SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 2
(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, 1997
OR
[ ] 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.
______________________________
DELAWARE 33-0213512
_____________________________ _____________
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
_________________________
Registrant's Telephone Number: (805) 376-9415
_________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
_________________________ ________________________________________
Common Stock, $.01 Par Value New York Stock Exchange
Pacific 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 23, 1997 was $18,110,000. The registrant had 24,593,858
shares of Common Stock outstanding as of October 23, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Specified parts of the registrant's Annual Report to Stockholders for its
fiscal year ended June 30, 1997 are incorporated by reference into Parts I
and II hereof. Specified parts of the registrant's Proxy Statement for its
1997 Annual Meeting of Stockholders are incorporated by reference into Part
III hereof.
EXHIBIT INDEX
See page 24
AMENDMENT NO. 2 TO FORM 10-K
The purpose of this amendment is to add certain disclosures to Part I in the
section captioned Markets and Customers.
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. In fiscal 1996, the Company acquired
SMTEK, Inc. ("SMTEK") as the first step toward rebuilding a domestic
presence in the EMS industry.
RECENT DEVELOPMENTS
On May 29, 1997, the Company signed a letter of intent (the "Letter of
Intent") to merge with Century Electronics Manufacturing, Inc. ("CEMI").
Pursuant to the Letter of Intent, CEMI was to provide a loan up to $3.3
million to the Company by June 1, 1997 for retirement of the Company's 10%
Senior Secured Notes in the aggregate principal amount of $5,300,000 (the
"Senior Notes"). However, such financing was not made available by CEMI.
As a result, on June 30, 1997 the Company obtained alternate financing
which enabled it to repay its Senior Notes. On September 22, 1997, the
Company filed a lawsuit against CEMI in California, alleging breach of
contract and fraud and seeking $5,000,000 in actual damages plus punitive
damages. On October 14, 1997, CEMI filed a lawsuit of its own against the
Company in Massachusetts. Refer to Item 3 herein for a further description
of these legal proceedings.
The Company, with the authorization of its Board of Directors,
implemented a quasi-reorganization effective June 27, 1997. The quasi-
reorganization, which did not require the approval of the Company's
stockholders, resulted in an elimination of the accumulated deficit of
$23,678,000 by a transfer from additional paid-in capital of an equivalent
amount. This deficit was attributable primarily to operations which were
divested or discontinued in prior years. Following a review and evaluation
by management, no adjustment was made to the carrying values of the
Company's assets and liabilities because such amounts were deemed to be not
in excess of estimated fair values.
On June 30, 1997, in order to raise the balance of the funds necessary
to repay the Senior Notes, the Company borrowed $2 million from Thomas M.
Wheeler, a private investor, under a promissory note bearing 8% interest.
The note matures on February 1, 1999, and is secured by a pledge of the
common stock of SMTEK. The Company agreed to give Mr. Wheeler two seats on
its Board of Directors, which seats were filled by Mr. Wheeler and Charlene
A. Gondek. The Company also agreed to acquire all of the issued and
outstanding shares of Jolt Technology, Inc. ("Jolt"), a privately-held
electronics manufacturing company owned by Mr. Wheeler, Ms. Gondek and a
third individual, for nine million shares of the Company's common stock.
Upon consummation of the Jolt acquisition, the maturity date of the
$2,000,000 note payable will be extended from February 1, 1999 to October
31, 1999.
The Company is currently negotiating a definitive agreement and other
legal documents relating to its acquisition of Jolt. The specific terms of
such documents are subject to negotiation, and the closing of the Jolt
acquisition will be subject to many conditions, some of which are beyond
the Company's control, including obtaining a fairness opinion and
stockholder approval. There can be no assurance that the Jolt acquisition
will be completed on the terms described herein, or at all.
FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHICAL AREA
The Company is engaged in two lines of business -- electronic
manufacturing services and PCB fabrication. Information with respect to
these segments' sales, operating income, identifiable assets, depreciation
and amortization, and capital expenditures for each of the last three
fiscal years is set forth in Note 13 to the consolidated financial
statements of the 1997 Annual Report to Stockholders. Such information is
incorporated herein by reference and is made a part hereof.
ELECTRONIC MANUFACTURING SERVICES AND PRINTED CIRCUIT BOARD
FABRICATION BUSINESSES
The basis for the growth of the electronic manufacturing services
industry in recent years has been the increasing reliance by OEMs on
contract manufacturing specialists such as the Company for the manufacture
of printed circuit board assemblies. As a result of outsourcing
manufacturing services, the EMS industry in the United States grew at a
compound annual rate of 20% from 1990 through 1996, according to the
Institute for Interconnecting and Packaging Electronic Circuits ("IPC").
The IPC estimated the size of the United States EMS industry for 1996 in
terms of sales to be $13.5 billion. The Company expects the trend toward
outsourcing to continue and to result in continued growth in the EMS
industry.
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 79%, 67% and 47% of the Company's
consolidated sales for the fiscal years ended June 30, 1997, 1996 and 1995,
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 IPC 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 21%, 33% and 53% of the Company's consolidated
sales for the fiscal years ended June 30, 1997, 1996 and 1995,
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.
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
attained ISO 9001 certification in April 1997. In addition, 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.
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 $29,700 during fiscal 1997 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 1.6 million 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 1997 1996 1995
------------ ------------ ------------ ------------
Computer $ 4,322 8.8% $ 4,049 12.2% $ 7,115 24.1%
Telecommunications 7,103 14.5 4,189 12.6 6,926 23.4
Commercial avionics 9,702 19.8 2,277 6.9 - -
Space and satellites 2,065 4.2 949 2.9 - -
Banking automation 8,089 16.5 3,155 9.5 2,607 7.0
Industrial controls
& instrumentation 7,189 14.7 7,621 23.0 6,044 20.4
Medical 1,906 3.9 4,429 13.4 4,668 15.8
Defense 4,666 9.6 3,897 11.8 1,362 4.6
Other 3,877 8.0 2,569 7.8 1,394 4.7
------ ----- ------ ----- ------ -----
Total $48,919 100.0% $33,136 100.0% $29,576 100.0%
====== ===== ====== ===== ====== =====
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 1997, the Company's EMS and PCB businesses served
approximately 60 and 150 customers, respectively. The Company's five
largest customers accounted for 47%, 37% and 21% of consolidated sales
during fiscal years 1997, 1996 and 1995, respectively. In fiscal 1997 the
Company's two largest customers, Allied Signal, Inc. and De La Rue
International Limited, accounted for approximately 18.4% and 16.5% of
consolidated sales, respectively. While the loss of one of these
customers could be material if not promptly replaced by a customer of
similar size, it has been the Company's experience that even higher volume
customers can be replaced on a timely basis with no material adverse effect
on the Company. No other customer accounted for more than 10% of
consolidated sales during 1997. The Company has not entered into supply
agreements with these customers, nor have sales to these customers occurred
pursuant to a formal purchasing agreement.
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 Pentium
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 significant factor in the
EMS and PCB fabrication businesses. 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. Furthermore, 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 year 1995 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, 1997, 1996 and 1995, the Company's EMS and PCB fabrication
businesses had combined backlogs of $28,587,000, $17,669,000 and
$9,247,000, respectively. Backlog at June 30, 1997 and 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.
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.
Environmental Regulation
In the early 1970s, one of the Company's former California-based PCB
operating units, Aeroscientific Corp. ("Aero Anaheim"), disposed of certain
quantities of waste at the Stringfellow hazardous waste disposal site in
Riverside County, California, which was subsequently designated as a
Superfund site by the U.S. Environmental Protections Agency ("EPA"). Aero
Anaheim's waste accounted for less than three one-hundreds of one percent
of the total waste deposited at this site. Aero Anaheim, which since 1991
has been an inactive, insolvent subsidiary of the Company, established a
reserve of $120,000 as its share of the estimated environmental remediation
costs based on its relative contribution to the total wastes disposed at
this site. The EPA contends that site owners and operators and waste
generators are jointly and severally liable under federal law.
Nonetheless, the Company believes that the final allocation of liability
will generally be made based on relative contributions of waste.
Furthermore, even if joint liability were to be imposed, the Company
believes that the risk is remote that Aero Anaheim's ultimate liability in
this matter would exceed its reserve, because the other generators of
wastes disposed at the Stringfellow site include numerous companies with
assets and equity significantly greater than Aero Anaheim. The Company
believes that Aero Anaheim's reserve is adequate to cover future costs
associated with this matter.
The Company is aware of certain chemicals that exist in the ground at
Aero Anaheim's previously leased facility in Anaheim. The Company, which
was a guarantor of Aero Anaheim's facility lease, has notified the
appropriate governmental agencies and is proceeding with remediation and
investigative studies regarding soil and groundwater contamination. The
installation of water and soil extraction wells was completed in August
1994. In May 1995, the Company retained an environmental engineering firm
to begin the vapor extraction of pollutant from the soil and to perform
quarterly groundwater monitoring. In April 1997, the Company ceased soil
vapor extraction procedures at this site because the pollutant recovery
rate had declined to and stabilized at a very low level at which vapor
extraction is no longer a cost effective recovery technique. The property
owner is currently conducting a soil gas study at the site which is
expected to provide information as to the remaining contamination in the
soil. It is not yet known whether further soil remediation work will be
necessary. Investigative work to determine the full extent of potential
groundwater pollution has not yet been completed. Consequently, 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 could 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, 1997, the Company has paid $538,000 as its share of the
remediation costs (including cash placed in an escrow account for payment
of expenses). At June 30, 1997, the Company has a reserve of $564,000,
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 could differ significantly from the
estimates, and may exceed the amount of the reserve.
Employees
At June 30, 1997, the Company had approximately 500 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 $1,300,000 at June 30, 1997.
Item 3. Legal Proceedings
On May 29, 1997, the Company signed a letter of intent (the "Century
Letter of Intent") to merge with Century Electronics Manufacturing, Inc.
("CEMI"). Pursuant to the Century Letter of Intent, CEMI was to provide a
loan of up to $3.3 million to the Company by June 1, 1997 for retirement of
the Company's 10% Senior Secured Notes in the aggregate principal amount of
$5,300,000 (the "Senior Notes"). However, such financing was not made
available by CEMI. As a result, on June 30, 1997 the Company obtained
alternate financing which enabled it to repay its Senior Notes. On
September 22, 1997, the Company filed a lawsuit against CEMI in the
Superior Court of Ventura County, California, alleging breach of contract
and fraud and seeking $5,000,000 in actual damages plus punitive damages.
CEMI has not yet answered the Company's complaint or made an appearance in
the case. On October 14, 1997, however, CEMI filed a lawsuit of its own
against the Company in the Superior Court of Middlesex County,
Massachusetts. In the Massachusetts action, CEMI asserts that the Company
failed to provide collateral acceptable to CEMI to secure CEMI's loan and
that the Company engaged in unfair and deceptive acts which deprived CEMI
of the opportunity to merge with a publicly traded company. CEMI's lawsuit
seeks $10,000,000 plus punitive damages. The Company believes CEMI's
lawsuit is without merit and plans to contest CEMI's claims vigorously.
The Company's prosecution of the California action and its defense of the
Massachusetts action are both subject to all of the risks, costs and
uncertainties associated with litigation, including legal fees and
expenses, disruption of executive schedules and focus, the possibility that
the Company may be called upon to satisfy a judgment and the possibility
that the Company will be unable to realize proceeds from any judgment that
it may obtain.
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 1997 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 1997 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 1997 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 1997 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 Amendment No. 1 to the Company's Registration Statement
on Form S-3 filed with the Securities and Exchange Commission on October
24, 1997 (Registration No. 333-31349).
Item 8. Financial Statements and Supplementary Data
Reference is made to the financial statements 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 1997 Annual Meeting:
Melvin Foster Principal and attorney, Melvin 71 1995
Foster & Associates, Boston,
Massachusetts
Robert G. Wilson Director, Brandevor Enterprises, 53 1995
Ltd., Amusements International,
Ltd. and Stamford Resources, Ltd.
Class II Directors to Continue in Office Until the 1997 Annual Meeting:
Charlene A. Gondek Director, Jolt Technology, Inc., 36 1997
a privately held electronic
manufacturing services company
Gregory L. Horton Chief Executive Officer, 41 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 President, Fortuna Advisors Inc., 44 1996
an investment advisory firm;
director, Krug International Corp.
and Creative Bakeries, Inc.
Richard K. Vitelle Vice President-Finance and 44 1996
Administration, Chief Financial
Officer, Treasurer and Secretary,
DDL Electronics, Inc.
Thomas M. Wheeler President, TMW Enterprises, 70 1996
Inc., an investment holding
company
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 a Class I Director subsequent to the May 31,
1995 annual stockholders meeting. Mr. Wilson is a member of the Audit and
Compensation Committees of the Board of Directors. He is also chief
financial officer and a director of Brandevor Enterprises, Ltd., a Toronto
Stock Exchange listed company, a director of Amusements International Ltd.,
an Alberta Stock Exchange listed company, and a director of Stamford
Resources, Ltd., a Canadian public company.
Ms. Gondek was appointed a Class II Director on June 30, 1997, and
serves as a member of the Compensation Committee of the Board of Directors.
Ms. Gondek is a director and shareholder of Jolt Technology, Inc. and
served as president of this privately held company from 1992 to 1996.
Refer to "Certain Relationships and Related Transactions" for additional
information concerning Jolt Technology, Inc.
Mr. Horton became the Company's President and Chief Executive Officer
in January 1996, following the Company's acquisition of SMTEK, Inc. He was
appointed a Class II Director in February 1996, and was appointed Chairman
of the Board in July 1997. He has also served as the President and Chief
Executive Officer of SMTEK, Inc. since 1986.
Ms. Brenner was appointed a Class III Director of the Company in July
1996, and serves as a member of the Audit Committee and 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 operated from 1984 to 1995. Ms.
Brenner is also a director of Krug International Corp. and Creative
Bakeries, Inc., both Nasdaq-traded companies.
Mr. Vitelle was appointed Vice President, Chief Financial Officer and
Treasurer in January 1996, and was elected a Class III Director 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.
Mr. Wheeler was appointed a Class III Director on June 30, 1997, and
serves as a member of the Audit Committee and Compensation Committee. From
1970 until 1995, Mr. Wheeler was the founder, chairman of the board and
sole stockholder of Electro-Wire Products, Inc., a manufacturer of
automotive electrical power distribution systems. Since 1995, Mr. Wheeler
has been president of TMW Enterprises, Inc., a private investment holding
company. Since 1992, he has also been a director and shareholder of Jolt
Technology, Inc. Refer to "Certain Relationships and Related Transactions"
for additional information concerning Jolt Technology, Inc.
Bernee Strom, who was elected a Class II Director in May 1995,
resigned from the Board of Directors effective June 30, 1997.
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 Securities and
Exchange Commission 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 the fiscal year ended June 30, 1997, the Company believes that
all Section 16(a) filing requirements applicable to its statutory insiders
during or for such fiscal year were satisfied.
Item 11. Executive Compensation
EXECUTIVE COMPENSATION TABLE
The following table sets forth the cash compensation paid or accrued
by the Company, as well as certain other compensation, for its fiscal years
ended June 30, 1997, 1996 and 1995 to each of the Company's executive
officers whose compensation exceeded $100,000 for the fiscal year ended
June 30, 1997:
Long-Term
Name and Annual Compensation Compensation
Principal -------------------------- Awards:
Positions (1) Year Salary(2) Bonus Other Options (#)
-------------- ---- ------ ----- ----- -------
Gregory S. Horton 1997 $150,000 $97,000 (3) 100,000
Chairman, President and 1996 69,000 24,000 (3) 400,000
Chief Executive Officer 1995 -0- -0- -0-
Richard K. Vitelle 1997 $123,000 $37,000 (3) 200,000
VP Finance & Admin., 1996 50,000 -0- (3) 185,000
CFO and Secretary 1995 -0- -0- -0-
(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 and Chief Financial
Officer on January 25, 1996.
(2) Amounts shown include compensation earned and received by each
named executive officer, as well as amounts earned but not paid
until after the end of the fiscal years indicated.
(3) Total perquisites did not exceed the lesser of $50,000 or 10% of
the executive's salary and bonus.
OPTION GRANTS IN FISCAL YEAR ENDED JUNE 30, 1997
<TABLE>
The following table sets forth information concerning options granted to
each of the named executive officers during fiscal 1997:
<CAPTION>
Potential Realizable
% of Total Value at Assumed
Options Annual Rates of Stock
Granted to Exercise Price Appreciation
Employees or Base for Option Term
Options in Fiscal Price Expiration ---------------
Name Granted Year ($/Sh.) Date 5% 10%
-------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gregory L. Horton 100,000 5.8% $1.00 04/01/07 $ 63,000 $159,000
Richard K. Vitelle 200,000 11.5% $1.25 09/12/06 $157,000 $398,000
</TABLE>
AGGREGATED OPTION EXERCISES IN FISCAL 1997 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, 1997:
Number of
Securities Value of
Underlying 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 -0- -0- 130,000/370,000 $ 6,000/$ -0-
Richard K. Vitelle -0- -0- 111,666/273,334 $ -0- /$ -0-
(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, 1997 of $1.06
per share less the applicable option exercise price.
<TABLE>
<CAPTION>
TEN-YEAR OPTION REPRICINGS
Number of Exercise Length of
Securities Market Price Price at Original
Underlying of Stock at Time of Option Term
Options Time of Repricing New Remaining
Repriced or Repricing or or Exercise at Date of
Amended Amendment Amendment Price Repricing or
Name Date (#) ($) ($) ($) Amendment
------ ------ ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Gregory L. Horton 10/03/96 310,000 1.25 1.75 1.25 9 yrs 9 mos
Richard K. Vitelle 09/12/96 85,000 1.25 1.63 1.25 9 yrs 8 mos
09/12/96 100,000 1.25 1.75 1.25 9 yrs 9 mos
</TABLE>
EMPLOYMENT AGREEMENTS AND EXECUTIVE SEVERANCE ARRANGEMENTS
On January 12, 1996, Gregory L. Horton was appointed President and
Chief Executive Officer of the Company pursuant to an employment
agreement dated October 16, 1995. Mr. Horton's employment agreement
provides for a base salary of $150,000, subject to annual reviews of the
Compensation Committee, and annual bonus compensation ranging up to 200%
of his base salary. 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 20 months' base salary if he is terminated without
cause. In May 1997, the Compensation Committee awarded Mr. Horton a
cash bonus of $60,000 for the period from January 1996 to March 1997,
and a cash bonus of 30% of his base salary for the period from April
1997 to March 1998. The Compensation Committee also approved a special
cash incentive payment to Mr. Horton of $50,000 which he became entitled
to receive when the Company repaid its 10% Senior Secured Notes in the
aggregate amount of $5.3 million on June 30, 1997.
Effective January 25, 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 1996 to
provide for a base annual salary of $125,000 and for a fiscal 1997 cash
bonus of 30% of such base salary. Pursuant to the September 1996
employment agreement, Mr. Vitelle was granted a stock option covering
200,000 shares at $1.25 per share, which was the fair market value on
the grant date. 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 12 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. 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 12 months, whereupon he will be entitled to 12
months' severance payments and benefits.
DIRECTOR COMPENSATION
Directors do not receive cash compensation for their services on
the Company's Board of Directors except for reimbursement of travel
expenses.
Pursuant to the 1996 Non-Employee Directors Stock Option Plan (the
"Directors Plan"), annually on July 1 each non-employee director is
automatically granted, without further action by the Board, a stock
option to purchase 30,000 shares of the Company's Common Stock. The
exercise price per share of all options granted under the Director Plan
is equal to 100% of the fair market value of the Common Stock at the
time of grant. Under the terms of the Directors Plan, each option
granted becomes exercisable six months after the grant date. Each
option grant has a ten-year term. In July 1996 options covering a total
of 120,000 shares were granted to four non-employee directors at an
option price of $1.63 per share, and in July 1997 options covering a
total of 150,000 shares were granted to five non-employee directors at
an option price of $1.06 per share.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the
"Committee") administers the Company's executive compensation programs
and reviews and approves salaries of the executive officers named in the
Executive Compensation Table. The Committee is also responsible for
administering the Company's stock option plans (except for the non-
discretionary 1996 Non-Employee Directors Stock Option Plan) and 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. The Committee reviews management's
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, achievement of goals and objectives, sustained
performance and comparison to peer level positions outside the Company.
Incentive Compensation Program. Incentive compensation for the
Company's executive officers is designed to reward such individuals for
their contributions to corporate and individual objectives. In
addition, the Company's three operating units maintain profit sharing
plans under which operating unit managers and other key employees
receive incentive cash compensation based on the performance and pre-tax
profits of those operations. The Company's executive officers named
above do not participate in these operating unit profit sharing plans.
Stock Options. The Committee administers the Company's 1993 and
1996 Stock Incentive Plans, 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, level of responsibility and
accomplishments. All options have been granted with an option exercise
price equal to the fair market value of the Company's common stock on
the date of grant. The tables above set forth information concerning
options granted to named executives during fiscal 1997.
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.
Repricing of Stock Options. In September 1996, in connection with
the renegotiation of Richard Vitelle's employment agreement, and in
order to retain the services of this key employee, the Compensation
Committee lowered the exercise price for 185,000 options held by Mr.
Vitelle to $1.25, which options were originally granted in May and June
1996 at exercise prices ranging from $1.63 to $1.75. The new exercise
price was equal to the fair market value on the date of repricing.
In October 1996, in order to retain the services of other key
employees of the Company, the Compensation Committee lowered the
exercise price of 669,000 stock options held by 25 employees from $1.75
to $1.25, the fair market value on the date of repricing. These
repriced options included 310,000 options held by Gregory Horton.
Compensation of Chief Executive Officer. Gregory L. Horton was
appointed President and Chief Executive Officer of the Company in
January 1996. 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 for 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, which
become exercisable in equal installments on the three anniversaries of
the grant date. As indicated above, the exercise price of these options
was lowered to $1.25 in October 1996. In April 1997, Mr. Horton was
granted a stock option for 100,000 shares which are exercisable in full
from the grant date at a price of $1.00 per share, the fair market value
on the date of grant. The number of shares underlying Mr. Horton's
options may change pursuant to certain anti-dilution provisions of the
option agreements.
Submitted by the Compensation Committee:
Karen Beth Brenner, Melvin Foster,
Charlene A. Gondek, Thomas M. Wheeler
and Robert G. Wilson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Wilson was appointed to the Compensation Committee in June
1995. Ms. Brenner and Mr. Foster were appointed to the Compensation
Committee in July 1996. Ms. Gondek and Mr. Wheeler were appointed to
the Compensation Committee effective June 30, 1997. None of these
individuals were officers or employees of the Company during fiscal
1997. Mr. Wilson served as Interim Vice President of the Company from
June 1995 until January 1996. There are no interlocks between the
Company and other entities involving the Company's executive officers
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, 1992 through June 30, 1997, 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 Index group of
companies (the Company's peer group). For each group an initial
investment of $100 is assumed on June 30, 1992. 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
Industrial Dow Jones DDL
Date Average Computer Index Electronics
------- ------- ------ ------
06/30/92 100.00 100.00 100.00
06/30/93 105.95 75.48 150.00
06/30/94 109.23 76.54 75.00
06/30/95 137.29 132.01 108.33
06/30/96 170.40 148.95 133.33
06/30/97 231.66 230.88 75.00
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of October 10, 1997 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
---------------- -------- ----------------
Fortuna Investment
Partners, L.P. 900,230 (1)(2) 3.7%
100 Wilshire Blvd.,
15th Floor
Santa Monica, CA 90401
Ronald J. Vannuki 153,500 (1)(3) **
100 Wilshire Blvd.,
15th Floor
Santa Monica, CA 90401
Richard Fechtor 578,550 (1)(4) 2.4%
17 Emily Road
Framington, MA 01701
Fortuna Advisors, Inc. 968,638 (1)(5) 3.9%
1300 Bristol St. #230
Newport Beach, CA 92658
Karen Beth Brenner 132,400 (1)(6)(8) **
P.O. Box 9109
Newport Beach, CA 92658
Joseph Vannuki 64,409 (1)(7) **
100 Wilshire Blvd.,
15th Floor
Santa Monica, CA 90401
Melvin Foster 279,500 (8) 1.1%
Charlene A. Gondek -0- (9) --
Gregory L. Horton 1,058,333 (10) 4.3%
Richard K. Vitelle 166,666 (11) **
Thomas M. Wheeler -0- (9) --
Robert G. Wilson 557,727 (8) 2.3%
Directors and
Executive Officers
as a Group (7 persons) 2,194,626 (12) 8.7%
* 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 a Schedule 13D dated October 18,
1996, filed with the Securities and Exchange Commission, and upon
information subsequently provided to the Company. Such Schedule
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 Fortuna
Investment Partners, L.P., a California limited partnership;
Fortuna Capital Management, Inc., general partner and
discretionary investment advisor of Fortuna Investment Partners,
L.P.; Ronald J. Vannuki as sole shareholder and president of
Fortuna Capital Management, Inc.; Richard Fechtor as an
individual; Fortuna Advisors, Inc., an investment management and
advisory firm; Karen Beth Brenner with respect to shares of common
stock held or beneficially owned by her and as sole shareholder
and president of Fortuna Advisors, Inc.; and Joseph Vannuki as an
individual. The members of this group are beneficial owners of
2,797,727 shares of the Company (11.2%) in the aggregate.
(2) The Schedule 13D filed by the beneficial owner indicates that the
beneficial owner has shared voting and dispositive power as to all
900,230 shares. Amount includes 39,530 shares underlying the
Company's 8-1/2% convertible subordinated debentures. Mr. Vannuki
is the managing director of the general partner of this limited
partnership.
(3) The Schedule 13D filed by the beneficial owner indicates that the
beneficial owner has sole voting power and dispositive power as to
3,500 shares. Amount includes 150,000 shares underlying the
Company's Series C common stock purchase warrants.
(4) The Schedule 13D filed by the beneficial owner indicates that the
beneficial owner has sole voting and dispositive power as to all
578,550 shares.
(5) The Schedule 13D filed by the beneficial owner indicates that the
beneficial owner has no voting power and shared dispositive power
as to 922,143 shares. Amount includes 46,495 shares underlying
the Company's 8-1/2% convertible subordinated debentures.
(6) The Schedule 13D filed by the beneficial owner indicates that the
beneficial owner has sole voting and dispositive power as to
27,400 shares.
(7) The Schedule 13D filed by the beneficial owner indicates that the
beneficial owner has sole voting and dispositive power as to
62,150 shares. Amount includes 2,259 shares underlying the
Company's 8-1/2% convertible subordinated debentures.
(8) Amount includes 30,000 shares underlying exercisable options and
75,000 shares underlying exercisable warrants.
(9) On June 30, 1997, the Company agreed to acquire Jolt Technology,
Inc. ("Jolt"), a privately held company, for nine million shares
of DDL common stock, subject to the approval of the Company's
stockholders. Ms. Gondek and Mr. Wheeler, who are shareholders
of Jolt, will receive 1.8 million and 6.3 million shares of DDL
common stock, respectively, upon consummation of this transaction.
(10) Includes options for 133,333 shares that are or will be
exercisable within 60 days of October 10, 1997.
(11) Includes options for 161,666 shares that are or will be
exercisable within 60 days of October 10, 1997.
(12) Includes options for 384,999 shares that are or will be
exercisable within 60 days of October 10, 1997.
Item 13. Certain Relationships and Related Transactions
On June 30, 1997, the Company borrowed $2 million from Thomas M.
Wheeler, a private investor, under a note payable bearing 8% interest.
The note matures on February 1, 1999, and is secured by a pledge of the
common stock of SMTEK. The Company agreed to give Mr. Wheeler two seats
on its Board of Directors, which seats were filled by Mr. Wheeler and
Charlene A. Gondek. As a condition to obtaining the $2 million loan
from Mr. Wheeler, the Company also agreed to acquire all of the issued
and outstanding shares of Jolt Technology, Inc. ("Jolt"), a privately-
held electronics manufacturing company owned by Mr. Wheeler, Ms. Gondek
and a third individual, for nine million shares of the Company's common
stock. The acquisition of Jolt is subject to negotiating a definitive
merger agreement, obtaining a fairness opinion, and obtaining approval
of the Company's stockholders. Upon consummation of the Jolt
acquisition, the maturity date of the $2,000,000 note payable will be
extended from February 1, 1999 to October 31, 1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1997 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, 1997
and 1996 13
Consolidated statements of operations for the
years ended June 30, 1997, 1996 and 1995 15
Consolidated statements of cash flows for the
years ended June 30, 1997, 1996 and 1995 16
Consolidated statements of stockholders'
equity (deficit) for the years ended June 30,
1997, 1996 and 1995 17
Notes to consolidated financial statements 18
(a)(2) Financial Statement Schedules
The financial statement schedules are omitted
because they are either not applicable or the
information is included in the notes to
consolidated financial statements.
Form 10-K
-------
(a)(3) List of Exhibits:
Exhibit Index 24
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
(b) Reports on Form 8-K:
On June 11, 1997, a Form 8-K was filed regarding a letter of intent
entered into on May 29, 1997 with Century Electronics Manufacturing,
Inc. providing for the merger of Century with and into a wholly-owned
subsidiary of DDL.
On June 12, 1997, a Form 8-K was filed regarding the sale of 2,000,000
shares of Common Stock to a group of private investors.
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
June 4, 1998.
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, June 4, 1998
- ----------------------- President and Chairman ------------------
Gregory L. Horton of the Board
/s/ Richard K. Vitelle Vice President-Finance and June 4, 1998
- ----------------------- Administration, Chief ------------------
Richard K. Vitelle Financial Officer, Treasurer,
Secretary and Director
/s/ Karen B. Brenner Director June 4, 1998
- ----------------------- ------------------
Karen B. Brenner
/s/ Melvin Foster Director June 4, 1998
- ----------------------- ------------------
Melvin Foster
Director
- ----------------------- ------------------
Charlene A. Gondek
Director
- ----------------------- ------------------
Thomas M. Wheeler
Director
- ----------------------- ------------------
Robert G. Wilson
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
2.1 Jolt Technology Inc. Acquisition Term Sheet dated June 30, 1997
(incorporated by reference to Exhibit 2.1 filed with the
Company's 1997 Annual Report on Form 10-K).
2.2 Letter of intent dated as of May 29, 1997 between the Company and
Century Electronics Manufacturing, Inc. concerning a possible
merger (incorporated by reference to Exhibit 10.1 of the
Company's Current Report on Form 8-K filed on June 11, 1997).
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 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).
4.7 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).
4.8 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).
4.9 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).
4.10 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).
4.11 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).
4.12 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).
4.15 Common Stock Purchase Agreement dated as of June 3, 1997 covering
the sale of 2,000,000 shares of Common Stock to a group of
private investors (incorporated by reference to Exhibit 4.1 of
the Company's Current Report on Form 8-K filed on June 12, 1997).
4.16 Debt Term Sheet dated June 30, 1997 between the Company and Thomas
M. Wheeler (incorporated by reference to Exhibit 4.16 filed with
the Company's 1997 Annual Report on Form 10-K).
4.16.1 Secured promissory note dated June 30, 1997 in the principal amount
of $2 million between the Company and Thomas M. Wheeler
(incorporated by reference to Exhibit 4.16.1 filed with the
Company's 1997 Annual Report on Form 10-K).
4.16.2 Collateral Security Stock Pledge Agreement dated June 30, 1997
between the Company and Thomas M. Wheeler (incorporated by
reference to Exhibit 4.16.2 filed with the Company's 1997 Annual
Report on Form 10-K).
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 Business Financing Agreement dated August 21, 1996 between SMTEK,
Inc. and Deutsche Financial Services Corporation (incorporated by
reference to Exhibit 10 of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 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
1997 Annual Report on Form 10-K filed with the Securities and
Exchange Commission on October 10, 1997.
