-----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, J4iOtaMDoRegXhZ2aFawUylp/axobfYwrxmkjVsoEdyfpob6DBxrAYqurGbzZ0yr UlIFKhKU3yMaMhvee7T7LQ== 0000950144-96-001805.txt : 19960501 0000950144-96-001805.hdr.sgml : 19960501 ACCESSION NUMBER: 0000950144-96-001805 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19960429 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DDL ELECTRONICS INC CENTRAL INDEX KEY: 0000026987 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 330213512 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-02969 FILM NUMBER: 96553182 BUSINESS ADDRESS: STREET 1: 2151 ANCHOR COURT CITY: NEWBURY PARK STATE: CA ZIP: 91320 BUSINESS PHONE: 8053762595 MAIL ADDRESS: STREET 1: 2151 ANCHOR COURT CITY: NEWBURY PARK STATE: CA ZIP: 91320 FORMER COMPANY: FORMER CONFORMED NAME: DATA DESIGN LABORATORIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DATA DESIGN LABORATORIES DATE OF NAME CHANGE: 19880817 S-3 1 DDL ELECTRONICS INC S-3 4-29-96 1 As filed with the Securities and Exchange Commission on April 29, 1996 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------- DDL ELECTRONICS, INC. (Exact name of Registrant as specified in its charter) Delaware 33-0213512 - -------------------------------- ------------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization)
2151 Anchor Court Newbury Park, California 91320 Telephone: (805) 376-9415 Telecopier: (805) 376-9015 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ------------- Mr. Richard K. Vitelle Vice President -- Finance DDL Electronics, Inc. 2151 Anchor Court Newbury Park, California 91320 Telephone: (805) 376-9415 Telecopier: (805) 376-9015 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------- Copy to: Patrick Daugherty, Esq. Nelson Mullins Riley & Scarborough, L.L.P. NationsBank Corporate Center Charlotte, NC 28202-4000 Telephone: (704) 417-3101 Telecopier: (704) 377-4814 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after this Registration Statement becomes effective. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] 2 If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [x] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.[ ]
CALCULATION OF REGISTRATION FEE =========================================================================================================== Title of each class Amount Proposed Proposed Amount of of securities to be to be maximum offering maximum aggregate registration registered registered (1) price offering price fee - ----------------------------------------------------------------------------------------------------------- Outstanding Common Stock, $.01 par value 1,164,516 shares $1.94 per share (2) $2,259,162 (2) $ 780 Common Stock Underlying Common Stock 470,000 shares $3.50 per share (3) $1,645,000 (3) $ 568 Purchase Warrants 2,165,872 shares $2.50 per share (3) $5,414,680 (3) $1,868 Total 3,800,388 shares $9,388,712 $3,216 ===========================================================================================================
(1) This Registration Statement covers the resale of (a) up to 3,800,388 shares (the "Shares") of common stock, par value $.01 per share (the "Common Stock"), of the Registrant, consisting of (i) 1,164,516 outstanding shares of Common Stock and (ii) 2,635,872 shares issuable upon the exercise of outstanding warrants to purchase Common Stock, and (b) outstanding warrants covering 1,500,000 shares of Common Stock. (2) Based upon the average of the high and low prices for the Common Stock on April 26, 1996, as reported in the consolidated reporting system, in accordance with Rule 457(c). (3) Calculated at the highest prices at which the separate series of warrants may be exercised, as required by Rule 457(g). Pursuant to Rule 457(g), no separate registration fee is required for the warrants themselves. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. 3 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. SUBJECT TO COMPLETION DATED APRIL 29, 1996 DDL ELECTRONICS, INC. COMMON STOCK COMMON STOCK PURCHASE WARRANTS This Prospectus relates to the resale from time to time of up to 3,800,388 shares (the "Shares") of common stock, $.01 par value (the "Common Stock"), of DDL Electronics, Inc. (the "Company"), consisting of 1,164,516 outstanding shares of Common Stock and 2,635,872 shares issuable upon the exercise of outstanding warrants to purchase Common Stock (the "Warrants"), as well as outstanding Warrants covering 1,500,000 Shares (the "Offered Warrants"). The Shares may be offered and sold from time to time by the holders thereof (the "Selling Stockholders") on the New York Stock Exchange (the "NYSE") or on the Pacific Stock Exchange (the "PSE"). In addition, the Shares and the Offered Warrants (together, the "Offered Securities") may be offered and sold from time to time in privately negotiated sales or otherwise, in each case at market prices prevailing at the time of sale, at prices relating to such prevailing market prices or at negotiated prices and without payment of any underwriting discounts or commissions, except for usual and customary selling commissions paid to brokers or dealers. The Company will not receive any proceeds from the sale of the Offered Securities. All expenses in connection with the registration of the Offered Securities will be borne by the Company. See "Selling Stockholders" and "Plan of Distribution." The Common Stock is listed on the NYSE and on the PSE under the symbol "DDL." On April 26, 1996, the closing price per share of the Common Stock, as reported in the consolidated reporting system, was $1.97. There is no secondary market for the Offered Warrants. The Offered Warrants will neither be listed on the NYSE, the PSE or any other national securities exchange nor will they be qualified for trading on the automated quotation system of the National Association of Securities Dealers, Inc. (the "NASD"). --------------- THE OFFERED SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS," COMMENCING ON PAGE 4. --------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------- The date of this Prospectus is ______, 1996. 4 ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "SEC") a Registration Statement on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Offered Securities. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the Offered Securities, reference is made to the Registration Statement, including the exhibits and schedules filed as part thereof. Statements contained in this Prospectus as to the contents of any contract or any other document are not necessarily complete, and, in each such instance, reference is hereby made to the copy of the contract or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by this reference thereto. The Company is subject to the informational and reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the SEC. The Registration Statement and exhibits and schedules thereto, as well as such reports, proxy statements and other information, may be inspected and copied at the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at 7 World Trade Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part of such materials may be obtained from any such office upon payment of the fees prescribed by the SEC. Such information may also be inspected at the offices of the NYSE at 20 Broad Street, New York, New York 10005 and at the offices of the PSE at 233 South Beaudry Avenue, Los Angeles, California 90012. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The following documents have been filed with the SEC by the Company and are hereby incorporated by reference into this Prospectus: (i) the Company's Annual Report on Form 10-K for its fiscal year ended June 30, 1995 (the "Form 10-K"); (ii) the Company's Amendment on Form 10-K/A to the Form 10-K (the "Form 10-K Amendment"); (iii) the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended September 30, 1995; (iv) the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended December 31, 1995 (the "Second Quarter 10-Q"); (v) the Company's Current Reports on Form 8-K, dated the following dates: July 12, 1995, July 13, 1995, August 3, 1995, August 7, 1995 and January 29, 1996 (the "SMTEK 8-K"); (vi) the Company's Amendment on Form 8-K/A, dated March 27, 1996, to the SMTEK 8-K (the "SMTEK 8-K/A"); and (vii) the description of the Common Stock contained in the Company's Registration Statement on Form 8-A filed with the SEC pursuant to Section 12 of the Exchange Act. All other documents filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act from the date of this Prospectus and prior to the termination of this offering shall be deemed to be incorporated by reference herein and shall be deemed to be a part hereof from the date of filing thereof. Any statement contained in a document incorporated or deemed incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any subsequently filed document that is also deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company hereby undertakes to provide without charge to each person to whom a Prospectus is delivered, upon written or oral request of such person, a copy of any document incorporated herein by reference (not including exhibits to documents that have been incorporated herein by reference unless such exhibits are specifically incorporated by reference in the document which this Prospectus incorporates). Requests should be directed to Mr. Richard K. Vitelle, Vice President -- Finance, DDL Electronics, Inc., 2151 Anchor Court, Newbury Park, California 91320, telephone (805) 376-9415. 2 5 RECENT DEVELOPMENTS ACQUISITION OF SMTEK On January 12, 1996, the Company acquired all of the outstanding stock of SMTEK, Inc., a California corporation ("SMTEK"). SMTEK specializes in the design and manufacture of complex printed circuit board assemblies and modules utilizing surface mount technology ("SMT") for sale to government-related and commercial customers. In its fiscal years ended March 31, 1995 and 1994, SMTEK derived 74% and 83% of its net sales, respectively, from contracts with prime contractors of intelligence and military agencies of the United States government. For further information about the Company's acquisition of SMTEK, see the SMTEK 8-K and the SMTEK 8-K/A. For further information about the business of SMTEK, see "The Company -- EMS Contracts -- SMTEK." The consideration paid by the Company to purchase SMTEK consisted of 1,000,000 shares of Common Stock and $7,199,000 in cash. The cash portion of the purchase price was financed principally by short-term bridge loans extended to the Company in November 1995 and January 1996 in the aggregate amount of $7,000,000, bearing interest at 10% per annum (the "Bridge Loans"). The Company refinanced the Bridge Loans in February 1996 by issuing $5,300,000 in aggregate amount of 10% Senior Secured Notes due July 1, 1997 (the "Notes") and $3,500,000 in aggregate amount of 10% Cumulative Convertible Debentures due February 28, 1997 (the "Debentures"). As compensation for placing the Notes and the Debentures, the Company paid to Rickel & Associates, Inc. ("Rickel") a fee of $352,000 and issued to Rickel 572,683 shares of Common Stock. Rickel also received certain compensation for making and arranging Bridge Loans. For further information about the Bridge Loans, the Notes and the Debentures, see the SMTEK 8-K and the SMTEK 8-K/A. CHANGES IN THE COMPANY'S CAPITALIZATION After the issuance of the Notes and the Debentures, at April 15, 1996 the Company had 20,300,532 shares of Common Stock issued and outstanding, an increase of 3,701,183 shares over the number of shares outstanding at December 31, 1995. At April 15, 1996, 4,433,121 shares of Common Stock were issuable by the Company upon the exercise of options and warrants issued by the Company, including 1,060,000 warrants exercisable only upon an event of default with respect to the Notes. At that date the Company also was committed to issue 20,000 shares of Common Stock and options covering an additional 205,000 shares of Common Stock. Of the shares underlying outstanding warrants, 2,635,872 shares are being offered by this Prospectus. REDUCTION OF CERTAIN RETIREMENT OBLIGATIONS On March 31, 1996, the Company executed certain Warrant and Contingent Payment Rights Agreements (the "Warrant Agreements") with certain participants in the Company's retirement benefit plans. As a result of the Warrant Agreements, the Company recorded an extraordinary gain of approximately $2,550,000 and has reduced its liabilities by a corresponding amount. Under the terms of the Warrant Agreements, the participants relinquished all future payments due to them under certain of the Company's benefit plans, which at December 31, 1995 totaled approximately $3.5 million. In exchange, the participants received Warrants to purchase an aggregate of approximately 600,000 Shares with attendant contingent payment rights. Such Shares are among the Shares being offered by this Prospectus. The exercise price of these Warrants is equal to the NYSE closing price of the Company's Common Stock on May 31, 1996 less $1.50 per share, subject to a minimum exercise price of $2.50 per share and a maximum exercise price of $6.00 per share. The Company will subsidize the exercise of these Warrants, through certain contingent payment rights, by crediting the participants with $2.50 per share for each Warrant exercised. These Warrants may be called for redemption by the Company at any time after June 1, 1996, if the Common Stock price closes above $4.00 per share, at a redemption price of $.05 per Warrant. The Company is also obligated under the contingent payment rights to pay participants $2.50 for each of these Warrants remaining unexercised after the June 1, 1998 expiration date, payable in semiannual installments over two to ten years. 3 6 RISK FACTORS Prospective investors should carefully consider the following factors, in addition to the other information presented in this Prospectus, before purchasing the Offered Securities. SIGNIFICANT HISTORICAL LOSSES. The Company has incurred significant operating losses in recent years. Such losses totaled $4,970,000, $6,948,000 and $5,067,000 in the Company's fiscal years ended June 30, 1995, 1994 and 1993, respectively. Although the Company had net income in fiscal 1995 and 1993, such income of $75,000 and $1,073,000, respectively, included a gain in fiscal 1995 of $3,317,000 on sales of assets and extraordinary gains of $2,441,000 and $6,100,000 in fiscal 1995 and 1993, respectively, recognized as a result of debt retirement. As a result of its losses, the Company had a total stockholders' deficit of $3,344,000 at June 30, 1995. See the Form 10-K, as amended by the Form 10-K Amendment. In addition, SMTEK had substantially less net income for its fiscal year ended March 31, 1995 than for its fiscal year ended March 31, 1994. See the SMTEK 8-K/A. Although management views the acquisition of SMTEK as a first step in revitalizing the Company, there can be no assurance that the Company will be able to maintain operating profitability. See "Business -- Recent Developments" in the Form 10-K and "The Company" herein. LIMITED CAPITAL RESOURCES; CONTINUING NEED FOR FINANCING. On February 29, 1996, the Company completed private offerings of Notes and Debentures, which provided net proceeds in amounts sufficient to consummate the acquisition of SMTEK and to repay the Bridge Loans. In doing so the Company sought and received relief from the NYSE with respect to an NYSE rule that would have required stockholder approval of the Note and Debenture offerings. The basis for the relief was a determination by the Audit Committee of the Company's Board of Directors that the delay inherent in securing stockholder approval would jeopardize the financial viability of the Company. The Company does not believe that it will generate sufficient revenue to repay the Debentures and the Notes when due on February 28, 1997 and July 1, 1997, respectively, from its cash flow from operations. Therefore, the repayment of the Notes will depend on the Company's ability to refinance the Notes, either by the sale of debt or equity securities, or to refinance the Debentures, either through the sale of other debt securities or the conversion of the Debentures by their terms into shares of Common Stock. No assurance can be given that the Company will be able to obtain such financing on acceptable terms or at all. On March 15, 1996, the Company completed an offshore offering of 600,000 shares of Common Stock, yielding net proceeds of approximately $1.1 million. If the net proceeds of this equity offering and the aforementioned offerings of debt securities should prove insufficient to satisfy the working capital needs of the Company, and if the Company does not generate cash flow from operations sufficient to satisfy its capital requirements, then the Company will be required to seek further financing. The Company currently has no working capital lines of credit and no readily available sources of future financing exist. The Company's primary source of liquidity is its cash balances, which amounted to $2,649,000 at March 31, 1996. In addition, the Company is attempting to negotiate a line of credit with a bank to satisfy working capital needs. No assurance can be given that such a line of credit, or other financing, can be obtained on acceptable terms or at all. In any event, the Securities Purchase Agreement pertaining to the Notes prohibits the incurrence of indebtedness by the Company or any of its subsidiaries that would rank senior to or pari passu with the Notes in excess of the "Permitted Amount of Indebtedness." As defined, "Permitted Amount of Indebtedness" includes up to an aggregate of $13.5 million of indebtedness of the Company and its subsidiaries. The Securities Purchase Agreement also prohibits the existence of any "Liens" with respect to the Company and its subsidiaries, except for Liens securing the repayment of indebtedness in an aggregate amount not to exceed the Permitted Amount of Indebtedness. The achievement of operating profitability remains the most significant challenge in generating sufficient cash to ensure the Company's long-term viability. No assurance can be given that the Company will reach operating profitability. It is critical for the Company to conduct profitable operations, however, if it is to have the liquidity necessary to continue as a going concern. In the current market environment, management believes that the liquidation value of its assets in a voluntary or involuntary liquidation would be insufficient to meet the Company's obligations after payment to creditors. Accordingly, no amounts would be available to holders of the Common Stock. 4 7 DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a large extent upon the efforts and abilities of key managerial and technical personnel. After the change in control of the Company in May 1995, incumbent senior management in Tigard, Oregon, was replaced with interim senior management while the Company searched for permanent senior management possessed of desired skills, experience and other qualifications. The operating management of the Company's Northern Ireland subsidiaries was not changed. Upon consummation of the acquisition of SMTEK, the current President and Chairman of the Board of SMTEK, Mr. Gregory L. Horton, became the President and Chief Executive Officer of the Company and a member of the Company's Board of Directors. Mr. Horton's experience within the industry in which the Company operates will continue to be of considerable importance to the Company. The loss of any of the Company's key personnel or its inability to attract and retain key employees in the future could have a material adverse effect on the Company's operations and business plan. The Company is the beneficiary of "key-man" life insurance policy with respect to Mr. Horton in the amount of $1.3 million. The Company does not intend to obtain similar insurance policies with respect to the lives of any of its other officers or personnel. CONCENTRATION OF REVENUES AMONG MAJOR CUSTOMERS. In the current fiscal year, six customers are expected to account for more than 80% of the sales of DDL Electronics Limited, a wholly-owned subsidiary of the Company located in Northern Ireland ("DDL-E"), and there can be no assurance that any of these customers will maintain its business relationship with DDL-E. The loss of all or a substantial portion of DDL-E's revenues attributable to any one of its major customers that could not be offset by a new customer could have a material adverse effect on the Company's financial condition and results of operations. In the twelve months ended March 31, 1996, ten customers accounted for more than 80% of SMTEK's sales. Currently, more than 80% of SMTEK's business is generated by customers located in California. Although SMTEK anticipates a continual backlog through its current fiscal year of approximately $10 million generated by approximately thirty customers, there can be no assurance that any of these customers will maintain its volume of business with SMTEK. The loss of all or a substantial portion of SMTEK's revenues attributable to any of SMTEK's major customers, or an adverse change in economic conditions in California, could have a material adverse effect on the financial condition and results of operations of SMTEK and the Company. HISTORICAL DEPENDANCE ON GOVERNMENT BUSINESS; RECENT SHIFT INTO COMMERCIAL BUSINESS. A substantial portion of SMTEK's historical revenues have been derived from contracts with United States government prime contractors. Approximately 74% and 83% of SMTEK's net sales in fiscal 1995 and 1994, respectively, were derived from sales to avionics, aerospace and defense electronic contractors. In fiscal 1996 to date, more than 70% of SMTEK's contracts have been for commercial end use. Business with the United States and other governments is, in general, subject to a variety of risks, including delays in funding and performance of contracts; possible termination of contracts or subcontracts for the convenience of the government; termination or modification of contracts or subcontracts in the event of change in the government's requirements; policies or budgetary constraints; adjustments as a result of audits; and increases or unexpected costs causing losses or reduced profits under fixed-price contracts. There can be no assurance that any or all of these risks will not come to fruition in the Company's business. The ongoing shift in SMTEK's revenue base from prime government contractors to commercial original equipment manufacturers ("OEMs") will require significant adjustments in operations, including changes in project management, materials management and order turnaround time. At the management level, significant shifts in internal processes, including strategic planning, marketing and throughput planning, are also required for a successful completion of this transition. There can be no assurance that SMTEK will be able to adapt to any or all of these changes. The anticipated shift in SMTEK's revenue base may also result in increased financial exposure. Cancellation provisions in commercial contracts generally are not as generous as government contracts and may expose SMTEK to materials purchase obligations which later prove unnecessary. INDUSTRY CONDITIONS. The industries and markets in which the Company's customers compete are characterized by rapid technological change and product obsolescence. As a result, the end products made by the Company's customers 5 8 have relatively short product lives. The Company's ability to compete successfully will depend in substantial part on its ability to procure appropriate raw materials and maintain its quality asset base, incorporate or respond to advances in technology, manufacture and price its products and services competitively and achieve significant market acceptance. Unexpected delays in completing or shipping products, or design or production problems, may arise and would adversely affect the Company. COMPETITION. The markets for the Company's products and services are highly competitive. Competition is principally based on price, product and service quality, order turnaround time and technical capability. The technology used by the Company in fabricating its products and providing its services is widely available, and the Company has a large number of domestic and foreign competitors, many of which are larger than the Company and possess much greater financial, marketing, personnel and other resources. The Company also faces competition from current and prospective customers that evaluate the Company's capabilities against the merits of manufacturing products internally. To remain competitive, the Company must continue to provide technologically advanced manufacturing services, maintain quality levels, offer flexible delivery schedules, deliver finished products on a reliable basis and compete favorably on the basis of price. The Company currently may be at a competitive disadvantage as to price when compared to manufacturers with lower cost structures, particularly manufacturers with established facilities where labor costs are lower. ENVIRONMENTAL MATTERS. The Company's operations involve the use and handling of environmentally hazardous substances. It is currently a party to certain lawsuits brought in connection with a waste disposal site in California known as the "Stringfellow Superfund Site." Total cleanup costs for the Stringfellow Superfund Site have been estimated at $600 million. Under a proposed settlement agreement with respect to one such suit, the Company's probable liability for such cleanup costs is estimated at $120,000. Final settlement and timing of payment are currently indeterminable, however, and no assurance can be given that any settlement will be achieved. It is impossible to determine the Company's ultimate liability for such cleanup costs. Its allocated share of such cleanup costs could have a material adverse impact on its business, financial condition and results of operations. See "Business -- Environmental Regulation" in the Form 10-K and Part II, Item 5, of the Second Quarter 10-Q. In addition, the Company is currently involved in certain remediation and investigative studies regarding soil and groundwater contamination with respect to certain property in California previously leased by its Anaheim printed circuit board manufacturing facility. The remediation costs to the Company in this regard cannot be determined at this time. Management believes, however, that such remediation costs will be significant. The Company has reserved $721,000 as of December 31, 1995 toward such remediation costs. Although management anticipates that the Company's share of the final remediation costs will approximate such amount, no assurance can be given in that regard. The Company's liability for remediation in excess of its reserve could have a material adverse impact on its business, financial condition and results of operations. See "Business -- Environmental Regulation" in the Form 10-K and Part II, Item 5, of the Second Quarter 10-Q. DEPENDENCE ON SUPPLIERS. Certain components used by the Company are purchased from sources specified by its customers. An interruption in delivery of these components could have material adverse effects on the Company. See "Business -- Raw Materials and Suppliers" in the Form 10-K. SMTEK in particular has been significantly adversely affected throughout its history by delays in the production line caused by delay in the receipt of materials, resulting in reduced overall profitability. There can be no assurance that the same adverse conditions will not recur. This risk will be heightened if and when SMTEK renegotiates its supply contracts to purchase directly from electronic component manufacturers, thereby eliminating the premium currently being paid to distributors, because any change in the material supply process subjects a company to higher volatility than do existing contracts and relationships. ILLIQUIDITY OF OFFERED WARRANTS; VOLATILITY. There is no secondary market for the Offered Warrants. The Offered Warrants will not be listed on the NYSE, the PSE or any other national securities exchange nor will they be qualified for trading on the automated quotation system of the NASD. As a result, only a limited secondary market is expected to develop for the Offered Warrants; indeed, there can be no assurance that a secondary market will develop at all or, if one develops, that it will continue. To the extent that a secondary market develops, no assurance can be provided that market prices will equal or exceed original purchase prices of the Offered Warrants. If an 6 9 effective secondary market for the Offered Warrants does not develop, then purchasers of the Offered Warrants may be unable to dispose of such securities or may be able to dispose of them only to a small universe of prospective purchasers by means of private sale, which may not result in as high a price as could be obtained by means of public sale. In addition, the public equity markets in recent years have experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of companies. These broad fluctuations may adversely affect the market price of the Offered Securities, including the Offered Warrants. In light of these market considerations, prospective purchasers should view the Offered Warrants as illiquid investments. PROPRIETARY RIGHTS AND PATENTS. The Company holds no copyrights, patents or trademarks that are material to the sale of its products, and currently the Company does not intend to obtain any copyrights, patents or trademarks with respect to its intellectual property. There can be no meaningful protection from competitors developing and marketing products and services competitive with those of the Company. In addition, companies that obtain patents claiming products or processes that are necessary for or useful to the development or operation of the Company's products and services can bring legal actions against the Company claiming infringement. Although management is not aware of any claim that either the Company or any of its subsidiaries infringes any existing patent, in the event that in the future the Company is unsuccessful against such claim it may be required to obtain licenses to such patents or to other patents or proprietary technology in order to develop, manufacture or market its products and services. There can be no assurance that the Company will be able to obtain such licenses on commercially reasonable terms or that the patents underlying the licenses will be valid and enforceable. RISKS ASSOCIATED WITH INTERNATIONAL BUSINESS. The Company expects that international revenues will continue to represent a substantial percentage of its total revenues. International business is subject to various risks, including exposure to currency fluctuations, political and economic instability, the greater difficulty of administering business abroad and the need to comply with a wide variety of export laws, tariff regulations and regulatory requirements. Such risks are amplified by the fact that a large portion of the Company's assets and operations are located outside of the United States. See "Business" in the Form 10-K and "The Company" herein. NO DIVIDENDS. There can be no assurance that the operations of the Company will ever result in revenues sufficient to enable the Company to pay dividends. For the foreseeable future, management anticipates that any earnings generated by the Company's operations will be used to finance the Company's business and that cash dividends will not be paid to stockholders. THE COMPANY This section of the Prospectus contains certain forward-looking statements that involve various risks and uncertainties. Actual results may differ from the results suggested by such forward-looking statements. Factors that might cause such differences would include, without limitation, those discussed in "Risk Factors." The Company manufactures printed circuit boards ("PCBs"), also called printed wire boards ("PWBs"), for use primarily in the computer, communications and instrumentation industries. The Company also is an independent provider of electronic manufacturing services ("EMS") for electronic equipment manufacturers. Its PCB facilities are located in Northern Ireland and primarily serve customers in Western Europe. Its EMS facilities are located in Northern Ireland and Southern California. The Company's principal executive offices are located at 2151 Anchor Court, Newbury Park, California 91320, telephone (805) 376-9415. All of the Company's products and services are "customized" insofar as they are produced only after the Company has contracted for their design and sale. The Company relies on customer specifications in manufacturing products. Such specifications may be developed by the customer alone or may involve some assistance provided by the Company. Customers submit requests for quotations on each project. The Company prepares bids based on estimates of its costs. 7 10 EUROPEAN PCB OPERATIONS The Company conducts its PCB business through a wholly-owned subsidiary, Irlandus Circuits Limited ("Irlandus"). THE PCB INDUSTRY. PCBs range from simple single- and double-sided boards to boards with more than twenty layers. When joined with electronic components in an assembly process, they comprise the basic building blocks of electronic equipment. PCBs consist of fine lines of a conductive material, such as copper, which are bonded to a non-conductive panel, typically laminated epoxy glass. The conductive pathways in a PCB form electrical circuits and replace wire as a means of connecting electronic components. On technologically advanced multilayer boards, conductive pathways between layers are connected with traditional plated through-holes and may incorporate surface mount technology. "Through-holes" are holes drilled entirely through the board that are plated with a conductive material and constitute the primary connection between the circuitry on the different layers of the board and the electronic components attached to the boards later. "Surface mount" boards are boards on which electrical components are soldered instead of being inserted into through-holes. Although much more complex and difficult to produce, surface mount boards can substantially reduce wasted space associated with through-hole technology and permit greatly increased surface and inner layer densities. Single-sided PCBs are used in electronic games and automobile ignition systems, while multilayer PCBs find use in more advanced applications such as computers, office equipment, communications, instrumentation and defense systems. The development of increasingly sophisticated electronic equipment, which combines higher performance and reliability with reduced size and cost, has created a demand for greater complexity, miniaturization and density in electronic circuitry. In response to this demand, multilayer technology is advancing rapidly on many fronts, including the widespread use of surface mount technology. More sophisticated boards are being created by decreasing the width of the tracks on the board and increasing the amount of circuitry that can be placed on each layer. Fabricating advanced multilayer PCBs requires high levels of capital investment and complex, rapidly changing production processes. Since the mid-1980s, the Company has increasingly focused on the fabrication of advanced multilayer PCBs. Management believes that the market for these boards offers the opportunity for more attractive margins than the market for less complex, single and double-sided boards. As the sophistication and complexity of PCBs increase, yields typically fall. Historically, the Company relied on tactical quality procedures, in which defects are assumed to exist and inspectors examine products lot by lot and board by board to identify deficiencies. This traditional approach to quality control is not adequate, however, in an advanced multilayer PCB fabrication environment. Irlandus is now striving to minimize the occurrence of product defects. Market demand for PCBs historically has been driven by end-user product demand. Market supply has followed a classic "boom and bust" cycle because there are few barriers to entry. High margins triggered a flood of supply to the market in the 1980s, which drove prices down until significant industry consolidation occurred in the early 1990s. Competition among PCB manufacturers is based on price, quality, order turnaround speed and technical differentiation within the manufacturing process. Virtually every order is bid competitively. The profit of an individual manufacturer typically depends on its throughput mix; premium panels generate higher margins. Both Irlandus and DDL-E have achieved "ISO 9002" certification, which is increasingly necessary to attract business. IRLANDUS. Irlandus is located in Craigavon, Northern Ireland, where it produces high-quality, high-technology, multilayer PCBs. Established in 1972 by Andrus Circuits, a German company, it was acquired by the Company in 1984 and currently employs approximately 160 people. Irlandus has a base of approximately 100 active customers throughout Europe. Historically, no single customer has accounted for more than 10% of its annual revenues. Over 80% of its sales are made by a direct sales force; the remainder are effected by independent sales representatives. Irlandus also acts as 8 11 a distributor and sales agent for an Asian PCB manufacturer, although in fiscal 1995 revenues from such activities totaled less than $100,000. Since 1989 Irlandus has struggled to compete effectively in a marketplace characterized by excess supply. In fiscal 1995 it did achieve an operating profit, which management attributes to a new strategic focus on the high-technology, prototype and premium fast-service end of the multilayer PCB market. There can be no assurance, however, that Irlandus will continue to profit from its implementation of this strategy. EMS CONTRACTS The Company conducts its EMS business in Western Europe through DDL-E and in the United States through SMTEK. THE EMS INDUSTRY. EMS contracts are estimated to generate more than $30 billion in revenues annually worldwide. The EMS market has three segments: high-volume, medium-volume and low-volume. The Company focuses on the medium-volume segment, which accounts for approximately 20% of global demand. Manufacturers in this segment are highly fragmented and competitive. Customer bases tend to be highly concentrated, with two or three customers typically accounting for most of the typical manufacturer's revenue. Three types of technology are employed in providing higher-margin, higher-complexity contract manufacturing in the medium-volume EMS market segment: surface mount technology (SMT), which accounts for the majority of manufacturing; and through-hole technology and system assembly, which together account for the remainder. Management believes that the medium-volume EMS market is continuing to move toward SMT as the preferred manufacturing technique, mainly because semiconductors have continued to decline in size, thereby lowering manufacturing tolerances. Competition in this market segment is driven by service, order turnaround time and quality. Margins tend to be slightly higher here than in the high-volume segment because of greater complexity and the generally higher price associated with specialty products. Also, the customers in this segment tend to be smaller firms, with less bargaining power. Such customers include specialized equipment providers to the financial services, computer hardware, medical services and telecommunications industries, among others. DDL-E. DDL-E provides turnkey EMS using both SMT and through-hole technologies. Under the turnkey process, DDL-E procures customer-specified components from suppliers, assembles the components onto PCBs and performs post-assembly testing. DDL-E provides EMS primarily for original equipment manufacturers located in Western Europe and sells system assembly and subassembly services to the same customer base. It does not fabricate any of the components or PCBs used in these processes. Instead, after acceptance of a project, it procures the necessary components from distributors who make "just-in-time" delivery. In the past, DDL-E has procured a portion of its PCB requirements from its affiliate, Irlandus, at prevailing commercial prices. Located approximately two miles from Irlandus' facilities in Craigavon, Northern Ireland, DDL-E was founded by the Company in 1989 to complement Irlandus' PCB business by adding value to boards at the next level of manufacturing. DDL-E has traditionally focused on customers who are major OEMs in global businesses across a wide range of industries. Its customer base is highly concentrated; in fiscal 1995, six customers accounted for 80% of sales. All of its sales are made by its direct sales force. Historically, there has been a high level of interdependence in the EMS/OEM relationship. Since contracted manufacturing may be a substitute for all or some portion of a customer's captive EMS capability, continuous communication between the manufacturer and the customer is critical. To facilitate such communication, DDL-E maintains a customer service department whose personnel work closely with the customer throughout the assembly process. Engineering and service personnel coordinate with the customer on product implementation, thereby providing feedback on issues such as ease of assembly and anticipated production lead times. Component procurement is 9 12 commenced after component specifications are verified and approved sources are confirmed with the customer. Concurrently, assembly routing and procurement for conformance with workmanship standards are defined and planned. "In-circuit" test fixturing also is designed and developed. In-circuit tests are normally performed on all assembled circuit boards for turnkey projects. Such tests verify that components have been properly inserted and meet certain functional standards and that electrical circuits are properly completed. In addition, under protocols specified by the customer, DDL-E performs customized functional tests designed to ensure that the board or assembly will perform its intended function. Company personnel monitor all stages of the assembly process in an effort to provide flexible and rapid responses to the customer's requirements, including changes in design, order size and delivery schedule. The materials procurement element of DDL-E's turnkey services consists of the planning, purchasing, expediting and financing of the components and materials required to assemble a PCB or system-level assembly. Customers have increasingly required DDL-E and other independent providers of EMS to purchase all or some components directly from component manufacturers or distributors and to finance the components and materials. In establishing a turnkey relationship with an independent EMS provider, a customer must incur expenses in order to qualify the EMS provider (and, in some cases, the provider's sources of component supply), refine product design and EMS processes and develop mutually compatible information and reporting systems. With this relationship established, management believes that customers experience significant difficulty in expeditiously and effectively reassigning a turnkey project to a new assembler or in taking on the project themselves. While the interdependence between EMS providers and OEMs may be a source of stability in DDL-E's customer base, it also is an obstacle when DDL-E seeks to attract new customers. SMTEK. SMTEK is an EMS provider, specializing in SMT assembly and full production implementation of circuit boards. Its operations range from analysis and design to complex manufacturing. Its services are marketed to the military, medical, avionics, industrial and space industries and for high-end commercial applications. SMTEK's core competence includes: (i) mechanical thermal engineering analysis and design of printed circuit boards; (ii) full procurement of all materials, components and "up-screening"; and (iii) full in-circuit and functional testing capabilities. Such operations are integrated with a contract manufacturing capability that relies in substantial part upon factory automation. SMTEK employs approximately 125 persons and conducts its operations in a 45,000-square-foot facility located in Newbury Park, California. SMTEK was founded in 1986 by Mr. Horton, who became the Company's President and Chief Executive Officer when the Company acquired SMTEK on January 12, 1996. Over the years SMTEK has focused on supplying PCB assemblies to the aerospace and avionics industry. Management believes that SMTEK's automated production process is a competitive advantage. Such process relies upon SMT, an unpatented design and production technique believed by management to be less expensive and more efficient than component through-hole insertion. SMTEK competes against companies that are much larger and better capitalized than the Company. In the past Mr. Horton was able to increase the revenues of SMTEK by focusing on contracts of much smaller size than those sought actively by its principal competitors. SCI Systems is the leading firm in the EMS industry. Management believes that the Company's largest direct competitor is Solectron Corporation. In its fiscal year completed March 31, 1995, SMTEK's revenues from governmental sources were 74% of total revenues, as compared with 83% in the year-earlier period, evidencing a trend (which has continued) toward greater reliance on commercial contracts. Commercial revenues, in comparison with governmental revenues, are characterized by higher dollar amounts but lower profit margins. Management believes that the profit structure of most contract manufacturing firms involves a small mark-up on the cost of materials, which comprises perhaps 85% to 90% of the dollar amount of the contract. In contrast to the industry norm, SMTEK's cost of materials typically has run between 50% and 70% of the contract amount, allowing room for mark-ups on design and other value-adding services. With the shift to an increasingly commercial customer base, however, SMTEK is now competing against larger companies for contracts offering lower profit margins. 10 13 SMTEK's backlog at March 31, 1996 amounted to approximately $9.4 million in orders to be filled within six months under contracts with approximately thirty customers. USE OF PROCEEDS The Company will not receive any proceeds from the sale of the Offered Securities. To the extent that the Offered Warrants are exercised, the Company expects to use the net proceeds thereof for general corporate purposes. DETERMINATION OF OFFERING PRICE This Prospectus may be used from time to time by the Selling Stockholders who offer the Offered Securities for sale. The offering price of the Offered Securities will be determined by the Selling Stockholders and may be based on market prices prevailing at the time of sale, at prices relating to such prevailing market prices or at negotiated prices. There is no secondary market for the Offered Warrants. SELLING STOCKHOLDERS The following table provides certain information with respect to Common Stock beneficially owned by each Selling Stockholder as of the dates indicated. The securities offered in this Prospectus by the Selling Stockholders are the Shares and the Offered Warrants. The beneficial owners of the Offered Warrants are identified in the footnotes to the table. Except as set forth in the footnotes to the table and elsewhere in this Prospectus, within the past three years none of the Selling Stockholders has had a material relationship with the Company or with any of the Company's predecessors or affiliates other than as a result of ownership of the securities of the Company. The Offered Securities may be offered from time to time by the Selling Stockholders named below or their nominees, and this Prospectus may be required to be delivered by persons who may be deemed to be underwriters in connection with the offer or sale of Offered Securities.
Number of shares Percentage of of Common Stock Number of shares shares of Common Beneficially Number of of Common Stock Stock Beneficially Owned Prior to Shares Beneficially Owned Owned After Name the Offering (1) Offered After the Offering the Offering (2) - ------------------------------------------------------------------------------------------------------------ Fechtor, Detwiler & Co., Inc. (3) 250,000 250,000 0 0.0% Fortuna Capital Management (3) 1,365,290 150,000 1,215,290 5.6% Karen Brenner (3) 1,531,644 (4) 50,000 1,481,644 6.8% Charles Linn Haslam (5) 50,000 50,000 0 0.0% Richard K. Vitelle (6) 25,000 20,000 5,000 (7) Edward Loeswick (3) 18,500 15,000 3,500 (7) Barry Kaplan (3) 14,400 5,000 9,400 (7) E. Bruce Alsip (8) 41,210 41,133 77 (7) Thomas Beiseker (8) 443,974 292,748 151,226 (7) Robert Black (8) 32,257 9,257 23,000 (7)
11 14
Number of shares Percentage of of Common Stock Number of shares shares of Common Beneficially Number of of Common Stock Stock Beneficially Owned Prior to Shares Beneficially Owned Owned After Name the Offering (1) Offered After the Offering the Offering (2) - ------------------------------------------------------------------------------------------------------------ Hyla Cameron (8) 25,718 25,681 37 (7) Gillis Carter (8) 40,278 39,478 800 (7) Ray Gardner (8) 20,051 20,024 27 (7) Frank Genochio (8) 27,511 26,011 1,500 (7) John Hall (8) 5,141 5,041 100 (7) John Nicholson (8) 47,883 47,808 75 (7) Russell O'Neill (8) 5,782 5,041 741 (7) Dominic Salvati (9) 20,000 20,000 0 0.0% Arthur Schmutz (8) 5,041 5,041 0 0.0% Bette Thompson (8) 7,271 6,713 558 (7) Lawrence Whitcomb (8) 36,030 35,930 100 (7) Eugene Wilkinson (8) 20,714 (10) 20,714 0 (10) 0.0% (10) Hugh Witt (8) 5,041 5,041 0 0.0% George Wolfe (8) 10,211 10,211 0 0.0% Jamison Score 24,000 20,000 4,000 (7) Elaine Sterlace 16,000 16,000 0 0.0% Barry Kaplan & Associates 15,000 15,000 0 0.0% Steve Davidson 13,500 (10) 13,500 0 (10) (7) Richard Egan 12,000 12,000 0 0.0% Daniel Briansky 29,000 10,000 19,000 (7) Thomas Rarich 9,000 9,000 0 0.0% David German 8,000 8,000 0 0.0% Kenneth German 8,000 8,000 0 0.0% Robert German 8,000 8,000 0 0.0% James Gordon 8,000 8,000 0 0.0% Vincent Debenedetto 7,000 7,000 0 0.0%
12 15
Number of shares Percentage of of Common Stock Number of shares shares of Common Beneficially Number of of Common Stock Stock Beneficially Owned Prior to Shares Beneficially Owned Owned After Name the Offering (1) Offered After the Offering the Offering (2) - ------------------------------------------------------------------------------------------------------------ Judith Altman 5,000 5,000 0 0.0% David Callahan 5,000 (10) 5,000 0 (10) 0.0% (10) Thomas Callahan 5,000 (10) 5,000 0 (10) 0.0% (10) Eligio Conigillo 5,000 5,000 0 0.0% Gary Davidson 5,000 5,000 0 0.0% Bruce Gorsky 5,000 5,000 0 0.0% Manuel Kumin 5,000 5,000 0 0.0% Ellie Paradise 8,000 5,000 3,000 (7) Joseph Somario 5,000 5,000 0 0.0% Jack Valenti 5,000 5,000 0 0.0% Herman Weinsoff 26,000 5,000 21,000 (7) Sherry Merrow 4,000 4,000 0 0.0% Michael Brynes 4,000 3,000 1,000 (7) Walter McAndrews 6,000 3,000 3,000 (7) Gina Paglucia 3,000 3,000 0 0.0% Leo Power 4,900 3,000 1,900 (7) Michael Roehl 3,000 3,000 0 0.0% Robert Morgan 3,500 2,500 1,000 (7) Nick Gulino 3,200 2,000 1,200 (7) Andrew McCowan 2,000 2,000 0 0.0% Thomas Savoy 2,000 2,000 0 0.0% Brian Doherty 1,500 1,500 0 0.0% Rickel (11) 207,183 207,183 0 0.0% First Union National Bank (12) 1,060,000 (10) 353,333 706,667 (10) 3.2% Saratoga Holdings Inc. (13) 45,000 30,000 (14) 15,000 (7)
13 16
Number of shares Percentage of of Common Stock Number of shares shares of Common Beneficially Number of of Common Stock Stock Beneficially Owned Prior to Shares Beneficially Owned Owned After Name the Offering (1) Offered After the Offering the Offering (2) - ------------------------------------------------------------------------------------------------------------ Gregg A. Smith (13) 45,000 30,000 (14) 15,000 (7) Elliot Smith (13) 236,000 146,000 (15) 90,000 (7) Kenneth D. Rickel (13) 447,400 343,500 (16) 103,900 (7) Joseph Fair (13) 18,000 10,000 (17) 8,000 (7) Edward McWilliams (13) 32,300 20,000 (17) 12,300 (7) David Cornstein 30,000 20,000 (17) 10,000 (7) Jeffrey Silverman 60,000 40,000 (17) 20,000 (7) Howard Miller (13) 444,500 354,500 (18) 90,000 (7) Steve Levy 75,000 25,000 (17) 50,000 (7) Marvin Numeroff 360,000 120,000 (17) 240,000 1.1% Gerald Gray 75,000 25,000 (17) 50,000 (7) Robert Rickel 201,450 50,000 (17) 151,450 (7) Leonard Wilf 150,000 50,000 (17) 100,000 (7) Peter and Patrice Knobel 300,000 100,000 (17) 200,000 (7) Shane Limited Partnership 30,000 10,000 (17) 20,000 (7) Steven Baileys 415,609 (19) 400,000 (20) 15,609 (7) Susan Bowen (13) 20,000 20,000 (17) 0 0.0% P. Amy Feind 5,000 5,000 (17) 0 0.0% David Crook 296,944 (21) 10,000 (17) 286,944 1.3% David Rubin (13) 50,000 50,000 (22) 0 0.0% Paul Brownstein (13) 4,000 4,000 (17) 0 0.0% Deborah Krill (13) 2,500 2,500 (17) 0 0.0%
(1) Represents all shares of Common Stock, including all shares of Common Stock underlying outstanding Warrants, beneficially owned as of April 15, 1996. (2) Represents all shares of Common Stock shown as beneficially owned after the Offering as a percentage of the Common Stock outstanding as of April 15, 1996, giving effect to the exercise of all Offered Warrants as of that date. 14 17 (3) This person has assisted the Company in its capital raising efforts and in the performance of certain managerial functions. All of the Shares offered by such person pursuant to this Prospectus underlie Warrants granted to such person in consideration of such services. (4) Includes 1,465,244 shares held in managed accounts, as well as 16,400 shares owned personally and 50,000 shares underlying Warrants. (5) Mr. Haslam has been assisting the Company with legal services. All of the Shares shown as beneficially owned by him prior to the Offering underlie Warrants granted to him in consideration of such services. (6) Mr. Vitelle has served the Company as its Vice President -- Finance since January 1996. All of the Shares offered by him pursuant to this Prospectus underlie Warrants granted to him in lieu of reimbursement for moving expenses incurred by reason of his employment by the Company. (7) Less than one percent. (8) This person was once an employee or director of the Company. All of the Shares offered by such person pursuant to this Prospectus underlie Warrants granted to such person in exchange for the relinquishment of certain retirement benefits. See "Recent Developments -- Reduction of Certain Retirement Obligations." (9) Mr. Salvati is a retiree of the Company who assisted the Company for a period of time in 1995 in the execution of certain managerial functions. All of the Shares offered by him pursuant to this Prospectus were granted to him in exchange for the relinquishment of certain compensation claims against the Company. (10) The Company is not in a position to verify this information since it has no affiliation with this Selling Stockholder beyond the relationship inherent in the Selling Stockholder's ownership of Common Stock. Although the Company has sought full disclosure from the Selling Stockholder, at the date of this Prospectus the Selling Stockholder had neither confirmed nor denied that the Selling Stockholder owns Common Stock in addition to the Shares indicated in the table. (11) Rickel is party to an Engagement Letter with the Company dated as of January 30, 1996 (the "Engagement Letter"). Pursuant to the Engagement Letter, Rickel functioned as the Company's financial advisor and placement agent in connection with the securities offerings described under the caption "Recent Developments" in this Prospectus. The Shares offered by Rickel pursuant to this Prospectus consist of 70,183 Shares issued by the Company incident to its acquisition of SMTEK and 137,000 Shares underlying Offered Warrants. See "Recent Developments -- Acquisition of SMTEK." (12) First Union National Bank ("FUNB") holds the shares indicated in the table as owned by it as pledgee under a certain Pledge Agreement dated as of February 29, 1996 among Rickel, FUNB and the Company. Such shares have been pledged to FUNB by Rickel as security for the benefit of the Note holders. All of the Selling Stockholders other than FUNB disclaim beneficial ownership of any of the shares held by FUNB. (13) This Selling Stockholder is a controlling person or an employee, or both, of Rickel. See footnote (11). (14) Such Shares consist of 30,000 Shares underlying Offered Warrants. (15) Such Shares consist of 133,500 Shares underlying Offered Warrants and 12,500 outstanding Shares. (16) Such Shares consist of 261,000 Shares underlying Offered Warrants and 82,500 outstanding Shares. (17) All such Shares underlie Offered Warrants. (18) Such Shares consist of 272,000 Shares underlying Offered Warrants and 82,500 outstanding Shares. 15 18 (19) Such shares consist of 10,609 shares underlying convertible debt securities held in family trusts for which this Selling Stockholder is a trustee, 5,000 outstanding shares owned personally by the Selling Stockholder and the 400,000 Shares described in footnote (20). (20) Such Shares consist of 100,000 Shares underlying Offered Warrants and 300,000 outstanding Shares. (21) Consists of $500,000 face amount of debt securities convertible into Common Stock at a conversion price per share equal to 82% of the market value per share of Common Stock on the measurement date. (22) Such Shares consist of 25,000 Shares underlying Offered Warrants and 25,000 outstanding Shares. DESCRIPTION OF THE OFFERED WARRANTS Set forth below is a summary of the material provisions of the Offered Warrants. The summary is qualified in its entirety by reference to the form of Offered Warrant itself, a copy of which has been filed with the SEC as an exhibit to the Registration Statement to which this Prospectus relates. The Offered Warrants are evidenced by a series of warrant certificates issued by the Company in connection with its issuance of the Notes pursuant to the Securities Purchase Agreement. Each Offered Warrant entitles the holder thereof to purchase one share of Common Stock at an exercise price (the "Exercise Price") of $2.50, subject to adjustment as summarized below. The Offered Warrants may be exercised, in whole or in part, at any time until March 1, 2001. The Offered Warrants collectively cover 1,500,000 shares of Common Stock. The Exercise Price is subject to adjustment upon the occurrence of certain events, including the issuance of Common Stock as a dividend, subdivisions and "reverse splits" of the Common Stock and reclassifications of the Common Stock. No adjustment in the Exercise Price shall be required unless such adjustment would require a decrease of at least one cent ($0.01) in the Exercise Price then in effect, but any adjustment that is not required to be made shall be carried forward and taken into account in any subsequent adjustment. The Offered Warrants do not confer upon the holders thereof any of the rights or privileges of a stockholder. Accordingly, the Offered Warrants do not entitle holders thereof to receive dividends, to vote, to call meetings or to receive any distribution upon a liquidation of the Company. The Company has authorized and reserved for issuance a number of shares of Common Stock sufficient to provide for the exercise of the Offered Warrants. Shares issued upon exercise of the Offered Warrants will be fully paid and nonassessable. Offered Warrants not exercised prior to March 1, 2001 shall become null and void. Offered Warrants may be exercised during the exercise period stated above by delivery of a warrant certificate, with the "Election to Purchase" form attached thereto fully executed, to the Company at the address of its principal executive offices, together with a check payable to the Company in an amount equal to the Exercise Price multiplied by the number of shares of Common Stock being purchased. The Company will issue a new warrant certificate representing any unexercised, unexpired Offered Warrants. The Company has agreed to use its best efforts to continuously maintain the effectiveness of the Registration Statement to which this Prospectus relates for a period of at least 36 consecutive months following the date on which such Registration Statement first became effective. PLAN OF DISTRIBUTION The Shares may be sold from time to time to purchasers directly, either in privately negotiated transactions or otherwise, by the Selling Stockholders. The Shares, but not the Offered Warrants, may be sold from time to time to purchasers through the facilities of the NYSE or the PSE. Alternatively, the Selling Stockholders may from time to time sell the Offered Securities through underwriters, dealers or agents, who may receive compensation in the form of 16 19 underwriting discounts, concessions or commissions from the Selling Stockholders and/or the purchasers of the Offered Securities for whom they may act as agents. The Selling Stockholders and any underwriter, dealer or agent that participates in the distribution of the Offered Securities may be deemed to be underwriters, and any profit on the sale of the Offered Securities by them and any discounts, commissions or concessions received by any such underwriters, dealers or agents might be deemed to be underwriting discounts and commissions under the Securities Act. At the time a particular offer of Offered Securities is made, to the extent required a Prospectus Supplement will be distributed with this Prospectus. Such Prospectus Supplement will state the aggregate number of Shares or Offered Warrants being offered and the terms of the offering, including the names of any underwriters, dealers or agents, any discounts, commissions and other items constituting compensation from the Selling Stockholders and any discounts or concessions allowed or reallowed or paid to dealers. Alternatively, the Selling Stockholders may from time to time effect sales of the Shares in one or more transactions pursuant to Rule 144 under the Securities Act, or otherwise, at market prices prevailing at the time of sale, at prices relating to such prevailing market prices or at negotiated prices. It is anticipated that broker-dealers participating in such sales of Shares will receive the usual and customary selling commissions. The Company will pay substantially all of the expenses incident to the registration of the Shares offered hereby. The Company will not pay any expenses incident to the offering and sale of the Shares to the public, including, but not limited to, commissions and discounts of underwriters, dealers or agents. LEGAL MATTERS Certain legal matters have been passed upon for the Company by Nelson Mullins Riley & Scarborough, L.L.P., Charlotte, North Carolina. EXPERTS The financial statements of the Company as of June 30, 1995 and 1994 and for each of the two years in the period ended June 30, 1995, incorporated into this Prospectus by reference, have been audited by KPMG Peat Marwick LLP, to the extent and for the periods indicated in their report, and such financial statements are incorporated herein by reference in reliance upon the authority of such firm as experts in accounting and auditing. As discussed in Note 1 to the Financial Statements, in 1994 the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". The financial statements of SMTEK as of March 31, 1994 and 1995 and for each of the two years in the period ended March 31, 1995, incorporated into this Prospectus by reference, have been audited by Arthur Andersen LLP, to the extent and for the periods indicated in their report, and such financial statements are incorporated herein by reference in reliance upon the authority of such firm as experts in accounting and auditing. The financial statements of SMTEK as of March 31, 1993 and for the year then ended, incorporated into this Prospectus by reference, have been audited by Mr. Gary W. Janke, C.P.A., to the extent and for the period indicated in his report, and such financial statements are incorporated herein by reference in reliance upon the authority of Mr. Janke as an expert in accounting and auditing. 17 20 -------------------------------- -------------------------------- No dealer, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this Prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or any Selling Stockholder. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, to any person in any jurisdiction in which such offer or solicitation is not authorized, or in which DDL ELECTRONICS, INC. the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. COMMON STOCK Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that the information COMMON STOCK contained herein is correct as of any date PURCHASE WARRANTS subsequent to the date hereof. ------------------------------- Table of Contents -------------------------------- ----------------------- Page PROSPECTUS Additional Information . . . . . . . . . . . . 2 ----------------------- Incorporation of Certain Information by Reference . . . . . . . . . . . . . . . . . 2 Recent Developments . . . . . . . . . . . . . . 3 , 1996 Risk Factors . . . . . . . . . . . . . . . . . 4 --------------- The Company . . . . . . . . . . . . . . . . . . 7 Use of Proceeds . . . . . . . . . . . . . . . 11 Determination of Offering Price . . . . . . . 11 Selling Stockholders . . . . . . . . . . . . 11 Description of the Offered Warrants . . . . . 16 Plan of Distribution . . . . . . . . . . . . 16 Legal Matters . . . . . . . . . . . . . . . . 17 Experts . . . . . . . . . . . . . . . . . . . 17 -------------------------------- --------------------------------
21 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses to be incurred in connection with the Offering, all of which are to be borne by the Registrant. SEC registration fee . . . . . . . . . . . . . $ 3,216 Exchange listing fees* . . . . . . . . . . . . 14,000 Accounting fees and expenses* . . . . . . . . . 20,000 Legal fees and expenses* . . . . . . . . . . . 25,000 Miscellaneous* . . . . . . . . . . . . . . . . 2,784 Total* . . . . . . . . . . . . . . . . . . $ 65,000 =========
- --------------- *Estimated ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company has a policy of directors and officers liability insurance which insures directors and officers against liabilities for securities law violations. In addition, the Company's Bylaws provide as follows in Article VII: SECTION 7.01. ACTIONS, ETC. OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION [I.E., THE COMPANY]. Any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, proceeding or investigation, whether civil, criminal, administrative, and whether external or internal to the Corporation (other than an action by or in the right of the Corporation), by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or, while serving as a director or officer, is or was serving at the request of the Corporation as a director, officer, employee, trustee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, trustee, employee or agent or in any other capacity, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by law, including, but not limited to, the Delaware General Corporation Law, as the same exists or may thereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said Law permitted the Corporation to provide prior to such amendment), against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful. SECTION 7.02. ACTIONS, ETC. BY OR IN THE RIGHT OF THE CORPORATION. Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed judicial action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer, II-1 22 employee or agent of the Corporation, or, while serving as a director or officer, is or was serving at the request of the Corporation as a director, officer, employee, trustee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, trustee, employee or agent or in any other capacity, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by law, including, but not limited to, the Delaware General Corporation Law, as the same exists or may thereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said Law permitted the Corporation to provide prior to such amendment), against all expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and except that no indemnification shall be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 7.03. DETERMINATION OF RIGHT OF INDEMNIFICATION. Any indemnification under Section 7.01 or 7.02 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 7.01 and 7.02. Such determination shall be made (i) by the Board by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. SECTION 7.04. INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the other provisions of this Article, to the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 7.01 or 7.02, or in defense of any claim, issue or matter therein, he shall be indemnified against all expenses (including attorneys' fees) incurred by him in connection therewith. SECTION 7.05. PREPAID EXPENSES. Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of any undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately by determined that he is not entitled to be indemnified by the Corporation as authorized in this Article. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate. SECTION 7.06. RIGHT TO INDEMNIFICATION UPON APPLICATION; PROCEDURE UPON APPLICATION. Any indemnification under or advancement of expenses provided by, or granted pursuant to, this Article shall be made promptly, and in any event within ninety days, upon written request of the director or officer, employee or agent, unless with respect to applications under Section 7.02 and 7.03, a determination is reasonably and promptly made by the Board by a majority vote of quorum of disinterested directors that such director or officer, employee or agent acted in a manner set forth in such Sections as to justify the Corporation's not indemnifying the director or officer, employee or agent. In the event no quorum of disinterested directors is obtainable, the Board shall promptly direct that independent legal counsel shall decide whether the director or officer, employee or agent acted in a manner set forth in such Sections as to justify the Corporation's not indemnifying or making an advance to the director or officer or, in the case of indemnification, employee or agent. The right to indemnification under or advancement of expenses provided by this Article shall be enforceable by the director, officer, employee or agent in any court of competent jurisdiction, if the Board or independent legal counsel denies the claim, in whole or in part, or if no disposition of such claim is made within ninety days. The director's, officer's, employee's or agent's expenses incurred in connection II-2 23 with successfully establishing his right to indemnification or advancement of expenses, in whole or in part, in any such proceeding shall also be indemnified by the Corporation. SECTION 7.07. OTHER RIGHTS AND REMEDIES. The indemnification under and advancement of expenses provided by, or granted pursuant to, this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. The right to be indemnified or to the reimbursement or advancement of expenses pursuant hereto (i) is a contract right based upon good and valuable consideration, pursuant to which the person entitled thereto may bring suit as if the provisions hereof were set forth in a separate written contract between the Corporation and the director or officer, employee or agent, (ii) is intended to be retroactive and shall be available with respect to events occurring prior to the adoption hereof, and (iii) shall continue to exist after the rescision or restrictive modification hereof with respect to events occurring prior thereto. SECTION 7.08. INSURANCE. Upon resolution passed by the Board, the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation, as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article. SECTION 7.09. CONSTITUENT CORPORATIONS. For the purposes of this Article, references to "the Corporation" include any constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that any person who is or was a director, officer, employee, trustee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity. SECTION 7.10. OTHER ENTERPRISES, FINES, AND SERVING AT CORPORATION'S REQUEST. For purposes of this Article, references to "other enterprises" shall include employee benefit plan; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee, trustee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, trustee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article. SECTION 7.11. SAVINGS CLAUSE. If this Article or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director, officer, employee or agent as to expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit, proceeding or investigation, whether civil, criminal or administrative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated by any other applicable law. SECTION 7.12. LIABILITY OF DIRECTORS FOR BREACHES OF FIDUCIARY DUTY. Notwithstanding any provision to the contrary contained in these Bylaws, to the fullest extent permitted by the Delaware General Corporation Law as the same exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. II-3 24 Section 102(b)(7) of the Delaware General Corporation Law provides that a corporation may eliminate or limit the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for willful or negligent conduct in paying dividends or repurchasing stock out of other than lawfully available funds or (iv) for any transaction from which the director derived an improper personal benefit. No such provision shall eliminate or limit the liability of a director for any act or omission occurring prior to the date when such provision becomes effective. ITEM 16. EXHIBITS. EXHIBIT INDEX
Sequentially Exhibit Numbered Number Description Pages ------ ----------- ----- 4-a Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-8, Commission File No. 33-7440) 4-b Bylaws of the Company, amended and restated effective March 1993 (incorporated by reference to Exhibit 3-b of the Company's 1993 Annual Report on Form 10-K) 4-c Warrant Agreement by and between the Company and American Stock Transfer & Trust Company (the "Transfer Agent") dated as of November 11, 1992 (incorporated by reference to Exhibit 28.2 of the Company's Current Report on Form 8-K dated January 7, 1993) 4-e Second Amendment to the Warrant Agreement by and between the Company and the Transfer Agent dated as of July 31, 1995 4-f (1) Warrant Agreement between the Company and Fechtor, Detwiler & Co., Inc. dated as of July 1, 1995 4-g (1) Warrant Agreement between the Company and Fortuna Capital Management 4-h (1) Warrant Agreement between the Company and Karen Brenner 4-i (1) Warrant Agreement between the Company and Charles Linn Haslam 4-j (1) Warrant Agreement between the Company and Edward Loeswick 4-k (1) Warrant Agreement between the Company and Barry Kaplan 4-l Form of Warrant and Contingent Payment Agreement dated as of March 31, 1996 between the Company and each of several participants in the Company's several benefit plans 4-m Form of Securities Purchase Agreement dated February 29, 1996 among the Company and the Holders referred to therein (the "Securities Purchase Agreement") 4-n (2) Form of Warrant to Purchase Shares of Common Stock of the Company dated February 29, 1996
II-4 25
Sequentially Exhibit Numbered Number Description Pages ------ ----------- ----- 4-o Registration Rights Agreement dated as of February 29, 1996 between the Company and Rickel & Associates, Inc. ("Rickel") 4-p Form of Registration Rights Agreement dated as of February 29, 1996 among the Company and each of the Purchasers referred to therein 4-q Pledge Agreement dated as of February 29, 1996 among Rickel, First Union National Bank ("FUNB") and the Company 4-r Form of Collateral Agency Agreement dated as of February 29, 1996 among Rickel, each Purchaser under the Securities Purchase Agreement, FUNB and the Company 4-s Form of Engagement Letter dated as of January 30, 1996 between Rickel and the Company 4-t Form of Loan Agreement dated as of January 11, 1996 among Howard Miller, Kenneth D. Rickel, Elliot Smith, Rickel and Steven J. Baileys 5 Form of Opinion of Nelson Mullins Riley & Scarborough, L.L.P. as to the legality of the securities being registered 23-a Consent of Nelson Mullins Riley & Scarborough, L.L.P. (included in Exhibit 5 to this Registration Statement) 23-b Consent of KPMG Peat Marwick 23-c Consent of Arthur Andersen LLP 23-d Consent of Mr. Gary W. Janke, C.P.A. 24 Power of Attorney (included on the signature page of this Registration Statement) - --------------------
(1) To be filed by amendment. (2) This is the form of each Offered Warrant, as defined elsewhere in the Prospectus. The Offered Warrants are substantially identical in all material respects except as to the parties thereto and the numbers of shares that they cover. Schedule A to Exhibit No. 4-m, the Securities Purchase Agreement, identifies the original privies to the Offered Warrants and the numbers of shares that they covered. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes: (a) to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement to include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; II-5 26 (b) that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (c) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim or indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-6 27 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Newbury Park, State of California, on April 29, 1996. DDL ELECTRONICS, INC. By: /s/ Gregory L. Horton ------------------------------ Gregory L. Horton Chief Executive Officer and President POWER OF ATTORNEY We, the undersigned directors and officers of DDL Electronics, Inc. do hereby constitute and appoint each of Messrs. Gregory L. Horton and Richard K. Vitelle, each with full power of substitution, our true and lawful attorney-in- fact and agent to do any and all acts and things in our names and on our behalf in our capacitates stated below, which acts and things either or them may deem necessary or advisable to enable DDL Electronics, Inc. to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Registration Statement, including specifically, but not limited to, power and authority to sign for any or all of us in our names, in the capacities stated below, any and all amendments (including post-effective amendments) thereto; and we do hereby ratify and confirm all that they shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ Gregory L. Horton Chief Executive Officer and April 29, 1996 - ------------------------- President (principal executive Gregory L. Horton officer) and Director /s/ Richard K. Vitelle Vice President -- Finance April 29, 1996 - ------------------------- (principal financial and accounting Richard K. Vitelle officer) /s/ Robert G. Wilson Director April 29, 1996 - ------------------------- Robert G. Wilson /s/ Bernee D.L. Strom Director April 29, 1996 - ------------------------- Bernee D. L. Strom /s/ Melvin Foster Director April 29, 1996 - ------------------------- Melvin Foster - ------------------------- Director , 1996 Philip H. Alspach -------- /s/ Erven Tallman Director April 29, 1996 - ------------------------- Erven Tallman - ------------------------- Director , 1996 Don A. Raig --------
EX-4.E 2 SECOND AMENDMENT TO WARRANT AGREEMENT 7-31-95 1 EXHIBIT 4-e SECOND AMENDMENT TO THE WARRANT AGREEMENT This Second Amendment to the Warrant Agreement (the "Amendment") is made as of the 31st day of July, 1995 by and between DDL Electronics, Inc., a Delaware corporation (the "Company"), and American Stock Transfer & Trust Company (the "Warrant Agent"). WHEREAS, the Company and the Warrant Agent previously entered into that certain Warrant Agreement dated as of November 11, 1992, as amended by that certain Amendment No. 1 to Warrant Agreement dated as of October 25, 1994 between the Company and the Warrant Agent (the "Warrant Agreement"); and WHEREAS, the holders of record on July 14, 1995 of the Warrants (all capitalized terms not otherwise defined herein are used herein as defined in the Warrant Agreement), by the affirmative vote of at least 50% of the outstanding Warrants on such date, have approved this Amendment; and WHEREAS, the Company and the Warrant Agent also desire to amend the terms and conditions of the Warrant Agreement as described above and as further set forth herein and by this Amendment do consent to such Amendment. NOW, THEREFORE, in consideration of the foregoing premises and the mutual agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. The Warrant Agreement shall be, and hereby is, amended in the following manner: (a) The following definitions set forth in Section 1 of the Warrant Agreement are amended in their entirety to read as follows: "EXERCISE PRICE" shall mean the Specified Share Price per share during the First Exercise Period and $1.42 during the Second Exercise Period, subject to adjustment as provided herein. "SECOND EXERCISE PERIOD" shall mean the period from August 1, 1993 through and including 5:00 p.m. New York time on December 29, 1995. (b) Section 2 of the Warrant Agreement is amended by adding the following at the end of the first paragraph: In the event that any provisions set forth in a Warrant Certificate are inconsistent with or contrary to the provisions of this Agreement, the provisions of this Agreement shall supersede such provisions of the Warrant Certificate, and such provisions of the Warrant Certificate shall be of no force or effect. (c) Section 6(A)(ii) of the Warrant Agreement is amended in its entirety to read as follows: (ii) Warrants may be exercised at any time during an Exercise Period. The issuance of Warrant Shares will not be registered under the Securities Act or under applicable state securities "blue sky" laws in reliance upon exemptions from registration. A Holder shall, upon and by virtue of each Warrant exercise, be deemed to have represented and warranted to the Company the following: 2 (a) The acquisition by the Holder of Warrant Shares will not be with a view to, or for resale in connection with, the distribution thereof, and the Holder has and will have no participation in any such undertaking nor any participation in the underwriting thereof, except for such distributions as are effected in compliance with the Securities Act and any applicable state securities and "blue sky" laws. (b) The Holder is either an "accredited investor" within the meaning of Rule 501(c) under the Securities Act or is capable of evaluating the merits and risks of investing in the Company and has made an evaluation of such risks. (c) The Holder has received copies of or has had an opportunity to review all filings made by the Company with the Commission under the Exchange Act; the Holder has had an opportunity to discuss the Company's business, management and financial affairs with the Company's management personnel; and any and all questions about the Company's business, management and financial affairs have been answered to the Holder's complete satisfaction. Holders may resell Warrant Shares at any time after the resale thereof has been effectively registered under the Securities Act pursuant to a registration statement filed with and declared effective by the Commission (the "Registration Statement") and such other action as may be required by federal or state law shall have been taken. The Company agrees to use reasonable good faith efforts to file the Registration Statement as soon as reasonably practicable; provided, however, that the Company shall not be required to file a Registration Statement unless and until the Current Market Price of the Shares equals or exceeds the Exercise Price during the Second Exercise Period. The Company agrees, from and after the time the Registration Statement has become effective, to use reasonable good faith efforts to maintain the Registration Statement in effect under the Securities Act and applicable state securities and "blue sky" laws; provided, however, that the Company shall have no obligation to maintain the effectiveness of such registration in the event that, by amendment to the Securities Act or otherwise, the effectiveness of such registration is not required at the time Warrant Shares are to be resold; and provided further, that in the event, by amendment to the Securities Act or otherwise, some other or different requirement shall be imposed by act of the Congress of the United States which shall relate to the resale of the Warrant Shares, the Company shall use reasonable good faith efforts to comply with such requirements. Promptly after the Registration Statement has become effective under the Securities Act, or such other action as contemplated hereby and as may be required has been taken, as the case may be, the Company shall cause notice thereof to be mailed to each Holder of a Warrant Certificate. Subject to accelerated termination provided in Section 6(A)(iii) below, any unexercised Warrants will be void and all rights of Holders shall cease after the end of the Second Exercise Period. 2. This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. DDL ELECTRONICS, INC. AMERICAN STOCK TRANSFER & TRUST COMPANY By: /s/ Don A. Raig By: /s/ Herbert J. Lemmer ------------------------------------------------ ------------------------------------------------ Name: Don A. Raig Name: Herbert J. Lemmer ---------------------------------------------- ---------------------------------------------- Title: President and Chief Operating Officer Title: Vice President --------------------------------------------- --------------------------------------------- Attest: Attest: By: By: /s/ Susan Silber ------------------------------------------------ ------------------------------------------------ Name: Name: Susan Silber ---------------------------------------------- ---------------------------------------------- Title: Title: Assistant Secretary --------------------------------------------- ---------------------------------------------
EX-4.L 3 FORM OF WARRANT CONTINGENT PAYMENT 3-31-96 1 EXHIBIT 4-l DDL ELECTRONICS, INC. and as Participant ___________________ WARRANT AND CONTINGENT PAYMENT AGREEMENT Dated as of March 31, 1996 2 INDEX PAGE Section 1. Form of Warrant Certificates............................................................. 1 Section 2. Signature and Registration............................................................... 2 Section 3. Transfer, Split Up, Combination and Exchange of Warrant Certificates; Mutilated, Destroyed, Lost or Stolen Warrant Certificates................................ 2 Section 4. Subsequent Issue of Warrant Certificates................................................. 3 Section 5. Exercise of Warrants; Purchase Price; Expiration Date.................................... 3 Section 6. Cancellation and Destruction of Warrant Certificates..................................... 4 Section 7. Reservation and Availability of Common Stock............................................. 4 Section 8. Common Stock Record Date................................................................. 5 Section 9. Adjustment of Purchase Price, Number of Shares or Number of Warrants..................... 5 Section 10. Certification of Adjusted Purchase Price and Number of Shares Issuable................... 8 Section 11. Consolidation, Merger or Sale of Assets.................................................. 8 Section 12. Fractional Warrants and Fractional Shares................................................ 9 Section 13. Rights of Action......................................................................... 9 Section 14. Agreements, Release of Benefit Plans Claims, Representation and Warranties and Indemnity Obligations of Participant and Warrant Certificate Holders................. 9 Section 15. Agreement of the Company as to the Registration of Common Stock Issuable on Exercise of the Warrants; Contingent Payments to Warrant Certificate Holders.......... 11 Section 16. MUTUAL RELEASES.......................................................................... 12 Section 17. Registrar for the Warrants............................................................... 13 Section 18. Appointment of Warrant Agent............................................................. 13 Section 19. Maintenance of Office, Notice to Company................................................. 13 Section 20. Issuance of New Warrant Certificates..................................................... 13
3 Section 21. Redemption of Warrants.......................................................... 14 Section 22. Notice of Proposed Actions...................................................... 14 Section 23. Notices......................................................................... 15 Section 24. Supplements and Amendments...................................................... 15 Section 25. Successors...................................................................... 15 Section 26. Benefits of This Agreement...................................................... 15 Section 27. California Contract............................................................. 15 Section 28. Counterparts.................................................................... 15 Section 29. Descriptive Headings............................................................ 15 Section 30. Competency...................................................................... 16
Exhibit A: FORM OF WARRANT CERTIFICATE 4 WARRANT AND CONTINGENT PAYMENT AGREEMENT This Warrant and Contingent Payment Agreement, dated as of March 31, 1996 (this "Warrant Agreement" or "Agreement"), is between DDL ELECTRONICS, INC., a Delaware corporation (the "Company"), and ("Participant"). W I T N E S S E T H: WHEREAS, the Board of Directors of the Company has authorized and declared an exchange (the "Exchange") of 600,000 Warrants for all obligations of the Company owed to participants, including beneficiaries of participants, as of the date of this Agreement, under any of several unfunded non-employee benefit plans, namely the Company's Supplemental Retirement Plan (SRP) and Performance Unit Plan (PUP) and various Non-Employee Consulting Contracts between the Company and certain participants, Director Emeritus Contracts between the Company and certain participants and Deferred Fee Arrangements between the Company and certain participants (collectively, the "Benefit Plans"), each Warrant representing the right to purchase one share of the Company's common stock, par value $.01 per share ("Common Stock"), upon the terms and subject to the conditions hereinafter set forth; and WHEREAS, the Participant has indicated the Participant's written approval of and consent to the Exchange; WHEREAS, the Participant desires to release the Company from all of Participant's claims arising under any and all of the Benefit Plans in exchange for the Participant's receipt of the Warrants issued hereunder; WHEREAS, the Exchange will be made with Participant as of 2:00 p.m. (Pacific time) on March 31, 1996 or such other date as determined by the Executive Committee of the Board of Directors of the Company and all claims of the Participant under the Benefit Plans (the "Benefit Plans Claims"), together with any and all other claims accrued or inchoate, known or unknown, Participant may have against the Company, will be released irrevocably in exchange for the issuance hereunder of Warrants ("Participant's Warrants") to Participant, all as more fully set forth below; and WHEREAS, as inducement to the Participants to enter into the Exchange, the Company will make certain Contingent Payments, as herein defined, on exercise or after expiration of the Warrants issued hereunder; and WHEREAS, from time to time the Board of Directors of the Company may authorize the issuance of additional Warrants, each representing the right to purchase one share of Common Stock, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: SECTION 1. FORM OF WARRANT CERTIFICATES. The Warrant Certificates (and the forms of election to purchase shares and of assignment to be printed on the reverse thereof) shall be substantially of the tenor and purport recited in Exhibit A hereto and may have such letters, numbers or other marks of 5 identification or designation and such legends, summaries or endorsements printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Warrant Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the warrant Certificates may from time to time be listed, or to conform to usage. Subject to the provisions of Section 20 hereof, the Warrant Certificates shall be dated as of the date of issuance thereof by the Company, either upon initial issuance or upon transfer or exchange, and on their face shall entitle the holders thereof to purchase one share of Common Stock each at the price per share set forth therein ("Purchase Price"), but the number of such shares and the Purchase Price per share shall be subject to adjustments as provided herein. SECTION 2. SIGNATURE AND REGISTRATION. The Warrant Certificates shall be executed on behalf of the Company by the Chief Executive Officer or any Executive Vice President, by facsimile signature and have affixed thereto a facsimile of the Company's seal which shall be attested by the Secretary or an Assistant Secretary of the Company by facsimile signature. In case any officer of the Company who shall have signed any of the Warrant Certificates shall cease to be such officer of the Company before issuance and delivery by the Company, such Warrant Certificates, nevertheless, may be issued and delivered with the same force and effect as though the person who signed such Warrant Certificates had not ceased to be such officer of the Company and any Warrant Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Warrant Certificate, shall be a proper officer of the Company to sign each Warrant Certificate, although at the date of the execution of this Warrant Agreement any such person was not such an officer. The Company will keep or cause to be kept, at its principal corporate offices at 2151 Anchor Court, Newbury Park, California 91320, or such other principal corporate office as the Company may maintain from time to time, books for registration and registration of transfer of the Warrant Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Warrant Certificates, the number of Warrants evidenced on its face by each of the Warrant Certificates and the date of each of the Warrant Certificates. SECTION 3. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF WARRANT CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN WARRANT CERTIFICATES. The Warrants shall be transferrable only (i) in accordance with the express terms, if any, of the Benefit Plans, (ii) by will, the laws of descent or distribution or pursuant to a qualified domestic relations order as defined in the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act, or (iii) in accordance with the restrictions and requirements imposed by Section 14 hereof. Before any transfer by a Participant of the Warrants granted hereunder, such Participant, or representative, guardian, conservator or executor of Participant's estate, shall be required to provide the Company evidence satisfactory to the Company that such a transfer is provided for by the Benefit Plan applicable to the Participant to whom the Warrant was originally issued and any other evidence or opinions of counsel that the Company may reasonably require to determine compliance with this Agreement. Subject to the foregoing and the provisions of Sections 12 and 14 hereof, any Warrant Certificate, with or without other Warrant Certificates, may be transferred, split up, combined or exchanged for another Warrant Certificate or Warrant Certificates, entitling the registered holder to purchase a like number of Common Stock as the Warrant Certificate or Warrant Certificates surrendered then entitled such holder to purchase. Subject to any restriction on transferability that may appear on a Warrant Certificate in accordance with the terms hereof or any "stop-transfer" instructions issued by the Company, any registered holder desiring to register the transfer of, or 2 6 to split up, combine or exchange any Warrant Certificate shall make such request in writing delivered to the Company, and shall surrender such Warrant Certificate or Warrant Certificates at the principal corporate office of the Company. Thereupon the Company shall deliver to the person entitled thereto a Warrant Certificate or Warrant Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Warrant Certificates. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of a Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrant Certificate if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor for delivery to the registered owner in lieu of the Warrant Certificate so lost, stolen, destroyed or mutilated. SECTION 4. SUBSEQUENT ISSUE OF WARRANT CERTIFICATES. Subsequent to their original issuance, no Warrant Certificates shall be issued except (a) Warrant Certificates issued upon any transfer, combination, split up or exchange of Warrants pursuant to Section 3 hereof, (b) Warrant Certificates issued in replacement of mutilated, destroyed, lost or stolen Warrant Certificates pursuant to Section 3 hereof, (c) Warrant Certificates issued pursuant to Section 5 hereof upon the partial exercise of any Warrant Certificate to evidence the unexercised portion of such Warrant Certificate and (d) Warrant Certificates issued pursuant to Section 20 hereof. Nothing contained in this Agreement shall prohibit the Company from issuing time to time additional Warrants, each representing the right to purchase Common Stock upon the terms and subject to the conditions set forth herein, or other warrants, options or rights to purchase securities issued by the Company. SECTION 5. EXERCISE OF WARRANTS; PURCHASE PRICE; EXPIRATION DATE. (a) The registered holder of any Warrant Certificate may exercise the Warrants evidenced thereby in whole or in part at any time on or after June 1, 1996, subject to the provisions of Section 14 hereof, upon surrender of the Warrant Certificates with the form of election to purchase on the reverse side thereof duly executed, to the Company at the principal corporate office of the Company at 2151 Anchor Court, Newbury Park, California 91320, together with payment of the Purchase Price for each share of Common Stock as to which the Warrants are exercised, at or prior to 5:00 p.m. (Pacific time) on the earliest of (i) June 1, 1998 (the "Expiration Date"), which is the date on which the right to exercise the Warrants will expire, and (ii) the business day immediately preceding the Redemption Date as defined in Section 21(a) hereof. (b) The Purchase Price for each share of Common Stock pursuant to the exercise of a Warrant will be fixed on May 31, 1996 (the "Purchase Price Calculation Date") and will be based on the New York Stock Exchange closing price of the Common Stock (the "Common Closing Price"). Such Purchase Price shall be calculated as follows: (i) If on the Purchase Price Calculation Date the Common Closing Price is equal to or less than $4.00 per share, the Purchase Price shall be $2.50, subject to adjustment as provided in Section 9 hereof, and shall be payable in lawful money of the United States of America. (ii) If on the Purchase Price Calculation Date the Common Closing Price is greater than $4.00 per share and less than $7.50 per share, the Purchase Price shall be the 3 7 difference between the Common Closing Price and $1.50, subject to adjustment as provided in Section 9 hereof, and shall be payable in lawful money of the United States of America. (iii) If on the Purchase Price Calculation Date the Common Closing Price is equal to or greater than $7.50 per share, the Purchase Price shall be $6.00, subject to adjustment as provided in Section 9 hereof, and shall be payable in lawful money of the United States of America. (c) Upon receipt of a Warrant Certificate, with the form of election to purchase duly executed, accompanied by payment of the Purchase Price for the shares to be purchased and an amount equal to any applicable transfer tax in cash, or by check, bank draft or postal or express money order payable to the order of the Company, the Company shall thereupon promptly (i) requisition from any transfer agent of the Common Stock of the Company certificates for the number of shares of whole Common Stock to be purchased and, when appropriate, for the number of fractional shares to be sold by the Company, and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares or Warrants, and (iii) promptly after receipt of such certificates cause the same to be delivered to or upon the order of the registered holder of such Warrant Certificate, registered in such name or names as may be designated by such holder, and, when appropriate, after receipt promptly deliver such cash to or upon the order of the registered holder of such Warrant Certificate. (d) In case the registered holder of any Warrant Certificate shall exercise less than all the Warrants evidenced thereby, a new Warrant Certificate evidencing Warrants equivalent to the Warrants remaining unexercised shall be issued by the Company to the registered holder of such Warrant Certificate or to his duly authorized assigns, subject to the provisions of Section 12 hereof. SECTION 6. CANCELLATION AND DESTRUCTION OF WARRANT CERTIFICATES. All Warrant Certificates surrendered for the purpose of exercise, exchange, substitution or registration of transfer shall be cancelled by the Company, and no Warrant Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Warrant Agreement. The Company shall so cancel and retire any other Warrant Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. SECTION 7. RESERVATION AND AVAILABILITY OF COMMON STOCK. The Company covenants and agrees that it will cause to be reserved and kept available, out of its authorized and unissued Common Stock or its authorized and issued Common Stock held in its treasury, the number of shares of Common Stock that will be sufficient to permit the exercise in full of all outstanding Warrants. So long as the Common Stock issuable upon the exercise of Warrants may be listed on the New York Stock Exchange, the Company shall use its best efforts to cause all shares reserved for such issuance, subject to the Company's rights and duties under Section 15 hereof, to be listed on such exchange upon official notice of issuance upon such exercise. The Company covenants and agrees that it will take all such action as may be necessary to insure that all Common Stock delivered upon exercise of Warrants shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares. 4 8 The Company further covenants and agrees that it will pay when due and payable any and all Federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Warrant Certificates or of any Common Stock upon the exercise of Warrants. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer involved in the transfer or delivery of Warrant Certificates or the issuance or delivery of certificates for Common Stock in a name other than that of the registered holder of the Warrant Certificate evidencing Warrants surrendered for exercise or to issue or deliver any certificates for Common Stock upon the exercise of any Warrants until any such tax shall have been paid (any such tax being payable by the holder of such Warrant Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax is due. SECTION 8. COMMON STOCK RECORD DATE. Each person in whose name any certificate for Common Stock is issued upon the exercise of Warrants shall for all purposes be deemed to have become the holder of record of the Common Stock represented thereby on, and such certificate shall be dated, the date upon which the Warrant Certificate evidencing such Warrants was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Common Stock transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding business day on which the Common Stock transfer books of the Company are open. PRIOR TO THE EXERCISE OF THE WARRANTS EVIDENCED THEREBY, THE HOLDER OF A WARRANT CERTIFICATE SHALL NOT BE ENTITLED TO ANY RIGHTS OF A SHAREHOLDER OF THE COMPANY WITH RESPECT TO SHARES FOR WHICH THE WARRANTS SHALL BE EXERCISABLE, INCLUDING, WITHOUT LIMITATION, THE RIGHT TO VOTE, TO RECEIVE DIVIDENDS OR OTHER DISTRIBUTIONS OR TO EXERCISE ANY PREEMPTIVE RIGHTS, AND SHALL NOT BE ENTITLED TO RECEIVE ANY NOTICE OF ANY PROCEEDINGS OF THE COMPANY, EXCEPT AS PROVIDED HEREIN. SECTION 9. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF WARRANTS. The Purchase Price, the number of shares covered by each Warrant and the number of Warrants outstanding are subject to adjustments from time to time upon the occurrence of the events enumerated in this Section 9. (a) In case the Company shall at any time after the date of this Agreement (i) declare a dividend on the Common Stock payable in Common Stock, (ii) subdivide the outstanding Common Stock, (iii) combine the outstanding Common Stock into a smaller number of shares or (iv) issue any shares of its capital stock in a reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination, or reclassification, shall be adjusted to an amount that bears the same relationship to the Purchase Price in effect immediately prior to such action as the total number of Common Stock shares outstanding immediately prior to such action bears to the total number of Common Stock shares outstanding immediately after such action. Such adjustment shall be made successively whenever any event listed above shall occur. (b) In case the Company shall fix a record date after the Purchase Price Calculation 5 9 Date for the issuance of rights or warrants to all holders of Common Stock entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Common Stock (or securities convertible into Common Stock) at a price per share of Common Stock (or having a conversion price per share of Common Stock, if a security convertible into Common Stock) less than the current market price per share of Common Stock (as defined in Section 9(d)) on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so to be offered (or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined by the Board of Directors of the Company, whose determination shall be conclusive, and such computation shall be made available to any holder of Warrant Certificates at the Company's principal corporate office. Common Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights or warrants are not so issued, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In case the Company shall fix a record date after the Purchase Price Calculation Date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends payable in Common Stock) or subscription rights or warrants (excluding those referred to in Section 9(b)), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, of which the numerator shall be the current market price per share of Common Stock (as defined in Section 9(d)) on such record date, less the then fair market value (as determined by the Board of Directors of the Company, whose determinate shall be conclusive, and such computation shall be made available to any holder of Warrant Certificates at the Company's principal corporate office) of the portion of the assets or evidence of indebtedness so to be distributed or of such subscription rights or warrants applicable to one share of Common Stock and of which the denominator shall be such current market price per share of Common Stock (as defined in Section 9(d)). Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (d) For the purpose of any computation under Section 9(b) or (c), the current market price per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per Common Stock for the 30 consecutive trading days as reported on the Composite Transactions tape commencing 45 trading days before such date. The closing price for each day shall be the last sale price "regular way" or, in case no such sale takes place on such day, the average of the closing bid and asked prices "regular way," in either case as reported on the Composite Transactions tape, or, if the Common Stock is not reported on the Composite Transactions tape, on the principal national securities 6 10 exchange on which the Common Stock is listed or admitted to trading, or if the Common Stock is not listed or admitted to trading on any national securities exchange, the average of the highest reported bid and lowest reported asked prices as furnished by the National Association of Securities Dealers, Inc. through NASDAQ (or a similar organization if NASDAQ is no longer reporting such information). If on any such date the Common Stock is not quoted by any such organization, the fair value of such shares on such date as determined by the Board of Directors of the Company shall be used. (e) No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 5% in such price; provided, however, that any adjustments which by reason of this Section 9(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 9 shall be made to the nearest cent or to the nearest hundredth of a share as the case may be. Notwithstanding the first sentence of this Section 9(e), any adjustment required by this Section 9 shall be made no later than the earlier of two years from the date of the transaction which mandates such adjustment or the Expiration Date. (f) In the event that at any time, as a result of an adjustment made pursuant to Section 9(a), the holder of any Warrant thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares contained in Section 9(a) through (c), inclusive, and the provisions of Sections 5, 7, 8 and 12 with respect to the Common Stock shall apply on like terms to any such other shares. (g) All Warrants originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of shares of Common Stock purchasable from time to time hereunder upon exercise of the Warrants, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 9(i), upon each adjustment of the Purchase Price as a result of the calculations made in Section 9(a), (b) or (c), each Warrant outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of shares (calculated to the nearest hundredth) obtained by (i) multiplying the number of shares covered by a Warrant immediately prior to this adjustment of the number of shares by the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Warrants substituted for any adjustment in the number of shares of Common Stock purchasable upon the exercise of a Warrant as provided in Section 9(b). Each of the Warrants outstanding after such adjustment of the number of Warrants shall be exercisable for one share of Common Stock. Each Warrant held of record prior to such adjustment of the number of Warrants shall become that number of Warrants (calculated to the nearest hundredth) obtained by dividing the Purchase Price in effect prior to adjustment of the Purchase Price by the Purchase Price in effect after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjustment the number of Warrants, indicating the record date for the adjustment, and, if known at the 7 11 time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but shall be at least 10 days later than the date of the public announcement. Upon each adjustment of the number of Warrants pursuant to this subsection (i) the Company shall, as promptly as practicable, cause to be distributed to holders of record of Warrant Certificates on such record date Warrant Certificates evidencing, subject to Section 12, the additional Warrants to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Warrant Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Warrant Certificates evidencing all the Warrants to which such holders shall be entitled after such adjustment. Warrant Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Warrant Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of shares of Common Stock issuable upon the exercise of the Warrants, the Warrant Certificates theretofore and thereafter issued may continue to express the Purchase Price per share and the number of shares which were expressed upon the initial Warrant Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of the Common Stock issuable upon exercise of the Warrants, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable Common Stock at such adjusted Purchase Price. (l) In any case in which this Section 9 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Warrant exercised after such record date the Common Stock and other capital stock of the Company, if any, issuable upon such exercise over and above the Common Stock and other capital stock of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment, provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 9 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments required by this Section 9, as in its sole discretion it shall determine to be advisable in order that any consolidation or subdivision of the Common Stock, issuance wholly for cash of any Common Stock at less than the current market price, issuance wholly for cash of Common Stock or securities which by their terms are convertible into or exchangeable for Common Stock, stock dividend, issuance of rights, options or warrants referred to hereinabove in this Section 9, hereinafter made by the Company to its common shareholders, shall not be taxable to them. SECTION 10. CERTIFICATION OF ADJUSTED PURCHASE PRICE AND NUMBER OF SHARES ISSUABLE. Whenever the Purchase Price and the number of shares of Common Stock issuable upon the exercise of each Warrant are adjusted as provided in Section 9 above, the Company shall (a) promptly obtain a 8 12 certificate of a firm of independent public accountants of recognized standing selected by the Board of Directors (who may be the regular auditors of the Company) setting forth the Purchase Price as so adjusted, the number of shares of Common Stock issuable upon the exercise of each Warrant as so adjusted and a brief statement of the facts accounting for such adjustment, (b) promptly file at the Company's principal corporate offices and with each transfer agent for the Common Stock a copy of such certificate, and (c) mail a brief summary thereof to each holder of a Warrant Certificate in accordance with Section 23. SECTION 11. CONSOLIDATION, MERGER OR SALE OF ASSETS. If the Company shall at any time consolidate or merge with one or more other corporations (other than a merger or consolidation of the Company in which the Company is the continuing corporation and which does not result in any reclassification or change of outstanding Common Stock), the holder of any Warrants will thereafter receive, upon the exercise thereof in accordance with the terms of this Agreement, the securities or property to which the holder of the number of Common Stock then deliverable upon the exercise of such Warrants would have been entitled upon such consolidation or merger, and the Company shall take such steps in connection with such consolidation or merger as may be necessary to assure that the provisions here of shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or property thereafter deliverable upon the exercise of the Warrants. The Company or the successor corporation, as the case may be, shall execute and deliver to the Warrant holder a supplemental agreement so providing. A sale of all or substantially all the assets of the Company for a consolidation (apart from the assumption of obligations) consisting primarily of securities shall be deemed a consolidation or merger for the foregoing purposes. The provisions of this Section 11 shall similarly apply to successive mergers or consolidations or sales or other transfers. SECTION 12. FRACTIONAL WARRANTS AND FRACTIONAL SHARES. (a) The Company shall not be required to issue fractions of Warrants on any distribution of Warrants to holders of Warrant Certificates pursuant to Section 9(i) or to distribute Warrant Certificates which evidence fractional Warrants. The Company shall be required to make any cash adjustment in respect of a fractional interest in a Warrant. (b) If the number of shares purchasable upon the exercise of each Warrant is adjusted pursuant to Section 9(h), the Company shall nonetheless not be required to issue fractions of shares upon exercise of the Warrants or to distribute share certificates which evidence fractional shares, nor shall the Company be required to make any cash adjustment in respect of a fractional interest in a share, but the fractional interest to which any person is entitled shall be sold in the manner set forth in subsection (c) of this Section 12 by the Company, acting as agent for the person entitled to such fractional interest, except as otherwise provided in such subsection. (c) The Company shall remit to such person the proceeds of the sale of any such fractional interest sold by it as such agent. Fractional interests shall be non-transferable except by or to the Company acting as herein authorized. The Company may sell fractional interests on the basis of market prices of the Common Stock as determined by the Company in its sole discretion. In lieu of making an actual sale of a fractional interest, the Company may value fractional interests without actual sale on the basis of the current market price of the Common Stock as determined by the Company in its sole discretion. (d) The holder of a Warrant, by the acceptance of the Warrant, expressly waives his right to receive any fractional Warrant or any fractional share upon exercise of a Warrant. 9 13 SECTION 13. RIGHTS OF ACTION. All rights of action in respect of this Agreement are vested in the respective registered holders of the Warrant Certificates; and any registered holder of any Warrant Certificate, without the consent of the holder of any other Warrant Certificate, may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Warrants evidenced by such Warrant Certificate in the manner provided in such Warrant Certificate and in this Agreement. SECTION 14. AGREEMENTS, RELEASE OF BENEFIT PLANS CLAIMS, REPRESENTATION AND WARRANTIES AND INDEMNITY OBLIGATIONS OF PARTICIPANT AND WARRANT CERTIFICATE HOLDERS. The Participant and every holder of a Warrant Certificate by accepting the same acknowledges, consents and agrees with, and covenants, represents and warrants to, the Company and with every other holder of a Warrant Certificate that: (a) transfer of the Warrant Certificates shall be subject to the provisions of Section 3 and this Section 14 and shall be registered on the registry books of the Company only if surrendered at the principal corporate office of the Company, duly endorsed or accompanied by a proper instrument or transfer; (b) prior to due presentment for registration of transfer, the Company may deem and treat the person in whose name the Warrant Certificate is registered as the absolute owner thereof and of the Warrants evidenced thereby (notwithstanding any notations of ownership or writing on the Warrant Certificates made by anyone other than the Company) for all purposes whatsoever, and the Company shall not be affected by any notice to the contrary; (c) all Benefit Plans Claims are hereby deemed satisfied and extinguished on the Participant's acceptance of a Warrant Certificate issued hereunder for the Participant's Warrants, regardless of the value, at any time, of the Warrants or of the Common Stock issuable on exercise of the Warrants; (d) the Warrants granted hereunder have not been registered with the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Act"), and are being granted in reliance on one or more exemptions from registration requirements thereunder; and each Participant, as a holder of a Warrant Certificate, will make no offer, sale, pledge, hypothecation or other transfer or disposition of his or her Warrants in violation of the Act, any rules of the SEC, any state securities law or statute or this Warrant Agreement, and will not offer, sell, mortgage, pledge or otherwise dispose of the Warrants granted hereunder otherwise than pursuant to Section 15 hereof unless, in the opinion of counsel for the Company, registration under applicable federal or state securities laws is not required; (e) the Participant has been advised by the Company, and understands, that the Participant must bear the economic risk of an investment in the Warrants for an indefinite period of time because the Warrants have not been registered under the Act and the Company is under no obligation to register the Warrants; and that there is no public trading market for the Warrants and none will ever exist; and that the Warrants must be held by the Participant unless they are subsequently registered under the Act or an exemption from such registration is available for the transfer of the Warrants; (f) the Participant represents that the Warrants are being acquired solely for the 10 14 Participant's own account for investment purposes and not with a view to, or for resale in connection with, any "distribution" (as that term is used in Section 2(11) of the Act) of all or any portion thereof; (g) the Participant further understands that a stop-transfer order will be placed on the books of the Company regarding the Warrant Certificates issued hereunder, and such Warrant Certificates shall bear, until such time as the Warrants shall have been registered under the Act or shall have been transferred in accordance with an opinion of counsel, the following legend or ones substantially similar thereto: THE SECURITIES REPRESENTED BY THIS WARRANT CERTIFICATE WITH CONTINGENT PAYMENT RIGHTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. plus any legend required by state securities laws; (h) the Participant understands that the offer and sale of the Warrants are not being registered under the Act in reliance on the so-called "private offering" exemption provided by Section 4(2) of the Act, and that the Company is basing its reliance on that exemption in part on the representations, warranties, statements and agreements contained herein and those of other participants contained in similar Warrant Agreements; and the Participant represents that he or she has received all documents and information deemed necessary to make an informed investment decision concerning the Exchange and had an opportunity to ask and have answered any questions of the Company concerning the Company and the Exchange; and the Participant further understands that other participants are receiving Warrants in reliance on the representations, warranties, statements and agreements contained herein (as the Participant is receiving Warrants in reliance on theirs) and the Participant invites both the Company and other participants so to rely; (i) the Participant agrees to indemnify and hold the Company, its officers, directors, stockholders or any other person who may be deemed in control of the Company harmless from any loss, liability, claim, damage or expense, arising out of the inaccuracy of any of the representations, warranties or statements or the breach of any of the agreements contained herein, and this indemnification shall survive the Exchange created hereunder; and (j) THE WARRANTS GRANTED HEREUNDER ARE NOT EXERCISABLE UNTIL THE COMPANY RECEIVES AN ORDER OF EFFECTIVENESS FROM THE SEC REGARDING ANY REGISTRATION STATEMENT IT HAS FILED UNDER THE ACT PURSUANT TO SECTION 15 HEREOF. SECTION 15. AGREEMENT OF THE COMPANY AS TO THE REGISTRATION OF COMMON STOCK ISSUABLE ON EXERCISE OF THE WARRANTS; CONTINGENT PAYMENTS TO WARRANT CERTIFICATE HOLDERS. The Company, on the grant of any Warrant hereunder, acknowledges, consents and agrees with the Participant and with every other holder of a Warrant Certificate that: (a) it will use all reasonable efforts to file with the SEC a registration statement under the Act as to the shares of Common Stock issuable on exercise of the Warrants granted hereunder on the earlier of (i) the date on which the Company notifies the holders of Warrant Certificates that it has 11 15 selected a Redemption Date, pursuant to Section 21 herein, (ii) 100 days before the Expiration Date or (iii) such earlier date as the Company may choose; and it will use all reasonable efforts to obtain an order of effectiveness from the SEC as to such registration statement within 40 days following the filing thereof; and (b) it will make payments, in the lawful currency of the United States of America (the "Contingent Payments"), to the holder of any Warrant Certificate: (i) on the exercise of any or all Warrants represented by the Warrant Certificate issued hereunder, equal to $2.50 for each Warrant so exercised, such amount to be credited against the Purchase Price of each share of Common Stock issuable on exercise of the Warrants, or (ii) after the Expiration Date and on the tender of the holder's expired Warrant Certificate to the Company, in equal semiannual installments (without interest), beginning 30 days after such tender and no later than 60 days after the Expiration Date, over the same number of years remaining for the payment of benefits under the Benefit Plan or Benefit Plans to which the Participant to whom the Warrant Certificate was originally issued was due benefits, in an amount equal to $2.50 for each expired Warrant so tendered. The Company shall not be required to make any Contingent Payment other than as provided in this Section 15(b). No Contingent Payments will be made on, or be payable after, a Redemption Date set pursuant to the provisions of Section 21 hereof. The submission of the Warrant Certificate representing the Warrants being exercised or the tender of the Warrant Certificate representing all expired outstanding Warrants held of record by the Participant to whom they were originally issued are each conditions precedent to the Company's obligation to make Contingent Payments under subparagraphs (i) and (ii) above, respectively. A Warrant Certificate holder of record who is not the Participant and who is seeking Contingent Payments as set forth in this Section 15(b) may be required by the Company to provide evidence as to the identity of the Participant being the original Warrant Certificate holder from whom the Warrant Certificate holder's Warrants originate. The Company may rely on its records to determine the identity of the holder of the original Warrant Certificate issued hereunder in calculating Contingent Payments. Section 15(b) may be amended only with the written agreement of the Company and the Participant. SECTION 16. MUTUAL RELEASES. The parties hereto, on behalf of themselves and their executors, legatees, devisees, administrators, successors and assigns, do hereby forever specially and generally release and discharge each other and all their current and former officers, directors, partners, stockholders, agents, servants, lawyers, employees, assigns, insurers, fiduciaries, predecessors-in-interest, successors-in-interest, and all their parent, affiliated and subsidiary entities and all persons acting by, through, under or in concert with them (collectively the "Releasees"), from any and all causes of action, judgments, liens, indebtedness, costs, damages, obligations, attorneys' fees, losses, claims, liabilities and demands of whatever kind and character known or unknown, suspected or unsuspected which such party hereto now has, owns or holds, or claims to have, own or hold, or which such party at any time heretofore had owned or held, or claimed to have had, owned or held, or which such party at any time hereafter may have, own or hold, or claim to have, own or hold, against the other party hereto or any of such other party's Releases arising prior to the execution hereof (collectively with the Benefit Plans Claims, the "Claim" or "Claims"); provided however, that this release shall not affect 12 16 the obligations of the Company or the Participant under any indemnity agreement between them that is currently enforceable on the date. The parties hereto hereby expressly waive any and all rights under Section 1542 of the California Civil Code, which reads in full as follows: Section 1542. A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him, must have materially affected his settlement with the debtor. The parties hereto acknowledge that they are releasing unknown claims and waive all rights they may have under California Code Section 1542 or any similar federal, state or other law. The parties hereto further represents and warrants that it, he or she has not heretofore assigned or transferred, or purported to have assigned or transferred, to any firm, corporation, entity or person, any Claim released herein, including the Benefit Plans Claims of the Participant. THE MUTUAL RELEASES EFFECTED BY THIS SECTION 16 SHALL NOT OPERATE TO RELEASE, DISCHARGE OR OTHERWISE WAIVE ANY OBLIGATION, COVENANT, REPRESENTATION OR WARRANTY UNDERTAKEN OR MADE BY ANY PARTY TO THIS AGREEMENT. SECTION 17. REGISTRAR FOR THE WARRANTS. The Company undertakes the duties and obligations of registrar for the Warrants imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Warrants, by their acceptance thereof, shall be bound: (a) The statements contained herein and in the Warrant Certificates shall be taken as statements of the Company. (b) The Company may consult at any time with counsel satisfactory to it and shall incur no liability or responsibility to any holder of any Warrant Certificate in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the opinion or the advice of such counsel, provided the Company shall have exercised reasonable care in the selection and continued employment of such counsel. (c) The Company shall incur no liability or responsibility to any holder of any Warrant Certificate for any action taken in reliance on any notice, resolution, waiver, consent, order, certificate, or other paper, document or instrument believed by it to be genuine and to have been signed, sent or presented by the property party or parties. SECTION 18. APPOINTMENT OF WARRANT AGENT. The Company may, in its discretion, appoint a Warrant Agent or Warrant Agents for the administration of the Warrants and the maintenance of books and records related thereto. Such appointment shall be evidenced by the execution and delivery of an instrument amending this Agreement and executed by the Company and such Warrant Agent and the reissuance of new Warrant Certificates to the holders thereof. SECTION 19. MAINTENANCE OF OFFICE, NOTICE TO COMPANY. As long as any of the Warrant Certificates remains unexercised, the Company will maintain an office or agency in the United States of 13 17 America where the Warrant Certificates may be presented for registration, transfer, exchange or exercise pursuant to the terms of this Agreement, and where notices and demands to or upon the Company in respect of the Warrants, Warrant Certificates or this Agreement may be served. The principal office of the Company in Newbury Park, California shall be the office or agency for such purposes, which at the date hereof is: DDL Electronics, Inc. 2151 Anchor Court Newbury Park, California 91320 Attention: Chief Financial Officer Any notice pursuant to this Agreement shall be sufficiently given if sent by first-class mail, postage prepaid, addressed (until the Warrant Certificate holder is notified in writing of another address) to the Company at said address. SECTION 20. ISSUANCE OF NEW WARRANT CERTIFICATES. Notwithstanding any of the provisions of this Agreement or of the Warrants to the contrary, the Company may, at its option, issue new Warrant Certificates evidencing Warrants in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price per share and the number or kind or class of shares of stock or other securities or property purchasable under the several Warrant Certificates made in accordance with the provisions of this Agreement. SECTION 21. REDEMPTION OF WARRANTS. (a) The Company may, at its option, at any time on or after June 1, 1996, redeem all but not less than all the then outstanding Warrants at a redemption price of $.05 per Warrant if, but only if, the Common Closing Price is equal to or greater than $4.00 per share at the time such redemption option is exercised by the Company. Such price, as the same may from time to time be adjusted pursuant to paragraph (b) of this section, is hereinafter referred to as the "Redemption Price." If the Company should desire to exercise such right to redeem all of the then outstanding Warrants, it will give notice of such redemption to the holders thereof as follows: Notice of such redemption to holders of Warrants shall be mailed to all such holders not less than 30 nor more than 90 days prior to the date fixed for redemption to their last addresses as they appear upon the registry books of the Company or Warrant Agent, as the case may be. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will specify the date fixed for redemption ("Redemption Date") and the Redemption Price. The notice will state that payment of the Redemption Price will be made at a specified office of the Company, upon presentation and surrender of such Warrants, and will also state that the right to exercise the Warrants will terminate at the close of business on the business day immediately preceding the Redemption Date. On or before the Redemption Date, the Company shall have on hand funds sufficient to redeem the then outstanding Warrants at the Redemption Price. (b) Upon each adjustment of the Purchase Price of the Warrants, the Redemption Price in effect immediately prior to the adjustment shall be adjusted to be a price equal to the product of the Redemption Price in effect immediately prior to the adjustment of the Purchase Price multiplied by a fraction the numerator of which is the Purchase Price which was in effect immediately after the 14 18 adjustment of the Purchase Price and the denominator of which is the Purchase Price immediately prior to such adjustment. SECTION 22. NOTICE OF PROPOSED ACTIONS. In case the Company shall propose (a) to pay any dividend payable in stock of any class to the holders of its Common Stock or to make any other distribution to the holders of its Common Stock (other than a cash dividend) or (b) to offer to the holders of its Common Stock rights or warrants to subscribe for or to purchase any additional Common Stock or shares of stock of any class or any other securities, rights or options or (c) to effect any reclassification of its Common Stock (other than a reclassification involving only the subdivision or combination of outstanding Common Stock) or (d) to effect any consolidation, merger or sale, transfer or other disposition of all or substantially all of the property, assets or business of the Company or (e) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Warrant, in accordance with Section 23, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution or rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, disposition, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of Common Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (a) or (b) above at least ten days prior to the record date for determining holders of the Common Stock for purposes of such action, and in the case of any such action, at least ten days prior to the date of the taking of such proposed action or the date of participation therein by the holders of Common Stock, whichever shall be the earlier. The failure to give notice required by this Section 22 or any defect therein shall not affect the legality or validity of the action taken by the Company or the vote upon any such action. SECTION 23. NOTICES. Notices or demands authorized by this Agreement to be given or made by the holder of any Warrant Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until notice of another address is given) as follows: DDL Electronics, Inc. 2151 Anchor Court Newbury Park, California 91320 Attention: Chief Financial Officer Notices or demands authorized by this Agreement to be given or made by the Company to the holder of any Warrant Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. SECTION 24. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time supplement or amend this Agreement without the approval of any holders of Warrant Certificates in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Warrant Agent may deem necessary or desirable and which shall not adversely affect the interests of the holders of Warrant Certificates. SECTION 25. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company shall bind and inure to the benefit of their respective successors and assigns 15 19 hereunder. SECTION 26. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and the registered holders of the Warrant Certificates any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company and the registered holders of the Warrant Certificates. SECTION 27. CALIFORNIA CONTRACT. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of California and for all purposes shall be governed by and construed in accordance with the laws of such state applicable to contracts to be made and performed entirely within such state. SECTION 28. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. SECTION 29. DESCRIPTIVE HEADINGS. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. SECTION 30. COMPETENCY. Participant represents that he or she is in good health and fully competent to manage his or her business affairs, that he or she has carefully read this document, that he or she understands all of its contents, that he or she has had the opportunity to consult with his or her lawyer and that he or she executed this Agreement freely and voluntarily. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and their respective seals to be hereunto affixed and attested, all as of the day and year first above written. [SEAL] DDL ELECTRONICS, INC. By: -------------------------------------- Gregory L. Horton President Attest: - ------------------------------------------ Richard K. Vitelle Assistant Secretary 16 20 EXHIBIT A [Form of Warrant Certificate] THE SECURITIES REPRESENTED BY THIS WARRANT CERTIFICATE WITH CONTINGENT PAYMENT RIGHTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. EXERCISABLE ONLY ON OR AFTER JUNE 1, 1996 No. W-________ ______________ Warrants NOT EXERCISABLE AFTER JUNE 1, 1998, OR EARLIER UPON REDEMPTION WARRANT CERTIFICATE WITH CONTINGENT PAYMENT RIGHTS DDL ELECTRONICS, INC. THIS CERTIFIES THAT _____________________, or registered assigns, is the registered owner of the number of Warrants set forth above, each of which entitles the owner thereof to purchase at any time on or after June 1, 1996 and prior to 5:00 P.M. (Pacific time) until the earliest of (i) June 1, 1998 (the "Expiration Date") or (ii) the business day immediately prior to the Redemption Date as defined in the Warrant Agreement described below, at the principal corporate office of DDL ELECTRONICS, INC., a Delaware corporation ("Company"), in the City of Newbury Park and State of California, one fully paid and nonassessable share of Common Stock, par value $.01 per share ("Common Stock"), of the Company, at a per share purchase price (the "Purchase Price") to be set by the Company on May 31, 1996 (the "Purchase Price Calculation Date") based on the New York Stock Exchange closing price of the Common Stock (the "Common Closing Price") equal to: (i) if on the Purchase Price Calculation Date the Common Closing Price is equal to or less than $4.00 per share, $2.50, (ii) if on the Purchase Price Calculation Date the Common Closing Price is greater than $4.00 per share and less than $7.50 per share, the difference between the Common Closing Price and $1.50, or (iii) if on the Purchase Price Calculation Date the Common Closing Price is equal to or greater than $7.50 per share, $6.00, upon presentation and surrender of this Warrant Certificate with the Form of Election to Purchase duly executed and such other evidences, certifications and opinions as required by the Warrant and Contingent Payments Agreement dated as of March 31, 1996 (the "Warrant Agreement") between the Company and 21 the Participant, provided that no exercise of this Warrant shall be permitted unless an effective registration statement exists as to all shares of Common Stock underlying this Warrant Certificate. The number of Warrants evidenced by this Warrant Certificate (and the number of shares of Common Stock which may be purchased upon exercise thereof) have been agreed to by the Company and the Participant, as defined in the Warrant Agreement, to discharge certain Claims, as defined in the Warrant Agreement, and have been granted in exchange for the relinquishment of any and all Claims by the Participant. As provided in the Warrant Agreement, the Purchase Price and the number of Common Stock which may be purchased upon the exercise of the Warrants evidenced by this Warrant Certificate are, upon the happening of certain events, subject to modification and adjustment. This Warrant Certificate is subject to all of the terms, provisions and conditions of the Warrant Agreement, which Warrant Agreement is incorporated herein by reference and made a part hereof and to which Warrant Agreement reference is made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Company and the holders of the Warrant Certificates. Copies of the Warrant Agreement are on file at the above-mentioned office of the Company. This Warrant Certificate, with or without other Warrant Certificates, upon surrender at the principal corporate office of the Company, may be exchanged for another Warrant Certificate or Warrant Certificates of like tenor and date evidencing Warrants entitling the holder to purchase a like aggregate number of Common Stock as the Warrants evidenced by the Warrant Certificate or Warrant Certificates surrendered shall have entitled such holder to purchase. If this Warrant Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof, another Warrant Certificate or Warrant Certificates for the number of whole Warrants not exercised. The Warrants evidenced by this Certificate may be redeemed by the Company at its option at any time from and after June 1, 1996, but only if the Common Closing Price on any date thereafter is greater than $4.00 per share, at a redemption price of $.05 per Warrant, subject to adjustment, in accordance with the terms of the Warrant Agreement. If the Warrants evidenced by this Warrant Certificate remain outstanding at the expiration of the period during which Warrants are exercisable, as set forth in the first paragraph of this Warrant Certificate, such Warrants shall expire without value. No fractional Common Stock will be issued upon the exercise of any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment will be made, as provided in the Warrant Agreement. No holder of this Warrant Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of Common Stock or of any other securities of the Company which may at any time be issuable on the exercise or conversion hereof, nor shall anything contained in the Warrant Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issue of stock, reclassification of stock, change of par value, consolidation, merger, conveyance, or otherwise) or, except as provided in the Warrant Agreement, to receive notice of 2 22 meetings, or to receive dividends or subscription rights or otherwise, until the Warrant or Warrants evidenced by this Warrant Certificate shall have been exercised or converted as provided in the Warrant Agreement. The Company has agreed in the Warrant Agreement it will use all reasonable efforts to file with the Securities and Exchange Commission (the "SEC") a registration statement under the Securities Act of 1933, as amended (the "Act") as to the shares of Common Stock issuable on exercise of the Warrants on the earlier of (i) the date on which the Company notifies the holders of Warrant Certificates that it has selected a Redemption Date, (ii) 100 days before the Expiration Date or (iii) such earlier date as the Company may choose; and it will use all reasonable efforts to obtain an order of effectiveness from the SEC as to such registration statement within 40 days following the filing thereof. The Company has no obligation to file a registration statement as to the Warrants represented by this Warrant Certificate. The Company has also agreed in the Warrant Agreement that it will make certain payments, subject to the terms of the Warrant Agreement and in the lawful currency of the United States of America (the "Contingent Payments"), to the holder of this Warrant Certificate: (i) on the exercise of any or all Warrants represented by this Warrant Certificate, equal to $2.50 for each Warrant so exercised, such amount to be credited against the Purchase Price of each share of Common Stock issuable on exercise of the Warrants, or (ii) after the Expiration Date and on the tender of the holder's expired Warrant Certificate to the Company, in equal semiannual installments (without interest), beginning 30 days after such tender and no later than 60 days after the Expiration Date, over the same number of years remaining for the payment of benefits under the Benefit Plan or Benefit Plans to which the Participant to whom the Warrant Certificate was originally issued was due, of an aggregate amount equal to $2.50 for each expired Warrant. This Warrant Certificate shall not be valid or obligatory for any purpose until it shall have been executed and delivered by the Company. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of , 1996 DDL ELECTRONICS, INC. By: -------------------------------------- [SEAL] Gregory L. Horton President Attest: - ------------------------------------------ Richard K. Vitelle Assistant Secretary 3 23 [Form of Reverse Side of Warrant Certificate] FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED _________________________________________________hereby sells, assigns and transfers unto______________________________________________ _______________________________________________________________________________ (Please print name and address of transferee) _______________________________________________________________________________ this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ____________________________ _____________ Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated:____________________, 19__ Signature ---------------------------------- Signature Guaranteed: NOTICE The signature to the foregoing Assignment must correspond to the name as written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. 4 24 FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise the Warrant Certificate.) TO DDL ELECTRONICS, INC. The undersigned hereby irrevocably elects to exercise _________ Warrants represented by this Warrant Certificate to purchase the Common Stock issuable upon the exercise of such Warrants and requests that certificates for such shares be issued in the name of: Please insert social security or other identifying number ______________________________________________________________________________ (Please print name and address) If such number of Warrants shall not be all the Warrants evidenced by this Warrant Certificate, a new Warrant Certificate for the balance remaining of such Warrants shall be registered in the name of and delivered to: Please insert social security or other identifying number ______________________________________________________________________________ (Please print name and address) ______________________________________________________________________________ Dated: _________________, 19__ ------------------------------------------ Signature (Signature must conform in all respects to name of holder as specified on the face of this Warrant Certificate) Signature Guaranteed: 5 EX-4.M 4 FORM OF SECURITIES PURCHASE AGREEMENT 2-29-96 1 EXHIBIT 4-m ================================================================================ DDL ELECTRONICS, INC. _____________________ SECURITIES PURCHASE AGREEMENT Dated as of February 29, 1996 _____________________ ================================================================================ 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..................... 2 ------------------------------------------------ Section 1.4. Use of Proceeds...................................................... 3 --------------- Section 1.5. Representations of the Purchasers Listed on the Attached Schedule A.. 3 ------------------------------------------------------------------- Section 1.6. Definitions.......................................................... 4 ----------- SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................ 4 SECTION 3. CONDITIONS OF CLOSING........................................................ 13 Section 3.1. Proceedings Satisfactory............................................. 13 ------------------------ Section 3.2. Opinions of Counsel.................................................. 13 ------------------- Section 3.3. Sale of the Securities............................................... 14 ---------------------- Section 3.4. Registration Rights Agreements....................................... 14 ------------------------------ Section 3.5. Consents............................................................. 14 -------- Section 3.8. Receipt of Proceeds.................................................. 14 ------------------- Section 3.9. Receipt of Bridge Notes.............................................. 14 ----------------------- SECTION 4. THE NOTES.................................................................... 14 Section 4.1. Repayment............................................................ 14 --------- Section 4.2. Interest............................................................. 14 -------- Section 4.3. Optional Prepayment of the Notes..................................... 15 -------------------------------- Section 4.4. Mandatory Prepayment of the Notes.................................... 16 --------------------------------- Section 4.5. Notice of Prepayment................................................. 16 -------------------- Section 4.6. Allocation of Prepayment Payments.................................... 16 --------------------------------- Section 4.7. Surrender of Notes; Notation Thereon................................. 16 ------------------------------------ SECTION 5. INSPECTION................................................................... 17 SECTION 6. COVENANTS.................................................................... 17 Section 6.1. Payment of the Notes................................................. 17 -------------------- Section 6.2. Seniority............................................................ 17 --------- Section 6.3. Existence............................................................ 18 --------- Section 6.4. Payment of Taxes and Other Claims.................................... 18 --------------------------------- Section 6.5. Maintenance of Insurance............................................. 18 ------------------------ Section 6.6. Limitation on Transactions with Affiliates........................... 19 ------------------------------------------ Section 6.7. Limitation on Lines of Business...................................... 19 ------------------------------- Section 6.8. Limitation on Consolidation, Merger and Sale of Assets............... 19 ------------------------------------------------------ Section 6.9. Observance of Statutes, Regulations and Orders....................... 19 ---------------------------------------------- Section 6.10. Maintenance of Properties............................................ 19 ------------------------- Section 6.11. Books and Records.................................................... 19 -----------------
i 3 Section 6.12. Restricted Payments................................................. 19 ------------------- Section 6.14. Limitation on Liens................................................. 19 ------------------- Section 6.15. Registration of R&A Collateral Stock and Collateral --------------------------------------------------- Security Warrant Shares............................................. 19 ----------------------- SECTION 7. DEFINITIONS.................................................................. 21 Section 7.1. Additional Definitions............................................... 21 ---------------------- Section 7.2. Subsidiaries......................................................... 23 ------------ SECTION 8. EVENTS OF DEFAULT; REMEDIES.................................................. 23 Section 8.1. Events of Default Defined; Acceleration of Maturity.................. 23 --------------------------------------------------- Section 8.2. Miscellaneous........................................................ 25 ------------- Section 8.3. Collateral Security.................................................. 25 ------------------- SECTION 9. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES................................. 26 SECTION 10. LOST NOTES, ETC............................................................. 27 SECTION 11. AMENDMENT AND WAIVER........................................................ 27 SECTION 12. HOME OFFICE PAYMENT......................................................... 28 SECTION 13. TAXES....................................................................... 28 SECTION 14. MISCELLANEOUS............................................................... 28 Section 14.1. Reliance on and Survival of Representations......................... 28 ------------------------------------------- Section 14.2. Successors and Assigns; Transfers of Notes.......................... 28 ------------------------------------------ Section 14.3. Notices............................................................. 29 ------- Section 14.4. Counterparts........................................................ 29 ------------ Section 14.5. Headings............................................................ 29 -------- Section 14.6. Severability........................................................ 29 ------------ Section 14.7. Entire Agreement.................................................... 30 ---------------- Section 14.8. Attorney's Fees..................................................... 30 --------------- Section 14.9. Governing Law....................................................... 30 ------------- Section 14.10. Action of Majority Noteholders...................................... 31 ------------------------------ SCHEDULE A.............................................................................. S-1
ii 4 DDL ELECTRONICS, INC. 2151 Anchor Court Newbury Park, CA 91320 SECURITIES PURCHASE AGREEMENT New York, New York as of February 29, 1996 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 Notes, the Collateral Security Warrants and the Common Stock Purchase 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 Secured Notes due July 1, 1997 in the aggregate principal amount of $5,300,000 (the "Notes"), each such Note to be in the form of Exhibit A. The 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 "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 "Collateral Security Warrants") exercisable (subject to Sections 4.3 and 8.3) to purchase an aggregate of 1,060,000 shares (subject to adjustment pursuant to the terms of the Collateral Security Warrants) of Common Stock (as hereinafter defined) upon and after the occurrence of an Event of Default. The right to exercise the Collateral Security Warrants shall terminate upon the satisfaction in full of all of the Company's obligations hereunder to the holders of the Notes (the "Holders"), and the Holders shall have no right to exercise the Collateral Security Warrants with respect to Collateral Security Warrant Shares (as hereinafter defined) not required for such satisfaction. Each such Collateral Security Warrant will be in the form of Exhibit B-1. The holders of the Collateral Security Warrants and the shares of Common Stock issuable upon exercise of the Collateral Security Warrants (the "Collateral Security Warrant Shares") will have the registration rights set forth in the Collateral Registration Rights Agreement (as hereinafter defined). 1 5 The Company has also duly authorized an issue of one or more Warrants (the "Common Stock Purchase Warrants") exercisable to purchase an aggregate of 830,000 shares of Common Stock (subject to adjustment pursuant to the terms of the Common Stock Purchase Warrants) during the five year period commencing on the date hereof. Each such Common Stock Purchase Warrant will be in the form of Exhibit B-2. The holders of the Common Stock Purchase Warrants and the shares of Common Stock issuable upon exercise of the Common Stock Purchase Warrants (the "Common Stock Purchase Warrant Shares") will have the registration rights set forth in Section 6.15. The Common Stock Purchase Warrants are part of a series of Warrants authorized by the Company in payment of certain placement agent fees payable by the Company to Rickel & Associates, Inc. ("Rickel") in connection with the offer and sale of the Securities (as hereinafter defined). As used herein, the term "Securities" shall mean the Notes, the Collateral Security Warrants and the Common Stock Purchase 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 shall be held at 10:00 a.m., New York time, on February 29, 1996 (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 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 $5,300,000, all as the Purchasers may specify by timely notice to the Company (or, in the absence of such notice, one Note registered in the name of each Purchaser with respect to the aggregate principal amount of the Notes purchased by such Purchaser), each duly executed and dated the Closing Date, against the Purchasers' prior delivery, on behalf of the Company, to the Escrow Account (as hereinafter defined) of the aggregate amount of $5,300,000 (the "Purchase Price"). The Company agrees and acknowledges that the Purchasers have previously delivered the Purchase Price to the Escrow Account on behalf of the Company and no other deliveries are required to be made by the Purchasers on the Closing Date with respect to the payment of the Purchase Price. (c) On the Closing Date, the Company will deliver to the Purchasers one or more certificates evidencing the Collateral Security 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 Collateral Security Warrant Shares exercisable pursuant to the Collateral Security Warrants purchased by such Purchaser), each duly executed and dated the Closing Date, against the Purchasers' delivery to the Company of the Purchase Price. 2 6 (d) On the Closing Date, the Company will deliver to the Purchasers one or more certificates evidencing the Common Stock Purchase 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 Common Stock Purchase Warrant Shares exercisable pursuant to the Common Stock Purchase 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 $2,500 of the Purchase Price shall be allocated towards the purchase and sale of the Common Stock Purchase Warrants and agree to report such purchase and sale for federal income tax purposes in accordance with such allocation. (e) On the Closing Date, the Company will deliver to the Collateral Agent Account (as hereinafter defined) the aggregate amount of $375,000. Section 1.3. Security Interests. The Company's obligations hereunder (subject to Sections 4.3 and 8.3) will be secured by, among other things, the pledge by Rickel of an aggregate of 1,060,000 shares of Common Stock pursuant to (and subject to the terms and conditions of) the Pledge Agreement, dated the date hereof (the "Pledge Agreement"), and the Collateral Agency Agreement, dated the date hereof (the "Collateral Agency Agreement"), substantially in the forms annexed hereto as Exhibits C and D, respectively. Section 1.4. Use of Proceeds. The Purchase Price has been 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"). An aggregate of $6,798,738 of the Purchase Price was used in connection with the Company's acquisition of SMTEK and an aggregate of $375,000 of the Purchase Price will be deposited in an interest-bearing account (the "Collateral Agent Account") established by the Collateral Agent and will be used by the Collateral Agent to pay accrued interest on the unpaid principal amount of the Notes in accordance with Section 4.2. The remainder of the Purchase Price will be used by the Company in such amounts and for such purposes as set forth on Schedule 1.4 annexed hereto. Notwithstanding anything contained herein or in the Collateral Agency Agreement to the contrary, the Company shall remain solely obligated to pay all interest which may accrue on the unpaid principal amount of the Notes in accordance with Section 4.2 and the Notes. Section 1.5. 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 E 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. 3 7 Section 1.6. 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. 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, the Company's Quarterly Reports on Form 10-Q for the quarterly periods ended September 30, 1995 and December 31, 1995 and the Current Report on Form 8-K filed by the Company on February 1, 1996. 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 the Executive Summary dated November 27, 1995 (or in the exhibits and supplements thereto) furnished to the Purchasers or in the supplements and exhibits thereto or in any other document or instrument furnished to the Purchasers, with the prior written consent of the Company, in connection with the offer and sale of the Securities (such Executive Summary, 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 4 8 conducted. (d) The Company has all requisite power and authority to execute, deliver and perform this Agreement, the Notes, the Collateral Security Warrants, the Common Stock Purchase Warrants, the Pledge Agreement, the Collateral Agency Agreement and the Registration Rights Agreements (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 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 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 Collateral Security Warrant Shares have been duly authorized and, upon exercise of the Collateral Security 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 Collateral Security 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). The Common Stock Purchase Warrant Shares have been duly authorized and, upon exercise of the Common Stock Purchase 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 Common Stock Purchase Warrant Shares will have good title to such shares, free and clear of all Liens, claims, security 5 9 interests, pledges, charges, encumbrances, stockholders' agreements and voting trusts (other than any created by the Purchasers). The R&A Collateral Stock has been duly authorized and is validly issued, fully paid and nonassessable and was not issued in violation of any preemptive rights or rights of first refusal, and Rickel has 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 Rickel). (e) The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, of which 18,847,849 shares are issued and outstanding as of the date hereof; 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 Collateral Security Warrant Shares and the Common Stock Purchase 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, 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 6 10 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 Notes or the Collateral Security Warrants or the Common Stock Purchase 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 Notes or the Collateral Security Warrants or the Common Stock Purchase 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 Notes or the Collateral Security Warrants or the Common Stock Purchase Warrants or suspends the sale of the Notes or the Collateral Security Warrants or the Common Stock Purchase 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 Notes or the Collateral Security Warrants or the Common Stock Purchase 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 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 7 11 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 Notes or the Collateral Security Warrants or the Common Stock Purchase Warrants to the Purchasers as contemplated hereby assuming the accuracy of the Purchasers' representations and warranties set forth in Section 1.6 hereof and assuming that no actions have been taken by 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 Notes or the Collateral Security Warrants or the Common Stock Purchase 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 Notes or the Collateral Security Warrants or the Common Stock Purchase 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. (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. 8 12 (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 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 is 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 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 was 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, was 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 did 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, 9 13 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 and the consummation of the transactions contemplated therein did 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 did 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 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 10 14 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 in 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. 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. 11 15 (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, prior to the consummation of the transactions contemplated by the SMTEK Agreement on January 12, 1996, each of the SMTEK Sellers was the lawful owner and holder of the number of shares of the capital stock of SMTEK set forth in Schedule I annexed hereto and had 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 had 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. (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 were conveyed to the Company free of any restriction or limitation. 12 16 (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. (hh) All of the transactions contemplated by the SMTEK Agreement have been consummated in accordance with the terms thereof without any waiver by any party of any conditions precedent to the closing thereunder (except as set forth on Schedule 2(hh) annexed hereto), including, without limitation, the purchase by the Company of the SMTEK Shares, and the Company has good title to the SMTEK Shares, free and clear of all Liens, claims, security interests, pledges, charges, encumbrances, stockholders' agreements and voting trusts. To the best of the Company's knowledge, none of the representations, warranties, covenants and obligations contained in the SMTEK Agreement have been breached by any party to such agreement (with or without the giving of notice or the passage of time or both). 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 you shall have received copies of such documents, papers and certificates of the Company, all in form and substance reasonably satisfactory to you as you 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, substantially in the form(s) attached hereto as Exhibit F. 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 Agreements. You shall have received the Registration Rights Agreement with respect to the Collateral Security Warrant Shares and the R&A Collateral Stock, dated the date hereof (the "Collateral Registration Rights Agreement"), substantially in the form annexed hereto as Exhibit G, duly executed by the Company. In addition, Rickel have received the Registration Rights Agreement with respect to certain securities of the Company to be issued to Rickel, dated the date hereof (the "Rickel Registration Rights Agreement;" and together with the Collateral Registration Rights Agreement, the "Registration Rights Agreements"), 13 17 substantially in the form annexed hereto as Exhibit H, 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. Section 3.6. Pledge Agreements. You shall have received the Pledge Agreement duly executed by Rickel. Section 3.7. Collateral Agency Agreement. You shall have received the Collateral Agency Agreement duly executed by Rickel and First Union National Bank, as collateral agent. 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 condition hereinafter set forth. Section 3.8. Receipt of Proceeds. In respect of the Closing Date, the Company shall have received an aggregate of $5,300,000 paid or payable as provided in Section 1.2 of proceeds from the sale of the Securities. C. The Company's obligation to sell, issue and deliver the Securities purchased by the Bridge Noteholders (as noted on Schedule A) shall be subject to the satisfaction on or before the Closing Date of the condition hereinafter set forth. Section 3.9. Receipt of Bridge Notes. Each of the Company's 10% Senior Bridge Notes due December 25, 1995 shall have been surrendered for cancellation to the Company by the holders thereof contemporaneously with the Closing. SECTION 4. THE NOTES. Section 4.1. Repayment. The Notes shall be repaid on July 1, 1997. Section 4.2. Interest. The Notes will bear interest at the per annum rate of 10% and will accrue interest from the dates set forth on Schedule A. Interest will be payable quarterly in arrears on each June 1, September 1, December 1 and March 1, commencing June 1, 1996, to the registered Holders at the close of business on May 27th, August 27th, November 26th or February 24th, respectively, immediately preceding the next payment date. 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 in the manner provided in Schedule A hereto under the name of such holder. Section 4.3. Optional Prepayment of the Notes. The amounts outstanding under the Notes may be prepaid in advance of the scheduled repayment date at the option of the Company at any time, upon notice given as provided in Section 4.5, in whole or in part (in a minimum aggregate principal amount of at least $500,000 and in any greater principal amount that is a multiple of $50,000), in each case at 100% of the principal amount outstanding under the Notes so to be prepaid, together with interest accrued (but unpaid) thereon to the date fixed for such optional 14 18 prepayment, without premium. Notwithstanding the foregoing, if all amounts outstanding under the Notes of any Holder are to be prepaid, the entire outstanding principal amount of the Notes held by such holder (even if not a multiple of $50,000) may be prepaid. As more fully set forth in (and subject to the terms and conditions of) the Pledge Agreement and the Collateral Agency Agreement, the Company shall have the right, but not the obligation, to fund the optional prepayment of all, but not less than all, amounts then outstanding under the Notes with the net proceeds of the sale of (a) authorized but unissued shares of Common Stock or shares of Common Stock held in DDL's treasury (such shares shall be referred to herein as the "DDL Shares") or the Collateral Security Warrant Shares and (b) up to 706,667 shares of R&A Collateral Stock, as more fully set forth herein. In the event that the sale of not less than 1,060,000 DDL Shares or of the Collateral Security Warrant Shares (the net proceeds of such sale shall be referred to herein as the "DDL and Collateral Security Warrant Shares Proceeds") does not result in an amount sufficient to prepay all amounts outstanding under the Notes (the "Prepayment Amount"), the Company may also sell (on the same terms and subject to the same conditions) that number of shares of R&A Collateral Stock (which number shall in any event not exceed 706,667) which will result in the receipt by the Company of the difference between the Prepayment Amount and the DDL and Collateral Security Warrant Shares Proceeds. Notwithstanding anything contained herein to the contrary, the Company shall not sell any Collateral Security Warrant Shares or shares of R&A Collateral Stock unless all amounts then outstanding under the Notes shall be prepaid immediately upon consummation of such sale. Any shares of R&A Collateral Stock sold by the Company in connection with an optional prepayment of the Notes shall not include any of the 353,333 shares of R&A Collateral Stock registered by the Company under the Securities Act pursuant to Section 6.15. The Company shall also have the right, but not the obligation, to fund the optional prepayment of less than all amounts outstanding under the Notes with the net proceeds of the sale of DDL Shares. However, the Company may not use any Collateral Security Warrant Shares or shares of R&A Collateral Stock to fund a partial prepayment. The Holders being so prepaid shall have the option, in their sole discretion, to accept as payment of the applicable prepayment price any shares of Common Stock (whether DDL Shares, Collateral Security Warrant Shares or shares of R&A Collateral Stock) intended to be sold by the Company to fund such optional prepayment instead of a cash payment of the applicable prepayment price. Section 4.4. Mandatory Prepayment of the Notes. The Company shall be required to use all proceeds of the sale, lease or conveyance of any of its or its subsidiaries' assets (other than sales, leases or conveyances in the ordinary course of business and consistent with such company's past practices) to prepay the amounts outstanding under the Notes, in each case at 100% of the principal amount of the Notes so to be prepaid, together with interest accrued (but unpaid) thereon to the date fixed for such mandatory prepayment, without premium. Any such mandatory prepayment shall be consummated as soon as practicable (but in any event not more than five (5) days) after consummation of such sale, lease or conveyance. Notwithstanding anything contained herein to the contrary, up to an aggregate of $13.5 million of the proceeds of 15 19 all of such sales, leases or conveyances may be used by the Company to repay Senior Indebtedness (as hereinafter defined in Section 6.2) in accordance with the terms thereof in an aggregate amount not to exceed the Permitted Amount (as hereinafter defined in Section 6.2). Section 4.5. Notice of Prepayment. The Company will give written notice of any prepayment of amounts outstanding under the Notes pursuant to Sections 4.3 or 4.4 to the Holders not less than thirty (30) days, nor more than sixty (60) days, prior to the date fixed for such prepayment in such notice, which notice shall specify the principal amount of the Notes so to be prepaid, together with the amount of interest accrued thereon, and the date fixed for such prepayment. In the event that any Holder elects, pursuant to Section 4.3, to accept as payment of any applicable prepayment price any shares of Common Stock (whether DDL Shares, Collateral Security Warrant Shares or shares of R&A Collateral Stock) intended to be sold by the Company to fund such optional prepayment instead of a cash payment of the applicable prepayment price, then such Holder shall notify the Company of such election at least fifteen (15) days prior to the date the Company fixed for such prepayment. Section 4.6. Allocation of Prepayment Payments. If less than all of the amounts then outstanding under the Notes is to be prepaid pursuant to Sections 4.3 or 4.4 and more than one Note is outstanding, the Company shall allocate the total principal amount to be prepaid pro rata as nearly as practicable among the Notes, based upon the then outstanding principal amounts thereof. Section 4.7. Surrender of Notes; Notation Thereon. Upon any prepayment of a portion of the principal amount of any Note, the holder of such 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 Note, a new Note payable to such Person or Persons as may be designated by such holder in the principal amount of the surrendered Note then remaining unpaid, dated as of the date to which interest has been paid on the unpaid principal amount of the surrendered Note (or, if no such interest has been paid, dated as of the date of the surrendered Note), or may present such Note to the Company for notation thereon of the payment of the portion of the principal amount of such 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 of Securities 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 16 20 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 Notes or the Collateral Security Warrants shall be outstanding or any amount shall be due and unpaid thereunder: Section 6.1. Payment of the Notes. The Company shall pay the principal of and interest on the Notes on the date and in the manner provided in the Notes and in this Agreement. 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 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 $13.5 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 Notes, as well as the Indebtedness evidenced by certain cumulative convertible debentures of the Company in the aggregate principal amount of approximately $3.5 million sold by the Company on or prior to the Closing Date which shall rank pari passu in right of payment with the Notes (collectively, the "Senior Indebtedness"), shall be included in the Permitted Amount. The Company shall not, and shall cause its subsidiaries not to, incur or suffer to exist any Indebtedness in an aggregate amount in excess of the Permitted Amount which ranks or would rank senior or pari passu in right of payment to the 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 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 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 Notes or any fee or other amount payable by the Company under the 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 17 21 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 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, each in accordance with their respective Certificate of Incorporation and By-laws and the rights (charter and statutory) and franchises of the Company and its subsidiaries; provided, however, that neither the Company nor any of its subsidiaries 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 of the Securities. Section 6.4. Payment of Taxes and Other Claims. The Company shall pay or discharge, and cause its subsidiaries to pay or 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. 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, 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, 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, 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. 18 22 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, 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, 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, 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, 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 6.14. Limitation on Liens. The Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly, create, receive, assume or permit to exist or otherwise cause or permit to become in effect any Lien other than any Liens securing the repayment of Indebtedness in an aggregate amount not to exceed the Permitted Amount. Section 6.15. Registration of R&A Collateral Stock and Collateral Security Warrant Shares. In order to facilitate the repayment of the Notes, whether prior to or at maturity, the Company shall file, within sixty (60) days of the date hereof, a "shelf" Registration Statement on the appropriate form for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act covering the offer and sale of 353,333 shares of the R&A Collateral Stock (the "Shelf Registration"). The Shelf Registration shall also cover the offer and sale of (i) the Common Stock Purchase Warrants, (ii) the Common Stock Purchase Warrant Shares, (iii) 572,683 shares of Common Stock to be issued by the Company to Rickel (or its nominees) on the Closing Date pursuant to the Engagement Letter, dated as of January 30, 1996 (the "Engagement Letter"), between Rickel and the Company, (iv) certain other warrants (the "Rickel Warrants") exercisable to purchase an aggregate of 670,000 shares of Common Stock issued to Rickel (or its nominees) on the Closing Date pursuant to the Engagement Letter and (v) 670,000 shares of Common Stock issuable upon exercise of the Rickel Warrants. (All of the securities of the Company which will be registered pursuant to the Shelf Registration are hereinafter referred to as the "Immediately 19 23 Registrable Securities"). The Company will use its best efforts to have the Shelf Registration declared effective as soon as practicable, and in any event within one hundred twenty (120) days of the date hereof, and to keep such Shelf Registration continuously effective for a period (the "Target Effective Period") of at least thirty six (36) consecutive months following the date on which such Shelf Registration is declared effective (or such shorter period which will terminate when all securities covered by such Shelf Registration have been sold or withdrawn, but not prior to the expiration of the applicable period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable). The Company further agrees, if necessary, to supplement or amend the Shelf Registration, as required by the registration form used by the Company for such Shelf Registration or by the instructions applicable to such registration form or by the Securities Act or as reasonably requested (which request shall result in the filing of a supplement or amendment) by any holder or prospective holder of the Immediately Registrable Securities, and the Company agrees to furnish to such holders, their counsel and any managing underwriter copies of any such supplement or amendment prior to its being used and/or filed with the Commission. The Company will pay all Registration Expenses (as defined in the Collateral Registration Rights Agreement) incurred in connection with the Shelf Registration, whether or not it becomes effective. In addition, the holders of the Immediately Registrable Securities shall be entitled to the "Piggyback Registration Rights" described in Section 2 of the Collateral Registration Rights Agreement from the date hereof until such time as (x) a Registration Statement (as defined in the Collateral Registration Rights Agreement) covering all of the Immediately Registrable Securities has been declared effective by the Commission and all of the Immediately Registrable Securities have been disposed of pursuant to such effective Registration Statement or (y) the Immediately Registrable Securities are held by one or more Persons who could sell all Immediately Registrable Securities held by each such Person in a single sale pursuant to Rule 144 (or any similar provision then in force) under the Securities Act, whichever is earlier. The Company shall pay all Registration Expenses incurred in connection with any such Piggyback Registration, whether or not it becomes effective. In connection with any such Shelf or Piggyback Registration, the provisions set forth in Sections 3 and 5 of the Collateral Registration Rights Agreement shall apply and are incorporated herein by reference and made a part hereof. In addition, the provisions set forth in Section 7 of the Collateral Registration Rights Agreement are incorporated herein by reference and made a part hereof. All capitalized terms used in such sections shall have the respective meanings given such terms in the Collateral Registration Rights Agreement, however, "Holders" and "Selling Holders" shall each mean the holders of the Immediately Registrable Securities and "Registrable Securities" shall mean the Immediately Registrable Securities. The rights to cause the Company to register the Immediately Registrable Securities granted pursuant to this Section (whether pursuant to a Shelf or Piggyback Registration) may be transferred or assigned by any holder of Immediately Registrable Securities to a transferee or assignee. The provisions of this Section shall inure to the benefit of, and be enforceable by, each holder of Immediately Registrable Securities and their respective successors and assigns. As more fully set forth in, and pursuant to and in accordance with, the Collateral Registration Rights Agreement, in order to facilitate the repayment of the Notes, whether prior to or at maturity, on or prior to May 1, 1997 (provided that the Notes are still outstanding at such time) the Company shall file a "shelf" Registration Statement on the appropriate form for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act covering the offer and sale of all of the Collateral Security Warrant Shares and the remaining 706,667 20 24 shares of R&A Collateral Stock. In the event of the occurrence of an Event of Default prior to the filing of such "shelf" Registration Statement, the Holders may demand that the Company file at such time a "shelf" Registration Statement on the appropriate form for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act covering the offer and sale of all of the Collateral Security Warrant Shares and the remaining 706,667 shares of R&A Collateral Stock. 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" shall mean 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" shall mean (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" shall mean U.S. Legal Tender. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Collateral Agent" shall mean First Union National Bank, as collateral agent under the Collateral Agency Agreement. "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 in the United States on the date hereof. 21 25 "Governmental Body" shall mean any Federal, state, municipal or other governmental department, commission, board, bureau, Agency or instrumentality, foreign or domestic. "Lien" shall mean 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 Notes; provided, the Notes owned by the Company or any Affiliate of the Company shall be disregarded and deemed not outstanding for this purpose; provided, no Holder 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 or any of the Subsidiaries to perform their respective 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. "Proceeds" shall mean "proceeds," as such term is defined in Section 9-306(1) of the UCC, and, in any event, includes, without limitation, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to any Grantor from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to any Grantor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Body (or any Person acting under color of any Governmental Body), and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "R&A Collateral Stock" shall mean 1,060,000 shares of Common Stock pledged by Rickel as collateral security for the satisfaction of the Company's obligations under the Notes. "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. 22 26 "SMTEK Common Stock" shall mean the common stock, no 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. "Subsidiaries" shall mean each of Irlandus Circuits Limited, DDL Electronics Limited, DDL Europe Limited and SMTEK. "UCC" shall mean the Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; provided, however, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of the Purchasers' security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions. "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 7.2. Subsidiaries. For purposes of this Agreement, the Company's subsidiaries shall include, but shall not be limited to, the Subsidiaries. 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: (a) the Company shall default in the payment when due of any principal of, or interest on, any Note or any fee or other amount payable by the Company under any Note or this Agreement, and such default shall continue unremedied for a period of five (5) days; or (b) the Company shall default in the performance of any of its covenants or agreements in any Note or other Operative Document or any of the representations and warranties of the Company contained in this Agreement were untrue when made, and such default shall continue unremedied for a period of ten (10) days; or (c) the Company or any of its subsidiaries 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 or any of its subsidiaries shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator 23 27 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 or any of its subsidiaries, as the case may be, in any court of competent jurisdiction seeking (i) the liquidation, reorganization, dissolution or winding-up of the Company or any of its subsidiaries or of their respective assets or the composition or adjustment of their respective debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Company or any of its subsidiaries, or of all or any substantial part of their respective 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 thirty (30) days or an order for relief against any of them or any of their respective assets shall be entered in an involuntary case under the Bankruptcy Code; THEREUPON: (x) the Notes and all amounts payable by the Company under the 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 Notes and for the enforcement and protection of their rights under the Notes and the other Operative Documents, 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 Notes or any security therefor (including, without limitation, under the Collateral Security Warrants, the Pledge Agreement and the Collateral Agency Agreement). No failure or delay on the part of the Holders in the exercise of any 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 (subject to Section 8.3) realize upon any collateral securing payment of the Notes, if any, in such manner and order of priority and against such payment obligations hereunder as such 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 Notes. No waiver of any provision of the Notes, or any agreement or instrument evidencing or providing security for the 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 Notes. The Company agrees to perform and comply with each of the covenants, conditions, 24 28 provisions and agreements of the Company contained in the Notes. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies provided by law. Section 8.3. Collateral Security. As more fully set forth in (and subject to the terms and conditions of) each of the Collateral Security Warrants, the Pledge Agreement and the Collateral Agency Agreement, after the occurrence of an Event of Default the Holders may exercise the Collateral Security Warrants and sell the Collateral Security Warrant Shares (whether pursuant to a public or private sale) and apply the net proceeds of such sale to the satisfaction of the Company's obligations hereunder to the Holders. To the extent that the net proceeds of the sale of the Collateral Security Warrant Shares are insufficient to satisfy in full all of the Company's obligations hereunder to the Holders, the Holders shall also be entitled to sell that portion, or all (as the case may be), of the R&A Collateral Stock necessary for the satisfaction in full of all of the Company's obligations hereunder to the Holders. To satisfy the Company's obligations hereunder to the Holders, the Holders shall have the option, in their sole discretion (in lieu of exercising the foregoing right of sale), to retain the Collateral Security Warrant Shares and that portion, or all (as the case may be), of the R&A Collateral Stock as is necessary for the satisfaction in full of the Company's obligations hereunder to the Holders. In such event, each Collateral Security Warrant Share and each share of the R&A Collateral Stock so retained shall be valued at the lower of (x) the average of the daily closing sale prices of the Common Stock for the twenty (20) consecutive trading days preceding the date the Collateral Security Warrants were exercised by the Holders or (y) the closing sale price of the Common Stock on the date the Collateral Security Warrants were exercised by the Holders, in each case less a discount of 6% of such amount. The closing sale price of the Common Stock for each trading day as used herein shall be: (a) if the Common Stock is listed or admitted for trading on any national securities exchange or included in the Nasdaq National Market or Nasdaq Small-Cap Market, the last reported sales price as reported on such exchange or market, as the case may be; (b) if the Common Stock is not listed or admitted for trading on any national securities exchange or included in the Nasdaq National Market or Nasdaq Small-Cap Market, the average of the last reported closing bid and asked quotation for the Common Stock as reported on the Automated Quotation System of NASDAQ or a similar service if NASDAQ is not reporting such information; (c) if the Common Stock is not listed or admitted for trading on any national securities exchange or included in the Nasdaq National Market or Nasdaq Small-Cap Market or quoted by NASDAQ or a similar service, the average of the last reported bid and asked quotation for the Common Stock as quoted by a market maker in the Common Stock (or if there is more than one market maker, the bid and asked quotation shall be obtained from two market makers and the average of the lowest bid and highest asked quotation shall be the closing price); or (d) if the Common Stock is not listed or admitted for trading on any national securities exchange or included in the Nasdaq National Market or Nasdaq Small-Cap Market or quoted by NASDAQ and there is no market maker in the Common Stock, the fair market value of such shares as determined jointly by the Company and the Majority Noteholders, or if no such determination can be reached within fifteen (15) days, such determination shall be made by an appraiser who shall be mutually selected by the Company and the Majority Noteholders, the costs of such appraiser to be borne by the Company. To the extent that the above sale (or retention, as the case may be) of all of the Collateral 25 29 Security Warrant Shares and the R&A Collateral Stock is not sufficient to satisfy in full all of the Company's obligations hereunder to the Holders, then such remainder shall continue to be the Company's obligation. Notwithstanding anything contained herein to the contrary (but subject to the specific terms and conditions of the Collateral Security Warrants, the Pledge Agreement and the Collateral Agency Agreement), any rights and remedies available to the Holders upon an Event of Default (pursuant to any of the Operative Documents, law or otherwise) may be exercised in such manner as the Holders may determine in their sole discretion. SECTION 9. REGISTRATION, TRANSFER AND EXCHANGE OF 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 Notes. The 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 Note, which other counsel is reasonably satisfactory to the Company, that the 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 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 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 Note, the Company, at its expense, will execute and deliver (in each case insured to your reasonable satisfaction) in exchange therefor one or more new Notes, as may be requested by such holder, in the same aggregate unpaid principal amount as the aggregate unpaid principal amount of the Note or Notes so surrendered. Any Note issued in exchange for any other Note or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue which were carried by the Note so exchanged or transferred, and neither gain nor loss of interest shall result from any such transfer or exchange. Notwithstanding the foregoing, Notes may not be issued in denominations of less than $25,000 (except if the entire outstanding principal balance of the Notes of such holder is less than $25,000, in which case one Note for the entire outstanding principal amount of the outstanding Notes of such holder may be issued) and no transfer, assignment or exchange of 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 Note is registered as the owner of such Note for the purpose of receiving payment of the principal of and interest on such Note and for all other purposes whatsoever, whether or not such Note is overdue. 26 30 SECTION 10. LOST NOTES, ETC. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of any Note, and (in case of loss, theft or destruction) of indemnity reasonably satisfactory to it, upon surrender and cancellation of such Note or receipt of such indemnity, the Company will make and deliver in lieu of such Note a new 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 Notes or of the Collateral Security Warrants or the Common Stock Purchase 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 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 Note, or extend the maturity of any Note, or modify any other payment terms of any Note without the consent of the holder of each Note so affected, or (y) modify any of the provisions of this Agreement or of the Notes with respect to the payment or prepayment thereof, or reduce the percentage of Holders 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 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. (b) Any amendment or waiver pursuant to subsection (a) of this Section 11 shall apply equally to all the Holders and shall be binding upon them, upon each future holder of any Note and upon the Company, in each case whether or not a notation thereof shall have been placed on any Note. SECTION 12. HOME OFFICE PAYMENT. Notwithstanding anything to the contrary in this Agreement or the Notes, so long as you or any nominee designated by you shall be the holder of any Note, the Company shall punctually pay all amounts which become due and payable on such 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 Note. You agree that prior to the sale, assignment, transfer or other disposition of any such 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 Note or Notes aggregating the same principal amount as the unpaid principal amount of the Note so surrendered. You agree that, as promptly as practicable after the payment or prepayment in whole of any Note held by you or your nominee and receipt by you of a written request from the Company to surrender such Note 27 31 to the Company for cancellation, you will surrender such 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 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, 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 Notes or the Collateral Security Warrants or the Common Stock Purchase Warrants or of any amendment of, or waiver or consent under or with respect to, this Agreement or of any of the Notes or the Collateral Security Warrants or the Common Stock Purchase Warrants and will save you and all subsequent holders of the 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 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 herein. Section 14.2. Successors and Assigns; Transfers of 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 Notes. The Company may not assign its rights under this Agreement. The Purchasers may transfer the Notes (and any portion thereof) at any time without the consent of the Company subject, however, to the requirements of Section 9. 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. 2151 Anchor Court Newbury Park, CA 91320 28 32 Attention: Chief Executive Officer Telephone: (805) 376-2595 Telecopy: (805) 376-9015 (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 a Note, 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 Agreements, the Pledge Agreement, the Collateral Agency Agreement, the Collateral Security Warrants, the Common Stock Purchase Warrants and the 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 are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Registration Rights Agreements, the Pledge Agreement, the Collateral Agency Agreement, the Collateral Security Warrants, the Common Stock Purchase Warrants and the 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 of the Securities. Section 14.9. Governing Law. This Agreement and the Notes shall be governed by, and 29 33 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 Notes, or the subject matter hereof or thereof brought by the holders of the Securities 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 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 of the Securities. 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 of the Securities may at their option bring suit, or institute other judicial proceedings, against the 30 34 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 Noteholders. Except for such actions which are expressly provided in the Operative Documents to be taken by an individual holder of a Note, all actions required or permitted to be taken by the Holders of Notes under the Operative Documents including, without limitation, in connection with the exercise of remedies, shall be taken by the Majority Noteholders (individually or by a trustee or other agent designated by the Majority Noteholders to act on behalf of the Majority Noteholders); and the decision of the Majority Noteholders (or such trustee or agent, as applicable) shall be binding on all other Holders. 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: /s/ Gregory L. Horton ---------------------------------- Gregory L. Horton President and Chief Executive Officer 31 35 The foregoing Agreement is hereby accepted as of the date first above written: SARATOGA HOLDINGS INC. By: /s/ Gregg Smith ------------------------------ Name: Gregg Smith Title: CEO /s/ Gregg A. Smith - ---------------------------- Gregg A. Smith /s/ Elliot Smith - ---------------------------- Elliot Smith /s/ Kenneth D. Rickel - ---------------------------- Kenneth D. Rickel /s/ Joseph Fair - ---------------------------- Joseph Fair /s/ Edward McWilliams - ---------------------------- Edward McWilliams /s/ David B. Cornstein by James Martin Kaplan - --------------------------------------------- David Cornstein by James Martin Kaplan Attorney-in-Fact for David B. Cornstein /s/ Jeffrey S. Silverman - ---------------------------- Jeffrey S. Silverman /s/ Howard Miller - ---------------------------- Howard Miller 32 36 /s/ Steve Levy - ---------------------------- Steve Levy /s/ Marvin Numeroff - ---------------------------- Marvin Numeroff /s/ Jerry Gray - ---------------------------- Jerry Gray /s/ Robert Rickel - ---------------------------- Robert Rickel /s/ Leonard Wilf - ---------------------------- Leonard Wilf - ---------------------------- Peter Knobel - ---------------------------- Patrice Knobel - ---------------------------- Theodore Sofia 33 37 SCHEDULE A
Name and Address of Purchasers Principal Amount of Notes and Warrants ------------------------------------- -------------------------------------- SARATOGA HOLDINGS INC. (Bridge Noteholder) (1) In the case of all payments on $75,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 15,000 Collateral Security Warrants 30,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from the Closing Date respect of payment: Saratoga Holdings Inc. c/o Gregg A. Smith Rickel & Associates, Inc. 875 Third Avenue New York, NY 10022 GREGG A. SMITH (Bridge Noteholder) (1) In the case of all payments on $75,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 15,000 Collateral Security Warrants 30,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from the Closing Date respect of payment: Gregg A. Smith Rickel & Associates, Inc. 875 Third Avenue New York, NY 10022 ELLIOT SMITH (Bridge Noteholder)
S-1 38 (1) In the case of all payments on $200,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 40,000 Collateral Security Warrants 80,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from the Closing Date respect of payment: Elliot Smith 400 East 56th Street New York, NY 10022 KENNETH D. RICKEL (Bridge Noteholder) (1) In the case of all payments on $225,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 45,000 Collateral Security Warrants 90,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from the Closing Date respect of payment: Kenneth D. Rickel Rickel & Associates, Inc. 875 Third Avenue New York, NY 10022 JOSEPH FAIR (Bridge Noteholder) (1) In the case of all payments on $25,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 5,000 Collateral Security Warrants 10,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from the Closing Date respect of payment:
S-2 39 Joseph Fair c/o Rickel & Associates, Inc. 13400 South Cleveland Avenue Fort Myers, Florida 33908 EDWARD MCWILLIAMS (Bridge Noteholder) (1) In the case of all payments on $50,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 10,000 Collateral Security Warrants 20,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from the Closing Date respect of payment: Edward McWilliams c/o Rickel & Associates, Inc. 13400 South Cleveland Avenue Fort Myers, Florida 33908 DAVID CORNSTEIN (Bridge Noteholder) (1) In the case of all payments on $50,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 10,000 Collateral Security Warrants 20,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from the Closing Date respect of payment: David Cornstein Finlay Corporation 521 Fifth Avenue New York, NY 10175-0399 JEFFREY S. SILVERMAN (Bridge Noteholder)
S-3 40 (1) In the case of all payments on $100,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 20,000 Collateral Security Warrants 40,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from the Closing Date respect of payment: Jeffrey S. Silverman Ply Gem Industries 777 Third Avenue New York, NY 10017 HOWARD MILLER (Bridge Noteholder) (1) In the case of all payments on $200,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 40,000 Collateral Security Warrants 80,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from the Closing Date respect of payment: Howard Miller Rickel & Associates, Inc. 875 Third Avenue New York, NY 10022 STEVE LEVY (1) In the case of all payments on $250,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 50,000 Collateral Security Warrants 25,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from January 5, 1996
S-4 41 respect of payment: Steve Levy Rickel & Associates, Inc. 875 Third Avenue New York, NY 10022 MARVIN NUMEROFF (1) In the case of all payments on $1,000,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 200,000 Collateral Security Warrants 100,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from January 5, 1996 respect of payment: Marvin Numeroff 1414 Newkirk Avenue Brooklyn, NY 11226 ELLIOT SMITH (1) In the case of all payments on $250,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 50,000 Collateral Security Warrants 25,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from January 5, 1996 respect of payment: Elliot Smith 400 East 56th Street New York, NY 10022 HOWARD MILLER (1) In the case of all payments on $250,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997
S-5 42 By check payable to the Holder 50,000 Collateral Security Warrants 25,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from January 5, 1996 respect of payment: Howard Miller Rickel & Associates, Inc. 875 Third Avenue New York, NY 10022 JERRY GRAY (1) In the case of all payments on $250,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 50,000 Collateral Security Warrants 25,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from January 5, 1996 respect of payment: Jerry Gray 410 17th Street Denver, CO 80202 ROBERT RICKEL (1) In the case of all payments on $500,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 100,000 Collateral Security Warrants 50,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from January 5, 1996 respect of payment: Robert Rickel Rickel & Associates, Inc. 875 Third Avenue New York, NY 10022
S-6 43 LEONARD WILF (1) In the case of all payments on $500,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 100,000 Collateral Security Warrants 50,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from February 1, 1996 respect of payment: Leonard Wilf Garden Homes 820 Morris Turnpike Short Hills, NJ 07078 PETER KNOBEL AND PATRICE KNOBEL (1) In the case of all payments on $1,000,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 200,000 Collateral Security Warrants 100,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from the Closing Date respect of payment: Peter Knobel and Patrice Knobel 645 Fifth Avenue New York, NY 10022 THEODORE SOFIA (1) In the case of all payments on $100,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 20,000 Collateral Security Warrants 10,000 Common Stock Purchase Warrants
S-7 44 (2) Address for all notices and checks in Interest to accrue from the Closing Date respect of payment: Theodore Sofia c/o Rickel & Associates, Inc. 13400 South Cleveland Avenue Fort Meyers, Florida 33908 MARVIN NUMEROFF (1) In the case of all payments on $200,000 principal amount account of the Notes: of 10% Senior Secured Notes due July 1, 1997 By check payable to the Holder 40,000 Collateral Security Warrants 20,000 Common Stock Purchase Warrants (2) Address for all notices and checks in Interest to accrue from the Closing Date respect of payment: Marvin Numeroff 1414 Newkirk Avenue Brooklyn, NY 11226 S-8
EX-4.N 5 FORM OF WARRANT TO PURCHASE SHARES 2-29-96 1 EXHIBIT 4-n NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT OR LAWS, THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS OF THIS WARRANT CERTIFICATE. No. [ ] [ ] Warrants WARRANTS TO PURCHASE AN AGGREGATE OF [ ] SHARES OF COMMON STOCK OF DDL ELECTRONICS, INC. (INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE) ISSUED TO [ ] DATED: February 29, 1996 THIS IS TO CERTIFY that, for value received, [ ], or [its] [his] [their] registered assigns (herein collectively referred to as the "Warrantholder"), is entitled to the number of Warrants (the "Warrants") set forth above, each of which represents the right, upon the due exercise hereof, at any time commencing on the date hereof (the "Commencement Date") and ending on the fifth anniversary of the Commencement Date (the "Expiration Date"), to purchase from DDL Electronics, Inc., a Delaware corporation (the "Company"), one share of common stock, par value $.01 per share (the "Common Stock"), of the Company upon surrender hereof, with the form of election to purchase included herein (the "Election to Purchase") completed and duly executed, at the principal executive office of the Company, and upon simultaneous payment therefor of an exercise price per share equal to the Purchase Price (as defined in Section 1 below) in cash and/or check payable to the order of the Company. The number of shares of Common Stock issuable upon exercise of the Warrants (individually, a "Share" and collectively, the "Shares") and the Purchase Price therefor are subject to adjustment as provided herein. This warrant certificate is one of a series of warrant certificates issued by the Company in connection with its issuance of 10% Senior Secured Notes due July 1, 1997 (the "Notes") pursuant to the Securities Purchase Agreement, dated as of February 29, 1996 (the "Securities Purchase Agreement"), by and among the Company and each of the Purchasers who are signatories thereto. All capitalized terms used herein without definition (including, without 2 limitation, Common Stock Purchase Warrants, Rickel and Collateral Security Warrants) shall have the respective meanings given such terms as set forth in the Securities Purchase Agreement. 1. Purchase Price The purchase price for the Shares purchasable hereunder (the "Purchase Price") shall be equal to $2.50 per Share, subject to adjustment as hereinafter described. 2. Definition of Market Price Unless otherwise provided herein, for purposes of any computations made hereunder, "Market Price" per share of Common Stock on any date shall be: (a) if the Common Stock is listed or admitted for trading on any national securities exchange or included in the Nasdaq National Market or Nasdaq Small-Cap Market, the last reported sales price as reported on such exchange or market, as the case may be; (b) if the Common Stock is not listed or admitted for trading on any national securities exchange or included in the Nasdaq National Market or Nasdaq Small-Cap Market, the average of the last reported closing bid and asked quotation for the Common Stock as reported on the Automated Quotation System of NASDAQ or a similar service if NASDAQ is not reporting such information; (c) if the Common Stock is not listed or admitted for trading on any national securities exchange or included in the Nasdaq National Market or Nasdaq Small-Cap Market or quoted by NASDAQ or a similar service, the average of the last reported bid and asked quotation for the Common Stock as quoted by a market maker in the Common Stock (or if there is more than one market maker, the bid and asked quotation shall be obtained from two market makers and the average of the lowest bid and highest asked quotation shall be the "Market Price"); or (d) if the Common Stock is not listed or admitted for trading on any national securities exchange or included in the Nasdaq National Market or Nasdaq Small-Cap Market or quoted by NASDAQ and there is no market maker in the Common Stock, the fair market value of such shares as determined jointly by the Company and Warrantholders holding Warrants to purchase not less than 50% of all of the shares of Common Stock issuable upon the exercise of all Common Stock Purchase Warrants and Warrants issued to Rickel in connection with the Securities Purchase Agreement then outstanding (the "Majority Warrantholders"), or if no such determination can be reached within fifteen (15) days, such determination shall be made by an appraiser who shall be mutually selected by the Company and the Majority Warrantholders, the costs of such appraiser to be borne by the Company. 3. Registration, Transfer and Exchange of the Warrants The Company will keep at its principal executive office a warrant register in which, subject to such reasonable regulations as it may prescribe but at its expense, it will provide for the registration, transfer and exchange of the Warrants. The Warrants may not be pledged, sold, assigned, hypothecated or otherwise -2- 3 transferred until (a) a registration statement with respect thereto is effective under the Securities Act and any applicable state securities laws or (b) the Company receives an opinion of counsel to the Company or other counsel to the Warrantholder, which other counsel is reasonably satisfactory to the Company, that the Warrants may be pledged, sold, assigned, hypothecated or transferred without an effective registration statement under the Securities Act or applicable state securities laws. The Warrantholder, at its option, may surrender this warrant certificate for transfer or exchange at the principal executive office of the Company, 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 Warrantholder thereof or by such Warrantholder's attorney duly authorized in writing. In case any Warrantholder shall so request the transfer, assignment or exchange of any warrant certificate, the Company, at its expense, will execute and deliver (in each case insured to the Warrantholder's reasonable satisfaction) in exchange therefor one or more new warrant certificates, as may be requested by such Warrantholder, to purchase the same aggregate number of Shares as are purchasable upon exercise of the warrant certificate so surrendered. Prior to due presentment for registration of transfer of this warrant certificate, the Company shall deem and treat the Warrantholder as the absolute owner of the Warrants (notwithstanding any notation of ownership or other writing on this warrant certificate made by anyone other than the Company) for the purpose of any exercise hereof or any distribution to the Warrantholder and for all other purposes, and the Company shall not be affected by any notice to the contrary. 4. Issuance of Shares Subject to the restrictions set forth in Section 5 below, upon surrender of the Warrants and payment of the Purchase Price as aforesaid, the Company shall issue and deliver with all reasonable dispatch the certificate(s) for the Shares to or upon the written order of the Warrantholder and in such name or names as the Warrantholder may designate. Such certificate(s) shall represent the number of Shares issuable upon the exercise of the Warrants, together with a cash amount in respect of any fraction of a Share otherwise issuable upon such exercise. Certificates representing the Shares shall be deemed to have been issued and the person so designated to be named therein shall be deemed to have become a holder of record of such Shares simultaneously with the surrender of the Warrants and payment of the Purchase Price as aforesaid; notwithstanding that the transfer books for the shares of Common Stock or other classes of stock purchasable upon the exercise of the Warrants shall then be closed or the certificate(s) for the Shares in respect of which the Warrants is then exercised shall not then have been actually delivered to the Warrantholder. As soon as practicable after each such exercise of -3- 4 the Warrants, the Company shall issue and deliver the certificate(s) for the Shares issuable upon such exercise, registered as requested. The Warrants shall be exercisable, at the election of the registered holder hereof, either as an entirety or from time to time for part of the number of Shares specified herein. In the event that only a portion of the Warrants is exercised at any time prior to the close of business on the Expiration Date, a new warrant certificate shall be issued to the Warrantholder for the remaining number of Shares purchasable pursuant hereto. In no event shall fractional Shares be issued with regard to the exercise of the Warrants. The Company shall cancel the Warrants when they are surrendered upon exercise. 5. Payment of Expenses, Taxes, etc. upon Exercise The Company shall pay all documentary stamp taxes, if any, attributable to the initial issuance of the Shares issuable upon the exercise of the Warrants; including, without limitation, any tax or taxes which may be payable in respect of any transfer involved in the issue or delivery of any certificates for Shares in a name other than that of the Warrantholder upon the exercise of the Warrants. 6. Lost, Stolen, or Mutilated Warrant Certificate In case this warrant certificate shall be mutilated, lost, stolen or destroyed, the Company shall issue and deliver, in exchange and substitution for and upon cancellation of the mutilated warrant certificate, or in lieu of and substitution for the warrant certificate lost, stolen or destroyed, a new warrant certificate of like tenor and representing an equivalent number of Shares purchasable upon exercise, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of such warrant certificate and reasonable indemnity, if requested, also reasonably satisfactory to the Company. No bond or other security shall be required from the original Warrantholder in connection with the replacement by the Company of a lost, stolen or mutilated warrant certificate. 7. Covenants of the Company (a) The Company shall at all times through the Expiration Date reserve and keep available, free from pre-emptive rights and out of its aggregate authorized but unissued shares of Common Stock, the number of Shares deliverable upon the exercise of the Warrants. (b) Before taking any action which would cause an adjustment pursuant to the terms set forth herein that would reduce the portion of the Purchase Price attributable to the Shares below the then par value (if any) of such Shares, the Company shall take any corporate action which may, in the opinion of its counsel (which may be counsel regularly engaged by the Company), be necessary in order that the Company may validly and legally issue fully paid and nonassessable Shares at the Purchase Price as so adjusted. -4- 5 (c) The Company covenants that all Shares issued upon exercise of the Warrants shall, upon issuance in accordance with the terms hereof, be fully paid and nonassessable and free and clear of all Liens, claims, security interests, pledges, charges, encumbrances, stockholders' agreements and voting trusts created by the Company with respect to the issuance and holding thereof. (d) So long as the Warrants are outstanding, the Company shall not issue any capital stock of any class preferred as to dividends or as to the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up unless the rights of the holders thereof shall be limited to a fixed sum or percentage of par value in respect of participation in dividends or in the distribution of such assets. (e) So long as the Warrants are outstanding, the Company covenants that it shall file all forms, schedules and reports with the Commission required to be filed by it on a timely basis and it shall comply with all securities laws, including, without limitation, the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. 8. Rights Upon Expiration Unless the Warrants are surrendered and payment made for the Shares as herein provided before the close of business on the Expiration Date, this warrant certificate will become wholly void and all rights evidenced hereby will terminate after such time. 9. Adjustment for Certain Events (a) In case the Company shall at any time after the date the Warrants are first issued (i) declare a dividend on the Common Stock payable in shares of the Company's capital stock (whether in shares of Common Stock or of capital stock of any other class), (ii) subdivide the outstanding Common Stock, (iii) reverse split the outstanding Common Stock into a smaller number of shares, or (iv) issue any shares of the Company's capital stock in a reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then, in each case, the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, reverse split or reclassification and/or the number and kind of shares of capital stock issuable upon exercise of the Warrants on such date shall be proportionately adjusted so that the holder of any Warrant exercised after such time shall be entitled to receive the aggregate number and kind of securities which, if such Warrant had been exercised immediately prior to such date, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, reverse split or reclassification. Such adjustments shall be made successively whenever any event listed above shall occur. (b) In case the Company shall fix a record date for the making of a -5- 6 distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of earnings, consolidated earnings, if the Company shall have one or more subsidiaries, or earned surplus, or dividends payable in Common Stock) or rights, options or warrants to subscribe for or purchase Common Stock, then, in each case, the Purchase Price per Share to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, of which the numerator shall be the current Market Price for a share of Common Stock on such record date less the fair market value of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights, options or warrants applicable to one share of Common Stock, and of which the denominator shall be the current Market Price for a share of Common Stock. Such determination of fair market value shall be made by an appraiser who shall be mutually selected by the Company and the Majority Warrantholders, the costs of such appraiser to be borne by the Company. Such adjustment shall be made successively whenever such a record date is fixed, and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) No adjustment in the Purchase Price shall be required unless such adjustment would require a decrease of at least one cent ($0.01) in such price; provided, however, that any adjustment which by reason of this Section 9(c) is not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 9 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be, but in no event shall the Company be obligated to issue fractional shares of Common Stock or fractional portions of any securities upon the exercise of the Warrants. (d) In the event that at any time, as a result of an adjustment made pursuant to Section 9 hereof, the holder of any Warrant thereafter exercised shall become entitled to receive any shares of capital stock or warrants or other securities of the Company other than the Shares, thereafter the number of such other shares of capital stock or warrants or other securities so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Shares contained in this Section 9, and the provisions of this warrant certificate with respect to the Shares shall apply, to the extent applicable, on like terms to any such other shares of capital stock or warrants or other securities. (e) Upon each adjustment of the Purchase Price as a result of calculations made in this Section 9, each Warrant outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of Shares (calculated to the nearest hundredth), obtained by (i) multiplying the number of Shares purchasable upon exercise of a Warrant immediately prior to such adjustment of the Purchase Price by the Purchase Price in effect immediately prior to such adjustment and (ii) -6- 7 dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (f) In case of any capital reorganization of the Company or of any reclassification of the Common Stock (other than a change in par value or from a specified par value to no par value or from no par value to a specified par value or as a result of subdivision or combination) or in case of the consolidation of the Company with, or the merger of the Company into, any other corporation (other than a consolidation or merger in which the Company is the continuing corporation) or of the sale of the properties and assets of the Company as, or substantially as, an entirety, each Warrant shall, after such reorganization, reclassification, consolidation, merger or sale, be exercisable, upon the terms and conditions specified herein, for the number of shares of Common Stock or other capital stock or warrants or other securities or property to which a holder of the number of shares of Common Stock purchasable (at the time of such reorganization, reclassification, consolidation, merger or sale) upon exercise of such Warrant would have been entitled upon such reorganization, reclassification, consolidation, merger or sale; and in any such case, if necessary, the provisions set forth in this Section 9(f) with respect to the rights and interests thereafter of the registered holders of all Warrants shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares of Common Stock or other capital stock or warrants or other securities or property thereafter deliverable on the exercise of the Warrants. The subdivision, reverse split or combination of shares of Common Stock at any time outstanding into a greater or lesser number of shares shall not be deemed to be a reclassification of the Common Stock for the purposes of this Section 9(f). (g) If the Company shall, prior to the close of business on the Expiration Date, issue shares of Common Stock (whether in a single transaction or a series of transactions, whether or not related) (except for any shares of Common Stock issued as a result of the exercise of the Collateral Security Warrants) for a purchase price or prices which are, in any instance, less than the Purchase Price then in effect, then the Purchase Price shall be reduced to a price (calculated to the nearest full cent) determined by dividing (A) an amount equal to the sum of (x) the total number of shares of Common Stock outstanding immediately prior to such issuance or sale multiplied by the Purchase Price in effect immediately prior to such issuance plus (y) the aggregate of the amount of all consideration, if any, received by the Company upon such issuance by (B) the total number of shares of Common Stock outstanding immediately after such issuance; provided, however, that in no event shall the Purchase Price be adjusted pursuant to this computation to an amount in excess of the Purchase Price in effect immediately prior to such computation. The issuance of any other shares of Common Stock or options or warrants for the purchase thereof may be excluded from the operation of this Section 9(g), provided, the written consent of the Majority Warrantholders has been obtained prior to such issuance. (h) In any case in which this Section 9 shall require that an adjustment in the Purchase Price and/or the number of Shares purchasable hereunder be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such -7- 8 event issuing to the Warrantholder, if such Warrantholder exercised any Warrant after such record date, shares of capital stock or warrants or other securities of the Company, if any, issuable upon such exercise over and above the Shares issuable prior to such adjustment; provided, however, that the Company shall deliver to the holder a due bill or other appropriate instrument evidencing such holder's right to receive such shares of capital stock or warrants or other securities upon the occurrence of the event requiring such adjustment. (i) In all events an adjustment, consistent with the anti-dilutive provisions set forth in Section 9(g), shall be made in the Purchase Price and the number of Shares issuable upon the exercise of the Warrants if the Company issues, in exchange for cash, property or services, any securities convertible into or exchangeable for shares of Common Stock, or securities carrying the right to purchase shares of Common Stock or such convertible or exchangeable securities, with a conversion, exchange or exercise price less than the Purchase Price then in effect, with said adjustment being based upon the conversion, exchange or exercise price of such convertible or exchangeable securities. No adjustment shall be made pursuant to this Section 9(i) in connection with the issuance of the Collateral Security Warrants or the exercise thereof. 10. Fractional Shares Upon exercise of the Warrants the Company shall not be required to issue fractional shares of Common Stock or other capital stock. In lieu of such fractional shares, the Warrantholder shall receive an amount in cash equal to the same fraction of the (i) current Market Price of one whole Share if clause (a), (b) or (c) in the definition of Market Price in Section 2 above is applicable or (ii) book value of one whole Share as reported in the Company's most recent audited financial statements if clause (d) in the definition of Market Price in Section 2 above is applicable. All calculations under this Section 10 shall be made to the nearest cent. 11. Securities Act Legend The Warrantholder shall not be entitled to any rights of a stockholder of the Company with respect to any Shares purchasable upon the exercise hereof, including voting, dividend or dissolution rights, until such Shares have been paid for in full. As soon as practicable after such exercise, the Company shall deliver a certificate or certificates for the securities issuable upon such exercise, all of which shall be fully paid and nonassessable, to the person or persons entitled to receive the same; provided, however, that, if applicable, such certificate or certificates delivered to the holder of the surrendered Warrants shall bear a legend reading substantially as follows: "These securities have not been registered under the Securities Act of 1933, as amended, or the securities laws of any state and may not be sold or transferred in the absence of such registration or any exemption therefrom under such Act and laws, if applicable. The -8- 9 Company, prior to permitting a transfer of these securities, may require an opinion of counsel or other assurances satisfactory to it as to compliance with or exemption from such Act and laws." 12. Notice of Adjustment (a) Upon any adjustment of the Purchase Price and/or the number of Shares issuable upon exercise of the Warrants pursuant to Section 9 above, the Company, within thirty (30) calendar days thereafter, shall have on file for inspection by the Warrantholder a certificate of the Board of Directors of the Company setting forth the Purchase Price and the number of Shares issuable upon exercise of the Warrants after such adjustment, the method of calculation thereof in reasonable detail and the facts upon which such calculations were based, which certificate shall be conclusive evidence of the correctness of the matters set forth therein. (b) In case: (i) the Company shall authorize the issuance to all holders of Common Stock of rights, options or warrants to subscribe for or purchase capital stock of the Company or of any other subscription rights, options or warrants; or (ii) the Company shall authorize the distribution to all holders of Common Stock of evidences of its indebtedness or assets (including, without limitation, cash dividends or cash distributions payable out of earnings, consolidated earnings, if the Company shall have one or more subsidiaries, or earned surplus, or dividends payable in Common Stock); or (iii) of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, of the conveyance or transfer of the properties and assets of the Company substantially as an entirety or of any capital reorganization or any reclassification of the Common Stock (other than a change in par value or from a specified par value to no par value or from no par value to a specified par value or as a result of a subdivision or combination); or (iv) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (v) the Company proposes to take any other action which would require an adjustment of the Purchase Price and/or the number of Shares issuable upon exercise of the Warrants pursuant to Section 9 above; then, in each such case, the Company shall give to the Warrantholder at its address appearing below at least twenty (20) calendar days prior to the applicable record date hereinafter specified -9- 10 in (A), (B) or (C) below, by first class mail, postage prepaid, a written notice stating (A) the date as of which the holders of record of shares of Common Stock to be entitled to receive any such rights, options, warrants or distribution are to be determined or (B) the date on which any such consolidation, merger, conveyance, transfer, reorganization, reclassification, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of record of shares of Common Stock shall be entitled to exchange such shares for securities or other property, if any, deliverable upon such consolidation, merger, conveyance, transfer, reorganization, reclassification, dissolution, liquidation or winding up or (C) the date of such action which would require an adjustment of the Purchase Price and/or the number of Shares issuable upon exercise of the Warrants. The failure to give the notice required by this Section 12(b) or any defect therein shall not affect the legality or validity of any such issuance, distribution, consolidation, merger, conveyance, transfer, reorganization, reclassification, dissolution, liquidation, winding up or other action or the vote upon any such action. Except as provided herein, nothing contained herein shall be construed as conferring upon the Warrantholder the right to vote on any matter submitted to the stockholders of the Company for their vote or to receive notice of meetings of stockholders or the election of directors of the Company or any other proceedings of the Company, or any rights whatsoever as a stockholder of the Company. 13. 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. 2151 Anchor Court Newbury Park, CA 91320 Attention: Chief Executive Officer Telephone: (805) 376-2595 Telecopy: (805) 376-9015 (ii) if to the Warrantholder, at the address of such Warrantholder as it appears on the warrant register. -10- 11 14. Miscellaneous (a) The Warrantholder shall be entitled to all the registration and other rights, benefits and privileges set forth in the Registration Rights Agreement dated as of the date hereof among the Company, Rickel and the holders of the Common Stock Purchase Warrants and the Securities Purchase Agreement. (b) All the covenants and provisions herein by or for the benefit of the Company shall bind and inure to the benefit of and be enforceable by the Company and its successors or assigns, and all of the covenants and provisions herein for the benefit of the Warrantholder hereof shall inure to the benefit of and be enforceable by the Warrantholder and its successors or assigns. (c) This warrant certificate 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 internal laws of such State. The Company (i) 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 warrant certificate or the subject matter hereof brought by the Warrantholder, (ii) 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 warrant certificate or the subject matter hereof may not be enforced in or by such court and (iii) 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 Warrantholder. Final judgment against the Company in any such action, suit or proceeding shall be conclusive and may be enforced in other jurisdictions (A) 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 (B) in any other manner provided by or pursuant to the laws of such other jurisdiction; provided, however, that the Warrantholder may at its 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. (d) Nothing in this warrant certificate shall be construed to give any person or corporation other than the Company and the Warrantholder and its permitted transferees any legal or equitable right, remedy or claim under this warrant certificate; but this warrant certificate shall be for the sole and exclusive benefit of the Company and the Warrantholder and its permitted transferees. -11- 12 IN WITNESS WHEREOF, an authorized officer of the Company has signed and delivered to the Warrantholder this warrant certificate as of the date first written above. DDL ELECTRONICS, INC. By: --------------------------------- Gregory L. Horton President and Chief Executive Officer ATTEST: By: ------------------------- C. L. Haslam Secretary [CORPORATE SEAL] -12- 13 ELECTION TO PURCHASE (To be executed by the registered holder if such holder desires to exercise the within warrant certificate) To: DDL ELECTRONICS, INC. 2151 Anchor Court Newbury Park, CA 91320 The undersigned hereby (1) irrevocably elects to exercise his or its rights to purchase ____ shares of Common Stock covered by the within warrant certificate, (2) makes payment in full of the Purchase Price by enclosure of a check payable to the order of the Company, (3) requests that certificates for such shares be issued in the name of: Please print name, address and Social Security or Tax Identification Number: - ------------------------------------------------- - ------------------------------------------------- - ------------------------------------------------- and (4) if said number of shares shall not be all the shares evidenced by the within warrant certificate, requests that a new warrant certificate for the balance of the shares covered by the within warrant certificate be registered in the name of, and delivered to: Please print name and address: - ------------------------------------------------- - ------------------------------------------------- - ------------------------------------------------- In lieu of receipt of a fractional share of Common Stock, the undersigned will receive a check representing payment therefor. Dated: ------------------- -------------------------------- By: ---------------------------- General Partner -13- 14 ------------------------------- By: --------------------------- President -14- EX-4.O 6 REGISTRATION RIGHTS AGREEMENT-CO./RICKEL 2-29-96 1 EXHIBIT 4-o =============================================================================== REGISTRATION RIGHTS AGREEMENT BY AND AMONG DDL ELECTRONICS, INC., AND RICKEL & ASSOCIATES, INC. =============================================================================== Dated as of February 29, 1996 2 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made and entered into as of February 29, 1996 by and among DDL Electronics, Inc. (the "Company") and Rickel & Associates, Inc. ("Rickel"). This Agreement is made pursuant to a certain Securities Purchase Agreement dated as of the date hereof by and among the Company and each of the purchasers executing a signature page thereto (the "Securities Purchase Agreement"). The Company has agreed to provide the registration rights set forth in this Agreement for the benefit of the Holders (as hereinafter defined), from time to time, of Registrable Securities (as hereinafter defined). The execution of this Agreement is a condition to the closing of the transactions contemplated by the Securities Purchase Agreement. The parties hereby agree as follows: 1. Definitions Capitalized terms used herein without definition shall have the respective meanings given such terms as set forth in the Securities Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: Advice: See Section 3. Business Day: Any day other than a day on which banks are authorized or required to be closed in the State of New York. Commission: The Securities and Exchange Commission. Common Stock: The common stock, par value $.01 per share, of the Company. Demand Registration: See Section 2(a). Engagement Letter: Engagement Letter, dated as of January 30, 1996, between Rickel and the Company. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. Holder or Holders: Any holder of the Registrable Securities. Inspectors: See Section 3(m). 3 NASD: See Section 3(q). NASDAQ: See Section 3(o). Notes: The Company's 10% Senior Secured Notes due July 1, 1997 sold pursuant to the Securities Purchase Agreement and in an aggregate original principal amount of up to $5,300,000. Objecting Notice: See Section 3(a). Objecting Party: See Section 3(a). Person: Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. Piggyback Registration Rights: See Section 2(b). Prospectus: The prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to the prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus. R&A Collateral Stock: The 1,060,000 shares of Common Stock pledged by Rickel as collateral security for the satisfaction of the Company's obligations under the Notes. Records: See Section 3(m). Registrable Securities: The R&A Collateral Stock and the Reg S Collateral Stock until such time as (i) a Registration Statement covering all of such Registrable Securities has been declared effective by the Commission and all of such Registrable Securities have been disposed of pursuant to such effective Registration Statement or (ii) such Registrable Securities are held by one or more Persons who could sell all Registrable Securities held by each such Person in a single sale pursuant to Rule 144 (or any similar provision then in force) under the Securities Act, whichever is earlier. Registration Expenses: See Section 4. 4 Registration Statement: Any registration statement of the Company that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statements, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Reg S Collateral Stock: Up to 1,007,317 shares of Common Stock which may issued to Rickel upon the conversion or retirement of certain convertible debentures of the Company (the "Convertible Debentures") in accordance with the Engagement Letter. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. Selling Holders: See Section 3(a). Shelf Registration: See Section 2. Target Effective Period: See Section 2. 2. (a)(i) Shelf Registration re R&A Collateral Stock. At any time after all or part of the R&A Collateral Stock is delivered to Rickel upon termination of the Pledge Agreement in accordance with the terms thereof, Rickel may demand (a "R&A Demand Registration") that the Company effect under the Securities Act and state securities laws the registration of the offer and sale of all or part of the R&A Collateral Stock. Any request for a R&A Demand Registration will specify the number of shares of R&A Collateral Stock proposed to be sold and will also specify the intended method of disposition thereof. The Company shall (subject to the provisions of this Agreement) promptly give written notice of such requested registration to all Holders as soon as practicable but not later than ten (10) days after delivery of such demand and shall use its best efforts to file a "shelf" Registration Statement on the appropriate form for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act covering (x) all of the R&A Collateral Stock (the "R&A Shelf Registration") which the Company has been so requested to register by Rickel and (y) all of the other Registrable Securities which the Company has been so requested to register by any other Holder thereof by written notice received by the Company within twenty (20) days of the giving of such notice by the Company (which notice shall specify the intended method of disposition of such Registrable Securities). The Company will use its best efforts to have the R&A Shelf Registration declared effective as soon as practicable and to keep such R&A Shelf Registration continuously effective for a period (the "Target Effective Period") of at least thirty six (36) months following the date on which such R&A Shelf Registration is declared effective (or such shorter period which will terminate when all Registrable Securities covered by such R&A Shelf Registration have been sold or withdrawn, but not prior to the expiration of the applicable period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable). The Company further agrees, if necessary, to 3 5 supplement or amend the R&A Shelf Registration, as required by the registration form used by the Company for such R&A Shelf Registration or by the instructions applicable to such registration form or by the Securities Act or as reasonably requested (which request shall result in the filing of a supplement or amendment) by any Holder or prospective Holder to which such R&A Shelf Registration relates, and the Company agrees to furnish to the Holders, Holders' Counsel and any managing underwriter copies of any such supplement or amendment prior to its being used and/or filed with the Commission. The Company will only be obligated to file one such R&A Shelf Registration for which all Registration Expenses incurred in connection therewith shall be borne by the Company and one additional R&A Shelf Registration for which all such Registration Expenses shall be borne by the participating Holders pro rata in relation to the number of shares of Registrable Securities to be registered by each Holder. (ii) Shelf Registration re Reg S Collateral Stock. At any time after the Reg S Collateral Stock is issued to Rickel in accordance with the Engagement Letter, Rickel may demand (a "Reg S Demand Registration," and together with the R&A Demand Registration, a "Demand Registration") that the Company effect under the Securities Act and state securities laws the registration of the offer and sale of all or part of the Reg S Collateral Stock. Any request for a Reg S Demand Registration will specify the number of shares of Reg S Collateral Stock proposed to be sold and will also specify the intended method of disposition thereof. The Company shall (subject to the provisions of this Agreement) promptly give written notice of such requested registration to all Holders as soon as practicable but not later than ten (10) days after delivery of such demand and shall use its best efforts to file a "shelf" Registration Statement on the appropriate form for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act covering (x) all of the Reg S Collateral Stock (the "Reg S Shelf Registration," and together with the R&A Shelf Registration, the "Shelf Registration") which the Company has been so requested to register by Rickel and (y) all of the other Registrable Securities which the Company has been so requested to register by any other Holder thereof by written notice received by the Company within twenty (20) days of the giving of such notice by the Company (which notice shall specify the intended method of disposition of such Registrable Securities). The Company will use its best efforts to have the Reg S Shelf Registration declared effective as soon as practicable and to keep such Reg S Shelf Registration continuously effective for a period (the "Target Effective Period") of at least thirty six (36) months following the date on which such Reg S Shelf Registration is declared effective (or such shorter period which will terminate when all Registrable Securities covered by such Reg S Shelf Registration have been sold or withdrawn, but not prior to the expiration of the applicable period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable). The Company further agrees, if necessary, to supplement or amend the Reg S Shelf Registration, as required by the registration form used by the Company for such Reg S Shelf Registration or by the instructions applicable to such registration form or by the Securities Act or as reasonably requested (which request shall result in the filing of a supplement or amendment) by any Holder or prospective Holder to which such Reg S Shelf Registration relates, and the Company agrees to furnish to the Holders, Holders' Counsel and any managing underwriter copies of any such supplement or amendment prior to its 4 6 being used and/or filed with the Commission. The Company will only be obligated to file one such Reg S Shelf Registration for which all Registration Expenses incurred in connection therewith shall be borne by the Company and one additional Reg S Shelf Registration for which all such Registration Expenses shall be borne by the participating Holders pro rata in relation to the number of shares of Registrable Securities to be registered by each Holder. (b) Piggyback Registration. If the Company, at any time after the date hereof, proposes to register any of its securities under the Securities Act for sale to the public for its own account or for the account of other security holders (except with respect to registration statements on Forms S-4 or S-8 or another form not available for registering the Registrable Securities for sale to the public), each such time it will give written notice thereof to all Holders of its intention so to do (such notice to be given at least thirty (30) days prior to the filing thereof). Upon the written request of any such Holder (which request shall specify the number of Registrable Securities intended to be disposed of by such Holder and the intended method of disposition thereof), received by the Company within twenty (20) days after giving of any such notice by the Company, to register any of such Holder's Registrable Securities, the Company will use its best efforts, subject to Section 2(c) below, to cause the Registrable Securities as to which registration shall have been so requested to be included in the securities to be covered by the Registration Statement proposed to be filed by the Company, all to the extent requisite to permit the sale or other disposition by the Holder (in accordance with its written request) of such Registrable Securities so registered ("Piggyback Registration Rights"); provided, that (i) if such registration involves an underwritten offering, all Holders requesting to be included in the Company's registration must sell their Registrable Securities to the underwriters selected by the Company on the same terms and conditions as apply to the Company; (ii) if, at any time after giving written notice of its intention to register any securities pursuant to this Section 2(b) and prior to the effective date of the Registration Statement filed in connection with such registration, the Company shall determine for any reason not to register such securities, the Company shall give written notice to all Holders and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (without prejudice, however, to rights of Holders under Section 2(a) hereof) and (iii) the Registrable Securities so requested to be included are no longer subject to the Pledge Agreement or to the terms of the Convertible Debentures. If a registration pursuant to this Section 2(b) involves an underwritten public offering, any Holder requesting to be included in such registration may elect, in writing prior to the effective date of the registration statement filed in connection with such registration, not to register such securities in connection with such registration. No registration effected under this Section 2(b) shall relieve the Company of its obligations to effect the Demand Registration. The foregoing provisions notwithstanding, (i) the Company may withdraw any registration statement referred to in this Section 2(b) without thereby incurring any liability to the Holders, and (ii) the inclusion of shares of Registrable Securities under such Piggyback Registration Rights is subject to the cut back provisions of Section 2(c) below. (c) Priority in Piggyback Registration. If a registration pursuant to Section 5 7 2(b) hereof involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of equity securities (including all Registrable Securities) which the Company, the Holders and any other persons intended to be included in such registration exceeds the largest number of securities which can be sold without having an adverse effect on such offering, including the price at which such securities can be sold, the Company will include in such registration (i) first, all the securities the Company proposes to sell for its own account, (ii) second, to the extent that the number of securities which the Company proposes to sell for its own account pursuant to Section 2(b) hereof is less than the number of securities which the Company has been advised can be sold in such offering without having the adverse effect referred to above, the number of securities requested to be included in such registration by security holders as a result of their exercise of "demand" registration rights by such holders and (iii) third, to the extent that the number of securities which the Company and security holders exercising "demand" registration rights propose to sell for their own account pursuant to Section 2(b) hereof is less than the number of securities which the Company has been advised can be sold in such offering without having the adverse effect referred to above, the number of Registrable Securities requested to be included in such registration by the Holders pursuant to Section 2(b) hereof shall be included prior to the inclusion of any other securities requested to be included in such registration as a result of the exercise of "piggyback" registration rights by such other holders. Any such reductions shall be pro rata in relation to the number of shares of Common Stock to be registered by each person participating in the offering. (d) Holdback Agreements. If any registration of Registrable Securities shall be in connection with an underwritten public offering, each Holder agrees not to effect any public sale or distribution, including any sale pursuant to Rule 144 under the Securities Act, of any Registrable Securities, and not to effect any such public sale or distribution of any other equity security of the Company or of any security convertible into or exchangeable or exercisable for any equity security of the Company (in each case, other than as part of such underwritten public offering) during the thirty (30) days prior to, and during the ninety (90) day period beginning on, the effective date of such Registration Statement (except as part of such registration). (e) Exceptions. Notwithstanding the foregoing, the Company may delay the registration of Registrable Securities following a written request pursuant to Section 2(a) or (b) hereof for the time periods described in Section 2(f) hereof upon the occurrence of any of the following: (i) The Company shall have previously entered into an agreement or letter of intent contemplating an underwritten public offering on a firm commitment basis of Common Stock or securities convertible into or exchangeable for Common Stock and the managing underwriter of such proposed public offering advises the Company in writing that in its opinion such proposed underwritten offering would be materially and adversely affected by a concurrent 6 8 registered offering of Registrable Securities (such opinion to state the reasons therefor); (ii) During the two (2) month period immediately preceding such request, the Company shall have entered into an agreement or letter of intent, which has not expired or otherwise terminated, contemplating a material business acquisition by the Company or its subsidiaries whether by way of merger, consolidation, acquisition of assets, acquisition of securities or otherwise; (iii) The Company is in possession of material nonpublic information that the Company would be required to disclose in the Registration Statement and that is not, but for the registration, otherwise required to be disclosed at the time of such registration, the disclosure of which, in its good faith judgment, would have a material adverse effect on the business, operations, prospects or competitive position of the Company; (iv) The Company shall receive the written opinion of the managing underwriter of the underwritten public offering pursuant to which its Common Stock has been registered within the three (3) month period prior to the receipt of a registration request that the registration of additional Common Stock will materially and adversely affect the market for the Common Stock (such opinion to state the reasons therefor); or (v) At the time of receipt of a registration request, the Company is engaged, or its board of directors has adopted by resolution a plan to engage, in any program for the purchase of shares of Common Stock or securities convertible into or exchangeable for shares of Common Stock and, in the opinion of counsel, reasonably satisfactory to the requesting Holders, the distribution of the Common Stock to be registered would cause such purchase of shares to be in violation of Rule 10b-6 under Section 10 of the Exchange Act. (f) Period of Delay. If an event described in clauses (i) through (iv) of Section 2(e) shall occur, the Company may, by written notice to the Holders, delay the filing of a Registration Statement with respect to the Registrable Securities to be covered thereby for a period of time not exceeding ninety (90) days. 7 9 If an event described in clause (v) of Section 2(e) shall occur, the filing of a Registration Statement with respect to the Registrable Securities to be covered thereby shall be delayed until the first date that the Registrable Securities to be covered thereby can be sold without violation of Rule 10(b)-6 under Section 10 of the Exchange Act. 3. Registration Procedures. In connection with the registration obligations of the Company pursuant to the terms and conditions of this Agreement, the Company shall: (a) prior to filing a Registration Statement or Prospectus or any amendments or supplements thereto, including documents incorporated by reference after the initial filing of the Registration Statement, furnish to the Holders covered by such Registration Statement (the "Selling Holders"), Holders' Counsel and the underwriters, if any, draft copies of all such documents proposed to be filed at least five (5) Business Days prior thereto, which documents will be subject to the review of such Holders' Counsel and the underwriters, if any, and the Company will not, unless required by law, file any Registration Statement or amendment thereto or any Prospectus or any supplement thereto (including such documents incorporated by reference) to which Selling Holders of at least a majority of the Registrable Securities being sold (the "Objecting Party") shall object, pursuant to notice given to the Company prior to the filing of such amendment or supplement (the "Objection Notice"). The Objection Notice shall set forth the objections and the specific areas in the draft documents where such objections arise. The Company shall have five (5) Business Days after receipt of the Objection Notice to correct such deficiencies to the satisfaction of the Objecting Party, and will notify each Selling Holder of any stop order issued or threatened by the Commission in connection therewith and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (b) promptly prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement as may be necessary to keep such Registration Statement effective for the period required pursuant to Section 2; cause the Prospectus to be supplemented by any required Prospectus supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and comply with the provisions of the Securities Act applicable to it with respect to the disposition of all Registrable Securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the Selling Holders set forth in such Registration Statement or supplement to the Prospectus; (c) promptly furnish to any Selling Holder and the underwriters, if any, without charge, such number or conformed copies of such Registration Statement and any post-effective amendment thereto and such number of copies of the Prospectus (including each preliminary Prospectus) and any amendments or supplements thereto, and any documents incorporated by reference therein, as such Selling Holder or underwriter may request in order to 8 10 facilitate the disposition of the Registrable Securities being sold by such Selling Holder (it being understood that the Company consents to the use of the Prospectus and any amendment or supplement thereto by each Selling Holder and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto); provided, that before filing a Registration Statement or Prospectus relating to the Registrable Securities or any amendments or supplements thereto, the Company will furnish to Holders' Counsel copies of all documents proposed to be filed at least five (5) Business Days prior to the filing thereof, which documents will be subject to the review of such counsel; (d) on or prior to the date on which the Registration Statement is declared effective, register or qualify such Registrable Securities under such other securities or "blue sky" laws of such jurisdictions as any Selling Holder, Holders' Counsel or underwriter requests and do any and all other acts and things which may be necessary or advisable to enable such Selling Holder to consummate the disposition in such jurisdictions of such Registrable Securities owned by such Selling Holder; keep each such registration or qualification (or exemption therefrom) effective during the period which the Registration Statement is required to be kept effective; and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable Registration Statement; provided that the Company shall not be required to (i) qualify to do business as a foreign corporation or as a broker-dealer in any jurisdiction where it is not then so qualified, (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject or (iii) amend the terms of the Registrable Securities; (e) cause the Registrable Securities covered by such Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the Selling Holders to consummate the disposition of such Registrable Securities; (f) promptly notify each Selling Holder, Holders' Counsel and any underwriter and (if requested by any such Person) confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information to be included in any Registration Statement or Prospectus or otherwise, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement or the initiation or threatening of a any proceedings for that purpose, (iv) of the issuance by any state securities commission or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Securities under state securities or "blue sky" laws or the initiation of any proceedings for that purpose, and (v) of the happening of any event which makes any statement made in a Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated by reference 9 11 therein untrue or which requires the making of any changes in such Registration Statement, Prospectus or documents so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and, as promptly as practicable thereafter, prepare and file with the Commission and furnish a supplement or amendment to such Prospectus so that, as thereafter deliverable to the purchasers of such Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (g) make generally available to the Holders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act no later than thirty (30) days after the end of the 12-month period beginning with the first day of the Company's first fiscal quarter commencing after the effective date of a Registration Statement, which earnings statement shall cover said 12-month period; (h) promptly use its best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement, and, if one is issued, to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment; (i) if requested by the managing underwriter or underwriters, if any, Holders' Counsel, or any Selling Holder promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters requests, or Holders' Counsel requests, to be included therein, including, without limitation, with respect to the amount of Registrable Securities being sold by such Selling Holder to such underwriter or underwriters and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering, and promptly make all required filings of such Prospectus supplement or post-effective amendment; (j) as promptly as practicable after filing with the Commission of any document which is incorporated by reference into a Registration Statement, deliver a copy of such document to each Selling Holder and to Holders' Counsel; (k) cooperate with the Selling Holders and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (which shall not bear any restrictive legends and shall be in a form eligible for deposit with the Depository Trust Company) representing securities sold under such Registration Statement, and enable such securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or such Selling Holders may request and make available prior to the effectiveness of such Registration Statement a supply of such certificates; (l) if applicable, enter into such customary agreements (including an 10 12 underwriting agreement in customary form) and take such other actions as the Selling Holders of at least a majority of the aggregate number of the Registrable Securities being sold or the underwriters retained by the Selling Holders participating in an underwritten public offering, if any, may request in order to expedite or facilitate the disposition of such Registrable Securities; (m) promptly make available for inspection by any Selling Holder, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent or representative retained by any such Selling Holder or underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information requested by any such Inspector in connection with such Registration Statement; (n) use reasonable efforts to obtain a cold comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters as the Selling Holders of at least a majority of the aggregate number of the Registrable Securities being sold may request; (o) if requested by Selling Holders of at least a majority of the aggregate amount of the Registrable Securities being sold to cause the Registrable Securities included in such Registration Statement to be (i) listed or admitted for trading or otherwise included on each securities exchange, if any, on which similar securities issued by the Company are then listed or admitted for trading or otherwise included (including, without limitation, The Nasdaq Stock Market) or (ii) authorized to be quoted on the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") if the Registrable Securities so qualify; (p) provide a CUSIP number for all Registrable Securities not later than the effective date of such Registration Statement; (q) cooperate with each Selling Holder and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers ("NASD"); and (r) during the period when the Prospectus is required to be delivered under the Securities Act, promptly file all documents required to be filed with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act. Each Selling Holder, upon receipt of any notice from the Company of the happening of any event of the kind described in subsection (f) of this Section 3, shall forthwith discontinue disposition of the Registrable Securities until such Selling Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by subsection (f) of this Section 3 or until it 11 13 is advised in writing (the "Advice") by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus, and, if so directed by the Company, such Selling Holder will, or will request the managing underwriter or underwriters, if any, to, deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Selling Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event that the Company shall give any such notice, the time periods for which a Registration Statement is required to be kept effective pursuant to Section 2 hereof shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when each Selling Holder shall have received (i) the copies of the supplemented or amended Prospectus contemplated by Section 3(f) or (ii) the Advice. If any Registration Statement refers to any Selling Holder by name or otherwise as the holder of any securities of the Company, then such Selling Holder shall have the right to require (i) the insertion therein of language, in form and substance satisfactory to such Selling Holder, to the effect that the holding by such Selling Holder of such securities is not to be construed as a recommendation by such Selling Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Selling Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Selling Holder by name or otherwise is not required by the Securities Act or any similar Federal statute then in force, the deletion of the reference to such Selling Holder. 4. Registration Expenses All expenses incident to the Company's performance of or compliance with this Agreement, including without limitation, all Commission and securities exchange or NASD registration and filing fees, fees and expenses of compliance with securities or "blue sky" laws (including fees and disbursements of counsel in connection with "blue sky" qualifications of the Registrable Securities), printing expenses, messenger and delivery expenses, internal expenses (including, without limitation, all salaries and expenses of the Company's officers and employees performing legal or accounting duties), fees and expenses incurred in connection with the listing of the securities to be registered, if any, on each securities exchange on which similar securities issued by the Company are then listed, fees and disbursements of counsel for the Company and its independent certified public accountants (including the expense of any special audit or "cold comfort" letters required by or incident to such performance), Securities Act liability insurance (if the Company elects to obtain such insurance), reasonable fees and expenses of any special experts retained by the Company in connection with such registration, fees and expenses of other Persons retained by the Company, reasonable fees and expenses of one counsel for the Holders incurred in connection with each registration hereunder (but not including any underwriting fees, discounts or commissions attributable to the sale of Registrable Securities) and any out-of-pocket expenses of the Holders excluding any travel costs and counsel fees except as set forth above are 12 14 herein called "Registration Expenses." The Company will pay all Registration Expenses in connection with each Registration Statement filed pursuant to Section 2(a) or Section 2(b), whether or not such Registration Statement becomes effective, except as otherwise set forth therein. All expenses to be borne by the Holders in connection with any Registration Statement filed pursuant to Section 2(a) or Section 2(b) (including, without limitation, all underwriting fees, discounts or commissions attributable to such sale of Registrable Securities) shall be borne by the participating Holders pro rata in relation to the number of shares of Registrable Securities to be registered by each Holder. 5. Indemnification; Contribution (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless, to the full extent permitted by law, each Holder, its officers, directors and each Person who controls such Holder (within the meaning of the Securities Act), and any agent or investment adviser thereof, against all losses, claims, damages, liabilities and expenses (including reasonable attorneys' fees and costs of investigation) arising out of or based upon any untrue or alleged untrue statement of material fact contained in any Registration Statement, any amendment or supplement thereto, any Prospectus or preliminary Prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same arise out of or are based upon any such untrue statement or omission based upon information with respect to such Holder furnished in writing to the Company by or on behalf of such Holder expressly for use therein; provided that, in the event that the Prospectus shall have been amended or supplemented and copies thereof as so amended or supplemented, shall have been furnished to a Holder prior to the confirmation of any sales of Registrable Securities, such indemnity with respect to the Prospectus shall not inure to the benefit of such Holder if the Person asserting such loss, claim, damage or liability and who purchased the Registrable Securities from such holder did not, at or prior to the confirmation of the sale of the Registrable Securities to such Person, receive a copy of the Prospectus as so amended or supplemented and the untrue statement or omission of a material fact contained in the Prospectus was corrected in the Prospectus as so amended or supplemented. In connection with an underwritten offering, the Company will indemnify the underwriters thereof, their officers and directors and each person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Holders except with respect to information provided by the underwriter specifically for inclusion therein. (b) Indemnification by Holders. In connection with any Registration Statement in which a Holder is participating, each such Holder will furnish to the Company in writing such information with respect to the name and address of such Holder and such other information as may be reasonably required for use in connection with any such Registration Statement or Prospectus and agrees to indemnify, to the full extent permitted by law, the 13 15 Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue or alleged untrue statement is contained in or such omission or alleged omission relates to any information with respect to such Holder so furnished in writing by such Holder specifically for inclusion in any Prospectus or Registration Statement; provided, however, that such Holder shall not be liable in any such case to the extent that prior to the filing of any such Registration Statement or Prospectus or amendment thereof or supplement thereto, such Holder has furnished in writing to the Company information expressly for use in such Registration Statement or Prospectus or any amendment thereof or supplement thereto which corrected or made not misleading information previously furnished to the Company. In no event shall the liability of any Selling Holder hereunder be greater in amount than the dollar amount of the proceeds received by such Selling Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder agrees to give prompt written notice to the indemnifying party after the receipt by such Person of any written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which such Person will claim indemnification or contribution pursuant to this Agreement and, unless in the judgment of counsel of such indemnified party a conflict of interest may exist between such indemnified party and the indemnifying party with respect to such claim, permit the indemnifying party to assume the defense of such claim. Whether or not such defense is assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. If the indemnifying party is not entitled to, or elects not to, assume the defense of a claim, it will not be obligated to pay the fees and expenses of more than one counsel (plus such local counsel, if any, as may be reasonably required in other jurisdictions) with respect to such claim, unless in the judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels. For the purposes of this Section 5(c), the term "conflict of interest" shall mean that there are one or more legal defenses available to the indemnified party that are different from or additional to those available to the indemnifying party or such other indemnified parties, as applicable, which different or additional defenses make joint representation inappropriate. (d) Contribution. If the indemnification from the indemnifying party 14 16 provided for in this Section 5 is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no Selling Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Selling Holder were offered to the public exceeds the amount of any damages which such Selling Holder has otherwise been required to pay by reason of such untrue statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. If indemnification is available under this Section 5, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Sections 5(a) and (b) without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 5(d). 6. Participation in Underwritten Registrations No Holder may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell its Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting 15 17 agreements and other documents reasonably required under the terms of such underwriting arrangements. 7. Rule 144 The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act (or, if the Company is not required to file such reports, it will, upon the request of any Holder, make publicly available other information so long as necessary to permit sales under Rule 144 under the Securities Act), and it will take such further action as any Holder may request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. 8. Transfer or Assignment of Registration Rights The rights to cause the Company to register Registrable Securities granted pursuant to this Agreement may be transferred or assigned by any Holder to a transferee or assignee; provided; however, that the transferee or assignee of such rights assumes the obligations of such transferor or assignor, as the case may be, under this Agreement and that such transferee or assignee executes and delivers a copy of this Agreement to the Company. 9. Miscellaneous (a) Other Registration Rights. The Company may grant registration rights that would permit any Person the right to piggy-back or may itself exercise its right to piggy-back, on any Shelf Registration, provided that if the managing underwriter or underwriters, if any, of such offering delivers an opinion to the Holders that the total amount of securities which they and the holders of such new piggy-back rights intend to include in any Shelf Registration is so large as to materially and adversely affect the success of such offering (including the price at which such securities can be sold), then only the amount, number or kind of securities to be offered for the account of holders of such new piggy-back rights (other than the Company) will be reduced pro rata with respect to each holder of securities to be registered, to the extent necessary to reduce the total amount of securities to be included in such offering to the amount, number or kind recommended by the managing underwriter prior to any reduction in the amount of Registrable Securities to be included; and provided further that if such offering is not underwritten, then such piggy-back rights shall only be exercised with the consent of the Holders of at least a majority of the Registrable Securities being offered under such Shelf Registration. (b) Amendments and Waivers. Except as otherwise provided herein, the 16 18 provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority of the aggregate number of the Registrable Securities then outstanding. (c) 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 a Holder, at the most current address given by such Holder to the Company in writing; (ii) if to the Company, as its address set forth in the Securities Purchase Agreement with copies as set forth in the Securities Purchase Agreement. (d) Successors and Assigns. This Agreement shall bind and inure to the benefit of and be enforceable by the Company, the Holders and the Holders' 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. The Company may not assign its rights under this Agreement. (e) 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. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. This Agreement 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 (i) 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 17 19 based upon this Agreement or the subject matter hereof brought by a Holder and (ii) 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 or the subject matter hereof may not be enforced in or by such court and (iii) 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 (x) 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 (y) 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. (h) 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 Holders shall be enforceable to the fullest extent permitted by law. (i) Entire Agreement. This Agreement, together with the Warrants, 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 are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement and the Warrants supersede all prior agreements and understandings between the parties with respect to such subject matter. (j) Attorneys' 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 attorneys' 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. 18 20 REGISTRATION RIGHTS AGREEMENT COMPANY SIGNATURE PAGE IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. DDL ELECTRONICS, INC. By: /s/ Gregory L. Horton ------------------------------------- Gregory L. Horton President and Chief Executive Officer 19 21 REGISTRATION RIGHTS AGREEMENT RICKEL SIGNATURE PAGE Accepted and Agreed as of the date first written above RICKEL & ASSOCIATES, INC. By: /s/ Howard Miller -------------------------------- Name: Howard Miller Title: E.V.P. 20 EX-4.P 7 FORM OF REGISTRATION RIGHTS AGREEMENT 2-29-96 1 EXHIBIT 4-p ================================================================================ REGISTRATION RIGHTS AGREEMENT BY AND AMONG DDL ELECTRONICS, INC. AND EACH OF THE PURCHASERS REFERRED TO HEREIN ================================================================================ Dated as of February 29, 1996 2 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made and entered into as of February 29, 1996 by and among DDL Electronics, Inc. (the "Company") and each of the purchasers executing a signature page hereto (herein referred to collectively as the "Purchasers" and individually as a "Purchaser"). This Agreement is made pursuant to a certain Securities Purchase Agreement dated as of the date hereof by and among the Company and each of the Purchasers (the "Securities Purchase Agreement"). In order to induce the Purchasers to enter into the Securities Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement for the benefit of the Holders (as hereinafter defined), from time to time, of Registrable Securities (as hereinafter defined). The execution of this Agreement is a condition to the closing of the transactions contemplated by the Securities Purchase Agreement. The parties hereby agree as follows: 1. Definitions Capitalized terms used herein without definition shall have the respective meanings given such terms as set forth in the Securities Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: Advice: See Section 3. Business Day: Any day other than a day on which banks are authorized or required to be closed in the State of New York. Collateral Security Warrants: The Collateral Security Warrants issued by the Company pursuant to the Securities Purchase Agreement. Commission: The Securities and Exchange Commission. Common Stock: The common stock, par value $.01 per share, of the Company. Demand Registration: See Section 2(a). Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. Holder or Holders: Any holder of the Registrable Securities. 3 Inspectors: See Section 3(m). NASD: See Section 3(q). NASDAQ: See Section 3(o). Notes: The Company's 10% Senior Secured Notes due July 1, 1997 sold pursuant to the Securities Purchase Agreement and in an aggregate original principal amount of up to $5,300,000. Objecting Notice: See Section 3(a). Objecting Party: See Section 3(a). Person: Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. Piggyback Registration Rights: See Section 2(b). Prospectus: The prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to the prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus. R&A Collateral Stock: The 1,060,000 shares of Common Stock pledged by Rickel as collateral security for the satisfaction of the Company's obligations under the Notes. Records: See Section 3(m). Registrable Securities: The R&A Collateral Stock and the shares of Common Stock issuable upon exercise of the Collateral Security Warrants until such time as (i) a Registration Statement covering all of such Registrable Securities has been declared effective by the Commission and all of such Registrable Securities have been disposed of pursuant to such effective Registration Statement or (ii) such Registrable Securities are held by one or more Persons who could sell all Registrable Securities held by each such Person in a single sale pursuant to Rule 144 (or any similar provision then in force) under the Securities Act, whichever is earlier. 4 Registration Expenses: See Section 4. Registration Statement: Any registration statement of the Company that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statements, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. Selling Holders: See Section 3(a). Shelf Registration: See Section 2. Target Effective Period: See Section 2. 2. (a) Shelf Registration. Provided that the Notes are still outstanding as of such date, on or prior to May 1, 1997, the Company shall file a "shelf" Registration Statement on the appropriate form for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act covering all of the Registrable Securities (the "Shelf Registration"). In the event of the occurrence of an Event of Default prior to the filing of such Shelf Registration, the Holders of a majority of the aggregate principal amount of the Notes may demand (a "Demand Registration") that the Company file at such time the Shelf Registration. The Company will use its best efforts to have the Shelf Registration declared effective as soon as practicable and to keep such Shelf Registration continuously effective for a period (the "Target Effective Period") of at least thirty six (36) months following the date on which such Shelf Registration is declared effective (or such shorter period which will terminate when all Registrable Securities covered by such Shelf Registration have been sold or withdrawn, but not prior to the expiration of the applicable period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable). The Company further agrees, if necessary, to supplement or amend the Shelf Registration, as required by the registration form used by the Company for such Shelf Registration or by the instructions applicable to such registration form or by the Securities Act or as reasonably requested (which request shall result in the filing of a supplement or amendment) by any Holder or prospective Holder of Registrable Securities to which such Shelf Registration relates, and the Company agrees to furnish to the Holders, Holders' Counsel and any managing underwriter copies of any such supplement or amendment prior to its being used and/or filed with the Commission. The Company will pay all Registration Expenses incurred in connection with the Shelf Registration, whether or not it becomes effective. (b) Piggyback Registration. If the Company at any time after the occurrence of an Event of Default proposes to register any of its securities under the Securities Act for sale 3 5 to the public for its own account or for the account of other security holders (except with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Registrable Securities for sale to the public), each such time it will give written notice thereof to Holders of Registrable Securities and Notes of its intention so to do (such notice to be given at least thirty (30) days prior to the filing thereof). Upon the written request of any such holder (which request shall specify the number of Registrable Securities intended to be disposed of by such holder and the intended method of disposition thereof), received by the Company within twenty (20) days after giving of any such notice by the Company, to register any of such holder's Registrable Securities, the Company will use its best efforts, subject to Section 2(c) below, to cause the Registrable Securities as to which registration shall have been so requested to be included in the securities to be covered by the Registration Statement proposed to be filed by the Company, all to the extent requisite to permit the sale or other disposition by the Holder (in accordance with its written request) of such Registrable Securities so registered ("Piggyback Registration Rights"); provided, that (i) if such registration involves an underwritten offering, all Holders of Registrable Securities requesting to be included in the Company's registration must sell their Registrable Securities to the underwriters selected by the Company on the same terms and conditions as apply to the Company; and (ii) if, at any time after giving written notice of its intention to register any securities pursuant to this Section 2(b) and prior to the effective date of the Registration Statement filed in connection with such registration, the Company shall determine for any reason not to register such securities, the Company shall give written notice to all Holders of Registrable Securities and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (without prejudice, however, to rights of Holders under Section 2(a) hereof). If a registration pursuant to this Section 2(b) involves an underwritten public offering, any Holder of Registrable Securities requesting to be included in such registration may elect, in writing prior to the effective date of the registration statement filed in connection with such registration, not to register such securities in connection with such registration. No registration effected under this Section 2(b) shall relieve the Company of its obligations to effect the Shelf Registration. The foregoing provisions notwithstanding, (i) the Company may withdraw any registration statement referred to in this Section 2(b) without thereby incurring any liability to the Holders of Registrable Securities or Notes, and (ii) the inclusion of shares of Registrable Securities under such Piggyback Registration Rights is subject to the cut back provisions of Section 2(c) below. (c) Priority in Piggyback Registration. If a registration pursuant to Section 2(b) hereof involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of equity securities (including all Registrable Securities) which the Company, the Holders and any other persons intended to be included in such registration exceeds the largest number of securities which can be sold without having an adverse effect on such offering, including the price at which such securities can be sold, the Company shall include in such registration (i) first, all the securities the Company proposes to sell for its own account and (ii) second, to the extent that the number of securities which the Company proposes to sell for its own account pursuant to Section 2(b) hereof is less than the 4 6 number of securities which the Company has been advised can be sold in such offering without having the adverse effect referred to above, the number of such Registrable Securities requested to be included in such registration by the Holders pursuant to Section 2(b) hereof shall be included prior to the inclusion of any other securities requested to be included in such registration as a result of the exercise of either "demand" or "piggy back" registration rights by such other holders. (d) Holdback Agreements. If any registration of Registrable Securities shall be in connection with an underwritten public offering, each Holder of Registrable Securities agrees not to effect any public sale or distribution, including any sale pursuant to Rule 144 under the Securities Act, of any Registrable Securities, and not to effect any such public sale or distribution of any other equity security of the Company or of any security convertible into or exchangeable or exercisable for any equity security of the Company (in each case, other than as part of such underwritten public offering) during the thirty (30) days prior to, and during the ninety (90) day period beginning on, the effective date of such Registration Statement (except as part of such registration). (e) Exceptions. Notwithstanding the foregoing, the Company may delay the registration of Registrable Securities following a written request pursuant to Section 2(a) or (b) hereof for the time periods described in Section 2(f) hereof upon the occurrence of any of the following: (i) The Company shall have previously entered into an agreement or letter of intent contemplating an underwritten public offering on a firm commitment basis of Common Stock or securities convertible into or exchangeable for Common Stock and the managing underwriter of such proposed public offering advises the Company in writing that in its opinion such proposed underwritten offering would be materially and adversely affected by a concurrent registered offering of Registrable Securities (such opinion to state the reasons therefor); (ii) During the two (2) month period immediately preceding such request, the Company shall have entered into an agreement or letter of intent, which has not expired or otherwise terminated, contemplating a material business acquisition by the Company or its subsidiaries whether by way of merger, consolidation, acquisition of assets, acquisition of securities or otherwise; (iii) The Company is in possession of material nonpublic information that the Company would be required to disclose in the Registration Statement and that is not, but for the 5 7 registration, otherwise required to be disclosed at the time of such registration, the disclosure of which, in its good faith judgment, would have a material adverse effect on the business, operations, prospects or competitive position of the Company; (iv) The Company shall receive the written opinion of the managing underwriter of the underwritten public offering pursuant to which its Common Stock has been registered within the three (3) month period prior to the receipt of a registration request that the registration of additional Common Stock will materially and adversely affect the market for the Common Stock (such opinion to state the reasons therefor); or (v) At the time of receipt of a registration request, the Company is engaged, or its board of directors has adopted by resolution a plan to engage, in any program for the purchase of shares of Common Stock or securities convertible into or exchangeable for shares of Common Stock and, in the opinion of counsel, reasonably satisfactory to the requesting Holders, the distribution of the Common Stock to be registered would cause such purchase of shares to be in violation of Rule 10b-6 under Section 10 of the Exchange Act. (f) Period of Delay. If an event described in clauses (i) through (iv) of Section 2(e) shall occur, the Company may, by written notice to the Holders, delay the filing of a Registration Statement with respect to the Registrable Securities to be covered thereby for a period of time not exceeding ninety (90) days. If an event described in clause (v) of Section 2(e) shall occur, the filing of a Registration Statement with respect to the Registrable Securities to be covered thereby shall be delayed until the first date that the Registrable Securities to be covered thereby can be sold without violation of Rule 10(b)-6 under Section 10 of the Exchange Act. 3. Registration Procedures. In connection with the registration obligations of the Company pursuant to the terms and conditions of this Agreement, the Company shall: (a) prior to filing a Registration Statement or Prospectus or any amendments or supplements thereto, including documents incorporated by reference after the initial filing of the Registration Statement, furnish to the Holders of the Registrable Securities covered by such Registration Statement (the "Selling Holders"), Holders' Counsel and the underwriters, if any, 6 8 draft copies of all such documents proposed to be filed at least five (5) Business Days prior thereto, which documents will be subject to the review of such Holders' Counsel and the underwriters, if any, and the Company will not, unless required by law, file any Registration Statement or amendment thereto or any Prospectus or any supplement thereto (including such documents incorporated by reference) to which Selling Holders of at least a majority of the Registrable Securities being sold (the "Objecting Party") shall object, pursuant to notice given to the Company prior to the filing of such amendment or supplement (the "Objection Notice"). The Objection Notice shall set forth the objections and the specific areas in the draft documents where such objections arise. The Company shall have five (5) Business Days after receipt of the Objection Notice to correct such deficiencies to the satisfaction of the Objecting Party, and will notify each Selling Holder of any stop order issued or threatened by the Commission in connection therewith and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (b) promptly prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement as may be necessary to keep such Registration Statement effective for the period required pursuant to Section 2; cause the Prospectus to be supplemented by any required Prospectus supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and comply with the provisions of the Securities Act applicable to it with respect to the disposition of all Registrable Securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the Selling Holders set forth in such Registration Statement or supplement to the Prospectus; (c) promptly furnish to any Selling Holder and the underwriters, if any, without charge, such number or conformed copies of such Registration Statement and any post-effective amendment thereto and such number of copies of the Prospectus (including each preliminary Prospectus) and any amendments or supplements thereto, and any documents incorporated by reference therein, as such Selling Holder or underwriter may request in order to facilitate the disposition of the Registrable Securities being sold by such Selling Holder (it being understood that the Company consents to the use of the Prospectus and any amendment or supplement thereto by each Selling Holder and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto); provided, that before filing a Registration Statement or Prospectus relating to the Registrable Securities or any amendments or supplements thereto, the Company will furnish to Holders' Counsel copies of all documents proposed to be filed at least five (5) Business Days prior to the filing thereof, which documents will be subject to the review of such counsel; (d) on or prior to the date on which the Registration Statement is declared effective, register or qualify such Registrable Securities under such other securities or "blue sky" laws of such jurisdictions as any Selling Holder, Holders' Counsel or underwriter requests and do any and all other acts and things which may be necessary or advisable to enable such Selling 7 9 Holder to consummate the disposition in such jurisdictions of such Registrable Securities owned by such Selling Holder; keep each such registration or qualification (or exemption therefrom) effective during the period which the Registration Statement is required to be kept effective; and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable Registration Statement; provided that the Company shall not be required to (i) qualify to do business as a foreign corporation or as a broker-dealer in any jurisdiction where it is not then so qualified, (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject or (iii) amend the terms of the Collateral Security Warrants; (e) cause the Registrable Securities covered by such Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the Selling Holders to consummate the disposition of such Registrable Securities; (f) promptly notify each Selling Holder, Holders' Counsel and any underwriter and (if requested by any such Person) confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information to be included in any Registration Statement or Prospectus or otherwise, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement or the initiation or threatening of a any proceedings for that purpose, (iv) of the issuance by any state securities commission or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Securities under state securities or "blue sky" laws or the initiation of any proceedings for that purpose, and (v) of the happening of any event which makes any statement made in a Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated by reference therein untrue or which requires the making of any changes in such Registration Statement, Prospectus or documents so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and, as promptly as practicable thereafter, prepare and file with the Commission and furnish a supplement or amendment to such Prospectus so that, as thereafter deliverable to the purchasers of such Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (g) make generally available to the Holders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act no later than thirty (30) days after the end of the 12-month period beginning with the first day of the Company's first fiscal quarter commencing after the effective date of a Registration Statement, which earnings statement shall 8 10 cover said 12-month period; (h) promptly use its best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement, and, if one is issued, to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment; (i) if requested by the managing underwriter or underwriters, if any, Holders' Counsel, or any Selling Holder promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters requests, or Holders' Counsel requests, to be included therein, including, without limitation, with respect to the amount of Registrable Securities being sold by such Selling Holder to such underwriter or underwriters and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering, and promptly make all required filings of such Prospectus supplement or post-effective amendment; (j) as promptly as practicable after filing with the Commission of any document which is incorporated by reference into a Registration Statement, deliver a copy of such document to each Selling Holder and to Holders' Counsel; (k) cooperate with the Selling Holders and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (which shall not bear any restrictive legends and shall be in a form eligible for deposit with the Depository Trust Company) representing securities sold under such Registration Statement, and enable such securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or such Selling Holders may request and make available prior to the effectiveness of such Registration Statement a supply of such certificates; (l) if applicable, enter into such customary agreements (including an underwriting agreement in customary form) and take such other actions as the Selling Holders of at least a majority of the aggregate number of the Registrable Securities being sold or the underwriters retained by the Selling Holders participating in an underwritten public offering, if any, may request in order to expedite or facilitate the disposition of such Registrable Securities; (m) promptly make available for inspection by any Selling Holder, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent or representative retained by any such Selling Holder or underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information requested by any such Inspector in connection with such Registration Statement; 9 11 (n) use reasonable efforts to obtain a cold comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters as the Selling Holders of at least a majority of the aggregate number of the Registrable Securities being sold may request; (o) if requested by Selling Holders of at least a majority of the aggregate amount of the Registrable Securities being sold to cause the Registrable Securities included in such Registration Statement to be (i) listed or admitted for trading or otherwise included on each securities exchange, if any, on which similar securities issued by the Company are then listed or admitted for trading or otherwise included (including, without limitation, The Nasdaq Stock Market) or (ii) authorized to be quoted on the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") if the Registrable Securities so qualify; (p) provide a CUSIP number for all Registrable Securities not later than the effective date of such Registration Statement; (q) cooperate with each Selling Holder and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers ("NASD"); and (r) during the period when the Prospectus is required to be delivered under the Securities Act, promptly file all documents required to be filed with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act. Each Selling Holder, upon receipt of any notice from the Company of the happening of any event of the kind described in subsection (f) of this Section 3, shall forthwith discontinue disposition of the Registrable Securities until such Selling Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by subsection (f) of this Section 3 or until it is advised in writing (the "Advice") by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus, and, if so directed by the Company, such Selling Holder will, or will request the managing underwriter or underwriters, if any, to, deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Selling Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event that the Company shall give any such notice, the time periods for which a Registration Statement is required to be kept effective pursuant to Section 2 hereof shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when each Selling Holder shall have received (i) the copies of the supplemented or amended Prospectus contemplated by Section 3(f) or (ii) the Advice. 10 12 If any Registration Statement refers to any Selling Holder by name or otherwise as the holder of any securities of the Company, then such Selling Holder shall have the right to require (i) the insertion therein of language, in form and substance satisfactory to such Selling Holder, to the effect that the holding by such Selling Holder of such securities is not to be construed as a recommendation by such Selling Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Selling Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Selling Holder by name or otherwise is not required by the Securities Act or any similar Federal statute then in force, the deletion of the reference to such Selling Holder. 4. Registration Expenses All expenses incident to the Company's performance of or compliance with this Agreement, including without limitation, all Commission and securities exchange or NASD registration and filing fees, fees and expenses of compliance with securities or "blue sky" laws (including fees and disbursements of counsel in connection with "blue sky" qualifications of the Registrable Securities), printing expenses, messenger and delivery expenses, internal expenses (including, without limitation, all salaries and expenses of the Company's officers and employees performing legal or accounting duties), fees and expenses incurred in connection with the listing of the securities to be registered, if any, on each securities exchange on which similar securities issued by the Company are then listed, fees and disbursements of counsel for the Company and its independent certified public accountants (including the expense of any special audit or "cold comfort" letters required by or incident to such performance), Securities Act liability insurance (if the Company elects to obtain such insurance), reasonable fees and expenses of any special experts retained by the Company in connection with such registration, fees and expenses of other Persons retained by the Company, reasonable fees and expenses of one counsel for the Holders incurred in connection with each registration hereunder (but not including any underwriting fees, discounts or commissions attributable to the sale of Registrable Securities) and any out-of-pocket expenses of the Holders excluding any travel costs and counsel fees except as set forth above (all such expenses being herein called "Registration Expenses"), will be borne by the Company whether or not the Registration Statement becomes effective. 5. Indemnification; Contribution (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless, to the full extent permitted by law, each Holder, its officers, directors and each Person who controls such Holder (within the meaning of the Securities Act), and any agent or investment adviser thereof, against all losses, claims, damages, liabilities and expenses (including reasonable attorneys' fees and costs of investigation) arising out of or based upon any untrue or alleged untrue statement of material fact contained in any Registration Statement, any amendment or supplement thereto, any Prospectus or preliminary Prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make 11 13 the statements therein not misleading, except insofar as the same arise out of or are based upon any such untrue statement or omission based upon information with respect to such Holder furnished in writing to the Company by or on behalf of such Holder expressly for use therein; provided that, in the event that the Prospectus shall have been amended or supplemented and copies thereof as so amended or supplemented, shall have been furnished to a Holder prior to the confirmation of any sales of Registrable Securities, such indemnity with respect to the Prospectus shall not inure to the benefit of such Holder if the Person asserting such loss, claim, damage or liability and who purchased the Registrable Securities from such holder did not, at or prior to the confirmation of the sale of the Registrable Securities to such Person, receive a copy of the Prospectus as so amended or supplemented and the untrue statement or omission of a material fact contained in the Prospectus was corrected in the Prospectus as so amended or supplemented. In connection with an underwritten offering, the Company will indemnify the underwriters thereof, their officers and directors and each person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Holders of Registrable Securities except with respect to information provided by the underwriter specifically for inclusion therein. (b) Indemnification by Holders of Registrable Securities. In connection with any Registration Statement in which a Holder is participating, each such Holder will furnish to the Company in writing such information with respect to the name and address of such Holder and such other information as may be reasonably required for use in connection with any such Registration Statement or Prospectus and agrees to indemnify, to the full extent permitted by law, the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or any amendment thereof or supplement thereto or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue or alleged untrue statement is contained in or such omission or alleged omission relates to any information with respect to such Holder so furnished in writing by such Holder specifically for inclusion in any Prospectus or Registration Statement; provided, however, that such Holder shall not be liable in any such case to the extent that prior to the filing of any such Registration Statement or Prospectus or amendment thereof or supplement thereto, such Holder has furnished in writing to the Company information expressly for use in such Registration Statement or Prospectus or any amendment thereof or supplement thereto which corrected or made not misleading information previously furnished to the Company. In no event shall the liability of any Selling Holder hereunder be greater in amount than the dollar amount of the proceeds received by such Selling Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder agrees to give prompt written notice to the indemnifying party after the receipt by such Person of any written notice of the commencement of any action, suit, 12 14 proceeding or investigation or threat thereof made in writing for which such Person will claim indemnification or contribution pursuant to this Agreement and, unless in the judgment of counsel of such indemnified party a conflict of interest may exist between such indemnified party and the indemnifying party with respect to such claim, permit the indemnifying party to assume the defense of such claim. Whether or not such defense is assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. If the indemnifying party is not entitled to, or elects not to, assume the defense of a claim, it will not be obligated to pay the fees and expenses of more than one counsel (plus such local counsel, if any, as may be reasonably required in other jurisdictions) with respect to such claim, unless in the judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels. For the purposes of this Section 5(c), the term "conflict of interest" shall mean that there are one or more legal defenses available to the indemnified party that are different from or additional to those available to the indemnifying party or such other indemnified parties, as applicable, which different or additional defenses make joint representation inappropriate. (d) Contribution. If the indemnification from the indemnifying party provided for in this Section 5 is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), no underwriter shall 13 15 be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no Selling Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Selling Holder were offered to the public exceeds the amount of any damages which such Selling Holder has otherwise been required to pay by reason of such untrue statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. If indemnification is available under this Section 5, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Sections 5(a) and (b) without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 5(d). 6. Participation in Underwritten Registrations No Holder may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell its Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 7. Rule 144 The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act (or, if the Company is not required to file such reports, it will, upon the request of any Holder, make publicly available other information so long as necessary to permit sales under Rule 144 under the Securities Act), and it will take such further action as any Holder may request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. 8. Transfer or Assignment of Registration Rights The rights to cause the Company to register Registrable Securities granted pursuant to this Agreement may be transferred or assigned by any Holder to a transferee or assignee; 14 16 provided; however, that the transferee or assignee of such rights assumes the obligations of such transferor or assignor, as the case may be, under this Agreement and that such transferee or assignee executes and delivers a copy of this Agreement to the Company. 9. Miscellaneous (a) Other Registration Rights. The Company may grant registration rights that would permit any Person the right to piggy-back or may itself exercise its right to piggy-back, on any Shelf Registration, provided that if the managing underwriter or underwriters, if any, of such offering delivers an opinion to the Holders that the total amount of securities which they and the holders of such new piggy-back rights intend to include in any Shelf Registration is so large as to materially and adversely affect the success of such offering (including the price at which such securities can be sold), then only the amount, number or kind of securities to be offered for the account of holders of such new piggy-back rights (other than the Company) will be reduced pro rata with respect to each holder of securities to be registered, to the extent necessary to reduce the total amount of securities to be included in such offering to the amount, number or kind recommended by the managing underwriter prior to any reduction in the amount of Registrable Securities to be included; and provided further that if such offering is not underwritten, then such piggy-back rights shall only be exercised with the consent of the Holders of at least a majority of the Registrable Securities being offered under such Shelf Registration. (b) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority of the aggregate number of the Registrable Securities then outstanding. (c) 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 a Holder, at the most current address given by such Holder to the Company in writing; (ii) if to the Company, as its address set forth in the Securities Purchase Agreement with copies as set forth in the Securities Purchase Agreement. 15 17 (d) Successors and Assigns. This Agreement shall bind and inure to the benefit of and be enforceable by the Company, the Purchasers and the Purchasers' 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 Registrable Securities. The Company may not assign its rights under this Agreement. Except as provided in the Collateral Security Warrants and the Pledge Agreement, the Purchasers may transfer the Registrable Securities (and any portion thereof) at any time without the consent of the Company. (e) 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. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. This Agreement 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 (i) 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 or the subject matter hereof brought by a Holder and (ii) 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 or the subject matter hereof may not be enforced in or by such court and (iii) 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 (x) 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 (y) 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. 16 18 (h) 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. (i) Entire Agreement. This Agreement, together with the Securities Purchase Agreement, the Collateral Security Warrants, the Pledge Agreement, the Collateral Agency Agreement and the 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 are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Collateral Security Warrants, the Pledge Agreement, the Collateral Agency Agreement, the Notes and the Securities Purchase Agreement (including the exhibits and schedules to each) supersede all prior agreements and understandings between the parties with respect to such subject matter. (j) Attorneys' 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 attorneys' 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. 17 19 REGISTRATION RIGHTS AGREEMENT COMPANY SIGNATURE PAGE IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. DDL ELECTRONICS, INC. By: /s/ Gregory L. Horton ------------------------------------- Gregory L. Horton President and Chief Executive Officer 18 20 REGISTRATION RIGHTS AGREEMENT PURCHASER SIGNATURE PAGE Accepted and Agreed as of the date first written above SARATOGA HOLDINGS INC. By: /s/ Gregg Smith ---------------------------- Name: Gregg Smith Title: CEO /s/ Gregg A. Smith - ------------------------------- Gregg A. Smith /s/ Elliot Smith - ------------------------------- Elliot Smith /s/ Kenneth D. Rickel - ------------------------------- Kenneth D. Rickel /s/ Joseph Fair - ------------------------------- Joseph Fair /s/ Edward McWilliams - ------------------------------- Edward McWilliams - ------------------------------- David Cornstein /s/ Jeffrey S. Silverman - ------------------------------- Jeffrey S. Silverman 19 21 /s/ Howard Miller - --------------------------- Howard Miller /s/ Steve Levy - --------------------------- Steve Levy /s/ Marvin Numeroff - --------------------------- Marvin Numeroff /s/ Jerry Gray - --------------------------- Jerry Gray /s/ Robert Rickel - --------------------------- Robert Rickel /s/ Leonard Wilf - --------------------------- Leonard Wilf - --------------------------- Peter Knobel - --------------------------- Patrice Knobel - --------------------------- Theodore Sofia 20 EX-4.Q 8 PLEDGE AGREEMENT RICKEL/FUNB & COMPANY 2-29-96 1 EXHIBIT 4-q PLEDGE AGREEMENT PLEDGE AGREEMENT, dated as of February 29, 1996 (this "Pledge" or this "Agreement"), among RICKEL & ASSOCIATES, INC., a New Jersey corporation ("Rickel"), FIRST UNION NATIONAL BANK, as collateral agent (the "Collateral Agent"), for the benefit of the Holders (as herein defined), and DDL ELECTRONICS, INC., a Delaware corporation (the "Company"). R E C I T A L S: WHEREAS, on the date hereof the Company will authorize the issuance of $5,300,000 of its Senior Secured Notes due July 1, 1997 (the "Notes") pursuant to a Securities Purchase Agreement, dated as of February 29, 1996, among the Company and the Holders (the "Securities Purchase Agreement"); WHEREAS, contemporaneously with the closing of the sale of the Notes, the Company will issue shares of its common stock, par value $.01 per share (the "Common Stock"), to Rickel as part of its placement agent fee; and WHEREAS, it is a condition precedent to the closing of the sale of the Notes that Rickel enter into this Agreement with the Collateral Agent, for the benefit of the holders of the Notes (the "Holders"), and the Company. NOW, THEREFORE, in consideration of, and in order to induce, the purchase of the Notes by the purchasers (the "Purchasers") of such Notes and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. TERMS AND DEFINITIONS. Section 1.1 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: (a) "Operative Documents" shall mean the Securities Purchase Agreement, the Notes, the Collateral Security Warrants, this Agreement, the Collateral Agency Agreement and the Collateral Registration Rights Agreement. (b) "Proceeds" shall mean "proceeds," as such term is defined in Section 9-306(1) of the UCC, and, in any event, includes, without limitation, (i) any and all 2 proceeds of any insurance, indemnity, warranty or guaranty payable to Rickel from time to time with respect to any of the Pledged Collateral (as defined in Section 2), (ii) any and all payments (in any form whatsoever) made or due and payable to Rickel from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Pledged Collateral by any Governmental Body (or any Person acting under color of any Governmental Body), and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Pledged Collateral. (c) "UCC" shall mean the Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; provided, however, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of the Holders' security interest in the Pledged Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions. Section 1.2 Additional Terms. All other capitalized terms used herein but not otherwise defined herein shall have the respective meanings ascribed thereto in the Securities Purchase Agreement. SECTION 2. GRANT OF SECURITY. Section 2.1 Pledged Collateral. (a) Subject to Section 2.2, Rickel hereby assigns, conveys, pledges, hypothecates and transfers to the Collateral Agent, for the ratable benefit of the Holders, and hereby grants to the Collateral Agent, for the ratable benefit of the Holders, an irrevocable and unconditional first perfected security interest in the following (the "Pledged Collateral"): (i) One million sixty thousand (1,060,000) shares of Common Stock (the "Shares") initially in the form attached hereto as Exhibit A; provided that stock certificate numbered DD2418 representing three hundred fifty-three thousand three hundred and thirty three (353,333) shares of Common Stock may be exchanged upon direction of the Company for a stock certificate representing the same amount of Common Stock without a restricted legend thereon; (ii) all distributions of cash, securities, instruments and other property from time to time received, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Shares; and (iii) all Proceeds of the Shares and the items referred to in 2 3 clause (ii) above. (b) Subject to Section 2.2, the Pledged Collateral secures the payment of all obligations (the "Secured Obligations") of every kind and character now or hereafter existing (whether matured or unmatured, contingent or liquidated) of the Company under the Operative Documents (as such documents hereafter may be amended, supplemented or otherwise modified from time to time) including, without limitation, whether for principal, interest, premium, fees, costs, expenses, or otherwise (including, without limitation, any and all expenses (including reasonable attorneys' fees and legal expenses) incurred by the Holders in the collection of the Notes and in the enforcement and protection of the Holders' rights hereunder and under the other Operative Documents). (c) Rickel shall take any and all action necessary or desirable to perfect and protect the security interest of the Collateral Agent and the Holders in the Pledged Collateral and in any substituted and additional Pledged Collateral including, without limitation, the filing of financing statements or amendments thereto or the delivery upon receipt thereof to the Collateral Agent of any and all certificates or instruments representing or evidencing such substituted and additional Pledged Collateral in suitable form for transfer by delivery, or accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Collateral Agent. The provisions of this Agreement shall be construed in accordance with this intention. Section 2.2 Exercise of Rights. The Collateral Agent and the Holders are only entitled to exercise their rights hereunder after the exercise in full of the Holders' rights under the Collateral Security Warrants to purchase shares of Common Stock and to sell (or retain, as the case may be) such Shares to satisfy the Secured Obligations, as more fully set forth in, and in accordance with the terms of, the Collateral Security Warrants, and then only to the extent that the net proceeds of the sale of all of the Collateral Security Warrant Shares are (or, in the case of the Holders' retention of the Collateral Security Warrant Shares, the value attributed to the Collateral Security Warrant Shares in accordance with the terms of the Collateral Security Warrants is) insufficient to satisfy in full all of the Secured Obligations. Prior to the exercise of such rights hereunder, the Holders shall certify to the Collateral Agent (a) the amount of the Secured Obligations still outstanding after the sale (or retention, as the case may be) of all of the Collateral Security Warrant Shares and (b) that such Holders have exercised in full all of their rights under the Collateral Security Warrants. The Collateral Agent may rely upon such certification without any further investigation. The Company shall have the right, but not the obligation, to fund the optional prepayment of all, but not less than all, of the amounts outstanding under the Notes with the net proceeds of the sale of up to 706,667 Shares. However, the Company shall only have the right to sell that number of Shares (which number shall in any event not exceed 706,667) that will result in the receipt by the Company of the difference between the Prepayment Amount and 3 4 the DDL and Collateral Security Warrant Shares Proceeds. Such sale by the Company is contingent upon the prepayment in full of all amounts outstanding under the Notes immediately upon consummation of such sale. Any sale of the Shares shall be on the same terms and subject to the same conditions as the Company's sale of DDL Shares and Collateral Security Warrant Shares in connection with such prepayment as more fully set forth in the Securities Purchase Agreement and the Collateral Security Warrants. However, any Shares sold by the Company in connection with an optional prepayment of the Notes shall not include any of the Shares registered by the Company under the Securities Act pursuant to Section 6.15 of the Securities Purchase Agreement. Each of Rickel, the Collateral Agent and the Holders shall take any and all action necessary or desirable to permit such sale by the Company, including, without limitation, to deliver to the Company the certificates representing the Shares so sold by the Company upon receipt of payment therefor by the Collateral Agent. The Holders shall have the option, in their sole discretion, to accept as payment of the applicable prepayment price any Shares intended to be sold by the Company to fund such optional prepayment instead of a cash payment of the applicable prepayment price. Prior to the Company's exercise of such right, the Company shall deliver to the Collateral Agent written consent to such exercise by Rickel. SECTION 3. SECURITY INTEREST ABSOLUTE. All rights of the Collateral Agent and the Holders hereunder, all security interests hereunder and all obligations of Rickel hereunder shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of any provision of any Operative Document; (b) any change in the time, manner or place of payment of, or in any other term of, or any increase in the amount of, all or any of the Secured Obligations, or any other amendment or waiver of any term of, or any consent to any departure from any requirement of, any Operative Document; (c) any failure on the part of the Collateral Agent or the Holders to give notice of any kind, mitigate the damages resulting from the default by Rickel under this Pledge or by the Company under any Operative Document or protect, secure, perfect and insure any lien on the Pledged Collateral; or (d) any other circumstance which might otherwise constitute a defense available to, or a discharge or release of, a borrower or a pledgor or otherwise limit the obligations of Rickel under this Pledge. SECTION 4. DELIVERY OF PLEDGED COLLATERAL. All instruments representing or evidencing the Pledged Collateral including, without limitation, the certificate or certificates representing the Shares have been, or will be, delivered to a representative of the Collateral Agent who shall hold all such instruments on behalf of all of the Holders. All instruments 4 5 representing or evidencing Pledged Collateral shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Collateral Agent. Subject to Section 2.2, after the occurrence of an Event of Default (as defined in the Notes), the Collateral Agent shall have the right, at any time and without notice to Rickel or the Company, to transfer to or to register in the name of the Holders, or any of their nominees, any or all of the Pledged Collateral. In addition (subject to Section 2.2), the Collateral Agent or the Holders shall have the right at any time after the occurrence of an Event of Default to exchange instruments representing or evidencing Pledged Collateral for instruments of smaller or larger denominations. SECTION 5. APPOINTMENT AS ATTORNEY-IN-FACT. (a) Subject to Section 2.2, effective upon the occurrence and during the continuance of an Event of Default, Rickel hereby irrevocably constitutes and appoints the Collateral Agent, its agents, representatives and designees, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Rickel and in the name of Rickel or in its own name or the names of the Holders, from time to time at the direction of the Majority Noteholders, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement (except, without limiting the generality of the foregoing, that the Collateral Agent shall not ratify any of its own actions pursuant to this power of attorney) and, without limiting the generality of the foregoing, hereby gives the Collateral Agent in its sole discretion the power and right, on behalf of Rickel, without notice to or assent by Rickel, to do the following: (i) to ask, demand, collect, receive and give acquittances and receipts for any and all monies due and to become due under any Pledged Collateral and, in the name of Rickel or its own name (for the ratable benefit of the Holders) or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of monies due under any Pledged Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Collateral Agent for the purpose of collecting any and all such monies due under any Pledged Collateral whenever payable and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Collateral Agent for the purpose of collecting any and all such moneys due under any Pledged Collateral whenever payable; and (ii) to pay or discharge taxes, liens, security interests or other encumbrances levied or placed on or threatened against the Pledged Collateral. Rickel hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof and acknowledges that this power of attorney is a power coupled with an interest 5 6 and shall be irrevocable. (b) The powers conferred on the Collateral Agent hereunder are solely to protect the Collateral Agent's and the Holders' interests in the Pledged Collateral and shall not impose any duty upon the Collateral Agent or the Holders to exercise any such powers. The Collateral Agent shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and none of the Collateral Agent, the Holders or any of their agents, representatives or designees shall be responsible to Rickel for any act or failure to act, except for any act involving gross negligence, bad faith or willful misconduct. SECTION 6. WAIVERS. Rickel hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim based upon, arising out of, or relating to, this Pledge, or the actions of the Collateral Agent or the Holders in the negotiation, administration, performance or enforcement thereof. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including, without limitation, contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Rickel acknowledges that this waiver is a material inducement to the Holders to enter into a business relationship with Company and that the Holders have already relied on this waiver in entering into this Agreement and the Operative Documents and will continue to rely on this waiver in their related future dealings. Rickel further warrants and represents that it has reviewed this waiver with its legal counsel, and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OTHER DOCUMENTS OR AGREEMENTS RELATING HERETO. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. SECTION 7. REPRESENTATIONS OF RICKEL. Rickel hereby represents and warrants to the Collateral Agent, for the ratable benefit of the Holders, and the Company as follows: Section 7.1 Authorization. Rickel has all requisite power and authority to execute, deliver and perform this Agreement and the Collateral Agency Agreement. All necessary corporate proceedings of Rickel have been duly taken to authorize the execution, delivery and performance of this Agreement and the Collateral Agency Agreement by Rickel. Each of this Agreement and the Collateral Agency Agreement has been duly authorized, executed and delivered by Rickel, is the legal, valid and binding obligation of Rickel and is enforceable against Rickel 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 indemnification may be limited by 6 7 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 this Agreement and the Collateral Agency Agreement by Rickel. No consent of any party to any contract, agreement, instrument, lease, license, arrangement or understanding to which Rickel is a party, or by which any of Rickel's properties or assets is bound or subject, is required for the execution, delivery or performance by Rickel of this Agreement and the Collateral Agency Agreement; and the execution, delivery and performance of this Agreement and the Collateral Agency Agreement by Rickel 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 Rickel 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 Rickel or to which any of Rickel's operations, business, properties or assets is bound or subject. Section 7.2 Title. Rickel has good title to the Pledged Collateral, free and clear of all Liens, claims, security interests, pledges, charges, encumbrances, stockholders' agreements and voting trusts. Section 7.3 No Liens. Subject to Section 2.2, the Shares have been pledged to the Collateral Agent free and clear of any Lien, charge or circumstance of any kind. No pledge agreement, financing statement or other instrument similar in effect covering all or any part of the Pledged Collateral is on file in any recording office. Rickel has no trade names. Section 7.4 Security Interest. This Agreement and the pledge and delivery of the Pledged Collateral pursuant hereto constitute a valid and continuing lien on the Pledged Collateral and, subject to Section 2.2, create a valid and perfected first security interest in the Pledged Collateral in favor of the Holders, securing the payment of the Secured Obligations. Rickel and the Company covenant that all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken as of the date hereof. SECTION 8. COVENANTS. Rickel covenants and agrees that on and after the date hereof, so long as this Agreement shall remain in effect, it shall comply with the following provisions: Section 8.1 Limitation on Liens. Rickel shall not, directly or indirectly, create, receive, assume or permit to exist or otherwise cause or permit to become in effect any Lien upon or with respect to the Pledged Collateral, other than as may be granted to the Collateral Agent, for the ratable benefit of the Holders, and the Company pursuant to this Pledge. 7 8 Section 8.2 Continuous Perfection. Rickel shall not change its name, identity, structure or principal place of business in any manner which might make any financing or continuation statement filed hereunder misleading within the meaning of Section 9-402 (7) of the UCC (or any other then applicable provision of the UCC) or otherwise inaccurate unless Rickel shall have given the Collateral Agent and the Company at least ninety (90) days' prior written notice of its intention to so change and shall have taken all action (or made arrangements to take such action substantially simultaneously with such change if it is impossible to take such action in advance) necessary, or reasonably requested by the Collateral Agent or the Company, to amend such financing or continuation statement so that it is not misleading. Section 8.3 Further Assurances. (a) From time to time, at the expense of the Company, Rickel will promptly execute and deliver all further instruments and documents and take all further action that may be necessary or desirable, or that the Collateral Agent or the Company reasonably may request, in order to perfect and protect any pledge, assignment or security interest granted or purported to be granted hereby or to enable the Collateral Agent or the Company to exercise and enforce their (and the Holders') rights and remedies hereunder with respect to any Pledged Collateral. Without limiting the generality of the foregoing, Rickel will execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Collateral Agent may request, in order to perfect and preserve the pledge, assignment and security interest granted or purported to be granted hereby. (b) Rickel will furnish to the Collateral Agent from time to time statements and schedules further identifying and describing the Pledged Collateral and such other reports in connection with the Pledged Collateral as the Collateral Agent reasonably may request, all in reasonable detail. SECTION 9. EVENTS OF DEFAULT; REMEDIES. Section 9.1 Remedies. (a) If any Event of Default shall occur and be continuing (subject to Section 2.2), the Collateral Agent, for the ratable benefit of the Holders, may exercise in addition to all other rights and remedies granted to the Collateral Agent, for the ratable benefit of the Holders, in this Agreement, the Securities Purchase Agreement and any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the UCC. Without limiting the generality of the foregoing, Rickel expressly agrees that in any such event the Collateral Agent, for the ratable benefit of the Holders, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon Rickel 8 9 or any other Person (all and each of which demands, advertisements and/or notices are hereby expressly waived), may forthwith assume, collect, receive, appropriate and realize upon the Pledged Collateral, or any part thereof, and/or may (in accordance with Section 4 of the Collateral Agency Agreement) forthwith sell, lease, assign, give an option or options to purchase, or sell or otherwise dispose of and deliver said Pledged Collateral (or contract to do so), or any part thereof, in one or more parcels at a public or private sale or sales, at any exchange broker's board or at its offices or elsewhere at such prices as are approved by the Majority Noteholders, for cash or on credit or for future delivery without assumption of any credit risk. The Holders shall have the right, to the extent permitted by law, to purchase the whole or any part of said Pledged Collateral, free of any right or equity of redemption, which equity of redemption Rickel hereby releases, for a purchase price equal to the lower of (x) the average of the daily closing sale prices of the Common Stock for the twenty (20) consecutive trading days preceding the date the Collateral Security Warrants were exercised by the Holders or (y) the closing sale price of the Common Stock on the date the Collateral Security Warrants were exercised by the Holders, in each case less a discount of 6% of such amount, and in lieu of payment of such actual purchase price shall set-off the amount of such purchase price against the Secured Obligations then owing. If the date the Collateral Security Warrants are exercised by the Holders is not a day that the New York Stock Exchange is open, then such closing sale price shall be as of the first day the New York Stock Exchange is open preceding the day on which the Collateral Security Warrants are exercised. The closing sale price of the Common Stock for each trading day as used herein shall be: (a) if the Common Stock is listed or admitted for trading on any national securities exchange or included in the Nasdaq National Market or Nasdaq Small-Cap Market, the last reported sales price as reported on such exchange or market, as the case may be; (b) if the Common Stock is not listed or admitted for trading on any national securities exchange or included in the Nasdaq National Market or Nasdaq Small-Cap Market, the average of the last reported closing bid and asked quotation for the Common Stock as reported on the Automated Quotation System of NASDAQ or a similar service if NASDAQ is not reporting such information; (c) if the Common Stock is not listed or admitted for trading on any national securities exchange or included in the Nasdaq National Market or Nasdaq Small-Cap Market or quoted by NASDAQ or a similar service, the average of the last reported bid and asked quotation for the Common Stock as quoted by a market maker in the Common Stock (or if there is more than one market maker, the bid and asked quotation shall be obtained from two market makers and the average of the lowest bid and highest asked quotation shall be the closing price); or (d) if the Common Stock is not listed or admitted for trading on any national securities exchange or included in the Nasdaq National Market or Nasdaq Small-Cap Market or quoted by NASDAQ and there is no market maker in the Common Stock, the fair market value of such shares as determined jointly by the Company and the Majority Noteholders, or if no such determination can be reached within fifteen (15) days, such determination shall be made by an appraiser who shall be mutually selected by the Company and the Majority Noteholders, the costs of such appraiser to be borne by the Company. 9 10 The Collateral Agent shall retain the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care, safe keeping or otherwise of any or all of the Pledged Collateral or in any way relating to the rights of the Collateral Agent or the Holders hereunder, including reasonable attorneys' fees and legal expenses, for application to the payment in whole or in part of the Secured Obligations, the Company remaining liable for any deficiency remaining unpaid after such application, and only after so retaining such net proceeds and after the payment by the Collateral Agent of any other amount required by any provision of law, including Section 9-504 (1)(c) of the UCC, need the Collateral Agent, on behalf of the Holders, account for the surplus, if any, to Rickel; provided, however, that the Collateral Agent, on behalf of the Holders, shall not use, sell or otherwise dispose of any part of the Pledged Collateral in excess of such amount needed to satisfy in full the Secured Obligations. To the extent permitted by applicable law, Rickel waives all claims, damages and demands against the Collateral Agent and the Holders arising out of the repossession, retention or sale of the Pledged Collateral, except to the extent that such claims, damages and demands arise out of the gross negligence, bad faith or willful misconduct of the Collateral Agent or the Holders. (b) Rickel recognizes that the Collateral Agent, on behalf of the Holders, may be unable to effect a public sale of all or any part of the Pledged Collateral consisting of securities by reason of certain prohibitions contained in the Securities Act of 1933, as amended, but may (at the direction of the Majority Noteholders and upon advice of counsel) be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such securities for their own account, for investment and not with a view to the distribution or resale thereof (provided such sale is permitted by applicable law). Rickel understands and agrees that a private sale so made may be at prices and other terms less favorable than if such securities were sold at public sales, and that the Collateral Agent has no obligation to delay sale of any such securities for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the Securities Act of 1933, as amended. Rickel agrees to private sales made under the foregoing circumstances, which sales shall be deemed to have been made in a commercially reasonable manner. Rickel agrees that the Collateral Agent shall have all the benefits of the Holders pursuant to the Securities Purchase Agreement and the Collateral Registration Rights Agreement dated the date hereof, and shall be entitled to exercise all demand and "piggy-back" registration rights contained therein, subject to the terms thereof (at the direction of the Majority Noteholders and upon advice of counsel). (c) Any notice required to be given by the Collateral Agent of a sale, lease or other disposition or other intended action by it with respect to any of the Pledged Collateral which is deposited in the United States mails, postage prepaid and duly addressed to Rickel, at least ten (10) days prior to such proposed action, shall constitute fair and reasonable notice to Rickel of any such action. The net proceeds realized by the Collateral Agent upon any 10 11 such sale or other disposition, after deduction for the expense of retaking, holding, preparing for sale, selling or the like and the reasonable attorneys' fees and legal expenses incurred by the Collateral Agent in connection therewith, shall be applied as provided herein to the Secured Obligations. The Collateral Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Section 9.2 Limitation on the Collateral Agent's Duty in Respect of Pledged Collateral. Except as otherwise provided herein, and subject to the Collateral Agency Agreement, under no circumstances whatsoever shall the Collateral Agent be deemed to assume any responsibility for, or obligation or duty with respect to, any part or all of the Pledged Collateral, of any nature or kind whatsoever, or any matter or proceedings arising out of or relating thereto. The Collateral Agent shall not be required to take any action of any kind to collect or protect any interest in the Pledged Collateral, including, but not limited to, any action necessary to preserve the rights of the Collateral Agent against prior parties to any of the Pledged Collateral. The Collateral Agent shall not be liable or responsible in any way for the safe keeping, care or custody of any of the Pledged Collateral if the Pledged Collateral is accorded the same treatment and level of care as its own property, for any loss or damages thereto, for any dilution in the value thereof, for any act or default of any agent or bailee of the Collateral Agent or of any carrier, forwarding agency or other person whomsoever or for the collection of any proceeds, except to the extent that the selection of such agent, bailee, carrier or other person involved gross negligence, bad faith or willful misconduct; however, the same shall be at Rickel's sole risk at all times. Rickel hereby releases the Collateral Agent and the Holders from any claims, causes of action and demands at any time arising out of or with respect to this Agreement or the Secured Obligations and any actions taken or omitted to be taken by the Collateral Agent or the Holders with respect thereto, and Rickel hereby agrees to hold the Collateral Agent and the Holders harmless from and with respect to any and all such claims, causes of action and demands. Rickel hereby releases the Collateral Agent and the Holders from any claims, causes of action and demands arising under 42 U.S.C. Section 9607 or 9613 or similar provisions of state or local law. Section 9.3 Remedies Cumulative. No remedy conferred upon the Collateral Agent or the Holders is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. Section 9.4 Remedies Not Waived. No course of dealing between Rickel and the Collateral Agent or the Holders and no delay or failure in exercising any rights hereunder in respect thereof shall operate as a waiver of any of the rights of the Collateral Agent or the Holders. 11 12 SECTION 10. VOTING RIGHTS; DIVIDENDS; ETC. Section 10.1 Voting Rights; Dividends. (a) As long as no notice of an Event of Default shall have been given by the Collateral Agent to Rickel, Rickel shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or any other Operative Document. (b) The Collateral Agent shall execute and deliver (or cause to be executed and delivered) to Rickel all such proxies and other instruments as Rickel may reasonably request for the purpose of enabling Rickel to exercise the voting and other rights which it is entitled to exercise pursuant to paragraph (a) above. (c) During the term of this Pledge, any and all dividends paid or payable in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral (including, without limitation, (i) dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in surplus, and (ii) cash paid, payable or otherwise distributed in redemption of, or in exchange for, any Pledged Collateral) shall be forthwith delivered to the Collateral Agent, for the ratable benefit of the Holders, to hold as Pledged Collateral and shall, if received by Rickel, be received in trust for the benefit of the Collateral Agent, for the ratable benefit of the Holders, be segregated from the other property or funds of Rickel, and be forthwith delivered to the Collateral Agent, for the ratable benefit of the Holders, as Pledged Collateral in the same form as so received (with any necessary endorsement). Rickel shall, if necessary to permit the Collateral Agent to receive all dividends which it is entitled to receive hereunder, execute and deliver to the Collateral Agent, from time to time upon written notice of the Collateral Agent, appropriate dividend payment orders and other instruments as the Collateral Agent may reasonably request. Section 10.2 Event of Default. (a) Subject to Section 2.2, upon the occurrence and during the continuance of an Event of Default, all rights of Rickel to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 10.1(a) above shall cease, and all such rights shall thereupon become vested in the Collateral Agent who shall thereupon have the sole right to exercise such voting and other consensual rights. (b) Rickel shall, if necessary to permit the Collateral Agent to exercise the voting and other rights it may be entitled to exercise pursuant to paragraph (a)(i) above, execute and deliver to the Collateral Agent, from time to time upon written notice of the 12 13 Collateral Agent, such instruments as the Collateral Agent may reasonably request. SECTION 11. AMENDMENT AND WAIVER. No amendment or waiver of any provision of this Agreement and no consent to any departure by Rickel therefrom shall in any event be effective unless the same shall be in writing and signed by the Company and the holders of the aggregate principal amount of Notes then outstanding as would be required to amend or waive such provision if it were included in the Notes and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given and shall not be deemed to waive any other breach hereunder. No failure on the part of the Collateral Agent, the Holders or the Company to exercise, and no delay in exercising any right hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. SECTION 12. MISCELLANEOUS. Section 12.1 Reliance on and Survival of Representations. All agreements, representations and warranties of Rickel herein and in any certificates or other instruments delivered pursuant to this Agreement shall (a) be deemed to be material and to have been relied upon by the Collateral Agent, the Holders and the Company, notwithstanding any investigation heretofore or hereafter made by the Collateral Agent, the Holders or the Company or on their behalf and (b) survive the execution and delivery of this Agreement and of the Notes, and shall continue in effect so long as any Note is outstanding and thereafter as provided in Section 9 and the Securities Purchase Agreement. Section 12.2 Successors and Assigns; Transfers of the Notes. This Agreement shall bind and inure to the benefit of, and be enforceable by, Rickel, the Company and the Collateral Agent, for the ratable benefit of the Holders, and their 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 Notes. Rickel may not assign its rights and obligations under this Agreement. The Holders may transfer the Notes (and any portion thereof) at any time without the consent of Rickel, subject to compliance with all applicable laws, including state and federal securities laws, the Securities Purchase Agreement and the Notes. Section 12.3 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 13 14 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. (1) if to the Company: DDL ELECTRONICS, INC. 2151 Anchor Court Newbury Park, CA 91320 Attention: Chief Executive Officer Telephone: (805) 376-2595 Telecopy: (805) 376-9015 (2) if to the Collateral Agent: FIRST UNION NATIONAL BANK 765 Broad Street Newark, NJ 07102 Attention: Corporate Trust Department Thomas Brett Telephone: (201) 430-4827 Telecopy: (201) 430-4963 (3) if to Rickel: RICKEL & ASSOCIATES, INC. 875 Third Avenue New York, New York 10022 Attention: Kenneth Rickel Telephone: (212) 339-9800 Telecopy: (212) 754-9644
Section 12.4 Severability. If any term or provision hereof or the application thereof to any circumstance, in any jurisdiction and to any extent, shall be invalid or unenforceable, such term or such provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable any remaining terms and provisions hereof or the application of such term or provision to 14 15 circumstances other than those as to which it is held invalid or unenforceable. To the fullest extent permitted by applicable law, the parties hereby waive any provision of law which renders any term or provision hereof invalid or unenforceable in any respect. Section 12.5 Governing Law. This Agreement 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. Section 12.6 Forum and Jurisdiction. Each of the parties hereto (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, or the subject matter hereof, brought by any other party hereto 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 such party is not subject personally to the jurisdiction of the above-named courts, that such party's 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 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. Each of the parties hereto hereby consents to service of process by certified mail at such party's address set forth herein and agree that such party's submission to jurisdiction and such party's consent to service of process by mail is made for the express benefit of the other parties hereto. Final judgment against any party hereto 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 such party therein described or (ii) in any other manner provided by or pursuant to the laws of such other jurisdiction; provided, however, that any other party hereto may at its option bring suit, or institute other judicial proceedings, against any other party hereto or any of such party's assets in any state or Federal court of the United States or of any country or place where such party or its assets may be found. Section 12.7 Headings. The headings in this Pledge are for convenience only and shall not be construed as a part of this Pledge. Section 12.8 Term of Agreement. This Pledge and all agreements of Rickel contained herein shall continue in full force and effect and shall not be discharged until such time as the Secured Obligations shall be indefeasibly paid or performed in full and all of the agreements of Rickel hereunder shall be fully paid or performed; provided, certain provisions of this Pledge shall survive such termination as expressly set forth herein. Upon termination of this Pledge, the Collateral Agent shall deliver the Pledged Collateral to Rickel upon the written request of Rickel (which request shall be accompanied by a written acknowledgement by the Company that all of the Secured Obligations have been indefeasibly paid or performed in full 15 16 and all of the agreements of Rickel hereunder have been fully paid or performed). 16 17 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. RICKEL & ASSOCIATES, INC. By: /s/ Howard Miller ------------------------------------- Name: Howard Miller Title: E.V.P. FIRST UNION NATIONAL BANK, as Collateral Agent By: /s/ Thomas J. Brett ------------------------------------- Name: Thomas J. Brett Title: Corporate Trust Officer DDL ELECTRONICS, INC. By: /s/ Gregory L. Horton ------------------------------------- Gregory L. Horton President and Chief Executive Officer 17 EX-4.R 9 FORM OF COLLATERAL AGENCY AGREEMENT 2-29-96 1 EXHIBIT 4-r COLLATERAL AGENCY AGREEMENT COLLATERAL AGENCY AGREEMENT (the "Agreement"), dated as of February 29, 1996, among RICKEL & ASSOCIATES, INC., a New Jersey corporation ("Rickel"), each of the PURCHASERS named in the Securities Purchase Agreement (as hereafter defined) who execute and deliver a counterpart signature page hereto (collectively, the "Purchasers"), FIRST UNION NATIONAL BANK (the "Collateral Agent"), as collateral agent for the benefit of the Holders (as defined below) and DDL ELECTRONICS, INC., a Delaware corporation (the "Company"). R E C I T A L S: WHEREAS, on the date hereof the Company will authorize the issuance of $5,300,000 of its Senior Secured Notes due July 1, 1997 (the "Notes") pursuant to a Securities Purchase Agreement, dated as of February 29, 1996 (the "Securities Purchase Agreement"), among the Company and the Holders (as herein defined); WHEREAS, to secure the payment of the Company's obligations under the Notes and the performance and observance of its obligations under the terms of the Securities Purchase Agreement and the Other Operative Documents (the obligations under the Operative Documents being hereafter referred to as the "Secured Obligations"), among other things, the Company and Rickel have entered into the Pledge Agreement, dated the date hereof, with the Collateral Agent, for the benefit of the Holders, and the Company (the "Pledge Agreement"), which provides, among other things, for the pledge and grant by Rickel to the Collateral Agent, for the benefit of the Holders of the Notes (the "Holders"), of a security interest in 1,060,000 shares of the Company's common stock, par value $.01 per share (the "Shares"); WHEREAS, to secure payment of certain of the Company's obligations to pay accrued interest under the Notes, $375,000 (the "Prepaid Interest Amount") of the gross proceeds of the sale of the Notes will be deposited with the Collateral Agent; and WHEREAS, the Purchasers desire to appoint the Collateral Agent to hold the Shares and apply the Prepaid Interest Amount on behalf of the Holders as provided herein. NOW, THEREFORE, in consideration of the mutual covenants set forth herein, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. APPOINTMENT. The Purchasers hereby designate FIRST UNION NATIONAL BANK as Collateral Agent to act as specified herein and in the Pledge Agreement. Each Purchaser hereby irrevocably authorizes, and each Holder (whether by assignment or transfer of Notes from a Purchaser) by the acceptance of such assignment or transfer of Notes shall be 2 deemed irrevocably to authorize, the Collateral Agent to take such action on its behalf under the provisions of this Agreement, the Pledge Agreement and any other instruments and agreements referred to herein or therein, and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Collateral Agent by the terms hereof and thereof. The Collateral Agent may perform any of its duties hereunder by or through its agents or employees. 2. NATURE OF DUTIES. The Collateral Agent shall have no duties or responsibilities with respect to the Shares and any other collateral delivered to the Collateral Agent pursuant to the Pledge Agreement or this Agreement (the Shares and such other collateral being herein referred to as the "Collateral") or with respect to the Prepaid Interest Amount, except those expressly set forth herein or in the Pledge Agreement. Neither the Collateral Agent nor any of its officers, directors, employees or agents shall be liable for any action taken or omitted by it as such hereunder or under the Pledge Agreement or in connection herewith or therewith, unless caused by its or their gross negligence, bad faith or willful misconduct. In no event shall the Collateral Agent be liable for any indirect, special or consequential damages. The duties of the Collateral Agent hereunder and under the Pledge Agreement shall be ministerial and administrative in nature; the Collateral Agent shall not have, by reason of this Agreement or the Pledge Agreement, a fiduciary relationship in respect of any Holder. Nothing in this Agreement or the Pledge Agreement, expressed or implied, is intended to or shall be so construed as to impose upon the Collateral Agent any obligations in respect of this Agreement or the Pledge Agreement except as expressly set forth herein or therein. Notwithstanding anything contained in this Agreement or in the Pledge Agreement, the Collateral Agent shall have no responsibility for (a) the validity, perfection or value of any Collateral or any of the instruments constituting any of the Collateral or (b) the value of, or title to, any of the Collateral. 3. APPROVAL. (a) Subject to the specific provisions herein providing required specific percentages of votes for certain matters, the Collateral Agent is authorized to take any action or to refrain from taking any action, which action or failure to act the Collateral Agent in good faith believes to be consistent with the Collateral Agent's duties under this Agreement and the Pledge Agreement. The Collateral Agent shall be entitled to take any such action or refrain from taking any such action in connection with this Agreement and the Pledge Agreement unless and until the Collateral Agent shall have received the required requests or instructions from the Holders, and the Collateral Agent shall not incur liability to any person by reason of such action or failure to act. Without limiting the foregoing, no Holder shall have any right of action whatsoever against the Collateral Agent as a result of the Collateral Agent acting or refraining from acting hereunder or under the Pledge Agreement in accordance with such required requests or instructions of the Holders. This Section, however, shall not be construed to permit the Collateral Agent to refuse to perform the duties expressly required of it by the terms of this Agreement and the Pledge Agreement, except as otherwise provided in this Agreement. 2 3 (b) With respect to any actions to be taken by the Collateral Agent which require the approval of the Holders or for which the Collateral Agent desires the approval of the Holders, the Collateral Agent shall have the right (but not the obligation) by written notice to each of the Holders, in accordance with Section 20 hereof, to recommend action to be taken by the Collateral Agent. Any of the Holders who fail to disapprove of the Collateral Agent's recommendations in writing within ten (10) days after the date of such written notice shall be deemed to have approved the Collateral Agent's recommendations contained in said notice. 4. EVENT OF DEFAULT; ACTION OF COLLATERAL AGENT. Any Holder may provide written notice to the Collateral Agent of the occurrence of any Event of Default (as hereinafter defined) under the Notes and the Collateral Agent shall thereupon declare an Event of Default. Upon the occurrence of an Event of Default, the Collateral Agent may, and upon receipt of written instructions from Holders (the "Majority Noteholders") of at least a majority in principal amount of the then outstanding Notes (provided that (a) such Holders provide the Collateral Agent with indemnification reasonably satisfactory to the Collateral Agent against all costs and expenses (including reasonable attorneys' fees) incurred or to be incurred by the Collateral Agent, (b) such instructions shall not be otherwise than in accordance with law or the provisions hereof, and (c) the Collateral Agent shall have the right to decline to follow any such direction which in its sole opinion would involve it in costs or expenses (including reasonable attorneys' fees) for which it reasonably may expect not to be reimbursed hereunder) exercise on behalf of the Holders all rights, powers and remedies of the Collateral Agent (whether vested in it by this Agreement or the Pledge Agreement or by law), or take such action as shall be specified in such written instructions (subject to indemnification under Section 10 hereof), including, without limitation, the following rights (in each and every case subject to Section 2.2 of the Pledge Agreement), each of which Rickel agrees to be commercially reasonable: (i) to receive all amounts payable in respect of the Collateral; (ii) to transfer all or any part of the Collateral into the name or names of the Holders directly; and (iii) at any time or from time to time, without demand of performance or other demand, advertisement or notice of any kind (except as provided in the Pledge Agreement) to or upon Rickel or any other Person, as defined in the Securities Purchase Agreement, (all and each of which demands, advertisements and/or notices are hereby expressly waived), to assume, collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or to sell, lease, assign, give an option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at a public or private sale or sales, at any exchange broker's board or at its offices or elsewhere at such prices as are approved by the Majority Noteholders, for cash or on credit or for future delivery without assumption of any credit risk in accordance with Section 9.1 of the Pledge Agreement. In 3 4 accordance with the terms of the Pledge Agreement, unless prohibited by applicable law, the Holders may purchase all or any part of the Collateral free from any right or equity of redemption. The Collateral Agent may exercise any of its rights hereunder even if it does not possess any of the Notes. 5. EVENT OF DEFAULT. An "Event of Default" shall be the occurrence of an Event of Default under the Notes. 6. DISTRIBUTION OF PAYMENTS OR PROCEEDS. Any amounts received pursuant to Section 4 of this Agreement shall be paid over by the Collateral Agent ratably to the Holders upon the Collateral Agent's receipt of the Notes. The Collateral Agent shall tender the Notes surrendered by Holders receiving such proceeds to the Company and the Company shall, in the case of any Notes not paid in full, issue Notes to Holders representing the outstanding principal balance thereof. 7. RELEASE OF COLLATERAL. The Collateral shall be released pursuant to and in accordance with the Pledge Agreement. 8. RESPONSIBILITIES OF COLLATERAL AGENT. The Collateral Agent may consult with, and obtain advice from, legal counsel with respect to any question as to any of the provisions hereof or its duties hereunder, or any matter of law relating hereto, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by the Collateral Agent reasonably and in good faith in accordance with the opinion and directions of such counsel; the reasonable costs of such services to be reimbursed pursuant to Section 10 hereof. No provision of this Agreement or the Pledge Agreement shall require the Collateral Agent to expend or risk its own funds, or to take any legal or other action hereunder which might in its judgment involve any expense or any financial or other liability, unless the Collateral Agent shall be furnished with indemnification reasonably acceptable to it. The permissive right of the Collateral Agent to take any action hereunder shall not be construed as a duty. 9. RELIANCE. The Collateral Agent shall be entitled to rely in good faith, and shall be fully protected in so relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document signed, sent or made by the proper person or entity not only as to its due execution and validity, but also as to the truth and accuracy of the matters contained therein, and, with respect to all legal matters pertaining to this Agreement or the Pledge Agreement and its duties hereunder or thereunder, upon advice of counsel selected by it. 10. INDEMNIFICATION. The Company will reimburse and indemnify the Collateral 4 5 Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, reasonable attorneys' fees) which may be imposed on, incurred by or asserted against the Collateral Agent in performing its duties hereunder or under the Pledge Agreement or otherwise relating to or arising out of this Agreement or the Pledge Agreement; provided, that the Company shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Collateral Agent's gross negligence, bad faith or willful misconduct. This Section 10 shall survive the termination of this Agreement. 11. THE COLLATERAL AGENT IN ITS INDIVIDUAL CAPACITY. The Collateral Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with Rickel, the Company or any Affiliate (as such term is defined in the Securities Purchase Agreement) or subsidiary of Rickel or the Company as if it were not performing the duties specified herein, and may accept fees and other consideration from the Company for services in connection with this Agreement and the Pledge Agreement and otherwise without having to account for the same to the Holders. 12. HOLDERS. The Collateral Agent may deem and treat the registered Holder of any of the Notes as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Collateral Agent in accordance with the provisions of Sections 20 and 26 hereof. Any request, authority or consent of any person or entity who, at the time of making such request or giving such authority or consent, is the Holder of any Notes shall be conclusive and binding on any subsequent holder, transferee, assignee or endorsee, as the case may be, of such Notes or of any Notes issued in exchange therefor. Any Notes transferred in violation of this provision may be deemed to be held by the former Holder of such Notes by the Collateral Agent for purposes of this Agreement. 13. RESIGNATION BY, AND REMOVAL OF, THE COLLATERAL AGENT. (a) The Collateral Agent may resign from the performance of all its functions and duties under this Agreement at any time by giving thirty (30) days' prior written notice to Rickel, the Company and the Holders. Such resignation shall take effect upon the appointment of a successor Collateral Agent by the Majority Noteholders, but in no case more than thirty (30) days following such notice. If no successor Collateral Agent shall have been appointed by the Holder or Holders as required in this Section 13 within thirty (30) days after the retiring Collateral Agent's giving of notice, then the retiring Collateral Agent may appoint a successor Collateral Agent which shall be a commercial bank organized under the laws of the United States of America or any State thereof having a combined capital and surplus of at least two hundred million dollars ($200,000,000) or deposit it with a court of competent jurisdiction. If the Collateral Agent does not appoint a successor Collateral Agent, the rights of the Collateral Agent 5 6 with respect to Rickel hereunder shall be deemed to be assigned to the Holders, which rights will revert to the successor Collateral Agent upon appointment. (b) The Majority Noteholders may remove the Collateral Agent at any time upon twenty (20) days' written notice to the Collateral Agent. Such removal shall take effect upon the appointment of a successor Collateral Agent by the Holders pursuant to clause (a) of this Section 13 and the payment of all fees and expenses of the removed Collateral Agent, including reasonable attorneys' fees. (c) Upon acceptance of appointment as Collateral Agent by a successor Collateral Agent, such successor shall thereupon and forthwith succeed to and become vested with all the rights, powers, privileges, immunities and duties of the retiring Collateral Agent hereunder, at which point the retiring Collateral Agent shall be discharged from its duties and obligations hereunder arising after the appointment of a successor Collateral Agent, except as provided in Section 2 hereof. (d) Upon the performance or payment in full of all of the Secured Obligations, the Collateral Agent shall, upon written notice of the Majority Noteholders, be released of all of its obligations hereunder pursuant to Section 18 hereof. (e) Notwithstanding anything contained in this Section 13 to the contrary, the Majority Noteholders may reclaim any and all rights against Rickel under this Agreement. 14. FURTHER ASSURANCES. Rickel, the Company and the Collateral Agent shall promptly and diligently take all such further actions and execute such further documents necessary to carry out the purposes of this Agreement and enforce and preserve the Holders' rights to and interest in the Collateral hereunder subject to the terms hereof. The Collateral Agent shall not be required to execute any documents which would adversely affect its rights or immunities. 15. REPRESENTATIONS AND WARRANTIES OF RICKEL. Rickel hereby makes and confirms the representations and warranties made by it in the Pledge Agreement. 16. AMENDMENTS; MAJORITY NOTEHOLDERS. This Agreement may be amended only with the prior written consent of the Collateral Agent, Rickel, the Company and the Majority Noteholders. In the determination of Majority Noteholders hereunder, any Notes owned by Rickel, the Company or any Affiliate of Rickel or the Company shall be disregarded and deemed not outstanding for this purpose; provided, no Holder of Notes shall be deemed an Affiliate of Rickel or the Company solely by reason of its exercise of remedies under the Operative Documents (as defined in the Securities Purchase Agreement). 17. REMEDIES; WAIVER. 6 7 (a) Subject to the specific provisions of the Securities Purchase Agreement (including, without limitation, Section 8.3 thereof), of the Pledge Agreement (including, without limitation, Section 2.2 thereof) and of the other Operative Documents, no remedy herein conferred upon or reserved to the Collateral Agent or the Holders is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement, the Securities Purchase Agreement, the Pledge Agreement or the other Operative Documents, or any other agreement entered into pursuant hereto or thereto, or now or hereafter existing at law, in equity or by statute. (b) No delay or omission to exercise any right or power accruing upon the occurrence of any Event of Default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. (c) No failure or delay on the part of the Collateral Agent or any Holder in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. (d) Except as otherwise provided in the Securities Purchase Agreement, the Collateral Agent, upon receipt of written instructions from the Majority Noteholders, shall waive an existing Event of Default and its consequences. Such waiver shall not extend to any subsequent or other Event of Default nor impair any right consequent thereto. (e) In the event any provision contained in this Agreement shall be breached by Rickel, the Company or the Collateral Agent and thereafter duly waived by the Holders so empowered to act, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. 18. SURVIVAL. All warranties, representations and covenants made herein by Rickel shall be deemed to have been relied upon by each of the Holders, as the same may be in existence, and shall remain in full force and effect, regardless of (i) any investigation made by or on behalf of the Collateral Agent or any such Holder or (ii) the acceptance of any of the Notes and payment therefor. The obligations of the parties under this Agreement shall continue until all of Rickel's obligations under the Pledge Agreement have been terminated in full. 19. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties. The provisions of this Agreement are intended to be for the benefit of all of the Holders. The Collateral Agent may not assign any of its rights or obligations under this Agreement without the written consent of the Majority Noteholders, except as otherwise provided in Section 13 hereof. The Collateral Agent may assign its rights against Rickel under this Agreement to the Holders at any time and for any 7 8 reason. The Holders may freely assign their rights hereunder to permissible transferees under the Securities Purchase Agreement. 20. 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. (a)if to the Company: DDL ELECTRONICS, INC. 2151 Anchor Court Newbury Park, CA 91320 Attention: Chief Executive Officer Telephone: (805) 376-2595 Telecopy: (805) 376-9015 (b)if to the Collateral Agent: FIRST UNION NATIONAL BANK 765 Broad Street Newark, NJ 07102 Attention: Corporate Trust Department Telephone: (201) 430-4070 Telecopy: (201) 430-4963 (c)if to Rickel: RICKEL & ASSOCIATES, INC. 875 Third Avenue New York, New York 10022 Attention: Kenneth Rickel 8 9 Telephone: (212) 339-9800 Telecopy: (212) 754-9644 (d) if to any Holder, at the address of such Holder as it appears on the note register. 21. ENTIRE UNDERSTANDING; COUNTERPARTS. This Agreement and the other Operative Documents constitute the entire agreement among the parties hereto with respect to the powers and duties of the Collateral Agent and supersedes all prior agreements and understandings, both written and oral, among the parties. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 22. SEVERABILITY OF TERMS. If any term or provision hereof or the application thereof to any circumstance, in any jurisdiction and to any extent, shall be invalid or unenforceable, such term or such provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable any remaining terms and provisions hereof or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable. To the fullest extent permitted by applicable law, the parties hereby waive any provision of law which renders any term or provision hereof invalid or unenforceable in any respect. 23. COSTS. The Company agrees to be responsible for, and pay all legal fees and expenses, costs, expenses and collection fees of, the Collateral Agent arising out of or in connection with the enforcement of the rights of the Collateral Agent under this Agreement and the other Operative Documents. 24. GOVERNING LAW. This Agreement 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. Each of the parties hereto (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, or the subject matter hereof, brought by any other party hereto 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 such party is not subject personally to the jurisdiction of the above-named courts, that such party's 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 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. Each of the parties 9 10 hereto hereby consents to service of process by certified mail at such party's address set forth herein and agree that such party's submission to jurisdiction and such party's consent to service of process by mail is made for the express benefit of the other parties hereto. Final judgment against any party hereto 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 such party therein described or (ii) in any other manner provided by or pursuant to the laws of such other jurisdiction; provided, however, that any other party hereto may at its option bring suit, or institute other judicial proceedings, against any other party hereto or any of such party's assets in any state or Federal court of the United States or of any country or place where such party or its assets may be found. 25. COLLATERAL AGENT ACCOUNT. Upon receipt of the Prepaid Interest Amount by the Collateral Agent, the Collateral Agent shall hold such moneys in trust for the benefit of the Noteholders. The Collateral Agent shall segregate the Prepaid Interest Amount from all other funds and shall hold the Prepaid Interest Amount (and all interest realized thereon) in Fidelity Investments Money Market Fund, Treasury (AAA) or any successor fund thereto (the "Collateral Agent Account"). The Prepaid Interest Amount (and all interest realized thereon) shall be used by the Collateral Agent to pay any and all accrued interest on the principal amount of the Notes when the same becomes due and payable under (and otherwise in accordance with the provisions of) the Securities Purchase Agreement and the Notes until all of the funds in the Collateral Agent Account shall have been distributed to the Noteholders in accordance herewith. Notwithstanding anything contained herein or in the Securities Purchase Agreement to the contrary, the Company shall remain solely obligated to pay all interest which may accrue on the unpaid principal amount of the Notes in accordance with the Securities Purchase Agreement and the Notes. 26. LIST OF HOLDERS. In accordance with Section 20 hereof, on each May 10th, August 10th, November 10th and February 10th of each year during the term of this Agreement, commencing May 10, 1996, the Company shall provide the Collateral Agent with a list of the names and addresses of each Holder and the principal amount of Notes held by each Holder and shall promptly notify the Collateral Agent of any change thereto. The Collateral Agent shall use such list of Holders to pay the Prepaid Interest Amount to the Holders at such times and in such amounts as directed in writing by the Company. 10 11 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered under seal as of the day and year first above written. RICKEL & ASSOCIATES, INC. By: /s/ Kenneth D. Rickel ------------------------------------------- Name: Kenneth D. Rickel Title: DDL ELECTRONICS, INC. By: ------------------------------------------- Gregory L. Horton President and Chief Executive Officer FIRST UNION NATIONAL BANK, As Collateral Agent By: ------------------------------------------ Name: Title: SARATOGA HOLDINGS INC. By:/s/ Gregg A. Smith ------------------------------ Name: Gregg A. Smith Title: CEO /s/ Gregg A. Smith - --------------------------------- Gregg A. Smith 12 /s/ Elliot Smith - ---------------------------- Elliot Smith /s/ Kenneth D. Rickel - ---------------------------- Kenneth D. Rickel /s/ Joseph Fair - ---------------------------- Joseph Fair /s/ Edward McWilliams - ---------------------------- Edward McWilliams /s/ David Cornstein by James Martin Kaplan - ------------------------------------------ David Cornstein by James Martin Kaplan Attorney-in-Fact for David B. Cornstein /s/ Jeffrey S. Silverman - ---------------------------- Jeffrey S. Silverman /s/ Howard Miller - ---------------------------- Howard Miller - ---------------------------- Steve Levy /s/ Marvin Numeroff - ---------------------------- Marvin Numeroff /s/ Jerry Gray - ---------------------------- Jerry Gray /s/ Robert Rickel - ---------------------------- Robert Rickel 13 /s/ Leonard Wilf - ---------------------------- Leonard Wilf - ---------------------------- Peter Knobel - ---------------------------- Patrice Knobel - ---------------------------- Theodore Sofia EX-4.S 10 FORM OF ENGAGEMENT LETTER-RICKEL/COMPANY 1-30-96 1 EXHIBIT 4-s January 30, 1996 DDL Electronics, Inc. 2151 Anchor Court Newbury Park, CA 91320 Attn: Gregory Horton Chief Executive Officer Gentlemen: This letter will amend and supersede in its entirety the engagement letter between us dated September 18, 1995. 1. Appointment. Effective as of September 18, 1995, Rickel & Associates, Inc. ("Rickel") is hereby engaged to act as a financial advisor to DDL Electronics, Inc. (the "Company") on an exclusive basis, subject to the terms and conditions set forth below in this letter agreement ("Agreement"), in connection with (i) the private placement of an aggregate of $5 million principal amount of notes (the "Notes") on substantially the terms set forth in Exhibit A hereto (the "Note Placement") and (ii) the placement pursuant to Regulation S by Intercontinental Holding Company, Ltd. ("Intercontinental") of an aggregate of $3 million principal amount of convertible subordinated debentures ("Debentures") on substantially the terms set forth on Exhibit B hereto (the "Debenture Placement"). Rickel was also responsible for helping to arrange a financing from a commercial bank, a portion of the proceeds from which will be additional working capital to the Company; the proceeds of that financing, net of a portion which will be used to pay down another facility, bring the total of the above transactions to $10 million (collectively, the "Transactions"). Rickel hereby accepts such engagement and in connection therewith agrees: a) To conduct a limited due diligence review of the Company's operations and assist with the preparation of information materials (the "Information Materials") which will be distributed by Rickel to potential financing sources. Rickel will not distribute any such material without prior approval thereof prior to any such delivery. Such Information Materials would include, but may not be limited to the following: i) an Information/Private Placement Memorandum (the "Memorandum"). ii) any supplementary information and/or presentation which we mutually determine are needed to assist you in the marketing of the Transactions to any potential investors. b) To act as your exclusive agent with respect to contacting potential investors or distributors. 2 Engagement Letter 4/25/96 Page 2 c) To negotiate with potential investors on your behalf, if requested by you. d) That, (i) in the event that less than an aggregate of $3 million principal amount of Debentures are sold in the Debenture Placement, the amount of Notes to be sold in the Note Placement will be increased accordingly so that the total gross proceeds to the Company of the Note Placement and Debenture Placement will equal $8 million and (ii) Rickel shall purchase any Notes not purchased by other investors on the same terms offered to investors in the Note Placement. 3. Representations, Warranties and Covenants. At our request, you will furnish or cause to be furnished to us such current and historical financial information and other information regarding the Company as may be necessary for the proper performance of our services hereunder to the extent such information is in the possession of the Company or can be acquired without unreasonable expense or effort. The Company warrants the accuracy and completeness of any such information at the time it is so furnished and confirms its understanding that we shall not be obligated to provide independent verification of any such information. Rickel's obligation under paragraph 1(d) will be subject to the Company being in compliance with the representations and warranties in the Securities Purchase Agreement. You will also undertake to use your reasonable efforts to advise us of all developments materially affecting the Company. The Company will use its best efforts to cause Joel Gold to be elected to the Company's Board of Directors. 4. Term of Appointment. You agree to retain us as your financial advisor with respect to the foregoing for a period of six months from September 18, 1995. 5. Compensation. a) Success Fees. i) The Company shall pay to Rickel a success fee in cash, subject to subparagraph 4(c) hereof, equal to 4% of the amount financed in the Note Placement and the Debenture Placement. ii) Upon consummation of the Note Placement and Debenture Placement, assuming the sale of $5 million principal amount of Notes and $3 million principal amount of Debentures, the Company (A) shall issue to Rickel (or its designee(s)), to the extent not theretofore issued to Rickel (or its designee(s)), 1.5 million shares of the Company's common stock (including shares heretofore issued), one million of which (the "R&A Collateral Shares") shall be placed into escrow as collateral for the Notes and shall be released from escrow in accordance with subparagraph 4(a)(iii) below, and (B) shall reserve for issuance to Rickel an additional 900,000 shares of the Company's common stock (the "Reserved Shares"), which Reserved Shares shall be issued in accordance with, and to the extent provided in subparagraph 4(a)(iv) below. (All of the shares of the Company's 3 Engagement Letter 4/25/96 Page 3 common stock to be issued or reserved for issuance to Rickel or its designee(s) pursuant to (A) or (B) above are hereinafter referred to as the "Shares"). The Company shall also issue to Rickel (or its designee(s)) a warrant (the "Warrant") to purchase 1.5 million shares of common stock of the Company (the "Warrant Shares") at $2.50 per share (subject to anti-dilution adjustment in the case of stock splits, stock dividends or similar occurrences). The Warrant shall have a five-year term, be exercisable immediately, and contain other customary provisions. The Warrants and Warrant Shares will be fully paid and non-assessable, and will be subject to no liens or transfer restrictions other than any restrictions which may arise under federal and state securities laws. The Shares, Warrants and Warrant Shares will be subject to the benefit of a registration rights agreement, providing for, among other things, demand and piggyback registration rights on customary terms and conditions. The registration rights agreement shall not expire until the Shares and Warrants Shares would be freely tradable under Rule 144(k) (or any successor rule) under the Securities Act of 1933. iii) The Notes shall be secured by Collateral Security Warrants issued by the Company representing the right to acquire one million shares of the Company's common stock and by the R&A Collateral Shares. The Collateral Security Warrants, and the shares of common stock issuable upon exercise thereof ("Collateral Security Warrant Shares"), shall represent the primary security for payment of the Notes. If, upon call of the Notes prior to maturity or payment of the Notes upon maturity, the proceeds from the sale of the Collateral Security Warrant Shares ("CSWS Proceeds")are insufficient to pay all amounts due and owing on the Notes (the "Payment Amount"), the Company may sell, on the same terms and conditions as the Collateral Security Warrant Shares, such number of R&A Collateral Shares as shall result in receipt by the Company of the difference between the Payment Amount and the CSWS Proceeds; provided, however, that the maximum number of R&A Collateral Shares that may be sold in the event that the Notes are called prior to maturity shall be 666,667 shares. iv) When all of the Debentures have either been converted into common stock or retired upon their redemption or maturity, the Company shall calculate the aggregate number of shares of its common stock that were issued upon conversion of the Debentures. To the extent that the total number of shares so issued is less than 1.5 million, the Company shall issue to Rickel such number of shares of its common stock as equals the difference between 1.5 million shares and the aggregate number of shares issued upon conversion of the Debentures; provided, however, that in no event shall the number of Shares so issued to Rickel exceed the full 900,000 Reserved Shares. 4 Engagement Letter 4/25/96 Page 4 v) The provisions of subparagraphs 4(a)(ii) through (iv) above assume that (i) the Transactions will involve the issuance of $5 million aggregate principal amount of Notes and $3 million aggregate principal amount of Debentures and (ii) no stock splits, stock dividends or similar events will occur. The amounts set forth in such subparagraphs shall be proportionately adjusted in the event that Notes and Debentures are issued in different proportions, and appropriate anti-dilution adjustments to such amounts shall be made in the event of a stock split, stock dividend or similar occurrence. vi) The Company shall not be responsible for payment of the fees and expenses of Intercontinental relating to the Debenture Placement, which fees and expenses shall be the obligation of Rickel pursuant to its separate agreement with Intercontinental. b) Trailer Fees. Should any Notes or other securities be placed with any investors with which or whom we have held discussions during the term of our engagement and such placement is completed or committed within the six month period following the expiration or termination of this Agreement, the Company shall pay a fee in cash to Rickel equal to 4% of the principal amount of any such Notes or the proceeds from the sale of such other securities. c) Payment. The cash fees payable to Rickel pursuant to subparagraph 4(a)(i) above shall be paid, in whole or in part, by the Company paying on Rickel's behalf, or reimbursing Rickel for, fees and expenses incurred by Rickel in connection with the Transactions, current estimates of which fees and expenses are set forth on Exhibit C annexed hereto, upon presentation of appropriate invoices or requests for payment or reimbursement by Rickel. The Company shall have no obligation to pay, or reimburse Rickel for, fees and expenses exceeding the cash fees payable in the aggregate. To the extent that the aggregate fees and expenses incurred by Rickel and paid or reimbursed by the Company are less than the cash fees payable, the Company may retain the amount representing the difference and apply such amount to (i) reasonable and necessary legal expenses incurred by the Company in connection with the revision of the Transactions to include the issuance of the Debentures and (ii) any prepayment penalty incurred by the Company in respect of the Debentures in the event that the Debentures are called for redemption prior to six months following the date of their issuance. Any amount retained by the Company and not so applied shall be paid to Rickel in cash promptly upon the expiration of six months following the closing of the Note Placement and Debenture Placement. 6. Indemnification. It is hereby understood and agreed that the Company will indemnify Rickel and its affiliates and its and their respective directors, officers, employees, agents and controlling persons (Rickel and each such person being and "Indemnified Party") from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject 5 Engagement Letter 4/25/96 Page 5 under any applicable federal or state law or otherwise, resulting from a claim related to or arising out of the Transactions other than the Debenture Placement or the performance by Rickel of the services contemplated by this Agreement. The Company will reimburse any Indemnified Party for all reasonable expenses (including reasonable counsel fees and expenses) as they are incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding therefrom. The Company will not be liable under the foregoing indemnification provision to the extent any loss, claim, damage or liability is found in a final judgment by a court to have resulted from Rickel's bad faith, willful misconduct or gross negligence or a breach of this Agreement by Rickel. The Company also agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company related to or arising out of the engagement of Rickel pursuant to, or the performance by Rickel of the services contemplated by, this Agreement except to the extent that any loss, claim, damage or liability is found in final judgment by a court to have resulted from Rickel's bad faith, willful misconduct or gross negligence. If any action or proceeding shall be brought or asserted against an Indemnified Party in respect of which indemnity shall be sought from the Company, the Indemnified Party shall promptly notify the Company in writing, and the Company shall assume the defense thereof including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all expenses. The Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnified Party unless (i) the Company has agreed to pay such fees and expenses or (ii) the Company shall have failed promptly to assume the defense of such action or proceeding and employ counsel reasonably satisfactory to the Indemnified Party in such action or proceeding or (iii) the named parties to any such action or proceeding (including any impleaded parties) include the Company and an Indemnified Party and the Company or such Indemnified Party shall have been advised by counsel that there may be one or more legal defenses available to such Indemnified Party which are different from or additional to those available to the Company (in which case, if the Indemnified Party notifies the Company in writing that it elects to employ separate counsel at the expense of the Company, the Company shall not have the right to assume the defense of such action or proceeding on behalf of the Indemnified Party, it being understood, however, that the Company shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings arising out of the same general allegations or circumstances be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for the Indemnified Party, which firm shall be designated by the Indemnified Party. If the indemnification provided herein is for any reason held unenforceable by an Indemnified Party although otherwise applicable in accordance with its terms, the Company agrees to contribute to the losses, claims, damages and liabilities for which such indemnification is held unenforceable (i) in such proportion as is appropriate to reflect the relative benefits to the Company on the one hand, and 6 Engagement Letter 4/25/96 Page 6 Rickel, on the other hand, of the Transactions (whether or not the Transactions are consummated) or (ii) if (but only if) the allocation provided for in clause (i) is for any reason held unenforceable, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company, on the one hand, and Rickel, on the other hand, as well as any other relevant equitable considerations. The Company agrees that for the purposes of this paragraph the relative benefits to the Company and Rickel of the Transactions shall be deemed to be in the same proportion that the total value received or contemplated to be received by the Company in the Transactions bears to the fees paid or to be paid to Rickel under this Agreement. The Company agrees that, without Rickel's prior written consent, it will not settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding in respect of which indemnification could be sought under the indemnification provision of this Agreement (whether or not Rickel or any other Indemnified Party is an actual or potential party to such claim, action or proceeding) unless such settlement, compromise or consent releases Rickel from all liability or obligation. Any advice (written or oral) rendered by Rickel in connection with its engagement pursuant to this Agreement or any similar letter shall be covered by the terms of this Agreement to the extent not otherwise expressly agreed and may not be disclosed publicly without Rickel's written consent except to the extent required by applicable law. The foregoing provisions shall survive any termination or completion of our engagement. The parties hereto waive the right to trial by jury in connection with any claim relating to the services contemplate by this Agreement, including any claim concerning our advice. 7. Publicity. The Company agrees that Rickel may place advertisements in financial and other press at Rickel's own expense describing its services thereunder, provided that such advertisements have been approved in writing by the Company, such approval not to be unreasonably withheld. 8. Expiration/Termination. The expiration of this Agreement in accordance with paragraph 3 hereof shall in no way affect the fees paid or payable pursuant to paragraph 4 hereof (except as specifically provided therein), or our rights to indemnification pursuant to paragraph 5 hereof. 9. Counterparts. This Agreement may be signed in counterparts, each of which shall constitute and original and which together shall constitute one and the same Agreement. 10. Due Authorization. This Agreement has been duly authorized by the Company and constitutes valid and binding Agreement of the Company and Rickel enforceable in accordance with its terms. 7 Engagement Letter 4/25/96 Page 7 11. Governing Law/Dispute Resolution. The parties agree that this Agreement shall be subject to, enforced and construed in accordance with the internal laws of the State of New York and that any suit, action or proceeding with respect to this Agreement will be brought in the State of New York. Neither this Agreement nor any rights or obligations or either party thereunder may be assigned to any other person without the prior written consent of the other party. The provisions hereof shall inure to the benefit of and be binding upon the successors and permitted assigns of our firms. If the foregoing correctly sets forth the understanding among us, please so indicate on the enclosed signed copy of this letter in the space provided therefor and return it to us, whereupon this letter shall constitute a binding Agreement between us. Very truly yours, RICKEL & ASSOCIATES, INC. By: ---------------------------------- Title: ------------------------------- AGREED AND ACCEPTED as of the date above By: ---------------------------------- Title: ------------------------------- 8 Engagement Letter 4/25/96 Page 8 Term Sheet Security: 10% Note (the "Notes") Issuer: DDL Electronics, Inc. ("DDL") Proposed Closing Date: On or before February 15, 1996. Term: 16 months Principal Amount: $5 million Principal Payments: Entire principal amount due upon maturity Interest: Payable quarterly in arrears. Interest for 12 months will put into escrow account at closing to secure DDL's obligations to pay interest. Call Feature: The notes will be callable at any time at the option of DDL, at par. Covenants: The Notes will contain the following covenants and such other covenants as may be agreed to by Rickel and DDL: (i) DDL will be prohibited from incurring or permitting to exist at any time more than $13,500,000of indebtedness. (ii) The proceeds of any asset sales (other than sales in the ordinary course of business) shall be used to pay down principal on the Notes; provided that up to $13,500,000 of such proceeds may be used to pay down indebtedness permitted under clause (i) above. Collateral: As described in Paragraph 4(a)(iii) of the Agreement Registration Rights: The shares of DDL common stock issuable upon the conversion of the Note and the shares securing DDL's obligations under the Note will have the benefits of demand and piggyback registration rights. EX-4.T 11 FORM OF LOAN AGREEMENT-MILLER/RICKEL/SMITH 1-11-96 1 EXHIBIT 4-t LOAN AGREEMENT THIS LOAN AGREEMENT is made and entered into as of the 11th day of January, 1996 by and among HOWARD MILLER, KENNETH D. RICKEL AND ELLIOT SMITH (individually, a "Borrower" and collectively, the "Borrowers"), RICKEL & ASSOCIATES, INC., a New Jersey corporation ("Rickel") and STEVEN J. BAILEYS (the "Lender"): RECITALS: A. Rickel has undertaken to act as placement agent for the issuance of ten percent (10%) Senior Secured Notes (the "DDL Notes") to be issued by DDL Electronics, Inc., a Delaware corporation ("DDL"), in the total aggregate principal amount of $10,000,000, pursuant to a Securities Purchase Agreement to be dated as of January 5, 1996 among DDL and the various purchasers of the DDL Notes ("Securities Purchase Agreement"); B. The proceeds of the DDL Notes are to be used for, among other things, the financing of the acquisition of SMTEK, Inc., a California corporation ("SMTEK"); C. Contemporaneously with the execution of this Agreement, DDL will issue 3,000,000 shares of its common stock, par value $.01 per share (the "Common Stock") and warrants to purchase 1,500,000 shares of the Common Stock (the "Warrants of the Company") to Rickel as part of its placement agent fee, of which Rickel will pledge 2,000,000 shares of Common Stock as collateral for the DDL Notes; D. The Borrowers desire to assist Rickel in meeting its commitment to DDL pending the issuance of the full $10,000,000 in aggregate principal amount of DDL Notes; and E. The Lender and the Borrowers desire to enter into this Loan Agreement to provide interim financing for the DDL acquisition of SMTEK; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned stipulate, covenant and agree as follows: ARTICLE I THE LOAN Upon the terms and subject to the conditions of, and in reliance on the representations and warranties made under, this Agreement, the Lender shall make the Loan to the Borrowers as follows: SECTION 1.01. TERM LOAN. (a) The Lender shall make a Term Loan to the Borrowers in the amount of $3,000,000.00 (the "Loan"). (b) Term Loan Interest. The Borrowers shall pay interest on the Loan for each day it is outstanding at a rate per annum equal to ten percent (10%). Interest shall be payable on the 2 Due Date (as herein defined below). The interest rate provided herein shall be calculated on the basis on the actual number of days lapsed over a 360-day year. Interest on overdue amounts payable hereunder or under the Note shall be payable on demand. If the Borrowers shall fail to pay any amount payable hereunder or under the Note when due (for whatever reason), the Borrowers shall pay interest on each such unpaid amount for each day during the period from the date such amount became so due until it shall be paid in full (whether before or after judgment) at a rate per annum equal to the maximum interest rate permitted by law. Nothing contained in this Agreement or in the Note shall be deemed to establish or require the payment of interest to the Lender at a rate in excess of the maximum rate permitted by governing law. In the event that the rate of interest required to be paid under the Agreement exceeds the maximum rate permitted by governing law, the rate of interest required to be paid hereunder shall be automatically reduced to the maximum rate permitted by governing law and any amounts collected in excess of the permissible amount shall be deemed a prepayment of principal. To the extent such excess amount exceeds the aggregate amount of the Loan, they shall be returned with reasonable promptness by the Lender to the Borrowers. (c) Repayment. The Loan shall mature and become due and payable and shall be repaid by the Borrowers, who shall remain at all times jointly and severally liable for principal and interest due on the Loan, on February 25, 1996 (the "Due Date"). All payments made with respect to the Loan shall be applied first to accrued and unpaid interest on the Loan prior to any application against the outstanding principal balance of the Loan. (d) Prepayment. The Borrowers may prepay the Loan before the Due Date in full or in part in minimum aggregate principal amounts of $100,000, together with all interest accrued on the Loan to the date of such prepayment. (e) Term Note. The Loan and the Borrowers' obligation to repay the Loan with interest in accordance with the terms of this Agreement, shall be evidenced by this Agreement and a single Term Note payable to the order of the Lender substantially in the form of Exhibit A (the "Note"). The Note shall (i) be dated as of the date of this Agreement; (ii) be in a principal amount equal to $3,000,000.00; (iii) be duly executed and delivered by the Borrowers; and (iv) be payable in the amount of the Loan evidenced by it. SECTION 1.02. MANNER OF PAYMENT. All payments of principal, interest, fees and other amounts payable hereunder shall be made to Lender at the Lender's Address not later than 11:00 a.m. (California Time) on the Due Date therefor in lawful money of the United States of America. The Borrowers shall pay principal, interest, fees and all other amounts payable hereunder or under the Note without any deduction whatsoever, including, but not limited to, any deduction for any setoff, recoupment or counterclaim. If any payment hereunder or under the Note shall be specified to be due on a day which is not a Business Day, it shall be due on the next succeeding Business Day and, in the case of a payment of principal, such extension of time shall be included in the computation of interest hereunder. SECTION 1.03. TAXES AND ADDITIONAL COSTS. (a) All payments under this Agreement and under the Note (including, without limitation, payments of interest and principal) shall be payable to the Lender free and clear of any 2 3 and all Borrowers' present and future taxes, levies, imposts, duties, deductions, withholdings, fees, liabilities and similar charges (the "Taxes"). If any Taxes are required to be withheld or deducted from any amount payable under this Agreement or any Note, then the amount payable under the Agreement or the Note shall be increased to the amount which, after deduction from such increased amount of all Taxes required to be withheld or deducted therefrom, will yield to the Lender the amount stated to be payable on the Agreement or the Note. The Borrowers shall execute and deliver to the Lender upon his request such further instruments as may be necessary or desirable to give full force and effect to any such increase, including, without limitation, a new Note of the Borrower to be issued in exchange for the Note theretofore issued. The Borrowers shall also hold the Lender harmless and indemnify it for any stamp or other taxes with respect to the preparation, execution, delivery, recording, performance or enforcement of this Agreement and the Note. If any of the Taxes are paid by the Lender, the Borrowers shall, upon demand of the Lender, reimburse the Lender for such payment, together with any interest, penalties and expenses incurred by the Lender in connection therewith. (b) In the event that (i) any change in applicable law or regulation or in the interpretation thereof by any government or party charged with the administration thereof subjects the Lender to any tax of any kind whatsoever with respect to this Agreement or the Note or changes the basis of taxation of payments to the Lender of principal or interest payable on the Loan (except for changes in the rate of tax based on or measured by the net income of the Lender) or (ii) there shall be imposed on the Lender, directly or indirectly, any other conditions affecting this Agreement or the Note and the result of any of the foregoing as to increase the cost to the Lender of making or maintaining the Loan by an amount which the Lender deems to be material, then the Borrowers shall pay to the Lender upon his demand the additional amount or amounts necessary to compensate the Lender for such additional costs. ARTICLE II CONDITIONS PRECEDENT SECTION 2.01. CONDITIONS PRECEDENT TO THE TERM LOAN. The Lender shall not be obligated to make the Loan hereunder unless, prior to or contemporaneous with the funding of the Loan, the Lender shall have received each of the following, in form and substance satisfactory to the Lender: (a) Fully executed originals of the Agreement, the Note and the Pledge Agreement; (b) Certified copies of the Rickel charter documents, by-laws and all corporate action required to authorize the transactions herein contemplated; (c) The opinion of counsel to the Borrowers, in form and substance satisfactory to the Lender and his counsel, to the effect that (i) this Agreement, the Note and the Pledge Agreement are valid and binding and enforceable obligations of the Borrowers and Rickel except to the extent that the enforceability thereof may be limited by any applicable bankruptcy, insolvency, debt adjustment, moratorium, reorganization or other similar laws relating to the enforcement of creditors' rights generally or as to the availability of any particular remedy; (ii) the Lender has a valid and perfected security interest in the Collateral; (iii) this Agreement and the Note and the Loan created thereby are not violative of any usury laws applicable to the transactions contemplated hereunder. 3 4 (d) Certificates of Existence and Good Standing for Rickel issued of recent date by the Secretary of State of New Jersey; (e) An Incumbency Certificate for Rickel; (f) The opinion of counsel to Rickel, in form and substance satisfactory to the Lender and his counsel, to the effect that the transfer of the Inducement Securities and the pledge of the Collateral is exempt from the registration provisions of applicable federal and state securities laws; (g) All such other documents and materials as the Lender may reasonably request, certified by an appropriate government official or party if so requested. ARTICLE III REPRESENTATION AND WARRANTIES SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. Each of Borrowers, severally and not jointly, represent and warrant to the Lender that: (a) Competency. Such Borrower is at least eighteen (18) years of age and is competent to enter into this Agreement, the Note and otherwise enter into and undertake and effectuate the obligations created hereunder and under the Note. (b) Litigation. There are no pending, or to the best of the Borrower's knowledge, threatened actions, suits or proceedings before any court, arbitrator or governmental or administrative body or agency which are against or in any way related adversely to the Borrower or any of his properties and which if determined adversely to the Borrower, may materially adversely affect the financial condition of such Borrower. (c) Taxes. Such Borrower has filed all federal, state, and local tax returns and other reports that are required to be filed by him and all taxes shown thereon have been paid, and no controversy with respect of additional taxes, state, federal or foreign, against him is pending or, to the best of his knowledge, threatened. (d) No Default. No Borrower is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which he is a party or by which he may be bound, the effect of which default would interfere with or otherwise prevent his performance of his obligations under this Agreement and the Note. (e) No Untrue Statements. Neither this Agreement nor any report, schedule, certificate, agreement or instrument heretofore or simultaneously with the execution of this Agreement delivered to the Lender by or on behalf of such Borrower in connection with this Agreement contains any misrepresentation or untrue statement of fact or omits to state any material fact necessary to make this Agreement or such report, schedule, certificate, agreement or instrument not misleading; provided, however, each Borrower makes no representation or warranty with respect to information originating from, created by or provided by DDL or other 4 5 persons, and each Borrower only represents and warrants that, to the best of his knowledge, such information does not contain any misrepresentation or untrue statement of fact or omit to state any material fact necessary to make such information not misleading. (f) Contract or Restriction Affecting Borrowers. No Borrower is a party to or bound by any contract or agreement under which the execution of this Agreement, the Note and the consummation of the transactions contemplated hereby would create an event of default or breach. (g) No Conflicts. There is no statute, regulation, rule, or order or judgment, and no provision of any mortgage, indenture, contract or agreement binding on any Borrower or affecting any of their properties which would prohibit, conflict with or in any way prevent the execution, delivery or performance of the terms of this Agreement. (h) Bank Accounts. Schedule 3.01 attached hereto sets forth the location (including bank address) and account number of each bank account for each of the Borrowers. SECTION 3.02. REPRESENTATIONS IN WARRANTIES OF RICKEL. Rickel represents and warrants to the Lender that: (a) Organization. Rickel (i) is a corporation duly organized and valid existing and in good standing under the laws of New Jersey; and (ii) has the power and authority to own its properties and carry on its business as now being conducted, except where the lack of such power or authority will not have a material adverse effect on Rickel. (b) Power and Authority. Rickel is duly authorized under all applicable provisions of law to execute, deliver and perform its obligations under this Agreement and the Pledge Agreement, and all action on its part required for the lawful execution, delivery and performance thereof has been duly taken. Each of this Agreement and the Pledge Agreement has been duly executed and delivered by the duly authorized officers of Rickel and is the valid and binding obligation of Rickel, enforceable in accordance with its terms except to the extent that the enforceability thereof may be limited by any applicable bankruptcy, insolvency, debt adjustment, moratorium, reorganization or other similar laws relating to the enforcement of creditors' rights generally. Neither the execution of this Agreement and the Pledge Agreement, nor the fulfillment or compliance with their provisions and terms, will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a violation of or default under any applicable law, regulation, judgment, writ, order or decree to which Rickel or any of its property are subject, or the corporate charter or bylaws of Rickel, or any agreement or instrument to which Rickel is now a party or by which it or its properties are bound or affected, or create any lien, charge or encumbrance on any of the properties or assets of Rickel pursuant to the terms of any agreement or instruments to which the Borrower is a party or by which any of its properties is bound except for liens contemplated herein. (c) No registration under the Securities Act of 1933, as amended ("Securities Act") is required for the issuance and/or pledge of the Securities. (d) Ownership of Securities. The Securities to be transferred and/or pledged to Lender from Rickel are fully paid, non-assessable and not subject to any liens encumbering the property 5 6 of Rickel. The Securities are not needed by Rickel to meet any regulatory capital requirements. Rickel is able to convey good title in the Securities to Lender. (e) Litigation. There are no pending, or to the best of Rickel's knowledge, threatened actions, suits, or proceedings before any court, arbitrator, or governmental or administrative body or agency which are against or in any way relate adversely to Rickel or any of its properties and which if determined adversely to Rickel, may materially adversely affect Rickel's ability to undertake and complete the transactions contemplated herein. (f) Rickel, to the extent necessary to perform its obligations under this Agreement and the Pledge Agreement, has fully complied in all material respects with all laws, ordinances, regulations and orders including without limitation federal and state brokerage regulations, applicable to its business or properties, and the transactions contemplated by this Agreement would not cause Rickel to violate any such laws, ordinances, regulations or orders. (g) No Untrue Statements. Neither this Agreement nor any report, schedule, certificate, agreement or instrument heretofore or simultaneously with the execution of this Agreement delivered to the Lender by or on behalf of Rickel in connection with this Agreement contains any misrepresentation or untrue statement of fact or omits to state any material fact necessary to make this Agreement or any such report, schedule, certificate, agreement or instrument not misleading; provided, however, Rickel makes no representation or warranty with respect to information originating from, created by or provided by DDL or other persons, and Rickel only represents and warrants that, to the best of its knowledge, such information does not contain any misrepresentation or untrue statement of fact or omit to state any material fact necessary to make such information not misleading. (h) No Margin Regulation Violations. The transaction contemplated by this Agreement will not result in the violation of any margin regulations. (i) Contract or Restriction Affecting Rickel. Rickel is not a party to or bound by any contract or agreement or subject to any charter or other corporate restrictions which would prohibit, conflict with or in any way prevent the execution, delivery or performance of the terms of this Agreement. SECTION 3.03 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements contained in any certificate, financial statement, legal opinion or other instrument delivered by or on behalf of the Borrowers and Rickel pursuant to or in connection with this Agreement shall constitute representations and warranties made under this Agreement; provided, however, the Borrowers and Rickel make no representation or warranty with respect to information originating from, created by or provided by DDL or other persons, and the Borrowers and Rickel only represent and warrant that, to the best of their knowledge, such information does not contain any misrepresentation or untrue statement of fact or omit to state any material fact necessary to make such information not misleading. All representations and warranties made under this Agreement shall be made at and as of the date hereof; provided that any financial statement provided pursuant to this Agreement shall constitute a representation warranty as of the date of which the financial statement was prepared. 6 7 ARTICLE IV INDUCEMENT AND SECURITY FOR LOAN SECTION 4.01 SECURITY FOR LOAN. As security for the Loan, Rickel shall deliver, and the Borrowers shall cause Rickel to deliver, a Pledge Agreement dated the date hereof substantially in the form of Exhibit B hereto. The Pledge Agreement shall provide the pledge of 700,000 shares of the common stock, par value $.01 per share ("Common Stock"), of DDL ("Collateral Stock"), which shares were obtained by Rickel in connection with the issuance of the DDL Notes and a warrant or warrants to purchase 900,000 shares of DDL's Common Stock (the "Collateral Warrants", and, together with the Collateral Stock, the "Collateral"), which Collateral Warrants were obtained by Rickel in connection with the issuance of the DDL Notes. If an Event of Default occurs, the Lender agrees to execute upon the Collateral before exercising any other remedies afforded the Lender against the Borrowers under this Agreement. Notwithstanding the foregoing, nothing in this Agreement shall be construed to limit the Lender's ability to exercise remedies with respect to any DDL Notes received by the Lender in an Exchange, such rights and remedies of the Lender being considered separate from the rights and remedies of the Lender granted hereunder. SECTION 4.02 SECURITIES INDUCEMENT Rickel shall transfer, and the Borrowers shall cause Rickel to transfer, ownership of 300,000 shares of DDL's Common Stock (the "Stock Inducement") and a warrant or warrants to purchase 100,000 shares of DDL's Common Stock (the "Warrant Inducement", together with the Stock Inducement, the "Inducement Securities," and collectively with the Collateral, the "Securities") to the Lender. The Inducement Securities shall come from those shares and warrants received by Rickel in connection with the issuance of the DDL Notes. ARTICLE V NOTE EXCHANGE SECTION 5.01 -- EXCHANGE OF NOTE UPON ISSUANCE OF DDL NOTES If the DDL Notes are issued on or before the Due Date and the Loan is not repaid from the proceeds from the sale of the DDL Notes, then the Lender shall have the option to tender the Note to Rickel for cancellation in exchange for a DDL Note with a face amount equal to the principal amount of the Note and interest accrued thereon as of the date of such exchange (the "Exchange"). SECTION 5.02 GRANT OF PUT RIGHTS After February 25, 1996, should the Exchange have occurred, the Lender shall have the right to put the DDL Note he receives in the Exchange to Rickel for the par amount thereof together with accrued interest, at any time in the Lender's sole discretion. If an event of default has occurred under the DDL Note received by the Lender pursuant to the Exchange, the Lender shall also have the right to put the shares and warrants received as collateral for the DDL Note to Rickel at an agreed value of $2.50 per share of Common Stock and $1.00 per unexercised warrant, at any time in Lender's sole discretion. 7 8 SECTION 5.03 SECURITY FOR PUT RIGHTS (a) Rickel's obligations hereunder to honor the put rights of Lender will be secured by, among other things, the personal guarantees of each of the Borrower's. After the Exchange, each of the Borrowers hereby jointly and severally unconditionally guarantees to the Lender the full and complete payment due to the Lender upon the exercise of such put rights of any and all moneys (whether principal, interest, fees, costs, expense or otherwise) payable by Rickel to the Lender pursuant to the terms of this Article V. Each Borrower hereby jointly and severally agrees that, if Rickel shall fail to discharge promptly all such obligations and liabilities arising under this Article V in accordance with the terms and provisions of this Agreement, such Borrower shall forthwith, upon demand, discharge the same. The unconditional obligation of the Borrowers under this section shall continue in full force and effect until all of Rickel's obligations and liabilities under this Article have been fully paid, satisfied and discharged. Until such time, such obligations of the Borrowers will not be, reduced, affected, impaired or released by any extension, waiver, amendment or thing whatsoever which would release a guarantor (other than performance). (b) The Collateral under the Pledge Agreement shall, upon the Exchange, be deemed to collateralize and secure the obligations of Rickel arising upon the exercise of any put rights created under this Article V. The Collateral shall be in addition to any other collateral received by Lender under the terms of the DDL Notes received by Lender in the Exchange. SECTION 5.04 ASSIGNMENT OF REGISTRATION RIGHTS (a) With respect to the Inducement Securities, Rickel hereby irrevocably assigns to the Lender all rights of Rickel under a Registration Rights Agreement dated as of January 5, 1996 (the "Registration Rights Agreement") between Rickel and DDL as to the Inducement Securities. (b) With respect to the Collateral, Rickel hereby agrees to have the Collateral registered in accordance with the Registration Rights Agreement, prior to the execution by the Lender thereon, if Rickel is presented with an opportunity under such Registration Rights Agreement and the Securities Purchase Agreement to have such securities registered by DDL. In the event that the registration of the securities representing the Collateral has not occurred prior to the Lender's execution upon the Collateral, Rickel shall irrevocably assign, and hereby does assign subject to the Lender's execution upon such Collateral, all rights of Rickel under the Registration Rights Agreement with respect to the Collateral. SECTION 5.05 USE OF PROCEEDS The proceeds of the Loan will be used solely in connection with the acquisition of all of the outstanding common stock of SMTEK. Nothing in the Agreement, the Note or the Pledge Agreement shall be construed has to prevent the application of the proceeds of the Loan towards DDL's acquisition of SMTEK or SMTEK's capital stock. 8 9 ARTICLE VI EVENTS OF DEFAULT SECTION 6.01 EVENTS OF DEFAULT Each of the following shall constitute an Event of Default, whatever the reason for such event and whether it shall be voluntary or involuntary or be affected by operation of law or otherwise: (a) If the Borrowers, jointly and severally, default in any payment of principal, interest or other obligation on the Loan or the Note when and as the same shall become due (whether at maturity or by reason of prepayment or otherwise); or (b) If the Borrower or Rickel default in the performance or observance of any covenant or agreement, including obligations arising under the exercise of certain put rights contained in Article V hereof; or (c) The occurrence of a default under the Pledge Agreement; or (d) If any representation or warranty made by the Borrowers or Rickel herein, or in any writing furnished or behalf of the Borrowers or Rickel in connection with the Loan or pursuant to this Agreement, shall have been false, misleading or incomplete in any material respect on the date as of which made; or (e) The filing by any Borrower or Rickel of, a voluntary petition in bankruptcy or voluntary petition or an answer seeking reorganization, arrangement, readjustment of its debts or for any other relief under the Bankruptcy Code, as amended, or under any other insolvency act or law, state or federal, now or hereafter existing, or any other action of any of Borrower or Rickel indicating its consent to, approval of, or acquiescence in any such petition or proceeding; the application for or the appointment of a receiver or a trustee for any Borrower or Rickel; the application for or the consent to or acquiescence in, and assignment for the benefit of creditors of any Borrower or Rickel; or the inability of, or the admission in writing by, any Borrower or Rickel, of his or its inability to pay his or its debts as they mature; or (f) The filing of an involuntary petition against any Borrower or Rickel in bankruptcy or seeking reorganization, arrangement, readjustment of his or its debts or for any other relief under the Bankruptcy Code, as amended, or under any other insolvency act or law, state or federal, now or hereafter existing; or the involuntary appointment of receiver or trustee for the Borrower or Rickel or for all or a substantial part of his or its property; the issuance of a warrant of attachment, execution or similar process against any substantial part of the property of any Borrower or Rickel and the continuance of any such events or conditions for sixty (60) days undismissed or undischarged. SECTION 6.02 REMEDIES UPON DEFAULT Upon the occurrence of any Event of Default and every such event, the Lender, regardless of whether notice is given any Borrower or Rickel, may declare the principal of and interest on the Loan and other amounts payable under this Agreement to be, and the Loan and all such other amounts shall thereupon become, due and payable to the Lender, without presentment, demand, protest or other notice of any kind, all of which are expressly waived, anything in this Agreement or the Note to the contrary notwithstanding. 9 10 SECTION 6.03 NO REMEDIES EXCLUSIVE No remedy herein conferred upon or reserved to the Lender is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity or by statute. ARTICLE VII DEFINITIONS For the purposes of this Agreement: "Agreement" means this Loan Agreement, as further amended from time to time. "Bankruptcy Code" means the Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101 et. seq.), as amended. "Borrowers" and "Borrower" means individually and collectively Howard Miller, Kenneth D. Rickel and Elliot Smith. "Borrower's Address" means the office of the Borrowers at the address specified in Section 8.01. "Business Day" means any day on which commercial banks in the state of New York and the state of California are not authorized or required to close. "Collateral" means Collateral Stock and the Collateral Warrants. "Collateral Stock" means the 700,000 shares of common stock originally issued to Rickel in connection with the issuance of the DDL Note, pledged to the Lender pursuant to the terms of the Pledge Agreement. "Collateral Warrants" means the warrants to purchase 900,000 shares of common stock, originally issued to Rickel in connection with the DDL Note, pledged to the Lender pursuant to the terms of the Pledge Agreement. "Common Stock" means the common stock of DDL, par value $.01 per share. "DDL" means DDL Electronics, Inc. "DDL Note" or "DDL Notes" means any of the 10% Senior Secured Notes of DDL issued pursuant to the Securities Purchase Agreement. "Default" or "Event of Default" means any of the events specified in Section 6.01. "Due Date" means February 25, 1996. 10 11 "Inducement Securities" means the Stock Inducement and the Warrant Inducement. "Lender" means Steven J. Baileys and his successors and assigns. "Lender's Address" means the address of the Lender specified in Section 8.01. "Loan" has the meaning ascribed to it in Section 1.01. "Note" means a term promissory note evidencing the loan and otherwise complying with Section 1.01(d), and all modifications, amendments, restatements, renewals and replacements thereof. "Pledge Agreement" means the Pledge Agreement of even date herewith by and between the Lender and Rickel, as further amended from time to time. "Registration Rights Agreement" means the Registration Rights Agreement dated as of January 5, 1996 between DDL and Rickel, as further amended from time to time. "Rickel" means Rickel & Associates, Inc., a New Jersey corporation. "Securities" means the Collateral and the Inducement Securities. "Securities Purchase Agreement" means the Securities Purchase Agreement to be dated as of January 5, 1996 among DDL and the various purchasers of the DDL Notes. "SMTEK" means SMTEK, Inc., a California corporation. "Stock Inducement" means the 300,000 shares of Common Stock transferred to the Lender from Rickel. "Warrant Inducement" means the warrant or warrants to purchase 100,000 shares of Common Stock transferred to the Lender from Rickel. ARTICLE VIII NOTICES SECTION 8.01 NOTICES All notices and other communications under this Agreement shall: (a) be in writing (which shall include communications by telex or facsimile transmission); (b) if not sent by telex or facsimile transmission, be (i) sent by registered or certified mail, postage prepaid, return receipt requested, (ii) delivered by hand or (iii) where so specified, by telephone; (c) be given to the person to whom addressed at the following respective addresses and telephone numbers: 11 12 (i) if to the Borrowers, to them at: Mr. Howard Miller Mr. Kenneth D. Rickel Mr. Elliot Smith c/o Rickel & Associates, Inc. 875 Third Avenue New York, New York 10002 Telephone: (212) 339-9800 Telecopy: (212) 754-9636 (ii) if to the Lender, to him at: Steven J. Baileys 30691 Hunt Club Drive San Juan Capistrano, California 92675 Telephone: (714) 661-1766 Telecopy: (714) 661-1766 and (iii) if to Rickel, to it at: 875 Third Avenue New York, New York 10002 Attention: Kenneth D. Rickel Telephone: (212) 339-9800 Telecopy: (212) 754-9636 Notices and other communications may be given at other addresses, telex or telephone numbers as may be specified in writing from time to time to the other parties to this Agreement. SECTION 8.02 EXPENSES The Borrowers will: (a) pay all fees and expenses (including all reasonable legal fees, as computed without reference to the statutory presumption) incurred by the Lender in connection with the preparation, execution, delivery and administration of, and operations under, this Agreement, the Note and the Pledge Agreement, (b) pay all fees and expenses (including all reasonable legal fees, as computed without reference to the statutory presumption) incurred by the Lender in connection with any amendment or modification of, or any default or waiver (whether or not executed) under, this Agreement, the Note or the Pledge Agreement, and the enforcement of any rights thereunder or under the Note for the defense of any claim arising out of or in any way related to or connected with the transactions contemplated by this Agreement, and 12 13 (c) pay, and indemnify the Lender against, all taxes, including transfer and documentary stamps and similar taxes in recording and filing fees, payable in respect to this Agreement, the Note and the Pledge Agreement or the making of the Loan. SECTION 8.03 RIGHTS CUMULATIVE The rights and remedies of the Lender under this Agreement and the Note shall be cumulative and not exclusive of any rights or remedies which it would otherwise have, and no failure or delay by the Lender in exercising any right shall operate as a waiver of it, nor shall any single or partial exercise of any power or right preclude its other or further exercise or the exercise of any other power or right. Without limitation of the foregoing, all rights and remedies of the Lender under the Pledge Agreement shall be cumulative and shall be supplementary of and in addition to those granted or available to the Lender hereunder or under the Note or otherwise, and nothing herein shall be construed as limiting any such rights and remedies of the Lender under the Pledge Agreement. SECTION 8.04 WAIVERS; AMENDMENTS. Any term, covenant, agreement or condition of this Agreement or the Note may be amended or waived, and any departure therefrom may be consented to, if, but only if, such amendment, waiver or consent is in writing and is signed by the Lender and, in the case of any amendment, by the Borrowers, and Rickel, and, in any such event, the failure to observe, perform or discharge any such term, covenant, agreement or condition (whether such amendment is executed or such waiver consent is given before or after such failure) shall not be construed as a breach of such term, covenant, agreement or condition or a default. SECTION 8.05 ASSIGNMENT All the provisions of the Agreement shall be binding upon and inured to the benefit of the parties hereto and the respective successors and assigns, except that the Borrowers and Rickel shall not assign or transfer any of their rights and duties under this Agreement, whether by operation of law or otherwise, without the Lender's prior written consent, and any such attempted assignment without the Lender's consent by the Borrowers or Rickel shall be void. SECTION 8.06 COUNTERPARTS This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and shall be binding upon all parties, the successors and assigns. SECTION 8.07 GOVERNING LAW THIS AGREEMENT AND THE NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. SECTION 8.08 JUDICIAL PROCEEDINGS; WAIVER OF JURY TRIAL (a) Any judicial proceedings brought against any of the Borrowers or Rickel with respect to this Agreement may be brought in the state courts for the state of New York or the state of California or 13 14 in the United States District Courts for the Southern District of New York and the Southern District of California, and, by execution and delivery of this Agreement the Borrowers and Rickel accept for themselves and in connection with their properties, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts, and irrevocably agree to be bound by any judgment rendered thereby in connection with this Agreement. Nothing herein shall limit the right of the Lender to bring proceedings against the Borrowers and Rickel in the courts of any other jurisdiction. (b) Except as prohibited by law, each party hereto hereby waives any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this Agreement, the Note or the Pledge Agreement. SECTION 8.09 SECURITY INTEREST AND COLLATERAL This Agreement and the Notes and all of the obligations of the Borrowers and Rickel hereunder and thereunder, as the case may be, are entitled to the benefit of and are secured by the Pledge Agreement. The liens and security interest created thereby in the Collateral shall at all times be valid, perfected and enforceable against the Borrowers and Rickel, as the case may be, and all third parties as security for the obligations of the Borrowers and Rickel under this Agreement and the Notes, as the case may be, and the Borrowers shall, at their sole cost and expense, take all action that may be necessary or desirable, or that the Lender may request, so at all times (i) to maintain such validity, perfection and enforceability, or (ii) to enable the Lender to exercise its rights under the Pledge Agreement. SECTION 8.10 SEVERABILITY OF PROVISIONS Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, in such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, or affecting the validity or enforceability of such provisions in any other jurisdiction. SECTION 8.11 PRIOR UNDERSTANDING This Agreement constitutes the full agreement among the parties with respect to the subject matter hereof and supersedes all prior understandings and agreements, whether written or oral, between the parties hereto relating to the transactions provided for herein. [Signatures begin on following page] 14 15 IN WITNESS WHEREOF, each party hereto as caused the Agreement to be executed by its duly authorized officers or individually in counterparts all as of the day and year first written above. -------------------------------------- HOWARD MILLER, Borrower -------------------------------------- KENNETH D. RICKEL, Borrower -------------------------------------- ELLIOT SMITH, Borrower RICKEL & ASSOCIATES, INC. By: ---------------------------------- Name: ------------------------------- Title: ------------------------------- ATTEST: - -------------------------------- Secretary (CORPORATE SEAL) LENDER -------------------------------------- STEVEN J. BAILEYS, as Lender 15 EX-5 12 FORM OF OPINION OF NELSON MULLINS RILEY SCARBOR 1 EXHIBIT 5 NELSON MULLINS RILEY & SCARBOROUGH, L.L.P. NATIONSBANK CORPORATE CENTER SUITE 3350 100 NORTH TRYON STREET CHARLOTTE, NORTH CAROLINA 28202-4000 TELEPHONE (704) 417-3000 FACSIMILE (704) 377-4814 _________________, 1996 Board of Directors DDL Electronics, Inc. 2151 Anchor Court Newbury Park, California 91320 Dear Sirs: We are acting as counsel to DDL Electronics, Inc., a Delaware corporation (the "Company"), in connection with the preparation, execution and filing with the Securities and Exchange Commission (the "Commission"), under the Securities Act of 1933, as amended (the "Act"), of a Registration Statement on Form S-3 (the "Registration Statement") and the offer, issuance and sale pursuant to the Registration Statement of (i) up to 3,800,388 shares (the "Shares") of the Company's Common Stock, par value $.01 per share (the "Common Stock"), by the Selling Shareholders identified in the Registration Statement and (ii) outstanding warrants to purchase up to 1,500,000 shares of Common Stock (the "Offered Warrants") by certain of the Selling Shareholders as described in the Registration Statement. This opinion letter is furnished to you for filing with the Commission pursuant to Item 601 of Regulation S-K promulgated under the Act. In our representation of the Company, we have examined the Registration Statement and the Company's Certificate of Incorporation and Bylaws, each as amended to date, and such other documents as we have considered necessary for purposes of rendering the opinions expressed below. We have assumed the authenticity of all documents submitted to us as originals and the conformity to the originals of all documents submitted to us as copies of originals. Based upon the foregoing, we are of the following opinion: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. 2. The outstanding Shares and the Offered Warrants have been duly and validly issued and are fully paid and nonassessable. 2 Board of Directors DDL Electronics, Inc. August 16, 1995 Page 2 3. The Shares underlying Common Stock purchase warrants have been duly authorized and, when offered, issued and sold in compliance with the Act and in accordance with the terms and conditions of such warrants, will be duly and validly issued, fully paid and nonassessable. The opinions expressed herein are limited to matters governed by the General Corporation Law of the State of Delaware and the Act. We hereby consent to the use of this opinion letter as Exhibit 5 to the Registration Statement and to the use of our name under the heading "Legal Matters" therein. In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission promulgated thereunder. Very truly yours, EX-23.B 13 CONSENT OF KPMG PEAT MARWICK 1 EXHIBIT 23-b KPMG Peat Marwick LLP Suite 2000 1211 South West Fifth Avenue Portland, OR 97204 Consent of Independent Certified Public Accountants The Board of Directors DDL Electronics, Inc.: We consent to the use of our reports, dated August 18, 1995, incorporated herein by reference in the Registration Statement on Form S-3, dated April 29, 1996, of DDL Electronics, Inc. and to the reference to our firm under the "Experts" heading in the Prospectus. As discussed in note 1 to the financial statements, in 1994 the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". /s/ KPMG Peat Marwick LLP Portland, Oregon April 29, 1996 EX-23.C 14 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23-c ARTHUR ANDERSEN & CO. SC CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form S-3 registration statement of our reports for SMTEK, Inc. dated August 15, 1995 and to all references to our Firm included in this registration statement. /s/ ARTHUR ANDERSEN LLP Los Angeles, California April 29, 1996 EX-23.D 15 CONSENT OF GARY W JANKE 1 EXHIBIT 23-d GARY W. JANKE CERTIFIED PUBLIC ACCOUNTANT 15650 DEVONSHIRE STREET -- SUITE 200 GRANADA HILLS, CALIFORNIA 91344-7241 (818) 893-9674 (310) 276-8470 FAX (818) 893-1246 ACCOUNTANT'S CONSENT I hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement on Form S-3 of my report dated March 21, 1996, which appears on page F-13 of the Amendment on Form 8-K/A dated March 27, 1996. I also consent to the reference to me under the heading "Experts" in such Prospectus. /s/ Gary W. Janke April 29, 1996 -----END PRIVACY-ENHANCED MESSAGE-----