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Name of Registrant as Specified in Charter: DDL Electronics, Inc.
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<PAGE>
May 19, 1995
DDL ELECTRONICS, INC.
AN IMPORTANT SHAREHOLDER UPDATE
As you know, there is an attempt underway by a dissident
group of individuals to take over DDL's Board of Directors and
change management of the Company. By this date you have probably
received a proxy statement and green card as well as DDL's Proxy
statement and WHITE proxy card.
Your forthcoming proxy vote to reelect two members of DDL's
Board of Directors, John Coyne, President and Chief Operating
Officer of the Company and Rock Hankin, comes at a critical time
for determining the direction of the Company as well as the
future value of your investment in the Company. We believe the
changes this dissident group of investors proposes are not
beneficial to the Company, will disrupt management's progress and
will put at risk your investment in the Company.
We believe the dissident group (SCRMM) seeking control of
DDL has presented shareholders with misleading statements and
data that seriously distort the financial performance and current
condition of your Company, while failing to point out potential
conflicts of interest that have negatively impacted your Company.
It is apparent from SCRMM's proxy that they have no specific plan
for delivering on their promises, only the request that you vote
them control.
Please invest a few minutes to review the following
essential information that will provide you an accurate
understanding of the facts and enable you to make your proxy
decision on an informed basis.
DDL COMPLETES ESSENTIAL RESTRUCTURING
Three years ago, your Board of Directors and Management set
out to restructure DDL, a company with negative gross margins,
negative equity, over $52 million of accumulated losses, and by
any measure, the heaviest debt load in the industry.
Through persistence and hard work we are profitable again.
Along the way we faced an industry recession in the US and Europe
and variables that no strategic plan can fully anticipate, much
less a company with no ability to obtain credit. Bankruptcy of
the Company's largest customer and Los Angeles earthquake damage
combined to narrow the choices we had in completing this
turnaround. BUT WE DID SUCCEED!
Our priorities were:
- Return to an operating profit.
- Reduce the level of debt so that customers would no
longer have concerns relative to creditor actions and questions
about the financial viability of the company.
To accomplish these priorities we have:
- Recruited and developed management teams at each
operation that stopped over $1M per month of negative cash flow
that was inherited by this management in 1992.
- Focused on customers with better margins in the type of
product and services we supply.
- Sold our Aero-Oregon operation for a substantial gain
to repay all bank debt, thereby eliminating the continued threat
of bankruptcy from our senior lenders.
- Sold A. J. Electronics' operation that could not
rebuild to our profit goals after the LA earthquake.
<PAGE>
The Company now has:
- Demonstrated an operating profit in the third quarter
ended March 31, 1995.
- Reached a positive operating cash flow position in the
last quarter.
- Eliminated all senior debt and all bank liens against
the operating businesses.
- Initiated merger and acquisition efforts to supplement
internal growth at continuing operations with profitable
strategic candidates.
Your Board and management continues to act to increase
shareholder value and our priorities now are:
- Increase profitable operations by using the estimated
$60 million of sales capacity at the existing two facilities.
- Complete profitable strategic merger opportunities that
will benefit from DDL's public listing.
CONFLICTS OF INTEREST VS. ALL SHAREHOLDERS' INTERESTS
In the past year, members of the dissident group (SCRMM)
demanded that the Board of Directors take actions that we believe
were not in the best interest of all shareholders. Rather, these
actions appeared motivated by improper self-interest. Conduct of
this nature raises serious questions concerning the personal
interest of SCRMM vs. the interest of all DDL shareholders.
1. Earlier this year, a member of SCRMM demanded carte
blanche authority to obligate DDL to merge, on undisclosed terms,
with a company he refused to identify . DDL's Board refused this
request for exclusive authority to strike a deal with a
"mysterious" unidentified entity. The Board did, however, offer
to review any properly identified merger opportunity submitted to
the Company within a 24 hour period. The "mystery merger" was
never heard about again.
2. Mr. Richard Fechtor, a broker dealer and member of
SCRMM, presented DDL's Board with an agreement related to an
unidentified merger opportunity. The document specifically
stated that the agreement was "primarily for the benefit of Mr.
Fechtor". The Company executed an alternative standard agreement
that would benefit all shareholders equally, that Mr. Fechtor
refused to sign.
3. Members of SCRMM threatened legal action to force the
DDL board to sell the Company's Aeroscientific-Oregon facility on
terms less favorable than the terms reached with a buyer
developed by the Company. Later Mr. Fechtor identified the
controlling shareholder of this proposed buyer as "a very
important client" to him. Ronald Vannuki, a member of SCRMM,
stated the sale of the facility to the ultimate buyer is the "root
of the problem" with current management. You should ask why
SCRMM members were so upset at the Company's acceptance of a
better offer.
4. In 1994, an SCRMM member controlling the Company's 8
1/2% bonds sought to convert those bonds at a share exchange rate
significantly below the $10+ per share conversion price. Who
will stop this conversion on "sweetheart" terms that will dilute
your shareholdings if SCRMM's board is voted in?
5. If you vote the SCRMM green card, you are empowering
these individuals and others who have demonstrated self interest
over the interests of all DDL shareholders.
<PAGE>
A VALID MEASUREMENT of MANAGEMENT PERFORMANCE
You can easily evaluate SCRMM's "incontestable numbers" and
graphs based on the following statements of fact.
Any measurement of performance must commence with a starting
point. In 1992, DDL's current management took control of a
Company losing over $52 million in the four years prior to 1992.
The Company was in breach of its senior debt agreements and
facing imminent bankruptcy. We believe that SCRMM has compared
DDL to companies that have established customers, stable
financing and operating management in place for several years.
Three years ago DDL had none of these essential characteristics.
1. REVENUES: Revenues declined when operations were sold
to pay off the maturing debt inherited by this management and to
eliminate an earthquake damaged unprofitable Los Angeles
operation with no prospect for a near term profit. "Apples to
apples" comparison of the Company's most recent quarter to last
year shows an increase in revenue from continuing operations of
8%. And more importantly, a swing of over $1.3 million in
operating income from the same quarter last year. SCRMM's focus
on sales growth is a ruse and fails to reflect the lack of
financing to support working capital required by a high sales
growth strategy.
2. OPERATING INCOME: The Company last reported a
quarterly operating profit in fiscal 1989. Operating losses have
on average declined since fiscal 1992, and the first operating
profit was realized in the latest quarter of fiscal 1995. To
achieve this result, gross margins were improved, unprofitable
operations were sold and significant reductions were made in
personnel and in salaries at all levels of the Company's
management.
3. BOOK VALUE: Book value has increased in the past three
years from a $.92/share deficit to a deficit of $.12/share, and
will improve as the Company realizes future profitability.
4. STOCK PRICE: Stock price is normally based on
anticipated earnings and industry attractiveness among other
factors. DDL's current management took over an unprofitable
operation whose stock price was in decline for several years, and
was burdened with the highest debt load in the industry.
Comparison to companies that are very well capitalized hardly
reflects the progress that could be expected from a near-bankrupt
turnaround company completing a complex restructuring.
Now that there is a defined base for future earnings and
growth, and the potential to do acquisitions or mergers, is it
any wonder that a dissident group of self-interested individuals
would want control of the Company.
SCRMM WILL COST YOU
The dissident investor group (SCRMM) has retained a proxy
soliciting organization to assist in its attempt to obtain your
proxy. Quoting from SCRMM's proxy:
"The entire expense of preparing, assembling, printing and
mailing this SCRMM proxy statement and related materials and the
cost of soliciting proxies for the nominees proposed by SCRMM
will be borne by SCRMM."
In the following paragraph of SCRMM's proxy, we quote directly:
"SCRMM will seek reimbursement from DDL for those expenses
[noted above] and does not intend to seek shareholder approval
for such reimbursement at a subsequent meeting unless such
approval is required under Delaware law."
<PAGE>
1. If the SCRMM dissident shareholders take control of the
Company, DDL shareholders will pay for all costs and expenses -
virtually a blank check to spend whatever SCRMM believes
necessary to take control of DDL.
2. If you vote the green proxy card, you are voting to pay
for the costs and expenses of SCRMM "who have incurred certain
professional fees and expenses" for this proxy fight. They will
spend your DDL Company funds, do not vote the green proxy card.
WHY SHOULD YOU VOTE THE WHITE PROXY CARD FOR DDL'S BOARD OF
DIRECTORS?
1. DDL's Board and management are shareholders and we are
driven to increase shareholder value in DDL through growth in
revenue and earnings, and through strategic merger opportunities.
You can recognize that SCRMM's proposed wholesale management
changes are focused solely on promotion of stock price, hardly
the right answer for building real value of your investment in
DDL.
2. DDL's Board and management eliminated the major
remaining barrier to growing the Company with the payoff of
hostile and secured bank debt at year end 1994. Operating
management can now succeed with major customers and grow the
business. SCRMM not only wants to replace the Board but also
wants to fire the COO and other management team members.
3. The experience of present management and the Board
exactly supports the strategy we are executing. In the period
1981-1990, as a co-founder and CEO, I led the growth of an
electronics company from $3 million to $48 million in annual
sales rate with a similar strategy that relied on internal growth
and acquisitions. DDL's current board members have over 35
acquisitions and mergers completed in their careers.
4. DDL's Board and management have guided the company from
the brink of bankruptcy to an operating profit this last quarter.
The opposition wants to "field a new team", with no solid plan
for DDL's future.
5. DDL's current board and management will continue to
guard against conflict of interest proposals and will be governed
by its responsibility to consider possible benefits to all
shareholders rather than the personal interest of a particular
shareholder.
6. VOTE THE RIGHT CARD - THE WHITE PROXY CARD
Enclosed is an additional white proxy card for your vote.
If you have already voted your previous white card you may
discard this card and the green card. If you have not voted,
please vote the enclosed white proxy card.
We would appreciate the opportunity to respond to your
questions and to provide any additional information about DDL you
would like to have.
Remember, we are also shareholders in DDL, and we share your
interest and concern for the future of the Company. Please call
Charlie Van Rossen or Bill Cook at 800-7171-DDL (335) or our
proxy solicitors at D.F. King & Co., Inc at 800-290-6424.
Very truly yours,
/S/William E. Cook
William E. Cook
Chairman, CEO
DDL Electronics, Inc.
