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As filed with the Securities and Exchange Commission on April 29, 1996
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DDL ELECTRONICS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 33-0213512
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
</TABLE>
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)
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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)
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Copy to:
Patrick Daugherty, Esq.
Nelson Mullins Riley & Scarborough, L.L.P.
NationsBank Corporate Center
Charlotte, NC 28202-4000
Telephone: (704) 417-3101
Telecopier: (704) 377-4814
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
<PAGE> 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.[ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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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
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<S> <C> <C> <C> <C>
Outstanding Common
Stock, $.01 par
value 1,164,516 shares $1.94 per share (2) $2,259,162 (2) $ 780
Common Stock
Underlying Common
Stock 470,000 shares $3.50 per share (3) $1,645,000 (3) $ 568
Purchase Warrants 2,165,872 shares $2.50 per share (3) $5,414,680 (3) $1,868
Total 3,800,388 shares $9,388,712 $3,216
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</TABLE>
(1) This Registration Statement covers the resale of (a) up to 3,800,388
shares (the "Shares") of common stock, par value $.01 per share (the
"Common Stock"), of the Registrant, consisting of (i) 1,164,516
outstanding shares of Common Stock and (ii) 2,635,872 shares issuable
upon the exercise of outstanding warrants to purchase Common Stock,
and (b) outstanding warrants covering 1,500,000 shares of Common
Stock.
(2) Based upon the average of the high and low prices for the Common Stock
on April 26, 1996, as reported in the consolidated reporting system,
in accordance with Rule 457(c).
(3) Calculated at the highest prices at which the separate series of
warrants may be exercised, as required by Rule 457(g). Pursuant to
Rule 457(g), no separate registration fee is required for the warrants
themselves.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
jurisdiction.
SUBJECT TO COMPLETION
DATED APRIL 29, 1996
DDL ELECTRONICS, INC.
COMMON STOCK
COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to the resale from time to time of up to
3,800,388 shares (the "Shares") of common stock, $.01 par value (the "Common
Stock"), of DDL Electronics, Inc. (the "Company"), consisting of 1,164,516
outstanding shares of Common Stock and 2,635,872 shares issuable upon the
exercise of outstanding warrants to purchase Common Stock (the "Warrants"), as
well as outstanding Warrants covering 1,500,000 Shares (the "Offered
Warrants").
The Shares may be offered and sold from time to time by the holders
thereof (the "Selling Stockholders") on the New York Stock Exchange (the
"NYSE") or on the Pacific Stock Exchange (the "PSE"). In addition, the Shares
and the Offered Warrants (together, the "Offered Securities") may be offered
and sold from time to time in privately negotiated sales or otherwise, in each
case at market prices prevailing at the time of sale, at prices relating to
such prevailing market prices or at negotiated prices and without payment of
any underwriting discounts or commissions, except for usual and customary
selling commissions paid to brokers or dealers. The Company will not receive
any proceeds from the sale of the Offered Securities. All expenses in
connection with the registration of the Offered Securities will be borne by the
Company. See "Selling Stockholders" and "Plan of Distribution."
The Common Stock is listed on the NYSE and on the PSE under the symbol
"DDL." On April 26, 1996, the closing price per share of the Common Stock, as
reported in the consolidated reporting system, was $1.97. There is no
secondary market for the Offered Warrants. The Offered Warrants will neither
be listed on the NYSE, the PSE or any other national securities exchange nor
will they be qualified for trading on the automated quotation system of the
National Association of Securities Dealers, Inc. (the "NASD").
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THE OFFERED SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," COMMENCING ON PAGE 4.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
---------------
The date of this Prospectus is ______, 1996.
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ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-3 under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the Offered Securities.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Offered Securities, reference
is made to the Registration Statement, including the exhibits and schedules
filed as part thereof. Statements contained in this Prospectus as to the
contents of any contract or any other document are not necessarily complete,
and, in each such instance, reference is hereby made to the copy of the
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by this reference thereto.
The Company is subject to the informational and reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the SEC. The Registration Statement and exhibits and schedules thereto, as
well as such reports, proxy statements and other information, may be inspected
and copied at the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the SEC located
at 7 World Trade Center, Suite 1300, New York, New York 10048 and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part
of such materials may be obtained from any such office upon payment of the fees
prescribed by the SEC. Such information may also be inspected at the offices
of the NYSE at 20 Broad Street, New York, New York 10005 and at the offices of
the PSE at 233 South Beaudry Avenue, Los Angeles, California 90012.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been filed with the SEC by the Company
and are hereby incorporated by reference into this Prospectus: (i) the
Company's Annual Report on Form 10-K for its fiscal year ended June 30, 1995
(the "Form 10-K"); (ii) the Company's Amendment on Form 10-K/A to the Form 10-K
(the "Form 10-K Amendment"); (iii) the Company's Quarterly Report on Form 10-Q
for its fiscal quarter ended September 30, 1995; (iv) the Company's Quarterly
Report on Form 10-Q for its fiscal quarter ended December 31, 1995 (the "Second
Quarter 10-Q"); (v) the Company's Current Reports on Form 8-K, dated the
following dates: July 12, 1995, July 13, 1995, August 3, 1995, August 7, 1995
and January 29, 1996 (the "SMTEK 8-K"); (vi) the Company's Amendment on Form
8-K/A, dated March 27, 1996, to the SMTEK 8-K (the "SMTEK 8-K/A"); and (vii)
the description of the Common Stock contained in the Company's Registration
Statement on Form 8-A filed with the SEC pursuant to Section 12 of the Exchange
Act. All other documents filed pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act from the date of this Prospectus and prior to the
termination of this offering shall be deemed to be incorporated by reference
herein and shall be deemed to be a part hereof from the date of filing thereof.
Any statement contained in a document incorporated or deemed
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document that is also deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person
to whom a Prospectus is delivered, upon written or oral request of such person,
a copy of any document incorporated herein by reference (not including exhibits
to documents that have been incorporated herein by reference unless such
exhibits are specifically incorporated by reference in the document which this
Prospectus incorporates). Requests should be directed to Mr. Richard K.
Vitelle, Vice President -- Finance, DDL Electronics, Inc., 2151 Anchor Court,
Newbury Park, California 91320, telephone (805) 376-9415.
2
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RECENT DEVELOPMENTS
ACQUISITION OF SMTEK
On January 12, 1996, the Company acquired all of the outstanding stock
of SMTEK, Inc., a California corporation ("SMTEK"). SMTEK specializes in the
design and manufacture of complex printed circuit board assemblies and modules
utilizing surface mount technology ("SMT") for sale to government-related and
commercial customers. In its fiscal years ended March 31, 1995 and 1994, SMTEK
derived 74% and 83% of its net sales, respectively, from contracts with prime
contractors of intelligence and military agencies of the United States
government. For further information about the Company's acquisition of SMTEK,
see the SMTEK 8-K and the SMTEK 8-K/A. For further information about the
business of SMTEK, see "The Company -- EMS Contracts -- SMTEK."
The consideration paid by the Company to purchase SMTEK consisted of
1,000,000 shares of Common Stock and $7,199,000 in cash. The cash portion of
the purchase price was financed principally by short-term bridge loans extended
to the Company in November 1995 and January 1996 in the aggregate amount of
$7,000,000, bearing interest at 10% per annum (the "Bridge Loans"). The Company
refinanced the Bridge Loans in February 1996 by issuing $5,300,000 in aggregate
amount of 10% Senior Secured Notes due July 1, 1997 (the "Notes") and
$3,500,000 in aggregate amount of 10% Cumulative Convertible Debentures due
February 28, 1997 (the "Debentures"). As compensation for placing the Notes
and the Debentures, the Company paid to Rickel & Associates, Inc. ("Rickel") a
fee of $352,000 and issued to Rickel 572,683 shares of Common Stock. Rickel
also received certain compensation for making and arranging Bridge Loans. For
further information about the Bridge Loans, the Notes and the Debentures, see
the SMTEK 8-K and the SMTEK 8-K/A.
CHANGES IN THE COMPANY'S CAPITALIZATION
After the issuance of the Notes and the Debentures, at April 15, 1996
the Company had 20,300,532 shares of Common Stock issued and outstanding, an
increase of 3,701,183 shares over the number of shares outstanding at December
31, 1995. At April 15, 1996, 4,433,121 shares of Common Stock were issuable by
the Company upon the exercise of options and warrants issued by the Company,
including 1,060,000 warrants exercisable only upon an event of default with
respect to the Notes. At that date the Company also was committed to issue
20,000 shares of Common Stock and options covering an additional 205,000 shares
of Common Stock. Of the shares underlying outstanding warrants, 2,635,872
shares are being offered by this Prospectus.
REDUCTION OF CERTAIN RETIREMENT OBLIGATIONS
On March 31, 1996, the Company executed certain Warrant and Contingent
Payment Rights Agreements (the "Warrant Agreements") with certain participants
in the Company's retirement benefit plans. As a result of the Warrant
Agreements, the Company recorded an extraordinary gain of approximately
$2,550,000 and has reduced its liabilities by a corresponding amount.
Under the terms of the Warrant Agreements, the participants
relinquished all future payments due to them under certain of the Company's
benefit plans, which at December 31, 1995 totaled approximately $3.5 million.
In exchange, the participants received Warrants to purchase an aggregate of
approximately 600,000 Shares with attendant contingent payment rights. Such
Shares are among the Shares being offered by this Prospectus. The exercise
price of these Warrants is equal to the NYSE closing price of the Company's
Common Stock on May 31, 1996 less $1.50 per share, subject to a minimum
exercise price of $2.50 per share and a maximum exercise price of $6.00 per
share. The Company will subsidize the exercise of these Warrants, through
certain contingent payment rights, by crediting the participants with $2.50 per
share for each Warrant exercised. These Warrants may be called for redemption
by the Company at any time after June 1, 1996, if the Common Stock price closes
above $4.00 per share, at a redemption price of $.05 per Warrant. The Company
is also obligated under the contingent payment rights to pay participants $2.50
for each of these Warrants remaining unexercised after the June 1, 1998
expiration date, payable in semiannual installments over two to ten years.
3
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RISK FACTORS
Prospective investors should carefully consider the following factors,
in addition to the other information presented in this Prospectus, before
purchasing the Offered Securities.
SIGNIFICANT HISTORICAL LOSSES. The Company has incurred significant
operating losses in recent years. Such losses totaled $4,970,000, $6,948,000
and $5,067,000 in the Company's fiscal years ended June 30, 1995, 1994 and
1993, respectively. Although the Company had net income in fiscal 1995 and
1993, such income of $75,000 and $1,073,000, respectively, included a gain in
fiscal 1995 of $3,317,000 on sales of assets and extraordinary gains of
$2,441,000 and $6,100,000 in fiscal 1995 and 1993, respectively, recognized as
a result of debt retirement. As a result of its losses, the Company had a
total stockholders' deficit of $3,344,000 at June 30, 1995. See the Form 10-K,
as amended by the Form 10-K Amendment. In addition, SMTEK had substantially
less net income for its fiscal year ended March 31, 1995 than for its fiscal
year ended March 31, 1994. See the SMTEK 8-K/A. Although management views the
acquisition of SMTEK as a first step in revitalizing the Company, there can be
no assurance that the Company will be able to maintain operating profitability.
See "Business -- Recent Developments" in the Form 10-K and "The Company"
herein.
LIMITED CAPITAL RESOURCES; CONTINUING NEED FOR FINANCING. On February
29, 1996, the Company completed private offerings of Notes and Debentures,
which provided net proceeds in amounts sufficient to consummate the acquisition
of SMTEK and to repay the Bridge Loans. In doing so the Company sought and
received relief from the NYSE with respect to an NYSE rule that would have
required stockholder approval of the Note and Debenture offerings. The basis
for the relief was a determination by the Audit Committee of the Company's
Board of Directors that the delay inherent in securing stockholder approval
would jeopardize the financial viability of the Company. The Company does not
believe that it will generate sufficient revenue to repay the Debentures and
the Notes when due on February 28, 1997 and July 1, 1997, respectively, from
its cash flow from operations. Therefore, the repayment of the Notes will
depend on the Company's ability to refinance the Notes, either by the sale of
debt or equity securities, or to refinance the Debentures, either through the
sale of other debt securities or the conversion of the Debentures by their
terms into shares of Common Stock. No assurance can be given that the Company
will be able to obtain such financing on acceptable terms or at all.
On March 15, 1996, the Company completed an offshore offering of
600,000 shares of Common Stock, yielding net proceeds of approximately $1.1
million. If the net proceeds of this equity offering and the aforementioned
offerings of debt securities should prove insufficient to satisfy the working
capital needs of the Company, and if the Company does not generate cash flow
from operations sufficient to satisfy its capital requirements, then the
Company will be required to seek further financing. The Company currently has
no working capital lines of credit and no readily available sources of future
financing exist. The Company's primary source of liquidity is its cash
balances, which amounted to $2,649,000 at March 31, 1996. In addition, the
Company is attempting to negotiate a line of credit with a bank to satisfy
working capital needs. No assurance can be given that such a line of credit,
or other financing, can be obtained on acceptable terms or at all.
In any event, the Securities Purchase Agreement pertaining to the
Notes prohibits the incurrence of indebtedness by the Company or any of its
subsidiaries that would rank senior to or pari passu with the Notes in excess
of the "Permitted Amount of Indebtedness." As defined, "Permitted Amount of
Indebtedness" includes up to an aggregate of $13.5 million of indebtedness of
the Company and its subsidiaries. The Securities Purchase Agreement also
prohibits the existence of any "Liens" with respect to the Company and its
subsidiaries, except for Liens securing the repayment of indebtedness in an
aggregate amount not to exceed the Permitted Amount of Indebtedness.
The achievement of operating profitability remains the most
significant challenge in generating sufficient cash to ensure the Company's
long-term viability. No assurance can be given that the Company will reach
operating profitability. It is critical for the Company to conduct profitable
operations, however, if it is to have the liquidity necessary to continue as a
going concern. In the current market environment, management believes that the
liquidation value of its assets in a voluntary or involuntary liquidation would
be insufficient to meet the Company's obligations after payment to creditors.
Accordingly, no amounts would be available to holders of the Common Stock.
4
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DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a large
extent upon the efforts and abilities of key managerial and technical
personnel. After the change in control of the Company in May 1995, incumbent
senior management in Tigard, Oregon, was replaced with interim senior
management while the Company searched for permanent senior management possessed
of desired skills, experience and other qualifications. The operating
management of the Company's Northern Ireland subsidiaries was not changed.
Upon consummation of the acquisition of SMTEK, the current President
and Chairman of the Board of SMTEK, Mr. Gregory L. Horton, became the
President and Chief Executive Officer of the Company and a member of the
Company's Board of Directors. Mr. Horton's experience within the industry in
which the Company operates will continue to be of considerable importance to
the Company. The loss of any of the Company's key personnel or its inability
to attract and retain key employees in the future could have a material adverse
effect on the Company's operations and business plan. The Company is the
beneficiary of "key-man" life insurance policy with respect to Mr. Horton in
the amount of $1.3 million. The Company does not intend to obtain similar
insurance policies with respect to the lives of any of its other officers or
personnel.
CONCENTRATION OF REVENUES AMONG MAJOR CUSTOMERS. In the current
fiscal year, six customers are expected to account for more than 80% of the
sales of DDL Electronics Limited, a wholly-owned subsidiary of the Company
located in Northern Ireland ("DDL-E"), and there can be no assurance that any
of these customers will maintain its business relationship with DDL-E. The
loss of all or a substantial portion of DDL-E's revenues attributable to any
one of its major customers that could not be offset by a new customer could
have a material adverse effect on the Company's financial condition and results
of operations.
In the twelve months ended March 31, 1996, ten customers accounted for
more than 80% of SMTEK's sales. Currently, more than 80% of SMTEK's business
is generated by customers located in California. Although SMTEK anticipates a
continual backlog through its current fiscal year of approximately $10 million
generated by approximately thirty customers, there can be no assurance that any
of these customers will maintain its volume of business with SMTEK. The loss
of all or a substantial portion of SMTEK's revenues attributable to any of
SMTEK's major customers, or an adverse change in economic conditions in
California, could have a material adverse effect on the financial condition and
results of operations of SMTEK and the Company.
HISTORICAL DEPENDANCE ON GOVERNMENT BUSINESS; RECENT SHIFT INTO
COMMERCIAL BUSINESS. A substantial portion of SMTEK's historical revenues have
been derived from contracts with United States government prime contractors.
Approximately 74% and 83% of SMTEK's net sales in fiscal 1995 and 1994,
respectively, were derived from sales to avionics, aerospace and defense
electronic contractors. In fiscal 1996 to date, more than 70% of SMTEK's
contracts have been for commercial end use. Business with the United States
and other governments is, in general, subject to a variety of risks, including
delays in funding and performance of contracts; possible termination of
contracts or subcontracts for the convenience of the government; termination or
modification of contracts or subcontracts in the event of change in the
government's requirements; policies or budgetary constraints; adjustments as a
result of audits; and increases or unexpected costs causing losses or reduced
profits under fixed-price contracts. There can be no assurance that any or all
of these risks will not come to fruition in the Company's business.
The ongoing shift in SMTEK's revenue base from prime government
contractors to commercial original equipment manufacturers ("OEMs") will
require significant adjustments in operations, including changes in project
management, materials management and order turnaround time. At the management
level, significant shifts in internal processes, including strategic planning,
marketing and throughput planning, are also required for a successful
completion of this transition. There can be no assurance that SMTEK will be
able to adapt to any or all of these changes.
The anticipated shift in SMTEK's revenue base may also result in
increased financial exposure. Cancellation provisions in commercial contracts
generally are not as generous as government contracts and may expose SMTEK to
materials purchase obligations which later prove unnecessary.
INDUSTRY CONDITIONS. The industries and markets in which the
Company's customers compete are characterized by rapid technological change and
product obsolescence. As a result, the end products made by the Company's
customers
5
<PAGE> 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
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<PAGE> 9
effective secondary market for the Offered Warrants does not develop, then
purchasers of the Offered Warrants may be unable to dispose of such securities
or may be able to dispose of them only to a small universe of prospective
purchasers by means of private sale, which may not result in as high a price
as could be obtained by means of public sale. In addition, the public equity
markets in recent years have experienced extreme price and volume fluctuations
that often have been unrelated or disproportionate to the operating performance
of companies. These broad fluctuations may adversely affect the market price
of the Offered Securities, including the Offered Warrants. In light of these
market considerations, prospective purchasers should view the Offered Warrants
as illiquid investments.
PROPRIETARY RIGHTS AND PATENTS. The Company holds no copyrights,
patents or trademarks that are material to the sale of its products, and
currently the Company does not intend to obtain any copyrights, patents or
trademarks with respect to its intellectual property. There can be no
meaningful protection from competitors developing and marketing products and
services competitive with those of the Company. In addition, companies that
obtain patents claiming products or processes that are necessary for or useful
to the development or operation of the Company's products and services can
bring legal actions against the Company claiming infringement. Although
management is not aware of any claim that either the Company or any of its
subsidiaries infringes any existing patent, in the event that in the future the
Company is unsuccessful against such claim it may be required to obtain
licenses to such patents or to other patents or proprietary technology in order
to develop, manufacture or market its products and services. There can be no
assurance that the Company will be able to obtain such licenses on commercially
reasonable terms or that the patents underlying the licenses will be valid and
enforceable.
RISKS ASSOCIATED WITH INTERNATIONAL BUSINESS. The Company expects
that international revenues will continue to represent a substantial percentage
of its total revenues. International business is subject to various risks,
including exposure to currency fluctuations, political and economic
instability, the greater difficulty of administering business abroad and the
need to comply with a wide variety of export laws, tariff regulations and
regulatory requirements. Such risks are amplified by the fact that a large
portion of the Company's assets and operations are located outside of the
United States. See "Business" in the Form 10-K and "The Company" herein.
NO DIVIDENDS. There can be no assurance that the operations of the
Company will ever result in revenues sufficient to enable the Company to pay
dividends. For the foreseeable future, management anticipates that any
earnings generated by the Company's operations will be used to finance the
Company's business and that cash dividends will not be paid to stockholders.
THE COMPANY
This section of the Prospectus contains certain forward-looking
statements that involve various risks and uncertainties. Actual results may
differ from the results suggested by such forward-looking statements. Factors
that might cause such differences would include, without limitation, those
discussed in "Risk Factors."
The Company manufactures printed circuit boards ("PCBs"), also called
printed wire boards ("PWBs"), for use primarily in the computer, communications
and instrumentation industries. The Company also is an independent provider of
electronic manufacturing services ("EMS") for electronic equipment
manufacturers. Its PCB facilities are located in Northern Ireland and
primarily serve customers in Western Europe. Its EMS facilities are located in
Northern Ireland and Southern California. The Company's principal executive
offices are located at 2151 Anchor Court, Newbury Park, California 91320,
telephone (805) 376-9415.
All of the Company's products and services are "customized" insofar as
they are produced only after the Company has contracted for their design and
sale. The Company relies on customer specifications in manufacturing products.
Such specifications may be developed by the customer alone or may involve some
assistance provided by the Company. Customers submit requests for quotations
on each project. The Company prepares bids based on estimates of its costs.
7
<PAGE> 10
EUROPEAN PCB OPERATIONS
The Company conducts its PCB business through a wholly-owned
subsidiary, Irlandus Circuits Limited ("Irlandus").
THE PCB INDUSTRY. PCBs range from simple single- and double-sided
boards to boards with more than twenty layers. When joined with electronic
components in an assembly process, they comprise the basic building blocks of
electronic equipment. PCBs consist of fine lines of a conductive material,
such as copper, which are bonded to a non-conductive panel, typically
laminated epoxy glass. The conductive pathways in a PCB form electrical
circuits and replace wire as a means of connecting electronic components.
On technologically advanced multilayer boards, conductive pathways
between layers are connected with traditional plated through-holes and may
incorporate surface mount technology. "Through-holes" are holes drilled
entirely through the board that are plated with a conductive material and
constitute the primary connection between the circuitry on the different layers
of the board and the electronic components attached to the boards later.
"Surface mount" boards are boards on which electrical components are soldered
instead of being inserted into through-holes.
Although much more complex and difficult to produce, surface mount
boards can substantially reduce wasted space associated with through-hole
technology and permit greatly increased surface and inner layer densities.
Single-sided PCBs are used in electronic games and automobile ignition systems,
while multilayer PCBs find use in more advanced applications such as computers,
office equipment, communications, instrumentation and defense systems.
The development of increasingly sophisticated electronic equipment,
which combines higher performance and reliability with reduced size and cost,
has created a demand for greater complexity, miniaturization and density in
electronic circuitry. In response to this demand, multilayer technology is
advancing rapidly on many fronts, including the widespread use of surface mount
technology. More sophisticated boards are being created by decreasing the
width of the tracks on the board and increasing the amount of circuitry that
can be placed on each layer. Fabricating advanced multilayer PCBs requires
high levels of capital investment and complex, rapidly changing production
processes.
Since the mid-1980s, the Company has increasingly focused on the
fabrication of advanced multilayer PCBs. Management believes that the market
for these boards offers the opportunity for more attractive margins than the
market for less complex, single and double-sided boards.
As the sophistication and complexity of PCBs increase, yields
typically fall. Historically, the Company relied on tactical quality
procedures, in which defects are assumed to exist and inspectors examine
products lot by lot and board by board to identify deficiencies. This
traditional approach to quality control is not adequate, however, in an
advanced multilayer PCB fabrication environment. Irlandus is now striving to
minimize the occurrence of product defects.
Market demand for PCBs historically has been driven by end-user
product demand. Market supply has followed a classic "boom and bust" cycle
because there are few barriers to entry. High margins triggered a flood of
supply to the market in the 1980s, which drove prices down until significant
industry consolidation occurred in the early 1990s.
Competition among PCB manufacturers is based on price, quality, order
turnaround speed and technical differentiation within the manufacturing
process. Virtually every order is bid competitively. The profit of an
individual manufacturer typically depends on its throughput mix; premium panels
generate higher margins. Both Irlandus and DDL-E have achieved "ISO 9002"
certification, which is increasingly necessary to attract business.
IRLANDUS. Irlandus is located in Craigavon, Northern Ireland, where
it produces high-quality, high-technology, multilayer PCBs. Established in
1972 by Andrus Circuits, a German company, it was acquired by the Company in
1984 and currently employs approximately 160 people. Irlandus has a base of
approximately 100 active customers throughout Europe. Historically, no single
customer has accounted for more than 10% of its annual revenues. Over 80% of
its sales are made by a direct sales force; the remainder are effected by
independent sales representatives. Irlandus also acts as
8
<PAGE> 11
a distributor and sales agent for an Asian PCB manufacturer, although in fiscal
1995 revenues from such activities totaled less than $100,000.
Since 1989 Irlandus has struggled to compete effectively in a
marketplace characterized by excess supply. In fiscal 1995 it did achieve an
operating profit, which management attributes to a new strategic focus on the
high-technology, prototype and premium fast-service end of the multilayer PCB
market. There can be no assurance, however, that Irlandus will continue to
profit from its implementation of this strategy.
EMS CONTRACTS
The Company conducts its EMS business in Western Europe through DDL-E
and in the United States through SMTEK.
THE EMS INDUSTRY. EMS contracts are estimated to generate more than
$30 billion in revenues annually worldwide. The EMS market has three segments:
high-volume, medium-volume and low-volume. The Company focuses on the
medium-volume segment, which accounts for approximately 20% of global demand.
Manufacturers in this segment are highly fragmented and competitive. Customer
bases tend to be highly concentrated, with two or three customers typically
accounting for most of the typical manufacturer's revenue.
Three types of technology are employed in providing higher-margin,
higher-complexity contract manufacturing in the medium-volume EMS market
segment: surface mount technology (SMT), which accounts for the majority of
manufacturing; and through-hole technology and system assembly, which together
account for the remainder. Management believes that the medium-volume EMS
market is continuing to move toward SMT as the preferred manufacturing
technique, mainly because semiconductors have continued to decline in size,
thereby lowering manufacturing tolerances.
Competition in this market segment is driven by service, order
turnaround time and quality. Margins tend to be slightly higher here than in
the high-volume segment because of greater complexity and the generally higher
price associated with specialty products. Also, the customers in this segment
tend to be smaller firms, with less bargaining power. Such customers include
specialized equipment providers to the financial services, computer hardware,
medical services and telecommunications industries, among others.
DDL-E. DDL-E provides turnkey EMS using both SMT and through-hole
technologies. Under the turnkey process, DDL-E procures customer-specified
components from suppliers, assembles the components onto PCBs and performs
post-assembly testing. DDL-E provides EMS primarily for original equipment
manufacturers located in Western Europe and sells system assembly and
subassembly services to the same customer base. It does not fabricate any of
the components or PCBs used in these processes. Instead, after acceptance of a
project, it procures the necessary components from distributors who make
"just-in-time" delivery.
In the past, DDL-E has procured a portion of its PCB requirements from
its affiliate, Irlandus, at prevailing commercial prices. Located
approximately two miles from Irlandus' facilities in Craigavon, Northern
Ireland, DDL-E was founded by the Company in 1989 to complement Irlandus' PCB
business by adding value to boards at the next level of manufacturing. DDL-E
has traditionally focused on customers who are major OEMs in global businesses
across a wide range of industries. Its customer base is highly concentrated;
in fiscal 1995, six customers accounted for 80% of sales. All of its sales are
made by its direct sales force.
Historically, there has been a high level of interdependence in the
EMS/OEM relationship. Since contracted manufacturing may be a substitute for
all or some portion of a customer's captive EMS capability, continuous
communication between the manufacturer and the customer is critical. To
facilitate such communication, DDL-E maintains a customer service department
whose personnel work closely with the customer throughout the assembly process.
Engineering and service personnel coordinate with the customer on product
implementation, thereby providing feedback on issues such as ease of assembly
and anticipated production lead times. Component procurement is
9
<PAGE> 12
commenced after component specifications are verified and approved sources are
confirmed with the customer. Concurrently, assembly routing and procurement
for conformance with workmanship standards are defined and planned.
"In-circuit" test fixturing also is designed and developed.
In-circuit tests are normally performed on all assembled circuit boards for
turnkey projects. Such tests verify that components have been properly
inserted and meet certain functional standards and that electrical circuits are
properly completed. In addition, under protocols specified by the customer,
DDL-E performs customized functional tests designed to ensure that the board or
assembly will perform its intended function. Company personnel monitor all
stages of the assembly process in an effort to provide flexible and rapid
responses to the customer's requirements, including changes in design, order
size and delivery schedule.
The materials procurement element of DDL-E's turnkey services consists
of the planning, purchasing, expediting and financing of the components and
materials required to assemble a PCB or system-level assembly. Customers have
increasingly required DDL-E and other independent providers of EMS to purchase
all or some components directly from component manufacturers or distributors
and to finance the components and materials. In establishing a turnkey
relationship with an independent EMS provider, a customer must incur expenses
in order to qualify the EMS provider (and, in some cases, the provider's
sources of component supply), refine product design and EMS processes and
develop mutually compatible information and reporting systems. With this
relationship established, management believes that customers experience
significant difficulty in expeditiously and effectively reassigning a turnkey
project to a new assembler or in taking on the project themselves.
While the interdependence between EMS providers and OEMs may be a
source of stability in DDL-E's customer base, it also is an obstacle when DDL-E
seeks to attract new customers.
SMTEK. SMTEK is an EMS provider, specializing in SMT assembly and
full production implementation of circuit boards. Its operations range from
analysis and design to complex manufacturing. Its services are marketed to the
military, medical, avionics, industrial and space industries and for high-end
commercial applications.
SMTEK's core competence includes: (i) mechanical thermal engineering
analysis and design of printed circuit boards; (ii) full procurement of all
materials, components and "up-screening"; and (iii) full in-circuit and
functional testing capabilities. Such operations are integrated with a
contract manufacturing capability that relies in substantial part upon factory
automation. SMTEK employs approximately 125 persons and conducts its
operations in a 45,000-square-foot facility located in Newbury Park,
California.
SMTEK was founded in 1986 by Mr. Horton, who became the Company's
President and Chief Executive Officer when the Company acquired SMTEK on
January 12, 1996. Over the years SMTEK has focused on supplying PCB assemblies
to the aerospace and avionics industry. Management believes that SMTEK's
automated production process is a competitive advantage. Such process relies
upon SMT, an unpatented design and production technique believed by management
to be less expensive and more efficient than component through-hole insertion.
SMTEK competes against companies that are much larger and better capitalized
than the Company. In the past Mr. Horton was able to increase the revenues of
SMTEK by focusing on contracts of much smaller size than those sought actively
by its principal competitors. SCI Systems is the leading firm in the EMS
industry. Management believes that the Company's largest direct competitor is
Solectron Corporation.
In its fiscal year completed March 31, 1995, SMTEK's revenues from
governmental sources were 74% of total revenues, as compared with 83% in the
year-earlier period, evidencing a trend (which has continued) toward greater
reliance on commercial contracts. Commercial revenues, in comparison with
governmental revenues, are characterized by higher dollar amounts but lower
profit margins. Management believes that the profit structure of most contract
manufacturing firms involves a small mark-up on the cost of materials, which
comprises perhaps 85% to 90% of the dollar amount of the contract. In contrast
to the industry norm, SMTEK's cost of materials typically has run between 50%
and 70% of the contract amount, allowing room for mark-ups on design and other
value-adding services. With the shift to an increasingly commercial customer
base, however, SMTEK is now competing against larger companies for contracts
offering lower profit margins.
10
<PAGE> 13
SMTEK's backlog at March 31, 1996 amounted to approximately $9.4
million in orders to be filled within six months under contracts with
approximately thirty customers.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Offered
Securities. To the extent that the Offered Warrants are exercised, the Company
expects to use the net proceeds thereof for general corporate purposes.
DETERMINATION OF OFFERING PRICE
This Prospectus may be used from time to time by the Selling
Stockholders who offer the Offered Securities for sale. The offering price of
the Offered Securities will be determined by the Selling Stockholders and may
be based on market prices prevailing at the time of sale, at prices relating to
such prevailing market prices or at negotiated prices. There is no secondary
market for the Offered Warrants.
SELLING STOCKHOLDERS
The following table provides certain information with respect to
Common Stock beneficially owned by each Selling Stockholder as of the dates
indicated. The securities offered in this Prospectus by the Selling
Stockholders are the Shares and the Offered Warrants. The beneficial owners of
the Offered Warrants are identified in the footnotes to the table. Except as
set forth in the footnotes to the table and elsewhere in this Prospectus,
within the past three years none of the Selling Stockholders has had a material
relationship with the Company or with any of the Company's predecessors or
affiliates other than as a result of ownership of the securities of the
Company. The Offered Securities may be offered from time to time by the
Selling Stockholders named below or their nominees, and this Prospectus may be
required to be delivered by persons who may be deemed to be underwriters in
connection with the offer or sale of Offered Securities.
<TABLE>
<CAPTION>
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)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fechtor, Detwiler &
Co., Inc. (3) 250,000 250,000 0 0.0%
Fortuna Capital
Management (3) 1,365,290 150,000 1,215,290 5.6%
Karen Brenner (3) 1,531,644 (4) 50,000 1,481,644 6.8%
Charles Linn Haslam (5) 50,000 50,000 0 0.0%
Richard K. Vitelle (6) 25,000 20,000 5,000 (7)
Edward Loeswick (3) 18,500 15,000 3,500 (7)
Barry Kaplan (3) 14,400 5,000 9,400 (7)
E. Bruce Alsip (8) 41,210 41,133 77 (7)
Thomas Beiseker (8) 443,974 292,748 151,226 (7)
Robert Black (8) 32,257 9,257 23,000 (7)
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
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)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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%
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
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)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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)
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
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)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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%
</TABLE>
(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
<PAGE> 17
(3) This person has assisted the Company in its capital raising efforts and in
the performance of certain managerial functions. All of the Shares offered by
such person pursuant to this Prospectus underlie Warrants granted to such
person in consideration of such services.
(4) Includes 1,465,244 shares held in managed accounts, as well as 16,400
shares owned personally and 50,000 shares underlying Warrants.
(5) Mr. Haslam has been assisting the Company with legal services. All of the
Shares shown as beneficially owned by him prior to the Offering underlie
Warrants granted to him in consideration of such services.
(6) Mr. Vitelle has served the Company as its Vice President -- Finance since
January 1996. All of the Shares offered by him pursuant to this Prospectus
underlie Warrants granted to him in lieu of reimbursement for moving expenses
incurred by reason of his employment by the Company.
(7) Less than one percent.
(8) This person was once an employee or director of the Company. All of the
Shares offered by such person pursuant to this Prospectus underlie Warrants
granted to such person in exchange for the relinquishment of certain retirement
benefits. See "Recent Developments -- Reduction of Certain Retirement
Obligations."
(9) Mr. Salvati is a retiree of the Company who assisted the Company for a
period of time in 1995 in the execution of certain managerial functions. All
of the Shares offered by him pursuant to this Prospectus were granted to him in
exchange for the relinquishment of certain compensation claims against the
Company.
(10) The Company is not in a position to verify this information since it has
no affiliation with this Selling Stockholder beyond the relationship inherent
in the Selling Stockholder's ownership of Common Stock. Although the Company
has sought full disclosure from the Selling Stockholder, at the date of this
Prospectus the Selling Stockholder had neither confirmed nor denied that the
Selling Stockholder owns Common Stock in addition to the Shares indicated in
the table.
(11) Rickel is party to an Engagement Letter with the Company dated as of
January 30, 1996 (the "Engagement Letter"). Pursuant to the Engagement Letter,
Rickel functioned as the Company's financial advisor and placement agent in
connection with the securities offerings described under the caption "Recent
Developments" in this Prospectus. The Shares offered by Rickel pursuant to
this Prospectus consist of 70,183 Shares issued by the Company incident to its
acquisition of SMTEK and 137,000 Shares underlying Offered Warrants. See
"Recent Developments -- Acquisition of SMTEK."
(12) First Union National Bank ("FUNB") holds the shares indicated in the table
as owned by it as pledgee under a certain Pledge Agreement dated as of February
29, 1996 among Rickel, FUNB and the Company. Such shares have been pledged to
FUNB by Rickel as security for the benefit of the Note holders. All of the
Selling Stockholders other than FUNB disclaim beneficial ownership of any of
the shares held by FUNB.
(13) This Selling Stockholder is a controlling person or an employee, or both,
of Rickel. See footnote (11).
(14) Such Shares consist of 30,000 Shares underlying Offered Warrants.
(15) Such Shares consist of 133,500 Shares underlying Offered Warrants and
12,500 outstanding Shares.
(16) Such Shares consist of 261,000 Shares underlying Offered Warrants and
82,500 outstanding Shares.
(17) All such Shares underlie Offered Warrants.
(18) Such Shares consist of 272,000 Shares underlying Offered Warrants and
82,500 outstanding Shares.
15
<PAGE> 18
(19) Such shares consist of 10,609 shares underlying convertible debt
securities held in family trusts for which this Selling Stockholder is a
trustee, 5,000 outstanding shares owned personally by the Selling Stockholder
and the 400,000 Shares described in footnote (20).
(20) Such Shares consist of 100,000 Shares underlying Offered Warrants and
300,000 outstanding Shares.
(21) Consists of $500,000 face amount of debt securities convertible into
Common Stock at a conversion price per share equal to 82% of the market value
per share of Common Stock on the measurement date.
(22) Such Shares consist of 25,000 Shares underlying Offered Warrants and
25,000 outstanding Shares.
DESCRIPTION OF THE OFFERED WARRANTS
Set forth below is a summary of the material provisions of the Offered
Warrants. The summary is qualified in its entirety by reference to the form
of Offered Warrant itself, a copy of which has been filed with the SEC as an
exhibit to the Registration Statement to which this Prospectus relates.
The Offered Warrants are evidenced by a series of warrant certificates
issued by the Company in connection with its issuance of the Notes pursuant to
the Securities Purchase Agreement. Each Offered Warrant entitles the holder
thereof to purchase one share of Common Stock at an exercise price (the
"Exercise Price") of $2.50, subject to adjustment as summarized below. The
Offered Warrants may be exercised, in whole or in part, at any time until March
1, 2001. The Offered Warrants collectively cover 1,500,000 shares of Common
Stock.
The Exercise Price is subject to adjustment upon the occurrence of
certain events, including the issuance of Common Stock as a dividend,
subdivisions and "reverse splits" of the Common Stock and reclassifications of
the Common Stock. No adjustment in the Exercise Price shall be required unless
such adjustment would require a decrease of at least one cent ($0.01) in the
Exercise Price then in effect, but any adjustment that is not required to be
made shall be carried forward and taken into account in any subsequent
adjustment.
The Offered Warrants do not confer upon the holders thereof any of the
rights or privileges of a stockholder. Accordingly, the Offered Warrants do
not entitle holders thereof to receive dividends, to vote, to call meetings or
to receive any distribution upon a liquidation of the Company. The Company has
authorized and reserved for issuance a number of shares of Common Stock
sufficient to provide for the exercise of the Offered Warrants. Shares issued
upon exercise of the Offered Warrants will be fully paid and nonassessable.
Offered Warrants not exercised prior to March 1, 2001 shall become null and
void.
Offered Warrants may be exercised during the exercise period stated
above by delivery of a warrant certificate, with the "Election to Purchase"
form attached thereto fully executed, to the Company at the address of its
principal executive offices, together with a check payable to the Company in an
amount equal to the Exercise Price multiplied by the number of shares of Common
Stock being purchased. The Company will issue a new warrant certificate
representing any unexercised, unexpired Offered Warrants.
The Company has agreed to use its best efforts to continuously
maintain the effectiveness of the Registration Statement to which this
Prospectus relates for a period of at least 36 consecutive months following the
date on which such Registration Statement first became effective.
PLAN OF DISTRIBUTION
The Shares may be sold from time to time to purchasers directly,
either in privately negotiated transactions or otherwise, by the Selling
Stockholders. The Shares, but not the Offered Warrants, may be sold from time
to time to purchasers through the facilities of the NYSE or the PSE.
Alternatively, the Selling Stockholders may from time to time sell the Offered
Securities through underwriters, dealers or agents, who may receive
compensation in the form of
16
<PAGE> 19
underwriting discounts, concessions or commissions from the Selling
Stockholders and/or the purchasers of the Offered Securities for whom they may
act as agents. The Selling Stockholders and any underwriter, dealer or agent
that participates in the distribution of the Offered Securities may be deemed
to be underwriters, and any profit on the sale of the Offered Securities by
them and any discounts, commissions or concessions received by any such
underwriters, dealers or agents might be deemed to be underwriting discounts
and commissions under the Securities Act. At the time a particular offer of
Offered Securities is made, to the extent required a Prospectus Supplement will
be distributed with this Prospectus. Such Prospectus Supplement will state the
aggregate number of Shares or Offered Warrants being offered and the terms of
the offering, including the names of any underwriters, dealers or agents, any
discounts, commissions and other items constituting compensation from the
Selling Stockholders and any discounts or concessions allowed or reallowed or
paid to dealers.
Alternatively, the Selling Stockholders may from time to time effect
sales of the Shares in one or more transactions pursuant to Rule 144 under the
Securities Act, or otherwise, at market prices prevailing at the time of sale,
at prices relating to such prevailing market prices or at negotiated prices.
It is anticipated that broker-dealers participating in such sales of Shares
will receive the usual and customary selling commissions.
The Company will pay substantially all of the expenses incident to the
registration of the Shares offered hereby. The Company will not pay any
expenses incident to the offering and sale of the Shares to the public,
including, but not limited to, commissions and discounts of underwriters,
dealers or agents.
LEGAL MATTERS
Certain legal matters have been passed upon for the Company by Nelson
Mullins Riley & Scarborough, L.L.P., Charlotte, North Carolina.
EXPERTS
The financial statements of the Company as of June 30, 1995 and 1994
and for each of the two years in the period ended June 30, 1995, incorporated
into this Prospectus by reference, have been audited by KPMG Peat Marwick LLP,
to the extent and for the periods indicated in their report, and such financial
statements are incorporated herein by reference in reliance upon the authority
of such firm as experts in accounting and auditing. As discussed in Note 1 to
the Financial Statements, in 1994 the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes".
The financial statements of SMTEK as of March 31, 1994 and 1995 and
for each of the two years in the period ended March 31, 1995, incorporated into
this Prospectus by reference, have been audited by Arthur Andersen LLP, to the
extent and for the periods indicated in their report, and such financial
statements are incorporated herein by reference in reliance upon the authority
of such firm as experts in accounting and auditing.
The financial statements of SMTEK as of March 31, 1993 and for the
year then ended, incorporated into this Prospectus by reference, have been
audited by Mr. Gary W. Janke, C.P.A., to the extent and for the period
indicated in his report, and such financial statements are incorporated herein
by reference in reliance upon the authority of Mr. Janke as an expert in
accounting and auditing.
17
<PAGE> 20
<TABLE>
<S> <C>
-------------------------------- --------------------------------
No dealer, salesperson or other person has been
authorized to give any information or to make any
representations other than those contained in this
Prospectus, and, if given or made, such information
or representations must not be relied upon as having
been authorized by the Company or any Selling
Stockholder. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy,
to any person in any jurisdiction in which such
offer or solicitation is not authorized, or in which DDL ELECTRONICS, INC.
the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation. COMMON STOCK
Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances,
create any implication that the information COMMON STOCK
contained herein is correct as of any date PURCHASE WARRANTS
subsequent to the date hereof.
-------------------------------
Table of Contents
--------------------------------
-----------------------
Page
PROSPECTUS
Additional Information . . . . . . . . . . . . 2
-----------------------
Incorporation of Certain Information by
Reference . . . . . . . . . . . . . . . . . 2
Recent Developments . . . . . . . . . . . . . . 3
, 1996
Risk Factors . . . . . . . . . . . . . . . . . 4 ---------------
The Company . . . . . . . . . . . . . . . . . . 7
Use of Proceeds . . . . . . . . . . . . . . . 11
Determination of Offering Price . . . . . . . 11
Selling Stockholders . . . . . . . . . . . . 11
Description of the Offered Warrants . . . . . 16
Plan of Distribution . . . . . . . . . . . . 16
Legal Matters . . . . . . . . . . . . . . . . 17
Experts . . . . . . . . . . . . . . . . . . . 17
-------------------------------- --------------------------------
</TABLE>
<PAGE> 21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be incurred in
connection with the Offering, all of which are to be borne by the Registrant.
<TABLE>
<S> <C>
SEC registration fee . . . . . . . . . . . . . $ 3,216
Exchange listing fees* . . . . . . . . . . . . 14,000
Accounting fees and expenses* . . . . . . . . . 20,000
Legal fees and expenses* . . . . . . . . . . . 25,000
Miscellaneous* . . . . . . . . . . . . . . . . 2,784
Total* . . . . . . . . . . . . . . . . . . $ 65,000
=========
</TABLE>
- ---------------
*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
<PAGE> 22
employee or agent of the Corporation, or, while serving as a director or
officer, is or was serving at the request of the Corporation as a director,
officer, employee, trustee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, trustee,
employee or agent or in any other capacity, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by law, including,
but not limited to, the Delaware General Corporation Law, as the same exists or
may thereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said Law permitted the Corporation to provide prior
to such amendment), against all expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation, and
except that no indemnification shall be made in respect to any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 7.03. DETERMINATION OF RIGHT OF INDEMNIFICATION. Any
indemnification under Section 7.01 or 7.02 (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 7.01 and 7.02. Such determination shall be made
(i) by the Board by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if such a quorum
is not obtainable, or, even if obtainable a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
SECTION 7.04. INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article, to the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred
to in Section 7.01 or 7.02, or in defense of any claim, issue or matter
therein, he shall be indemnified against all expenses (including attorneys'
fees) incurred by him in connection therewith.
SECTION 7.05. PREPAID EXPENSES. Expenses incurred by an officer or
director in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of any undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately by determined
that he is not entitled to be indemnified by the Corporation as authorized in
this Article. Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board deems appropriate.
SECTION 7.06. RIGHT TO INDEMNIFICATION UPON APPLICATION; PROCEDURE
UPON APPLICATION. Any indemnification under or advancement of expenses
provided by, or granted pursuant to, this Article shall be made promptly, and
in any event within ninety days, upon written request of the director or
officer, employee or agent, unless with respect to applications under Section
7.02 and 7.03, a determination is reasonably and promptly made by the Board by
a majority vote of quorum of disinterested directors that such director or
officer, employee or agent acted in a manner set forth in such Sections as to
justify the Corporation's not indemnifying the director or officer, employee or
agent. In the event no quorum of disinterested directors is obtainable, the
Board shall promptly direct that independent legal counsel shall decide whether
the director or officer, employee or agent acted in a manner set forth in such
Sections as to justify the Corporation's not indemnifying or making an advance
to the director or officer or, in the case of indemnification, employee or
agent. The right to indemnification under or advancement of expenses provided
by this Article shall be enforceable by the director, officer, employee or
agent in any court of competent jurisdiction, if the Board or independent legal
counsel denies the claim, in whole or in part, or if no disposition of such
claim is made within ninety days. The director's, officer's, employee's or
agent's expenses incurred in connection
II-2
<PAGE> 23
with successfully establishing his right to indemnification or advancement of
expenses, in whole or in part, in any such proceeding shall also be indemnified
by the Corporation.
SECTION 7.07. OTHER RIGHTS AND REMEDIES. The indemnification under
and advancement of expenses provided by, or granted pursuant to, this Article
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any Bylaws,
agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person. The right to be
indemnified or to the reimbursement or advancement of expenses pursuant hereto
(i) is a contract right based upon good and valuable consideration, pursuant to
which the person entitled thereto may bring suit as if the provisions hereof
were set forth in a separate written contract between the Corporation and the
director or officer, employee or agent, (ii) is intended to be retroactive and
shall be available with respect to events occurring prior to the adoption
hereof, and (iii) shall continue to exist after the rescision or restrictive
modification hereof with respect to events occurring prior thereto.
SECTION 7.08. INSURANCE. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation, as a director, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article.
SECTION 7.09. CONSTITUENT CORPORATIONS. For the purposes of this
Article, references to "the Corporation" include any constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation, so that any person who is or was a director, officer, employee,
trustee or agent of such a constituent corporation or is or was serving at the
request of such constituent corporation as a director, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise shall stand in the same position under the provisions of this
Article with respect to the resulting or surviving corporation as he would if
he had served the resulting or surviving corporation in the same capacity.
SECTION 7.10. OTHER ENTERPRISES, FINES, AND SERVING AT CORPORATION'S
REQUEST. For purposes of this Article, references to "other enterprises" shall
include employee benefit plan; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee, trustee or agent of the corporation
which imposes duties on, or involves services by, such director, officer,
employee, trustee or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article.
SECTION 7.11. SAVINGS CLAUSE. If this Article or any portion thereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director, officer, employee
or agent as to expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement with respect to any action, suit, proceeding or
investigation, whether civil, criminal or administrative, and whether internal
or external, including a grand jury proceeding and an action or suit brought by
or in the right of the Corporation, to the full extent permitted by any
applicable portion of this Article that shall not have been invalidated by any
other applicable law.
SECTION 7.12. LIABILITY OF DIRECTORS FOR BREACHES OF FIDUCIARY DUTY.
Notwithstanding any provision to the contrary contained in these Bylaws, to the
fullest extent permitted by the Delaware General Corporation Law as the same
exists or may hereafter be amended, a director of the Corporation shall not be
liable to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director.
II-3
<PAGE> 24
Section 102(b)(7) of the Delaware General Corporation Law provides
that a corporation may eliminate or limit the personal liability of a director
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that such provision shall not eliminate
or limit the liability of a director (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for willful or negligent conduct in paying dividends or
repurchasing stock out of other than lawfully available funds or (iv) for any
transaction from which the director derived an improper personal benefit. No
such provision shall eliminate or limit the liability of a director for any act
or omission occurring prior to the date when such provision becomes effective.
ITEM 16. EXHIBITS.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Pages
------ ----------- -----
<S> <C>
4-a Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-8, Commission File No. 33-7440)
4-b Bylaws of the Company, amended and restated effective March 1993
(incorporated by reference to Exhibit 3-b of the Company's 1993 Annual
Report on Form 10-K)
4-c Warrant Agreement by and between the Company and American Stock Transfer &
Trust Company (the "Transfer Agent") dated as of November 11, 1992
(incorporated by reference to Exhibit 28.2 of the Company's Current Report
on Form 8-K dated January 7, 1993)
4-e Second Amendment to the Warrant Agreement by and between the Company and the
Transfer Agent dated as of July 31, 1995
4-f (1) Warrant Agreement between the Company and Fechtor, Detwiler & Co., Inc. dated
as of July 1, 1995
4-g (1) Warrant Agreement between the Company and Fortuna Capital Management
4-h (1) Warrant Agreement between the Company and Karen Brenner
4-i (1) Warrant Agreement between the Company and Charles Linn Haslam
4-j (1) Warrant Agreement between the Company and Edward Loeswick
4-k (1) Warrant Agreement between the Company and Barry Kaplan
4-l Form of Warrant and Contingent Payment Agreement dated as of March
31, 1996 between the Company and each of several participants in the
Company's several benefit plans
4-m Form of Securities Purchase Agreement dated February 29, 1996 among the
Company and the Holders referred to therein (the "Securities Purchase
Agreement")
4-n (2) Form of Warrant to Purchase Shares of Common Stock of the Company dated
February 29, 1996
</TABLE>
II-4
<PAGE> 25
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Pages
------ ----------- -----
<S> <C>
4-o Registration Rights Agreement dated as of February 29, 1996 between the
Company and Rickel & Associates, Inc. ("Rickel")
4-p Form of Registration Rights Agreement dated as of February 29, 1996 among the
Company and each of the Purchasers referred to therein
4-q Pledge Agreement dated as of February 29, 1996 among Rickel, First Union
National Bank ("FUNB") and the Company
4-r Form of Collateral Agency Agreement dated as of February 29, 1996 among Rickel, each
Purchaser under the Securities Purchase Agreement, FUNB and the Company
4-s Form of Engagement Letter dated as of January 30, 1996 between Rickel and the
Company
4-t Form of Loan Agreement dated as of January 11, 1996 among Howard Miller, Kenneth D.
Rickel, Elliot Smith, Rickel and Steven J. Baileys
5 Form of Opinion of Nelson Mullins Riley & Scarborough, L.L.P. as to the
legality of the securities being registered
23-a Consent of Nelson Mullins Riley & Scarborough, L.L.P. (included in Exhibit 5
to this Registration Statement)
23-b Consent of KPMG Peat Marwick
23-c Consent of Arthur Andersen LLP
23-d Consent of Mr. Gary W. Janke, C.P.A.
24 Power of Attorney (included on the signature page of this Registration
Statement)
- --------------------
</TABLE>
(1) To be filed by amendment.
(2) This is the form of each Offered Warrant, as defined elsewhere in the
Prospectus. The Offered Warrants are substantially identical in all material
respects except as to the parties thereto and the numbers of shares that they
cover. Schedule A to Exhibit No. 4-m, the Securities Purchase Agreement,
identifies the original privies to the Offered Warrants and the numbers of
shares that they covered.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement to include any material information with respect to
the plan of distribution not previously disclosed in this
Registration Statement or any material change to such
information in this Registration Statement;
II-5
<PAGE> 26
(b) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(c) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim or
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-6
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Newbury Park, State of California, on April 29,
1996.
DDL ELECTRONICS, INC.
By: /s/ Gregory L. Horton
------------------------------
Gregory L. Horton
Chief Executive Officer and President
POWER OF ATTORNEY
We, the undersigned directors and officers of DDL Electronics, Inc. do
hereby constitute and appoint each of Messrs. Gregory L. Horton and Richard K.
Vitelle, each with full power of substitution, our true and lawful attorney-in-
fact and agent to do any and all acts and things in our names and on our behalf
in our capacitates stated below, which acts and things either or them may deem
necessary or advisable to enable DDL Electronics, Inc. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but not limited to, power and authority to
sign for any or all of us in our names, in the capacities stated below, any and
all amendments (including post-effective amendments) thereto; and we do hereby
ratify and confirm all that they shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gregory L. Horton Chief Executive Officer and April 29, 1996
- ------------------------- President (principal executive
Gregory L. Horton officer) and Director
/s/ Richard K. Vitelle Vice President -- Finance April 29, 1996
- ------------------------- (principal financial and accounting
Richard K. Vitelle officer)
/s/ Robert G. Wilson Director April 29, 1996
- -------------------------
Robert G. Wilson
/s/ Bernee D.L. Strom Director April 29, 1996
- -------------------------
Bernee D. L. Strom
/s/ Melvin Foster Director April 29, 1996
- -------------------------
Melvin Foster
- ------------------------- Director , 1996
Philip H. Alspach --------
/s/ Erven Tallman Director April 29, 1996
- -------------------------
Erven Tallman
- ------------------------- Director , 1996
Don A. Raig --------
</TABLE>
<PAGE> 1
EXHIBIT 4-e
SECOND AMENDMENT
TO THE
WARRANT AGREEMENT
This Second Amendment to the Warrant Agreement (the "Amendment") is
made as of the 31st day of July, 1995 by and between DDL Electronics, Inc., a
Delaware corporation (the "Company"), and American Stock Transfer & Trust
Company (the "Warrant Agent").
WHEREAS, the Company and the Warrant Agent previously entered into
that certain Warrant Agreement dated as of November 11, 1992, as amended by
that certain Amendment No. 1 to Warrant Agreement dated as of October 25, 1994
between the Company and the Warrant Agent (the "Warrant Agreement"); and
WHEREAS, the holders of record on July 14, 1995 of the Warrants (all
capitalized terms not otherwise defined herein are used herein as defined in
the Warrant Agreement), by the affirmative vote of at least 50% of the
outstanding Warrants on such date, have approved this Amendment; and
WHEREAS, the Company and the Warrant Agent also desire to amend the
terms and conditions of the Warrant Agreement as described above and as further
set forth herein and by this Amendment do consent to such Amendment.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereby agree as follows:
1. The Warrant Agreement shall be, and hereby is, amended in the
following manner:
(a) The following definitions set forth in Section 1 of
the Warrant Agreement are amended in their entirety to read as follows:
"EXERCISE PRICE" shall mean the Specified Share Price per
share during the First Exercise Period and $1.42 during the
Second Exercise Period, subject to adjustment as provided
herein.
"SECOND EXERCISE PERIOD" shall mean the period from August 1,
1993 through and including 5:00 p.m. New York time on December
29, 1995.
(b) Section 2 of the Warrant Agreement is amended by
adding the following at the end of the first paragraph:
In the event that any provisions set forth in a Warrant
Certificate are inconsistent with or contrary to the
provisions of this Agreement, the provisions of this Agreement
shall supersede such provisions of the Warrant Certificate,
and such provisions of the Warrant Certificate shall be of no
force or effect.
(c) Section 6(A)(ii) of the Warrant Agreement is amended
in its entirety to read as follows:
(ii) Warrants may be exercised at any time during
an Exercise Period. The issuance of Warrant Shares will not
be registered under the Securities Act or under applicable
state securities "blue sky" laws in reliance upon exemptions
from registration. A Holder shall, upon and by virtue of each
Warrant exercise, be deemed to have represented and warranted
to the Company the following:
<PAGE> 2
(a) The acquisition by the Holder of Warrant
Shares will not be with a view to, or for resale in
connection with, the distribution thereof, and the
Holder has and will have no participation in any such
undertaking nor any participation in the underwriting
thereof, except for such distributions as are
effected in compliance with the Securities Act and
any applicable state securities and "blue sky" laws.
(b) The Holder is either an "accredited investor"
within the meaning of Rule 501(c) under the
Securities Act or is capable of evaluating the merits
and risks of investing in the Company and has made an
evaluation of such risks.
(c) The Holder has received copies of or has had
an opportunity to review all filings made by the
Company with the Commission under the Exchange Act;
the Holder has had an opportunity to discuss the
Company's business, management and financial affairs
with the Company's management personnel; and any and
all questions about the Company's business,
management and financial affairs have been answered
to the Holder's complete satisfaction.
Holders may resell Warrant Shares at any time after the resale
thereof has been effectively registered under the Securities
Act pursuant to a registration statement filed with and
declared effective by the Commission (the "Registration
Statement") and such other action as may be required by
federal or state law shall have been taken. The Company
agrees to use reasonable good faith efforts to file the
Registration Statement as soon as reasonably practicable;
provided, however, that the Company shall not be required to
file a Registration Statement unless and until the Current
Market Price of the Shares equals or exceeds the Exercise
Price during the Second Exercise Period. The Company agrees,
from and after the time the Registration Statement has become
effective, to use reasonable good faith efforts to maintain
the Registration Statement in effect under the Securities Act
and applicable state securities and "blue sky" laws; provided,
however, that the Company shall have no obligation to maintain
the effectiveness of such registration in the event that, by
amendment to the Securities Act or otherwise, the
effectiveness of such registration is not required at the time
Warrant Shares are to be resold; and provided further, that in
the event, by amendment to the Securities Act or otherwise,
some other or different requirement shall be imposed by act of
the Congress of the United States which shall relate to the
resale of the Warrant Shares, the Company shall use reasonable
good faith efforts to comply with such requirements. Promptly
after the Registration Statement has become effective under
the Securities Act, or such other action as contemplated
hereby and as may be required has been taken, as the case may
be, the Company shall cause notice thereof to be mailed to
each Holder of a Warrant Certificate. Subject to accelerated
termination provided in Section 6(A)(iii) below, any
unexercised Warrants will be void and all rights of Holders
shall cease after the end of the Second Exercise Period.
2. This Amendment may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
<TABLE>
<S> <C>
DDL ELECTRONICS, INC. AMERICAN STOCK TRANSFER & TRUST COMPANY
By: /s/ Don A. Raig By: /s/ Herbert J. Lemmer
------------------------------------------------ ------------------------------------------------
Name: Don A. Raig Name: Herbert J. Lemmer
---------------------------------------------- ----------------------------------------------
Title: President and Chief Operating Officer Title: Vice President
--------------------------------------------- ---------------------------------------------
Attest: Attest:
By: By: /s/ Susan Silber
------------------------------------------------ ------------------------------------------------
Name: Name: Susan Silber
---------------------------------------------- ----------------------------------------------
Title: Title: Assistant Secretary
--------------------------------------------- ---------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 4-l
DDL ELECTRONICS, INC.
and
as Participant
___________________
WARRANT AND CONTINGENT PAYMENT AGREEMENT
Dated as of March 31, 1996
<PAGE> 2
INDEX
<TABLE>
PAGE
<S> <C> <C>
Section 1. Form of Warrant Certificates............................................................. 1
Section 2. Signature and Registration............................................................... 2
Section 3. Transfer, Split Up, Combination and Exchange of Warrant Certificates;
Mutilated, Destroyed, Lost or Stolen Warrant Certificates................................ 2
Section 4. Subsequent Issue of Warrant Certificates................................................. 3
Section 5. Exercise of Warrants; Purchase Price; Expiration Date.................................... 3
Section 6. Cancellation and Destruction of Warrant Certificates..................................... 4
Section 7. Reservation and Availability of Common Stock............................................. 4
Section 8. Common Stock Record Date................................................................. 5
Section 9. Adjustment of Purchase Price, Number of Shares or Number of Warrants..................... 5
Section 10. Certification of Adjusted Purchase Price and Number of Shares Issuable................... 8
Section 11. Consolidation, Merger or Sale of Assets.................................................. 8
Section 12. Fractional Warrants and Fractional Shares................................................ 9
Section 13. Rights of Action......................................................................... 9
Section 14. Agreements, Release of Benefit Plans Claims, Representation and Warranties
and Indemnity Obligations of Participant and Warrant Certificate Holders................. 9
Section 15. Agreement of the Company as to the Registration of Common Stock Issuable
on Exercise of the Warrants; Contingent Payments to Warrant Certificate Holders.......... 11
Section 16. MUTUAL RELEASES.......................................................................... 12
Section 17. Registrar for the Warrants............................................................... 13
Section 18. Appointment of Warrant Agent............................................................. 13
Section 19. Maintenance of Office, Notice to Company................................................. 13
Section 20. Issuance of New Warrant Certificates..................................................... 13
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 21. Redemption of Warrants.......................................................... 14
Section 22. Notice of Proposed Actions...................................................... 14
Section 23. Notices......................................................................... 15
Section 24. Supplements and Amendments...................................................... 15
Section 25. Successors...................................................................... 15
Section 26. Benefits of This Agreement...................................................... 15
Section 27. California Contract............................................................. 15
Section 28. Counterparts.................................................................... 15
Section 29. Descriptive Headings............................................................ 15
Section 30. Competency...................................................................... 16
</TABLE>
Exhibit A: FORM OF WARRANT CERTIFICATE
<PAGE> 4
WARRANT AND CONTINGENT PAYMENT AGREEMENT
This Warrant and Contingent Payment Agreement, dated as of March 31, 1996
(this "Warrant Agreement" or "Agreement"), is between DDL ELECTRONICS, INC., a
Delaware corporation (the "Company"), and ("Participant").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company has authorized and declared
an exchange (the "Exchange") of 600,000 Warrants for all obligations of the
Company owed to participants, including beneficiaries of participants, as of
the date of this Agreement, under any of several unfunded non-employee benefit
plans, namely the Company's Supplemental Retirement Plan (SRP) and Performance
Unit Plan (PUP) and various Non-Employee Consulting Contracts between the
Company and certain participants, Director Emeritus Contracts between the
Company and certain participants and Deferred Fee Arrangements between the
Company and certain participants (collectively, the "Benefit Plans"), each
Warrant representing the right to purchase one share of the Company's common
stock, par value $.01 per share ("Common Stock"), upon the terms and subject to
the conditions hereinafter set forth; and
WHEREAS, the Participant has indicated the Participant's written approval
of and consent to the Exchange;
WHEREAS, the Participant desires to release the Company from all of
Participant's claims arising under any and all of the Benefit Plans in exchange
for the Participant's receipt of the Warrants issued hereunder;
WHEREAS, the Exchange will be made with Participant as of 2:00 p.m.
(Pacific time) on March 31, 1996 or such other date as determined by the
Executive Committee of the Board of Directors of the Company and all claims of
the Participant under the Benefit Plans (the "Benefit Plans Claims"), together
with any and all other claims accrued or inchoate, known or unknown,
Participant may have against the Company, will be released irrevocably in
exchange for the issuance hereunder of Warrants ("Participant's Warrants") to
Participant, all as more fully set forth below; and
WHEREAS, as inducement to the Participants to enter into the Exchange, the
Company will make certain Contingent Payments, as herein defined, on exercise
or after expiration of the Warrants issued hereunder; and
WHEREAS, from time to time the Board of Directors of the Company may
authorize the issuance of additional Warrants, each representing the right to
purchase one share of Common Stock, upon the terms and subject to the
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
SECTION 1. FORM OF WARRANT CERTIFICATES. The Warrant Certificates (and
the forms of election to purchase shares and of assignment to be printed on the
reverse thereof) shall be substantially of the tenor and purport recited in
Exhibit A hereto and may have such letters, numbers or other marks of
<PAGE> 5
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Warrant Agreement, or
as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the warrant Certificates may from time to time be listed, or to conform to
usage. Subject to the provisions of Section 20 hereof, the Warrant
Certificates shall be dated as of the date of issuance thereof by the Company,
either upon initial issuance or upon transfer or exchange, and on their face
shall entitle the holders thereof to purchase one share of Common Stock each at
the price per share set forth therein ("Purchase Price"), but the number of
such shares and the Purchase Price per share shall be subject to adjustments as
provided herein.
SECTION 2. SIGNATURE AND REGISTRATION. The Warrant Certificates shall be
executed on behalf of the Company by the Chief Executive Officer or any
Executive Vice President, by facsimile signature and have affixed thereto a
facsimile of the Company's seal which shall be attested by the Secretary or an
Assistant Secretary of the Company by facsimile signature. In case any officer
of the Company who shall have signed any of the Warrant Certificates shall
cease to be such officer of the Company before issuance and delivery by the
Company, such Warrant Certificates, nevertheless, may be issued and delivered
with the same force and effect as though the person who signed such Warrant
Certificates had not ceased to be such officer of the Company and any Warrant
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Warrant Certificate, shall be a proper
officer of the Company to sign each Warrant Certificate, although at the date
of the execution of this Warrant Agreement any such person was not such an
officer.
The Company will keep or cause to be kept, at its principal corporate
offices at 2151 Anchor Court, Newbury Park, California 91320, or such other
principal corporate office as the Company may maintain from time to time, books
for registration and registration of transfer of the Warrant Certificates
issued hereunder. Such books shall show the names and addresses of the
respective holders of the Warrant Certificates, the number of Warrants
evidenced on its face by each of the Warrant Certificates and the date of each
of the Warrant Certificates.
SECTION 3. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF WARRANT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN WARRANT CERTIFICATES. The
Warrants shall be transferrable only (i) in accordance with the express terms,
if any, of the Benefit Plans, (ii) by will, the laws of descent or distribution
or pursuant to a qualified domestic relations order as defined in the Internal
Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income
Security Act, or (iii) in accordance with the restrictions and requirements
imposed by Section 14 hereof. Before any transfer by a Participant of the
Warrants granted hereunder, such Participant, or representative, guardian,
conservator or executor of Participant's estate, shall be required to provide
the Company evidence satisfactory to the Company that such a transfer is
provided for by the Benefit Plan applicable to the Participant to whom the
Warrant was originally issued and any other evidence or opinions of counsel
that the Company may reasonably require to determine compliance with this
Agreement. Subject to the foregoing and the provisions of Sections 12 and 14
hereof, any Warrant Certificate, with or without other Warrant Certificates,
may be transferred, split up, combined or exchanged for another Warrant
Certificate or Warrant Certificates, entitling the registered holder to
purchase a like number of Common Stock as the Warrant Certificate or Warrant
Certificates surrendered then entitled such holder to purchase. Subject to any
restriction on transferability that may appear on a Warrant Certificate in
accordance with the terms hereof or any "stop-transfer" instructions issued by
the Company, any registered holder desiring to register the transfer of, or
2
<PAGE> 6
to split up, combine or exchange any Warrant Certificate shall make such
request in writing delivered to the Company, and shall surrender such Warrant
Certificate or Warrant Certificates at the principal corporate office of the
Company. Thereupon the Company shall deliver to the person entitled thereto a
Warrant Certificate or Warrant Certificates, as the case may be, as so
requested. The Company may require payment of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any transfer,
split up, combination or exchange of Warrant Certificates.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of a Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to them, and reimbursement to the Company of all reasonable
expenses incidental thereto, and upon surrender and cancellation of the Warrant
Certificate if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor for delivery to the registered owner in lieu of the
Warrant Certificate so lost, stolen, destroyed or mutilated.
SECTION 4. SUBSEQUENT ISSUE OF WARRANT CERTIFICATES. Subsequent to their
original issuance, no Warrant Certificates shall be issued except (a) Warrant
Certificates issued upon any transfer, combination, split up or exchange of
Warrants pursuant to Section 3 hereof, (b) Warrant Certificates issued in
replacement of mutilated, destroyed, lost or stolen Warrant Certificates
pursuant to Section 3 hereof, (c) Warrant Certificates issued pursuant to
Section 5 hereof upon the partial exercise of any Warrant Certificate to
evidence the unexercised portion of such Warrant Certificate and (d) Warrant
Certificates issued pursuant to Section 20 hereof. Nothing contained in this
Agreement shall prohibit the Company from issuing time to time additional
Warrants, each representing the right to purchase Common Stock upon the terms
and subject to the conditions set forth herein, or other warrants, options or
rights to purchase securities issued by the Company.
SECTION 5. EXERCISE OF WARRANTS; PURCHASE PRICE; EXPIRATION DATE. (a)
The registered holder of any Warrant Certificate may exercise the Warrants
evidenced thereby in whole or in part at any time on or after June 1, 1996,
subject to the provisions of Section 14 hereof, upon surrender of the Warrant
Certificates with the form of election to purchase on the reverse side thereof
duly executed, to the Company at the principal corporate office of the Company
at 2151 Anchor Court, Newbury Park, California 91320, together with payment of
the Purchase Price for each share of Common Stock as to which the Warrants are
exercised, at or prior to 5:00 p.m. (Pacific time) on the earliest of (i) June
1, 1998 (the "Expiration Date"), which is the date on which the right to
exercise the Warrants will expire, and (ii) the business day immediately
preceding the Redemption Date as defined in Section 21(a) hereof.
(b) The Purchase Price for each share of Common Stock pursuant to the
exercise of a Warrant will be fixed on May 31, 1996 (the "Purchase Price
Calculation Date") and will be based on the New York Stock Exchange closing
price of the Common Stock (the "Common Closing Price"). Such Purchase Price
shall be calculated as follows:
(i) If on the Purchase Price Calculation Date the Common
Closing Price is equal to or less than $4.00 per share, the
Purchase Price shall be $2.50, subject to adjustment as provided in
Section 9 hereof, and shall be payable in lawful money of the
United States of America.
(ii) If on the Purchase Price Calculation Date the Common
Closing Price is greater than $4.00 per share and less than $7.50
per share, the Purchase Price shall be the
3
<PAGE> 7
difference between the Common Closing Price and $1.50, subject to
adjustment as provided in Section 9 hereof, and shall be payable in
lawful money of the United States of America.
(iii) If on the Purchase Price Calculation Date the Common
Closing Price is equal to or greater than $7.50 per share, the
Purchase Price shall be $6.00, subject to adjustment as provided in
Section 9 hereof, and shall be payable in lawful money of the
United States of America.
(c) Upon receipt of a Warrant Certificate, with the form of election to
purchase duly executed, accompanied by payment of the Purchase Price for the
shares to be purchased and an amount equal to any applicable transfer tax in
cash, or by check, bank draft or postal or express money order payable to the
order of the Company, the Company shall thereupon promptly (i) requisition from
any transfer agent of the Common Stock of the Company certificates for the
number of shares of whole Common Stock to be purchased and, when appropriate,
for the number of fractional shares to be sold by the Company, and the Company
hereby irrevocably authorizes its transfer agent to comply with all such
requests, (ii) when appropriate, requisition from the Company the amount of
cash to be paid in lieu of issuance of fractional shares or Warrants, and (iii)
promptly after receipt of such certificates cause the same to be delivered to
or upon the order of the registered holder of such Warrant Certificate,
registered in such name or names as may be designated by such holder, and, when
appropriate, after receipt promptly deliver such cash to or upon the order of
the registered holder of such Warrant Certificate.
(d) In case the registered holder of any Warrant Certificate shall
exercise less than all the Warrants evidenced thereby, a new Warrant
Certificate evidencing Warrants equivalent to the Warrants remaining
unexercised shall be issued by the Company to the registered holder of such
Warrant Certificate or to his duly authorized assigns, subject to the
provisions of Section 12 hereof.
SECTION 6. CANCELLATION AND DESTRUCTION OF WARRANT CERTIFICATES. All
Warrant Certificates surrendered for the purpose of exercise, exchange,
substitution or registration of transfer shall be cancelled by the Company, and
no Warrant Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Warrant Agreement. The Company
shall so cancel and retire any other Warrant Certificate purchased or acquired
by the Company otherwise than upon the exercise thereof.
SECTION 7. RESERVATION AND AVAILABILITY OF COMMON STOCK. The Company
covenants and agrees that it will cause to be reserved and kept available, out
of its authorized and unissued Common Stock or its authorized and issued Common
Stock held in its treasury, the number of shares of Common Stock that will be
sufficient to permit the exercise in full of all outstanding Warrants.
So long as the Common Stock issuable upon the exercise of Warrants may be
listed on the New York Stock Exchange, the Company shall use its best efforts
to cause all shares reserved for such issuance, subject to the Company's rights
and duties under Section 15 hereof, to be listed on such exchange upon official
notice of issuance upon such exercise.
The Company covenants and agrees that it will take all such action as may
be necessary to insure that all Common Stock delivered upon exercise of
Warrants shall, at the time of delivery of the certificates for such shares
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares.
4
<PAGE> 8
The Company further covenants and agrees that it will pay when due and
payable any and all Federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Warrant Certificates or
of any Common Stock upon the exercise of Warrants. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer involved in the transfer or delivery of Warrant Certificates or
the issuance or delivery of certificates for Common Stock in a name other than
that of the registered holder of the Warrant Certificate evidencing Warrants
surrendered for exercise or to issue or deliver any certificates for Common
Stock upon the exercise of any Warrants until any such tax shall have been paid
(any such tax being payable by the holder of such Warrant Certificate at the
time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
SECTION 8. COMMON STOCK RECORD DATE. Each person in whose name any
certificate for Common Stock is issued upon the exercise of Warrants shall for
all purposes be deemed to have become the holder of record of the Common Stock
represented thereby on, and such certificate shall be dated, the date upon
which the Warrant Certificate evidencing such Warrants was duly surrendered and
payment of the Purchase Price (and any applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date
upon which the Common Stock transfer books of the Company are closed, such
person shall be deemed to have become the record holder of such shares on, and
such certificate shall be dated, the next succeeding business day on which the
Common Stock transfer books of the Company are open.
PRIOR TO THE EXERCISE OF THE WARRANTS EVIDENCED THEREBY, THE HOLDER OF A
WARRANT CERTIFICATE SHALL NOT BE ENTITLED TO ANY RIGHTS OF A SHAREHOLDER OF THE
COMPANY WITH RESPECT TO SHARES FOR WHICH THE WARRANTS SHALL BE EXERCISABLE,
INCLUDING, WITHOUT LIMITATION, THE RIGHT TO VOTE, TO RECEIVE DIVIDENDS OR OTHER
DISTRIBUTIONS OR TO EXERCISE ANY PREEMPTIVE RIGHTS, AND SHALL NOT BE ENTITLED
TO RECEIVE ANY NOTICE OF ANY PROCEEDINGS OF THE COMPANY, EXCEPT AS PROVIDED
HEREIN.
SECTION 9. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF
WARRANTS. The Purchase Price, the number of shares covered by each Warrant and
the number of Warrants outstanding are subject to adjustments from time to time
upon the occurrence of the events enumerated in this Section 9.
(a) In case the Company shall at any time after the date of this Agreement
(i) declare a dividend on the Common Stock payable in Common Stock, (ii)
subdivide the outstanding Common Stock, (iii) combine the outstanding Common
Stock into a smaller number of shares or (iv) issue any shares of its capital
stock in a reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), the Purchase Price in effect at the
time of the record date for such dividend or of the effective date of such
subdivision, combination, or reclassification, shall be adjusted to an amount
that bears the same relationship to the Purchase Price in effect immediately
prior to such action as the total number of Common Stock shares outstanding
immediately prior to such action bears to the total number of Common Stock
shares outstanding immediately after such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
(b) In case the Company shall fix a record date after the Purchase Price
Calculation
5
<PAGE> 9
Date for the issuance of rights or warrants to all holders of Common Stock
entitling them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Common Stock (or securities convertible into
Common Stock) at a price per share of Common Stock (or having a conversion
price per share of Common Stock, if a security convertible into Common Stock)
less than the current market price per share of Common Stock (as defined in
Section 9(d)) on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on such
record date plus the number of shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so to be offered
(or the aggregate initial conversion price of the convertible securities so to
be offered) would purchase at such current market price and of which the
denominator shall be the number of shares of Common Stock outstanding on such
record date plus the number of additional shares of Common Stock to be offered
for subscription or purchase (or into which the convertible securities so to be
offered are initially convertible). In case such subscription price may be
paid in a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined by the Board of
Directors of the Company, whose determination shall be conclusive, and such
computation shall be made available to any holder of Warrant Certificates at
the Company's principal corporate office. Common Stock owned by or held for
the account of the Company shall not be deemed outstanding for the purpose of
any such computation. Such adjustment shall be made successively whenever such
a record date is fixed; and in the event that such rights or warrants are not
so issued, the Purchase Price shall again be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date after the Purchase Price
Calculation Date for the making of a distribution to all holders of Common
Stock (including any such distribution made in connection with a consolidation
or merger in which the Company is the continuing corporation) of evidences of
indebtedness or assets (other than cash dividends or cash distributions payable
out of consolidated earnings or earned surplus or dividends payable in Common
Stock) or subscription rights or warrants (excluding those referred to in
Section 9(b)), the Purchase Price to be in effect after such record date shall
be determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, of which the numerator shall be the current
market price per share of Common Stock (as defined in Section 9(d)) on such
record date, less the then fair market value (as determined by the Board of
Directors of the Company, whose determinate shall be conclusive, and such
computation shall be made available to any holder of Warrant Certificates at
the Company's principal corporate office) of the portion of the assets or
evidence of indebtedness so to be distributed or of such subscription rights or
warrants applicable to one share of Common Stock and of which the denominator
shall be such current market price per share of Common Stock (as defined in
Section 9(d)). Such adjustments shall be made successively whenever such a
record date is fixed; and in the event that such distribution is not so made,
the Purchase Price shall again be adjusted to be the Purchase Price which would
then be in effect if such record date had not been fixed.
(d) For the purpose of any computation under Section 9(b) or (c), the
current market price per share of Common Stock on any date shall be deemed to
be the average of the daily closing prices per Common Stock for the 30
consecutive trading days as reported on the Composite Transactions tape
commencing 45 trading days before such date. The closing price for each day
shall be the last sale price "regular way" or, in case no such sale takes place
on such day, the average of the closing bid and asked prices "regular way," in
either case as reported on the Composite Transactions tape, or, if the Common
Stock is not reported on the Composite Transactions tape, on the principal
national securities
6
<PAGE> 10
exchange on which the Common Stock is listed or admitted to trading, or if the
Common Stock is not listed or admitted to trading on any national securities
exchange, the average of the highest reported bid and lowest reported asked
prices as furnished by the National Association of Securities Dealers, Inc.
through NASDAQ (or a similar organization if NASDAQ is no longer reporting such
information). If on any such date the Common Stock is not quoted by any such
organization, the fair value of such shares on such date as determined by the
Board of Directors of the Company shall be used.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 5% in such price;
provided, however, that any adjustments which by reason of this Section 9(e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 9 shall be made
to the nearest cent or to the nearest hundredth of a share as the case may be.
Notwithstanding the first sentence of this Section 9(e), any adjustment
required by this Section 9 shall be made no later than the earlier of two years
from the date of the transaction which mandates such adjustment or the
Expiration Date.
(f) In the event that at any time, as a result of an adjustment made
pursuant to Section 9(a), the holder of any Warrant thereafter exercised shall
become entitled to receive any shares of capital stock of the Company other
than Common Stock, thereafter the number of such other shares so receivable
upon exercise of any Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the shares contained in Section 9(a) through (c), inclusive,
and the provisions of Sections 5, 7, 8 and 12 with respect to the Common Stock
shall apply on like terms to any such other shares.
(g) All Warrants originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of shares of Common Stock
purchasable from time to time hereunder upon exercise of the Warrants, all
subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 9(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Section 9(a), (b) or (c), each Warrant outstanding
immediately prior to the making of such adjustment shall thereafter evidence
the right to purchase, at the adjusted Purchase Price, that number of shares
(calculated to the nearest hundredth) obtained by (i) multiplying the number of
shares covered by a Warrant immediately prior to this adjustment of the number
of shares by the Purchase Price in effect immediately prior to such adjustment
of the Purchase Price and (ii) dividing the product so obtained by the Purchase
Price in effect immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Warrants substituted for any adjustment
in the number of shares of Common Stock purchasable upon the exercise of a
Warrant as provided in Section 9(b). Each of the Warrants outstanding after
such adjustment of the number of Warrants shall be exercisable for one share of
Common Stock. Each Warrant held of record prior to such adjustment of the
number of Warrants shall become that number of Warrants (calculated to the
nearest hundredth) obtained by dividing the Purchase Price in effect prior to
adjustment of the Purchase Price by the Purchase Price in effect after
adjustment of the Purchase Price. The Company shall make a public announcement
of its election to adjustment the number of Warrants, indicating the record
date for the adjustment, and, if known at the
7
<PAGE> 11
time, the amount of the adjustment to be made. This record date may be the
date on which the Purchase Price is adjusted or any day thereafter, but shall
be at least 10 days later than the date of the public announcement. Upon each
adjustment of the number of Warrants pursuant to this subsection (i) the
Company shall, as promptly as practicable, cause to be distributed to holders
of record of Warrant Certificates on such record date Warrant Certificates
evidencing, subject to Section 12, the additional Warrants to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Warrant Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Warrant Certificates evidencing all the Warrants to which such
holders shall be entitled after such adjustment. Warrant Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Warrant
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of shares of Common Stock issuable upon the exercise of the Warrants,
the Warrant Certificates theretofore and thereafter issued may continue to
express the Purchase Price per share and the number of shares which were
expressed upon the initial Warrant Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below the then par value, if any, of the Common Stock issuable
upon exercise of the Warrants, the Company shall take any corporate action
which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable Common Stock
at such adjusted Purchase Price.
(l) In any case in which this Section 9 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuing to the holder of any Warrant exercised after such record date the
Common Stock and other capital stock of the Company, if any, issuable upon such
exercise over and above the Common Stock and other capital stock of the
Company, if any, issuable upon such exercise on the basis of the Purchase Price
in effect prior to such adjustment, provided, however, that the Company shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares upon the occurrence of
the event requiring such adjustment.
(m) Anything in this Section 9 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments required by this Section 9, as in its sole
discretion it shall determine to be advisable in order that any consolidation
or subdivision of the Common Stock, issuance wholly for cash of any Common
Stock at less than the current market price, issuance wholly for cash of Common
Stock or securities which by their terms are convertible into or exchangeable
for Common Stock, stock dividend, issuance of rights, options or warrants
referred to hereinabove in this Section 9, hereinafter made by the Company to
its common shareholders, shall not be taxable to them.
SECTION 10. CERTIFICATION OF ADJUSTED PURCHASE PRICE AND NUMBER OF SHARES
ISSUABLE. Whenever the Purchase Price and the number of shares of Common Stock
issuable upon the exercise of each Warrant are adjusted as provided in Section
9 above, the Company shall (a) promptly obtain a
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<PAGE> 12
certificate of a firm of independent public accountants of recognized standing
selected by the Board of Directors (who may be the regular auditors of the
Company) setting forth the Purchase Price as so adjusted, the number of shares
of Common Stock issuable upon the exercise of each Warrant as so adjusted and a
brief statement of the facts accounting for such adjustment, (b) promptly file
at the Company's principal corporate offices and with each transfer agent for
the Common Stock a copy of such certificate, and (c) mail a brief summary
thereof to each holder of a Warrant Certificate in accordance with Section 23.
SECTION 11. CONSOLIDATION, MERGER OR SALE OF ASSETS. If the Company
shall at any time consolidate or merge with one or more other corporations
(other than a merger or consolidation of the Company in which the Company is
the continuing corporation and which does not result in any reclassification or
change of outstanding Common Stock), the holder of any Warrants will thereafter
receive, upon the exercise thereof in accordance with the terms of this
Agreement, the securities or property to which the holder of the number of
Common Stock then deliverable upon the exercise of such Warrants would have
been entitled upon such consolidation or merger, and the Company shall take
such steps in connection with such consolidation or merger as may be necessary
to assure that the provisions here of shall thereafter be applicable, as nearly
as reasonably may be, in relation to any securities or property thereafter
deliverable upon the exercise of the Warrants. The Company or the successor
corporation, as the case may be, shall execute and deliver to the Warrant
holder a supplemental agreement so providing. A sale of all or substantially
all the assets of the Company for a consolidation (apart from the assumption of
obligations) consisting primarily of securities shall be deemed a consolidation
or merger for the foregoing purposes. The provisions of this Section 11 shall
similarly apply to successive mergers or consolidations or sales or other
transfers.
SECTION 12. FRACTIONAL WARRANTS AND FRACTIONAL SHARES. (a) The Company
shall not be required to issue fractions of Warrants on any distribution of
Warrants to holders of Warrant Certificates pursuant to Section 9(i) or to
distribute Warrant Certificates which evidence fractional Warrants. The Company
shall be required to make any cash adjustment in respect of a fractional
interest in a Warrant.
(b) If the number of shares purchasable upon the exercise of each Warrant
is adjusted pursuant to Section 9(h), the Company shall nonetheless not be
required to issue fractions of shares upon exercise of the Warrants or to
distribute share certificates which evidence fractional shares, nor shall the
Company be required to make any cash adjustment in respect of a fractional
interest in a share, but the fractional interest to which any person is
entitled shall be sold in the manner set forth in subsection (c) of this
Section 12 by the Company, acting as agent for the person entitled to such
fractional interest, except as otherwise provided in such subsection.
(c) The Company shall remit to such person the proceeds of the sale of any
such fractional interest sold by it as such agent. Fractional interests shall
be non-transferable except by or to the Company acting as herein authorized.
The Company may sell fractional interests on the basis of market prices of the
Common Stock as determined by the Company in its sole discretion. In lieu of
making an actual sale of a fractional interest, the Company may value
fractional interests without actual sale on the basis of the current market
price of the Common Stock as determined by the Company in its sole discretion.
(d) The holder of a Warrant, by the acceptance of the Warrant, expressly
waives his right to receive any fractional Warrant or any fractional share upon
exercise of a Warrant.
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<PAGE> 13
SECTION 13. RIGHTS OF ACTION. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Warrant
Certificates; and any registered holder of any Warrant Certificate, without the
consent of the holder of any other Warrant Certificate, may, in his own behalf
and for his own benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Company to enforce, or otherwise act in
respect of, his right to exercise the Warrants evidenced by such Warrant
Certificate in the manner provided in such Warrant Certificate and in this
Agreement.
SECTION 14. AGREEMENTS, RELEASE OF BENEFIT PLANS CLAIMS, REPRESENTATION
AND WARRANTIES AND INDEMNITY OBLIGATIONS OF PARTICIPANT AND WARRANT CERTIFICATE
HOLDERS. The Participant and every holder of a Warrant Certificate by
accepting the same acknowledges, consents and agrees with, and covenants,
represents and warrants to, the Company and with every other holder of a
Warrant Certificate that:
(a) transfer of the Warrant Certificates shall be subject to the
provisions of Section 3 and this Section 14 and shall be registered on the
registry books of the Company only if surrendered at the principal corporate
office of the Company, duly endorsed or accompanied by a proper instrument or
transfer;
(b) prior to due presentment for registration of transfer, the Company may
deem and treat the person in whose name the Warrant Certificate is registered
as the absolute owner thereof and of the Warrants evidenced thereby
(notwithstanding any notations of ownership or writing on the Warrant
Certificates made by anyone other than the Company) for all purposes
whatsoever, and the Company shall not be affected by any notice to the
contrary;
(c) all Benefit Plans Claims are hereby deemed satisfied and extinguished
on the Participant's acceptance of a Warrant Certificate issued hereunder for
the Participant's Warrants, regardless of the value, at any time, of the
Warrants or of the Common Stock issuable on exercise of the Warrants;
(d) the Warrants granted hereunder have not been registered with the
Securities and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "Act"), and are being granted in reliance on one or more
exemptions from registration requirements thereunder; and each Participant, as
a holder of a Warrant Certificate, will make no offer, sale, pledge,
hypothecation or other transfer or disposition of his or her Warrants in
violation of the Act, any rules of the SEC, any state securities law or statute
or this Warrant Agreement, and will not offer, sell, mortgage, pledge or
otherwise dispose of the Warrants granted hereunder otherwise than pursuant to
Section 15 hereof unless, in the opinion of counsel for the Company,
registration under applicable federal or state securities laws is not required;
(e) the Participant has been advised by the Company, and understands, that
the Participant must bear the economic risk of an investment in the Warrants
for an indefinite period of time because the Warrants have not been registered
under the Act and the Company is under no obligation to register the Warrants;
and that there is no public trading market for the Warrants and none will ever
exist; and that the Warrants must be held by the Participant unless they are
subsequently registered under the Act or an exemption from such registration is
available for the transfer of the Warrants;
(f) the Participant represents that the Warrants are being acquired solely
for the
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<PAGE> 14
Participant's own account for investment purposes and not with a view to, or
for resale in connection with, any "distribution" (as that term is used in
Section 2(11) of the Act) of all or any portion thereof;
(g) the Participant further understands that a stop-transfer order will be
placed on the books of the Company regarding the Warrant Certificates issued
hereunder, and such Warrant Certificates shall bear, until such time as the
Warrants shall have been registered under the Act or shall have been
transferred in accordance with an opinion of counsel, the following legend or
ones substantially similar thereto:
THE SECURITIES REPRESENTED BY THIS WARRANT CERTIFICATE WITH CONTINGENT
PAYMENT RIGHTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. SUCH SECURITIES
MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
plus any legend required by state securities laws;
(h) the Participant understands that the offer and sale of the Warrants
are not being registered under the Act in reliance on the so-called "private
offering" exemption provided by Section 4(2) of the Act, and that the Company
is basing its reliance on that exemption in part on the representations,
warranties, statements and agreements contained herein and those of other
participants contained in similar Warrant Agreements; and the Participant
represents that he or she has received all documents and information deemed
necessary to make an informed investment decision concerning the Exchange and
had an opportunity to ask and have answered any questions of the Company
concerning the Company and the Exchange; and the Participant further
understands that other participants are receiving Warrants in reliance on the
representations, warranties, statements and agreements contained herein (as the
Participant is receiving Warrants in reliance on theirs) and the Participant
invites both the Company and other participants so to rely;
(i) the Participant agrees to indemnify and hold the Company, its
officers, directors, stockholders or any other person who may be deemed in
control of the Company harmless from any loss, liability, claim, damage or
expense, arising out of the inaccuracy of any of the representations,
warranties or statements or the breach of any of the agreements contained
herein, and this indemnification shall survive the Exchange created hereunder;
and
(j) THE WARRANTS GRANTED HEREUNDER ARE NOT EXERCISABLE UNTIL THE COMPANY
RECEIVES AN ORDER OF EFFECTIVENESS FROM THE SEC REGARDING ANY REGISTRATION
STATEMENT IT HAS FILED UNDER THE ACT PURSUANT TO SECTION 15 HEREOF.
SECTION 15. AGREEMENT OF THE COMPANY AS TO THE REGISTRATION OF COMMON
STOCK ISSUABLE ON EXERCISE OF THE WARRANTS; CONTINGENT PAYMENTS TO WARRANT
CERTIFICATE HOLDERS. The Company, on the grant of any Warrant hereunder,
acknowledges, consents and agrees with the Participant and with every other
holder of a Warrant Certificate that:
(a) it will use all reasonable efforts to file with the SEC a registration
statement under the Act as to the shares of Common Stock issuable on exercise
of the Warrants granted hereunder on the earlier of (i) the date on which the
Company notifies the holders of Warrant Certificates that it has
11
<PAGE> 15
selected a Redemption Date, pursuant to Section 21 herein, (ii) 100 days before
the Expiration Date or (iii) such earlier date as the Company may choose; and
it will use all reasonable efforts to obtain an order of effectiveness from the
SEC as to such registration statement within 40 days following the filing
thereof; and
(b) it will make payments, in the lawful currency of the United States
of America (the "Contingent Payments"), to the holder of any Warrant
Certificate:
(i) on the exercise of any or all Warrants represented by the
Warrant Certificate issued hereunder, equal to $2.50 for each Warrant so
exercised, such amount to be credited against the Purchase Price of each
share of Common Stock issuable on exercise of the Warrants, or
(ii) after the Expiration Date and on the tender of the holder's
expired Warrant Certificate to the Company, in equal semiannual
installments (without interest), beginning 30 days after such tender and
no later than 60 days after the Expiration Date, over the same number of
years remaining for the payment of benefits under the Benefit Plan or
Benefit Plans to which the Participant to whom the Warrant Certificate
was originally issued was due benefits, in an amount equal to $2.50 for
each expired Warrant so tendered.
The Company shall not be required to make any Contingent Payment other
than as provided in this Section 15(b). No Contingent Payments will be made
on, or be payable after, a Redemption Date set pursuant to the provisions of
Section 21 hereof. The submission of the Warrant Certificate representing the
Warrants being exercised or the tender of the Warrant Certificate representing
all expired outstanding Warrants held of record by the Participant to whom they
were originally issued are each conditions precedent to the Company's
obligation to make Contingent Payments under subparagraphs (i) and (ii) above,
respectively. A Warrant Certificate holder of record who is not the
Participant and who is seeking Contingent Payments as set forth in this Section
15(b) may be required by the Company to provide evidence as to the identity of
the Participant being the original Warrant Certificate holder from whom the
Warrant Certificate holder's Warrants originate. The Company may rely on its
records to determine the identity of the holder of the original Warrant
Certificate issued hereunder in calculating Contingent Payments. Section 15(b)
may be amended only with the written agreement of the Company and the
Participant.
SECTION 16. MUTUAL RELEASES. The parties hereto, on behalf of themselves
and their executors, legatees, devisees, administrators, successors and
assigns, do hereby forever specially and generally release and discharge each
other and all their current and former officers, directors, partners,
stockholders, agents, servants, lawyers, employees, assigns, insurers,
fiduciaries, predecessors-in-interest, successors-in-interest, and all their
parent, affiliated and subsidiary entities and all persons acting by, through,
under or in concert with them (collectively the "Releasees"), from any and all
causes of action, judgments, liens, indebtedness, costs, damages, obligations,
attorneys' fees, losses, claims, liabilities and demands of whatever kind and
character known or unknown, suspected or unsuspected which such party hereto
now has, owns or holds, or claims to have, own or hold, or which such party at
any time heretofore had owned or held, or claimed to have had, owned or held,
or which such party at any time hereafter may have, own or hold, or claim to
have, own or hold, against the other party hereto or any of such other party's
Releases arising prior to the execution hereof (collectively with the Benefit
Plans Claims, the "Claim" or "Claims"); provided however, that this release
shall not affect
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<PAGE> 16
the obligations of the Company or the Participant under any indemnity agreement
between them that is currently enforceable on the date.
The parties hereto hereby expressly waive any and all rights under Section
1542 of the California Civil Code, which reads in full as follows:
Section 1542. A general release does not extend to
claims which the creditor does not know or suspect to
exist in his favor at the time of executing the
release, which if known by him, must have materially
affected his settlement with the debtor.
The parties hereto acknowledge that they are releasing unknown claims and waive
all rights they may have under California Code Section 1542 or any similar
federal, state or other law. The parties hereto further represents and
warrants that it, he or she has not heretofore assigned or transferred, or
purported to have assigned or transferred, to any firm, corporation, entity or
person, any Claim released herein, including the Benefit Plans Claims of the
Participant.
THE MUTUAL RELEASES EFFECTED BY THIS SECTION 16 SHALL NOT OPERATE TO
RELEASE, DISCHARGE OR OTHERWISE WAIVE ANY OBLIGATION, COVENANT, REPRESENTATION
OR WARRANTY UNDERTAKEN OR MADE BY ANY PARTY TO THIS AGREEMENT.
SECTION 17. REGISTRAR FOR THE WARRANTS. The Company undertakes the
duties and obligations of registrar for the Warrants imposed by this Agreement
upon the following terms and conditions, by all of which the Company and the
holders of Warrants, by their acceptance thereof, shall be bound:
(a) The statements contained herein and in the Warrant Certificates shall
be taken as statements of the Company.
(b) The Company may consult at any time with counsel satisfactory to it
and shall incur no liability or responsibility to any holder of any Warrant
Certificate in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel,
provided the Company shall have exercised reasonable care in the selection and
continued employment of such counsel.
(c) The Company shall incur no liability or responsibility to any holder
of any Warrant Certificate for any action taken in reliance on any notice,
resolution, waiver, consent, order, certificate, or other paper, document or
instrument believed by it to be genuine and to have been signed, sent or
presented by the property party or parties.
SECTION 18. APPOINTMENT OF WARRANT AGENT. The Company may, in its
discretion, appoint a Warrant Agent or Warrant Agents for the administration of
the Warrants and the maintenance of books and records related thereto. Such
appointment shall be evidenced by the execution and delivery of an instrument
amending this Agreement and executed by the Company and such Warrant Agent and
the reissuance of new Warrant Certificates to the holders thereof.
SECTION 19. MAINTENANCE OF OFFICE, NOTICE TO COMPANY. As long as any of
the Warrant Certificates remains unexercised, the Company will maintain an
office or agency in the United States of
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<PAGE> 17
America where the Warrant Certificates may be presented for registration,
transfer, exchange or exercise pursuant to the terms of this Agreement, and
where notices and demands to or upon the Company in respect of the Warrants,
Warrant Certificates or this Agreement may be served. The principal office of
the Company in Newbury Park, California shall be the office or agency for such
purposes, which at the date hereof is:
DDL Electronics, Inc.
2151 Anchor Court
Newbury Park, California 91320
Attention: Chief Financial Officer
Any notice pursuant to this Agreement shall be sufficiently given if sent
by first-class mail, postage prepaid, addressed (until the Warrant Certificate
holder is notified in writing of another address) to the Company at said
address.
SECTION 20. ISSUANCE OF NEW WARRANT CERTIFICATES. Notwithstanding any of
the provisions of this Agreement or of the Warrants to the contrary, the
Company may, at its option, issue new Warrant Certificates evidencing Warrants
in such form as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price per share and the number or kind or
class of shares of stock or other securities or property purchasable under the
several Warrant Certificates made in accordance with the provisions of this
Agreement.
SECTION 21. REDEMPTION OF WARRANTS. (a) The Company may, at its option,
at any time on or after June 1, 1996, redeem all but not less than all the then
outstanding Warrants at a redemption price of $.05 per Warrant if, but only if,
the Common Closing Price is equal to or greater than $4.00 per share at the
time such redemption option is exercised by the Company. Such price, as the
same may from time to time be adjusted pursuant to paragraph (b) of this
section, is hereinafter referred to as the "Redemption Price." If the Company
should desire to exercise such right to redeem all of the then outstanding
Warrants, it will give notice of such redemption to the holders thereof as
follows:
Notice of such redemption to holders of Warrants shall be mailed to all
such holders not less than 30 nor more than 90 days prior to the date fixed for
redemption to their last addresses as they appear upon the registry books of
the Company or Warrant Agent, as the case may be. Any notice which is mailed
in the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will specify the date
fixed for redemption ("Redemption Date") and the Redemption Price. The notice
will state that payment of the Redemption Price will be made at a specified
office of the Company, upon presentation and surrender of such Warrants, and
will also state that the right to exercise the Warrants will terminate at the
close of business on the business day immediately preceding the Redemption
Date.
On or before the Redemption Date, the Company shall have on hand funds
sufficient to redeem the then outstanding Warrants at the Redemption Price.
(b) Upon each adjustment of the Purchase Price of the Warrants, the
Redemption Price in effect immediately prior to the adjustment shall be
adjusted to be a price equal to the product of the Redemption Price in effect
immediately prior to the adjustment of the Purchase Price multiplied by a
fraction the numerator of which is the Purchase Price which was in effect
immediately after the
14
<PAGE> 18
adjustment of the Purchase Price and the denominator of which is the Purchase
Price immediately prior to such adjustment.
SECTION 22. NOTICE OF PROPOSED ACTIONS. In case the Company shall
propose (a) to pay any dividend payable in stock of any class to the holders of
its Common Stock or to make any other distribution to the holders of its Common
Stock (other than a cash dividend) or (b) to offer to the holders of its Common
Stock rights or warrants to subscribe for or to purchase any additional Common
Stock or shares of stock of any class or any other securities, rights or
options or (c) to effect any reclassification of its Common Stock (other than a
reclassification involving only the subdivision or combination of outstanding
Common Stock) or (d) to effect any consolidation, merger or sale, transfer or
other disposition of all or substantially all of the property, assets or
business of the Company or (e) to effect the liquidation, dissolution or
winding up of the Company, then, in each such case, the Company shall give to
each holder of a Warrant, in accordance with Section 23, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, distribution or rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, disposition,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of Common Stock, if any such date is to be
fixed, and such notice shall be so given in the case of any action covered by
clause (a) or (b) above at least ten days prior to the record date for
determining holders of the Common Stock for purposes of such action, and in the
case of any such action, at least ten days prior to the date of the taking of
such proposed action or the date of participation therein by the holders of
Common Stock, whichever shall be the earlier. The failure to give notice
required by this Section 22 or any defect therein shall not affect the legality
or validity of the action taken by the Company or the vote upon any such
action.
SECTION 23. NOTICES. Notices or demands authorized by this Agreement to
be given or made by the holder of any Warrant Certificate to or on the Company
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until notice of another address is given) as follows:
DDL Electronics, Inc.
2151 Anchor Court
Newbury Park, California 91320
Attention: Chief Financial Officer
Notices or demands authorized by this Agreement to be given or made by the
Company to the holder of any Warrant Certificate shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed to such holder at
the address of such holder as shown on the registry books of the Company.
SECTION 24. SUPPLEMENTS AND AMENDMENTS. The Company may from time to
time supplement or amend this Agreement without the approval of any holders of
Warrant Certificates in order to cure any ambiguity, to correct or supplement
any provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Warrant Agent may deem
necessary or desirable and which shall not adversely affect the interests of
the holders of Warrant Certificates.
SECTION 25. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company shall bind and inure to the
benefit of their respective successors and assigns
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<PAGE> 19
hereunder.
SECTION 26. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company and
the registered holders of the Warrant Certificates any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for
the sole and exclusive benefit of the Company and the registered holders of the
Warrant Certificates.
SECTION 27. CALIFORNIA CONTRACT. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of California and for all purposes shall be governed by and
construed in accordance with the laws of such state applicable to contracts to
be made and performed entirely within such state.
SECTION 28. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
SECTION 29. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
SECTION 30. COMPETENCY. Participant represents that he or she is in good
health and fully competent to manage his or her business affairs, that he or
she has carefully read this document, that he or she understands all of its
contents, that he or she has had the opportunity to consult with his or her
lawyer and that he or she executed this Agreement freely and voluntarily.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and their respective seals to be hereunto affixed and attested, all as
of the day and year first above written.
[SEAL] DDL ELECTRONICS, INC.
By:
--------------------------------------
Gregory L. Horton
President
Attest:
- ------------------------------------------
Richard K. Vitelle
Assistant Secretary
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<PAGE> 20
EXHIBIT A
[Form of Warrant Certificate]
THE SECURITIES REPRESENTED BY THIS WARRANT CERTIFICATE WITH CONTINGENT PAYMENT
RIGHTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED,
SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
EXERCISABLE ONLY ON OR AFTER JUNE 1, 1996
No. W-________ ______________ Warrants
NOT EXERCISABLE
AFTER JUNE 1, 1998, OR EARLIER UPON REDEMPTION
WARRANT CERTIFICATE
WITH CONTINGENT PAYMENT RIGHTS
DDL ELECTRONICS, INC.
THIS CERTIFIES THAT _____________________, or registered assigns, is the
registered owner of the number of Warrants set forth above, each of which
entitles the owner thereof to purchase at any time on or after June 1, 1996 and
prior to 5:00 P.M. (Pacific time) until the earliest of (i) June 1, 1998 (the
"Expiration Date") or (ii) the business day immediately prior to the Redemption
Date as defined in the Warrant Agreement described below, at the principal
corporate office of DDL ELECTRONICS, INC., a Delaware corporation ("Company"),
in the City of Newbury Park and State of California, one fully paid and
nonassessable share of Common Stock, par value $.01 per share ("Common Stock"),
of the Company, at a per share purchase price (the "Purchase Price") to be set
by the Company on May 31, 1996 (the "Purchase Price Calculation Date") based on
the New York Stock Exchange closing price of the Common Stock (the "Common
Closing Price") equal to:
(i) if on the Purchase Price Calculation Date the Common
Closing Price is equal to or less than $4.00 per share, $2.50,
(ii) if on the Purchase Price Calculation Date the Common
Closing Price is greater than $4.00 per share and less than $7.50
per share, the difference between the Common Closing Price and
$1.50, or
(iii) if on the Purchase Price Calculation Date the Common
Closing Price is equal to or greater than $7.50 per share, $6.00,
upon presentation and surrender of this Warrant Certificate with the Form of
Election to Purchase duly executed and such other evidences, certifications and
opinions as required by the Warrant and Contingent Payments Agreement dated as
of March 31, 1996 (the "Warrant Agreement") between the Company and
<PAGE> 21
the Participant, provided that no exercise of this Warrant shall be permitted
unless an effective registration statement exists as to all shares of Common
Stock underlying this Warrant Certificate. The number of Warrants evidenced by
this Warrant Certificate (and the number of shares of Common Stock which may be
purchased upon exercise thereof) have been agreed to by the Company and the
Participant, as defined in the Warrant Agreement, to discharge certain Claims,
as defined in the Warrant Agreement, and have been granted in exchange for the
relinquishment of any and all Claims by the Participant.
As provided in the Warrant Agreement, the Purchase Price and the number of
Common Stock which may be purchased upon the exercise of the Warrants evidenced
by this Warrant Certificate are, upon the happening of certain events, subject
to modification and adjustment.
This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Warrant Agreement, which Warrant Agreement is incorporated
herein by reference and made a part hereof and to which Warrant Agreement
reference is made for a full description of the rights, limitations of rights,
obligations, duties and immunities hereunder of the Company and the holders of
the Warrant Certificates. Copies of the Warrant Agreement are on file at the
above-mentioned office of the Company.
This Warrant Certificate, with or without other Warrant Certificates, upon
surrender at the principal corporate office of the Company, may be exchanged
for another Warrant Certificate or Warrant Certificates of like tenor and date
evidencing Warrants entitling the holder to purchase a like aggregate number of
Common Stock as the Warrants evidenced by the Warrant Certificate or Warrant
Certificates surrendered shall have entitled such holder to purchase. If this
Warrant Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof, another Warrant Certificate or Warrant
Certificates for the number of whole Warrants not exercised.
The Warrants evidenced by this Certificate may be redeemed by the Company
at its option at any time from and after June 1, 1996, but only if the Common
Closing Price on any date thereafter is greater than $4.00 per share, at a
redemption price of $.05 per Warrant, subject to adjustment, in accordance with
the terms of the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate remain outstanding
at the expiration of the period during which Warrants are exercisable, as set
forth in the first paragraph of this Warrant Certificate, such Warrants shall
expire without value.
No fractional Common Stock will be issued upon the exercise of any Warrant
or Warrants evidenced hereby, but in lieu thereof a cash payment will be made,
as provided in the Warrant Agreement.
No holder of this Warrant Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of Common Stock or of any
other securities of the Company which may at any time be issuable on the
exercise or conversion hereof, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a shareholder of the Company or any right to vote upon any
matter submitted to shareholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue of
stock, reclassification of stock, change of par value, consolidation, merger,
conveyance, or otherwise) or, except as provided in the Warrant Agreement, to
receive notice of
2
<PAGE> 22
meetings, or to receive dividends or subscription rights or otherwise, until
the Warrant or Warrants evidenced by this Warrant Certificate shall have been
exercised or converted as provided in the Warrant Agreement.
The Company has agreed in the Warrant Agreement it will use all reasonable
efforts to file with the Securities and Exchange Commission (the "SEC") a
registration statement under the Securities Act of 1933, as amended (the "Act")
as to the shares of Common Stock issuable on exercise of the Warrants on the
earlier of (i) the date on which the Company notifies the holders of Warrant
Certificates that it has selected a Redemption Date, (ii) 100 days before the
Expiration Date or (iii) such earlier date as the Company may choose; and it
will use all reasonable efforts to obtain an order of effectiveness from the
SEC as to such registration statement within 40 days following the filing
thereof. The Company has no obligation to file a registration statement as to
the Warrants represented by this Warrant Certificate.
The Company has also agreed in the Warrant Agreement that it will make
certain payments, subject to the terms of the Warrant Agreement and in the
lawful currency of the United States of America (the "Contingent Payments"), to
the holder of this Warrant Certificate:
(i) on the exercise of any or all Warrants represented by this
Warrant Certificate, equal to $2.50 for each Warrant so exercised, such
amount to be credited against the Purchase Price of each share of Common
Stock issuable on exercise of the Warrants, or
(ii) after the Expiration Date and on the tender of the holder's
expired Warrant Certificate to the Company, in equal semiannual
installments (without interest), beginning 30 days after such tender and
no later than 60 days after the Expiration Date, over the same number of
years remaining for the payment of benefits under the Benefit Plan or
Benefit Plans to which the Participant to whom the Warrant Certificate
was originally issued was due, of an aggregate amount equal to $2.50 for
each expired Warrant.
This Warrant Certificate shall not be valid or obligatory for any purpose
until it shall have been executed and delivered by the Company.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of , 1996
DDL ELECTRONICS, INC.
By:
--------------------------------------
[SEAL] Gregory L. Horton
President
Attest:
- ------------------------------------------
Richard K. Vitelle
Assistant Secretary
3
<PAGE> 23
[Form of Reverse Side of Warrant Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificate.)
FOR VALUE RECEIVED _________________________________________________hereby
sells, assigns and transfers unto______________________________________________
_______________________________________________________________________________
(Please print name and address of transferee)
_______________________________________________________________________________
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________________________
_____________ Attorney, to transfer the within Warrant Certificate on the books
of the within-named Company, with full power of substitution.
Dated:____________________, 19__
Signature
----------------------------------
Signature Guaranteed:
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
4
<PAGE> 24
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Warrant Certificate.)
TO DDL ELECTRONICS, INC.
The undersigned hereby irrevocably elects to exercise _________ Warrants
represented by this Warrant Certificate to purchase the Common Stock issuable
upon the exercise of such Warrants and requests that certificates for such
shares be issued in the name of:
Please insert social security
or other identifying number
______________________________________________________________________________
(Please print name and address)
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the balance remaining of
such Warrants shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
______________________________________________________________________________
(Please print name and address)
______________________________________________________________________________
Dated: _________________, 19__
------------------------------------------
Signature
(Signature must conform in all respects to
name of holder as specified on the face of
this Warrant Certificate)
Signature Guaranteed:
5
<PAGE> 1
EXHIBIT 4-m
================================================================================
DDL ELECTRONICS, INC.
_____________________
SECURITIES PURCHASE AGREEMENT
Dated as of February 29, 1996
_____________________
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. ISSUANCE OF NOTES............................................................ 1
Section 1.1. Authorization........................................................ 1
-------------
Section 1.2. Purchase and Sale of the Securities; the Closing..................... 2
------------------------------------------------
Section 1.4. Use of Proceeds...................................................... 3
---------------
Section 1.5. Representations of the Purchasers Listed on the Attached Schedule A.. 3
-------------------------------------------------------------------
Section 1.6. Definitions.......................................................... 4
-----------
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................ 4
SECTION 3. CONDITIONS OF CLOSING........................................................ 13
Section 3.1. Proceedings Satisfactory............................................. 13
------------------------
Section 3.2. Opinions of Counsel.................................................. 13
-------------------
Section 3.3. Sale of the Securities............................................... 14
----------------------
Section 3.4. Registration Rights Agreements....................................... 14
------------------------------
Section 3.5. Consents............................................................. 14
--------
Section 3.8. Receipt of Proceeds.................................................. 14
-------------------
Section 3.9. Receipt of Bridge Notes.............................................. 14
-----------------------
SECTION 4. THE NOTES.................................................................... 14
Section 4.1. Repayment............................................................ 14
---------
Section 4.2. Interest............................................................. 14
--------
Section 4.3. Optional Prepayment of the Notes..................................... 15
--------------------------------
Section 4.4. Mandatory Prepayment of the Notes.................................... 16
---------------------------------
Section 4.5. Notice of Prepayment................................................. 16
--------------------
Section 4.6. Allocation of Prepayment Payments.................................... 16
---------------------------------
Section 4.7. Surrender of Notes; Notation Thereon................................. 16
------------------------------------
SECTION 5. INSPECTION................................................................... 17
SECTION 6. COVENANTS.................................................................... 17
Section 6.1. Payment of the Notes................................................. 17
--------------------
Section 6.2. Seniority............................................................ 17
---------
Section 6.3. Existence............................................................ 18
---------
Section 6.4. Payment of Taxes and Other Claims.................................... 18
---------------------------------
Section 6.5. Maintenance of Insurance............................................. 18
------------------------
Section 6.6. Limitation on Transactions with Affiliates........................... 19
------------------------------------------
Section 6.7. Limitation on Lines of Business...................................... 19
-------------------------------
Section 6.8. Limitation on Consolidation, Merger and Sale of Assets............... 19
------------------------------------------------------
Section 6.9. Observance of Statutes, Regulations and Orders....................... 19
----------------------------------------------
Section 6.10. Maintenance of Properties............................................ 19
-------------------------
Section 6.11. Books and Records.................................................... 19
-----------------
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 6.12. Restricted Payments................................................. 19
-------------------
Section 6.14. Limitation on Liens................................................. 19
-------------------
Section 6.15. Registration of R&A Collateral Stock and Collateral
---------------------------------------------------
Security Warrant Shares............................................. 19
-----------------------
SECTION 7. DEFINITIONS.................................................................. 21
Section 7.1. Additional Definitions............................................... 21
----------------------
Section 7.2. Subsidiaries......................................................... 23
------------
SECTION 8. EVENTS OF DEFAULT; REMEDIES.................................................. 23
Section 8.1. Events of Default Defined; Acceleration of Maturity.................. 23
---------------------------------------------------
Section 8.2. Miscellaneous........................................................ 25
-------------
Section 8.3. Collateral Security.................................................. 25
-------------------
SECTION 9. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES................................. 26
SECTION 10. LOST NOTES, ETC............................................................. 27
SECTION 11. AMENDMENT AND WAIVER........................................................ 27
SECTION 12. HOME OFFICE PAYMENT......................................................... 28
SECTION 13. TAXES....................................................................... 28
SECTION 14. MISCELLANEOUS............................................................... 28
Section 14.1. Reliance on and Survival of Representations......................... 28
-------------------------------------------
Section 14.2. Successors and Assigns; Transfers of Notes.......................... 28
------------------------------------------
Section 14.3. Notices............................................................. 29
-------
Section 14.4. Counterparts........................................................ 29
------------
Section 14.5. Headings............................................................ 29
--------
Section 14.6. Severability........................................................ 29
------------
Section 14.7. Entire Agreement.................................................... 30
----------------
Section 14.8. Attorney's Fees..................................................... 30
---------------
Section 14.9. Governing Law....................................................... 30
-------------
Section 14.10. Action of Majority Noteholders...................................... 31
------------------------------
SCHEDULE A.............................................................................. S-1
</TABLE>
ii
<PAGE> 4
DDL ELECTRONICS, INC.
2151 Anchor Court
Newbury Park, CA 91320
SECURITIES PURCHASE AGREEMENT
New York, New York
as of February 29, 1996
To The Purchasers Listed on
the Attached Schedule A
Ladies and Gentlemen:
DDL ELECTRONICS, INC., a Delaware corporation (the "Company"), hereby
agrees with you (together with your successors and assigns and any transferee,
or Affiliate of such transferee, of the Notes, the Collateral Security Warrants
and the Common Stock Purchase Warrants, as such terms are hereinafter defined,
under this Agreement; collectively, the "Purchasers" or "you") as follows:
SECTION 1. ISSUANCE OF NOTES.
Section 1.1. Authorization. The Company has duly authorized an issue of
one or more of its 10% Senior Secured Notes due July 1, 1997 in the aggregate
principal amount of $5,300,000 (the "Notes"), each such Note to be in the form
of Exhibit A. The Notes shall mature, shall bear interest, shall be payable
and otherwise shall be as provided herein and in Exhibit A. As used herein,
the term "Notes" shall include the note or notes originally issued pursuant to
this Agreement and all notes delivered in substitution or exchange for any of
said note or notes and, if and where applicable, shall include the singular
number as well as the plural.
The Company has duly authorized an issue of one or more Warrants (the
"Collateral Security Warrants") exercisable (subject to Sections 4.3 and 8.3)
to purchase an aggregate of 1,060,000 shares (subject to adjustment pursuant to
the terms of the Collateral Security Warrants) of Common Stock (as hereinafter
defined) upon and after the occurrence of an Event of Default. The right to
exercise the Collateral Security Warrants shall terminate upon the satisfaction
in full of all of the Company's obligations hereunder to the holders of the
Notes (the "Holders"), and the Holders shall have no right to exercise the
Collateral Security Warrants with respect to Collateral Security Warrant Shares
(as hereinafter defined) not required for such satisfaction. Each such
Collateral Security Warrant will be in the form of Exhibit B-1. The holders of
the Collateral Security Warrants and the shares of Common Stock issuable upon
exercise of the Collateral Security Warrants (the "Collateral Security Warrant
Shares") will have the registration rights set forth in the Collateral
Registration Rights Agreement (as hereinafter defined).
1
<PAGE> 5
The Company has also duly authorized an issue of one or more Warrants (the
"Common Stock Purchase Warrants") exercisable to purchase an aggregate of
830,000 shares of Common Stock (subject to adjustment pursuant to the terms of
the Common Stock Purchase Warrants) during the five year period commencing on
the date hereof. Each such Common Stock Purchase Warrant will be in the form
of Exhibit B-2. The holders of the Common Stock Purchase Warrants and the
shares of Common Stock issuable upon exercise of the Common Stock Purchase
Warrants (the "Common Stock Purchase Warrant Shares") will have the
registration rights set forth in Section 6.15. The Common Stock Purchase
Warrants are part of a series of Warrants authorized by the Company in payment
of certain placement agent fees payable by the Company to Rickel & Associates,
Inc. ("Rickel") in connection with the offer and sale of the Securities (as
hereinafter defined).
As used herein, the term "Securities" shall mean the Notes, the Collateral
Security Warrants and the Common Stock Purchase Warrants.
Section 1.2. Purchase and Sale of the Securities; the Closing.
(a) Subject to the terms and conditions hereof, the Company shall
sell to you, and you shall purchase from the Company, the Securities
specified opposite your name in Schedule A at a purchase price payable in
cash specified opposite your name in Schedule A. The closing shall be
held at 10:00 a.m., New York time, on February 29, 1996 (the "Closing" or
the "Closing Date"), at the offices of Shereff, Friedman, Hoffman &
Goodman, LLP, 919 Third Avenue, New York, New York 10022, or at such
other time or place as the parties hereto mutually may agree.
(b) On the Closing Date, the Company will deliver to the Purchasers
one or more Notes, registered in the Purchasers' names or in the names of
the Purchasers' nominee or nominees, in minimum denominations of $25,000
and in the aggregate principal amount of $5,300,000, all as the
Purchasers may specify by timely notice to the Company (or, in the
absence of such notice, one Note registered in the name of each Purchaser
with respect to the aggregate principal amount of the Notes purchased by
such Purchaser), each duly executed and dated the Closing Date, against
the Purchasers' prior delivery, on behalf of the Company, to the Escrow
Account (as hereinafter defined) of the aggregate amount of $5,300,000
(the "Purchase Price"). The Company agrees and acknowledges that the
Purchasers have previously delivered the Purchase Price to the Escrow
Account on behalf of the Company and no other deliveries are required to
be made by the Purchasers on the Closing Date with respect to the payment
of the Purchase Price.
(c) On the Closing Date, the Company will deliver to the Purchasers
one or more certificates evidencing the Collateral Security Warrants,
registered in the Purchasers' names or in the names of the Purchasers'
nominee or nominees, as the Purchasers may specify by timely notice to
the Company (or, in the absence of such notice, one Warrant Certificate
registered in the name of each Purchaser with respect to the aggregate
number of Collateral Security Warrant Shares exercisable pursuant to the
Collateral Security Warrants purchased by such Purchaser), each duly
executed and dated the Closing Date, against the Purchasers' delivery to
the Company of the Purchase Price.
2
<PAGE> 6
(d) On the Closing Date, the Company will deliver to the Purchasers
one or more certificates evidencing the Common Stock Purchase Warrants,
registered in the Purchasers' names or in the names of the Purchasers'
nominee or nominees, as the Purchasers may specify by timely notice to
the Company (or, in the absence of such notice, one Warrant Certificate
registered in the name of each Purchaser with respect to the aggregate
number of Common Stock Purchase Warrant Shares exercisable pursuant to
the Common Stock Purchase Warrants purchased by such Purchaser), each
duly executed and dated the Closing Date, against the Purchasers'
delivery to the Company of the Purchase Price. The parties hereto agree
that an aggregate of $2,500 of the Purchase Price shall be allocated
towards the purchase and sale of the Common Stock Purchase Warrants and
agree to report such purchase and sale for federal income tax purposes in
accordance with such allocation.
(e) On the Closing Date, the Company will deliver to the Collateral
Agent Account (as hereinafter defined) the aggregate amount of $375,000.
Section 1.3. Security Interests. The Company's obligations hereunder
(subject to Sections 4.3 and 8.3) will be secured by, among other things, the
pledge by Rickel of an aggregate of 1,060,000 shares of Common Stock pursuant
to (and subject to the terms and conditions of) the Pledge Agreement, dated the
date hereof (the "Pledge Agreement"), and the Collateral Agency Agreement,
dated the date hereof (the "Collateral Agency Agreement"), substantially in the
forms annexed hereto as Exhibits C and D, respectively.
Section 1.4. Use of Proceeds. The Purchase Price has been deposited in
the escrow account (the "Escrow Account") established with respect to the
acquisition of all of the outstanding common stock of SMTEK, Inc., a California
corporation ("SMTEK"), pursuant to the Agreement for Purchase of Shares dated
as of October 6, 1995 between the Company and the Sellers (the "SMTEK Sellers")
named therein (the "SMTEK Agreement"). An aggregate of $6,798,738 of the
Purchase Price was used in connection with the Company's acquisition of SMTEK
and an aggregate of $375,000 of the Purchase Price will be deposited in an
interest-bearing account (the "Collateral Agent Account") established by the
Collateral Agent and will be used by the Collateral Agent to pay accrued
interest on the unpaid principal amount of the Notes in accordance with Section
4.2. The remainder of the Purchase Price will be used by the Company in such
amounts and for such purposes as set forth on Schedule 1.4 annexed hereto.
Notwithstanding anything contained herein or in the Collateral Agency Agreement
to the contrary, the Company shall remain solely obligated to pay all interest
which may accrue on the unpaid principal amount of the Notes in accordance with
Section 4.2 and the Notes.
Section 1.5. Representations of the Purchasers Listed on the Attached
Schedule A. You represent and warrant to the Company that all of the
representations and warranties you made pursuant to the Investor Questionnaire
attached hereto as Exhibit E shall be true on and as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of the Closing Date except to the extent that such representations and
warranties by their terms speak as of an earlier date, in which case such
representations and warranties were true and correct as of such earlier date.
3
<PAGE> 7
Section 1.6. Definitions. Certain capitalized terms used in this
Agreement and not otherwise defined herein are defined in Section 7 hereof.
References to a "Schedule" or "Exhibit" are, unless otherwise specified, to the
appropriate Schedule or Exhibit annexed to this Agreement, each of which is
deemed to be a part of this Agreement as if fully set forth herein.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each of you that:
(a) Annexed hereto as Schedule 2(a) are true and complete copies of
the following documents: the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995, including any and all amendments thereto
(the "Form 10-K"), the Company's 1995 Annual Report to Stockholders, the
Company's Proxy Statement for its May 31, 1995 Annual Meeting of
Stockholders, the Company's Quarterly Reports on Form 10-Q for the
quarterly periods ended September 30, 1995 and December 31, 1995 and the
Current Report on Form 8-K filed by the Company on February 1, 1996.
Such documents, including any and all exhibits and schedules thereto (the
"SEC Reports"), when filed with the Securities and Exchange Commission
(the "SEC"), complied as to form in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the
"1934 Act"). As of their respective dates, the SEC Reports did not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein. As of the date hereof, all
reports required to be filed by the Company with the SEC have been timely
filed.
(b) None of the representations, warranties or statements made by
the Company contained in this Agreement (or in the schedules and exhibits
hereto) or in the Executive Summary dated November 27, 1995 (or in the
exhibits and supplements thereto) furnished to the Purchasers or in the
supplements and exhibits thereto or in any other document or instrument
furnished to the Purchasers, with the prior written consent of the
Company, in connection with the offer and sale of the Securities (such
Executive Summary, documents and instruments, together with the SEC
Reports, are hereinafter collectively referred to as the "Offering
Documents") contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make any of such
representations, warranties or statements, in light of the circumstances
under which they were made, not misleading.
(c) Each of the Company and its subsidiaries is a corporation duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation, and is qualified to transact business and
is in good standing as a foreign corporation in every jurisdiction in
which its ownership, leasing, licensing or use of property or assets or
the conduct of its business makes such qualification necessary, except in
such jurisdictions where the failure to be so qualified or in good
standing would not have a Material Adverse Effect. Except as set forth
on Schedule 2(c) annexed hereto, the Company does not have any
subsidiaries or investment, whether by way of ownership of stock or other
securities or by loan, advance or otherwise, in any corporation,
partnership, firm, association or other entity. Each of the Company and
its subsidiaries has all required power and authority to own its property
and to carry on its business as now conducted and proposed to be
4
<PAGE> 8
conducted.
(d) The Company has all requisite power and authority to execute,
deliver and perform this Agreement, the Notes, the Collateral Security
Warrants, the Common Stock Purchase Warrants, the Pledge Agreement, the
Collateral Agency Agreement and the Registration Rights Agreements (as
hereinafter defined) (collectively, the "Operative Documents") and to
issue and sell the Securities to the Purchasers. All necessary corporate
proceedings of the Company have been duly taken to authorize the
execution, delivery and performance of the Operative Documents by the
Company and to authorize the creation, issuance and sale of the
Securities to the Purchasers. The Operative Documents have been duly
authorized, executed and delivered by the Company, are the legal, valid
and binding obligations of the Company and are enforceable against the
Company in accordance with their respective terms, except as may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium
or other similar laws or by legal or equitable principles relating to or
limiting creditors' rights generally or as rights to indemnification may
be limited by applicable securities laws. Except as to filings which may
be required under applicable state securities regulations, no consent,
authorization, approval, order, license, certificate or permit of or
from, or declaration or filing with, any Federal, state, local or other
governmental authority or of any court or other tribunal is required for
the execution, delivery or performance of the Operative Documents by the
Company. Except as set forth on Schedule 2(d) annexed hereto, no consent
of any party to any contract, agreement, instrument, lease, license,
arrangement or understanding to which the Company or any of its
subsidiaries is a party, or by which any of its or its subsidiaries'
properties or assets is bound or subject, is required for the execution,
delivery or performance by the Company of the Operative Documents; and
the execution, delivery and performance of the Operative Documents by the
Company will not (with or without the giving of notice or the passage of
time or both) violate, result in a breach of, conflict with, or entitle
any party to terminate or call a default under any such contract,
agreement, instrument, lease, license, arrangement or understanding, or
violate or result in a breach of any term of the Certificate of
Incorporation or by-laws of the Company or any of its subsidiaries or
(with or without the giving of notice or the passage of time or both)
violate, result in a breach of or conflict with any law, rule,
regulation, order, judgment or decree binding on the Company or on any of
its subsidiaries or to which any of its or its subsidiaries' operations,
business, properties or assets is bound or subject. The Collateral
Security Warrant Shares have been duly authorized and, upon exercise of
the Collateral Security Warrants in accordance with their terms and
payment of the exercise price as contemplated therein, will be validly
issued, fully paid and nonassessable and will not be issued in violation
of any preemptive rights or rights of first refusal, and the holders of
the Collateral Security Warrant Shares will have good title to such
shares, free and clear of all Liens, claims, security interests, pledges,
charges, encumbrances, stockholders' agreements and voting trusts (other
than any created by the Purchasers). The Common Stock Purchase Warrant
Shares have been duly authorized and, upon exercise of the Common Stock
Purchase Warrants in accordance with their terms and payment of the
exercise price as contemplated therein, will be validly issued, fully
paid and nonassessable and will not be issued in violation of any
preemptive rights or rights of first refusal, and the holders of the
Common Stock Purchase Warrant Shares will have good title to such shares,
free and clear of all Liens, claims, security
5
<PAGE> 9
interests, pledges, charges, encumbrances, stockholders' agreements and
voting trusts (other than any created by the Purchasers). The R&A
Collateral Stock has been duly authorized and is validly issued, fully
paid and nonassessable and was not issued in violation of any preemptive
rights or rights of first refusal, and Rickel has good title to such
shares, free and clear of all Liens, claims, security interests, pledges,
charges, encumbrances, stockholders' agreements and voting trusts (other
than any created by Rickel).
(e) The authorized capital stock of the Company consists of
50,000,000 shares of Common Stock, of which 18,847,849 shares are issued
and outstanding as of the date hereof; 150,000 shares of Series A
Preferred Stock, par value $1.00 per share, of the Company (the "Series A
Preferred Stock"), of which no shares are issued and outstanding as of
the date hereof and 1,000,000 shares of Series B Preferred Stock, par
value $1.00 per share, of the Company (the "Series B Preferred Stock,"
and together with the Series A Preferred Stock, the "Preferred Stock"),
of which no shares are issued and outstanding as of the date hereof. All
issued and outstanding shares of Common Stock and Preferred Stock have
been validly issued and are fully paid and nonassessable and have not
been issued in violation of any Federal or state securities laws. All
issued and outstanding shares of capital stock of each subsidiary of the
Company have been validly issued and are fully paid and nonassessable,
have not been issued in violation of any Federal or state securities
laws, and are owned of record and beneficially by the Company, free and
clear of all Liens, claims, security interests, pledges, charges,
encumbrances, stockholders' agreements and voting trusts. Except for the
obligation of the Company to issue the Collateral Security Warrant Shares
and the Common Stock Purchase Warrant Shares and except as set forth on
Schedule 2(e) annexed hereto, there are not, as of the date hereof, any
outstanding or authorized subscriptions, options, warrants, calls,
rights, commitments or any other agreements of any character directly or
indirectly obligating the Company or any of its subsidiaries to issue (i)
any additional shares of its or their capital stock or (ii) any
securities convertible into, or exercisable or exchangeable for, or
evidencing the right to subscribe for, any shares of such capital stock.
(f) None of the Company or any of its subsidiaries is in violation
of any term or provision of its Certificate of Incorporation or by-laws
or is, or (with or without the giving of notice or the passage of time or
both) will be, in default in the performance or observance of any
obligation, agreement or condition contained in any bond, debenture, note
or any other evidence of indebtedness or in any mortgage, deed of trust,
indenture or other instrument or agreement to which it is a party or by
which it or any of its property is bound or subject, which violation or
default, together with all other such violations and defaults, would have
a Material Adverse Effect.
(g) Except as disclosed in the Offering Documents, there is (i) no
action, suit or proceeding before or by any court, arbitrator or
Governmental Body now pending or, to the knowledge of the Company,
threatened or contemplated to which the Company or any of its
subsidiaries is or may be a party or to which the business or property of
the Company or any of its subsidiaries is or may be bound or subject,
(ii) no law, statute, rule, regulation, order or ordinance that has been
enacted, adopted or issued by any Governmental Body or
6
<PAGE> 10
that, to the knowledge of the Company, has been proposed by any
Governmental Body adversely affecting the Company or any of its
subsidiaries, (iii) no injunction, restraining order or order of any
nature by a federal, state or foreign court or Governmental Body of
competent jurisdiction to which the Company or any of its subsidiaries is
subject issued that, in the case of clauses (i), (ii) and (iii) above,
(x) is reasonably likely to, singly or in the aggregate, result in a
Material Adverse Effect, (y) would interfere with or adversely affect the
issuance of the Notes or the Collateral Security Warrants or the Common
Stock Purchase Warrants or (z) is reasonably likely to render any
Operative Document or the SMTEK Agreement, or any portion thereof,
invalid or unenforceable.
(h) No action has been taken and no law, statute, rule, regulation,
order or ordinance has been enacted, adopted or issued by any
Governmental Body that prevents the issuance of the Notes or the
Collateral Security Warrants or the Common Stock Purchase Warrants or, to
the best knowledge of the Company, the acquisition of the SMTEK Shares;
no injunction, restraining order or order of any nature by a federal or
state court of competent jurisdiction has been issued that prevents the
issuance of the Notes or the Collateral Security Warrants or the Common
Stock Purchase Warrants or suspends the sale of the Notes or the
Collateral Security Warrants or the Common Stock Purchase Warrants in any
jurisdiction; and no action, suit or proceeding is pending against or, to
the best knowledge of the Company, threatened against or affecting, the
Company, any of its subsidiaries or, to the best knowledge of the
Company, SMTEK before any court or arbitrator or any Governmental Body
that, if adversely determined, would prohibit, interfere with or
adversely affect the issuance or marketability of the Notes or the
Collateral Security Warrants or the Common Stock Purchase Warrants or the
acquisition of the SMTEK Shares or render any Operative Document or the
SMTEK Agreement, or any portion thereof, invalid or unenforceable.
(i) Except as set forth on Schedule 2(i) annexed hereto, all tax
returns required to be filed by the Company or any of its subsidiaries in
any jurisdiction have been timely filed, other than those filings being
contested in good faith by appropriate proceedings, and all material
taxes, including withholding taxes, penalties and interest, assessments,
fees and other charges due or claimed to be due from such company have
been paid, other than those being contested in good faith by appropriate
proceedings and for which adequate reserves have been provided or those
currently payable without penalty or interest.
(j) The Company is not (i) an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act, or analogous foreign laws and regulations, or
(ii) a "holding company" or a "subsidiary company" or an "affiliate" of a
holding company within the meaning of the Public Utility Holding Company
Act of 1935, as amended, or analogous foreign laws and regulations.
(k) Each of the Company and its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance
that: (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general
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<PAGE> 11
or specific authorization and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(l) No registration under the Securities Act is required for the
offer and sale of the Notes or the Collateral Security Warrants or the
Common Stock Purchase Warrants to the Purchasers as contemplated hereby
assuming the accuracy of the Purchasers' representations and warranties
set forth in Section 1.6 hereof and assuming that no actions have been
taken by Rickel which would cause such registration to be required.
Except for news releases contemplated by Rule 135c under the Securities
Act, no form of general solicitation or general advertising has been or
will be used by the Company or any of its representatives (such
representatives shall not be deemed to include Rickel) in connection with
the offer and sale of any of the Notes or the Collateral Security
Warrants or the Common Stock Purchase Warrants, including, but not
limited to, advertisements, articles, notices or other communications
published in any newspaper, magazine or similar medium or broadcast over
television or radio, or any seminar or meeting whose attendees have been
invited by any general solicitation or general advertising. No
securities of the same class as the Notes or the Collateral Security
Warrants or the Common Stock Purchase Warrants have been issued and sold
by the Company within the six-month period immediately prior to the date
hereof.
(m) The execution and delivery of the Operative Documents and the
sale of the Securities to be purchased by the Purchasers will not involve
any prohibited transaction within the meaning of Section 406 of ERISA or
Section 4975 of the Code.
(n) Neither the Company nor any agent of the Company acting on its
behalf has taken, and none of them will take, any action that might cause
this Agreement or the issuance or sale of the Securities to violate
Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.E. Part 220),
Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of
the Board of Governors of the Federal Reserve System or analogous foreign
laws and regulations.
(o) The financial statements contained in the SEC Reports and the
financial statements included in the Offering Documents, including the
related notes and schedules, have been prepared from the books and
records of the Company and its subsidiaries in accordance with generally
accepted accounting principles (except to the extent otherwise set forth
in the notes to such financial statements) consistently applied
throughout the periods covered thereby and fairly present the results of
operations and financial condition of the Company and its subsidiaries as
of the dates and for the periods covered thereby, subject, in the case of
the interim statements, to normal year-end audit adjustments. All of
such financial statements are hereinafter referred to as the "Financial
Statements".
(p) Except as disclosed in the Financial Statements or on Schedule
2(p) annexed hereto, as of the Closing, none of the Company or any of its
subsidiaries had any indebtedness or liability, direct, contingent,
matured or otherwise, individually in excess of $25,000.
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<PAGE> 12
(q) Except as described in Schedule 2(q) annexed hereto, as
contemplated by this Agreement or as disclosed in the Offering Documents,
since June 30, 1995 there has not been nor is the Company (i) aware of
any events, facts or circumstances which individually or in the aggregate
could cause any (x) material adverse effect on the business, condition
(financial or otherwise), operations, earnings, performance, properties
or prospects of the Company or any of its subsidiaries or (y) material
obligation, contingent or otherwise, directly or indirectly incurred or
to be incurred by the Company or any of its subsidiaries or (ii)
contemplating any (A) transaction which is material to the Company or any
of its subsidiaries, (B) payment of dividends or distributions of any
kind, (c) acquisition of any assets or properties, except in the ordinary
course of business consistent with past practices, (D) sale, lease,
transfer, disposition or encumbering of any assets or properties, except
in the ordinary course of business consistent with past practices, (E)
loans, advances, capital contributions or investments in or to any person
or entity, except in the ordinary course of business consistent with past
practices or (F) aggregate capital expenditures and commitments therefor
in an amount equal to $25,000 or more in the aggregate.
(r) The Company and its subsidiaries are in compliance with all
applicable laws, regulations, rules, ordinances, orders, judgments and
decrees of each federal, state, local or other governmental authority,
except where the failure to be in compliance would not be likely to have,
individually or in the aggregate, a Material Adverse Effect.
(s) There are no contracts, agreements or understandings between
the Company and any person that would give rise to a valid claim against
the Company or any Purchaser for a brokerage commission, finder's fee or
like payment in connection with the issuance, purchase and sale of the
Notes, except with respect to Rickel. The Company shall be solely
responsible for all payments to be made to Rickel in connection herewith.
(t) The SMTEK Agreement has been duly authorized by the Company and
is the legal, valid, and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium
or other similar laws or by legal or equitable principles relating to or
limiting creditors' rights generally or as rights to indemnification may
be limited by applicable securities laws. Except as to filings which may
be required under applicable state securities regulations, no consent,
authorization, approval, order, license, certificate or permit of or
from, or declaration or filing with, any Federal, state, local or other
governmental authority or of any court or other tribunal was required for
the execution, delivery or performance of the SMTEK Agreement by the
Company. No consent of any party to any contract, agreement, instrument,
lease, license, arrangement or understanding to which the Company or any
of its subsidiaries is a party, or by which any of their properties or
assets is bound or subject, was required for the execution, delivery or
performance of the SMTEK Agreement by the Company; and the execution,
delivery and performance of the SMTEK Agreement by the Company did not
(with or without the giving of notice or the passage of time or both)
violate, result in a breach of, conflict with, or entitle any party to
terminate or call a default under any such contract, agreement,
9
<PAGE> 13
instrument, lease, license, arrangement or understanding, or violate or
result in a breach of any term of the Certificate of Incorporation or
by-laws of the Company or any of its subsidiaries or (with or without the
giving of notice or the passage of time or both) violate, result in a
breach of, or conflict with any law, rule, regulation, order, judgment,
or decree binding on the Company or any of its subsidiaries or to which
any of their operations, business, properties, or assets is bound or
subject.
(u) To the Company's knowledge following due and diligent inquiry,
SMTEK is a duly organized corporation and in good standing under the laws
of the State of California and has qualified to transact business in all
other states requiring qualification therein. To the Company's knowledge
following due and diligent inquiry, SMTEK has corporate power to own all
of its properties and assets and to carry on its business as it is now
being conducted. To the Company's knowledge following due and diligent
inquiry, the execution and delivery of the SMTEK Agreement and the
consummation of the transactions contemplated therein did not violate any
provision of any charter, by-law, mortgage, lien, lease, agreement,
covenant, instrument, order, judgment or decree to which SMTEK is a party
or by which SMTEK is bound; and did not violate any other restriction of
any kind or character to which SMTEK is subject, including restrictions
upon the assignment of contracts; nor cause the acceleration of the
payment of any obligation. To the Company's knowledge following due and
diligent inquiry, the corporate minute book of SMTEK is complete,
including therein the Articles of Incorporation and By-Laws with any
amendment thereto, and the meetings of directors referred to therein were
duly called and held, and the minutes thereof represent all minutes of
directors' meetings heretofore held, and the signatures appearing on all
documents contained therein are the true signatures of the persons
purporting to have signed the same.
(v) The Company has heretofore delivered to the Purchasers the
audited financial statements covering the business and the operations of
SMTEK dated March 31, 1995, and, to the Company's knowledge following due
and diligent inquiry, said financial statements fairly represent the
financial position of SMTEK as of the date thereof and the results of
operations for the period covered by said statements. Promptly upon
receipt thereof, the Company will deliver unaudited financial statements
of SMTEK for the period ended August 31, 1995, together with a
certificate from management of SMTEK as to the accuracy thereof. In the
event that SMTEK's auditors, or any other certified public accounting
firm, conduct a review of the unaudited financial statements of SMTEK for
the period beginning April 1, 1995 and ending August 31, 1995, the
financial statements prepared as a result of such review shall be the
ones considered to have been delivered to the Purchasers pursuant to this
clause and shall carry the certificate of management of SMTEK.
(w) To the Company's knowledge following due and diligent inquiry,
SMTEK has good and marketable title to its properties and assets
(including, without limitation, the assets reflected in the above
described balance sheet, except as subsequently sold or otherwise
disposed of in the ordinary course of business), free and clear of all
claims, rights, restrictions, conditions, covenants, easements, liens and
encumbrances except the lien of property taxes not yet due and equipment
which is leased and described in Schedule
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<PAGE> 14
III annexed hereto. The Company expressly excludes from SMTEK's property
and assets, and makes no such representations with respect to, any
production materials or inventory which may be located on SMTEK premises
but which is owned and supplied by customers of SMTEK.
(x) (i) To the Company's knowledge following due and diligent
inquiry, SMTEK has timely filed or caused to be timely filed all federal,
state and local tax returns for income taxes, sales taxes, withholding
and all payroll taxes, property taxes, and all other taxes of every kind
whatsoever required by law to have been filed, and all such tax returns
are complete and accurate. For the purpose of the preceding sentence, a
return shall be deemed to be timely filed if it is filed after the date
due but within any period allowed in an extension granted by the taxing
authority.
(ii) To the Company's knowledge following due and diligent inquiry,
SMTEK has paid or caused to be paid all taxes which have become due,
whether pursuant to said returns or pursuant to any assessments or
otherwise, and there is no further liability (whether or not disclosed on
such returns or assessments) for any such taxes, and no interest or
penalties accrued or accruing with respect thereto, except as may be set
forth in the financial statements referred to in clause (u) above.
(iii) To the Company's knowledge following due and diligent
inquiry, the amounts set up as provisions for taxes on the financial
statements of SMTEK as of March 31, 1995, and the unaudited financial
statements of SMTEK as of August 31, 1995, are sufficient for the payment
of all unpaid federal, state, county and local taxes of SMTEK accrued for
or applicable to the period ended on such date, and for all years and
periods prior thereto and for which SMTEK may be liable in its own right
or as transferee of the assets of, or as successor to, any other
corporation, association, partnership, joint venture or other entity.
(y) To the Company's knowledge following due and diligent inquiry,
aside from the capital stock of SMTEK which is issued and outstanding in
the names of the SMTEK Sellers as described in the SMTEK Agreement, there
are outstanding no options, warrants or other rights to acquire any
issued shares of the stock of SMTEK.
(z) Except as described in Schedule 2(z) annexed hereto, to the
Company's knowledge following due and diligent inquiry, there are no
actions, suits or proceedings pending against SMTEK either in court or
before any administrative board, agency or commission including, without
limitation, environmental matters, actions by employees or product
liability claims. To the Company's knowledge following due and diligent
inquiry, the SMTEK Sellers have no notice or knowledge that any such
action, suit or proceeding is threatened.
(aa) To the Company's knowledge following due and diligent inquiry,
all equipment used by SMTEK is in good repair and operating condition and
conforms to all applicable ordinances and regulations.
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<PAGE> 15
(bb) The full, true and complete schedule of all leases and
material contracts of SMTEK is annexed hereto as Schedule III. For the
purpose of this clause, a material contract is defined to be any contract
involving a commitment in excess of $10,000 but excluding, however,
insurance policies and group insurance policies to which SMTEK is a
party. With respect to insurance policies and group insurance policies
to which SMTEK is a party, as well as all material contracts together
with all amendments and statements thereto, upon the request of the
Purchasers, the Company will make such policies and contracts available
to the Purchasers or its duly authorized representative prior to the
Closing Date. To the Company's knowledge following due and diligent
inquiry, there are no material defaults nor are there any obligations of
SMTEK to be performed under said material contracts other than those set
forth in the written agreements.
(cc) To the Company's knowledge following due and diligent inquiry,
SMTEK does not have any liabilities except as reflected on its financial
statements heretofore delivered to the Purchasers and except as incurred
in the ordinary course of business since the date of said financial
statements or disclosed otherwise in the SMTEK Agreement. To the
Company's knowledge following due and diligent inquiry, all liabilities
of SMTEK as of the date hereof or incurred hereafter can be prepaid in
full, without penalty, by SMTEK at any time. SMTEK is not directly or
indirectly liable upon or with respect to (by discount, repurchase
agreement or otherwise), or obligated in any other way to provide funds
in respect of, or to guarantee or assume any debt or obligation of any
corporation, association, partnership, joint venture or other entity,
except endorsements made in the ordinary course of business in connection
with the deposit of items for collection.
(dd) To the Company's knowledge following due and diligent inquiry,
SMTEK is not, and on the Closing Date will not be, indebted to any of its
shareholders, or to any officers or directors of SMTEK, or to their
respective spouses and/or children in any amount whatsoever other than
for payment of salaries and compensation for services rendered, other
than those obligations set forth in Schedule II annexed hereto.
(ee) To the Company's knowledge following due and diligent inquiry,
prior to the consummation of the transactions contemplated by the SMTEK
Agreement on January 12, 1996, each of the SMTEK Sellers was the lawful
owner and holder of the number of shares of the capital stock of SMTEK
set forth in Schedule I annexed hereto and had valid and marketable title
thereto, free and clear of any claims, liens, restrictions or
encumbrances of or by others, including any claims which might arise
under community property laws, and each of the SMTEK Sellers had the
absolute and unrestricted right, power, authority and capacity to sell,
assign and transfer his shares as provided in the SMTEK Agreement,
without prior consent of any other party.
(ff) To the Company's knowledge following due and diligent inquiry,
any voting trust or other arrangement which may have existed with respect
to the power to vote the shares of capital stock of SMTEK, or any other
restriction upon the power of the owner and holder of said shares, has
been terminated or revoked and said shares were conveyed to the Company
free of any restriction or limitation.
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<PAGE> 16
(gg) To the Company's knowledge following due and diligent inquiry,
there is not presently in existence to which SMTEK is a party any profit
sharing, pension or bonus plans for any of SMTEK's officers, directors or
employees.
(hh) All of the transactions contemplated by the SMTEK Agreement
have been consummated in accordance with the terms thereof without any
waiver by any party of any conditions precedent to the closing thereunder
(except as set forth on Schedule 2(hh) annexed hereto), including,
without limitation, the purchase by the Company of the SMTEK Shares, and
the Company has good title to the SMTEK Shares, free and clear of all
Liens, claims, security interests, pledges, charges, encumbrances,
stockholders' agreements and voting trusts. To the best of the Company's
knowledge, none of the representations, warranties, covenants and
obligations contained in the SMTEK Agreement have been breached by any
party to such agreement (with or without the giving of notice or the
passage of time or both).
The Company acknowledges that the Purchasers and, for purposes of the
opinion to be delivered to the Purchasers pursuant to Section 3.2 hereof,
counsel to the Company, will rely upon the accuracy and truth of the foregoing
representations and hereby consents to such reliance.
SECTION 3. CONDITIONS OF CLOSING.
A. Your obligation to purchase and pay for the Securities to be purchased
by you on the Closing Date shall be subject to the satisfaction on or before
the Closing Date of the conditions hereinafter set forth.
Section 3.1. Proceedings Satisfactory. All proceedings taken on or
prior to the Closing Date in connection with the issuance of the Securities and
the consummation of the transactions contemplated hereby and all documents and
papers relating thereto including, without limitation, the Operative Documents
shall be reasonably satisfactory in form and substance to you, and you shall
have received copies of such documents, papers and certificates of the Company,
all in form and substance reasonably satisfactory to you as you may request in
connection therewith.
Section 3.2. Opinions of Counsel. You shall have received an opinion or
opinions dated the Closing Date from Charles Linn Haslam, Esq. and such other
counsel to the Company reasonably acceptable to you, substantially in the
form(s) attached hereto as Exhibit F.
Section 3.3. Sale of the Securities. Contemporaneously with the Closing,
each of the Purchasers shall have purchased the Securities to be purchased by
them at the Closing as specified in Schedule A.
Section 3.4. Registration Rights Agreements. You shall have received the
Registration Rights Agreement with respect to the Collateral Security Warrant
Shares and the R&A Collateral Stock, dated the date hereof (the "Collateral
Registration Rights Agreement"), substantially in the form annexed hereto as
Exhibit G, duly executed by the Company. In addition, Rickel have received the
Registration Rights Agreement with respect to certain securities of the Company
to be issued to Rickel, dated the date hereof (the "Rickel Registration Rights
Agreement;" and together with the Collateral Registration Rights Agreement, the
"Registration Rights Agreements"),
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substantially in the form annexed hereto as Exhibit H, duly executed by the
Company.
Section 3.5. Consents. The Company shall have obtained all consents,
approvals and authorizations included on Schedule 3.5 annexed hereto.
Section 3.6. Pledge Agreements. You shall have received the Pledge
Agreement duly executed by Rickel.
Section 3.7. Collateral Agency Agreement. You shall have received the
Collateral Agency Agreement duly executed by Rickel and First Union National
Bank, as collateral agent.
B. The Company's obligation to sell, issue and deliver the Securities to
the Purchasers shall be subject to the satisfaction on or before the Closing
Date of the condition hereinafter set forth.
Section 3.8. Receipt of Proceeds. In respect of the Closing Date, the
Company shall have received an aggregate of $5,300,000 paid or payable as
provided in Section 1.2 of proceeds from the sale of the Securities.
C. The Company's obligation to sell, issue and deliver the Securities
purchased by the Bridge Noteholders (as noted on Schedule A) shall be subject
to the satisfaction on or before the Closing Date of the condition hereinafter
set forth.
Section 3.9. Receipt of Bridge Notes. Each of the Company's 10% Senior
Bridge Notes due December 25, 1995 shall have been surrendered for cancellation
to the Company by the holders thereof contemporaneously with the Closing.
SECTION 4. THE NOTES.
Section 4.1. Repayment. The Notes shall be repaid on July 1, 1997.
Section 4.2. Interest. The Notes will bear interest at the per annum
rate of 10% and will accrue interest from the dates set forth on Schedule A.
Interest will be payable quarterly in arrears on each June 1, September 1,
December 1 and March 1, commencing June 1, 1996, to the registered Holders at
the close of business on May 27th, August 27th, November 26th or February 24th,
respectively, immediately preceding the next payment date. Interest shall be
computed on the basis of a 360-day year and actual days elapsed. The Company
shall pay principal and interest to each registered Holder in the manner
provided in Schedule A hereto under the name of such holder.
Section 4.3. Optional Prepayment of the Notes. The amounts outstanding
under the Notes may be prepaid in advance of the scheduled repayment date at
the option of the Company at any time, upon notice given as provided in Section
4.5, in whole or in part (in a minimum aggregate principal amount of at least
$500,000 and in any greater principal amount that is a multiple of $50,000), in
each case at 100% of the principal amount outstanding under the Notes so to be
prepaid, together with interest accrued (but unpaid) thereon to the date fixed
for such optional
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<PAGE> 18
prepayment, without premium. Notwithstanding the foregoing, if all amounts
outstanding under the Notes of any Holder are to be prepaid, the entire
outstanding principal amount of the Notes held by such holder (even if not a
multiple of $50,000) may be prepaid.
As more fully set forth in (and subject to the terms and conditions of)
the Pledge Agreement and the Collateral Agency Agreement, the Company shall
have the right, but not the obligation, to fund the optional prepayment of all,
but not less than all, amounts then outstanding under the Notes with the net
proceeds of the sale of (a) authorized but unissued shares of Common Stock or
shares of Common Stock held in DDL's treasury (such shares shall be referred to
herein as the "DDL Shares") or the Collateral Security Warrant Shares and (b)
up to 706,667 shares of R&A Collateral Stock, as more fully set forth herein.
In the event that the sale of not less than 1,060,000 DDL Shares or of the
Collateral Security Warrant Shares (the net proceeds of such sale shall be
referred to herein as the "DDL and Collateral Security Warrant Shares
Proceeds") does not result in an amount sufficient to prepay all amounts
outstanding under the Notes (the "Prepayment Amount"), the Company may also
sell (on the same terms and subject to the same conditions) that number of
shares of R&A Collateral Stock (which number shall in any event not exceed
706,667) which will result in the receipt by the Company of the difference
between the Prepayment Amount and the DDL and Collateral Security Warrant
Shares Proceeds. Notwithstanding anything contained herein to the contrary,
the Company shall not sell any Collateral Security Warrant Shares or shares of
R&A Collateral Stock unless all amounts then outstanding under the Notes shall
be prepaid immediately upon consummation of such sale. Any shares of R&A
Collateral Stock sold by the Company in connection with an optional prepayment
of the Notes shall not include any of the 353,333 shares of R&A Collateral
Stock registered by the Company under the Securities Act pursuant to Section
6.15.
The Company shall also have the right, but not the obligation, to fund the
optional prepayment of less than all amounts outstanding under the Notes with
the net proceeds of the sale of DDL Shares. However, the Company may not use
any Collateral Security Warrant Shares or shares of R&A Collateral Stock to
fund a partial prepayment.
The Holders being so prepaid shall have the option, in their sole
discretion, to accept as payment of the applicable prepayment price any shares
of Common Stock (whether DDL Shares, Collateral Security Warrant Shares or
shares of R&A Collateral Stock) intended to be sold by the Company to fund such
optional prepayment instead of a cash payment of the applicable prepayment
price.
Section 4.4. Mandatory Prepayment of the Notes. The Company shall be
required to use all proceeds of the sale, lease or conveyance of any of its or
its subsidiaries' assets (other than sales, leases or conveyances in the
ordinary course of business and consistent with such company's past practices)
to prepay the amounts outstanding under the Notes, in each case at 100% of the
principal amount of the Notes so to be prepaid, together with interest accrued
(but unpaid) thereon to the date fixed for such mandatory prepayment, without
premium. Any such mandatory prepayment shall be consummated as soon as
practicable (but in any event not more than five (5) days) after consummation
of such sale, lease or conveyance. Notwithstanding anything contained herein to
the contrary, up to an aggregate of $13.5 million of the proceeds of
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all of such sales, leases or conveyances may be used by the Company to repay
Senior Indebtedness (as hereinafter defined in Section 6.2) in accordance with
the terms thereof in an aggregate amount not to exceed the Permitted Amount (as
hereinafter defined in Section 6.2).
Section 4.5. Notice of Prepayment. The Company will give written notice
of any prepayment of amounts outstanding under the Notes pursuant to Sections
4.3 or 4.4 to the Holders not less than thirty (30) days, nor more than sixty
(60) days, prior to the date fixed for such prepayment in such notice, which
notice shall specify the principal amount of the Notes so to be prepaid,
together with the amount of interest accrued thereon, and the date fixed for
such prepayment.
In the event that any Holder elects, pursuant to Section 4.3, to accept as
payment of any applicable prepayment price any shares of Common Stock (whether
DDL Shares, Collateral Security Warrant Shares or shares of R&A Collateral
Stock) intended to be sold by the Company to fund such optional prepayment
instead of a cash payment of the applicable prepayment price, then such Holder
shall notify the Company of such election at least fifteen (15) days prior to
the date the Company fixed for such prepayment.
Section 4.6. Allocation of Prepayment Payments. If less than all of the
amounts then outstanding under the Notes is to be prepaid pursuant to Sections
4.3 or 4.4 and more than one Note is outstanding, the Company shall allocate
the total principal amount to be prepaid pro rata as nearly as practicable
among the Notes, based upon the then outstanding principal amounts thereof.
Section 4.7. Surrender of Notes; Notation Thereon. Upon any prepayment
of a portion of the principal amount of any Note, the holder of such Note at
its option may require the Company to make and deliver, at the expense of the
Company (other than for transfer taxes, if any), upon surrender of such Note, a
new Note payable to such Person or Persons as may be designated by such holder
in the principal amount of the surrendered Note then remaining unpaid, dated as
of the date to which interest has been paid on the unpaid principal amount of
the surrendered Note (or, if no such interest has been paid, dated as of the
date of the surrendered Note), or may present such Note to the Company for
notation thereon of the payment of the portion of the principal amount of such
Note so prepaid.
SECTION 5. INSPECTION. So long as you shall hold any of the Securities,
you and your authorized representatives shall have the right, at your expense
(unless an Event of Default has occurred and is continuing, in which case at
the Company's expense), upon notice to the Company (unless an Event of Default
shall have occurred and be continuing, in which case without notice) to visit
and inspect during normal business hours any of the properties of the Company
or its subsidiaries, to examine the books of account and records of the Company
and its subsidiaries and to be provided with copies and extracts therefrom, to
discuss the affairs, finances and accounts of the Company and its subsidiaries
with, and to be advised as to the same by, its officers, and its independent
public accountants (and the Company authorizes such independent public
accountants to discuss the financial matters of the Company and its
subsidiaries with such holder of Securities or its representatives, regardless
of whether any representative of the Company, after notice thereof as required
above, elects to be present), at any reasonable time, to any reasonable extent,
and as often as may be reasonably desired by such holders. The Company
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<PAGE> 20
will likewise afford you and such other holders the opportunity to obtain any
information, to the extent the Company possesses such information or can
acquire it without unreasonable effort or expense, necessary to verify the
accuracy of any of the representations and warranties made by the Company.
SECTION 6. COVENANTS. The Company covenants and agrees that on and after
the date hereof, so long as any of the Notes or the Collateral Security
Warrants shall be outstanding or any amount shall be due and unpaid thereunder:
Section 6.1. Payment of the Notes. The Company shall pay the principal
of and interest on the Notes on the date and in the manner provided in the
Notes and in this Agreement. The obligation of the Company described in the
preceding sentence is absolute and unconditional, irrespective of any tax or
accounting treatment of such obligation.
Section 6.2. Seniority. Payment of the principal and interest on the
Notes is senior in right of payment to the payment of all existing and future
Indebtedness (as hereinafter defined) of the Company and its subsidiaries (the
"Junior Debt") other than up to $13.5 million (plus approximately $3.2 million
of certain amounts owing by the Company under its post-retirement
non-competition and consulting programs as reflected in the Financial
Statements) of Indebtedness of the Company and its subsidiaries, including
capitalized lease obligations of the Company and its subsidiaries (the
"Permitted Amount"). The aggregate amount of all existing Indebtedness of the
Company and its subsidiaries reflected in the Financial Statements which by its
terms ranks senior or pari passu in right of payment to the Notes, as well as
the Indebtedness evidenced by certain cumulative convertible debentures of the
Company in the aggregate principal amount of approximately $3.5 million sold by
the Company on or prior to the Closing Date which shall rank pari passu in
right of payment with the Notes (collectively, the "Senior Indebtedness"),
shall be included in the Permitted Amount. The Company shall not, and shall
cause its subsidiaries not to, incur or suffer to exist any Indebtedness in an
aggregate amount in excess of the Permitted Amount which ranks or would rank
senior or pari passu in right of payment to the Notes. "Indebtedness" means
(a) any liability of the Company or any of its subsidiaries (i) for borrowed
money, or (ii) evidenced by a note, debenture, bond or other instrument of
indebtedness (including, without limitation, a purchase money obligation),
given in connection with the acquisition of property, assets or services, or
(iii) for the payment of rent or other amounts relating to capitalized lease
obligations; (b) any liability of others described in the preceding clause (a)
which the Company or any of its subsidiaries has guaranteed or as to which it
or any of them has provided security or which is otherwise its or any of their
legal liability (except such liabilities which the Company or any of its
subsidiaries may not subordinate to the payment of the Notes as a matter of
law); and (c) any modification, renewal, extension, replacement or refunding of
any such liability described in the preceding clauses. Upon any Event of
Default relating to the payment of principal of, or interest on, the Notes or
any fee or other amount payable by the Company under the Notes whether at
maturity or otherwise, no payment may be made with respect to the principal of,
or interest on, any Junior Debt or with respect to any fee or other amount
payable by the Company or any of its subsidiaries on any Junior Debt or in
respect of any redemption, retirement, purchase or other acquisition thereof,
unless and until such Event of Default has been cured or waived or has ceased.
Upon any other Event of Default and upon written notice thereof given to the
Company, no payment may be made with respect to the principal of, or interest
on, any Junior
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Debt or with respect to any fee or other amount payable by the Company or any
of its subsidiaries on any Junior Debt or in respect of any redemption,
retirement, purchase or other acquisition thereof unless and until such Event
of Default has been cured or waived or has ceased. Upon any payment or
distribution of the assets of the Company or any of its subsidiaries to
creditors upon dissolution, total or partial liquidation or reorganization of
or similar proceeding relating to the Company or any of its subsidiaries, the
Holders will be entitled to receive payment in full before any holder of Junior
Debt is entitled to receive payment.
Section 6.3. Existence. The Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect its and its
subsidiaries' existence, each in accordance with their respective Certificate
of Incorporation and By-laws and the rights (charter and statutory) and
franchises of the Company and its subsidiaries; provided, however, that neither
the Company nor any of its subsidiaries shall be required to preserve, with
respect to itself, any right or franchise, if (a) the Board of Directors of
such company shall determine reasonably and in good faith that the preservation
thereof is no longer desirable in the conduct of the business of such company
and (b) the loss thereof is not adverse in any material respect to the holders
of the Securities.
Section 6.4. Payment of Taxes and Other Claims. The Company shall pay or
discharge, and cause its subsidiaries to pay or discharge, before the same
shall become delinquent, (i) all taxes, assessments and governmental charges
(including withholding taxes and any penalties, interest and additions to
taxes) levied or imposed upon such company or properties and assets of such
company and (ii) all lawful claims, whether for labor, materials, supplies,
services or anything else, that have become due and payable and that by law
have or may become a Lien upon the property and assets of such company;
provided, however, that such company shall not be required to pay or discharge
or cause to be paid or discharged any such tax, assessment charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which disputed amounts adequate reserves have
been established in accordance with GAAP.
Section 6.5. Maintenance of Insurance. From and at all times after the
Closing Date, the Company shall have, and shall cause its subsidiaries to have,
in effect customary property and comprehensive general liability insurance, in
each case on terms and in an amount reasonably sufficient (taking into account,
among other factors, the creditworthiness of the insurer) to avoid a Material
Adverse Change.
Section 6.6. Limitation on Transactions with Affiliates. Except as
described herein or as set forth on Schedule 6.6 annexed hereto, after the
Closing Date, the Company shall not, and shall cause its subsidiaries not to,
enter into any contract, arrangement, understanding or transaction with any
affiliate or stockholder (an "Affiliate Transaction") or series of related
Affiliate Transactions except for transactions approved in advance by a
majority of the disinterested (as to such transaction) members of the Board of
Directors of the Company.
Section 6.7. Limitation on Lines of Business. The Company shall not, and
shall cause its subsidiaries not to, directly or indirectly engage to any
material extent in any line or lines of business activity other than as set
forth in the Offering Documents.
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Section 6.8. Limitation on Consolidation, Merger and Sale of Assets.
Except as contemplated hereby, the Company shall not, and shall cause its
subsidiaries not to, consolidate with or merge with or into another person or,
directly or indirectly, sell, lease or convey all or substantially all of its
assets, whether in a single transaction or a series of related transactions, to
another Person or group of affiliated Persons.
Section 6.9. Observance of Statutes, Regulations and Orders. The Company
shall, and shall cause its subsidiaries to, remain at all times in compliance
with all statutes, rules and regulations of any Governmental Body and all
Orders, except where the failure to comply is not reasonably likely to have a
Material Adverse Effect.
Section 6.10. Maintenance of Properties. The Company shall, and shall
cause its subsidiaries to, maintain, preserve, protect and keep the properties
material to the operation of the business of such company in good repair,
working order and condition (ordinary wear and tear excepted), and make
necessary and proper repairs, renewals and replacements so that its business
carried on in connection therewith may be properly conducted at all times
consistent with past practices of such company.
Section 6.11. Books and Records. The Company shall, and shall cause its
subsidiaries to, keep books and records which accurately reflect all of its
material business affairs and transactions.
Section 6.12. Restricted Payments. The Company shall not declare or make
any dividend payment or other distribution of assets, properties, cash, rights,
obligations or securities on account or in respect of any of the Company's
capital stock.
Section 6.14. Limitation on Liens. The Company shall not, and shall not
permit any of the Subsidiaries to, directly or indirectly, create, receive,
assume or permit to exist or otherwise cause or permit to become in effect any
Lien other than any Liens securing the repayment of Indebtedness in an
aggregate amount not to exceed the Permitted Amount.
Section 6.15. Registration of R&A Collateral Stock and Collateral
Security Warrant Shares. In order to facilitate the repayment of the Notes,
whether prior to or at maturity, the Company shall file, within sixty (60) days
of the date hereof, a "shelf" Registration Statement on the appropriate form
for an offering to be made on a continuous basis pursuant to Rule 415 under the
Securities Act covering the offer and sale of 353,333 shares of the R&A
Collateral Stock (the "Shelf Registration"). The Shelf Registration shall also
cover the offer and sale of (i) the Common Stock Purchase Warrants, (ii) the
Common Stock Purchase Warrant Shares, (iii) 572,683 shares of Common Stock to
be issued by the Company to Rickel (or its nominees) on the Closing Date
pursuant to the Engagement Letter, dated as of January 30, 1996 (the
"Engagement Letter"), between Rickel and the Company, (iv) certain other
warrants (the "Rickel Warrants") exercisable to purchase an aggregate of
670,000 shares of Common Stock issued to Rickel (or its nominees) on the
Closing Date pursuant to the Engagement Letter and (v) 670,000 shares of Common
Stock issuable upon exercise of the Rickel Warrants. (All of the securities of
the Company which will be registered pursuant to the Shelf Registration are
hereinafter referred to as the "Immediately
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Registrable Securities"). The Company will use its best efforts to have the
Shelf Registration declared effective as soon as practicable, and in any event
within one hundred twenty (120) days of the date hereof, and to keep such Shelf
Registration continuously effective for a period (the "Target Effective
Period") of at least thirty six (36) consecutive months following the date on
which such Shelf Registration is declared effective (or such shorter period
which will terminate when all securities covered by such Shelf Registration
have been sold or withdrawn, but not prior to the expiration of the applicable
period referred to in Section 4(3) of the Securities Act and Rule 174
thereunder, if applicable). The Company further agrees, if necessary, to
supplement or amend the Shelf Registration, as required by the registration
form used by the Company for such Shelf Registration or by the instructions
applicable to such registration form or by the Securities Act or as reasonably
requested (which request shall result in the filing of a supplement or
amendment) by any holder or prospective holder of the Immediately Registrable
Securities, and the Company agrees to furnish to such holders, their counsel
and any managing underwriter copies of any such supplement or amendment prior
to its being used and/or filed with the Commission. The Company will pay all
Registration Expenses (as defined in the Collateral Registration Rights
Agreement) incurred in connection with the Shelf Registration, whether or not
it becomes effective. In addition, the holders of the Immediately Registrable
Securities shall be entitled to the "Piggyback Registration Rights" described
in Section 2 of the Collateral Registration Rights Agreement from the date
hereof until such time as (x) a Registration Statement (as defined in the
Collateral Registration Rights Agreement) covering all of the Immediately
Registrable Securities has been declared effective by the Commission and all of
the Immediately Registrable Securities have been disposed of pursuant to such
effective Registration Statement or (y) the Immediately Registrable Securities
are held by one or more Persons who could sell all Immediately Registrable
Securities held by each such Person in a single sale pursuant to Rule 144 (or
any similar provision then in force) under the Securities Act, whichever is
earlier. The Company shall pay all Registration Expenses incurred in
connection with any such Piggyback Registration, whether or not it becomes
effective. In connection with any such Shelf or Piggyback Registration, the
provisions set forth in Sections 3 and 5 of the Collateral Registration Rights
Agreement shall apply and are incorporated herein by reference and made a part
hereof. In addition, the provisions set forth in Section 7 of the Collateral
Registration Rights Agreement are incorporated herein by reference and made a
part hereof. All capitalized terms used in such sections shall have the
respective meanings given such terms in the Collateral Registration Rights
Agreement, however, "Holders" and "Selling Holders" shall each mean the holders
of the Immediately Registrable Securities and "Registrable Securities" shall
mean the Immediately Registrable Securities. The rights to cause the Company
to register the Immediately Registrable Securities granted pursuant to this
Section (whether pursuant to a Shelf or Piggyback Registration) may be
transferred or assigned by any holder of Immediately Registrable Securities to
a transferee or assignee. The provisions of this Section shall inure to the
benefit of, and be enforceable by, each holder of Immediately Registrable
Securities and their respective successors and assigns.
As more fully set forth in, and pursuant to and in accordance with, the
Collateral Registration Rights Agreement, in order to facilitate the repayment
of the Notes, whether prior to or at maturity, on or prior to May 1, 1997
(provided that the Notes are still outstanding at such time) the Company shall
file a "shelf" Registration Statement on the appropriate form for an offering
to be made on a continuous basis pursuant to Rule 415 under the Securities Act
covering the offer and sale of all of the Collateral Security Warrant Shares
and the remaining 706,667
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shares of R&A Collateral Stock. In the event of the occurrence of an Event of
Default prior to the filing of such "shelf" Registration Statement, the Holders
may demand that the Company file at such time a "shelf" Registration Statement
on the appropriate form for an offering to be made on a continuous basis
pursuant to Rule 415 under the Securities Act covering the offer and sale of
all of the Collateral Security Warrant Shares and the remaining 706,667 shares
of R&A Collateral Stock.
SECTION 7. DEFINITIONS.
Section 7.1. Additional Definitions. Except as otherwise specified or as
the context may otherwise require, the following terms shall have the
respective meanings set forth below whenever used in this Agreement:
"Acquisition" shall mean the purchase or other acquisition of any person
or substantially all the assets of any person by any other person, whether by
purchase, merger, consolidation or other transfer, and whether or not for
consideration.
"Affiliate" shall mean (i) any person directly or indirectly controlling
or controlled by or under direct or indirect common control with the Company,
(ii) any spouse, immediate family member or other relative who has the same
principal residence of any person described in clause (i) above and (iii) any
trust in which any person described in clause (i) or (ii) above has a
beneficial interest. For purposes of this definition, the term "control" means
(a) the power to direct the management and policies of a person, directly or
through one or more intermediaries, whether through the ownership of voting
securities, by contract or otherwise or (b) the beneficial ownership of 10% or
more of any class of voting capital of a person (on a fully diluted basis) or
of warrants or other rights to acquire such class of capital (whether or not
presently exercisable).
"Bankruptcy Code" shall mean Title 11 of the United States Code (as now or
hereafter in effect).
"Business Day" shall mean any day on which commercial banks in the State
of New York are not authorized or required to close.
"Cash" shall mean U.S. Legal Tender.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral Agent" shall mean First Union National Bank, as collateral
agent under the Collateral Agency Agreement.
"Common Stock" shall mean the common stock, par value $.01 per share, of
the Company.
"Company" shall have the meaning ascribed thereto in the first paragraph
of this Agreement.
"GAAP" shall mean generally accepted accounting principles as in effect in
the United States on the date hereof.
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"Governmental Body" shall mean any Federal, state, municipal or other
governmental department, commission, board, bureau, Agency or instrumentality,
foreign or domestic.
"Lien" shall mean any mortgage, lien, pledge, charge, security interest,
limitation on voting rights or other encumbrance of any kind, whether or not
filed, recorded or otherwise perfected under applicable law (including any
conditional sale or other title retention agreement and any lease deemed to
constitute a security interest, and any option or other agreement to give any
security interest).
"Majority Noteholders" shall mean, at any time, the holders of at least a
majority in principal amount of the then outstanding Notes; provided, the Notes
owned by the Company or any Affiliate of the Company shall be disregarded and
deemed not outstanding for this purpose; provided, no Holder shall be deemed an
Affiliate of the Company solely by reason of its exercise of remedies under the
Operative Documents.
"Material Adverse Change" shall mean any material adverse change in the
business, condition (financial or otherwise), operations, earnings,
performance, properties or prospects of the Company and its subsidiaries taken
as a whole or SMTEK or the ability of the Company or any of the Subsidiaries to
perform their respective obligations under the Operative Documents.
"Material Adverse Effect" shall mean a material adverse effect on the
business, condition (financial or otherwise), operations, earnings,
performance, properties or prospects of the Company and its subsidiaries taken
as a whole or SMTEK.
"Order" shall mean any lawful order, writ, injunction, decree, judgment,
award, determination, direction or demand.
"Person" shall mean an individual, partnership, trust, corporation, a
government or agency or political subdivision or any agency, department or
instrumentality thereof or other person or entity.
"Proceeds" shall mean "proceeds," as such term is defined in Section
9-306(1) of the UCC, and, in any event, includes, without limitation, (i) any
and all proceeds of any insurance, indemnity, warranty or guaranty payable to
any Grantor from time to time with respect to any of the Collateral, (ii) any
and all payments (in any form whatsoever) made or due and payable to any
Grantor from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
Governmental Body (or any Person acting under color of any Governmental Body),
and (iii) any and all other amounts from time to time paid or payable under or
in connection with any of the Collateral.
"R&A Collateral Stock" shall mean 1,060,000 shares of Common Stock pledged
by Rickel as collateral security for the satisfaction of the Company's
obligations under the Notes.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
any similar or successor Federal statute, and the rules and regulations of the
SEC thereunder, all as the same shall be in effect at any applicable time.
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"SMTEK Common Stock" shall mean the common stock, no par value per share,
of SMTEK.
"SMTEK Shares" shall mean all of the outstanding shares of SMTEK Common
Stock being purchased by the Company pursuant to the SMTEK Agreement.
"Subsidiaries" shall mean each of Irlandus Circuits Limited, DDL
Electronics Limited, DDL Europe Limited and SMTEK.
"UCC" shall mean the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the Purchasers' security interest in any Collateral
is governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
"U.S. Legal Tender" means such coin or currency of the United States of
America as at the time of payment is legal tender for the payment of public and
private debts.
Section 7.2. Subsidiaries. For purposes of this Agreement, the Company's
subsidiaries shall include, but shall not be limited to, the Subsidiaries.
SECTION 8. EVENTS OF DEFAULT; REMEDIES.
Section 8.1. Events of Default Defined; Acceleration of Maturity.
Subject to Section 8.3, if one or more of the following events (an "Event of
Default") shall occur and be continuing:
(a) the Company shall default in the payment when due of any
principal of, or interest on, any Note or any fee or other amount payable
by the Company under any Note or this Agreement, and such default shall
continue unremedied for a period of five (5) days; or
(b) the Company shall default in the performance of any of its
covenants or agreements in any Note or other Operative Document or any of
the representations and warranties of the Company contained in this
Agreement were untrue when made, and such default shall continue
unremedied for a period of ten (10) days; or
(c) the Company or any of its subsidiaries shall admit in writing
its inability to, or be generally unable to, pay its debts as such debts
become due; or
(d) Any Material Adverse Change shall occur or shall have occurred;
or
(e) the Company or any of its subsidiaries shall (i) apply for or
consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator
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of itself or of all or a substantial part of its property, (ii) make a
general assignment for the benefit of its creditors, (iii) commence a
voluntary case under the Bankruptcy Code, (iv) file a petition seeking to
take advantage of any other law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or readjustment of debts, (v)
fail to controvert in a timely and appropriate manner, or acquiesce to,
any petition filed against it in an involuntary case under the Bankruptcy
Code or (vi) take any action for the purpose of effecting any of the
foregoing; or
(f) a proceeding or case shall be commenced, without the application
or consent of the Company or any of its subsidiaries, as the case may be,
in any court of competent jurisdiction seeking (i) the liquidation,
reorganization, dissolution or winding-up of the Company or any of its
subsidiaries or of their respective assets or the composition or
adjustment of their respective debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of the Company or any of its
subsidiaries, or of all or any substantial part of their respective
assets or (iii) similar relief in respect of its creditors, under any law
relating to bankruptcy, insolvency, reorganization, winding-up or
composition or adjustment of debts, and such proceeding or case shall
continue undismissed or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and
in effect for a period of thirty (30) days or an order for relief against
any of them or any of their respective assets shall be entered in an
involuntary case under the Bankruptcy Code;
THEREUPON: (x) the Notes and all amounts payable by the Company under
the Notes shall be immediately due and payable without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Company, and in any case the Holders may take such action as is
permitted to enforce their rights thereunder; (y) the Company shall pay all of
the expenses of the Holders incurred for the collection of the Notes and for
the enforcement and protection of their rights under the Notes and the other
Operative Documents, including reasonable attorneys' fees and legal expenses;
and (z) the Holders may exercise from time to time any rights and remedies
available to them by law, including those available under any agreement or
other instrument, if any, relating to the amounts owed under the Notes or any
security therefor (including, without limitation, under the Collateral Security
Warrants, the Pledge Agreement and the Collateral Agency Agreement). No
failure or delay on the part of the Holders in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
the Holders of any right or remedy shall preclude other or further exercise
thereof or the exercise of any other right or remedy. The Holders may apply
any funds received from the Company or (subject to Section 8.3) realize upon
any collateral securing payment of the Notes, if any, in such manner and order
of priority and against such payment obligations hereunder as such holders may
determine.
Section 8.2. Miscellaneous. The Company hereby waives presentment,
demand for payment, notice of dishonor, protest and notice of protest of the
Notes. No waiver of any provision of the Notes, or any agreement or instrument
evidencing or providing security for the Notes made by agreement of the Holders
and any other person or party, shall constitute a waiver of any other terms
hereof, or otherwise release or discharge the liability of the Company under
the Notes. The Company agrees to perform and comply with each of the
covenants, conditions,
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provisions and agreements of the Company contained in the Notes. The rights
and remedies herein provided are cumulative and are not exclusive of any rights
or remedies provided by law.
Section 8.3. Collateral Security. As more fully set forth in (and
subject to the terms and conditions of) each of the Collateral Security
Warrants, the Pledge Agreement and the Collateral Agency Agreement, after the
occurrence of an Event of Default the Holders may exercise the Collateral
Security Warrants and sell the Collateral Security Warrant Shares (whether
pursuant to a public or private sale) and apply the net proceeds of such sale
to the satisfaction of the Company's obligations hereunder to the Holders. To
the extent that the net proceeds of the sale of the Collateral Security Warrant
Shares are insufficient to satisfy in full all of the Company's obligations
hereunder to the Holders, the Holders shall also be entitled to sell that
portion, or all (as the case may be), of the R&A Collateral Stock necessary for
the satisfaction in full of all of the Company's obligations hereunder to the
Holders.
To satisfy the Company's obligations hereunder to the Holders, the Holders
shall have the option, in their sole discretion (in lieu of exercising the
foregoing right of sale), to retain the Collateral Security Warrant Shares and
that portion, or all (as the case may be), of the R&A Collateral Stock as is
necessary for the satisfaction in full of the Company's obligations hereunder
to the Holders. In such event, each Collateral Security Warrant Share and each
share of the R&A Collateral Stock so retained shall be valued at the lower of
(x) the average of the daily closing sale prices of the Common Stock for the
twenty (20) consecutive trading days preceding the date the Collateral Security
Warrants were exercised by the Holders or (y) the closing sale price of the
Common Stock on the date the Collateral Security Warrants were exercised by the
Holders, in each case less a discount of 6% of such amount. The closing sale
price of the Common Stock for each trading day as used herein shall be: (a) if
the Common Stock is listed or admitted for trading on any national securities
exchange or included in the Nasdaq National Market or Nasdaq Small-Cap Market,
the last reported sales price as reported on such exchange or market, as the
case may be; (b) if the Common Stock is not listed or admitted for trading on
any national securities exchange or included in the Nasdaq National Market or
Nasdaq Small-Cap Market, the average of the last reported closing bid and asked
quotation for the Common Stock as reported on the Automated Quotation System of
NASDAQ or a similar service if NASDAQ is not reporting such information; (c) if
the Common Stock is not listed or admitted for trading on any national
securities exchange or included in the Nasdaq National Market or Nasdaq
Small-Cap Market or quoted by NASDAQ or a similar service, the average of the
last reported bid and asked quotation for the Common Stock as quoted by a
market maker in the Common Stock (or if there is more than one market maker,
the bid and asked quotation shall be obtained from two market makers and the
average of the lowest bid and highest asked quotation shall be the closing
price); or (d) if the Common Stock is not listed or admitted for trading on any
national securities exchange or included in the Nasdaq National Market or
Nasdaq Small-Cap Market or quoted by NASDAQ and there is no market maker in the
Common Stock, the fair market value of such shares as determined jointly by the
Company and the Majority Noteholders, or if no such determination can be
reached within fifteen (15) days, such determination shall be made by an
appraiser who shall be mutually selected by the Company and the Majority
Noteholders, the costs of such appraiser to be borne by the Company.
To the extent that the above sale (or retention, as the case may be) of
all of the Collateral
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Security Warrant Shares and the R&A Collateral Stock is not sufficient to
satisfy in full all of the Company's obligations hereunder to the Holders, then
such remainder shall continue to be the Company's obligation.
Notwithstanding anything contained herein to the contrary (but subject to
the specific terms and conditions of the Collateral Security Warrants, the
Pledge Agreement and the Collateral Agency Agreement), any rights and remedies
available to the Holders upon an Event of Default (pursuant to any of the
Operative Documents, law or otherwise) may be exercised in such manner as the
Holders may determine in their sole discretion.
SECTION 9. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES. The Company
will keep at its principal executive office a note register in which, subject
to such reasonable regulations as it may prescribe, but at its expense (other
than transfer taxes, if any), it will provide for the registration and transfer
of the Notes.
The Notes may not be pledged, sold, assigned, hypothecated or otherwise
transferred until (1) a registration statement with respect thereto is
effective under the Securities Act and any applicable state securities laws or
(2) the Company receives an opinion of counsel to the Company or other counsel
to the holder of the Note, which other counsel is reasonably satisfactory to
the Company, that the Note may be pledged, sold, assigned, hypothecated or
transferred without an effective registration statement under the Securities
Act or applicable state securities laws.
The holder of any Note, at such holder's option, may surrender the same
for transfer or exchange either at the principal executive office of the
Company or at the place of payment named in said Note, accompanied in the case
of a transfer or assignment by a written instrument of transfer or assignment
in form satisfactory to the Company duly executed by the registered holder
thereof or by such holder's attorney duly authorized in writing. In case any
Holder shall so request the transfer, assignment or exchange of any Note, the
Company, at its expense, will execute and deliver (in each case insured to your
reasonable satisfaction) in exchange therefor one or more new Notes, as may be
requested by such holder, in the same aggregate unpaid principal amount as the
aggregate unpaid principal amount of the Note or Notes so surrendered. Any
Note issued in exchange for any other Note or upon transfer thereof shall carry
the rights to unpaid interest and interest to accrue which were carried by the
Note so exchanged or transferred, and neither gain nor loss of interest shall
result from any such transfer or exchange. Notwithstanding the foregoing,
Notes may not be issued in denominations of less than $25,000 (except if the
entire outstanding principal balance of the Notes of such holder is less than
$25,000, in which case one Note for the entire outstanding principal amount of
the outstanding Notes of such holder may be issued) and no transfer, assignment
or exchange of Notes will be effected if the result of such transfer,
assignment or exchange would be to cause the Company to be required to register
as an investment company under the Investment Company Act.
The Company and any agent of the Company may treat the Person in whose
name any Note is registered as the owner of such Note for the purpose of
receiving payment of the principal of and interest on such Note and for all
other purposes whatsoever, whether or not such Note is overdue.
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SECTION 10. LOST NOTES, ETC. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of any Note,
and (in case of loss, theft or destruction) of indemnity reasonably
satisfactory to it, upon surrender and cancellation of such Note or receipt of
such indemnity, the Company will make and deliver in lieu of such Note a new
Note in the same unpaid principal amount and dated as of the date to which
interest has been paid thereon.
SECTION 11. AMENDMENT AND WAIVER. (a) Any term, covenant, agreement or
condition of this Agreement or of the Notes or of the Collateral Security
Warrants or the Common Stock Purchase Warrants, with the consent of the
Company, may be amended or compliance therewith may be waived (either generally
or in a particular instance and either retroactively or prospectively) by one
or more substantially concurrent written instruments signed by the Majority
Noteholders; provided, however, that
(i) no such amendment or waiver shall
(x) reduce the principal of, or reduce the rate of or
change the time for payment of interest on, any Note, or
extend the maturity of any Note, or modify any other payment
terms of any Note without the consent of the holder of each
Note so affected, or
(y) modify any of the provisions of this Agreement or
of the Notes with respect to the payment or prepayment
thereof, or reduce the percentage of Holders required to
approve any such amendment or effectuate any such waiver, or
amend this Section 11 without the consent of the holders of
all of the Notes at the time outstanding; and
(ii) no such waiver shall extend to or affect any obligation
not expressly waived or impair any right consequent thereon.
(b) Any amendment or waiver pursuant to subsection (a) of this
Section 11 shall apply equally to all the Holders and shall be binding
upon them, upon each future holder of any Note and upon the Company, in
each case whether or not a notation thereof shall have been placed on any
Note.
SECTION 12. HOME OFFICE PAYMENT. Notwithstanding anything to the
contrary in this Agreement or the Notes, so long as you or any nominee
designated by you shall be the holder of any Note, the Company shall punctually
pay all amounts which become due and payable on such Note to you at your
address or at such other place and in such manner as you may designate by
notice to the Company, without presentation or surrender of such Note. You
agree that prior to the sale, assignment, transfer or other disposition of any
such Note, you will make notation thereon of the portion of the principal
amount paid or prepaid and the date to which interest has been paid thereon, or
surrender the same in exchange for a Note or Notes aggregating the same
principal amount as the unpaid principal amount of the Note so surrendered.
You agree that, as promptly as practicable after the payment or prepayment in
whole of any Note held by you or your nominee and receipt by you of a written
request from the Company to surrender such Note
27
<PAGE> 31
to the Company for cancellation, you will surrender such Note at the office of
the Company. The Company agrees to enter into an agreement similar to that
contained in this Section with any other investor (or nominee thereof) who
shall hold any of the Notes.
SECTION 13. TAXES. The Company will pay all taxes (including interest
and penalties), other than taxes imposed on or by reference to the income of
the Holders, which may be payable in respect of the execution and delivery of
this Agreement or of the execution and delivery (but not the transfer) of any
of the Notes or the Collateral Security Warrants or the Common Stock Purchase
Warrants or of any amendment of, or waiver or consent under or with respect to,
this Agreement or of any of the Notes or the Collateral Security Warrants or
the Common Stock Purchase Warrants and will save you and all subsequent holders
of the Notes harmless against any loss or liability resulting from nonpayment
or delay in payment of any such tax. The obligations of the Company under this
Section shall survive the payment of the Notes.
SECTION 14. MISCELLANEOUS.
Section 14.1. Reliance on and Survival of Representations. All
agreements, representations and warranties of the Company herein and in any
certificates or other instruments delivered pursuant to this Agreement shall
(i) be deemed to be material and to have been relied upon by you,
notwithstanding any investigation heretofore or hereafter made by you or on
your behalf, and (ii) survive the execution and delivery of this Agreement and
of the Securities, and shall continue in effect so long as any of the
Securities is outstanding and thereafter as provided herein.
Section 14.2. Successors and Assigns; Transfers of Notes. This Agreement
shall bind and inure to the benefit of and be enforceable by the Company, you,
and your respective successors and assigns, and, in addition, shall inure to
the benefit of and be enforceable by each Person who shall from time to time be
a holder of any of the Notes. The Company may not assign its rights under this
Agreement. The Purchasers may transfer the Notes (and any portion thereof) at
any time without the consent of the Company subject, however, to the
requirements of Section 9.
Section 14.3. Notices. All notices and other communications provided for
or permitted hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally or sent by telex or telecopier, registered
or certified mail (return receipt requested), postage prepaid or courier to the
parties at the following address (or at such other address for any party as
shall be specified by like notice, provided that notices of a change of address
shall be effective only upon receipt thereof). Notices sent by mail shall be
effective two (2) days after mailing; notices sent by telex shall be effective
when answered back, notices sent by telecopier shall be effective when receipt
is acknowledged, and notices sent by courier guaranteeing next day delivery
shall be effective on the next business day after timely delivery to the
courier.
(i) if to the Company:
DDL ELECTRONICS, INC.
2151 Anchor Court
Newbury Park, CA 91320
28
<PAGE> 32
Attention: Chief Executive Officer
Telephone: (805) 376-2595
Telecopy: (805) 376-9015
(ii) if to you, at your address as set forth in Schedule A
hereto or at such other address as you may hereafter designate by
notice to the Company, and
(iii) if to any other holder of a Note, at the address of such
holder as it appears on the note register.
Section 14.4. Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
Section 14.5. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
Section 14.6. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any
way impaired thereby, it being intended that all of the rights and privileges
of the Purchasers shall be enforceable to the fullest extent permitted by law.
Section 14.7. Entire Agreement. This Agreement, together with the
Registration Rights Agreements, the Pledge Agreement, the Collateral Agency
Agreement, the Collateral Security Warrants, the Common Stock Purchase Warrants
and the Notes, is intended by the parties as a final expression of their
agreement and is intended to be the complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
and therein. This Agreement, the Registration Rights Agreements, the Pledge
Agreement, the Collateral Agency Agreement, the Collateral Security Warrants,
the Common Stock Purchase Warrants and the Notes (including the exhibits and
schedules to each) supersede all prior agreements and understandings between
the parties with respect to such subject matter.
Section 14.8. Attorney's Fees. In any action or proceeding brought to
enforce any provision of this Agreement or where any provision hereof is
validly asserted as a defense, the successful party shall, to the extent
permitted by applicable law, be entitled to recover reasonable attorney's fees
in addition to any other available remedy, provided that the Company shall not
be required to pay for more than one firm of attorneys to represent all the
holders of the Securities.
Section 14.9. Governing Law. This Agreement and the Notes shall be
governed by, and
29
<PAGE> 33
construed in accordance with, the laws of the State of New York applicable to
contracts made and to be performed entirely in the State of New York.
The Company (a) hereby irrevocably submits to the jurisdiction of the
state courts of the State of New York and the jurisdiction of the United States
District Court for the Southern District of New York, for the purpose of any
suit, action or other proceeding arising out of or based upon this Agreement
and the Notes, or the subject matter hereof or thereof brought by the holders
of the Securities and (b) hereby waives and agrees not to assert, by way of
motion, as a defense, or otherwise, in any such suit, action or proceeding,
any claim that it is not subject personally to the jurisdiction of the
above-named courts, that its property is exempt or immune from attachment or
execution, that the suit, action or proceeding is brought in an inconvenient
forum, that the venue of the suit, action or proceeding is improper or that
this Agreement and the Notes or the subject matter hereof may not be enforced
in or by such court, and (c) hereby waives in any such action, suit, or
proceeding any offsets or counterclaims. The Company hereby consents to
service of process by certified mail at the address set forth herein and agrees
that its submission to jurisdiction and its consent to service of process by
mail is made for the express benefit of the holders of the Securities. Final
judgment against the Company in any such action, suit or proceeding shall be
conclusive, and may be enforced in other jurisdictions (i) by suit, action or
proceeding on the conclusive evidence of the fact and of the amount of any
indebtedness or liability of the Company therein described or (ii) in any other
manner provided by or pursuant to the laws of such other jurisdiction;
provided, however, that the holders of the Securities may at their option bring
suit, or institute other judicial proceedings, against the
30
<PAGE> 34
Company or any of its assets in any state or Federal court of the United States
or of any country or place where the Company or its assets may be found.
Section 14.10. Action of Majority Noteholders. Except for such actions
which are expressly provided in the Operative Documents to be taken by an
individual holder of a Note, all actions required or permitted to be taken by
the Holders of Notes under the Operative Documents including, without
limitation, in connection with the exercise of remedies, shall be taken by the
Majority Noteholders (individually or by a trustee or other agent designated by
the Majority Noteholders to act on behalf of the Majority Noteholders); and the
decision of the Majority Noteholders (or such trustee or agent, as applicable)
shall be binding on all other Holders.
If you are in agreement with the foregoing, please sign the form of
acceptance in the space provided below whereupon this Agreement shall become a
binding agreement between you and the Company.
Very truly yours,
DDL ELECTRONICS, INC.
By: /s/ Gregory L. Horton
----------------------------------
Gregory L. Horton
President and Chief Executive Officer
31
<PAGE> 35
The foregoing Agreement is
hereby accepted as of the date
first above written:
SARATOGA HOLDINGS INC.
By: /s/ Gregg Smith
------------------------------
Name: Gregg Smith
Title: CEO
/s/ Gregg A. Smith
- ----------------------------
Gregg A. Smith
/s/ Elliot Smith
- ----------------------------
Elliot Smith
/s/ Kenneth D. Rickel
- ----------------------------
Kenneth D. Rickel
/s/ Joseph Fair
- ----------------------------
Joseph Fair
/s/ Edward McWilliams
- ----------------------------
Edward McWilliams
/s/ David B. Cornstein by James Martin Kaplan
- ---------------------------------------------
David Cornstein by James Martin Kaplan
Attorney-in-Fact for David B. Cornstein
/s/ Jeffrey S. Silverman
- ----------------------------
Jeffrey S. Silverman
/s/ Howard Miller
- ----------------------------
Howard Miller
32
<PAGE> 36
/s/ Steve Levy
- ----------------------------
Steve Levy
/s/ Marvin Numeroff
- ----------------------------
Marvin Numeroff
/s/ Jerry Gray
- ----------------------------
Jerry Gray
/s/ Robert Rickel
- ----------------------------
Robert Rickel
/s/ Leonard Wilf
- ----------------------------
Leonard Wilf
- ----------------------------
Peter Knobel
- ----------------------------
Patrice Knobel
- ----------------------------
Theodore Sofia
33
<PAGE> 37
SCHEDULE A
<TABLE>
<CAPTION>
<S> <C>
Name and Address of Purchasers Principal Amount of Notes and Warrants
------------------------------------- --------------------------------------
SARATOGA HOLDINGS INC.
(Bridge Noteholder)
(1) In the case of all payments on $75,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
15,000 Collateral Security Warrants
30,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from the Closing Date
respect of payment:
Saratoga Holdings Inc.
c/o Gregg A. Smith
Rickel & Associates, Inc.
875 Third Avenue
New York, NY 10022
GREGG A. SMITH
(Bridge Noteholder)
(1) In the case of all payments on $75,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
15,000 Collateral Security Warrants
30,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from the Closing Date
respect of payment:
Gregg A. Smith
Rickel & Associates, Inc.
875 Third Avenue
New York, NY 10022
ELLIOT SMITH
(Bridge Noteholder)
</TABLE>
S-1
<PAGE> 38
<TABLE>
<S> <C>
(1) In the case of all payments on $200,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
40,000 Collateral Security Warrants
80,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from the Closing Date
respect of payment:
Elliot Smith
400 East 56th Street
New York, NY 10022
KENNETH D. RICKEL
(Bridge Noteholder)
(1) In the case of all payments on $225,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
45,000 Collateral Security Warrants
90,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from the Closing Date
respect of payment:
Kenneth D. Rickel
Rickel & Associates, Inc.
875 Third Avenue
New York, NY 10022
JOSEPH FAIR
(Bridge Noteholder)
(1) In the case of all payments on $25,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
5,000 Collateral Security Warrants
10,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from the Closing Date
respect of payment:
</TABLE>
S-2
<PAGE> 39
Joseph Fair
c/o Rickel & Associates, Inc.
13400 South Cleveland Avenue
Fort Myers, Florida 33908
EDWARD MCWILLIAMS
(Bridge Noteholder)
<TABLE>
<S> <C>
(1) In the case of all payments on $50,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
10,000 Collateral Security Warrants
20,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from the Closing Date
respect of payment:
Edward McWilliams
c/o Rickel & Associates, Inc.
13400 South Cleveland Avenue
Fort Myers, Florida 33908
DAVID CORNSTEIN
(Bridge Noteholder)
(1) In the case of all payments on $50,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
10,000 Collateral Security Warrants
20,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from the Closing Date
respect of payment:
David Cornstein
Finlay Corporation
521 Fifth Avenue
New York, NY 10175-0399
JEFFREY S. SILVERMAN
(Bridge Noteholder)
</TABLE>
S-3
<PAGE> 40
<TABLE>
<S> <C>
(1) In the case of all payments on $100,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
20,000 Collateral Security Warrants
40,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from the Closing Date
respect of payment:
Jeffrey S. Silverman
Ply Gem Industries
777 Third Avenue
New York, NY 10017
HOWARD MILLER
(Bridge Noteholder)
(1) In the case of all payments on $200,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
40,000 Collateral Security Warrants
80,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from the Closing Date
respect of payment:
Howard Miller
Rickel & Associates, Inc.
875 Third Avenue
New York, NY 10022
STEVE LEVY
(1) In the case of all payments on $250,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
50,000 Collateral Security Warrants
25,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from January 5, 1996
</TABLE>
S-4
<PAGE> 41
<TABLE>
<S> <C>
respect of payment:
Steve Levy
Rickel & Associates, Inc.
875 Third Avenue
New York, NY 10022
MARVIN NUMEROFF
(1) In the case of all payments on $1,000,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
200,000 Collateral Security Warrants
100,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from January 5, 1996
respect of payment:
Marvin Numeroff
1414 Newkirk Avenue
Brooklyn, NY 11226
ELLIOT SMITH
(1) In the case of all payments on $250,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
50,000 Collateral Security Warrants
25,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from January 5, 1996
respect of payment:
Elliot Smith
400 East 56th Street
New York, NY 10022
HOWARD MILLER
(1) In the case of all payments on $250,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
</TABLE>
S-5
<PAGE> 42
<TABLE>
<S> <C>
By check payable to the Holder
50,000 Collateral Security Warrants
25,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from January 5, 1996
respect of payment:
Howard Miller
Rickel & Associates, Inc.
875 Third Avenue
New York, NY 10022
JERRY GRAY
(1) In the case of all payments on $250,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
50,000 Collateral Security Warrants
25,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from January 5, 1996
respect of payment:
Jerry Gray
410 17th Street
Denver, CO 80202
ROBERT RICKEL
(1) In the case of all payments on $500,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
100,000 Collateral Security Warrants
50,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from January 5, 1996
respect of payment:
Robert Rickel
Rickel & Associates, Inc.
875 Third Avenue
New York, NY 10022
</TABLE>
S-6
<PAGE> 43
LEONARD WILF
<TABLE>
<S> <C>
(1) In the case of all payments on $500,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
100,000 Collateral Security Warrants
50,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from February 1, 1996
respect of payment:
Leonard Wilf
Garden Homes
820 Morris Turnpike
Short Hills, NJ 07078
PETER KNOBEL AND PATRICE KNOBEL
(1) In the case of all payments on $1,000,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
200,000 Collateral Security Warrants
100,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from the Closing Date
respect of payment:
Peter Knobel and Patrice Knobel
645 Fifth Avenue
New York, NY 10022
THEODORE SOFIA
(1) In the case of all payments on $100,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
20,000 Collateral Security Warrants
10,000 Common Stock Purchase Warrants
</TABLE>
S-7
<PAGE> 44
<TABLE>
<S> <C>
(2) Address for all notices and checks in Interest to accrue from the Closing Date
respect of payment:
Theodore Sofia
c/o Rickel & Associates, Inc.
13400 South Cleveland Avenue
Fort Meyers, Florida 33908
MARVIN NUMEROFF
(1) In the case of all payments on $200,000 principal amount
account of the Notes: of 10% Senior Secured Notes
due July 1, 1997
By check payable to the Holder
40,000 Collateral Security Warrants
20,000 Common Stock Purchase Warrants
(2) Address for all notices and checks in Interest to accrue from the Closing Date
respect of payment:
Marvin Numeroff
1414 Newkirk Avenue
Brooklyn, NY 11226
S-8
</TABLE>
<PAGE> 1
EXHIBIT 4-n
NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED
IN VIOLATION OF SUCH ACT OR LAWS, THE RULES AND
REGULATIONS THEREUNDER OR THE PROVISIONS
OF THIS WARRANT CERTIFICATE.
No. [ ] [ ] Warrants
WARRANTS TO PURCHASE AN AGGREGATE OF [ ] SHARES
OF COMMON STOCK OF
DDL ELECTRONICS, INC.
(INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE)
ISSUED TO
[ ]
DATED: February 29, 1996
THIS IS TO CERTIFY that, for value received, [ ], or [its] [his] [their]
registered assigns (herein collectively referred to as the "Warrantholder"), is
entitled to the number of Warrants (the "Warrants") set forth above, each of
which represents the right, upon the due exercise hereof, at any time
commencing on the date hereof (the "Commencement Date") and ending on the fifth
anniversary of the Commencement Date (the "Expiration Date"), to purchase from
DDL Electronics, Inc., a Delaware corporation (the "Company"), one share of
common stock, par value $.01 per share (the "Common Stock"), of the Company
upon surrender hereof, with the form of election to purchase included herein
(the "Election to Purchase") completed and duly executed, at the principal
executive office of the Company, and upon simultaneous payment therefor of an
exercise price per share equal to the Purchase Price (as defined in Section 1
below) in cash and/or check payable to the order of the Company. The number of
shares of Common Stock issuable upon exercise of the Warrants (individually, a
"Share" and collectively, the "Shares") and the Purchase Price therefor are
subject to adjustment as provided herein.
This warrant certificate is one of a series of warrant certificates issued
by the Company in connection with its issuance of 10% Senior Secured Notes due
July 1, 1997 (the "Notes") pursuant to the Securities Purchase Agreement, dated
as of February 29, 1996 (the "Securities Purchase Agreement"), by and among the
Company and each of the Purchasers who are signatories thereto. All
capitalized terms used herein without definition (including, without
<PAGE> 2
limitation, Common Stock Purchase Warrants, Rickel and Collateral Security
Warrants) shall have the respective meanings given such terms as set forth in
the Securities Purchase Agreement.
1. Purchase Price
The purchase price for the Shares purchasable hereunder (the "Purchase
Price") shall be equal to $2.50 per Share, subject to adjustment as hereinafter
described.
2. Definition of Market Price
Unless otherwise provided herein, for purposes of any computations made
hereunder, "Market Price" per share of Common Stock on any date shall be: (a)
if the Common Stock is listed or admitted for trading on any national
securities exchange or included in the Nasdaq National Market or Nasdaq
Small-Cap Market, the last reported sales price as reported on such exchange or
market, as the case may be; (b) if the Common Stock is not listed or admitted
for trading on any national securities exchange or included in the Nasdaq
National Market or Nasdaq Small-Cap Market, the average of the last reported
closing bid and asked quotation for the Common Stock as reported on the
Automated Quotation System of NASDAQ or a similar service if NASDAQ is not
reporting such information; (c) if the Common Stock is not listed or admitted
for trading on any national securities exchange or included in the Nasdaq
National Market or Nasdaq Small-Cap Market or quoted by NASDAQ or a similar
service, the average of the last reported bid and asked quotation for the
Common Stock as quoted by a market maker in the Common Stock (or if there is
more than one market maker, the bid and asked quotation shall be obtained from
two market makers and the average of the lowest bid and highest asked quotation
shall be the "Market Price"); or (d) if the Common Stock is not listed or
admitted for trading on any national securities exchange or included in the
Nasdaq National Market or Nasdaq Small-Cap Market or quoted by NASDAQ and there
is no market maker in the Common Stock, the fair market value of such shares as
determined jointly by the Company and Warrantholders holding Warrants to
purchase not less than 50% of all of the shares of Common Stock issuable upon
the exercise of all Common Stock Purchase Warrants and Warrants issued to
Rickel in connection with the Securities Purchase Agreement then outstanding
(the "Majority Warrantholders"), or if no such determination can be reached
within fifteen (15) days, such determination shall be made by an appraiser who
shall be mutually selected by the Company and the Majority Warrantholders, the
costs of such appraiser to be borne by the Company.
3. Registration, Transfer and Exchange of the Warrants
The Company will keep at its principal executive office a warrant register
in which, subject to such reasonable regulations as it may prescribe but at its
expense, it will provide for the registration, transfer and exchange of the
Warrants.
The Warrants may not be pledged, sold, assigned, hypothecated or otherwise
-2-
<PAGE> 3
transferred until (a) a registration statement with respect thereto is
effective under the Securities Act and any applicable state securities laws or
(b) the Company receives an opinion of counsel to the Company or other counsel
to the Warrantholder, which other counsel is reasonably satisfactory to the
Company, that the Warrants may be pledged, sold, assigned, hypothecated or
transferred without an effective registration statement under the Securities
Act or applicable state securities laws.
The Warrantholder, at its option, may surrender this warrant certificate
for transfer or exchange at the principal executive office of the Company,
accompanied in the case of a transfer or assignment by a written instrument of
transfer or assignment in form satisfactory to the Company duly executed by the
registered Warrantholder thereof or by such Warrantholder's attorney duly
authorized in writing. In case any Warrantholder shall so request the
transfer, assignment or exchange of any warrant certificate, the Company, at
its expense, will execute and deliver (in each case insured to the
Warrantholder's reasonable satisfaction) in exchange therefor one or more new
warrant certificates, as may be requested by such Warrantholder, to purchase
the same aggregate number of Shares as are purchasable upon exercise of the
warrant certificate so surrendered.
Prior to due presentment for registration of transfer of this warrant
certificate, the Company shall deem and treat the Warrantholder as the absolute
owner of the Warrants (notwithstanding any notation of ownership or other
writing on this warrant certificate made by anyone other than the Company) for
the purpose of any exercise hereof or any distribution to the Warrantholder and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.
4. Issuance of Shares
Subject to the restrictions set forth in Section 5 below, upon surrender
of the Warrants and payment of the Purchase Price as aforesaid, the Company
shall issue and deliver with all reasonable dispatch the certificate(s) for the
Shares to or upon the written order of the Warrantholder and in such name or
names as the Warrantholder may designate. Such certificate(s) shall represent
the number of Shares issuable upon the exercise of the Warrants, together with
a cash amount in respect of any fraction of a Share otherwise issuable upon
such exercise.
Certificates representing the Shares shall be deemed to have been issued
and the person so designated to be named therein shall be deemed to have become
a holder of record of such Shares simultaneously with the surrender of the
Warrants and payment of the Purchase Price as aforesaid; notwithstanding that
the transfer books for the shares of Common Stock or other classes of stock
purchasable upon the exercise of the Warrants shall then be closed or the
certificate(s) for the Shares in respect of which the Warrants is then
exercised shall not then have been actually delivered to the Warrantholder. As
soon as practicable after each such exercise of
-3-
<PAGE> 4
the Warrants, the Company shall issue and deliver the certificate(s) for the
Shares issuable upon such exercise, registered as requested. The Warrants
shall be exercisable, at the election of the registered holder hereof, either
as an entirety or from time to time for part of the number of Shares specified
herein. In the event that only a portion of the Warrants is exercised at any
time prior to the close of business on the Expiration Date, a new warrant
certificate shall be issued to the Warrantholder for the remaining number of
Shares purchasable pursuant hereto. In no event shall fractional Shares be
issued with regard to the exercise of the Warrants. The Company shall cancel
the Warrants when they are surrendered upon exercise.
5. Payment of Expenses, Taxes, etc. upon Exercise
The Company shall pay all documentary stamp taxes, if any, attributable to
the initial issuance of the Shares issuable upon the exercise of the Warrants;
including, without limitation, any tax or taxes which may be payable in respect
of any transfer involved in the issue or delivery of any certificates for
Shares in a name other than that of the Warrantholder upon the exercise of the
Warrants.
6. Lost, Stolen, or Mutilated Warrant Certificate
In case this warrant certificate shall be mutilated, lost, stolen or
destroyed, the Company shall issue and deliver, in exchange and substitution
for and upon cancellation of the mutilated warrant certificate, or in lieu of
and substitution for the warrant certificate lost, stolen or destroyed, a new
warrant certificate of like tenor and representing an equivalent number of
Shares purchasable upon exercise, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction of such warrant
certificate and reasonable indemnity, if requested, also reasonably
satisfactory to the Company. No bond or other security shall be required from
the original Warrantholder in connection with the replacement by the Company of
a lost, stolen or mutilated warrant certificate.
7. Covenants of the Company
(a) The Company shall at all times through the Expiration Date reserve and
keep available, free from pre-emptive rights and out of its aggregate
authorized but unissued shares of Common Stock, the number of Shares
deliverable upon the exercise of the Warrants.
(b) Before taking any action which would cause an adjustment pursuant to
the terms set forth herein that would reduce the portion of the Purchase Price
attributable to the Shares below the then par value (if any) of such Shares,
the Company shall take any corporate action which may, in the opinion of its
counsel (which may be counsel regularly engaged by the Company), be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable Shares at the Purchase Price as so adjusted.
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<PAGE> 5
(c) The Company covenants that all Shares issued upon exercise of the
Warrants shall, upon issuance in accordance with the terms hereof, be fully
paid and nonassessable and free and clear of all Liens, claims, security
interests, pledges, charges, encumbrances, stockholders' agreements and voting
trusts created by the Company with respect to the issuance and holding thereof.
(d) So long as the Warrants are outstanding, the Company shall not issue
any capital stock of any class preferred as to dividends or as to the
distribution of assets upon voluntary or involuntary liquidation, dissolution
or winding up unless the rights of the holders thereof shall be limited to a
fixed sum or percentage of par value in respect of participation in dividends
or in the distribution of such assets.
(e) So long as the Warrants are outstanding, the Company covenants that it
shall file all forms, schedules and reports with the Commission required to be
filed by it on a timely basis and it shall comply with all securities laws,
including, without limitation, the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended.
8. Rights Upon Expiration
Unless the Warrants are surrendered and payment made for the Shares as
herein provided before the close of business on the Expiration Date, this
warrant certificate will become wholly void and all rights evidenced hereby
will terminate after such time.
9. Adjustment for Certain Events
(a) In case the Company shall at any time after the date the Warrants are
first issued (i) declare a dividend on the Common Stock payable in shares of
the Company's capital stock (whether in shares of Common Stock or of capital
stock of any other class), (ii) subdivide the outstanding Common Stock, (iii)
reverse split the outstanding Common Stock into a smaller number of shares, or
(iv) issue any shares of the Company's capital stock in a reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then, in each case, the Purchase Price in effect at the time of the record
date for such dividend or of the effective date of such subdivision, reverse
split or reclassification and/or the number and kind of shares of capital stock
issuable upon exercise of the Warrants on such date shall be proportionately
adjusted so that the holder of any Warrant exercised after such time shall be
entitled to receive the aggregate number and kind of securities which, if such
Warrant had been exercised immediately prior to such date, such holder would
have owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, reverse split or reclassification. Such adjustments
shall be made successively whenever any event listed above shall occur.
(b) In case the Company shall fix a record date for the making of a
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<PAGE> 6
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than cash
dividends or cash distributions payable out of earnings, consolidated earnings,
if the Company shall have one or more subsidiaries, or earned surplus, or
dividends payable in Common Stock) or rights, options or warrants to subscribe
for or purchase Common Stock, then, in each case, the Purchase Price per Share
to be in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
of which the numerator shall be the current Market Price for a share of Common
Stock on such record date less the fair market value of the portion of the
assets or evidences of indebtedness so to be distributed or of such
subscription rights, options or warrants applicable to one share of Common
Stock, and of which the denominator shall be the current Market Price for a
share of Common Stock. Such determination of fair market value shall be made by
an appraiser who shall be mutually selected by the Company and the Majority
Warrantholders, the costs of such appraiser to be borne by the Company. Such
adjustment shall be made successively whenever such a record date is fixed, and
in the event that such distribution is not so made, the Purchase Price shall
again be adjusted to be the Purchase Price which would then be in effect if
such record date had not been fixed.
(c) No adjustment in the Purchase Price shall be required unless such
adjustment would require a decrease of at least one cent ($0.01) in such price;
provided, however, that any adjustment which by reason of this Section 9(c) is
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 9 shall be made to
the nearest cent or to the nearest one-hundredth of a share, as the case may
be, but in no event shall the Company be obligated to issue fractional shares
of Common Stock or fractional portions of any securities upon the exercise of
the Warrants.
(d) In the event that at any time, as a result of an adjustment made
pursuant to Section 9 hereof, the holder of any Warrant thereafter exercised
shall become entitled to receive any shares of capital stock or warrants or
other securities of the Company other than the Shares, thereafter the number of
such other shares of capital stock or warrants or other securities so
receivable upon exercise of this Warrant shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to the Shares contained in this Section 9, and the
provisions of this warrant certificate with respect to the Shares shall apply,
to the extent applicable, on like terms to any such other shares of capital
stock or warrants or other securities.
(e) Upon each adjustment of the Purchase Price as a result of calculations
made in this Section 9, each Warrant outstanding immediately prior to the
making of such adjustment shall thereafter evidence the right to purchase, at
the adjusted Purchase Price, that number of Shares (calculated to the nearest
hundredth), obtained by (i) multiplying the number of Shares purchasable upon
exercise of a Warrant immediately prior to such adjustment of the Purchase
Price by the Purchase Price in effect immediately prior to such adjustment and
(ii)
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<PAGE> 7
dividing the product so obtained by the Purchase Price in effect immediately
after such adjustment of the Purchase Price.
(f) In case of any capital reorganization of the Company or of any
reclassification of the Common Stock (other than a change in par value or from
a specified par value to no par value or from no par value to a specified par
value or as a result of subdivision or combination) or in case of the
consolidation of the Company with, or the merger of the Company into, any other
corporation (other than a consolidation or merger in which the Company is the
continuing corporation) or of the sale of the properties and assets of the
Company as, or substantially as, an entirety, each Warrant shall, after such
reorganization, reclassification, consolidation, merger or sale, be
exercisable, upon the terms and conditions specified herein, for the number of
shares of Common Stock or other capital stock or warrants or other securities
or property to which a holder of the number of shares of Common Stock
purchasable (at the time of such reorganization, reclassification,
consolidation, merger or sale) upon exercise of such Warrant would have been
entitled upon such reorganization, reclassification, consolidation, merger or
sale; and in any such case, if necessary, the provisions set forth in this
Section 9(f) with respect to the rights and interests thereafter of the
registered holders of all Warrants shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any shares of Common Stock or
other capital stock or warrants or other securities or property thereafter
deliverable on the exercise of the Warrants. The subdivision, reverse split or
combination of shares of Common Stock at any time outstanding into a greater or
lesser number of shares shall not be deemed to be a reclassification of the
Common Stock for the purposes of this Section 9(f).
(g) If the Company shall, prior to the close of business on the Expiration
Date, issue shares of Common Stock (whether in a single transaction or a series
of transactions, whether or not related) (except for any shares of Common Stock
issued as a result of the exercise of the Collateral Security Warrants) for a
purchase price or prices which are, in any instance, less than the Purchase
Price then in effect, then the Purchase Price shall be reduced to a price
(calculated to the nearest full cent) determined by dividing (A) an amount
equal to the sum of (x) the total number of shares of Common Stock outstanding
immediately prior to such issuance or sale multiplied by the Purchase Price in
effect immediately prior to such issuance plus (y) the aggregate of the amount
of all consideration, if any, received by the Company upon such issuance by (B)
the total number of shares of Common Stock outstanding immediately after such
issuance; provided, however, that in no event shall the Purchase Price be
adjusted pursuant to this computation to an amount in excess of the Purchase
Price in effect immediately prior to such computation. The issuance of any
other shares of Common Stock or options or warrants for the purchase thereof
may be excluded from the operation of this Section 9(g), provided, the written
consent of the Majority Warrantholders has been obtained prior to such
issuance.
(h) In any case in which this Section 9 shall require that an adjustment
in the Purchase Price and/or the number of Shares purchasable hereunder be made
effective as of a record date for a specified event, the Company may elect to
defer until the occurrence of such
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<PAGE> 8
event issuing to the Warrantholder, if such Warrantholder exercised any Warrant
after such record date, shares of capital stock or warrants or other securities
of the Company, if any, issuable upon such exercise over and above the Shares
issuable prior to such adjustment; provided, however, that the Company shall
deliver to the holder a due bill or other appropriate instrument evidencing
such holder's right to receive such shares of capital stock or warrants or
other securities upon the occurrence of the event requiring such adjustment.
(i) In all events an adjustment, consistent with the anti-dilutive
provisions set forth in Section 9(g), shall be made in the Purchase Price and
the number of Shares issuable upon the exercise of the Warrants if the Company
issues, in exchange for cash, property or services, any securities convertible
into or exchangeable for shares of Common Stock, or securities carrying the
right to purchase shares of Common Stock or such convertible or exchangeable
securities, with a conversion, exchange or exercise price less than the
Purchase Price then in effect, with said adjustment being based upon the
conversion, exchange or exercise price of such convertible or exchangeable
securities. No adjustment shall be made pursuant to this Section 9(i) in
connection with the issuance of the Collateral Security Warrants or the
exercise thereof.
10. Fractional Shares
Upon exercise of the Warrants the Company shall not be required to issue
fractional shares of Common Stock or other capital stock. In lieu of such
fractional shares, the Warrantholder shall receive an amount in cash equal to
the same fraction of the (i) current Market Price of one whole Share if clause
(a), (b) or (c) in the definition of Market Price in Section 2 above is
applicable or (ii) book value of one whole Share as reported in the Company's
most recent audited financial statements if clause (d) in the definition of
Market Price in Section 2 above is applicable. All calculations under this
Section 10 shall be made to the nearest cent.
11. Securities Act Legend
The Warrantholder shall not be entitled to any rights of a stockholder of
the Company with respect to any Shares purchasable upon the exercise hereof,
including voting, dividend or dissolution rights, until such Shares have been
paid for in full. As soon as practicable after such exercise, the Company
shall deliver a certificate or certificates for the securities issuable upon
such exercise, all of which shall be fully paid and nonassessable, to the
person or persons entitled to receive the same; provided, however, that, if
applicable, such certificate or certificates delivered to the holder of the
surrendered Warrants shall bear a legend reading substantially as follows:
"These securities have not been registered under the Securities
Act of 1933, as amended, or the securities laws of any state and
may not be sold or transferred in the absence of such registration
or any exemption therefrom under such Act and laws, if applicable.
The
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<PAGE> 9
Company, prior to permitting a transfer of these securities, may
require an opinion of counsel or other assurances satisfactory to
it as to compliance with or exemption from such Act and laws."
12. Notice of Adjustment
(a) Upon any adjustment of the Purchase Price and/or the number of Shares
issuable upon exercise of the Warrants pursuant to Section 9 above, the
Company, within thirty (30) calendar days thereafter, shall have on file for
inspection by the Warrantholder a certificate of the Board of Directors of the
Company setting forth the Purchase Price and the number of Shares issuable upon
exercise of the Warrants after such adjustment, the method of calculation
thereof in reasonable detail and the facts upon which such calculations were
based, which certificate shall be conclusive evidence of the correctness of the
matters set forth therein.
(b) In case:
(i) the Company shall authorize the issuance to all holders of Common
Stock of rights, options or warrants to subscribe for or purchase capital stock
of the Company or of any other subscription rights, options or warrants; or
(ii) the Company shall authorize the distribution to all holders of
Common Stock of evidences of its indebtedness or assets (including, without
limitation, cash dividends or cash distributions payable out of earnings,
consolidated earnings, if the Company shall have one or more subsidiaries, or
earned surplus, or dividends payable in Common Stock); or
(iii) of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, of the
conveyance or transfer of the properties and assets of the Company substantially
as an entirety or of any capital reorganization or any reclassification of the
Common Stock (other than a change in par value or from a specified par value to
no par value or from no par value to a specified par value or as a result of a
subdivision or combination); or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(v) the Company proposes to take any other action which would require
an adjustment of the Purchase Price and/or the number of Shares issuable upon
exercise of the Warrants pursuant to Section 9 above;
then, in each such case, the Company shall give to the Warrantholder at its
address appearing below at least twenty (20) calendar days prior to the
applicable record date hereinafter specified
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<PAGE> 10
in (A), (B) or (C) below, by first class mail, postage prepaid, a written
notice stating (A) the date as of which the holders of record of shares of
Common Stock to be entitled to receive any such rights, options, warrants or
distribution are to be determined or (B) the date on which any such
consolidation, merger, conveyance, transfer, reorganization, reclassification,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected that holders of record of shares of Common
Stock shall be entitled to exchange such shares for securities or other
property, if any, deliverable upon such consolidation, merger, conveyance,
transfer, reorganization, reclassification, dissolution, liquidation or winding
up or (C) the date of such action which would require an adjustment of the
Purchase Price and/or the number of Shares issuable upon exercise of the
Warrants. The failure to give the notice required by this Section 12(b) or any
defect therein shall not affect the legality or validity of any such issuance,
distribution, consolidation, merger, conveyance, transfer, reorganization,
reclassification, dissolution, liquidation, winding up or other action or the
vote upon any such action.
Except as provided herein, nothing contained herein shall be construed as
conferring upon the Warrantholder the right to vote on any matter submitted to
the stockholders of the Company for their vote or to receive notice of meetings
of stockholders or the election of directors of the Company or any other
proceedings of the Company, or any rights whatsoever as a stockholder of the
Company.
13. Notices
All notices and other communications provided for or permitted hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally or sent by telex or telecopier, registered or certified mail (return
receipt requested), postage prepaid or courier to the parties at the following
address (or at such other address for any party as shall be specified by like
notice, provided that notices of a change of address shall be effective only
upon receipt thereof). Notices sent by mail shall be effective two (2) days
after mailing; notices sent by telex shall be effective when answered back,
notices sent by telecopier shall be effective when receipt is acknowledged, and
notices sent by courier guaranteeing next day delivery shall be effective on
the next business day after timely delivery to the courier.
(i) if to the Company:
DDL ELECTRONICS, INC.
2151 Anchor Court
Newbury Park, CA 91320
Attention: Chief Executive Officer
Telephone: (805) 376-2595
Telecopy: (805) 376-9015
(ii) if to the Warrantholder, at the address of such
Warrantholder as it appears on the warrant register.
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<PAGE> 11
14. Miscellaneous
(a) The Warrantholder shall be entitled to all the registration and other
rights, benefits and privileges set forth in the Registration Rights Agreement
dated as of the date hereof among the Company, Rickel and the holders of the
Common Stock Purchase Warrants and the Securities Purchase Agreement.
(b) All the covenants and provisions herein by or for the benefit of the
Company shall bind and inure to the benefit of and be enforceable by the
Company and its successors or assigns, and all of the covenants and provisions
herein for the benefit of the Warrantholder hereof shall inure to the benefit
of and be enforceable by the Warrantholder and its successors or assigns.
(c) This warrant certificate shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts made
and to be performed entirely in the State of New York the internal laws of such
State.
The Company (i) hereby irrevocably submits to the jurisdiction of the
state courts of the State of New York and the jurisdiction of the United States
District Court for the Southern District of New York, for the purpose of any
suit, action or other proceeding arising out of or based upon this warrant
certificate or the subject matter hereof brought by the Warrantholder, (ii)
hereby waives and agrees not to assert, by way of motion, as a defense or
otherwise, in any such suit, action or proceeding, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this warrant certificate or the
subject matter hereof may not be enforced in or by such court and (iii) hereby
waives in any such action, suit, or proceeding any offsets or counterclaims.
The Company hereby consents to service of process by certified mail at the
address set forth herein and agrees that its submission to jurisdiction and its
consent to service of process by mail is made for the express benefit of the
Warrantholder. Final judgment against the Company in any such action, suit or
proceeding shall be conclusive and may be enforced in other jurisdictions (A)
by suit, action or proceeding on the conclusive evidence of the fact and of the
amount of any indebtedness or liability of the Company therein described or (B)
in any other manner provided by or pursuant to the laws of such other
jurisdiction; provided, however, that the Warrantholder may at its option bring
suit, or institute other judicial proceedings, against the Company or any of
its assets in any state or Federal court of the United States or of any country
or place where the Company or its assets may be found.
(d) Nothing in this warrant certificate shall be construed to give any
person or corporation other than the Company and the Warrantholder and its
permitted transferees any legal or equitable right, remedy or claim under this
warrant certificate; but this warrant certificate shall be for the sole and
exclusive benefit of the Company and the Warrantholder and its permitted
transferees.
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<PAGE> 12
IN WITNESS WHEREOF, an authorized officer of the Company has signed and
delivered to the Warrantholder this warrant certificate as of the date first
written above.
DDL ELECTRONICS, INC.
By:
---------------------------------
Gregory L. Horton
President and Chief Executive Officer
ATTEST:
By:
-------------------------
C. L. Haslam
Secretary
[CORPORATE SEAL]
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<PAGE> 13
ELECTION TO PURCHASE
(To be executed by the registered holder if such holder desires to exercise
the within warrant certificate)
To: DDL ELECTRONICS, INC.
2151 Anchor Court
Newbury Park, CA 91320
The undersigned hereby (1) irrevocably elects to exercise his or its rights to
purchase ____ shares of Common Stock covered by the within warrant certificate,
(2) makes payment in full of the Purchase Price by enclosure of a check payable
to the order of the Company, (3) requests that certificates for such shares be
issued in the name of:
Please print name, address and Social Security or Tax Identification Number:
- -------------------------------------------------
- -------------------------------------------------
- -------------------------------------------------
and (4) if said number of shares shall not be all the shares evidenced by the
within warrant certificate, requests that a new warrant certificate for the
balance of the shares covered by the within warrant certificate be registered
in the name of, and delivered to:
Please print name and address:
- -------------------------------------------------
- -------------------------------------------------
- -------------------------------------------------
In lieu of receipt of a fractional share of Common Stock, the undersigned
will receive a check representing payment therefor.
Dated:
------------------- --------------------------------
By:
----------------------------
General Partner
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<PAGE> 14
-------------------------------
By:
---------------------------
President
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<PAGE> 1
EXHIBIT 4-o
===============================================================================
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
DDL ELECTRONICS, INC.,
AND
RICKEL & ASSOCIATES, INC.
===============================================================================
Dated as of February 29, 1996
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into as of February 29, 1996 by and among DDL Electronics, Inc. (the "Company")
and Rickel & Associates, Inc. ("Rickel").
This Agreement is made pursuant to a certain Securities Purchase Agreement
dated as of the date hereof by and among the Company and each of the purchasers
executing a signature page thereto (the "Securities Purchase Agreement"). The
Company has agreed to provide the registration rights set forth in this
Agreement for the benefit of the Holders (as hereinafter defined), from time to
time, of Registrable Securities (as hereinafter defined). The execution of
this Agreement is a condition to the closing of the transactions contemplated
by the Securities Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
Capitalized terms used herein without definition shall have the respective
meanings given such terms as set forth in the Securities Purchase Agreement.
As used in this Agreement, the following terms shall have the following
meanings:
Advice: See Section 3.
Business Day: Any day other than a day on which banks are authorized or
required to be closed in the State of New York.
Commission: The Securities and Exchange Commission.
Common Stock: The common stock, par value $.01 per share, of the Company.
Demand Registration: See Section 2(a).
Engagement Letter: Engagement Letter, dated as of January 30, 1996,
between Rickel and the Company.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission promulgated thereunder.
Holder or Holders: Any holder of the Registrable Securities.
Inspectors: See Section 3(m).
<PAGE> 3
NASD: See Section 3(q).
NASDAQ: See Section 3(o).
Notes: The Company's 10% Senior Secured Notes due July 1, 1997 sold
pursuant to the Securities Purchase Agreement and in an aggregate original
principal amount of up to $5,300,000.
Objecting Notice: See Section 3(a).
Objecting Party: See Section 3(a).
Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or other agency or political subdivision thereof.
Piggyback Registration Rights: See Section 2(b).
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such prospectus.
R&A Collateral Stock: The 1,060,000 shares of Common Stock pledged by
Rickel as collateral security for the satisfaction of the Company's obligations
under the Notes.
Records: See Section 3(m).
Registrable Securities: The R&A Collateral Stock and the Reg S Collateral
Stock until such time as (i) a Registration Statement covering all of such
Registrable Securities has been declared effective by the Commission and all of
such Registrable Securities have been disposed of pursuant to such effective
Registration Statement or (ii) such Registrable Securities are held by one or
more Persons who could sell all Registrable Securities held by each such Person
in a single sale pursuant to Rule 144 (or any similar provision then in force)
under the Securities Act, whichever is earlier.
Registration Expenses: See Section 4.
<PAGE> 4
Registration Statement: Any registration statement of the Company that
covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statements, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
Reg S Collateral Stock: Up to 1,007,317 shares of Common Stock which may
issued to Rickel upon the conversion or retirement of certain convertible
debentures of the Company (the "Convertible Debentures") in accordance with the
Engagement Letter.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
Selling Holders: See Section 3(a).
Shelf Registration: See Section 2.
Target Effective Period: See Section 2.
2. (a)(i) Shelf Registration re R&A Collateral Stock. At any time after
all or part of the R&A Collateral Stock is delivered to Rickel upon termination
of the Pledge Agreement in accordance with the terms thereof, Rickel may demand
(a "R&A Demand Registration") that the Company effect under the Securities Act
and state securities laws the registration of the offer and sale of all or part
of the R&A Collateral Stock. Any request for a R&A Demand Registration will
specify the number of shares of R&A Collateral Stock proposed to be sold and
will also specify the intended method of disposition thereof. The Company
shall (subject to the provisions of this Agreement) promptly give written
notice of such requested registration to all Holders as soon as practicable but
not later than ten (10) days after delivery of such demand and shall use its
best efforts to file a "shelf" Registration Statement on the appropriate form
for an offering to be made on a continuous basis pursuant to Rule 415 under the
Securities Act covering (x) all of the R&A Collateral Stock (the "R&A Shelf
Registration") which the Company has been so requested to register by Rickel
and (y) all of the other Registrable Securities which the Company has been so
requested to register by any other Holder thereof by written notice received by
the Company within twenty (20) days of the giving of such notice by the Company
(which notice shall specify the intended method of disposition of such
Registrable Securities). The Company will use its best efforts to have the R&A
Shelf Registration declared effective as soon as practicable and to keep such
R&A Shelf Registration continuously effective for a period (the "Target
Effective Period") of at least thirty six (36) months following the date on
which such R&A Shelf Registration is declared effective (or such shorter period
which will terminate when all Registrable Securities covered by such R&A Shelf
Registration have been sold or withdrawn, but not prior to the expiration of
the applicable period referred to in Section 4(3) of the Securities Act and
Rule 174 thereunder, if applicable). The Company further agrees, if necessary,
to
3
<PAGE> 5
supplement or amend the R&A Shelf Registration, as required by the registration
form used by the Company for such R&A Shelf Registration or by the instructions
applicable to such registration form or by the Securities Act or as reasonably
requested (which request shall result in the filing of a supplement or
amendment) by any Holder or prospective Holder to which such R&A Shelf
Registration relates, and the Company agrees to furnish to the Holders,
Holders' Counsel and any managing underwriter copies of any such supplement or
amendment prior to its being used and/or filed with the Commission. The Company
will only be obligated to file one such R&A Shelf Registration for which all
Registration Expenses incurred in connection therewith shall be borne by the
Company and one additional R&A Shelf Registration for which all such
Registration Expenses shall be borne by the participating Holders pro rata in
relation to the number of shares of Registrable Securities to be registered by
each Holder.
(ii) Shelf Registration re Reg S Collateral Stock. At any time after the
Reg S Collateral Stock is issued to Rickel in accordance with the Engagement
Letter, Rickel may demand (a "Reg S Demand Registration," and together with the
R&A Demand Registration, a "Demand Registration") that the Company effect under
the Securities Act and state securities laws the registration of the offer and
sale of all or part of the Reg S Collateral Stock. Any request for a Reg S
Demand Registration will specify the number of shares of Reg S Collateral Stock
proposed to be sold and will also specify the intended method of disposition
thereof. The Company shall (subject to the provisions of this Agreement)
promptly give written notice of such requested registration to all Holders as
soon as practicable but not later than ten (10) days after delivery of such
demand and shall use its best efforts to file a "shelf" Registration Statement
on the appropriate form for an offering to be made on a continuous basis
pursuant to Rule 415 under the Securities Act covering (x) all of the Reg S
Collateral Stock (the "Reg S Shelf Registration," and together with the R&A
Shelf Registration, the "Shelf Registration") which the Company has been so
requested to register by Rickel and (y) all of the other Registrable Securities
which the Company has been so requested to register by any other Holder thereof
by written notice received by the Company within twenty (20) days of the giving
of such notice by the Company (which notice shall specify the intended method
of disposition of such Registrable Securities). The Company will use its best
efforts to have the Reg S Shelf Registration declared effective as soon as
practicable and to keep such Reg S Shelf Registration continuously effective
for a period (the "Target Effective Period") of at least thirty six (36) months
following the date on which such Reg S Shelf Registration is declared effective
(or such shorter period which will terminate when all Registrable Securities
covered by such Reg S Shelf Registration have been sold or withdrawn, but not
prior to the expiration of the applicable period referred to in Section 4(3) of
the Securities Act and Rule 174 thereunder, if applicable). The Company
further agrees, if necessary, to supplement or amend the Reg S Shelf
Registration, as required by the registration form used by the Company for such
Reg S Shelf Registration or by the instructions applicable to such registration
form or by the Securities Act or as reasonably requested (which request shall
result in the filing of a supplement or amendment) by any Holder or prospective
Holder to which such Reg S Shelf Registration relates, and the Company agrees
to furnish to the Holders, Holders' Counsel and any managing underwriter copies
of any such supplement or amendment prior to its
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being used and/or filed with the Commission. The Company will only be obligated
to file one such Reg S Shelf Registration for which all Registration Expenses
incurred in connection therewith shall be borne by the Company and one
additional Reg S Shelf Registration for which all such Registration Expenses
shall be borne by the participating Holders pro rata in relation to the number
of shares of Registrable Securities to be registered by each Holder.
(b) Piggyback Registration. If the Company, at any time after the date
hereof, proposes to register any of its securities under the Securities Act for
sale to the public for its own account or for the account of other security
holders (except with respect to registration statements on Forms S-4 or S-8 or
another form not available for registering the Registrable Securities for sale
to the public), each such time it will give written notice thereof to all
Holders of its intention so to do (such notice to be given at least thirty (30)
days prior to the filing thereof). Upon the written request of any such Holder
(which request shall specify the number of Registrable Securities intended to
be disposed of by such Holder and the intended method of disposition thereof),
received by the Company within twenty (20) days after giving of any such notice
by the Company, to register any of such Holder's Registrable Securities, the
Company will use its best efforts, subject to Section 2(c) below, to cause the
Registrable Securities as to which registration shall have been so requested to
be included in the securities to be covered by the Registration Statement
proposed to be filed by the Company, all to the extent requisite to permit the
sale or other disposition by the Holder (in accordance with its written
request) of such Registrable Securities so registered ("Piggyback Registration
Rights"); provided, that (i) if such registration involves an underwritten
offering, all Holders requesting to be included in the Company's registration
must sell their Registrable Securities to the underwriters selected by the
Company on the same terms and conditions as apply to the Company; (ii) if, at
any time after giving written notice of its intention to register any
securities pursuant to this Section 2(b) and prior to the effective date of the
Registration Statement filed in connection with such registration, the Company
shall determine for any reason not to register such securities, the Company
shall give written notice to all Holders and, thereupon, shall be relieved of
its obligation to register any Registrable Securities in connection with such
registration (without prejudice, however, to rights of Holders under Section
2(a) hereof) and (iii) the Registrable Securities so requested to be included
are no longer subject to the Pledge Agreement or to the terms of the
Convertible Debentures. If a registration pursuant to this Section 2(b)
involves an underwritten public offering, any Holder requesting to be included
in such registration may elect, in writing prior to the effective date of the
registration statement filed in connection with such registration, not to
register such securities in connection with such registration. No registration
effected under this Section 2(b) shall relieve the Company of its obligations
to effect the Demand Registration. The foregoing provisions notwithstanding,
(i) the Company may withdraw any registration statement referred to in this
Section 2(b) without thereby incurring any liability to the Holders, and (ii)
the inclusion of shares of Registrable Securities under such Piggyback
Registration Rights is subject to the cut back provisions of Section 2(c)
below.
(c) Priority in Piggyback Registration. If a registration pursuant to
Section
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<PAGE> 7
2(b) hereof involves an underwritten offering and the managing underwriter
advises the Company in writing that, in its opinion, the number of equity
securities (including all Registrable Securities) which the Company, the
Holders and any other persons intended to be included in such registration
exceeds the largest number of securities which can be sold without having an
adverse effect on such offering, including the price at which such securities
can be sold, the Company will include in such registration (i) first, all the
securities the Company proposes to sell for its own account, (ii) second, to
the extent that the number of securities which the Company proposes to sell for
its own account pursuant to Section 2(b) hereof is less than the number of
securities which the Company has been advised can be sold in such offering
without having the adverse effect referred to above, the number of securities
requested to be included in such registration by security holders as a result
of their exercise of "demand" registration rights by such holders and (iii)
third, to the extent that the number of securities which the Company and
security holders exercising "demand" registration rights propose to sell for
their own account pursuant to Section 2(b) hereof is less than the number of
securities which the Company has been advised can be sold in such offering
without having the adverse effect referred to above, the number of Registrable
Securities requested to be included in such registration by the Holders
pursuant to Section 2(b) hereof shall be included prior to the inclusion of any
other securities requested to be included in such registration as a result of
the exercise of "piggyback" registration rights by such other holders. Any
such reductions shall be pro rata in relation to the number of shares of Common
Stock to be registered by each person participating in the offering.
(d) Holdback Agreements. If any registration of Registrable Securities
shall be in connection with an underwritten public offering, each Holder agrees
not to effect any public sale or distribution, including any sale pursuant to
Rule 144 under the Securities Act, of any Registrable Securities, and not to
effect any such public sale or distribution of any other equity security of the
Company or of any security convertible into or exchangeable or exercisable for
any equity security of the Company (in each case, other than as part of such
underwritten public offering) during the thirty (30) days prior to, and during
the ninety (90) day period beginning on, the effective date of such
Registration Statement (except as part of such registration).
(e) Exceptions. Notwithstanding the foregoing, the Company may delay the
registration of Registrable Securities following a written request pursuant to
Section 2(a) or (b) hereof for the time periods described in Section 2(f)
hereof upon the occurrence of any of the following:
(i) The Company shall have previously entered into an
agreement or letter of intent contemplating an underwritten public
offering on a firm commitment basis of Common Stock or securities
convertible into or exchangeable for Common Stock and the managing
underwriter of such proposed public offering advises the Company in
writing that in its opinion such proposed underwritten offering
would be materially and adversely affected by a concurrent
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<PAGE> 8
registered offering of Registrable Securities (such
opinion to state the reasons therefor);
(ii) During the two (2) month period immediately
preceding such request, the Company shall have entered
into an agreement or letter of intent, which has not
expired or otherwise terminated, contemplating a
material business acquisition by the Company or its
subsidiaries whether by way of merger, consolidation,
acquisition of assets, acquisition of securities or
otherwise;
(iii) The Company is in possession of material
nonpublic information that the Company would be
required to disclose in the Registration Statement and
that is not, but for the registration, otherwise
required to be disclosed at the time of such
registration, the disclosure of which, in its good
faith judgment, would have a material adverse effect
on the business, operations, prospects or competitive
position of the Company;
(iv) The Company shall receive the written
opinion of the managing underwriter of the
underwritten public offering pursuant to which its
Common Stock has been registered within the three (3)
month period prior to the receipt of a registration
request that the registration of additional Common
Stock will materially and adversely affect the market
for the Common Stock (such opinion to state the
reasons therefor); or
(v) At the time of receipt of a registration
request, the Company is engaged, or its board of
directors has adopted by resolution a plan to engage,
in any program for the purchase of shares of Common
Stock or securities convertible into or exchangeable
for shares of Common Stock and, in the opinion of
counsel, reasonably satisfactory to the requesting
Holders, the distribution of the Common Stock to be
registered would cause such purchase of shares to be
in violation of Rule 10b-6 under Section 10 of the
Exchange Act.
(f) Period of Delay. If an event described in clauses (i) through
(iv) of Section 2(e) shall occur, the Company may, by written notice to the
Holders, delay the filing of a Registration Statement with respect to the
Registrable Securities to be covered thereby for a period of time not exceeding
ninety (90) days.
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<PAGE> 9
If an event described in clause (v) of Section 2(e) shall occur, the
filing of a Registration Statement with respect to the Registrable Securities
to be covered thereby shall be delayed until the first date that the
Registrable Securities to be covered thereby can be sold without violation of
Rule 10(b)-6 under Section 10 of the Exchange Act.
3. Registration Procedures.
In connection with the registration obligations of the Company pursuant to
the terms and conditions of this Agreement, the Company shall:
(a) prior to filing a Registration Statement or Prospectus or any
amendments or supplements thereto, including documents incorporated by
reference after the initial filing of the Registration Statement, furnish to
the Holders covered by such Registration Statement (the "Selling Holders"),
Holders' Counsel and the underwriters, if any, draft copies of all such
documents proposed to be filed at least five (5) Business Days prior thereto,
which documents will be subject to the review of such Holders' Counsel and the
underwriters, if any, and the Company will not, unless required by law, file
any Registration Statement or amendment thereto or any Prospectus or any
supplement thereto (including such documents incorporated by reference) to
which Selling Holders of at least a majority of the Registrable Securities
being sold (the "Objecting Party") shall object, pursuant to notice given to
the Company prior to the filing of such amendment or supplement (the "Objection
Notice"). The Objection Notice shall set forth the objections and the specific
areas in the draft documents where such objections arise. The Company shall
have five (5) Business Days after receipt of the Objection Notice to correct
such deficiencies to the satisfaction of the Objecting Party, and will notify
each Selling Holder of any stop order issued or threatened by the Commission in
connection therewith and take all reasonable actions required to prevent the
entry of such stop order or to remove it if entered;
(b) promptly prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep such Registration Statement effective for the period required pursuant to
Section 2; cause the Prospectus to be supplemented by any required Prospectus
supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the
Securities Act; and comply with the provisions of the Securities Act applicable
to it with respect to the disposition of all Registrable Securities covered by
such Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Selling Holders set forth in such
Registration Statement or supplement to the Prospectus;
(c) promptly furnish to any Selling Holder and the underwriters, if any,
without charge, such number or conformed copies of such Registration Statement
and any post-effective amendment thereto and such number of copies of the
Prospectus (including each preliminary Prospectus) and any amendments or
supplements thereto, and any documents incorporated by reference therein, as
such Selling Holder or underwriter may request in order to
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<PAGE> 10
facilitate the disposition of the Registrable Securities being sold by such
Selling Holder (it being understood that the Company consents to the use of the
Prospectus and any amendment or supplement thereto by each Selling Holder and
the underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by the Prospectus or any amendment or supplement
thereto); provided, that before filing a Registration Statement or Prospectus
relating to the Registrable Securities or any amendments or supplements
thereto, the Company will furnish to Holders' Counsel copies of all documents
proposed to be filed at least five (5) Business Days prior to the filing
thereof, which documents will be subject to the review of such counsel;
(d) on or prior to the date on which the Registration Statement is
declared effective, register or qualify such Registrable Securities under such
other securities or "blue sky" laws of such jurisdictions as any Selling
Holder, Holders' Counsel or underwriter requests and do any and all other acts
and things which may be necessary or advisable to enable such Selling Holder to
consummate the disposition in such jurisdictions of such Registrable Securities
owned by such Selling Holder; keep each such registration or qualification (or
exemption therefrom) effective during the period which the Registration
Statement is required to be kept effective; and do any and all other acts or
things necessary or advisable to enable the disposition in such jurisdictions
of the Registrable Securities covered by the applicable Registration Statement;
provided that the Company shall not be required to (i) qualify to do business
as a foreign corporation or as a broker-dealer in any jurisdiction where it is
not then so qualified, (ii) take any action which would subject it to general
service of process or to taxation in any jurisdiction where it is not then so
subject or (iii) amend the terms of the Registrable Securities;
(e) cause the Registrable Securities covered by such Registration
Statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary by virtue of the business and operations of
the Company to enable the Selling Holders to consummate the disposition of such
Registrable Securities;
(f) promptly notify each Selling Holder, Holders' Counsel and any
underwriter and (if requested by any such Person) confirm such notice in
writing, (i) when a Prospectus or any Prospectus supplement or post-effective
amendment has been filed and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the Commission or any other federal or state governmental authority
for amendments or supplements to a Registration Statement or related
Prospectus or for additional information to be included in any Registration
Statement or Prospectus or otherwise, (iii) of the issuance by the Commission
of any stop order suspending the effectiveness of a Registration Statement or
the initiation or threatening of a any proceedings for that purpose, (iv) of
the issuance by any state securities commission or other regulatory authority
of any order suspending the qualification or exemption from qualification of
any of the Registrable Securities under state securities or "blue sky" laws or
the initiation of any proceedings for that purpose, and (v) of the happening of
any event which makes any statement made in a Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated by
reference
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<PAGE> 11
therein untrue or which requires the making of any changes in such Registration
Statement, Prospectus or documents so that they will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading; and,
as promptly as practicable thereafter, prepare and file with the Commission and
furnish a supplement or amendment to such Prospectus so that, as thereafter
deliverable to the purchasers of such Registrable Securities, such Prospectus
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(g) make generally available to the Holders an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act no later than
thirty (30) days after the end of the 12-month period beginning with the first
day of the Company's first fiscal quarter commencing after the effective date
of a Registration Statement, which earnings statement shall cover said 12-month
period;
(h) promptly use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement, and, if one is
issued, to obtain the withdrawal of any order suspending the effectiveness of a
Registration Statement at the earliest possible moment;
(i) if requested by the managing underwriter or underwriters, if any,
Holders' Counsel, or any Selling Holder promptly incorporate in a Prospectus
supplement or post-effective amendment such information as the managing
underwriter or underwriters requests, or Holders' Counsel requests, to be
included therein, including, without limitation, with respect to the amount of
Registrable Securities being sold by such Selling Holder to such underwriter or
underwriters and with respect to any other terms of the underwritten offering
of the Registrable Securities to be sold in such offering, and promptly make
all required filings of such Prospectus supplement or post-effective amendment;
(j) as promptly as practicable after filing with the Commission of any
document which is incorporated by reference into a Registration Statement,
deliver a copy of such document to each Selling Holder and to Holders' Counsel;
(k) cooperate with the Selling Holders and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (which shall not bear any restrictive legends and shall be in a
form eligible for deposit with the Depository Trust Company) representing
securities sold under such Registration Statement, and enable such securities
to be in such denominations and registered in such names as the managing
underwriter or underwriters, if any, or such Selling Holders may request and
make available prior to the effectiveness of such Registration Statement a
supply of such certificates;
(l) if applicable, enter into such customary agreements (including an
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<PAGE> 12
underwriting agreement in customary form) and take such other actions as the
Selling Holders of at least a majority of the aggregate number of the
Registrable Securities being sold or the underwriters retained by the Selling
Holders participating in an underwritten public offering, if any, may request
in order to expedite or facilitate the disposition of such Registrable
Securities;
(m) promptly make available for inspection by any Selling Holder, any
underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney, accountant or other agent or representative
retained by any such Selling Holder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records"), as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information requested by any such Inspector in connection with such
Registration Statement;
(n) use reasonable efforts to obtain a cold comfort letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by cold comfort letters as the Selling
Holders of at least a majority of the aggregate number of the Registrable
Securities being sold may request;
(o) if requested by Selling Holders of at least a majority of the
aggregate amount of the Registrable Securities being sold to cause the
Registrable Securities included in such Registration Statement to be (i) listed
or admitted for trading or otherwise included on each securities exchange, if
any, on which similar securities issued by the Company are then listed or
admitted for trading or otherwise included (including, without limitation, The
Nasdaq Stock Market) or (ii) authorized to be quoted on the National
Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") if the
Registrable Securities so qualify;
(p) provide a CUSIP number for all Registrable Securities not later than
the effective date of such Registration Statement;
(q) cooperate with each Selling Holder and each underwriter participating
in the disposition of such Registrable Securities and their respective counsel
in connection with any filings required to be made with the National
Association of Securities Dealers ("NASD"); and
(r) during the period when the Prospectus is required to be delivered
under the Securities Act, promptly file all documents required to be filed with
the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act.
Each Selling Holder, upon receipt of any notice from the Company of the
happening of any event of the kind described in subsection (f) of this Section
3, shall forthwith discontinue disposition of the Registrable Securities until
such Selling Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by subsection (f) of this Section 3 or until it
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<PAGE> 13
is advised in writing (the "Advice") by the Company that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in the Prospectus,
and, if so directed by the Company, such Selling Holder will, or will request
the managing underwriter or underwriters, if any, to, deliver to the Company
(at the Company's expense) all copies, other than permanent file copies then in
such Selling Holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event that
the Company shall give any such notice, the time periods for which a
Registration Statement is required to be kept effective pursuant to Section 2
hereof shall be extended by the number of days during the period from and
including the date of the giving of such notice to and including the date when
each Selling Holder shall have received (i) the copies of the supplemented or
amended Prospectus contemplated by Section 3(f) or (ii) the Advice.
If any Registration Statement refers to any Selling Holder by name or
otherwise as the holder of any securities of the Company, then such Selling
Holder shall have the right to require (i) the insertion therein of language,
in form and substance satisfactory to such Selling Holder, to the effect that
the holding by such Selling Holder of such securities is not to be construed as
a recommendation by such Selling Holder of the investment quality of the
Company's securities covered thereby and that such holding does not imply that
such Selling Holder will assist in meeting any future financial requirements of
the Company, or (ii) in the event that such reference to such Selling Holder by
name or otherwise is not required by the Securities Act or any similar Federal
statute then in force, the deletion of the reference to such Selling Holder.
4. Registration Expenses
All expenses incident to the Company's performance of or compliance with
this Agreement, including without limitation, all Commission and securities
exchange or NASD registration and filing fees, fees and expenses of compliance
with securities or "blue sky" laws (including fees and disbursements of counsel
in connection with "blue sky" qualifications of the Registrable Securities),
printing expenses, messenger and delivery expenses, internal expenses
(including, without limitation, all salaries and expenses of the Company's
officers and employees performing legal or accounting duties), fees and
expenses incurred in connection with the listing of the securities to be
registered, if any, on each securities exchange on which similar securities
issued by the Company are then listed, fees and disbursements of counsel for
the Company and its independent certified public accountants (including the
expense of any special audit or "cold comfort" letters required by or incident
to such performance), Securities Act liability insurance (if the Company elects
to obtain such insurance), reasonable fees and expenses of any special experts
retained by the Company in connection with such registration, fees and expenses
of other Persons retained by the Company, reasonable fees and expenses of one
counsel for the Holders incurred in connection with each registration hereunder
(but not including any underwriting fees, discounts or commissions attributable
to the sale of Registrable Securities) and any out-of-pocket expenses of the
Holders excluding any travel costs and counsel fees except as set forth above
are
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herein called "Registration Expenses."
The Company will pay all Registration Expenses in connection with each
Registration Statement filed pursuant to Section 2(a) or Section 2(b), whether
or not such Registration Statement becomes effective, except as otherwise set
forth therein. All expenses to be borne by the Holders in connection with any
Registration Statement filed pursuant to Section 2(a) or Section 2(b)
(including, without limitation, all underwriting fees, discounts or commissions
attributable to such sale of Registrable Securities) shall be borne by the
participating Holders pro rata in relation to the number of shares of
Registrable Securities to be registered by each Holder.
5. Indemnification; Contribution
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless, to the full extent permitted by law, each Holder, its officers,
directors and each Person who controls such Holder (within the meaning of the
Securities Act), and any agent or investment adviser thereof, against all
losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and costs of investigation) arising out of or based upon any
untrue or alleged untrue statement of material fact contained in any
Registration Statement, any amendment or supplement thereto, any Prospectus or
preliminary Prospectus or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same arise out of or are based
upon any such untrue statement or omission based upon information with respect
to such Holder furnished in writing to the Company by or on behalf of such
Holder expressly for use therein; provided that, in the event that the
Prospectus shall have been amended or supplemented and copies thereof as so
amended or supplemented, shall have been furnished to a Holder prior to the
confirmation of any sales of Registrable Securities, such indemnity with
respect to the Prospectus shall not inure to the benefit of such Holder if the
Person asserting such loss, claim, damage or liability and who purchased the
Registrable Securities from such holder did not, at or prior to the
confirmation of the sale of the Registrable Securities to such Person, receive
a copy of the Prospectus as so amended or supplemented and the untrue statement
or omission of a material fact contained in the Prospectus was corrected in the
Prospectus as so amended or supplemented. In connection with an underwritten
offering, the Company will indemnify the underwriters thereof, their officers
and directors and each person who controls such underwriters (within the
meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the Holders except with respect to
information provided by the underwriter specifically for inclusion therein.
(b) Indemnification by Holders. In connection with any Registration
Statement in which a Holder is participating, each such Holder will furnish to
the Company in writing such information with respect to the name and address of
such Holder and such other information as may be reasonably required for use in
connection with any such Registration Statement or Prospectus and agrees to
indemnify, to the full extent permitted by law, the
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Company, its directors and officers and each Person who controls the Company
(within the meaning of the Securities Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue statement of a material fact
or any omission of a material fact required to be stated in the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or
necessary to make the statements therein not misleading, to the extent, but
only to the extent, that such untrue or alleged untrue statement is contained
in or such omission or alleged omission relates to any information with respect
to such Holder so furnished in writing by such Holder specifically for
inclusion in any Prospectus or Registration Statement; provided, however, that
such Holder shall not be liable in any such case to the extent that prior to
the filing of any such Registration Statement or Prospectus or amendment
thereof or supplement thereto, such Holder has furnished in writing to the
Company information expressly for use in such Registration Statement or
Prospectus or any amendment thereof or supplement thereto which corrected or
made not misleading information previously furnished to the Company. In no
event shall the liability of any Selling Holder hereunder be greater in amount
than the dollar amount of the proceeds received by such Selling Holder upon the
sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such Person of any written notice of
the commencement of any action, suit, proceeding or investigation or threat
thereof made in writing for which such Person will claim indemnification or
contribution pursuant to this Agreement and, unless in the judgment of counsel
of such indemnified party a conflict of interest may exist between such
indemnified party and the indemnifying party with respect to such claim, permit
the indemnifying party to assume the defense of such claim. Whether or not
such defense is assumed by the indemnifying party, the indemnifying party will
not be subject to any liability for any settlement made without its consent
(but such consent will not be unreasonably withheld). No indemnifying party
will consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
of such claim or litigation. If the indemnifying party is not entitled to, or
elects not to, assume the defense of a claim, it will not be obligated to pay
the fees and expenses of more than one counsel (plus such local counsel, if
any, as may be reasonably required in other jurisdictions) with respect to such
claim, unless in the judgment of any indemnified party a conflict of interest
may exist between such indemnified party and any other of such indemnified
parties with respect to such claim, in which event the indemnifying party shall
be obligated to pay the fees and expenses of such additional counsel or
counsels. For the purposes of this Section 5(c), the term "conflict of
interest" shall mean that there are one or more legal defenses available to the
indemnified party that are different from or additional to those available to
the indemnifying party or such other indemnified parties, as applicable, which
different or additional defenses make joint representation inappropriate.
(d) Contribution. If the indemnification from the indemnifying party
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provided for in this Section 5 is unavailable to an indemnified party hereunder
in respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party and indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties, and the parties
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 5(c), any reasonable
legal or other fees or expenses reasonably incurred by such party in connection
with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 5(d), no underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission, and no
Selling Holder shall be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities of such
Selling Holder were offered to the public exceeds the amount of any damages
which such Selling Holder has otherwise been required to pay by reason of such
untrue statement or omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
If indemnification is available under this Section 5, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
Sections 5(a) and (b) without regard to the relative fault of said indemnifying
party or indemnified party or any other equitable consideration provided for in
this Section 5(d).
6. Participation in Underwritten Registrations
No Holder may participate in any underwritten registration hereunder
unless such Holder (a) agrees to sell its Registrable Securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting
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<PAGE> 17
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
7. Rule 144
The Company covenants that it will file the reports required to be filed
by it under the Securities Act and the Exchange Act (or, if the Company is not
required to file such reports, it will, upon the request of any Holder, make
publicly available other information so long as necessary to permit sales under
Rule 144 under the Securities Act), and it will take such further action as any
Holder may request, all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the Commission. Upon the
request of any Holder, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
8. Transfer or Assignment of Registration Rights
The rights to cause the Company to register Registrable Securities granted
pursuant to this Agreement may be transferred or assigned by any Holder to a
transferee or assignee; provided; however, that the transferee or assignee of
such rights assumes the obligations of such transferor or assignor, as the case
may be, under this Agreement and that such transferee or assignee executes and
delivers a copy of this Agreement to the Company.
9. Miscellaneous
(a) Other Registration Rights. The Company may grant registration rights
that would permit any Person the right to piggy-back or may itself exercise its
right to piggy-back, on any Shelf Registration, provided that if the managing
underwriter or underwriters, if any, of such offering delivers an opinion to
the Holders that the total amount of securities which they and the holders of
such new piggy-back rights intend to include in any Shelf Registration is so
large as to materially and adversely affect the success of such offering
(including the price at which such securities can be sold), then only the
amount, number or kind of securities to be offered for the account of holders
of such new piggy-back rights (other than the Company) will be reduced pro rata
with respect to each holder of securities to be registered, to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount, number or kind recommended by the managing underwriter
prior to any reduction in the amount of Registrable Securities to be included;
and provided further that if such offering is not underwritten, then such
piggy-back rights shall only be exercised with the consent of the Holders of at
least a majority of the Registrable Securities being offered under such Shelf
Registration.
(b) Amendments and Waivers. Except as otherwise provided herein, the
16
<PAGE> 18
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Company has obtained the written consent of Holders of at least a
majority of the aggregate number of the Registrable Securities then
outstanding.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by telex or telecopier, registered or
certified mail (return receipt requested), postage prepaid or courier to the
parties at the following address (or at such other address for any party as
shall be specified by like notice, provided that notices of a change of address
shall be effective only upon receipt thereof). Notices sent by mail shall be
effective two (2) days after mailing; notices sent by telex shall be effective
when answered back, notices sent by telecopier shall be effective when receipt
is acknowledged, and notices sent by courier guaranteeing next day delivery
shall be effective on the next business day after timely delivery to the
courier.
(i) if to a Holder, at the most current address given by
such Holder to the Company in writing;
(ii) if to the Company, as its address set forth in the
Securities Purchase Agreement with copies as set forth in the
Securities Purchase Agreement.
(d) Successors and Assigns. This Agreement shall bind and inure to the
benefit of and be enforceable by the Company, the Holders and the Holders'
respective successors and assigns and, in addition, shall inure to the benefit
of and be enforceable by each Person who shall from time to time be a Holder.
The Company may not assign its rights under this Agreement.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely in the State of New York.
The Company (i) hereby irrevocably submits to the jurisdiction of the
state courts of the State of New York and the jurisdiction of the United States
District Court for the Southern District of New York, for the purpose of any
suit, action or other proceeding arising out of or
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<PAGE> 19
based upon this Agreement or the subject matter hereof brought by a Holder and
(ii) hereby waives and agrees not to assert, by way of motion, as a defense, or
otherwise, in any such suit, action or proceeding, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Agreement or the subject
matter hereof may not be enforced in or by such court and (iii) hereby waives
in any such action, suit or proceeding any offsets or counterclaims. The
Company hereby consents to service of process by certified mail at the address
set forth herein and agrees that its submission to jurisdiction and its consent
to service of process by mail is made for the express benefit of the Holders.
Final judgment against the Company in any such action, suit or proceeding shall
be conclusive, and may be enforced in other jurisdictions (x) by suit, action
or proceeding on the conclusive evidence of the fact and of the amount of any
indebtedness or liability of the Company therein described or (y) in any other
manner provided by or pursuant to the laws of such other jurisdiction;
provided, however, that the Holders may at their option bring suit, or
institute other judicial proceedings, against the Company or any of its assets
in any state or Federal court of the United States or of any country or place
where the Company or its assets may be found.
(h) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the Holders
shall be enforceable to the fullest extent permitted by law.
(i) Entire Agreement. This Agreement, together with the Warrants, is
intended by the parties as a final expression of their agreement and is
intended to be the complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein.
This Agreement and the Warrants supersede all prior agreements and
understandings between the parties with respect to such subject matter.
(j) Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement or where any provision hereof is validly asserted
as a defense, the successful party shall, to the extent permitted by applicable
law, be entitled to recover reasonable attorneys' fees in addition to any other
available remedy, provided that the Company shall not be required to pay for
more than one firm of attorneys to represent all the Holders.
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<PAGE> 20
REGISTRATION RIGHTS AGREEMENT
COMPANY SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
DDL ELECTRONICS, INC.
By: /s/ Gregory L. Horton
-------------------------------------
Gregory L. Horton
President and Chief Executive Officer
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<PAGE> 21
REGISTRATION RIGHTS AGREEMENT
RICKEL SIGNATURE PAGE
Accepted and Agreed as of the
date first written above
RICKEL & ASSOCIATES, INC.
By: /s/ Howard Miller
--------------------------------
Name: Howard Miller
Title: E.V.P.
20
<PAGE> 1
EXHIBIT 4-p
================================================================================
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
DDL ELECTRONICS, INC.
AND
EACH OF THE PURCHASERS REFERRED TO HEREIN
================================================================================
Dated as of February 29, 1996
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of February 29, 1996 by and among DDL Electronics, Inc. (the
"Company") and each of the purchasers executing a signature page hereto (herein
referred to collectively as the "Purchasers" and individually as a
"Purchaser").
This Agreement is made pursuant to a certain Securities Purchase
Agreement dated as of the date hereof by and among the Company and each of the
Purchasers (the "Securities Purchase Agreement"). In order to induce the
Purchasers to enter into the Securities Purchase Agreement, the Company has
agreed to provide the registration rights set forth in this Agreement for the
benefit of the Holders (as hereinafter defined), from time to time, of
Registrable Securities (as hereinafter defined). The execution of this
Agreement is a condition to the closing of the transactions contemplated by the
Securities Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
Capitalized terms used herein without definition shall have the
respective meanings given such terms as set forth in the Securities Purchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
Advice: See Section 3.
Business Day: Any day other than a day on which banks are authorized
or required to be closed in the State of New York.
Collateral Security Warrants: The Collateral Security Warrants issued
by the Company pursuant to the Securities Purchase Agreement.
Commission: The Securities and Exchange Commission.
Common Stock: The common stock, par value $.01 per share, of the
Company.
Demand Registration: See Section 2(a).
Exchange Act: The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
Holder or Holders: Any holder of the Registrable Securities.
<PAGE> 3
Inspectors: See Section 3(m).
NASD: See Section 3(q).
NASDAQ: See Section 3(o).
Notes: The Company's 10% Senior Secured Notes due July 1, 1997 sold
pursuant to the Securities Purchase Agreement and in an aggregate original
principal amount of up to $5,300,000.
Objecting Notice: See Section 3(a).
Objecting Party: See Section 3(a).
Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or other agency or political subdivision thereof.
Piggyback Registration Rights: See Section 2(b).
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such prospectus.
R&A Collateral Stock: The 1,060,000 shares of Common Stock pledged by
Rickel as collateral security for the satisfaction of the Company's obligations
under the Notes.
Records: See Section 3(m).
Registrable Securities: The R&A Collateral Stock and the shares of
Common Stock issuable upon exercise of the Collateral Security Warrants until
such time as (i) a Registration Statement covering all of such Registrable
Securities has been declared effective by the Commission and all of such
Registrable Securities have been disposed of pursuant to such effective
Registration Statement or (ii) such Registrable Securities are held by one or
more Persons who could sell all Registrable Securities held by each such Person
in a single sale pursuant to Rule 144 (or any similar provision then in force)
under the Securities Act, whichever is earlier.
<PAGE> 4
Registration Expenses: See Section 4.
Registration Statement: Any registration statement of the Company
that covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
registration statements, including post-effective amendments, all exhibits,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
Securities Act: The Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
Selling Holders: See Section 3(a).
Shelf Registration: See Section 2.
Target Effective Period: See Section 2.
2. (a) Shelf Registration. Provided that the Notes are
still outstanding as of such date, on or prior to May 1, 1997, the Company
shall file a "shelf" Registration Statement on the appropriate form for an
offering to be made on a continuous basis pursuant to Rule 415 under the
Securities Act covering all of the Registrable Securities (the "Shelf
Registration"). In the event of the occurrence of an Event of Default prior to
the filing of such Shelf Registration, the Holders of a majority of the
aggregate principal amount of the Notes may demand (a "Demand Registration")
that the Company file at such time the Shelf Registration. The Company will
use its best efforts to have the Shelf Registration declared effective as soon
as practicable and to keep such Shelf Registration continuously effective for a
period (the "Target Effective Period") of at least thirty six (36) months
following the date on which such Shelf Registration is declared effective (or
such shorter period which will terminate when all Registrable Securities
covered by such Shelf Registration have been sold or withdrawn, but not prior
to the expiration of the applicable period referred to in Section 4(3) of the
Securities Act and Rule 174 thereunder, if applicable). The Company further
agrees, if necessary, to supplement or amend the Shelf Registration, as
required by the registration form used by the Company for such Shelf
Registration or by the instructions applicable to such registration form or by
the Securities Act or as reasonably requested (which request shall result in
the filing of a supplement or amendment) by any Holder or prospective Holder of
Registrable Securities to which such Shelf Registration relates, and the
Company agrees to furnish to the Holders, Holders' Counsel and any managing
underwriter copies of any such supplement or amendment prior to its being used
and/or filed with the Commission. The Company will pay all Registration
Expenses incurred in connection with the Shelf Registration, whether or not it
becomes effective.
(b) Piggyback Registration. If the Company at any time
after the occurrence of an Event of Default proposes to register any of its
securities under the Securities Act for sale
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<PAGE> 5
to the public for its own account or for the account of other security holders
(except with respect to registration statements on Forms S-4, S-8 or another
form not available for registering the Registrable Securities for sale to the
public), each such time it will give written notice thereof to Holders of
Registrable Securities and Notes of its intention so to do (such notice to be
given at least thirty (30) days prior to the filing thereof). Upon the written
request of any such holder (which request shall specify the number of
Registrable Securities intended to be disposed of by such holder and the
intended method of disposition thereof), received by the Company within twenty
(20) days after giving of any such notice by the Company, to register any of
such holder's Registrable Securities, the Company will use its best efforts,
subject to Section 2(c) below, to cause the Registrable Securities as to which
registration shall have been so requested to be included in the securities to
be covered by the Registration Statement proposed to be filed by the Company,
all to the extent requisite to permit the sale or other disposition by the
Holder (in accordance with its written request) of such Registrable Securities
so registered ("Piggyback Registration Rights"); provided, that (i) if such
registration involves an underwritten offering, all Holders of Registrable
Securities requesting to be included in the Company's registration must sell
their Registrable Securities to the underwriters selected by the Company on the
same terms and conditions as apply to the Company; and (ii) if, at any time
after giving written notice of its intention to register any securities
pursuant to this Section 2(b) and prior to the effective date of the
Registration Statement filed in connection with such registration, the Company
shall determine for any reason not to register such securities, the Company
shall give written notice to all Holders of Registrable Securities and,
thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (without prejudice, however, to
rights of Holders under Section 2(a) hereof). If a registration pursuant to
this Section 2(b) involves an underwritten public offering, any Holder of
Registrable Securities requesting to be included in such registration may
elect, in writing prior to the effective date of the registration statement
filed in connection with such registration, not to register such securities in
connection with such registration. No registration effected under this Section
2(b) shall relieve the Company of its obligations to effect the Shelf
Registration. The foregoing provisions notwithstanding, (i) the Company may
withdraw any registration statement referred to in this Section 2(b) without
thereby incurring any liability to the Holders of Registrable Securities or
Notes, and (ii) the inclusion of shares of Registrable Securities under such
Piggyback Registration Rights is subject to the cut back provisions of Section
2(c) below.
(c) Priority in Piggyback Registration. If a
registration pursuant to Section 2(b) hereof involves an underwritten offering
and the managing underwriter advises the Company in writing that, in its
opinion, the number of equity securities (including all Registrable Securities)
which the Company, the Holders and any other persons intended to be included in
such registration exceeds the largest number of securities which can be sold
without having an adverse effect on such offering, including the price at which
such securities can be sold, the Company shall include in such registration (i)
first, all the securities the Company proposes to sell for its own account and
(ii) second, to the extent that the number of securities which the Company
proposes to sell for its own account pursuant to Section 2(b) hereof is less
than the
4
<PAGE> 6
number of securities which the Company has been advised can be sold in such
offering without having the adverse effect referred to above, the number of
such Registrable Securities requested to be included in such registration by
the Holders pursuant to Section 2(b) hereof shall be included prior to the
inclusion of any other securities requested to be included in such registration
as a result of the exercise of either "demand" or "piggy back" registration
rights by such other holders.
(d) Holdback Agreements. If any registration of
Registrable Securities shall be in connection with an underwritten public
offering, each Holder of Registrable Securities agrees not to effect any public
sale or distribution, including any sale pursuant to Rule 144 under the
Securities Act, of any Registrable Securities, and not to effect any such
public sale or distribution of any other equity security of the Company or of
any security convertible into or exchangeable or exercisable for any equity
security of the Company (in each case, other than as part of such underwritten
public offering) during the thirty (30) days prior to, and during the ninety
(90) day period beginning on, the effective date of such Registration Statement
(except as part of such registration).
(e) Exceptions. Notwithstanding the foregoing, the
Company may delay the registration of Registrable Securities following a
written request pursuant to Section 2(a) or (b) hereof for the time periods
described in Section 2(f) hereof upon the occurrence of any of the following:
(i) The Company shall have previously entered
into an agreement or letter of intent contemplating an
underwritten public offering on a firm commitment basis of
Common Stock or securities convertible into or exchangeable
for Common Stock and the managing underwriter of such proposed
public offering advises the Company in writing that in its
opinion such proposed underwritten offering would be
materially and adversely affected by a concurrent registered
offering of Registrable Securities (such opinion to state the
reasons therefor);
(ii) During the two (2) month period immediately
preceding such request, the Company shall have entered into an
agreement or letter of intent, which has not expired or
otherwise terminated, contemplating a material business
acquisition by the Company or its subsidiaries whether by way
of merger, consolidation, acquisition of assets, acquisition
of securities or otherwise;
(iii) The Company is in possession of material
nonpublic information that the Company would be required to
disclose in the Registration Statement and that is not, but
for the
5
<PAGE> 7
registration, otherwise required to be disclosed at the time
of such registration, the disclosure of which, in its good
faith judgment, would have a material adverse effect on the
business, operations, prospects or competitive position of
the Company;
(iv) The Company shall receive the written opinion
of the managing underwriter of the underwritten public
offering pursuant to which its Common Stock has been
registered within the three (3) month period prior to the
receipt of a registration request that the registration of
additional Common Stock will materially and adversely affect
the market for the Common Stock (such opinion to state the
reasons therefor); or
(v) At the time of receipt of a registration
request, the Company is engaged, or its board of directors has
adopted by resolution a plan to engage, in any program for the
purchase of shares of Common Stock or securities convertible
into or exchangeable for shares of Common Stock and, in the
opinion of counsel, reasonably satisfactory to the requesting
Holders, the distribution of the Common Stock to be registered
would cause such purchase of shares to be in violation of Rule
10b-6 under Section 10 of the Exchange Act.
(f) Period of Delay. If an event described in clauses
(i) through (iv) of Section 2(e) shall occur, the Company may, by written
notice to the Holders, delay the filing of a Registration Statement with
respect to the Registrable Securities to be covered thereby for a period of
time not exceeding ninety (90) days.
If an event described in clause (v) of Section 2(e) shall
occur, the filing of a Registration Statement with respect to the Registrable
Securities to be covered thereby shall be delayed until the first date that the
Registrable Securities to be covered thereby can be sold without violation of
Rule 10(b)-6 under Section 10 of the Exchange Act.
3. Registration Procedures.
In connection with the registration obligations of the Company
pursuant to the terms and conditions of this Agreement, the Company shall:
(a) prior to filing a Registration Statement or
Prospectus or any amendments or supplements thereto, including documents
incorporated by reference after the initial filing of the Registration
Statement, furnish to the Holders of the Registrable Securities covered by such
Registration Statement (the "Selling Holders"), Holders' Counsel and the
underwriters, if any,
6
<PAGE> 8
draft copies of all such documents proposed to be filed at least five (5)
Business Days prior thereto, which documents will be subject to the review of
such Holders' Counsel and the underwriters, if any, and the Company will not,
unless required by law, file any Registration Statement or amendment thereto or
any Prospectus or any supplement thereto (including such documents incorporated
by reference) to which Selling Holders of at least a majority of the
Registrable Securities being sold (the "Objecting Party") shall object,
pursuant to notice given to the Company prior to the filing of such amendment
or supplement (the "Objection Notice"). The Objection Notice shall set forth
the objections and the specific areas in the draft documents where such
objections arise. The Company shall have five (5) Business Days after receipt
of the Objection Notice to correct such deficiencies to the satisfaction of the
Objecting Party, and will notify each Selling Holder of any stop order issued
or threatened by the Commission in connection therewith and take all reasonable
actions required to prevent the entry of such stop order or to remove it if
entered;
(b) promptly prepare and file with the Commission such
amendments and post-effective amendments to the Registration Statement as may
be necessary to keep such Registration Statement effective for the period
required pursuant to Section 2; cause the Prospectus to be supplemented by any
required Prospectus supplement, and, as so supplemented, to be filed pursuant
to Rule 424 under the Securities Act; and comply with the provisions of the
Securities Act applicable to it with respect to the disposition of all
Registrable Securities covered by such Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Selling Holders set forth in such Registration Statement or supplement to the
Prospectus;
(c) promptly furnish to any Selling Holder and the
underwriters, if any, without charge, such number or conformed copies of such
Registration Statement and any post-effective amendment thereto and such number
of copies of the Prospectus (including each preliminary Prospectus) and any
amendments or supplements thereto, and any documents incorporated by reference
therein, as such Selling Holder or underwriter may request in order to
facilitate the disposition of the Registrable Securities being sold by such
Selling Holder (it being understood that the Company consents to the use of the
Prospectus and any amendment or supplement thereto by each Selling Holder and
the underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by the Prospectus or any amendment or supplement
thereto); provided, that before filing a Registration Statement or Prospectus
relating to the Registrable Securities or any amendments or supplements
thereto, the Company will furnish to Holders' Counsel copies of all documents
proposed to be filed at least five (5) Business Days prior to the filing
thereof, which documents will be subject to the review of such counsel;
(d) on or prior to the date on which the Registration
Statement is declared effective, register or qualify such Registrable
Securities under such other securities or "blue sky" laws of such jurisdictions
as any Selling Holder, Holders' Counsel or underwriter requests and do any and
all other acts and things which may be necessary or advisable to enable such
Selling
7
<PAGE> 9
Holder to consummate the disposition in such jurisdictions of such Registrable
Securities owned by such Selling Holder; keep each such registration or
qualification (or exemption therefrom) effective during the period which the
Registration Statement is required to be kept effective; and do any and all
other acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided that the Company shall not be required to (i)
qualify to do business as a foreign corporation or as a broker-dealer in any
jurisdiction where it is not then so qualified, (ii) take any action which
would subject it to general service of process or to taxation in any
jurisdiction where it is not then so subject or (iii) amend the terms of the
Collateral Security Warrants;
(e) cause the Registrable Securities covered by such
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the Selling Holders to
consummate the disposition of such Registrable Securities;
(f) promptly notify each Selling Holder, Holders' Counsel
and any underwriter and (if requested by any such Person) confirm such notice
in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective,
(ii) of any request by the Commission or any other federal or state
governmental authority for amendments or supplements to a Registration
Statement or related Prospectus or for additional information to be included
in any Registration Statement or Prospectus or otherwise, (iii) of the issuance
by the Commission of any stop order suspending the effectiveness of a
Registration Statement or the initiation or threatening of a any proceedings
for that purpose, (iv) of the issuance by any state securities commission or
other regulatory authority of any order suspending the qualification or
exemption from qualification of any of the Registrable Securities under state
securities or "blue sky" laws or the initiation of any proceedings for that
purpose, and (v) of the happening of any event which makes any statement made
in a Registration Statement or related Prospectus or any document incorporated
or deemed to be incorporated by reference therein untrue or which requires the
making of any changes in such Registration Statement, Prospectus or documents
so that they will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; and, as promptly as practicable
thereafter, prepare and file with the Commission and furnish a supplement or
amendment to such Prospectus so that, as thereafter deliverable to the
purchasers of such Registrable Securities, such Prospectus will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading;
(g) make generally available to the Holders an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act no
later than thirty (30) days after the end of the 12-month period beginning with
the first day of the Company's first fiscal quarter commencing after the
effective date of a Registration Statement, which earnings statement shall
8
<PAGE> 10
cover said 12-month period;
(h) promptly use its best efforts to prevent the issuance
of any order suspending the effectiveness of a Registration Statement, and, if
one is issued, to obtain the withdrawal of any order suspending the
effectiveness of a Registration Statement at the earliest possible moment;
(i) if requested by the managing underwriter or
underwriters, if any, Holders' Counsel, or any Selling Holder promptly
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters requests, or Holders'
Counsel requests, to be included therein, including, without limitation, with
respect to the amount of Registrable Securities being sold by such Selling
Holder to such underwriter or underwriters and with respect to any other terms
of the underwritten offering of the Registrable Securities to be sold in such
offering, and promptly make all required filings of such Prospectus supplement
or post-effective amendment;
(j) as promptly as practicable after filing with the
Commission of any document which is incorporated by reference into a
Registration Statement, deliver a copy of such document to each Selling Holder
and to Holders' Counsel;
(k) cooperate with the Selling Holders and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates (which shall not bear any restrictive legends and
shall be in a form eligible for deposit with the Depository Trust Company)
representing securities sold under such Registration Statement, and enable such
securities to be in such denominations and registered in such names as the
managing underwriter or underwriters, if any, or such Selling Holders may
request and make available prior to the effectiveness of such Registration
Statement a supply of such certificates;
(l) if applicable, enter into such customary agreements
(including an underwriting agreement in customary form) and take such other
actions as the Selling Holders of at least a majority of the aggregate number
of the Registrable Securities being sold or the underwriters retained by the
Selling Holders participating in an underwritten public offering, if any, may
request in order to expedite or facilitate the disposition of such Registrable
Securities;
(m) promptly make available for inspection by any Selling
Holder, any underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney, accountant or other agent or
representative retained by any such Selling Holder or underwriter
(collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable them to exercise their
due diligence responsibility, and cause the Company's officers, directors and
employees to supply all information requested by any such Inspector in
connection with such Registration Statement;
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<PAGE> 11
(n) use reasonable efforts to obtain a cold comfort
letter from the Company's independent public accountants in customary form and
covering such matters of the type customarily covered by cold comfort letters
as the Selling Holders of at least a majority of the aggregate number of the
Registrable Securities being sold may request;
(o) if requested by Selling Holders of at least a
majority of the aggregate amount of the Registrable Securities being sold to
cause the Registrable Securities included in such Registration Statement to be
(i) listed or admitted for trading or otherwise included on each securities
exchange, if any, on which similar securities issued by the Company are then
listed or admitted for trading or otherwise included (including, without
limitation, The Nasdaq Stock Market) or (ii) authorized to be quoted on the
National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ")
if the Registrable Securities so qualify;
(p) provide a CUSIP number for all Registrable Securities
not later than the effective date of such Registration Statement;
(q) cooperate with each Selling Holder and each
underwriter participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be made
with the National Association of Securities Dealers ("NASD"); and
(r) during the period when the Prospectus is required to
be delivered under the Securities Act, promptly file all documents required to
be filed with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act.
Each Selling Holder, upon receipt of any notice from the Company of
the happening of any event of the kind described in subsection (f) of this
Section 3, shall forthwith discontinue disposition of the Registrable
Securities until such Selling Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by subsection (f) of this
Section 3 or until it is advised in writing (the "Advice") by the Company that
the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings which are incorporated by reference in the
Prospectus, and, if so directed by the Company, such Selling Holder will, or
will request the managing underwriter or underwriters, if any, to, deliver to
the Company (at the Company's expense) all copies, other than permanent file
copies then in such Selling Holder's possession, of the Prospectus covering
such Registrable Securities current at the time of receipt of such notice. In
the event that the Company shall give any such notice, the time periods for
which a Registration Statement is required to be kept effective pursuant to
Section 2 hereof shall be extended by the number of days during the period from
and including the date of the giving of such notice to and including the date
when each Selling Holder shall have received (i) the copies of the supplemented
or amended Prospectus contemplated by Section 3(f) or (ii) the Advice.
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<PAGE> 12
If any Registration Statement refers to any Selling Holder by name or
otherwise as the holder of any securities of the Company, then such Selling
Holder shall have the right to require (i) the insertion therein of language,
in form and substance satisfactory to such Selling Holder, to the effect that
the holding by such Selling Holder of such securities is not to be construed as
a recommendation by such Selling Holder of the investment quality of the
Company's securities covered thereby and that such holding does not imply that
such Selling Holder will assist in meeting any future financial requirements of
the Company, or (ii) in the event that such reference to such Selling Holder by
name or otherwise is not required by the Securities Act or any similar Federal
statute then in force, the deletion of the reference to such Selling Holder.
4. Registration Expenses
All expenses incident to the Company's performance of or compliance
with this Agreement, including without limitation, all Commission and
securities exchange or NASD registration and filing fees, fees and expenses of
compliance with securities or "blue sky" laws (including fees and disbursements
of counsel in connection with "blue sky" qualifications of the Registrable
Securities), printing expenses, messenger and delivery expenses, internal
expenses (including, without limitation, all salaries and expenses of the
Company's officers and employees performing legal or accounting duties), fees
and expenses incurred in connection with the listing of the securities to be
registered, if any, on each securities exchange on which similar securities
issued by the Company are then listed, fees and disbursements of counsel for
the Company and its independent certified public accountants (including the
expense of any special audit or "cold comfort" letters required by or incident
to such performance), Securities Act liability insurance (if the Company elects
to obtain such insurance), reasonable fees and expenses of any special experts
retained by the Company in connection with such registration, fees and expenses
of other Persons retained by the Company, reasonable fees and expenses of one
counsel for the Holders incurred in connection with each registration hereunder
(but not including any underwriting fees, discounts or commissions attributable
to the sale of Registrable Securities) and any out-of-pocket expenses of the
Holders excluding any travel costs and counsel fees except as set forth above
(all such expenses being herein called "Registration Expenses"), will be borne
by the Company whether or not the Registration Statement becomes effective.
5. Indemnification; Contribution
(a) Indemnification by the Company. The Company agrees
to indemnify and hold harmless, to the full extent permitted by law, each
Holder, its officers, directors and each Person who controls such Holder
(within the meaning of the Securities Act), and any agent or investment adviser
thereof, against all losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees and costs of investigation) arising out
of or based upon any untrue or alleged untrue statement of material fact
contained in any Registration Statement, any amendment or supplement thereto,
any Prospectus or preliminary Prospectus or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
11
<PAGE> 13
the statements therein not misleading, except insofar as the same arise out of
or are based upon any such untrue statement or omission based upon information
with respect to such Holder furnished in writing to the Company by or on behalf
of such Holder expressly for use therein; provided that, in the event that the
Prospectus shall have been amended or supplemented and copies thereof as so
amended or supplemented, shall have been furnished to a Holder prior to the
confirmation of any sales of Registrable Securities, such indemnity with
respect to the Prospectus shall not inure to the benefit of such Holder if the
Person asserting such loss, claim, damage or liability and who purchased the
Registrable Securities from such holder did not, at or prior to the
confirmation of the sale of the Registrable Securities to such Person, receive
a copy of the Prospectus as so amended or supplemented and the untrue statement
or omission of a material fact contained in the Prospectus was corrected in the
Prospectus as so amended or supplemented. In connection with an underwritten
offering, the Company will indemnify the underwriters thereof, their officers
and directors and each person who controls such underwriters (within the
meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the Holders of Registrable Securities except
with respect to information provided by the underwriter specifically for
inclusion therein.
(b) Indemnification by Holders of Registrable Securities.
In connection with any Registration Statement in which a Holder is
participating, each such Holder will furnish to the Company in writing such
information with respect to the name and address of such Holder and such other
information as may be reasonably required for use in connection with any such
Registration Statement or Prospectus and agrees to indemnify, to the full
extent permitted by law, the Company, its directors and officers and each
Person who controls the Company (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses resulting from
any untrue statement of a material fact or any omission of a material fact
required to be stated in the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or necessary to make the statements
therein not misleading, to the extent, but only to the extent, that such untrue
or alleged untrue statement is contained in or such omission or alleged
omission relates to any information with respect to such Holder so furnished in
writing by such Holder specifically for inclusion in any Prospectus or
Registration Statement; provided, however, that such Holder shall not be liable
in any such case to the extent that prior to the filing of any such
Registration Statement or Prospectus or amendment thereof or supplement
thereto, such Holder has furnished in writing to the Company information
expressly for use in such Registration Statement or Prospectus or any amendment
thereof or supplement thereto which corrected or made not misleading
information previously furnished to the Company. In no event shall the
liability of any Selling Holder hereunder be greater in amount than the dollar
amount of the proceeds received by such Selling Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder agrees to give prompt written notice to
the indemnifying party after the receipt by such Person of any written notice
of the commencement of any action, suit,
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<PAGE> 14
proceeding or investigation or threat thereof made in writing for which such
Person will claim indemnification or contribution pursuant to this Agreement
and, unless in the judgment of counsel of such indemnified party a conflict of
interest may exist between such indemnified party and the indemnifying party
with respect to such claim, permit the indemnifying party to assume the defense
of such claim. Whether or not such defense is assumed by the indemnifying
party, the indemnifying party will not be subject to any liability for any
settlement made without its consent (but such consent will not be unreasonably
withheld). No indemnifying party will consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect of such claim or litigation. If the
indemnifying party is not entitled to, or elects not to, assume the defense of
a claim, it will not be obligated to pay the fees and expenses of more than one
counsel (plus such local counsel, if any, as may be reasonably required in
other jurisdictions) with respect to such claim, unless in the judgment of any
indemnified party a conflict of interest may exist between such indemnified
party and any other of such indemnified parties with respect to such claim, in
which event the indemnifying party shall be obligated to pay the fees and
expenses of such additional counsel or counsels. For the purposes of this
Section 5(c), the term "conflict of interest" shall mean that there are one or
more legal defenses available to the indemnified party that are different from
or additional to those available to the indemnifying party or such other
indemnified parties, as applicable, which different or additional defenses make
joint representation inappropriate.
(d) Contribution. If the indemnification from the
indemnifying party provided for in this Section 5 is unavailable to an
indemnified party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified parties in
connection with the actions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and indemnified
parties shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact, has been made by, or relates to information supplied by, such
indemnifying party or indemnified parties, and the parties intent, knowledge,
access to information and opportunity to correct or prevent such action. The
amount paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 5(d), no underwriter
shall
13
<PAGE> 15
be required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Selling Holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities of such Selling Holder were
offered to the public exceeds the amount of any damages which such Selling
Holder has otherwise been required to pay by reason of such untrue statement or
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 5, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
Sections 5(a) and (b) without regard to the relative fault of said indemnifying
party or indemnified party or any other equitable consideration provided for in
this Section 5(d).
6. Participation in Underwritten Registrations
No Holder may participate in any underwritten registration hereunder
unless such Holder (a) agrees to sell its Registrable Securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
7. Rule 144
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act (or, if the Company
is not required to file such reports, it will, upon the request of any Holder,
make publicly available other information so long as necessary to permit sales
under Rule 144 under the Securities Act), and it will take such further action
as any Holder may request, all to the extent required from time to time to
enable such Holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (a) Rule
144 under the Securities Act, as such Rule may be amended from time to time, or
(b) any similar rule or regulation hereafter adopted by the Commission. Upon
the request of any Holder, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
8. Transfer or Assignment of Registration Rights
The rights to cause the Company to register Registrable Securities
granted pursuant to this Agreement may be transferred or assigned by any Holder
to a transferee or assignee;
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<PAGE> 16
provided; however, that the transferee or assignee of such rights assumes the
obligations of such transferor or assignor, as the case may be, under this
Agreement and that such transferee or assignee executes and delivers a copy of
this Agreement to the Company.
9. Miscellaneous
(a) Other Registration Rights. The Company may grant
registration rights that would permit any Person the right to piggy-back or may
itself exercise its right to piggy-back, on any Shelf Registration, provided
that if the managing underwriter or underwriters, if any, of such offering
delivers an opinion to the Holders that the total amount of securities which
they and the holders of such new piggy-back rights intend to include in any
Shelf Registration is so large as to materially and adversely affect the
success of such offering (including the price at which such securities can be
sold), then only the amount, number or kind of securities to be offered for the
account of holders of such new piggy-back rights (other than the Company) will
be reduced pro rata with respect to each holder of securities to be registered,
to the extent necessary to reduce the total amount of securities to be included
in such offering to the amount, number or kind recommended by the managing
underwriter prior to any reduction in the amount of Registrable Securities to
be included; and provided further that if such offering is not underwritten,
then such piggy-back rights shall only be exercised with the consent of the
Holders of at least a majority of the Registrable Securities being offered
under such Shelf Registration.
(b) Amendments and Waivers. Except as otherwise
provided herein, the provisions of this Agreement may not be amended, modified
or supplemented, and waivers or consents to departures from the provisions
hereof may not be given unless the Company has obtained the written consent of
Holders of at least a majority of the aggregate number of the Registrable
Securities then outstanding.
(c) Notices. All notices and other communications
provided for or permitted hereunder shall be in writing and shall be deemed to
have been duly given if delivered personally or sent by telex or telecopier,
registered or certified mail (return receipt requested), postage prepaid or
courier to the parties at the following address (or at such other address for
any party as shall be specified by like notice, provided that notices of a
change of address shall be effective only upon receipt thereof). Notices sent
by mail shall be effective two (2) days after mailing; notices sent by telex
shall be effective when answered back, notices sent by telecopier shall be
effective when receipt is acknowledged, and notices sent by courier
guaranteeing next day delivery shall be effective on the next business day
after timely delivery to the courier.
(i) if to a Holder, at the most current address
given by such Holder to the Company in writing;
(ii) if to the Company, as its address set forth
in the Securities Purchase Agreement with copies as set forth
in the Securities Purchase Agreement.
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<PAGE> 17
(d) Successors and Assigns. This Agreement shall bind
and inure to the benefit of and be enforceable by the Company, the Purchasers
and the Purchasers' respective successors and assigns and, in addition, shall
inure to the benefit of and be enforceable by each Person who shall from time
to time be a Holder of any of the Registrable Securities. The Company may not
assign its rights under this Agreement. Except as provided in the Collateral
Security Warrants and the Pledge Agreement, the Purchasers may transfer the
Registrable Securities (and any portion thereof) at any time without the
consent of the Company.
(e) Counterparts. This Agreement may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable
to contracts made and to be performed entirely in the State of New York.
The Company (i) hereby irrevocably submits to the jurisdiction
of the state courts of the State of New York and the jurisdiction of the United
States District Court for the Southern District of New York, for the purpose of
any suit, action or other proceeding arising out of or based upon this
Agreement or the subject matter hereof brought by a Holder and (ii) hereby
waives and agrees not to assert, by way of motion, as a defense, or otherwise,
in any such suit, action or proceeding, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is
exempt or immune from attachment or execution, that the suit, action or
proceeding is brought in an inconvenient forum, that the venue of the suit,
action or proceeding is improper or that this Agreement or the subject matter
hereof may not be enforced in or by such court and (iii) hereby waives in any
such action, suit or proceeding any offsets or counterclaims. The Company
hereby consents to service of process by certified mail at the address set
forth herein and agrees that its submission to jurisdiction and its consent to
service of process by mail is made for the express benefit of the Holders.
Final judgment against the Company in any such action, suit or proceeding shall
be conclusive, and may be enforced in other jurisdictions (x) by suit, action
or proceeding on the conclusive evidence of the fact and of the amount of any
indebtedness or liability of the Company therein described or (y) in any other
manner provided by or pursuant to the laws of such other jurisdiction;
provided, however, that the Holders may at their option bring suit, or
institute other judicial proceedings, against the Company or any of its assets
in any state or Federal court of the United States or of any country or place
where the Company or its assets may be found.
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<PAGE> 18
(h) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions contained herein shall not
be in any way impaired thereby, it being intended that all of the rights and
privileges of the Purchasers shall be enforceable to the fullest extent
permitted by law.
(i) Entire Agreement. This Agreement, together with
the Securities Purchase Agreement, the Collateral Security Warrants, the Pledge
Agreement, the Collateral Agency Agreement and the Notes, is intended by the
parties as a final expression of their agreement and is intended to be the
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement, the
Collateral Security Warrants, the Pledge Agreement, the Collateral Agency
Agreement, the Notes and the Securities Purchase Agreement (including the
exhibits and schedules to each) supersede all prior agreements and
understandings between the parties with respect to such subject matter.
(j) Attorneys' Fees. In any action or proceeding
brought to enforce any provision of this Agreement or where any provision
hereof is validly asserted as a defense, the successful party shall, to the
extent permitted by applicable law, be entitled to recover reasonable
attorneys' fees in addition to any other available remedy, provided that the
Company shall not be required to pay for more than one firm of attorneys to
represent all the Holders.
17
<PAGE> 19
REGISTRATION RIGHTS AGREEMENT COMPANY SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
DDL ELECTRONICS, INC.
By: /s/ Gregory L. Horton
-------------------------------------
Gregory L. Horton
President and Chief Executive Officer
18
<PAGE> 20
REGISTRATION RIGHTS AGREEMENT PURCHASER SIGNATURE PAGE
Accepted and Agreed as of the
date first written above
SARATOGA HOLDINGS INC.
By: /s/ Gregg Smith
----------------------------
Name: Gregg Smith
Title: CEO
/s/ Gregg A. Smith
- -------------------------------
Gregg A. Smith
/s/ Elliot Smith
- -------------------------------
Elliot Smith
/s/ Kenneth D. Rickel
- -------------------------------
Kenneth D. Rickel
/s/ Joseph Fair
- -------------------------------
Joseph Fair
/s/ Edward McWilliams
- -------------------------------
Edward McWilliams
- -------------------------------
David Cornstein
/s/ Jeffrey S. Silverman
- -------------------------------
Jeffrey S. Silverman
19
<PAGE> 21
/s/ Howard Miller
- ---------------------------
Howard Miller
/s/ Steve Levy
- ---------------------------
Steve Levy
/s/ Marvin Numeroff
- ---------------------------
Marvin Numeroff
/s/ Jerry Gray
- ---------------------------
Jerry Gray
/s/ Robert Rickel
- ---------------------------
Robert Rickel
/s/ Leonard Wilf
- ---------------------------
Leonard Wilf
- ---------------------------
Peter Knobel
- ---------------------------
Patrice Knobel
- ---------------------------
Theodore Sofia
20
<PAGE> 1
EXHIBIT 4-q
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of February 29, 1996 (this "Pledge" or this
"Agreement"), among RICKEL & ASSOCIATES, INC., a New Jersey corporation
("Rickel"), FIRST UNION NATIONAL BANK, as collateral agent (the "Collateral
Agent"), for the benefit of the Holders (as herein defined), and DDL
ELECTRONICS, INC., a Delaware corporation (the "Company").
R E C I T A L S:
WHEREAS, on the date hereof the Company will authorize the issuance of
$5,300,000 of its Senior Secured Notes due July 1, 1997 (the "Notes") pursuant
to a Securities Purchase Agreement, dated as of February 29, 1996, among the
Company and the Holders (the "Securities Purchase Agreement");
WHEREAS, contemporaneously with the closing of the sale of the Notes, the
Company will issue shares of its common stock, par value $.01 per share (the
"Common Stock"), to Rickel as part of its placement agent fee; and
WHEREAS, it is a condition precedent to the closing of the sale of the
Notes that Rickel enter into this Agreement with the Collateral Agent, for the
benefit of the holders of the Notes (the "Holders"), and the Company.
NOW, THEREFORE, in consideration of, and in order to induce, the purchase
of the Notes by the purchasers (the "Purchasers") of such Notes and for other
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. TERMS AND DEFINITIONS.
Section 1.1 Definitions. Except as otherwise specified or as the context
may otherwise require, the following terms shall have the respective meanings
set forth below whenever used in this Agreement:
(a) "Operative Documents" shall mean the Securities Purchase
Agreement, the Notes, the Collateral Security Warrants, this Agreement, the
Collateral Agency Agreement and the Collateral Registration Rights Agreement.
(b) "Proceeds" shall mean "proceeds," as such term is defined in
Section 9-306(1) of the UCC, and, in any event, includes, without limitation,
(i) any and all
<PAGE> 2
proceeds of any insurance, indemnity, warranty or guaranty payable to Rickel
from time to time with respect to any of the Pledged Collateral (as defined in
Section 2), (ii) any and all payments (in any form whatsoever) made or due and
payable to Rickel from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Pledged Collateral by any Governmental Body (or any Person acting under color
of any Governmental Body), and (iii) any and all other amounts from time to
time paid or payable under or in connection with any of the Pledged Collateral.
(c) "UCC" shall mean the Uniform Commercial Code as the same may,
from time to time, be in effect in the State of New York; provided, however, in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the Holders' security interest in the
Pledged Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection or priority and
for purposes of definitions related to such provisions.
Section 1.2 Additional Terms. All other capitalized terms used herein but
not otherwise defined herein shall have the respective meanings ascribed
thereto in the Securities Purchase Agreement.
SECTION 2. GRANT OF SECURITY.
Section 2.1 Pledged Collateral.
(a) Subject to Section 2.2, Rickel hereby assigns, conveys,
pledges, hypothecates and transfers to the Collateral Agent, for the ratable
benefit of the Holders, and hereby grants to the Collateral Agent, for the
ratable benefit of the Holders, an irrevocable and unconditional first
perfected security interest in the following (the "Pledged Collateral"):
(i) One million sixty thousand (1,060,000) shares of Common
Stock (the "Shares") initially in the form attached hereto as Exhibit A;
provided that stock certificate numbered DD2418 representing three hundred
fifty-three thousand three hundred and thirty three (353,333) shares of Common
Stock may be exchanged upon direction of the Company for a stock certificate
representing the same amount of Common Stock without a restricted legend
thereon;
(ii) all distributions of cash, securities, instruments and
other property from time to time received, receivable or otherwise distributed
in respect of, or in exchange for, any or all of the Shares; and
(iii) all Proceeds of the Shares and the items referred to in
2
<PAGE> 3
clause (ii) above.
(b) Subject to Section 2.2, the Pledged Collateral secures the
payment of all obligations (the "Secured Obligations") of every kind and
character now or hereafter existing (whether matured or unmatured, contingent
or liquidated) of the Company under the Operative Documents (as such documents
hereafter may be amended, supplemented or otherwise modified from time to time)
including, without limitation, whether for principal, interest, premium, fees,
costs, expenses, or otherwise (including, without limitation, any and all
expenses (including reasonable attorneys' fees and legal expenses) incurred by
the Holders in the collection of the Notes and in the enforcement and
protection of the Holders' rights hereunder and under the other Operative
Documents).
(c) Rickel shall take any and all action necessary or desirable
to perfect and protect the security interest of the Collateral Agent and the
Holders in the Pledged Collateral and in any substituted and additional Pledged
Collateral including, without limitation, the filing of financing statements or
amendments thereto or the delivery upon receipt thereof to the Collateral Agent
of any and all certificates or instruments representing or evidencing such
substituted and additional Pledged Collateral in suitable form for transfer by
delivery, or accompanied by duly executed instruments of transfer or assignment
in blank, all in form and substance satisfactory to the Collateral Agent. The
provisions of this Agreement shall be construed in accordance with this
intention.
Section 2.2 Exercise of Rights. The Collateral Agent and the Holders are
only entitled to exercise their rights hereunder after the exercise in full of
the Holders' rights under the Collateral Security Warrants to purchase shares
of Common Stock and to sell (or retain, as the case may be) such Shares to
satisfy the Secured Obligations, as more fully set forth in, and in accordance
with the terms of, the Collateral Security Warrants, and then only to the
extent that the net proceeds of the sale of all of the Collateral Security
Warrant Shares are (or, in the case of the Holders' retention of the Collateral
Security Warrant Shares, the value attributed to the Collateral Security
Warrant Shares in accordance with the terms of the Collateral Security Warrants
is) insufficient to satisfy in full all of the Secured Obligations. Prior to
the exercise of such rights hereunder, the Holders shall certify to the
Collateral Agent (a) the amount of the Secured Obligations still outstanding
after the sale (or retention, as the case may be) of all of the Collateral
Security Warrant Shares and (b) that such Holders have exercised in full all of
their rights under the Collateral Security Warrants. The Collateral Agent may
rely upon such certification without any further investigation.
The Company shall have the right, but not the obligation, to fund
the optional prepayment of all, but not less than all, of the amounts
outstanding under the Notes with the net proceeds of the sale of up to 706,667
Shares. However, the Company shall only have the right to sell that number of
Shares (which number shall in any event not exceed 706,667) that will result in
the receipt by the Company of the difference between the Prepayment Amount and
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the DDL and Collateral Security Warrant Shares Proceeds. Such sale by the
Company is contingent upon the prepayment in full of all amounts outstanding
under the Notes immediately upon consummation of such sale. Any sale of the
Shares shall be on the same terms and subject to the same conditions as the
Company's sale of DDL Shares and Collateral Security Warrant Shares in
connection with such prepayment as more fully set forth in the Securities
Purchase Agreement and the Collateral Security Warrants. However, any Shares
sold by the Company in connection with an optional prepayment of the Notes
shall not include any of the Shares registered by the Company under the
Securities Act pursuant to Section 6.15 of the Securities Purchase Agreement.
Each of Rickel, the Collateral Agent and the Holders shall take any and all
action necessary or desirable to permit such sale by the Company, including,
without limitation, to deliver to the Company the certificates representing the
Shares so sold by the Company upon receipt of payment therefor by the
Collateral Agent. The Holders shall have the option, in their sole discretion,
to accept as payment of the applicable prepayment price any Shares intended to
be sold by the Company to fund such optional prepayment instead of a cash
payment of the applicable prepayment price. Prior to the Company's exercise of
such right, the Company shall deliver to the Collateral Agent written consent
to such exercise by Rickel.
SECTION 3. SECURITY INTEREST ABSOLUTE. All rights of the Collateral Agent
and the Holders hereunder, all security interests hereunder and all obligations
of Rickel hereunder shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of any provision of any
Operative Document;
(b) any change in the time, manner or place of payment of, or in
any other term of, or any increase in the amount of, all or any of the Secured
Obligations, or any other amendment or waiver of any term of, or any consent to
any departure from any requirement of, any Operative Document;
(c) any failure on the part of the Collateral Agent or the Holders
to give notice of any kind, mitigate the damages resulting from the default by
Rickel under this Pledge or by the Company under any Operative Document or
protect, secure, perfect and insure any lien on the Pledged Collateral; or
(d) any other circumstance which might otherwise constitute a
defense available to, or a discharge or release of, a borrower or a pledgor or
otherwise limit the obligations of Rickel under this Pledge.
SECTION 4. DELIVERY OF PLEDGED COLLATERAL. All instruments representing
or evidencing the Pledged Collateral including, without limitation, the
certificate or certificates representing the Shares have been, or will be,
delivered to a representative of the Collateral Agent who shall hold all such
instruments on behalf of all of the Holders. All instruments
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representing or evidencing Pledged Collateral shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to the
Collateral Agent. Subject to Section 2.2, after the occurrence of an Event of
Default (as defined in the Notes), the Collateral Agent shall have the right,
at any time and without notice to Rickel or the Company, to transfer to or to
register in the name of the Holders, or any of their nominees, any or all of
the Pledged Collateral. In addition (subject to Section 2.2), the Collateral
Agent or the Holders shall have the right at any time after the occurrence of
an Event of Default to exchange instruments representing or evidencing Pledged
Collateral for instruments of smaller or larger denominations.
SECTION 5. APPOINTMENT AS ATTORNEY-IN-FACT.
(a) Subject to Section 2.2, effective upon the occurrence and
during the continuance of an Event of Default, Rickel hereby irrevocably
constitutes and appoints the Collateral Agent, its agents, representatives and
designees, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of Rickel and in the name of Rickel or in its own name or the names of
the Holders, from time to time at the direction of the Majority Noteholders,
for the purpose of carrying out the terms of this Agreement, to take any and
all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this
Agreement (except, without limiting the generality of the foregoing, that the
Collateral Agent shall not ratify any of its own actions pursuant to this power
of attorney) and, without limiting the generality of the foregoing, hereby
gives the Collateral Agent in its sole discretion the power and right, on
behalf of Rickel, without notice to or assent by Rickel, to do the following:
(i) to ask, demand, collect, receive and give acquittances and
receipts for any and all monies due and to become due under any Pledged
Collateral and, in the name of Rickel or its own name (for the ratable benefit
of the Holders) or otherwise, to take possession of and endorse and collect any
checks, drafts, notes, acceptances or other instruments for the payment of
monies due under any Pledged Collateral and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise deemed
appropriate by the Collateral Agent for the purpose of collecting any and all
such monies due under any Pledged Collateral whenever payable and to file any
claim or to take any other action or proceeding in any court of law or equity
or otherwise deemed appropriate by the Collateral Agent for the purpose of
collecting any and all such moneys due under any Pledged Collateral whenever
payable; and
(ii) to pay or discharge taxes, liens, security interests or
other encumbrances levied or placed on or threatened against the Pledged
Collateral.
Rickel hereby ratifies all that said attorney shall lawfully do or cause
to be done by virtue hereof and acknowledges that this power of attorney is a
power coupled with an interest
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and shall be irrevocable.
(b) The powers conferred on the Collateral Agent hereunder are
solely to protect the Collateral Agent's and the Holders' interests in the
Pledged Collateral and shall not impose any duty upon the Collateral Agent or
the Holders to exercise any such powers. The Collateral Agent shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers and none of the Collateral Agent, the Holders or any of
their agents, representatives or designees shall be responsible to Rickel for
any act or failure to act, except for any act involving gross negligence, bad
faith or willful misconduct.
SECTION 6. WAIVERS. Rickel hereby irrevocably waives all right to trial
by jury in any action, proceeding or counterclaim based upon, arising out of,
or relating to, this Pledge, or the actions of the Collateral Agent or the
Holders in the negotiation, administration, performance or enforcement thereof.
The scope of this waiver is intended to be all-encompassing of any and all
disputes that may be filed in any court and that relate to the subject matter
of this transaction, including, without limitation, contract claims, tort
claims, breach of duty claims and all other common law and statutory claims.
Rickel acknowledges that this waiver is a material inducement to the Holders to
enter into a business relationship with Company and that the Holders have
already relied on this waiver in entering into this Agreement and the Operative
Documents and will continue to rely on this waiver in their related future
dealings. Rickel further warrants and represents that it has reviewed this
waiver with its legal counsel, and that it knowingly and voluntarily waives its
jury trial rights following consultation with legal counsel. NOTWITHSTANDING
ANYTHING CONTAINED HEREIN TO THE CONTRARY, THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT OR ANY OTHER DOCUMENTS OR AGREEMENTS RELATING HERETO. In the
event of litigation, this Agreement may be filed as a written consent to a
trial by the court.
SECTION 7. REPRESENTATIONS OF RICKEL. Rickel hereby represents and
warrants to the Collateral Agent, for the ratable benefit of the Holders, and
the Company as follows:
Section 7.1 Authorization. Rickel has all requisite power and authority
to execute, deliver and perform this Agreement and the Collateral Agency
Agreement. All necessary corporate proceedings of Rickel have been duly taken
to authorize the execution, delivery and performance of this Agreement and the
Collateral Agency Agreement by Rickel. Each of this Agreement and the
Collateral Agency Agreement has been duly authorized, executed and delivered by
Rickel, is the legal, valid and binding obligation of Rickel and is enforceable
against Rickel in accordance with its terms, except as may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other similar
laws or by legal or equitable principles relating to or limiting creditors'
rights generally or as rights to indemnification may be limited by
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applicable securities laws. Except as to filings which may be required under
applicable state securities regulations, no consent, authorization, approval,
order, license, certificate or permit of or from, or declaration or filing
with, any Federal, state, local or other governmental authority or of any court
or other tribunal is required for the execution, delivery or performance of
this Agreement and the Collateral Agency Agreement by Rickel. No consent of
any party to any contract, agreement, instrument, lease, license, arrangement
or understanding to which Rickel is a party, or by which any of Rickel's
properties or assets is bound or subject, is required for the execution,
delivery or performance by Rickel of this Agreement and the Collateral Agency
Agreement; and the execution, delivery and performance of this Agreement and
the Collateral Agency Agreement by Rickel will not (with or without the giving
of notice or the passage of time or both) violate, result in a breach of,
conflict with, or entitle any party to terminate or call a default under any
such contract, agreement, instrument, lease, license, arrangement or
understanding, or violate or result in a breach of any term of the Certificate
of Incorporation or by-laws of Rickel or (with or without the giving of notice
or the passage of time or both) violate, result in a breach of or conflict with
any law, rule, regulation, order, judgment or decree binding on Rickel or to
which any of Rickel's operations, business, properties or assets is bound or
subject.
Section 7.2 Title. Rickel has good title to the Pledged Collateral,
free and clear of all Liens, claims, security interests, pledges, charges,
encumbrances, stockholders' agreements and voting trusts.
Section 7.3 No Liens. Subject to Section 2.2, the Shares have been
pledged to the Collateral Agent free and clear of any Lien, charge or
circumstance of any kind. No pledge agreement, financing statement or other
instrument similar in effect covering all or any part of the Pledged Collateral
is on file in any recording office. Rickel has no trade names.
Section 7.4 Security Interest. This Agreement and the pledge and
delivery of the Pledged Collateral pursuant hereto constitute a valid and
continuing lien on the Pledged Collateral and, subject to Section 2.2, create a
valid and perfected first security interest in the Pledged Collateral in favor
of the Holders, securing the payment of the Secured Obligations. Rickel and
the Company covenant that all filings and other actions necessary or desirable
to perfect and protect such security interest have been duly taken as of the
date hereof.
SECTION 8. COVENANTS. Rickel covenants and agrees that on and after the
date hereof, so long as this Agreement shall remain in effect, it shall comply
with the following provisions:
Section 8.1 Limitation on Liens. Rickel shall not, directly or
indirectly, create, receive, assume or permit to exist or otherwise cause or
permit to become in effect any Lien upon or with respect to the Pledged
Collateral, other than as may be granted to the Collateral Agent, for the
ratable benefit of the Holders, and the Company pursuant to this Pledge.
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Section 8.2 Continuous Perfection. Rickel shall not change its name,
identity, structure or principal place of business in any manner which might
make any financing or continuation statement filed hereunder misleading within
the meaning of Section 9-402 (7) of the UCC (or any other then applicable
provision of the UCC) or otherwise inaccurate unless Rickel shall have given
the Collateral Agent and the Company at least ninety (90) days' prior written
notice of its intention to so change and shall have taken all action (or made
arrangements to take such action substantially simultaneously with such change
if it is impossible to take such action in advance) necessary, or reasonably
requested by the Collateral Agent or the Company, to amend such financing or
continuation statement so that it is not misleading.
Section 8.3 Further Assurances.
(a) From time to time, at the expense of the Company, Rickel
will promptly execute and deliver all further instruments and documents and
take all further action that may be necessary or desirable, or that the
Collateral Agent or the Company reasonably may request, in order to perfect and
protect any pledge, assignment or security interest granted or purported to be
granted hereby or to enable the Collateral Agent or the Company to exercise and
enforce their (and the Holders') rights and remedies hereunder with respect to
any Pledged Collateral. Without limiting the generality of the foregoing,
Rickel will execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be necessary
or desirable, or as the Collateral Agent may request, in order to perfect and
preserve the pledge, assignment and security interest granted or purported to
be granted hereby.
(b) Rickel will furnish to the Collateral Agent from time to time
statements and schedules further identifying and describing the Pledged
Collateral and such other reports in connection with the Pledged Collateral as
the Collateral Agent reasonably may request, all in reasonable detail.
SECTION 9. EVENTS OF DEFAULT; REMEDIES.
Section 9.1 Remedies.
(a) If any Event of Default shall occur and be continuing
(subject to Section 2.2), the Collateral Agent, for the ratable benefit of the
Holders, may exercise in addition to all other rights and remedies granted to
the Collateral Agent, for the ratable benefit of the Holders, in this
Agreement, the Securities Purchase Agreement and any other instrument or
agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the UCC. Without limiting the
generality of the foregoing, Rickel expressly agrees that in any such event the
Collateral Agent, for the ratable benefit of the Holders, without demand of
performance or other demand, advertisement or notice of any kind (except the
notice specified below of time and place of public or private sale) to or upon
Rickel
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or any other Person (all and each of which demands, advertisements and/or
notices are hereby expressly waived), may forthwith assume, collect, receive,
appropriate and realize upon the Pledged Collateral, or any part thereof,
and/or may (in accordance with Section 4 of the Collateral Agency Agreement)
forthwith sell, lease, assign, give an option or options to purchase, or sell
or otherwise dispose of and deliver said Pledged Collateral (or contract to do
so), or any part thereof, in one or more parcels at a public or private sale or
sales, at any exchange broker's board or at its offices or elsewhere at such
prices as are approved by the Majority Noteholders, for cash or on credit or
for future delivery without assumption of any credit risk.
The Holders shall have the right, to the extent permitted by law, to
purchase the whole or any part of said Pledged Collateral, free of any right or
equity of redemption, which equity of redemption Rickel hereby releases, for a
purchase price equal to the lower of (x) the average of the daily closing sale
prices of the Common Stock for the twenty (20) consecutive trading days
preceding the date the Collateral Security Warrants were exercised by the
Holders or (y) the closing sale price of the Common Stock on the date the
Collateral Security Warrants were exercised by the Holders, in each case less a
discount of 6% of such amount, and in lieu of payment of such actual purchase
price shall set-off the amount of such purchase price against the Secured
Obligations then owing. If the date the Collateral Security Warrants are
exercised by the Holders is not a day that the New York Stock Exchange is open,
then such closing sale price shall be as of the first day the New York Stock
Exchange is open preceding the day on which the Collateral Security Warrants
are exercised. The closing sale price of the Common Stock for each trading day
as used herein shall be: (a) if the Common Stock is listed or admitted for
trading on any national securities exchange or included in the Nasdaq National
Market or Nasdaq Small-Cap Market, the last reported sales price as reported on
such exchange or market, as the case may be; (b) if the Common Stock is not
listed or admitted for trading on any national securities exchange or included
in the Nasdaq National Market or Nasdaq Small-Cap Market, the average of the
last reported closing bid and asked quotation for the Common Stock as reported
on the Automated Quotation System of NASDAQ or a similar service if NASDAQ is
not reporting such information; (c) if the Common Stock is not listed or
admitted for trading on any national securities exchange or included in the
Nasdaq National Market or Nasdaq Small-Cap Market or quoted by NASDAQ or a
similar service, the average of the last reported bid and asked quotation for
the Common Stock as quoted by a market maker in the Common Stock (or if there
is more than one market maker, the bid and asked quotation shall be obtained
from two market makers and the average of the lowest bid and highest asked
quotation shall be the closing price); or (d) if the Common Stock is not listed
or admitted for trading on any national securities exchange or included in the
Nasdaq National Market or Nasdaq Small-Cap Market or quoted by NASDAQ and there
is no market maker in the Common Stock, the fair market value of such shares as
determined jointly by the Company and the Majority Noteholders, or if no such
determination can be reached within fifteen (15) days, such determination shall
be made by an appraiser who shall be mutually selected by the Company and the
Majority Noteholders, the costs of such appraiser to be borne by the Company.
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The Collateral Agent shall retain the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care, safe keeping or otherwise of any or all of the Pledged
Collateral or in any way relating to the rights of the Collateral Agent or the
Holders hereunder, including reasonable attorneys' fees and legal expenses, for
application to the payment in whole or in part of the Secured Obligations, the
Company remaining liable for any deficiency remaining unpaid after such
application, and only after so retaining such net proceeds and after the
payment by the Collateral Agent of any other amount required by any provision
of law, including Section 9-504 (1)(c) of the UCC, need the Collateral Agent,
on behalf of the Holders, account for the surplus, if any, to Rickel; provided,
however, that the Collateral Agent, on behalf of the Holders, shall not use,
sell or otherwise dispose of any part of the Pledged Collateral in excess of
such amount needed to satisfy in full the Secured Obligations. To the extent
permitted by applicable law, Rickel waives all claims, damages and demands
against the Collateral Agent and the Holders arising out of the repossession,
retention or sale of the Pledged Collateral, except to the extent that such
claims, damages and demands arise out of the gross negligence, bad faith or
willful misconduct of the Collateral Agent or the Holders.
(b) Rickel recognizes that the Collateral Agent, on behalf of the
Holders, may be unable to effect a public sale of all or any part of the
Pledged Collateral consisting of securities by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, but may (at the direction
of the Majority Noteholders and upon advice of counsel) be compelled to resort
to one or more private sales to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire such securities for their own
account, for investment and not with a view to the distribution or resale
thereof (provided such sale is permitted by applicable law). Rickel
understands and agrees that a private sale so made may be at prices and other
terms less favorable than if such securities were sold at public sales, and
that the Collateral Agent has no obligation to delay sale of any such
securities for the period of time necessary to permit the issuer of such
securities to register such securities for public sale under the Securities Act
of 1933, as amended. Rickel agrees to private sales made under the foregoing
circumstances, which sales shall be deemed to have been made in a commercially
reasonable manner. Rickel agrees that the Collateral Agent shall have all the
benefits of the Holders pursuant to the Securities Purchase Agreement and the
Collateral Registration Rights Agreement dated the date hereof, and shall be
entitled to exercise all demand and "piggy-back" registration rights contained
therein, subject to the terms thereof (at the direction of the Majority
Noteholders and upon advice of counsel).
(c) Any notice required to be given by the Collateral Agent of a sale,
lease or other disposition or other intended action by it with respect to any
of the Pledged Collateral which is deposited in the United States mails,
postage prepaid and duly addressed to Rickel, at least ten (10) days prior to
such proposed action, shall constitute fair and reasonable notice to Rickel of
any such action. The net proceeds realized by the Collateral Agent upon any
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such sale or other disposition, after deduction for the expense of retaking,
holding, preparing for sale, selling or the like and the reasonable attorneys'
fees and legal expenses incurred by the Collateral Agent in connection
therewith, shall be applied as provided herein to the Secured Obligations. The
Collateral Agent shall not be obligated to make any sale of Pledged Collateral
regardless of notice of sale having been given. The Collateral Agent may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.
Section 9.2 Limitation on the Collateral Agent's Duty in Respect of
Pledged Collateral. Except as otherwise provided herein, and subject to the
Collateral Agency Agreement, under no circumstances whatsoever shall the
Collateral Agent be deemed to assume any responsibility for, or obligation or
duty with respect to, any part or all of the Pledged Collateral, of any nature
or kind whatsoever, or any matter or proceedings arising out of or relating
thereto. The Collateral Agent shall not be required to take any action of any
kind to collect or protect any interest in the Pledged Collateral, including,
but not limited to, any action necessary to preserve the rights of the
Collateral Agent against prior parties to any of the Pledged Collateral. The
Collateral Agent shall not be liable or responsible in any way for the safe
keeping, care or custody of any of the Pledged Collateral if the Pledged
Collateral is accorded the same treatment and level of care as its own
property, for any loss or damages thereto, for any dilution in the value
thereof, for any act or default of any agent or bailee of the Collateral Agent
or of any carrier, forwarding agency or other person whomsoever or for the
collection of any proceeds, except to the extent that the selection of such
agent, bailee, carrier or other person involved gross negligence, bad faith or
willful misconduct; however, the same shall be at Rickel's sole risk at all
times. Rickel hereby releases the Collateral Agent and the Holders from any
claims, causes of action and demands at any time arising out of or with respect
to this Agreement or the Secured Obligations and any actions taken or omitted
to be taken by the Collateral Agent or the Holders with respect thereto, and
Rickel hereby agrees to hold the Collateral Agent and the Holders harmless from
and with respect to any and all such claims, causes of action and demands.
Rickel hereby releases the Collateral Agent and the Holders from any claims,
causes of action and demands arising under 42 U.S.C. Section 9607 or 9613 or
similar provisions of state or local law.
Section 9.3 Remedies Cumulative. No remedy conferred upon the
Collateral Agent or the Holders is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise.
Section 9.4 Remedies Not Waived. No course of dealing between Rickel
and the Collateral Agent or the Holders and no delay or failure in exercising
any rights hereunder in respect thereof shall operate as a waiver of any of the
rights of the Collateral Agent or the Holders.
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SECTION 10. VOTING RIGHTS; DIVIDENDS; ETC.
Section 10.1 Voting Rights; Dividends.
(a) As long as no notice of an Event of Default shall have been given by
the Collateral Agent to Rickel, Rickel shall be entitled to exercise any and
all voting and other consensual rights pertaining to the Pledged Collateral or
any part thereof for any purpose not inconsistent with the terms of this
Agreement or any other Operative Document.
(b) The Collateral Agent shall execute and deliver (or cause to be
executed and delivered) to Rickel all such proxies and other instruments as
Rickel may reasonably request for the purpose of enabling Rickel to exercise
the voting and other rights which it is entitled to exercise pursuant to
paragraph (a) above.
(c) During the term of this Pledge, any and all dividends paid or
payable in respect of, and instruments and other property received, receivable
or otherwise distributed in respect of, or in exchange for, any Pledged
Collateral (including, without limitation, (i) dividends and other
distributions paid or payable in cash in respect of any Pledged Collateral in
connection with a partial or total liquidation or dissolution or in connection
with a reduction of capital, capital surplus or paid-in surplus, and (ii) cash
paid, payable or otherwise distributed in redemption of, or in exchange for,
any Pledged Collateral) shall be forthwith delivered to the Collateral Agent,
for the ratable benefit of the Holders, to hold as Pledged Collateral and
shall, if received by Rickel, be received in trust for the benefit of the
Collateral Agent, for the ratable benefit of the Holders, be segregated from
the other property or funds of Rickel, and be forthwith delivered to the
Collateral Agent, for the ratable benefit of the Holders, as Pledged Collateral
in the same form as so received (with any necessary endorsement). Rickel
shall, if necessary to permit the Collateral Agent to receive all dividends
which it is entitled to receive hereunder, execute and deliver to the
Collateral Agent, from time to time upon written notice of the Collateral
Agent, appropriate dividend payment orders and other instruments as the
Collateral Agent may reasonably request.
Section 10.2 Event of Default.
(a) Subject to Section 2.2, upon the occurrence and during the
continuance of an Event of Default, all rights of Rickel to exercise the
voting and other consensual rights which it would otherwise be entitled to
exercise pursuant to Section 10.1(a) above shall cease, and all such rights
shall thereupon become vested in the Collateral Agent who shall thereupon have
the sole right to exercise such voting and other consensual rights.
(b) Rickel shall, if necessary to permit the Collateral Agent to
exercise the voting and other rights it may be entitled to exercise pursuant to
paragraph (a)(i) above, execute and deliver to the Collateral Agent, from time
to time upon written notice of the
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Collateral Agent, such instruments as the Collateral Agent may reasonably
request.
SECTION 11. AMENDMENT AND WAIVER. No amendment or waiver of any
provision of this Agreement and no consent to any departure by Rickel therefrom
shall in any event be effective unless the same shall be in writing and signed
by the Company and the holders of the aggregate principal amount of Notes then
outstanding as would be required to amend or waive such provision if it were
included in the Notes and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given and shall
not be deemed to waive any other breach hereunder.
No failure on the part of the Collateral Agent, the Holders or the
Company to exercise, and no delay in exercising any right hereunder, shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of
any other right.
SECTION 12. MISCELLANEOUS.
Section 12.1 Reliance on and Survival of Representations. All
agreements, representations and warranties of Rickel herein and in any
certificates or other instruments delivered pursuant to this Agreement shall
(a) be deemed to be material and to have been relied upon by the Collateral
Agent, the Holders and the Company, notwithstanding any investigation
heretofore or hereafter made by the Collateral Agent, the Holders or the
Company or on their behalf and (b) survive the execution and delivery of this
Agreement and of the Notes, and shall continue in effect so long as any Note is
outstanding and thereafter as provided in Section 9 and the Securities Purchase
Agreement.
Section 12.2 Successors and Assigns; Transfers of the Notes. This
Agreement shall bind and inure to the benefit of, and be enforceable by,
Rickel, the Company and the Collateral Agent, for the ratable benefit of the
Holders, and their successors and assigns, and, in addition, shall inure to the
benefit of, and be enforceable by, each Person who shall from time to time be a
holder of any of the Notes. Rickel may not assign its rights and obligations
under this Agreement. The Holders may transfer the Notes (and any portion
thereof) at any time without the consent of Rickel, subject to compliance with
all applicable laws, including state and federal securities laws, the
Securities Purchase Agreement and the Notes.
Section 12.3 Notices. All notices and other communications provided for
or permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by telex or telecopier, registered or
certified mail (return receipt requested), postage prepaid or courier to the
parties at the following address (or at such other address for any party as
shall be specified by like notice, provided that notices of a change of address
shall be effective only upon receipt thereof). Notices sent by mail shall be
effective two (2) days after mailing; notices sent by telex shall be effective
when answered back, notices sent by telecopier
13
<PAGE> 14
shall be effective when receipt is acknowledged, and notices sent by courier
guaranteeing next day delivery shall be effective on the next business day
after timely delivery to the courier.
<TABLE>
<S> <C>
(1) if to the Company:
DDL ELECTRONICS, INC.
2151 Anchor Court
Newbury Park, CA 91320
Attention: Chief Executive Officer
Telephone: (805) 376-2595
Telecopy: (805) 376-9015
(2) if to the Collateral Agent:
FIRST UNION NATIONAL BANK
765 Broad Street
Newark, NJ 07102
Attention: Corporate Trust Department
Thomas Brett
Telephone: (201) 430-4827
Telecopy: (201) 430-4963
(3) if to Rickel:
RICKEL & ASSOCIATES, INC.
875 Third Avenue
New York, New York 10022
Attention: Kenneth Rickel
Telephone: (212) 339-9800
Telecopy: (212) 754-9644
</TABLE>
Section 12.4 Severability. If any term or provision hereof or the
application thereof to any circumstance, in any jurisdiction and to any extent,
shall be invalid or unenforceable, such term or such provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable any remaining
terms and provisions hereof or the application of such term or provision to
14
<PAGE> 15
circumstances other than those as to which it is held invalid or unenforceable.
To the fullest extent permitted by applicable law, the parties hereby waive
any provision of law which renders any term or provision hereof invalid or
unenforceable in any respect.
Section 12.5 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts made and to be performed entirely in the State of New York.
Section 12.6 Forum and Jurisdiction. Each of the parties hereto (a)
hereby irrevocably submits to the jurisdiction of the state courts of the State
of New York and the jurisdiction of the United States District Court for the
Southern District of New York for the purpose of any suit, action or other
proceeding arising out of or based upon this Agreement, or the subject matter
hereof, brought by any other party hereto and (b) hereby waives and agrees not
to assert, by way of motion, as a defense, or otherwise, in any such suit,
action or proceeding, any claim that such party is not subject personally to
the jurisdiction of the above-named courts, that such party's property is
exempt or immune from attachment or execution, that the suit, action or
proceeding is brought in an inconvenient forum, that the venue of the suit,
action or proceeding is improper or that this Agreement or the subject matter
hereof may not be enforced in or by such court, and (c) hereby waives in any
such action, suit, or proceeding any offsets or counterclaims. Each of the
parties hereto hereby consents to service of process by certified mail at such
party's address set forth herein and agree that such party's submission to
jurisdiction and such party's consent to service of process by mail is made for
the express benefit of the other parties hereto. Final judgment against any
party hereto in any such action, suit or proceeding shall be conclusive, and
may be enforced in other jurisdictions (i) by suit, action or proceeding on the
conclusive evidence of the fact and of the amount of any indebtedness or
liability of such party therein described or (ii) in any other manner provided
by or pursuant to the laws of such other jurisdiction; provided, however, that
any other party hereto may at its option bring suit, or institute other
judicial proceedings, against any other party hereto or any of such party's
assets in any state or Federal court of the United States or of any country or
place where such party or its assets may be found.
Section 12.7 Headings. The headings in this Pledge are for convenience
only and shall not be construed as a part of this Pledge.
Section 12.8 Term of Agreement. This Pledge and all agreements of
Rickel contained herein shall continue in full force and effect and shall not
be discharged until such time as the Secured Obligations shall be indefeasibly
paid or performed in full and all of the agreements of Rickel hereunder shall
be fully paid or performed; provided, certain provisions of this Pledge shall
survive such termination as expressly set forth herein. Upon termination of
this Pledge, the Collateral Agent shall deliver the Pledged Collateral to
Rickel upon the written request of Rickel (which request shall be accompanied
by a written acknowledgement by the Company that all of the Secured Obligations
have been indefeasibly paid or performed in full
15
<PAGE> 16
and all of the agreements of Rickel hereunder have been fully paid or
performed).
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
RICKEL & ASSOCIATES, INC.
By: /s/ Howard Miller
-------------------------------------
Name: Howard Miller
Title: E.V.P.
FIRST UNION NATIONAL BANK, as Collateral
Agent
By: /s/ Thomas J. Brett
-------------------------------------
Name: Thomas J. Brett
Title: Corporate Trust Officer
DDL ELECTRONICS, INC.
By: /s/ Gregory L. Horton
-------------------------------------
Gregory L. Horton
President and Chief Executive Officer
17
<PAGE> 1
EXHIBIT 4-r
COLLATERAL AGENCY AGREEMENT
COLLATERAL AGENCY AGREEMENT (the "Agreement"), dated as of February 29,
1996, among RICKEL & ASSOCIATES, INC., a New Jersey corporation ("Rickel"),
each of the PURCHASERS named in the Securities Purchase Agreement (as hereafter
defined) who execute and deliver a counterpart signature page hereto
(collectively, the "Purchasers"), FIRST UNION NATIONAL BANK (the "Collateral
Agent"), as collateral agent for the benefit of the Holders (as defined below)
and DDL ELECTRONICS, INC., a Delaware corporation (the "Company").
R E C I T A L S:
WHEREAS, on the date hereof the Company will authorize the issuance of
$5,300,000 of its Senior Secured Notes due July 1, 1997 (the "Notes") pursuant
to a Securities Purchase Agreement, dated as of February 29, 1996 (the
"Securities Purchase Agreement"), among the Company and the Holders (as herein
defined);
WHEREAS, to secure the payment of the Company's obligations under the
Notes and the performance and observance of its obligations under the terms of
the Securities Purchase Agreement and the Other Operative Documents (the
obligations under the Operative Documents being hereafter referred to as the
"Secured Obligations"), among other things, the Company and Rickel have entered
into the Pledge Agreement, dated the date hereof, with the Collateral Agent,
for the benefit of the Holders, and the Company (the "Pledge Agreement"), which
provides, among other things, for the pledge and grant by Rickel to the
Collateral Agent, for the benefit of the Holders of the Notes (the "Holders"),
of a security interest in 1,060,000 shares of the Company's common stock, par
value $.01 per share (the "Shares");
WHEREAS, to secure payment of certain of the Company's obligations to pay
accrued interest under the Notes, $375,000 (the "Prepaid Interest Amount") of
the gross proceeds of the sale of the Notes will be deposited with the
Collateral Agent; and
WHEREAS, the Purchasers desire to appoint the Collateral Agent to hold the
Shares and apply the Prepaid Interest Amount on behalf of the Holders as
provided herein.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and for other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties hereto agree as follows:
1. APPOINTMENT. The Purchasers hereby designate FIRST UNION NATIONAL BANK
as Collateral Agent to act as specified herein and in the Pledge Agreement.
Each Purchaser hereby irrevocably authorizes, and each Holder (whether by
assignment or transfer of Notes from a Purchaser) by the acceptance of such
assignment or transfer of Notes shall be
<PAGE> 2
deemed irrevocably to authorize, the Collateral Agent to take such action on
its behalf under the provisions of this Agreement, the Pledge Agreement and any
other instruments and agreements referred to herein or therein, and to exercise
such powers and to perform such duties hereunder and thereunder as are
specifically delegated to or required of the Collateral Agent by the terms
hereof and thereof. The Collateral Agent may perform any of its duties
hereunder by or through its agents or employees.
2. NATURE OF DUTIES. The Collateral Agent shall have no duties or
responsibilities with respect to the Shares and any other collateral delivered
to the Collateral Agent pursuant to the Pledge Agreement or this Agreement (the
Shares and such other collateral being herein referred to as the "Collateral")
or with respect to the Prepaid Interest Amount, except those expressly set
forth herein or in the Pledge Agreement. Neither the Collateral Agent nor any
of its officers, directors, employees or agents shall be liable for any action
taken or omitted by it as such hereunder or under the Pledge Agreement or in
connection herewith or therewith, unless caused by its or their gross
negligence, bad faith or willful misconduct. In no event shall the Collateral
Agent be liable for any indirect, special or consequential damages. The duties
of the Collateral Agent hereunder and under the Pledge Agreement shall be
ministerial and administrative in nature; the Collateral Agent shall not have,
by reason of this Agreement or the Pledge Agreement, a fiduciary relationship
in respect of any Holder. Nothing in this Agreement or the Pledge Agreement,
expressed or implied, is intended to or shall be so construed as to impose upon
the Collateral Agent any obligations in respect of this Agreement or the Pledge
Agreement except as expressly set forth herein or therein. Notwithstanding
anything contained in this Agreement or in the Pledge Agreement, the Collateral
Agent shall have no responsibility for (a) the validity, perfection or value of
any Collateral or any of the instruments constituting any of the Collateral or
(b) the value of, or title to, any of the Collateral.
3. APPROVAL.
(a) Subject to the specific provisions herein providing required specific
percentages of votes for certain matters, the Collateral Agent is authorized to
take any action or to refrain from taking any action, which action or failure
to act the Collateral Agent in good faith believes to be consistent with the
Collateral Agent's duties under this Agreement and the Pledge Agreement. The
Collateral Agent shall be entitled to take any such action or refrain from
taking any such action in connection with this Agreement and the Pledge
Agreement unless and until the Collateral Agent shall have received the
required requests or instructions from the Holders, and the Collateral Agent
shall not incur liability to any person by reason of such action or failure to
act. Without limiting the foregoing, no Holder shall have any right of action
whatsoever against the Collateral Agent as a result of the Collateral Agent
acting or refraining from acting hereunder or under the Pledge Agreement in
accordance with such required requests or instructions of the Holders. This
Section, however, shall not be construed to permit the Collateral Agent to
refuse to perform the duties expressly required of it by the terms of this
Agreement and the Pledge Agreement, except as otherwise provided in this
Agreement.
2
<PAGE> 3
(b) With respect to any actions to be taken by the Collateral Agent which
require the approval of the Holders or for which the Collateral Agent desires
the approval of the Holders, the Collateral Agent shall have the right (but not
the obligation) by written notice to each of the Holders, in accordance with
Section 20 hereof, to recommend action to be taken by the Collateral Agent.
Any of the Holders who fail to disapprove of the Collateral Agent's
recommendations in writing within ten (10) days after the date of such written
notice shall be deemed to have approved the Collateral Agent's recommendations
contained in said notice.
4. EVENT OF DEFAULT; ACTION OF COLLATERAL AGENT. Any Holder may provide
written notice to the Collateral Agent of the occurrence of any Event of
Default (as hereinafter defined) under the Notes and the Collateral Agent shall
thereupon declare an Event of Default. Upon the occurrence of an Event of
Default, the Collateral Agent may, and upon receipt of written instructions
from Holders (the "Majority Noteholders") of at least a majority in principal
amount of the then outstanding Notes (provided that (a) such Holders provide
the Collateral Agent with indemnification reasonably satisfactory to the
Collateral Agent against all costs and expenses (including reasonable
attorneys' fees) incurred or to be incurred by the Collateral Agent, (b) such
instructions shall not be otherwise than in accordance with law or the
provisions hereof, and (c) the Collateral Agent shall have the right to decline
to follow any such direction which in its sole opinion would involve it in
costs or expenses (including reasonable attorneys' fees) for which it
reasonably may expect not to be reimbursed hereunder) exercise on behalf of the
Holders all rights, powers and remedies of the Collateral Agent (whether vested
in it by this Agreement or the Pledge Agreement or by law), or take such action
as shall be specified in such written instructions (subject to indemnification
under Section 10 hereof), including, without limitation, the following rights
(in each and every case subject to Section 2.2 of the Pledge Agreement), each
of which Rickel agrees to be commercially reasonable:
(i) to receive all amounts payable in respect of the Collateral;
(ii) to transfer all or any part of the Collateral into the name or names
of the Holders directly; and
(iii) at any time or from time to time, without demand of performance or
other demand, advertisement or notice of any kind (except as provided in the
Pledge Agreement) to or upon Rickel or any other Person, as defined in the
Securities Purchase Agreement, (all and each of which demands, advertisements
and/or notices are hereby expressly waived), to assume, collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or to
sell, lease, assign, give an option or options to purchase, or sell or
otherwise dispose of and deliver said Collateral (or contract to do so), or any
part thereof, in one or more parcels at a public or private sale or sales, at
any exchange broker's board or at its offices or elsewhere at such prices as
are approved by the Majority Noteholders, for cash or on credit or for future
delivery without assumption of any credit risk in accordance with Section 9.1
of the Pledge Agreement. In
3
<PAGE> 4
accordance with the terms of the Pledge Agreement, unless prohibited by
applicable law, the Holders may purchase all or any part of the Collateral free
from any right or equity of redemption.
The Collateral Agent may exercise any of its rights hereunder even if it
does not possess any of the Notes.
5. EVENT OF DEFAULT. An "Event of Default" shall be the occurrence of an
Event of Default under the Notes.
6. DISTRIBUTION OF PAYMENTS OR PROCEEDS. Any amounts received pursuant to
Section 4 of this Agreement shall be paid over by the Collateral Agent ratably
to the Holders upon the Collateral Agent's receipt of the Notes. The
Collateral Agent shall tender the Notes surrendered by Holders receiving such
proceeds to the Company and the Company shall, in the case of any Notes not
paid in full, issue Notes to Holders representing the outstanding principal
balance thereof.
7. RELEASE OF COLLATERAL. The Collateral shall be released pursuant to
and in accordance with the Pledge Agreement.
8. RESPONSIBILITIES OF COLLATERAL AGENT. The Collateral Agent may consult
with, and obtain advice from, legal counsel with respect to any question as to
any of the provisions hereof or its duties hereunder, or any matter of law
relating hereto, and the opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by the Collateral Agent reasonably and in good faith in accordance with
the opinion and directions of such counsel; the reasonable costs of such
services to be reimbursed pursuant to Section 10 hereof. No provision of this
Agreement or the Pledge Agreement shall require the Collateral Agent to expend
or risk its own funds, or to take any legal or other action hereunder which
might in its judgment involve any expense or any financial or other liability,
unless the Collateral Agent shall be furnished with indemnification reasonably
acceptable to it. The permissive right of the Collateral Agent to take any
action hereunder shall not be construed as a duty.
9. RELIANCE. The Collateral Agent shall be entitled to rely in good
faith, and shall be fully protected in so relying, upon any note, writing,
resolution, notice, statement, certificate, telex, teletype or telecopier
message, cablegram, radiogram, order or other document signed, sent or made by
the proper person or entity not only as to its due execution and validity, but
also as to the truth and accuracy of the matters contained therein, and, with
respect to all legal matters pertaining to this Agreement or the Pledge
Agreement and its duties hereunder or thereunder, upon advice of counsel
selected by it.
10. INDEMNIFICATION. The Company will reimburse and indemnify the
Collateral
4
<PAGE> 5
Agent for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever (including, without limitation, reasonable attorneys'
fees) which may be imposed on, incurred by or asserted against the Collateral
Agent in performing its duties hereunder or under the Pledge Agreement or
otherwise relating to or arising out of this Agreement or the Pledge Agreement;
provided, that the Company shall not be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Collateral Agent's
gross negligence, bad faith or willful misconduct. This Section 10 shall
survive the termination of this Agreement.
11. THE COLLATERAL AGENT IN ITS INDIVIDUAL CAPACITY. The Collateral Agent
may accept deposits from, lend money to, and generally engage in any kind of
banking, trust or other business with Rickel, the Company or any Affiliate (as
such term is defined in the Securities Purchase Agreement) or subsidiary of
Rickel or the Company as if it were not performing the duties specified herein,
and may accept fees and other consideration from the Company for services in
connection with this Agreement and the Pledge Agreement and otherwise without
having to account for the same to the Holders.
12. HOLDERS. The Collateral Agent may deem and treat the registered
Holder of any of the Notes as the owner thereof for all purposes hereof unless
and until a written notice of the assignment, transfer or endorsement thereof,
as the case may be, shall have been filed with the Collateral Agent in
accordance with the provisions of Sections 20 and 26 hereof. Any request,
authority or consent of any person or entity who, at the time of making such
request or giving such authority or consent, is the Holder of any Notes shall
be conclusive and binding on any subsequent holder, transferee, assignee or
endorsee, as the case may be, of such Notes or of any Notes issued in exchange
therefor. Any Notes transferred in violation of this provision may be deemed
to be held by the former Holder of such Notes by the Collateral Agent for
purposes of this Agreement.
13. RESIGNATION BY, AND REMOVAL OF, THE COLLATERAL AGENT.
(a) The Collateral Agent may resign from the performance of all its
functions and duties under this Agreement at any time by giving thirty (30)
days' prior written notice to Rickel, the Company and the Holders. Such
resignation shall take effect upon the appointment of a successor Collateral
Agent by the Majority Noteholders, but in no case more than thirty (30) days
following such notice. If no successor Collateral Agent shall have been
appointed by the Holder or Holders as required in this Section 13 within thirty
(30) days after the retiring Collateral Agent's giving of notice, then the
retiring Collateral Agent may appoint a successor Collateral Agent which shall
be a commercial bank organized under the laws of the United States of America
or any State thereof having a combined capital and surplus of at least two
hundred million dollars ($200,000,000) or deposit it with a court of competent
jurisdiction. If the Collateral Agent does not appoint a successor Collateral
Agent, the rights of the Collateral Agent
5
<PAGE> 6
with respect to Rickel hereunder shall be deemed to be assigned to the Holders,
which rights will revert to the successor Collateral Agent upon appointment.
(b) The Majority Noteholders may remove the Collateral Agent at any
time upon twenty (20) days' written notice to the Collateral Agent. Such
removal shall take effect upon the appointment of a successor Collateral Agent
by the Holders pursuant to clause (a) of this Section 13 and the payment of all
fees and expenses of the removed Collateral Agent, including reasonable
attorneys' fees.
(c) Upon acceptance of appointment as Collateral Agent by a
successor Collateral Agent, such successor shall thereupon and forthwith
succeed to and become vested with all the rights, powers, privileges,
immunities and duties of the retiring Collateral Agent hereunder, at which
point the retiring Collateral Agent shall be discharged from its duties and
obligations hereunder arising after the appointment of a successor Collateral
Agent, except as provided in Section 2 hereof.
(d) Upon the performance or payment in full of all of the Secured
Obligations, the Collateral Agent shall, upon written notice of the Majority
Noteholders, be released of all of its obligations hereunder pursuant to
Section 18 hereof.
(e) Notwithstanding anything contained in this Section 13 to the
contrary, the Majority Noteholders may reclaim any and all rights against
Rickel under this Agreement.
14. FURTHER ASSURANCES. Rickel, the Company and the Collateral Agent
shall promptly and diligently take all such further actions and execute such
further documents necessary to carry out the purposes of this Agreement and
enforce and preserve the Holders' rights to and interest in the Collateral
hereunder subject to the terms hereof. The Collateral Agent shall not be
required to execute any documents which would adversely affect its rights or
immunities.
15. REPRESENTATIONS AND WARRANTIES OF RICKEL. Rickel hereby makes and
confirms the representations and warranties made by it in the Pledge Agreement.
16. AMENDMENTS; MAJORITY NOTEHOLDERS. This Agreement may be amended only
with the prior written consent of the Collateral Agent, Rickel, the Company and
the Majority Noteholders. In the determination of Majority Noteholders
hereunder, any Notes owned by Rickel, the Company or any Affiliate of Rickel or
the Company shall be disregarded and deemed not outstanding for this purpose;
provided, no Holder of Notes shall be deemed an Affiliate of Rickel or the
Company solely by reason of its exercise of remedies under the Operative
Documents (as defined in the Securities Purchase Agreement).
17. REMEDIES; WAIVER.
6
<PAGE> 7
(a) Subject to the specific provisions of the Securities Purchase
Agreement (including, without limitation, Section 8.3 thereof), of the Pledge
Agreement (including, without limitation, Section 2.2 thereof) and of the other
Operative Documents, no remedy herein conferred upon or reserved to the
Collateral Agent or the Holders is intended to be exclusive of any other
available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Agreement, the Securities Purchase Agreement, the Pledge Agreement or the other
Operative Documents, or any other agreement entered into pursuant hereto or
thereto, or now or hereafter existing at law, in equity or by statute.
(b) No delay or omission to exercise any right or power accruing upon
the occurrence of any Event of Default shall impair any such right or power or
shall be construed to be a waiver thereof, but any such right or power may be
exercised from time to time and as often as may be deemed expedient.
(c) No failure or delay on the part of the Collateral Agent or any
Holder in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy.
(d) Except as otherwise provided in the Securities Purchase Agreement,
the Collateral Agent, upon receipt of written instructions from the Majority
Noteholders, shall waive an existing Event of Default and its consequences.
Such waiver shall not extend to any subsequent or other Event of Default nor
impair any right consequent thereto.
(e) In the event any provision contained in this Agreement shall be
breached by Rickel, the Company or the Collateral Agent and thereafter duly
waived by the Holders so empowered to act, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other breach
hereunder.
18. SURVIVAL. All warranties, representations and covenants made herein
by Rickel shall be deemed to have been relied upon by each of the Holders, as
the same may be in existence, and shall remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the Collateral
Agent or any such Holder or (ii) the acceptance of any of the Notes and payment
therefor. The obligations of the parties under this Agreement shall continue
until all of Rickel's obligations under the Pledge Agreement have been
terminated in full.
19. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the permitted successors and assigns of each of the
parties. The provisions of this Agreement are intended to be for the benefit
of all of the Holders. The Collateral Agent may not assign any of its rights
or obligations under this Agreement without the written consent of the Majority
Noteholders, except as otherwise provided in Section 13 hereof. The Collateral
Agent may assign its rights against Rickel under this Agreement to the Holders
at any time and for any
7
<PAGE> 8
reason. The Holders may freely assign their rights hereunder to permissible
transferees under the Securities Purchase Agreement.
20. NOTICES. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by telex or telecopier, registered or
certified mail (return receipt requested), postage prepaid or courier to the
parties at the following address (or at such other address for any party as
shall be specified by like notice, provided that notices of a change of address
shall be effective only upon receipt thereof). Notices sent by mail shall be
effective two (2) days after mailing; notices sent by telex shall be effective
when answered back, notices sent by telecopier shall be effective when receipt
is acknowledged, and notices sent by courier guaranteeing next day delivery
shall be effective on the next business day after timely delivery to the
courier.
(a)if to the Company:
DDL ELECTRONICS, INC.
2151 Anchor Court
Newbury Park, CA 91320
Attention: Chief Executive Officer
Telephone: (805) 376-2595
Telecopy: (805) 376-9015
(b)if to the Collateral Agent:
FIRST UNION NATIONAL BANK
765 Broad Street
Newark, NJ 07102
Attention: Corporate Trust Department
Telephone: (201) 430-4070
Telecopy: (201) 430-4963
(c)if to Rickel:
RICKEL & ASSOCIATES, INC.
875 Third Avenue
New York, New York 10022
Attention: Kenneth Rickel
8
<PAGE> 9
Telephone: (212) 339-9800
Telecopy: (212) 754-9644
(d) if to any Holder, at the address of such Holder as it
appears on the note register.
21. ENTIRE UNDERSTANDING; COUNTERPARTS. This Agreement and the other
Operative Documents constitute the entire agreement among the parties hereto
with respect to the powers and duties of the Collateral Agent and supersedes
all prior agreements and understandings, both written and oral, among the
parties. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
22. SEVERABILITY OF TERMS. If any term or provision hereof or the
application thereof to any circumstance, in any jurisdiction and to any extent,
shall be invalid or unenforceable, such term or such provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable any remaining
terms and provisions hereof or the application of such term or provision to
circumstances other than those as to which it is held invalid or unenforceable.
To the fullest extent permitted by applicable law, the parties hereby waive
any provision of law which renders any term or provision hereof invalid or
unenforceable in any respect.
23. COSTS. The Company agrees to be responsible for, and pay all legal
fees and expenses, costs, expenses and collection fees of, the Collateral Agent
arising out of or in connection with the enforcement of the rights of the
Collateral Agent under this Agreement and the other Operative Documents.
24. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts made
and to be performed entirely in the State of New York.
Each of the parties hereto (a) hereby irrevocably submits to the
jurisdiction of the state courts of the State of New York and the jurisdiction
of the United States District Court for the Southern District of New York for
the purpose of any suit, action or other proceeding arising out of or based
upon this Agreement, or the subject matter hereof, brought by any other party
hereto and (b) hereby waives and agrees not to assert, by way of motion, as a
defense, or otherwise, in any such suit, action or proceeding, any claim that
such party is not subject personally to the jurisdiction of the above-named
courts, that such party's property is exempt or immune from attachment or
execution, that the suit, action or proceeding is brought in an inconvenient
forum, that the venue of the suit, action or proceeding is improper or that
this Agreement or the subject matter hereof may not be enforced in or by such
court, and (c) hereby waives in any such action, suit, or proceeding any
offsets or counterclaims. Each of the parties
9
<PAGE> 10
hereto hereby consents to service of process by certified mail at such party's
address set forth herein and agree that such party's submission to jurisdiction
and such party's consent to service of process by mail is made for the express
benefit of the other parties hereto. Final judgment against any party hereto
in any such action, suit or proceeding shall be conclusive, and may be enforced
in other jurisdictions (i) by suit, action or proceeding on the conclusive
evidence of the fact and of the amount of any indebtedness or liability of such
party therein described or (ii) in any other manner provided by or pursuant to
the laws of such other jurisdiction; provided, however, that any other party
hereto may at its option bring suit, or institute other judicial proceedings,
against any other party hereto or any of such party's assets in any state or
Federal court of the United States or of any country or place where such party
or its assets may be found.
25. COLLATERAL AGENT ACCOUNT. Upon receipt of the Prepaid Interest Amount
by the Collateral Agent, the Collateral Agent shall hold such moneys in trust
for the benefit of the Noteholders. The Collateral Agent shall segregate the
Prepaid Interest Amount from all other funds and shall hold the Prepaid
Interest Amount (and all interest realized thereon) in Fidelity Investments
Money Market Fund, Treasury (AAA) or any successor fund thereto (the
"Collateral Agent Account"). The Prepaid Interest Amount (and all interest
realized thereon) shall be used by the Collateral Agent to pay any and all
accrued interest on the principal amount of the Notes when the same becomes due
and payable under (and otherwise in accordance with the provisions of) the
Securities Purchase Agreement and the Notes until all of the funds in the
Collateral Agent Account shall have been distributed to the Noteholders in
accordance herewith. Notwithstanding anything contained herein or in the
Securities Purchase Agreement to the contrary, the Company shall remain solely
obligated to pay all interest which may accrue on the unpaid principal amount
of the Notes in accordance with the Securities Purchase Agreement and the
Notes.
26. LIST OF HOLDERS. In accordance with Section 20 hereof, on each May
10th, August 10th, November 10th and February 10th of each year during the term
of this Agreement, commencing May 10, 1996, the Company shall provide the
Collateral Agent with a list of the names and addresses of each Holder and the
principal amount of Notes held by each Holder and shall promptly notify the
Collateral Agent of any change thereto. The Collateral Agent shall use such
list of Holders to pay the Prepaid Interest Amount to the Holders at such times
and in such amounts as directed in writing by the Company.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered under seal as of the day and year first above written.
RICKEL & ASSOCIATES, INC.
By: /s/ Kenneth D. Rickel
-------------------------------------------
Name: Kenneth D. Rickel
Title:
DDL ELECTRONICS, INC.
By:
-------------------------------------------
Gregory L. Horton
President and Chief Executive Officer
FIRST UNION NATIONAL BANK, As Collateral Agent
By:
------------------------------------------
Name:
Title:
SARATOGA HOLDINGS INC.
By:/s/ Gregg A. Smith
------------------------------
Name: Gregg A. Smith
Title: CEO
/s/ Gregg A. Smith
- ---------------------------------
Gregg A. Smith
<PAGE> 12
/s/ Elliot Smith
- ----------------------------
Elliot Smith
/s/ Kenneth D. Rickel
- ----------------------------
Kenneth D. Rickel
/s/ Joseph Fair
- ----------------------------
Joseph Fair
/s/ Edward McWilliams
- ----------------------------
Edward McWilliams
/s/ David Cornstein by James Martin Kaplan
- ------------------------------------------
David Cornstein by James Martin Kaplan
Attorney-in-Fact for David B. Cornstein
/s/ Jeffrey S. Silverman
- ----------------------------
Jeffrey S. Silverman
/s/ Howard Miller
- ----------------------------
Howard Miller
- ----------------------------
Steve Levy
/s/ Marvin Numeroff
- ----------------------------
Marvin Numeroff
/s/ Jerry Gray
- ----------------------------
Jerry Gray
/s/ Robert Rickel
- ----------------------------
Robert Rickel
<PAGE> 13
/s/ Leonard Wilf
- ----------------------------
Leonard Wilf
- ----------------------------
Peter Knobel
- ----------------------------
Patrice Knobel
- ----------------------------
Theodore Sofia
<PAGE> 1
EXHIBIT 4-s
January 30, 1996
DDL Electronics, Inc.
2151 Anchor Court
Newbury Park, CA 91320
Attn: Gregory Horton
Chief Executive Officer
Gentlemen:
This letter will amend and supersede in its entirety the engagement letter
between us dated September 18, 1995.
1. Appointment. Effective as of September 18, 1995, Rickel & Associates,
Inc. ("Rickel") is hereby engaged to act as a financial advisor to DDL
Electronics, Inc. (the "Company") on an exclusive basis, subject to
the terms and conditions set forth below in this letter agreement
("Agreement"), in connection with (i) the private placement of an
aggregate of $5 million principal amount of notes (the "Notes") on
substantially the terms set forth in Exhibit A hereto (the "Note
Placement") and (ii) the placement pursuant to Regulation S by
Intercontinental Holding Company, Ltd. ("Intercontinental") of an
aggregate of $3 million principal amount of convertible subordinated
debentures ("Debentures") on substantially the terms set forth on
Exhibit B hereto (the "Debenture Placement"). Rickel was also
responsible for helping to arrange a financing from a commercial bank,
a portion of the proceeds from which will be additional working
capital to the Company; the proceeds of that financing, net of a
portion which will be used to pay down another facility, bring the
total of the above transactions to $10 million (collectively, the
"Transactions"). Rickel hereby accepts such engagement and in
connection therewith agrees:
a) To conduct a limited due diligence review of the
Company's operations and assist with the preparation
of information materials (the "Information
Materials") which will be distributed by Rickel to
potential financing sources. Rickel will not
distribute any such material without prior approval
thereof prior to any such delivery. Such Information
Materials would include, but may not be limited to
the following:
i) an Information/Private Placement Memorandum
(the "Memorandum").
ii) any supplementary information and/or
presentation which we mutually determine are
needed to assist you in the marketing of the
Transactions to any potential investors.
b) To act as your exclusive agent with respect to
contacting potential investors or distributors.
<PAGE> 2
Engagement Letter
4/25/96
Page 2
c) To negotiate with potential investors on your behalf,
if requested by you.
d) That, (i) in the event that less than an aggregate of
$3 million principal amount of Debentures are sold in
the Debenture Placement, the amount of Notes to be
sold in the Note Placement will be increased
accordingly so that the total gross proceeds to the
Company of the Note Placement and Debenture Placement
will equal $8 million and (ii) Rickel shall purchase
any Notes not purchased by other investors on the
same terms offered to investors in the Note
Placement.
3. Representations, Warranties and Covenants. At our request, you will
furnish or cause to be furnished to us such current and historical
financial information and other information regarding the Company as
may be necessary for the proper performance of our services hereunder
to the extent such information is in the possession of the Company or
can be acquired without unreasonable expense or effort. The Company
warrants the accuracy and completeness of any such information at the
time it is so furnished and confirms its understanding that we shall
not be obligated to provide independent verification of any such
information. Rickel's obligation under paragraph 1(d) will be subject
to the Company being in compliance with the representations and
warranties in the Securities Purchase Agreement. You will also
undertake to use your reasonable efforts to advise us of all
developments materially affecting the Company. The Company will use
its best efforts to cause Joel Gold to be elected to the Company's
Board of Directors.
4. Term of Appointment. You agree to retain us as your financial advisor
with respect to the foregoing for a period of six months from
September 18, 1995.
5. Compensation.
a) Success Fees.
i) The Company shall pay to Rickel a success fee in
cash, subject to subparagraph 4(c) hereof, equal to
4% of the amount financed in the Note Placement and
the Debenture Placement.
ii) Upon consummation of the Note Placement and Debenture
Placement, assuming the sale of $5 million principal
amount of Notes and $3 million principal amount of
Debentures, the Company (A) shall issue to Rickel (or
its designee(s)), to the extent not theretofore
issued to Rickel (or its designee(s)), 1.5 million
shares of the Company's common stock (including
shares heretofore issued), one million of which (the
"R&A Collateral Shares") shall be placed into escrow
as collateral for the Notes and shall be released
from escrow in accordance with subparagraph 4(a)(iii)
below, and (B) shall reserve for issuance to Rickel
an additional 900,000 shares of the Company's common
stock (the "Reserved Shares"), which Reserved Shares
shall be issued in accordance with, and to the extent
provided in subparagraph 4(a)(iv) below. (All of the
shares of the Company's
<PAGE> 3
Engagement Letter
4/25/96
Page 3
common stock to be issued or reserved for issuance to
Rickel or its designee(s) pursuant to (A) or (B)
above are hereinafter referred to as the "Shares").
The Company shall also issue to Rickel (or its
designee(s)) a warrant (the "Warrant") to purchase
1.5 million shares of common stock of the Company
(the "Warrant Shares") at $2.50 per share (subject to
anti-dilution adjustment in the case of stock splits,
stock dividends or similar occurrences). The Warrant
shall have a five-year term, be exercisable
immediately, and contain other customary provisions.
The Warrants and Warrant Shares will be fully paid
and non-assessable, and will be subject to no liens
or transfer restrictions other than any restrictions
which may arise under federal and state securities
laws. The Shares, Warrants and Warrant Shares will
be subject to the benefit of a registration rights
agreement, providing for, among other things, demand
and piggyback registration rights on customary terms
and conditions. The registration rights agreement
shall not expire until the Shares and Warrants Shares
would be freely tradable under Rule 144(k) (or any
successor rule) under the Securities Act of 1933.
iii) The Notes shall be secured by Collateral Security
Warrants issued by the Company representing the right
to acquire one million shares of the Company's common
stock and by the R&A Collateral Shares. The
Collateral Security Warrants, and the shares of
common stock issuable upon exercise thereof
("Collateral Security Warrant Shares"), shall
represent the primary security for payment of the
Notes. If, upon call of the Notes prior to maturity
or payment of the Notes upon maturity, the proceeds
from the sale of the Collateral Security Warrant
Shares ("CSWS Proceeds")are insufficient to pay all
amounts due and owing on the Notes (the "Payment
Amount"), the Company may sell, on the same terms and
conditions as the Collateral Security Warrant Shares,
such number of R&A Collateral Shares as shall result
in receipt by the Company of the difference between
the Payment Amount and the CSWS Proceeds; provided,
however, that the maximum number of R&A Collateral
Shares that may be sold in the event that the Notes
are called prior to maturity shall be 666,667 shares.
iv) When all of the Debentures have either been converted
into common stock or retired upon their redemption or
maturity, the Company shall calculate the aggregate
number of shares of its common stock that were issued
upon conversion of the Debentures. To the extent
that the total number of shares so issued is less
than 1.5 million, the Company shall issue to Rickel
such number of shares of its common stock as equals
the difference between 1.5 million shares and the
aggregate number of shares issued upon conversion of
the Debentures; provided, however, that in no event
shall the number of Shares so issued to Rickel exceed
the full 900,000 Reserved Shares.
<PAGE> 4
Engagement Letter
4/25/96
Page 4
v) The provisions of subparagraphs 4(a)(ii) through (iv)
above assume that (i) the Transactions will involve
the issuance of $5 million aggregate principal amount
of Notes and $3 million aggregate principal amount of
Debentures and (ii) no stock splits, stock dividends
or similar events will occur. The amounts set forth
in such subparagraphs shall be proportionately
adjusted in the event that Notes and Debentures are
issued in different proportions, and appropriate
anti-dilution adjustments to such amounts shall be
made in the event of a stock split, stock dividend or
similar occurrence.
vi) The Company shall not be responsible for payment of
the fees and expenses of Intercontinental relating to
the Debenture Placement, which fees and expenses
shall be the obligation of Rickel pursuant to its
separate agreement with Intercontinental.
b) Trailer Fees. Should any Notes or other securities be placed
with any investors with which or whom we have held discussions
during the term of our engagement and such placement is
completed or committed within the six month period following
the expiration or termination of this Agreement, the Company
shall pay a fee in cash to Rickel equal to 4% of the principal
amount of any such Notes or the proceeds from the sale of such
other securities.
c) Payment. The cash fees payable to Rickel pursuant to
subparagraph 4(a)(i) above shall be paid, in whole or in part,
by the Company paying on Rickel's behalf, or reimbursing
Rickel for, fees and expenses incurred by Rickel in connection
with the Transactions, current estimates of which fees and
expenses are set forth on Exhibit C annexed hereto, upon
presentation of appropriate invoices or requests for payment
or reimbursement by Rickel. The Company shall have no
obligation to pay, or reimburse Rickel for, fees and expenses
exceeding the cash fees payable in the aggregate. To the
extent that the aggregate fees and expenses incurred by Rickel
and paid or reimbursed by the Company are less than the cash
fees payable, the Company may retain the amount representing
the difference and apply such amount to (i) reasonable and
necessary legal expenses incurred by the Company in connection
with the revision of the Transactions to include the issuance
of the Debentures and (ii) any prepayment penalty incurred by
the Company in respect of the Debentures in the event that the
Debentures are called for redemption prior to six months
following the date of their issuance. Any amount retained by
the Company and not so applied shall be paid to Rickel in cash
promptly upon the expiration of six months following the
closing of the Note Placement and Debenture Placement.
6. Indemnification. It is hereby understood and agreed that the Company
will indemnify Rickel and its affiliates and its and their respective
directors, officers, employees, agents and controlling persons (Rickel
and each such person being and "Indemnified Party") from and against
any and all losses, claims, damages and liabilities, joint or
several, to which such Indemnified Party may become subject
<PAGE> 5
Engagement Letter
4/25/96
Page 5
under any applicable federal or state law or otherwise, resulting from
a claim related to or arising out of the Transactions other than the
Debenture Placement or the performance by Rickel of the services
contemplated by this Agreement. The Company will reimburse any
Indemnified Party for all reasonable expenses (including reasonable
counsel fees and expenses) as they are incurred in connection with the
investigation of, preparation for or defense of any pending or
threatened claim or any action or proceeding therefrom. The Company
will not be liable under the foregoing indemnification provision to
the extent any loss, claim, damage or liability is found in a final
judgment by a court to have resulted from Rickel's bad faith, willful
misconduct or gross negligence or a breach of this Agreement by
Rickel. The Company also agrees that no Indemnified Party shall have
any liability (whether direct or indirect, in contract or tort or
otherwise) to the Company related to or arising out of the engagement
of Rickel pursuant to, or the performance by Rickel of the services
contemplated by, this Agreement except to the extent that any loss,
claim, damage or liability is found in final judgment by a court to
have resulted from Rickel's bad faith, willful misconduct or gross
negligence. If any action or proceeding shall be brought or asserted
against an Indemnified Party in respect of which indemnity shall be
sought from the Company, the Indemnified Party shall promptly notify
the Company in writing, and the Company shall assume the defense
thereof including the employment of counsel reasonably satisfactory to
the Indemnified Party and the payment of all expenses. The
Indemnified Party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of the
Indemnified Party unless (i) the Company has agreed to pay such fees
and expenses or (ii) the Company shall have failed promptly to assume
the defense of such action or proceeding and employ counsel reasonably
satisfactory to the Indemnified Party in such action or proceeding or
(iii) the named parties to any such action or proceeding (including
any impleaded parties) include the Company and an Indemnified Party
and the Company or such Indemnified Party shall have been advised by
counsel that there may be one or more legal defenses available to such
Indemnified Party which are different from or additional to those
available to the Company (in which case, if the Indemnified Party
notifies the Company in writing that it elects to employ separate
counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of
the Indemnified Party, it being understood, however, that the Company
shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings
arising out of the same general allegations or circumstances be liable
for the fees and expenses of more than one separate firm of attorneys
(together with appropriate local counsel) at any time for the
Indemnified Party, which firm shall be designated by the Indemnified
Party.
If the indemnification provided herein is for any reason held
unenforceable by an Indemnified Party although otherwise applicable in
accordance with its terms, the Company agrees to contribute to the
losses, claims, damages and liabilities for which such indemnification
is held unenforceable (i) in such proportion as is appropriate to
reflect the relative benefits to the Company on the one hand, and
<PAGE> 6
Engagement Letter
4/25/96
Page 6
Rickel, on the other hand, of the Transactions (whether or not the
Transactions are consummated) or (ii) if (but only if) the allocation
provided for in clause (i) is for any reason held unenforceable, in
such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) but also the relative fault of the
Company, on the one hand, and Rickel, on the other hand, as well as
any other relevant equitable considerations. The Company agrees that
for the purposes of this paragraph the relative benefits to the
Company and Rickel of the Transactions shall be deemed to be in the
same proportion that the total value received or contemplated to be
received by the Company in the Transactions bears to the fees paid or
to be paid to Rickel under this Agreement.
The Company agrees that, without Rickel's prior written consent, it
will not settle, compromise or consent to the entry of any judgment in
any pending or threatened claim, action or proceeding in respect of
which indemnification could be sought under the indemnification
provision of this Agreement (whether or not Rickel or any other
Indemnified Party is an actual or potential party to such claim,
action or proceeding) unless such settlement, compromise or consent
releases Rickel from all liability or obligation.
Any advice (written or oral) rendered by Rickel in connection with its
engagement pursuant to this Agreement or any similar letter shall be
covered by the terms of this Agreement to the extent not otherwise
expressly agreed and may not be disclosed publicly without Rickel's
written consent except to the extent required by applicable law.
The foregoing provisions shall survive any termination or completion
of our engagement. The parties hereto waive the right to trial by
jury in connection with any claim relating to the services contemplate
by this Agreement, including any claim concerning our advice.
7. Publicity. The Company agrees that Rickel may place advertisements in
financial and other press at Rickel's own expense describing its
services thereunder, provided that such advertisements have been
approved in writing by the Company, such approval not to be
unreasonably withheld.
8. Expiration/Termination. The expiration of this Agreement in
accordance with paragraph 3 hereof shall in no way affect the fees
paid or payable pursuant to paragraph 4 hereof (except as specifically
provided therein), or our rights to indemnification pursuant to
paragraph 5 hereof.
9. Counterparts. This Agreement may be signed in counterparts, each of
which shall constitute and original and which together shall
constitute one and the same Agreement.
10. Due Authorization. This Agreement has been duly authorized by the
Company and constitutes valid and binding Agreement of the Company and
Rickel enforceable in accordance with its terms.
<PAGE> 7
Engagement Letter
4/25/96
Page 7
11. Governing Law/Dispute Resolution. The parties agree that this
Agreement shall be subject to, enforced and construed in accordance
with the internal laws of the State of New York and that any suit,
action or proceeding with respect to this Agreement will be brought in
the State of New York.
Neither this Agreement nor any rights or obligations or either party
thereunder may be assigned to any other person without the prior
written consent of the other party. The provisions hereof shall inure
to the benefit of and be binding upon the successors and permitted
assigns of our firms.
If the foregoing correctly sets forth the understanding among us,
please so indicate on the enclosed signed copy of this letter in the
space provided therefor and return it to us, whereupon this letter
shall constitute a binding Agreement between us.
Very truly yours,
RICKEL & ASSOCIATES, INC.
By:
----------------------------------
Title:
-------------------------------
AGREED AND ACCEPTED
as of the date above
By:
----------------------------------
Title:
-------------------------------
<PAGE> 8
Engagement Letter
4/25/96
Page 8
Term Sheet
Security: 10% Note (the "Notes")
Issuer: DDL Electronics, Inc. ("DDL")
Proposed Closing Date: On or before February 15, 1996.
Term: 16 months
Principal Amount: $5 million
Principal Payments: Entire principal amount due upon maturity
Interest: Payable quarterly in arrears. Interest for 12 months
will put into escrow account at closing to secure
DDL's obligations to pay interest.
Call Feature: The notes will be callable at any time at the option
of DDL, at par.
Covenants: The Notes will contain the following covenants and
such other covenants as may be agreed to by Rickel
and DDL:
(i) DDL will be prohibited from incurring or
permitting to exist at any time more than
$13,500,000of indebtedness.
(ii) The proceeds of any asset sales (other than
sales in the ordinary course of business) shall be
used to pay down principal on the Notes; provided
that up to $13,500,000 of such proceeds may be used
to pay down indebtedness permitted under clause (i)
above.
Collateral: As described in Paragraph 4(a)(iii) of the Agreement
Registration Rights: The shares of DDL common stock issuable upon the
conversion of the Note and the shares securing DDL's
obligations under the Note will have the benefits of
demand and piggyback registration rights.
<PAGE> 1
EXHIBIT 4-t
LOAN AGREEMENT
THIS LOAN AGREEMENT is made and entered into as of the 11th day of
January, 1996 by and among HOWARD MILLER, KENNETH D. RICKEL AND ELLIOT SMITH
(individually, a "Borrower" and collectively, the "Borrowers"), RICKEL &
ASSOCIATES, INC., a New Jersey corporation ("Rickel") and STEVEN J. BAILEYS
(the "Lender"):
RECITALS:
A. Rickel has undertaken to act as placement agent for the issuance of ten
percent (10%) Senior Secured Notes (the "DDL Notes") to be issued by DDL
Electronics, Inc., a Delaware corporation ("DDL"), in the total aggregate
principal amount of $10,000,000, pursuant to a Securities Purchase Agreement to
be dated as of January 5, 1996 among DDL and the various purchasers of the DDL
Notes ("Securities Purchase Agreement");
B. The proceeds of the DDL Notes are to be used for, among other things,
the financing of the acquisition of SMTEK, Inc., a California corporation
("SMTEK");
C. Contemporaneously with the execution of this Agreement, DDL will issue
3,000,000 shares of its common stock, par value $.01 per share (the "Common
Stock") and warrants to purchase 1,500,000 shares of the Common Stock (the
"Warrants of the Company") to Rickel as part of its placement agent fee, of
which Rickel will pledge 2,000,000 shares of Common Stock as collateral for the
DDL Notes;
D. The Borrowers desire to assist Rickel in meeting its commitment to DDL
pending the issuance of the full $10,000,000 in aggregate principal amount of
DDL Notes; and
E. The Lender and the Borrowers desire to enter into this Loan Agreement
to provide interim financing for the DDL acquisition of SMTEK;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned stipulate,
covenant and agree as follows:
ARTICLE I
THE LOAN
Upon the terms and subject to the conditions of, and in reliance on the
representations and warranties made under, this Agreement, the Lender shall
make the Loan to the Borrowers as follows:
SECTION 1.01. TERM LOAN.
(a) The Lender shall make a Term Loan to the Borrowers in the amount
of $3,000,000.00 (the "Loan").
(b) Term Loan Interest. The Borrowers shall pay interest on the
Loan for each day it is outstanding at a rate per annum equal to ten
percent (10%). Interest shall be payable on the
<PAGE> 2
Due Date (as herein defined below). The interest rate provided herein
shall be calculated on the basis on the actual number of days lapsed over
a 360-day year. Interest on overdue amounts payable hereunder or under the
Note shall be payable on demand. If the Borrowers shall fail to pay any
amount payable hereunder or under the Note when due (for whatever reason),
the Borrowers shall pay interest on each such unpaid amount for each day
during the period from the date such amount became so due until it shall
be paid in full (whether before or after judgment) at a rate per annum
equal to the maximum interest rate permitted by law. Nothing contained in
this Agreement or in the Note shall be deemed to establish or require the
payment of interest to the Lender at a rate in excess of the maximum rate
permitted by governing law. In the event that the rate of interest
required to be paid under the Agreement exceeds the maximum rate permitted
by governing law, the rate of interest required to be paid hereunder shall
be automatically reduced to the maximum rate permitted by governing law
and any amounts collected in excess of the permissible amount shall be
deemed a prepayment of principal. To the extent such excess amount
exceeds the aggregate amount of the Loan, they shall be returned with
reasonable promptness by the Lender to the Borrowers.
(c) Repayment. The Loan shall mature and become due and payable and
shall be repaid by the Borrowers, who shall remain at all times jointly
and severally liable for principal and interest due on the Loan, on
February 25, 1996 (the "Due Date"). All payments made with respect to
the Loan shall be applied first to accrued and unpaid interest on the
Loan prior to any application against the outstanding principal balance
of the Loan.
(d) Prepayment. The Borrowers may prepay the Loan before the Due
Date in full or in part in minimum aggregate principal amounts of
$100,000, together with all interest accrued on the Loan to the date of
such prepayment.
(e) Term Note. The Loan and the Borrowers' obligation to repay the
Loan with interest in accordance with the terms of this Agreement, shall
be evidenced by this Agreement and a single Term Note payable to the
order of the Lender substantially in the form of Exhibit A (the "Note").
The Note shall (i) be dated as of the date of this Agreement; (ii) be in
a principal amount equal to $3,000,000.00; (iii) be duly executed and
delivered by the Borrowers; and (iv) be payable in the amount of the Loan
evidenced by it.
SECTION 1.02. MANNER OF PAYMENT. All payments of principal, interest,
fees and other amounts payable hereunder shall be made to Lender at the
Lender's Address not later than 11:00 a.m. (California Time) on the Due Date
therefor in lawful money of the United States of America. The Borrowers shall
pay principal, interest, fees and all other amounts payable hereunder or under
the Note without any deduction whatsoever, including, but not limited to, any
deduction for any setoff, recoupment or counterclaim.
If any payment hereunder or under the Note shall be specified to be due on
a day which is not a Business Day, it shall be due on the next succeeding
Business Day and, in the case of a payment of principal, such extension of time
shall be included in the computation of interest hereunder.
SECTION 1.03. TAXES AND ADDITIONAL COSTS.
(a) All payments under this Agreement and under the Note (including,
without limitation, payments of interest and principal) shall be payable
to the Lender free and clear of any
2
<PAGE> 3
and all Borrowers' present and future taxes, levies, imposts, duties,
deductions, withholdings, fees, liabilities and similar charges (the
"Taxes"). If any Taxes are required to be withheld or deducted from any
amount payable under this Agreement or any Note, then the amount payable
under the Agreement or the Note shall be increased to the amount which,
after deduction from such increased amount of all Taxes required to be
withheld or deducted therefrom, will yield to the Lender the amount stated
to be payable on the Agreement or the Note. The Borrowers shall execute
and deliver to the Lender upon his request such further instruments as may
be necessary or desirable to give full force and effect to any such
increase, including, without limitation, a new Note of the Borrower to be
issued in exchange for the Note theretofore issued. The Borrowers shall
also hold the Lender harmless and indemnify it for any stamp or other
taxes with respect to the preparation, execution, delivery, recording,
performance or enforcement of this Agreement and the Note. If any of the
Taxes are paid by the Lender, the Borrowers shall, upon demand of the
Lender, reimburse the Lender for such payment, together with any interest,
penalties and expenses incurred by the Lender in connection therewith.
(b) In the event that (i) any change in applicable law or regulation
or in the interpretation thereof by any government or party charged with
the administration thereof subjects the Lender to any tax of any kind
whatsoever with respect to this Agreement or the Note or changes the
basis of taxation of payments to the Lender of principal or interest
payable on the Loan (except for changes in the rate of tax based on or
measured by the net income of the Lender) or (ii) there shall be imposed
on the Lender, directly or indirectly, any other conditions affecting
this Agreement or the Note and the result of any of the foregoing as to
increase the cost to the Lender of making or maintaining the Loan by an
amount which the Lender deems to be material, then the Borrowers shall
pay to the Lender upon his demand the additional amount or amounts
necessary to compensate the Lender for such additional costs.
ARTICLE II
CONDITIONS PRECEDENT
SECTION 2.01. CONDITIONS PRECEDENT TO THE TERM LOAN. The Lender shall not
be obligated to make the Loan hereunder unless, prior to or contemporaneous
with the funding of the Loan, the Lender shall have received each of the
following, in form and substance satisfactory to the Lender:
(a) Fully executed originals of the Agreement, the Note and the
Pledge Agreement;
(b) Certified copies of the Rickel charter documents, by-laws and
all corporate action required to authorize the transactions herein
contemplated;
(c) The opinion of counsel to the Borrowers, in form and substance
satisfactory to the Lender and his counsel, to the effect that (i) this
Agreement, the Note and the Pledge Agreement are valid and binding and
enforceable obligations of the Borrowers and Rickel except to the extent
that the enforceability thereof may be limited by any applicable
bankruptcy, insolvency, debt adjustment, moratorium, reorganization or
other similar laws relating to the enforcement of creditors' rights
generally or as to the availability of any particular remedy; (ii) the
Lender has a valid and perfected security interest in the Collateral;
(iii) this Agreement and the Note and the Loan created thereby are not
violative of any usury laws applicable to the transactions contemplated
hereunder.
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(d) Certificates of Existence and Good Standing for Rickel issued of
recent date by the Secretary of State of New Jersey;
(e) An Incumbency Certificate for Rickel;
(f) The opinion of counsel to Rickel, in form and substance
satisfactory to the Lender and his counsel, to the effect that the
transfer of the Inducement Securities and the pledge of the Collateral is
exempt from the registration provisions of applicable federal and state
securities laws;
(g) All such other documents and materials as the Lender may
reasonably request, certified by an appropriate government official or
party if so requested.
ARTICLE III
REPRESENTATION AND WARRANTIES
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. Each of
Borrowers, severally and not jointly, represent and warrant to the Lender that:
(a) Competency. Such Borrower is at least eighteen (18) years of
age and is competent to enter into this Agreement, the Note and otherwise
enter into and undertake and effectuate the obligations created hereunder
and under the Note.
(b) Litigation. There are no pending, or to the best of the
Borrower's knowledge, threatened actions, suits or proceedings before any
court, arbitrator or governmental or administrative body or agency which
are against or in any way related adversely to the Borrower or any of his
properties and which if determined adversely to the Borrower, may
materially adversely affect the financial condition of such Borrower.
(c) Taxes. Such Borrower has filed all federal, state, and local
tax returns and other reports that are required to be filed by him and
all taxes shown thereon have been paid, and no controversy with respect
of additional taxes, state, federal or foreign, against him is pending
or, to the best of his knowledge, threatened.
(d) No Default. No Borrower is in default in the performance,
observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to which he is a
party or by which he may be bound, the effect of which default would
interfere with or otherwise prevent his performance of his obligations
under this Agreement and the Note.
(e) No Untrue Statements. Neither this Agreement nor any report,
schedule, certificate, agreement or instrument heretofore or
simultaneously with the execution of this Agreement delivered to the
Lender by or on behalf of such Borrower in connection with this Agreement
contains any misrepresentation or untrue statement of fact or omits to
state any material fact necessary to make this Agreement or such report,
schedule, certificate, agreement or instrument not misleading; provided,
however, each Borrower makes no representation or warranty with respect to
information originating from, created by or provided by DDL or other
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persons, and each Borrower only represents and warrants that, to the best
of his knowledge, such information does not contain any misrepresentation
or untrue statement of fact or omit to state any material fact necessary
to make such information not misleading.
(f) Contract or Restriction Affecting Borrowers. No Borrower is a
party to or bound by any contract or agreement under which the execution
of this Agreement, the Note and the consummation of the transactions
contemplated hereby would create an event of default or breach.
(g) No Conflicts. There is no statute, regulation, rule, or order
or judgment, and no provision of any mortgage, indenture, contract or
agreement binding on any Borrower or affecting any of their properties
which would prohibit, conflict with or in any way prevent the execution,
delivery or performance of the terms of this Agreement.
(h) Bank Accounts. Schedule 3.01 attached hereto sets forth the
location (including bank address) and account number of each bank account
for each of the Borrowers.
SECTION 3.02. REPRESENTATIONS IN WARRANTIES OF RICKEL. Rickel represents
and warrants to the Lender that:
(a) Organization. Rickel (i) is a corporation duly organized and
valid existing and in good standing under the laws of New Jersey; and
(ii) has the power and authority to own its properties and carry on its
business as now being conducted, except where the lack of such power or
authority will not have a material adverse effect on Rickel.
(b) Power and Authority. Rickel is duly authorized under all
applicable provisions of law to execute, deliver and perform its
obligations under this Agreement and the Pledge Agreement, and all action
on its part required for the lawful execution, delivery and performance
thereof has been duly taken. Each of this Agreement and the Pledge
Agreement has been duly executed and delivered by the duly authorized
officers of Rickel and is the valid and binding obligation of Rickel,
enforceable in accordance with its terms except to the extent that the
enforceability thereof may be limited by any applicable bankruptcy,
insolvency, debt adjustment, moratorium, reorganization or other similar
laws relating to the enforcement of creditors' rights generally. Neither
the execution of this Agreement and the Pledge Agreement, nor the
fulfillment or compliance with their provisions and terms, will conflict
with, or result in a breach of the terms, conditions or provisions of, or
constitute a violation of or default under any applicable law, regulation,
judgment, writ, order or decree to which Rickel or any of its property are
subject, or the corporate charter or bylaws of Rickel, or any agreement or
instrument to which Rickel is now a party or by which it or its properties
are bound or affected, or create any lien, charge or encumbrance on any of
the properties or assets of Rickel pursuant to the terms of any agreement
or instruments to which the Borrower is a party or by which any of its
properties is bound except for liens contemplated herein.
(c) No registration under the Securities Act of 1933, as amended
("Securities Act") is required for the issuance and/or pledge of the
Securities.
(d) Ownership of Securities. The Securities to be transferred
and/or pledged to Lender from Rickel are fully paid, non-assessable and
not subject to any liens encumbering the property
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<PAGE> 6
of Rickel. The Securities are not needed by Rickel to meet any regulatory
capital requirements. Rickel is able to convey good title in the
Securities to Lender.
(e) Litigation. There are no pending, or to the best of Rickel's
knowledge, threatened actions, suits, or proceedings before any court,
arbitrator, or governmental or administrative body or agency which are
against or in any way relate adversely to Rickel or any of its properties
and which if determined adversely to Rickel, may materially adversely
affect Rickel's ability to undertake and complete the transactions
contemplated herein.
(f) Rickel, to the extent necessary to perform its obligations under
this Agreement and the Pledge Agreement, has fully complied in all
material respects with all laws, ordinances, regulations and orders
including without limitation federal and state brokerage regulations,
applicable to its business or properties, and the transactions
contemplated by this Agreement would not cause Rickel to violate any such
laws, ordinances, regulations or orders.
(g) No Untrue Statements. Neither this Agreement nor any report,
schedule, certificate, agreement or instrument heretofore or
simultaneously with the execution of this Agreement delivered to the
Lender by or on behalf of Rickel in connection with this Agreement
contains any misrepresentation or untrue statement of fact or omits to
state any material fact necessary to make this Agreement or any such
report, schedule, certificate, agreement or instrument not misleading;
provided, however, Rickel makes no representation or warranty with
respect to information originating from, created by or provided by DDL or
other persons, and Rickel only represents and warrants that, to the best
of its knowledge, such information does not contain any misrepresentation
or untrue statement of fact or omit to state any material fact necessary
to make such information not misleading.
(h) No Margin Regulation Violations. The transaction contemplated
by this Agreement will not result in the violation of any margin
regulations.
(i) Contract or Restriction Affecting Rickel. Rickel is not a party
to or bound by any contract or agreement or subject to any charter or
other corporate restrictions which would prohibit, conflict with or in any
way prevent the execution, delivery or performance of the terms of this
Agreement.
SECTION 3.03 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All statements contained in any certificate, financial statement, legal
opinion or other instrument delivered by or on behalf of the Borrowers and
Rickel pursuant to or in connection with this Agreement shall constitute
representations and warranties made under this Agreement; provided, however,
the Borrowers and Rickel make no representation or warranty with respect to
information originating from, created by or provided by DDL or other persons,
and the Borrowers and Rickel only represent and warrant that, to the best of
their knowledge, such information does not contain any misrepresentation or
untrue statement of fact or omit to state any material fact necessary to make
such information not misleading. All representations and warranties made under
this Agreement shall be made at and as of the date hereof; provided that any
financial statement provided pursuant to this Agreement shall constitute a
representation warranty as of the date of which the financial statement was
prepared.
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ARTICLE IV
INDUCEMENT AND SECURITY FOR LOAN
SECTION 4.01 SECURITY FOR LOAN. As security for the Loan, Rickel shall
deliver, and the Borrowers shall cause Rickel to deliver, a Pledge Agreement
dated the date hereof substantially in the form of Exhibit B hereto. The
Pledge Agreement shall provide the pledge of 700,000 shares of the common
stock, par value $.01 per share ("Common Stock"), of DDL ("Collateral Stock"),
which shares were obtained by Rickel in connection with the issuance of the DDL
Notes and a warrant or warrants to purchase 900,000 shares of DDL's Common
Stock (the "Collateral Warrants", and, together with the Collateral Stock, the
"Collateral"), which Collateral Warrants were obtained by Rickel in connection
with the issuance of the DDL Notes. If an Event of Default occurs, the Lender
agrees to execute upon the Collateral before exercising any other remedies
afforded the Lender against the Borrowers under this Agreement.
Notwithstanding the foregoing, nothing in this Agreement shall be construed to
limit the Lender's ability to exercise remedies with respect to any DDL Notes
received by the Lender in an Exchange, such rights and remedies of the Lender
being considered separate from the rights and remedies of the Lender granted
hereunder.
SECTION 4.02 SECURITIES INDUCEMENT
Rickel shall transfer, and the Borrowers shall cause Rickel to transfer,
ownership of 300,000 shares of DDL's Common Stock (the "Stock Inducement") and
a warrant or warrants to purchase 100,000 shares of DDL's Common Stock (the
"Warrant Inducement", together with the Stock Inducement, the "Inducement
Securities," and collectively with the Collateral, the "Securities") to the
Lender. The Inducement Securities shall come from those shares and warrants
received by Rickel in connection with the issuance of the DDL Notes.
ARTICLE V
NOTE EXCHANGE
SECTION 5.01 -- EXCHANGE OF NOTE UPON ISSUANCE OF DDL NOTES
If the DDL Notes are issued on or before the Due Date and the Loan is not
repaid from the proceeds from the sale of the DDL Notes, then the Lender shall
have the option to tender the Note to Rickel for cancellation in exchange for a
DDL Note with a face amount equal to the principal amount of the Note and
interest accrued thereon as of the date of such exchange (the "Exchange").
SECTION 5.02 GRANT OF PUT RIGHTS
After February 25, 1996, should the Exchange have occurred, the Lender
shall have the right to put the DDL Note he receives in the Exchange to Rickel
for the par amount thereof together with accrued interest, at any time in the
Lender's sole discretion. If an event of default has occurred under the DDL
Note received by the Lender pursuant to the Exchange, the Lender shall also
have the right to put the shares and warrants received as collateral for the
DDL Note to Rickel at an agreed value of $2.50 per share of Common Stock and
$1.00 per unexercised warrant, at any time in Lender's sole discretion.
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SECTION 5.03 SECURITY FOR PUT RIGHTS
(a) Rickel's obligations hereunder to honor the put rights of Lender will
be secured by, among other things, the personal guarantees of each of the
Borrower's. After the Exchange, each of the Borrowers hereby jointly and
severally unconditionally guarantees to the Lender the full and complete
payment due to the Lender upon the exercise of such put rights of any and all
moneys (whether principal, interest, fees, costs, expense or otherwise) payable
by Rickel to the Lender pursuant to the terms of this Article V. Each Borrower
hereby jointly and severally agrees that, if Rickel shall fail to discharge
promptly all such obligations and liabilities arising under this Article V in
accordance with the terms and provisions of this Agreement, such Borrower shall
forthwith, upon demand, discharge the same. The unconditional obligation of
the Borrowers under this section shall continue in full force and effect until
all of Rickel's obligations and liabilities under this Article have been fully
paid, satisfied and discharged. Until such time, such obligations of the
Borrowers will not be, reduced, affected, impaired or released by any
extension, waiver, amendment or thing whatsoever which would release a
guarantor (other than performance).
(b) The Collateral under the Pledge Agreement shall, upon the Exchange, be
deemed to collateralize and secure the obligations of Rickel arising upon the
exercise of any put rights created under this Article V. The Collateral shall
be in addition to any other collateral received by Lender under the terms of
the DDL Notes received by Lender in the Exchange.
SECTION 5.04 ASSIGNMENT OF REGISTRATION RIGHTS
(a) With respect to the Inducement Securities, Rickel hereby irrevocably
assigns to the Lender all rights of Rickel under a Registration Rights
Agreement dated as of January 5, 1996 (the "Registration Rights Agreement")
between Rickel and DDL as to the Inducement Securities.
(b) With respect to the Collateral, Rickel hereby agrees to have the
Collateral registered in accordance with the Registration Rights Agreement,
prior to the execution by the Lender thereon, if Rickel is presented with an
opportunity under such Registration Rights Agreement and the Securities
Purchase Agreement to have such securities registered by DDL. In the event
that the registration of the securities representing the Collateral has not
occurred prior to the Lender's execution upon the Collateral, Rickel shall
irrevocably assign, and hereby does assign subject to the Lender's execution
upon such Collateral, all rights of Rickel under the Registration Rights
Agreement with respect to the Collateral.
SECTION 5.05 USE OF PROCEEDS
The proceeds of the Loan will be used solely in connection with the
acquisition of all of the outstanding common stock of SMTEK. Nothing in the
Agreement, the Note or the Pledge Agreement shall be construed has to prevent
the application of the proceeds of the Loan towards DDL's acquisition of SMTEK
or SMTEK's capital stock.
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ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01 EVENTS OF DEFAULT
Each of the following shall constitute an Event of Default, whatever the
reason for such event and whether it shall be voluntary or involuntary or be
affected by operation of law or otherwise:
(a) If the Borrowers, jointly and severally, default in any payment of
principal, interest or other obligation on the Loan or the Note when and as the
same shall become due (whether at maturity or by reason of prepayment or
otherwise); or
(b) If the Borrower or Rickel default in the performance or observance of
any covenant or agreement, including obligations arising under the exercise of
certain put rights contained in Article V hereof; or
(c) The occurrence of a default under the Pledge Agreement; or
(d) If any representation or warranty made by the Borrowers or Rickel
herein, or in any writing furnished or behalf of the Borrowers or Rickel in
connection with the Loan or pursuant to this Agreement, shall have been false,
misleading or incomplete in any material respect on the date as of which made;
or
(e) The filing by any Borrower or Rickel of, a voluntary petition in
bankruptcy or voluntary petition or an answer seeking reorganization,
arrangement, readjustment of its debts or for any other relief under the
Bankruptcy Code, as amended, or under any other insolvency act or law, state or
federal, now or hereafter existing, or any other action of any of Borrower or
Rickel indicating its consent to, approval of, or acquiescence in any such
petition or proceeding; the application for or the appointment of a receiver
or a trustee for any Borrower or Rickel; the application for or the consent to
or acquiescence in, and assignment for the benefit of creditors of any Borrower
or Rickel; or the inability of, or the admission in writing by, any Borrower or
Rickel, of his or its inability to pay his or its debts as they mature; or
(f) The filing of an involuntary petition against any Borrower or Rickel
in bankruptcy or seeking reorganization, arrangement, readjustment of his or
its debts or for any other relief under the Bankruptcy Code, as amended, or
under any other insolvency act or law, state or federal, now or hereafter
existing; or the involuntary appointment of receiver or trustee for the
Borrower or Rickel or for all or a substantial part of his or its property; the
issuance of a warrant of attachment, execution or similar process against any
substantial part of the property of any Borrower or Rickel and the continuance
of any such events or conditions for sixty (60) days undismissed or
undischarged.
SECTION 6.02 REMEDIES UPON DEFAULT
Upon the occurrence of any Event of Default and every such event, the
Lender, regardless of whether notice is given any Borrower or Rickel, may
declare the principal of and interest on the Loan and other amounts payable
under this Agreement to be, and the Loan and all such other amounts shall
thereupon become, due and payable to the Lender, without presentment, demand,
protest or other notice of any kind, all of which are expressly waived,
anything in this Agreement or the Note to the contrary notwithstanding.
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SECTION 6.03 NO REMEDIES EXCLUSIVE
No remedy herein conferred upon or reserved to the Lender is intended to
be exclusive of any other available remedy or remedies, but each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
under this Agreement or now or hereafter existing at law or in equity or by
statute.
ARTICLE VII
DEFINITIONS
For the purposes of this Agreement:
"Agreement" means this Loan Agreement, as further amended from time to
time.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978 (11 U.S.C.
Section 101 et. seq.), as amended.
"Borrowers" and "Borrower" means individually and collectively Howard
Miller, Kenneth D. Rickel and Elliot Smith.
"Borrower's Address" means the office of the Borrowers at the address
specified in Section 8.01.
"Business Day" means any day on which commercial banks in the state of New
York and the state of California are not authorized or required to close.
"Collateral" means Collateral Stock and the Collateral Warrants.
"Collateral Stock" means the 700,000 shares of common stock originally
issued to Rickel in connection with the issuance of the DDL Note, pledged to
the Lender pursuant to the terms of the Pledge Agreement.
"Collateral Warrants" means the warrants to purchase 900,000 shares of
common stock, originally issued to Rickel in connection with the DDL Note,
pledged to the Lender pursuant to the terms of the Pledge Agreement.
"Common Stock" means the common stock of DDL, par value $.01 per share.
"DDL" means DDL Electronics, Inc.
"DDL Note" or "DDL Notes" means any of the 10% Senior Secured Notes of DDL
issued pursuant to the Securities Purchase Agreement.
"Default" or "Event of Default" means any of the events specified in
Section 6.01.
"Due Date" means February 25, 1996.
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"Inducement Securities" means the Stock Inducement and the Warrant
Inducement.
"Lender" means Steven J. Baileys and his successors and assigns.
"Lender's Address" means the address of the Lender specified in Section
8.01.
"Loan" has the meaning ascribed to it in Section 1.01.
"Note" means a term promissory note evidencing the loan and otherwise
complying with Section 1.01(d), and all modifications, amendments,
restatements, renewals and replacements thereof.
"Pledge Agreement" means the Pledge Agreement of even date herewith by and
between the Lender and Rickel, as further amended from time to time.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of January 5, 1996 between DDL and Rickel, as further amended from
time to time.
"Rickel" means Rickel & Associates, Inc., a New Jersey corporation.
"Securities" means the Collateral and the Inducement Securities.
"Securities Purchase Agreement" means the Securities Purchase Agreement to
be dated as of January 5, 1996 among DDL and the various purchasers of the DDL
Notes.
"SMTEK" means SMTEK, Inc., a California corporation.
"Stock Inducement" means the 300,000 shares of Common Stock transferred to
the Lender from Rickel.
"Warrant Inducement" means the warrant or warrants to purchase 100,000
shares of Common Stock transferred to the Lender from Rickel.
ARTICLE VIII
NOTICES
SECTION 8.01 NOTICES
All notices and other communications under this Agreement shall:
(a) be in writing (which shall include communications by telex or
facsimile transmission);
(b) if not sent by telex or facsimile transmission, be (i) sent by
registered or certified mail, postage prepaid, return receipt requested, (ii)
delivered by hand or (iii) where so specified, by telephone;
(c) be given to the person to whom addressed at the following respective
addresses and telephone numbers:
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(i) if to the Borrowers, to them at:
Mr. Howard Miller
Mr. Kenneth D. Rickel
Mr. Elliot Smith
c/o Rickel & Associates, Inc.
875 Third Avenue
New York, New York 10002
Telephone: (212) 339-9800
Telecopy: (212) 754-9636
(ii) if to the Lender, to him at:
Steven J. Baileys
30691 Hunt Club Drive
San Juan Capistrano, California 92675
Telephone: (714) 661-1766
Telecopy: (714) 661-1766
and
(iii) if to Rickel, to it at:
875 Third Avenue
New York, New York 10002
Attention: Kenneth D. Rickel
Telephone: (212) 339-9800
Telecopy: (212) 754-9636
Notices and other communications may be given at other addresses, telex or
telephone numbers as may be specified in writing from time to time to the other
parties to this Agreement.
SECTION 8.02 EXPENSES
The Borrowers will:
(a) pay all fees and expenses (including all reasonable legal fees, as
computed without reference to the statutory presumption) incurred by the
Lender in connection with the preparation, execution, delivery and
administration of, and operations under, this Agreement, the Note and the
Pledge Agreement,
(b) pay all fees and expenses (including all reasonable legal fees, as
computed without reference to the statutory presumption) incurred by the Lender
in connection with any amendment or modification of, or any default or waiver
(whether or not executed) under, this Agreement, the Note or the Pledge
Agreement, and the enforcement of any rights thereunder or under the Note for
the defense of any claim arising out of or in any way related to or connected
with the transactions contemplated by this Agreement, and
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(c) pay, and indemnify the Lender against, all taxes, including transfer
and documentary stamps and similar taxes in recording and filing fees, payable
in respect to this Agreement, the Note and the Pledge Agreement or the making
of the Loan.
SECTION 8.03 RIGHTS CUMULATIVE
The rights and remedies of the Lender under this Agreement and the Note
shall be cumulative and not exclusive of any rights or remedies which it would
otherwise have, and no failure or delay by the Lender in exercising any right
shall operate as a waiver of it, nor shall any single or partial exercise of
any power or right preclude its other or further exercise or the exercise of
any other power or right. Without limitation of the foregoing, all rights and
remedies of the Lender under the Pledge Agreement shall be cumulative and shall
be supplementary of and in addition to those granted or available to the Lender
hereunder or under the Note or otherwise, and nothing herein shall be construed
as limiting any such rights and remedies of the Lender under the Pledge
Agreement.
SECTION 8.04 WAIVERS; AMENDMENTS.
Any term, covenant, agreement or condition of this Agreement or the Note
may be amended or waived, and any departure therefrom may be consented to, if,
but only if, such amendment, waiver or consent is in writing and is signed by
the Lender and, in the case of any amendment, by the Borrowers, and Rickel, and,
in any such event, the failure to observe, perform or discharge any such term,
covenant, agreement or condition (whether such amendment is executed or such
waiver consent is given before or after such failure) shall not be construed as
a breach of such term, covenant, agreement or condition or a default.
SECTION 8.05 ASSIGNMENT
All the provisions of the Agreement shall be binding upon and inured to
the benefit of the parties hereto and the respective successors and assigns,
except that the Borrowers and Rickel shall not assign or transfer any of their
rights and duties under this Agreement, whether by operation of law or
otherwise, without the Lender's prior written consent, and any such attempted
assignment without the Lender's consent by the Borrowers or Rickel shall be
void.
SECTION 8.06 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and shall be binding upon all parties,
the successors and assigns.
SECTION 8.07 GOVERNING LAW
THIS AGREEMENT AND THE NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 8.08 JUDICIAL PROCEEDINGS; WAIVER OF JURY TRIAL
(a) Any judicial proceedings brought against any of the Borrowers or
Rickel with respect to this Agreement may be brought in the state courts for
the state of New York or the state of California or
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in the United States District Courts for the Southern District of New York and
the Southern District of California, and, by execution and delivery of this
Agreement the Borrowers and Rickel accept for themselves and in connection with
their properties, generally and unconditionally, the non-exclusive jurisdiction
of the aforesaid courts, and irrevocably agree to be bound by any judgment
rendered thereby in connection with this Agreement. Nothing herein shall limit
the right of the Lender to bring proceedings against the Borrowers and Rickel in
the courts of any other jurisdiction.
(b) Except as prohibited by law, each party hereto hereby waives any right
it may have to a trial by jury in respect of any litigation directly or
indirectly arising out of, under or in connection with this Agreement, the Note
or the Pledge Agreement.
SECTION 8.09 SECURITY INTEREST AND COLLATERAL
This Agreement and the Notes and all of the obligations of the Borrowers
and Rickel hereunder and thereunder, as the case may be, are entitled to the
benefit of and are secured by the Pledge Agreement. The liens and security
interest created thereby in the Collateral shall at all times be valid,
perfected and enforceable against the Borrowers and Rickel, as the case may be,
and all third parties as security for the obligations of the Borrowers and
Rickel under this Agreement and the Notes, as the case may be, and the
Borrowers shall, at their sole cost and expense, take all action that may be
necessary or desirable, or that the Lender may request, so at all times (i) to
maintain such validity, perfection and enforceability, or (ii) to enable the
Lender to exercise its rights under the Pledge Agreement.
SECTION 8.10 SEVERABILITY OF PROVISIONS
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, in such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, or affecting the validity or enforceability of such
provisions in any other jurisdiction.
SECTION 8.11 PRIOR UNDERSTANDING
This Agreement constitutes the full agreement among the parties with
respect to the subject matter hereof and supersedes all prior understandings
and agreements, whether written or oral, between the parties hereto relating to
the transactions provided for herein.
[Signatures begin on following page]
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IN WITNESS WHEREOF, each party hereto as caused the Agreement to be
executed by its duly authorized officers or individually in counterparts all as
of the day and year first written above.
--------------------------------------
HOWARD MILLER,
Borrower
--------------------------------------
KENNETH D. RICKEL,
Borrower
--------------------------------------
ELLIOT SMITH,
Borrower
RICKEL & ASSOCIATES, INC.
By:
----------------------------------
Name:
-------------------------------
Title:
-------------------------------
ATTEST:
- --------------------------------
Secretary
(CORPORATE SEAL)
LENDER
--------------------------------------
STEVEN J. BAILEYS,
as Lender
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EXHIBIT 5
NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
NATIONSBANK CORPORATE CENTER
SUITE 3350
100 NORTH TRYON STREET
CHARLOTTE, NORTH CAROLINA 28202-4000
TELEPHONE (704) 417-3000
FACSIMILE (704) 377-4814
_________________, 1996
Board of Directors
DDL Electronics, Inc.
2151 Anchor Court
Newbury Park, California 91320
Dear Sirs:
We are acting as counsel to DDL Electronics, Inc., a Delaware corporation (the
"Company"), in connection with the preparation, execution and filing with the
Securities and Exchange Commission (the "Commission"), under the Securities Act
of 1933, as amended (the "Act"), of a Registration Statement on Form S-3 (the
"Registration Statement") and the offer, issuance and sale pursuant to the
Registration Statement of (i) up to 3,800,388 shares (the "Shares") of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), by the
Selling Shareholders identified in the Registration Statement and (ii)
outstanding warrants to purchase up to 1,500,000 shares of Common Stock (the
"Offered Warrants") by certain of the Selling Shareholders as described in the
Registration Statement. This opinion letter is furnished to you for filing
with the Commission pursuant to Item 601 of Regulation S-K promulgated under
the Act.
In our representation of the Company, we have examined the Registration
Statement and the Company's Certificate of Incorporation and Bylaws, each as
amended to date, and such other documents as we have considered necessary for
purposes of rendering the opinions expressed below. We have assumed the
authenticity of all documents submitted to us as originals and the conformity
to the originals of all documents submitted to us as copies of originals.
Based upon the foregoing, we are of the following opinion:
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware.
2. The outstanding Shares and the Offered Warrants have been
duly and validly issued and are fully paid and nonassessable.
<PAGE> 2
Board of Directors
DDL Electronics, Inc.
August 16, 1995
Page 2
3. The Shares underlying Common Stock purchase warrants have
been duly authorized and, when offered, issued and sold in compliance
with the Act and in accordance with the terms and conditions of such
warrants, will be duly and validly issued, fully paid and
nonassessable.
The opinions expressed herein are limited to matters governed by the General
Corporation Law of the State of Delaware and the Act.
We hereby consent to the use of this opinion letter as Exhibit 5 to the
Registration Statement and to the use of our name under the heading "Legal
Matters" therein. In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission promulgated thereunder.
Very truly yours,
<PAGE> 1
EXHIBIT 23-b
KPMG Peat Marwick LLP
Suite 2000
1211 South West Fifth Avenue
Portland, OR 97204
Consent of Independent Certified Public Accountants
The Board of Directors
DDL Electronics, Inc.:
We consent to the use of our reports, dated August 18, 1995, incorporated
herein by reference in the Registration Statement on Form S-3, dated April 29,
1996, of DDL Electronics, Inc. and to the reference to our firm under the
"Experts" heading in the Prospectus.
As discussed in note 1 to the financial statements, in 1994 the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
/s/ KPMG Peat Marwick LLP
Portland, Oregon
April 29, 1996
<PAGE> 1
EXHIBIT 23-c
ARTHUR ANDERSEN & CO. SC
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form S-3 registration statement of our reports for SMTEK,
Inc. dated August 15, 1995 and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Los Angeles, California
April 29, 1996
<PAGE> 1
EXHIBIT 23-d
GARY W. JANKE
CERTIFIED PUBLIC ACCOUNTANT 15650 DEVONSHIRE STREET -- SUITE 200
GRANADA HILLS, CALIFORNIA 91344-7241
(818) 893-9674 (310) 276-8470
FAX (818) 893-1246
ACCOUNTANT'S CONSENT
I hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of my report dated
March 21, 1996, which appears on page F-13 of the Amendment on Form 8-K/A dated
March 27, 1996. I also consent to the reference to me under the heading
"Experts" in such Prospectus.
/s/ Gary W. Janke
April 29, 1996
