-----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, ETRCDRZ8OxLl53jUmcwCUSreMFFhIvLOOg53BjFOT/N3/72qUS7l8tI3N9nDXp3s 9QIbXLnqUW5bMfK4JW2/qA== 0000950144-96-003578.txt : 19960620 0000950144-96-003578.hdr.sgml : 19960620 ACCESSION NUMBER: 0000950144-96-003578 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19960619 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/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-02969 FILM NUMBER: 96583098 BUSINESS ADDRESS: STREET 1: 2151 ANCHOR COURT CITY: NEWBURY PARK STATE: CA ZIP: 91320 BUSINESS PHONE: 805-376-9415 MAIL ADDRESS: STREET 1: 2151 ANCHOR COURT CITY: NEWBURY PARK STATE: CA ZIP: 91320 FORMER COMPANY: FORMER CONFORMED NAME: DATA DESIGN LABORATORIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DATA DESIGN LABORATORIES DATE OF NAME CHANGE: 19880817 S-3/A 1 DDL ELECTRONICS INC S-3/A2 #333-02969 1 As filed with the Securities and Exchange Commission on June 19, 1996 Registration No. 333-02969 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------- AMENDMENT NO. 2 TO 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. Daniel J. Fritze, 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 1,005,000 shares $1.88 per share (2) $1,889,400 (2) $ 652 (3) Stock, $.01 par 40,000 shares $2.00 per share (4) $ 80,000 (4) $ 28 (5) value 1,164,516 shares $1.94 per share (6) $2,259,162 (6) $ 780 (7) Common Stock Underlying Common Stock 455,000 shares (8) $3.50 per share (9) $1,645,000 (9)(10) $ 568 (7) Purchase Warrants 2,165,872 shares $2.50 per share (9) $5,414,680 (9) $1,868 (7) Total 4,830,388 shares $3,896 (11) ===========================================================================================================
(1) This Registration Statement covers the resale of (a) up to 4,830,388 shares (the "Shares") of common stock, par value $.01 per share (the "Common Stock"), of the Registrant, consisting of (i) 2,209,516 outstanding shares of Common Stock and (ii) 2,620,872 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 June 13, 1996, as reported in the consolidated reporting system, in accordance with Rule 457(c). (3) Paid herewith. (4) Based upon the average of the high and low prices for the Common Stock on May 21, 1996, as reported in the consolidated reporting system, in accordance with Rule 457(c). (5) Paid on May 24, 1996. (6) 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). (7) Paid on April 29, 1996. (8) Reduced from the 470,000 shares of Common Stock indicated in the Registration Statement as filed on April 29, 1996. (9) 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. (10) Assumes registration of 470,000 shares of Common Stock. (11) Of such amount, $3,216 was paid on April 29, 1996, $28 was paid on May 24, 1996, and $652 is being paid herewith. 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 JUNE 19, 1996 DDL ELECTRONICS, INC. COMMON STOCK COMMON STOCK PURCHASE WARRANTS This Prospectus relates to the resale from time to time of up to 4,830,388 shares (the "Shares") of common stock, $.01 par value (the "Common Stock"), of DDL Electronics, Inc. (the "Company"), consisting of 2,209,516 outstanding shares of Common Stock and 2,620,872 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 currently listed on the NYSE and on the PSE under the symbol "DDL." On June 18, 1996, the closing price per share of the Common Stock, as reported in the consolidated reporting system, was $2.25. The Common Stock is subject to delisting by the NYSE for noncompliance with certain continued listing requirements. 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 ("Nasdaq") 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 June ___, 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. 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 Quarterly Report on Form 10-Q for its fiscal quarter ended March 31, 1996; (vi) 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"); (vii) the Company's Amendment on Form 8-K/A, dated March 27, 1996, to the SMTEK 8-K (the "SMTEK 8-K/A"); and (viii) 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, 2,620,872 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. In attempting to maintain and improve operating profitability, management is focusing on problems such as aggressive price competition throughout the industry and the Company's need to strengthen its sales and marketing initiatives. All three of the Company's operating units currently have significant underutilized manufacturing capacity which management attributes to these problems. 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 or improve 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. 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. POSSIBLE DELISTING OF COMMON STOCK. The Common Stock is currently listed and traded on the PSE and the NYSE. To maintain eligibility for listing on the NYSE, the Company must satisfy certain continued listing criteria, including minimum levels regarding (i) number of shareholders and shareholdings (1,200 holders each owning 100 shares or more), (2) number of publicly-held shares (600,000), (3) aggregate market value of publicly-held shares ($5,000,000) and all outstanding shares ($8,000,000) and (4) annual net income (an average of $600,000 per year for the past three years if net tangible assets are less than $8,000,000). The NYSE has notified the Company that, due to the Company's failure to satisfy the annual net income criterion, the Common Stock is subject to delisting. The NYSE has not yet taken affirmative action to delist the Common Stock, but it has reserved the right to take such action in the future. Delisting of the Common Stock from the NYSE could have material adverse effects on the price and liquidity of the Common Stock, depending upon, among other things, the Company's eligibility at that time to continue listing the Common Stock on the PSE or, failing that, to list the Common Stock on Nasdaq or some other exchange. There can be no assurance that the Common Stock could be listed on Nasdaq or any other exchange at any time. 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. 7 10 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. 11 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 12 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 13 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 14 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) Bruce Kanter (3) 40,000 40,000 0 (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 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) - ------------------------------------------------------------------------------------------------------------ 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 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) - ------------------------------------------------------------------------------------------------------------ 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 17
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% Brian Kritzer 5,000 5,000 0 0.0% Gregory L. Horton (23) 1,000,000 1,000,000 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 18 (3) This person has assisted the Company in its capital raising efforts and in the performance of certain managerial functions. Except in the case of Mr. Kanter, all of the Shares offered by such person pursuant to this Prospectus underlie Warrants granted to such person in consideration of such services. The Shares offered by Mr. Kanter are currently outstanding. (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 19 (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. (23) Mr. Horton has served the Company as its President and Chief Executive Officer since January 1996. The Shares offered by Mr. Horton are currently outstanding and were acquired by Mr. Horton as a shareholder of SMTEK pursuant to the acquisition of SMTEK by the Company on January 12, 1996. 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 20 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 21 -------------------------------- -------------------------------- 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 June , 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 -------------------------------- --------------------------------
22 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 . . . . . . . . . . . . . $ 3,896 Exchange listing fees* . . . . . . . . . . . . 14,000 Accounting fees and expenses* . . . . . . . . . 20,000 Legal fees and expenses* . . . . . . . . . . . 25,000 Miscellaneous* . . . . . . . . . . . . . . . . 2,104 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 23 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 24 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 25 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 (1) 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 dated as of July 1, 1995 between the Company and Fechtor, Detwiler & Co., Inc. 4-g (1) Warrant Agreement dated as of July 1, 1995 between the Company and Fortuna Capital Management 4-h (1) Warrant Agreement dated as of July 1, 1995 between the Company and Karen Brenner 4-i (1) Warrant Agreement dated as of July 1, 1995 between the Company and Charles Linn Haslam 4-j (1) Letter dated October 15, 1995 from the Company to Bruce Kanter 4-k (1) Warrant Agreement dated as of July 1, 1995 between the Company and Barry Kaplan 4-l (1)(2) 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 (1) Securities Purchase Agreement dated February 29, 1996 among the Company and the Holders referred to therein (the "Securities Purchase Agreement") 4-n (1)(3) Form of Warrant to Purchase Shares of Common Stock of the Company dated February 29, 1996
II-4 26
Sequentially Exhibit Numbered Number Description Pages ------ ----------- ----- 4-o (1) Registration Rights Agreement dated as of February 29, 1996 between the Company and Rickel & Associates, Inc. ("Rickel") 4-p (1) Registration Rights Agreement dated as of February 29, 1996 among the Company and each of the Purchasers referred to therein 4-q (1) Pledge Agreement dated as of February 29, 1996 among Rickel, First Union National Bank ("FUNB") and the Company 4-r (1) Collateral Agency Agreement dated as of February 29, 1996 among Rickel, each Purchaser under the Securities Purchase Agreement, FUNB and the Company 4-s (1) Engagement Letter dated as of January 30, 1996 between Rickel and the Company 4-t (1) Loan Agreement dated as of January 11, 1996 among Howard Miller, Kenneth D. Rickel, Elliot Smith, Rickel and Steven J. Baileys 4-u (1) General Release and Settlement Agreement dated August 30, 1995 between the Company and Dominic Salvati 4-v Warrant Agreement dated as of January 25, 1996 between the Company and Richard K. Vitelle 4-w Agreement for Purchase of Shares dated October 6, 1995 between the Company, as buyer, and the shareholders of SMTEK (incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K dated January 29, 1996) 4-x Employment Agreement and Letter of Understanding and Agreement dated October 15, 1995 between the Company and Gregory L. Horton (incorporated by reference to Exhibit 99.2 of the Company's Current Report on Form 8-K dated January 29, 1996) 5 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 LLP 23-c Consent of Arthur Andersen LLP 23-d Consent of Mr. Gary W. Janke, C.P.A. 24 (1) Power of Attorney - --------------------
(1) Previously filed. (2) This is the form of Warrant and Contingent Payment Agreement executed and delivered by or on behalf of each of several participants in the Company's several benefit plans. Each such participant is a Selling Stockholder in this Offering. The number of shares offered hereby on behalf of each such Selling Stockholder is the entire amount acquired by such person under the applicable Warrant and Contingent Payment Agreement. The Warrant and Contingent Payment Agreements are substantially identical in all material respects except as to the parties thereto and the numbers of shares that they cover. The name of each party (other than the Company) and the number of shares so acquired and offered by each such party are as follows: E. Bruce Alsip (41,133), Thomas Beiseker (292,748), Robert Black (9,257), Hyla Cameron (25,681), Gillis Carter (39,478), Ray Gardner (20,024), Frank Genochio (26,011), John Hall (5,041), John Nicholson (47,808), Russell O'Neill (5,041), Arthur Schmutz (5,041), Bette Thompson (6,713), Lawrence Whitcomb (35,930), Eugene Wilkinson (20,714), Hugh Witt (5,041) and George Wolfe (10,211). (3) 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 27 (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 28 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 June 19, 1996. DDL ELECTRONICS, INC. By: /s/ Gregory L. Horton ------------------------------ Gregory L. Horton Chief Executive Officer and President 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 June 19, 1996 - ------------------------- President (principal executive Gregory L. Horton officer) and Director /s/ Richard K. Vitelle* Vice President -- Finance June 19, 1996 - ------------------------- (principal financial and accounting Richard K. Vitelle officer) /s/ Robert G. Wilson* Director June 19, 1996 - ------------------------- Robert G. Wilson /s/ Bernee D.L. Strom* Director June 19, 1996 - ------------------------- Bernee D. L. Strom /s/ Melvin Foster* Director June 19, 1996 - ------------------------- Melvin Foster - ------------------------- Director , 1996 Philip H. Alspach -------- /s/ Erven Tallman* Director June 19, 1996 - ------------------------- Erven Tallman - ------------------------- Director , 1996 Don A. Raig -------- *By: /s/ Gregory L. Horton ----------------------------------- Gregory L. Horton, Attorney-in-Fact
EX-4.V 2 WARRANT AGREEMENT DATED 1/25/96 1 EXHIBIT 4-V DDL ELECTRONICS, INC. and RICHARD K. VITELLE WARRANT AGREEMENT Dated as of January 25, 1996 2 INDEX Section 1. Form of Warrant Certificates............................................. 1 Section 2. Signature and Registration............................................... 1 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................................................. 4 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.. 9 Section 11. Consolidation, Merger or Sale of Assets................................. 9 Section 12. Fractional Warrants and Fractional Shares............................... 10 Section 13. Rights of Action........................................................ 10 Section 14. Agreements, Representations and Warranties and Indemnity Obligations of Warrant Recipients and Warrant Certificate Holders............................... 10 Section 15. Registration Rights..................................................... 12 Section 16. Registrar for the Warrants.............................................. 15 Section 17. Appointment of Warrant Agent............................................ 16
3 Section 18. Maintenance of Office, Notice to Company................................ 16 Section 19. Issuance of New Warrant Certificates.................................... 16 Section 20. Redemption of Warrants.................................................. 16 Section 21. Notice of Proposed Actions.............................................. 17 Section 22. Notices................................................................. 17 Section 23. Supplements and Amendments.............................................. 18 Section 24. Successors.............................................................. 18 Section 25. Benefits of This Agreement.............................................. 18 Section 26. California Contract..................................................... 18 Section 27. Counterparts............................................................ 18 Section 28. Descriptive Headings.................................................... 18 Section 29. Competency.............................................................. 18
Exhibit A: FORM OF WARRANT CERTIFICATE 4 WARRANT AGREEMENT This Warrant Agreement, dated as of January 25, 1996 (this "Warrant Agreement" or "Agreement"), is between DDL ELECTRONICS, INC., a Delaware corporation (the "Company"), and RICHARD K. VITELLE ("Warrant Recipient"). W I T N E S S E T H: WHEREAS, the Company proposes to issue to the Warrant Recipient warrants as hereinafter described (the "Warrants") to purchase up to an aggregate of 20,000 shares, subject to adjustment as hereafter provided (the "Warrant Shares"), of the Company's common stock, par value $.01 per share ("Common Stock"), each Warrant entitling the holder thereof 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 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 19 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 -1- 5 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 transferable in accordance with the restrictions and requirements imposed by Section 14 hereof. Before any transfer by a Warrant Recipient of the Warrants granted hereunder, such Warrant Recipient, or representative, guardian, conservator or executor of Warrant Recipient's estate, shall be required to provide the Company such 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 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. -2- 6 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 19 hereof. Nothing contained in this Agreement shall prohibit the Company from issuing from 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 after July 25, 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. (Newbury Park, California time) on January 25, 2001 (the "Expiration Date"), which is the date on which the right to exercise the Warrants will expire. (b) The Purchase Price for each Warrant Share purchased pursuant to the exercise of a Warrant will be $1.50 per Warrant Share until 5:00 p.m. (Newbury Park, California time) on January 25, 1999, and thereafter will be $2.50 per Warrant Share until 5:00 p.m. (Newbury Park, California time) on the Expiration Date. (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. -3- 7 (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 canceled 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. 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 certificates of Common Stock shares 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 -4- 8 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 Warrant 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 shares of Common Stock 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 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 -5- 9 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 affect if such record date had not been fixed. (c) In case the Company shall fix a record 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 determination 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 -6- 10 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 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 Warrant Shares, 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 Warrant 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. -7- 11 (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 Warrant Shares as provided in Section 9(b). Each of the Warrants outstanding after such adjustment of the number of Warrants shall be exercisable for one Warrant Share. 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 adjust the number of Warrants, indicating the record date for the adjustment and, if known at the 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 announcements. (j) Irrespective of any adjustment or change in the Purchase Price or the number of Warrant Shares, 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 Warrant Shares, 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. (1) 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 -8- 12 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 Warrant Shares are adjusted as provided in Section 9 above, the Company shall (a) promptly obtain a 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 22. 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 shares 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 hereof 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. -9- 13 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 Warrant Shares 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. 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, REPRESENTATIONS AND WARRANTIES AND INDEMNITY OBLIGATIONS OF WARRANT RECIPIENT AND WARRANT CERTIFICATE HOLDERS. The Warrant Recipient and every holder of a Warrant Certificate by accepting the same acknowledges, consents and agrees with, and represents and warrants to, the Company and 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 of transfer, and, notwithstanding any other provisions of this Warrant -10- 14 Agreement, no Warrant may be transferred by the Warrant Recipient other than by will or the laws of descent or distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act, or rules thereunder, or as otherwise permitted by Rule 16b-3 of the Securities and Exchange Commission (the "SEC"); (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 Certificate 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) the Warrants granted hereunder and the Warrant Shares have not been registered with 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 the Warrant Recipient, 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 and/or the Warrant Shares 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; (d) the Warrant Recipient has been advised by the Company, and understands, that the Warrant Recipient must bear the economic risk of an investment in the Warrants for an indefinite period of time because the Warrants and the Warrant Shares have not been registered under the Act and the Company is under no obligation to register the Warrants or the Warrant Shares in any manner other than that set forth in Section 15; therefore, the Warrants and/or the Warrant Shares must be held by the Warrant Recipient unless they are subsequently registered under the Act or an exemption from such registration is available for the transfer of the Warrants and/or the Warrant Shares: (e) the Warrant Recipient represents that the Warrants are being acquired solely for the Warrant Recipient's own account 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; (f) the Warrant Recipient 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: -11- 15 THE SECURITIES REPRESENTED BY THIS WARRANT CERTIFICATE 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; (g) the Warrant Recipient 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; the Warrant Recipient invites the Company so to rely; (h) the Warrant Recipient 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 (i) 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. REGISTRATION RIGHTS. (a) Demand Registration Rights. The Company covenants and agrees with the Warrant Recipient and each other Holder of the Warrants and/or Warrant Shares that within a reasonable period of time after having received a written request of the then Holders of at least a majority of the Warrants including Warrant Shares, if issued, made at any time within the period commencing October 1, 1995 and ending on the Expiration Date, the Company will file, at its sole expense, no more than once, a registration statement (a "Filing") under the Act registering or qualifying the Warrants and/or Warrant Shares for sale. Within fifteen days after receiving any such notice, the Company shall give notice to the other Holders of the Warrants and/or Warrant Shares advising that the Company is proceeding with such Filing, and offering to include therein the Warrant(s) and/or Warrant Shares of such Holders. The Company shall not be obligated to any such other Holder unless such other Holder shall accept such offer by notice in writing to the Company within ten days thereafter. The Holders of the Warrants and/or Warrant Shares whose warrants or shares are included in such offering shall cooperate with the Company in preparing such Filing. No other securities of the Company shall be entitled to participate in such Filing. The Company will use its best efforts, -12- 16 through its officers, directors, auditors and counsel, in all matters necessary or advisable, to file and cause to become effective such Filing as promptly as practicable and for a period of two years thereafter to reflect in such Filing financial statements which are prepared in accordance with Section 10(a)(3) of the Act and any facts or events arising that, individually or in the aggregate, represent a fundamental and/or material change in the information set forth in such Filing to enable any holders of the Warrants to exercise and sell Warrants and/or Warrant Shares during said two-year period. The Holder(s) may sell the Warrants pursuant to such Filing without exercising the Warrants. If any Filing pursuant to this paragraph (a) is an underwritten offering, the Holders of a majority of the Warrants and/or Warrant Shares to be included in such Filing will select an underwriter (or managing underwriter if such offering should be syndicated). (b) Piggyback Registration Rights. The Company covenants and agrees with the Warrant Recipient and each other Holder of the Warrants and/or Warrant Shares that if, at any time within the period commencing October 1, 1995 and ending on the Expiration Date, it proposes to file a registration statement or register any class of security under the Act in a primary registration on behalf of the Company and/or in a secondary registration on behalf of holders of such securities and the registration form or offering statement to be used may be used for registration of the Warrants and/or Warrant Shares, the Company will give prompt written notice (which, in the case of a registration pursuant to the exercise of demand registration rights other than those provided in Section 15(a) of this Agreement, shall be within fifteen business days after the Company's receipt of notice of such exercise and, in any event, shall be at least 30 days prior to such filing) to the Holders of Warrants and/or Warrant Shares (regardless of whether some of the Holders shall have theretofore availed themselves of the right provided in Section 15(a)) at the address(es) appearing on the records of the Company of its intention to effect a registration and will offer to include in such registration, subject to Sections 15(b)(i) and (ii) below, such number of Warrants and/or Warrant Shares with respect to which the Company has received written requests for inclusion therein within 10 days after the giving of notice by the Company. The Holders of the Warrant and/or Warrant Shares whose warrants or shares are included in such offering shall cooperate with the Company in preparing the registration statement. All registrations requested pursuant to this Section 15(b) are referred to herein as "Piggyback Registrations." Notwithstanding the provisions of this Section 15(b), the registration rights provided in this Section 15(b) shall not be available with respect to such number of Warrant Shares as can be resold pursuant to the provisions of Rule 144 of the Securities and Exchange Commission on the expected effective date of any such registration statement. (i) Priority on Primary Registrations. If a Piggyback Registration includes an underwritten primary offering on behalf of the Company and the underwriter for such offering advises the Company in good faith in writing that in its opinion marketing factors require a limitation on the number of Warrants and/or Warrant Shares that can be sold in such offering without materially adversely affecting the distribution of such securities by the Company, the Company will include in such registration (i) first, the -13- 17 securities that the Company proposes to sell, and (ii) second, the Warrants and/or Warrant Shares requested to be included in such registration, pro rata among the Holders of Warrants and/or Warrant Shares, and (iii) third, securities of the holders of other securities requesting registration. If any party disapproves of the terms of any such underwriting, it may withdraw therefrom by written notice to the Company and the Warrant Recipient. (ii) Priority on Secondary Registrations. If a Piggyback Registration consists only of an underwritten secondary offering on behalf of holders of securities of the Company (other than pursuant to Section 15(a)), and the underwriter for such offering advises the Company in good faith in writing that in its opinion the number of Warrants and/or Warrant Shares requested to be included in such registration exceeds the number which can be sold in such offering without materially adversely affecting the distribution of such securities, the Company will include in such registration the securities requested to be included therein by the holders requesting such registration and the Warrants and/or Warrant Shares requested to be included in such registration above, pro rata among such holders on the basis of the number of warrants and/or shares requested to be included by each such holder. Notwithstanding the foregoing, if any such underwriter(s) shall determine in good faith and advise the Company in writing that the distribution of the Warrants and/or the Warrant Shares requested to be included in the registration concurrently with the securities being registered by the Company (the "Company's Registration") would materially adversely affect the distribution of such securities by the Company, then the Holders of such Warrants and/or Warrant Shares shall delay their offering and sale for such period ending on the earliest of (i) 90 days following the effective date of the Company's Registration, (ii) the day upon which the underwriting syndicate, if any, for the Company's Registration shall have been disbanded or (iii) such date as the Company, managing underwriter and Holders of Warrants and/or Warrant Shares shall otherwise agree. In the event of such delay, the Company shall file such supplements, post-effective amendments and take any such other steps as may be necessary to permit such Holders to make their proposed offering and sale for a period of 120 days immediately following the end of such period of delay. If any party disapproves of the terms of any such underwriting, it may elect to withdraw therefrom by written notice to the Company and the underwriter. Notwithstanding the foregoing, the Company shall not be required to file a registration statement to include Warrants and/or Warrant Shares pursuant to this Section 15(b) if an opinion of independent counsel, in form and substance reasonably satisfactory to counsel for the Company and counsel for the Warrant Recipient, that the securities proposed to be disposed of may be transferred in the manner proposed without registration under the Act shall have been delivered to counsel for the Company. -14- 18 (c) Other Registration Rights. In addition to the rights above provided, the Company will cooperate with the then Holders of the Warrants and/or Warrant Shares in preparing and signing any registration statement, in addition to the registration statements and offering statements discussed above, required in order to sell or transfer the aforesaid Warrants and Warrant Shares and will supply all information required therefor, but such additional registration statement or offering statement and any expenses related to such offering shall be at the then Holders' cost and expense unless the Company elects to register additional shares of the Common Stock in which case the cost and expense of such registration statement or offering statement will be pro-rated between the Company and the Holders according to the aggregate sales price of the securities being offered. Notwithstanding the foregoing, the Company may delay the filing of any registration statement pursuant to this Section 15(c) for such reasonable period, which period shall not exceed 45 days, as it may determine is necessary in order to avoid the disruption of any major corporate development then pending or in progress. (d) Action to be Taken by the Company. In connection. with the registration of Warrants and/or Warrant Shares pursuant hereto, the Company agrees to: (i) Bear the expenses of any registration or qualification under (a) or (b) of this Section 15, including but not limited to legal, accounting and printing fees; provided, however, that in no event shall the Company be obligated to pay (A) any fees and disbursements of special counsel for Holders of Warrants and/or Warrant Shares, or (B) any underwriters' discount or commission in respect of such Warrants and/or Warrant Shares, or (C) upon the exercise of any demand registration right provided for in (a) herein, the cost of any liability or similar insurance required by an underwriter, to the extent that such costs are attributable solely to the offering of such Warrants and/or Warrant Shares, payment of which shall, in each case, be the sole responsibility of the Holders of the Warrants and/or Warrant Shares; (ii) Use its best efforts to register or qualify the Warrants and/or Warrant Shares for offer or sale under state securities or blue sky laws of California, Massachusetts and New York and such other jurisdictions in which the Warrant Recipient shall reasonably request and to do any and all acts and things which may be necessary or advisable to enable the Holders to consummate the proposed sale, transfer or other disposition of such securities in such jurisdictions; and (iii) Enter into a cross-indemnity agreement, in customary form, with each underwriter, if any, and each Holder of securities included in such registration statement. SECTION 16. 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 -15- 19 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 proper party or parties. SECTION 17. 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 18. MAINTENANCE OF OFFICE, NOTICE TO COMPANY. As long as any of the Warrants remain unexercised, the Company will maintain an office or agency in the United States of 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 Executive 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 19. 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 -16- 20 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 20. REDEMPTION OF WARRANTS. The Warrants are not redeemable at the option of the Company or at the option of the Warrant Recipient. SECTION 21. 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 22, 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 21 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 22. 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 Executive Officer -17- 21 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 23. 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 24. 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 hereunder. SECTION 25. 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 26. 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 27. 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 28. 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 29. COMPETENCY. Warrant Recipient 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. [This space intentionally left blank] -18- 22 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. DDL ELECTRONICS, INC. By: /s/ Gregory L. Horton ------------------------------------- Gregory L. Horton President and Chief Executive Officer Richard K. Vitelle /s/ Richard K. Vitelle ---------------------------------------- -19- 23 EXHIBIT A [Form of Warrant Certificate] THE SECURITIES REPRESENTED BY THIS WARRANT CERTIFICATE 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 JULY 25, 1996 No. I-001 20,000 Warrants NOT EXERCISABLE AFTER JANUARY 25, 2001 WARRANT CERTIFICATE DDL ELECTRONICS, INC. THIS CERTIFIES THAT Richard K. Vitelle, 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 July 25, 1996 and prior to 5:00 P.M. (Newbury Park, California time) until January 25, 2001 (the "Expiration Date") 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") of $1.50 per share of Common Stock purchasable upon exercise of a Warrant (each a "Warrant Share") until 5:00 p.m. (Newbury Park, California time) on January 25, 1999 and thereafter $2.50 per Warrant Share until 5:00 p.m. (Newbury Park, California time) on the Expiration Date, 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 Agreement dated as of January 25, 1996 (the "Warrant Agreement") between the Company and Richard K. Vitelle (the "Warrant Recipient"), provided that no exercise of this Warrant shall be permitted unless an effective registration statement exists as to the Warrant Shares underlying this Warrant Certificate. -20- 24 As provided in the Warrant Agreement, the Purchase Price and the number of Warrant Shares 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. 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 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 to grant the Warrant Recipient and subsequent holder of this Warrant Certificate certain demand registration rights, piggyback registration rights and other registration rights concerning the Warrants and/or the Warrant -21- 25 Shares that provide for the filing with the Securities and Exchange Commission of a registration statement under the Securities Act of 1933, as amended, all as more fully described in the Warrant Agreement. 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 signature or facsimile signature of the proper officers of the Company and its corporate seal. Dated as of ______________________. DDL ELECTRONICS, INC. Attest: ___________________________ ________________________ BY: BY: Chief Executive Officer Assistant Secretary -22- 26 [Form of Reverse Side of Warrant Certificate] FORM OF ASSIGNMENT (To be exercised 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:____________________ _____________________________ 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. -23- 27 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 _______ of the 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:_______________________ ________________________________________ Signature (Signature must conform in all respects to name of holder as specified on the face of this Warrant Certificate) Signature Guaranteed: ___________________________________ -24- EX-5 3 OPINION OF NELSON, MULLINS, RILEY & SCARBOROUGH 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 June 19, 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 4,830,388 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. June 19, 1996 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, /s/ Nelson Mullins Riley & Scarborough, L.L.P. EX-23.B 4 CONSENT OF KPMG PEAT MARWICK LLP 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 June 19, 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 June 19, 1996 EX-23.C 5 CONSENT OF ARTHUR ANDERSON LLP 1 EXHIBIT 23-c ARTHUR ANDERSEN 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 June 19, 1996 EX-23.D 6 CONSENT OF GARY JANKE C.P.A. 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 June 19, 1996 -----END PRIVACY-ENHANCED MESSAGE-----