SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended: SEPTEMBER 30, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
----------- ------------
Commission File Number: 1-8101
Exact Name of Registrant as
Specified in Its Charter: DDL ELECTRONICS, INC.
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization: DELAWARE Identification No.: 33-0213512
Address of Principal Executive Offices: 2151 Anchor Court
Newbury Park, CA 91320
Registrant's Telephone Number: (805) 376-9415
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
The registrant had 23,046,914 shares of Common Stock outstanding as of
November 5, 1996.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DDL ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited, except June 30, 1996)
September 30, June 30,
1996 1996
------ ------
Assets
Current assets:
Cash and cash equivalents $ 1,333,000 $ 2,519,000
Accounts receivable 6,676,000 5,620,000
Costs and estimated earnings
in excess of billings on
uncompleted contracts 3,532,000 3,026,000
Inventories 3,574,000 4,014,000
Prepaid expenses and other
current assets 313,000 314,000
---------- ----------
Total current assets 15,428,000 15,493,000
---------- ----------
Property, equipment and
improvements, at cost:
Buildings and improvements 5,639,000 5,604,000
Plant equipment 14,458,000 13,999,000
Office and other equipment 1,534,000 1,444,000
---------- ----------
21,631,000 21,047,000
Less: accumulated depreciation
and amortization (15,527,000) (15,130,000)
---------- ----------
Property, equipment and
improvements, net 6,104,000 5,917,000
---------- ----------
Other assets:
Goodwill, net 5,391,000 5,708,000
Debt issue costs 409,000 533,000
Deposits and other assets 438,000 436,000
---------- -----------
6,238,000 6,677,000
---------- -----------
$ 27,770,000 $ 28,087,000
========== ===========
<PAGE>
DDL ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Continued)
(Unaudited, except June 30, 1996)
September 30, June 30,
1996 1996
------ ------
Liabilities and Stockholders' Equity
Current liabilities:
Bank line of credit payable $ 952,000 $ -
Current portion of
long-term debt 5,915,000 603,000
Accounts payable 6,938,000 7,485,000
Accrued payroll and
employee benefits 623,000 777,000
Other accrued liabilities 3,007,000 3,114,000
---------- ----------
Total current liabilities 17,435,000 11,979,000
---------- ----------
Long-term debt:
10% Senior Secured Notes - 5,300,000
7% Convertible Subordinated
Debentures, less current
portion 441,000 443,000
8-1/2% Convertible
Subordinated Debentures 1,580,000 1,580,000
Notes payable, capitalized
lease obligations and
other long-term debt,
less current portion 3,756,000 3,612,000
---------- ----------
Total long-term debt 5,777,000 10,935,000
---------- ----------
Stockholders' equity:
Common stock 230,000 230,000
Additional paid-in capital 29,380,000 29,304,000
Common stock held in escrow (1,325,000) (1,325,000)
Accumulated deficit (22,725,000) (22,000,000)
Foreign currency translation
adjustment (1,002,000) (1,036,000)
---------- ----------
Total stockholders' equity 4,558,000 5,173,000
---------- ----------
$ 27,770,000 $ 28,087,000
========== ==========
See accompanying Notes to Unaudited
Consolidated Financial Statements
<PAGE>
DDL ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
----------------------
1996 1995
------ ------
Sales $ 9,895,000 $ 6,192,000
Cost of goods sold 8,799,000 5,466,000
--------- ---------
Gross profit 1,096,000 726,000
--------- ---------
Operating expenses:
Administrative and selling 1,151,000 864,000
Goodwill amortization 317,000 -
--------- ---------
1,468,000 864,000
--------- ---------
Operating loss (372,000) (138,000)
--------- ---------
Non-operating income (expense):
Investment income 24,000 127,000
Interest expense (258,000) (115,000)
Other income (expense) (119,000) 100,000
--------- ---------
(353,000) 112,000
--------- ---------
Loss before income taxes (725,000) (26,000)
Income tax benefit - 1,110,000
--------- ----------
Net income (loss) $ (725,000) $ 1,084,000
========= =========
Earnings (loss) per share $ (0.03) $ 0.06
==== ====
Shares used in computing
earnings (loss) per share 23,017,458 16,842,733
========== ==========
See accompanying Notes to Unaudited
Consolidated Financial Statements
<PAGE>
DDL ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended
September 30,
----------------------
1996 1995
------ ------
Cash flows from operating activities:
Net income (loss) $ (725,000) $ 1,084,000
Adjustments to reconcile net income
(loss) to net cash used by operating
activities -
Depreciation and amortization 755,000 178,000
Net increase in operating
working capital (2,099,000) (1,528,000)
Increase in deposits and
other assets (2,000) -
Benefit of noncapital grants (58,000) (16,000)
Other 23,000 (61,000)
--------- ---------
Net cash used by operating activities (2,106,000) (343,000)
--------- ---------
Cash flows from investing activities:
Capital expenditures (84,000) (127,000)
---------- ---------
Cash flows from financing activities:
Proceeds from bank line of credit 946,000 -
Reductions of long-term debt (199,000) (182,000)
Proceeds from exercise of stock options - 219,000
Proceeds from government grants 251,000 -
--------- ---------
Net cash provided by financing activities 998,000 37,000
--------- ---------
Effect of exchange rate changes on cash 6,000 (20,000)
--------- ---------
Decrease in cash and cash equivalents (1,186,000) (453,000)
Cash and cash equivalents at
beginning of period 2,519,000 2,917,000
--------- ---------
Cash and cash equivalents at
end of period $ 1,333,000 $ 2,464,000
========= =========
See accompanying Notes to Unaudited
Consolidated Financial Statements
<PAGE>
DDL ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
DDL Electronics, Inc. provides customized, integrated electronic
manufacturing services ("EMS") to original equipment manufacturers ("OEMs")
in the computer, telecommunications, instrumentation, medical, industrial and
aerospace industries. The Company also manufactures multilayer printed
circuit boards ("PCBs") for use primarily in the computer, communications and
instrumentation industries. The Company's EMS operations are located in
Southern California and Northern Ireland. The Company's PCB facilities are
located in Northern Ireland.
The accompanying consolidated financial statements, which have not been
audited by independent accountants (except for the balance sheet as of June
30, 1996), include the accounts of DDL Electronics, Inc. and its
subsidiaries. All significant intercompany transactions and accounts have
been eliminated in consolidation. In the opinion of the Company's
management, the accompanying consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the Company's financial position at September 30, 1996 and its results
of operations and cash flows for the three months ended September 30, 1996
and 1995.
The Company uses a 52-53 week fiscal year ending on the Friday closest to
June 30. In the accompanying interim consolidated financial statements, the
interim period end for both years is shown as September 30 for clarity of
presentation. The actual periods ended on September 27, 1996 and September
29, 1995. Certain notes and other information are condensed or omitted from
the interim financial statements presented in this Quarterly Report on Form
10-Q. Therefore, these financial statements should be read in conjunction
with the Company's 1996 Annual Report to Stockholders as filed with the
Securities and Exchange Commission on October 11, 1996.
Certain reclassifications have been made to the interim fiscal 1996 financial
statements to conform with the fiscal 1997 financial statement presentation.
Such reclassifications had no effect on the Company's results of operations
or stockholders' equity.
Note 2 - REVENUE AND COST RECOGNITION
The Company's Northern Ireland operating units recognize sales and cost of
sales upon shipment of products.
SMTEK, the Company's U.S. operating unit which was acquired in January 1996,
has historically generated the majority of its revenue through long-term
contracts with suppliers of electronic components and products to the federal
government. Consequently, SMTEK uses the percentage of completion method to
recognize sales and cost of sales. SMTEK determines percentage complete on
the basis of costs incurred to total estimated costs. Contract costs include
all direct material and labor costs and those indirect costs related to
contract performance, such as indirect labor, supplies, tools, repairs and
depreciation costs. Selling, general and administrative costs are charged to
expense as incurred. In the period in which it is determined that a loss
will result from the performance of a contract, the entire amount of the
estimated loss is charged to income. Other changes in contract price and
estimates of costs and profits at completion are recognized prospectively.
This method recognizes in the current period the cumulative effect of the
changes on current and prior periods. The asset "Costs and estimated
earnings in excess of billings on uncompleted contracts" represents revenues
recognized in excess of amounts billed.
Note 3 - ACCOUNTS RECEIVABLE
The components of accounts receivable are as follows:
September 30, June 30,
1996 1996
---- ----
Trade receivables $6,698,000 $5,456,000
Other receivables 124,000 296,000
Less allowance for doubtful
accounts (146,000) (132,000)
--------- ---------
$6,676,000 $5,620,000
========= =========
Included in other receivables at September 30, 1996 and June 30, 1996
are grants due from the Industrial Development Board for Northern Ireland of
$59,000 and $251,000, respectively.
Note 4 - COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED
CONTRACTS
The components of costs and estimated earnings in excess of billings on
uncompleted contracts are as follows:
September 30, June 30,
1996 1996
---- ----
Costs incurred on uncompleted
contracts $13,230,000 $11,181,000
Estimated earnings 1,203,000 1,544,000
---------- ----------
14,433,000 12,725,000
Less: Billings to date (10,856,000) (9,613,000)
Customer advances and
progress payments (45,000) (86,000)
---------- ----------
$ 3,532,000 $ 3,026,000
========== ==========
Costs and estimated earnings in excess of billings on uncompleted contracts
consists of revenue recognized under electronics assembly contracts which
amounts were not billable at the balance sheet date. Essentially all of the
unbilled receivables are expected to be billed within 90 days of the balance
sheet date.
Note 5 - INVENTORIES
Inventories consist of the following:
September 30, June 30,
1996 1996
---- ----
Raw materials $2,797,000 $2,853,000
Work in process 967,000 1,263,000
Finished goods 59,000 146,000
Less reserves (249,000) (248,000)
--------- ---------
$3,574,000 $4,014,000
========= =========
Note 6 - OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
September 30, June 30,
1996 1996
---- ----
Environmental liabilities $ 708,000 $ 728,000
Accrued taxes payable 951,000 951,000
Other 1,348,000 1,435,000
--------- ---------
$3,007,000 $3,114,000
========= =========
Note 7 - FINANCING ARRANGEMENTS
Bank Credit Agreement:
The Company has a credit facility agreement with Ulster Bank Markets for its
Northern Ireland operations. This agreement includes a working capital line
of credit of 1,250,000 pounds sterling (approximately $2,000,000), and
provides for interest on borrowings at 1-1/2% over the Bank's base rate. At
September 30, 1996, borrowings outstanding under this credit facility
amounted to $952,000.
Acquisition indebtedness:
In February 1996, the Company issued 10% Senior Secured Notes due July 1,
1997 in the aggregate amount of $5,300,000 (the "10% Senior Notes") as
partial financing for the acquisition of SMTEK.
The 10% Senior Notes are secured by (i) 1,060,000 shares of common stock and
(ii) warrants to purchase 1,060,000 shares of common stock (the "Collateral
Warrants"), all of which have been placed into an escrow account. In the event
the Collateral Warrants are required to redeem the 10% Senior Notes, each
warrant would be exercisable into one share of common stock at a price which
is 6% less than the market value of the Company's common stock at the time of
exercise. If the 10% Senior Notes are repaid from sources other than the
Collateral Warrants, then the Collateral Warrants expire and can no longer be
exercised. The Company also deposited $375,000 into a restricted cash account
maintained by an escrow agent, such amount to be used for interest payments on
the 10% Senior Notes. This restricted cash amounted to $71,000 and $201,000
at September 30, 1996 and June 30, 1996, and is included in prepaid expenses
and other current assets.
Note 8 - INFORMATION RELATING TO STATEMENT OF CASH FLOWS
"Net cash used by operating activities" includes cash payments for interest
as follows:
Three months ended
September 30,
---------------------
1996 1995
------ ------
Interest paid $ 276,000 $ 115,000
======= =======
"Net increase in operating working capital" is comprised of the following:
Three months ended
September 30,
---------------------
1996 1995
------ ------
Increase in accounts receivable $(1,168,000) $(1,640,000)
Increase in costs and estimated
earnings in excess of billings
on uncompleted contracts (556,000) -
(Increase) decrease in
inventories 616,000 (433,000)
(Increase) decrease in
prepaid expenses 3,000 (119,000)
Increase (decrease) in
accounts payable (728,000) 789,000
Decrease in accrued payroll
and employee benefits (157,000) (170,000)
Increase (decrease) in other
liabilities (109,000) 45,000
--------- ---------
Net increase in operating
working capital $(2,099,000) $(1,528,000)
========= =========
Following is the supplemental schedule of non-cash investing and financing
activities:
Three months ended
September 30,
---------------------
1996 1995
------ ------
Capital expenditures financed by
lease obligations $ 395,000 $ 52,000
========= =======
Conversion of debt to equity $ 76,000 $ -
========= =======
Note 9 - EVENT SUBSEQUENT TO SEPTEMBER 30, 1996
In October 1996, the Company finalized an accounts receivable-based working
capital bank line of credit for SMTEK, its U.S. EMS operation, which provides
for borrowings of up to $2,500,000 at an interest rate of prime plus 1.25%
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements made below are forward-looking in nature and reflect the
Company's current expectations and plans. Such statements involve various
risks and uncertainties that could cause actual results to differ materially
from those currently expected by the Company. Meaningful factors that might
cause such differences include, but are not limited to, significant
historical losses, limited capital resources and a continuing need for
financing, dependence on key personnel, concentration of revenues among major
customers, historical dependence on government business on the part of the
Company's U.S. operating unit and a recent shift into commercial business,
industry conditions, competition, environmental matters, dependence on
suppliers and other factors discussed in the Company's Securities and
Exchange Commission filings, including other factors described as "Risk
Factors" in the Company's Registration Statement on Form S-3 (No. 333-02969).
DESCRIPTION OF THE BUSINESS
The Company provides customized, integrated electronic manufacturing services
("EMS") to original equipment manufacturers ("OEMs") in the computer,
telecommunications, instrumentation, medical, industrial and aerospace
industries. The Company also manufactures multilayer printed circuit boards
("PCBs") for use primarily in the computer, communications, and
instrumentation industries. The Company's EMS operations are located in
Southern California and Northern Ireland. Its PCB facilities are located in
Northern Ireland.
The Company entered the EMS business by acquiring its domestic EMS operations
in 1985 and by organizing its European EMS operations in 1990. In fiscal
1995, the Company liquidated or sold all assets associated with its PCB and
EMS operations in the United States. In January 1996, as the first step
toward rebuilding a domestic presence in the EMS industry, the Company
acquired SMTEK, Inc. ("SMTEK"), a provider of integrated electronic
manufacturing services.
RESULTS OF OPERATIONS
Consolidated sales for the three months ended September 30, 1996 were
$9,895,000, compared to $6,192,000 for the first quarter of the previous
fiscal year. The increase in sales results primarily from the acquisition of
SMTEK, which contributed revenues of $3,506,000 in the latest quarter.
Because the acquisition of SMTEK was accounted for using the purchase method,
SMTEK's operations are not included in the Company's results for the three
months ended September 30, 1995. Sales of DDL Electronics, Ltd. ("DDL-E"),
the Company's Northern Ireland EMS operation, increased approximately 15% in
the latest quarter compared to the first quarter of last year, while sales of
Irlandus Circuits, Ltd. ("Irlandus"), the Company's PCB operation, declined
approximately 8% between these same two periods.
Consolidated gross profit for the three months ended September 30, 1996 was
$1,096,000, compared to $726,000 for the comparable period of the prior year.
The acquisition of SMTEK in January 1996 accounted for $500,000 of the
increase, offset by a decline in gross profit of the Company's Northern
Ireland operations of $130,000. Irlandus' gross profit declined $47,000 due
primarily to the decline in sales, while DDL-E's gross profit declined
$83,000 despite higher sales.
DDL-E's gross profit margin fell from 10.6% in last year's first quarter to
7.3% in the latest quarter. This decline occurred primarily as a result of
the loss of a large, profitable assembly contract which had accounted for
approximately 40% of DDL-E's sales in the first quarter of last fiscal year.
Also contributing to the decline in gross profit margin was the fact that
last year's first quarter included "consignment sales" of approximately
$150,000. Consignment sales, in which the customer furnishes the materials
and components to be assembled, typically have higher profit margins that
"turnkey" sales, in which the contract assembly company procures the
materials on the customer's behalf. DDL-E had no consignment sales in the
first quarter of fiscal 1997.
The Company's consolidated gross profit margin declined from 11.7% in the
three months ended September 30, 1995 to 11.1% in the three months ended
September 30, primarily due to the decline in gross profit at DDL-E.
Administrative and selling expenses amounted to $1,151,000 and $864,000 in
the three months ended September 30, 1996 and 1995, respectively. This
increase is the result of the acquisition of SMTEK in January 1996, as the
1995 amount consisted of administrative and selling expenses for solely the
Company's Northern Ireland operations and corporate office functions.
The operating loss for the three months ended September 30, 1996 was
$372,000, compared to an operating loss of $138,000 for the three months
ended September 30, 1995. The increased loss results from goodwill
amortization expense of $317,000 recorded in the latest quarter. The
goodwill arose from the acquisition of SMTEK.
Investment income for the three months ended September 30, 1996 and 1995 was
$24,000 and $127,000, respectively. The 1995 amount includes nonrecurring
interest income of $106,000 received on income tax refunds.
Interest expense increased from $115,000 in the three months ended September
30, 1995 to $258,000 in the three months ended September 30, 1996. This
increase is attributable to interest on debt issued in 1996 to finance the
SMTEK acquisition.
Other income (expense) for the three months ended September 30, 1996 and 1995
was ($119,000) and $100,000, respectively. The 1995 amount consists of
income recognized upon the negotiated settlement of a facility lease
commitment at less than the amount previously reserved. The 1996 amount
includes debt issue cost amortization expense of $124,000 associated with the
debt issued to finance the SMTEK acquisition.
During the nine months ended March 31, 1996, the Company recognized an income
tax benefit associated with application for federal tax refunds as permitted
under section 172(f) of the Internal Revenue Code. In the aggregate the
Company applied for federal tax refunds of $2,175,000, net of costs
associated with applying for such refunds. Through September 30, 1996, the
Company has received $1,871,000 of net refunds plus interest on such refunds
of $106,000, and has recognized as an income tax benefit $1,110,000 net of
certain expenses. Because of the possibility that the tax returns underlying
these refunds may be subject to audit by the Internal Revenue Service and a
portion of the refunds disallowed, the Company has not yet recognized a tax
benefit for the remainder of the refunds received to date, or for the refunds
still expected to be received. Nonetheless, the Company feels that its claim
for refund and carry back of net operating losses can be substantiated and is
supported by law, and that the Company will ultimately collect and retain a
substantial portion of the refunds applied for.
The net loss for the first three months of fiscal 1996 was $725,000 or $0.03
per share, compared to net income of $1,084,000 or $0.06 per share for the
same period of fiscal 1995. Net income for the fiscal 1995 period includes
the $1,110,000 income tax benefit discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are its cash and cash equivalents,
which amounted to $1,333,000 at September 30, 1996, and its bank lines of
credit. During the three months ended September 30, 1996, cash and cash
equivalents decreased by $1,186,000. This decrease consisted of cash used by
operating activities of $2,106,000 and capital expenditures of $84,000,
partially offset by cash inflows of $747,000 from new borrowings net of debt
repayments, proceeds from government grants of $251,000 and the effect of
exchange rate changes on cash of $6,000.
Cash and cash equivalents have declined steadily over the last few months.
The persistence of this decline is a matter of concern to management and the
Board of Directors, who are considering several means of addressing the
problem.
Components of operating working capital increased by $2,099,000 during the
first three months of fiscal 1997, comprised of a $1,168,000 increase in
accounts receivable, a $556,000 increase in costs and earnings in excess of
billings on uncompleted contracts and a $994,000 decrease in current
liabilities, partially offset by a $616,000 decrease in inventory and a
$3,000 decrease in prepaid expenses and other current assets.
The Company has a credit facility agreement with Ulster Bank Markets for its
Northern Ireland operations. This agreement includes a working capital line
of credit of 1,250,000 pounds sterling (approximately $2,000,000), and
provides for interest on borrowings at 1.5% over the Bank's base rate. At
September 30, 1996, borrowings outstanding under this credit facility
amounted to $952,000. In October 1996, the Company finalized a bank line of
credit for SMTEK, its U.S. EMS operation, which provides for borrowings up to
the lesser of $2,500,000 or 85% of accounts receivable ($1,563,000 at
November 8, 1996) at an interest rate of prime plus 1.25%.
In February 1996, the Company issued 10% Senior Secured Notes due July 1,
1997 in the aggregate amount of $5,300,000 (the "10% Senior Notes") as
partial financing for the acquisition of SMTEK. The 10% Senior Notes are
secured by (i) 1,060,000 shares of common stock and (ii) warrants to purchase
1,060,000 shares of common stock (the "Collateral Warrants"), all of which
have been placed into an escrow account. In the event the Collateral Warrants
are required to redeem the 10% Senior Notes, each warrant would be
exercisable into one share of common stock at a price which is 6% less than
the market value of the Company's common stock at the time of exercise. If
the 10% Senior Notes are repaid from sources other than the Collateral
Warrants, then the Collateral Warrants expire and can no longer be exercised.
The Company's financial statements are presented on a going concern basis,
which contemplates the realization of assets and satisfaction of liabilities
in the normal course of business. The Company incurred an operating loss of
$372,000 and negative cash flow from operating activities of $2,106,000 during
the three months ended September 30, 1996. In addition, at September 30, 1996
the Company had a working capital deficit of $2,007,000 as a result of
transferring the $5,300,000 10% Senior Notes maturing July 1997 from long-term
debt to current liabilities.
The Company plans to retire the 10% Senior Notes at or prior to maturity by
issuing new common stock. The note holders have the option to accept common
stock in lieu of cash. If the note holders do not so elect, then the Company
will endeavor to issue stock to other parties to raise the payoff amount. No
assurance can be given that the Company will be able to sell stock on
acceptable terms or at all. Under certain circumstances, as set forth in the
agreements governing the 10% Senior Notes, the Company can apply some or all
of the 1,060,000 common stock shares held in escrow toward the payoff of
these notes.
The total number of new shares of common stock which will need to be issued to
fund the retirement of these notes depends on several factors, including:
(i) whether the notes are paid off prior to the maturity date; (ii) if paid
prior to maturity, whether the prepayment is partial or complete; and (iii)
the market price of the Company's common stock at the time of issuance.
The achievement of sustained operating profitability is the most significant
internal factor to ensure the Company's long-term viability. No assurance can
be given that the Company will attain operating profitability or that cash
generated from non-operating sources will be adequate to fund future cash
needs. As a necessary step to ensure the Company's increased profitability,
the Company is actively pursuing strategic merger and acquisition candidates
that will help ensure growth of the Company in the markets and industries in
which it has expertise. No assurance can be given that any such merger or
acquisition will occur.
Management anticipates that the Company will continue to incur operating
losses for at least the near term future due to its current level of fixed
costs for manufacturing overhead relative to its current sales volume, as well
as amortization expense of the goodwill arising from the acquisition of SMTEK.
Operating losses are expected to continue until such time as sales increase to
a level necessary to absorb fixed costs and offset goodwill amortization. No
assurance can be given as to whether or when sales increases may be achieved.
Sales increases will depend in part upon strengthening the Company's sales and
marketing functions for its existing operations and improving its price
competitiveness in the EMS industry by achieving economies of scale in the
procurement of electronic components.
Management believes that the Company's cash resources and borrowing capacity
on its bank lines of credit are sufficient to fund operations at current
levels for at least the next 12 months.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
10 Business Financing Agreement between SMTEK, Inc. and Deutsche
Financial Services Corporation
11 Computation of Earnings Per Share
27 Financial Data Schedule (electronic filing only)
b. Reports on Form 8-K:
On August 30, 1996, a Form 8-K was filed regarding a press release
disclosing that the Company had terminated merger discussions with
another company.
On September 18, 1996, a Form 8-K was filed regarding a press release
announcing the Company's financial results for the year ended June
30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 12, 1996 /s/ Gregory L. Horton
- --------------------------------- -----------------------------------
Date Gregory L. Horton
Chief Executive Officer and
President
November 12, 1996 /s/ Richard K. Vitelle
- --------------------------------- -----------------------------------
Date Richard K. Vitelle
Vice President -Finance
(Principal Financial Officer)
EXHIBIT 10
BUSINESS FINANCING AGREEMENT
This Business Financing Agreement ("Agreement") is made as of August 21, 1996
between Deutsche Financial Services Corporation ("DFS") and SMTEK, INC., a
corporation ("Dealer"), having a principal place of business located at 2151
ANCHOR COURT, NEWBURY PARK, CA 91320.
Definitions. The following terms will have the following meanings in this
Agreement, Agreement for Wholesale Financing and in the Other Agreements:
(a) "Accounts": all accounts, leases, contract rights, chattel paper,
chooses in action and instruments, including any lien or other security
interest that secures or may secure any of the foregoing, plus all books,
invoices, documents and other records in any form evidencing or relating to
any of the foregoing, now owned or hereafter acquired by Dealer.
(b) "Accounts Receivable Facility": a credit facility extended pursuant to
this Agreement.
(c) "Agreement for Wholesale Financing": any Agreement for Wholesale
Financing, as amended from time to time, which Dealer has executed in
conjunction with inventory financing extended by DFS.
(d) "Average Contract Balance:: the amount determined by dividing: (a) the
sum of the Daily Contract Balances (as defined in Section 2.1.1) for a
billing period; by, (b) the actual number of days in such billing period.
(e) "Default": the events or occurrences enumerated in Section 6.
(f) "Entity": any individual, association, firm, corporation, partnership,
limited liability company, trust, governmental body, agency or
instrumentality whatsoever.
(g) "Guarantor": a guarantor of any of the Obligations.
(h) "Inventory": all of Dealer's presently owned and hereafter acquired
goods which are held for sale or lease.
(i) "Obligations": all liabilities and indebtedness now or hereafter
arising, owing, due or payable from Dealer to DFS (and any of its
subsidiaries and affiliates), including any third party claims against Dealer
satisfied or acquired by DFS, whether primary or secondary, joint or several,
direct, contingent, fixed or otherwise, and whether or not evidenced by
instruments or evidences of indebtedness, and all covenants, agreements
(including consent to binding arbitration), warranties, duties and
representations, whether such Obligations arise under this Agreement, the
Other Agreements or any other agreements previously, now or hereafter
executed by Dealer and delivered to DFS or by operation of law.
(j) "Other Agreements": all security agreements (including the Agreement
for Wholesale Financing), mortgages, leases, instruments, documents,
guarantees, schedules, certificates, contracts and similar agreements
heretofore, now or hereafter executed by Dealer and delivered to DFS or
delivered by or on behalf of Dealer to a third party and assigned to DFS by
operation of law or otherwise.
(k) "Prime Rate": the rate of interest which Chase Manhattan Bank publicly
announces from time to time as its prime rate or reference rate; provided,
however, that for purposes of this Agreement, the interest rate charged to
Dealer will at no time be computed on a Prime Rate of less than SEVEN percent
(7.0%) per annum. The Prime Rate will change and take effect for purposes of
this Agreement on the day that Chase Manhattan Bank announces any change in
its Prime Rate or reference rate.
CREDIT FACILITY/INTEREST RATES/FEES
Accounts Receivable Facility. Subject to the terms of this Agreement, DFS
agrees to provide to Dealer an Accounts Receivable Facility of TWO MILLION
FIVE HUNDRED THOUSAND DOLLARS ($2,500,000.00). DFS' decision to advance
funds will not be binding until the funds are actually advanced.
2.1.1 Interest. Dealer agrees to pay interest to DFS on the Daily Contract
Balance at a rate equal to the Prime Rate plus ONE AND ONE QUARTER percent
(1.25%) per annum. Such interest will: (i) be computed based on a 360 day
year; (ii) be calculated each day by multiplying the Daily Rate (as defined
below) by the Daily Contract Balance (as defined below); and (iii) accrue
from the date that DFS makes an advance under the Accounts Receivable
Facility until DFS receives the full and final payment of the principal debt
which Dealer owes to DFS. The "Daily Rate" is the quotient of the applicable
annual rate provided herein divided by 360. The "Daily Contract Balance" is
the amount of the outstanding principal debt which Dealer owes to DFS on the
Accounts Receivable Facility at the end of each day after DFS has credited
the payments which it has received on the Accounts Receivable Facility,
subject to the terms of Section 3.8 herein.
2.1.2 Fees. Dealer agrees to pay to DFS an advance fee equal to ZERO
percent (0.0%) on each advance to Dealer under the Accounts Receivable
Facility.
2.1.3 Maximum Interest. Dealer acknowledges that DFS intends to strictly
conform to the applicable usury laws governing this Agreement. Regardless of
any provision contained herein or in any other document executed or delivered
in connection herewith or therewith, DFS shall never be deemed to have
contracted for, charged or be entitled to receive, collect or apply as
interest on this Agreement (whether termed interest herein or deemed to be
interest by judicial determination or operation of law), any amount in excess
of the maximum amount allowed by applicable law, and, if DFS ever receives,
collects or applies as interest any such excess, such amount, which would be
excessive interest will be applied first to the reduction of the unpaid
principal balances of advances under this Agreement, and, second, any
remaining excess will be paid to Dealer. In determining whether or not the
interest paid or payable under any specific contingency exceeds the highest
lawful rate, Dealer and DFS shall, to the maximum extent permitted under
applicable law: (a) characterize any non-principal payment (other than
payments which are expressly designated as interest payments hereunder) as an
expense or fee rather than as interest; (b) exclude voluntary pre-payments
and the effect thereof; and (c) spread the total amount of interest
throughout the entire term of this Agreement so that the interest rate is
uniform throughout such term.
2.2 Payments. DFS will send Dealer a monthly billing statement(s)
identifying all charges due on Dealer's account with DFS. The interest and
fee charges specified on each billing statement will be: (a) due and payable
in full immediately on receipt, and (b) an account stated, unless DFS
receives Dealer's written objection thereto within fifteen (15) days after it
is mailed to Dealer. If DFS does not receive, by the 25th day of any given
month, payment of all charges accrued to Dealer's account with DFS during the
immediately preceding month, Dealer will (to the extent allowed by law) pay
DFS a late fee ("Late Fee") equal to the greater of $5 or 5% of the amount of
such finance charges (payment of the Late Fee does not waive the default
caused by the late payment). Dealer will also pay DFS $100 for each of
Dealer's checks returned unpaid for insufficient funds (an "NSF check") (such
$100 payment repays DFS' estimated administrative costs; it does not waive
the default caused by the NSF check). DFS may adjust the billing statement
at any time to conform to applicable law and this Agreement. Dealer waives
the right to direct the application of any payments hereafter received by DFS
on account of the Obligations. DFS will have the continuing exclusive right
to apply and reapply any and all such payments in such manner as DFS may deem
advisable notwithstanding any entry by DFS upon its books and records.
2.3 One Loan. DFS may combine all of DFS' advances to Dealer or on Dealer's
behalf, whether under this Agreement or any Other Agreements, and whether
provided by one or more of DFS' branch offices, together with all finance
charges, fees and expenses related thereto, to make one debt owed by Dealer.
3. ACCOUNTS RECEIVABLE FACILITY - ADDITIONAL PROVISIONS
3.1 Schedules. Dealer will, no less than weekly or as otherwise agreed to,
furnish DFS with a schedule of Accounts ("Schedule") which will: (a)
describe all Accounts created or acquired by Dealer since the last Schedule
furnished DFS; (b) inform DFS of any rejection of goods by any obligor,
delays in delivery of goods, non-performance of contracts and of any
assertion of any claim, offset or counterclaim by any obligor; and (c) inform
DFS of any adverse information relating to the financial condition of any
obligor.
3.2 Available Credit. On receipt of each Schedule, DFS will credit Dealer
with such amount as DFS may deem advisable up to EIGHTY FIVE percent (85.0%)
of the net amount of the eligible Accounts listed in such Schedule. DFS will
loan Dealer such amounts so credited or a part thereof as requested provided
that at no time will such outstanding loans exceed Dealer's maximum Accounts
Receivable Facility from time to time established by DFS. No loans need be
made by DFS if the Dealer is in Default.
3.3 Ineligible Accounts. DFS will have the sole right to determine
eligibility of Accounts and, without limiting DFS' discretion in that regard,
the following Accounts will be deemed ineligible: (a) Accounts created from
the sale of goods and services on non-standard terms and/or that allow for
payment to be made more than thirty (30) days from the date of sale; (b)
Accounts unpaid more than ninety (90) days from date of invoice; (c) all
Accounts of any obligor with fifty percent (50%) or more of the outstanding
balance unpaid for more than ninety (90) days from the date of invoice; (d)
Accounts for which the obligor is an officer, director, shareholder, partner,
member, owner, employee, agent, parent, subsidiary, affiliate of, or is
related to Dealer or has common shareholders, officers, directors, owners,
partners or members; (e) consignment sales; (f) Accounts for which the
payment is or may be conditional; (g) Accounts for which the obligor is not a
commercial or institutional entity or is not a resident of the United States
or Canada; (h) Accounts with respect to which any warranty or representation
provided in Subsection 3.4 is not true and correct; (i) Accounts which
represent goods or services purchased for a personal, family or household
purpose; (j) Accounts which represent goods used for demonstration purposes
or loaned by the Dealer to another party; (k) Accounts which are progress
payment, barter, or contra accounts; and (l) any and all other Accounts which
DFS deems to be ineligible. If DFS determines that any Account is or becomes
an ineligible Account, immediately upon notice thereof from DFS, Dealer will
pay to DFS an amount equal to the monies loaned by DFS for such ineligible
Account.
3.4 Warranties and Representations. For each Account which Dealer lists on
any Schedule, Dealer warrants and represents to DFS that at all times: (a)
such Account is genuine; (b) such Account is not evidenced by a judgment or
promissory note or similar instrument or agreement; (c) it represents an
undisputed bona fide transaction completed in accordance with the terms of
the invoices and purchase orders relating thereto; (d) the goods sold or
services rendered which resulted in the creation of such Account have been
delivered or rendered to and accepted by the obligor; (e) the amounts shown
on the Schedules, Dealer's books and records and all invoices and statements
delivered to DFS with respect thereto are owing to Dealer and are not
contingent; (f) no payments have been or will be made thereon except payments
turned over to DFS; (g) there are no offsets, counterclaims or disputes
existing or asserted with respect thereto and Dealer has not made any
agreement with any obligor for any deduction or discount of the sum payable
thereunder except regular discounts allowed by Dealer in the ordinary course
of its business for prompt payment; (h) there are no facts or events which in
any way impair the validity or enforceability thereof or reduce the amount
payable thereunder from the amount shown on the Schedules, Dealer's books and
records and the invoices and statements delivered to DFS with respect
thereto; (i) all persons acting on behalf of obligors thereon have the
authority to bind the obligor; (j) the goods sold or transferred giving rise
thereto are not subject to any lien, claim, encumbrance or security interest
which is superior to that of DFS; and (k) there are no proceedings or actions
known to Dealer which are threatened or pending against any obligor thereon
which might result in any material adverse change in such obligor's financial
condition.
3.5 Notes. Loans made pursuant to this Agreement need not be evidenced by
promissory notes unless otherwise required by DFS in DFS' sole discretion.
3.6 Reimbursement for Charges. Dealer will reimburse DFS for all charges
made by banks for collection of checks and other items of payment and for
transfer of funds to or from the Dealer.
3.7 Collections. Dealer is authorized to collect Accounts as agent for DFS
and trustee of an express trust for DFS' benefit. Dealer will receive all
payments on Accounts as agent and in trust for DFS and will, as DFS directs,
either transmit to DFS or deposit into an account or accounts designated by
DFS, on the day of receipt thereof, all original checks, drafts, acceptances,
and other evidences of payment of Accounts, including all cash. Until
delivery to DFS, Dealer will keep such remittances separate and apart from
Dealer's own funds so that they are capable of identification as the property
of DFS and will be held in trust for DFS. DFS may terminate such
authorization upon Default and DFS may notify any obligor of the assignment
of Accounts and collect the same. All proceeds received or collected by DFS
with respect to Accounts, and reserves and other property of Dealer in
possession of DFS at any time or times hereafter, may be held by DFS without
interest to Dealer until all Obligations are paid in full or applied by DFS
on account of the Obligations. DFS may release to Dealer such portions of
such reserves and proceeds as DFS may determine.
3.8 Collection Days. All payments and all amounts received on any Account
will be credited by DFS to Dealer's account (subject to final collection
thereof) after allowing one (1) business days for collection of checks or
other instruments.
3.9 Power of Attorney. Dealer irrevocably appoints DFS (and any person
designated by it) as Dealer's true and lawful Attorney with full power to at
any time, in the discretion of DFS (whether or not Default has occurred) to:
(a) endorse the name of Dealer upon any of the items of payment or proceeds
and deposit the same in the account of DFS for application to the
Obligations; (b) sign the name of Dealer to verify the accuracy of the
Accounts; (c) sign the name of Dealer on any document or instrument that DFS
shall deem necessary or appropriate to perfect and maintain perfected the
security interests in the Collateral under this Agreement and the Other
Agreements; and (d) initiate and settle any insurance claim and endorse
Dealer's name on any check, instrument or other item of payment. In the
event of a Default, Dealer irrevocably appoints DFS (and any person
designated by it) as Dealer's true and lawful Attorney with full power to at
any time, in the discretion of DFS to: (i) demand payment, enforce payment
and otherwise exercise all of Dealer's rights, and remedies with respect to
the collection of any Accounts; (ii) settle, adjust, compromise, extend or
renew any Accounts; (iii) settle, adjust or compromise any legal proceedings
brought to collect any Accounts; (iv) sell or assign any Accounts upon such
terms, for such amounts and at such time or times as DFS may deem advisable;
(v) discharge and release any Accounts; (vi) prepare, file and sign Dealer's
name on any Proof of Claim in Bankruptcy or similar document against any
obligor; (vii) endorse the name of Dealer upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar document or
agreement relating to any Account or goods pertaining thereto; (viii) take
control in any manner of any item of payments or proceeds and for such
purpose to notify the Postal Authorities to change the address for delivery
of mail addressed to Dealer to such address as DFS may designate. The power
of attorney is for value and coupled with an interest and is irrevocable so
long as any Obligations remain outstanding and by DFS exercising such right,
DFS shall not waive any right against Dealer until the Obligations are paid
in full.
3.10 Continuing Requirements. Dealer will: (a) if from time to time
required by DFS, immediately upon their creation, deliver to DFS copies of
all invoices, delivery evidences and other such documents relating to each
Account; (b) not permit or agree to any extension, compromise or settlement
or make any change to any Account; (c) affix appropriate endorsements or
assignments upon all such items of payment and proceeds so that the same may
be properly deposited by DFS to DFS' account; (d) immediately notify DFS in
writing which Accounts may be deemed ineligible as defined in Subsection 3.3;
(e) mark all chattel paper and instruments now owned or hereafter acquired by
it to show that the same are subject to DFS' security interest and
immediately thereafter deliver such chattel paper and instruments to DFS with
appropriate endorsements and assignments to DFS; (f) within ten (10) days
after the end of each month, provide DFS with a detailed aging of its
Accounts for each month, together with the names and addresses of all
obligors.
3.11 Release. Dealer releases DFS from all claims and causes of action
which Dealer may now or hereafter have for any loss or damage to it claimed
to be caused by or arising from: (a) any failure of DFS to protect, enforce
or collect, in whole or in part, any Account; (b) DFS' notification to any
obligors thereon of DFS' security interest in any of the Accounts; (c) DFS'
directing any obligor to pay any sum owing to Dealer directly to DFS; and (d)
any other act or omission to act on the part of DFS, its officers, agents or
employees, except for willful misconduct. DFS will have no obligation to
preserve rights to Accounts against prior parties. Dealer waives all rights
of offset and counterclaims Dealer may have against DFS.
3.12 Review. Dealer grants DFS an irrevocable license to enter Dealer's
business locations during normal business hours without notice to Dealer to:
(a) account for and inspect all Collateral; (b) verify Dealer's compliance
with this Agreement; and (c) review, examine, and make copies of Dealer's
books, records, files and business procedures and practices. Dealer further
agrees to pay DFS a review fee of one thousand dollar ($1,000.00) per fiscal
quarter for any such review, inspection or examination made by DFS. DFS may,
without notice to Dealer and at any time or times hereafter, verify the
validity, amount or any other matter relating to any Account by mail,
telephone, or other means, in the name of Dealer or DFS.
4. SECURITY - COLLATERAL
4.1 Grant of Security Interest. To secure payment of all of Dealer's
current and future Obligations and to secure Dealer's performance of all of
the provisions under this Agreement and the Other Agreements, Dealer grants
DFS a security interest in all of Dealer's inventory, equipment, fixtures,
accounts, contract rights, chattel paper, security agreements, instruments,
deposit accounts, reserves, documents, and general intangibles; and all
judgments, claims, insurance policies, and payments owed or made to Dealer
thereon; all whether now owned or hereafter acquired, all attachments,
accessories, accessions, returns, repossessions, exchanges, substitutions and
replacements thereto, and all proceeds thereof. All such assets are
collectively referred to herein as the "Collateral." All of such terms for
which meanings are provided in the Uniform Commercial Code of the applicable
state are used herein with such meanings. Dealer covenants with DFS that DFS
may realize upon all or part of any Collateral in any order it desires and
any realization by any means upon any Collateral will not bar realization
upon any other collateral. Dealer's liability under this Agreement is direct
and unconditional and will not be affected by the release or nonperfection of
any security interest granted hereunder. All Collateral financed by DFS, and
all proceeds thereof, will be held in trust by Dealer for DFS, with such
proceeds being payable in accordance with this Agreement.
5. WARRANTIES AND REPRESENTATIONS
5.1 Affirmative Warranties and Representations. Except as otherwise
specifically provided in the Other Agreements, Dealer warrants and represents
to DFS that: (a) Dealer has good title to all Collateral; (b) DFS' security
interest in the Accounts will at all times constitute a perfected, first
security interest in such Accounts and will not become subordinate to the
security interest, lien, encumbrance or claim of any Entity; (c) Dealer will
execute all documents DFS requests to perfect and maintain DFS' security
interest in the Collateral and to fully consummate the transactions
contemplated under this Agreement and the Other Agreements; (d) Dealer will
at all times be duly organized, existing, in good standing, qualified and
licensed to do business in each state, county, or parish, in which the nature
of its business or property so requires; (e) Dealer has the right and is duly
authorized to enter into this Agreement; (f) Dealer's execution of this
Agreement does not constitute a breach of any agreement to which Dealer is
now or hereafter becomes bound; (g) there are and will be no actions or
proceedings pending or threatened against Dealer which might result in any
material adverse change in Dealer's financial or business condition or which
might in any way adversely affect any of Dealer's assets; (h) Dealer will
maintain the Collateral in good condition and repair; (i) Dealer has duly
filed and will duly file all tax returns required by law; (j) Dealer has paid
and will pay when due all taxes, levies, assessments and governmental charges
of any nature; (k) Dealer will maintain a system of accounting in accordance
with generally accepted accounting principles and account records which
contain such information in a format as may be requested by DFS; (l) Dealer
will keep and maintain all of its books and records pertaining to the
Accounts at its principal place of business designated in this Agreement; (m)
Dealer will promptly supply DFS with such information concerning it or any
Guarantor as DFS hereafter may reasonably request; (n) Dealer will give DFS
thirty (30) days prior written notice of any change in Dealer's identity,
name, form of business organization, ownership, management, principal place
of business, Collateral locations or other business locations; and before
moving any books and records to any other location; (o) Dealer will observe
and perform all matters required by any lease, license, concession or
franchise forming part of the Collateral in order to maintain all the rights
of DFS thereunder; (p) Dealer will advise DFS of the commencement of material
legal proceedings against Dealer or any Guarantor; (q) Dealer will comply
with all applicable laws and will conduct its business in a manner which
preserves and protects the Collateral and the earnings and incomes thereof;
and (r) Dealer will keep the Collateral insured for its full insurable value
under an "all risk" property insurance policy with a company acceptable to
DFS, naming DFS as a lender loss-payee or mortgagee and containing standard
lender's loss payable and termination provisions. Dealer will provide DFS
with written evidence of such property insurance coverage and lender's loss-
payee or mortgagee endorsement.
5.2 Negative Covenants. Dealer will not at any time (without DFS' prior
written consent): (a) grant to or in favor of any Entity a security interest
in or permit to exist a lien, claim or encumbrance in the Accounts which is
superior to the interest of DFS; (b) other than in the ordinary course of its
business, sell, lease or otherwise dispose of or transfer any of its assets;
(c) merge or consolidate with another Entity; (d) acquire the assets or
ownership interest of any other Entity; (e) enter into any transaction not in
the ordinary course of business; (f) guarantee or indemnify or otherwise
become in any way liable with respect to the obligations of any Entity,
except by endorsement of instruments or items of payment for deposit to the
general account of Dealer or which are transmitted or turned over to DFS on
account of the Obligations; (g) redeem, retire, purchase or otherwise
acquire, directly or indirectly, any of Dealer's capital stock; (h) make any
change in Dealer's capital structure or in any of its business objectives or
operations which might in any way adversely affect the ability of Dealer to
repay the Obligations; (i) make any distribution of Dealer's assets not in
the ordinary course of business; (j) incur any debts outside of the ordinary
course of business except renewals or extensions of existing debts and
interest thereon; and (k) make any loans, advances, contributions or payments
of money or in goods to any affiliated entity or to any officer, director,
stockholder, member or partner of Dealer or of any such entity (except for
compensation for personal services actually rendered); provided, however,
that the Dealer may make principal and interest payments on the loan due to
Mr. Don Horton which totaled $34,739.00 as of August 19,1996, and the loan
due to DDL Electronics, Inc. which totaled $1,569,862.00 as of August 19,
1996, so long as both before and after giving effect of any such payment,
Dealer is not in default of any of its Obligations, including without
limitation, Dealer's financial covenants with DFS.
5.3 Financial Statements. Dealer will deliver to DFS: (a) within ninety
(90) days after the end of each of Dealer's fiscal years, a reasonably
detailed balance sheet as of the last day of such fiscal year and a
reasonably detailed income statement covering Dealer's operations for such
fiscal year, in a form satisfactory to DFS; (b) within forty-five (45) days
after the end of each of Dealer's fiscal quarters, a reasonably detailed
balance sheet as of the last day of such quarter and an income statement
covering Dealer's operations for such quarter in a form satisfactory to DFS;
(c) within ten (10) days after request therefor by DFS, any other report
requested by DFS relating to the Collateral or the financial condition of
Dealer. Dealer warrants and represents to DFS that all financial statements
and information relating to Dealer or any Guarantor which have been or may
hereafter be delivered by Dealer or any Guarantor to DFS are true and correct
and have been and will be prepared in accordance with generally accepted
accounting principles consistently applied and, with respect to such
previously delivered statements or information, there has been no material
adverse change in the financial or business condition of Dealer or any
Guarantor since the submission to DFS, either as of the date of delivery, or,
if different, the date specified therein, and Dealer acknowledges DFS'
reliance thereon.
6. DEFAULT
6.1 Definition. Dealer will be in default under this Agreement if: (a)
Dealer breaches any terms, warranties or representations contained herein or
in any Other Agreements; (b) any Guarantor of Dealer's debts to DFS breaches
any terms, warranties or representations contained in any guaranty or Other
Agreements; (c) any representation, statement, report, or certificate made or
delivered by Dealer or any Guarantor to DFS is not accurate when made; (d)
Dealer fails to pay any of the Obligations when due and payable; (e) Dealer
abandons any Collateral; (f) Dealer or any Guarantor is or becomes in default
in the payment of any debt owed to any third party; (g) a money judgment
issues against Dealer or any Guarantor; (h) an attachment, sale or seizure
issues or is executed against any assets of Dealer or of any Guarantor; (i)
the undersigned dies while Dealer's business is operated as a sole
proprietorship, any general partner dies while Dealer's business is operated
as a general or limited partnership, or any member dies while Dealer's
business is operated as a limited liability company, as applicable; (j) any
Guarantor dies; (k) Dealer or any Guarantor shall cease existence as a
corporation, partnership, limited liability company or trust, as applicable;
(l) Dealer or any Guarantor ceases or suspends business; (m) Dealer, any
Guarantor or any member while Dealer's business is operated as a limited
liability company, as applicable, makes a general assignment for the benefit
of creditors; (n) Dealer, any Guarantor or any member while Dealer's business
is operated as a limited liability company, as applicable, becomes insolvent
or voluntarily or involuntarily becomes subject to the Federal Bankruptcy
Code, any state insolvency law or any similar law; (o) any receiver is
appointed for any assets of Dealer, any Guarantor or any member while
Dealer's business is operated as a limited liability company, as applicable;
(p) any guaranty of Dealer's debt to DFS is terminated; (q) Dealer loses any
franchise, permission, license or right to sell or deal in any Collateral
which DFS finances; (r) Dealer or any Guarantor misrepresents Dealer's or
such Guarantor's financial condition or organizational structure; or (s) DFS
determines in good faith that it is insecure with respect to any of the
Collateral or the payment of any part of Dealer's Obligations.
6.2 Rights of DFS. In the event of a Default:
(a) DFS may at any time at DFS' election, without notice or demand to
Dealer, do any one or more of the following: declare all or any of the
Obligations immediately due and payable, together with all costs and expenses
of DFS' collection activity, including, without limitation, all reasonable
attorneys' fees; exercise any or all rights under applicable law (including,
without limitation, the right to possess, transfer and dispose of the
Collateral); and/or cease extending any additional credit to Dealer (DFS'
right to cease extending credit shall not be construed to limit the
discretionary nature of this credit facility).
(b) Dealer will segregate and keep the Collateral in trust for DFS, and in
good order and repair, and will not sell, rent, lease, consign, otherwise
dispose of or use any Collateral, nor further encumber any Collateral.
(c) Upon DFS' oral or written demand, Dealer will immediately deliver the
Collateral to DFS, in good order and repair, at a place specified by DFS,
together with all related documents; or DFS may, in DFS' sole discretion and
without notice or demand to Dealer, take immediate possession of the
Collateral together with all related documents.
(d) DFS may, without notice, apply a default finance charge to Dealer's
outstanding principal indebtedness equal to the default rate specified in
Dealer's financing program with DFS, if any, or if there is none so
specified, at the lesser of 3% per annum above the rate in effect immediately
prior to the Default, or the highest lawful contract rate of interest
permitted under applicable law.
(e) DFS may, without notice to Dealer and at any time or times enforce
payment and collect, by legal proceedings or otherwise, Accounts in the name
of Dealer or DFS; and take control of any cash or non-cash items of payment
or proceeds of Accounts and of any rejected, returned, repossessed or stopped
in transit goods relating to Accounts. DFS may at its sole election and
without demand enter, with or without process of law, any premises where
Collateral might be and, without charge or liability to DFS therefor do one
or more of the following: (i) take possession of the Collateral and use or
store it in said premises or remove it to such other place or places as DFS
may deem convenient; (ii) take possession of all or part of such premises and
the Collateral and place a custodian in the exclusive control thereof until
completion of enforcement of DFS' security interest in the Collateral or
until DFS' removal of the Collateral and, (iii) remain on such premises and
use the same, together with Dealer's materials, supplies, books and records,
for the purpose of performing all acts necessary and incidental to the
collection or liquidation of such Collateral. All of DFS' rights and remedies
are cumulative. DFS' failure to exercise any of DFS' rights or remedies
hereunder will not waive any of DFS' rights or remedies as to any past,
current or future Default.
6.3 Sale of Collateral. Dealer agrees that if DFS conducts a private sale
of any Collateral by requesting bids from 10 or more dealers or distributors
in that type of Collateral, any sale by DFS of such Collateral in bulk or in
parcels within 120 days of: (a) DFS' taking possession and control of such
Collateral; or (b) when DFS is otherwise authorized to sell such Collateral;
whichever occurs last, to the bidder submitting the highest cash bid
therefor, is a commercially reasonable sale of such Collateral under the
Uniform Commercial Code. Dealer agrees that the purchase of any Collateral
by a vendor, as provided in any agreement between DFS and the vendor, is a
commercially reasonable disposition and private sale of such Collateral under
the Uniform Commercial Code, and no request for bids shall be required.
Dealer further agrees that 7 or more days prior written notice will be
commercially reasonable notice of any public or private sale (including any
sale to a vendor). Dealer irrevocably waives any requirement that DFS retain
possession and not dispose of any Collateral until after an arbitration
hearing, arbitration award, confirmation, trial or final judgment. If DFS
disposes of any such Collateral other than as herein contemplated, the
commercial reasonableness of such disposition will be determined in
accordance with the laws of the state governing this Agreement.
7. MISCELLANEOUS
7.1 Termination. This Agreement will continue in full force and effect and
be noncanceble by Dealer (except that it may be terminated by DFS upon thirty
(30) days written notice to Dealer or in the exercise of its rights and
remedies upon Default by Dealer) for a period of two (2) years from the first
day of the first month following the date hereof and for successive one (1)
year periods thereafter, subject to termination as to future transactions at
the end of any such period on at least ninety (90) days prior written notice
by Dealer to DFS. If such notice of termination is given by Dealer to DFS,
such notice will be ineffective unless Dealer pays to DFS all Obligations on
or before the termination date. Any termination of this Agreement by Dealer
or DFS will have the effect of accelerating the maturity of all Obligations
not then otherwise due.
7.1.1 Termination Privilege. Despite anything to the contrary in Section
7.1 of this Agreement, this Agreement may be terminated by Dealer at any time
upon ninety (90) days prior written notice and payment to DFS of the
following sum (in addition to payment of all Obligations, whether or not by
their terms then due) which sum represents liquidated damages for the loss of
the bargain and not as a penalty, and the same is hereby acknowledged by
Dealer: (1) Twenty-Five Thousand Dollars ($25,000.00) if termination occurs
during the first twelve months following the date of this agreement,(2)
Fifteen Thousand Dollars ($15,000.00) if termination occurs during the second
twelve months following the date of this agreement. This sum will also be
paid by Dealer if the Agreement is terminated on account of Dealer's Default.
7.1.2 Effect of Termination. Dealer will not be relieved from any
Obligations to DFS arising out of DFS' advances or commitments made before
the effective termination date of this Agreement. DFS will retain all of its
rights, interests and remedies hereunder until Dealer has paid all of
Dealer's Obligations to DFS. All waivers set forth within this Agreement
will survive any termination of this Agreement.
7.2 Collection. Checks and other instruments delivered to DFS on account of
the Obligations will constitute conditional payment until such items are
actually paid to DFS.
7.3 Demand, Etc. Dealer irrevocably waives notice of: DFS' acceptance of
this Agreement, presentment, demand, protest, nonpayment, nonperformance, and
dishonor. Dealer and DFS irrevocably waive all rights to claim any punitive
and/or exemplary damages. Dealer waives all notices of default and non-
payment at maturity of any or all of the Accounts.
7.4 Reimbursement. Dealer will assume and reimburse DFS upon demand for all
expenses incurred by DFS in connection with the preparation of this Agreement
and the Other Agreements (including fees and costs of outside counsel) and
all filing and recording fees and taxes payable in connection with the filing
or recording of all documents under this Agreement and the Other Agreements;
provided, however, that such reimbursement by Dealer hereunder will not
exceed the sum of ONE THOUSAND DOLLARS ($1,000.00).
7.5 Additional Obligations. DFS, without waiving or releasing any
Obligation or Default, may perform any Obligations that Dealer fails or
refuses to perform. All sums paid by DFS on account of the foregoing and any
expenses, including reasonable attorneys' fees, will be a part of the
Obligations, payable on demand and secured by the Collateral.
7.6 NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING
PROMISES TO EXTEND OR RENEW SUCH DEBTS ARE NOT ENFORCEABLE. TO PROTECT
DEALER AND DFS FROM MISUNDERSTANDING OR DISAPPOINTMENT, ALL AGREEMENTS
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING AND THE OTHER AGREEMENTS,
WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE
PARTIES, EXCEPT AS SPECIFICALLY PROVIDED HEREIN OR AS THE PARTIES MAY LATER
AGREE IN WRITING TO MODIFY IT. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE
PARTIES. Time is of the essence regarding Dealer's performance of its
obligations to DFS notwithstanding any course of dealing or custom on DFS'
part to grant extensions of time. DFS will have the right to refrain from or
postpone enforcement of this Agreement or any Other Agreements between DFS
and Dealer without prejudice and the failure to strictly enforce these
agreements will not be construed as having created a course of dealing
between DFS and Dealer contrary to the specific terms of the agreements or as
having modified, released or waived the same. The express terms of this
Agreement will not be modified by any course of dealing, usage of trade, or
custom of trade which may deviate from the terms hereof.
7.7 Severability. If any provision of this Agreement or the Other
Agreements or the application thereof is held invalid or unenforceable, the
remainder of this Agreement and the Other Agreements will not be impaired or
affected and will remain binding and enforceable.
7.8 Supplement. If Dealer and DFS have heretofore executed Other Agreements
in connection with all or any part of the Collateral, this Agreement shall
supplement each and every Other Agreement previously executed by and between
Dealer and DFS, and in that event this Agreement shall neither be deemed a
novation nor a termination of any such previously executed Other Agreement
nor shall execution of this Agreement be deemed a satisfaction of any
obligation secured by such previously executed Other Agreement. In the event
of any conflict between the terms of this Agreement and any previously
executed Business Financing Agreement between DFS and Dealer, the terms of
this Agreement shall control.
7.9 Section Titles. The Section titles used in this Agreement are for
convenience only and do not define or limit the contents of any Section.
7.10 Binding Effect. Dealer cannot assign its interest in this Agreement or
any Other Agreements without DFS' prior written consent, although DFS may
assign or participate DFS' interest, in whole or in part, without Dealer's
consent. This Agreement and the Other Agreements will protect and bind DFS'
and Dealer's respective heirs, representatives, successors and assigns.
7.11 Notices. Except as otherwise stated herein, all notices, arbitration
claims, responses, requests and documents will be sufficiently given or
served if mailed or delivered: (a) to Dealer at Dealer's principal place of
business specified above; and (b) to DFS at 655 Maryville Centre Drive, St.
Louis, Missouri 63141-5832, Attention: General Counsel, or such other
address as the parties may hereafter specify in writing.
7.12 Receipt of Agreement. Dealer acknowledges that it has received a true
and complete copy of this Agreement. Dealer acknowledges that it has read
and understood this Agreement. Notwithstanding anything herein to the
contrary: (a) DFS may rely on any facsimile copy, electronic data
transmission or electronic data storage of any Schedule, statement, financial
statements or other reports, and (b) such facsimile copy, electronic data
transmission or electronic data storage will be deemed an original, and the
best evidence thereof for all purposes, including, without limitation, under
this Agreement or any Other Agreements, and for all evidentiary purposes
before any arbitrator, court or other adjudicatory authority.
8. BINDING ARBITRATION
8.1 Arbitrable Claims. Except as otherwise specified below, all actions,
disputes, claims and controversies under common law, statutory law or in
equity of any type or nature whatsoever (including, without limitation, all
torts, whether regarding negligence, breach of fiduciary duty, restraint of
trade, fraud, conversion, duress, interference, wrongful replevin, wrongful
sequestration, fraud in the inducement, usury or any other tort, all contract
actions, whether regarding express or implied terms, such as implied
covenants of good faith, fair dealing, and the commercial reasonableness of
any Collateral disposition, or any other contract claim, all claims of
deceptive trade practices or lender liability, and all claims questioning the
reasonableness or lawfulness of any act), whether arising before or after the
date of this Agreement, and whether directly or indirectly relating to: (a)
this Agreement or any Other Agreements and/or any amendments and addenda
hereto or thereto, or the breach, invalidity or termination hereof or
thereof; (b) any previous or subsequent agreement between DFS and Dealer; (c)
any act committed by DFS or by any parent company, subsidiary or affiliated
company of DFS (the "DFS Companies"), or by any employee, agent, officer or
director of an DFS Company whether or not arising within the scope and course
of employment or other contractual representation of the DFS Companies
provided that such act arises under a relationship, transaction or dealing
between DFS and Dealer; and/or (d) any other relationship, transaction or
dealing between DFS and Dealer (collectively the "Disputes"), will be subject
to and resolved by binding arbitration.
8.2 Administrative Body. All arbitration hereunder will be conducted in
accordance with the Commercial Arbitration Rules of The American Arbitration
Association ("AAA"). If the AAA is dissolved, disbanded or becomes subject
to any state or federal bankruptcy or insolvency proceeding, the parties will
remain subject to binding arbitration which will be conducted by a mutually
agreeable arbitrable forum. The parties agree that all arbitrator(s)
selected will be attorneys with at least five (5) years secured transactions
experience. The arbitrator(s) will decide if any inconsistency exists
between the rules of any applicable arbitrable forum and the arbitration
provisions contained herein. If such inconsistency exists, the arbitration
provisions contained herein will control and supersede such rules. The site
of all arbitration proceedings will be in the Division of the Federal
Judicial District in which AAA maintains a regional office that is closest to
Dealer.
8.3 Discovery. Discovery permitted in any arbitration proceeding commenced
hereunder is limited as follows. No later than thirty (30) days after the
filing of a claim for arbitration, the parties will exchange detailed
statements setting forth the facts supporting the claim(s) and all defenses
to be raised during the arbitration, and a list of all exhibits and
witnesses. No later than twenty-one (21) days prior to the arbitration
hearing, the parties will exchange a final list of all exhibits and all
witnesses, including any designation of any expert witness(es) together with
a summary of their testimony; a copy of all documents and a detailed
description of any property to be introduced at the hearing. Under no
circumstances will the use of interrogatories, requests for admission,
requests for the production of documents or the taking of depositions be
permitted. However, in the event of the designation of any expert
witness(es), the following will occur: (a) all information and documents
relied upon by the expert witness(es) will be delivered to the opposing
party, (b) the opposing party will be permitted to depose the expert
witness(es), (c) the opposing party will be permitted to designate rebuttal
expert witness(es), and (d) the arbitration hearing will be continued to the
earliest possible date that enables the foregoing limited discovery to be
accomplished.
8.4 Exemplary or Punitive Damages. The Arbitrator(s) will not have the
authority to award exemplary or punitive damages.
8.5 Confidentiality of Awards. All arbitration proceedings, including
testimony or evidence at hearings, will be kept confidential, although any
award or order rendered by the arbitrator(s) pursuant to the terms of this
Agreement may be entered as a judgment or order in any state or federal court
and may be confirmed within the federal judicial district which includes the
residence of the party against whom such award or order was entered. This
Agreement concerns transactions involving commerce among the several states.
The Federal Arbitration Act, Title 9 U.S.C. Sections 1 et seq., as amended
("FAA") will govern all arbitration(s) and confirmation proceedings
hereunder.
8.6 Prejudgment and Provisional Remedies. Nothing herein will be construed
to prevent DFS' or Dealer's use of bankruptcy, receivership, injunction,
repossession, replevin, claim and delivery, sequestration, seizure,
attachment, foreclosure, dation and/or any other prejudgment or provisional
action or remedy relating to any Collateral for any current or future debt
owed by either party to the other. Any such action or remedy will not waive
DFS' or Dealer's right to compel arbitration of any Dispute.
8.7 Attorneys' Fees. If either Dealer or DFS brings any other action for
judicial relief with respect to any Dispute (other than those set forth in
Section 8.6), the party bringing such action will be liable for and
immediately pay all of the other party's costs and expenses (including
attorneys' fees) incurred to stay or dismiss such action and remove or refer
such Dispute to arbitration. If either Dealer or DFS brings or appeals an
action to vacate or modify an arbitration award and such party does not
prevail, such party will pay all costs and expenses, including attorneys'
fees, incurred by the other party in defending such action. Additionally, if
Dealer sues DFS or institutes any arbitration claim or counterclaim against
DFS in which DFS is the prevailing party, Dealer will pay all costs and
expenses (including attorneys' fees) incurred by DFS in the course of
defending such action or proce
eding.
8.8 Limitations. Any arbitration proceeding must be instituted: (a) with
respect to any Dispute for the collection of any debt owed by either party to
the other, within two (2) years after the date the last payment was received
by the instituting party; and (b) with respect to any other Dispute, within
two (2) years after the date the incident giving rise thereto occurred,
whether or not any damage was sustained or capable of ascertainment or either
party knew of such incident. Failure to institute an arbitration proceeding
within such period will constitute an absolute bar and waiver to the
institution of any proceeding, whether arbitration or a court proceeding,
with respect to such Dispute.
8.9 Survival After Termination. The agreement to arbitrate will survive
the termination of this Agreement.
9. INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION. IF THIS AGREEMENT IS
FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL PROCEEDING WITH RESPECT TO
ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
WITHOUT A JURY. DEALER AND DFS WAIVE ANY RIGHT TO A JURY TRIAL IN ANY SUCH
PROCEEDING.
10. Governing Law. Dealer acknowledges and agrees that this and all Other
Agreements between Dealer and DFS have been substantially negotiated, and
will be substantially performed, in the state of CALIFORNIA. Accordingly,
Dealer agrees that all Disputes will be governed by, and construed in
accordance with, the laws of such state, except to the extent inconsistent
with the provisions of the FAA which shall control and govern all arbitration
proceedings hereunder.
IN WITNESS WHEREOF, Dealer and DFS have executed this Agreement as of the
date first set forth hereinabove.
THIS CONTRACT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGE
WAIVER PROVISIONS.
DEUTSCHE FINANCIAL SERVICES CORPORATION SMTEK, INC.
------------------------
Dealer's Name
By: /s/ Edward Stepanow By: /s/ Gregory L. Horton
---------------------- -------------------------
Print Name: Edward Stepanow Print Name: Gregory L. Horton
Title: Marketing Manager Title: President and Secretary
By: /s/ Richard K. Vitelle
------------------------
Print Name: Richard K. Vitelle
Title: CFO and Treasurer
ATTEST: /s/ Barbara Casablanca
-------------------------
(Assistant) Secretary
Print Name: Barbara Casablanca
<PAGE>
EXHIBIT 10
(continued)
ADDENDUM TO BUSINESS FINANCING AGREEMENT
This Addendum is made to that certain Business Financing Agreement executed
on the 21st day of August, 1996, between SMTEK, Inc. ("Dealer") and Deutsche
Financial Services Corporation ("DFS"), as amended ("Agreement").
FOR VALUE RECEIVED, DFS and Dealer agree as follows:
1. Section 3.8 of the Agreement is hereby amended in its entirety to read as
follows:
"3.8 Collection Days. All Dealer payments and all amounts received in
settlement, adjustment, or liquidation of any Account will be credited by DFS
to Dealer's account (subject to final collection thereof) after allowing one
(1) business day for collection of checks or other instruments."
2. Section 7.1 of the Agreement is hereby amended in its entirety to read as
follows:
"7.1 Termination. This Agreement will continue in full force and effect and
be noncancellable (except that it may be terminated by DFS upon the exercise
of its rights and remedies upon Default by Dealer) for a period of two (2)
years from the first day of the first month following the date hereof and for
successive one (1) year periods thereafter, subject to termination as to
future transactions at the end of any such period on at least ninety (90)
days prior written notice by either party to the other. If such notice of
termination is given by either party, Dealer will pay to DFS all Obligations
on or before the termination date. Any termination of this Agreement by
Dealer or DFS will have the effect of accelerating the maturity of all
Obligations not then otherwise due."
3. New Paragraph 8 is incorporated into the BFA to read in its entirety as
follows:
"8. Facility Fee. Dealer agrees to pay DFS a one-time facility fee in
connection with the Accounts Receivable Facility in the amount of Twelve
Thousand Five Hundred Dollars ($12,500.00), payable in advance, upon the
execution of this Agreement. Once received by DFS, the facility fee shall not
be refundable by DFS for any reason."
4. The following paragraph is incorporated into the Agreement as if fully
and originally set forth therein:
"Dealer will (I) as of the end of each of its fiscal years maintain:
(a) a Tangible Net Worth and Subordinated Debt in the combined amount of not
less than One Million Five Hundred Thousand Dollars ($1,500,000.00); and (b)
a ratio of Debt to Tangible Net Worth and Subordinated Debt of not more than
three to one (3.0:1); and (II) for each of its fiscal years, achieve a Net
Income of not less than One Hundred Thousand Dollars ($100,000.00). For
purposes of this paragraph: (i) 'Tangible Net Worth' means the book value of
Dealer's assets less liabilities, excluding from such assets all Intangibles;
(ii) 'Intangibles' means and includes general intangibles (as that term is
defined in the Uniform Commercial Code); accounts receivable and advances due
from officers, directors, employees, stockholders and affiliates; leasehold
improvements net of depreciation; licenses; good will; prepaid expenses;
escrow deposits; covenants not to compete; the excess of cost over book value
of acquired assets; franchise fees; organizational costs; finance reserves
held for recourse obligations; capitalized research and development costs;
and such other similar items as DFS may from time to time determine in DFS'
sole discretion; (iii) 'Debt' means all of Dealer's liabilities and
indebtedness for borrowed money of any kind and nature whatsoever, whether
direct or indirect, absolute or contingent, and including obligations under
capitalized leases, guaranties, or with respect to which Dealer has pledged
assets to secure performance, whether or not direct recourse liability has
been assumed by Dealer; (iv) 'Subordinated Debt' means all of Dealer's Debt
which is subordinated to the payment of Dealer's liabilities to DFS by an
agreement in form and substance satisfactory to DFS; and (v) 'Net Income'
means the net income of Dealer before provision for taxes and extraordinary
items. The foregoing terms will be determined in accordance with generally
accepted accounting principles consistently applied, and, if applicable, on a
consolidated basis."
5. The following paragraphs are hereby incorporated into the Agreement as if
fully set forth therein (all capitalized terms shall have the same meaning
used in the Agreement unless otherwise defined herein):
"Dealer hereby agrees to cause an institution acceptable to DFS to issue in
favor of DFS one or more Irrevocable Letters of Credit, in a total amount,
form, substance and with expiration dates satisfactory to DFS.
Dealer hereby agrees that if at least sixty (60) days prior to the expiration
of the above referenced Irrevocable Letter(s) of Credit or any subsequent
Letter(s) of Credit issued for the account of Dealer in favor of DFS, such
Irrevocable Letter of Credit is not extended for a term of twelve (12) months
or longer, or a new Irrevocable Letter of Credit in an amount, form and from
an institution acceptable to DFS and for a term of twelve (12) months or
longer is not provided to DFS, an event of default shall have occurred under
this Agreement, and DFS may declare all sums owed by Dealer under this
Agreement to be immediately due and payable. Upon such default, DFS may:
(i) exercise any and all of its rights under this Agreement including, but
not limited to, the right to repossess the Collateral from Dealer; and (ii)
exercise any and all of its rights to draw upon any Irrevocable Letter of
Credit issued for the account of Dealer in favor of DFS."
6. After giving effect to the initial advance made to Dealer under the
Agreement, Dealer will have unused availability under the Accounts Receivable
Facility of not less than One Hundred Thousand Dollars ($100,000.00).
Dealer waives notice of DFS' acceptance of this Addendum.
All other terms and provisions of the Agreement, to the extent not
inconsistent with the foregoing, are ratified and remain unchanged and in
full force and effect.
IN WITNESS WHEREOF, Dealer and DFS have executed this Addendum on this 21st
day of August, 1996.
SMTEK, INC.
ATTEST:
By: /s/ Richard K. Vitelle
/s/ Barbara Casablanca ------------------------
- ------------------------ Title: Chief Financial Officer
(Assistant) Secretary
DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ Edward Stepanow
-------------------------
Title: Marketing Manager
EXHIBIT 11
DDL ELECTRONICS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
Three Months Ended
September 30,
------------------------
1996 1995
------ ------
PRIMARY EARNINGS PER SHARE:
Net income (loss) $ (725,000) $ 1,084,000
========== ==========
Weighted average number of
common shares outstanding 23,017,458 16,200,911
Assumed exercise of options and warrants
net of shares assumed reacquired - 641,822
---------- ----------
Average common shares and common
share equivalents 23,017,458 16,842,733
========== ==========
Earnings (loss) per share $(0.03) $ 0.06
==== ====
FULLY DILUTED EARNINGS PER SHARE:
Net income (loss) $ (725,000) $ 1,084,000
Add back net interest related to
convertible subordinated debentures 34,000 34,000
---------- ----------
Net income (loss) for
fully diluted computation $ (691,000) $ 1,118,000
========== ==========
Weighted average number of common
shares outstanding 23,017,458 16,200,911
Assumed exercise of options and warrants
net of shares assumed reacquired
under treasury stock method using
period end market price, if higher
than average market price 309,562 689,195
Assumed conversion of convertible
subordinated debentures 310,206 699,206
---------- ----------
Average fully diluted shares 23,637,226 17,589,312
========== ==========
Earnings (loss) per share $(0.03) $ 0.06
==== ====
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 1333000
<SECURITIES> 0
<RECEIVABLES> 6698000
<ALLOWANCES> 146000
<INVENTORY> 3574000
<CURRENT-ASSETS> 15428000
<PP&E> 21631000
<DEPRECIATION> 15527000
<TOTAL-ASSETS> 27770000
<CURRENT-LIABILITIES> 17435000
<BONDS> 5777000
<COMMON> 230000
0
0
<OTHER-SE> 4328000
<TOTAL-LIABILITY-AND-EQUITY> 27770000
<SALES> 9895000
<TOTAL-REVENUES> 9895000
<CGS> 8799000
<TOTAL-COSTS> 8799000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 258000
<INCOME-PRETAX> (725000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (725000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (725000)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
