SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-8101
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Exact Name of Registrant as
Specified in Its Charter: DDL ELECTRONICS, INC.
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DELAWARE 33-0213512
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State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization No. Identification
Address of Principal Executive Offices: 2151 Anchor Court
Newbury Park, CA 91320
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Registrant's Telephone Number: (805) 376-9415
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $.01 Par Value New York Stock Exchange
Pacific Stock Exchange
7% Convertible Subordinated
Debentures due May 15, 2001 New York Stock Exchange
8-1/2% Convertible Subordinated
Debentures due August 1, 2008 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing price as reported by the New York Stock
Exchange on October 9, 1996 was $20,448,000. The registrant had 23,046,914
shares of Common Stock outstanding as of October 9, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Specified parts of the registrant's Annual Report to Stockholders for its
fiscal year ended June 30, 1996 are incorporated by reference into Parts I
and II hereof.
EXHIBIT INDEX
See page 27
PART I
Item 1. 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 fabricates 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.
Since 1985, the Company has made substantial capital expenditures in its
Northern Ireland EMS and PCB fabrication facilities. In fiscal 1995, the
Company liquidated or sold all assets associated with its PCB and EMS
operations in the United States.
RECENT DEVELOPMENTS
Acquisition of SMTEK, Inc.
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. 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 conjunction with this
acquisition, Gregory L. Horton, SMTEK's Chief Executive Officer and
President, was appointed Chief Executive Officer and President of the
Company. In addition, the Company's principal corporate office was
relocated from Oregon to SMTEK's facility in Newbury Park, California.
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 "10% Senior Notes") and $3,500,000 in aggregate amount of 10%
Cumulative Convertible Debentures due February 28, 1997 (the "10%
Convertible 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 valued at
$716,000. Rickel also received certain compensation for making and
arranging the Bridge Loans.
Changes in the Company's capitalization
The 10% Convertible Debentures, which were sold to offshore investors,
were convertible into common stock at any time after 60 days at a conversion
price equal to 82% of the market price of the Company's common stock at the
time of conversion. In May and June 1996, the holders of all of the 10%
Convertible Debentures elected to convert such debentures into common stock.
As a result of these conversions, a total of 2,698,275 new shares of common
stock were issued, and stockholders' equity increased by $3,188,000, net of
remaining unamortized issue costs.
Primarily as a result of the common stock issued in connection with
the acquisition of SMTEK and the conversion of the 10% Convertible
Debentures, the Company's outstanding common stock at June 30, 1996 amounted
to 22,998,879 shares, compared to 16,062,979 shares at the end of fiscal
1995.
Reduction of certain obligations
In March 1996, the Company entered into a settlement agreement with
certain of its former officers, key employees and directors (the
"Participants") to restructure its outstanding obligations under several
consulting programs and deferred fee arrangements which had provided for
payments to the Participants after their retirement from the Company or from
its board of directors. Under terms of the settlement, the Participants
agreed to relinquish all future payments due them under these consulting
programs and deferred fee arrangements in return for an aggregate of 595,872
common stock purchase warrants, Series G. The exercise price of these
warrants is $2.50 per warrant. The Company will subsidize the exercise of
warrants by crediting the Participants with $2.50 for each warrant
exercised. The warrants may be called for redemption by the Company at any
time after June 1, 1996, if DDL's common stock closes above $4.00 per share,
at a redemption price of $.05 per warrant. The Company is obligated to pay
the Participants $2.50 for each warrant which remains unexercised on the
June 1, 1998 warrant expiration date, payable in semiannual installments
over two to ten years.
The Company has recorded a liability for the present value of these
future payments, which amounted to $941,000 at June 30, 1996. As a result
of this settlement agreement, the Company recorded an extraordinary gain of
$2,356,000, net of $197,000 of compensation expense related to the "call"
feature of the warrants.
FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHICAL AREA
The Company is engaged in two lines of business -- electronic
manufacturing services and printed circuit board fabrication. Information
with respect to these segments' sales, operating income (loss), identifiable
assets, depreciation and amortization, and capital expenditures for each of
the last three fiscal years is set forth in Note 11 to the consolidated
financial statements of the accompanying 1996 Annual Report to Stockholders.
Such information is incorporated herein by this reference and is made a part
hereof.
ELECTRONIC MANUFACTURING SERVICES AND PRINTED CIRCUIT BOARD
FABRICATION BUSINESSES
The EMS and PCB fabrication industries and the markets in which the
Company's customers compete are characterized by rapid technological
change and product obsolescence. As a result, the end services provided
and products made by the Company's EMS and PCB fabrication customers
have relatively short product lives. The Company believes that its
future success in these industries is dependent on its ability to
continue to incorporate new technology into its EMS and PCB fabrication
processes, to satisfy increasing customer demands for quality and timely
delivery and to be responsive to future changes in this dynamic market.
The EMS industry, in general, has experienced increased customer demand
as customers move away from captive or in-house EMS capabilities and
out-source production. At the same time, the number of EMS providers is
growing, thus increasing competition, keeping margins low and forcing
sudden changes in the EMS customer base.
The PCB fabrication market is highly fragmented. Numerous factors,
however, have caused a shift toward consolidation in the PCB fabrication
industry, including extreme competition, substantial excess production
capacity experienced by the industry prior to the current fiscal year, the
greatly increased capital and technical requirements to service the advanced
multilayer PCB fabrication market and the inability of many PCB fabricators
to keep up with the changing demands and expectations of customers on
matters such as technical board characteristics, quality and timely delivery
of product.
Description of Products and Services--EMS
Production of electronic assemblies for a customer is only performed
when a firm order is received. Customer cancellations of orders are
infrequent and are subject to cancellation charges. More often, a customer
will delay shipment of orders based on its actual or anticipated needs.
Customer orders are produced based on one of two production methods, either
"turnkey" (where the Company provides all materials, labor and equipment
associated with producing the customers' product) or "consigned" (the
Company provides labor and equipment only for manufacturing product).
The Company's EMS operations provide turnkey electronic manufacturing
services using both surface mount and through-hole interconnection
technologies. The Company conducts the EMS portion of its business through
its SMTEK subsidiary in Southern California, which serves customers
primarily on the West Coast of the U.S., and through its DDL Electronics
Limited ("DDL-E") subsidiary, which serves customers primarily in Western
Europe. SMTEK and DDL-E do not fabricate any of the components or PCBs used
in these processes, but from time to time they have procured PCBs from the
Company's PCB fabricator, Irlandus Circuits Limited ("Irlandus"). EMS sales
represented approximately 67%, 47% and 59% of the Company's consolidated
sales for the fiscal years ended June 30, 1996, 1995 and 1994, respectively.
Since turnkey electronic contract manufacturing may be a substitute for
all or some portion of a customer's captive EMS capability, continuous
communication between the Company and the customer is critical. To
facilitate such communication, the Company's EMS businesses maintain
customer service departments whose personnel work closely with the customer
throughout the assembly process. The Company's engineering and service
personnel coordinate with the customer on the implementation of new and re-
engineered products, thereby providing the customer with feedback on such
issues as ease of assembly and anticipated production lead times. Component
procurement is commenced after component specifications are verified and
approved sources are confirmed with the customer. Concurrently, assembly
routing and procedures for conformance with the workmanship standards of the
Institute for Interconnecting and Packaging Electronic Circuits are defined
and planned. Additionally, in-circuit test fixtures are 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, the Company performs customized functional tests designed to
ensure that the board or assembly will perform its intended function. The
Company's 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 the Company's turnkey services
consists of the planning, purchasing, expediting and financing of the
components and materials required to assemble a board-level or system-level
assembly. Customers have increasingly required the Company and other
independent providers of electronic manufacturing services to purchase some
or all components directly from component manufacturers or distributors and
to finance the components and materials. In establishing a turnkey
relationship with an independent provider of electronic manufacturing
services, a customer typically incurs costs in qualifying that EMS provider
and, in some cases, its sources of component supply, refining product design
and developing mutually compatible information and reporting systems. With
this relationship established, the Company 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. At the same time, the Company faces the obstacle of attracting
new customers away from existing EMS providers or from performing services
in-house.
Description of Products and Services--PCB Fabrication
The Company fabricates and sells advanced, multilayer PCBs based on
designs and specifications provided by the Company's customers. These
specifications are developed either solely through the design efforts of the
customer or through the design efforts of the customer working together with
the Company's design and engineering staff. Customers submit requests for
quotations on each job and the Company prepares bids based on its own cost
estimates. The Company conducts its PCB fabrication business through its
Irlandus subsidiary located in Northern Ireland. The Company's fabrication
facilities in Anaheim, California were shut down in fiscal year 1992 and its
Beaverton, Oregon facility was sold in fiscal 1995. PCB sales represented
approximately 33%, 53% and 41% of the Company's consolidated sales for the
fiscal years ended June 30, 1996, 1995 and 1994, respectively, with
multilayer boards constituting a substantial portion of the sales.
PCBs range from simple single- and double-sided boards to multilayer
boards with more than 20 layers. When PCBs are joined with electronic
components in the assembly process, they comprise the basic building blocks
for electronic equipment. Single-sided PCBs are used in electronic games
and automobile ignition systems, whereas multilayer PCBs are used in more
advanced applications such as computers, office equipment, communications,
instrumentation and defense systems.
PCBs consist of fine lines of a conductive material, such as copper,
which are bonded to a non-conductive panel, typically rigid laminated epoxy
glass. The conductive pathways in the PCBs 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 onto the surface instead of being inserted into through-holes.
Although substantially 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.
Complex boards may also have "via" or "blind-via" holes that connect inner
layers of a multilayer board or connect an inner layer to the outside of the
board.
The development of increasingly sophisticated electronic equipment,
which combines higher performance and reliability with reduced size and
cost, has created a demand for increased 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.
As the sophistication and complexity of PCBs increase, manufacturing
yields typically fall. Historically, the Company relied on tactical quality
procedures, in which defects are assumed to exist and quality inspectors
examine product lot by lot and board by board to identify deficiencies,
using automated optical inspection and electrical test equipment. This
traditional approach to quality control is not adequate, however, to produce
acceptably high yields in an advanced multilayer PCB fabrication
environment, as it focuses on identifying, rather than preventing, defects.
In recognition of this limitation, Irlandus is striving to create a positive
environment encompassing management's awareness, process understanding, and
operator involvement in identifying and correcting production problems
before defects occur.
Quality standards
The International Standards Organization ("ISO") has published
internationally recognized standards of workmanship and quality. Both
Irlandus and DDL-E have achieved ISO 9002 certification, which the Company
believes will be increasingly necessary to attract business. SMTEK has been
certified for Mil-Q-9858A, which is the highest military quality standard,
and NHB-5300.4, which is the primary quality standard for products used in
the U.S. space program. SMTEK is currently working to obtain ISO 9001
certification, which it expects to receive by February 1997.
EMS Facilities
SMTEK conducts its operations from a 45,000 square foot facility, which
is leased from an unaffiliated party through May 31, 2000. The monthly rent
was approximately $28,500 during fiscal 1996 and is subject to a 4% increase
each year. SMTEK has the option to extend the lease term for three renewal
periods of three years each. The lease rate during the renewal periods is
subject to adjustment based on changes in the Consumer Price Index for the
local area.
DDL-E conducts its operations from a 67,000 square foot facility in
Northern Ireland that was purchased in 1989. Prior to DDL-E commencing
operations in the spring of 1990, approximately 1,600,000 pounds sterling
(approximately $2,700,000) was expended on auto-insertion equipment, surface
mount device placement equipment, wave solder equipment, visual inspection
equipment and automated test equipment. The Company believes that this
facility possesses the technology required to compete effectively and that
the facility is capable of supporting projected growth for up to the next
two years.
Fabrication Facilities
Irlandus occupies a 63,000 square foot production facility and an
adjacent 9,000 square foot office and storage facility. Irlandus' existing
capacity is expected to be adequate to meet anticipated order levels for the
next three years.
Markets and Customers
The Company's sales in the EMS and PCB fabrication businesses and the
percentage of its consolidated sales to the principal end-user markets it
serves for the last three fiscal years were as follows (dollars in
thousands):
Year Ended June 30,
----------------------------------------------------
Markets 1996 1995 1994
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Computer $ 4,049 12.2% $ 7,115 24.1% $23,905 49.3%
Communications 4,189 12.6 6,926 23.4 8,396 17.3
Commercial
aviation 2,277 6.9 - - - -
Financial 3,155 9.5 2,067 7.0 - -
Industrial &
Instrumentation 7,621 23.0 6,044 20.4 6,196 12.8
Medical 4,429 13.4 4,668 15.8 6,533 13.4
Government/
Military 4,847 14.6 1,362 4.6 1,411 2.9
Automotive - - 175 .6 889 1.8
Other 2,569 7.8 1,219 4.1 1,199 2.5
------ ----- ------ ----- ------ -----
Total $33,136 100.0% $29,576 100.0% $48,529 100.0%
====== ===== ====== ===== ====== =====
The Company markets its EMS and PCB fabrication services through both a
direct sales force and independent manufacturers' representatives. The
Company's marketing strategy is to develop close relationships with, and to
increase sales to, certain existing and new major EMS and PCB fabrication
customers. This includes becoming involved at an early stage in the design
of PCBs for these customers' new products. The Company believes that this
strategy is necessary to keep abreast of rapidly changing technological
needs and to develop new EMS and PCB fabrication processes, thereby
enhancing the Company's EMS and PCB capabilities and its position in the
industry. As a result of this strategy, however, fluctuations experienced
by one or more of these customers in demand for their products may have and
have had adverse effects on the Company's sales and profitability.
During fiscal 1996, the Company's EMS and PCB businesses served
approximately 55 and 175 customers, respectively. The Company's five
largest customers accounted for 37%, 21% and 45% of consolidated sales
during fiscal years 1996, 1995 and 1994, respectively. The Company's largest
customer accounted for approximately 9.5% of consolidated sales in fiscal
1996.
Raw Materials and Suppliers
In its EMS business, the Company uses numerous suppliers of electronic
components and other materials. The Company's customers may specify the
particular manufacturers and components, such as the Intel 80486
microprocessor, to be used in the EMS process. To the extent these
components are not available on a timely basis or are in short supply
because of allocations imposed by the component manufacturer, and the
customer is unwilling to accept a substitute component, delays may occur.
Such delays are experienced in the EMS business from time to time and have
caused sales and inventory fluctuations in the Company's EMS business.
The principal materials used by the Company in its PCB fabrication
processes are copper laminate, epoxy glass, copper alloys, gold and various
chemicals, all of which are readily available to the Company from various
sources. The Company believes that its sources of materials for its
fabrication business are adequate for its needs and that it is not
substantially dependent upon any one supplier.
Industry Conditions and Competition
The markets in which the EMS and PCB fabrication businesses operate are
intensely competitive and have experienced excess production capacity during
the past few years. Seasonality is not a factor in the EMS and PCB
fabrication businesses. There has been significant downward pressure on the
prices that the Company is able to charge for its EMS and PCB fabrication
services. More recently, market conditions have improved, resulting in an
increase in product demand. While the Company believes that market
conditions will continue to improve, it does not believe that prices will
increase as quickly. EMS and PCB fabrication customers are increasing their
orders, but are reluctant to pay more for such services, primarily due to
the industry's excess capacity and price competition. Additionally,
competition is principally based on price, product quality, technical
capability and the ability to deliver products on schedule. Both the price
of and the demand for EMS and PCBs are sensitive to economic conditions,
changing technologies and other factors. The technology used in EMS and
fabrication of PCBs is widely available, and there are a large number of
domestic and foreign competitors. Many of these firms are larger than the
Company and have significantly greater financial, marketing and other
resources. In addition, the Company faces a competitive disadvantage
against better financed competitors because the Company's current financial
situation causes certain customers to be reluctant to do business with the
Company's operating units. Many of the Company's competitors have also made
substantial capital expenditures in recent years and operate technologically
advanced EMS and fabrication facilities. In addition, some of the Company's
customers have substantial in-house EMS capability, and to a lesser extent,
PCB fabrication capacity. There is a risk that when these customers are
operating at less than full capacity they will use their own facilities
rather than purchase from the Company. Despite this risk, management
believes that the Company has not experienced a significant loss of business
to in-house fabricators or assemblers. There also are risks that other
customers, particularly in the EMS market, will develop their own in-house
capabilities, that additional competitors will acquire the ability to
produce advanced, multilayer boards in commercial quantities, or the ability
to provide EMS, and that foreign firms, including large, technologically
advanced Japanese firms, will increase their share of the United States or
European market.
Price competition is particularly intense in the computer market, which
in fiscal years 1995 and 1994 was the Company's largest market segment.
This has caused price erosion and lower margins, particularly in the
Company's PCB fabrication business. Significant improvement in the
Company's PCB gross margins may not be achieved in the near future due to
excess PCB production capacity worldwide and substantial competitive
pressures in the Company's principal markets. Generally, the Company's
customers are reducing inventory levels and seeking lower prices from their
vendors, such as the Company, to compete effectively.
GENERAL
Backlog
At June 30, 1996, 1995 and 1994, the Company's EMS and PCB fabrication
businesses had combined backlogs of $17,669,000, $9,247,000 and $6,902,000,
respectively. Backlog is comprised of orders believed to be firm for
products that have scheduled shipment dates during the next 12 months. Some
orders in the backlog may be canceled under certain conditions.
Historically, a substantial portion of the Company's orders have been for
shipment within 90 days of the placement of the order and, therefore,
backlog information as of the end of a particular period is not necessarily
indicative of trends in the Company's business. In addition, the timing of
orders from major customers may result in significant fluctuations in the
Company's backlog and operating results from period to period.
Backlog at June 30, 1996 includes SMTEK, the EMS business acquired by
the Company in January 1996. The Company's backlog at June 30, 1995
consisted only of the backlog of the Company's European subsidiaries. The
increase from fiscal year 1994 to fiscal 1995 reflected higher order demand
from existing EMS customers and new outstanding orders from new EMS
customers.
Environmental Regulation
Federal, state and local provisions relating to the protection of the
environment affect the Company's PCB fabrication operations. In 1983, the
United States and the State of California filed a legal action against the
owners and operators of the Stringfellow hazardous waste disposal site
located near Riverside, California, as well as against a number of
generators and transporters of chemical substances who allegedly disposed of
waste at the site (the "Primary Defendants"). The action seeks to cause the
Primary Defendants to clean up the site, to reimburse government plaintiffs
for remediation costs incurred by them and to recover compensation for
alleged damage to natural resources. The Primary Defendants have initiated
a defense of the case. The State of California also has been found liable
for, among other things, its negligent selection, inspection, design,
construction, operation and failure to remedy the site. In 1988, the
Primary Defendants filed third-party complaints against the Company's
Anaheim, California-based Aeroscientific Corp. subsidiary ("Aero Anaheim")
and about 185 other alleged responsible parties. The U.S. Environmental
Protection Agency ("EPA") has estimated that about 34 million gallons of
waste were disposed of at the Stringfellow site and has estimated that Aero
Anaheim may have been responsible for having generated about 9,300 gallons
or 0.0273 percent of the total waste disposed. The government plaintiffs,
however, have been unable to estimate the value of their principal claims.
EPA's cleanup estimates have ranged from $400 million to $1 billion,
depending on which cleanup proposal is selected. At the present time, the
Company cannot determine how the allocation of responsibility in this case
will ultimately be made or what share of responsibility might be imposed on
state and local governments. The EPA contends that site owners and
operators and waste generators are jointly and severally liable under
federal law. In 1994, the Company was given the opportunity to participate
in a de minimis settlement negotiated with the EPA and the Primary
Defendants. The Company's share of the settlement and administration costs
would have been approximately $120,000. The Company decided not to
participate in the settlement at that time because of its limited cash
resources. However, the Company accrued this amount as its estimate of the
liability it will ultimately bear in this matter. The Company is currently
exploring the feasibility of entering into a settlement with the Primary
Defendants in which that same amount would be paid over several years. No
assurances can be given, however, that any such settlement will be achieved.
The Company is aware of certain chemicals that exist in the ground at
Aero Anaheim's previously leased facility in Anaheim. The Company has
notified the appropriate governmental agencies and is proceeding with
remediation and investigative studies regarding soil and groundwater
contamination. The Company believes that it will be required to implement a
continuing remedial program for the site. The installation of water and
soil extraction wells was completed in August 1994. A plan for soil
remediation was completed about the same time and was implemented beginning
in 1995. Investigative work to determine the full extent of potential
groundwater pollution has not yet been completed. The Company retained the
services of an environmental engineering firm in May 1995 to begin the vapor
extraction of pollutant from the soil and to perform exploratory hydro-punch
testing to determine the full extent and cost of the cleanup of the
potential groundwater contamination. These processes are in their
preliminary stages and a complete and accurate estimate of the full and
potential costs cannot be determined at this time. The Company believes,
however, that the resolution of these matters will require a significant
cash outlay. Initial estimates from environmental engineering firms
indicate that it could cost from $1,000,000 to $3,000,000 to fully clean up
the site and could take as long as ten years to complete. The Company and
Aero Anaheim entered into an agreement to share the costs of environmental
remediation with the owner of the Anaheim property. Under this agreement,
the Company is obligated to pay 80% of the site's total remediation costs up
to $725,000 (i.e., up to the Company's $580,000 share) with any costs above
$725,000 being shared equally between the Company and the property owner.
Through June 30, 1996, the Company has paid $420,000 as its share of the
remediation costs (including cash placed in an escrow account for payment of
expenses). At June 30, 1996, the Company has a reserve of $608,000, which
represents its estimated share of future remediation costs at this site.
Based on consultation with the environmental engineering firms, management
believes that the Company has made adequate provision for the liability
based on probable loss. It is possible, however, that the future remediation
costs at this site may differ significantly from the estimates, and may
exceed the amount of the reserve.
From time to time the Company is also involved in other waste disposal
remediation efforts and proceedings associated with its other facilities.
Based on information currently available to the Company, management does not
believe that the costs of such efforts and proceedings will have a material
adverse effect on the Company's business or financial condition.
Employees
At June 30, 1996, the Company had approximately 480 employees.
Item 2. Properties
The following table lists principal plants and properties of the Company
and its subsidiaries:
Owned
Square or
Location Footage Leased
------------ ------ ------
Newbury Park, California 45,000 Leased
Craigavon, Northern Ireland 63,000 Owned
Craigavon, Northern Ireland 67,000 Owned
Craigavon, Northern Ireland 9,000 Owned
The Northern Ireland properties are pledged as security for installment
loans payable to the Industrial Development Board for Northern Ireland, from
which the properties were purchased. These loans had an aggregate
outstanding balance of approximately $1,265,000 at June 30, 1996.
Item 3. Legal Proceedings
As to other litigation matters that are not specifically described
under the caption "General - Environmental Regulation" in Item 1 above, no
material legal proceedings are presently pending to which the Company or any
of its property is subject, other than ordinary routine litigation
incidental to the Company's business.
Item 4. Submission of Matters to a Vote of Security Holders
At the 1995 Annual Meeting of Stockholders held on July 11, 1996,
Richard K. Vitelle was elected a Class III director by the stockholders.
Directors whose terms of office continued after the meeting were Erven P.
Tallman, Gregory L. Horton, Melvin Foster, Bernee D.L. Strom and Robert G.
Wilson. In addition to the election of a director, the stockholders approved
the Company's 1996 Stock Incentive Plan, the 1996 Non-Employee Directors
Stock Option Plan and a plan of warrant compensation for non-employee
directors who had joined the Board of Directors on May 31, 1995 and had
served since that date without other compensation from the Company.
Following is a summary of the voting:
Votes Votes
Votes For Against Abstained Unvoted
-------- ------- ------- -------
Election of Richard K. Vitelle
as Class III director 19,929,689 258,381 - -
Approval of 1996 Stock
Incentive Plan 10,303,288 841,857 93,126 8,949,799
Approval of 1996 Non-Employee
Directors Stock Option Plan 11,715,005 513,083 103,716 7,856,266
Approval of plan of warrant
compensation for non-employee
directors 11,088,984 526,350 111,489 8,461,247
At a Board of Directors meeting immediately following the 1995 Annual
Meeting, Mr. Tallman resigned from the board, and Karen Beth Brenner was
elected a director to fill Mr. Tallman's seat.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The information set forth under the caption "Market and Dividend
Information" in the Company's 1996 Annual Report to Stockholders is
incorporated herein by reference and made a part hereof.
Item 6. Selected Financial Data
The information set forth under the caption "Five-Year Financial
Summary" in the Company's 1996 Annual Report to Stockholders is incorporated
herein by reference and made a part hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information set forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" ("MD&A") in
the Company's 1996 Annual Report to Stockholders is incorporated herein by
reference and made a part hereof.
Certain statements made in the MD&A, in the president's letter to
stockholders which appears on page 1 of the Company's 1996 Annual Report to
Stockholders, and elsewhere in the notes to consolidated financial
statements included in such Annual Report to Stockholders, are forward-
looking in nature and reflect the Company's forecasts, current expectations
and anticipated future plans. Such statements involve various risks and
uncertainties that could cause actual results to differ materially from
those forecast in the statements. Factors that might cause such differences
would include, without limitation, the factors described as "Risk Factors"
in the Company's Registration Statement on Form S-3 (No. 333-02969) on file
with the Securities and Exchange Commission.
Item 8. Financial Statements and Supplementary Data
Reference is made to the financial statements and financial schedules
included later in this Report under Item 14.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
DIRECTORS AND EXECUTIVE OFFICERS
Principal occupation and Year first
business experience including elected a
Name service on other boards Age Director
-------- ------------------------------ --- --------
Class I Directors to Continue in Office Until the 1996 Annual Meeting:
Melvin Foster Principal and attorney, Melvin 70 1995
Foster & Associates, Boston,
Massachusetts
Robert G. Wilson Director, Brandevor Enterprises, 52 1995
Ltd. and Amusements International,
Ltd.
Class II Directors to Continue in Office Until the 1997 Annual Meeting:
Bernee D.L. Strom President, USA Digital Radio; 49 1995
Director, Polaroid Corporation,
Software Publishing Corporation,
Quantum Development Corporation
and Krug International
Gregory L. Horton Chief Executive Officer, 40 1996
President and Chairman of the
Board of Directors, DDL
Electronics, Inc.
Class III Directors to Continue in Office Until the 1998 Annual Meeting:
Karen Beth Brenner Registered investment advisor, 43 1996
President, Fortuna Advisors, Inc.,
Director, Krug International
Richard K. Vitelle Vice President-Finance and 43 1996
Administration, Chief Financial
Officer, Treasurer and Secretary,
DDL Electronics, Inc.
Mr. Foster was appointed to the Board subsequent to the May 31,
1995 annual stockholders meeting. Mr. Foster is a member of the
Compensation Committee of the Board of Directors. He is an attorney and
principal in Melvin Foster & Associates in Boston, Massachusetts.
Mr. Wilson was appointed to the Board and made an Interim Vice
President subsequent to the May 31, 1995 annual stockholders meeting.
Mr. Wilson is a member of the Audit committee and the Compensation
Committee. He is also chief financial officer and a director of
Brandevor Enterprises, Ltd., a Toronto Stock Exchange-listed company,
and a director of Amusements International Ltd., an Alberta Stock
Exchange-listed company.
Ms. Strom was elected to the Board at the May 31, 1995 annual
stockholders meeting. Ms. Strom is a member of the Audit Committee and
the Compensation Committee. Ms. Strom is President of USA Digital
Radio, a private limited partnership. She also serves on the Board of
Directors of Polaroid Corporation, a New York Stock Exchange-listed
company, Software Publishing Corporation, a Nasdaq-traded company, Krug
International, a Nasdaq-traded company, and is Chairman of the Board of
Quantum Development Corporation, a privately-held company.
Mr. Horton became the Company's President and Chief Executive
Officer in January 1996, following the Company's acquisition of SMTEK,
and was appointed to the Board on February 2, 1996. He was a member of
the Executive Committee until the Executive Committee was dissolved and
was elected Chairman of the Board of Directors in July 1996. Mr. Horton
has served as the President and Chief Executive Officer of SMTEK since
1986.
Ms. Brenner was appointed to the Board in July 1996 and serves as a
member of the Audit Committee and the Compensation Committee. Since
January 1996 she has served as President of Fortuna Advisors, Inc., the
successor to Karen Beth Brenner, registered investment advisor, a sole
proprietorship which she headed from 1985 to 1995. She also serves on
the Board of Directors of Krug International, a Nasdaq-traded company.
Mr. Vitelle was appointed Vice President-Finance and
Administration, Chief Financial Officer and Treasurer in January 1996,
was appointed Secretary in May 1996 and was elected to the Board in July
1996. From 1993 to 1996, Mr. Vitelle served as Chief Financial Officer
of InVitro International, a publicly-held company engaged in the
development and marketing of in vitro diagnostic testing systems. From
1992 to 1993, he served as Chief Financial Officer of Chapin Medical
Company, a privately-held distributor of critical care pharmaceutical
products. From 1986 to 1992, Mr. Vitelle served as Corporate Controller
of DDL Electronics, Inc. Mr. Vitelle is a certified public accountant.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act, the directors and executive
officers of the Company and persons who own more than 10% of the Company's
Common Stock ("statutory insiders") are required to file reports of their
ownership of the Company's Common Stock on Form 3 and any subsequent changes
in that ownership on Form 4 or Form 5 with the SEC and the New York Stock
Exchange.
To the Company's knowledge, based solely upon its review of the copies
of such reports required to be furnished to the Company during or with
respect to fiscal 1996, the Company believes that all Section 16(a) filing
requirements applicable to its statutory insiders during or for such fiscal
year were satisfied, except that Mr. Vitelle filed a late Form 3 which
reported that no securities were beneficially owned by him at the time he
became an executive officer.
Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid or accrued by
the Company to the Chief Executive Officer and all other executive
officers of the Company (together with the Chief Executive Officer, the
"named executive officers") attributable to their services for each of
the fiscal years in the three-year period ended June 30, 1996:
Long-Term
Name and Annual Compensation Compensation
Principal -------------------------- Awards:
Positions (1) Year Salary(2) Bonus Other Options (#)
-------------- ---- ------ ----- ----- -------
Gregory S. Horton 1996 $ 69,000 $ -- (3) 400,000
Chief Executive Officer,
President and Chairman
Richard K. Vitelle 1996 $ 50,000 $ -- (3) 185,000
Vice President-Finance
and Administration,
Chief Financial Officer,
Treasurer and Secretary
John F. Coyne (4) 1996 $123,000 $ 6,000 $ 61,000 --
Former President and 1995 119,000 27,000 50,000 100,000
Former Chief Operating 1994 78,000 -- 67,000 --
Officer
M. Charles Van Rossen (5) 1996 $ 45,000 $ -- $ 59,000 --
Former Chief 1995 90,000 $ -- -- --
Financial Officer 1994 73,000 $ -- 8,000 15,000
(1) Mr. Horton joined the Company as Chief Executive Officer and
President on January 12, 1996. Mr. Vitelle joined the Company as
Vice President-Finance and Administration, Chief Financial Officer
and Treasurer on January 25, 1996. Mr. Coyne became Managing
Director of DDL Europe, Ltd. effective June 28, 1995, and resigned
from all positions of employment with the Company and its
affiliates effective June 28, 1996. Mr. Van Rossen resigned from
all positions with the Company effective November 30, 1995.
(2) Amounts shown include compensation earned and received by each
named executive officer, as well as amounts earned but deferred at
the election of each such officer, in each case for such officer's
period of employment during fiscal 1996. Amounts paid in British
Pounds Sterling have been translated into the Company's functional
currency using the average annual translation rate.
(3) Total perquisites did not exceed the lesser of $50,000 or 10% of
the executive's salary and bonus.
(4) Amounts in the "Other Annual Compensation" column include
statutory pension amounts as required in Northern Ireland and
other non-cash benefits.
(5) Amounts in the "Other Annual Compensation" column consist of
severance payments in 1996 and amounts credited to Mr. Van
Rossen's 401(k) account from a suspense account within the
Company's 401(k) plan in 1994.
OPTION GRANTS IN FISCAL YEAR ENDED JUNE 30, 1996
The following table sets forth information concerning options granted to
each of the named executive officers during fiscal 1996:
<TABLE>
Potential Realizable
% of Total Value at Assumed
Options Annual Rates of Stock
Granted to Exercise Price Appreciation
Employees or Base for Option Term
Options in Fiscal Price Expiration ---------------
Name Granted Year ($/Sh.) Date 5% 10%
-------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gregory L. Horton 90,000 9.9% $1.63 05/07/06 $ 92,000 $234,000
Gregory L. Horton 310,000(1) 34.2% $1.75 06/07/06 $341,000 $865,000
Richard K. Vitelle 85,000(2) 9.4% $1.63 05/07/06 $ 87,000 $221,000
Richard K. Vitelle 100,000(2) 11.0% $1.75 06/07/06 $110,000 $279,000
Richard K. Vitelle 20,000(3) 2.2% $1.50 01/25/01 $ 8,000 $ 18,000
</TABLE>
(1) These options were repriced on October 3, 1996. See "Employment
Agreements and Executive Severance Arrangements" below. The new
exercise price is $1.25, the new expiration date is October 3,
2006, and the potential realizable values are $244,000 (at 5%) and
$618,000 (at 10%).
(2) These options were repriced on September 12, 1996. See
"Employment Agreements and Executive Severance Arrangements"
below. The new exercise price is $1.25, the new expiration date
is September 12, 2006, and the potential realizable values for
these 185,000 options are $145,000 (at 5%) and $369,000 (at 10%).
(3) These shares underlie a warrant issued to Mr. Vitelle in lieu of
cash reimbursement for moving expenses. On September 12, 1996,
Mr. Vitelle agreed to cancel and annul such warrant and the
Company agreed to reimburse him in cash for up to $25,000 in such
expenses.
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND FISCAL YEAR-END
OPTION VALUES
The following table sets forth information concerning options held
by each of the named executive officers as of June 30, 1996:
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares Fiscal Year-End Fiscal Year-End
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable(1) Unexercisable(2)
------ -------- -------- ------------- -------------
Gregory S. Horton - - - /400,000 $ - /$111,000
Richard K. Vitelle - - - /205,000 $ - /$ 67,000
John F. Coyne 50,000 $75,000 83,332/ 66,668 $25,000/$ 50,000
Charles Van Rossen 22,500 $23,000 17,500/ 5,000 $14,000/$ 4,000
(1) All options listed in the table are exercisable at option prices
equal to fair market value on the date of grant.
(2) The value of unexercised in-the-money options is based upon the
fair market value for the Common Stock on June 30, 1996 of $2.00
per share less the applicable option exercise price
EMPLOYMENT AGREEMENTS AND EXECUTIVE SEVERANCE ARRANGEMENTS
On January 12, 1996, Gregory L. Horton was appointed President and
Chief Executive Officer of the Company and, on February 2, 1996, was
appointed a director of the Company. In connection therewith, he
entered into an employment agreement dated October 16, 1995, which
agreement would terminate in accordance with its terms on November 1,
1999. Under this agreement, the Company appointed Mr. Horton the
President and Chief Executive Officer of the Company upon the Company's
acquisition of SMTEK. Mr. Horton's employment agreement also provides
for a base salary of $150,000 from SMTEK's acquisition date through June
30, 1996 and $150,000 for the fiscal year beginning July 1, 1996. This
base salary is to be reviewed annually by the Compensation Committee,
but is not to be adjusted downward without Mr. Horton's consent. Mr.
Horton is also eligible to receive annual bonus compensation ranging up
to 200% of his then-current base salary, although the Compensation
Committee has taken no action to make an award of any size. Such bonus
compensation is to be based in part on increases in the Company's
revenues and profits and upon the achievement of other objectives and
criteria as the Board may establish. Mr. Horton's employment is "at
will." Should he voluntarily resign or be terminated for cause, Mr.
Horton will not be entitled to severance pay. He is entitled to
severance pay equal to 167% of his annual base salary if he is
terminated without cause.
Also in January 1996, Richard K. Vitelle was appointed Vice
President-Finance and Administration, Treasurer and Chief Financial
Officer pursuant to an employment agreement with the Company. Mr.
Vitelle's employment agreement was renegotiated in September. His new
employment agreement provides for a base annual salary of $125,000. For
the fiscal year commencing July 1, 1996, he also is entitled to be paid
a cash bonus quarterly in arrears in an amount per annum equal to 30% of
such base annual salary. Pursuant to his new employment agreement, Mr.
Vitelle was granted a stock option with a stated term of ten years
covering 200,000 shares at $1.25 per share, which was the fair market
value on the grant date. Of such optioned shares, 50,000 became
exercisable on September 12, 1996, and 50,000 will become exercisable on
the next three anniversaries of such date, provided that Mr. Vitelle is
employed by the Company on the particular vesting date. As part of the
renegotiation of Mr. Vitelle's employment agreement, the options that he
held to purchase 185,000 additional shares were surrendered and annulled
and replacement incentive stock options were issued. The replacement
options were identical to the surrendered options in all respects,
except that the replacement options are exercisable at $1.25 per share.
Such options become exercisable in three equal annual installments on
January 25, 1997, 1998, and 1999, and their stated termination date is
September 12, 2006. Mr. Vitelle's employment is "at will." If his
employment is terminated by the Company for cause, then he is not
entitled to severance pay. However, he is entitled to twelve months'
base salary and benefits as severance if he is terminated by the Company
without cause, or if he is terminated as the result of a Change in
Control of the Company. A "Change in Control of the Company" would
include, among other things, any merger or consolidation of the Company
with or into any person other than an Affiliate, any sale of all or
substantially all the assets of the Company to any person other than an
Affiliate or the acquisition by any person other than the Company or an
Affiliate of 30% or more of the outstanding Common Stock. (The term
"Affiliate" includes any member of the 13D "group" identified in note
(1) to the "Principal Stockholders" table included in Item 12 below.)
In addition, if the principal place of Mr. Vitelle's employment is
relocated to any site beyond the 35-mile radius of the Company's present
headquarters, then he may resign at any time within the following twelve
months, whereupon he will be entitled to twelve months' severance
payments and benefits.
In December 1994, the Company entered into severance agreements
with each of M. Charles Van Rossen, then Chief Financial Officer for the
Company, and John F. Coyne, then President and Chief Operating Officer
of the Company. Under these agreements, if a participant's employment
were terminated other than for cause or voluntary resignation
("Involuntary Termination"), then he would be entitled to severance pay
in the form of monthly payments equal to his then-current monthly
salary, less applicable withholdings, and welfare benefits from his
termination date until the earlier of (i) the date on which he accepted
other full-time employment or (ii) 180 days following the date of
Involuntary Termination. Each agreement also provided that, for up to
one year after the occurrence of a "change in control" of the Company,
each participant would be entitled to the severance provisions of the
agreement upon voluntary resignation. Such a change in control was
triggered by events at the Company's May 31, 1995 annual stockholders
meeting.
Mr. Van Rossen's employment by the Company was terminated on
November 30, 1995. He received severance benefits through June 30, 1996
pursuant to his severance agreement.
Mr. Coyne resigned from his offices and employment with the Company
and its affiliates on May 31, 1996. Upon resigning, he promised to
assist the Company during a transitional period, not to exceed six
months in duration, in consideration of receiving the same salary per
annum and other benefits (excluding post-employment benefits) that he
had been receiving as Managing Director of DDL Europe, Ltd. The Company
also agreed to make a pension fund contribution of 10,000 British Pounds
Sterling on behalf of Mr. Coyne, to pay him 30,000 British Pounds
Sterling as severance and to continue for and to vest in him certain
fringe benefits, including transfer to him of title to his company car.
DIRECTOR COMPENSATION
Directors who are also employees of the Company receive no
additional compensation for serving on the Board. Directors who are not
also officers previously received $750 per month, $1,000 for each
meeting of the Board attended and $1,000 for attendance at each
Committee meeting not scheduled in conjunction with a meeting of the
Board. These fees were terminated as to all directors after July 31,
1995. No such amounts have been paid to the Company's directors elected
or appointed since the May 31, 1995 annual meeting of stockholders.
On July 11, 1996, the Company's stockholders approved the 1996 Non-
Employee Directors Stock Option Plan (the "Directors Plan"), which
provides for automatic yearly grants of non-qualified stock options to
purchase 30,000 shares of Common Stock to each eligible director serving
on the Board at the time of grant. A director is generally eligible to
receive grants under the Directors Plan if, at the grant date, he or she
is a member of the Board but is not and has not since the beginning of
the Company's most recently completed fiscal year been an employee of
the Company or any of its affiliates. Under the terms of the Directors
Plan, each option granted becomes exercisable six months after the grant
date. Each option grant as a ten-year term and permits the holder to
purchase shares at their fair market value on the grant date. Option
grants under the Directors Plan were made initially on July 15, 1996 to
each of Mses. Brenner and Strom and Messrs. Foster and Wilson.
Subsequent grants will be made on July 1 (or the first business day
thereafter) of each year so long as the Directors Plan remains in effect
and a sufficient number of shares are available for the granting of
options thereunder. The Directors Plan covers 900,000 shares of Common
Stock, including the 120,000 shares optioned in July 1996.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board administers the Company's
executive compensation programs and reviews and approves salaries of all
elected officers, including those of the named executive officers. The
Compensation Committee is also responsible for administering the
Company's stock option plans (except for the non-discretionary 1993
Non-Employee Directors Stock Option Plan) and for making incentive
awards. The Company's executive compensation programs are designed to:
- provide competitive levels of base compensation in order to
attract, retain and motivate high-quality employees;
- tie individual total compensation to individual performance
and the success of the Company; and
- align the interests of the Company's executive officers with
those of its stockholders.
Base Salary. Base salary is targeted to be moderate yet
competitive in relation to salaries commanded by those in similar
positions in comparable companies. Additional consideration is to be
made in the form of bonuses or stock options, the latter through
potential increases in the price of the Company's stock. The
Compensation Committee reviews management recommendations for
executives' salaries and examines survey data for executives with
similar responsibilities in comparable companies to the extent such data
is available. Individual salary determinations are based on experience,
sustained performance and comparison to peers inside and outside the
Company.
Incentive Compensation Program. The Company maintains an incentive
compensation program for substantially all officers and executives
designed to reward such individuals for their contributions to corporate
and individual objectives. In the past, this program has provided
additional compensation based on performance and profits of those
operations for which the various executives have responsibility. For
fiscal 1996, no amounts were paid to the Company's officers or
executives under this program due to cash constraints.
Stock Options. The Compensation Committee administers the
Company's 1993 Stock Incentive Plan and 1996 Stock Incentive Plan, which
are designed to align the interests of management and other key
employees with those of the Company's stockholders. The number of stock
options granted is related to the recipient's base compensation and
level of responsibility. To date, all options have been granted with an
option exercise price equal to the fair market value of the Common Stock
on the date of grant. The tables above set forth information concerning
options granted to named executives during fiscal 1996.
Because of the Company's financial condition and the importance of
conserving cash, the Company has tended to limit the level of cash
remuneration paid to executive officers and to increase the level of
stock option grants. Particularly during a period focused on
operational and financial turnaround, the Compensation Committee
believes that stock options closely align the objectives of management
and the stockholders and provide a balance given the limits placed on
cash remuneration. In the future, the Compensation Committee will
continue to evaluate cash and stock incentive compensation alternatives
to best achieve the objectives of the Company's executive compensation
program.
Compensation of Chief Executive Officer. On January 12, 1996,
Gregory L. Horton was appointed President and Chief Executive Officer of
the Company. Mr. Horton's compensation package is designed to focus his
efforts toward the objectives of (i) integrating the Company's existing
operations with those of SMTEK, which was acquired in January 1996, (ii)
strengthening the Company's existing European operations, (iii) making
the Company profitable and competitive as a technologically advanced
firm in its lines of business and (iv) developing and implementing a
growth strategy for the Company through internal operations and
acquisition alternatives. Mr. Horton's cash compensation was negotiated
with the Board and is described above under the caption "Employment
Agreements and Executive Severance Arrangements." In May 1996, Mr.
Horton was granted a stock option under the Company's 1993 Stock
Incentive Plan covering 90,000 shares. These options are exercisable at
$1.625, the fair market value on the grant date. The shares covered by
this option become exercisable in three equal installments on January
12, 1997 and on the next two anniversaries thereof. In June 1996, as an
additional incentive to Mr. Horton and in order to further align his
interests directly with the interests of the stockholders, Mr. Horton
was granted a stock option under the Company's 1996 Stock Incentive Plan
covering 310,000 shares at an exercise price of $1.75 per share. On
October 3, 1996, these options were repriced to $1.25 per share, which
was the fair market value of the stock on that date. These options
become exercisable in equal annual installments on the next three
anniversaries of the grant date. The number of shares underlying Mr.
Horton's options may change pursuant to certain anti-dilution provisions
of the option agreements.
Compensation of Acting or Interim Executive Officers. Since their
appointment after the May 31, 1995 annual stockholders meeting and
through the date of their resignations, none of the acting or interim
executive officers of the Company received cash compensation other than
reimbursement for out-of-pocket expenses incurred during the conduct of
their duties.
Submitted by the Compensation Committee:
Karen Beth Brenner, Melvin Foster,
Bernee D.L. Strom and Robert G. Wilson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Wilson was appointed to the Compensation Committee in June
1995. Ms. Strom was appointed to the Compensation Committee in February
1996. Ms. Brenner and Mr. Foster were appointed to the Compensation
Committee in July 1996. There are no interlocks between the Company and
other entities involving the Company's executive officer and directors
who serve as executive officers or directors of other entities.
STOCK PERFORMANCE GRAPH
The following performance table compares the cumulative total
return for the period from June 30, 1991 through June 30, 1996, from an
investment of $100 in (i) the Company's Common Stock, (ii) the Dow Jones
Industrials as a group and (iii) the Dow Jones Computer Industry group
of companies (the Company's peer group). For each group, an initial
investment of $100 is assumed on July 1, 1990. The total return
calculation assumes reinvestment of all dividends for the indices. The
Company did not pay dividends on its Common Stock during the time frame
set forth below.
(stock performance graph - omitted)
The data points depicted on the graph are as follows:
Dow Jones Dow Jones
Date Industrial Ave. Computer Index DDL Electronics
06/30/91 100.00 100.00 100.00
06/30/92 114.17 103.24 150.00
06/30/93 120.96 77.93 225.00
06/30/94 124.71 79.02 112.50
06/30/95 156.74 136.29 162.50
06/30/96 194.53 153.78 200.00
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of October 24, 1996, except as
otherwise indicated, the number of shares and percentage of outstanding
Common Stock known by the Company to be beneficially owned by (i) each
person who is known by the Company to own beneficially more than 5% of
the Company's outstanding Common Stock, (ii) each of the Company's
directors, (iii) each named executive officer and (iv) all executive
officers and directors of the Company as a group. Unless otherwise
noted, shares are held with sole voting and investment power.
Stockholdings include, where applicable, shares held by the spouses and
minor children, including shares held in trust.
Shares of Common Stock
Name and Address of ----------------------
Beneficial Owner* Number Percent of Class
---------------- -------- ----------------
Karen Beth Brenner 107,400 (1)(2) **
P.O. Box 9109
Newport Beach, CA 92658
Fortuna Advisors, Inc. 1,364,954 (1)(3) 5.9%
P.O. Box 9109
Newport Beach, CA 92658
Richard Fechtor 457,050 (1)(4) 1.9%
17 Emily Road
Framington, MA 01701
Fortuna Investment
Partners, L.P. 1,354,390 (1)(5) 5.9%
100 Wilshire Blvd.,
15th Floor
Santa Monica, CA 90401
Fortuna Capital
Management 150,000 (1)(6) **
100 Wilshire Blvd.,
15th Floor
Santa Monica, CA 90401
Ronald J. Vannuki 3,500 (1)(7) **
100 Wilshire Blvd.,
15th Floor
Santa Monica, CA 90401
Joseph Vannuki 64,409 (1)(8) **
100 Wilshire Blvd.,
15th Floor
Santa Monica, CA 90401
Robert G. Wilson 641,427 (1)(9) 2.8%
1917 W. 4th Avenue
Vancouver, British Columbia
V6J 1M7 Canada
Shares of Common Stock
Name and Address of ----------------------
Beneficial Owner* Number Percent of Class
---------------- -------- ----------------
John F. Coyne 83,332 (10) **
2 Dundanion Court
Black Rock
Cork, Ireland
M. Charles Van Rossen 17,500 (11) **
2110 SW Jefferson St.
Portland, OR 97201
Melvin Foster 259,500 (12) 1.1%
Bernee D.L. Strom 75,000 (13) **
Gregory L. Horton 1,000,000 (14) 4.3%
Richard K. Vitelle 55,000 (15) **
Directors and
Executive Officers
as a Group (6 persons) 2,128,327 (16) 9.1%
* Unless otherwise noted, the persons listed can be contacted at DDL
Electronics, Inc., 2151 Anchor Court, Newbury Park, CA 91320.
** Represents less than 1% of the outstanding shares.
(1) This information is based upon certain information provided to the
Company in connection with the preparation of a second amendment
(the "Group 13D") to the Schedule 13D dated February 23, 1995,
previously amended April 1, 1995. The Company has been advised
that the Group 13D is expected to be filed with the Securities
and Exchange Commission within the next two weeks. The Group 13D
states that the beneficial owner is a member of a "group," as
that term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), comprised of Karen
Beth Brenner, Fortuna Advisors, Inc., Richard Fechtor, Fortuna
Investment Partners, L.P. ("Fortuna Partners"), Fortuna Capital
Management, Ronald J. Vannuki and Joseph Vannuki. The members of
such group are said to own beneficially 4,068,130 shares of Common
Stock (17.4%) in the aggregate, of which 225,000 shares underlie
currently exercisable warrants and 88,284 represent shares
issuable upon the conversion of debentures.
(2) Of the shares beneficially owned by Ms. Brenner, 75,000 shares
underlie currently exercisable warrants. The Group 13D indicates
that this beneficial owner has sole voting and dispositive power
as to all 107,400 shares.
(3) Of the shares beneficially owned by Fortuna Advisors, Inc., 46,495
represent shares issuable upon the conversion of debentures. The
Group 13D indicates that this beneficial owner has no voting power
but shared dispositive power as to all 1,364,954 shares.
(4) The Group 13D indicates that this beneficial owner has sole voting
and dispositive power as to all 457,050 shares. Fechtor Detwiler &
Co., Inc., an investment banking firm in which Mr. Fechtor is a
shareholder and principal, beneficially owns warrants to purchase
250,000 shares of the Company's stock. Mr. Fechtor as an individual
does not have direct beneficial ownership or dispositive power over
these warrants, and accordingly the shares which underlie these
warrants are not included in Mr. Fechtor's total beneficial ownership
in this table.
(5) Of the shares beneficially owned by Fortuna Partners, 39,530
represent shares issuable upon the conversion of debentures. The
Group 13D indicates that Fortuna Partners has voting and dispositive
power as to all 1,354,390 shares which is shared with Fortuna Capital
Management, the general partner of Fortuna Partners.
(6) The shares beneficially owned by Fortuna Capital Management
underlie exercisable warrants to purchase 150,000 shares. Fortuna
Capital Management, whose President and sole shareholder is Ronald
J. Vannuki, also has shared voting and dispositive over the 1,354,390
shares beneficially owned by Fortuna Partners.
(7) The Group 13D indicates that this beneficial owner has sole voting
and dispositive power as to all 3,500 shares.
(8) Of the shares beneficially owned by Joseph Vannuki, 2,259
represent shares issuable upon the conversion of debentures. The
Group 13D indicates that this beneficial owner has sole voting and
dispositive power as to all 64,409 shares.
(9) Of the shares beneficially owned by Mr. Wilson, 75,000 shares
underlie currently exercisable warrants. Mr. Wilson's beneficial
ownership of 566,427 shares represents shares held in a brokerage
account over which Ronald J. Vannuki has dispositive power. Such
shares are included in the total Group 13D beneficial ownership,
even though the Company has been advised that Mr. Wilson is not
deemed to be a member of the Group. Mr. Wilson is also a partner
in the Fortuna Investment Partners L.P. investment fund, through
which he has an indirect interest in approximately 188,125 shares
of the Company. Mr. Wilson does not have direct beneficial
ownership or dispositive power over these shares, and accordingly
these shares are not included in Mr. Wilson's total beneficial
ownership in this table.
(10) The shares beneficially owned by Mr. Coyne underlie exercisable
options to purchase 83,332 shares.
(11) The shares beneficially owned by Mr. Van Rossen underlie presently
exercisable options to purchase 17,500 shares.
(12) Of the shares beneficially owned by Mr. Foster, 75,000 shares
underlie currently exercisable warrants.
(13) Represents shares which underlie currently exercisable warrants.
(14) Mr. Horton is the beneficial owner of 1,000,000 shares, with sole
voting and dispositive power as to all shares. He received such
shares as consideration for his stock ownership in SMTEK, which
was acquired by the Company on January 12, 1996.
(15) Of the shares beneficially owned by Mr. Vitelle, 50,000 shares
underlie currently exercisable options.
(16) Such shares include presently exercisable options and warrants to
purchase 350,000 shares.
Item 13. Certain Relationships and Related Transactions
On June 28, 1995, the Company entered into consulting agreements
with Fechtor, Detwiler & Co., Inc. ("Fechtor Detwiler") and Fortuna
Capital Management, Inc. ("Fortuna Capital"). Richard Fechtor,
principal with Fechtor Detwiler, and Ronald J. Vannuki, President of
Fortuna Capital and a general partner of Fortuna Partners, are also
principal stockholders of the Company and are members of the "group"
identified in note (1) to the "Principal Stockholders" table included in
Item 12 above. In April 1996, as compensation for the consulting
services provided pursuant these agreements and for consulting services
provided by Karen Beth Brenner, another principal stockholder of the
Company and a member of the aforementioned "group," such consulting
services having been rendered in connection with the Company's
acquisition of SMTEK, the Company issued warrants to Fechtor Detwiler,
Fortuna Capital and Ms. Brenner to purchase 250,000, 150,000 and 50,000
shares of Common Stock, respectively, at $2.25 per share. After June 30,
1998, the exercise price of these warrants is to be $3.50 per share
until the warrants expire on June 30, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1996 Annual
Report to
Stockholders
------
(a)(1) List of Financial Statements
List of data incorporated by reference:
Report of KPMG Peat Marwick LLP on consolidated
financial statements 12
Consolidated balance sheets as of June 30, 1996
and 1995 13
Consolidated statements of operations for the
years ended June 30, 1996, 1995 and 1994 15
Consolidated statements of cash flows for the
years ended June 30, 1996, 1995 and 1994 16
Consolidated statements of stockholders'
equity (deficit) for the years ended June 30,
1996, 1995 and 1994 17
Notes to consolidated financial statements 18
(a)(2) List of Financial Statement Schedules for the
years ended June 30, 1996, 1995 and 1994:*
VIII - Valuation and Qualifying
Accounts and Reserves 32
IX - Short-Term Bank Borrowings N/A
Form 10-K
-------
(a)(3) List of Exhibits:
Exhibit Index 27
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the quarter
ended June 30, 1996.
* Schedules other than those listed are omitted since they are
not applicable, not required, or the information required to be
set forth therein is included in the consolidated financial
statements or in the notes thereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on
October 28, 1996.
DDL ELECTRONICS, INC.
/s/ Gregory L. Horton
-----------------------
Gregory L. Horton
Chief Executive Officer,
President and Chairman
of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ Gregory L. Horton Chief Executive Officer, October 28, 1996
- ----------------------- President and Chairman ------------------
Gregory L. Horton of the Board
/s/ Richard K. Vitelle Vice President-Finance and October 28, 1996
- ----------------------- Administration, Chief ------------------
Richard K. Vitelle Financial Officer, Treasurer,
Secretary and Director
/s/ Karen B. Brenner Director October 28, 1996
- ----------------------- ------------------
Karen B. Brenner
/s/ Melvin Foster Director October 28, 1996
- ----------------------- ------------------
Melvin Foster
/s/ Robert G. Wilson Director October 28, 1996
- ----------------------- ------------------
Robert G. Wilson
Director
- ----------------------- ------------------
Bernee D. L. Strom
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3.1 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).
3.2 Bylaws of the Company, amended and restated effective March
1995 (incorporated by reference to Exhibit 3-b of the
Company's 1995 Annual Report on Form 10-K).
4.1 Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock of the Company
(incorporated by reference to Exhibit 4.2 of the Company's
Registration Statement on Form S-8, Commission File No. 33-7440).
4.2 Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock of the Company (incorporated by
reference to Exhibit 4.3 of the Company's Registration
Statement on Form S-8, Commission File No. 33-7440).
4.3 Indenture dated July 15, 1988, applicable to the Company's
8-1/2% Convertible Subordinated Debentures due August 1, 2008
(incorporated by reference to Exhibit 4-c of the Company's 1988
Annual Report on Form 10-K).
4.3.1 Supplemental Indenture relating to the Company's 8-1/2%
Convertible Subordinated Debentures due August 1, 2008
(incorporated by reference to Exhibit 4-b of the Company's
1991 Annual Report on Form 10-K).
4.4 Indenture relating to the Company's 7% Convertible
Subordinated Debentures due 2001 (incorporated by reference to
Exhibit 4-c of the Company's 1991 Annual Report on Form 10-K).
4.5 Rights Agreement dated as of June 10, 1989, between the
Company and Bank of America, as Rights Agent (incorporated by
reference to Exhibit 1 to the Company's Report on Form 8-K
dated June 15, 1989).
4.5.1 Amendment to Rights Agreement dated as of February 21, 1991,
amending the Rights Agreement dated as of June 10, 1989,
between the Company and Bank of America, as Rights Agent
(incorporated by reference to Exhibit 4.7 of Registration
Statement No. 33-39115).
4.6 Warrant Agreement for Series A Warrants 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).
4.6.1 Second Amendment to the Warrant Agreement for Series A
Warrants by and between the Company and the Transfer Agent
dated as of July 31, 1995 (incorporated by reference to
Exhibit 4-e of the Company's Registration Statement on Form
S-3, Commission File No. 333-02969).
4.7 Series C Warrant Agreement dated as of July 1, 1995 between
the Company and Fechtor, Detwiler & Co., Inc. covering 250,000
shares and expiring on June 30, 2000 (incorporated by reference to
Exhibit 4-f of the Company's Registration Statement on Form
S-3, Commission File No. 333-02969).
4.8 Series C Warrant Agreement dated as of July 1, 1995 between
the Company and Fortuna Capital Management covering 100,000
shares and expiring on June 30, 2000 (incorporated by reference to
Exhibit 4-g of the Company's Registration Statement on Form
S-3, Commission File No. 333-02969).
4.9 Series C Warrant Agreement dated as of July 1, 1995 between
the Company and Karen Brenner covering 50,000 shares and expiring
on June 30, 2000 (incorporated by reference to Exhibit 4-h of
the Company's Registration Statement on Form S-3, Commission
File No. 333-02969).
4.10 Series C Warrant Agreement dated as of July 1, 1995 between
the Company and Barry Kaplan covering 15,000 shares and expiring
on June 30, 2000 (incorporated by reference to Exhibit 4-k of
the Company's Registration Statement on Form S-3, Commission
File No. 333-02969).
4.11 Series D Warrant Agreement dated as of July 1, 1995 between
the Company and Charles Linn Haslam covering 250,000 shares
and expiring on June 30, 2000 (incorporated by reference to
Exhibit 4-i of the Company's Registration Statement on Form
S-3, Commission File No. 333-02969).
4.12 Form of Warrant and Contingent Payment Agreement for Series G
Warrants dated as of March 31, 1996 between the Company and
each of several former officers, key employees and directors
of the Company under various consulting agreements and
deferred fee arrangements covering an aggregate 595,872 shares
expiring on June 1, 1998 (incorporated by reference to Exhibit
4-l of the Company's Registration Statement on Form S-3,
Commission File No. 333-02969).
4.13 Form of Warrant Agreement for Series H Warrants dated July 1,
1995 among the Company and each of several current or former
non-employee directors covering an aggregate of 300,000 shares
expiring on June 30, 2000 (incorporated by reference to
Exhibit C of the Company's Proxy Statement for the fiscal 1995
Annual Stockholders Meeting).
4.14 Securities Purchase Agreement dated February 29, 1996
relating to the Company's 10% Senior Secured Notes due July 1,
1997 issued February 29, 1996 in the aggregate amount of
$5,300,000 ("Securities Purchase Agreement") (incorporated by
reference to Exhibit 4-m of the Company's Registration
Statement on Form S-3, Commission File No. 333-02969).
4.14.1 Form of 10% Senior Secured Notes due July 1, 1997 in the
aggregate amount of $5,300,000 ("10% Senior Secured Notes")
(incorporated by reference to Exhibit 10.1 filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996).
4.14.2 Form of Series E Warrant dated February 29, 1996 covering an
aggregate 1,500,000 shares and expiring on February 28, 2001
(incorporated by reference to Exhibit 4-n of the Company's
Registration Statement on Form S-3, Commission File No.
333-02969).
4.14.3 Form of Series F Warrant dated February 29, 1996 covering an
aggregate 1,060,000 shares and expiring on July 1, 1997,
exercisable in the event of default on the Company's 10%
Senior Secured Notes (incorporated by reference to Exhibit 4.14.3
filed with the Company's 1996 Annual Report on Form 10-K).
4.14.4 Registration Rights Agreement dated as of February 29, 1996
between the Company and Rickel & Associates, Inc. ("Rickel")
(incorporated by reference to Exhibit 4-o of the Company's
Registration Statement on Form S-3, Commission File No.
333-02969).
4.14.5 Registration Rights Agreement dated as of February 29, 1996
among the Company and each of the Purchasers referred to
therein (incorporated by reference to Exhibit 4-p of the
Company's Registration Statement on Form S-3, Commission File
No. 333-02969).
4.14.6 Pledge Agreement dated as of February 29, 1996 among Rickel,
First Union National Bank ("FUNB") and the Company
(incorporated by reference to Exhibit 4-q of the Company's
Registration Statement on Form S-3, Commission File No.
333-02969).
4.14.7 Collateral Agency Agreement dated as of February 29, 1996
among Rickel, each Purchaser under the Securities Purchase
Agreement, FUNB and the Company (incorporated by reference to
Exhibit 4-r of the Company's Registration Statement on Form
S-3, Commission File No. 333-02969).
4.14.8 Engagement Letter dated as of January 30, 1996 between Rickel
and the Company (incorporated by reference to Exhibit 4-s of
the Company's Registration Statement on Form S-3, Commission
File No. 333-02969).
4.15 Form of Offshore Securities Subscription Agreement and Form of
Debenture dated as of February 28, 1996 covering the offer and
sale under Regulation S of $3,500,000 aggregate amount of the
Company's 10% Cumulative Convertible Debentures due February
28, 1997 (incorporated by reference to Exhibit 10.2 filed with
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996).
4.16 Offshore Securities Subscription Agreement dated as of March
1, 1996 covering the offer and sale under Regulation S of 600,000
shares of the Company's Common Stock (incorporated by reference to
Exhibit 10.3 filed with the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996).
10.1 1985 Stock Incentive Plan (incorporated by reference to
Exhibit 4a of Registration Statement No. 33-3172).
10.2 1987 Stock Incentive Plan (incorporated by reference to
Exhibit 4a of Registration Statement No. 33-18356)
10.3 1991 General Nonstatutory Stock Option Plan (incorporated by
reference to Exhibit 10-cf of the Company's 1993 Annual Report
on Form 10-K).
10.4 1993 Stock Incentive Plan (incorporated by reference to
Exhibit 4.7 of the Company's Registration Statement on Form
S-8, Commission file No. 33-74400).
10.5 1996 Stock Incentive Plan (incorporated by reference to
Exhibit A of the Company's Proxy Statement for the fiscal 1995
Annual Stockholders Meeting).
10.6 1996 Non-Employee Directors Stock Option Plan (incorporated by
reference to Exhibit B of the Company's Proxy Statement for the
fiscal 1995 Annual Stockholders Meeting).
10.7 Form of Indemnity Agreement with officers and directors
(incorporated by reference to Exhibit 10-o of the Company's
1987 Annual Report on Form 10-K).
10.8 Standard Industrial Lease-Net dated August 1, 1984, among the
Company, Aeroscientific Corp., and Bradmore Realty Investment
Company, Ltd. (incorporated by reference to Exhibit 10-w of
the Company's 1990 Annual Report on Form 10-K).
10.8.1 Second Amendment to Lease among Bradmore Realty Investment
Company, Ltd., the Company and the Company's Aeroscientific
Corp. subsidiary, dated July 2, 1993 (incorporated by
reference to Exhibit 10-cd of Registration Statement No.
33-63618).
10.9 Standard Industrial Lease - Net dated October 15, 1992,
between L.N.M. Corporation-Desert Land Managing Corp. and the
Company's A.J. Electronics, Inc. subsidiary (incorporated by
reference to Exhibit 10.2 of the Company's Quarterly Report on
Form 10-Q for the quarter ended October 2, 1993).
10.10 Grant Agreement dated September 16, 1987 between Irlandus
Circuits Limited and the Industrial Development Board for
Northern Ireland ("IDB") (incorporated by reference to Exhibit
10.13 of the Company's Registration Statement No. 33-22856).
10.10.1 Agreement dated March 10, 1992 between Irlandus Circuits
Limited and the IDB amending the Grant Agreement dated
September 16, 1987, between Irlandus and the IDB (incorporated
by reference to Exhibit 10-br of the Company's 1992 Annual
Report on Form 10-K).
10.11 Grant Agreement dated August 29, 1989, between DDL Electronics
Limited and the IDB (incorporated by reference to Exhibit 10.29
of the Company's Registration Statement No. 33-39115).
10.11.1 Agreement dated May 2, 1996, between DDL Electronics Limited
and the IDB amending the Grant Agreement dated August 29,
1989, between DDL Electronics and the IDB (incorporated by
reference to Exhibit 10.11.1 filed with the Company's 1996 Annual
Report on Form 10-K).
10.12 Form of Land Registry for the Company's Northern Ireland
subsidiaries dated November 4, 1993 (incorporated by reference
to Exhibit 10.1 of the Company's Quarterly Report of Form 10-Q
for the quarter ended September 30, 1993).
10.13 Agreement for Purchase of Shares dated October 6, 1995 between
DDL Electronics, Inc., as buyer, and the shareholders of SMTEK
(incorporated by reference to Exhibit 99.1 filed with the
Company's Current Report on Form 8-K dated January 12, 1996).
10.14 Employment Agreement and Letter of Understanding and Agreement
dated October 15, 1995 between the Company and Gregory L.
Horton (incorporated by reference to Exhibit 99.2 filed with
the Company's Current Report on Form 8-K dated January 12,
1996).
10.15 Employment Agreement dated September 12, 1996 between the
Company and Richard K. Vitelle (incorporated by reference to
Exhibit 10.15 filed with the Company's 1996 Annual Report on
Form 10-K)
11 Statement re Computation of Per Share Earnings.*
13 Annual Report to security holders.*
21 Subsidiaries of the Registrant.*
23 Consent of KPMG Peat Marwick, LLP.*
27 Financial Data Schedule.*
99 Undertaking for Form S-8 Registration Statement.*
* These exhibits are incorporated by reference to the Company's
1996 Annual Report on Form 10-K filed on October 11, 1996.
