments of any kind for the issuance of additional shares of said capital stock of SMTEK. (e) Neither the execution and delivery of this Agreement nor the performance of the transactions contemplated hereby will constitute a breach of the Articles of Incorporation or By-Laws of SMTEK, or any evidence of indebtedness or covenant, or cause the breach, termination, or imposition of a penalty on the basis of any agreement to which it is a party. (f) Such counsel does not know of any action, suit, proceeding or claim pending or threatened against SMTEK, its property or business, or the transactions contemplated by this Agreement, except as set forth herein. (g) No consent, approval or other order of any governmental or administrative board or body is required for the execution and delivery by the Sellers of this Agreement and the exchange of the shares of capital stock of Sellers' corporations with Buyer pursuant hereto. 6.03 DELIVERY OF DOCUMENTS BY BUYER. Buyer, on the First Closing Date, shall deliver to Sellers the following: 6.03.1 Buyer shall deliver to Sellers a certified copy of the resolutions by its Board of Directors authorizing the transaction herein. 6.03.2 Buyer shall deliver to Sellers the opinion, speaking and dated as of the First Closing Date, of Charles Linn Haslam, Secretary and Counsel of the Buyer to the effect that the representations made in Section 6.01 hereof are true and correct. 6.04 CONDITIONS PRECEDENT TO FIRST CLOSING RELATING TO WARRANTIES AND REPRESENTATIONS BY SELLERS. The obligations of Buyer to perform this Agreement are subject to each and all of the conditions set forth herein, any one or more of which may, however, be waived in whole or in part by Buyer by written notice to that effect given to Sellers, provided that any such waiver shall not be construed as a waiver by Buyer of any action or remedy it may have at law or equity as a result of any breach by Sellers of any of the representations and warranties set forth in Articles III hereof. 6.04.1 Sellers have performed each and all of their agreements as set forth herein and the - ------------------------------------------------------------------------------ Agreement for Purchase of Shares Page 11. 12 representations and warranties set forth in Article IV hereof shall be true and correct in all respects at and as of the closing date with the same effect as though the same had been made on and as of said date, and on the First Closing Date, Sellers shall deliver to Buyer a certification to such effect. 6.04.2 There shall be no material defaults of SMTEK under any contract described in Schedule III attached hereto or the supplement referred to in Section 6.02.3 hereof. 6.04.3 Between the date of this Agreement and the First Closing Date, SMTEK shall have suffered no material loss by fire or other casualty whether or not covered by insurance; and at the First Closing Date there shall be no material action, suit or proceeding pending or threatened against SMTEK involving any single claim as to which the exposure, in excess of any applicable insurance coverage, exceeds Ten Thousand ($10,000.00) Dollars, or aggregate claims against SMTEK in the amount of Fifty Thousand ($50,000.00) Dollars, nor shall there be pending or threatened any court or administrative proceeding against consummation of the transaction contemplated herein and the Sellers agree to disclose any such matters (if they exist) to Buyer prior to or on the First Closing Date. 6.04.4 ABSENCE OF ADVERSE CHANGES. Since the dates of the financial statements covering the business and the operations of SMTEK referred to in paragraph 4.02 hereof, Sellers warrant and represent that SMTEK (a) has not suffered any material adverse change in its business or financial affairs including, without limitation, previously booked but unfulfilled orders; (b) has conducted its business in the ordinary course and has not made any commitments, acquisitions, purchases or sales which were not directly related to the completion of contracts; (c) has not suffered any damage, destruction, claim or loss, whether or not covered by insurance, materially and adversely affecting their properties or business; (d) has not made any declaration or setting aside or payment of any dividend or other distribution in respect of their outstanding capital stock, or any direct or indirect redemption, purchase or others acquisition of any such stock; (e) has not made any reduction or increase in compensation, including bonuses, benefits and perquisites, payable to or to become payable to any of its officers or agents or any changes in employee benefit plans. There are no facts (either known to the Sellers or which due diligence would have disclosed) which are not set forth in this Agreement, its schedules, exhibits and other documents referred to herein and heretofore delivered to Buyer and which would have a material adverse - ------------------------------------------------------------------------------ Agreement for Purchase of Shares Page 12. 13 effect on the operations of SMTEK. 6.04.5 Between the date of the financial statements of SMTEK delivered to Buyer and the First Closing Date, there shall have been no material adverse change in the financial position or assets or business of SMTEK including, without limitation, previously booked but unfulfilled orders. The Sellers undertake and agree to disclose any such matters (if they exist) to Buyer prior to or on the First Closing Date. 6.04.6 Buyer at its election may cause an audit of the books and records of SMTEK to be performed at Buyer's cost by an accounting firm selected by Buyer; provided, however, that such audit shall be completed and reported within fifteen (15) days of the date of execution of this Agreement. In such event, Sellers agree to cause all books, records and other material relevant to such audit to be made available to the auditor designated by Buyer and its duly appointed agent as required by said auditor during the business hours of SMTEK. 6.04.7 Buyer shall have had the opportunity, with the cooperation of the Sellers, to conduct such review of the business and financial records, public records, and compliance of SMTEK with any and all applicable laws and regulations, as is required by the exercise of reasonable due diligence. 6.05 CONDITIONS PRECEDENT TO CLOSING RELATING TO WARRANTIES AND REPRESENTATIONS BY BUYER. The obligations of Sellers to perform this Agreement are subject to each and all of the conditions set forth herein, any one or more of which may, however, be waived in whole or in part by Sellers by written notice to that effect given to Buyer, provided that any such waiver shall not be construed as a waiver by Sellers of any action they may have by law as a result of any breach by Buyer of any of the representations and warranties set forth in Article V hereof. 6.05.1 Buyer shall have performed each and all of its agreements as set forth herein, and the representations and warranties set forth in Article V hereof shall be true and correct in all material respects at and as of the First Closing Date, with the same effect as though the same had been made on and as of such date. Buyer hereby indemnifies Sellers against any loss incurred by Sellers by reason of the incorrectness or breach of any of the representations or warranties set forth in Article V, and against all cost, liability and expense (including but not limited to attorney's fees) reasonably incurred by Sellers in bringing or defending any claim, action or proceedings arising by reason of the incorrectness or breach of any of the representations or warranties set forth in Article V. 6.06 TIME AND PLACE OF SECOND CLOSING. The "Second Closing" will take place at the offices of Strome, Susskind Securities L.P. at l00 Wilshire Boulevard, Fifteenth Floor, Santa Monica, California, on the Second Closing Date as defined in Section 3.01 6.06.1 DELIVERY OF DOCUMENTS BY SELLERS AT THE SECOND CLOSING. In addition to the items specified in Sections 6.02 and 6.04 above, speaking to and as of the Second Closing Date, - ------------------------------------------------------------------------------ Agreement for Purchase of Shares Page 13. 14 Sellers shall deliver to Buyer at the Second Closing a certificate setting forth the name of each bank in which SMTEK has an account and the names of all persons authorized to draw thereon or who have access thereto. 6.06.2 In accordance with Buyer's instructions, all of the books and records of SMTEK including but not limited to the minute book, stock certificate book, ledgers, and tax returns as well as the corporate seal of SMTEK shall be delivered to Buyer. 6.07 FAILURE OF A PARTY TO DELIVER DOCUMENTS OR CERTIFICATES AT A CLOSING. In the event that one party fails to deliver, or fails to deliver in satisfactory form, one or more of the required documents or certificates at the First or Second Closing, the other party may, at its election and in its sole discretion, decide either to permit the non-performing party to cure the defect after the Closing Date, or to waive the delivery of the specified document or certificate as a condition to the closing, or to declare the conditions to closing as not satisfied. In the event of the waiver of the condition, the performing party shall be entitled nonetheless to recover damages for any actual loss, if any, resulting from the non-performing party's failure to deliver the specified document or certificate or the breach of any warranties or representations previously made with respect to the same subject matter. ARTICLE VII SURVIVAL OR REPRESENTATIONS; INDEMNIFICATIONS 7.01 SURVIVAL OF REPRESENTATIONS. All representations and warranties made by any party in this Agreement, whenever given and including the indemnification specified in Section 4.15, shall survive the Closings and continue for a period of eighteen months after the Second Closing, other than those representations and warranties given with respect to claims of property damage which shall survive for thirty-six months, and those specified in Section 4.04 which shall survive for the applicable statute of limitations period, including any waivers thereof. ARTICLE VIII ADDITIONAL COVENANTS 8.01 CONDUCT OF BUSINESS PRIOR TO CLOSING. Between the date hereof and the closing date, except with the prior written consent of Buyer: 8.01.1 SMTEK shall conduct its business only in the usual and ordinary course and the character of such business shall not be changed by SMTEK. 8.01.2 SMTEK shall conduct its business so that there is no material change in the - ------------------------------------------------------------------------------ Agreement for Purchase of Shares Page 14. 15 amount of any of the assets or liabilities as shown on the balance sheet. 8.01.3 No change shall be made in the Articles of Incorporation or the By-Laws of SMTEK. 8.01.4 No change shall be made in the authorized or issued shares of capital stock of SMTEK. 8.01.5 No increase shall be made in the compensation, including bonuses, benefits and perquisites, paid or payable by SMTEK to any of its directors, officers, division or departments heads or agents, without prior approval by Buyer. 8.01.6 No assets shall be sold by SMTEK except in the ordinary course of business and for good and sufficient consideration. In no event shall any fixed asset having a value of Five Thousand ($5,000.00) Dollars or more be sold by SMTEK. 8.01.7 SMTEK shall not amend, terminate or change any material contract described in Section 3.09 hereof to which it is a party, without prior approval by Buyer. 8.01.8 SMTEK shall not issue or sell any stock, bonds or other securities (within the meaning of the Securities Act of 1933, as amended). 8.01.9 SMTEK shall not incur any obligation or liability (absolute or contingent) except current liabilities incurred in the ordinary course of business or obligations under contracts which are not described in Section 3.09 hereof. 8.01.10 SMTEK shall not discharge or satisfy any lien or encumbrance or pay any obligation or liability (absolute or contingent), other than current liabilities shown on the balance sheets heretofore delivered and current liabilities incurred since that date in the ordinary course of business. 8.01.11 SMTEK shall not make any payment or distribution to its shareholders or purchase or redeem any shares of its capital stock. 8.01.12 SMTEK shall not mortgage, pledge or subject to lien or encumbrance any of its assets, tangible or intangible. 8.01.13 SMTEK shall not cancel any debts or claims or waive any rights. 8.01.14 SMTEK shall not sell, assign or transfer any patent or other intangible asset. 8.01.15 SMTEK shall not adopt any profit sharing, pension or bonus plan. - ------------------------------------------------------------------------------ Agreement for Purchase of Shares Page 15. 16 ARTICLE IX NO OTHER OBLIGATIONS 9.01 NO OTHER OBLIGATIONS. Sellers and Buyer each represent and warrant that they have not incurred any obligations to any other party giving rise to any claim for commission or finders' fees arising out of this transaction which might be asserted against the other party. Buyer and Sellers, respectively, hereby agree to indemnify and hold harmless the other party from and against any claim, liability, loss, damage or expense (including attorneys' fees and legal expenses) arising out of or in respect of any commissions or brokerage fees of any party as a result of the execution of this Agreement For Purchase of Shares between the parties hereto. ARTICLE X CONFIDENTIALITY 10.01 CONFIDENTIAL INFORMATION. All parties to this Agreement have provided Confidential Information to permit consideration of the desirability and feasibility of the purchase of shares contemplated herein. The Confidential Information includes, without limitation, information relating to business plans, financial results and statements, markets, projected activities and results of operations, customers, contracts, backlog, and means, methods and processes of manufacture, capital structures and ownership of shares. The disclosure of Confidential Information, including the disclosure of this Agreement for the Purchase of Shares prior to the Closing in the absence of legal obligation for such disclosure, would result in serious harm or regulatory obligations for one or more of the parties. Accordingly, the parties hereto agree that Confidential Information, including this Agreement, shall be disclosed only to such personnel, legal counsel, and outside experts and advisors, as (l) reasonably need to know such information to advise in connection with the transaction contemplated herein, and (2) agree to respect and maintain the strict confidentiality of information disclosed which has not previously been placed in the public domain. 10.02 INSIDE INFORMATION FOR PURPOSES OF SECURITIES REGULATION. All parties further agree that none of the Confidential Information or any other information provided will be used, or disclosed to others for use, in connection with purchasing, selling or trading in the securities of DDL Electronics, Inc. in any manner that is a violation of any applicable legal or regulatory restrictions, and all parties acknowledge a duty not to purchase, sell or trade in securities on the basis of any material "inside" information that is not publicly known. ARTICLE XI - ------------------------------------------------------------------------------ Agreement for Purchase of Shares Page 16. 17 BREAK-UP FEE 11.01 BREAK-UP BY SELLERS. In the Event that Buyer is ready, willing and able to fulfill all of the conditions of the First Closing, and the Sellers fail to deliver their shares to the Escrow Agent, representing one-hundred percent (100%) of the authorized and outstanding shares of SMTEK, Inc. capital stock, each certificate duly endorsed for transfer, with signature guaranteed thereon as required by the provisions of this Agreement or, in the event that Buyer is ready, willing and able to fulfill all of the conditions of the Second Closing, and the Sellers fail to deliver the records required in Sections 6.06.1 and 6.06.2, Sellers shall pay to the Buyer the sum of Five Million U.S. Dollars ($5,000,000) as a break-up fee. 11.02 BREAK-UP BY BUYER. In the event that Sellers are ready, willing and able to fulfill all of the conditions of the First Closing, and Buyer fails to deliver to the Escrow Agent One Million U.S. Dollars ($1,000,000) in immediately available funds as required by the provisions of this Agreement or, in the event that Sellers are ready, willing and able to fulfill all of the conditions of the Second Closing, and the Buyer fails to deliver to the Escrow Agent the balance of the purchase price for the shares, Buyer shall pay to the Sellers the sum of One Million U.S. Dollars ($1,000,000) as a break up fee. ARTICLE XII MISCELLANEOUS 12.01 FREE ACCESS. Between the date of execution hereof and the closing date, Buyer's representatives shall be given full access to SMTEK's books of accounts, minute books, and reports, as well as reasonable access to SMTEK's corporate officers. 12.02 EXPENSES. Whether or not the transactions contemplated hereby are consummated, Sellers and Buyer agree to pay all their own expenses (including attorneys' fees incurred in connection with this Agreement, the transactions contemplated hereby, the negotiations leading to the same and the preparations made for carrying the same into effect). 12.03 NOTICES. Any notice, request, instruction or other document deemed by either party to be necessary or desirable to be given to the other party shall be in writing and shall be mailed by registered mail or certified mail, postage prepaid, with return receipt requested, addressed as follows: If to Buyer: Don A. Raig, President DDL Electronics, Inc. 7320 S.W. Hunziker Road - Suite 300 Tigard, Oregon 97223-2302 - ------------------------------------------------------------------------------ Agreement for Purchase of Shares Page 17. 18 Charles Linn Haslam, Esq. 4620 Sedgwick Street, N.W. Washington, D.C. 20016 If to Sellers: Gregory Horton, President SMTEK, Inc. 2151 Anchor Court Newbury Park, California 91320 Thomas F. Clark 280 South Beverly Drive - Suite 207 Beverly Hills, California 90212 Saul Reiss, Esq. 280 South Beverly Drive - Suite 207 Beverly Hills, California 90212 The persons and addresses to which mailings may be made may be changed from time to time by a notice mailed as aforesaid. 12.04 ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties hereto and supersedes any and all prior agreements, arrangements or understandings between them relating to the subject matter hereof. No oral understandings, statements, promises or inducements contrary to the terms of this Agreement exist. No representations, warranties, covenants or conditions, express or implied, whether by statute or otherwise, other than as set forth herein, have been made by either Buyer or Sellers. No waiver of any term, provision or condition of this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such term, provision or condition of this Agreement. This Agreement cannot be changed or terminated orally. 12.05 GOVERNING LAW. This Agreement shall be governed, construed and enforced in accordance with the laws of the State of Delaware. 12.06 BINDING ON SUCCESSORS. All of the terms, provisions and conditions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, assigns and legal representatives. 12.07 TITLES. The titles of the Articles and Sections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. When the context so requires in this Agreement the masculine gender includes the feminine and/or neuter and the singular number includes the plural. 12.08 COUNTERPARTS. This Agreement may be executed in one or more counterparts, - ------------------------------------------------------------------------------ Agreement for Purchase of Shares Page 18. 19 each of which shall be deemed an original and all of which taken together shall constitute one and the same document. 12.09 SEVERABILITY. The unenforceability or invalidity of any paragraph or subparagraph of this Agreement shall not affect the enforceability or validity of the balance of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. DDL ELECTRONICS, INC. (Corporate Seal) ATTEST: - -------------------------------- -------------------------------- By: Don A. Raig By: Charles Linn Haslam President Secretary SMTEK, INC. (Corporate Seal) - -------------------------------- -------------------------------- By: Gregory L. Horton GREGORY L. HORTON President Individual ATTEST: - -------------------------------- Secretary - -------------------------------- -------------------------------- GEORGE BRIMHALL THOMAS L. CLARK - -------------------------------- -------------------------------- LYNN STRATFORD LELAND BUTTLE - ------------------------------------------------------------------------------ Agreement for Purchase of Shares Page 19. 20 - -------------------------------- -------------------------------- STRATFORD FREEDOM TRUST BAY VIEW CONSTRUCTION By: By: - -------------------------------- -------------------------------- STRATFORD INVESTMENTS STUART SIEGEL By: By: - ------------------------------------------------------------------------------ Agreement for Purchase of Shares Page 20. EX-99.2 3 EMPLOYMENT AGREEMENT & LETTER OF UNDERSTANDING 1 EXHIBIT 99.2 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of the 15th day of October, 1995, by and between DDL ELECTRONICS, INC., a Delaware corporation (the "Company"), and GREGORY L. HORTON ("Horton"). WHEREAS, the Company desires to employ Horton as its President, and WHEREAS, pursuant to a Resolution of the Board of Directors, the Company is authorized and instructed to enter into this Agreement to set forth the terms and conditions of such continuing employment, and WHEREAS, Horton 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 Horton in the capacity of President and Chief Executive Officer. Horton shall report directly to the Company's Board of Directors (the "Board") and shall perform the executive duties and functions of President and Chief Executive Officer, subject to such assignments of authority set forth from time to time in the resolutions of the Board and applicable law. 1.2 Duties. Horton's duties will include all of those generally associated with the position of corporate President and Page 1. 2 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 Horton's primary duties being to focus his efforts toward the objective of making the Company profitable, competitive as a technologically advanced firm in its lines of business, and developing and implementing a growth strategy for the Company through internal operations and acquisition alternatives. II. COMPENSATION AND BENEFITS 2.1 Base Salary. Horton's base salary shall be at the rate of One-Hundred and Fifty Thousand Dollars ($150,000) per year for the period commencing on the date of the final closing of the purchase of the capital stock of SMTEK, Inc. by DDL Electronics, Inc. and continuing through June 30, 1996, and One Hundred Fifty Thousand Dollars ($150,000) for the fiscal year beginning July 12, 1996. 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 Horton's prior written consent. 2.2 Bonus. Horton shall be eligible to receive annual bonus compensation based in part upon increases in the Company's revenues and profits and upon such other criteria and the achievement of such reasonable objectives as the Company's Board may from time to time establish. Such bonus compensation may be payable at such times during the year and in such amounts as the same may be determined by the Company's Board provided. Aggregate bonus compensation in any particular year may range in amount up to the level of two-hundred percent (200%) of the then-current base salary. 2.3 Other Benefits. Horton shall be entitled to other benefits and perquisites which are at least comparable to those which he is presently receiving as President and chief executive officer of SMTEK, Inc. These benefits shall be set forth on the attached Schedule A which is attached hereto and made a part of this Employment Agreement. 2.4 Expense Reimbursement. Horton shall be reimbursed for reasonable out-of-pocket expenses in accordance with the Page 2. 3 Company's established policies applicable to all officers. III. TERMINATION AND SEVERANCE PAY 3.1 At Will. Horton and the Company acknowledge and agree that Horton'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 Horton's employment with or without cause upon thirty (30) days' advance written notice. Any termination of Horton'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 Horton's employment with the Company terminates as a result of his voluntary resignation, Horton 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 Horton pursuant to a direct request of the Board. A resignation tendered by Horton pursuant to a direct request of the Board shall, for purposes of this Agreement, be treated as an involuntary termination, and Horton's entitlement to severance pay and additional benefits in accordance with the provisions of Sections 3.3(a) and 3.3(b) below shall apply unless, and only if, 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 Horton's employment with the Company is terminated by the Company for Cause (as defined in Section 3.3(c) below), Horton shall be entitled to no severance pay. In the event that Horton's employment with the Company is terminated other than for Cause, and subject to the qualification below, Horton shall be entitled to severance pay equal to the continuation of his then-current monthly base salary, payable ratably over a term not to exceed twenty (20) months or, at the option of the Company, payable within thirty (30) days in a number of shares of the Company's Common Stock with a market value which is equivalent in value to twenty times his then-current monthly base salary at the date of termination. Page 3. 4 (b) Additional Benefits. In the event that Horton's employment with the Company is terminated by the Company other than for Cause (as defined in Section 3.3(c) below), Horton shall be entitled to continue to participate in the Company's employee benefit programs that had been made available to Horton pursuant to Section 2.3 above. These programs shall be continued at no cost to Horton, except to the extent that tax laws require the inclusion of the value of such benefits in Horton's income. The programs shall continue for the benefit of Horton for a period of one (1) year after the date of Horton's termination, in the same manner and at the same level as immediately prior to Horton's termination. (c) Cause. For purposes of this Agreement, "Cause" shall mean (i) the willful and deliberate refusal of Horton to comply with a lawful, written instruction of the Board, which refusal is not remedied by Horton within a reasonable period of time after his receipt of written notice from the Company identifying the refusal; (ii) an act or acts of personal dishonesty by Horton that were intended to result in substantial personal enrichment of Horton at the expense of the Company; (iii) Horton's conviction of any felony involving an act of moral turpitude; or (iv) Horton's material breach of any representation or covenant contained in Section 5, 6 or 7 of this Agreement. 3.4 Death. In the event of Horton's death, this Agreement shall automatically terminate and shall be of no further force and effect. Termination of Horton's employment as a result of his death shall not result in any obligation by the Company to pay severance pay (unless the obligation to pay severance exists as of the date of Horton's death) or other benefits to Horton's estate or heirs. 3.5 Disability. In the event of Horton's Disability (as defined below) during the term of this Agreement for any period of at least four (4) 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, Horton 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 Horton to Page 4. 5 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 Horton or his legal representative. IV. TERM This term of this Agreement shall commence on the date of the final closing on the purchase of the SMTEK, Inc. capital stock by the Company, and shall terminate on November 1, 1999, unless terminated earlier in accordance with the terms and conditions specified herein. V. NONDISCLOSURE OF INFORMATION AND NON-SOLICITATION OF EMPLOYEES 5.1 Nondisclosure of Confidential Information. Except in the performance of his duties hereunder, Horton 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 Horton 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. Horton 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 Horton became aware of during his tenure at 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, Page 5. 6 customer or client with the Company. VI. NON-COMPETITION So long as Horton 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, Horton 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 conducts active business operations. The parties hereto expressly 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. VII. REPRESENTATIONS AND COVENANTS OF HORTON 7.1 Best Efforts. In consideration of the payments to be made hereunder, Horton 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, Horton 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. Horton 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. Page 6. 7 7.3 Authority. Any individual signing this Agreement on behalf of the Company hereby represents and warrants that he/she has full authority to do so on behalf of the Company. 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 S.W. Hunziker Road - Suite 300 Tigard, Oregon 97223-2302 Attention: Secretary To Horton: Mr. Gregory L. Horton SMTEK, Inc. 2151 Anchor Court Newbury Court, California 91320 8.3 Entire Agreement and Interpretation. This Agreement supersedes any and all prior written or oral agreements between Horton and the Company, and contains the entire understanding of the parties hereto with respect to the terms and conditions of Horton's employment with the Company. No provision of this document is to be interpreted for or against any party because that party or party's legal representative drafted it. 8.4 Governing Law. This Agreement shall be construed and enforced in accordance with the laws and decisions of the State of Delaware. 8.5 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 Page 7. 8 instrument. 8.6 Amendment. This Agreement may not be modified, amended, altered or supplemented except by written agreement between Horton and the Company. 8.7 Assignment and Parties in Interest. This Agreement shall inure to the benefit of and be binding upon the parties named herein and their respective successors and assigns; provided, however, that Horton may not assign any of his rights or obligations hereunder. 8.8 Expense. In the event an action in law or in equity is required to enforce or interpret the terms and conditions of this Agreement, the prevailing party shall be entitled to reasonable attorneys fees and costs in addition to any other relief to which that party may be entitled. 8.9 Severability. In the event that any covenant, condition or other provision herein contained is held to be invalid, void or illegal by any court of competent jurisdiction, the same shall be deemed severable from the remainder of this Agreement and shall in no way affect, impair or invalidate any other covenant, condition or other provision herein contained. If such condition, covenant or other provision shall be deemed invalid due to its scope or breadth, such covenant, condition or other provision shall be deemed valid to the extent of the scope or breadth permitted by law. 8.10 Waiver. No breach of any provision hereof can be waived unless in writing. Waiver of any one breach of any provision hereof shall not be deemed to be a waiver of any other breach of the same or any other provision hereof. This Agreement may be amended only by a written agreement executed by the parties in interest at the time of the modification. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above Page 8. 9 written. The "Company": DDL ELECTRONICS, INC., a Delaware Corporation - --------------------------------------- By: Its: "Horton": - --------------------------------------- Gregory L. Horton Page 9. 10 LETTER OF UNDERSTANDING AND AGREEMENT BETWEEN DDL ELECTRONICS, INC. AND GREGORY L. HORTON THIS AGREEMENT is made and entered into as of the 15th day of October, 1995, by and between DDL, Electronics, Inc., a Delaware corporation (herein called "DDL") and Gregory L. Horton (herein called "Horton"). THIS AGREEMENT is made and entered into with reference to the following: RECITALS WHEREAS, the Shareholders of SMTEK, Inc., a California corporation (herein called "SMTEK"), are entering into an agreement to sell 100% of the capital shares of SMTEK; and WHEREAS, Horton has agreed to sell his shares of SMTEK under the terms of an Agreement for Purchase of Shares (also referred to herein as "Acquisition Agreement") to be executed by all SMTEK Shareholders, and WHEREAS, this Acquisition Agreement provides that the consideration to Horton for his SMTEK shares will be defined in a separate agreement, and WHEREAS, it is in the best interest of all parties involved to sign the Acquisition Agreement prior to the completion of the separate agreement concerning the purchase of Horton's shares and Horton's Employment Agreement with DDL; and WHEREAS, the Acquisition Agreement specifies consideration of one million (1,000,000) unregistered shares of DDL common stock will be paid to Horton for his SMTEK Stock; and -1- 11 WHEREAS, in addition to the 1,000,000 shares of DDL Common Stock to be received as consideration for his SMTEK stock, certain understandings and agreements have been reached between Horton and representatives of DDL who are authorized to enter into such understandings and agreements; and WHEREAS, these understandings and agreements cannot be fully reduced to writing in a formal Agreement prior to the final Closing of the Acquisition Agreement for the purchase of the SMTEK shares; and WHEREAS, the following represents the understanding between DDL and Horton concerning the implementation of the separate agreement referred to in Section 1.03 of the Acquisition Agreement, captioned "Consideration to Horton", NOW, THEREFORE, the parties hereto agree as follows: 1. Provided that the purchase by DDL of all of the capital stock of SMTEK is consummated in accordance with the terms of the Acquisition Agreement (which is incorporated herein by reference), One million shares of DDL Common Stock, together with the additional consideration specified in Item 2 below, will be paid to Horton by DDL in exchange for his 29,666 shares of SMTEK stock. DDL agrees to permit, at DDL expense, reasonable piggyback registration rights for these shares; provided, however, that Horton shall have the right to demand registration for any shares not registered within two (2) years from the date that the shares are issued. Final closing of this transaction will take place between the date of final closing of the Acquisition Agreement and January 12, 1996. 2. In addition to the one million shares of DDL Common Stock specified in Item 1 above, DDL shall pay to Horton either (a) The lesser of Four hundred thousand dollars ($400,000), to be paid in some combination of cash and/or DDL warrants, or the actual Federal income taxes due upon the one million shares of DDL Common Stock which Horton is to receive and any other consideration received as part of this transaction, with the understanding that the taxes will be timely paid by April 15, 1996, or by the appropriate tax liability date for Horton's Federal personal income taxes; or -2- 12 (b) Alternatively, and upon receipt of a tax opinion acceptable to Horton, DDL may substitute an alternative transaction involving some combination of cash, stock, warrants, or options, so long as the net result is that Horton will receive one million shares of DDL Common Stock net of any provision for Federal personal income taxes, and provided that the taxes are paid by April 15, 1996 or by the appropriate tax liability date for Horton's Federal personal income taxes. 3. DDL shall enter into an Employment Agreement with Horton in which Horton will be appointed President and Chief Executive Officer of DDL Electronics, Inc. The Employment Agreement shall be executed by both parties on or about the First Closing Date for the purchase of SMTEK shares, to be effective after DDL has acquired the SMTEK shares. The Employment Agreement shall specify a base annual salary for Horton of One-Hundred and Fifty Thousand Dollars ($150,000) per year beginning with the effective date specified in that agreement, and shall provide for a bonus plan based upon such criteria as shall be determined at a later date by the DDL Board Of Directors. 4. Following the acquisition by DDL of the SMTEK shares, DDL shall undertake to exercise its best efforts to have Horton elected to membership on the DDL Board of Directors, and Horton shall be consulted concerning the composition and membership of the DDL Board of Directors. 5. DDL expressly acknowledges that Horton has executed the agreement for the purchase of SMTEK shares upon the express condition that DDL agrees to the terms, conditions, and provisions set forth in this Letter of Understanding and Agreement. DDL further acknowledges and agrees that this Letter of Understanding and Agreement is intended primarily for the benefit of Horton and as an inducement for him to execute the Acquisition Agreement. 6. The parties further agree that, in consideration for Horton's entering into this Agreement and the Employment Agreement between the parties, Section 4.15(a) of the Agreement to Purchase Shares shall not be enforced by DDL. This forbearance on the part of DDL to take any action on the basis of Section 4.15(a) shall not, however, in any respect affect the right or the ability of DDL to exercise any and all rights pursuant to -3- 13 Section 4.15(b). 7. Horton expressly agrees and acknowledges that any and all conditions, whether written or verbal, which attached to his signature of the Agreement for Purchase of Shares have been fully satisfied and removed, and that his agreement and assent to the terms and conditions of that document are complete and unconditional. 8. This agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same document. 9. This agreement shall be construed and enforced in accordance with the laws and judicial decisions of the State of Delaware. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. DDL ELECTRONICS, INC. Attest: - ---------------------------- ------------------------------ By: President By: Secretary - ---------------------------- Gregory L. Horton -4- EX-99.3 4 NOTE PURCHASE AGREEMENT 1 EXHIBIT 99.3 ================================================================================ DDL ELECTRONICS, INC. _____________________ NOTE PURCHASE AGREEMENT Dated as of November 10, 1995 _____________________ ================================================================================ 2 TABLE OF CONTENTS
Page ---- SECTION 1. ISSUANCE OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2. Purchase and Sale of the Securities; the Closing . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.3. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.4. Representations of the Purchasers Listed on the Attached Schedule A . . . . . . . . . . . . . . 2 Section 1.5. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 3. CONDITIONS OF CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 3.1. Proceedings Satisfactory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 3.2. Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 3.3. Sale of the Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 3.4. Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 3.5. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 3.6. Receipt of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 4. THE BRIDGE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 4.1. Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 4.2. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 4.3. Optional Redemption of the Bridge Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 4.4. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 4.5. Allocation of Redemption Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 4.6. Surrender of Bridge Notes; Notation Thereon . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 5. INSPECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 6. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 6.1. Payment of the Bridge Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 6.2. Seniority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 6.3. Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 6.4. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 6.5. Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 6.6. Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 6.7. Limitation on Lines of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 6.8. Limitation on Consolidation, Merger and Sale of Assets . . . . . . . . . . . . . . . . . . . . 15 Section 6.9. Observance of Statutes, Regulations and Orders . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 6.10. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 6.11. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 6.12. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 6.13. SMTEK Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
i 3 SECTION 7. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 7.1. Additional Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 8. EVENTS OF DEFAULT; REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 8.1. Events of Default Defined; Acceleration of Maturity . . . . . . . . . . . . . . . . . . . . . 17 Section 8.2. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 8.3. Nonconsummation of Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 9. REGISTRATION, TRANSFER AND EXCHANGE OF BRIDGE NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 10. LOST BRIDGE NOTES, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 11. AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 12. HOME OFFICE PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 13. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 14. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 14.1. Reliance on and Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 14.2. Successors and Assigns; Transfers of Bridge Notes . . . . . . . . . . . . . . . . . . . . . . 21 Section 14.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 14.4. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 14.5. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 14.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 14.7. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 14.8. Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 14.9. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 14.10. Action of Majority Bridge Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SCHEDULE A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
ii 4 DDL ELECTRONICS, INC. 7320 S.W. Hunziker Road Tigard, Oregon 97223-2302 NOTE PURCHASE AGREEMENT New York, New York as of November 10, 1995 To The Purchasers Listed on the Attached Schedule A Ladies and Gentlemen: DDL ELECTRONICS, INC., a Delaware corporation (the "Company"), hereby agrees with you (together with your successors and assigns and any transferee, or Affiliate of such transferee, of the Bridge Notes and the Warrants, as such terms are hereinafter defined, under this Agreement; collectively, the "Purchasers" or "you") as follows: SECTION 1. ISSUANCE OF NOTES. Section 1.1. Authorization. The Company has duly authorized an issue of one or more of its 10% Senior Bridge Notes due December 25, 1995 (the "Bridge Notes"), in the aggregate principal amount of $1,000,000, each such Bridge Note to be in the form of Exhibit A. The Bridge Notes shall mature, shall bear interest, shall be payable and otherwise shall be as provided herein and in Exhibit A. As used herein, the term "Bridge Notes" shall include the note or notes originally issued pursuant to this Agreement and all notes delivered in substitution or exchange for any of said note or notes, and if and where applicable, shall include the singular number as well as the plural. The Company has duly authorized an issue of one or more Warrants (the "Warrants") exercisable (subject to Section 8.3) to purchase an aggregate of 300,000 shares of Common Stock (subject to adjustment pursuant to the terms of the Warrants) upon and after the occurrence of an Event of Default. Each such Warrant will be in the form of Exhibit B. The shares of Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") will have the registration rights set forth in the Registration Rights Agreement (as hereinafter defined). As used herein, the term "Securities" shall mean the Bridge Notes and the Warrants. Section 1.2. Purchase and Sale of the Securities; the Closing. (a) Subject to the terms and conditions hereof, the Company shall sell to you, and you shall purchase from the Company, the Securities specified opposite your name in Schedule A at a purchase price payable in cash specified opposite your name in Schedule A. The closing 1 5 shall be held at [10:00 a.m.], New York time, on November __, 1995 (the "Closing" or the "Closing Date"), at the offices of Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York, New York 10022, or at such other time or place as the parties hereto mutually may agree. (b) On the Closing Date, the Company will deliver to the Purchasers one or more Bridge Notes, registered in the Purchasers' names or in the names of the Purchasers' nominee or nominees, in minimum denominations of $25,000 and in the aggregate principal amount of $1,000,000, all as the Purchasers may specify by timely notice to the Company (or, in the absence of such notice, one Bridge Note registered in the name of each Purchaser with respect to the aggregate principal amount of the Bridge Notes purchased by such Purchaser), each duly executed and dated the Closing Date, against the Purchasers' delivery, on behalf of the Company, to the Escrow Account (as hereinafter defined) of immediately available funds in the aggregate amount of $1,000,000 (the "Purchase Price"). (c) On the Closing Date, the Company will deliver to the Purchasers one or more certificates evidencing the Warrants, registered in the Purchasers' names or in the names of the Purchasers' nominee or nominees, as the Purchasers may specify by timely notice to the Company (or, in the absence of such notice, one Warrant Certificate registered in the name of each Purchaser with respect to the aggregate number of Warrant Shares exercisable pursuant to the Warrants purchased by such Purchaser), each duly executed and dated the Closing Date, against the Purchasers' delivery to the Company of the Purchase Price. The parties hereto agree that an aggregate of $1,000 of the Purchase Price shall be allocated towards the purchase and sale of the Warrants and agree to report such purchase and sale for federal income tax purposes in accordance with such allocation. Section 1.3. Use of Proceeds. The gross proceeds of the sale of the Securities will be used solely as a down payment in connection with, and shall be deposited in the escrow account (the "Escrow Account") established with respect to, the acquisition of all of the outstanding common stock of SMTEK, Inc., a California corporation ("SMTEK"), pursuant to the Agreement for Purchase of Shares dated as of October 6, 1995 between the Company and the Sellers (the "SMTEK Sellers") named therein (the "SMTEK Agreement"). Section 1.4. Representations of the Purchasers Listed on the Attached Schedule A. You represent and warrant to the Company that all of the representations and warranties you made pursuant to the Investor Questionnaire attached hereto as Exhibit C shall be true on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date except to the extent that such representations and warranties by their terms speak as of an earlier date, in which case such representations and warranties were true and correct as of such earlier date. Section 1.5. Definitions. Certain capitalized terms used in this Agreement and not otherwise defined herein are defined in Section 7 hereof. References to a "Schedule" or "Exhibit" are, unless otherwise specified, to the appropriate Schedule or Exhibit annexed to this Agreement, each of which is deemed to be a part of this Agreement as if fully set forth herein. 2 6 SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each of you that: (a) Annexed hereto as Schedule 2(a) are true and complete copies of the following documents: the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, including any and all amendments thereto (the "Form 10-K"), the Company's 1995 Annual Report to Stockholders, the Company's Proxy Statement for its May 31, 1995 Annual Meeting of Stockholders and the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1995. Such documents, including any and all exhibits and schedules thereto (the "SEC Reports"), when filed with the Securities and Exchange Commission (the "SEC"), complied as to form in all material respects with the requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act"). As of their respective dates, the SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein. As of the date hereof, all reports required to be filed by the Company with the SEC have been timely filed. (b) None of the representations, warranties or statements made by the Company contained in this Agreement or in the schedules and exhibits hereto or in any document or other instrument furnished to the Purchasers, with the prior written consent of the Company, in connection with the offer and sale of the Securities (such documents and instruments, together with the SEC Reports, are hereinafter collectively referred to as the "Offering Documents") contains any untrue statement of a material fact or omits to state a material fact necessary in order to make any of such representations, warranties or statements, in light of the circumstances under which they were made, not misleading. (c) Each of the Company and its subsidiaries is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation, and is qualified to transact business and is in good standing as a foreign corporation in every jurisdiction in which its ownership, leasing, licensing or use of property or assets or the conduct of its business makes such qualification necessary, except in such jurisdictions where the failure to be so qualified or in good standing would not have a Material Adverse Effect. Except as set forth on Schedule 2(c) annexed hereto, the Company does not have any subsidiaries or investment, whether by way of ownership of stock or other securities or by loan, advance or otherwise, in any corporation, partnership, firm, association or other entity. Each of the Company and its subsidiaries has all required power and authority to own its property and to carry on its business as now conducted and proposed to be conducted. (d) The Company has all requisite power and authority to execute, deliver and perform this Agreement, the Bridge Notes, the Warrants and the Registration Rights Agreement (as hereinafter defined) (collectively, the "Operative Documents") and to issue and sell the Securities to the Purchasers. All necessary corporate proceedings of the Company have been duly taken to authorize the execution, delivery and performance of the Operative Documents by the Company and to authorize the creation, issuance and sale of the Securities to the Purchasers. The Operative Documents have been duly authorized, executed and delivered by the Company, are the legal, valid and binding obligations of the Company and are enforceable against the Company in accordance with their respective terms, except as may be limited by 3 7 applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws or by legal or equitable principles relating to or limiting creditors' rights generally or as rights to indemnification may be limited by applicable securities laws. Except as to filings which may be required under applicable state securities regulations, no consent, authorization, approval, order, license, certificate or permit of or from, or declaration or filing with, any Federal, state, local or other governmental authority or of any court or other tribunal is required by the Company for the execution, delivery or performance of the Operative Documents by the Company. Except as set forth on Schedule 2(d) annexed hereto, no consent of any party to any contract, agreement, instrument, lease, license, arrangement or understanding to which the Company or any of its subsidiaries is a party, or by which any of its or its subsidiaries' properties or assets is bound or subject, is required for the execution, delivery or performance by the Company of the Operative Documents; and the execution, delivery and performance of the Operative Documents by the Company will not (with or without the giving of notice or the passage of time or both) violate, result in a breach of, conflict with, or entitle any party to terminate or call a default under any such contract, agreement, instrument, lease, license, arrangement or understanding, or violate or result in a breach of any term of the Certificate of Incorporation or by-laws of the Company or any of its subsidiaries or (with or without the giving of notice or the passage of time or both) violate, result in a breach of or conflict with any law, rule, regulation, order, judgment or decree binding on the Company or on any of its subsidiaries or to which any of its or its subsidiaries' operations, business, properties or assets is bound or subject. The Warrant Shares have been duly authorized and, upon exercise of the Warrants in accordance with their terms and payment of the exercise price as contemplated therein, will be validly issued, fully paid and nonassessable and will not be issued in violation of any preemptive rights or rights of first refusal, and the holders of the Warrant Shares will have good title to such shares, free and clear of all Liens, claims, security interests, pledges, charges, encumbrances, stockholders' agreements and voting trusts (other than any created by the Purchasers). (e) The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, of which 16,312,349 shares are issued and outstanding as of the date hereof (other than shares of Common Stock issued after November 6, 1995 as a result of the exercise of options or warrants listed on Schedule 2(e) annexed hereto); 150,000 shares of Series A Preferred Stock, par value $1.00 per share, of the Company (the "Series A Preferred Stock"), of which no shares are issued and outstanding as of the date hereof and 1,000,000 shares of Series B Preferred Stock, par value $1.00 per share, of the Company (the "Series B Preferred Stock;" and together with the Series A Preferred Stock, the "Preferred Stock"), of which no shares are issued and outstanding as of the date hereof. All issued and outstanding shares of Common Stock and Preferred Stock have been validly issued and are fully paid and nonassessable and have not been issued in violation of any Federal or state securities laws. All issued and outstanding shares of capital stock of each subsidiary of the Company have been validly issued and are fully paid and nonassessable, have not been issued in violation of any Federal or state securities laws, and are owned of record and beneficially by the Company, free and clear of all Liens, claims, security interests, pledges, charges, encumbrances, stockholders' agreements and voting trusts. Except for the obligation of the Company to issue the Warrant Shares and except as set forth on Schedule 2(e) annexed hereto, there are not, as of the date hereof, any outstanding or authorized subscriptions, options, warrants, calls, rights, 4 8 commitments or any other agreements of any character directly or indirectly obligating the Company or any of its subsidiaries to issue (i) any additional shares of its or their capital stock or (ii) any securities convertible into, or exercisable or exchangeable for, or evidencing the right to subscribe for, any shares of such capital stock. (f) None of the Company or any of its subsidiaries is in violation of any term or provision of its Certificate of Incorporation or by-laws or is, or (with or without the giving of notice or the passage of time or both) will be, in default in the performance or observance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any mortgage, deed of trust, indenture or other instrument or agreement to which it is a party or by which it or any of its property is bound or subject, which violation or default, together with all other such violations and defaults, would have a Material Adverse Effect. (g) Except as disclosed in the Offering Documents, there is (i) no action, suit or proceeding before or by any court, arbitrator or Governmental Body now pending or, to the knowledge of the Company, threatened or contemplated to which the Company or any of its subsidiaries is or may be a party or to which the business or property of the Company or any of its subsidiaries is or may be bound or subject, (ii) no law, statute, rule, regulation, order or ordinance that has been enacted, adopted or issued by any Governmental Body or that, to the knowledge of the Company, has been proposed by any Governmental Body adversely affecting the Company or any of its subsidiaries, (iii) no injunction, restraining order or order of any nature by a federal, state or foreign court or Governmental Body of competent jurisdiction to which the Company or any of its subsidiaries is subject issued that, in the case of clauses (i), (ii) and (iii) above, (x) is reasonably likely to, singly or in the aggregate, result in a Material Adverse Effect, (y) would interfere with or adversely affect the issuance of the Bridge Notes or the Warrants or (z) is reasonably likely to render any Operative Document or the SMTEK Agreement, or any portion thereof, invalid or unenforceable. (h) No action has been taken and no law, statute, rule, regulation, order or ordinance has been enacted, adopted or issued by any Governmental Body that prevents the issuance of the Bridge Notes or the Warrants or, to the best knowledge of the Company, the acquisition of the SMTEK Shares; no injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction has been issued that prevents the issuance of the Bridge Notes or the Warrants or suspends the sale of the Bridge Notes or the Warrants in any jurisdiction; and no action, suit or proceeding is pending against or, to the best knowledge of the Company, threatened against or affecting, the Company, any of its subsidiaries or, to the best knowledge of the Company, SMTEK before any court or arbitrator or any Governmental Body that, if adversely determined, would prohibit, interfere with or adversely affect the issuance or marketability of the Bridge Notes or the Warrants or the acquisition of the SMTEK Shares or render any Operative Document or the SMTEK Agreement, or any portion thereof, invalid or unenforceable. (i) Except as set forth on Schedule 2(i) annexed hereto, all tax returns required to be filed by the Company or any of its subsidiaries in any jurisdiction have been timely filed, other than those filings being contested in good faith by appropriate proceedings, and all material 5 9 taxes, including withholding taxes, penalties and interest, assessments, fees and other charges due or claimed to be due from such company have been paid, other than those being contested in good faith by appropriate proceedings and for which adequate reserves have been provided or those currently payable without penalty or interest. (j) The Company is not (i) an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act, or analogous foreign laws and regulations, or (ii) a "holding company" or a "subsidiary company" or an "affiliate" of a holding company within the meaning of the Public Utility Holding Company Act of 1935, as amended, or analogous foreign laws and regulations. (k) Each of the Company and its subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (l) No registration under the Securities Act is required for the offer and sale of the Bridge Notes or the Warrants to the Purchasers as contemplated hereby assuming the accuracy of the Purchasers' representations and warranties set forth in Section 1.5 hereof and assuming that no actions have been taken by Rickel & Associates, Inc. ("Rickel") which would cause such registration to be required. Except for news releases contemplated by Rule 135c under the Securities Act, no form of general solicitation or general advertising has been or will be used by the Company or any of its representatives (such representatives shall not be deemed to include Rickel) in connection with the offer and sale of any of the Bridge Notes or the Warrants, including, but not limited to, advertisements, articles, notices or other communications published in any newspaper, magazine or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. No securities of the same class as the Bridge Notes or the Warrants have been issued and sold by the Company within the six-month period immediately prior to the date hereof. (m) The execution and delivery of the Operative Documents and the sale of the Securities to be purchased by the Purchasers will not involve any prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code. (n) Neither the Company nor any agent of the Company acting on its behalf has taken, and none of them will take, any action that might cause this Agreement or the issuance or sale of the Securities to violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.E. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal Reserve System or analogous foreign laws and regulations. 6 10 (o) The financial statements contained in the SEC Reports and the financial statements included in the Offering Documents, including the related notes and schedules, have been prepared from the books and records of the Company and its subsidiaries in accordance with generally accepted accounting principles (except to the extent otherwise set forth in the notes to such financial statements) consistently applied throughout the periods covered thereby and fairly present the results of operations and financial condition of the Company and its subsidiaries as of the dates and for the periods covered thereby, subject, in the case of the interim statements, to normal year-end audit adjustments. All of such financial statements are hereinafter referred to as the "Financial Statements". (p) Except as disclosed in the Financial Statements or on Schedule 2(p) annexed hereto, as of the Closing, none of the Company or any of its subsidiaries had any indebtedness or liability, direct, contingent, matured or otherwise, individually in excess of $25,000. (q) Except as described in Schedule 2(q) annexed hereto, as contemplated by this Agreement or as disclosed in the Offering Documents, since June 30, 1995 there has not been nor is the Company (i) aware of any events, facts or circumstances which individually or in the aggregate could cause any (x) material adverse effect on the business, condition (financial or otherwise), operations, earnings, performance, properties or prospects of the Company or any of its subsidiaries or (y) material obligation, contingent or otherwise, directly or indirectly incurred or to be incurred by the Company or any of its subsidiaries or (ii) contemplating any (A) transaction which is material to the Company or any of its subsidiaries, (B) payment of dividends or distributions of any kind, (c) acquisition of any assets or properties, except in the ordinary course of business consistent with past practices, (D) sale, lease, transfer, disposition or encumbering of any assets or properties, except in the ordinary course of business consistent with past practices, (E) loans, advances, capital contributions or investments in or to any person or entity, except in the ordinary course of business consistent with past practices or (F) aggregate capital expenditures and commitments therefor in an amount equal to $25,000 or more in the aggregate. (r) The Company and its subsidiaries are in compliance with all applicable laws, regulations, rules, ordinances, orders, judgments and decrees of each federal, state, local or other governmental authority, except where the failure to be in compliance would not be likely to have, individually or in the aggregate, a Material Adverse Effect. (s) There are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or any Purchaser for a brokerage commission, finder's fee or like payment in connection with the issuance, purchase and sale of the Bridge Notes, except with respect to Rickel. The Company shall be solely responsible for all payments to be made to Rickel in connection herewith. (t) The SMTEK Agreement has been duly authorized by the Company and, upon due execution and delivery, will be the legal, valid, and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws or by legal or equitable principles relating to or limiting creditors' rights generally or as rights to 7 11 indemnification may be limited by applicable securities laws. Except as to filings which may be required under applicable state securities regulations, no consent, authorization, approval, order, license, certificate or permit of or from, or declaration or filing with, any Federal, state, local or other governmental authority or of any court or other tribunal is required for the execution, delivery or performance of the SMTEK Agreement by the Company. No consent of any party to any contract, agreement, instrument, lease, license, arrangement or understanding to which the Company or any of its subsidiaries is a party, or by which any of their properties or assets is bound or subject, is required for the execution, delivery or performance of the SMTEK Agreement by the Company; and the execution, delivery and performance of the SMTEK Agreement by the Company will not (with or without the giving of notice or the passage of time or both) violate, result in a breach of, conflict with, or entitle any party to terminate or call a default under any such contract, agreement, instrument, lease, license, arrangement or understanding, or violate or result in a breach of any term of the Certificate of Incorporation or by-laws of the Company or any of its subsidiaries or (with or without the giving of notice or the passage of time or both) violate, result in a breach of, or conflict with any law, rule, regulation, order, judgment, or decree binding on the Company or any of its subsidiaries or to which any of their operations, business, properties, or assets is bound or subject. (u) To the Company's knowledge following due and diligent inquiry, SMTEK is a duly organized corporation and in good standing under the laws of the State of California and has qualified to transact business in all other states requiring qualification therein. To the Company's knowledge following due and diligent inquiry, SMTEK has corporate power to own all of its properties and assets and to carry on its business as it is now being conducted. To the Company's knowledge following due and diligent inquiry, the execution and delivery of the SMTEK Agreement do not, and the consummation of the transactions contemplated therein will not, violate any provision of any charter, by-law, mortgage, lien, lease, agreement, covenant, instrument, order, judgment or decree to which SMTEK is a party or by which SMTEK is bound; and will not violate any other restriction of any kind or character to which SMTEK is subject, including restrictions upon the assignment of contracts; nor cause the acceleration of the payment of any obligation. To the Company's knowledge following due and diligent inquiry, the corporate minute book of SMTEK is complete, including therein the Articles of Incorporation and By-Laws with any amendment thereto, and the meetings of directors referred to therein were duly called and held, and the minutes thereof represent all minutes of directors' meetings heretofore held, and the signatures appearing on all documents contained therein are the true signatures of the persons purporting to have signed the same. (v) The Company has heretofore delivered to the Purchasers the audited financial statements covering the business and the operations of SMTEK dated March 31, 1995, and, to the Company's knowledge following due and diligent inquiry, said financial statements fairly represent the financial position of SMTEK as of the date thereof and the results of operations for the period covered by said statements. Promptly upon receipt thereof, the Company will deliver unaudited financial statements of SMTEK for the period ended August 31, 1995, together with a certificate from management of SMTEK as to the accuracy thereof. In the event that SMTEK's auditors, or any other certified public accounting firm, conduct a review of the unaudited financial statements of SMTEK for the period beginning April 1, 1995 and 8 12 ending August 31, 1995, the financial statements prepared as a result of such review shall be the ones considered to have been delivered to the Purchasers pursuant to this clause and shall carry the certificate of management of SMTEK. (w) To the Company's knowledge following due and diligent inquiry, SMTEK has good and marketable title to its properties and assets (including, without limitation, the assets reflected in the above described balance sheet, except as subsequently sold or otherwise disposed of in the ordinary course of business), free and clear of all claims, rights, restrictions, conditions, covenants, easements, liens and encumbrances except the lien of property taxes not yet due and equipment which is leased and described in Schedule III annexed hereto. The Company expressly excludes from SMTEK's property and assets, and makes no such representations with respect to, any production materials or inventory which may be located on SMTEK premises but which is owned and supplied by customers of SMTEK. (x) (i) To the Company's knowledge following due and diligent inquiry, SMTEK has timely filed or caused to be timely filed all federal, state and local tax returns for income taxes, sales taxes, withholding and all payroll taxes, property taxes, and all other taxes of every kind whatsoever required by law to have been filed, and all such tax returns are complete and accurate. For the purpose of the preceding sentence, a return shall be deemed to be timely filed if it is filed after the date due but within any period allowed in an extension granted by the taxing authority. (ii) To the Company's knowledge following due and diligent inquiry, SMTEK has paid or caused to be paid all taxes which have become due, whether pursuant to said returns or pursuant to any assessments or otherwise, and there is no further liability (whether or not disclosed on such returns or assessments) for any such taxes, and no interest or penalties accrued or accruing with respect thereto, except as may be set forth in the financial statements referred to in clause (u) above. (iii) To the Company's knowledge following due and diligent inquiry, the amounts set up as provisions for taxes on the financial statements of SMTEK as of March 31, 1995, and the unaudited financial statements of SMTEK as of August 31, 1995, are sufficient for the payment of all unpaid federal, state, county and local taxes of SMTEK accrued for or applicable to the period ended on such date, and for all years and periods prior thereto and for which SMTEK may be liable in its own right or as transferee of the assets of, or as successor to, any other corporation, association, partnership, joint venture or other entity. (y) To the Company's knowledge following due and diligent inquiry, aside from the capital stock of SMTEK which is issued and outstanding in the names of the SMTEK Sellers as described in the SMTEK Agreement, there are outstanding no options, warrants or other rights to acquire any issued shares of the stock of SMTEK. (z) Except as described on Schedule 2(z) annexed hereto, to the Company's knowledge following due and diligent inquiry, there are no actions, suits or proceedings pending against SMTEK either in court or before any administrative board, agency or commission including, without limitation, environmental matters, actions by employees or product liability claims. 9 13 To the Company's knowledge following due and diligent inquiry, the SMTEK Sellers have no notice or knowledge that any such action, suit or proceeding is threatened. (aa) To the Company's knowledge following due and diligent inquiry, all equipment used by SMTEK is in good repair and operating condition and conforms to all applicable ordinances and regulations. (bb) The full, true and complete schedule of all leases and material contracts of SMTEK is annexed hereto as Schedule III. For the purpose of this clause, a material contract is defined to be any contract involving a commitment in excess of $10,000 but excluding, however, insurance policies and group insurance policies to which SMTEK is a party. With respect to insurance policies and group insurance policies to which SMTEK is a party, as well as all material contracts together with all amendments and statements thereto, upon the request of the Purchasers, the Company will make such policies and contracts available to the Purchasers or its duly authorized representative prior to the Closing Date. To the Company's knowledge following due and diligent inquiry, there are no material defaults nor are there any obligations of SMTEK to be performed under said material contracts other than those set forth in the written agreements. (cc) To the Company's knowledge following due and diligent inquiry, SMTEK does not have any liabilities except as reflected on its financial statements heretofore delivered to the Purchasers and except as incurred in the ordinary course of business since the date of said financial statements or disclosed otherwise in the SMTEK Agreement. To the Company's knowledge following due and diligent inquiry, all liabilities of SMTEK as of the date hereof or incurred hereafter can be prepaid in full, without penalty, by SMTEK at any time. SMTEK is not directly or indirectly liable upon or with respect to (by discount, repurchase agreement or otherwise), or obligated in any other way to provide funds in respect of, or to guarantee or assume any debt or obligation of any corporation, association, partnership, joint venture or other entity, except endorsements made in the ordinary course of business in connection with the deposit of items for collection. (dd) To the Company's knowledge following due and diligent inquiry, SMTEK is not, and on the Closing Date will not be, indebted to any of its shareholders, or to any officers or directors of SMTEK, or to their respective spouses and/or children in any amount whatsoever other than for payment of salaries and compensation for services rendered, other than those obligations set forth in Schedule II annexed hereto. (ee) To the Company's knowledge following due and diligent inquiry, each of the SMTEK Sellers is the lawful owner and holder of the number of shares of the capital stock of SMTEK set forth in Schedule I annexed hereto and has valid and marketable title thereto, free and clear of any claims, liens, restrictions or encumbrances of or by others, including any claims which might arise under community property laws, and each of the SMTEK Sellers has the absolute and unrestricted right, power, authority and capacity to sell, assign and transfer his shares as provided in the SMTEK Agreement, without prior consent of any other party. 10 14 (ff) To the Company's knowledge following due and diligent inquiry, any voting trust or other arrangement which may have existed with respect to the power to vote the shares of capital stock of SMTEK, or any other restriction upon the power of the owner and holder of said shares, has been terminated or revoked and said shares shall be conveyed to the Company free of any restriction or limitation. (gg) To the Company's knowledge following due and diligent inquiry, there is not presently in existence to which SMTEK is a party any profit sharing, pension or bonus plans for any of SMTEK's officers, directors or employees. The Company acknowledges that the Purchasers and, for purposes of the opinion to be delivered to the Purchasers pursuant to Section 3.2 hereof, counsel to the Company, will rely upon the accuracy and truth of the foregoing representations and hereby consents to such reliance. SECTION 3. CONDITIONS OF CLOSING. A. Your obligation to purchase and pay for the Securities to be purchased by you on the Closing Date shall be subject to the satisfaction on or before the Closing Date of the conditions hereinafter set forth. Section 3.1. Proceedings Satisfactory. All proceedings taken on or prior to the Closing Date in connection with the issuance of the Securities and the consummation of the transactions contemplated hereby and all documents and papers relating thereto including, without limitation, the Operative Documents shall be reasonably satisfactory in form and substance to you and your counsel, and you and your counsel shall have received copies of such documents, papers and certificates of the Company, all in form and substance reasonably satisfactory to you and your counsel, as you or they may request in connection therewith. Section 3.2. Opinions of Counsel. You shall have received an opinion or opinions dated the Closing Date from Charles Linn Haslam, Esq. and such other counsel to the Company reasonably acceptable to you and your counsel, substantially in the form(s) attached hereto as Exhibit D. Section 3.3. Sale of the Securities. Contemporaneously with the Closing, each of the Purchasers shall have purchased the Securities to be purchased by them at the Closing as specified in Schedule A. Section 3.4. Registration Rights Agreement. You shall have received the Registration Rights Agreement, dated the date hereof (the "Registration Rights Agreement"), substantially in the form annexed hereto as Exhibit E, duly executed by the Company. Section 3.5. Consents. The Company shall have obtained all consents, approvals and authorizations included on Schedule 3.5 annexed hereto. B. The Company's obligation to sell, issue and deliver the Securities to the Purchasers shall be subject to the satisfaction on or before the Closing Date of the conditions hereinafter set forth. 11 15 Section 3.6. Receipt of Proceeds. In respect of the Closing Date, the Company shall have received an aggregate of $1,000,000 payable as provided in Section 1.2 of proceeds from the sale of the Securities. SECTION 4. THE BRIDGE NOTES. Section 4.1. Repayment. Subject to Section 8.3, the Bridge Notes shall be repaid on the earlier of (a) the 45th day after the date hereof or (b) the closing date of any financing transaction or series of financing transactions providing the Company with gross proceeds of not less than $10,000,000 (the "Financing"). Section 4.2. Interest. The Bridge Notes will bear interest at the per annum rate of 10%. Interest will be payable at the same time principal is payable. Interest shall be computed on the basis of a 360-day year and actual days elapsed. The Company shall pay principal and interest to each registered Holder of the Bridge Notes in the manner provided in Schedule A hereto under the name of such Holder. Section 4.3. Optional Redemption of the Bridge Notes. The Bridge Notes may be redeemed in advance of the scheduled repayment date at the option of the Company at any time, upon notice given as provided in Section 4.4, in whole or in part (in a minimum aggregate principal amount of at least $25,000 and in any greater principal amount that is a multiple of $25,000), in each case at 100% of the principal amount of Bridge Notes so to be redeemed, together with interest accrued thereon to the date fixed for such optional redemption, without premium. Notwithstanding the foregoing, if all the Bridge Notes of any Holder thereof are to be redeemed, the entire outstanding principal amount of the Bridge Notes held by such Holder (even if not a multiple of $25,000) may be redeemed. Section 4.4. Notice of Redemption. The Company will give written notice of any redemption of the Bridge Notes pursuant to Section 4.3 to the Holders of the Bridge Notes not less than five (5) days, nor more than ten (10) days, prior to the date fixed for such redemption in such notice, which notice shall specify the principal amount of the Bridge Notes so to be redeemed, together with the amount of interest accrued thereon, and the date fixed for such redemption. Section 4.5. Allocation of Redemption Payments. If less than all of the then outstanding principal amount of the Bridge Notes is to be redeemed pursuant to Section 4.3 and more than one Bridge Note is outstanding, the Company shall allocate the total principal amount to be redeemed pro rata as nearly as practicable among the Bridge Notes, based upon the then outstanding principal amounts thereof. Section 4.6. Surrender of Bridge Notes; Notation Thereon. Upon any redemption of a portion of the principal amount of any Bridge Note, the Holder of such Bridge Note at its option may require the Company to make and deliver, at the expense of the Company (other than for transfer taxes, if any), upon surrender of such Bridge Note, a new Bridge Note payable to such Person or Persons as may be designated by such Holder in the principal amount of the surrendered Bridge Note then remaining unpaid, dated as of the date to which interest has been paid on the unpaid principal amount of the surrendered Bridge Note (or, if no such interest has been paid, dated as of the date of 12 16 the surrendered Bridge Note), or may present such Bridge Note to the Company for notation thereon of the payment of the portion of the principal amount of such Bridge Note so prepaid. SECTION 5. INSPECTION. So long as you shall hold any of the Securities, you and your authorized representatives shall have the right, at your expense (unless an Event of Default has occurred and is continuing, in which case at the Company's expense), upon notice to the Company (unless an Event of Default shall have occurred and be continuing, in which case without notice) to visit and inspect during normal business hours any of the properties of the Company or its subsidiaries, to examine the books of account and records of the Company and its subsidiaries and to be provided with copies and extracts therefrom, to discuss the affairs, finances and accounts of the Company and its subsidiaries with, and to be advised as to the same by, its officers, and its independent public accountants (and the Company authorizes such independent public accountants to discuss the financial matters of the Company and its subsidiaries with such Holder or its representatives, regardless of whether any representative of the Company, after notice thereof as required above, elects to be present), at any reasonable time, to any reasonable extent, and as often as may be reasonably desired by such Holders. The Company will likewise afford you and such other Holders the opportunity to obtain any information, to the extent the Company possesses such information or can acquire it without unreasonable effort or expense, necessary to verify the accuracy of any of the representations and warranties made by the Company. SECTION 6. COVENANTS. The Company covenants and agrees that on and after the date hereof, so long as any of the Securities shall be outstanding or any amount shall be due and unpaid thereunder: Section 6.1. Payment of the Bridge Notes. Subject to Section 8.3, the Company shall pay the principal of and interest on the Bridge Notes on the date and in the manner provided in the Bridge Notes and in this Agreement. Subject to Section 8.3, the obligation of the Company described in the preceding sentence is absolute and unconditional, irrespective of any tax or accounting treatment of such obligation. Section 6.2. Seniority. Payment of the principal and interest on the Bridge Notes is senior in right of payment to the payment of all existing and future Indebtedness (as hereinafter defined) of the Company and its subsidiaries (the "Junior Debt") other than up to $7.5 million (plus approximately $3.2 million of certain amounts owing by the Company under its post-retirement non-competition and consulting programs as reflected in the Financial Statements) of Indebtedness of the Company and its subsidiaries, including capitalized lease obligations of the Company and its subsidiaries (the "Permitted Amount"). The aggregate amount of all existing Indebtedness of the Company and its subsidiaries reflected in the Financial Statements which by its terms ranks senior or pari passu in right of payment to the Bridge Notes shall be included in the Permitted Amount. The Company shall not, and shall cause its subsidiaries not to, incur or suffer to exist more than the Permitted Amount of Indebtedness which must rank senior or pari passu in right of payment to the Bridge Notes. "Indebtedness" means (a) any liability of the Company or any of its subsidiaries (i) for borrowed money, or (ii) evidenced by a note, debenture, bond or other instrument of indebtedness (including, without limitation, a purchase money obligation), given in connection with the acquisition of property, assets or services, or (iii) for the payment of rent or other amounts relating to capitalized lease obligations; (b) any liability of others described in the preceding clause (a) which the Company or any of its subsidiaries has guaranteed or 13 17 as to which it or any of them has provided security or which is otherwise its or any of their legal liability (except such liabilities which the Company or any of its subsidiaries may not subordinate to the payment of the Bridge Notes as a matter of law); and (c) any modification, renewal, extension, replacement or refunding of any such liability described in the preceding clauses. Upon any Event of Default relating to the payment of principal of, or interest on, the Bridge Notes or any fee or other amount payable by the Company under the Bridge Notes whether at maturity or otherwise, no payment may be made with respect to the principal of, or interest on, any Junior Debt or with respect to any fee or other amount payable by the Company or any of its subsidiaries on any Junior Debt or in respect of any redemption, retirement, purchase or other acquisition thereof, unless and until such Event of Default has been cured or waived or has ceased. Upon any other Event of Default and upon written notice thereof given to the Company, no payment may be made with respect to the principal of, or interest on, any Junior Debt or with respect to any fee or other amount payable by the Company or any of its subsidiaries on any Junior Debt or in respect of any redemption, retirement, purchase or other acquisition thereof unless and until such Event of Default has been cured or waived or has ceased. Upon any payment or distribution of the assets of the Company or any of its subsidiaries to creditors upon dissolution, total or partial liquidation or reorganization of or similar proceeding relating to the Company or any of its subsidiaries, the holders of the Bridge Notes will be entitled to receive payment in full before any holder of Junior Debt is entitled to receive payment. Section 6.3. Existence. The Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its and its subsidiaries' existence, and the Company shall use its best efforts to cause to be done all things necessary to preserve and keep in full force and effect SMTEK's existence, each in accordance with their respective Certificate of Incorporation and By-laws and the rights (charter and statutory) and franchises of the Company, its subsidiaries and SMTEK; provided, however, that neither the Company and any of its subsidiaries nor SMTEK shall be required to preserve, with respect to itself, any right or franchise, if (a) the Board of Directors of such company shall determine reasonably and in good faith that the preservation thereof is no longer desirable in the conduct of the business of such company and (b) the loss thereof is not adverse in any material respect to the Holders. Section 6.4. Payment of Taxes and Other Claims. The Company shall pay or discharge, and cause its subsidiaries to pay or discharge, and use its best efforts to cause SMTEK to pay and discharge, before the same shall become delinquent, (i) all taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon such company or properties and assets of such company and (ii) all lawful claims, whether for labor, materials, supplies, services or anything else, that have become due and payable and that by law have or may become a Lien upon the property and assets of such company; provided, however, that such company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which disputed amounts adequate reserves have been established in accordance with GAAP. 14 18 Section 6.5. Maintenance of Insurance. From and at all times after the Closing Date, the Company shall have, and shall cause its subsidiaries to have, and shall use its best efforts to cause SMTEK to have, in effect customary property and comprehensive general liability insurance, in each case on terms and in an amount reasonably sufficient (taking into account, among other factors, the creditworthiness of the insurer) to avoid a Material Adverse Change. Section 6.6. Limitation on Transactions with Affiliates. Except as described herein or as set forth on Schedule 6.6 annexed hereto, after the Closing Date, the Company shall not, and shall cause its subsidiaries not to, and shall use its best efforts to cause SMTEK not to, enter into any contract, arrangement, understanding or transaction with any affiliate or stockholder (an "Affiliate Transaction") or series of related Affiliate Transactions except for transactions approved in advance by a majority of the disinterested (as to such transaction) members of the Board of Directors of the Company. Section 6.7. Limitation on Lines of Business. The Company shall not, and shall cause its subsidiaries not to, and shall use its best efforts to cause SMTEK not to, directly or indirectly engage to any material extent in any line or lines of business activity other than as set forth in the Offering Documents. Section 6.8. Limitation on Consolidation, Merger and Sale of Assets. Except as contemplated hereby, the Company shall not, and shall cause its subsidiaries not to, and shall use its best efforts to cause SMTEK not to, consolidate with or merge with or into another person or, directly or indirectly, sell, lease or convey all or substantially all of its assets, whether in a single transaction or a series of related transactions, to another Person or group of affiliated Persons. Section 6.9. Observance of Statutes, Regulations and Orders. The Company shall, and shall cause its subsidiaries to, and shall use its best efforts to cause SMTEK to, remain at all times in compliance with all statutes, rules and regulations of any Governmental Body and all Orders, except where the failure to comply is not reasonably likely to have a Material Adverse Effect. Section 6.10. Maintenance of Properties. The Company shall, and shall cause its subsidiaries to, and shall use its best efforts to cause SMTEK to, maintain, preserve, protect and keep the properties material to the operation of the business of such company in good repair, working order and condition (ordinary wear and tear excepted), and make necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times consistent with past practices of such company. Section 6.11. Books and Records. The Company shall, and shall cause its subsidiaries to, and shall use its best efforts to cause SMTEK to, keep books and records which accurately reflect all of its material business affairs and transactions. Section 6.12. Restricted Payments. The Company shall not declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account or in respect of any of the Company's capital stock. Section 6.13. SMTEK Agreement. The Company shall use its best efforts to 15 19 consummate all of the transactions contemplated by the SMTEK Agreement, including, without limitation, the purchase by the Company of the SMTEK Shares, in accordance with the terms thereof. After the Company's acquisition of the SMTEK Shares, SMTEK shall be deemed to be a subsidiary of the Company. SECTION 7. DEFINITIONS. Section 7.1. Additional Definitions. Except as otherwise specified or as the context may otherwise require, the following terms shall have the respective meanings set forth below whenever used in this Agreement: "Acquisition" means the purchase or other acquisition of any person or substantially all the assets of any person by any other person, whether by purchase, merger, consolidation or other transfer, and whether or not for consideration. "Affiliate" means (i) any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, (ii) any spouse, immediate family member or other relative who has the same principal residence of any person described in clause (i) above and (iii) any trust in which any person described in clause (i) or (ii) above has a beneficial interest. For purposes of this definition, the term "control" means (a) the power to direct the management and policies of a person, directly or through one or more intermediaries, whether through the ownership of voting securities, by contract or otherwise or (b) the beneficial ownership of 10% or more of any class of voting capital of a person (on a fully diluted basis) or of warrants or other rights to acquire such class of capital (whether or not presently exercisable). "Bankruptcy Code" shall mean Title 11 of the United States Code (as now or hereafter in effect). "Business Day" shall mean any day on which commercial banks in the State of New York are not authorized or required to close. "Cash" means U.S. Legal Tender. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Common Stock" shall mean the common stock, par value $.01 per share, of the Company. "Company" shall have the meaning ascribed thereto in the first paragraph of this Agreement. "GAAP" shall mean generally accepted accounting principles as in effect on the date hereof. "Governmental Body" shall mean any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, foreign or domestic. 16 20 "Lien" means any mortgage, lien, pledge, charge, security interest, limitation on voting rights or other encumbrance of any kind, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement and any lease deemed to constitute a security interest, and any option or other agreement to give any security interest). "Majority Noteholders" shall mean, at any time, the holders of at least a majority in principal amount of the then outstanding Bridge Notes; provided, the Bridge Notes owned by the Company or any Affiliate of the Company shall be disregarded and deemed not outstanding for this purpose; provided, no Holder of Bridge Notes shall be deemed an Affiliate of the Company solely by reason of its exercise of remedies under the Operative Documents. "Material Adverse Change" shall mean any material adverse change in the business, condition (financial or otherwise), operations, earnings, performance, properties or prospects of the Company and its subsidiaries taken as a whole or SMTEK or the ability of the Company to perform its obligations under the Operative Documents. "Material Adverse Effect" shall mean a material adverse effect on the business, condition (financial or otherwise), operations, earnings, performance, properties or prospects of the Company and its subsidiaries taken as a whole or SMTEK. "Order" shall mean any lawful order, writ, injunction, decree, judgment, award, determination, direction or demand. "Person" shall mean an individual, partnership, trust, corporation, a government or agency or political subdivision or any agency, department or instrumentality thereof or other person or entity. "Securities Act" shall mean the Securities Act of 1933, as amended, and any similar or successor Federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at any applicable time. "SMTEK Common Stock" shall mean the common stock, par value $_______ per share, of SMTEK. "SMTEK Shares" shall mean all of the outstanding shares of SMTEK Common Stock being purchased by the Company pursuant to the SMTEK Agreement. "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts. SECTION 8. EVENTS OF DEFAULT; REMEDIES. Section 8.1. Events of Default Defined; Acceleration of Maturity. Subject to Section 8.3, if one or more of the following events (an "Event of Default") shall occur and be continuing: 17 21 (a) the Company shall default in the payment when due of any principal of, or interest on, any Bridge Note or any fee or other amount payable by the Company under any Bridge Note or this Agreement; or (b) the Company shall default in the performance of any of its covenants or agreements in any Bridge Note or other Operative Document or any of the representations and warranties of the Company contained in this Agreement were untrue when made; or (c) the Company, any of its subsidiaries or SMTEK shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (d) Any Material Adverse Change shall occur or shall have occurred; or (e) the Company, any of its subsidiaries or SMTEK shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce to, any petition filed against it in an involuntary case under the Bankruptcy Code or (vi) take any action for the purpose of effecting any of the foregoing; or (f) a proceeding or case shall be commenced, without the application or consent of the Company, any of its subsidiaries or SMTEK, as the case may be, in any court of competent jurisdiction seeking (i) the liquidation, reorganization, dissolution or winding-up of the Company, any of its subsidiaries or SMTEK or of its assets or the composition or adjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Company, any of its subsidiaries or SMTEK or of all or any substantial part of its assets or (iii) similar relief in respect of its creditors, under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, and such proceeding or case shall continue undismissed or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect for a period of 30 days or an order for relief against it or any or its assets shall be entered in an involuntary case under the Bankruptcy Code; THEREUPON: (x) the Bridge Notes and all amounts payable by the Company under the Bridge Notes shall be immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Company, and in any case the Holders may take such action as is permitted to enforce their rights thereunder; (y) the Company shall pay all of the expenses of the Holders incurred for the collection of the Bridge Notes and for the enforcement of their rights to obtain payment of the Bridge Notes, including reasonable attorneys' fees and legal expenses; and (z) the Holders may exercise from time to time any rights and remedies available to them by law, including those available under any agreement or other instrument, if any, relating to the amounts owed under the Bridge Notes or any security therefor (including, without limitation, under the Warrants). No failure or delay on the part of the Holders in the exercise of any 18 22 right or remedy shall operate as a waiver thereof, and no single or partial exercise by the Holders of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. The Holders may apply any funds received from the Company or realize upon any collateral securing payment of the Bridge Notes, if any, in such manner and order of priority and against such payment obligations hereunder as the Holders may determine. Section 8.2. Miscellaneous. The Company hereby waives presentment, demand for payment, notice of dishonor, protest and notice of protest of the Bridge Notes. No waiver of any provision of the Bridge Notes, or any agreement or instrument evidencing or providing security for the Bridge Notes made by agreement of the Holders and any other person or party, shall constitute a waiver of any other terms hereof, or otherwise release or discharge the liability of the Company under the Bridge Notes. The Company agrees to perform and comply with each of the covenants, conditions, provisions and agreements of the Company contained in the Bridge Notes. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies provided by law. Section 8.3. Nonconsummation of Financing. The Company's failure to pay any principal of, or interest on, any Bridge Note or any fee or other amount payable by the Company under any Bridge Note or this Agreement shall not be deemed to be an Event of Default if such failure is the result of the Company's inability, through no fault of its own and not due to a Material Adverse Change or the Company's breach of any of its representations or warranties or failure to perform any of its covenants or agreements in any of the Operative Documents or the SMTEK Agreement, to consummate the Financing within 45 days after the date hereof (such 45th day shall be referred to herein as the "Expiration Date"). Upon such occurrence, all of the then outstanding Securities shall be deemed to have been cancelled in full and all rights of the Holders with respect to the repayment of the Bridge Notes and the exercise of the Warrants shall cease and terminate, in each case as of the Expiration Date. The Holders shall promptly surrender the certificates evidencing the Securities to the Company for cancellation. SECTION 9. REGISTRATION, TRANSFER AND EXCHANGE OF BRIDGE NOTES. The Company will keep at its principal executive office a note register in which, subject to such reasonable regulations as it may prescribe, but at its expense (other than transfer taxes, if any), it will provide for the registration and transfer of the Bridge Notes. The Bridge Notes may not be pledged, sold, assigned, hypothecated or otherwise transferred until (1) a registration statement with respect thereto is effective under the Securities Act and any applicable state securities laws or (2) the Company receives an opinion of counsel to the Company or other counsel to the Holder of the Bridge Note, which other counsel is reasonably satisfactory to the Company, that the Bridge Note may be pledged, sold, assigned, hypothecated or transferred without an effective registration statement under the Securities Act or applicable state securities laws. The Holder of any Bridge Note, at such Holder's option, may surrender the same for transfer or exchange either at the principal executive office of the Company or at the place of payment named in said Bridge Note, accompanied in the case of a transfer or assignment by a written instrument of transfer or assignment in form satisfactory to the Company duly executed by the registered Holder thereof or by such Holder's attorney duly authorized in writing. In case any Holder shall so request the transfer, assignment or exchange of any Bridge Note, the Company, at its expense, will execute 19 23 and deliver (in each case insured to your reasonable satisfaction) in exchange therefor one or more new Bridge Notes, as may be requested by such Holder, in the same aggregate unpaid principal amount as the aggregate unpaid principal amount of the Bridge Note or Bridge Notes so surrendered. Any Bridge Note issued in exchange for any other Bridge Note or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue which were carried by the Bridge Note so exchanged or transferred, and neither gain nor loss of interest shall result from any such transfer or exchange. Notwithstanding the foregoing, Bridge Notes may not be issued in denominations of less than $25,000 (except if the entire outstanding principal balance of the Bridge Notes of such Holder is less than $25,000, in which case one Bridge Note for the entire outstanding principal amount of the outstanding Bridge Notes of such Holder may be issued) and no transfer, assignment or exchange of Bridge Notes will be effected if the result of such transfer, assignment or exchange would be to cause the Company to be required to register as an investment company under the Investment Company Act. The Company and any agent of the Company may treat the Person in whose name any Bridge Note is registered as the owner of such Bridge Note for the purpose of receiving payment of the principal of and interest on such Bridge Note and for all other purposes whatsoever, whether or not such Bridge Note is overdue. SECTION 10. LOST BRIDGE NOTES, ETC. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of any Bridge Note, and (in case of loss, theft or destruction) of indemnity reasonably satisfactory to it, upon surrender and cancellation of such Bridge Note or receipt of such indemnity, the Company will make and deliver in lieu of such Bridge Note a new Bridge Note in the same unpaid principal amount and dated as of the date to which interest has been paid thereon. SECTION 11. AMENDMENT AND WAIVER. (a) Any term, covenant, agreement or condition of this Agreement or of the Bridge Notes or of the Warrants, with the consent of the Company, may be amended or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively) by one or more substantially concurrent written instruments signed by the Majority Bridge Noteholders; provided, however, that (i) no such amendment or waiver shall (x) reduce the principal of, or reduce the rate of or change the time for payment of interest on, any Bridge Note, or extend the maturity of any Bridge Note, or modify any other payment terms of any Bridge Note without the consent of the Holder of each Bridge Note so affected, or (y) modify any of the provisions of this Agreement or of the Bridge Notes with respect to the payment or prepayment thereof, or reduce the percentage of Holders of Bridge Notes required to approve any such amendment or effectuate any such waiver, or amend this Section 11 without the consent of the Holders of all of the Bridge Notes at the time outstanding; and (ii) no such waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. 20 24 (b) Any amendment or waiver pursuant to subsection (a) of this Section 11 shall apply equally to all the Holders of the Bridge Notes and shall be binding upon them, upon each future holder of any Bridge Note and upon the Company, in each case whether or not a notation thereof shall have been placed on any Bridge Note. SECTION 12. HOME OFFICE PAYMENT. Notwithstanding anything to the contrary in this Agreement or the Bridge Notes, so long as you or any nominee designated by you shall be the Holder of any Bridge Note, the Company shall punctually pay all amounts which become due and payable on such Bridge Note to you at your address or at such other place and in such manner as you may designate by notice to the Company, without presentation or surrender of such Bridge Note. You agree that prior to the sale, assignment, transfer or other disposition of any such Bridge Note, you will make notation thereon of the portion of the principal amount paid or prepaid and the date to which interest has been paid thereon, or surrender the same in exchange for a Bridge Note or Bridge Notes aggregating the same principal amount as the unpaid principal amount of the Bridge Note so surrendered. You agree that, as promptly as practicable after the payment or prepayment in whole of any Bridge Note held by you or your nominee and receipt by you of a written request from the Company to surrender such Bridge Note to the Company for cancellation, you will surrender such Bridge Note at the office of the Company. The Company agrees to enter into an agreement similar to that contained in this Section with any other investor (or nominee thereof) who shall hold any of the Bridge Notes. SECTION 13. TAXES. The Company will pay all taxes (including interest and penalties), other than taxes imposed on or by reference to the income of the Holders of the Bridge Notes, which may be payable in respect of the execution and delivery of this Agreement or of the execution and delivery (but not the transfer) of any of the Bridge Notes or the Warrants or of any amendment of, or waiver or consent under or with respect to, this Agreement or of any of the Bridge Notes or the Warrants and will save you and all subsequent Holders of the Bridge Notes harmless against any loss or liability resulting from nonpayment or delay in payment of any such tax. The obligations of the Company under this Section shall survive the payment of the Bridge Notes. SECTION 14. MISCELLANEOUS. Section 14.1. Reliance on and Survival of Representations. All agreements, representations and warranties of the Company herein and in any certificates or other instruments delivered pursuant to this Agreement shall (i) be deemed to be material and to have been relied upon by you, notwithstanding any investigation heretofore or hereafter made by you or on your behalf, and (ii) survive the execution and delivery of this Agreement and of the Securities, and shall continue in effect so long as any of the Securities is outstanding and thereafter as provided here. Section 14.2. Successors and Assigns; Transfers of Bridge Notes. This Agreement shall bind and inure to the benefit of and be enforceable by the Company, you, and your respective successors and assigns, and, in addition, shall inure to the benefit of and be enforceable by each Person who shall from time to time be a Holder of any of the Bridge Notes. The Company may not assign its rights under this Agreement. The Purchasers may transfer the Bridge Notes (and any portion thereof) at any time without the consent of the Company subject, however, to the requirements of Section 9. 21 25 Section 14.3. Notices. All notices and other communications provided for or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or sent by telex or telecopier, registered or certified mail (return receipt requested), postage prepaid or courier to the parties at the following address (or at such other address for any party as shall be specified by like notice, provided that notices of a change of address shall be effective only upon receipt thereof). Notices sent by mail shall be effective two (2) days after mailing; notices sent by telex shall be effective when answered back, notices sent by telecopier shall be effective when receipt is acknowledged, and notices sent by courier guaranteeing next day delivery shall be effective on the next business day after timely delivery to the courier. (i) if to the Company: DDL ELECTRONICS, INC. 7320 S.W. Hunziker Road Suite 300 Tigard, Oregon 97223-2302 Attention: President and Chief Operating Officer Telephone: (503) 620-1789 Telecopy: (ii) if to you, at your address as set forth in Schedule A hereto or at such other address as you may hereafter designate by notice to the Company, and (iii) if to any other Holder of the Bridge Notes, at the address of such Holder as it appears on the note register. Section 14.4. Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Section 14.5. Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. Section 14.6. Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the Purchasers shall be enforceable to the fullest extent permitted by law. Section 14.7. Entire Agreement. This Agreement, together with the Registration Rights Agreement, the Warrants and the Bridge Notes, is intended by the parties as a final expression of their agreement and is intended to be the complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There 22 26 are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Registration Rights Agreement, the Warrants and the Bridge Notes (including the exhibits and schedules to each) supersede all prior agreements and understandings between the parties with respect to such subject matter. Section 14.8. Attorney's Fees. In any action or proceeding brought to enforce any provision of this Agreement or where any provision hereof is validly asserted as a defense, the successful party shall, to the extent permitted by applicable law, be entitled to recover reasonable attorney's fees in addition to any other available remedy, provided that the Company shall not be required to pay for more than one firm of attorneys to represent all the Holders. Section 14.9. Governing Law. This Agreement and the Bridge Notes shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and to be performed entirely in the State of New York. The Company (a) hereby irrevocably submits to the jurisdiction of the state courts of the State of New York and the jurisdiction of the United States District Court for the Southern District of New York, for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement and the Bridge Notes, or the subject matter hereof or thereof brought by the Holder and (b) hereby waives and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement and the Bridge Notes or the subject matter hereof may not be enforced in or by such court, and (c) hereby waives in any such action, suit, or proceeding any offsets or counterclaims. The Company hereby consents to service of process by certified mail at the address set forth herein and agrees that its submission to jurisdiction and its consent to service of process by mail is made for the express benefit of the Holders. Final judgment against the Company in any such action, suit or proceeding shall be conclusive, and may be enforced in other jurisdictions (i) by suit, action or proceeding on the conclusive evidence of the fact and of the amount of any indebtedness or liability of the Company therein described or (ii) in any other manner provided by or pursuant to the laws of such other jurisdiction; provided, however, that the Holders may at their option bring suit, or institute other judicial proceedings, against the Company or any of its assets in any state or Federal court of the United States or of any country or place where the Company or its assets may be found. Section 14.10. Action of Majority Bridge Noteholders. Except for such actions which are expressly provided in the Operative Documents to be taken by an individual Holder of Bridge Notes, all actions required or permitted to be taken by the Holders of Bridge Notes under the Operative Documents including, without limitation, in connection with the exercise of remedies, shall be taken by the Majority Bridge Noteholders; and the decision of the Majority Bridge Noteholders shall be binding on all other Holders of Bridge Notes. 23 27 If you are in agreement with the foregoing, please sign the form of acceptance in the space provided below whereupon this Agreement shall become a binding agreement between you and the Company. Very truly yours, DDL ELECTRONICS, INC. By: ------------------------------------------- Name: Title: 24 28 The foregoing Agreement is hereby accepted as of the date first above written: SARATOGA HOLDINGS INC. By: ---------------------------- Name: Title: - -------------------------------- Gregg A. Smith - -------------------------------- Elliot Smith - -------------------------------- Kenneth D. Rickel - -------------------------------- Joseph Fair - -------------------------------- Edward McWilliams - -------------------------------- David Cornstein - -------------------------------- Jeffrey S. Silverman - -------------------------------- Howard Miller 25 29 SCHEDULE A
Name and Address of Purchasers Principal Amount of Bridge Notes - ------------------------------ -------------------------------- SARATOGA HOLDINGS INC. (1) In the case of all payments on $75,000 principal amount account of the Bridge Notes: of 10% Senior Bridge Notes due December 25, 1995 By crediting in the form of bank wire transfer of Federal or other immediately available funds to: (2) Address for all notices in respect of payment: Saratoga Holdings Inc. c/o Gregg A. Smith Rickel & Associates, Inc. 875 Third Avenue New York, NY 10022 GREGG A. SMITH (1) In the case of all payments on $75,000 principal amount account of the Bridge Notes: of 10% Senior Bridge Notes due December 25, 1995 By crediting in the form of bank wire transfer of Federal or other immediately available funds to: (2) Address for all notices in respect of payment: Gregg A. Smith Rickel & Associates, Inc. 875 Third Avenue New York, NY 10022
A-1 30 ELLIOT SMITH (1) In the case of all payments on $200,000 principal amount account of the Bridge Notes: of 10% Senior Bridge Notes due December 25, 1995 By crediting in the form of bank wire transfer of Federal or other immediately available funds to: (2) Address for all notices in respect of payment: Elliot Smith 400 East 56th Street New York, NY 10022 KENNETH D. RICKEL (1) In the case of all payments on $225,000 principal amount account of the Bridge Notes: of 10% Senior Bridge Notes due December 25, 1995 By crediting in the form of bank wire transfer of Federal or other immediately available funds to: (2) Address for all notices in respect of payment: Kenneth D. Rickel Rickel & Associates, Inc. 875 Third Avenue New York, NY 10022 JOSEPH FAIR (1) In the case of all payments on $25,000 principal amount account of the Bridge Notes: of 10% Senior Bridge Notes due December 25, 1995 By crediting in the form of bank wire transfer of Federal or other immediately available funds to:
A-2 31 (2) Address for all notices in respect of payment: Joseph Fair c/o Rickel & Associates, Inc. 45 Essex Street Millburn, NJ 07041 EDWARD MCWILLIAMS (1) In the case of all payments on $50,000 principal amount account of the Bridge Notes: of 10% Senior Bridge Notes due December 25, 1995 By crediting in the form of bank wire transfer of Federal or other immediately available funds to: (2) Address for all notices in respect of payment: Edward McWilliams c/o Rickel & Associates, Inc. 45 Essex Street Millburn, NJ 07041 DAVID CORNSTEIN (1) In the case of all payments on $50,000 principal amount account of the Bridge Notes: of 10% Senior Bridge Notes due December 25, 1995 By crediting in the form of bank wire transfer of Federal or other immediately available funds to: (2) Address for all notices in respect of payment: David Cornstein Finlay Corporation 521 Fifth Avenue New York, NY 10175-0399 JEFFREY S. SILVERMAN
A-3 32 (1) In the case of all payments on $100,000 principal amount account of the Bridge Notes: of 10% Senior Bridge Notes due December 25, 1995 By crediting in the form of bank wire transfer of Federal or other immediately available funds to: (2) Address for all notices in respect of payment: Jeffrey S. Silverman Ply Gem Industries 777 Third Avenue New York, NY 10017 HOWARD MILLER (1) In the case of all payments on $200,000 principal amount account of the Bridge Notes: of 10% Senior Bridge Notes due December 25, 1995 By crediting in the form of bank wire transfer of Federal or other immediately available funds to: (2) Address for all notices in respect of payment: Howard Miller Rickel & Associates, Inc. 875 Third Avenue New York, NY 10022
A-4 EX-99.4 5 PRESS RELEASE DATED 1-12-96 1 EXHIBIT 99.4 PRESS RELEASE BARRY KAPLAN ASSOCIATES FOR IMMEDIATE RELEASE: =============================================================================== 623 River Road, Fair Haven, New Jersey 07704 (908)747-0702 FAX (908)758-1837 PRESS CONTACT: Barry S. Kaplan (908)747-0702 COMPANY CONTACT: SMTEK, INC. ACQUISITION COMPLETE BY DDL TIGARD, OR, January 12, 1996--DDL Electronics Inc. (NYSE: DDL) today announced that it has acquired 100 percent of the shares of SMTEK,Inc. This new wholly owned subsidiary of DDL, is a producer of printed circuit boards utilizing surface mount technology at its state-of-the-art facility in Southern California. SMTEK specializes in full production implementation of circuit boards, from analysis and design to manufacture. Terms of the acquisition were $6,798,738 in cash and 1,000,000 shares of DDL common stock. Gregory L. Horton, President and Chief Executive of the nine year old SMTEK, Inc. stated, "We are pleased to join forces with DDL. Our goal is to increase our size through the capital provided by DDL. We have an excellent customer base, an order backlog of $33,000,000, a fully automated robotic assembly line and a team with solid experience. As a private company, we could not raise sufficient capital for expansion. Now, with the financing capabilities of DDL, we anticipate enhanced growth and the ability to break through the glass ceiling into the upper levels of our industry. We see excellent synergistic compatibilities with DDL'S surface mount and printed circuit board facilities in Northern Ireland. SMTEK can provide sophisticated front end design capability to the Irish facilities and they provide us a high quality, low production cost gateway to the European market." ### -----END PRIVACY-ENHANCED MESSAGE-----